E-Procurement in the Organizational Performance: Business case of Export based Textile industry

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INTERDISCIPLINARY JOURNAL OF CONTEMPORARY RESEARCH IN BUSINESS

COPY RIGHT © 2011 Institute of Interdisciplinary Business Research 1

MAY 2011

VOL 3, NO 1

Interdisciplinary Journal of Contemporary Research in Business

Double Blind Peer Reviewed Journal

Institute of Interdisciplinary Business Research~ IIBR INTERNATIONAL RESEARCH CENTRE

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IJCRB

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ISSN 2073-7122

Vol .3, No. 1

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MAY 2011

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Editorial Board IJCRB is a peer reviewed Journal and IJCRB Editorial Board consists of Phd doctors from all

over the world including USA, UK, South Africa, Canada, European and Asian countries.

Prof. Renee Pistone Harvard University, Lifetime Fellow - Harvard URI.

706 McCormick Dr Toms River, New Jersey USA

Voice: 732.668.4533

Lord David K

Oxford University , St Catherine's College, Oxford, OX1 3UJ www.stcatz.ox.ac.uk/ ,

www.ox.ac.uk/ Phone: +44 1865 271700 , Fax: +44 1865 271768

Dr. Kenan Peker

Department of Agricultural Economics, University of Selcuk, http://www.selcuk.edu.tr/

University of Selcuk, 42079 Konya, Turkey, Tel: 90-332-231-2877

Dr. A. Sathiyasusuman

Senior Lecturer, Dept. of Statistics, University of the Western Cape, South Africa

Dr Mahdi Salehi

Assistant Professor, Accounting and Management Department, http://www.znu.ac.ir/

Zanjan University , D.N 1 Nagilo Alley, Hidaj City, Zanjan Province, Zanjan, Iran ,

Tel: 98-9121-425-323

Dr Heryanto

Regional Development Bank of West Sumatra

Jalan Pemuda No. 21 PO Box 111 Padang 25117 West Sumatra Indonesia

Tel: +62-8126771699

Dr. Dave Hinkes

Assistant Professor of Managment & Marketing

Sam Walton Fellow , Lincoln Memorial University , Harrogate, TN ,UK Tel 423.869.6441

Dr. Francis A. Ikeokwu

Sr., Ph.D., MAC, MBA, CFC

Adjunct Professor, American Intercontinental University http://www.aiuniv.edu/

Dr Charles C. Dull

Sr. MBA, Ph.D.

American Intercontinental University http://www.aiuniv.edu/

http://www.ox.ac.uk/

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MAY 2011

VOL 3, NO 1

Dr Cara Peters

Assistant professor of marketing , Winthrop University , Rock Hill, South Carolina.

PhD in business administration , University of Nebraska

Peer-reviewer of the Journal of Consumer Psychology; Consumption, Markets, and Culture; and

Journal of Academy of Marketing Science.

Dr Mahmoud M. Haddad

PhD in Finance

214 Business Administration Building

University of Tennessee-Martin ,Martin, TN 38238 Tel No +1731-881-7249

Dr G.A. Abu

Department of Agricultural Economics, College of Agricultural Economics, Extension and

Management Technology, University of Agriculture, P.M.B.2373, Makurdi, Benue State,

Nigeria. Phone: +234-803-607-4434; fax: +234-44-534040

Dr.Rashid Rehman

Associate Professor , College of Business Studies

Al Ghurair University , Dubai, UAE.

Dr Ebrahim Soltani

Lecturer in Operations Management

Kent Business School University of Kent , UK

Dr Pu Xujin

Business School, Jiangnan University,

Jiangsu Wuxi,P.R.China ,214122

Tel: (86510) 85913617 , FAX: (86510) 62753617 , Mobile: (86) 13616193600

Dr. E. B. J. Iheriohanma

Ph. D. Sociology

Directorate of General Studies, Federal University of Technology, Owerri Imo State Nigeria.

Tel +2348037025980.

Dr Etim Frank

Departmentof Political Science-University of Uyo-Akwa Ibom State-Nigeria

Phd (Political Science/Public Administration) University of Calabar

SL Choi

University Teknologi Malaysia

School of Business Management Southern College Malaysia

Dr. Nek Kamal Yeop Yunus

Senior Lecturer, Department of Business Management

Faculty of Business & Economics, Universiti Pendidikan Sultan Idris, Tanjong Malim,

Malaysia.

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MAY 2011

VOL 3, NO 1

Dr. S. I. Malik

PhD Bio Chemistry & Molecular Biology (National University of Athens)

NHEERL. Envrironmental carcinigenei division

RTP Complex NC 27713, US Environmental protection Agency , 919-541-3282

Dr. Bhagaban Das

Reader, Department of Business Management Vyasa Vihar, Balasore-756019 Orissa

T. Ramayah http://www.ramayah.com

Associate Professor , School of Management ,University Sains Malaysia,

Tel 604-653 3888

Dr. Wan Khairuzzaman bin Wan Ismail

Assoc. Professor International Business School, UTM International Campus

Jalan Semarak 54100 Kuala Lumpur, MALAYSIA

Zainudin Hj Awang

Faculty of Information Technology and Quantitative Sciences, MARA University Technology

MARA Kelantan 18500, Malaysia ,Tel: 60-9-9762-302

Ravi Kiran Associate Professor, School Of Management & Social Sciiences, Thapar University.

Dr.Suguna Pathy

Head, Department of Sociology, VNSG University, Surat

Birasnav M

Assistant professor, Park Global School of Business Excellence, Kaniyur, Coimbatore

Dr. C.N. Ojogwu

Phd Education Management - University of Benin, Benin City, Edo state, Nigeria.

Senior lecturer - University of Benin.

Dr. Nik Maheran Nik Muhammad General Conference Co-Chair, GBSC 2009, www.nikmaheran.com

Dr. A. Abareshi Lecturer, School of Business IT and Logistics

RMIT University, Melbourne, Australia

Office: +61 3 99255918

Dr Ganesh Narasimhan

Lecturer, Management Sciences ,Sathyabama University

Board of Advisor - AN IIM Alumina Initiative & International Journal Economics, Management,

& Financial Markets Denbridge press, New York, USA

http://www.gmx.com/fm07/cgi/derefer?TYPE=2&DEST=http%3A%2F%2Fwww.nikmaheran.com

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MAY 2011

VOL 3, NO 1

UK CHAPTER: CANTERBURY , KENT , CT2 , 7PE , UNITED KINGDOM

SOUTH AFRICA CHAPTER: WESTERN CAPE , PRIVATE BAG X17, BELLVILLE 7535 , SOUTH AFRICA

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MAY 2011

VOL 3, NO 1

Contents Title Page

A STUDY OF LECTURERS‘ JOB SATISFACTION IN SELECTED 17

HARBIN CITY UNIVERSITIES, CHINA

Jiang Na, Ismail Hussein Amzat, Jaber Hassan Abolhaija

THE PROPOSED CRITERIA FOR EGYPTIAN COMMERCIAL CREDIT RISK 40

MANAGEMENT AND DESCRIPTION OF A MODEL FOR MEASURING THESE RISKS

Dr. Marwan M. Shammot, Dr. Mohamed Mohamed Atta

EXPLORATORY FACTOR ANALYSIS: VALIDATION 64

OF MATHEMATICAL VALUES INCULCATION MODEL AMONG SECONDARY

SCHOOLS‘ MATHEMATICS TEACHERS IN NORTH-EASTERN REGION, NIGERIA

Mukhtar Alhaji Liman, Muhammad Burhan Ibrahim, Shittu, Ahmed Tajudeen

THE ROLE OF RISK MANAGEMENT IN STIMULATING 73

STAKEHOLDERS INVESTMENT IN INSURANCE INDUSTRY

Dr Festus M Epetimehin , Oluwayomi Ekundayo

DETERMINANT OF INCENTIVE FACTORS IN KNOWLEDGE SHARING 83

Ali Reza Heydari ,Hamed Armesh ,Saied Behjatie, Mahmoud Manafi

THE MEASUREMENT OF USER SATISFACTION ON MALAYSIAN 96

METEOROLOGICAL DEPARTMENT ONLINE INFORMATION SERVICES

Faizal Haini Fadzil , Mohammad Fazli Baharuddin

ECONOMIC CRISIS AND ITS IMPACT ON JOB MOTIVATION 105

AND JOB SECURITY: A CASE OF BANKING SECTOR

Muhammad Jawad Iqbal, Mohammadghorban Mehri

THE ROLE OF GOOD GOVERNANCE IN FIGHTING AGAINST CORRUPTION 115

AND FINANCIAL CRIMES

Freyedon Ahmadi, Golamhosain Homauni

TRAFFIC MANAGEMENT, A SOCIAL CONCERN 137

Danish Iqbal Raina, Shahid Mushtaq

SURVEY RELATIONSHIP BETWEEN OCB AND ORGANIZATIONAL 148

CULTURE IN GENERAL INSPECTION ORGANIZATION IN IRAN

Seyed Ali Akbar Ahmadi, Freyedon Ahmadi, Golamhosain Homauni

NEW PRODUCT DEVELOPMENT PROCESSES 158

A CASE STUDY OF APPLE‘S SUCCESS WITH ICONIC IPOD AND IPHONE

Muhammad Tariq , Rabia Ishrat, Hashim Khan

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MAY 2011

VOL 3, NO 1

Title Page

DOES DISCLOSURE QUALITY REDUCE DEFAULT RISK? 170

EMPIRICAL EVIDENCE FROM PAKISTAN

Zahid Irshad Younas, Dr. Muhammad Wasif Siddiqi, Jamshaid ur Rehman

Bilal Mehmood

SCREENING FOR DEPRESSION IN THE COMMUNITY BY 180

LADY HEALTH WORKERS.

Farooq Naeem, Zahid Javed, Nadia Arshad, Aneesa Bandial, Muhammad Mujtaba,

Mozzam Khalil, Muhammad Ayub

MUTUAL FUND‘S GROWTH AND PROSPECTS IN PAKISTAN 189

Hassan Mobeen Alam , Mamoona Rafique, Saba Farooq, Muhammad Akram

ORGANIZATIONAL KNOWLEDGE FORMATION PROCESS, 210

ORGANIZATIONAL LEARNING AND HUMAN RESOURCE DEVELOPMENT

Hassan Mobeen Alam , Dr. Mubbsher Munawar Khan & Muhammad Khyzer Bin Dost

IMPACT OF ORGANIZATIONAL STRUCTURE AND TIME ON EFFICIENCY: 222

EVIDENCE FROM PAKISTAN

Hassan Mobeen Alam

SMS ADVERTISING: YOUTH ATTITUDE TOWARDS PERCEIVED 230

INFORMATIVENESS, IRRITATION AND CREDIBILITY.

Faria Muzaffar, Sohail Kamran

ORGANIZATIONAL STRATEGIC LIFE CYCLE WITH SYSTEM 246

DYNAMICS PERSPECTIVE

Bahman Hajipour , Mohammadreza Zolfagharian, Maysam Chegin

DEVELOPMENT OF ISLAMIC BANKING IN PAKISTAN 261

Hassan Mobeen Alam , Muhammad Arslan, Muhammad Saleem,

Hassan Raziq &Abdul Aleem

ENTREPRENEURIAL SKILLS ENHANCE THE ACHIEVEMENT 277

LEVEL OF SCHOOL LEADERS

Farah Naz, Farhat Munir , Abida Khalid , Ijaz Ahmed

EMPIRICAL ANALYSIS OF DETERMINANTS OF DIVIDEND 289

PAYOUT: PROFITABILITY AND LIQUIDITY

Muhammad Adil, Nousheen Zafar, Noman Yaseen

A PARADIGM SHIFT IN SOCIAL WORK IN PAKISTAN 301

Zahid Javed , Muhammad Arshad, Aliya Khalid

FFIINNAANNCCIIAALL FFAACCTTOORRSS IINN CCAAPPIITTAALL SSTTRRUUCCTTUURREE DDEECCIISSIIOONNSS:: PPAANNEELL DDAATTAA 331100

AANNAALLYYSSIISS OOFF PPAAKKIISSTTAANN‘‘SS MMAAJJOORR MMAANNUUFFAACCTTUURRIINNGG SSEECCTTOORRSS

Farah Riaz, Dr. Muhammad Afzal

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MAY 2011

VOL 3, NO 1

Title Page

COMPARISON OF THE MULTIPLE INTELLIGENCES OF THE STUDENTS 327

WHOSE MOTHERS‘ ARE ILLITERATE AND GRADUATE

Gulap Shahzada , Dr. Safdar Rehman Ghazi, Habib Nawaz

Fayyaz Khan, SaifUllah

IMPACT OF CORPORATE GOVERNANCE ON FINANCIAL PERFORMANCE: 335

EVIDENCE FROM TEXTILE INDUSTRY OF PAKISTAN.

Dr. Mubbsher Munawar Khan, Zia-ur-Rehman, M. Khyzer Bin Dost, Mubashra Mumtaz

RATIONALE AND PROCLIVITY OF SALES PROMOTION INFLUENCING 346

THE IMPULSIVE BUYING BEHAVIOR OF THE CUSTOMERS: AN

EXPERIMENTAL STUDY ON CELLULAR SERVICE PROVIDERS IN PAKISTAN

Dr. Mubbsher Khan, Zia-ur-Rehman Khizer Bin Dost

TRACING CONSUMER ANIMOSITY LITERATURE FOR 363

PREDICTING NEGATIVE CONSUMER RESPONSE

Dr. Mubbsher Munawar Khan

WEBSITE QUALITY OF HIGHER EDUCATION WEBSITES: YOUNG 370

USER‘S PERCEPTION

Dr. Sayyid Salman Rizavi, Dr Mubbsher Munawar Khan

Sayyid Haider Mustafa Rizavi

EFFECTIVENESS OF FOREIGN AID IN THE LIGHT OF MILLENNIUM 377

DEVELOPMENT : GOAL ON THE EDUCATION SECTOR: A CASE

STUDY OF PAKISTAN

Muhammad Khalid Rashid, Mumtaz Anwar

BIS: AUTOMATED INFORMATION SYSTEM FOR KNITTING IN TEXTILE 390

M. Shakeel Faridi , Zahid Javed , Fahad Jaan, Tasleem Mustafa ,

Chaudhry. Muhammad Nadeem Fasial

ANALYZING DEVELOPMENT IN IRAN INDUSTRIAL PRODUCTIVITY 395

DURING 4TH

DEVELOPMENT PLAN BY NUMERICAL TAXONOMY

Mohsen Fathi Almas, Taranoosh Jafari

ROLE OF EMOTIONAL INTELLIGENCE ON THE RELATIONSHIP 409

AMONG LEADERSHIP STYLES, DECISION MAKING STYLES

AND ORGANIZATIONAL PERFORMANCE: A REVIEW

Rana Rashid Rehman

ARE EQUITY MARKETS EFFICIENT? EVIDENCE FROM 417

EMERGING ECONOMY

Syed Kashif Saeed, Shahid Mehmood Sargana, Usman Ayub

ORGANIZATIONAL CLIMATE: STIMULATING CREATIVITY 429

AND IDEA GENERATION FOR DISCOVERY OF INNOVATIVE SOLUTIONS

Jahanzeb Shah , Dr. Bakhtiar Ali

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MAY 2011

VOL 3, NO 1

Title Page

TRIANGULAR RELATIONSHIP AMONG POVERTY, INCOME 448

INEQUALITY AND GROWTH IN PAKISTAN: 1973-2006

Muhammad Usman, ,Saima Sarwar, Bilal Mehmood

EMPIRICAL RELATIONSHIP BETWEEN CORRUPTION AND POVERTY: 462

A CASE STUDY OF PAKISTAN

Muhammad Gulzaib Chaudhary, Saima Sarwar

IMPACT OF MACRO-ECONOMIC FACTORS ON STOCK PRICES 472

Aima khan, Hira Ahmad, Zaheer Abbas

FRUITS OF STATE‘S FINANCIAL LIBERALIZATION 484

IN JAPAN AND KOREA, LESSONS FOR PAKISTAN.

Dr. Nasir Karim, Syed Muhammad Taqi, Dr. Ayaz Khan

E-PROCUREMENT IN THE ORGANIZATIONAL PERFORMANCE: 494

BUSINESS CASE OF EXPORT BASED TEXTILE INDUSTRY

Salman Khalid, Shahbaz Ahmad, Muhammad Zohaib Irshad

CONTROL MECHANISMS IN NON-FINANCIAL CORPORATIONS 503

Shama Sadaqat, Nadeem Ayub Bhutta, Farah Adnan

Muhammad Farhan Akhtar, Khizer Ali

MONEY SUPPLY & STOCK MARKET PRICES: A STUDY 515

ON KARACHI STOCK EXCHANGE

Qurat-Ul-Ain Zafar, Mahira Rafique, Dr. Zaheer Abbas

TRADE FLOW FACTORS & CAPITAL ACCOUNT: 522

A STUDY OF ECONOMIC GROWTH IN SAARC COUNTRIES

Ms. Nishwa iqbal, Ms. Shazia Iqbal Khalid, Mohammad Nisar, Dr. Zaheer Abbas

BUSINESS PROCESSES REENGINEERING IN THE ISLAMIC REPUBLIC 531

OF IRAN CUSTOMS ADMINISTRATION (A CASE STUDY IN ZAHEDAN

CUSTOMS ORGANIZATION )

Dr. Badrodin Orei Yazdani, Dr. Habibollah Salarzehi, Mohsen Shahbeigi

OBSCURITY and AMBIGUITY in IGBO ORAL TRADITION 542

Mrs Ekwutosi Onwukwe

AFFORDABLE HOUSING DELIVERY IN NIGERIA SOME FUNDAMENTAL 549

CHALLENGES.

Arc. Ikechukwu Onyegiri

BALANCE OF PAYMENTS, EXCHANGE RATE REGIME AND 558

MONETARY POLICY

Dr. Saqib Gulzar, Khuram Shafi

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MAY 2011

VOL 3, NO 1

Title Page

CLOUD COMPUTING: SMES ISSUES AND UGI BASED 564

INTEGRATED COLLABORATIVE INFORMATION SYSTEM TO

SUPPORT PAKISTANI TEXTILE SMES

Chaudhry Muhammad Nadeem Faisal, Engr. Muhammad Khalil Azher

Engr. Babar Ramzan, Muhammad Sheraz Arshad Malik

PSYCHOLOGICAL CONTRACT BREACH AND WORK PLACE 574

DEVIANCE: MODERATING ROLE OF RELATIONAL CONTRACT

Muahammad Farooq Hussain, Muahammad Farhan Younas,Numan Ahmed

Adil Humyaun, Rizwan-ul-haq, Fahim-ul-noor, Hassan Yameen

DOMESTIC AND MACRO ENVIRONMENTAL 587

SOURCES OF STRESS TO THE NIGERIAN WORKERS

Nkwam C. Uwaoma

COMPARATIVE STUDY OF ENGLISH TEACHER‘S BEHAVIOR OF PUBLIC 594

AND PRIVATE SCHOOL‘S AS PERCEIVED BY THEIR STUDENTS.

Liaquat Hussain, Muhammad Abrar Khan Sadozai, Khuda Bakhsh Malik

RELATIONSHIP BETWEEN THE JOB SATISFACTIONS OF ELEMENTARY 600

SCHOOL TEACHERS WITH THEIR TEACHING BEHAVIOR

Liaquat Hussain, Muhammad Abrar Khan Sadozai, Khuda Bakhsh Malik

SURVEY OBSTACLES OF IMPLEMENTATION OF ELECTRONIC 607

COMMERCE IN TRANSPORT INDUSTRY

Freyedon Ahmadi, Zahra Avajyan

EXPLORING THE CASUAL RELATIONSHIPS BETWEEN ORGANIZATIONAL 618

CITIZENSHIP BEHAVIOR, ORGANIZATIONAL AGILITY AND PERFORMANCE

Freyedon Ahmadi

MEASUREMENT OF ORGANIZATIONAL CITIZENSHIP BEHAVIOR (OCB) IN 628

GENERAL INSPECTION ORGANIZATION IN IRAN

Freyedon Ahmadi, Seyed Ali Akbar Ahmadi, Golamhosain Homauni

SURVEY AND STUDY ANTI-CORRUPTION STRATEGIES IN IRAN 635

Freyedon Ahmadi, Zahra Avajyan

SURVEY RELATIONSHIP BETWEEN ORGANIZATIONAL 644

ENTREPRENEURSHIP AND SOCIAL CAPITAL IN PUBLIC SECTOR IN IRAN

Freyedon Ahmadi

QUALITY MANAGEMENT OF TECHNOLOGY RELATED SERVICES FOR 653

STUDENT SATISFACTION AT PRIVATE UNIVERSITIES OF PAKISTAN

Ms. Seema Arif, Ms. Maryam Ilyas

WORKPLACE FRIENDSHIPS AND ORGANIZATIONAL OUTCOMES 667

Pakeeza, Mohammad Haris, Dr. Muhammad Sajjad

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MAY 2011

VOL 3, NO 1

Title Page

KNOWLEDGE ENGINEERING: HOW TO DESIGN KNOWLEDGE 680

BASED E-RECRUITMENT PORTAL USING COMMONKADS

Chaudhry Muhammad Nadeem Faisal, Inam Illahi

Engr. Sajid Hussain, Muhammad Sheraz Arshad Malik

A STUDY OF OWNER‘S INHERITED FACTORS AFFECTING 712

ENTREPRENEURIAL ORIENTATION IN KHYBER PAKHTUNKHWA-PAKISTAN.

HafizUllah,Dr. Bahadar Shah Dean, Muhammad Kaleem

AN EMPIRICAL STUDY OF ANALYZING CUSTOMER SATISFACTION 726

TOWARDS SERVICE QUALITY IN ISLAMIC BANKS OF SARGODHA, PAKISTAN.

Rizwan Ahmad Ch. & Usman Asif

REVISIONING SAARC 734

Dr. Muhammad Saleem Mazhar,Naheed S. Goraya,Jafar R. Kataria

IMPACT OF MODERNIZATION ON THE SOCIAL STATUS OF AGED 746

Jafar R. Kataria, Mughees Bin Aziz

ANALYZING EMPIRICAL RELATIONSHIP BETWEEN TRADE 754

OPENNESS, INDUSTRIAL VALUE ADDED AND ECONOMIC GROWTH:


Nazima Ellahi, Dr. Hafiz Zahid Mehmood

Prof Dr. Mehboob Ahmad, Naveed Azim Khattak

PROBLEMS FACED BY SCIENCE TEACHERS AT 764

SECONDARY LEVEL IN DISTRICT KARAK

Prof Dr. Rabia Tabbssum, Dr. Muhammad Imran, Dr. Ali Murtaza

Dr Muhammad Naseer Ud Din

ROLE OF BOADCAST M EDIA IN DISTANCE EDUCATION 773

Dr. Ali Murtaza, Prof Dr. Rabia Tabbssum, Dr. Muhammad Imran

PROBLEMS FACED INTO THE USE OF 784

INFORMATION TECHNOLOGY IN DISTANCE EDUCATION

Dr. Ali Murtaza, Dr. Syed Shafqat Ali Shah


ATTITUDE OF UNIVERSITY STUDENTS TOWARDS ETHNIC PREJUDICE 794

S. Farhana Kazmi, Tahir Pervez, , Nagina Bano

MERGERS AND ACQUISITIONS: AN IMPACT ON FINANCIAL 804

PERFORMANCE. (A CASE STUDY OF STANDARD CHARTERED BANK-PAKISTAN)

Dr. Nasir Karim, Amjad Ameen, Dr Muhammad Ayaz

http://www.answers.com/topic/pakhtunkhwa

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MAY 2011

VOL 3, NO 1

Title Page

AN INVESTIGATION OF INFLUENCE OF LOCAL EVENTS ON 814

PERFORMANCE OF KARACHI STOCK EXCHANGE 100 INDEX

Dr. Ashfaq Ahmad , Dr. Mumtaz Ali, Asad Afzal Humayoun

IMPACT OF UNCERTAINTY CAUSED BY INTERNATIONAL 823

EVENTS ON KARACHI STOCK EXCHANGE

Dr. Ashfaq Ahmad , Dr. Sadia Rafi, Dr. Mahmood Ahmad Bodla

ASSESSING THE TRAINING TRANSFER IN NATIONAL INSTITUTES 832

OF MANAGEMENT (NIM) OF PAKISTAN: A PROPOSED RESEARCH STRATEGY

Muhammad Kaleem, Dr. Abdul Qaiyum Khan, Hafizullah

MICROFINANCE INDUSTRY IN PAKISTAN – CHALLENGES AND 845

OPPORTUNITIES

Dr. Rehman Gul Gilal, Muhammad Masihullah Jatoi

Rahim Bux Soomro

IMPACT OF STAFF TRAINING ON CUSTOMER SATISFICATION USING 853

SERVQUAL MODEL: A CASE STUDY OF RETAIL BANKS OF PAKISTAN

Rahim Bux Soomro, Muhammad Masihullah Jatoi, Dr. Rehman Gul Gilal

EXAMING THE IMPACT OF HUMAN RESOURCES MANAGEMENT (HRM) 865

PRACTICES ON EMPLOYEES‘ PERFORMANCE

A CASE STUDY OF PAKISTANI COMMERCIAL BANKING SECTOR

Rahim Bux Soomro, Dr. Rehman Gul Gilal, Muhammad Masihullah Jatoi

STOCK MARKET REACTIONS DUE TO ANNOUNCEMENTS OF 878

CONSUMER PRICE INDEX AND THE INVESTIGATION OF ENDOGENEITY

Dr. Muhammad Imtiaz Subhani, MS. AMBER OSMAN

PROFESSIONALISATION OF ELT IN SAUDI ARABIA 885

Dr Intakhab Alam Khan

ASSOCIATION BETWEEN HUMAN CAPITAL AND PHYSICAL CAPITAL 896

FORMATION IN PAKISTAN: A DISINTEGRATED TIME SERIES ANALYSIS

Muhammad Amir, Bilal Mehmood, Dr. Muhammad Wasif Siddiqui, Saima Sarwar

RELATIONSHIP MARKETING IN MICROFINANCE INDUSTRY: A 904

PAKISTAN PERSPECTIVE

Dr. Rehman Gul Gilal, Muhammad Masihullah Jatoi , Rahim Bux Soomro

TIMELINESS ATTRIBUTES AND THE EXTENT OF ACCOUNTING 915

DISCLOSURE: A STUDY OF BANKING COMPANIES IN BANGLADESH

Dr. Alim Al Ayub Ahmed , Dr. Madan Mohan Dey, Dr. Waheed Akhter, Mr. Ali Raza

PERCEPTION OF ADVERTISEMENT AS A SOURCE OF KNOWLEDGE 926

ON CONSUMING BEHAVIOR OF UNIVERSITY STUDENTS

Aneeza Bashir, Najma Iqbal Malik

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MAY 2011

VOL 3, NO 1

Title Page

THE RELATIONSHIP BETWEEN THE LEADERSHIP STYLES OF HEADS OF 940

DEPARTMENTS AND ACADEMIC STAFF'S SELF-EFFICACY IN A SELECTED

MALAYSIAN ISLAMIC UNIVERSITY

Ismail Hussein Amzat, Ali Khamis Ali

THE DEMOGRAPHICS IMPACT OF OWNER ON ENTREPRENEURIAL 965

ORIENTATION: EVIDENCE FROM KHYBER PAKHTUNKHWA-PAKISTAN.

Hafiz Ullah, Dr. Bahadar Shah , Dr. Najeeb Ullah Khan

COMPARATIVE SIGNIFICANCE OF THE FOUR PERSPECTIVES 981

OF BALANCED SCORECARD Zafar Ahmed, Zulfiqar Ahmed, Muhammad Musarrat Nawaz

Khyzer Bin Dost, Muhammad Asim Khan

THE RELATIONSHIP OF EMOTIONAL INTELLIGENCE WITH THE 994

STUDENTS‘ACADEMIC ACHIEVEMENT

Gulap Shahzada , Dr. Safdar Rehman Ghazi

Abdullah Khan, Habib Nawaz Khan, M. Tahir Shah

ENFORCEMENT OF FOREIGN ARBITRATRAL AWARDS AND POSSIBLE 1002

DEFENSES: CHALLENGES AND OPPORTUNITIES FOR PAKISTAN

Naeem Ullah Khan , Samee Ozair Khan

IMPACT OF MANUFACTURING INDUSTRY ON ECONOMIC GROWTH IN 1021

CASE OF PAKISTAN: A KALDORIAN APPROACH

Khizra Safadr Khan , Dr. M. Wasif Siddiqi

PRINCIPALS‘ LEADERSHIP STYLES AND THEIR IMPACT ON SCHOOLS‘ 1038

ACADEMIC PERFORMANCE AT SECONDARY LEVEL IN

KHYBER PAKHTOONKHWA, PAKISTAN

Muhammad Javed Sawati, Saeed Anwar, Dr. Muhammad Iqbal Majoka

ASSESSING EFFECTIVENESS OF SOCIAL MEDIA AND TRADITIONAL 1049

MARKETING APPROACHES IN TERMS OF COST AND TARGET SEGMENT

COVERAGE

Muhammad Tariq , Fazal Wahid

THE EFFECTS OF PEER TEACHING IN ACADEMICS ACHIEVEMENT LEVEL 1075

OF STUDENTS IN SUBJECT OF CHEMISTRY AT SCONDARY LEVEL IN PAKISTAN

Shafqat Hussain Jameel Akhtar , Zahid Basher, Serwat Mobeen

STATUS OF PAKISTANI HALAL MEAT EXPORT AND FORECASTING IT`S 1081

EXPORT REVENUE, IMPLICATIONS AND OPPORTUNITIES

Rana Muhammad Ayyub , Muhammad Bilal

MODELING RICE PRODUCTION IN PAKISTAN 1093

Rana Muhammad Ayyub , Muhammad Bilal


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MAY 2011

VOL 3, NO 1

Title Page

COMPARATIVE ANALYSIS OF NBP & MCB PERFORMANCE UNDER 1105

CAMELS MODEL

Minhoon Khan Laghari, Dr. Amant Ali A Jalbani, Iram Rani

THE IMPACT OF POLITICAL EVENTS ON LAHORE STOCK EXCHANGE 1128

DURING 2003-2009

Lubna Ali, Komal Daniel, Dr. Qais Aslam, Manal Talat, Zafar Ahmed

RELATIONSHIP BETWEEN THE FAMILY BACKGROUND AND SCHOOL 1141

BEHAVIOR AT PRIMARY SCHOOL LEVEL.

Fehmida, Liaquat Hussain, Allah Noor Khan, Shehla Sheikh

ATTITUDE OF GOMAL UNIVERSITY TEACHERS TOWARD PRE-STEP 1147

PROGRAMME OF H.E.C

Allah Noor Khan, Liaquat Hussain, Fehmida, Shehla Sheikh

RISK FACTORS OF LOW BACK PAIN AMONG RURAL & URBAN 1160

AREAS OF PAKISTAN.

Dr.Muhammad Naveed Babur, Dr.Waqar Ahmed Awan

A STUDY OF FACTORS EFFECTING CUSTOMER CITIZENSHIP BEHAVIOR 1169

Abbas , Abbasi , Hasan , Safarnia , Mehdi, Baradaran , Rasoul.Abbasi

MEDIA INFLUENCE ON MARKETING COMMUNICATIONS 1191

Ms.Ume-Amen

CORPORATE CITIZENSHIP, IDENTITY AND IMAGE MANAGEMENT: 1217

A FUNCTIONAL APPROACH IN PROMOTING CORPORATE

GOVERNANCE IN BANKS

Okorie Nelson, Oyewole Oyedayo Sharon

LIQUIDITY SQUEEZE AND THE REAL SECTOR OF THE NIGERIAN 1225

ECONOMY: A THEORETICAL EXPOSITION

OJEKA, Stephen A. AJAYI Anijesushola Olusegun

AN ANALYSIS OF PREVENTIVE HEALTH CARE IN PAKISTAN 1237

Ahsan Ali Mangi, Hafeez ur Rehman, Imtiaz Ahmed

WAR OF INDEPENDENCE 1857: LESSONS FOR PRESENT SITUATION 1249

OF SOUTH ASIA

Dr. Muhammad Saleem Mazhar, Mussarat Jabeen

HEALTH-RELATED QUALITY OF LIFE ASSESSMENT IN PATIENTS 1259

WITH HEPATITIS: A CASE OF PAKISTAN

Masood Sarwar Awan, Muhammad Waqas, Muhammad Amir Aslam, Faisal Abbas

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Title Page

STUDY OF MARKET EFFICIENCY: FACTS FROM PAKISTANI MARKET 1269

Abdul Hafeez Qureshi, Dr.Babar Zaheer Butt, Umbreen Sharif, Muhammad Bilal

ANALYSIS OF MERGERS AND ACQUISITION IN BANKING SECTOR 1280

OF PAKISTAN

Abdul Hafeez Qureshi , Umbreen Sharif, Dr.Babar Zaheer Butt, Muhammad Bilal

RELATIONSHIP BETWEEN POPULATION CHANGES AND POVERTY: 1292

EVIDENCE FROM DERA ISMAIL KHAN KHYBER PAKHTUNKHWA(PAKISTAN)

Muhammad Nadeem, Shehla Sheikh, Allah Noor Khan, Fehmida Bibi

DOES LEARNING OF SCIENCE EDUCATION AT SCHOOL LEVEL MATTERS? 1302

Dr. Saeed-ul-Hasan Chishti, Shaheen Ashraf Tahirkheli

Ijaz Mehmood, Shahinshah Babar Khan

CORPORATE SOCIAL RESPONSIBILITY IN PAKISTAN 1308

Shahid Jan, Qadar Bakhsh Baloch

AN EMPIRICAL STUDY ON FACTORS INFLUENCES THE EMPLOYEES 1332

TOWARDS ORGANIZATIONAL COMMITMENT IN A PRIVATE SECTOR

ORGANIZATION IN INDIA

P. Na .KANCHANA, Dr. N. Panchanatham,

GLOBALIZATION AND EFFECTS; A STUDY ON THE EFFECTS OF 1344

GLOBALIZATION IN THE SOCIETY

Farhad Nezhad Haj Ali Irani , Mohammad Reza Noruzi

IMPACT OF MONETARY POLICY ON GROSS DOMESTIC PRODUCT (GDP) 1348

Irfan Hameed, Ume-Amen

PUBLIC TRANSPORT : AN INFERIOR GOOD-A CASE STUDY OF LAHORE 1362

Maryam Wasif, Ghias-ul-Haq

THE EFFECTS OF JOB SATISFACTION ON PRODUCTIVITY: ORANGE 1377

TELECOMMUNICATION COMPANY ON JORDAN: CASE STUDY

Mohammad. T. Bataineh,

DETERMINANTS OF FIRM GROWTH: AN EMPIRICAL EXAMINATION 1389

OF SMES IN GUJRANWALA, GUJRAT AND SIALKOT DISTRICTS.

Khizra Safadr Khan, Dr. M. Wasif Siddiqi

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Title Page

THE DETERMINANTS OF EXPORT PERFORMANCE: EVIDENCE FROM 1410

SMALL ENGINEERING UNITS IN GUJRANWALA, GUJRAT AND

SIALKOT DISTRICTS.


ROLE OF LIGHT ENGINEERING SECTOR IN POVERTY REDUCTION 1431

AMONGST ITS EMPLOYEES. A CASE STUDY OF GUJRANWALA, GUJRAT

AND SIALKOT DISTRICTS.


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A STUDY OF LECTURERS‟ JOB SATISFACTION IN SELECTED

HARBIN CITY UNIVERSITIES, CHINA

Jiang Na

Faculty of Education, Department of Educational Management, Planning & Policy,

University of Malaya.

Ismail Hussein Amzat



Jaber Hassan Abolhaija



Abstract

This study examines the level of job satisfaction among lecturers in the field of teaching Chinese

as a foreign language (TCFL) in two universities in Harbin city, China. The instrument used for

the research methodology was a modified version of the Job Descriptive Index (JDI)

questionnaire with items on demographic factors, the work itself, co-workers, supervision /

supervisor, income, opportunities for promotion and overall job satisfaction. The data was

analyzed using the Statistical Package for the Social Sciences (SPSS) version 16.0 through

frequency counts, T-test and Analysis of Variance (ANOVA). The result of the study indicates

that TCFL lecturers are satisfied with the work itself, their co-workers and supervision, but are

not satisfied with the income and opportunities for promotion. There is no significant difference

between male and female TCFL lecturers with respect to satisfaction on five job factors. TCFL

lecturers with PhD degrees have higher job satisfaction than lecturers with a bachelor‘s and

master‘s degree. Lecturers with more than 10 years of service feel more satisfied in the aspects of

supervision, income and opportunities for promotion than lecturers with less than 10 years

experience. Permanent lecturers express higher satisfaction in terms of income and opportunities

for promotion than non permanent lecturers.

Keywords: Lecturer, Job Satisfaction, Harbin City, China

1. Introduction Lecturers‘ job satisfaction is one of the top issues in every school worldwide and it is a

serious topic for debate since long time ago. It is an argumentative topic that should be argued

because lecturer satisfaction and employment are not only contributing to the motivation of

lecturers and their improvement, but also to student learning and development (Perie, Baker &

Bleach, 1997). In China, although a lot of previous research has been conducted on lecturers' job

satisfaction, studies of lecturers in the field of teaching Chinese as a Foreign Language (TCFL)

are much neglected. As a popular profession in recent years, TCFL is attracting the attention both

of people interested in the profession and job seekers more `than ever before. To provide some

reference for future candidates and perfect/effective TCFL lecturer administration, there should

be an increment in lecturers‘ activity. This study examines TCFL lecturers‘ job satisfaction in two

universities in Harbin city, China.

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Education, to some extent, is closely related to the development of the country and its

economy. National development can afford the investment in education. For example, currently

in China's rural areas tuition fees and miscellaneous expenses at the stage of compulsory

education are all free of charge in contrast with the previous years when tuition fees were

charged. On the other hand, to pay their debt to society for their education talented high-quality

educators should unite for the sustained development of the economy and the country. To some

extent, education reflects the national development situation from a certain angle. Since entering

the 21st century, the world has been paying closer attention to China than ever before due to the

growing Chinese economic and development potential. A result of this is the increased time

devoted to studying Mandarin by foreigners from different countries.

With the rise of the popularity of studying Chinese by foreigners, there has been a

corresponding growth in language teaching institutions, schools, new positions and training

courses. Among them, the most famous and influential institution is "Hanban" which is

"committed to the development of Chinese language and culture teaching resources and making

its services available worldwide, meeting the demands of overseas Chinese students to the

maximum degree, and contributing to global cultural diversity and harmony. " Hanban selects

and trains lecturers to teach on the TCFL volunteer board for the purpose of supporting schools

and colleges abroad and the spread of Chinese language and culture. Under its guidance, lots of

lecturers have been selected to come on board, many Confucius Institutes have been established,

and teaching Chinese as a foreign language has also become a popular job. The Ministry of

Education of the People's Republic of China (MOE of the People's Republic of China) has TCFL

as an integral part of China's reform because "education is a means by which society perpetuates

and disseminates its own culture "(C. Jalaja Kumari, 2007).

Job satisfaction plays an important role in working life. Brayfield and Crockets (1955)

found that the higher the individual or group satisfaction, the lower the likelihood that they will

leave their jobs. This is because the job not only provides economic stability, but also the

personal feelings and emotion to work every day. From work you can get self-confidence,

happiness, a sense of accomplishment, team spirit, etc. These feelings lead to job satisfaction.

But a job can also get tedious as a result of workers being underpaid, bored, and stressed and

frustrated with the job that leads to job dissatisfaction.

Lecturer satisfaction with employment is a key determinant of lecturer commitment and

is related to the retention of lecturers (Reyes & Shin, 1995). Whiteford (1990) identifies some

indicators of lecturer satisfaction with employment and the sense of efficacy which include a

positive relationship with colleagues, satisfactory working conditions, and prestige and esteem

associated with teaching.

2. Problem Statement

So far, according to statistics from the Ministry of Education of the People's Republic of

China, more than 330 universities are offering TCFL programmes in China. The years of rapid

growth in the number of foreign students each year have made a big difference for TCFL

lecturers, especially lecturers who are highly qualified. To change this situation, today there are a

lot of universities who employ very professional TCFL lecturers to encourage those who possess

knowledge of how to teach students Chinese language. Moreover, a large number of graduates

with degrees in Chinese language and literature or the major of English are also becoming TCFL

lecturers. Beyond all doubt, TCFL has become a popular occupation.

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A study by Walde (1986) shows that the repetitive nature of the task was the factor which

most dissatisfied lecturers while payment and security are factors of satisfaction. Most TCFL

lecturers‘ pay "is higher than the traditional ones because more Chinese language lecturers are

teaching on an hourly basis. While due to limited classes, lecturers often do not have high-

income. In addition, the proceeds for TCFL lecturers' come in each semester according to their

teaching hours. The more lessons lecturers are willing to teach, the more income they earn. As

we know, TCFL lecturers have more opportunities to go abroad to teach, by the nature of their

work. This experience abroad could not only sharpen their ability to work, but also enriches their

life. However, not all could have these opportunities because of the selection policy and other

factors.

3. Objective

1. The level of job satisfaction among TCFL lecturers in Harbin city, China.

2. To what extent extrinsic factors such as co-workers, supervision and income contribute to

job satisfaction among TCFL lecturers.

3. To what extent intrinsic factors such as the work itself and opportunities for promotion

contribute to job satisfaction among TCFL lecturers.

4. The influence of the demographic profile such as sex, education level, years of service

and nature of appointment on the level of job satisfaction among TCFL lecturers.

4. Research Question

1. How do TCFL lecturers perceive the characteristics of the job?

2. How do TCFL lecturers perceive their co-workers?

3. How do TCFL lecturers perceive the supervision?

4. What is the attitude regarding income?

5. What is the comment regarding opportunities for promotion?

6. Are there significant differences in job satisfaction between male and female, permanent

and nonpermanent TCFL lecturers? Do lecturers who differ in education level or years of

service have obviously diverse comments regarding job factors?

5. Limitations of the Study

The limitations of the study are as follows:

The study was conducted only in two universities in Harbin city, China. Thus the findings

and conclusions cannot be entirely generalized to other areas of the country.

Because of the large proportion of female and young lecturers in the field of teaching

Chinese as a foreign language and in the present sample, the views of the male lecturers

may not be reflected fairly and exactly.

The two universities are both public institutions, thus the results of the study cannot be

completely extended to private universities, schools and institutions.

6. Definition of Terms

Job satisfaction: Job satisfaction is a sense of achievement, happiness and enjoyment felt

by a person when he fulfils his needs during his working life. Locke (1976) defines job

satisfaction as ―pleasure or positive emotional state resulting from the appraisal of one‘s

job or job experiences‖.

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Lecturers‘ job satisfaction: The degree of sense of satisfaction experienced by lecturers.

Teaching Chinese as a foreign language (TCFL): Lecturers whose mother language is

Mandarin Chinese use Chinese to teach foreign students Chinese language.

7. Literature Review

Definition of Job Satisfaction

Job satisfaction has been defined by researchers in many ways. Locke (1976) defines it as a

pleasure or a positive emotional state resulting from the valuation of the job or work experience.

He also states that job satisfaction is "a function of the perceived relationship between what one

wants in a work and what they perceive as an offering" (Locke 1969, p.316).

7.1 Content Theories

There are several theories related to job satisfaction. Campbell (1970) classifies them into

two categories, which are content theories and process theories. Content theories, are the

identification and explanation of the needs, values or expectations of the persons acting on job

satisfaction. Content theories also explain the specific factors that motivate human behaviour and

maintain the changing needs of human beings. Maslow's hierarchy of needs theory, the two-

factor theory of Herzberg and Alderfer‘s ERG (existence, relation and growth) are the theories in

question.

7.1.1 Maslow’s Hierarchy of Needs Theory

The hierarchy of needs theory is one of the theories of content that was developed by the

humanistic psychologist Maslow in 1943. He sees human needs at different levels. Low-level

needs must be satisfied before higher level needs. Maslow says that the hierarchy of needs from

the low to a higher level is as follows: physiological needs, security needs, social needs, esteem

needs and self-actualization. Physiological and safety needs are relatively lower needs, and the

other three are the greatest needs. Furthermore, physiological needs are the needs at the

grassroots level. They are the basic requirements for people to live. These people need support to

survive in the world. Physiological needs comprise factors such as water, air, food, sleep and so

on. If you cannot comply with these physiological needs, your body cannot be continuously in a

healthy condition. According to Maslow, if the physiological needs of the people are met, people

will consider paying attention to their security needs. Security has to do with protecting people

from physical and emotional harm. Security requirements include living in safe and healthy

conditions, and financial security.

7.1.2 Herzberg’s Two-Factor Theory

The two-factor theory of Herzberg is another one of the leading theories of content. It is

also called the theory of Motivation and Hygiene. This theory pays attention to individual needs

and the hierarchy of needs theory, and was created to determine the factors leading to job

satisfaction and dissatisfaction. Herzberg (1959) states that job satisfaction and dissatisfaction

are caused by factors of motivation and hygiene, respectively. Motivating factors are what make

people want to perform well at work and feel satisfied with the work they do. Achievement,

recognition, work, responsibility, advancement and growth are the most important motivating

factors generating job satisfaction. Hygiene factors relate to the working environment, such as

company policies, supervision, working conditions, wages and supervision.

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From Herzberg‘s perspective, satisfaction and dissatisfaction are caused by different factors.

That is, we cannot consider job satisfaction as the opposite of job dissatisfaction. Similarly, job

satisfaction is not the opposite of job dissatisfaction. In fact, from the standpoint of Herzberg, the

opposite of satisfaction is "no satisfaction", and the opposite of dissatisfaction is "no

dissatisfaction". According to Herzberg, when people feel satisfied with work, the intrinsic

factors usually come into play, such as achievement, recognition and growth. When they are not

satisfied with work, they tend to seek extrinsic factors, such as salary, company policies and

working conditions. Herzberg states that employees will not be satisfied when the hygiene

factors are not met.

7.1.3 Alderfer’s EGR Theory

In content theory, there is another theory that is also based on individual needs. That is

the theory of EGR that was proposed by Alderfer in 1969. Similar to the theory of hierarchy of

needs, Alderfer‘s ERG theory classifies human needs at different levels. The difference is that

Alderfer classifies individual needs at only three levels: the needs of existence, relationship

needs and growth needs.

7.1.4 McClelland’s Three Needs Theory

This theory was formulated to help understand the needs of people, their motivation and

behaviour. McClelland classifies them into three needs: the need for achievement, the need for

power and the need for affiliation. The need for achievement means that people want success and

have the feeling of accomplishment. If they were given difficult and challenging tasks, they will

make every effort to complete the task in the hope of success. This will be a sort of motivation to

make people work harder and be more active. According to McClelland, the need for power

shows the desire of people to control others. Organizationally, this need is shown as the desire of

other leaders or leaders of the organization. If people have this need, but do not have the

opportunity to be a leader, they will be disappointed and lose their passion. The way to motivate

these people and meet their requirements is to lead them or put them in office-oriented positions.

7.1.5 Adams’ Equity Theory

Adams (1965) proposed the equity theory of job satisfaction which emphasizes the

importance of reaching the balance between employee contributions and results. If the inputs of

workers are higher than the results, they will be discouraged and demotivated. In general, the

inputs include the effort, time, tolerance, loyalty, enthusiasm, ability, confidence in superiors etc.

Typically they include safety outputs of employment, salary, self-esteem, sense of

accomplishment, praise, reputation and so on. Each employee is willing to be treated fairly. They

want to get the results as well as equal pay. But the number of outputs and inputs cannot be

calculated exactly, so the theory identifies the manager's responsibility to balance them.

8. Studies on the Determinants of Job Satisfaction

8.1 Work Itself

Schwartz (1963) identifies the work itself is an important factor leading to job

satisfaction or dissatisfaction. Herzberg (1966) takes the work itself is an intrinsic reward that

can be an important motivator for a worker due to individual development needs

.

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8.2 Co-workers

Maslow (1943) identifies social need, which means interaction with people, as the first

top-level requirement. Khaleque (1984) states that there is no doubt that the relationship with

one‘s colleagues is an important factor in job satisfaction.

8.3 Income

Naylor (1968) argues that the encouragement of income has seen as one of the most

important determinants of job satisfaction in most investigations. Gruneberg (1979) also supports

the argument that pay is an important element in job satisfaction. But there are also some studies

which show little relationship between income and job satisfaction. Butler (1961) points out that

the level of satisfaction is no different between groups of different salaries. Wernimont and

Fitzpatrick (1972) assert the varieties of the symbolic values of money, but confirmed that they

differ according to individual merits.

8.4 Supervision

Locke (1975) notes the importance of supervisors in the contribution of subordinate job

satisfaction and satisfaction. They can promote or be embarrassing to the achievement of value

work of subordinates. Misshawk (1971) states that all levels of people look for something more

than human relations skills in their supervisors. Ahuja (1976) identifies that if employees are

working under the supervision of an incompetent, inefficient and unresponsive superior, their

dissatisfaction will increase.

8.5 Promotion

According to Herzberg (1959), promotional opportunities benefit increased job

satisfaction. Van Mannen and Katz (1976) also report a positive correlation between the

opportunities for promotion and job satisfaction in general. However, Blum (1952) suggests that

opportunities for promotion are more important for skilled workers compared to unskilled

workers.

9. Studies on the Relationship between Personal Variables and Job Satisfaction

9.1 Educational Level

Some studies show a relationship between educational level and job satisfaction.

However, the relationship can be positive or negative depending on unspecified moderator

variables (Srivastva et al., 1975). Rao (1970) and Carrell and Elbert (1974) found that there is a

significant relationship between job satisfaction and educational level of lecturers and this is

considered more as a significant determinant of job satisfaction.

9.2 Years of Service

Yezzi and Lester (2000) reported that the years of service is not a predictor of job

satisfaction. Lowther et al. (1985) indicate that increases in job satisfaction as the experience of

years increases. Similarly, Hodge (1977) shows that the level of job satisfaction for lecturers

increases as the years of employment in the institutions increase in number. Meanwhile, Klecker

and Loadman (1997) found that job satisfaction decreased with the number of years the person

has been in the profession.

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9.3 Studies on Lecturer Job Satisfaction

Based on studies of job satisfaction, some research has been conducted relating to

lecturers' job satisfaction. Herzberg, Maunser and Snyderman (1959) argue that recognition and

achievement are the most important factors that influence a lecturer‘s job satisfaction. This

shows that if school leaders give positive respect and appreciate the value of lecturers, lecturers

will be at a high level of satisfaction.

Ratsoy (1973) asserts that the satisfaction of the job lecturers are doing is related to the

organization of schools. The more bureaucratic and centralized the school is, the less the

satisfaction of lecturers. Miskel, DeFrain and Wilcox (1980) suggest that lecturers with the belief

that they have the ability to do the job and have received positive response for their hard work

will experience satisfaction of a high level. At the same time, Nicholson (1980) identifies three

factors that most affect lecturer satisfaction with employment, which are leadership, decision

making and the communication process. He believes that if lecturers are given g more

opportunities to participate in the process of decision-making in schools and communicate

openly about school goals, that will lead to an increase in the satisfaction of lecturers with work.

Most lecturers feel more satisfaction when they are assigned to work as a team. Some research

shows that lecturers in schools have developed a strong sense of professionalism as a result of

the opportunity to work together on important professional concerns (Garner, 1995; Lipsitz,

1984). The sense of belonging to a team with real responsibilities that gives members challenges

and reasons to be proud of themselves and the team, thus enhances job satisfaction (Curtis,

1994).

Sergiovanni (1992) reports that lecturer satisfaction relates to job involvement and

performance. Participation makes lecturers feel the need for and value of commitment. He also

emphasizes the importance of recognition, empowerment and the sense of job opportunities in

job satisfaction. Whiteford (1990) identifies some indicators of lecturer satisfaction with

employment as being the sense of efficacy, a positive relationship with colleagues, satisfactory

working conditions, the director‘s 'leadership style, and the prestige and esteem associated with

teaching. To increase job satisfaction in the interest of increasing lecturers' commitment and

productivity, organizations should pay more attention to pay, promotion, working conditions,

supervision and the organization itself (Lock, Schweiger, & Latham, 1986; Mitchell, Holton,

Lee, & Graske, 2001; Pitt & Foreman, 1999).

Evans (1998) describes the factors affecting lecturer satisfaction with employment at

different levels. Level I includes the policy and conditions of service and a good salary structure.

Afternoon work brings more satisfaction among lecturers. Level II includes the leadership style

and organizational climate. Level III identifies the determinants of job satisfaction as generally

meeting the individual needs, expectations, personality and emotions. With regard to lecturer

satisfaction with employment in China (1996), Feng‘s research can be seen as a significant step.

He suggests five factors which must be taken into account: personal fulfillment, job stress,

income, relationship with managers and colleagues. Xiao and Li (2003) state that lecturers in

urban China are less satisfied with their salary, in comparison, but more satisfied with job

security, the work environment and self-realization.

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10. Sampling Design

There are eleven public universities in the city of Harbin, and only a part of them have

special colleges of international education. The sample consists of lecturers who teach Chinese

as a foreign language in two selected universities: Harbin Engineering University (HEU) and

Harbin Institute of Technology (HIT). These two universities have provided Chinese language

courses for foreign students for a period of time, and have already established their own

organizational structure and curriculum system. Because of the limited number of lecturers in

this field in each university, 40 questionnaires were distributed to HEU and 60 questionnaires to

HIT. Thirty-eight questionnaires were received from HEU and 56 questionnaires were obtained

from HIT. The response rate was 94%. Two questionnaires from HIT were rejected as they were

incomplete. Thus, the final number of analyzed questionnaires was 92.

11. Research Instrument

In this study, the research instrument in the form of a questionnaire was the main tool for

collecting data. The questionnaire had three sections, Section I, II and III. Section I comprises the

demographic profile of respondents. Section II comprises the Job Descriptive Index (JDI).

Section III comprises five multiple-choice questions to explore respondents‘ overall attitudes

about the job, and three voluntary-reply subject questions to benefit from a deeper understanding

of the respondents.

Section I

There were 9 items in this section with the purpose of gathering demographic data of the

respondents. These data will not only provide respondents‘ background information, but will also

be useful for data analysis. The items related to sex, age, marital status, education level, years of

service, nature of the appointment, teaching subject, class level and monthly salary.

Section II

In this section, the Job Descriptive Index is used which was developed by Smith, Kendall

and Hulin (1969). The JDI is one of the most widely-used instruments for measuring job

satisfaction (DeMeuse, 1985; Zedeck, 1987). It has been translated into many different languages

including Mandarin Chinese. The JDI comprises five dimensions of job satisfaction: the work

itself, co-workers, supervision, income and opportunities for promotion. These dimensions are

measured by words or phrases and are easy to read. In this study, a few items were added to the

instrument to make it more suitable for lecturers teaching Chinese as a foreign language and for

the present working conditions.

Kamaruddin (1995) made further changes to the JDI introducing a five-point Likert-type

scale. Respondents indicate the number which best represents their feelings for each item.

Numbers 1 to 5 represent strongly disagree, disagree, neutral, agree and strongly agree,

respectively. In measuring job satisfaction, the more satisfied the respondents were perceived to

be, the higher was the score, with 1 being the minimum score and 5 being the maximum score.

The scores for the positive and negative items are as in Table 1 and 2.

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Table 1: Scale Reference of Positive and Negative Items

Scale reference Positive item Negative item

Strongly Disagree 1 5

Disagree 2 4

Neutral 3 3

Agree 4 2

Strongly Agree 5 1

There are a total of 71 items used for measuring lecturers‘ satisfaction and dissatisfaction with the teaching

profession in this section. They are divided into five parts:

It consists of both positive and negative items as seen in Table 2:

Table 2: Positive and Negative Items on Job Satisfaction

Dimensions Positive item numbers Negative item numbers

Work itself 1, 3, 5, 6, 7, 8, 10, 12,

13, 16, 17, 18, 19, 21

2, 4, 9, 11, 14, 15, 20

Co-workers 1, 4, 5, 6, 7, 8, 11, 14 2, 3, 9, 10, 12, 13

Supervision / Supervisor 1, 4, 5, 6, 7, 8, 9, 14,

15, 16, 17, 18, 19

2, 3, 10, 11, 12, 13,

Income 2, 6, 7, 8 1, 3, 4, 5

Opportunities 1, 3, 4, 6, 7 2, 5, 8, 9

Section III

This section comprises five multiple-choice questions to explore respondents‘ overall

attitudes about the job, such as whether they are satisfied with their job, whether they like

teaching foreign students and cross-culture work, and whether they will they stay in the

workplace until they retire. There are also three voluntary-reply subject questions, with the

purpose of having a deeper understanding from the respondents.

12. Data Analysis

All data collected from the participants was coded and analyzed using the Statistical

Package for the Social Science (SPSS) version 16.0. In this research, the following data analysis

techniques were used:

i) Descriptive statistics including frequency, percent, mean and standard deviation. They were

used to analyze the demographic profile in Section I of the questionnaire; job factors in Section

II, job factors comparison; and choices related to overall job satisfaction in Section III.

ii) T-test and Analysis of Variance (ANOVA) was applied to analyze the significance of the

A. Work Itself 21 items

B. Co-workers 14 items

C. Supervision / Supervisor 19 items

D. Income 8 items

E. Opportunities for Promotion 9 items

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demographic profile with respect to job factors.

13. Findings

13.1 Demographic Profile of the Respondents

A total of 100 copies of the questionnaire were distributed to the two universities. Thirty-

eight questionnaires and 56 questionnaires were received respectively from the two of them. The

total number of questionnaires received was 94 with the response rate of 94%. Because of the

incompleteness of 2 questionnaires, the final number of analyzed questionnaires was 92. Besides,

from the 92 respondents, a majority of them are female lecturers, with 72 female respondents or

78.3 percent. The sample of male respondents consists of 20 male lecturers which makes only

21.7% of the total number. Nearly half (48.9%) of the respondents are between the age of 26 to

30 years old, which is the majority group of the sample. Following this is the age group from 20

to 25 which comprises 21 respondents or 22.8% of the total sample. The 31-35 years age group

consists of 10 respondents or 10.9% of the total. The other age groups account for 4.3%, 6.5%,

2.2%, and 4.3%, respectively.

In terms of marital status, 41 respondents or 44.6% are single compared to 47 or 51.1%

of the respondents who are married. Four respondents or 4.3% are in other situations such as

being divorced. On the issue of education level, more than half (51 out of 92 or 55.4%) of the

respondents are graduates, 34 respondents or 37% hold a Master‘s degree while only 7

respondents are PhD holders, accounting for 7.6% of the total. To some extent, this data shows a

situation in which most of the lecturers in the field of teaching Chinese as a foreign language

hold a bachelor‘s or master‘s degree, with only a few of them holding a PhD.

As for years of service, the majority of the respondents have no more than 5 years

experience, accounting for 69.4%. This indicates the fact that at least in these two universities

most of the TCFL lecturers are young and without too much teaching experience. Sixteen

respondents or 17.4% have workplace experience of 6 to 10 years. Only 13% of the respondents

have served more than 10 years. In terms of the present reality of TCFL lecturers. Most of their

working positions are not permanent. Universities sign employment contracts with TCFL

lecturers, usually from 1 to 5 years. After the employment contract expiration, universities have

the right to decide whether to renew or end the contract. Among the respondents, only 27 or no

more than 30% (29.3%) are on a permanent appointment compared to 43.5% who have

contracts. Meanwhile, 20.7% of the respondents are temporary lecturers and 6.5% are still on

probation.

In terms of subjects taught, 48 respondents or more than half (52.2%) teach more than

one subject, while 8.7%, 9.8%, 6.5%, 9.8%, 13% of the respondents teach listening, reading,

writing, speaking and synthesis, respectively. The exactly reflects the teaching reality of TCFL

lecturers. Most of them teach two or even more subjects, such as listening and speaking, reading

and synthesis etc. In terms of the class level, 33.7% of the respondents teach different class

levels, 22.8% (21 respondents) teach the low level followed by 23.9% (22 respondents) who

teach the middle level and 19.6% (18 respondents) who teach the high level. In terms of monthly

income, none of the respondent earns below RMB 1,000 with 38% of the respondents earning

between RMB 2001- RM3000 followed by 26 respondents or 28.3% who earn RMB3001-

RMB4000 and 15.2% of the respondents who earn RMB1000-RMB2000, compared to 13% who

earn above RMB5000. The minority of the respondents (5.4%) earn RMB4001- RMB5000.

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14. 2 Analysis of Job Factors

Each of the job factors, work itself, co-workers, supervision / supervisor, income, and

opportunities for promotion are analyzed by calculating mean value and standard deviation. The

items of each factor were arranged in descending order according to the mean value with the

purpose of having a clear view of the research results. The minimum score is 1 and the maximum

is 5, a cut-off point of 3 is chosen. The higher the score, the more satisfied respondents feel.

Work Itself

Table 3 shows the mean and standard deviation results for the item of work itself. The

majority of the respondents were strongly satisfied that the information technology is used

extensively since the mean value of 4.054 is very close to 5 with S.D=0.96492. Improvement

from the work is also a very important item in job satisfaction since the mean value of 3.9674 is

very close to 4 with S.D=1.06339. Most of the respondents agree the work is challenging,

creative, useful, and also makes them feel fresh because of the cross-cultural aspects, since all of

these four items are above 3.90, near 4 and become the important factors in job satisfaction.

From the negative items we may see respondents do not feel the work is frustrating since the

mean value is 3.9130 with S.D=0.95678. Most of the respondents are not satisfied because of the

stressful nature and simple specialty of the work since the mean is below 2. These results mean

that TCFL lecturers have too much pressure, thus to enhance their job satisfaction administrators

must find solutions to reduce lecturers‘ work pressure.

Table 3 Mean score and Std. Deviation for ‗work itself‘ items on job satisfaction

Items Mean Standard Deviation

Information technology is used extensively 4.054 .96492

I can improve myself from the job 3.9764 1.06339

Challenging 3.9565 1.09858

Creative 3.9457 .83025

Useful 3.9348 .96993

Frustrating * 3.9130 .95678

Cross-culture makes me feel fresh 3.9130 .89752

Boring * 3.8913 .88276

Give sense of accomplishment 3.6957 1.02431

Interesting 3.6739 .89084

Respectable 3.6413 .98986

Satisfying 3.5870 .85359

Endless * 3.5652 1.19802

Pleasant 3.5217 .99976

Pleasant environment 3.4674 .94289

Fascinating 3.4130 1.04988

Cross-culture brings difficulties into the job * 3.2174 1.28239

Tiresome * 2.8696 1.31949

Routine * 2.6087 .92530

Stressful * 1.8804 1.05708

Simple * 1.8043 .96350

* denotes negative items

Co-workers

From Table 4 we could see that all these 14 items are important in determining job

satisfaction as the means of all the items are above 3. Among them, mean values for the negative

items of being unpleasant, boring, slow, lazy and the positive item of talkative are all above 4.

That means that pleasant, interesting, fast, hardworking and talkative co-workers could bring

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more satisfaction to TCFL lecturers.

Table 4 Mean score and Std. Deviation for ‗co-workers‘ items on job satisfaction Items Mean Standard Deviation

Unpleasant * 4.3152 .83770

Boring * 4.2283 .71358

Slow * 4.1413 .81983

Lazy * 4.1413 .79257

Talkative 4.1304 .94016

Active 4.0000 .75593

No privacy * 3.9891 .97771

Responsible 3.9565 .82426

Intelligent 3.9457 ,95347

Smart 3.8913 .97729

Narrow interest * 3.8696 .89218

Stimulating 3.6957 .98046

Ambitious 3.6413 .98986

Cooperative 3.5870 1.07061


Supervision/Supervisor

The items of impolite, knows job well, lazy and influential have the highest mean value

of 4.2609, 4.2391, 4.1087 and 4.0761, respectively which are all above 4 with the S.D=0.84995,

0.91831, 1.09400, 1.04022 . From this, we could see the information that being polite, knowing

the job well, being hardworking and influential are extremely vital factors contributing to job

satisfaction. Since nearly all the items‘ means are above 3 except the item of ‗around when

needed‘, we could infer, to some extent, that respondents are satisfied with their supervisors and

their supervision. The item of being ‗around when needed‘ only has a mean value of 2.6630,

below 3, which indicates a problem of the untimely help from the supervisor. So, when

supervisors consider ways of making TCFL lecturers more satisfied with their work, giving

prompt instruction is something they cannot neglect as it is shown in table 5.

Table 5: Mean score and Std. Deviation for ‗supervision‘ items on job satisfaction


Impolite * 4.2609 .84995

Knows job well 4.2391 .91831

Lazy * 4.1087 1.09400

Influential 4.0761 1.04022

Supervise clearly 3.9783 .85135

Responsible 3.9565 .83749

Annoying * 3.9457 .91824

Knowledgeable 3.8913 1.02127

Trustworthy 3.8696 .81493

Praises good work 3.8370 1.00850

Tactful 3.8043 1.11177

Up to date 3.7500 .92136

Quick tempered * 3.6522 1.05283

Stubborn * 3.5652 1.06187

Tell me what I stand 3.5109 1.13384

Hard to please * 3.4674 1.21756

Ask my opinion 3.4348 1.04097

Knows how to be a good

supervisor 3.3478 1.18075

Around when needed 2.6630 1.16993


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Income

In terms of income, the means of four items are above 3 and the other four are below it.

From Table 6 we may see most of the respondents think the income is sufficient to cover normal

expenses since the mean value is 3.465 with the S.D=1.08347. But the negative item of insecure

with a mean of 2.6413 shows that the income is not secure and not high (mean=2.087).

Respondents are not quite satisfied with their income (mean=2.7826), and even think it is less

than what they deserve (mean=2.9239). From these results we could see dissatisfaction of the

workers for the income they receive and perceived that their efforts worth than what is given.

Table 6: Mean score and Std. Deviation for items of ‗income‘ on job satisfaction


Sufficient to cover normal

expenses

3.4565 1.08347

Low paid * 3.3696 1.00239

Motivation for work 3.1848 1.13805

Barely live on income * 3.1304 1.22445

Less than what I deserve * 2.9239 1.06114

Satisfactory 2.7826 .87488

Insecure * 2.6413 1.25428

High paid 2.0870 .93353


Opportunity for Promotion

Compared to others, items under the ‗opportunities for promotion‘ do not bring much

satisfaction from the respondents. Although they do not completely believe it is a dead-end job

with the mean value of 3.2826, most of them do not think there is a good opportunity for

promotion since the mean value is 2.630 with the S.D=0.9.514 as it is shown in Table 7.

Table 7: Mean score and Std. Deviation for ‗opportunities for promotion‘ items


Dead-end job * 3.2826 1.30364

Promotion based on seniority 3.1196 1.17522

Infrequent promotion * 2.9130 1.22835

Promotion on ability 2.8913 1.25319

Promotion policy is unfair * 2.8043 1.18821

Regular promotion 2.5000 1.10444

Opportunity somewhat limited * 2.3370 1.01934

Good opportunity for advancement 2.2935 .96690

Fairly good chance promotion 2.1630 .90514


Job Factors Comparison

Each item of the five job factors has been calculated in the above. They supply detailed

information about the elements influencing TCFL lecturers‘ job satisfaction. Furthermore, we

could through the total mean of each job factor have a general view about lecturers‘ job

satisfaction as it is shown in Table 8.

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Table 8: Mean score and Std. Deviation for ‗opportunities for promotion‘ items Items Mean Standard Deviation

Dead-end job * 3.2826 1.30364

Promotion based on

seniority

3.1196 1.17522

Infrequent promotion * 2.9130 1.22835

Promotion on ability 2.8913 1.25319

Promotion policy is unfair

*

2.8043 1.18821

Regular promotion 2.5000 1.10444

Opportunity somewhat

limited *

2.3370 1.01934

Good opportunity for

advancement

2.2935 .96690

Fairly good chance

promotion

2.1630 .90514


Comparison of Job Factors

From Table 9, it is obvious that the majority of respondents feel satisfied with work itself,

co-workers, supervision and their supervisor, since their mean values are all above 3. Among

them, co-workers bring the most satisfaction to respondents as the mean value of 3.9666 is very

close to 4. Most of the respondents are not satisfied with their income and opportunities for

promotion since the mean values of 2.9407 and 2.7005 respectively are both below 3.

Table 9: Mean Comparison of Job Factors


Work itself 3.4534 .37352

Co-workers 3.9666 .47833

Supervision / Supervisor 3.7557 .51418

Income 2.9470 .63582

Opportunities for promotion 2.7005 .72716

15. Analysis of Overall Job Satisfaction

Section III of the questionnaire comprises five multiple-choice questions to explore

respondents‘ overall attitudes about the job, such as whether they are satisfied with their job,

whether they like teaching foreign students and cross-cultural work, and whether they will stay

in the workplace until they retire.

From Table 10 we see that the majority of the respondents are satisfied with the job since

all their means are above 3. Furthermore, they indicate a high level of satisfaction with teaching

foreign students and doing cross-cultural work with means of 4.1522 and 4.1413.Moreover,

64.2% of the respondents feel satisfied with their job (45.7% satisfied and 18.5% strongly

satisfied).Meanwhile, 82.6% of the respondents like or extremely/very much like doing cross-

cultural work and nearly 80% of them (78.3%) like teaching foreign students. However, only

44.6% of the respondents see teaching as their lifelong career and 40.2% believe they will stay in

the workplace until they retire. On the other hand, 34.8% of the respondents hold neutral views

on these two aspects.

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Table 10: Overall job satisfaction

Items SD D N A SA Mean Std. D

I feel satisfied

with my job

5

(5.4%)

6

(6.5%)

22

(23.9%)

42

(45.7%)

17

(18.5%)

3.6522 1.03175

I like doing

cross-cultural

work

3

(3.3%)

3

(3.3%)

10

(10.9%)

38

(41.3%)

38

(41.3%)

4.1413 .96740

I like teaching

foreign students

2

(2.2%)

2

(2.2%)

16

(17.4%)

32

(34.8%)

40

(43.5%)

4.1522 .93685

I see teaching as

my lifelong

career

7

(7.6%)

12

(13.0%)

32

(34.8%)

17

(18.5%)

24

(26.1%)

3.4239 1.22460

I will stay in

this workplace

until I retire

8

(8.7%)

15

(16.3%)

32

(34.8%)

16

(17.4%)

21

(22.8%)

3.2935 1.23625

16. Significance Analysis between Demographic Profile and Job Factors

To make it facilitate the data analysis, some changes were made to the demographic part

of the questionnaire. Four of the demographic characteristics were chosen: sex, education level,

years of service and nature of appointment. For education level, we deleted the option of ‗others‘

since no respondents chose it. For years of service, we combined five options into two, 1-10

years and above 10 years. For nature of appointment, we combined them into two options,

namely permanent and non-permanent. The T-test was applied to compare demographic profiles

that contained only two groups, such as sex, years of service, and nature of appointment. For the

demographic profile that contained more than two groups such as education level, the Analysis

of Variance (ANOVA) was conducted. For the purpose of analysis, p-values which are above

0.05 are considered as not significant, while the p-value which is equal to 0.05 and below is

considered as significant.

17. Sex and Job Factors

From Table 11, we can see that there is no significant difference between male and

female on five job factors since all the p-values are above 0.05. We could also see that the mean

for male and female on five job factors are all nearly the same without much mean difference.

That is sufficient to say that males and females have a similar attitude on job factors and hold the

similar levels of job satisfaction from the five aspects of the job. Table 11: T-test analysis for five job factors by Sex

Job factors Sex N Mean Std. D t-value Sig.

Work itself Male

Female

20

(21.7%)

72

(78.3%)

3.47

3.45

.27

.40

.18 .86

Co-workers Male

Female

20

72

3.87

3.99

.37

.50

-1.04 .30

Supervision /

Supervisor

Male

Female

20

72

3.66

3.78

.36

.55

-.99 .37

Income Male

Female

20

72

3.01

2.93

.78

.60

.47 .64

Opportunities

for promotion

Male

Female

20

72

2.87

2.65

.86

.68

1.16 .25

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18. Education Level and Job Factors

Table 12 shows that people at different education levels have significant differences in

their attitudes to the factors of work itself, supervision, income and promotion since the p-values

of these factors are equal to or below 0.05. There is no significant difference in the factor of co-

workers by education level with the p-value of 0.94. From the mean value we could see that

graduates and PhDs are more satisfied with work itself than lecturers with a master‘s degree.

PhD lecturers have much higher levels of satisfaction in the supervision factor than graduates

and master‘s degree lecturers with the mean value of 3.95. In terms of income, graduates are less

satisfied than master‘s holders with the mean of 2.73 and 3.16, respectively. Compared to that,

PhD lecturers are the most satisfied with their income with the mean value of 3.54. On the issue

of opportunities for promotion, graduate lecturers do not feel satisfied since the mean is only

2.38. Masters and PhD lecturers are satisfied with the opportunities with a mean difference of

0.46 between them.

Table 12: ANOVA for job factors by education level

Job factors Mean Sum of

Squares df

Mean

Square F-ratio Sig.

Graduate

(55.4%)

Master

(37.0%)

PhD

(7.6%)

Work itself 3.53 3.30 3.63 1.37 2 .69 5.40 .01

Co-workers 3.98 3.95 4.00 .03 2 .01 .06 .94

Supervision 3.71 3.78 3.95 .37 2 .19 .71 .50

Income 2.73 3.16 3.54 6.44 2 3.22 9.45 .00

Promotion 2.38 3.02 3.48 13.01 2 6.51 16.50 .00

19. Years of Service with Job Factors

The years of service groups are recoded from the original five groups into two groups to

facilitate the analysis. The two groups are:

i) 1-10 years

ii) Above 10 years

From Table 13, we see that there is no significant difference between service years with

respect to work itself and co-workers since the p-value is above 0.05 (0.51 and 0.95

respectively). In terms of supervision or the supervisor, income and opportunities for promotion,

there is a significant difference between the two groups with the p-value of 0.03, 0.00 and 0.00

respectively. Lecturers with more than 10 years of service feel more satisfied from the

perspective of supervision than lecturers with no more than 10 years with a mean difference of

0.34. 1-10 years of service lecturers do not feel satisfied with their income with the mean value

of 2.88. On the contrary, lecturers with more than 10 years of service are satisfied with the

income since the mean is 3.43. This is similar to the income situation in which lecturers with

more than 10 years of service feel much more satisfaction from the perspective of opportunities

for promotion than those with no more than 10 years with the mean difference of 0.69.

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Table 13: T-test for five job factors by years of service

Job factors Years of service Mean Std. D t-value Sig.

Work itself

1-10

(87%)

Above 10

(13%)

3.44

3.52

.38

.30

-.66 .51

Co-workers 1-10

Above 10

3.97

3.96

.50

.28

.06 .95

Supervision/

Supervisor

1-10

Above 10

3.71

4.05

.52

.34

-2.19 .03

Income

1-10

Above 10

2.88

3.43

.60

.71

-2.92 .00

Opportunities

for promotion

1-10

Above 10

2.61

3.30

.72

.51

-3.19 .00

20. Nature of Appointment with Job Factors

The nature of appointment is recoded from the original four groups into two groups to

facilitate the analysis. The two groups are:

i) Permanent

ii) Non-permanent

Table 14 shows that there is no significant difference between permanent and non-

permanent lecturers in the aspects of work itself, co-workers and supervision since their p-values

are all above 0.05 (0.22, 0.43, 0.15, respectively). In contrast, there are significant differences in

terms of income and opportunities for promotion with p-values of 0.02 and 0.00, respectively.

Non-permanent lecturers are not quite satisfied with their income with the mean of 2.84.

Compared to that, permanent lecturers are satisfied with their income with the mean value of

3.19. Their mean difference is 0.35. Similar to this, permanent lecturers are satisfied with the

opportunities for promotion with a mean value of 3.17, but non-permanent lecturers are not

satisfied with the opportunities with a mean value of only 2.50.

Table 14: T-test for five job factors by nature of appointment

Job factors Nature of

appointment

Mean Std. D t-value Sig.

Work itself

Permanent

(29.3%)

Non-permanent

(70.7%)

3.38

3.48

.33

.39

-1.23 .22

Co-workers Permanent

Non-permanent

3.90

3.99

.29

.54

-.80 .43

Supervision/

Supervisor

Permanent

Non-permanent

3.88

3.71

.50

.51

1.47 .15

Income

Permanent

Non-permanent

3.19

2.84

.60

.63

2.37 .02

Opportunities

for promotion

Permanent

Non-permanent

3.17

2.50

.56

.70

4.40 .00

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21. Summary

In terms of the demographic profile of the respondents, there are more female

respondents than males, accounting for 78.3% of the total number. Most of them hold a

bachelor‘s or master‘s degree. More than 70% (71.7%) are no more than 30 years old, and 87%

have no more than ten years of teaching experience. More than half of respondents (52.2%) teach

more than one subject. Only less than 30% (29.3%) of respondents are permanent lecturers, and

the other 70.7% are working on contract, on probation or are temporary TCFL lecturers. The

result of the data analysis indicates that TCFL lecturers are satisfied with the work itself, their

co-workers and supervision, but not satisfied with the income and opportunities for promotion

(with mean values of 2.9470 and 2.7005, respectively, both less than 3).

There is no significant difference between male and female TCFL lecturers with respect

to satisfaction on five job factors since p>0.05. TCFL lecturers with PhD degrees have higher

levels of job satisfaction than lecturers with bachelor‘s and master‘s degrees. Indeed,, graduates

are not satisfied with the income and opportunities for promotion with the mean value below 3.

There is no significant relationship between lecturers with more than 10 years of service and

lecturers with no more than 10 years of experience in the factors of the work itself and co-

workers, but there are significant differences between then in terms of supervision, income and

opportunities for promotion. There are significant differences between permanent and non-

permanent lecturers with respect to income and opportunities for promotion since p<0.05.

Permanent lecturers show higher levels of satisfaction than non-permanent lecturers with these

two job factors. .

With regards to the three voluntary-reply subject questions, only a few lecturers answered

them. Nearly all of the respondents prefer being TCFL lecturers to being traditional Chinese

lecturers due to the strong usability of language knowledge in the process of TCFL. Most of the

reasons for leaving the position are the insecure income and few opportunities for promotion.

22. Discussion of Findings

The findings of the study reveal that nearly four-fifths of the respondents are female

lecturers. Actually, female TCFL lecturers account for a large part of the total TCFL lecturers‘

group. Less than one-third of the respondents are above 30 years old and less than a quarter of

them have more than ten years of service. Being young and having a lack of rich teaching

experience is a universal phenomenon among TCFL lecturers. More than half of the respondents

teach more than one subject. This brings certain pressure to bear on TCFL lecturers due to the

need to prepare different contents of teaching plans at the same time. Most of them hold

bachelor‘s or master‘s degrees, and less than one -third are permanent lecturers. Job security is a

big problem for TCFL lecturers.

The result of the study indicates that TCFL lecturers are satisfied with the work itself,

their co-workers and supervision, but not satisfied with their income and opportunities for

promotion. The results of the data analysis indicate that there is no significant difference between

male and female TCFL lecturers with respect to satisfaction on five job factors. This finding is

contrary to the studies of Benge (1944) and Cole (1940) which report that females are more

satisfied than men or males are more satisfied than females. It is consistent with studies which

show no significant difference between males and females in terms of job satisfaction.

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The analysis results show that there are significant differences among lecturers at

different education levels in the aspect of work itself, supervision, income and opportunities or

promotion. From the mean value we could see that TCFL lecturers with a PhD degree have a

higher level of job satisfaction than lecturers with bachelors and master‘s degrees. The current

study is in line with the studies conducted by Rao (1970) and Carrell and Elbert (1974) which

indicates that there is a significant relationship between job satisfaction and the educational level

of individual lecturers and it is considered as a significant determinant of job satisfaction.

Another finding is that there is no significant difference between lecturers with more than

10 years of service and lecturers with no more than 10 years of experience in the factors of work

itself and co-workers, but there are significant differences between them in terms of supervision,

income and opportunities for promotion. Lecturers with more than 10 years of service feel more

satisfied than lecturers with less than 10 years in nearly in all job factors related to this study,

especially in terms of income and promotion. These results run counter to the studies of Beverly

Klecker and William E. Loadman (1997) which shows that job satisfaction decreased with the

number of years the person has been in the profession. They are, however, it consistent with the

study of Hodge (1977) which shows that the level of job satisfaction increases for professors as

years of employment at the institutions increase in number.

23. Conclusions

Five determiners of job satisfaction are related to test the level of TCFL lecturers‘ job

satisfaction: work itself, co-workers, supervision / supervisor, income and opportunities for

promotion. On the issue of work itself, there is no significant difference between male and

female TCFL lecturers. But lecturers at different education levels have different attitudes to the

work. TCFL lecturers with PhD degree show most satisfaction to it followed by lecturers with

bachelor‘s degrees. Lecturers with master‘s degrees feel less satisfied with it. There is no

significant difference among lecturers with different teaching experience and in permanent or

non-permanent positions. In terms of co-workers, all the four demographic characteristics have

no obvious influence on the five job factors. All the lecturers show high levels of satisfaction

with their co-workers.

With respect to supervision or the supervisor, there is no significant difference between

male and female lecturers, lecturers with different education levels, permanent or non-permanent

lecturers towards supervision or the supervisor. But lecturers with different years of teaching

experience have different satisfaction levels regarding supervision. Lecturers with more than ten

years‘ experience show a quite high level of satisfaction. Compared to that, lecturers with no

more than ten years of service do not have that kind of high level satisfaction with the

supervision. All of the demographic characteristics differ towards income except for gender. PhD

lecturers are more satisfied than master‘s holders, in a similar way to graduates. Lecturers with

more than ten years of service feel satisfied with the income, while lecturers with no more than

ten years of service do not feel satisfied. Non-permanent lecturers are not quite satisfied, while

permanent lecturers are satisfied with the income. These seem to show the problem of fresh

lecturers not having high incomes because of limited classes. Permanent lecturers are more

satisfied than non-permanent lecturers due to low pressure about the job insecurity.

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In terms of opportunities for promotion, males and females both show less satisfaction.

Lecturers with master‘s and PhD degrees express satisfaction with the opportunities for

promotion compared to the extremely low satisfaction exhibited by lecturers with a bachelor‘s

degree. Lecturers with more than ten years of working experience feel more satisfied with the

opportunities for promotion they have obtained. There is a significant difference between

permanent lecturers and non-permanent lecturers in terms of the opportunities for promotion.

Non-permanent lecturers are not satisfied with the available opportunities. This indicates that

graduate lecturers, less experienced lecturers and non-permanent lecturers should be given more

opportunities for practising their skills. From the results of overall job satisfaction we see that

TCFL lecturers are satisfied with their work, and are especially quite satisfied with doing cross-

cultural work and teaching foreign students.

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The proposed criteria for Egyptian Commercial credit risk management

and description of a model for measuring these risks

Dr. Marwan M. Shammot

Associate Professor, King Saud University, Riyadh Community College, Faculty of

Administrative Science, P.O.Box 28095, Kingdom of Saudi Arabia

Dr. Mohamed Mohamed Atta

Assistant Professor, University of Sohag, Erypt, Faculty of Commerce

Abstract

This study aims to analyze the Credit Risks faced by Commercial banks in Egypt , to Propose

standards for measuring credit risk of commercial bank and to Describe of a model for measuring

credit risk based on scientific grounds. For achieving the objective of this research, under the

hypothesis and its limitations, the researchers divided the study into the following four subjects:

Section 1: the nature of the risk of bank credit.

Section 2: management and reduction of bank credit risks.

Section 3: the proposed standards for measuring credit risk.

Section 4: The proposed model for measuring credit risk in commercial bank in Egypt. The study

came to important findings such as; proposed criteria by researchers to adopt in Egyptian commercial

banks for measuring credit risk in banking system , Activating the proposed model for measuring

credit risks of commercial banks and To rely on the results of measuring the credit risk of commercial

banks within the framework of the proposed model in the composition of credit provisions, so that

these provisions are more objective and realistic as well as safety.

Keywords: Proposed , criteria , Egyptian Commercial , Credit risk management , Description of a

model for measuring these risks

Introduction: Banks face today a variety of banking risks, varying in severity from one bank to another. Therefore,

good evaluation, analysis, study, and manage the potential risks is the factors that related to bank's

success and ensures the stability and continuity in the banking market with the satisfactory returns

and low risk. The risk is an integral part of banking business, according to several factors, including:

increased competition, technological development, increasing the volume of banking transactions,

and the need for banks with large sizes. As the banks, is the institutions of a private nature, facing the

risks and making return of different forms at the same time, the credit risk is one of the most

important risks faced by banks, resulting from banking transactions with customers and institutions,

which are classified into different types that can be measured using indicators developed to help the

bank to identify and predict them in future, and help to control or minimize their effects. Accordingly,

the focus of contemporary studies is how to manage and control credit risk, decision-making

investment and finance in the light of the systems and methods of strict control and management,

which ensure clear identification and classification of those risks to the bank, and thus make the

appropriate decisions that lead to better achievement of its objectives. In spite of the different nature

of credit in the size, purpose and interest rates, date of maturity, type of security is required from a

client to another, the biggest risk is the loan granted, which is one of the most prominent forms of risk

facing banks activities and the bank have to deal with it always.

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The research and its importance Bank credit plays an important role in achieving the objectives of commercial banks; Loans

controlled by the existing assets in most banks (1), where a loan represented o 70% - 50% of the total

assets, and loans are that generate the largest share of operational income. So, the fact that good credit

is the most profitable bank's assets (2).Until now, the biggest challenge facing the bank credit is the

shortcomings of credit risk; where these risks work in a reverse direction against the achievement of

this credit to its objectives.

The International Accounting Standards confirm the need to demonstrate and clarify the risks related

to assets, and liabilities with a balance sheets of the bank and such that does not appear in the balance

sheets in the format that meets the requirements and needs of users of financial statements of the

Bank, as underlined by these standards on the need to disclose any amounts are set aside to meet

potential losses on loans whether this amounts to meet the specific loans or to meet the common risks

of lending.

The researchers found that the financial disclosure on the risks of credit and a provision of this credit

in the financial statements of banks facing problems, as the disclose came in a brief and vague

manner that does not meet the requirements of international accounting standards, and does not meet

the needs of users of financial statements of the banks as owners, lenders, depositors and regulators.

Where this disclosure did not explain the size of the credit risk faced by the bank, as well as the

volume of good debt and bad debt, and the value of allotments that must be configured according to

the size of credit risk. The researchers found a lack of clear grounds relied upon by the banks in the

composition of the provision as a means to address the credit risk, which have been identified as an

urgent requirement that must be fulfilled in order to provide a clearer vision about the safety and

adequacy of these provisions. From that perspective, and to address the former shortcomings, the

researchers proposed standards for measuring credit risk, as have also proposed a model for

measuring credit risk in order to develop the disclosure of accounting for these risks, as well as the

development of accounting disclosure on an credit provision to address those risks, in addition to

developing the bases used in the formation of a credit provision to commercial banks, in order to

provide clearer and more comprehensive disclosure to meet the needs of users of financial statements

of the banks, and composition of credit provision more integrity and objectivity, which would

contribute to the strengthening of the financial position of the bank.

Research Objectives: This research objective is as follows:

1 - Analysis of credit risk faced by commercial banks in Egypt.

2- Proposing standards for measuring credit risk of commercial bank in Egypt.

3 – Description of a model for measuring credit risk based on scientific grounds.

Limitation of research: Researchers deal with data imposed by the nature of the study, and the quality of effort; formed in the

total the limitations of the study, which was as follows:

1 - Address the risk management of bank credit to commercial banks within the credit activity of

banks without extending it to other activities of the banks.

2 - The study deals with theoretical aspects only, without the practical application.

Research plan: For achieving the objective of this research, under the hypothesis and its limitations, the researchers

divided the study into the following four subjects:

Section 1: the nature of the risk of bank credit.

Section 2: management and reduction of bank credit risks.

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Section 3: the proposed standards for measuring credit risk.

Section 4: The proposed model for measuring credit risk in commercial bank in Egypt.

The first section the nature of credit risk

Contemporary studies deal with credit risks, in terms of analysis and prediction, which would help the

bank to make objective decisions. Risk defines as a case of adverse deviation of expected result,

which leaded to damage or loss.

Banking risks in the banking industry define as a potential Bank's exposure to unexpected losses or

volatility of return on an investment; which affect the attainment of the desired objectives of the bank.

The main risks faced by banks are credit risk, which means the following:

- Risks that arise due to non-payment in full and on time, resulting a financial loss. (4)- credit risk

defines in the possibility of the inability of the borrower to repay the loan in accordance with the

agreed terms for credit granted (5).Accordingly, the credit risk is a potential loss arising from the

inability of the borrower to repay the value of the original amount borrowed and interest to the lender

at the maturity date specified in the terms of the contract credit, including those items related to risk

within the balance sheet, such as: loans, bonds, and items outside it, such as: letters of guarantee,

letters of credit and documentary credit.

1/2 sources of credit risk: For credit risk, it may be divided into particular risks and general risks, as follows

1- Unsystematic risk

It means the internal risks that are related to a company or an industry under certain conditions. so ,

examples of this type of risk; poor banking management, administrative mistakes , labor strikes, and

the changing tastes of customers as a result of the emergence of new products. Such type of

exceptional nonmarket risk would affect the ability of the client and his desire to repay its obligations

to the bank within the time agreed upon.

2- Systematic risk

It means all the risks that affect all loans, regardless of the circumstances of the bank lender, due to

uncontrolled economic, political and social factors. Examples of such risks are; risk of interest rates

change, change in customer tastes, inflation, and changing of foreign exchange rates, in addition to

technological changes (6).

In summary, credit risks occur because of internal factors that affect the ability of the bank, which

would require an occurrence prediction in the future, and can be minimized or controlled through

diversification.Contrary to general risks, affecting the movement of the market as a whole and it is

difficult for the bank to control and predict in the future as well as response, so we cannot avoid

general risk by using the policy of diversification.The overall risk due to systemic risks, and the other

part to unsystematic illustrated by the following equation: total risk = systemic risk +unsystematic

risk the following figure shows the sources of risk, diversification and lack of diversification:

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Expected return

Systematic risk

Total risks

Unsystematic risk

Risks

3/1 the most important credit risk and some indicators of measurement:

Credit risk can occur because of circumstances and variables unexpected come from the inability of

the client to pay and the total deficit. Accordingly, negative effects resulted on the bank and its

goodwill. Therefore, on financial transactions. The following represents the most important images

of credit risk facing the banking activity and some indicators of measurements.

A - Credit risk:

Liquidity risk: the policy of granting credit to customers related to the existence of compatibility with

the sources of funds for the bank to provide sufficient liquidity to meet withdrawal requests on

deposits by other clients, as the inability of the bank to instant liquidation of the assets at an

acceptable cost on profitability. Therefore, the risk of failing arises in conformity and harmonization

of cash withdrawals for customers and the client borrower repayments. However, the causes of

exposure to liquidity risk is as follows: (7)

- Poor planning for the bank liquidity, leading to inconsistencies between the maturities of assets and

liabilities.

- Poor asset allocation of the uses is difficult to turn into liquid assets.

- The sudden shift of some contingent liabilities to the actual commitments.

- The impact of external factors; such as economic stagnation, and acute crises in financial markets.

Risk pricing: the Bank shall study the prices of the lent products that are beard to

customers in the form of burden, and linked them to the level of risk, the more the degree of risk the

higher the expected return by the facilities, and it related to added margin, which distinguishes

between a client and another, so basic lending rate determined through the historic cost of funds or

market plus the reserve ratio and the cost of debt management. By the meeting of the Management

Committee of the assets and liabilities of the Bank on a regular basis .a discussion taken place

concerning to the basic lending rate and modified it according to need.

Risks associated with the period of facilitation: when the bank grants credit facilities ,

it shall conform with the nature of the client's business, the goal of funding, the period of recovery of

the expected return of the funding, where the Bank's role in making the facility period balanced

which do not be short, , or long affecting the direction of the expected returns and, in general, not be

directed towards financing the activities of a quick return to intermediate-term or long term, as the

bank needs to focus the control on the activity of new customers and their financial position.

Currency risk: represented by realized losses as a result of changes in currency exchange

rate related to the reference foreign currency for the bank, including the listing the debts in foreign

currency. The differences occur because of gains in income and expenditure linked to exchange rates

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by means of indicators, or to link of the values of assets and liabilities in foreign currencies, which

requires hedge against currency fluctuations to avoid potential losses.

Execution risk (8): From the necessary decisions, in the granting of credit; that the bank

shall consider, is updating information for customers (positions of accounts) on a daily basis, and that

any delay in the impact on the obligations of customers, by increment or decrement, during the day

to day operations which reflect the risk of credit decision, whether approved or rejected.

Risk of notifying and reporting: to ensure a proper implementation of the approval of the

resolution of credit, both internal (departments of the bank) and external (client), on all the terms of

the contract for credit and clearly, without omission of any condition, and that subjecting internal

reporting on control, but deviation from the implementation of the credit approval terms results a

great risk.

Risk of non-regularity of the periodic inspection of the credit: usually, the Bank faces

when granting the credit risks arising from the non-examination, and periodic inspections of the

credit department. and to identify the gaps that are a recurrent phenomenon such as bad debts , and

not to focus largely on the phase before granting credit for analysis and study the causes and

reviewed internally and on a regular basis.

Risk of rapid evolution of the volume of facilities: The growth of the size of the credit

facility and increase after a short period on the grant involves a significant risk in light of the stability

of the financial statements and not commencing of the repayment period, and then, the decision on

the performance during this period distinguished by lack of objectivity, which requires: (9)

The proposed increases do not exceed a certain percentage of the credit facility at a time, as

25% maximum

• The periods between the granting of facilities and the increase is not less than six months, which

required good reasons .

• The rise in facilities is to ensure a satisfactory manner by the good performance of the existing

facilities.

• Increases must be reviewed during the financial year to the financial statements approved at the end

of the year.

• No use of increases in the payment of arrears.

avoiding duplication of facilities when renewal even if the reason was lack of studies when granting.

risks of information exchange: economic studies have shown that transparency in the

exchange of information between workers in the field of credit (in the credit sector and marketing,

credit risk, and dealing of loans) or branches between officials of the accounts, represents a great

importance in determining the size of the potential risks, and forecasting them, which helps to

measure and control them relatively.

Risk of dealing of the assets and the interests of irregular debt: The early dealing of the

irregular debt contributes significantly to the mitigation of future increases in debt and this important

appears when you published the balance sheet quarterly showing the existence active securities, and

that any decline in profit will be frequent intervals. Accordingly, this requires from commercial banks

to abide by the instructions of the Central Bank to avoid interest, and the composition of allocations.

Risk of profitability versus safety: the greater the risks, the increasing the interests at the

expense of the safety margin. Therefore, higher risk leads to lower quality of the bank's loan

portfolio, and increase profits lead to the rapid growth of risk. However, the result that the risk of

profitability will affect the quality.

risk of inability to pay: risks differs for full credit, which are the risk arising mainly from the

client (10), since the reasons vary according to the bad credit situations, and include:

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- The risk of a human: in which related to the character of the client, her/his eligibility and the extent

of his/ her ability to pay its financial obligations based on the reputation and creditworthiness.

- The risk of providing misleading information to the bank (11) as the client sometimes hides

information about his/ her identity to obtain credit or raise the ceiling of credit facilities.The borrower

cannot repay the value of the borrowed amount with interest accrued by the time agreed upon. So. A

declaration of inability to pay will be when it cannot make payments scheduled in a timely manner

for a period of less than three months after the date of payment maturity.

Therefore, the Bank considers studying the financial statements to its customers for the three previous

years and determining the adequacy of the transfer of assets into cash and the size of the payment

guaranteeing of the loan value with accrued interest

Market risk: this risk associated with market and competitive position for products of the client

and the bank focuses on the various financial resources available to the client , analysis of his/her

performance during the previous three years, making future assumptions about his /her performance

also the bank focus on its analysis is to avoid financing new products, or trading in products which

increase the need of the market.

Risk of decline in guarantee value: the Bank typically focuses, in granting credit to customers and

institutions, on the request of the strong guarantees to ensure payment of the loan amount with

interest in full. The bank focuses also on monitoring and evaluation of the size of permanent

guarantees to avoid the risk of low value, and the focus is, in general, to provide the following

guarantees: real estate, securities, commercial papers and concessions.

Focus risks : Banks consider to reduce the risks in the loan portfolio and to achieve an

optimal degree of quality so a considerable concern is to the following:

• Client: when granting of credit, the focus by the concerned credit staff is on the size of the potential

risks, as an integral part of credit study, so that the distribution of credit portfolio, either on the

number of customers or market segments with a good manner, and within the minimum or maximum

terms is important.

• Activity: when distribution of credit portfolio, a focus should be on the lending limit to each sub-

activity, and compliance to credit limits for each sector, as well as adherence to the instructions of

supervisory authority.

• Guarantees: the bank should not focus on one type of guarantees and relied upon in the granting

of credit due to the decline of its value in future.

• Maturity: The concentration of maturity of facilities is one of the significant risks to the liquidity

position, and it related to documentary credits, letters of guarantee, and various external obligations.

• Political and legal risk: The follow-up of political and legal aspects is the most important matters

that required of the concerned staff of lending operations to follow-up, where the non-compliance

and adhere to them is a real threat to the industry, banking services. One of the political risk is that

related to State's ability to comply with its obligations and meet its debt and which related how to

supervising of financial institutions, regulations and laws governing the financial system within the

state. (12)

B - The basis of indicators for measuring credit risk: The identification of credit risk accurately, and to develop indicators and data that help to measure, is

one of helpful matter to manage of the risks and control them ; and then reduce the risks to the

lowest levels.

The most important indicators for measuring credit risk are as follows:

- data of the distribution of loan portfolio sectors on economic activity according to a quarterly basis.

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- Data of the distribution of the portfolio on collateralized facilities with determining the value of

security at the last evaluation according to a quarterly basis and facilities without collateral.

- asset quality indicators adopted within the Bank in accordance with warning system, which is

calculated on a monthly basis as follows:

O The proportion of the credit portfolio to total deposits.

O The distribution of the portfolio on the sectors of economic activity.

O The proportion of unsecured loans to total portfolio.

O A statement on focus up to 25% or more of the bank's capital base, whether in the form of

employment of the bank with the client, in the form of share capital and credit facilities, or in the

form of different funding types.

O Total data on the focus of more than 10% of the bank's capital base (with max)

O The proportion of total allocations to the facilities represented by loans and facilities

O The proportion of unorganized facilities / total credit portfolio.

O The Proportion of bad debts / total credit portfolio.

O The rate of expected return to total loans.

O Total net return to total loans.

- Data on the compatibility of existing securities with the granted facilities to determine the amount

of allocations, it is calculated by dividing the present value of guarantees on the total facilities

granted.

- Reports on some cases of credit that require identifying and positioning to ensure the regularity of

payment, and identify the causes of the bad debts that are not organized.

The following are the most important indicators to measure the risks including credit risks:

Type of risk Indicators used in the measurement

- Credit risk - Burden of loans / total loans

- allocation for bad debts / total ns

- allocation for bad debts / outstanding loans

- Liquidity risk - Basic deposit / total assets

- Volatile deposits / Total assets

- Sensitive assets - sensitive liabilities

- Exchange rate risk - Open position in each currency / capital base

- Total open interest / capital base

- Operational risk - Total assets / Number of Employees

- Working expenses / number of employees

- capital risk - Equity / total assets

- The first class of capital / risk-weighted assets.

- Rule of capital / risk-weighted assets.

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Section II

Credit risk management and reduction of risks

Based on the above, we find it is necessary to assume the central management at banks the

supervising of risks, working to reduce them and mitigate them to modify the path of credit and to

ensure the banking performance. The following represents how to manage the risk and bad loans

managements:

1/1 risk management in banks, according to the requirements of the Basel Committee on

Banking Supervision:

With the worsening crisis of external indebtedness of third world countries and the high proportion of

bad debts. Therefore, the Basel Committee on Banking Supervision was created, with the

participation of the major industrialized countries, in the presence of representatives of central bank

governors of twelve countries (Belgium, Canada, France, Germany, Italy, Japan, Netherlands,

Sweden, Switzerland United Kingdom, United States of America, and Luxembourg) in 1988. An

agreement on a rate of 8% minimum capital adequacy for banks, which applied these rules at the end

of 1992.

The Basel Committee on Banking is a regulatory system of risks facing the banking activity, risk

measurement systems, methods to mitigate them and maintain the stability of the banking system.

The function of risk management at the level of the bank is essential which concerns to

coordination between all departments of the bank in terms of identifying the various risks facing the

bank as credit risk, liquidity risk, periodically market risk that shall be compiled in the form of reports

to senior management for discussion.

The main objective is to "measure the expected size of risk which may occur in order to mitigate,

control and not to completely revoke.

We note in this regard that good risk management requires the banks commitment to the following

basic principles: (13)

- Each bank shall have an independent committee called "Committee for Risk Management" that

concerns to preparation of policy. In addition, specialized risk management will undertake the

implementation of those policies, and monitor as well as measure risk on a regular basis.

- Appointment of "risks responsible" for each type of risk who has a wide experience in the field of

banking.

- develop a specific system to measure, control the risk in each bank, and determine a limit of credit

and liquidity.

- Assessment of the assets of each bank and specially investment as a basic principle of risk and

measurement of profitability.

- use the modern information systems for risk management and security controls appropriate to

them.

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- the need for an independent internal audit unit at banks controlled by the Board of Directors which

review all the Bank's business, including risk management .

1/ 2 credit risk management approaches:

Credit management process means how to take credit decision at various levels of administrative and

organizational matters. This policy includes general standards and guidelines that should be adhered

by the branches of credit to avoid credit risk. (14)

In general, credit management focuses on two types of approaches by which the credit analysis is

done to determine the degree of risk as follows:

- first approach : it is known as " discriminatory approach " and is based on the idea of clients

appraisal and take a general idea of their personality , their social situation and the extent of their

credibility. Then determine the objective of the credit application. Type of activity financed, and the

nature of the security provided. However, the focus of credit department is to study the possibility of

the client and his / her desire to repay the loan with interest on the due date and that by concerning on

his/her financial solvency.

- Second approach: it is known as the "experimental approach" after verifying the identity of the

borrower, the financial solvency, and compliance of the secured provided with the volume of credit.

So point or the weight given to each measurement that shall correspond to the weights specified by

credit management.

The risk analysis and forecasting in advance allows for the management of credit to control , mitigate

and to avoid bad effects on the banking system so generally goals of risk management is to ensure

that:

- Total risk.

- Focus of risk.

- Risk measurement.

- Control of risk and preparation of reports and in accordance with legal norms.

The following deals with how to manage credit risk and reduce the risk of bad loans:

1/2/1 credit risk management:

Risk management means a set of administrative arrangements designed to protect the assets, profits,

reduce the loss to the lowest levels and select the quality of these risks and measure them, as well as

working to adopt measurement to control. The process of risk is on three basic principles: (15)

o Optional: choosing a lowest number of the bad debt risk.

o Put a limit to risk: by the type and class of the loan.

o Diversity: This is to avoid the focus of loans on certain customers.

the banks processes the credit risk of possible occurrence according to banking information to

assess the risks arising from the decision to grant credit, and focus on the method of preventive

approach by credit management to avoid risk, or the approach of dealing in case of risk where

required to face its negative effects on the performance of the bank. These approaches addresses as

follows:

- Banking information: Before granting the credit. The bank uses the query and investigates all

possible ways and means on the status of the client, his /her financial position information and the

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extent of its ability to meet his/ her obligations when due in accordance with the agreed terms, and the

most important sources for information are:

- an interview with a loan applicant : that a personal interview with the client disclose to the Bank a

great side about his/her character and reputation and the truth of the information provided on the

status of the institution ,its activities , its competitive position and future plans.

In addition, it reveals about the history the organization and its finances, which would assist credit

management responsible in the assessment and knowledge of the risks that may face credit granted.

- Internal resources: The internal organization of the Bank is an important source in the decision to

credit, especially if the loan applicant who had previously dealt with the bank, and is determined by

the internal sources of information through:

o Bank accounts for the client that reveal his/her position either creditor or debtor and determine the

nature of its relationship with the bank.

o the financial position of the client and record checks drawn on it.

o A commitment of the client with the contract terms and his / her ability in the payment of

obligations by the agreed due dates.

- external sources of information: external departments represented by other banks , suppliers,

brochures of Department of Statistics Chambers of Commerce, the official newspapers and the

courts .(16) which help to provide management of credit with information concerning to borrowers

. In addition, the exchange of information between banks about the debtors would help them to assess

the magnitude of risk.

- Financial Statement Analysis: It is the most important sources for obtaining information so

administration of credit analyzes the financial statements of past years of the institution and

preparation of future statements as well as analysis thereof in addition to analysis of the estimate

balance sheet that reveals the financial position of the institution at a specific date, which provides

credit management of information on the financial position of the borrower and his / her ability to

generate cash flows to ensure payment of the loan amount with interest.

2 - Preventive approach: For the prevention of risk of bad debts, before it occurs so credit

management follows up on the credit granted to avoid risks resulting from it by focusing on the

following elements:

- provision of appropriate securities: in order to avoid potential risks, credit management has to

assess the value of the loan, and on the basis of, or more than, it is determined appropriate security,

and is one of the most important and most effective preventive measures to face the threat of non-

payment arising from the client whereas this procedure allows to compensate the bank and obtaining

the funding. The bank usually focuses on two types of guarantees as follows:

- Personal guarantees: which is a personal commitment by the borrower to ensure payment of the loan

amount; interest and thus they reflect the security to cover the loan and includes: (17)

o Guarantees: guarantee is a contract whereby a person called the guarantor undertakes to the creditor

to fulfill this obligation if not fulfilled by the creditor himself/herself.

o Reserve guarantee : a contract written by a particular person which undertakes to pay the amount of

commercial paper or part thereof in the case of the inability of the payment, and securities that are

being under this type are bonds and checks.

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o Credit Insurance: A form of personal guarantees, which involves ensuring provided by insurance

institution for the beneficiary's account to cover the risk of non-payment and the fact that the

coverage of credit potentially; that makes him/ her the subject of insurance.

- Real Guarantees: These guarantee is based on what made the subject of security of goods and

equipment, real estate, and provide these guarantees for the mortgage and not by way of transfer of

ownership so as to ensure paying off of loan (18) this type takes the form of mortgage, pledge, and

excellence, and generally the bank . The bank, when determine the security, has to take into account:

o the value of the security is not of large fluctuation during the period of credit.

o The adequacy of guarantee to cover the loan with interest and other commissions.

- Limiting of credit focus: it means directing credit to a single client due to the magnitude of his / her

position, which includes risks that should be limited and reduced by: (19)

O Some countries impose limits on the credit facilities per customer ranging between 10% - 25% of

the capital. Follow-up focuses on the credit risk of any economic activity or geographical area with

periodic follow-up.

O To ask guarantees when estimating the size of risk, which is essential because the real guarantees

are not reached until after the collection of such value.

O Capital adequacy of commercial banks as a preventive system internationally agreed - the Basel

Committee on banking solvency - and requires that the finding out of the adequacy of the capital

expense that ensuring the quality of existing assets.

Efficiency in the preparation of credit policy: In order to access the credit policy and avoid the risk

of bad debts , the Bank's management has to train credit staff constantly to raise the level and

efficiency, which helps to set goals and plans properly and then determining the level of potential

risks and processing them according to the standard rules.

3 – Treatment approach: represented by he use of methods and techniques for risk management so

this approach is based on:

- Organization of collecting credit: In order to pay off the credit granted in appropriate

circumstances and in order to avoid losses, the bank has to follow the policy of the collection of dues

on the clients by organizing mechanism for the granting of credit, and the development of effective

standards to ensure collection full of the loan and interest within the deadline, this depends on:

- The development of approach reveals cases of current and future non-payment.

- Continuity in follow-up and processing credit.

- Set standards developed o obtain the largest possible of the current and future due.

1/2/2 managing of bad debts

Bad debts resulted from certain reasons and can be divided into three groups:

A - Causes by bank leads to bad credit: these reasons resulted from nonobjective study of the decision

of the credit and considering the potential risks in terms of risk management, market risk, capital risk,

and guarantees real estate risk (20) so the facility is done at once without monitoring and follow-up.

B – Causes by customers leads to bad loans: this risk resulted from false information by the client

about his/her financial position , incomplete information lack of efficiency of technical and

administrative in the use of the loan and directing it to inappropriate activities and the nature of the

loan, which entails inability to fulfill its obligation towards the bank.

C - External causes: represented by causes that is beyond the control of the Bank's management and

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the client. These causes concerns to the economic situation of the country (recession phase) or the

political and legal conditions when you make changes in regulations and legislation governing the

state.

Bad loans are due to the inability or no interest of the client to pay off so bank has to take actions,

which differ depending on the situation of the borrower.

If the borrower is in a case of hardship to fulfill the obligations, credit management analyzes financial

statements to examine and correct the imbalances and it may require from the borrower to provide

estimate balance sheet to determine the size of cash flows and ability to repay the loan granted.

If it was observed that the situation of the borrower is temporary, credit management works to help

the client and provide advice to rescheduling reduction of interest rates on loans and additional

facilities may be granted to facilitate its activities. (21)

Credit management uses this friendly method to make close relationship with customers who have a

confident and good reputation in order to keep the bank's position with existing customers and attract

new customers.

if the case shows through the process of credit analysis that it is a difficult situation of the borrower,

so the credit management faces bad debt required to take the necessary to settle the rights of the

client and declaration of bankruptcy .credit risks faced by banks and standards adopted in the its

measurement and its management as follows (22)

Financial risks

Traditional measures

Advanced measures

Methods of Risk Management

Credit risk Average loans / assets

- uncollected loans / total losses - Loan losses / Total loss - Reserve for loan losses / loans

- The degree of loan focus - The growth rate of loans

- The high lending rates - outstanding reserves / loans

- Analysis of credit - Documentation Credit - Credit control - A special assessment of credit risk

Liquidity risk - Loans / Deposits - Liquid assets / deposits

-Borrowed money - Borrowing costs

- Liquid assets - Borrowing / deposits

-liquidity -liquidity for the emergency - The cost model or change - development of funding sources

Interest rate risk

- sensitive assets to interest rate / sensitive liability - The Gap

- A series of gaps - Flow Analysis - Moving gabs

- Managing the moving gap - Flow Analysis

Leverage risk - Equity / deposit - equity / assets - Total Debt / Assets

- Modified risky assets / property right - Growth in assets compared to growth in the equity

- Capital planning - Dividend policy - Capital adequacy

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2 - Means of reducing the risk of bank credit:

The credit risk prediction, the development of benchmarks and indicators help credit management in

analyzing, studying and taking their risks, as the risks are difficult to eliminate so the reduction and

mitigation of them is strategies of banking performance. Among the means and methods to manage

the credit risk is diversification at the level of loans and the level of portfolio investment. The

following addresses the diversification of credit risk and the theory of Markowitze:

First: credit risk and the theory of Markowitze

The idea of diversification of risk is the most important way adopted by the credit department.

Moreover, the idea of diversification is based on: (23)

- Portfolio analysis according to economic activities that belong to existing facilities, which were

awarded to customers.

- Portfolio analysis in accordance with terms of facilities granted (short, medium, long).

- Portfolio analysis according to the size of customers (small, large).

- Portfolio analysis according to the type of currency granted by the facilities (the preparation

of the financial position of the bank in accordance with the main certain process).

Simply, diversification means is the application of the maxim "Do not put all eggs in one basket" .so,

based on this perception. Theory of Markowitze presented the following scenarios:

• In the case of investment projects to be fully related to each others and negative to each other as the

return on investment (a) greater than the return on investment (b) which means that the correlation

coefficient -1" Therefore, Diversification in this case eliminate of the risk, but it is not possible in

practice.''

• In case of non-correlation of investment projects, "and the correlation coefficient= 0", so

diversification in this case leads to the reduction of the degree of risk dramatically.

• In the case of investment projects with a correlation is full and positive, "and the correlation

coefficient +1". Diversification in this case does not entail any reduction of the risk."

Thus, the theory of diversification reflected on the credit decision of the bank. Which determines on

its basis the trend of risk, to ensure the achievement of return and avoid risk the credit? However, the

risk management shall adopt the diversification and Markiwitz portfolio theory to which allow

hedging against the potential risks and reduction to the lowest possible level and as diversification

large the less risk.

Second: the diversification of investment portfolio

As well as diversification of credit risk , the management of credit risk diversify its credit portfolio

which is known as " simple diversification " . The main perception of Markiwitz is to diversify

investment portfolio in light of two main dimensions (24)

• I: rate of return on assets.

• II: This expected change to this return based on the standard deviation of return.

In the case of composition of an investment portfolio consisting of two assets or more, there is no

perfect correlation between them and by the measure of standard deviation the level of risk is

determined relatively lower than the complete or large correlation.

The theory of diversification aimed at creating an investment portfolio with the efficiency of the

meaning of return and risk, under the possible highest-level return against a certain level of risk

whereas an investment risk is lower when there is a diversified investment portfolio.

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Section three:

Proposed criteria for measuring credit risk

The preliminary phase towards building a model for measuring credit risk represented in the

development of criteria to measure credit, risks. Researchers believe that these criteria are a set of

variables that relate to the rank of credit risk.

The researchers measure the risk of dividing the criteria of credit risk to three groups as follows

(26):

A – A Criteria for the nature of the client.

B – Management criteria.

C - The financial criteria.

So that each group covered a number of criteria consistent with one another in nature, and address the

following criteria for each

A –Suggested criteria for the nature of the client

These criteria concerned with a number of characteristics or measurements related to the nature of the

client and are as follows:

1 – The first impression of the client:

this criterion related to character of the client, where the credit analyst initially must have first

impression by his meeting and discussion with the client and must identify the ideas , expertise and

efficiency in the conducting of his/her business, and

Thus can determine the risks faced by this client.

2 - The nature of the product:

The nature of the product that the customer producing or handling contributes largely in determining

the degree of credit risk for the client. Nature of the product means how important it are for the

market, there are products considered strategic or vital, while there are other products that included

limited importance in the market, the degree of credit risk varies depending on the nature product.

3 - Demand for the product:

the demand for the product on the market controlled by several factors as price and quality of this

product, the product that is approved in the market achieves the client's high level of sales, while the

product faces a weak demand included a decline in sales, and hence the degree of credit risk ranges

between the increase and decrease depending on the size of the demand for the product on the market

4 - Market competition:

The degree of competition varies from a client to another. Some clients face strong competition,

while other clients face limited competition. The degree of market competition is controlled by

several factors as nature of the product, price, quality, and the degree of credit risk faced by the client

depending on the degree of available competition.

5 – Guarantee:

One of the important criteria that contribute to determine the credit risk to customers is the guarantee.

Therefore, when there is an availability of adequate and good insurance for the client, the credit risks

are lower and, consequently, credit risk varies that arising from these guarantees between the rise and

fall.

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B – Administration criteria:

these criteria related to administrative features or characteristics of the client on the grounds that the

administrative aspects is an influencing factor in the success or failure of organizations, these criteria

are as follows:..

1 - Quality of the product:

The high-quality product enjoys high demand in the market and thus achieves a good level of sales.

Therefore, the client who enjoys high quality product or products faces low risks of credit, but the

low quality products cannot achieve the optimal level of sales and thus higher credit risk associated

with them. Quality associated mainly with management component, which can create this quality

and control in order to preserve them.

2 - Acceptable profit margin:

Mainly associated with the degree of efficient productivity of the institution and which they can either

increasing the volume of production at lower costs and maximize sales revenue and thus increase the

profit marginn. Therefore, the opposite of this case reduces the profit margin and, in general, the

client who enjoy achieving a high profit margin, has a slower the credit risks, while the client who

achieves a low profit margin faces high credit risk.

3 - Average cost of the product:

The administrative efficiency of the institution reflected significantly on the cost of the product.

Therefore, the establishment enjoyed by high efficiency can govern the cost of the product in order

to maximize sales and profits, and therefore, such an institution faces low credit risk. However, the

institution that cannot control the level of the cost of their products to increase this cost faces high

credit risk due to lower sales and profits.

4 - Sales and marketing efficiency:

The most important criteria on the administrative efficiency of the institution are sales and marketing

efficiency of the institution. By these criteria, the establishment can maximize sales and then profit

through the different sales and marketing tools. The establishment, which has effective sales and

marketing, has lower credit risk, but the institution suffers from low efficiency of sales and marketing

experiences high credit risk

5 - Administrative capacity:

The success of institution depends largely on the administrative capacity available to management.

Therefore, the management who has large capacity has viable success, growth and lower credit

risk. However, the institution suffers from weak or bad management must face the problems that limit

its success and therefore facing high credit risks.

Efficiency of operational activity:

operational activity related to a range of activities of the efficient production turnover of inventory

and assets , the collection of debts, notes receivable, control in general and administrative expenses.

So that you can assess these activities to judge the efficiency of the institution to manage its

operational activities. The institution characterized by high efficiency productivity and high turnover

rates inventory, assets rapid collection of debts, low rate of administrative and general expenses has

its high operational efficiency and thus lower credit risk. However, the institution suffers from poor

management of previous activities, faces high credit risk with a lower operational efficiency.

The efficiency of operational activity can be measured through the following indicators (10):

Efficient production = (input/output) x100

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Or (net sales/sales cost) x100

Inventory Turnover= net sales / inventory

Assets turnover= net sales/ total assets

Average collection period = {(debtors+ promissory notes) / net sales} x365

Administrative, general and sales expenses = {(administrative + general and sales expenses)/ net

sales} x100

C - The financial criteria:

The financial aspect of the business is considered the most important criteria by which to determine

the strength and success of this enterprise, as well as financial criteria characterized by objectivity and

this makes them trustworthy as well as these criteria are reliable when measuring credit risks are as

follows:

1 – The pervious financial matter : The previous customer's financial matter is related to a set of financial criteria that will be addressed

later, starting from the standard number (3) and up to the standard number (7), and that for the past

three years, where they are assessing the previous financial client through these criteria. The client

who has precedent good financial matter faces lower credit risk whereas the client who suffers from

past weak financial matter usually faces high credit risk.

2 - Credit history:

The credit history of the client related to his/her credit situation with the banks over the past years.

There are clients with good credit, which were marked by their credit dealings with banks in the

payment of the due of banks in a timely manner, and these customers characterized by lower risks of

credit, customers who suffer from bad history credit face high credit risk.

3 - Cash Flow (28):

The case of present and future cash flows is the most important financial criteria that can be relied

upon when measuring credit risk of the institution, so institution enjoyed the achievement of net cash

flows within high value has a high capacity to repay the credit granted to it from the bank and thus

lower their credit risk. The institution suffer from weak cash flows is unable to pay its obligations for

the bank in due dates, and thus higher credit risk.

4 - Liquidity (29): Liquidity plays an important role in determining the financial efficiency of the institution, which

indicates the degree of liquidity for the institution to its capacity to fulfill its obligations in the short-

term maturity dates, so the institution achieves a good rate of liquidity has high efficiency to pay its

debits, which reduced credit risk. However, institution suffers from bad liquidity will fail to achieve

liquidity ratio; and thus face high credit risk because of their inability to repay short-term obligations.

Liquidity can be measured through the following indicators:

Current ratio= current assets/current liabilities

Acid test ratio= (current assets- inventory) / current liabilities

5 - Profitability:

Profitability is still the main criterion to judge the efficiency of the institution. Therefore, it is a strong

indicator on how success of the institution in achieving its objectives, profitability supports the

financial position of the business and adding value. Especially if we add the profit in completely or in

part, to the equity, the financial indicators of the institution improved and become stronger in its

financial position.

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The institution , which is characterized by the achievement of numbers and percentage of high profit

has the ability to expansion , growth and resilience in the market and thus lower their credit risk,

whereas the institution with has low rates of profitability, or they make losses, unable to compete

and to continue and this increases their credit risk.

Profitability can be measured through the following indicators:

Return on sales = (net profit after tax/ net sales) x100

Return on equity = (net profit after tax/ equity) x100

Return on assets = (net profit after tax/ total assets) x100

6 - Leverage (29):

one of the most important financial criteria that must be taken into account when measuring credit

risk is the case of leverage for the institution , leverage indicates to the ability of equity to bear

external debt for the institution ,so institution must have a limit to the leverage and external debt

must be limited in the light of the value of equity. The more the leverage is declines , the increasing

dependence of funding on their own resources that are greater than the external debt resulted the

power of the financial position of the institution and reduced the burden of funding and thus lower

the credit risk of the institution . but institution which its leverage rations more than limits, depends

on external debt that exceeds the equity . Accordingly, it weakens the financial position of the

business and increases their credit risk; advantage can be measured in the following ratios:

= total short – term liabilities / (total assets /equity)

7 - Balance sheet Rating (30)

the balance sheet indicated to rank of the strength of the financial position of the institution in light of

the entire liquidity situation and the state has advantage. Rating can be measured by the following

equation:

Rating = {+ (Current Assets – Inventory) / Current Liabilities} - {(Current Liabilities/ equity) +

(total liabilities+ equity)}

Rating can be assessed by the following classification (31):

- If rating> 1, this indicates that to quality.

- If one> Rating> - 2.5, this indicates to medium quality.

- If Rating <- 2.5, this indicates to bad.

Thus, the institution that achieve Rating> 1 bear the low credit risk, and the institution that achieves

one> Rating> - 2.5 take the medium risk of credit, whereas the institution that achieves Rating <- 2.5,

bear high credit risk.

Section IV

The proposed model for measuring credit risk

The proposed model can be formulated to measure the credit risk through the following steps:

1 - Determine the levels of credit risk:

Levels of credit risk that could be faced with the client can be classified to the following levels, range

from Low to High:

The first level low risk

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The second level moderate risk

The third level Acceptable risk

The fourth level relatively high risk

The Fifth level High risk

Sixth grade very high risk

2 - Application of levels of credit risk on the criteria for measuring credit risk:

We dealt, in the previous section, with criteria for measuring credit risk and we divided them into

three groups; the first group is the nature of the client and it includes five criteria. The second group

is administrative standards, includes six criteria, while the latter group is the financial criteria, and

includes seven criteria. When application the levels of credit risk in the previous steps on the

eighteen criteria, each criterion has six levels of credit risk.

3 - Study and evaluate all of the criteria for measuring credit risk and identify the score: At this stage, study and evaluate of each of the criteria for measuring credit risk for each client to

measure the risks of credit is done. in light of this assessment, a score is given to each criterion, and

the previous Score has a specific range of 1-6, depending on the degree of risk, so that the lowest

level of risk has 6, and then moving to higher standard risk scores (without fractions) to get to the top

of the standard risk, which is taken a score of 1.

4 - Linking the Score of measuring credit risk with levels of credit risk: Score of measuring credit risk, which specified in the previous step, is linked with levels of credit risk

According to the following table:

Level of credit risk Score Degree of credit risk

First 6 Low risk

Second 5 Moderate risk

Third 4 Acceptable risk

Fourth 3 Relatively high risk

Fifth 2 High risk

Sixth 1 Very high risk

5 - Determination of weights of importance to the eighteen criteria for measuring credit risk: Due to the different nature of each of the criteria for credit risk, there will be a difference in the extent

of the importance of this criterion when measuring credit risk, so it is necessary to determine weights

of the importance of each of the criteria for eighteen criteria that related to measuring credit risk,.

However, the researchers suggest that these weights are as follows; ranging value of 1-10.

No Criteria Weights

1 Initial impression of the client 2

2 Nature of the product 7

3 Demand for the product 9

4 Market competition 5

5 Guarantee 7

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Administrative criteria:

Number Criteria Weight

6 Product quality

7

7 Acceptable profit margin 8

8 Average cost of the product 8

9 Efficient sales and marketing 8

10 Administrative capacity 9

11 Activity and operational efficiency 8

Financial criteria:

Number Criteria Wieghts

12 The previous financial matter

7

13 Credit history 8

14 Cash flows 8

15 Liquidity 8

16 Profitability 9

17 Leverage 7

18 Rating 7

6 –weighted score related to criteria of measuring credit risk:

score achieved by each of the criteria of measuring credit risk weighted by the importance which

identified during the previous step to obtain the Score weighted by importance.

7 – determining the percentage of the credit risk for the client (16): After you select the weighted score by importance for each of the eighteen criteria to measure the

credit risk of the client , the percentage is calculated of each set of criteria to measure the degree of

efficiency of the nature of the client and the administrative and financial efficiency to him/ her . Then,

calculating the percentage of the credit risk of the client.

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8 - Determine the level of credit risk in the light of the percentage accruing to the credit risk of

the client:

Levele of credit rsik Score percentage Degree of credit risk

First More than %90 - % 100 Low risk

Second More than 75%- %90 Moderate risk

Third More r than 50%- 75% Acceptable risk

Foruth More than 40%- 50% Relatively high risk

Fifth More than 25% - 40% High risk

Sixth For 1%-25% Very high risk

9 - determining credit ratings in light of the outcome of measure of credit risks measure

Customers who achieve the results from the first to the third level are classified as regular clients

and their debts classified as good debt, and customers who achieve results fall from the fourth level

until the sixth grade are classified as clients with bad debt . For bad debts, reclassification of their

debts shall be done to under standard debts, doubtful debts and bad debts according to the level of the

fourth to sixth grade, respectively, and thus can be classified as a debt under the credit risk levels as

follows:

LEVEL Credit risk Debt ratings

First Low risk Good debt

Second Moderate risk Good debt

Third Acceptable risk Good debt

Fourth Relatively high risk Bad debt (under the standard)

Fivth High risk Bad debt (collection is doubtful )

Sexth Very high risk Bad debt ( very bad)

- Making a credit provision : a credit or debt provision will be constituted in light of the results obtained from the

measurement of credit risk, so it can be constituted with certain percentages in accordance of

the nature of each level of credit risk as follows:

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The level of credit risk The degree of credit risk Provision credit ratio

( of the value of debt)

First Low risk %5

Second Moderate risk %8

Third Acceptable risk %13

Fourth Relatively high risk %30

Fifth High risk %60

Sixth Very high risk %100

It is clear from this category with the ratio of credit provision that good credit is allocated low

rates thereto which fit with the degree of risks of credit, but bad credit has allocated a provision that

has high ratios so that to fit also level of risk the credit,. However, it worthy notes that when the risk is

almost certainly at the level of the sixth within the bad debts , a provision with 100% ratio is allocated

thereto and the assumption being that these debts are fully losses.

Results and recommendations:

First: Results:

In the light of this research, the main conclusions of the researchers is as follows:

1 - the most important shortcomings faced by the credit risk management is the failure to indicate the

volume of bank credit risk for credit-based bank, and failure to indicate the size of good and bad debt.

2 - We can rely on specific criteria to measure the credit risk of the banking and make a provision.

3 - We can measure the risk of bank credit through a specific model depends mainly on the idea of "Score

System".

4 – Making the credit provision could be more integrity and objectivity if it has been based on correct

measuring of the risk of bank credit.

5 - The possibility of developing credit risk management and provision is when it is in the context of the

availability of sound and objective measure of credit risk to meets well the needs of users of financial

statements of the banks.

Second: Recommendations

In the light of the results of research, the researchers recommend the following:

one - the adoption of standards proposed by the researchers to measure the credit risk of commercial

banks, which is on objective basis to measure these risks.

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2 - Activating the proposed model for measuring credit risks of commercial banks.

3 – To rely on the results of measuring the credit risk of commercial banks within the framework of the

proposed model in the composition of credit provisions, so that these provisions are more objective and

realistic as well as safety.

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Munshat Alamrif, Alexandria.

[14]. Atta, Mohammed Mohammed Mohammed Bakhit, Ali Sayed. (2009) risk management of

marketing activities in Egyptian business organizations, "An Empirical Study." Journal of

Contemporary Business Research, Faculty of Commerce - University of Sohag, Volume 23,

No. II, December, P. 98.

[15]. Ghoneim, Ahmed. (2000) bad debts and fugitive credit (unpublished), P. 38.

[16]. Latrash , Tahir. (2001) Banks Techniques, Office of University Publications, Algeria.

[17]. Previous reference ,P.168.

[18]. Sisi, Salah al-Din Hassan. (1998) banking facilities to institutions and individuals.

Alwesam House for printing, Cairo.

[19]. Al-Zubaidi, Hamza Mahmoud , previous reference.

[20]. Rashid, Abdul Muti Ridah and joudeh , Mahfouz Ahmed. , previous reference, P. 287.

[21]. Hammadah, Tarek Abdel-Al. (2003) Previous reference, PP. 241-347.

[22]. Mohamed Kamal Khalil Hamzawi, previous reference, P.39

[23]. Ibtihaj Mustafa Abdul Rahman, previous reference , P.455

[24]. Makawi , Nadia Abu Fakrah. (1998) analysis of banking risks in the commercial bank in

Egypt (empirical model ) the scientific journal of economy and trade, Faculty of Commerce,

Ain Shams University, No. II, April.

[25]. Saban, and Samir and Abu El Makarem, Wasfi and Helal, Abdullah. (2000) medium

Financial Accounting - measurement, evaluation and accounting disclosure. University

House, Alexandria.

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[26]. Koch Timothy(1995). Bank Management, 3 rd . Edition: Florida, the Dryden Press.

[27]. George, Hempen& Coleman, Alan & Simon son, Donald, (1983) Bank Management. Text

and cases. N.Y, John Wiley& sons.

[28]. Roger, Hale(1983). credit Analysis – A complete Guide. U.S.A, John Wiley& Sons.

[29]. John, Coleslaw (1989) credit Analysis – How to Measure and Manage Credit Risk.

Cambridge, Wood head – Faulkner limited.

[30]. I bid. , p. 106.

[31]. I bid, pp .113 – 117.

EXPLORATORY FACTOR ANALYSIS: VALIDATION OF MATHEMATICAL

VALUES INCULCATION MODEL AMONG SECONDARY SCHOOLS‟

MATHEMATICS TEACHERS IN NORTH-EASTERN REGION, NIGERIA

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MUKHTAR ALHAJI LIMAN

MUHAMMAD BURHAN IBRAHIM

SHITTU, AHMED TAJUDEEN

Abstract

The use of Exploratory Factor Analysis (EFA) on researches based on certain theoretical frame-

works in both social sciences and education cannot be over-emphasized, as such this study

employed the Exploratory Factor Analysis (EFA) in an attempt to validates the mathematical

values inculcation measurement model developed and used in the western cultural society by

Professor Emeritus Alan J. Bishop, in order to see whether the model works among secondary

schools‘ mathematics teachers in the north-eastern part of Nigeria with aim of finding whether or

not the model also suit the north-eastern cultural community to which schools‘ mathematics

teaching and learning is also paramount. The preliminary sample size for the study is (n=101)

secondary schools‘ mathematics teachers‘ that are involved in the study. The instrument for the

data collection was a 40-item Questionnaire with some of the items designed and adopted. The

factor extraction method was a Principle Component Analysis (PCA) and only factors with

eigenvalues >1 were extracted and three factor solution was realized. Twenty one items loaded

on the three factors, with eleven items on the first factor (sociological mathematical values

(SMV)), five items on the second factor (attitudinal mathematical values (AMV)) and lastly five

items on third factor (ideological mathematical values (IMV)). The reliability of each factor was

greater than 0.6 and the overall reliability of the three factor solution converges at 0.636. The

total variance explained was 54.3% and Kaiser-Meyer-Olkin Measure of Sampling Adequacy

(KMO) was found to be 0.850 which was greater than the required merging of 0.6. The purpose

of this study is to validate mathematical values inculcation model with three main construct,

which include: sociological mathematical values (SMV), attitudinal mathematical values (AMV)

and ideological mathematical values (IMV) among mathematics teachers‘ in the north-eastern

cultural society of Nigeria and at the same time acquaint secondary schools‘ mathematics

teachers‘ the need for the inculcation of mathematical values in mathematics teaching and

learning with sole objective of enhancing better understanding of mathematical concepts.

Keywords: Exploratory Factor Analysis, Validation , Mathematical Values, Inculcation Model,

Secondary Schools, Mathematics Teachers , North-Eastern Region, Nigeria

INTRODUCTION The role of values in mathematics teaching and learning cannot be over-emphasized in the sense

that for a successful mathematics teaching and understanding of mathematical concepts,

mathematical values inculcation in the course of mathematics teaching plays a vital role and

should be imbibed by every mathematics teacher. The contemporary discipline of mathematics

has been developed over millennia to incorporate a rich history and tradition that draws on the

work of many societies and cultures (Lancaster,2010). The aspects of mathematics developed,

the way mathematics was regarded, and the approaches to working mathematically have also

varied across these societies and cultures, and changed over time (Lancaster,2010). In some

societies and cultures knowledge of mathematics and its applications has been the province of an

elite class of philosophers, priests or scribes, in others merchants and explorers, in yet others

scientists and industrialist (Lancaster, 2010).

It can be deduced that, the conception of values in mathematics differ from one society to

another and at time from one culture to another, as such there is an increasing demand for the

mathematics teachers to know better the learners societal norms and values and their cultural

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affiliations, this will enable them to inculcated the desirable and needed mathematics values

based on the need and aspiration of society and culture where they came from. In many societies

and indeed in contemporary Nigerian society, strong numeracy is expected of all adolescents,

and a sound mathematical background is an essential requirement for many pathways of further

study and it is a required as part of the compulsory years curriculum for senior secondary school

students in the late adolescents years of schooling (Lancaster,2010). This poses challenges to

mathematics teachers as to have tried to over-come through knowing the values they are teaching

in mathematics classroom and the purposes to which mathematics is being a subject of study.

LITERATURE REVIEW The research field of values in schools‘ mathematics teaching and learning has been

conceptualized in explicit ways and developed since the late 1980s by Alan Bishop and stated

that, there is need for the academic community to bring together considerations of mathematics

teaching and values education if we are to teach mathematics successfully for democracy, and

also argued that both considerations of education for democracy and of making school

mathematics more relevant to the demands of everyday living involve the teaching and

inculcation of values to students (Bishop,). In Bishop‘s views, ―values in mathematics education

are the deep affective qualities which education fosters through the school subject of

mathematics. They appear to survive longer in people‘s memories than does conceptual and

procedural knowledge, which unless it is regularly used tends to fade‖ (Bishop, 1999, p. 2).

(Bishop, 1988) in (Bishop, et‘al, 2010), noted that, human beings everywhere and throughout

time have used mathematics and mathematics typically can be observed as behaviors illustrating

the following six ―universal‖ activities (i.e. every cultural group does them): counting,

measuring, locating, designing, explaining, and playing. These behaviors are reflective of the

culture of the people demonstrating them and are inexorable influenced by what that cultural

group values.

As a result of demands that students become more economically oriented and globally conscious,

mathematics educators are being challenged about which values should be developed through

mathematics education and the major concern is that, although values teaching and learning

inevitably happen in all mathematics classrooms, they appear to be mostly implicit

(Bishop,et‘al,2010).

More-over, in the modern knowledge economy, societies are demanding greater mathematical

and scientific literacy and expertise from their citizens than ever before and at the heart of such

demands, there is need for greater engagement of students with school mathematics and science

(Bishop,2008). The organization for economic co-operation and development (OECD) and the

program for international students‘ assessment (PISA) put forward the definition of numeracy as:

“ Mathematical literacy is an individual‟s capacity to identify and understand the

role that mathematics plays in the world, to make well-founded judgments and to use

and engage with mathematics in ways that meet the needs of that individual‟s life as

a constructive, concerned and reflective citizen” (OECD, 2003).

As a result of that, there is an ever increasing demand for mathematical values inculcation in a

more explicit ways so that the learners of mathematics can realize and appreciate the beauty

aspect of learning school mathematics as a subject of study and contribute meaningfully to the

betterment and development of the societies to which they were belong. From above analysis, it

has been established that, successful mathematics class should be one that, which mathematical

values are portrayed in an explicit manner to the extent that the linkages between mathematical

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concepts and its usefulness or application to the learners‘ immediate environment exhibited high

degree of comprehensiveness.

(Bishop,1999) reiterated the earlier conception of mathematical values in (Bishop,1998, p. 3)

regarding the different groups into which values in the mathematics classroom in the western

world might be categorized and stated that, the three interrelated sources of values which

permeate mathematics classrooms are: the general educational, mathematical, and specifically

mathematics educational. Initial analyses from other studies of mathematical values, which

reveal that there are three kinds of values which teachers intend to teach: the general educational,

mathematical, and mathematics educational.

Currently, there is little knowledge about what values teachers are teaching in mathematics

classes, and how mathematics teachers are aware of their own value positions (Bishop, 1998). In

addition to how these affect the teaching of mathematics, and how their teaching thereby

develops certain values in mathematics learning (Bishop,et‘al,2010). Values are rarely

considered in any discussions about mathematics teaching, and a casual question to teachers

about the values they are teaching in mathematics class, often produces an answer to the effect

that they don't believe they are teaching any values (Bishop,et‘al,2010).

Therefore, values in mathematics education as discussed above, are conceptualized as the deep

affective qualities which mathematics teachers promote and foster through the school subject of

mathematics teaching and learning and the theoretical frame-work of this study is based on the

six values cluster model developed by Professor Emeritus Alan J. Bishop 1988. It is important to

note that, the emphasis in most of the researches conducted by the author were not primarily on

which values might be, are, or, should be, emphasized in mathematics education, but rather on

the development of mathematics as a subject of study throughout western history.

From the above we can deduce that for effective transmission of mathematical values in

mathematics education classes, there is need for growing awareness about what kind of values

mathematics teachers are fostering in mathematics teaching and learning and its relationship to

the understanding of the contemporary mathematical issues outside the school setting. See below

the conceptual model of mathematical values inculcation.

AIMS OF THE STUDY

Mathematical

Values

Rationalism

Objectivism

Control

Progress

Openness

Mystery

Ideological

Values

Sentimenta

l Values

Sociologic

al Values

Figure 1

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The study‘s aims (1) to identify whether or not mathematics teachers inculcate mathematical

values in mathematics teaching and learning processes; (2) to explore whether or not

mathematics teachers are aware of the existing concept of mathematical values inculcation model

in mathematics classroom. The findings will provide useful information for mathematics

teachers‘ on the ways to improve mathematics teaching and learning processes through the

understanding of mathematical values that could make the teaching of mathematical concepts

real, free from any ambiguity and appreciable by the mathematics learners. It will also going to

benefit curriculum planners/designers, text book writers on the ways that mathematics

curriculum should explicitly dictate the components of mathematical values attached to each

module, units and sub-units of mathematics syllabus for the easy conveyance by mathematics

teachers‘.

METHODOLOGY INSTRUMENT

A self-administrated questionnaire survey containing 40-items on mathematical values

inculcation based on the six cluster model of the three constructs of mathematical values was

used to assess 150 secondary schools‘ mathematics teachers‘ in the north eastern region of

Nigeria, out of which the preliminary sample size for this study was (n=101) of mathematics

teachers‘ teaching in various secondary schools in the north-eastern region of Nigeria. The

Statistical Package for Social Sciences (SPSS version 17.0) computer software was used for data

analysis. The 40 item questionnaire, 80% of the item in the questionnaire were adopted with only

20% were constructed by the authors based on the six cluster model for mathematical values

inculcation (Bishop,1998). As result of that, the exploratory factor analysis (EFA) was used to

investigate the mathematical values inculcation model based on the three components of the

model: sociological, attitudinal, and ideological mathematical values by the measure in order to

provide preliminary evidence of reliability and validity. The results of the pilot study consistently

indicated that the measure described, were relevant and culturally appropriate for this population.

POPULATION AND SAMPLE

The population of the study comprises all secondary schools mathematics teachers‘ from both

junior and senior secondary schools in the north-eastern part of Nigeria. But due to the time

constrain and limited number of days for my vacation was unable to cover the area under-study.

Furthermore, purposeful Sampling technique was adopted this was because not all secondary

schools teachers‘ teaches mathematics as a subject. One hundred and fifty questionnaires were

distributed in thirty secondary schools, twenty senior secondary schools and ten junior secondary

schools with the sub-region, out of which (101) which constituted 70% of the questionnaires

were returned and as such the sample size was considered in this study as the preliminary sample

size, as the collection of data is still ongoing. The data were collected by the researcher and with

the assistance of some of the colleagues whom we were teaching together in secondary school

before leaving to the University of Maiduguri, Nigeria. The researcher sought the permission of

the principals of the secondary schools visited for the purpose of data collection for the study.

MEASUREMENT DEVELOPMENT

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The respondents completed a personal survey questionnaire that included questions about the

basic characteristics of the respondents' gender, age and academic qualification. The items were

also designed to assess attitude and perception of secondary schools‘ mathematics teachers in

relation to mathematical values inculcation in their mathematics teaching: Mathematical values

inculcation among mathematics teachers in western culture were studied predominantly by

Professor Emeritus Alan J. Bishop from Monash University Australia for examples

(Bishop,1988, 1999, 2001, and 2010). 80% of the mathematical values inculcation questionnaire

items were adopted with only 20% of the items was constructed by the researchers and that

necessitated the validation of the items. Forty items were rated using a multi-item method to

increase the accuracy of measurement, and each item was based on a five-point Likert- scale

ranging from (1) strongly disagree to (5) strongly agree.

THE PROCESS OF ANALYSIS AND FINDINGS

In an attempt to identify and validates the factor structure of the 40-item of mathematical values

inculcation model Questionnaire which comprises, sociological, attitudinal and ideological

mathematical values, Exploratory Factor Analysis (EFA) by principal component analysis (PCA)

was used to detect the factor structure of the 40-item questionnaire using eigen-value >1 as the

selection criterion. This method generated three factors as restricted and the result shows that, the

Kaiser-Meyer-Olkin measure of sampling adequacy (KMO) = 0.698, which indicates the

strength level of the items, (Pallant,2007). But the anti-image revealed that ten out of the 40-

item were found to have anti-images < 0.5, as result the items were removed and the data set was

run for the second time, (Field, 2005). The results show that, the KMO shut-up to 0.837 and the

rotated component matrixa shows the convergence of items into three different factor with factor

loadings > 0.5, the total variance explained was 54.3% which shows adequate support for the

population involved in the study,(Field, 2005). See table1 below: the rotated component matrixa

table for the factor loadings against each construct.

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TABLE:1 ROTATED COMPONENT MATRIX FOR MATHEMATICS TEACHERS

Component

SOC

(SMV)

ATT

(AMV)

IDE

(IMV)

Q37 .767

Q40 .749

Q35 .746

Q34 .742

Q2 -.740

Q36 .724

Q32 .722

Q20 .598

Q3 .558

Q38 .536

Q29 .536

Q8 .781

Q5 .629

Q7 .627

Q9 .563

Q12 .543

Q26 .687

Q23 .675

Q30 .653

Q24 .630

Q27 .581

In this survey, The Kaiser-Meyer-Oklin value was 0.850, exceeding the recommended

value of 0.6 (Kaiser 1970, 1974) and Bartlett's Test of Sphericity (Bartlett 1954) reached

statistical significance, supporting the factorability of the correlation matrix.

TABLE 2: RELIABILITY OF FACTORS

Factor Reliability Overall reliability

Sociological (SMV) 0.773 0.636

Attitudinal (AMV) 0.735

Ideological (IMV) 0.644

Table 2, above shows the reliability of the data collected for the study, the Cronbach's alphas of

each factor were statistically strong; the factor one (Sociological) value was 0.773, factor two

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(Attitudinal) value was 0.735 and factor three (Ideological) value was 0.644, (Pallant, 2007).

These also supported the adequacy of the internal consistency of the overall Cronbach's alpha of

the construct. Reliability from our sample showed a reasonable level of reliability (0.636).

TABLE 3: TOTAL VARIANCE EXPLAINED

Initial

Eagenvalues

Component Total % of

variance

Cumulative %

Sociological SMV) 6.625 31.548 31.548

Attitudinal (AMV) 3.084 14.687 46.234

Ideological (IMV) 1.685 8.023 54.257

Table 3, above shows the total variance explained by the three factors solution. In conducting

the factor analysis the researchers followed (Bishop,1988) and (Bishop,1999) and from the

Bishop‘s conceptualized model of mathematical values inculcation, three factors identified and

explained 54.3% of the total variance. The extraction method used was principal component

analysis (PCA) with varimax rotation. Principal component analysis is psychometrically sound

and simpler to apply mathematically, and it avoids some of the potential problems of factor

indeterminacy associated with factor analysis, (Stevens,1996).

RESULT AND DISCUSSION

The result shows that the attitude and perception of secondary school mathematics teachers in the

north eastern region of Nigeria concurred with the analysis of the three constructs of

mathematical values inculcation model by (Bishop, 1999) in the western cultural diversity. As

such the study confirmed and validated the used of the six cluster model for the inculcation of

mathematical values in sub-sahara Africa north-eastern region, Nigeria, which was the ultimate

aim of this study.

Furthermore, the finding shows that there is need for advocating the inculcation of mathematical

values inculcation in mathematics teaching and learning, this is because the result shows the

existence of complete agreement or rather relationship between mathematics teachers‘ responses

on mathematical values inculcation and its respective components of values, that is, the

sociological (SMV), attitudinal (AMV) and ideological (IMV). Additionally, it is important for

secondary school mathematics teachers to become aware that for a successful conveyance and

understanding of mathematics concepts, there will be an enduring need for valuing mathematical

concepts in mathematics classroom in such a way that the learners‘ could be able to appreciate

the beauty aspect of learning mathematics as a school subject.

CONCLUSION

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Conclusively, the finding of this study is another contribution to the existing body of empirical

information about how inculcation of mathematical values is also conceived and perceived by

the secondary mathematics teachers‘ in the north-eastern region of Nigeria, and the finding

concurred with that of the western cultural societies. This shows that, there is still light at the end

of the tunnel as mathematics teachers‘ and mathematics educators are striving to see the future of

mathematics education and indeed the future of mathematics teaching and learning

metamorphose from its traditional ways and techniques. More-over, mathematics curriculum

planners and designers and mathematics text-book writers should strategies on the components

of mathematical values attached to each module or chapter for easy identification and

conveyance in mathematics classroom. Finally, refreshers courses, workshops, seminars,

mathematics teachers‘ inter-schools collaboration and national and international mathematics

pedagogical collaborative effort should be encouraged by the management of secondary schools‘

education. If this happens, the ultimate aim of mathematics learning will be realized.

LIMITATIONS AND RECOMMENDATION:

The study has its own shortcoming though, among this was that the finding cannot be

generalized beyond the present setting of the study, the researchers therefore encourages more

similar study in other geographical zone of the country in order to validate the usage of this

model. Finally, there is a dare need of changing trend in the conceptualization of mathematics as

a schools‘ subject both in terms of curriculum and the executors‘ of mathematics curriculum, it

should be done with love and fashion. As part of the limitation of the study that it involved only

secondary school mathematics teachers‘ from the north eastern region, Nigeria, in which that

restricted the generalizability of the validation of mathematical values inculcation model on the

other region or part of Nigeria, whereby differs in term of culture and values system from the

region this study was conducted. Therefore, the outcome of the study can only be generalized to

the attitude and perception of the north-eastern region mathematics teachers‘ on mathematical

values inculcation in mathematics teaching and learning. We recommend that further analysis is

needed on whether or not gender and academic qualification of mathematics teachers

significantly affect the inculcation of mathematical values in mathematics classroom.

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References

Bishop A.J. (1999). Mathematics teaching and values education - an intersection in need of

research. Zentralblatt fur Didaktik der Mathematik, 31(1), 1-4

Bishop, A. J. (1988). Mathematical Enculturation: A cultural perspective in Mathematics

Education. Dordrecht, Holland: Kluwer.

Clarkson, P.C. (1998). Reflections on mathematics learning and teaching: Implications of

cultural perspectives. In A. Olivier & K. Newstead (Eds.),Proceedings of the annual

conference of the International Group for the Psychology for Mathematics Education (Vol.

1, pp. 131-135). University of Stellenbosch, South Africa.

Field, A. (2005). Discovering Statistics Using SPSS, London Sage Publication.

FitzSimons, G.E., Seah, W.T., Bishop, A.J. & Clarkson, P.C. (2000). What might be learned

from researching values in mathematics eduication? In T.Nakahara & M. Koyama (eds.),

Proceedings of the 24th conference of the International Group for the Psychology of

Mathematics Education (Vol. 1), (P.153) Hiroshima: Hiroshima University.

Seah, W.T. (1999). The portrayal and relative emphasis of mathematics and mathematics

educational values in Victoria and Singapore lower secondary school textbooks: a

preliminary study. Unpublished Master of Education thesis, Monash University,

Melbourne, Australia.

Seah, W. T., & Bishop, A.J. (2001). Teaching more than numeracy: The socialisation experience

of a migrant teacher. In J. Bobis, B. Perry, & M. Mitchelmore (Eds.), Numeracy and

beyond. (pp. 442-450). Turramurra, NSW: Mathematics Education Research Group of

Australasia Incorporated

Kline, R. (2000). Principles and practices of structural equation modeling. New York: The

Guilford Press.

OECD (2003). Assessment Framework – mathematics, reading, science and problem solving:

knowledge and skills. Paris: OECD.

Pallant, J. (2007). Survival Manual: A step by step Guide to Data Analysis Using SPSS for

window, New York, Open University Press.

Stevens, J. (1996). Applied mulivariate statistics for the social sciences.

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The Role of Risk Management in Stimulating Stakeholders

Investment in Insurance Industry

Dr Festus M Epetimehin

PhD, Joseph Ayo Babalola University, Ikeji-Arakeji

Dept. of Actuarial Science and Insurance

Oluwayomi Ekundayo

Joseph Ayo Babalola University, Ikeji-Arakeji

Dept. of Actuarial Science and Insurance

Abstract

The paper suggests a rationale for firm risk management that has been largely ignored in

financial economics literature. It presents an argument for harnessing the influence of a

company‘s stakeholders who, whether as employees, suppliers or customers, make a valuable

investment specific to the company. Such investments are crucial for a firm‘s competitive

advantage, yet because they are firm-specific and therefore cannot be transformed or transferred,

stakeholders are often concerned about the risks involved in making them. A company‘s effort to

manage risk can therefore persuade stakeholders to make even greater firm-specific investments,

bringing benefits to shareholders and stakeholders alike.

Keywords: Insurance, Risk management, Firm-specific Investment, Stakeholders

Introduction

Every insurance company has its own exposures to a variety of risks, like any other business.

Some of these risks are potential reductions in service demand due to shift in consumer taste

shifts, political and exchange rate risks associated with international operations, the possibility of

Research and Development project failure, and so on. The question is whether executive should

engage in activities to manage risks such as these? Intuitively, the answer to this question seems

obvious. Thus, it seems reasonable to expect corporate executives to engage in risk management

activities. Wang et al (2003)

However, the conventional wisdom in financial economics is consistent with this intuitive

conclusion. Financial economists argue that, firms equity holders are in a better position to

manage business risks than are firm‘s managers (Titman, 1984). This is because equity holders

can invest in a diversify portfolio of equity investments and completely eliminate the business

risks associated with investing in a particular firm. Moreover, equity holders can invest in this

portfolio at very low cost. Put differently the conventional wisdom in financial economics is that

equity holders do not hire a firms managers to engage in risk management activities that these

equity holders can do on their own. Rather, equity holders hire a firm‘s managers to generate

higher rates of economic profit, even when obtaining these levels of profit involves substantial

risk taking on the part of a firm.

Despite the conventional wisdom in financial economics, clearly many corporate executives do

engage in risk management activities. For example, the number of firms that are using financial

hedging instruments to manage risks associate with fluctuations in the value of currency and raw

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materials continues to increase. Firms can also alter their capital structures; invest in real options,

and use product market or geographic diversification to manage risks. For example, despite

significant restructuring during the 1990s, the percentage of assets in the US economy owned by

highly diversified corporations continue to increase. Such risk management diversification is

hard to understand in light of the conventional wisdom in financial economics.

The purpose of this paper is to suggest that the conventional wisdom is limited in some important

ways and that, in fact, risk management by a firm executive team can sometimes be consistent

with maximizing returns to a firms equity holders. Our argument depends on four simple

observations:

1. One of the most important sources of economics value for a corporation and ultimately

equity holder wealth are the firm-specific investment made by its stakeholders.

2. While a firms equity holders can use portfolio diversification to efficiently manage the

risks associated with investing in a particular firm, other stakeholders cannot use

diversification to manage the risks associated with their significant firm-specific

investments.

3. The risks associated with firm-specific investments made by stakeholders are directly

linked to the probability that a company will experience a financial distress.

4. An important way to encourage stakeholders to make firm-specific investments – the

kind of investments that can create real economic value for a firm and its equity holders –

is to manage the riskiness of these investments by engaging in risk management activities

that reduce the probability that a company will experience financial distress.

It is important to note that the major argument made in this paper is still consistent with

conventional finance literature in that it maintains the assumptions that: (1) the objective of a

firm is to maximize equity holder wealth; and (2) equity holders are risks neutral while

stakeholders are risk averse. However, the important departure of the view proposed here

from financial theories is that this article recognizes that the overall risk level of a company,

which is not supposed to affect equity holder wealth directly, can have a significant impact

on the incentives of the stakeholders to make firm-specific investments. Put differently, while

traditional financial theory argues that managing risks for stake holders is not necessary, or is

even value destroying, this paper submits that managing risks for stakeholders can actually

be consistent with equity holders interest because risk management can stimulate firm-

specific investments by stakeholders, which are in turn important sources of firm value and

competitive advantage.

After discussing the nature and effects of company-specific investments, we consider the

relationship between risk management and firm-specific investment. We then introduce and

compare a few important risk management mechanisms that companies can employ. We

conclude with a brief summary of the implications of this risk management perspective for

corporations risk management policies and future research on the topic.

The Insurance Industry and Its Key Stakeholders

The stakeholder concept provides a theoretical framework for analyzing the relationships of

an organization with relevant constituencies its industry, as well as its political, social, economic

and legal environment. (Kochan et al 2000). The term stakeholder was first introduced in the

strategic management literature by Freeman (1984) who states that a stakeholder in an

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organization is any group or individual who can affect or is affected by the achievement of the

activities of an organization.

Post/Preston/Sachs (2002) states that‖ the stakeholders in an organization are the individuals

and constituencies that contribute either voluntarily or involuntarily to its wealth creating

capacity and activities and that are therefore its potential beneficiaries and/ or risks bearers‖.

The insurance industry‘s primary stakeholders in the sense of Carol (1996) are its investors,

equity holders, employees, policyholders and intermediaries. Investors, that are shareholders or

lenders, provide insures with the capital needed to assume risk. Compared to other sectors,

capital is a particularly crucial factor of production for the insurance industry. Against this

backdrop, managing investor‘s relations is of utmost strategic importance top insurers in order to

persuade investor to support new stock offerage and bond issues and to hold the company‘s

securities.

Equity holders focus on achieving a return which is commensurate with the risks of their

investment. Meeting their expectation is major challenge to the insurance companies in an

environment characterised by mounting volatility. The main driver in this context are low

barriers to market entry and exit, increasingly unpredictable financial markets, legal uncertainties

and growing exposure to major natural and man-made catastrophes.

Employees, in addition to capital, are the basis for any successful insurance operation. As

knowledge-based providers, insures heavily open on the skills, knowledge and know-how of

their staff. As such, favorable employee relations can contribute to reducing staff turn over,

fostering long term commitment to the organization and attracting new talent.

Policyholder‘s, both household and commercial customers focus on product quality i.e. the

economics and the reliability of the contingent payment promise made by their insurers,

supplemented by competent service.

Favorable customer relations usually pay off in the form of lower marketing cost and a

stabilization of premium income base on customer loyalty.

Intermediaries, i.e. brokers are important and even vital to many insurance companies business

organization.

Mutual trust, familiarity and knowledge based on favorable supply chain relations can serve as a

lubricant for the insurer‘s value chain and therefore increase profitability. Other key stakeholders

which have gained in relative importance over the past few years are governments, regulators

and rating agencies.

What is Firms Specific Investment?

A variety of stakeholders make different kind of investments in companies. Equity and debt

holders provide financial capital, employees provide human capital, suppliers provide raw

materials and other supplies, customers provide demand for firm‘s products, and so forth.

Despite this variety, stakeholders‘ investment can be divided into two broad categories: specific

and general. Specific investments are investments that have more value in a particular exchange

than in alternative exchanges. Specific investments therefore cannot be redeployed to other

exchanges without a significant loss in value. By contrast, the value of general investment does

not vary across different changes. (Jensen 2000).

Stakeholders‘ firm-specific investments take many different forms. Employees specific

investment include a worker‘s close relationships with others in a firm, knowledge about a firms

culture, and knowledge about how to mange critical processes within a firm, suppliers‘ firm-

specific investment include production system designed by suppliers for unique products or co-

located facilities; customers‘ firm-specific investments include the purchase of products that

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request a great deal of customized knowledge to use. The common feature of all these

investments is that they cannot b e transferred to some other business setting without a

significant loss in value.

Benefits of Firm Specific Investment for equity holders.

Equity holders can benefit from the specific investments made by stakeholders because equity

holders are ―residual claimants‖ and because specific holder investments increase a firm‘s ability

to generate economic profits. As residual claimants, equity holders receive payment on their

investment in a firm only after all other claims are satisfied. In order for there to be some

residual to pay equity holders, the total economic value created by integrating all the assets made

available to a firm by all of its stakeholders must be greater than the payments required to induce

these other stakeholders to make their sources available to a firm.

Previous work suggest that the total economic value created by a firm can be increased when a

firm uses valuable, rare, costly-to-imitate and non-substitutable resources in developing and

implementing strategies. One important class of these resources is the specific investments made

by a firm‘s employees, suppliers, and customers. Because these firm-specific investment can

often be valuable, rare, costly-to-imitate and non-substitutable, they can often be sources of

superior economic performance that can then be used to make residual payment to a firms equity

holders. Thus, a firm‘s equity holders have a strong incentive to induce its other stakeholders to

make large specific investments in that firm.

Benefits of Firm Specific Investments for other Stakeholers.

Naturally, the simplest way to induce employees, suppliers and customers to make specific

investment in a firm is to share some of the economic value these specific investments create

with these stakeholders. While the residual payment received by equity holders will be smaller

than what would have been the case if this extra value had not been shared, without sharing,

there may have been no specific investments made by employees, suppliers, and customers with

these stakeholders to induce them to make these investments.

The sharing in the economic value created by these specific investments made by stakeholders

can take many forms. For example, employees that have made significant firm specific

investments may receive higher levels of compensation than employees that have not made these

investments. This is one reason that employee compensation is often tied to employee tenure –

the longer an employee stays with a firm, the more likely that this employee will have more firm-

specific investments with the firm, and this employee will be more likely to receive a larger

share of the profits. Customers that have made specific investments may gain access to new

products or technologies before their competitors. Suppliers that have made these investments

may be able to continue selling to a firm long after other suppliers have been cut off.

The Role of Risk Management Firm-specific investment made by employees, suppliers and customers can, in principle, benefit

both a firm‘s equity holders and other stakeholders. On the other hand, concerns with the risk

associated with these investments can lead key stakeholders to avoid making such investments.

Thus the task facing firms to implement strategies that have the effect of reducing the impact of

these impediments on the willingness of employees, suppliers and customers to make specific

investments, and to do so at the lowest cost possible. When effective, these strategies will have

the effect of reducing the probability that a firm will experience financial distress.

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Alternative Risk Management Mechanisms

There are varieties of risk management mechanisms that can be used to reduce the probability

that a firm will experience financial distress (Miller, 1998). A few of the commonly-used risk

management tools will be examined, including (1) altering capital structure, (2) trading financial

hedging contracts, (3) investing in real options, and (4) diversifying into other business.

Altering Capital Structure

An insurance firm is likely to be under financial distress or may even be liquidated if it cannot

generate enough income to pay its claims. Thus, everything else equal, an insurance firm with a

higher debt burden will have a higher probability of financial distress than a firm with lower debt

burden. A firm can retire debt or issue equity to change its capital structure and thus reduce its

probability of financial distress. Thus, by changing a firm‘s capital structure, managers can

change stakeholders‘ incentives to make firm specific investments: a firm that chooses a lower

level of debt will lower the probability that it will face financial distress and thereby induce more

firm specific investments by its stakeholders.

Although it may appear relatively easy for a firm to reduce its debt by issuing more equity,

adjusting a firm‘s capital structure can sometimes not be enough to reduce the probability that a

firm will experience financial distress. As long as this probability remains high, stakeholders

may still be reluctant to make specific investments in a firm. Consider the following limitations

to adjusting capital structure as a way to manage risk. (Cornell et al 1987)

There are many important factors that influence the optimal capital structure of a firm

besides the impact of capital structure on the probability of financial distress. These

other factors – including agency costs, product/input market interactions, corporate

control and taxes – must be accounted for when making capital structure decisions.

Managers will be reluctant to issue equity during periods in which they believe their

stock is undervalued. If managers do issue new equity, it sends a strong signal to the

stock market that the managers think their shares are overvalued. In fact, research

statistics show that when companies issue stock, on average the price of that stock

tends to fall by about 3 per cent.

Other factors besides capital structure may be more relevant in affecting a company‘s

financial stability. Therefore, even though reducing a firm level of debt can reduce its

probability of financial distress, it does not eliminate that probability.

Trading Financial Hedging Contracts

As suggested earlier, firms are beginning to use hedging contracts more frequently as a risk

management device. Perhaps the most basic type of investment tool is the forward contract. With

a forward, the user promises to buy or sell an asset – say, oil, treasury bills at a specified price or

specified date. Long positions enable hedgers to protect themselves against price increase in the

underlying asset; short positions protect hedgers against price decreases. Other commonly used

financial hedging contracts are futures, swaps, and options.

These financial instruments can be used to reduce the probability of a firm‘s financial distress at

low cost. This will particularly be the case when the probability of such financial distress

depends on the price of raw materials and commodities, or risk associated with short-term

movements in exchange rates or interest rates. On the other hand, for many other factors, such as

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those that have a longer time horizon or those that are not priced directly (e.g., moves by key

competitors) such instruments will be significantly less effective.

Another potential cost of using financial contracts is that there have been financial disasters that

are associated with derivatives. Numerous cases of derivatives trading have backfired in the last

few years. Some companies lost due to the position they took in derivative trading. Therefore, in

using financial hedging contracts to hedge firm risks, managers need to be aware of the danger of

taking positions to try to beat the market.

Investing in Real Options

Unlike financial options, real options come into existence through the opportunities created by

the firm‘s strategic investments. For an investment to create a real option, it must create (1) the

right, (2) but not the obligation, (3) to make some specified action in the future in order to (4)

minimize the firms downside risk while (5) providing access to upside opportunities.

This asymmetry between right and obligation makes real option attractive from a risk

management perspective: the right component means the firm can pursue opportunities if it is in

the firms best interest to do so after new information arrives in the form of external and internal

cues. The fact that the firm is not obligate to act in the future means that the downside can be

limited to the initial investment, at least in theory. Real options are attractive relative to financial

options because the market for financial options is incomplete and the time horizon for many real

options is much longer than the time horizon for typical financial options.

Real options come in many varieties. For example, growth options enable the firm to capture

value by expanding if market conditions prove to be unexpectedly favorable. If a demand shock

materializes for the ventures product or a technology proves to be more attractive than initially

anticipated, the firm is in a position to buy out a partner at a capped price. However, if the

situation is worse than expected, the firm is not compelled to expand through acquisition.

Switching options enable the firm to shift production or other value chain activities to attractive

plants or host countries based on foreign exchange rate movements, other price changes, and

other sources of uncertainty.

There are many other types of real options, including options to abandon, delay, switch outputs,

alter scale, and so forth that are valuable in different degrees in different sectors. One of

management‘s objectives in using real options to manage risks is to frame the firms operations

and future investment decisions using taxonomy of real options. Using the lens of real options,

executives can also creatively design options into supply contracts and other deals.

While real options hold out considerable promise for firms to manage risks, they also have a

number of characteristics that differ from financial options and that also make them far more

difficult to manage in practice:

Unlike financial options, real options often require additional investments over time, and

these ―carrying costs‖ imply that the downside risk of real options is often far greater

than simply the initial price of obtaining the option. For example, firms often need to

continue to invest in collaborative relationships or undertake unexpected investments in

the development of a technology to keep follow-on options open.

Real options also are often considerably more difficult to value as risk management tools

compared with financial options as the former sometimes involve underlying assets that

are not traded in liquid markets; shared claims on underlying assets; multiple sources of

uncertainty (e.g., rainbow options), some of which like competitors moves and internal

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learning are difficult to model; and multiple options that are interdependent (e.g.,

compound options)

―Dividends‖ in the form of competitor pre-emption, skills degradation, and so forth must

enter into a firms valuation efforts and exercise calculus, as might potential changes in

the exercise price over time and complex internal and external cues of value, all of which

challenge risk management via real options.

The management of real options is further complicated by the firm‘s organizational

capacity to manage the appropriate exercise of a portfolio of options in the form of

acquisitions, divestitures, and so forth.

Diversifying into Other Business

A firm that diversifies increases the number of its sources of cash flow, and to the extent that this

cash flow is not perfectly correlated over time, diversification reduces the chance that serious

problems in one particular business will put the entire firm at risk. Thus, diversification can

reduce the probability of financial distress and can therefore stimulate firm specific investment

by the firm‘s stakeholder.

Risk management through diversification carries its own benefits and liabilities. On the one

hand, the types of risks that diversification can manage are mush broader than financial hedging

instruments, and the risk reduction effect of diversification is also greater than altering capital

structure. On the other hand, diversification is a comparatively blunt instrument that can involve

significant costs due to the manipulation of real assets. For example, manager‘s actions may alter

the underlying risk profiles of the combined business. Although managers can intervene in

positive ways, they may introduce new sources of variance through improper planning,

implementing and controlling of the diversification process.

Moreover, in order for diversification to reduce the risks of each business effectively, it requires

an active internal capital market to allocate resources from high performing divisions to divisions

that have financial problems. However, there are opportunity costs associated with allocating

resources in such a manner, especially when resources are limited and therefore involve

opportunity costs. Specifically, when headquarters uses resources to cross-subsidize weak

division, it foregoes the opportunity of using these resources to invest in project with better

growth opportunities.

While each of the risk management mechanisms discussed above can be effective in some

settings, they each involve unique benefits and costs. Therefore, they sometimes may be

substitutes to one another and sometimes may be valuable when used in combination with one

another. The challenge for executives, therefore, is to select risk management tools that serve the

firm‘s objective of encouraging stakeholders to make firm specific investments and to do so in

the most efficient manner.

Discussion

So far we have provided a rationale for firm risk management that is different from that

suggested by traditional finance theory. We have also described a variety of risk management

mechanisms at firm‘s disposal that may induce stakeholders to make firm-specific investments.

Since most of the arguments above have been made in a general sense, it is important for top

executive and risk managers to understand the relevancy of the arguments of specific

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organizational settings, and we will suggest how risk management activities may benefit firms

differently.

1. Private versus public firms. Although throughout our discussion we have explicitly or

implicitly focused our attention on publicly-traded, large with dispersed ownership

structures, the arguments can be equally applied to a private firm setting or to public firms

with more concentrated ownership structures. The reason for our focus is that, traditionally,

finance theory‘s argument that risk management does not add to firm value is more closely

applied to publicly traded firm with dispersed ownership structure. This is because it is

efficient for shareholders of such firms to reduce business risks by diversifying their

investment portfolios. Put another way, while risk management by private firms and public

firms with concentrated ownership structure can be relatively easily justified due to their

owner‘s or large shareholders‘ inability to diversify, public firms with dispersed ownership

structure have lacked a sound rationale for risk management efforts under traditional

perspectives.

2. Risk management costs. Our argument for the benefit of firm risk management does not

imply that it is always value-enhancing for a firm to engage in risk management activities,

since there are costs associated with virtually any type of risk management mechanism. For

example, even though financial hedging is generally considered the most cost efficient way

to manage risks, is still involves potentially large opportunity costs. The human resources

that are use to engage is hedging activities may be applied in other functional areas to add

firm value. Moreover, firms can go so far in trading financial contracts that they take

positions in hedging activities, which, instead of reducing firm risks, can run be danger of

increasing the company‘s risk exposure. Thus the potential benefits gained from risk

management need to be weighed against the costs associated with risk management

activities.

3. Role of firm strategy. Another factor that affects the risk reduction benefit to the firm is

the degree to which a firm relies on specific investment by its stakeholders. Although firm-

specific investments are important to almost all firms, the degree of their importance differs

across firm and industries, specifically; firms that implement a differentiated strategy with

more unique products are generally more dependent on stakeholder to make firm-specific

investments. Thus, it would be more important for these firms to engage in risk management

activities in order to encourage their stakeholder to make these investments...

In addition to the above factors that affect the relevance of risk management for a firm, other

factors may also determine which risk management mechanism is more or less appropriate for a

particular firm. For example, a firm that has the unique capability of forming alliances may find

itself more likely to adopt real options approach to manage its risk exposures, while another firm

can be better off managing its risks through reducing its debt obligations. In the end, it is the task

of managers to appropriately evaluate the cost-benefit tradeoffs within an across the risk

management mechanism discussed above.

Conclusion In recent years, managers have become increasingly aware of how their organizations can suffer

from various risks. As illustrated in the article, one of the important reasons that a firm should

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manage risk exposures concerns the firm-specific investments made by its employees, suppliers,

and customers. These firm-specific investments can be important sources of a firm‘s competitive

porter advantage, (Porter, 1985) but also are risky for stakeholders to make. Thus, reducing

stakeholders‘ risks associated with these investments can encourage stakeholders to make more

of these investments, to the benefit of stakeholders and equity holders alike. Although received

wisdom offers little room for risk management efforts by firms seeking to enhance their equity

values, we have provided a rationale for risk management that links such efforts to the

competitive advantages of firms, and in so doing we reach very different conclusions on the role

of risk management.

We have described a variety of risk management mechanisms at firm‘s disposal that may induce

stakeholders to make firm-specificity, investments. These mechanisms differ in terms of their

bluntness or specificity, their costs and risk reduction potential, their time horizons, and their

implementation complexity.

If firm-specific investments by a company‘s stakeholders are central to the company‘s

competitive advantage, and risk management can facilitate the incentives for the stakeholders to

make firm-specific investments then the company should take risk management seriously. We

propose the following agenda for executive and risk managers contemplating how to set up a

specific risk management strategy.

1. First, evaluate the extent to which the company depends on firm-specific investments by

its stakeholders. The evaluation can focus on the company‘s core employees, suppliers

and customers by exploring the answer to the following question: would these core

stakeholders‘ investment be less valuable if they switch to the different firm? To what

extent does this shape the willingness to make specific investments?

2. The second step is to evaluate the riskiness of the company‘s current business and the

specific risk factors that affect the level of the company‘s risk exposures. Specifically, if

the answer to the question in step 1 is yes, then we ask here ―What‘s the probability that

the business will be in financial distress and stakeholders need to switch to the different

firm?‖

3. As a last step, we compare the effectiveness of alternative risk management mechanism

or what combinations of risk management mechanism would be the most efficient way

for the company to manage its risk exposures?

Finally, it is worth noting that the risk management is not a task only for a company‘s risk

management functional department. As risk management directly affects the company‘s core

stakeholders‘ incentives to engage in value-enhancing firm-specific investments, risk

management should be incorporated into the company‘s strategic planning. And this requires the

effort and involvement of not only risk managers, but those who craft the firm‘s strategy within

and across business units.

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References

Carroll A.B (1996) Business and Society: Ethics and Stakeholders Management, Cincinnati

Cornell A.C and Shapiro (1987) Corporate Stakeholder and Finance. Journal of Financial and

Strategic Decisions. Vol 9(2) pp21-31

Freeman R.E (1984) Strategic management: A Stakeholder Approach. Boston Jensen M.C

(2000) ―Value Maximization, Stakeholder Theory and The

Corporate Objective function‖. In: Beer M and Nohria N. eds. Breaking the Code of change pp

37-57

Kochan T and Rubinstein (2000) toward a Stakeholders theory of the firm: The Saturn

Partnership. Organizational Science II (4) pp 367-86

Miller K.D (1998) Economic Exposure and Integrated Risk Management, Strategic

Management Journal vol.19: 497-514

Nalini P. T (2007) Insurance Theory and Practice. New Delhi. Prentice- Hall of India Olowe,

R.A (1998) Financial Management, Concept, Analysis and Capital Investments. Lagos,

Panaf Press Ltd.

Porter M.E (1985) Competitive Advantage – Creating and Sustaining Superior

Performance, New York.

Titman S. (1984) The Effect of Capital Structure on a firm‘s liquidation decision. Journal of

Financial Economics vol.13 (1) pp137-151

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Determinant of incentive factors in knowledge sharing

Ali Reza Heydari

1 ,Hamed Armesh

2 ,Saied Behjatie

3 and Mahmoud Manafi

4

Doctoral of business administration candidate, MMU, Cyberjaya, Malysia

PhD candidate, MMU, Cyberjaya, Malaysia

Abstract

In this uncertain economic climate, knowledge has a key role, where it emerges as an asset.

Land, labor, and capital are not as significant resources as they were before. Land, labor, and

capital - the classical factors of production - have become secondary to knowledge as the

primary resource for the new economy (Drucker, 1992). This study mainly examines the factors

affecting the incentives factors of organizational members to share knowledge via MMU

knowledge sharing system. The main focus on this research is based on social factors

considering the motives and agents which describe some of the reasons and rationales behind the

sharing knowledge. This study tries to give a wider scope of sharing knowledge to clarify

concept of organizational collaboration and synergy which is lead to competitiveness. What we

try to do is to analyze characteristics of importance motives in the social perspective to share

their knowledge with each other, considering the knowledge sharing platform of Multimedia

University (MMU) as the channel of communication among the participants. The problem

definition is thus derived from the gap between the current state and the desired future state of

knowledge sharing via MMU knowledge sharing system.

Keywords: Determinant , Incentive factors, Knowledge sharing

Introduction

Retention in market which day to day is stormed with new innovation and ever more customized

products needs an unending struggle to grasp differentiates from other relentless competitors.

Differentiator factors are ―core competency‖ of organization that takes a very long time to

imitate because they are produced gradually through experience and continuous learning.

Further, organizations endeavor to achieve sustainable competitive advantage cannot be stagnant

over time, due to environmental change and market conditions, hence they need to adjust their

core competencies by continuously improving their knowledge. Therefore the most significant

source of competitive advantage which is nothing just knowledge management (KM) has

burgeoned. Meanwhile, literatures show a strong link between organizations core competency

and knowledge management (KM) since it can help to absorb valuable tacit knowledge to utilize

it towards creating competitive advantage.According to Peter Drucker (1993) ―the only or at

least the most important source of wealth in contemporary post-capitalist society is knowledge

and information rather than capital or labor‖. Recently, there have been great leaps to apply all

technological advancement into use to get required knowledge; numerous researches on

knowledge managements topics have gained increasing popularity in business. Nonetheless only

a few studies pertaining to the pillar of knowledge management have been made, when in fact,

Knowledge has always been a fundamental part of human existence.

The fact that has been deep into concern after development of all these technologies, policies and

equipments, people are willing to use them. In spite of valuable insight to the implementation of

knowledge management system, provided by numerous constructive academic studies still there

are great numbers of failures on achieving its expected objects. Malhotra (2005) admitted that

despite increasing sophistication of knowledge management technologies, we are observing

increasing failures of implementation of this technologys. He expressed "an urgent need for

understanding how technologies, people, and processes together influence business

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performance".It can be argued lack of understanding on human resource and cultural impact, is

possible obstacles of well exploiting of knowledge management systems. Rational foreseeing of

social fundamentals during design and implementation, developing a social planning and holistic

framework to describe the human force during exploitation stage, are critical issues for well

exploiting of knowledge management.

Subsequently, there have been many studies recently on motivational factors to dice their

knowledge on the board and share it with others. But overlay most of them binding their study on

only one affecting factor, such as rewards or culture whereas there are numerous elements such

as colleagues action and repercussion, management standpoint and participation, overall scope of

adoption of the system and sharing knowledge, and returnable benefits that influence people‟s

attitude towards participation on exploiting of knowledge management systems.With respect to

previous investigations, this research has targeted to find some important motives through focus

on the social aspect that keep people from sharing and disseminating their experience and

knowledge via knowledge sharing system.

Problem Statement

Many organizations failed on their investment on knowledge management due to overlooked the

social aspects of the system; The main research problem of this study is to identify the

preliminary factors that contribute to the success of participation on knowledge management and

dissemination of knowledge. While there are so many motivates, that can affect individual

contribution rate, this research by focus on social aspect aim to identify some factors that

influence social participation, and the rate of influence on individual participation behavior.

Whereas vitality of available relevant and usable information is comprehensive matter;

participation and dissemination the knowledge plays the key role; therefore, the challenging

questions here are: identify cause people not to share their knowledge and how to stimulate and

encourage them in this matter? What motives can affect knowledge contribution in social aspect

and what their degree of influence is? What factors can be ensure the success and which one may

hinder the achievement of success?

Literature review

Importance of Knowledge Sharing

The reason why knowledge sharing is becoming an increasingly important tool is due to

acknowledgment that knowledge resources have been accepted as one of the chief factors for

sustainable competitive advantage by organizations at large. Several case studies demonstrated

many companies made costly mistakes by ignoring knowledge sharing. They suffered severe

damage from the loss of a crucial part of their knowledge asset. Managers may be left wondering

what happened as they frantically try to repair a situation which could have been avoided.

Knowledge sharing motives

Since knowledge is the key source of retaining the market, all struggles to design incentive

structures and implement knowledge management systems are to help share knowledge and to

encourage individuals to do so. By looking precisely at previous literature, all these motives

behind knowledge sharing behaviors can play an important role on how to improve and maintain

these knowledge networks in the way to have the maximum benefit out of our organization;

However, organizations are missing out on a huge opportunity when their use of incentives does

not take personal motivational factors into account.

The motives developed in this part are based on the Heng-Li Yang & Cheng-Yu Lai and Volker

Braun, David Czech, Benjamin Fletschinger, Silke Kohler, Verena Lüber, has been simplified

and integrated to mere concept rather than complex mathematical models.

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Individual intentions (Relative Payoff)

By examining many cases percept the insight that individual's commitment into transferring and

sharing knowledge cannot be achieved unless organizations integrate the concept of motivation

and rewards to its employees. Even if people do not expect payback for their knowledge

contributions, still the natural question "what's in it for me" is often not clear for them, which is

suffering from a lack of motivation. The motivation could be either intrinsic or extrinsic.

Rewarding and recognizing an employee with tangible (Money, commission etc.) form for their

knowledge sharing efforts is extrinsic motivation while intrinsic motivation is intangible nature

(gaining privileges and special rights etc.)

In order to encourage employee behavior, organizations need to maintain a balance between

tangible and intangible rewards. People share because they want to see their expertise being

used, and they like being respected by their peers, however if ones does not find value on the

system, will not sustain their participation. Without the establishment of organizational reward

and recognition systems, it is very difficult to align the knowledge management and organization

human capital. Lack of motivation and reward system is a big barrier because it discourages

people to create, share, and use knowledge.

Individual sensation (personal feeling)

Passing the experienced knowledge and know-how to colleagues or putting working results into

a knowledge sharing system to be available for others disposal may be feel depth in to Individual

sensation because it proclaims that efficient and effective of such this system is directly based on

consistent, reliable, plausible behavior of participants. Goman (2002) states that employees at all

levels in organizations believe unanimously that knowledge is power. "Knowledge is power" is

the well-known line to describe situations, where experts with rare knowledge have the highest

reputation and position. People do not like to share their best ideas and therefore dilutes their

standing and position in their organization, and impede their ability to move ahead .This is a

common phenomena in many companies.

Individual perception (personal Esteem) The Individual perception is equally important as most knowledge maturing activities involve

interpersonal Participation and perceived efficacy. As social exchange theory (Blau, 1964)

suggests, the dominant reason that motivate people to participate in social interaction and

disseminate their knowledge is expecting to get participate and involve in community and

acquire benefit in return. Davenport and Prusak (2000) indicated that knowledge exchange occur

when both the knowledge owner and receiver believe that they will benefit through the exchange

behavior. According to Davenport and Prusak (1998) employees are motivated to contribute

knowledge because they expect to receive useful knowledge in return in the future. We can

conclude participants involve in prisoner‟s dilemma game situation.

Organization culture and norms

As with most problems, Obstacles to Knowledge Sharing, it is difficult to determine the solution

for cultural matter. Norms or in similar concept culture is the ―holistic view of social mind which

distinguishes the members of one community from another‖. It is based on values which have ―a

broad tendency to prefer certain states of affairs over others‖ (G. Hofstede, 1994). In other

words, culture consists of the common values and behavioral background of members of one

group and reflection of this bear in an environment. Furthermore, it defines organizational

culture as the core beliefs, value norms and social customs that dominate individual behavior in

an organization. According to G. Hofstede, 1994, people‘s reaction and their attitude in an

environment can be leaning into human nature, culture and personality of individuals. As figure

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10 shows, personality and individual attitude is inherited from the exposed culture, which in turn

is shaped based on the human nature. That is why analyzing the cultural dimensions of

knowledge sharing is taking vital place. The participation of individuals is the most important

thing for fostering a knowledge sharing system. Prior studies have suggested that employees‟

interactions play an important rule for building up extensive scope and identity about sharing

knowledge (Messick and Brewer, 1983; Van Lange et al., 1992). Furthermore, Wiener (1982)

posed high commitment to the group will lead to responsibility or obligation to participate in a

specific action, such as sharing knowledge

Organization reciprocity (Corporate rules and regulations)

The final obstacle to knowledge sharing identified in this section is the issue of organization

reciprocity. Knowledge workers are the means of production knowledge; this simply means that

people are deciding what to contribute to the organization and how great the yield from their

knowledge will be (Lang, 2001). The key success, of discovering and utilizing professional

intellect is when people are consistently recognized and rewarded for their understanding of the

entire knowledge process and for using their creativity and intuition at work (Smith-2001),While

it is perceived that the key factor in sharing knowledge is organization culture, if the

organizational culture generates a habit of hoarding knowledge rather than sharing it most likely

employees will not share their knowledge (Arora, 2002). A lack of incentives is an obstacle to

knowledge sharing, as people are reluctant to share without recompense either in the short or in

the long term (Davenport, 1997). Employees are evaluated on how well they immerse

themselves in disseminating what they know and experienced in various work and projects.

Developing right evaluating system and criterion of employee’s performance and their

cooperation bound to advance personal interests and encourage them to participate in knowledge

sharing.McDermott and O'Dell (2001) highlights that , the way to make the importance of

sharing knowledge visible depends on understanding the individuals behavior, truthful

recognizing and rewarding (in) their efforts and performance. Thus, employees are made to

understand that sharing knowledge is a criterion to get the highest rating on a performance

evaluation and the success and advancement in their career will be based on knowledge

management principles.

Research Design

This research is designed to analyse the important incentive factors in knowledge sharing that

affect organization performance in knowledge management system and collaboration network. It

will cover the motives that increase the knowledge sharing behavior and the factors that can have

impact on these motives in organizational context. The preceding discussions from chapter two

beg the question of what individual factors and organization ethical pertinent can play in relation

to a knowledge base in an organization. the design of this research is taken based on the

approach of reductionism instead of constructivism. Simplified this research is designed to get

feedback from the population of the study which are academics and executive staff in

Multimedia University of Malaysia (MMU) in order to reach the target of this study. as long as

no external force is implemented by the researcher, and all is mapping of the feedback that

comes from the designed questionnaire with using the right semantics that can convert a

qualitative value into a quantitative one for statistical purposes.

Theoretical Framework

For the purpose of this study, general framework is simplified as it can be seen from figure 1.

The model considers the incentive factors that have considerable impact on knowledge sharing

behavior in knowledge management system. Specifically, the adoption of Knowledge

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management processes in the paper is based on a combination of Knowledge management

processes that are identified by Okunoye (2003), McShane and Von Glinow (2000) , Natarajan

and Shekhar (2000) and Coukos Semmel, E.D, (2001).

Figure 1: Theoretical Framework of incentive factors on Knowledge Sharing Behavior.

As it is seen, the research framework consists of 3 independent variables and two moderate

variables. All together, this framework will focus on the individual incentives aspect of the

knowledge sharing behavior and how these motives can affect the behavior.

Hypothesis Development

On the basis of the developed research framework that was depicted in figure 1, this study will

examine five different hypotheses. These hypotheses are as follows.

H1. Individual‟s intention such as tangible or intangible rewards creates positive impact on

knowledge sharing behavior.

H2. Individual‟s sensation such as unwillingness or fear influences knowledge sharing behavior

positively.

H3. Individual perception (perceived efficiency or participation) creates positive impact on

knowledge sharing behavior.

H4. Favorable organization norms expedite knowledge sharing behavior positively. This

hypothesis is developed on the moderating variable of organization norms.

H5. Proper organization reciprocity accelerates knowledge sharing behavior positively.

Results

Personal Profile of the Respondents

The studied population is almost heavy in part of females (73%) due to majority occupied

positions in the organization by females. Majority of the population (40%) are in the age range of

25 to 30 years old. Majority of the studied population (76 %) do have higher education degree.

More than half of the population (64 %) has basic job experience with minimum of 2 years of

experience. Almost half of the population (54 %) has occupied staff position in organization.

4.3.1 Individual‟s intention Hypothesis Testing

The first factor to have the test on is the monetary value of sharing the knowledge with peers

(e.g. getting commission). Table 21 shows the one sample T-test analysis of tangible rewards.

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H0: Individual‘s intention in the form of tangible monetary rewards cannot influence

knowledge sharing behavior positively.

H1: Individual‘s intention in the form of tangible monetary rewards can influence

knowledge sharing behavior positively.

Table 21. One Sample T- test on tangible rewards Influence on Knowledge Sharing behavior One-Sample Test

Test Value = 3

Tangible Reward t df Sig. (2-tailed) Mean

Difference

95% Confidence Interval of the Difference

Lower Upper

7.928 79 .000 .60000 .4494 .7506

Conclusion: according to results gained by One Sample T- test and with 95% confidence level

and P value is less than 0.05, So we can interpret that answerers believe individual‘s intention in

forms of tangible rewards has positive effect on cooperative knowledge sharing behavior. And

therefore, H0 is rejected.

Table 22 will show the One Sample T test for intangible rewards that is the second factor. Here:

H0: Individual‘s intention in the form of intangible rewards cannot influence knowledge sharing

behavior positively.

H1: Individual‘s intention in the form of intangible rewards can influence knowledge sharing


Table 22. One Sample T test on Intangible Rewards Influence on Knowledge Sharing Behavior One-Sample Test

Test Value = 3

Intangible

Reward

t df Sig. (2-tailed) Mean

Difference

95% Confidence Interval of the Difference

Lower Upper

18.620 79 .000 .96250 .8596 1.0654

Conclusion: 95% confidence interval for the mean difference is [0.85, 1.06] which does not contain zero.

Meaning level of the test is less than 0.05 (The P-Value 0.002<0.05), So we can interpret that

respondents believe individual‘s intention in forms of intangible rewards has positive effect on

cooperative knowledge sharing behavior. And therefore, H0 is rejected.

4.3.2 Individual‟s sensation Hypothesis Testing

In this part, hypothesis testing based on two factors of Unwillingness and Fear (job security).

Table 23 will show the One Sample T test for this factor.

H0: Individual‘s sensation in the form of Unwillingness cannot influence knowledge sharing


H1: Individual‘s sensation in the form of Unwillingness can influence knowledge sharing


Table 23. One Sample T test on Unwillingness Influence on Knowledge Sharing Behavior One-Sample Test

Test Value = 3

Unwillingness t df Sig. (2-tailed) Mean

Difference

95% Confidence Interval of the

Difference

Lower Upper

3.252 79 .002 .24375 .0946 .3929

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answerers believe individual‘s sensation in forms of Unwillingness has positive effect on

cooperative knowledge sharing behavior. And therefore, H0 is rejected. Table 24 will show the

One Sample T test for individual‘s sensation as the second factor:

H0: Individual‘s sensation in the form of frightened cannot influence knowledge sharing


H1: Individual‘s sensation in the form of frightened can influence knowledge sharing behavior

positively.

Table 24. One Sample T test on frightened Influence on Knowledge Sharing Behavior

One-Sample Test

Test Value = 3

Frightened t df Sig. (2-tailed) Mean

Difference


Difference

Lower Upper

.082 79 .935 .01250 -.2911 .3161

Conclusion: 95% confidence interval for the mean difference is [-0.29, 0.31] which contain zero.

Meaning level of the test (0.93>0.05) The P-Value of the test is more than 0.05, So it means that

individual sensation in the form of fear is almost equal to the mean and somehow has effect on

knowledge sharing behavior until the mean limit.

4.3.3 Individual perception Hypothesis Testing

Here the hypothesis is developed on the factors of Perceived Efficacy and Perceived

Participation.

H0: Individual perception in the form of Perceived Efficacy cannot influence knowledge sharing


H1: Individual perception in the form of Perceived Efficacy can influence knowledge sharing


One-Sample Test

Test Value = 3

Perceived

Efficacy


Difference


Difference

Lower Upper

22.983 79 .000 1.27500 1.1646 1.3854


Meaning level of the test is less than 0.05 (The P-Value 0.001<0.05), so we can interpret that

answerers believe individual‘s perception in forms of Perceived Efficacy has positive effect on

cooperative knowledge sharing behavior. And therefore, H0 is rejected.

Next is to have the analysis on the perceived participation factor.

H0: Individual perception in the form of perceived participation cannot influence knowledge

sharing behavior positively.

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H1: Individual perception in the form of perceived participation can influence knowledge sharing

behavior positively. One-Sample Test

Test Value = 3

perceived

participation


Difference


Difference

Lower Upper

16.514 79 .000 1.21875 1.0719 1.3656

Conclusion 95% confidence interval for the mean difference is [1.07, 1.36] which does not contain zero.


answerers believe individual‘s perception in forms of perceived participation has positive effect

on cooperative knowledge sharing behavior. And therefore, H0 is rejected.

4.3.4 Organization culture and norms Hypothesis Testing

Here the hypothesis is developed on two factors of Extensive scope of sharing knowledge and

colleague Identity & Lessons.

In the first part, the hypotheses are as follows:

H0: Organization culture and norms cannot expedite knowledge sharing behavior in the form of

Extensive scope of sharing knowledge.

H1: Organization culture and norms expedite knowledge sharing behavior in the form of

Extensive scope of sharing knowledge. One-Sample Test

Test Value = 3

Extensive scope of

sharing knowledge

t df Sig. (2-

tailed)

Mean

Difference


Difference

Lower Upper

6.095 79 .000 .46250 .3115 .6135

Conclusion: 95% confidence interval for the mean difference is [0.31, 0.61] which does not

contain zero. Meaning level of the test is less than 0.05 (The P-Value 0.001<0.05), So we can

interpret that the respondents believe Organization culture in forms of Extensive scope of sharing

knowledge has positive effect on cooperative knowledge sharing behavior. And therefore, H0 is

rejected.

Next, we develop the hypothesis based on colleague Identity & Lessons as follows:

H0: Organization culture and norms cannot expedite knowledge sharing behavior in the form of

colleague Identity & Lessons

H1: Organization culture and norms can expedite knowledge sharing behavior in the form of

colleague Identity & Lessons One-Sample Test

Test Value = 3

colleague Identity &

Lessons

t df Sig. (2-

tailed)

Mean

Difference


Difference

Lower Upper

7.957 79 .000 .58125 .4359 .7266



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answerers believe Organization culture in forms of colleague Identity & Lessons has positive

effect on cooperative knowledge sharing behavior. And therefore, H0 is rejected.

4.3.5 Organization reciprocity Hypothesis Testing

In this part, the hypothesis is developed on two factors of Proper Citation of sharing knowledge

and System Evaluation & Accessibility

In the first part, the hypothesis can be developed as follow

H0: Organization reciprocity cannot expedite knowledge sharing behavior in the form of Proper

Citation.

H1: Organization reciprocity expedites knowledge sharing behavior in the form of Proper

Citation. One-Sample Test

Test Value = 3

Proper Citation t df Sig. (2-

tailed)

Mean

Difference


Difference

Lower Upper

13.454 79 .000 .93750 .7988 1.0762

Conclusion: 95% confidence interval for the mean difference is [0.79, 1.07] which does not

contain zero. Meaning level of the test is less than 0.05 (The P-Value 0.001<0.05), So we can

interpret that the respondents believe Organization reciprocity in forms of Proper Citation has

positive effect on cooperative knowledge sharing behavior. And therefore, H0 is rejected.

And finally, we move to the second factor ocity which is System Evaluation & Accessibility.

H0: Organization reciprocity cannot expedite knowledge sharing behavior in the form of System

Evaluation & Accessibility

H1: Organization reciprocity can expedite knowledge sharing behavior in the form of System

Evaluation & Accessibility One-Sample Test

Test Value = 3

System Evaluation &

Accessibility

t df Sig. (2-

tailed)

Mean

Difference


Difference

Lower Upper

10.163 79 .000 .75625 .6081 .9044

Conclusion: according to results gained by One Sample T- test, The Mean Difference is 0.75,

and the Standardized Deviation is 0.66.

95% confidence interval for the mean difference is [0.79, 1.07] which does not contain zero.

Meaning level of the test is less than 0.05 (The P-Value 0.001<0.05), So theory of equality of

sample mean with rank 3 refuse and it can be said that it there is significant with the mean value

of 3. Since rank sample more than 3, i.e. has more than mean, so we can interpret that answerers

believe Organization reciprocity in forms of System Evaluation & Accessibility has positive

effect on cooperative knowledge sharing behavior. And therefore, H0 is rejected.

Discussion and Implications

Social tie

According to collected data, almost all participates are members of any form of web based

networking sites. While social web based linkage is basically a very attractive environment but

when it comes in forms of on-line chatting and VOIP as a communication medium. Out of 80

participants, only around 3% communicate through knowledge sharing system (MMU

knowledge book) and the rest prefer on-line chat and VOIP while the option of knowledge

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sharing system is also available to them. In fact, people are easily persuaded to join in their

organization sharing systems, but it is hard to participate and influence their communication and

share their knowledge as long as they get less in compare of some old doohickey like chat rooms

or VOIP mediums. What can be suggested is that developing a glamorous platform to generation

and dissemination knowledge in the way that gives a common sense to each member.

Social propensity

As the research results shows people do need to achieve their social needs in the first place and if

unsatisfied they will become ―shadow users‖ who do not participate. In fact, people are swayed

to what they find useful with their presence. What they are looking for is not solidly commercial

base in the first place; they want to keep their social needs , what bring people in this network is

to present themselves and feel of being a member of the society they know.

Social perception

In this research there is no strong relationship between computer expenditures, IT based and

knowledge sharing behaviors. As long as many constraining factors influence on the willingness

of organizational members to share knowledge this study shows that rewards in the form of

monetary incentives are less helpful and ineffective towards knowledge sharing , whereas

intangible rewards will bring in organizational members‟ better impact towards knowledge

sharing. As a conclusion, in order to motivate people to share what they know, it is of paramount

importance to gives them highly extensive scope of sharing knowledge and perceived

participation by the people around them.

Recommendations

Elaborating on previous research, and manipulating collected data, this study has some

suggestions as below.

Recruiting: Recruiting and enlisting employees should be based on organization knowledge

sharing culture. To achieve this importance, organization need to have evaluation structure on

individual propensity to share knowledge

Training: Often employees are willing to participate simply because they don‟t know about it,

they don‟t know how it works or what related behaviours they need to practice. The training

processes help employees to understand what the system is, what it does, and how it can benefit

them. Employees should be trained regarding the usage system, technology tools and IT structure

as well as the expected behaviors with respect to the value of sharing knowledge to support

knowledge sharing.

Awareness: It is important to ensure that entire organizational members have common

definition, understanding, and Confidence about the relevancy and efficiency of knowledge

sharing on individual performance and organization competence. Hence, the popularity of

participants in knowledge sharing system will be easily permeated throughout the whole

organization.

Measurement mechanism: Apparently, a good feedback mechanism will increase knowledge

providers‘ perceived efficacy. Individuals who perceived worth on reliability of sharing

knowledge system will be more likely to share the knowledge that they have. This can be

accomplished by setting roadmap and scheme on proper citation coupled with the relevancy,

amount and quality of shared knowledge.

Limitation of the study

There are a couple of limitations that need to be acknowledged in regard to the present study.

The first involves sampling. A convenience sample was used and the sample size was small. The

evaluation took place in only one campus which is Cyberjaya of the Multimedia University

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(MMU) whereas the second one, Melaka campuses was connive due to inconvenient for author

to collect data. Furthermore, the total amount of population was unknown due to not responded

of human resource department of giving right information. Second, this study did not purport to

and could not possibly develop a comprehensive picture of the implementing knowledge

management, Instead, it attempted to create a snapshot of social factors and incentives which

create a basic topology of strategic approaches to knowledge management. And lastly, many

barriers to knowledge management and motives factors arise which are not covered in this

research thus there is lack of sufficient number of independent variables and moderating

variables used to predict the dependent variable (willingness to share knowledge).

Suggestions for future research this study focused on crucial issue of social aspect of knowledge sharing behavior, hence, to

pave the way for further research suggested, expanding the findings of this study in the areas of

theory, methodology, technology and scope. The opinion of the researcher may be fruitful further

crystallization of the tacit knowledge construct. While, due to the mobility of lecturers or skill

employees for reasons of promotion, resignation and more over revoking the contract of foreign

lecturer due to localization standpoint of president their knowledge is overlooked, leading to loss

of vast amounts of valuable tacit knowledge which are based on experience gained over a long

period of time. By the way, there is a need to continue investigating and examining other aspects

of the knowledge management implementation and processes in Multimedia University. Another

improvement that further research may bring is sknowledge sharing system which is employee,

impact of knowledge management processes on efficiency improved.

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The Measurement of User Satisfaction on Malaysian Meteorological

Department Online information services

Faizal Haini Fadzil

Faculty of Information Management, Universiti Teknologi MARA

40150 Shah Alam, Selangor, Malaysia

Mohammad Fazli Baharuddin

Faculty of Information Management, Universiti Teknologi MARA

40150 Shah Alam, Selangor, Malaysia

Abstract User satisfaction is considered to be one of the most widely used measures of information and

communication technology (ICT) implementation success. Therefore there is a need to measure

user satisfaction of Malaysian Meteorological Department (MMD) website. MMD is govern

under Ministry of Science, Technology and Innovation (MOSTI) and has been commence its

operation since 1820 in Singapore. Until now the department are strive their best effort to issue

timely and accurate weather and meteorological information to public. The research sample was

48 students from 3 different faculties in University Putra Malaysia. The data were analyzed with

Rasch Multi-dimensional Models for Measurement (RUMM) software.

Keywords: User satisfaction, online weather service, Rasch measurement, Malaysian

Meteorological Department.

1. INTRODUCTION

In the era of globalization, the vast development of innovation in information, technology and

communication (ICT) have experienced substantial influences on the community and businesses.

The development of technology provide cheaper and more advance workstation, with the

integration of telecommunication facility either wired or wireless, has put computing power into

group of much greater number of person in the business (Willcocks, 1994; Kraemer & Rischard,

1996; Dedrick, 1997).

Upon the introduction of World Wide Web (WWW), the increasing numbers of

companies are using it to provide their customers with information related to their service or

direct service through their web. Compared to conventional method of delivering, WWW have

great potential to reach wide audience with global market access. The website can store rich

content and information in user-friendly interface which can attracts more user. According to

Wang and Head (2001), most WWW integrates more than other current systems to support

business process.

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The process of making products and services available to customers has changed from

conventional communication channels to web based information system. Comparing with

conventional customer information services, web based customer service required a set of

webpage that act like a magazine, which can allow user to navigate, request content resource, ask

question, download current news, and provide solution to users.

Since a primary objective of a web based service is to meet the demand and requirement

of user, the measurement of user satisfaction will be discussed. The question is what to measure,

and how the existing web based service can deliver information to the user. In the research, it is

necessary to ask on ―Who are the web user?‖, ―How can the service quality can be measured?‖,

and ―What is web based service quality?‖. In this paper, the general framework is introduced to

identify and measure what factor that can lead into user satisfaction in MMD web based service.

Web based quality is defined as the degree of which the service could facilitate the effectiveness

and efficiency of communication through online. The objective of this paper is identifying

attributes in online services and to measure user satisfaction of MMD online services.

2. OBJECTIVE OF THE STUDY

The objective of this study is:

To identify of which extent the website function may help to deliver informative content

to the user.

To assess the level of readiness and acceptance by website‘s users of web-based

information and services provided by MMD.

To measure user satisfaction on the effectiveness and efficiency of the website

deliverable.

To provide recommendations to enable MMD online service to implement suitable

strategies in enhancing the quality of electronic service delivery towards MMD Direction

2007 - 2015

3. LITERATURE REVIEW ON USER SATISFACTION OF WEB-BASED

INFORMATION SYSTEMS

Web-based information systems provide a dynamic and multiple distributed platforms for

interactive business applications. They facilitate some process of integration between other

systems, e-business, and e commerce to advance. The qualities of the service offered by this

web-based information service bring more research to be conducted to measure the level of user

satisfaction in using the service.

3.1 Definition of Web-based information System

From the emergence of the World Wide Web, there is no standard definition for the term Web-

based information system. In general, web-based system is a part of World Wide Web. The

appearance of the web is the part of web application and the web browsers acts as a user

interface. Web-based information system can be generally considered as a general system such

other existing standalone system, but not a set of web pages. There are different between web

pages and web-based information system. The different is that web-pages are designed to be

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used and browse like newspaper, magazines, and books but web-based information system have

an extra capability to enable user or visitor to perform some task which is usually integrated to

other system such as databases and transaction processing systems.

From the classification views, the web-based information system can be classified

according to their scope of area from the system that are locally made for internal or the system

that made to be viewed globally. As referred to Isakowitz (1998), the system can be from simple

web page to the sophisticated and highly complex integrated system. From the article, the

difference between web sites and e-commerce is not a big different because there are many

websites has been integrating their websites with direct service such as online shopping, support

centre, and user interaction.

3.2 Features of Web-based Information System

There are four stage model of the evolution of web-based communication that introduced by

McMillan (1999). The four stage are explain as at stage 1, there are static web-based information

system comprising corporate brochures that created to attracts more audience, promoting

products and services, and marketing. At stage 2, the web-pages go more complex with dynamic

web-based information systems that facilitate searchable content from database and archived

information such as news archive. In dynamic web-based system, it has established a new two

way communication with the user. For example feedback, ordering, and online polls or survey.

At stage 3, the development of web based information system focus on any active environment

that facilitates the e-commerce or online transactions. The application including auction,

negotiation, and shopping cart application. Lastly at stage 4, commercial function that using wide

range of multimedia taken place. For example, photo pages, video streaming and blogging.

3.3 The Complexity and Sophisticated Online Service

The design of web-based system is not easy as designing common web pages. The need of one

business differs the need from other business. According to an article written by Scharl (2000),

each organization or business entity may not be necessary adopting all four stages that

introduced by Mcmillan (2009). Before considering the application of web-based information

system, factors such as utility, cost, required resources, skills, and manpower should be taken

into account. There are relationship between service attributes and the overall of web-based

service quality. Some web user demand large amount of information and graphics, while the

other group demand simple webpage. The restriction of these two variant of content and design

is the connection speed.

4. RESEARCH METHODOLOGY

The sample

This research measured user satisfaction in using online services provided by MMD.

There are three faculties in UPM that suggesting their student to use MMD weather service in

their study. The faculties are; Faculty of Agriculture, Faculty of Forestry, and Faculty of

Environmental. The variety of population and diversity of faculty need make the research

interesting to measure the satisfaction of web-based information service that being used.

The Questionnaire

The research used a six-page questionnaire for data collection. On the first page is the

introduction and the second page are the question about the demographic background of

the respondent. These are the age of respondent, their gender, from which faculty, where

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did they find out about the service, and the frequent access of the website in a

week. Then the question continues with a series of statement where respondents

were asked to indicate their opinion as to their level of acceptance and satisfaction on

the website content and electronic service with respect to quality of online information,

electronic services, feedback, resources, and website link. The use of likert scale

ranging from ‗1‘ which means strongly disagree to ‗5‘ which represents strongly agree to

measure the website user‘s level of acceptance and usage of the website and electronic

services.

The population sample for survey questionnaire

The self-administered questionnaire were distributed to 150, 50 to each faculty in the

university compound. The survey questionnaires are distributed to randomly selected

respondent who visiting the faculty office. This survey was conducted in 3 days in September

for data collection and finding analysis is done in month of October.

5. FINDINGS

In Rasch model, winstep give two value of reliability to reflect the upper and lower limits. The

lower limit is model 'root mean square standard error' (RMSE) that represents the "worst case"

reliability. The upper limit is real RMSE that represents the "best case" reliability. Table 1 shows

the person reliability ranges from 0.75 to 0.78 while item reliability is 0.98.

Table 1: Summary statistics for 37 person and 27 items

SUMMARY OF 37 MEASURED Persons

+-----------------------------------------------------------------------------+

| RAW MODEL INFIT OUTFIT |

| SCORE COUNT MEASURE ERROR MNSQ ZSTD MNSQ ZSTD |

|-----------------------------------------------------------------------------|

| MEAN 104.3 27.0 4.62 .55 .95 -.2 1.00 -.1 |

| S.D. 3.9 .0 1.19 .03 .53 1.4 .81 1.2 |

| MAX. 110.0 27.0 6.46 .59 2.71 3.9 4.01 3.0 |

| MIN. 95.0 27.0 2.09 .47 .30 -2.4 .17 -1.8 |

|-----------------------------------------------------------------------------|

| REAL RMSE .60 ADJ.SD 1.03 SEPARATION 1.73 Person RELIABILITY .75 |

|MODEL RMSE .55 ADJ.SD 1.06 SEPARATION 1.91 Person RELIABILITY .78 |

| S.E. OF Person MEAN = .20 |

+-----------------------------------------------------------------------------+

SUMMARY OF 27 MEASURED Items

+-----------------------------------------------------------------------------+

| RAW MODEL INFIT OUTFIT |

| SCORE COUNT MEASURE ERROR MNSQ ZSTD MNSQ ZSTD |

|-----------------------------------------------------------------------------|

| MEAN 142.9 37.0 .00 .51 .92 -.3 1.00 -.3 |

| S.D. 18.1 .0 3.58 .13 .50 1.4 .94 1.4 |

| MAX. 173.0 37.0 7.93 .71 2.26 3.4 5.08 4.3 |

| MIN. 97.0 37.0 -6.05 .34 .06 -2.7 .04 -2.5 |

|-----------------------------------------------------------------------------|

| REAL RMSE .57 ADJ.SD 3.53 SEPARATION 6.24 Item RELIABILITY .97 |

|MODEL RMSE .53 ADJ.SD 3.54 SEPARATION 6.73 Item RELIABILITY .98 |

| S.E. OF Item MEAN = .70 |

+-----------------------------------------------------------------------------+

Reliability is on a scale from 0 to 1. The closer the value is to 1, the greater the reliability.

Therefore, person reliability is adequate while item reliability is excellent. Table 2 shows the

measures and fit statistics for all 27 items. The measure refers to the item measures. They give

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the level of satisfaction scale. For an example, the higher measure means the service is the worst

among all. A low measure means the service is efficient and gives the best to the web user.

Table 2: Item measure of items

Item CATEGORY/OPTION/DISTRACTOR FREQUENCIES: MEASURE ORDER

+-------------------------------------------------------------------------------+

|ENTRY DATA SCORE | DATA | AVERAGE S.E. OUTF PTMEA| |

|NUMBER CODE VALUE | COUNT % | MEASURE MEAN MNSQ CORR.| Item |

|--------------------+------------+--------------------------+------------------|

| 27 1 1 | 1 3 | 3.03 .9 -.22 |admin_response | 1

| 2 2 | 12 32 | 3.91 .36 1.2 -.41 | | 2

| 3 3 | 24 65 | 5.03 .20 .9 .47 | | 3

| | | | |

| 20 2 2 | 5 14 | 3.25 .48 .9 -.45 |relevant_links | 2

| 3 3 | 29 78 | 4.68 .19 .8 .11 | | 3

| 4 4 | 3 8 | 6.24 .11 .7 .40 | | 4

| | | | |

| 26 2 2 | 4 11 | 3.00 .36 .7 -.47 |feedback_response | 2

| 3 3 | 29 78 | 4.77 .20 .9 .25 | | 3

| 4 4 | 4 11 | 5.10 .70 1.1 .14 | | 4

| | | | |

| 25 3 3 | 32 86 | 4.56 .21 1.2 -.12 |text_read | 3

| 4 4 | 5 14 | 4.97 .56 1.4 .12 | | 4

| | | | |

| 2 2 2 | 1 3 | 4.13 1.1 -.07 |access | 2

| 3 3 | 26 70 | 4.25 .22 .9 -.48 | | 3

| 4 4 | 10 27 | 5.62 .30 .9 .51 | | 4

| | | | |

| 22 3 3 | 11 30 | 3.59 .27 .6 -.56 |navigation | 3

| 4 4 | 26 70 | 5.05 .21 .9 .56 | | 4

| | | | |

| 1 3 3 | 10 27 | 3.78 .28 .8 -.43 |response_time | 3

| 4 4 | 26 70 | 4.88 .23 1.1 .34 | | 4

| 5 5 | 1 3 | 6.13 1.1 .21 | | 5

| | | | |

| 15 3 3 | 9 24 | 3.86 .29 .9 -.36 |quick_search | 3

| 4 4 | 28 76 | 4.86 .23 1.2 .36 | | 4

| | | | |

| 16 3 3 | 8 22 | 5.06 .42 3.4 .20 |search_result | 3

| 4 4 | 27 73 | 4.37* .22 1.5 -.34 | | 4

| 5 5 | 2 5 | 6.13 .00 1.2 .30 | | 5

| | | | |

| 6 3 3 | 5 14 | 3.05 .25 .4 -.52 |recent | 3

| 4 4 | 32 86 | 4.86 .19 .9 .52 | | 4

| | | | |

| 19 2 2 | 1 3 | 3.03 .9 -.22 |links | 2

| 3 3 | 2 5 | 2.32* .23 .2 -.46 | | 3

| 4 4 | 34 92 | 4.80 .18 .8 .51 | | 4

| | | | |

| 18 3 3 | 4 11 | 2.81 .32 .4 -.53 |terms_used | 3

| 4 4 | 32 86 | 4.80 .19 .8 .38 | | 4

| 5 5 | 1 3 | 6.13 1.1 .21 | | 5

| | | | |

| 23 3 3 | 3 8 | 4.22 .82 1.8 -.10 |corporate | 3

| 4 4 | 34 92 | 4.65 .21 1.1 .10 | | 4

| | | | |

| 11 4 4 | 37 100 | 4.62 .20 1.0 .00 |issues | 4

| | | | |

| 12 3 3 | 2 5 | 3.74 .70 1.3 -.18 |understandable | 3

| 4 4 | 33 89 | 4.62 .21 1.0 .01 | | 4

| 5 5 | 2 5 | 5.45 1.01 1.2 .17 | | 5

| | | | |

| 17 4 4 | 37 100 | 4.62 .20 1.0 .00 |search_website | 4

| | | | |

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| 21 4 4 | 37 100 | 4.62 .20 1.0 .00 |dead_links | 4

| | | | |

| 24 4 4 | 37 100 | 4.62 .20 1.0 .00 |text_size | 4

| | | | |

| 14 3 3 | 1 3 | 3.29 1.1 -.19 |arrangement | 3

| 4 4 | 34 92 | 4.69 .19 1.0 .19 | | 4

| 5 5 | 2 5 | 4.11* 2.02 .8 -.10 | | 5

| | | | |

| 5 4 4 | 35 95 | 4.61 .20 1.0 -.03 |download | 4

| 5 5 | 2 5 | 4.74 1.71 1.6 .03 | | 5

| | | | |

| 13 4 4 | 35 95 | 4.53 .20 1.0 -.30 |reference | 4

| 5 5 | 2 5 | 6.12 .33 .6 .30 | | 5

| | | | |

| 10 3 3 | 1 3 | 2.09 1.0 -.35 |bulletins | 3

| 4 4 | 30 81 | 4.50 .20 1.0 -.20 | | 4

| 5 5 | 6 16 | 5.62 .33 .9 .37 | | 5

| | | | |

| 3 4 4 | 29 78 | 4.31 .21 .9 -.50 |loading_page | 4

| 5 5 | 8 22 | 5.74 .30 .7 .50 | | 5

| | | | |

| 7 4 4 | 21 57 | 3.99 .23 .9 -.60 |accuracy | 4

| 5 5 | 16 43 | 5.44 .22 .8 .60 | | 5

| | | | |

| 4 4 4 | 20 54 | 4.00 .22 .8 -.56 |article_access | 4

| 5 5 | 17 46 | 5.34 .26 1.0 .56 | | 5

| | | | |

| 9 4 4 | 13 35 | 3.62 .28 .8 -.61 |meteorological | 4

| 5 5 | 24 65 | 5.15 .19 .7 .61 | | 5

| | | | |

| 8 4 4 | 12 32 | 3.67 .30 .9 -.55 |weather_info | 4

| 5 5 | 25 68 | 5.07 .20 .8 .55 | | 5

+-------------------------------------------------------------------------------+

In this research, admin response is the worst part of online service in MMD web-based

information service while weather info is the best part of the web service offered by MMD.

Figure 1: Item map for level of satisfaction in using service

Persons MAP OF Items

<more>|<rare>

8 + admin_response

7 T+T

6 XXXXXXXXXXX S+ feedback_response relevant_links

5 XXXXXXX M+ text_read

4 XXXXXXXXXXXX +S access

3 XXXXXX S+

2 X T+ navigation quick_search response_time

1 + links recent search_result

0 +M corporate terms_used

-1 + arrangement dead_links issues

search_website text_size understandable

-2 + download reference

-3 + bulletins loading_page

-4 +S

-5 + accuracy article_access

-6 + meteorological weather_info

<less>|<frequ>

Group 1

Group 2

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The item-person map in figure shows graphically the items from the highest to the lowest

satisfaction in using online service. The person-map shows the level of satisfaction of the items

is well matched with the ability of the persons. The are two major groups in this figure which

labeled group 1 and group 2. Group 2 has higher level of satisfaction with attributes stated in the

figure, while group 1 not satisfied with admin response, feedback response, relevant link and text

read. But group 1 satisfied with the access, navigation, links, corporate, quick search, recent,

terms used, response time and the search result.

Figure 3: Probability of response to items

CATEGORY PROBABILITIES: MODES - Structure measures at intersections

P ++-----+-----+-----+-----+-----+-----+-----+-----+-----+-----++

R 1.0 + +

O | 444444444 |

B | 333 44 44 |

A |1 33 33 4 4 |

B .8 + 1 3 3 4 4 5+

I | 1 3 3 4 4 5 |

L | 1 222 3 3 4 4 5 |

I | 1 2 2 3 3 4 4 5 |

T .6 + 1 2 2 3 3 4 4 5 +

Y | 12 23 34 4 5 |

.5 + 12 23 * * +

O | 21 32 43 5 4 |

F .4 + 2 1 3 2 4 3 5 4 +

| 2 1 3 2 4 3 5 4 |

R | 2 1 3 2 4 3 5 4 |

E | 2 1 3 2 4 3 5 4 |

S .2 + 2 1 3 2 4 3 5 4+

P |2 * 2 4 3 5 |

O | 3 11 22 4 3 55 |

N | 333 11 44**2 3333 555 |

S .0 +*************************************************************+

E ++-----+-----+-----+-----+-----+-----+-----+-----+-----+-----++

-9 -7 -5 -3 -1 1 3 5 7 9 11

Person [MINUS] Item MEASURE

In figure 3, the probability curve shows that respondents are selecting 4 as the most answers. The

rating scale categories were labeled as follows:

1 2 3 4 5

Strongly disagree Disagree Neutral Agree Strongly agree

The problem in this curve is the rating curve should be revise because there are a small distant

between 4 and 5. The respondent may be not understood the meaning of particular statement or

how they interpret their level of satisfaction in answering the questionnaire.

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6. Discussion

The use of Rasch in general measure user satisfaction of online information service provided by

MMD has an implication for management of the service in the organization. The management of

administrator and user support determined to be the problem in the service provided. This

measurement will allow upper management to evaluate the performance of their user support

capabilities and the availability of administrator to respond user‘s email and feedbacks. Using the

scale as a general measure as well as an application-specific measure could help the

administrator gain a wider perspective of user satisfaction with the systems and applications

across the organization.

From the findings, there should be another research to be conducted to study about the

relationship between website response time and the current network speed. This is to further

determine the optimum level of user satisfaction is different location that differs in network

speed of accessing the particular website.

7. CONCLUSION

Web-based information systems are important in society today, however most of literature study

with the systems development, technology and design. Little was conducted to studies from the

user service point of view.

The result in this study surprisingly shows that most of respondent are satisfied with the

overall performance of the MMD information service. The weather info that integrates with the

website are the most favorable that satisfies user need. Since the respondents are come from 3

different faculties, even then, they need to use the same information. The same problem appear

in this study which are expected from the beginning. The admin response to user and the

feedback from the website are the lowest score in level of satisfaction.

The Rasch model can convert a subjective measurement to objective measurement. This

is possible because the model converts ordinal data into interval data. Researchers who want to

use the Rasch model can do so using the program Winsteps. They should know how to interpret

the statistics, item person map, item measures and person measures. The Rasch analysis shows

pattern of satisfaction level for respondent from 3 faculties in UPM on using MMD online

services. The level of satisfaction relates to the performance of the website and its availability to

support multiple users at one time.

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References

Isakowitz, T., Bieber, M. & Vitali, F. (1998). ―Web information systems‖. Communications of

the ACM. (41) (7): 78-80.

Li, Y.N., Tan, K.C. & Xie, M. (2002). ―Measuring Web-based sevice quality‖. Total Quality

Management. (13) (5): 687-99.

McMillan, S. J. (1999). ―Four models of cyber-interactivity‖, paper presented at the 49th

Annual

Conference of the International Communication Association (ICA-99), San Diego, CA.

Scharl, A. (2000). Evolutionary Web Development. Springer-Verlag London, London.

Sullivan, J. R. & Walstrom, K.A. (2001). ―Consumer perspectives on service quality of

electronic commerce Web sites‖. Journal of Computer Information Systems. Vol. 41: 8-14.

Wang, H., Xie , M. & Goh, T.N. (1999). ―Service quality of internet search engines‖. Journal of

Information Science. (76) (3): 499-507.

Economic Crisis and its Impact on Job Motivation and Job Security:

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A Case of Banking Sector

Muhammad Jawad Iqbal(Corresponding Author)

Faculty of Management and Human Resource Development

Universiti Teknologi Malaysia, Malaysia

Mohammadghorban Mehri

Islamic Azad University of Ghorveh, Ghorveh, Iran

Abstract

In the current changing and competitive environment and to achieve the competitive advantage

satisfied human capital has become a strategically very important for the organizations. During

the past decade the financial crises has shattered the economic stability of different economies all

over the world. This research demonstrates how a global financial crisis has recently affected the

occupational and skill profiles of job in banking industry of Pakistan. On the basis of different

views of authors, a conceptual framework has been developed which determined the association

between the impact of global economic crisis and job motivation and job security. The research

gives a new insight into explaining the impact of global financial crises on employee‘s job

satisfaction and security. This framework also investigated the impact on job motivation and job

satisfaction for the employee‘s having both pre & post crisis job experience and on the

employees having only post crisis experience.

Key Words: Economic downturn, Global Crisis, Job Security, Job Satisfaction, Job Motivation.

1. Introduction

The economic crisis of 2007 presents substantial challenges. It has exposed the flaws in the

global economy operations all over the world and has developed a need to work for the reform of

international financial architecture. The impact of the global crisis on economy became visible

during the last quarter of 2008 when the real GDP growth rate starts showing downward trends.

Almost each sector in the economy, including financial/banking sector, which is the leading

sector, registered negative growth rates.

In the US, the financial downturn has created unprecedented challenges for the economy, it start

spreading its devastating impact on rest of the world. Financial sector, originally affected by the

financial crises, seemed immune to most responses, while policy tools and other fiscal stimuli

have been slothful to ascertain at least some stability in economies dealing with the spill-over of

the economic crisis into other sectors and a general economic slowdown.

The impact of the crises also engulfed the South Asian region. South Asia suffered a huge loss of

income between January 2003 and May 2008 from a severe terms-of-trade shock on account of

the surge in global commodity prices. The economy of Pakistan has also witnessed a period of

momentous instability and a deterioration of most macroeconomic indicators, as the slump in the

global economy prevailed.

2. PROBLEM STATEMENT:

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The crisis impacted firms at the micro level. This research will be conducted to find out the

effect of economic down turn on the job security and motivation of employees working in the

financial sector in Pakistan. The existing literature supports the view that the sensitivity of

employee motivation and job security level magnifies during economic downturn. Previous

studies conducted by Opler & Titman, (1994); Kien (2006); Malcolm, Liou (2007) has also

supported this relationship. Present research work is to apply the model in the context of

Pakistan‘s financial sector.

3. OBJECTIVE:

3.1 Main objective of the research will be to study the

Impact of economic downturn on Job Security

Impact of economic downturn on Job Motivation

3.2 To find the underlying causes of sensitivity of employee satisfaction level to financial

crises.

4. SIGNIFICANCE OF STUDY:

In the current global economic scenario, virtually few research studies have been conducted on

the dimension of job security and job motivation in the context of economic downturn. The

current study will be conducted to find out the relationship between economic distress &

employee satisfaction of banking sector industries of Pakistan during the economic crises. This

study is important to company employees as it will show how the economic/financial crises can

disturb their jobs.

5. LITERATURE REVIEW:

The Global Economic Crises has an effect on all the regions of the world. It is evident from the

past that a crisis has always created problems for all the sectors of the economy and negatively

affected the performance of the industries.

The relationship between economic distress and employee performance has been examined in

various studies during diverse periods of economic downturn, recession or crises. In a study

conducted by the researcher Claessens, to test the relationship between economic distress and

employee performance during the Asian Economic Crisis of 1997-1998, he studied eight East

Asian economies using a sample of 277 firms. The study was meant to test the endogenous

issues between employee performance and leverage and see if firms with a low financial

leverage have a tendency to outperform with high financial leverage. When hit by an exogenous

shock, the high-leverage firms experience worse performance relatively. Thus financial leverage

is used as a proxy for economic distress, and the results suggest that economically distressed

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firms under perform. His results supported the hypothesis that leverage has an impact on

economic distress of firms.

Similar studies have been conducted on a regional basis, and in a report compiled by the World

Bank, the impact of Asian economic crisis has been studied pertaining to its effect on Malaysian

Production Industry. In the result of the survey conducted, it was observed that all the firms

faced a reduction in output resulted in reduction in employment level. Another study by United

Nations Economic and Social Council Economic Commission for Africa discussed about the

impact of economic crises on Africa.

The impact of economic distress on the employee‘s performance has been tested. The study

conducted by Bergstrom and Sundgren (2002), has negated this relation in light of restructuring

of the firms. According to Bergstrom and Sundgren, the effects of economic distress on

employees are negligible. They further studied the changes in performance after the

reorganization of firms along with the costs and benefits of economic distress on Swedish firms

and found no significant impact on employee after reorganization.

Various models have been used as proxy for employee‘s satisfaction and determining its relation

with economic distress. One such study has been conducted by Sori (2006), to test the

employee‘s satisfaction in economically distressed firms in Malaysia due to the Asian Economic

Crisis of 1997. He made use of Multiple Discriminant Analysis (MDA) to ascertain the

discriminating power of the variables, particularly to test the corporate distress for Malaysian

companies.

John, in his article presented a model to manage economic distress. Mechanisms to

deal with economic distress involved restructuring the financial contract, asset restructuring,

private debt restructuring. Another model of financial restructuring used was, to raise additional

current liquidity by issuing new financial claims against future cash flows generated by the

assets, which may avoid or reduce premature liquidation of these assets.

Additionally, it was observed that economic distress did not obstruct the satisfaction level of the

employee, which was as efficient prior to reorganization as after, and that the economic distress

is not particularly costly in the sense that it may affect the performance of firms.

Studies conducted by Bergström and Sundgren (2002), have negated this relation in light of

restructuring of the firms. According to Bergstrom and Sundgren, the effects of economic

distress on employee‘s satisfaction level are negligible. They further studied the changes in

performance after the reorganization of firms along with the costs and benefits of economic

distress on Swedish firms and found no significant changes in performance after reorganization.

Additionally, it was observed that economic distress did not obstruct the performance of the

employee, which was as efficient prior to reorganization as after.

Several models have been designed to test the potential failure of countries during the economic

crisis. One such study has been conducted by Sori (2006), to test the economically distressed

firms in Malaysia due to the Asian Economic Crisis of 1997. He made use of a model, which he

developed to test the corporate distress for Malaysian companies. The study found that the final

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variables used in the model and the variables which have been used by most of the researchers

are strongly correlated.

Another study by United Nations Economic and Social Council Economic Commission for

Africa discussed the impact of economic crises on Africa. It was observed that the crisis has

affected all the economies of the region irrespective of their economic condition; either they are

rich, poor having fragile political conditions, small or large economy or oil or non-oil producing

and exporting country.

In the study conducted by Smith & Liou (2007), the impact of economic sector in response to

economic distress is analyzed. As a matter of evidence, several studies have proven the negative

impact caused by the economic distress on employee job motivation and job security level. Sori

(2006) noticed a strong relationship between the final variables in the prediction model. Further

studies have also proven similar results.

Another study has focused on the economic crises & how does the firms can rectify the situation.

This study is conducted by Kose John (2007). This article presents a model to manage economic

distress, mechanisms to deal with economic distress involve restructuring the financial contract,

asset restructuring, private debt restructuring.

The purpose of this research was to analyze the impact of economic crises on the job motivation

and job security of financial industry, using regression statistical methods. The relationship

between economic distress and employee performance has been examined in various studies

during diverse periods of economic downturn, recession or crises. This research will be

conducted to check the impact of Economic Crises on the job security and job motivational level

of firm‘s employee as per following model

Figure: 1. Model presenting economic crisis impact on job motivation and security

6. METHODOLOGY:

For this research the data used will be gathered through constructive questionnaires, distributed

to middle and lower management as well as the lower level employees of financial sector in

Islamabad.

Job Security

Job Motivation

Economic Crisis

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The method of data collection for this research will be through a constructive questionnaire

distributed to the employees of financial sector in Islamabad. 165 questionnaires will be

circulated among employees. The sample will comprise of 94 respondents. All the banks in

Islamabad/Rawalpindi will be short listed; questionnaires will then be distributed by hand to

employees and managers of short listed banks. The employees and managers of few banks will

be personally interviewed with the aim to investigate the impact of economic crises on the

employee‘s job motivation and job security.

The questionnaire1 developed will consist of 8 questions each having a scale of 5 possible

outcomes. Following will be the research questions used in conceptual framework,

6.1 HYPOTHESIS

Ho1: Economic Crises has a negative impact on the employee‘s job security.

Ho1: Economic Crises has negative impact on employee‘s job motivation.

6.2 VARIABLES

Independent Variable: The Economic Crises (EC) in banking sector.

Dependent Variable:

i) Impact of EC on Employees Job Motivation.

ii) Impact of EC on Employees Job Security.

7. ANALYSIS:

Data has been analyzed electronically by using SPSS. Regression analysis was conducted.

Table. 1

„Impact of Economic Crisis‟

Job Motivation Level

Bands

Questions

1 (No

Impact)

2 (Low

Impact)

3( Some

Impact)

4 (High

Impact)

5 (Very High

Impact)

Q1 7% 13% 25% 38% 17%

Q2 8% 20% 14% 36% 22%

Q3 15% 20% 13% 23% 29%

Q4 4% 11% 32% 24% 29%

Q5 2% 10% 14% 36% 38%

Total 7% 15% 20% 31% 27%

1 The impact of the financial crisis on labor in the civil aviation industry by Dr Geraint Harvey &

Professor Peter Turnbull

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Table 2.1 demonstrates the impact of Economic Crisis on banking employees‘ ―Job Motivation‖,

who have been working in pre-crisis and post crisis as well. Table 2 results represent the

tendency of employee‘s motivation. The results shows this perception as, 7% employees

consider that economic crisis has no impact on motivation level, 15% consider that the impact is

low, 20% were of the opinion that to some extent the crisis impacted the motivation level,

according to 31% this impact is high and 27% were of the opinion that the economic crisis has a

very high impact on motivation level. These results are derived through bands assigned to the

questions regarding ―Job Motivation‖.

Table 2

Job Security

Bands

Questions

1 (No

Impact)

2 (Low

Impact)

3( Some

Impact)

4 (High

Impact)

5 (Very High

Impact)

Q6 12% 14% 13% 31% 30%

Q7 9% 11% 18% 25% 37%

Q8 11% 10% 22% 37% 20%

Total 11% 12% 18% 31% 29%

Table 2.2 is consisting of 3 questions regarding ―Job Security‖ showing the impact of global

economic on banking employees‘, who have been working in pre-crisis and post crisis as well.

Table 2.2 results shows this perception as, in the opinion of 11% employees economic crisis has

no impact on job security, 12% consider this impact to be very low, 18% thought that it has some

impact, whereas, 31% were of the opinion that crisis has affected the job security level highly

and 29% consider this impact very high. These results are derived through bands assigned to the

questions regarding ―Job Security‖.

IMPACT ON EMPLOYEES HAVING POST CRISIS EXPERIENCE

Table 3

RESPONDENTS HAVING EXPEREINCE OF POST CRISIS ENVIORNMENT

Job Motivation

Bands

Questions

1 (No

Impact)

2 (Low

Impact)

3( Some

Impact)

4 (High

Impact)

5 (Very High

Impact)

Q1 21% 38% 30% 10% 1%

Q2 18% 46% 28% 8% 0%

Q3 26% 23% 36% 9% 6%

Q4 40% 20% 32% 6% 2%

Q5 40% 32% 14% 12% 2%

Total 29% 32% 28% 9% 2%

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Table 3.1 is showing 5 questions regarding ―Job Motivation‖ showing the impact of global

economic crisis on banking employees‘, who have started working after the crisis. Table 4 results

shows this perception as, 29% employees thought that economic crisis has no impact on job

motivation, 32% thought the impact is very low, 28% thought that the economic impact has

somewhat affected the level of job motivation of the employees who joined the sector after the

crisis, 9% thought that the affect is high and 2% thought it very high. These results are derived

through bands assigned to the questions regarding ―Job Motivation‖.

Table 4

Job Security

Bands

Questions

1 (No

Impact) 2 (Low Impact)

3( Some

Impact) 4 (High Impact)

5 (Very

High

Impact)

Q6 12% 29% 14% 17% 28%

Q7 17% 17% 40% 14% 12%

Q8 14% 20% 40% 14% 12%

Total 14% 22% 31% 15% 17%

Table 3.2 is consisting of 3 questions regarding ―Job Security‖ showing the impact of global

economic crisis on banking employees‘ job security, who have started working after the crisis.

Table 3.2 results shows that 14% employees thought that economic crisis has no impact on job

security, 22% thought the impact is very low, It was thought that the economic crisis has some

effect on job security by 31% for the employees who joined the sector after the crisis, 15%

thought that the affect is high and 17% thought it very high. These results are derived through

bands assigned to the questions regarding ―Job Security‖.

8. RESEARCH FINDINGS

The information gathered has been used to evaluate different scenarios. Based on the findings of

this research study, the following repercussions have been drawn regarding the impact of global

economic crisis on banking sector employees of Pakistan.

The employees who worked in both scenarios i.e. before crisis and after crisis environment have

strongly feels that the crisis has affected their motivation level unsatisfactorily. The employees

who worked in both scenarios i.e. before crisis and after crisis environment feel strong threat to

job security. On the other hand the employees having only post crisis job experience had shown

satisfactory results as they didn‘t work in a pre-crisis environment. Therefore, their response was

positive regarding job motivation and job security.

The employees join the bank after merger are satisfied with the security and are highly motivated

as well because they are not looking any threat in the near future therefore, they feel themselves

motivated and satisfied.

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9. DISCUSSION & RECOMMENDATIONS

The current research focused on exploring the impact of global economic crises on Job security

and Job motivation of banking sector employees. The global crisis reduces the job security which

resultantly reduces the job motivation. The employees in the banking sector are highly motivated

and dedicated towards their job if they find their job secure and long lasting. Job security is

observed to be the important ingredient for keeping an employee loyal, affiliated and motivated.

The success of the financial sector depends on the policy strategy developed for the human

resource. As pointed out by Ehasan, Danish & Usman (2010) that in the banking sector,

employees attachment with their organization is increased if they found their parent organization

supportive and protective. Therefore, this study also supports the findings of Ehasan, Danish &

Usman (2010).

The result of this study also support the findings of Joseph & Chang (2010; pp. 151) that

―interesting work; good pay; full appreciation of work done and job security are outstanding

drivers for employee motivation‖. Employees will feel highly affiliated and try to be the part of

their organization if their organization is providing them secure and long term job opportunities.

Generally, the banking sector‘s outlook depends on the policies which it adopted in response to

the economic crisis. Due to the global impact of the crisis, it is imperative to take corrective

measures in the form of bail out packages and global coordination to break the vicious circle of

failing capital market, increasing job losses, drying-up of credits and rapidly declining

confidence that decreases the output and lowers the employment, which resultantly reduces the

confidence.

Policy reforms are required to stabilize the banking sector and reestablish the confidence on the

market. Moreover, macroeconomic measures are also required to be taken to improve the overall

demand, in order to support the economy and job market. To soften the negative impact of the

crisis on incomes, a social support system is needed to be reinforced by introducing workers‘

rights protected laws and regulations. These steps are necessary to measures are essential to put

the economy on the right track and for the betterment of the banking sector.

10. LIMITATIONS & FUTURE RESEARCH

o In the current condition of banking sector the respondents are very reluctant to respond the

questionnaires.

o A limited set of parameters have been used to define the motivation and security level,

although the research had got support from the findings, however, detailed parameters would

have put forward the significant facts. For this purpose a comprehensive research is proposed

to be conducted.

o Apart from above the ―Time Factor‖ was also one of the limitations for this study.

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References

Afshan S. (2008) Pakistan and the global financial crisis. Retrieved from

http://www.dawn.com/2008/02/04/ebr17.htm

Impact of Global Financial Crisis on South Asia (2009). Retrieved from

http://siteresources.worldbank.org/SOUTHASIAEXT/Resources/223546-

1171488994713/3455847-1232124140958/gfcsouthasiafeb172009.pdf

John, K. (2007) Managing financial distress and valuing distressed securities: a survey & a

research agenda , financial management journal / autumn 1993.

Mansoor, A. (2009). Global Financial Crisis: Impact on Pakistan and Policy Response. Retrieved

from

http://www.unescap.org/pdd/calendar/strengthening_responses/papers/Pakistan_monetary

_Ali.pdf

Ehasan, M. Danish, R. & Usman, A. (2010): Impact of Job Climate and Extrinsic Rewards on

Job Satisfaction of Banking Executives: A Case of Pakistan. Interdisciplinary Journal of

Contemporary Research in Business, Vol. 1, No. 12, pp 125-139

The World Bank Report (1997) The Asian financial crisis – impact at the firm level - the

Malaysian case Retrieved from

http://unpan1.un.org/intradoc/groups/public/documents/APCITY/UNPAN021602.pdf

Assem, Reda & Hatab (2008). Egypt within the Framework of the Global Financial Crisis:

Impact, Response and Way forward. Vol. 2 No. 2

Jenny, F. (2009). Responses to the economic and financial crisis in developing countries: what

role for competition authorities? BRIC International Competition Conference Kazan

Malcolm, S. Dah-Kwei, L. (2007). Industrial sector and financial distress, Managerial Auditing

Journal Vol. 22 No. 4, 2007 pp. 376-391 Emerald Group Publishing Limited.

Sori, Z. (2006): Prediction of Corporate Financial Distress: Evidence from Malaysian Listed

Firms during the Asian Financial Crisis. Available at:

http://econmail.upm.edu.my/staffpaper/sp0022006.pdRetrievedfrom

Joseph, K. E. & Chang, J. D. (2010): Human Resources Motivation in a work place. A Case

Study of a Utility Company in Abidjan, Cote D Ivoire. Interdisciplinary Journal of

Contemporary Research in Business, Vol. 1, No. 12, pp 151-159

Clas, B. & Stefan, S. (2006) Restructuring Activities and Changes in Performance Following

Financial Distress.

Berkmen, P. Gelos, G. Rennhack, R and Walsh, J. P. (2009). The Global Financial Crisis:

Explaining Cross-Country Differences in the Output Impact. The IMF Working Paper

2009 International Monetary Fund WP/09/280

Center for Research and Security Studies. Pakistan and the Global Financial Crises. Retrieved

from http://www.crss.pk/Res-Reports/Pakistan_and_the_Global_ Financial _ Crisis.pdf

Financial distress and firm performance evidence from Asian financial crisis. Retrieved from

http://programs.business.utsa.edu/swfa2009/PDF/197.pdf.

Global Financial Crisis: Implications for South Asia. World Bank Report. Retrieved from

http://siteresources.worldbank.org/SOUTHASIAEXT/Resources/223546-

1171488994713/3455847-1212859608658/5080465-

1224618094138/SARGlobalFinancialCrisis.pdf

http://www.unescap.org/pdd/calendar/strengthening_responses/papers/Pakistan_monetary_Ali.pdf

http://www.unescap.org/pdd/calendar/strengthening_responses/papers/Pakistan_monetary_Ali.pdf

http://www.crss.pk/Res-Reports/Pakistan_and_the_Global_

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Global financial crises: Impact on Pakistan. Retrieved from

http://www.scribd.com/doc/20304314/Global-Financial-Crisis-2007-and-its-impact-of-

Pakistan-s-economy

http://www.pakboi.gov.pk/word/Sugar%20.doc

http://www.brecorder.com/index.php?id=966999&currPageNo=1&query=&search=&term=&su

pDate= http://fecto.com/pdf/fecto/directorreport.pdf

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The Role of Good Governance in Fighting Against Corruption and Financial Crimes

Freyedon Ahmadi

Public management Department, Payame Noor university, 19395-4697 Tehran, I.R. of IRAN

Golamhosain Homauni


Abstract

Good governance in a new model for sustainable development. In this model there is an

emphasis on cooperation based on participation and the interaction between government, private

sector and the civil society so that countries can utilize all their capabilities for an all-out

development.Apart from expressing definitions and concepts on good governance offered by

valid international organizations and institutions, this paper articulates the relationship between

governance and corruption in domestic and international arenas. Moreover, this paper makes

mention of the capacities and adopted measures by the Islamic Republic of Iran in order to

establish good governance and combat money laundering and other financial crimes.

Key Words: Good Governance ،Financial Crimes ، Corruption ، Accountability ، Voice ، Rule

of Law ، Control of Corruption ، Public Management ، Deregulation ، Money Laundering

Introduction

Although new, one of the most important subjects which has been paid attention to in the

development literature since 1980's is the theory of "Good Governance". This theory is raised in

the area of micro economy and is one of the main subcategories of institutionalism. The

institutionalists consider inappropriate institutions as the reasons of un-development. In their

view, good governance strengthens the mechanisms of resource allocation through market by

reforming the institutions. Transparency, accountability, flexibility, envisaging the later

situations and rule of law are the signs of good governance which can create social solidarity and

increase the legitimacy of the government and economic growth and prepare the ground for

sustainable development. Of course reforming institutions and making basic changes in the way

and methods are the prerequisites of achieving these goals. Such changes are very time-

consuming and need long-term commitments from the high-ranking authorities of a country as

well as their profound wisdom and support to bear fruits.

Considering the characteristics of good governance, we may therefore say that corruption

(nepotism and bribery) is a characteristic of bad governance which tarnishes the principle of no

discrimination in the enjoyment of all the walks of life of the facilities and opportunities and

ruins the participation of all the beneficiaries in managing the society and causes lack of

accountability. Basically, corruption and good governance are in contrast to one another and do

not interact effectively. In other words, good governance reduces corruption through raising

awareness the knowledge of the public and strengthening anti-corruption laws. Moreover,

corruption undermines the abilities of good governance and prepares the ground for deviations in

decisions and implementation of policies.

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1- Definitions of Good Governance

A- The World Bank defines good governance according to six characteristics2:

1- Democratic Voice and Accountability

2- Political Stability, No Violence

3- Government Effectiveness

4- Regulatory Burden

5- Rule of Law

6- Combating Corruption

From this viewpoint, governance can be divided into the following six components organized

under three general categories:

a) Voice and accountability which includes civil freedoms, press freedoms and political stability.

b) Government effectiveness which involves the quality of policy making and public services

and the paucity of legal hindrances (lack of regulatory burden)

c) Rule of law which involves protection of ownership rights, judicial independence and

corruption control.

Therefore analyzing the subject (governance) gives us the conclusion that corruption is one of

the six components closely associated with governance.

B- The officials of International Monetary Fund (IMF) attach a great value to the observance of

the above-mentioned items in granting monetary, counseling and technical aid to the member

states. In this line, IMF considers "financial and monetary transparency" as the prerequisite to

enhancing accountability3.

C- The following figure shows the major characteristics for good governance according to

United Nations Economic and Social Commission for Asia and the Pacific (UNESCAP):

Figure 1: Characteristics of good governance (UNESCAP, 2002)

The concepts presented in the figure can be expounded as follows:

2 - http.//info.worldbank.org/governance/kkz2002/tables.asp

3 - http.//www.imf.org/external/np/exr/facts/gov.htm

http://www.unescap.org/

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- Accountability: Not only governmental institutions but also the private sector and civil

society organizations must be accountable to the public and to their institutional

stakeholders.

- Transparency: Transparency means that information is freely available and directly

accessible to those who will be affected by such decisions and their enforcement.

- Rule of law and following it: Good governance requires fair legal frameworks that are

enforced impartially. It also requires full protection of human rights, and strong judicial and

security systems so that it can enforce the laws impartially and efficiently.

- Participation: the voice of the public needs to be considered in decision makings. In other

words all the people concerned must participate either directly or indirectly in decision

makings. Of course, in order for this objective to be materialized, the citizens first needs to

practice participation and gradually an organized civil society need to be formed and basic

freedoms like freedom of speech and communities should be guaranteed beside such a

society.

- Responsiveness: Good governance requires that institutions and processes try to serve all

stakeholders within a reasonable timeframe. This can happen if the said institutions are

responsive and sensitive to the demands, expectations and needs of the individuals and

groups.

- Consensus oriented: Good governance requires mediation of the different interests in

society to reach a broad consensus in society on what is in the best interest of the whole

community and how this can be achieved. Such governance must provide all individuals and

groups with opportunities.

- Effectiveness and efficiency: Good governance means that processes and institutions

produce results that meet the needs of society while making the best use of resources at their

disposal. The concept of efficiency in the context of good governance also covers the

sustainable use of natural resources and the protection of the environment.

- Equity and inclusiveness: A society‘s well being depends on ensuring that all its members

feel that they have a stake in. This requires all groups, but particularly the most vulnerable

ones, have opportunities to improve or maintain their well being.

D- United Nations Millennium Declaration (2000) invites the countries of the world to respect

human rights, promote democracy and good governance including effective and efficient

national management.

In this declaration certain goals have been set as the Millennium Development Goals (MDGs)

which must be achieved by 2015. Good governance is deemed as the necessary condition for

achieving any of the MDGs: eradicate extreme poverty and hunger, achieve universal primary

education, empowering women, reduce child mortality, improving the health conditions, combat

HIV/AIDS, malaria, and other major diseases, ensure environmental sustainability and develop a

global partnership for development.

According to the above definition, confronting the challenges and opportunities caused by

globalization and advancements made in IT and communications requires a proper interaction

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

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

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

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between the government, private sector and the civil society. Good governance shows how the

government, market and the institutions of the civil society can interact properly4. In this

regard, the participation of people in governing and the transparency of the measures of the

government are among the basic factors contributing to the fulfillment of good governance.Each

valid international authority has defined good governance or determined characteristics for it

according to its point of view. Having examined the afore-mentioned definitions and

characteristics and their applications we can clearly announce that the foremost characteristics of

good governance are:

- Respect human rights

- Promote democracy

- Political stability and no violence

- Rule of law

- Quality of rules and regulations

- Right to have a voice

- Flexibility

- Identifying the future situations

- Effectiveness and efficiency

- Establishment of proper interactions between the government, people and the institutions of

the civil society

- Participation in international affairs

Although each of the above characteristic has its own weight and importance, there is no doubt

that they play a role in the fulfillment of good governance. One characteristic that has not

received attention by international authorities is the role that universally-accepted moral and

cultural values play in the fulfillment of good governance. There have been various researches

conducted on this subject in different countries and it has been proven that morals play an

effective role in combating corruption and, consequently, in the fulfillment of good governance.

A good example is the researches conducted by Hong Kong's Organization for Combating

Corruption with the cooperation of a UK university.

B) The impacts of governance on economic growth and development5

MENA Development Report refers to the impacts of good governance on economy through the

three following ways:

1- Reducing the freedom of unconstructive or deviatory policies:

Good governance minimizes the effects of distributor policies by providing the proper

mechanisms and, ultimately, prepares the ground for the enforcement of favorable economic

policies for economic growth by obliging the politicians and bureaucrats to be responsive.

2- Improving the performance of administrative system and reducing the costs of trade and

industrial enterprises:

4 - 6

TH Global forum on Reinventing Government- May 2005,Seoul,Korea

5 - MENA Development Report.2003

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A responsible and competent administrative system provides the ground for the easiness and

reduction of costs of enterprises in starting, doing and exiting trade and industrial affairs by

offering correct and timely information and, eventually, enhances the accuracies of predictions.

In addition, good governance increases the flexibility in the country against external shocks and

quickly heals institutions and enterprises against regional crises.

3- Promoting the administration of public services and improving efficiency:

The performance of enterprises in a trade atmosphere depends upon satisfactoriness, timeliness

and fair supply of public goods as well as on the efficiency and execution of the needed statutes

(competition rule and regulation of natural privileges, taxes and similar policies).

Good governance enhances the global trade, investments and the government credibility. The

increase in the credibility of the government, in turn, results in promotion of the government's

legitimacy and economic solidarity and growth6.

Good Governace

Increase in the Government's Credibility

Increase in the Government's Legitimacy

Social Solidarity

Economic Growth

Since this paper is entitled "The Role of Good Governance in Fighting against Corruption

and Financial Crimes", I would like to refrain from delving into other governance-related

issues and stay focused on the subject of this paper only:

1- The Relationship between Governance and Corruption

Corruption is generally defined as abusing governmental positions for serving personal interests.

Irrespective of issues related to the classification of corrupt or non-corruptive activities and

without getting into the details of different types of corruption, it can be said that the live and

routine reports by the press and the daily conversations of the people can determine the

boundaries of corruption.

6 - Matheson, Alex (2002),Better Public Sector Governance: the Rationale For Budgeting and Accounting Reform in

Western Nations, OECD journal on Budgeting, volume 2,

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Governance can be defined as exerting authority through traditions and informal and formal

institutions in order to serve the interests of the public. Governance involves the process of

election, review and replacing the governments and also the ability of drafting and enforcing the

correct policies and dignifying the citizens and institutions that make the economic and social

interactions possible.In addition, governance affects welfare and quality of life through direct

and indirect complex channels. Improving one of the components of governance such as political

and civil freedoms, even when other social-economic factors remain the same, can directly

promote the quality of the lives of the people in a country. Therefore, governance can be deemed

as one of the direct institutions for the well-being of people. Hence, a competent and clean

government, through direct and indirect mechanisms, is an important factor for enforcing and

perpetuating the healthy economic and institutional policies, developing human resources and

eradicating poverty.

2- The Effects of Corruption on Economic Indicators, Growth and Development

A) Market Competitiveness and Economic Growth:

Right now everybody has accepted that corruption has heavy costs for economic development.

There are strong proofs indicating the relationship between the higher levels of corruption and

slower growth and lower income per capita.

- Corruption is one of the hindrances on the path of people trying to enter commerce,

production and agriculture activities. Of course other obstructions like the existence of

complexes and restrictive rules and other monopoly privileges can give entrepreneurs cold

feet and dissuade them from starting businesses.

- Corruption weakens the legitimacy of the government and prevents the creation of

regulatory and institutions supporting the market.

The World Development Report 1997 expresses three root causes for corruption:

1- A changing political environment providing the governmental officials with many

opportunities so that they can alter the laws to their own advantage.

2- The lack of authority and credibility of the Judiciary in punishing the governmental officials

in case their corruption is uncovered.

3- Weak management of administrative system coupled with low salaries paid to government

employees.Recent researches consider others factors as effective in corruption; researches such

as The World Development Report 1997 by the World Bank starting that corruption is less in

those countries enjoying more open international trades. Increasing the openness of economy

also facilitates the flow of information, exposes the incorrect behaviors of the officials and

creates advocates for combating corruption among foreign trade partners.

Studies also show that countries with complicated procedures for registration of new businesses

have more corruption, for complicated rules increase the chances of corruption. On the other

hand, a corrupt bureaucracy supports the rules and regulations which create more opportunities

for corruption. The effects of inflation on corruption become meaningful in such a framework. A

high and changing inflation makes it difficult to acquire information on prices and creates many

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opportunities for corruption to arise in governmental transactions sector. Moreover, studies

conducted internationally have determined that when other factors affecting corruption remain

fixed, the countries with a high and changing inflation have more corruption.

B) Decrease in Investments

Evidences found in the studies and analyses of the situation in a large number of countries are

indicative of the fact that corruption greatly decreases domestic and foreign investments7.

C) No Optimal Allocation of Public Spending

Corruption creates opportunities for deceitful officials to abuse their positions by increasing the

expenses of public investments. It also deviates the direction of public spending from activities

needed for operating and maintaining the installations to buying new equipment. This way, it

reduces the efficiency of public investments especially in infrastructures. In a corrupt regime, the

government officials avoid implementing health projects, because there is less chance for them to

engage in rent seeking. Since it renders blows to the ability of the government in collecting taxes

and tariffs, corruption can also reduce the income generated by taxation.

D) Effects on the Poor

Wherever corruption becomes rife and rampant, growth is harmed and this severely exacerbates

poverty. Furthermore, the poor receive less social services (like education and health).

Corruption puts a distance between infrastructural investments and projects aimed at helping the

destitute and destroys the possibility of using entrepreneurship tools in small-scale enterprises for

uprooting poverty. Besides, corruption increases infant mortality and decreases longevity and

literacy.

E) Effects of Corruption on Trade and the Infiltration of Companies into National Governance

One of the common justifications prevalent in economy literature is that bribery aimed at

circumventing incorrect governmental controls is similar to that of informal deregulation and can

have positive effects like economic briskness and serve as incentives to economic activities

(Huntington, 1968, Leff, 1964, Lui, 1985). This view that is interpreting bribery as lubrication of

the wheels of trade can be correct in a very limited context and only in concept and only when

bad rules have been in place independent of the behaviors of government officials. Anyway, the

corruption of government and public officials imposes detrimental costs on the development of

business.

In light of the above-mentioned items, the main and effective factors in the rise of financial

corruption can be summarized as below:

1- Changing political environment

2- Lack of authority and credibility in the Judiciary

3- Weak management of administrative system

4- Limitation of economic interactions and lack of expansion of international trade

5- Limitation in having access to information

6- Complicated rules

7 - Maura 1997, Wei 1997. Governance and Anti corruption (chapter 6), page 144-145

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And a number of important channels through which corruption can weaken the economic growth

are as follows:

1- Decrease in domestic and foreign investments

2- Development and growth of businesses in informal economy such as underground dealings,

goods and foreign exchange smugglings, narcotic transactions

3- Imbalance between costs and public investments and destruction of infrastructures

4- Reduction of incomes and the lack of rule of law

5- An over-concentrated government

6- infiltration of the elite and owners of commercial companies in the government by bending

the rules and paying bribes to government officials which itself reduces productivity and

investments in the generative sector of the society.

The governance frameworks to fight corruption and their relations with political, executive and

financial-monetary sectors as well as independent oversight institutions and the private sector

have been explained very well in figure 2. As seen in this figure, transparency as an important

and fundamental cross-cutting theme plays a critical role in all measures of good governance and

in combating corruption.

Measures by I.R. Iran in line with fighting corruption, financial crimes and

good governance

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The Constitution and normal laws of the Islamic Republic of Iran enjoy high capacities for

fulfilling good governance. Having utilized such capacities, Iran is now placed on a path to

independent, democratic, and justice-seeking governance in various economic and social fields

among which we can mention the following:

1- The study is done Constitution emphasize political and social freedoms, freedom of opinion,

voice, freedom in decision making, staging free elections, freedom of minorities, press and

unions. These way different political and civil freedoms are institutionalized in the management

of the public affairs of the country.

2- With regards to economy, article 46 of the Constitution, too, considers people as owners of

their legitimate businesses. Moreover, article 44 of the Constitution divides the economy of Iran

into three sectors: state, private and cooperative. This article considers ownership in any of these

sectors as legitimate. Furthermore, article 59 of the Constitution offers the ways of referendums

in extremely important economic, political, social, and cultural matters and underscores the

importance of people's participation in policy makings and decisions in these areas.

3- Article 101 of the Constitution provides for the participation of all walks of life in decision

makings related to economic matters and activities by forming councils.

As it can be seen, the existence of the aforementioned legal capacities and other correctional

measures in different sectors of the economic system (monetary and financial) as well as paying

attention to the creation of an efficient private sector can help the ruling system in Iran to bridge

the gap between the rich and the poor and contribute to the creation of a democratic working

environment and provide proper pillars for proper and rational decision makings. Moreover, it

can create an environment devoid of corruption for economic activities in the society. Here some

of the most important measures adopted in the area of lawmaking, institution making and

implementation of amendments in the monetary and financial system are mentioned:

A) Legislature:

1- The law of combating money laundering was ratified by the Iranian parliament on January 30,

2007. In article 2 of this law, money laundering is defined and in article 9 of the same law,

punishments are envisaged for it.

2- The legal bill called "promotion of the health of administrative system and confronting

corruption" has been submitted to the parliament and is now going through its final stages. Some

of the items mentioned in this bill are:

a) emphasizing transparency in activities and projects undertaken by the government and

disseminating the relevant information to the public, meaning that the people need to be

informed of all the rules and regulations, directives and circulars, procedures, decisions, working

processes, timetables of undertakings, standards, criteria and indicators via the internet.

b) Drafting of the charter of professional ethics for the brokers by the government.

c) Using non-governmental institutions and empowering them in combating corruption by

creating proper mechanisms for encouraging people and offering facilities for the establishment

or reinforcement of non-governmental institutions.

d) Creating databases on offenders (governmental or private entities)

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e) Creating a new and proportionate structure for detection, prosecution, and timely punishment

of economic/financial offenders and preparing appropriate rules of procedure as well as creating

databases for managing files and convicts' verdicts.

3- A bill has been prepared for supporting witnesses and informants. Moreover, paragraph 4 of

article 17 of the "promotion of the health of administrative system and confronting corruption"

law, has completely envisaged the supportive measures for spiritually and materially supporting

those who report corruptions. The implementation of these measures is the duty of the

government. It has to be mentioned that the said bill has been prepared in line with article 32 of

the UN Convention against Corruption.

4- Right now the bill of I.R. Iran's joining UN Convention against Corruption is going through

its final stages in the Judiciary.

5- Ratification of the law of holding tenders and related statutes including documentation statutes

which provide the public with the chance to have access to the respective database.

6- The law of publishing the names of those who have committed economic/financial offences.

7- issuance of circulars which make government managers and those directly in charge of a unit

duty-bound to effectively supervise their units and to inform the administrative , disciplinary and

judiciary authorities of any possible violations and offences and to establish a system of

incentives and punishments in their units.

8- Ratification of the law of "civil services management". This law which is an advanced law in

which these items are emphasized: the development of management and human assets in

governmental sector, supplying the rights and bonuses of the public sector employees and

development of IT and administrative services. According to this law, the government is obliged

to offer strategies for providing people with high-quality and appropriate services, to fulfill and

maintain the general rights in the administrative system and to thoroughly supervise the way

officials are appointed or promoted in organizations and to ensure the principle of granting posts

to people based on their merits and competence.

9- in line with creating economic institutions, preparing the ground for development and growth,

creating occupations, making the environment of macro economy healthy, and preventing rent

seeking and corruption in monetary-financial areas, the I.R. Iran has ratified and carried out

various laws some of which are succinctly mentioned below:

9-1- amending the law of foreign investments and attracting them.

9-2- amending the law of the general auditing of Iran for governmental companies.

9-3- amending the law of direct taxes in order to force all entities to submit their list of incomes

and expenditures and creating strong guarantees for the true statements and increasing the risk of

false ones.

9-4- ratification of the laws related to capital market including the law of establishing stock

exchange in order to ban the use of information before it is publicly announced and in order to

ban deals of brokers and bourse staff.

9-5- amending the law of the non-interference of ministers and civil servants in governmental

and civil transactions.

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9-6- the bill against monopoly and rent seeking.

9-7- the bill of judicial assistance in the field of exchanging taxation and customs information.

9-8- amending the laws supervising foreign commerce and changing non-tariff hindrances and

deleting the system of issuing permits as one of the most important brewing grounds for

corruption.

9-9- the law of intensifying the punishments for bribery, embezzlement, and swindling in order

to increase the risk and legal capacities for confronting those who commit corruption.

9-10- the law of combating smuggling goods and foreign currency.

9-11- the bill of amending some articles of the trade law.

9-12- the plan for looking into the properties of the authorities, officials, and brokers of I.R. Iran.

10- The bill of the freedom of information and regulation related to the capital market.

11- the law of ban of receiving commissions in foreign transitions made by the three branches of

the country (Legislative, Judiciary and Executive), governmental organizations and companies,

armed forces, revolutionary institutions, municipalities and all other affiliated organizations.

12- The law of obligating the judiciary to hold the open hearings of economic crimes and to

release the names of economically corrupt entities.

13- Statutes of prevention and combating bribery in executive organizations.

B) Supervision and Oversight:

1- I.R. Iran's General Inspection Organization was established the basis of article 174 of the

Constitution and on the right of supervision by the judiciary on the" good conduct of affairs" and

"proper implementation of laws" by the administrative departments, under the supervision of the

Head of the Judiciary. Intent on pursuing its legal mission, this organization does a series of

organized and targeted actions as supervision and ombudsmanship during which the way

administrative organs discharge their duties is examined and the possible deviations are dissected

and their importance appraised so that required proposals may be submitted for rectifying the

status quo , removing the shortcomings and optimizing the behaviors of the employees and

enhancing the performances of organizations, and ultimately, the violators are prosecutes in

order to reform and promote the healthiness of administrative system.

In this regard the General Inspection Organization has chosen the following as the pivots of its

oversight and supervisory programs:

Promoting the satisfaction of the people with the way public organs administer their services-

preventing and combating administrative deviations and corruptions -preserving the environment

and natural resources – preparing the lands and combating land grabbing- alleviating poverty-

establishing social justice - safeguarding the Iranian identity – promoting Islamic values and the

general culture of the society.

Furthermore, this organization has had vast programs with regards to supervising the way the

law of "holding tenders" is enforced and creating transparency in the related matters by obliging

organs to enter the information on tenders into a website called the "national information website

for tenders and auctions".

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the General Inspection Organization also examined 32845 cases in 2007 and has taken

significant steps in safeguarding the citizenship rights, preserving the environment, preventing

the grabbing of national lands and changing the agricultural land into housing and trade ones.

2- Iran's Supreme Audit Court and Article 90 Commission continuously exert financial control

and supervision and examine and audit funds spent and the revenues and other sources of

obtaining revenues in relation to the financial policies stipulated in the approved budget. They

also investigate complaints by real and legal entities and submit the final results to the parliament

or, if needed, to the judiciary authorities.

3- Currently, looking into and investigating economic crimes is done by courts and special

centers within the frameworks of special judicial processes. Some of the administrative

corruptions can be pursued within the framework of the law of investigating administrative

violations and its executive bylaws.

4- Throughout the year, the Parliament's expert committees examine the performance of

executive organs according to the information they receive on them. Also, the investigative

committees of the parliament which are formed based on article 76 of the Constitution can

receive the required information and give them to the members of the parliament or to public.

C) Other Measures

1- With regards to combating corruption, three books have been published by the Parliament's

center for research entitled "The Legal Frameworks of Battling Corruption", "A Series of

Programs for Combating Corruption", and "Guidelines for Implementing the UN Convention

against Corruption" in order to further familiarize the MPs with the concept of corruption and the

ways of combating it.

2- With regards to informing the public, one can mention the annual reports submitted to the

Parliament by the Supreme Audit Court which are read in the open session of the Parliament,

too.

D) Enforcing the General Policies of Article 44 of Iranian Constitution

(Privatization and Decentralization)

Over the course of the first decade after the victory of Islamic Revolution in Iran (1978-1988)

and due to the special economic and social conditions of Iran including the cultural remnants of

the dictatorial regime of Shah and the war imposed on Iran by Iraq, the trend of state interference

in affairs was accelerated and expanded. These conditions stabilized the administrative system

and increased state monopolies and centralization.

In this regard, the Supreme Leader of Iran acted in order to notify the state organs and sectors of

the policies stipulated by article 44 of the Constitution on May 20, 2005. His Eminence reiterated

that enforcement of these policies will ensure the acceleration of economic growth, expansion of

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public's ownership to fulfill social justice, promote the efficiency of economic enterprises,

optimize material, human and technology resources, increase competitiveness in formal

economy, increase the share of private sector and cooperatives in the national economy, ease

government's financial and managerial burdens in incumbency of economic activities, increase

the number and variety of occupations, encourage the people to save and invest their money and

improve the income of their families. All these components would ensure the remarkable

presence of the private sector and cooperatives in various fields (production, baking, insurance

etc.).

E) Enforcing the Plan of Revolutionizing the Monetary and Financial System of

Iran

Being totally aware of the existing shortcomings in the monetary and financial system in sectors

of taxation, customs, banking, distribution of services and goods and insurance sectors, the ruling

system in Iran has been engaged in carrying out various plans in the afore-mentioned sectors in

order to revolutionize them. It is hoped that with the precise and complete implementation of

these plans, Iran will witness ever-increasing growth and advancements, expansion of

competitive markets, proper and systemic business atmosphere for economic activists and the

fulfillment of justice for all the members of the society in the future. We also hope that we will

have better results in combating economic corruption.

Below, some of the most important plans and projects for revolutionizing any of the

subcategories of taxation, customs, banking, distribution of goods and services and insurance

sectors are briefly referred to:

- The operational programs of taxation system:

1- Basic database and financial operation of payers

2- Reforming the operational processes and systems

3- Hardware infrastructures and communications

4- Organizational structure and management of human resources

5- Rules and regulations (reforming the bases, rates and exemptions from taxes)

6- Value added tax

7- Envisaging the needed moderations according to economic changes

- The operational programs of customs system:

1- Developing electronic customs (the ASICODA project)

2- Improving the good value setting

3- Reforming the organizational structure of customs (the customs units preparation project)

4- Prompting the administrative health (the culture elevation and work ethic project)

5- Facilitating the customs formalities for goods

- The operational programs for revolutionizing the banking system:

1- Correct guiding of financial resources towards investment and production

2- Elevation of oversight in banking system

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3- Promotion of the effectiveness of banking system through e-baking, facilitation of affairs

and increasing the supervisions.

4- Establishment of expert financial institutions.

5- Moving the banking system towards the fulfillment of justice in having access to

resources.

6- Developing competitions.

7- Organizing and preparing state-owned banks for privatization

8- Establishment of banking system databases.

9- Preparing the grounds for effective implementation of rules of Islamic banking

10- Developing the praiseworthy tradition of giving interest-free loans to people in banking

and meeting the essential needs of people.

- The operational programs for reforming the distribution system:

1- The project of establishing information center for trade unions and merchants.

2- The project of organizing the good distribution system.

3- The project of establishing retailer chain networks.

4- The project of establishing civil unions.

5- The project of mechanized registration of buying and selling of houses and properties.

6- The project of national classification and coding of goods.

7- Strengthening oversights by NGOs (associations of supporting the rights of the

consumers).

8- Preparing the precursors of enforcement of regulations

9- Envisaging and implementing the special program for regulating the market considering

price corrections related to making he subsidies smart.

- The operational programs for reforming the insurance industry:

1- Reviewing the insurance laws and identifying the legal vacuums and drafting and

ratifying new laws.

2- Creating competitions in the insurance industry based customers' happiness and

deliverance of appropriate and speedy services to the people.

3- Reforming the ethical systems of insurance industry and promoting the level of justice

and administrative health in the insurance industry.

4- Expanding the culture of insurance and improving the prevalence of insurance.

5- Developing life insurances in order to raise social welfare.

6- Increasing the involvement of the private sector in delivering insurance services.

7- Supporting the producers, investors and merchants through proper insurance coverage.

The Measures Adopted by I.R. against Money Laundering:

The issue of drug trafficking is one of the worst problems in Iran. Presently, the total value of

drug production in the easterly neighbors of Iran amounts to 10505.5 billion dollars (at the

wholesale price). This remarkable figure must be laundered so that it can legally enter the

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economy circle of those narcotics-producing countries. Unfortunately, Iran is geographically

placed on the transit route of narcotics whose destinations are mainly Europe and Russia. This

has imposed huge life and financial costs on the Iranian nation in a way that during the last two

decades, more than 1500 police forces stationed on the eastern borders of Iran have been killed

and many of their pieces of equipment have been targeted by the heavy weapons of drug

trafficking caravans and, as a result, have been damaged or destroyed.

Although the toppling of Taliban resulted in a temporary 1000-ton drop in the poppy cultivation

and production of opium and heroine in Afghanistan and Pakistan, the production rate increased

once again after a while. Consequently Iran is still being invaded by the operations of goods

smuggling and laundering of the dirty money coming from narcotics. This has posed serious

threats to the economic security of Iran.

Considering the money laundering law, the government of I.R. Iran has gained a comprehensive

understanding of the threats caused by the implementation of money laundering operations and

has taken advantage of the legal capacities provided by article 49 of the Constitution and also

article 662 of Islamic penal Code. The following measures are adopted by the government of

Iran in order to combat this financial crime which is undoubtedly the source of sponsoring other

crimes:

1- Ratification of the law of combating money laundering

2- Intensifying the oversight on the activities of the baking system and other money and credit

but non-banking institutes in order to prevent the investments by dirty money in banks and

national institutions of Iran or converting them into other financial tools or properties

3- Developing e-banking and obliging banks to make all their banking services electronic by the

end of the fourth economic-social-cultural development plan of I.R. Iran in line with expanding

the ground of registering and exchanging any money in Iran's service and commerce market.

4- Preparing the statute of combating money laundering by the Central bank of Iran and

supervising it through implementations in all state/private banks and credit institutes and offering

the required trainings to the staff of the monetary and banking system of Iran

5- Making the financial system of Iran sensitive to any activity resulting in money laundering

operation through:

5-1- making the taxation system of Iran capable for identifying the basic ways of avoiding taxes

5-2- making the customs system of Iran capable by developing electronic customs.

5-3- making the goods, services and subsidies system of Iran capable.

5-4- making the insurance system of Iran capable and implementing reform operations in this

industry.

Conclusions:

1- Combating corruption is one of the requirements of the fulfillment of good governance which

itself paves the ground for sustainable development, alleviation of poverty, economic stability

and social solidarity.

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2- Success in combating corruption needs a multi-faceted strategy and creation of checks and

balances system. Governments should not only make reforms in the political system including

political responsiveness, free elections and creation of transparency and legality in the way

political parties are sponsored but also act to make reforms in the following areas, too:

- Financial-monetary sector: including oversight on the banking network, controlling inflation,

taxation and customs reforms, privatization, deregulation, and creation of a competitive

environment for companies to be easily enter into or exit from businesses.

- Creation of oversight institutions: creation of an efficient and strong Judiciary, strengthening

the parliamentary supervisions especially in auditing (Supreme AUDIT Court), creating

transparency in managing public spending, creating national and regional ombudsman systems

and backing them with various applications in supporting and safeguarding human rights,

citizenship rights and preserving the environment.

- Supplying goods in the public sector: supervising the way goods are supplied and arranged

in the public sector (tenders and auctions) as one of the main brewing grounds for corruption in

the executive sector and also strengthening the principle of giving posts and positions to people

in accordance to their merits and competence and creating a service-oriented government

through e-government.

- Civil Society: strengthening civil institutions and NGOs, reinforcing the role of women in

managing social and public affairs and also promoting the role of media and the press and raise

the awareness of the society and reducing the corruption zero tolerance.

It has to be mentioned that, as it was referred to in the body of this paper, I.R. Iran enjoys

numerous legal capacities for developing civil and social liberties and enhancing the

participation of people in the decision makings of the society as well as in economic affairs and

activities. Considering the pieces of advice given by Hazrat Ayatollah Khamenei the Supreme

Leader of Iran on seriously battling corruption to the Heads of the three Branches of Iran to be

intolerant and unrelenting with regards to corruption and those who have committed corruption,

I.R. Iran has taken big steps in making laws in line with "promoting administrative healthiness

and confronting corruption" and making reforms and changes in the taxation, customs, banking,

goods distribution, services and subsidies system and insurance industry and is currently treading

such a path.

3- Developing countries must benefit from international experiences and stay committed to

international conventions including the UN Convention against Corruption. At the same tome

they need to adapt the existing anti-corruption models to their own historical background, history

and culture to achieve good governance.

4- international organizations such as World Bank, The International Monetary Fund and other

non-governmental organization like Transparency International which annually rate countries of

the world in terms of the rampancy of financial corruption and fulfillment of good governance,

must pay a closer attention to the responsibilities of governments in developing countries and the

role of multi-national corporations in spreading corruption in developing countries. They must

pressure inversing companies in undeveloped regions especially in extractive industries so that

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hey would disclose the way they have concluded their agreements and release the precise

information on their projects and financial flows. They must oblige the governments of

developing countries to implement the anti-bribery convention of Organization of for Economic

Cooperation and Development (OECD). Needless to say, OECD countries are duty bound to

prosecute bribery-related crimes and offences in foreign countries by their companies.

5- Taking into the consideration the role the private sector plays as a partner in preventing and

combating corruption, the governments needs to adopt initiatives for promoting the

accountability of companies in combating corruption and creating ethical rules and self-

regulations in line with extortion and bribery. They may use the mechanisms prepared by "the

Anti-Corruption Commission of the International Chamber of Commerce" or Global Compact of

UN.

6- with regards to money laundering as one of the main sources for sponsoring various types of

other offences, it has to be said that although some expert international organizations and

institutions such as UN, WB, IMF, OECD, ADB and G8 have prepared and drafted laws against

money laundering and have recommended all countries to adopt them, all the afore-mentioned

institutions and bodies confirm that money laundry is now more common in the world than ever.

There is this belief that international measures have utilized all the existing capacities and that

international organizations and developed countries must increase the volume of their financial

and technical aid to the countries on the frontline of combating money laundering, drug

trafficking and to those countries faced with terrorist attacks or other organized crimes.

7- It is of utmost importance to properly identify the signs of mal-governance in state and private

sectors so that the governments can submit an effective and comprehensive national plan for

confronting financial corruption. Also, it is needed to identify the main sources of money which

have been laundered. Some of these signs are drug trafficking, sponsoring political parties, huge

purchases, budget corruption or tax avoidance.

8- Developing countries with economies in transition must obligate their banking systems to

prevent and uncover financial offences and money laundering and to exchange information with

other international and expert institutions. They have to be careful not to endanger the security of

healthy investments in their countries, for growth and development of these countries depend

upon the perpetuation of foreign investments and creation of favorable atmosphere for

investments.

I wish from the bottom of heart that with the presence of all the honorable and distinguished

figures, professors and intellectuals and all those striving for good governance and fighting

against corruption, this symposium will succeed in causing a desirable environment for a world

far from corruption, poverty and discrimination and achieve its holy objectives.

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Traffic Management, A Social Concern

Danish Iqbal Raina

Assistant Professor,BGSB University, Rajouri, Jammu and Kashmir , India

Shahid Mushtaq

Research ScholarDepartment of Business Administration, Aligarh Muslim University, India

Abstract

An innovative approach is needed for management of road traffic in urban cities.. A rapid

increase in ownership and use of cars has brought with it more pollution and congestion, a higher

accident rate and more health risks. Perceived lack of flexibility of routes of public transport is

the most striking . As urban populations expand and city roads become increasingly congested,

city planners need comprehensive urban development and transport policies to address deep-

seated social and demographic change. Enforcement is the key element in road safety

management. Non-definition of enforcement, poor expertise and skills of enforcers and a lack of

modern support in terms of tools and systems of enforcement have led to a non- development of

a safe road user culture in Pakistan. This has resulted in an attitude of callousness amongst road

users. Examining the links between transport and social exclusion, analyzing social inclusion

issues and the transport needs of different social groups, and liaising with other Government

departments will lead towards a system where the urban transportation can be effectively

managed. Different patterns of social groups must be involved in the decision making process.

Various strategies framed or the management of this very problem must be in accordance to the

social set and in case of any strategic conflict government must persuade the society towards the

resolution. A social Traffic Management system STMS can be designed to achieve sustainable

management of traffic related issues pertaining to road traffic.

Key words: Traffic management, social inclusion, strategic conflict, Social Traffic management

System STMS.

1. Introduction

Traffic conditions in most of the cities are very chaotic and crucial, this is particularly

observed in million plus cities. As the urbanization process takes momentum, these

problems crop up due to the lack of commensurate development of infrastructure,

particularly roads, road transport and inadequate public transport system. The uncontrolled

growth in urbanization and motorization generally contributes to an urban land use and

transportation system that is socially, economically, and environmentally unsustainable. Over the

past decade, Pakistan has worked intensively to build and modernize motorways and national

highways as part of the country‘s overall economic development efforts. However, traffic-related

fatalities are alarmingly high, and about 41 percent of all crashes involve deaths, a figure that is

significantly higher than in most other countries. Frequent congestion in most urban and

metropolitan areas are adversely affecting travel time, business operating costs, and air quality,

and increased air pollution is affecting public health. These problems require modern solutions

emphasizing efficiency and safety as the primary goals of traffic management.

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Under modem conditions it is becoming increasingly important to manage traffic, rather than

optimise the control of traffic signals to meet the demands of all traffic. Strategies are basically

tools to help implement local policies. This paper concentrates on the potential use of traffic

management strategies. It is concerned with the effects of the choice of, and interactions

between, different possible strategies in terms of their effects on the traffic using the, road

network and, ultimately, on all potential travellers. Integration of strategies with government

polices with a concern from various social groups can alone define a pattern for realization of

various strategies as covered in this paper to ensure a suitable TMS for urban cities in Pakistan

with an equal participation and acceptance from society.

2.Review of literature

Transport system in urban cities of developing nations has been the focus of number of studies

since 1970‘s (Courtney,1979; Farahmand-Rizwi,1994; ).during last four decades number of

models have been proposed to management traffic related issues in the cities of developing

nations( Hirten & Echenique,1979).

Improving road safety has been the focus of recent research in the developing nation as the

number of accidents due to unmanaged traffic have been increasing at a phenomenal rate (

Vasconcellos,1995).At the same time the impact of income and social empowerment on transport

system has been studies ( silva ,1998).

The latest research in this direction is the World bank‘s initiative on urban development , which

focuses on the transport needs , quality of life and live ability in the urban areas of developing

nations across the globe ( Kessides ,2000).

In the era of globalization , rapid motorization has been the focus of prime concern . studies have

shown that the rate of motorization in the urban areas of developing nation is higher then the rate

at which the population is increasing ( Jraiw,2003).these results are alarming because of the

inadequate transport infrastructure , which is no where compatible with the pace of motorization

in the urban areas. A country like Pakistan where the above mentioned situation posses threats to

the public transport , life of urban cities and is effecting the social structure as one in three

Pakistani household is living below poverty line( Qurashi & Arif ,2001).

Public participation in this regard can be a viable solution to understand , define and manage

effectively the traffic related issue.

2.1 Overview of the potential traffic management policies in Pakistan

National Road Safety Secretariat (NRSS) was established in September, 2006 as lead road safety

agency under the auspices of Ministry of Communications (MOC) to work on permanent

footing. This secretariat is mandated to develop & undertake multi-sectoral road Safety projects

& implement initiatives established by the high level constituted National Road Safety Council.

Primarily, NRSS aimed to take preventive and curative measures for road safety.

2.2 Policies of NRSS:

The principal objective of the NSRR, as stated in the circular is to ensure that the country has the

modern transport system it needs to achieve sustainable economic growth, with as little adverse

impact as possible on the environment in ways that ensure personal safety and give customers

freedom of choice, at a cost it can afford Government of Pakistan is considering following

actions in the forthcoming road safety plan:-

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1. Road Safety be listed among high priority program at National level as it is a major

socioeconomic issue and directly relates with the poverty level in the county.

2. Sustained political will and ownership at the highest level be required for the success of the

program.

3. Establishment of National Road Safety Fund to ensure implementation of Road Safety Plan

and Programs .

4. Effective and functional institutional framework be built to develop and implement polices.

An ambitious but realistic targets be set-up in form of safety goals to achieve measurable

outcomes. Whereas, policy formulation & implementation is to remain a continues process.

5. Magnitude of problems encompassing institutional arrangement and capacity be recognized.

Institutions to be restructured and bottlenecks be removed to achieve the road safety targets.

6. NRSS be established on permanent basis to regulate resources and to coordinate road safety

efforts at national level. Adequate resource be provided to ensure its sustainability.

7. Organizational set-up be extended upto district level to achieve targeted goals, to translate &

implement policy and to coordinate activity at grass root level.

8. Source of data provision be identified and its accuracy & consistency for documentation be

ensured. Information system be cost effective and of standardized; useful for all decision makers.

9. Policy guidelines in collaboration of Provincial Government be developed and duplicate

efforts in various department be identified & removed.

10. RSA should be made mandatory for all projects costing Rs. 10 Million or more and develop

training program for RSA.

11. A monitory organization be designated to perform Quality Assurance/Quality Control on

major RSAs.

12. Traffic Engineering and Road Safety Courses should be taught both at

undergraduate and graduate level in Pakistan universities.

13. Establish Traffic Engineering & Safety Directorate within public highway agencies to take

responsibility for the safety and operational aspects of the road network. Such directorate

monitors the network and identifies congested or unsafe locations for improvement. In doing so,

they often build up unique insights into the range of circumstances that can contribute to road

crashes.

14. Develop National Policy on Road Safety covering both preventive and post-crash aspects.

15. Road Safety should be introduced in School Curricula.

16. Road Safety Park should be established in major cities to educate children, about the aspects

of road safety.

17. Mass Public Transit System such as Light Rail and/or Bus Rapid Transit (BRT) be

introduced in major cities such as Karachi and Lahore.

18. Uniform vehicle inspection centers for the public service vehicles be established around the

country.

19. Speed Monitoring device be installed in public transportation buses and concept of self

enforcement among private transporter be introduced.

20. In urban areas particularly in major cities congestion management program be developed.

21. Separate lane for motorcyclist be considered in urban arteries where motorcycle volume

represents grater share in traffic mix.

22. Centralized licensing system should be introduced initially at provincial level.

23. An Incident Management Center with state of the art communication facilities be established

in major cities.

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24. Satellite Resuscitation (Life Support) Center be established along major highways in

different hotels or in Mobile Units equipped with all first aid treatment including

breathing, respiration, circulation & Automatic Electric Deforgments.

25. Spinal Board made with Fiber Glass should be made a requirement for ambulance services

for transportation of injured patient.

26. Hospital should be required to maintain ambulance fleet size along with trained crew and

necessary equipment, compatible with their coverage area needs and be mandated to respond to

road crash incidents.

27. Emergency rooms should be provided security means to all Emergency Response staff to

perform their function smoothly.

28. Considering growing congestion on urban streets, air transportation of seriously injured be

considered.

The interpretation of some of these objectives is probably more political than technical. For

instance, not all authorities would agree on how to foster economic regeneration; some would

emphasise public transport and others put more emphasis on convenient private access. the

political instability has been creating hindrance to the achievement of above mentioned

objectives.

3.Uncontrolled urbanization and motorization: an overview of Karachi

The uncontrolled growth in urbanization and motorization is continuously contributing to

transport system that is socially , economically and environmentally unsustainable. Karachi

which is the largest urban and economic centre of Pakistan is passing through an uncontrolled

phase of rapid and unmanaged urbanization and motorization. in the last two decades , due to

increase in the economic level of a certain class of society and failure of government in

managing the rising needs of transport system , in sufficient and yet poorly managed public

transport system has stimulated the demand for private vehicles . growing motorization with

inadequate infrastructure to handle the situation and lack of concern from government agencies

has led to the significance level of traffic congestion , road accidents traffic jams and

environmental pollution.

With increased in urbanization and rise in the income level a phenomenal demand for

transportation means has been emerging . As a result 33% of all motorized vehicles in the

country move on the roads of Karachi which is an alarming situation in city where transport

mechanism is not adequate and advanced to manage the rising situation and hence a fear of

system collapsed is appropriate. studies have shown that the rate of motorization in the urban

areas of developing nation is higher then the rate at which the population ig increasing (

Jraiw,2003). In developing nations like Pakistan , urban cities are facing a greater threat due to

unmanaged increase in number of vehicles running on the road. This has been adding to the

problems of common masses in terms of

Road safety

Environmental pollution

3.1 Road safety

Traffic related accidents kill at least 5000 persons per year in Pakistan. As per the finding of

world bank‘s report in Pakistan the average fatality rate is 70 per million person per year( World

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Bank,2002. When compared to the motorization Pakistan has shown worse records in traffic

safety as compared to Japan which has a much higher rate of motorization .Reckless driving ,

over speed , signal violation and lack of adequate safety standards resulted in more than 840 fatal

accidents claimed 940 lives in Karachi during 2009( SRDO,2009).the average reported deaths in

Pakistan / 10,000 vehicles is (14.4) . Allthogh it is lower than those in india(25.3) , china(26.2)

and Bangladesh( 58.7) ( scandiaconsult@ constrains) . but the alarming fact is that 80% of traffic

related accidents are not reported by police in Pakistan( Ghaffar, 2001, Hyder , 2000). There is

dire need of intervention to avoid traffic related accidents in Pakistan particularly in the urban

cities to make life safe and comfortable.

3.2Enviornmental pollution

Phenomenal motorization has been adversely effecting the environmental conditions in urban

areas and are contributing to degrade the quality of life , making life unsafe for present and

future generations. uncontrolled growth in vehicles along with the poorly managed vehicles is

degrading the environment with serious levels of air and noise pollution. The data in the table 1

indicates the air and noise pollution in urban areas due to uncontrolled motorization.

Table 1 Air and noise pollution in Karachi in 2003 -2004( cleanairnet.org/article-509041,2005)

Pollutants Pollution level Permissible limit

USEPA NEQS

TSP(µg/m3 ) 390 260 -

PM(µg/m3 ) 280 150 -

SO2(10-6

) 44 38 -

NO2(10-9

) 22.8 10 -

CO(10-6

) 42 50 -

Noise 99 - 85

Note: USEPA( United States Environmental Protection Act).NEQS( National Environmental

Quality Standards)

Involvement of society to tackle such a situation is perhaps the only way to minimize the

miseries due to uncontrolled motorization.

The ever-increasing rush of heavy traffic on the roads is resulting in heavy loss of human life.

One day or the other, people suffer form accidents due to reckless driving. Some lose their

vehicles and some go to the police. This is due to lack of civic sense in the citizens and violation

of traffic rules. Traffic jams, road quarrels, untidiness and damage of public property is also a

result of this problem. Traffic jams in Pakistan are not unheard of; in fact the traffic situation in

metropolises like Karachi and Lahore is getting worse with each passing day. On the one hand,

vehicles are increasing exponentially, while on the other hand the roads are getting blocked due

to mega-development in such cities.

Traffic jams are not just a menace to those on the streets, they also impact the overall

productivity of our society and are a real threat to our development. The economic and social

cost to cities with regular traffic jams has been estimated by economists around the world to be

extremely high. Not only must the Traffic Police improve the traffic conditions, but the public

must play its due role for the smooth sailing of traffic in the country.

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4. Increase Public Transport And Reduce Private Transport Use

Increase in economic level has been changing the social set up. Use of private transport has

become a social need rather a private one. People are moving towards cars to symbolise their

economic health in the society . this paradigm shift in the social behaviour has shown a dramatic

effect over the number of private vehicles running on the roads. If the rate at which the private

vehicles are increasing is not alarming but a potential threat to the safety , security and

development of urban areas. Use of public rather than private transport in urban areas is

increasingly being seen as a way of potentially reducing congestion and pollution and increasing

the attraction of urban streets. The policy is easily stated in broad terms, but much harder to

achieve in practice. Both incentives to use public transport and disincentives to travel by car can

be employed as possible tools:

Incentives to use public transport

* Public transport priority

* Trip planning information

* Information at stops

* On-vehicle information

* Vulnerable Road User (VRU) facilities

Disincentives to use private transport

* Traffic restraint

* Parking restraint

* Road pricing

* Enforcement

Most of the items in the above two lists need little explanation, but some may not be obviously

relevant to making public transport more attractive. Enforcement is included as a disincentive to

private transport use. It is not a direct disincentive, but may be a powerful indirect disincentive to

some drivers. One of the main advantages of private travel is that it can provide door-to-door

service. However, sometimes the door-to-door service is provided by parking illegally and the

temptation to do so would increase with any policy of parking restraint. Also, private transport's

superior journey speed may be helped by exceeding the speed limit. Clearly enforcement has a

role to play in mode choice. It may seem odd to list facilities for vulnerable road users as an

incentive to use public transport. However, as mentioned above private transport is much more

likely to provide door-to-door service than is public transport. Therefore, providing improved

facilities for pedestrians between the ends of the public transport part of a trip and the start and

finish of the journey will reduce the inconvenience of making the journey by public transport.

public transport. Information provision, trip planning and specific public transport information

should be designed to encourage the use of public transport.

5 Greater Road Safety

measures should be designed using a traffic assignment model to assess their effects. The control

of access restrictions or recommended routes could be dynamic and respond to network

conditions. For such control the assessment of the network conditions and the predicted effects

of the proposed change in control would be best done by an on-line assignment model.

Increased VRU facilities

Priority for VRUs in control of traffic signals

Enforcement of speed limits, parking restrictions in dangerous locations,

obedience of traffic control devices

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Routing of traffic onto appropriate roads

Access restrictions to areas with high pedestrian activity

6.Public Involvement and the Responsibility of the Government

The ideal situation in public participation in the preparation of a traffic management policy

concerns the cooperation of the project proponents, the stakeholders and the government.

Government should have an

important role in involving the public to frame polices for managing and regulating traffic

related problems.

It is also the role of government to make sure that all sectors are represented regardless of the

social class he belong to. Incompatible traffic management schemes should not be pursued and

the government agencies should be watch full in the implementation of the various rules and

regulations without any upper hand consideration and must ensure that all is well. Social

awareness programs must be conducted at different levels to familiarize the masses about the

various rules and regulations regarding to various issues involved in traffic management system.

Involvement of society can be seen as instrumental in the pursuit of finding a sustainable

solution to the above said problem.

7. Role of society in managing traffic related problems

Road safety one issue that relates to every one and needs active participation from each

individual. Now the million dollar question is what motivates the people? what motivate the

people to get involved in the things of their immediate life? In seeking people participation in

bringing change we need to understand what motivates them to want to participate. We need to

understand the normal human behavioural traits. Abraham Maslows presented that almost every

one wants to be happy and loving , but they have particular needs that they must meet before

they can act unselfishly. From the Maslows hierarchy of needs going up through five levels with

the four being survival needs provide a basic motivation for life. As a need is satisfied , an un

satisfaction is developed at the next level of need, which then provides motivation for action.

movement through the levels may not be a certainty for everyone, but can be described as an

over all tendency. Relating the traffic needs with the Maslows hierarchy of needs , ways can be

sought out as how people can be motivated towards sustainable traffic management.

Fig.1

Physiological needs are the basic necessities of life. Apart form the food , water and shelter

transportation has been emerging as the potential need for the accomplishment of many other

obligations. by providing the affordable transportation means to the differ sections of the society

ci

al Esteem

Social

Safety

Physiological

Self actualisation

Transportation

Road safety

Acceptance

Recognition

Realization

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as per their demand and level of income , the government agencies can motivate the general

masses to cooperate them in devising and successfully implementing the traffic management

strategies. Road safety now a day is prime concern in the urban cities of developing nations

because of unplanned urbanization. By providing valuable information to the masses regarding

road safety measures and providing them better road signal facilities , the confidence of the

society cab be gained towards a planned traffic mechanism.

Every individual needs acceptance from the society. people can be realised that their character

can be acceptable only if they go by the traffic laws and maintain sort of discipline in their

driving to avoid any mishaps .People who are actively involved in the traffic management

programs must get recognition from the government agencies and society. This can further

motivate the masses to get involved in bringing much required change to foster traffic

management programs. Motivating the people at these four levels can lead towards self

actualization where in a person in particular and societies in general stand together to help

government agencies to implement the strategies for growth and development.

7.1Who should be involved

A stake holder is a the contemporary description for those expected to be involved in achieving

change.

Stake holders can be divided into three different categories

7.1.1Dirct stake holders- those who are directly affected by what is happening or what is going

to happen. For instance , in consulting the society for the purpose of traffic design , the direct

stakeholders would be the residents of the area where the roads and transport are to be changed

7.1.2Indirect stakeholders-these are the people who have a stake too , but it may not be as

obvious as they may be harder to identify. in traffic design, it includes the people who travel

through the area and will be directly effected by any change.

7.1.3Represenataive stakeholders-true representative from the different sections of the society

who have stake in any of the decisions can be involved.

The involvement of the society in the process of managing the traffic system in the urban areas is

much more important . work being done by sindh education foundation( SDF), Road Safety

Educational program(RSEP), School Management boards (SMB)and many more NGO in krachi

are involved in mobilising public participation and awareness in traffic management issues.lot of

work has been done , below defied model is a description of how traffic can ma managed using

society as an important instrument of change.

8. Social Traffic Management System STMS

After Analysing the various government initiatives and devising various strategies , we can

think of a model ― STMS‖ to achieve sustainable solution to manage traffic in urban cities. This

model is based on certain assumptions . this model states that , ― the efficiency in managing road

traffic is achieved by developing public transport system and putting social constraints for

private vehicles respectively‖. This model is based on following assumption.

1. Information regarding to public transport system should be available to every user.

2. number of private vehicles on road should remain constant or decrease.

3. data base regarding the travelling needs of the various social groups should be available

with the government and must be updated after regular intervals of time

4. Public transport fare should be economical.

5. Developing, monitoring and ensuring zero- tolerance for the offenders of traffic rules.

6. Involvement of society should be maximum.

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If all the above mentioned assumptions are satisfied the at a particular point of time with

increase in the travelling needs the effectiveness in managing the traffic also increases .

E∞ 1/e

E= k/e

E is the efficiency of STMS

K is time period that remains constant

e is the number of private vehicles on road

For a particular time period the number of vehicles running on the road can be controlled using

the sale reports by creating an intelligent data base. By doing this the extra burden on the

transport infrastructure i.e, Roads can be reduced , parking system can be managed effectively

and future paling can be done which increases the efficiency of the system. Restriction can be

achieved using financial constraints.

In the above mentioned model, the maximum output in terms of sustainable traffic management

system can be achieved by defining the various stake holders of traffic system ,i.e, The

government and the society.

9Merits and limitation of model

9.1Merits:

9.1.1 Sustainable transport system: Applying this modal a sustainable transport system can be

achieved . Restricting the number of vehicles on the road per defined period of time can help the

government agencies to effectively implement the strategies to cope up with the traffic

requirement.

Government

STMS

Society

Figure 2 (STMS)

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9.1.2 Public Participation: involvement of common masses can draw massive results towards

change . Realization toward their duties and responsibilities can only fulfil the dream of a safer

and happier tomorrow.

9.1.3 Public transport system: this model emphasize on the development of public sector

transport which can effectively reduce the number of private vehicle on the road and will help

the weaker section of the society to easily and respectfully manage their transport needs.

9.1.4 Developing a centralised transport data base: this model emphasize on developing a

centralised date base for all vehicles on the road which help in maintaining law and order, help in

accidents probing and restricts traffic offenders.

9.2 Limitation:

9.2.1 Political instability: political instability posses threat to any such model where in political

fishes can exploit the sentiments of the society for their mere benefits creating hindrance to any

such change towards positive direction

9.2.2 Technology: urban cities of developing nations are still lacking in the advanced technology

to maintain and operate with a highly sophisticated centralised data base system to manage

traffic related issues.

9.2.3 Restriction of vehicles: a system which survives on corruption it is not possible to restrict

the number of private vehicles on the road for a defined time period.

10.Conclusion:

This paper presents an overview of the traffic related problems in Karchi and tries to come up

with some strategies in term of as model to regulate and balance the traffic on the roads for

sustainable transport system. traffic management must be seen from the view of social concern .

society has a great role to play in much larger spectrum to bring in a hustle free transport system.

participation will give people a sense of ownership of traffic management programs and

guarantee success for those program. Management of traffic in urban areas is becoming

increasingly important. Use of strategies within STMS will be an important tool to implement

traffic management policies. There are likely to be conflicts with the strategies and the proposed

model (STMS) , but a system can be developed to move further more to address the various

alarming issues related with the management of traffic. And the issues will never be resolved

unless a social concern will be addressed.

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References

Courtney, John. Transportation land policy and the urban poor in developing countries.

7-10. 1979. Transportation Research Board.

Farahmand-Razavi,A. (1994). The role of international consultants in developing

countries: Lessons from Tehran (Iran). Transport Policy, 1(2), 117-123.

Ghaffar,A., Hyder,A.A., & Bishai,D. (2001). Newspaper reports as a source for injury

data in developing countries. Health Policy and Planning, 16(3), 322-325.

Ghalli, M. O., and Smith, M. J. (1996) Traffic assignment,traffic control and road

pricing, Proceedings of 12th International symposium on Transportation and Traffic

Theory, University of Califomia, Berkeley, Ed. C. A. Daganzo, pp 147 - 170.

Hirten, John E. and Echenique, Marcial. An operational land use transport model for the

Tehran region, Iran. 6-7. 1979. Transportation Research Board.

Jraiw,K. (2003). Urban road transport in Asia's developing countries: Safety and

efficiency strategy. Transportation Research Record, 1846, 19-25.

7.Kessides, Christine. Cities in Transition. 1-157. 2000. Washington D.C., The World

Bank.

Qureshi, Sarfraz K. and Arif, G. M. Profile of Poverty in Pakistan, 1998-99. 5-27. 2001.

National Injury Research Center (NIRC), Health Services Academy, MOH.

National Road Safety Secretariat (NRSS), Ministry of communication, Government of Pakistan

MacLennan, C., Routiedge, I. W. and Kemp, S. (1996) The development of UTMC

systems, Eighth international conference on Road Traffic Monitoring and Control, IEE,

London, pp 1-6.

Stover, V.G. and Koepke, F.J. (1988) Transportation and Land Development, Institute of

Transportation Engineers, Prentice Hall, Englewood Cliffs, New Jersey.

U.P.N.C.T.S. Foundation, Inc. (2001) Formulation of Guidelines for

Road Traffic Injuries in Pakistan, Trends, Causes, and Policy Implications.

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Survey relationship between OCB and organizational culture in general

inspection organization in Iran

Seyed Ali Akbar Ahmadi


Freyedon Ahmadi


Golamhosain Homauni


Abstract

The relationship between dimensions of organizational and the categorization of Organizational

citizenship behaviors (OCB) as in-role versus extra-role were explored within an Iranian sample.

In order to appropriately address levels-of-analysis issues, this study focused on the relationship

between two side variables at the same level of analysis: the left side of Hofsted OC (Process

oriented , Employee Oriented , Parochial , Open System , Loose Control and Normative) versus

the right side of Hofsted OC (Results Oriented , Job Oriented , Professional , Closed System ,

Tight Control and Pragmatic).Results indicate that OCB is high in units that their organizational

culture was process oriented , employee Oriented ,have an open system and loose control.

Key words: Process oriented-Results Oriented, Employee Oriented -Job Oriented, Parochial –

Professional, Loose Control – Tight Control, Normative – Pragmatic, opened system- closed

system ,Organizational citizenship behavior, organizational culture

Introduction

The Organizational Citizenship Behavior or more precisely OCB is a special type of

organizational behavior necessary for the growth and success of the every organization.

Although this kind of behavior is not a mandatory factor to be maintained in any Organization

but it plays a vital and important aspect in the growth of any organization. The Organizational

Citizenship Behavior is important factor in determining the effectiveness, efficiency and

productivity of the organization. Although Organization cannot impose this vital factor in the

employee‘s mindset forcibly, but a good organization is that where Organization Citizenship

Behavior should be followed. The theory of OCB includes introducing the proper decision

making styles among the servant serving during the job in the firm. Every day market trend and

style keeps on changing to set new and high set of standard, the organization has to follow the

certain principles of Organizational Citizenship Behavior to achieve the fleet of glory. This

factor in fact adds in the mindset of the employee‘s new innovative ideas and sportsmanship to

work collectively and effectively in making the organization successful. This in fact introduces

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the selfless concern to work as team not as a group for the success of the firm. So the

organizations hire the human resources department to bridge the gap of proper communication

channel between the employees on one hand and the management team on other hand. If the

communication between the two teams is not channeled properly then it can lead to dangerous

scenario like employees leaving the organization. So to retain the employees the human

resources departments play a vital role.

The Organizational Citizenship Behavior introduces the new innovative ideas, which are

channeled to the employees in time to time through proper media or source. The organization

even arranges seminars, which lays the guidelines how to implement the theory of

Organizational Citizenship Behavior among the employees. Although it may not be a mandatory

for any individual to attend the theory of OCB but it informs the employees of the firm about the

changes occurring in the firm from time to time. Thus it introduces civic virtue among the

employees for the growth of the organization. The OCB factor in fact bridges the gap not only

between the management team and employee, but also removes the conflict among them to unite

together to march forward to attain success. It self motivates the individuals to attain the peak of

success in the competitive World. The OCB indeed has introduced the new concept of altruism

or the team spirit and sportsmanship. To strive forward and work together as a team should be

the motto or goal of the good and healthy prosperous organization. No organization can‘t

function effectively without proper collaboration among the employees and management team of

the firm. The Organizational Citizenship Behavior introduces the factor of conscientiousness and

professionalism cultures among the employees of the organization. Thus the Organization should

implement OCB to achieve its target and profitable revenues without sacrificing the goals,

welfare and motives of the employees of the organization.

An organization can prosper only when it offers pleasant working conditions apart while taking

care the interests of its workers. Such an organization that takes due interest in the welfare of its

workers will definitely get the best output and ensure a good growth rate. To ensure ever-

growing success of an organization, it is essential to harbor the interests while compensating

them for their hard work while inspiring them to perform better as a part of motivational

measures. While ensuing that your organization achieves all the success, it is essential to devise

models based on the organizational culture that helps in bringing the right change in a company

irrespective of big or small.

To imbibe the right organizational culture, it is essential to have the right human resource

development team in a company that takes care the employee welfare as well as work-

performance related issues such as payrolls, training, promotion , redundancy and career

development to name a few.

According to the cardinal principles of human resource development, work force is equivalent to

human capital for any organization that helps in building the company. In any organization that

has strong work culture, it will follow the ethics of organizational values and work jointly to

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achieve the goal of success. From the point of view of organizational theories, it is essential to

understand the golden rules of work culture such as:

Strategic thinking on the part of organization: For any organization that wishes to bring

successful change in its work culture, it is essential to follow strategic thinking that is modeled

on practical understanding of organizational goals. This has to be religiously followed to ensure

a successful organization that growth oriented.

High-level commitment: To ensure that an organization is successful in incorporating the strong

corporate culture, it is essential for the top-management as well as consultants of a company to

show wholehearted trust and commitment to the cause. This will certainly help the company in

achieving and implement the right kind of company culture that becomes the driving force of an

organization.

Change at the highest levels of organizational culture: To get the best corporate culture that is

duly endorsed by the management as well as the employees, it is essential for an organization to

follow the corporate culture in full spirits. This ensures a successful model.

Apart from it, there are many ways for endorsing the right corporate culture in order to carve a

new identity for an organization and its workers. It is a well-known fact that wherever there is a

change, there is resistance in the case of organizational culture; it applies the same in terms of

corporate culture. There can be wide criticism and conflicts of interests and relations. Yet, in the

end, one has to ensure that the interest of an organization is safeguarded without hurting the

sentiments of workers.

Organizational culture is one of important tools that help to development of OCB. But it is not

clear that what dimension of organizational culture is fit to develop of OCB? So in this research

is attempted to indicate proper organizational culture for develop of OCB in general inspection

organization in Iran.

Attendance to OCB

Organizational citizenship behaviors (OCB) have been defined as behaviors that an employee

voluntarily engages in that promote the effectiveness of the organization but are not explicitly

rewarded by the organization (Organ, 1988). Behaviors in this category consist of those that an

employee may engage in at his or her discretion, and that facilitate the effectiveness of the

organization, and promote the organization‘s interests (Brief & Motowidlo, 1986). Typical

examples of behavioral items used to measure OCB include: ‗‗Is ready to help or to lend a

helping hand to those around him/her;‘‘ ‗‗Reads and keeps up with agency/company

announcements, messages, memos, etc.‘‘; and ‗‗Considers the impact of his/her actions on

others‘‘ (Mackenzie, Podsakoff, & Fetter, 1991).

The OCB definition has not gone unchallenged. In their meta-analysis of OCB, LePine, Erez,

and Johnson (2002) discuss the need to shift attention away from the antecedents and outcomes

of OCB toward a focus on a more careful explication of the OCB construct itself and its

dimensions. In explicating the OCB construct more fully it is important to consider the factors

that influence what is considered to be OCB and according to whom. This is important because

there is evidence to suggest that variation exists in how individuals implicitly define and measure

OCB (e.g., Morrison, 1994; Vandenberg, Lance, & Taylor, 2005), as some individuals may view

specific behaviors as in-role while others may view these same behaviors as extra-role. One

possible contributor to this variation is the cumulative effect of culture (e.g., social culture) and

culture-related variables (e.g., learned social beliefs). Social culture shapes behavioral norms,

perceptions, and expectations in a myriad of settings (Triandis, 1994) and is typically learned

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during early cultural socialization. Learned social beliefs are internally held beliefs and can be

characterized as being relatively resistant to change and exerting a strong effect on the

perceptions and evaluations of multiple social exchanges—including the employer–employee

exchange.

Although the debate over the best way to define OCB has not been resolved, and researchers

have often expressed concern over OCB‘s definitional qualifiers (Bolino, Turnley, & Niehoff,

2004), the underlying question is whether employees do in fact voluntarily engage in OCB or

more broadly, whether OCB is in fact discretionary or extra-role.

Some researchers have responded to this debate by redefining OCB by dropping the extra-role

qualifier (e.g., Organ, 1997), while others have insisted that retaining it is important for greater

conceptual clarity and construct validity (Van Dyne, Cummings, & McLean Parks, 1995). One

thing that has become apparent in support of the latter position is that measurable differences

have been documented in what specific behaviors are viewed as OCB depending on who is doing

the viewing.

Morrison‘s (1994) study, for example, demonstrated this point well. Her results indicated that the

boundary between what is perceived as in-role versus extra-role (i.e., job breadth) varies across

employees and between employees and their supervisors. Vandenberg et al. (2005) also found

that ratings of OCB differed between managers, subordinates and individuals, and in fact, that

different conceptual frameworks were used to interpret individual organizational citizenship

behaviors. Similar variations were found by Pond, Nacoste, Mohr, and Rodriguez (1997) in a

study of 144 managerial employees in the United States, by Lam, Hui, and Law (1999) in their

cross-cultural study examining 431 independent dyads from four nations (i.e., Australia, China-

Hong Kong, Japan and the United States), and by Vey and Campbell (2004) in their study with

248 undergraduates in the United States.

There is also evidence that from a practical perspective this distinction has utility, since the

perceptions of OCB as in role may relate to employee engagement in such behavior. Morrison

(1994), for example, suggested that individuals who engage in OCB may do so because they

define those behaviors as in-role. Although Morrison (1994) did not directly test this proposition,

more recent empirical work by Coyle-Shapiro, Kessler, and Purcell (2004) provides evidence in

support of Morrison‘s assertion. In fact, their results indicated that ‗‗employees who define

behaviors as in-role engage in those behaviors to a greater degree than employees who define

them as extra-role‘‘ (p. 97). Based on their results, these researchers conclude that the distinction

between in-role and extra-role is important for understanding an individual‘s motivation to

engage in such behaviors. Kamdar,McAllister, and Turban (2006) also found that employee

definitions of behaviors as in-role versus extra-role were related to employee work behavior. In

their investigation with an Indian sample of 220 engineers and their immediate supervisors from

an oil refinery, Kamder et al. found that employees perceiving OCB as extra-role were less

inclined to engage in those behaviors.

Organizational cultural and OCB

Hofstede (1980) defined ―culture‖ as the collective programming of the mind that

distinguishes the members of one group from another. He argued that culture is a property of

groups, and that countries‘ boundaries are typically coincident with cultural boundaries. National

culture influences how members of groups think about what is proper, civilized behavior and

influences how one acts toward strangers and colleagues, how one addresses others, and how one

interacts socially.

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Hofstede (1980) identified four dimensions of national culture. Power distance is a measure of

the inequality between leaders and followers, and the extent to which this inequality is accepted.

Uncertainty avoidance characterizes the extent to which ambiguity and uncertainty are tolerable.

Masculinity vs. femininity (e.g., achievement vs. relationship orientation) is a measure of the

extent to which 6 achievement and success are valued rather than caring for others and quality of

life. Finally, individualism vs. collectivism (IC) is the degree to which members of a group tend

to think first of others vs. oneself, and the value placed on membership in groups. During the last

decade, cultural psychology has investigated the degree to which social psychological findings

that have been found in Western societies, in particular in the United States, are generalizable

across cultural borders. One of the most important cultural distinctions is that between

individualistic and collectivistic cultures. The specific individualistic or collectivistic cultural

view subsequently influences several domains of psychological functioning, among which

functioning in relationships.

Individualism-Collectivism (IC) reflects the level of social interconnectedness among individuals

(Hofstede, 1980; Earley & Gibson, 1998). An important attribute of contexts characterized by a

collectivistic character is that individuals within those contexts view and identify themselves

through membership in in-groups (Triandis, 1988), which tends to have systematic effects on

social behavior within team settings (Earley, 1989, 1993). The defining distinction between

contexts that vary along the IC continuum is that for individualists personal interests are more

important than the interests of the (in)group, as are the attainment of individual (as opposed to

group) goals. In contrast, for collectivists the interests of the (in)group are paramount (Triandis,

1989), and as noted by Earley (1989), ―a driving force within a collectivistic culture is

cooperation so as to attain group goals and safeguard welfare‖ (p. 567). Empirical research,

dealing with the moderating effects of IC on social loafing (Earley,1989), and on OCB

(Moorman & Blakely, 1995), supports these characterizations of individuals within

individualistic or collectivistic cultures. Moorman and Blakely (1995) reported significant

relationships between collectivistic values and the OCB dimensions of interpersonal helping,

loyal boosterism, and individual initiative.

The past researches focused on national culture and its impact on OCB . Few study examine

of organizational culture and its relationship with OCB. Appelbaum and et al indicted that

organizational culture a seem to initiate assumption to improve of OCB (Appelbaum and et al

,2004).

In this study for first time is used of six dimension of organizational culture offered by

hofstede : Process oriented-Results Oriented , Employee Oriented -Job Oriented , Parochial-

Professional , Open System- Closed System , Loose Control – Tight Control and Normative –

Pragmatic .

Methodology

The Sample

In this study 100 people of six section of general inspection organization in iran were selected as

sample. This amount people were determined the below formula:

935.005.96.11.0499

5.005.96.1500

)1()1(

)1(

22

2

2

22

2

2

PPZdN

PPZNn

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The measures

For measuring of OCB were used of seven dimension based of Mark´oczy & Xin study that were

done in cultural of USA and Chinese in University of California. Based their study seven

dimension of OCB are:

Civic virtue, Altruism, Conscientiousness, Interpersonal harmony, Protecting company

resources, Sportsmanship and Courtesy. A 1–5 Likert scale was used to measure the degree

subjects considered the listed behaviors to be OCBs.

Also for measuring of OC were used of six dimension based of Hofsted study. Based his study

six dimension of OC are:

Process oriented-Results Oriented, Employee Oriented -Job Oriented, Parochial –Professional,

Loose Control – Tight Control, Normative – Pragmatic ,open system – closed system.

The result

Based of data gathering, the mean level of OCB dimension in six section of auditor organization

in Iran were shown in table one.

Table 1: the mean level of OCB dimension in six section of auditor organization in iran

Civic

virtue

Altruism Conscienti

- ousness

Interpersonal

harmony

Protecting

company

resources

Sportsman-

ship

Courtesy OCB

Economy

section 3.11 2.92 3.06 3.25 3.31 3.15 3.18 3.12

Planning

section 3.35 3.5 3.62 3.83 3.71 3.51 3.46 3.58

Social

section 3.65 3.58 3.53 3.73 3.64 3.37 3.48 3.57

Politics

section 3.46 3.44 3.72 3.8 3.72 3.64 3.54 3.62

Produce

section 2.98 2.86 2.98 3.23 3.04 3.11 3.01 3.04

Special

section 3.13 3.03 3.24 3.21 3.06 3.17 3.13 3.11

Total 3.3 3.24 3.39 3.54 3.44 3.36 3.32 3.37

Based of the table 1, resulats indicat although level of OCB was high in sample unit (abve of

medume (3)) but level of OCB in politics section (3.62) , planning section (3.58) and social

section (3.57) was higher than economy section (3.12) , produce section (3.04) and spacial

section(3.11).

Civic virtue has the most mean in social section and lowest mean in produce section. Also the

most mean of altruism belongs to social section and lowest to produce section. Planning section

has the most mark in Conscientiousness and produce section has the lowest mark in

Conscientiousness dimension. The highest mean in Interpersonal harmony belongs to planning

section and lowest belongs to Special section. The Protecting company resources as one

dimension of OCB has the most mean in Politics section and Special section has the lowest mean

in protecting company resources dimension. Finally politics section has the most mean in

Sportsmanship and Courtesy dimensions and Produce section has the lowest mean in these two

dimensions.

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Kind of organizational culture impact on develop of OCB

For survey impact kind of organizational culture on OCB , first the meaning responses for two

classification based on dimensions of organizational culture was computed, then by use of Mann-

Whitney Test , the meaningful their differences was tested, finally by use of Spearman's

correlation, relationship between dimension of OCB and the organizational culture was

computed.

Table 2 indicates the meaning responses for two classification units based on dimensions of

organizational culture

Table 9: meaning responses for two classification units based on dimensions of organizational

culture

Organizational

culture

Dimensions High OCB units Low OCB unit

Six dimension of

Organizational

culture

offered by Hofsete

Process oriented-Results

Oriented 3.6318 3.2778

Job Oriented- Employee

Oriented 2.6318 2.9444

Parochial- Professional 3.3864 3.3167

Closed System - Open System 2.0136 2.4111

Tight Control - Loose Control 3.3682 3.0889

Pragmatic- Normative 2.7909 2.85

Based of table 2, results indicate : 1. In both of units, Process oriented is more than Results Oriented, but Process oriented in High

OCB units (3.6318) is more than low OCB units (3.2778).

2. In both of units, Job Oriented is lower than Employee Oriented, but Job Oriented in High OCB

units (2.6318) is lower than low OCB units (2.9444).

3. In both of units, Parochial is more than Professional, but Parochial in High OCB units

(3.3864) is more than low OCB units (3.3167).

4. In both of units Closed System is lower than Open System, but Closed System in High OCB

units (2.0136) is lower than low OCB units (2.4111).

5. In both of units, Tight Control is more than Loose Control, but Tight Control in High OCB

units (3.3682) is more than low OCB units (3.0889).

6. in both of units, Pragmatic is lower than Normative, but Pragmatic in High OCB units

(2.7909) is lower than low OCB units (2.85).

Table 3 indicates the results of Mann-Whitney Test :

Table 3: The results of Mann-Whitney Test

Mann-Whitney U Wilcoxon W Z Asymp . Sig.

(2-tailed)

Process oriented-Results Oriented 727,500 1762,500 -3,568 ,000

Job Oriented- Employee Oriented 709,500 2249,500 -3,729 ,000

Parochial- Professional 1113,500 2148,500 -,886 ,375

Closed System - Open System 655,000 2195,000 -4,084 ,000

Tight Control - Loose Control 742,500 1777,500 -3,479 ,001

Pragmatic- Normative 1065,000 2605,000 -1,215 ,224

a Grouping Variable :OCB

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Based of table 3 was inferred that the relationship between of OCB and dimensions (Process

oriented, Job Oriented, Closed System and Tight Control) is meaningful (sig=0.000 <0.05). But

relationship between of OCB and dimensions (Parochial and Pragmatic) is not meaningful (sig >

0.05)

So there is positive and meaningful relationship between Process oriented and Tight Control

with higher OCB level .also there is negative and meaningful relationship between Job Oriented

and Closed System with higher OCB level.

In the other hand Process oriented, Employee Oriented, Open System and Tight Control enhance

of organizational citizenship behavior.

Table 4 indicates Spearman's correlation between OCB and its dimension with dimension of

organizational culture

Table 4: The results of Spearman's correlation

Spearman's rho Process

oriented

Job

Oriented

Closed

System

Tight

Control

OCB ,302(**) -,286(**) -,294(**) ,270(**)

Civic Virtue -,008 -,134 -,053 ,051

Altruism ,054 -,076 -,182 ,068

Conscientiousness ,278(**) -,294(**) -,283(**) ,328(**)

Sportsmanship ,263(**) -,210(*) -,237(*) ,251(*)

Courtesy ,231(*) -,165 -,145 ,178

Interpersonal harmony ,252(*) -,283(**) -,243(*) ,240(*)

Protecting company

resources ,281(**) -,086 -,146 ,140

organizational loyalty ,129 -,079 -,168 ,039

** Correlation is significant at the 0.01 level (2-tailed).

Based of table 4, results indicate :

1. There is positive and meaningful relationship between Process oriented and Tight Control

with OCB .

2. There is negative and meaningful relationship between job oriented and closed system with

OCB .

3. There are not meaningful correlation between Altruism, Courtesy and organizational loyalty

with dimension of organizational culture.

4. There are positive and meaningful correlation between Conscientiousness, Sportsmanship and

Interpersonal harmony with Process oriented and Tight Control. Also there are negative and

meaningful correlation between this three dimension with Process oriented and Tight Control

5. Courtesy and Protecting company resources have positive and meaningful correlation with

Process oriented

Conclusion

Organizations want and need employees who will do those things that aren‘t in any job

description. And the evidence indicates that those organizations that have such employees

outperform those that don‘t. As a result, some human subject studies are concerned with

organizational citizenship behavior as a dependent variable.

In this study impact of organizational culture on develop of OCB was examined. Based of

findings of this research, for develop of OCB, organization culture tend to process and employee

oriented, open system and tight control.

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New Product Development Processes

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A Case Study of Apple‟s Success with iconic iPod and iPhone

Muhammad Tariq (Corresponding Author)

Sarhad University of Science and Information technology, 36 B, Chinar Road University Town,

Peshawar, Khyber PukhtoonKhwa, Pakistan

Rabia Ishrat

Sarhad University of Science and Information Technology, 36 B, Chinar Road University Town,


Hashim Khan

(IMS) Institute of Management Studies, University of Peshawar,

Khyber PukhtoonKhwa, Pakistan

Abstract

This paper focuses on NPD processes which show a high failure rate, making businesses to

rethink over their new product and processes. This has lead companies to adopt a more customer

oriented approach where previously unheard voice of the customer is now taken to consideration.

While launching new products level and form of innovation that a particular market could absorb

should be determined in the first place and new product or services should be launched

accordingly. Once the company strikes the right combination for success; the company can

further use its existing image to launch new improvements in the form of line and brand

extensions. Apples frequent usage of its brand name (i) as in iPod, iMac and iPhone as well as in

many other new products symbolizes the company‘s intentions of leveraging its success pattern

across products and categories. It has been observed that other than costs many products fail

because of a universal but largely ignored psychological prejudice, as consumer resist any

distortion in their current-state-of-affairs. Shrewd companies like Apple devises strategies

compressing the lifecycles of brands iPod—iPhone. Besides this companies also try to acquire

network externalities, where a customer is contained by a dominant network such as Macintosh

or PC operating systems. Companies must also realize the fact that new approaches to marketing,

commercialization and NPD must work coherently to maintain a sustained competitive

advantage. In such a case companies must strive to adopt innovative and integrated practices by

coming out of their silos and assume responsibility for new product development via using

strategies such as creative marketing, lean manufacturing, flawless operations, and sophisticated

use of concurrent process reengineering (rugby approach as against rally race) and corporate

entrepreneurship initiatives like Apple so as to attain first mover advantage and reap the

economic benefits from their new product or process innovations.

Key Words: Job based segmentation, first mover advantage, network externalities, Apple, line

and brand extensions, Planned obsolescence, critical mass and voice of customer

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1.Introduction

Gourville, (2006) contends that product failures reveal that new products fail at a startling rate

between 40% and 90% depending on the product category. The commercialization and marketing

stages come in the later stages of New Product Development (NPD) processes; however, they have

a pivotal role to play in new product success. As a consequence, there is greater focus on

commercialization and marketing issues today, up front, than ever realized before. Therefore

companies are now taking into consideration a more detailed job based segmentation approach,

because sometimes the consumer has hard times in precisely expressing, the core benefit of certain

product, as these may be use getting done various jobs in various situations. According to Mueller,

(1997) proposes that consumers follow a six step process to completely absorb innovative products

or services. However, these steps may vary and overlap each other due to level of consumer

network externalities, brand loyalty, transaction, learning, and obsolescence costs. Another

important factor is that consumers over the years develop associations (brand loyalty) with existing

products or services and resist any change in the status quo by over valuing the old products too

much; on the other hand, companies commercializing new products over estimate their innovative

features, design and differentiation. This creates a complex situation where companies need to

create awareness about their new products through innovative new product launching campaigns.

Companies need to find out the success recipe first and then they should launch their products or

services. If the success formula is attained then the company can once and for all use it by

launching new and improved versions of the products in the form of line and brand extension

(Ibid).

1.1 Problem and Purpose

Steven et al. (1957) makes an interesting analogy to launch of a new generation of products and a

journey into an uninhabited area as no one can fathom going out without a blueprint for guidance

into a jungle. The same holds true for new product development process where a large number of

new products fail because the innovators (suppliers) and the end-user do not see and appreciate the

market through the same lenses. There needs to be oneness of thought between companies and

consumer, which is not readily available, as often times there is a gap between the buyer and the

seller‘s imaginations. A company sells their innovative products to consumers for solving a certain

problem but consumer may not be aware of even the primary usage of the product, its total

transformations and augmentations. Therefore, voice of the customer should be taken to

consideration when embarking on a New Product Development (NPD) process. However, once the

right combination of people, resources and process is attained in the launch of a hit label or brand

and the success formula is revealed, then it becomes easy to launch even more success stories in

the form of new products or services. It is therefore for this case we have chosen the iconic Apple

company brand as our empirical parameter for this scientific paper.

RQ: To analyze the high rate of new product success on a companies like Apple in comparison

to a higher than normal rate of failures in other firms?

The purpose of the study is to find out ways and means that would help managers in matching

their products with their customers. This is in line with basic marketing principle which stresses

that the wants needs and demands of the customer should be taken to consideration first and then a

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product or service should be commercialized so as to satisfy the consumer in the best possible

manner. However, in practice this is the other way around, especially companies coming up with

really innovative products face difficulty in testing their products on the market as the demand is

latent, and consumer needs are not clear. The consumer needs to be educated first about the

concept and how the product will revolutionalize the way he or she do things currently. In specific

terms, main purpose of the scientific article is to find out the success recipe for New Product

Development and how companies like Apple, Sony, Philips, and Dell make good advantage of the

success recipe.


Song and Montoya (1998), contends that new product development is a high risk proposition

for firms to start, as it involves higher risk in targeting a budding market segment where customer

wants are hidden and service or product requirements are unspoken. On the other hand, new

products often create considerable opportunities for firms to differentiate their offering (product or

service) and helps in attaining a lead from competitors through cost, quality, style and flexibility.

Mueller, (1997), proposes that the innovating firm may achieve a first mover advantage that would

create considerably better results for the company in the short and long term. However, first mover

advantage may not always results in profiting as customers, imitators and rival firms may quickly

emulate your success and take away a greater share of the market share (Teece, 1986). In the same

vein, Steven et al, (1989) proclaim that a successful new product launch creates industry wise

unique standards, which may become barriers of entry for new firms trying to penetrate. It also

helps in refreshing the minds of the engineering personnel; sales force and give them a sense of

accomplishment and may serve the opportunity for strategic corporate renewal and redirection to

the firm (Ibid). It is interesting to note that the EMI, CT scanner lost market share to late entrants;

Bowmar which launched the first pocket calculator, lost market share to Texas Instruments and

Xerox a first mover in the office computers business lost market share to late entrants such as

Apples Macintosh which had striking resemblance with Xerox‘s core product ideas such as the

mouse (Teece, 1986).

A study of the US market conducted by John and Gourville (2006) reveals that nearly 30,000

products are introduced yearly in the packaged goods industry. Almost 70% to 90% among these

fail to occupy store shelves for more than a year. Another study, indicates that almost 47 % of the

companies who enjoyed first mover advantage by commercializing before others in a particular

line of business had failed, meaning that firms that introduced new product categories left pursuing

those modern ideas Ibid). One prime example where innovator who was out run by followers is RC

Cola, a small beverage company who first commercialized cola in a can, as well as the first mover

to launch diet coke. Coke and Pepsi entered the market immediately and deprived RC Cola of any

significant gains (Teece, 1986). According to Irwin et al, (1957) NPD is a process of reducing

uncertainty in the minds of managers that as a matter of fact the level of uncertainty associated

with new product development process depends on the degree of innovativeness of the offering.

This view is in conformance with the information processing theory that as the degree of

unpredictability and uncertainty enhances, there is more need for information coordination.

Bonabeau et al, (2008) proposes that companies normally view NPD as a process of total

uniformity, but it can be divided into two separate stages namely Pre-Launch and Post launch,

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where pre-launch stage as truth seeking stage, focusing on assessing the innovative products or

services potential and removing the irrelevant or non functional parts. In the early stages the

product designs are fluid and firms compete on the basis of designs until the emergence of

dominant design such as Model T Ford, IBM 360 and Douglas DC-3 in automobile, computer and

aircraft industries respectively (Teece, 1986) and those firms with dominant designs survive others

normally disappear after this shakeout stage (Mueller, 1997).

According to Christensen, (2007) most firms segment their target market by population

characteristics or their product attributes and try to create differentiation with value added features

and applications. However, the customer simply wants to just carry out a job by acquiring a

specific solution in the shape of some product or service. The ―job‖, is an unsatisfied state of

consumer need which he or she wants to satisfy by hiring a certain product and these jobs may

vary from situation to situation (ibid). According to Peter Drucker cited in Clayton et al. (2007),

“The customer rarely buys what the business thinks it sells him.” Firms many a times find to their

amusement that customers are using their products for getting done tasks other than the firm

intended to serve. In the basic marketing literature Jobber, (2009) argue that general stages for new

product development consist of idea generation, screening, and concept development. Afterwards,

a marketing strategy is developed leading to business analysis and test marketing before full fledge

product launch. Cooper, (1993) has identified five additional steps in NPD process such as

preliminary technical and business assessment, alpha, beta tests, final business plan and production

ramp up.

According to Cooper, (1996) these stages are sequential just like a rally race; however, in a

dynamic industry companies are using concurrent engineering which is similar to rugby game

where players moves forth at back, which resembles a firm having multiple product under

development (ibid) and many companies in Japan and US have adopted the same holistic approach

explained with the help of rugby analogy (Takeuchi & Nonaka, 1986).

Lieberman and Montgomery, (2002) contends that that firms entering the market first are

known as market pioneers. Their competencies and skills mainly depend on better product or

process development, marketing research and technology. If the firm relentlessly preserves these

competencies by making them an integral part of the corporate culture, then the probability of

investments in new product development activities is high and the firm would stress on major

breakthrough innovations. Whereas, Henderson, (1993) argues that competitive advantage depends

on the predictably, predictable activities, such as capitalizing on historic research and development

capabilities as in such a situation small incremental innovations would mainly take place like

better or improved version of products.

According to Schnaars, (1994) late entrants can also overtake the first mover. The late comer

may use superior placement, aggressive promotions, or may even engage in a price war. Therefore

these late entrants stress on non-product competition, that‘s why they do not invest heavily in

research and development and mostly comes up with imitative products through reverse

engineering in a weak appropriable regime.

Some pitfalls of the NPD process as pinpointed by Steven et al, (1989) are moving target, lack of

product distinctiveness, unexpected technical problems, and mismatches between functional

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departments. Better planning leads to efficient courses of action and the likelihood of success is

increased (ibid). From a marketing orientation viewpoint, there are five competing concepts under

which organizations conduct marketing activities starting with basic production concept and

culminating at holistic marketing concept where everything matters (Kotler, 2000). Normally

organizations try to launch superior products or services and improve their quality gradually,

making implicit assumption that the customer is knowledgeable and differentiates between quality

and ordinary products. This is even true for companies like GM where a top notch executive once

said many years ago, “How can the public know what kind of car they want until they see what is

available?”

This notion was also common place in the history where phrases like ―Good wine needs no

bush‖ were used meaning that a good product does not require any promotion. This theme

generated here goes in conformance with Kotler and Armstrong, (2001) where companies are

wonderstruck to reveal that consumer are not necessarily looking for a better product ―mousetrap‖

but for a better solution to the mouse problem. In an ideal situation where other things remain the

same, normally consumer follow steps such as seeking awareness about a product or services, then

comprehending the information, afterwards they form a positive or negative attitude about the

product. If they value it positively the start considering it legitimate to use the product, then the

customers uses the products or services on a trial basis so as to check efficiency of the product. If

the product matches expectations they adopt it (Stanton & Kotler 2000). According to Schiff man

et al, (2009) cited in Tariq and Ghaffar, (2010) diffusion is a macro process encompassing the

spread of a new innovation from its creator to the general masses. Whereas, adoption is a micro

process which is concerned with the steps through which a customer passes when accepting or

rejecting a new innovation. Rogers, (1967) proposed a six step profile of consumer innovators as

shown in figure 2-2 stretching from innovators to laggards. Innovators are the pioneers of adopting

a new technology and laggards are the last ones. These six steps as shown in the Figure (2-1) are

innovators 2.5%, early adopters 13.5%, early majority 34%, late majority 34%, and at the end

laggards which constitute 16% of the population (ibid). Schiffman et al. (2009), stresses that time

is the backbone of diffusion process as it determines the rate of adoption of new product (s) or

service (s).

As evident from the above process the consumer behavior can also be traced by a careful

examination of the customer buying and usage behavior. Figuratively speaking, consumers often

need to modify their behavior for new products. And consumer with the passage of time may

change its relationship staus as shows in figure (2-2) starting with a prospect, becoming a

purchaser, turning into a client and subsequently an advocates and finally a partner of the company

(Tariq and Ghaffar, 2010). Mueller, (1997) contends that companies are well aware that such a

change is not easy as it may involve learning costs, planned obsolescence, switching costs,

network externalities and so on. For instance, cost of learning by changing from PC to Apple

Macintosh operating system and the planned obsolescence is a deliberate ploy such as fashion and

fads (Armstrong & Kotler, 2007). Similarly, switching costs incur when consumers switch from

compact disc to DVD players, their previous CD collection becomes obsolete. Finally, the value of

mobile or a telephone service increases with the rise in number of connections and so does is the

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case with credit cards whose utility increases with the number of shops accepting them. These

products are characterized by a phenomenon known as network externalities (Muller, 1997).

However, according to Gourville (2006) there are also psychological costs associated with the

change in behavior. This phenomenon is termed as psychological prejudice as people tend to

overestimate the advantages of products they own in relation to the new products. Whereas,

companies tend to overestimate the value of their new labels or brands. It is over here that

disharmony is created in the perspectives of the both parties. That‘s why consumers in first place

may simply refuse new offer or choice, whereas, on the other hand the company is expecting

success which can act as a double-edged sword. Generally, companies should think from the

perspective of customers.

3. Real Time Case “Apple”

―The Iconic Apple,‖ Yes, it is true that half of the US over slept on the new years eve of 2011

because of the iconic iPhone. This speaks volumes of the impact of Apple on consumers by

becoming a lifestyle brand and that is why we have chose Apple as a special case of success. Due

to the strong marketing focus ―Apples‖ has been very successful in creating a tribe of loyal

customer base that think, live and act in a differentiated way. In the year (1998) Apple was born

again when Steve Jobs launched the new computer iMac which came with a complete collection of

software‘s and new operating system called MAC OS X. It was an instant success. Soon the

corporate entrepreneur and CEO of Apple Steve Jobbs launched its ―iBook‖ a special kind of

laptop. However, the biggest success was the introduction of iPod in the year 2001 that achieved

market share in excess of 70% in the US. Furthermore, Apple made a deal with Intel to become

compatible with Microsoft Windows. Since then, iPod is enjoying market leadership in the domain

of competition.

Ever since its inception, Apple has remained busy with developing more than one product at a

time. In retrospect, we find that in the year (1984), Apple commercialized two products namely

―Apple C‖ and ―Macintosh‖, in (1986) it launched ―Apple llgs‖ and ―Macintosh Plus‖, (1987) it

launched ―Macintosh II‖ and ―Macintosh SE‖. In the same continuity in the year (1989) it

commercialized three computers namely ―Macintosh Portable‖, ―Macintosh IIlci‖ and ―Macintosh

IIfx‖. In the year (1990) it launched another three computer models Macintosh Classic, Macintosh

IIlsi and Macintosh LC. Similarly in the year 1993 Apples commercialized seven products namely

―Color Classic‖, ―Quadra 800‖, ―Macintosh Centris‖, ―Macintosh LCIII‖, ―Power book 180c‖ and

―Macintosh LC 475‖.

At the start of new decade in the year (2001) Apple again launched three products namely

―Power Macintosh‖ ―Quick silver‖, and its bestseller ―iPod‖ first generation. In the year 2004

Apple commercialized four products namely ―xServe‖ ―G5‖, ―iMac G5‖, ―iPod click wheel‖ and

―iPod Mini‖ and in the year (2005) again Apple launched four successful products namely, ―iPod

shuffle‖, ―iPod Nano‖, ―Video iPod‖, and ―Mac Mini‖. And finally, as we all know that in the year

2007 Apple scored a home run by launching its premier iPhone. By analyzing the above trends in

NPD and commercialization it can easily be understood that Apple is constantly churning out new

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innovative products at unprecedented rate. This is mainly due to the fact that at Apple is using

concurrent engineering philosophy to good effect. As earlier on stated in such a process the

product under development may lie in more than one stage of development and thus we can also

deduce that Apple is following a rugby approach to new product development which can go back

as well as in forward direction simultaneously. These factors have enabled Apple in terms of

speed, accuracy, and quality.

From a consumers behavior viewpoint in the case of ―Apple‖ consumers who purchased MP3

can be termed innovators; the early adopters bought the first iPod. Early majority purchased the

second and third models of iPod. We can say that Late Majority purchase models which came after

third iPod. Finally, laggards or hard core loyal would normally buy a used or cheaper version of

iPod.

Similarly, referring to Lieberman and Montgomery (2002) we can interpret that Apple has

invested heavily in new product development process and therefore attained the status of market

pioneer. This was especially true for Apple a couple of decades ago as well as today. As with the

advent of iPod first generation in (2001) on the market it revolutionalizes the electronics industry

and had a major impact on competition. Ever since, Apple has successfully launched several other

line extensions of the older version with small incremental improvements. For example in the year

(2003) Apple launched iPod 3rd Generation and in the subsequent year (2004) it launched two

more extensions of the products namely iPod Mini and iPod click Wheel. Again in the year (2005)

Apple came up with some improved products in the form of iPod Shuffle, Nano and Video iPod.

And finally in the year 2007 iPhone was launched under the same brand umbrella term (i).

Therefore the view point of Henderson, (1993) who states that gaining competitive advantage is a

function of predictably predictable activities within the firm. Thus we see small incremental

changes in Apple product line as well as the view point of Lieberman and Montgomery is best

exemplified by Apple launch of iPhone in the year (2007). If we consider the case of NeXT, a

desktop computer developed by Steve Jobs, the legendary founder of Apple, customers did not

want the optical drive instead of the floppy drive. Because the new feature makes it difficult for

end-users to switch work from a personal computer to a NeXT. The machine enjoyed other

superior features like hi-fi sound; end-users never look beyond the initial resistance. Many people

found it far too expensive, while engineers reckoned the workstations with superior value.

Therefore, Steve Jobs has to abandon the 200 million dollars product. Here it is suggested that if

Steve has listened to the customer voice he could have been successful, because in this scenario

customers were expecting an incremental innovation. However, for almost thirty long years

―Apple‖ had remained the trend setter to foresee and foretell the future of the domestic computers.

The balance of probability is high that it would continue to lead the way. The success recipe came

to Apple in the form of iPod, and even Apple personal computers sales started going up because of

this hit product. Apple has been very clever in its ploy of planned obsolescence as it is launching

iPhone after iPod and that too with new improvements. The new improved product has the cool

feeling assorted around it. Therefore it is compelling customers to engage in repeat purchase,

which serves the long term purpose of the company. Thanks to planned obsolescence. Another

very interesting case in point relating to Apple is launch and commercialization of Apple

Macintosh personal computers line. The new Apple Mac customers encounter mistakes while

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using Mac because it doesn't work the same way it would be expected to on a Windows computer?

Simply the Windows users follow and expect everything to word the same way as in Windows.

And on the other hand Macintosh users see and expect their Macs to work in its original way

(Macintosh way). There are substantial commonalities between Apple and Windows operating

systems, but there are some differences which I am reckoned worth mentioning. It is here that the

concept of dominant design and network externalities comes into play with Microsoft having a

clear edge in terms of network externalities and therefore greater market share. Similarly the

―Apple‖ has its own network externalities in the form of ―iTunes‖ that could only be downloaded

for their website.

An interesting case in point is that in the year (1985), Bill Gates was literally begging ―Apples‖

CEO Steve Jobs to license his Mac operating system to Personal computer vendors. Apple did not

agree and later on Bill Gates came up with a smack in the face response and now the situation is

that Apple has only 4% market share in PC business. However, this time around the buzz is related

to digital music, encompassing iPod music player and its iTunes made it cheaper and convenient to

download songs at a rate of 99 cents only. But the irony is that Apples iPod music player only

plays songs in the company‘s "FairPlay" digital rights management (DRM) format and songs

downloaded from iTunes play only on iPod. For example, a customer who gets a song

downloaded from Apples iTunes and wants to play it on his or her real player would be highly

disappointed (www.macnewsworld.com). On the other hand an iPod owner is left limited to get

music from iTunes, even though there are many other services on the Web, such as Napster and

Real Networks. But the customer can‘t help the situation. Apple must hear the voice of the

customer as customers is always in search of perpetual perfection and who knows who will be the

next?

4. Conclusions

The new product development activities differ from company to company especially in stages of

commercialization and marketing. Often times the companies overvalue their new product quality,

features and adoptability, whereas the consumers are reluctant to switch the existing products thus

exhibiting a high level of brand loyalty. This is mainly due to the fact that switching entails costs

which can take many forms. Also important is the fact that consumers develop nostalgic fondness

with products therefore not ready to accept innovation many a times.In simple words, consumers

form associations with certain products and therefore become reluctant to other alternatives

because of their habits. Then the sequential new product process with path dependencies is seldom

followed as gigantic companies like Apple are continuously developing three to four products in

pipeline. This practice is also done at Apple with the help project oriented teams working with a

well connected system of links to other areas of the over all value chain. Companies should bear in

mind that apart from internal sources of innovation there is a much neglected and overlooked

source of new product development i.e. the voice of the customer has to be taken into

consideration. It‘s good to have a visionary and charismatic leader like Steve Jobs and Henry Ford.

However, these leaders should not impose their own prerogatives. In Apple case it lost market

share to Microsoft in past because of the rigidity of then CEO Steve Jobs. Similarly, Mr. Henry

Ford was also fond of influencing the new product development process. Someone asked him in

how many colors do you produce cars? He replied cars in all colors as long as the color is black.

Some of the top notch companies make silly blunders as they do not do proper research before they

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commercialize their products. They misunderstand between needs, wants and demands. So if

consumer is not clear himself about the job he wants to get the product for how can companies

doing marketing research for their new product development elicit the right information from

consumer. So I reckon it‘s better to analyze the market by a job based segmentation approach.

This means figuring out the specific job which for which the consumer hires the product or service

in a particular situation. Companies like Apple who struck the home run in one or two of their

products can help its new product development processes because of historical research and

development capabilities as well as a strong goodwill on the market. The company can then easily

launch brand extensions as well as line extensions to help transfer the brand equity or goodwill of

existing products to new products. A prime example in case of Apple is the use of letter (i) in

many of Apple products nowadays. Finally, from commercialization and marketing viewpoint it is

important for companies not to launch not to launch valuable new products to pre-mature markets

as was the case with NEXT computers at Apple, where customer needs were in the developing

stage, and a new product was introduced which was in a way difficult to handle. Companies are

also exercising to a great extent a phenomenon of planned obsolescence where the company‘s

products become obsolete after a certain period of time and the consumer is compelled to engage

in repeated purchase so as to serve the firms profit motive. In simple, the chances of success for a

seasoned company becomes more as it becomes a key opinion leader in ship shaping customer

preferences and ways of thinking by design or by default after it makes a home run in the form of

product or services. In nutshell, first understand the customer and then be understood on the

market.

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References

Cooper and Kleinschmidt (1995), ―Benchmarking the firms Critical Success factors in New

Product Development‖, Journal of Product Innovation management Vol. 12, Issue 5,

November p. 1-5

Clayton M. Christensen, Scott D. Anthony, Gerald Berstell, Denise Nitterhouse (2007), ―Finding

the Right Job for Your Product‖, Sloan Management Review, Vol. 48, Issue 3, pp 1-8

Cornelia Dröge, Jayanth Jayaram, Shawnee K. Vickery (2000),. ―The Ability to Minimize the

Timing of New Product Development and Introduction: An Examination of Antecedent

Factors in the North American Automobile Supplier Industry‖, Journal of Product

Innovation Management Volume 17 Issue 1, January.

Eric Bonabeau, Neil Bodick, Robert W. Armstrong (2008). ―A More Rational Approach to New-

Product Development‖, Harvard Business Review, Vol. 86.Issue3.

Gary Getz and Pedro do Carmo Costa, Linking New Product Development to Strategy, Published

on managementsmarter.com December 2008

Dennis c. Mueller, ―First Mover advantages and path dependencies‖ , International Journal of

Industrial Organization, 15 (1997), 827-850, Austria

James P. Hackett (2007)., ―Preparing for the Perfect Product Launch‖, Harvard Business Review,

Vol. 85, Issue 4

John T. Gourville (2006). ―Eager Sellers and Stony Buyers: Understanding the Psychology of

New-Product Adoption‖, Harvard Business Review, Vol. 84, Issue 6

R. G. Cooper E. J. Kleinschmidt (1987)., ―New Products: What Separates Winners from Losers?‖

Journal of Product Innovation Management Volume 4 Issue 3, September

Robert G. Cooper (1993) ―Winning at new products‖, Addison-Wesley, reading, Massachusetts,

p.29

Steven C. Wheelwright, Kim B. Clark (1992), ―Creating Project Plans to Focus Product

Development‖, Harvard Business Review, Vol. 70, Issue 2

Robert Veryzer, (1998) ―Discontinuous innovation and the New Product development Process‖,

Journal of Product innovation Management, Vol. 15, issue 4

Steven C. Wheelwright, W. Earl Sasser Jr (1989)., ―The New Product Development Map‖,

Harvard Business Review, Vol. 67, Issue 3

Song and Montoya (1998), ―Critical Development activities for Really new versus Incremental

products‖, Journal of Product innovation Management Vol. 15, Issue 2, March

T. Michael Nevens, Gregory L. Summe, Bro Uttal (1990)., ―Commercializing Technology:What

the Best Companies Do‖, Harvard Business Review,Vol.68,Issue3.

William T. Robinso, Jeongwen Chiang (2002). ―Product development strategies for established

market pioneers, early followers, and late entrants‖, Strategic Management Journal,

Volume 23 Issue 9,

Preventing the premature death of relationship marketing: by Susan Fournier, Susan Dobscha and

David Glen Mick (Harvard Business Review Jan-Feb 1998 v76 n1 p42(8)

AOL tech, (2006), Common mistakes made by new mac users, available via:

http://www.tuaw.com/2006/01/25/common-mistakes-made-by-new-mac-users/, accessed on

March, 11, 2009

LowEndMac, 2007, Mac Musings, available via: http://lowendmac.com/musings/07/0430.html,

accessed on Saturday 14th March 2009.

http://www.tuaw.com/2006/01/25/common-mistakes-made-by-new-mac-users/

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Applehistory.com, 2008, available via: www.apple-history.com, accessed on Saturday

21th March 2009.

Link New Product Development NPD to Strategy published on managesmarter.com accessed on

10th March 2009

MacNewsWorld, 2008, Apple replace old mistakes, available via: http://www.macnewsworld.com

/story/35795.html, accessed on 11th March, 2009

http://www.macnewsworld.com/story/35795.html

http://www.macnewsworld.com/story/35795.html

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Annexure 1

Figure 2-1 New Product Adopter Categories (adopted from Everett M. Roger, 1967)

Innovators, EA EM LM Laggards

Figure 2-2 Source: Adopted from Tariq and Ghaffar (2010)

I nIn

Partner

Advocate

Supporter

Client

Customer

Prospects

Partner: Someone one who has the

relationship of partner with you.

Advocate: Someone who actively recommends

you to others, who does your marketing for

you.

Supporter: Someone who likes your

organization, but only supports you passively.

Client: Someone who has done business with

you on a repeat basis neutral, towards your

organization.

Customer: Someone who has done business

just once with your organization.

Prospect: Someone whom you believe may be

persuaded to do business with you.

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Does Disclosure Quality Reduce Default Risk?

Empirical Evidence from Pakistan

Zahid Irshad Younas(Corresponding Author)

Lecturer Department of Economics

GC University Lahore Pakistan

Dr. Muhammad Wasif Siddiqi

Associate Professor Department of Economics


Jamshaid ur Rehman

Lecturer, Department of Economics


Bilal Mehmood

PhD Scholar, Department of Economics, GC University Lahore Pakistan.

Abstract

The purpose of this study is to investigate the relationship between the corporate disclosure quality

and default risk of companies of Pakistan. Study hypothesized that corporate disclosure quality

reduces the default risk of corporate in the mind of lenders and underwriters by improving the

credit rating of corporate. For the quality of disclosures, corporate disclosure index has been

developed to mark the corporate for its disclosure quality on the basis of different disclosures

available in the annual report. Study observed at the end the disclosures quality is significantly

related with the default risk/credit rating of corporate. To see within the corporate disclosures

which of the disclosures more liable for default risk/low credit rating, we decomposed the

corporate disclosure index into its various components and observed, disclosure on ownership

structure of the company, financial information transparency disclosures are more significant

disclosures of corporate, which bring the default risk/lower credit rating.

Key Words: Corporate Disclosures, Credit Rating, Default Risk, Ownership Disclosures,

Financial Disclosures.

1. Introduction

Using the corporate rating as a proxy for the default risk this study investigates whether, the

corporate with quality of disclosures has the higher corporate rating i.e. the low default risk. It is

general argue that detailed and quality of corporate disclosures reduced the default risk by

increasing the credit rating.

The corporate rating reflects a corporate creditworthiness and default risk (Standard and Poor‘s,

2002). Due to this rating agencies are associated with corporate disclosures, because the poor

corporate disclosures does not only destroys the financial position of the corporate but also results

in the losses to major stakeholders i.e. owners and creditors of the companies (Fitch Ratings,

2004). Schneider (2008) asserts firms with better sustainability disclose detailed information on its

affairs and operations as compare to the firm with substandard sustainability. The theory on

voluntary disclosure suggests that high quality firms report quality of disclosures on its

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management and affairs to discriminate themselves from poor companies.1 The theory on

voluntary disclosures has been applied in the past on environmental disclosures and firm

performance as well and asserted the positive relationship between level of disclosures and firm

performance (Clarkson et al. 2008).

2. Previous Literature

In past few studies have been conducted to find the relationship between corporate disclosures,

firm performance and cost of debt or factors closely related to it. Nevertheless, most recent studies

of (Durnev et al. 2004 and Ting I. Hsiu, 2008) focused on the impact of disclosures on the stock

prices. But in this study it is tried to observe the relationship between the quality of disclosures

disclosed by the corporate in the annual report and corporate ratings. One important factor that

encourages corporate and its BOD (board of directors) to disclose the information in the form of

different disclosures that these disclosures reduces the risk of making investment in company and

also decreases interest cost (S & P 2002).2 Poor corporate disclosures can mar the confidence of

creditor and can make the financial position of the concern doubtful in their minds and thus can

result in the low credit ratings and high default risk.

In order to find the usefulness of these disclosures thus we developed corporate disclosures index

like (James and Cotter, 2007). But our study is superior to it because, we used more disclosures

available in the annual report and introduced reputation as a control variable, which seems to be

missing in the previous studies, and obtained better result as compare to the (James and Cotter,

2007). The construction of index3 is centered on the disclosures on compliance, disclosures on

external audit, disclosures on procedures, disclosures on ownership structure, disclosures on BOD

and financial disclosures.

3. Hypothesis

The study intends to scrutinize the following hypothesis:

H1: There is a positive relationship between corporate disclosure quality and default risk.

To test this hypothesis in the upcoming section detailed methodology is provided, which is

followed by results and conclusion.

4. Methodology

4.1 Development of Corporate Disclosure Index

A ‗corporate disclosure index‘ based on annual report disclosure was developed to rate each

company‘s corporate disclosure quality. Construction of this index was centered on corporate

disclosure available suggested by prior studies of James and Cotter (2007), Ting I. Hsiu (2008) and

S & Poors (2002). The table 1 summarizes the corporate disclosure index. The maximum possible

score was 38 (4 compliance disclosures, 11 for financial information transparency disclosures, 2

for procedures disclosures, 3 ownership disclosures, 14 disclosures on BOD, 4 external audit).

[Insert Table 1 about here.]

The information for constructing corporate disclosure index was obtained from 2008 annual report

of companies.

4.1.1 Compliance Disclosures

In compliance disclosures one point each was awarded for corporate governance and compliance

statement. While 2 points were awarded for detailed corporate governance statement and

compliance statement.

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4.1.2 Disclosure on BOD

Similarly, the disclosure on board of directors is a second component of corporate disclosure index

to check the quality of disclosures of a concern. One point was awarded for each disclosures if in

annual report of firm list of BOD, list of BOD committee, Details of remuneration of BOD,

experience of BOD, qualification of BOD, attendance of BOD at meeting, directors are classified

as executive and outsiders, job of BOD were disclosed by the company in annual report. Other

wise 0 score was awarded. While ‗2‘ score is given in case of each detailed disclosure.

4.1.3 Disclosures of Ownership

Similarly the disclosure on ownership was also a component of corporate disclosure index to

observe the quality of disclosure. The purpose of considering the ownership disclosure is to

observe the ownership structure of firm. The corporate has been marked as follow for their

disclosure quality on ownership structure. Each firm was given one point if, number of shares held

by the directors were disclosed in the annual report. While 2 points were given to the companies in

case top 5 shareholders were disclosed by the company in its annual report.

4.1.4 External Audit

As from the statutory point of view the corporate is liable for the appointment of external auditor.

So, disclosure on external audit has been considered as a part of corporate disclosures index. One

point was given if, audit fee is more than the minimum audit fee4 set by ICAP (The Institute of

Chartered Accountants of Pakistan) and Audit conducting firm is also disclosed in the annual

report of the corporate. One additional point was given, if the audit conducting firm is one of the

big5 four audit firm in Pakistan the firm was given 2 points.

4.1.5 Disclosure on Procedures

Similarly the disclosure on procedures has also been considered a part of corporate disclosure

index to observe the quality of corporate disclosures. In corporate disclosure index each firm was

given one point if the job of the BOD is disclosed; code of conduct for the employees is mentioned

in the annual report.

4.1.6 Financial Disclosures

To check the transparency in the usage of financial resources the study has followed, the different

disclosures of financial transparency suggested by OECD for the financial transparency after the

financial meltdown of 1997 (Dewan, 2006). So, for the confidence of lenders and underwriters

different financial transparency disclosures suggested by OECD was included in corporate

disclosure index. Each firm was given one point if, the company provided an overview of the trend

in its industry, company provided the detail of its product, company provided the detail of its

market share, company provided the details of related party transactions (RPTs) company reported

its earning forecast for upcoming years, company reported its output in the annual report in

physical terms, company reported the efficiency indicators in the annual report like (Return on

Assets and Return on Equity etc), company provided the investment plan in the coming years in its

annual report and company has provided the comparison of its performance with rest of the

companies operating in the same industry.

4.2 Data and Data Sources

For the detailed analysis of the proposed hypothesis default risk of firm is captured by unpublished

data on firm‘s individual credit rating. This unpublished data on corporate rating encompasses all

type of risk like (liquidity risk, credit risk, operational risk etc). Initially 67 companies rated by

PACRA in year 2009 on the basis of their performance in year 2008 were considered, but then to

keep the homogeneity in data and to get the satisfied results, we restricted our sample to 36

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companies, and thus removed 31 companies because of difference in operations and non

availability of data on the variables used in this study. Variables are listed and explained in the

appendix.

5. Results and Discussion

5.1 Descriptive Statistics

The table 3 at the end shows the descriptive statistics of study. The highest CDQSCOREi is 37.

While the lowest CDQSCOREi is 15. The median and mean score of CDQSCOREi are 27 and

26.77 with a wide range of 6.033. The highest score obtained by the company on BODDISCi is 13

while the minimum score obtained by a company on BODDISCi is 05. Similarly, mean and

median score of BODDISCi are 8 and 7 with a wide range of 2.42. The highest score obtained by a

company for COMPDISi is 04, while the lowest score obtained by a company on COMPDISi are

02. The median and mean score of COMPDISi is 4 and 3.5 respectively. The highest score

obtained by a company on ‗external audit‘ EXAUDITi is 03 and lowest score obtained by a

company on EXAUDITi is 01. While the mean and median scores in the external audit are both 3.

Similarly in the descriptive statistics of FIDISCi, the highest score achieved by a company on the

financial disclosure is 11. Moreover, the lowest score obtained by companies in the FIDISCi is 3.

The mean and median score obtained by companies on financial disclosures are 8 and 8.5

respectively with a wide range of 2.5. According to table 2 maximum score obtained by the

companies on PROi is 02. Minimum score obtained by company is 1 with a range of 0.439155. Table 3: Descriptive Statistics

BODDISi CDQSCOREi COMPDISi EXAUDITi FIDISCi GROWi

Mean 7.75 26.77 3.472222 2.597222 8.25 0.456435

Median 7 27 4 3 8 0.451179

Maximum 13 37 4 3 11 1.071701

Minimum 5 15 2 1 3 0.032659

Std. Dev. 2.334524 10.27784 0.608798 0.545363 2.406836 0.266919

LEVi LIQi SIZEi PERi PROi REPUi

Mean 0.589751 1.670797 8.41E+09 0.057852 1.222222 0.833333

Median 0.341482 1.795187 5.08E+09 0.01031 1 1

Maximum 2.136049 2.530674 3.39E+10 0.232333 2 2

Minimum 0.014443 0.39388 10647310 -0.0119 1 0

Std. Dev. 0.543557 0.726593 8.83E+09 0.076812 0.421637 0.87831

5.2 Model Estimation

The following model was used to assess the hypothesis that a firm‘s credit rating/default risk is

positively related with its quality of disclosures:

DRt+1 = α + β1 CDQSCOREi + β2 SIZEi + β3 LEVi + β4 GROWi + β5 REPUi + β6 LIQi + β7 PERi

In this equation DRt+1 is the credit rating of the firm obtained at 2009 and used as a proxy for the

default risk. As the literature shows the credit rating shows the credit rating indicates the credit

worthiness of the firm (Fitch rating, 2004), that‘s why it is used as default risk. So, higher credit

rating indicates the higher credit worthiness and lower default risk.

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Table 2: Regression Results of Study

Equation 1 Equation 2 Equation 3 Equation 4 Equation 5 Equation 6 Equation 7

R-Squared 0.93 0.91 0.93 0.92 0.93 0.92 0.92

Variable Equation 1 Equation 2 Equation 3 Equation 4 Equation 5 Equation 6 Equation 7

Intercept 4.556793

(0.0000)

2.484862

(0.0010)

5.227902

(0.0000)

5.290813

(0.0000)

4.844539

(0.0000)

5.469460

(0.0000)

5.345694

(0.0000)

CDQSCORE 0.024413

(0.0486)

SIZE

1.39E-11

(0.1795)

3.30E-11

(0.0075)

1.60E-11

(0.1123)

1.24E-11

(0.2258)

2.13E-11

(0.0424)

1.20E-11

(0.2718)

1.28E-11

(0.2466)

LEV

-0.875716

(0.0118)

- 0.753328

(00.0412)

-1.076808

(0.0001)

-1.032498

(0.0003)

-1.080755

(0.0001)

-0.978269

(0.0081)

-0.967914

(0.0089)

GROW

-0.383371

(0.3407)

-0.411150

(0.3366)

-0.617898

(0.0976)

- 0.626757

(0.1188)

-0.615950

(0.0882)

-0.687605

(0.0882)

-0.727081

(0.0690)

REPU

0.807141

(0.0014)

0.766685

(0.0035)

0.950277

(0.0000)

1.002480

(0.0000)

0.984432

(0.0000)

0.952559

(0.0003)

0.940811

(0.0003)

BODDIS

0.067862

(0.0563)

COMPDIS

0.124204

(0.3935)

EXAUDIT

0.083953

(0.5776)

FIDISC

0.0178

(0.0313)

LIQ

0.290571

(0.4121)

1.001092

(0.0015)

0.408897

(0.7640)

0.128747

(0.7250)

OWNDIS 0.270466

(0.0195)

PRO 0.090808

(0.6321)

In equation (1) CDQSCOREi is the marks obtained by the corporate out of total score of corporate

disclosure index. Following the prior studies and factors recommended by the credit rating

companies like S&P and PACRA etc. this study has also used the following control variables

‗performance‘, ‗size‘, ‗growth‘, ‗leverage‘ and ‗reputation‘ for default risk/credit rating.

The result of first equation in table 2 at end shows that CDQSCOREi is significant and positively

related with the default risk for which the credit rating has been used as a proxy. Which indicates

the firm with the good corporate disclosures has better corporate rating and thus enjoys lower

default risk and vice versa. These results are inconsistent to the study of James and Cotter (2007)

and consistent to the study of Asbaugh-Skaife (2006), Collins and La Fond (2006). Moreover,

these results reveal, in the Pakistani framework of corporate, the corporate disclosure quality plays

a vital role in determining its default risk. The other significant variable includes the REPUi of the

firm and leverage, which results in lower credit rating and high default risk. The regression results

in table 2 at end shows performance is positively related with the default risk/corporate rating as it

was expected. Which means those firms whose performance is better they have the higher credit

rating and hence the low default risk. Similarly the regression results in table 2 about leverage

indicates it is negatively associated with the default risk/credit rating which means those firms

which use more debt they have to pay more interest cost which increases their default risk by

decreasing the credit rating Sengupta (1998); Bhojraj and Sengupta (2003); Anderson et al. (2004);

James and Cotter (2007).

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In equation 1 insignificant variables includes size and growth. Though the size is insignificant but

it is insignificant in opposite direction. Similarly the growth is also insignificant but it is

surprisingly insignificant in opposite direction, which might be indicating that growing firm are in

needs of more funds due to which they spend the less money on the improvement of its quality of

disclosures.

In order to observe which of the disclosures in the corporate disclosure index drives the result

more. The CDQSCOREi is decomposed into its various components and substituted the

CDQSCOREi with the FIDISCi in the equation 2 and regressed against the default risk/credit

rating. The result in table 1 indicates there is significant and positive relationship between the

default risk and financial disclosures, which shows the firms with quality of financial disclosures

has higher credit rating and credit worthiness and thus less default risk because as the firm disclose

the more detailed information on financial affairs it increases the confidence level of investors and

creditors due to which it credit rating increases and thus reduces its default risk. For parsimony

purpose and to get the better result from 2nd

model the performance and leverage has been

dropped. Thus among the control variable the significant variable includes; size, liquidity and

reputation. While growth is insignificant but is in right direction.

Similarly in 3rd

model the CDQSCOREi has been substituted with the BODDIS and regressed

against the default risk and observed at the end the disclosures on board of directors are

significantly and positively related with the credit rating/default risk which means the firms with

disclosures on board of directors have the more trust in the eye of creditors and investors and thus

enjoys higher credit rating and lower default risk. Among the other control variables the significant

variable includes growth, leverage and reputation with the same sign as they were expected.

Moreover, size is insignificant but it is insignificant in right direction.

Similarly in 4th

model the CDQSCOREi has been substituted with compliance disclosure score and

regressed against the default risk the results in table 1 indicates the compliance disclosure are

insignificantly and positively related with the default risk. Moreover among the other control

variables like the previous model the significant variable includes Reputation and Leverage.

Though size is insignificant but it is insignificant in right direction.

Similarly in 5th

model the CDQSCOREi has been substituted with its ownership disclosure

component and regressed against the default risk. The results in table 2 at end indicate the

ownership disclosures are significantly and positively related with the default risk. Moreover

among the other control variables like the previous model the significant variable includes

reputation, leverage and growth with the same sign as they were expected and surprisingly size is

also significant with ownership against the default risk.

Similarly in 6th

model the CDQSCOREi has been substituted with its component of procedure‘s

disclosures and regressed against the default risk and. Results in table 1 indicates the procedure‘s

disclosure are insignificantly and positively related with the default risk. Moreover among the

other control variables like the previous model the significant variable includes reputation,

leverage and with the same sign as they were expected and surprisingly size is insignificant but it

is insignificant in right direction.

Similarly in 7th

model the CDQSCOREi has been substituted with its component of disclosure on

external audit and regressed against the default risk and results in table 2 indicates it disclosure on

external audit are insignificantly and positively related with the default risk. Moreover among the

other control variables like the previous model the significant variable includes reputation,

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leverage and growth with the same sign as they were expected and surprisingly size is insignificant

but it is insignificant in right direction.

5.2.1 Multi-collinearity Check

To check Muti-collinearity problem in data the variance inflation factor has been used. Variance

Inflation Factor (VIF) and tolerance are both generally used measures of degree of multi-

collinearity of the ith

independent variable with the other independent variables in a regression

model. Most commonly used rule of thumb associated with the VIF is rule of 10. Which shows if

the value of VIF is greater than 10 it is an indication of multi-collinearity in data. The table 4 at

end shows the value of VIF ranges from 1.0350 to 11.2219. And thus there is only one value which

is slightly higher than 10, which means there is no major threat of multi-collinearity among the

independent variables.


6. Conclusions and Recommendations

Our results shows, default risk/credit rating is significantly related with the corporate disclosure

quality score, which is clear indication that, if the firms want to improve their credit rating and

reduce the default risk in the eyes of lender and creditor they must improve the quality of

disclosure available in their financial reports. Among the different corporate disclosures the results

in the table 1 indicates the FIDISC (financial disclosure), ownership disclosures and board of

director‘s disclosures showed the significant relationship with the default risk/credit rating. While

within the corporate disclosures, disclosures on external audit, disclosures on procedures, and

disclosures on compliance are proved insignificant which confirms there is not so much role of

these disclosures in bringing the default risk or shaking the lenders and creditors trust in the form

of lower credit ratings. The results also suggest the disclosures available in the annual reports of

Pakistani corporate are not enough in terms of quality to build the confidence of lenders and

underwriter and reduce the default risk by improving the credit ratings. Moreover, the Pakistani

corporate is in need of improving their disclosure quality on ownership and financial transparency.

In the ownership disclosures they must emphasize on disclosing the shareholding patterns and

disclosing the proportion of ownership by top five investors. So that, the creditors and lenders can

assess the default risk of the Pakistani corporate easily in the perspective of its ownership

structure. Similarly results indicate that financial transparency is the question mark of Pakistani

corporate, because they are seriously lacking detailed financial information on financial matters

and key indicator of financial health. Due to which their default risk seems to be high in the eyes

of creditors, financial institutions in the form of low credit ratings. On the basis of these results it

could be recommended to the regulatory bodies in Pakistan to enforce the corporate to show

detailed information on the corporate affairs especially on ownership structure and shareholding

pattern in the company. Moreover, in the financial transparency the regulatory bodies must assure

that corporate has disclosed the information on: related party transactions, output in physical terms,

forecasted revenue, and an overview of trend in industry and its comparison with the performance

of the company. Rather than just focusing the few voluntary financial statements, so that the

confidence level of creditors and investor may increase and the partnership of trust and confidence

could be developed between the corporate and its stakeholders.

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References

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Appendix Variables and their Definitions:

DRt+1 = PACRA credit rating for the firm and a measurement of default risk

CDQSCOREi = proportional score (x/38) from the corporate disclosure index.

SIZEi = sum of book value of all fixed assets.

LEVi Quotient of total long term loans and advances by total equity.

GROWi = growth is measured as the proportion of tangible assets to total assets.

REPUi = Statement of CSR (Corporate Social Responsibility) given in the annual report of the company has been used

as a proxy for reputation.

LIQi = proportion of current assets to current liabilities.

COMPDISi = the compliance disclosure score from the corporate disclosure index and expressed as proportion, x/4.

BODDISCi = board of director‘s disclosure score from the corporate disclosure index and expressed as proportion,

x/14.

EXAUDITi = External audit‘s disclosure score from the corporate disclosure index and expressed as proportion, x/4.

OWNDISi = ownership disclosures and expressed as a proportion, x/3.

PROi = Procedure disclosures and expressed as a proportion, x/2 FIDISCi = financial disclosures and expressed as a proportion, x/11.

PERi = Ratio of earnings before interest and tax to total assets.

Table 1: Corporate Disclosure Index

DISCLOSURES Maximum

Compliance Disclosures

Presence of corporate governance statement in annual report 1 or 0 1

Presence of statement of compliance in annual report 1 or 0 1

Presence of detailed corporate governance statement and statement of compliance

in annual report

2 2

Maximum Possible Score for Compliance Disclosures 04

Disclosures of BOD

Presence of list of BOD in annual report 1 or 0 1

Presence of list of BOD committee 1 or 0 1

Presence of information on remuneration of BOD in annual report 1 or 0 1

Presence of detailed information on remuneration of BOD in annual report 2 2

Presence of information on experience of BOD in annual report 1 or 0 1

Presence of detailed information on experience of BOD in annual report 2 2

Presence of information on qualification of BOD in annual report 1 or 0 1

Presence of detailed information on qualification of BOD in annual report 2 2

Presence of attendance of BOD meeting in annual report 1 or 0 1

Presence of job description of BOD in annual report 1 or 0 1

Presence of classification of BOD in annual report as executive and non-executive 1 or 0 1

Maximum Possible Score for BOD Disclosures 14

Ownership Disclosures

Presence of information on no. of shares held by directors in annual report 1 or 0 1

Presence of information on top 5 shareholders in annual report 2 2

Maximum Possible Score for Ownership Disclosures 03

External Audit Disclosures

Presence of audit fee in excess of audit fee set by ICAP in annual report 1 or 0 1

Presence of information on audit conducting firm in annual report 1 or 0 1

If Audit conducting firm is one of the big four audit firms in Pakistan 2 2

Maximum Possible Score for External Audit Disclosures 4

Procedure Disclosures

Presence of job specification of BOD in annual report 1 or 0 1

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Presence of code of conduct or code of ethics 1 or 0 1

Maximum Possible Score for Procedure Disclosures 2

Financial Transparency Disclosures

Presence of overview of trend of firm related industry 1 or 0

Presence of description of product the firm is producing 1 or 0

Presence of information on market share of company 1 or 0

Presence of information on RPTs 1 or 0

Presence of information on earning forecast for upcoming year 1 or 0

Presence of information on output produced by company 1 or 0

Presence of information on output forecast 1 or 0

Presence of information on efficiency indicators 1 or 0

Presence of investment plan in annual report 1 or 0

Presence of detailed investment plan for upcoming years 1 or 0

Presence of comparison of performance with other companies or industry 1 or 0

Maximum Possible Score for Financial Transparency Disclosures 11

Total Score 38

Table 4: Results of Variance Inflation Factor

Variables Equation1 Equation2 Equation3 Equation4 Equation5 Equation6 Equation 7

CDQSCOREi 1.37893

SIZEi 1.53560 1.5070 1.3036 1.2500 1.4706 1.3605 1.3810

LEVi 3.12246 3.0892 3.1246 3.0892 5.5491 5.6036

GROWi 1.87518 1.9063 1.6911 1.7874 1.6818 1.6986 1.6625

REPUi 6.83709 6.8343 3.4150 3.3550 3.3473 6.4704 6.513036

BODDISi 1.2191

PERi 5.0541

COMPDISi 1.2355

EXAUDITi 1.0350

FIDISCi 1.6265

LIQi 6.7489 10.9986 11.2219

OWNDISi 1.3218

PROi 1.0459

End Notes: 1 See Dye (1985).

2 S & P (2002) is an American based credit rating company named Standard and Poors, 2002.

3 The disclosures used in the index are suggested by S & P (2002).

4 ICAP set the minimum audit fee in a circular issued on 13

th August, 2008.

5 Information on big four audit firm is obtained from ICAP.

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Screening for Depression in the Community by Lady Health Workers.

Farooq Naeem1, Zahid Javed

2, Nadia Arshad

3, Aneesa Bandial

3, Muhammad Mujtaba

3,

Mozzam Khalil4, Muhammad Ayub

5.

1Southampton University, Southampton England.

2Department of Social Work, University of the Punjab, Lahore.

3Sir Ganga Ram Hospital, Lahore.

4National Commission for Human Development, Islamabad.

5St luke‘s Hospital, Middlesbrough, England.

Abstract

This research paper focus on Screening for Depression in the Community by Lady Health

Workers. The National Commission for Human Development (NCHD) in Pakistan has been

working in the rural communities to improve the health outcomes. This study was conducted in

one of their project areas. Data Analysis tools like correlation are used. It is concluded that PADS

and BSI can be used by health care workers to screen depression in the general population. They

do not perform well as diagnostic instrument on their own.

Keywords: Screening , Depression , Community , Lady Health Workers

Introduction

Depression is a common problem in the communities all over the world and causes huge disease

burden (Simon, Fleck et al. 2004; Ustun, Ayuso-Mateos et al. 2004). The evidence from

community studies in Pakistan suggests that the rate of Depression is higher than many other

countries (Mumford, Nazir et al. 1996; Mumford, Saeed et al. 1997; Mumford, Minhas et al.

2000). Treatment for the common psychiatric disorders (including depressive disorder) is usually

provided in primary care (Tylee and Jones 2005; Tylee 2006). Taking into consideration the small

number of psychiatrists in Pakistan, treatment costs and cultural issues it is important that

depression is treated in primary care (Sheikh and Furnhaam 2000; Naeem, Ayub et al. 2006). The

general practitioners are in general, not well trained to diagnose and treat these problems in

Pakistan (Gadit and Vahidy 1997). Those working in private sector are usually busy and might not

see psychiatric disorders as a priority in comparison with the life threatening conditions. It has

been suggested that psychiatric patients present with symptoms of physical illness and are often

mis-diagnosed (Patel, Abas et al. 2001; Greden 2003; Stewart 2003).

Primary health care physicians can be supported by other professionals in identifying as

well as monitoring depression. This is likely to reduce the cost of care and may be more acceptable

to the patients for cultural and economic reasons. This has been tried in other countries (Moreno,

Saravanan et al. 2003).

A new workforce of lady health workers has been involved in preventive and monitoring

aspects of health in Pakistan. They can screen and monitor depression in collaboration with

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primary health care physicians. This will form an integrated system of screening and monitoring

which has been found to be the most effective way of tackling the public health problem of

depression (MacMillan, Patterson et al. 2005). These workers need a structured method of

identifying people with symptoms of depression and then provide them the information about the

condition and refer them appropriately. They can then monitor the condition jointly with the

treating physician.

To effectively screen and monitor depression questionnaires are very useful. If the process

is to be repeated on a large scale then they from essential part of the training material. Generally

there are two options for this; translation of an already established questionnaire or development of

an endogenous questionnaire. There are strengths and weakness of both the approaches (Mumford,

Tareen et al. 1991).

Pakistan Depression and Anxiety Questionnaire (PADQ) was developed to measure

psychological symptoms of depression in Pakistan (Mumford, Ayub et al. 2005). It is a useful tool

in the hands of mental health professionals. The Breadford Somatic Inventory (BSI) was

developed in the subcontinent to measure somatic symptoms and has proved to be a useful

screening tool for epidemiological studies in community studies of psychiatric disorder (Mumford,

Bavington et al. 1991).

We wanted to evaluate the usefulness of these two instruments as screening tools by the

lady health workers. We believe that if these scales can be used effectively by the lady health

workers in the rural communities then they can successfully identify the people at higher risk of

depression and refer them for treatment to the general practitioners. This will particularly be useful

for the women in the community who find it hard to access the primary health care facilities. We

evaluated their use by the lady health workers in a sample of people who had not sought any help.

In this paper we are describing the results of the evaluation.

Since Pakistan has a very low literacy rate we assessed the properties of these

questionnaires when they are read to people and their responses are recorded by the person

administering the questionnaire.

Research Questions

Can the community workers using PAQD and BSI identify the cases of depression as effectively as

the clinicians‘ using a clinical interview?

Do BSI and PADQ give similar results when administered by trained clinician‘s and community

health workers?

In comparisons with Hamilton Depression Rating Scale (as administered by trained clinicians)

how well do BSI and PADQ (as administered by health workers) perform to identify the severity

of depressive symptoms in the community.

Methods The National Commission for Human Development (NCHD) in Pakistan has been working in the

rural communities to improve the health outcomes. This study was conducted in one of their

project areas. A union council (a local administrative unit with population around twenty

thousand) where the Commission had started its project and had registered all the households and

the names of the residents was identified. A list of the households was randomly selected (whereby

every third house from the housing record of The NCHD was used) and three researchers visited

the households accompanied by the local community health workers. All the adults present in the

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house interviewed. The community health workers administered Pakistan Anxiety Depression

Questionnaire and Bradford Somatic Inventory.

One of the researchers was trained psychiatrist with over ten years of experience in

psychiatry. He had experience of working in Pakistan and the United Kingdom . He had specialist

registration in psychiatry in the United Kingdom and had received the training in SCAN.

Two other researchers had post graduate qualifications in psychology. They had over five

years of experience of working as clinicians. Forth member of the team was a trainee psychiatrist

from Pakistan. All the researchers had training session together to achieve over ninety percent

consensus on ratings for Hamilton Depression Scale (Hamilton 1960). They all knew the local

language. For common psychiatric disorders we made a list of symptoms based on the items of

ICD 10 Research & Diagnostic Criteria (World Health Organization. 1993). The symptoms in

sections Depressive Episode (F32), Dysthymia (F34.1) and Neurotic and Stress Related

Somatoform Disorders (F40-f48) were included. During the training sessions the researchers

interviewed a number of patients together and rated them on these symptoms. They achieved

between 80 to 90% agreement on the symptoms before the training stopped.

Blind to the scores of the scales administered by the community health workers they

interviewed the people using clinical interviews and generated ICD 10 diagnoses. In addition they

administered Hamilton Depression Scale, Pakistan Anxiety Depression Questionnaire and

Bradford Somatic Inventory.

The results were analyzed using SPSS version 11. The comparisons were made between

the researcher administered and community health worker administered PADQ and BSI to assess

the inter-rater reliability.

The scores on BSI and PADQ were compared with the Hamilton Depression Scale

administered by the researchers. There scores were also compared with the clinical diagnoses to

test sensitivity and specificity of the scales.

Using the cut-off of 11 for PADQ and 38 for BSI we compared the case-ness status for these scales

with causes identified through the clinicians‘ interviews.

Scales

Pakistan Anxiety Depression Questionnaire has two subscales; depression scale and depression

and anxiety scale. It enquires about the psychological symptoms of depression. It was developed in

Urdu based on symptoms described by the patients suffering from psychiatric disorders. Bradford

Somatic Inventory was developed in subcontinent again based on the symptoms described by

psychiatric patients. It however focused on bodily symptoms as opposed to psychiatric symptoms.

It has a total 46 items and each item is scored as 0, 1, or 2. The maximum possible scores are 92.

The cut off score of 38 identifies the cases. Both PADQ and BSI are self administered when

people can read and write.

Hamilton Depression Scale is a widely used scale but it is administered by trained clinicians.

Results

The total number of people interviewed was 103. Based on the ICD 10 criteria 23 (22.3%) had

mild depressive episode, 4 (3.9%) had moderate depressive episode and 4(3.9%) had severe

depressive episode. One person met the criteria for Obsessive Compulsive Disorder and one met

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the Criteria for Post Traumatic Stress Disorder. Seven (6.8%) had mild generalized anxiety

disorder, 12 (11.7%) had moderate generalized anxiety disorder and 2 (1.9%) had severe

generalized anxiety disorder.

The correlation between the scales administered by the researchers and community health workers

are given in table 1 and are very high in cases of PADQ and BSI.

Table 1: Correlation between the researchers and community workers scores

Scale Correlation Significance (p value)

PADQ total 0.96 0.000

PADQ depression 0.92 0.000

PADQ anxiety and depression 0.98 0.000

BSI 0.99 0.000

Table 2 gives the relationship between the diagnoses based on the cut-off points of 11 for PADQ.

The high kappa values mean that the researchers‘ diagnoses were not much different from the

community workers based on this questionnaire.

Table 2: Kappa value for case-ness between two rater groups

Scale Kappa Significance p value

PADQ depression 0.88 0.000

PADQ anxiety and depression 0.85 0.000

PADQ total scores 0.95 0.000

PADQ, BSI (administered by the community health workers) and Hamilton Depression scale had

high correlation. The correlations between PADQ total score and Hamilton Depression scale was

0.78 and BSI scores and Hamilton Depression scale score was 0.97.

The relationship between the clinical diagnoses of Depression based on the interviews by

the researchers and the diagnoses based on the cut off points of scales as administered by the

community workers are given in table 3. The kappa values indicate that the cut off point diagnoses

are not very effective compared with the interview diagnoses. The interviews here are used as gold

standard.

Table 3: The relationship between the clinical diagnoses of Depression and diagnoses based

on scales

Scales Kappa Significance p value

PADS 0.51 0.00

BSI 0.41 0.00

In table 4 we have described the sensitivity and specificity of the PADQ at various scores

compared with the diagnoses by the researchers. At the conventional cut off of 11 the PADQ is

100% sensitive for the moderate and severe depression.

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Table 4: The specificity and sensitivity of PADQ scores in comparison with clinician‟s

diagnoses as gold standard.

PADS

Score

All diagnoses Depression all

cases

Depression

Moderate and

Severe

Depression Severe

sensi speci sensi speci sensi speci sensi speci

0 100.00% 0.00% 100.00% 0.00% 100.00% 0.00% 100.00% 0.00%

1 100.00% 5.63% 100.00% 5.41% 100.00% 4.21% 100.00% 4.04%

3 100.00% 18.31% 100.00% 17.57% 100.00% 13.68% 100.00% 13.13%

4 96.88% 30.99% 96.55% 29.73% 100.00% 24.21% 100.00% 23.23%

5 96.88% 46.48% 96.55% 44.59% 100.00% 35.79% 100.00% 34.34%

6 90.63% 60.56% 89.66% 58.11% 100.00% 48.42% 100.00% 46.46%

8 90.63% 63.38% 89.66% 60.81% 100.00% 50.53% 100.00% 48.48%

9 78.13% 71.83% 75.86% 68.92% 100.00% 61.05% 100.00% 58.59%

10 62.50% 78.87% 65.52% 78.38% 100.00% 71.58% 100.00% 68.69%

11 62.50% 81.69% 65.52% 81.08% 100.00% 73.68% 100.00% 70.71%

12 62.50% 87.32% 65.52% 86.49% 100.00% 77.89% 100.00% 74.75%

13 62.50% 91.55% 65.52% 90.54% 100.00% 81.05% 100.00% 77.78%

14 56.25% 91.55% 58.62% 90.54% 75.00% 81.05% 100.00% 79.80%

15 50.00% 91.55% 51.72% 90.54% 75.00% 83.16% 100.00% 81.82%

16 43.75% 94.37% 44.83% 93.24% 75.00% 87.37% 100.00% 85.86%

19 43.75% 97.18% 44.83% 95.95% 75.00% 89.47% 100.00% 87.88%

20 31.25% 97.18% 31.03% 95.95% 50.00% 91.58% 50.00% 89.90%

25 25.00% 97.18% 24.14% 95.95% 25.00% 91.58% 0.00% 89.90%

26 9.38% 98.59% 6.90% 97.30% 25.00% 97.89% 0.00% 95.96%

29 0.00% 100.00% 0.00% 100.00% 0.00% 100.00% 0.00% 100.00%

Sensi is sensitivity and speci is specificity

Table 5 gives the specificity and sensitivity of BSI scores compared with the interview diagnoses

made by researchers. At the cut off point of 38 the BSI is 100 % sensitive for moderate and severe

Depression.

Table 5: Sensitivity and Specificity of BSI scores in comparison with clinicians' diagnoses.

BSI

scores

All diagnoses Depression all

cases

Depression

Moderate and Severe

Depression Severe

sensi speci sensi speci sensi speci sensi speci

0 100.00

%

0.00% 100.00

%

0.00% 100.00% 0.00% 100.00% 0.00% 1 93.75% 7.04% 93.10% 6.76% 100.00% 7.37% 100.00% 7.07% 4 93.75% 11.27% 93.10% 10.81% 100.00% 10.53% 100.00% 10.10% 5 93.75% 16.90% 93.10% 16.22% 100.00% 14.74% 100.00% 14.14%

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6 93.75% 22.54% 93.10% 21.62% 100.00% 18.95% 100.00% 18.18%

7 93.75% 25.35% 93.10% 24.32% 100.00% 21.05% 100.00% 20.20% 8 93.75% 28.17% 93.10% 27.03% 100.00% 23.16% 100.00% 22.22%

9 93.75% 30.99% 93.10% 29.73% 100.00% 25.26% 100.00% 24.24% 11 93.75% 39.44% 93.10% 37.84% 100.00% 31.58% 100.00% 30.30% 12 93.75% 45.07% 93.10% 43.24% 100.00% 35.79% 100.00% 34.34% 13 87.50% 45.07% 86.21% 43.24% 100.00% 37.89% 100.00% 36.36% 14 87.50% 50.70% 86.21% 48.65% 100.00% 42.11% 100.00% 40.40%

15 87.50% 56.34% 86.21% 54.05% 100.00% 46.32% 100.00% 44.44% 16 87.50% 61.97% 86.21% 59.46% 100.00% 50.53% 100.00% 48.48% 17 81.25% 61.97% 86.21% 62.16% 100.00% 52.63% 100.00% 50.51%

19 78.13% 66.20% 82.76% 66.22% 100.00% 56.84% 100.00% 54.55% 22 71.88% 71.83% 75.86% 71.62% 100.00% 63.16% 100.00% 60.61% 25 71.88% 77.46% 75.86% 77.03% 100.00% 67.37% 100.00% 64.65% 29 71.88% 80.28% 75.86% 79.73% 100.00% 69.47% 100.00% 66.67% 30 71.88% 83.10% 75.86% 82.43% 100.00% 71.58% 100.00% 68.69% 36 71.88% 85.92% 75.86% 85.14% 100.00% 73.68% 100.00% 70.71% 37 71.88% 88.73% 75.86% 87.84% 100.00% 75.79% 100.00% 72.73%

38 62.50% 90.14% 68.97% 90.54% 100.00% 80.00% 100.00% 76.77% 39 62.50% 92.96% 68.97% 93.24% 100.00% 82.11 % 100.00% 78.79%

40 59.38% 94.37% 65.52% 94.59% 100.00% 84.21% 100.00% 80.81% 43 53.13% 94.37% 58.62% 94.59% 100.00% 86.32% 100.00% 82.83%

46 50.00% 100.00

%

55.17% 100.00

%

100.00% 91.58% 100.00% 87.88% 49 43.75% 100.00

%

48.28% 100.00

%

75.00% 91.58% 100.00% 89.90% 52 37.50% 100.00

%

41.38% 100.00

%

75.00% 93.68% 100.00% 91.92%

57 31.25% 100.00

%

34.48% 100.00

%

50.00% 93.68% 100.00% 93.94%

59 25.00% 100.00

%

27.59% 100.00

%

25.00% 93.68% 50.00% 93.94% 65 18.75% 100.00

%

20.69% 100.00

%

25.00% 95.79% 50.00% 95.96%

69 6.25% 100.00

%

6.90% 100.00

%

25.00% 100.00

%

50.00% 100.00

% 69 0.00% 100.00

%

0.00% 100.00

%

0.00% 100.00

%

0.00% 100.00

%

Sensi is sensitivity and speci is specificity.

Discussion

There is a strong correlation between the scores of PADQ and BSI as administered by the

community health workers and researchers. The scales were not filled in by the people but were

read to them and responses recorded by researchers and community health workers. This is useful

in Pakistani context where a significant proportion of the people are unable to read and write. We

used the scales among a sample of population from rural areas, so these scales can be used by the

community health workers in the rural communities in uneducated population.

These scales have a strong correlation with Hamilton Depression Scale which is very

widely used to measure the severity of depressive disorder and is sensitive to change in these

symptoms. These scales have potential for monitoring the change in symptoms. However we need

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to see how the scales compare with Hamilton Depression Scale in longitudinal follow up of

patients when they recover from symptoms.

As screening instruments, both PADQ and BSI performed well, for screening of moderate

and severe cases of Depression. At the cut-off score of 11 PADQ successfully identified 62.50% of

cases of all psychiatric diagnoses and 62.52% of cases of all degrees of Depression. At cut off

point of 38 BSI picked only 62.50% of all psychiatric diagnoses and 68.97% of all degrees of

Depression. Both scales identified all the cases of moderate and severe Depression.

The scales were used on their own for purpose of diagnoses as opposed to screening

instruments did not work well. Their ability to distinguish clinically diagnosed cases from non-

cases was poor.

These scales perform much better for the severe form of psychopathology. We can use

higher thresholds for screening and be confident that we did not miss any severe (and clinically

more significant) cases. For higher thresholds the specificity remains high, which is important

given the pressure on general practitioners time.

Problem with the study The sample size was relatively small. The clinicians did not use a structured interview to generate

psychiatric diagnoses. The sample was collected from a small area. Pakistan which has a cultural

diversity and the population may not be representative of the rest of the country.

Conclusions PADS and BSI can be used by health care workers to screen depression in the general population.

They do not perform well as diagnostic instrument on their own.

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References

Gadit, A. A., & Vahidy, A. A. (1997). Knowledge of depression among general practitioners.

Journal of the College of Physicians and Surgeons Pakistan, 7, 247-251.

Greden, J. F. (2003). Physical symptoms of depression: Unmet needs. Journal of Clinical

Psychiatry, 64, Supplement 7, 5-11.

Hamilton, M. (1960). A rating scale for depression. Journal of Neurology, Neurosurgery, and

Psychiatry, 23, 56-62.

MacMillan, H. L., Patterson, C. J., et al. (2005). Screening for depression in primary care:

Recommendation statement from the Canadian Task Force on Preventive Health Care.

Canadian Medical Association Journal, 172(1), 33-35.

Moreno, P., Saravanan, Y., et al. (2003). Evaluation of the PAHO/WHO training program on the

detection and treatment of depression for primary care nurses in Panama. Acta Psychiatrica

Scandinavica, 108(1), 61-65.

Mumford, D. B., Ayub, M., et al. (2005). Development and validation of a questionnaire for

anxiety and depression in Pakistan. Journal of Affective Disorders, 88(2), 175-182.

Mumford, D. B., Bavington, J. T., et al. (1991). The Bradford Somatic Inventory: A multi-ethnic

inventory of somatic symptoms reported by anxious and depressed patients in Britain and

the Indo-Pakistan subcontinent. British Journal of Psychiatry, 158, 379-386.

Mumford, D. B., Minhas, F. A., et al. (2000). Stress and psychiatric disorder in urban Rawalpindi.

Community survey. British Journal of Psychiatry, 177, 557-562.

Mumford, D. B., Nazir, M., et al. (1996). Stress and psychiatric disorder in the Hindu Kush: A

community survey of mountain villages in Chitral, Pakistan. British Journal of Psychiatry,

168(3), 299-307.

Mumford, D. B., Saeed, K., et al. (1997). Stress and psychiatric disorder in rural Punjab: A

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Mumford, D. B., Tareen, I. A., et al. (1991). The translation and evaluation of an Urdu version of

the Hospital Anxiety and Depression Scale. Acta Psychiatrica Scandinavica, 83(2), 81-85.

Naeem, F., Ayub, M., et al. (2006). Stigma and psychiatric illness: A survey of attitude of medical

students and doctors in Lahore, Pakistan. Journal of Ayub Medical College, 18(3), 46-49.

Patel, V., Abas, M., et al. (2001). Depression in developing countries: Lessons from Zimbabwe.

British Medical Journal, 322(7284), 482-484.

Sheikh, S., & Furnham, A. (2000). A cross-cultural study of mental health beliefs and attitudes

towards seeking professional help. Social Psychiatry & Psychiatric Epidemiology, 35(7),

326-334.

Simon, G. E., Fleck, M., et al. (2004). Prevalence and predictors of depression treatment in an

international primary care study. American Journal of Psychiatry, 161(9), 1626-1634.

Stewart, D. E. (2003). Physical symptoms of depression: Unmet needs in special populations.

Journal of Clinical Psychiatry, 64, Supplement 7, 12-16.

Tylee, A. (2006). Identifying and managing depression in primary care in the United Kingdom.

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Tylee, A., & Jones, R. (2005). Managing depression in primary care. British Medical Journal,

330(7495), 800-801.

Ustun, T. B., Ayuso-Mateos, J. L., et al. (2004). Global burden of depressive disorders in the year

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2000. British Journal of Psychiatry, 184, 386-392.

World Health Organization. (1993). The ICD-10 classification of mental and behavioural

disorders: Diagnostic criteria for research. Geneva: World Health Organization.

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Mutual Fund‟s Growth and Prospects in Pakistan

Hassan Mobeen Alam (Corresponding Author)

Assistant Professor, Hailey College of Commerce

University of the Punjab, Lahore – Pakistan

Mamoona Rafique

M.com Scholar (2009-11) Enr. No. 218

Hailey College of Commerce, University of the Punjab,

Quaid-e-Azam campus, Lahore, Pakistan

Saba Farooq

M.Com Scholar (2009-11) Enr. No. 230

Hailey College of Commerce, University of the Punjab,

Quaid-e-Azam campus, Lahore, Pakistan.

Muhammad Akram

Lecturer, Hailey College of Commerce


Abstract

The motive behind the study is to evaluate the development of Mutual funds industry as a Fund of

Funds in Pakistan. It discusses different aspects necessary to understand the way Mutual funds

perform along with the dimensions necessary to be focused during growth evaluation. The tools for

the analysis have been discussed in detail, including the statistical tools considering Treynor Ratio,

Sharpe performance analysis and Jensen Alpha analysis. The discussion reveals different strategies

adopted for attainment of the fund‘s objective by all the funds working in Pakistan, differentiated

on the basis of structure, objectives and ownership. Revenues generated by these types of funds

have been shown in the form of graphs. These will be helpful in analysis of growth trends in the

industry. To pay aid, development patterns along with variations in returns have also been shown.

Special discussion on the growth fluctuations during the last decade in terms of assets owned and

the revenues generated is included. The study also carries the measure to improve the functioning

as well as to widen the profit range by enhancing returns. It emphasizes on the contributions of the

organizing authorities for the increased revenues of the sector and awareness of the investors about

the benefits of investing in Mutual funds. The study may help the investors, to analyze the growth

patterns to make the accurate investment decisions about different portfolios. It can also be useful

for the management of portfolio in their decision making process.

Key words: Mutual funds, Treynor Ratio, Fund of funds, NAV, KSE, LSE.

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1. Introduction

A company that pools together funds from different investors in order to invest them in a wide

range of different securities, to generate enormous amount of profit is termed as a Mutual Fund.

According to Special Report on Mutual Funds published in 1993, it is actually a low-cost way to

earn by investment in the stocks of a portfolio. Mutual funds are considered as the companies

established for the purpose of gathering investments and re-investing them in different securities

for the generation of profits. People invest for the sake of getting high return by avoiding the risk

of downfall in case of investment in one company only and enjoy better fund management by

professionals (Artikis, 2003).

Mutual Funds is the accurate prediction of performance as only the past record is not enough to

judge the future compatibility in case of mutual funds. Past performance can only help to reveal

volatility i.e. percentage change in NAV of the fund (Armstrong, 1960). The shares of Mutual

funds working in Pakistan can be purchased from the company directly or from broker, specifically

assigned the job. The shares are not available in secondary markets like KSE & LSE etc. Each

share represents the ownership, and it denotes the amount, up to the owners owe share in Mutual

fund‘s assets.

There are various mutual in Pakistan like NIT, PICIC, ABAMCO, Arif Habib Co. and now the

various banks are also opening and managing the asset management companies. In this the mutual

fund‘s types in terms of structure, objective and ownership are also discussed. The performance of

mutual funds and growth of mutual funds is elaborated in this paper.

This research paper answers the following questions;

RQ.1 What are the mutual funds and its types operating in Pakistan?

RQ.2 What are the various rules to govern mutual funds in Pakistan?

RQ.3 How the mutual funds are evaluated?

R.Q.4 What is the growth of mutual funds in Pakistan?

2. Mutual Funds in Pakistan

Mutual funds working in Pakistan are characterized by different aspects which pay aid in making

them dominant investment entities. These characteristics have become the values of these funds

and are helpful in thorough understanding of the Mutual Funds working in the Pakistan. Mutual

funds are profit seeking organizations. Revenue generation model of Mutual funds working in

Pakistan comprises of the consideration they receive for each share, usually termed as Net Asset

Value (NAV) and Loads. Loads include the fee charged by the funds at purchase or for other

certain purposes. Excess of loads may cause decreased business (Armstrong, 1960). Careful

management of these funds can help them in gaining many benefits. Investment in Mutual funds is

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usually preferred because the funds management and handling is in control of professionals, hired

for financial decisions specifically. It increases the reliability and the credibility of the funds

(Armstrong, 1960).Investment is secondary in nature in these funds. Actual investors don‘t invest

directly they invest their funds in a pool which is reinvested in some reasonable securities. Another

feature making mutual fund distinct from other investment companies is that the shares are mostly

redeemable. Investor, whenever he wants, can withdraw his money and redeem the shares. A fee

can be charged at redemption like Sales Load or Redemption fee. Mutual funds in Pakistan are

selling their shares in two different styles either continuously or until they achieve a significant

level of ―Assets under Management‖. Contrary to many other investment authorities like Banks, in

Pakistan Mutual funds are not guaranteed or insured. There always lies a risk of sudden loss.

2.1 Rules Governing Mutual Funds in Pakistan

In Pakistan, Mutual Funds are operated, managed and conducted under different rules. Closed-

ended funds and open-ended both are governed by ―Investment Companies and Investment

Advisors Rules, 1971‖. The management of all kinds of funds has to follow the rules for

investment decisions and managing the funds pool gathered by investment.

2.2 Initiation of mutual funds in Pakistan

Mutual funds were introduced in Pakistan in the year 1962, with the initiation of the public

offering of the units of National Investment Trust, that was an ―Open ended‖ mutual fund i-e,

encouraging maximum investment. From that time, till date Mutual funds have grown

progressively In Pakistan‘s economy (Huhmann, 2005). But comparison of Mutual Funds in

Pakistan with international market reveals that the market over here is tiny in size (Khorana et al.,

2001).

2.3 Acquisition and Mergers

Mutual funds were introduced in 1962 through the first fund termed as National Investment Unit.

In 1966 another mutual fund company was introduced. It was Investment Corporation of Pakistan.

Two types of funds, Open ended and Closed ended were introduced. First of all in Pakistan, NIT

(national investment trust) introduced the open end mutual fund and ICP (Investment Corporation

of Pakistan) issued close end mutual funds. Till 1990‘s 26 close end ICP mutual funds had been

issued to the public (Lobell, 1990).

2.3.1. ABAMCO Capital Funds

ABAMCO was formed on 22 February 1955 and registered on 27 February 1955 and on 29 august

1955 established as an Advisory and as an Asset Management Company. Pakistan Credit Rating

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Agency (PACRA) ranked the credibility of ABAMCO to be AA+ & AM2. With the passage of

time performance as well as the reliability of ABAMCO increased. Its institutional shareholder is

AMVESCAP Plc. (a leading global asset management company and international finance

corporation).. Five well known ABAMCO open ended funds list includes UTP-IF, UTP

Aggressive asset, UTP-Islamic fund, UNIT Trust of Pakistan, UTP-Funds of funds. While the

closed ended funds of ABAMCO working well are ABAMCO growth fund, ABAMCO capital

fund, ABAMCO composite fund, ABAMCO stock market fund. The four funds out of the twelve

were acquired as growth funds and were issued to general public for raising the capital. Stock

Market funds were also acquired by ABAMCO funds. These were later merged into the ABAMCO

capital fund. These funds are listed in the SECP. Remaining thirteen ICP mutual funds were

acquired by PICIC INVESTMENT FUND COMPANY. These thirteen ICP funds are called the

Lot-B. This company issued close-end mutual funds to generate the investments. Its shares are

listed in the SECP. It is a high risk taking company.

2.4 Types Of Mutual Funds Working in Pakistan

Mutual funds organizations working in Pakistan can be categorized in three types either according

to structure, or objectives or ownership and this will explain as follows;

2.4.1 Types of Mutual Funds by Structure

When we have to categorize mutual funds according to structure, we get ―open- ended mutual

funds‖ and ―closed-ended mutual funds‖. Open-ended Mutual funds are recognized by their

continuity. Their capitalization is not fixed and they keep on issuing shares to the public without

any blockage. In fact they are helpful for the investment for small investors, thus are thought to

have more shareholders rather than customers (Zera, 2001). They issue redeemable shares.

Because of consistent sale and purchase of shares, the market values of the shares vary from day to

day and it is reflected in consistently changing NAV (Net Asset Value). Closed-ended Funds, as

their name depicts, are recognized by limited capitalization. Shares over here are not redeemable

however they can be traded in stock market or over-the-counter market, and transferred (Azfa and

Rauf, 2009). Price fluctuations are also obvious over here, but these are caused by the variation in

demand and supply of the shares. Less liquidity may cause a sense of dissatisfaction (Johnson,

2004).

2.4.2 Types of Mutual Funds by Objective

Considering objectives, mutual funds can be divided in different categories. These funds either

open ended or closed ended vary from each other in their investment decisions as their motive of

getting earnings are different as their way of selection of securities become different. These types

of portfolios run down from taxable to tax-free, from conservative to aggressive, from domestic to

international portfolios, from virtually no-risk money market funds to high-risk which precisely

various types of funds and their primary objectives are described below options funds and from

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stocks to bonds.(Arranged in the sequence of increasing risk factor). Most common type of Mutual

funds is Equity fund. Equity funds manage to invest the funds of the pool in the stock of different

companies. These funds select shares of different companies as their investment securities. Their

lies a high risk factor because if the market goes down, the pool of funds have to suffer. As

compared to investment in stock, some funds seek for the most liquid form of return from SECP

securities, and are termed as Money Market Funds. Money Market funds are most preferable as

they are safest, easiest to deal with, and most compatible to understand. They invest in the liquid

assets in order to avoid risk. Their portfolio seeks stability by investment in short-term securities.

They are providing 1% to 3 % more return than banks.

These funds invest in the shares generating aggressive income. The revenue depends on the level

of risk taken. Higher the risk, higher the income is generated. Also there is higher risk of default.

Investors who are risk inverse prefer Balanced funds that do not focus on enormous profit and just

rely on little growth shares. Risk is also avoidable by investment in Growth funds, which invest in

shares which assure long term appreciation of capital. In Pakistan‘s investment market, fluctuation

in the performances of sectors is obvious. Mutual funds that invest in a specific sector to enjoy the

gains of its peak time are termed as Sector funds. Their lies a high risk as with a down fall of one

sector, whole investment may sunk. In Pakistan, Islamic Funds are working within the religious

boundaries. These are managed according to the regulations of Sharia.

2.4.3 Types of Mutual Funds according to ownership

Public sector mutual fund is an enterprise under the government sector ownership. This is

registered under SECP. Its 50percent of equity fund invested in Asset Management Company is

owed by Government. Manager or a broker is responsible to decide the best securities in which to

invest the stock holder‘s money. Net Asset Value of public sector funds varies from day to day and

from time to time. Public remained aware of the current situation through brokers and market

sources and can make decisions about sell and purchase. Mutual funds have their risks factor that

attracts the people most as people know that high risk means high return. Public mutual fund also

provides the portfolio of stocks and bonds and many other securities that brought returns at lower

risks. Public mutual fund makes it easy for their investors to invest in the securities because they

provided them with ease as the investors just have to watch and the whole process is to be carried

out by the fund management.

People participation in securities means collection of capital for the business. (Panigrahi, 1996;

Mundheim,1991). When we consider the private sector funds we analyze that private sector mutual

funds are those funds which do not enjoy the benefit as the public company does because these

funds are not bound to follow the rules and regulations of the SBP. They are not deemed to follow

―Investment Companies and Investment Advisors Rules, 1971‖ or ―Investment Companies and

Investment Advisors Rules, 1971‖. In the case these are registered, the obligations become

different but yet, there lies a much enhanced factor of risk for the investors when compared to the

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public sector mutual funds. At present 43 open-ended and 22 closed-ended mutual funds are

working in private sector

2.5 Mutual Fund Strategies in Pakistan

Mutual funds working all over the world, adopt different strategies to meet their obligations, but

these strategies vary from place to place and from one type of fund to another type of fund. At

present Mutual funds in Pakistan are following different strategic plans to achieve their objectives.

Mutual funds investment strategies are based on the regulatory issues, the ability of money

managers, the desire of the investor of establishing such funds and demand from investor for this

type of funds. (Otten et al, 2004). Laddered portfolio is a commonly adopted strategy. Buying a

series of securities is demanded by the Laddered portfolio i.e. bonds with stagnant or staggered

maturity. It can consider splitting funds having investment in bonds with one, three and five years

of maturity. Some financial planners prefer to use Thornburg funds. These funds follow laddered

strategy in traditional structure. The trend of replacing the bonds before maturity is rarely seen

over here.

(Glenn et al, 2004. The most commonly adopted strategy in Pakistan is Automatic Investment

Plan, also known as dollar-cost averaging. It provides an efficient way of increasing the

investment. Another commonly used strategy is Buy & Hold strategy. The best way of establishing

a productive buy and hold pool of funds is to use of a very low or no-load asset class funds.

2.6. Performance Evaluation of Mutual funds

Evaluation of the performance of the funds is important for investors and professional managers as

it helps in assessing the return generation and risk level or portfolios ( Shah and Tahir, 2005).

Both open-ended and close-ended mutual funds require a detailed analysis of the performance to

avoid the repetition of mistakes during taking investment decisions. ). Previously better performing

companies will perform better in future ( Blake and Timmermann, 1998 ).

2.6.1. Top Ten Mutual Funds

The list of top ten mutual funds working in Pakistan is as follows;

1-Al-Meezan mutual fund: it is the top fund which has goodwill of paying regular dividends and

having high returns. It is close-ended.

2- Asian stock fund: it is also close-ended mutual fund and having the high records of returns.

3- Atlas funds of funds: this was established in 2004. It provides the advisory and trustee

services.

4- Dominon stock fund: this is highly profitable funds and it has information of financial data and

credit of stocks.

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5- First capital investment ltd mutual fund: this working under rules of NBFC 2003. Its

subsidiary to First Capital securities‘ Co.

6- First dawood fund: it was formed in 1882 and now it has high yield to return.

7- Golden arrow: this is close-ended mutual fund and it has the investment of marketable

securities.

8-Meezan balanced fund: it has investment of equity securities Islamic funds. It has return in

long term capital increment.

9- JS growth fund: it is the management investment co of funds. It has prudent investment

management.

10- Pakistan premier fund: it has the investment of Pakistani equities only. Arif-Habib Co. is its

holding company in terms of providing advisory services.

2.6.2 Evaluation Tools

Mutual funds performance relies on different aspects. CPA/financial planners use different

analytical tools including software, internet databases and other online research tools for

determining the dividend to be paid as a return (Malkiel, 2001).

It is casually seen that portfolios with smaller size in equity perform much better than others

(Gorman, 1991; Becker and Vaughan, 2001; Symth, 2004). Thus the pools of the funds should be

minimized to the optimal investors only. Return evaluation shows that return has a negative relation

to cost specially in open-ended portfolios (Brown, 1995; Livingston and O‘neal, 1998; Elton,1993).

For performance analysis of the funds, costs should not be considered as the cause of declined

returns or vice versa. In fact it is more a case of management than of cost effect. Load/no-load

expense and turnover rate of these funds cannot be differentiated on performance basis with respect

to risk- adjusted/unadjusted (DrPoms et al, 1995; Symthe, 2004). Huge returns shows active

management while in open-ended mutual fund there is relatively less investment and consequently

low return (Carhart, 1997; Glenn, 2004). Corporate governance in portfolios carries immense

importance in order to protect minority investors in Pakistan (Cheema and Shah, 2006).The

Comparison of the funds becomes easier for CPA‘s from using the reporting standards. (Lehmann

and Modest, 1083). Professional managers efficiency of open-ended portfolios is benefiting for

investors (Afza and Rauf, 2009 ). There is an increase in net asset value of Rs. 44 billion of close-

ended mutual fund from 1997 to 2004 in its historical performance (Shah and Tahir, 2005).

At beginning performance evaluated by beta but currently it is evaluated by indexes (Brown and

gotzmann, 1995; Gruber, 1996; Rafique et al. 2009). Previously performance is evaluated on

securities selection and investment timing (Henriksson and Merton, 1981; Grinblatt and Titman,

1989b). Security selection is inversely related with investment timing and may adjust with better

skills (Fabozzi and Rahman, 1993; Bollen and Busse, 2001). Performance of portfolios management

decision is based on selectivity and timing (Treynor and Mazuy, 1996).

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In portfolios performance risk is correlated with return (Artikis, 2006). Only those portfolios

survived who evaluate their performance time to time (Elton et al. 1996). Performance is based on

risk return relationship and it is contradictory to expenses (Fama, 1972; Carhart, 1997). It is

difficult to select the portfolios with higher performance (Rafique et al, 2009).

Different techniques are used for the performance measurement of these funds. Mostly the excess

return is measured using different statistical tools. Four major techniques used for the analysis are

Jensen Alpha index of performance measurement, Sharpe index of Performance evaluation, Treynor

Ratio analysis and Fama French Measures. Except these the Fama French Analysis, discussed and

convenient to be used. Fama French Analysis requires the Book to market price ratio of all the

companies listed at KSE, which is practically next to impossible to be conducted. Amir and Tahir

discussed the same draw back in the year 2005. Other techniques of evaluation are discussed as

under

2.6.2.1 Jensen Alpha

This technique was developed by Michel Jenson in 1970‘s. It was specially designed for the

accurate measurement of excess return earned. This evaluation is helpful in pricing the fund‘s

shares and also

Under Jensen Alpha, return is measured by following formula

Jensen Alpha = Portfolio Return – [Risk free rate+ Portfolio Beta (Market return- Risk free rate)]

2.6.2.2 Sharpe Ratio

William Sharpe in 1966 developed Sharpe Ratio. It measures the extent of the performance of a

fund by comparison of the return and the degree of risk. It is helpful in checking the money value

of the investment as it gives a comprehensive answer regarding the sufficiency of return.

The computation of this ratio is a result of the relation of Expected value of excess of return over

the bench mark return in the numerator and sigma as a sign of standard deviation from return in

denominator.

2.6.2.3 Treynor Ratio or Reward to Volatility Ratio

It is also considered as an effective method of calculation of extent of excess of return received

from a Mutual fund for diversifiable risks. Beta (fund risk to all market situations) is used as a

variable to analyze the risk associated.

These days, new tools such as portfolio software & holding analyzer are used by planners, as well

as old tools are being updated with new concepts which shows focus on downsize deviation as a

measure of risk instead of standard deviation used by the planners since 1950‘s (Otten, 2004).

2.7. Development and Prospects of Mutual funds in Pakistan

Government has taken many steps for the encouragement of these funds. There is remarkable

development in net assets and number of fund. The future of mutual funds seems to be very

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promising .Out of the total financial sectors banks largely sponsored mutual funds. According to

SBP the deposits of schedule banks are above 4 trillion. Similarly insurance companies account

for 3% and non bank financial companies account for 2% of the system. (Carhart, 1997). It is

hoped that in next 3 to 4 years by increase in mutual funds deposits there will be around about 10

billion dollars increase in deposits. The past records reveal that there is an increase in net asset

value of Rs. 38.68 billion of open ended mutual funds and Rs 44 Billion in closed ended funds

from 1997 to 2004 (Shah, and Tahir, 2005). The growth of Mutual funds in Pakistan can be clearly

viewed with the help of different graphs. These graphs are made by taking the revenues generated

on y- axis and the fiscal years on the x-axis. All the graphs are made with the reference of the data

provided by Mutual Funds Association of Pakistan.

Figure 1 shows the net decline in the revenues generated by funds of funds in last couple of years.

It shows the declined performance of all the funds of funds including mutual funds, Hedge funds

etc. The year 2008-09 has caused the sudden decline in the revenues generated by different

investment funds.

Figure 1: Fund of Funds

(Source: Mutual funds Association of Pakistan)

The overall industry growth has declined in the era 2007-09. Closed ended funds show the

decreased business but the rate of downfall is more in open ended funds as compared to closed

ended funds. The funds showed rapid growth in preceding years but in last two year, 2008 and

2009 and performance has declined. The AMCs have decreased the number of assets allocated for

the investment purposes. This step has adversely affected the growth pattern of the funds.

Overall decline in the industry depicts the downfall of all the kinds. There is possibility that some

of the funds have progressed, but their positive growth has not been sufficient to minimize the net

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negative effect. Years 2008-09 have caused serious distraction to the funds industry. Most popular

kinds of funds to be invested in, the equity funds showed decreased earnings, especially during the

period 2008-09.

The sudden decline in the net earnings of these funds is obvious from the graph. After the rapid

and almost consistent growth in last few years, they have declined in performance and the

generations. The Islamic mutual funds have shown a slight decline in the revenue over the same

period of time.

Another important type of funds, preferred for investment in Pakistan is Income funds, that focus

on the generation of aggressive income by reinvesting the pool of investment. Like others, the

revenues generated by Income funds have also suffered.

It is revealed that the year 2008-09 has not been good enough for the growth of mutual fund

industry, rather it caused decline, but the bright side of the picture reveals that the industry has

risen again towards boom. Till the end of year 2010, all types of mutual funds have progressed

well and made the performance curve rise again. If we analyze the past records regarding the

returns, mutual funds are providing, a sharp view of the increased returns in the year 2010 is seen.

After a period of low business in 2008 and 2009, the industry has again developed and shown

growth. The growth pattern is no more stagnant or consistent. It has shown variation to a greater

extent in last few years.

Tables showing the returns of both open ended and closed ended mutual funds for last five years

are shown below.

Table 3

Open ended fund returns

June 30 2006 2007 2008 2009 2010

Equity 27.66% 42.93% -3.88% -38.12% 19.83%

Income 8.27% 11.88% 7.61% 0.10% 10.47%

Money market - - 8.75% 8.49% 10.39%

Balanced 28.98% 24.05% 1.76% -21.31% 13.5%

Assets

allocation

46.51% 20.14% - 0.93% 14.89% 8.47%

Capital

protected

- 5.57% 4.67% 13.47% 9.34%

The analysis of the table shows the decreased returns are followed by the sudden growth. Thus the

table is giving the significance of early discussions. All types of funds along with returns have

been discussed. Equity funds, being the most favorite of the investors usually show more growth

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with the passage of time as the number of investments in the pool of funds continues to enhance,

but these funds have shown the growth in a negative fashion and with the same extent. Rapid

growth was followed by rapid decline. Other funds have also suffered. Severity of the condition is

obvious as Equity funds, balanced funds and Asset allocation funds have suffered negative growth.

Similarly if we analyze the closed ended funds, rapid fluctuations are obvious in the growth and

revenue patterns of the funds.

Table 4

Closed ended scheme

30 JUNE 2006 2007 2008 2009 2010

EQUITY 9.20% 24.24% -1.62% -32.16% 13.49%

If we analyze the closed ended scheme, considering Equity funds, the similar effects are seen.

Negative growth reaches to the limit of 32.16 %, because of the decrease in the investments. As

closed ended funds promote the restricted investment, a minor downfall of the industry causes

more adverse affects as there remain no investments to provide support to uplift the industry.

Discouraged investments along with the economic sanctions and enhanced tax rates caused bitter

results and the earnings scenario suffered a dramatic change in a negative fashion.

The analysis of open ended and closed ended mutual funds and their NAVs shows the growth of

the funds and depicts the evolution of mutual funds in Pakistan with the passage of time. Since the

incorporation of National Investment Trust, the mutual funds industry has progressed well. In

1990s, the investment trend turned its face towards securities, after implementation of privatization

policy by Pakistan Pepels Party.

Historical review and the performance evaluation of the closed ended mutual funds industry depict

the casual growth pattern over many years since 1997. Closed ended funds went through a

dramatic change in the returns and the market capitalization in the start of 20th

century. 2002-03

was the era when this industry progressed in out of fashion manner and with a real speed and it

was even more enhanced in the year 2004 when the rapid growth pattern caused the Net Asset

Value of closed ended funds to meet the limit of PKR Rs 50,000,000,000.

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Figure 2

140

120

100

80

60

40

20

0

Open ended funds

Closed ended funds

Pension funds

No. of AMCs

No. of Funds


Despite of the fluctuations in the earnings and the growth trends measured in terms of the Assets of

these funds, a review of the number of funds shows a consistent growth pattern. Number of funds

working in the market has increased consistently in last ten years. Increase in the funds depicts the

scope of the industry. Investors are still interested in investing their money in creation of Asset

Management Companies to provide the facility of Mutual funds, in order to attract the capital from

other investors.

Though the progress reports have not been very positive but the consistent growth trend, since the

date of incorporation of first Mutual fund in Pakistan, the National Investment Trust Units is still a

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sound ground for the investors to have faith in the strength of Mutual funds for attracting the

investor‘s money.

Table shows a consistent increase in the number of Open ended funds in the previous ten years but

if we analyze the closed ended funds, a strange fact is revealed. In the period of boom in the

industry, during the years 2003-2004, the number of closed ended funds has dramatically

decreased. 35 Closed ended funds decreased to form 15 only in the year 2004, but the revenue

generation didn‘t carry negative impact from this decrease. Later they increased in number but yet

they haven‘t met the previous heights. On the whole, total number of funds, as well as total

number of Asset Management Companies has been continuously increasing irrespective of the

industry downfall and decreased business of the Mutual funds

Following Table discusses the Net assets of mutual funds in last ten years. It is very useful for

understanding the growth trends of mutual funds industry in Pakistan. With the increment in funds

assets, the revenue generation becomes rapid, there is more money available to invest and

consequently more returns are provided to the investors of the pool of funds. As the earlier

discussions reveal, there have been dramatic changes in the growth pattern of the Mutual funds

industry in Pakistan in last decade. Consistently growing industry showed fluctuations and a

sudden down fall within a couple of years. The down fall was later on compensated by the

enormous growth and revenue generation. These facts are more obvious in the Table 5.

Table 5 Net Assets of Mutual funds in Pakistan (2001-10)


Years

Amount in Rs( Millions)

Amount in USD(millions)

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

21,070

25,341

50,455

93,819

125,058

159,798

300,841

335,226

204,826

199,699

331

425

871

1616

2105

2654

4975

4903

2519

2342

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Table shows the growth in the assets of the funds in the ascending order from the year 2001 to

2010. Maximum assets accumulated by these funds amounted to PKR 335,226 million in the year

2008. But suddenly the industry faced a downfall and the assets owned by the Mutual funds

decreased in value by 38.92 % when the assets decreased to a value of PKR 204,826 million.

Many factors like double taxation by government on the mutual funds investors, economic

sanctions and international economic crises played part in this downfall. Investment was

undoubtedly discouraged, and consequently the growth trend was adversely affected.

Decrease in the assets of Mutual funds resulted in the decreased volume of portfolio. Later though

the investment enhanced but the funds are not yet able to recover the growth of assets.

Mutual funds Association of Pakistan reveals that the maximum increase in the assets of the

Mutual funds in Pakistan was in the year 2004. 2004 was a year of enormous growth. Assets

increased by almost 85.94% during that year but the industry became incapable of maintaining the

quality performance in the following years. In the year 2005 assets grew by 33.29 % only. There

was a decrease in the growth of assets of about 52.65 %. That was a severe jolt, industry suffered

as it put a bad impact on the trust of the investors. In the year 2006, the growth was reduced to

27% of the previous year growth. 2007-08 are considered as the most crucial year for the growth

of Mutual funds industry in Pakistan. Assets analysis of mutual funds at the end of the year 2007

showed the growth rate equivalent to 86.28% growth as significance of the evolution and progress

of the portfolio funds while that of year 2008 amounted to 11%. Right after 2008 the boom period

faced critical situation and the assets of the industry suffered.

Number of assets owned by the mutual funds is not significant enough to develop a clear image of

the effect of the growth of funds on the investment decisions of the investors. Following tables are

helpful in determining the actual scenario, as they discuss the number of assets according to the

different types of funds.

Analysis of the investment in the assets of open ended and closed ended funds, considering the

types of investors can also depict the growth prospects of mutual funds industry. Following tables

are helpful in explaining the difference in the investment scenario in last year.

Assets of individual and institutional investors in Open ended Mutual funds, by type of funds.

Table7

June 30, 2010

Category

Individual

Banking and financial

Provident and pension

Net assets

PKR

Millions

No of

investors

accounts

Net assets

PKR

Millions

No of

investors

accounts

Net assets

PKR

Millions

No of

investors

accounts

Equity

Income

Balanced

Money market

14564

11011

1105

7459

72866

20092

7166

7093

5647

28440

2055

8215

179

239

32

82

14288

7616

2012

1750

1094

674

189

189

(Sources: Mutual funds Association of Pakistan)

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A clear decrease in the investment in the Open ended funds during the year 2009-10 is the outcome

of the double taxation and the reduced economic privileges available for the stock holders of the

mutual funds in Pakistan. All kinds of funds, either they are income, or equity, balanced or capital

protected have suffered the reduced trust of the market investors. Investments by individual

investors as well as the investment by the banks and the financial institutions have declined within

last couple of years.

Closed-ended mutual funds also faced the lack of investor‘s confidence because of the fluctuations

in the market capitalization and the NAVs of the shares of their portfolios. Decreased trend of

investment by different kinds of investors in the closed-ended mutual funds during the years 2009

and 2010 is obvious from following table.

Table 9 reveals the same facts regarding the year 2010. They are help full for the estimation of the

decrease investment in closed ended mutual funds in previous years.

Table 9

Assets of individual and institutional investors in Closed ended Mutual funds, by type of funds.( June 30, 2010)

Category

Individual investors

Banking & financial

Provident and

pensions.

Net

assets

PKR

Millions

Number

Of

investors

Accounts

Net assets

PKR

Millions

Number

Of

investors

Accounts

Net

assets

PKR

Millions

Number

Of

investors

Accounts

Equity

Income

Balanced

Capital protected

8,262

2

344

372

84,577

95

3,652

5,052

6,024

941

883

482

260

17

30

23

402

-

188

354

204

-

45

17


Contrary to the trend of market and the slight decrease in the assets and earnings of other mutual

funds, closed-ended mutual funds have shown positive results in last two years. Mostly the number

of investors‘ accounts and the assets of the pools have enhanced in volume pointing towards the

progress of the closed ended funds. As these funds discourage continuous investments, they have

not been affected by the reduced investment in previous years and have progressed well.

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3. Conclusions

This study provides an over view of Mutual funds history in Pakistan. From initiation to the date,

mutual fund industry has gone through a lot of variations. The analysis of growth trends reveal that

the industry has gain attention of investors rapidly because of its different types of portfolios are

providing a wide area for the investors to decide their area of interest according to their risk

tolerance capacity and the demand for the return both in terms of money and time, Data reveals

that the funds have shown almost consistent growth since the time they have started working in

Pakistan but the mutual funds are proven to be sensitive to outside factors and the economic

sanctions. Harder the policies are, lower is the performance of the portfolio industry. The decline

in the growth of these funds is apparently the result of the double taxation policy of the

government on the mutual fund‘s investors. It has not only affected the returns adversely but also

has discouraged the investors from investing in the securities of mutual funds. Mutual funds

industry is facing many challenges like great competition among mutual funds, limited investment

avenues, and increased volatility in the markets caused effective management of risk.

There is a need of attention at the part of Government and the concerned agencies. Different steps

should be taken to avoid any future decline in the performance by Mutual funds association of

Pakistan, SECP and ICP (Investment Corporation of Pakistan). SECP can encourage the

investment in portfolios by providing the help to reduce the risk element so to ensure the more

return, by providing Operational autonomy, by discouraging fragmentation, by giving protection to

―interest‖ of investor and by providing the flexibility to the manager for the trust purpose.

Similarly the Mutual funds association of Pakistan can pay aid in development of the sector by

Ethical and professional enhancement in all areas of mutual funds industry, by providing the

Facility of centre of excellence for the development of industry and by Promotion activities for the

public understanding.

With a support from the organizational authorities, the Mutual funds industry can withstand

international markets as it will be more strengthen by the promotional measures from government,

because the economically strong sector can face the challenges of international market. It reduces

the chances of being effected from the outside fluctuations (Grinblatt and Titman, 1988).

Although this study reveals the overall mutual funds growth and performance in detail but still this

study is limited as in this all the mutual funds running in Pakistan. So, this study may provide the

basis for future study of all the mutual funds perspective in Pakistan. As in this study mutual funds

shows consistency and continuity in growth and increasing rate of performance so it is expected

that the mutual funds will also grow in the future and that will be perform better as well. Its assets

and funds will comparatively grow more in the future as compared to the previous years‘ growth.

Lack of knowledge and awareness is also acting as a major factor of slow growth process. Most

of the investors are not aware of the benefits they can enjoy by investing in portfolios. To

overcome this problem there must be education among people about the advantages of investments

in funds like the professional management, reduced risk because of investment in variety of

securities and the opportunity of redemption of investment money. Mutual funds give opportunity

to earn more from the expectations while other investment companies including banks, give a fixed

or below expectation returns. Awareness can be developed through advertisement for asset

management, investment advisory services to promote fair competition.

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Organizational Knowledge Formation Process, Organizational Learning and

Human Resource Development

Hassan Mobeen Alam , Dr. Mubbsher Munawar Khan & Muhammad Khyzer Bin Dost

Hailey College of Commerce, University of the Punjab, Lahore-Pakistan

Abstract

Organizational learning, organizational knowledge formation process and human resource

development (individual learning process) are theoretically but a very little attention has been paid

to study the sequential relation of these variables (Song& Chermack, 2008). Literature review

gives evidences that the Conceptual study has been done but empirical work is not found.

Therefore a gap found in the literature that necessitated exploring & proving sequential relation

among these variables. What is the Co-relation among organizational learning, organizational

knowledge formation process and human resource development?

Keywords: Organizational Knowledge Formation Process, Organizational Learning and Human

Resource Development

Introduction and Literature Review

Technological changes and consequent globalization is phenomenon is transforming not only the

structure & nature of markets but also a change in the production methods, in marketing concepts

and practices, and financial products. In such a competitive and volatile environment companies

are obliged to act promptly and innovatively. It is, therefore, imperative upon a company efficient

management of risk, products, markets and its‟ human resources.

The change management, in this age of information technology, is combination of knowledge &

time management by the organizations. A knowledge management is the process by which an

organization has access to the information sources; determine the usefulness of information and

disseminate the information among company‟s human resource.

Organizational Learning:

The phenomenon of organizational learning is one of the strong empirical regularities observed in

the life of institutions. Simply stated, organizational learning refers to the increase in productivity

that are observed as firms gain experience in production.(Humberman1997) According to

Godkin& Allcorn (2009) “ Organizational learning is defined as the process by which knowledge

about action- outcome relationships between the organization and the environment is developed.

”Organizational learning is a dynamic process which occurs overtime and across levels, but it also

creates tension between assimilating new learning (i.e. feed-forward where new ideas and actions

flow from the individual to the group and to the organization) and exploiting or using what has

already been learned (feed-back which flows from the organization to the group and to the

individual”. (Crossan1999). Opportunity of learning within the organizations for top on the

hierarchy can be achieved by the development and effective implementation but rarely

materialized. Stein and Vandenbosch 1996). Organizational learning is an ongoing phenomenon

containing multi-dimensional processes that may entail in knowledge creation and cultural change

in organizations with respect to the learning, termed as(OLC) organizational learning culture. This

encompasses acquisition, comprehension and interpretation of information involved.

Organizational learning as “a continuous testing of experience and its transformation into

knowledge available to whole organization and relevant to their mission (Kerlavaj, Temberger,

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Krinjar and Dimovski).The author Zhou, and Uhlaner define organizational learning as the actual

change in thought and action of the groups and individuals in the firm which leads to 8 new

knowledge generation, whereas the practices designed to acquire, transfer, share and store

knowledge are viewed as the domain of knowledge management. The organization learning refers

to the increase in product that are observed as firm gain experience in production.

(Huberman:1997). Organizational learning occurs through knowledge management practices on

one hand and stimulates knowledge management implemented in a more active and systematic

way on the other hand. The concept of organizational learning, such as the tendency of the firm to

rely on non-management employees to come up with new ideas and a culture where employees

share experiences and new ideas with each other are positively associated with a number of other

practices we refer to in this paper as knowledge management practices, which involve more formal

ways to acquire, share, and store knowledge within the firm”. (Haibo, Zhou, and Lorraine Uhlaner,

2009)

Some authors have divided organizational learning in to two process and some have divided it into

four processes. Much of the management literature divides organizational learning into two types.

Argyris and Schon, categorized learning aso single-loop and double-loop learning. Senge identifies

two behaviors as adaptive learning (learning to cope) and generative learning (learning to create).

Adaptive learning is based upon individuals past experiences, knowledge, trainings and believed

knowledge, mental model (Nonaka & Takeuchi, 1995) and generative learning may be the

outcome of purposeful deliberations within the organizations through skillful application of

scientific methods methods (Sessa & London, 2006). March characterizes learning as the

exploration of new horizons in the light of past. He believes that "maintaining an appropriate

balance between exploration and exploitation is a primary factor in survival and prosperity”.(Stein

and Vandenbosch, 1996).The authors Rhodes, Lok, Hung and Fang used four-stage process that

includes information acquisition, dissemination, and interpretation blended in refined

organizational memory system .This will lead to understanding of the learning culture‟s role and

will help in accomplishment of higher targets of performance. Organizational performance may

lead to the development of learning culture in an organization.

Organizational Knowledge Formation Process:

Peer mentors facilitate the knowledge creation and sharing processes. Knowledge has been defined

as „justified true belief‟ (Nonaka and Takeuchi, 1995). Organizational knowledge

may be a combination of all the information an individual holds,codified or otherwise, acquiring

fom data base or data bank, about the product or service, express or implied in relation to the

organization. (Grant, 1996; Kogut & Zander,1992; Nahapiet & Ghoshal, 1998; Nonaka&

Takeuchi, 1995). The term Organizational knowledge formation process is inter changeably used

with the terms knowledge creation process as whole and also with knowledge management by

different researchers (Song, H.J. & Chermack, J.T. 2008 & Chou, S.W. and Tsai, Y.H. 2004 &

Bryant.E.S 2005).

According to Nonaka, Organizational knowledge creation involves the gathering of and addition

to existing stock of knowledge developed by the persons and refining it for the use of organization

and linking that to the MIS of the organization.

Organizational knowledge creation is also termed, “the capability of a company as a whole to

create new knowledge, disseminate it throughout the organization, and embody it in products,

services, and systems” ( Nonaka & Takeuchi, 1995).Individual employees of the company are the

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main drivers of the knowledge creation process.( Nonaka, 1994) Wei & Hung, (2004) stated that

mechanism of organization in handling the information and uses‟ of the information affect the

process of knowledge creation. This knowledge creation enhances the organizational performance

but it depends on the individual learning (Xianjungeng, Lin and Whinstone, 2009). Krogh &

Voelpel, (2006) individual knowledge creation has an impact on organizational performance, this

approach later on use by Song & Chermack. Individual knowledge contributes critically as it is the

collection of individuals‟ knowledge that forms the learning value system of the organization

(Song & Chermack, 2008). After creation of knowledge at individual level, team members and

colleauge facilitate the knowledge creation and sharing processes (Bryant.E.S 2005). Mitchell,

Boyle, Nicholas (2009) explore the role of dynamics of goal setting in creation of group norms

and standards of behavior.

Study done by Verstegen, Biemans, Mulder & Omta,(2007) says various groups of

people/organizations join hands to develop new innovative products or exclusive services or

explore new markets may also lead to knowledge creation but sometimes it may backfire also. He

also evaluate‟s the interaction techniques of such people and identifies opportunities & threats in

this regard. Another aspect of knowledge creation is studied and tested by Schulze & Hoegl,

(2006). He developed and test hypotheses relating the four knowledge creation modes. In this

connection he identified socialization of individuals, externalization of groups, combination of

various knowledge and finally internationalization of information and practices as modes of

knowledge creation. Simonin (1999) conducted study to know about the factors of knowledge

transfer. He termed the process as outcome of knowledge based variables and partners based

variables. He admitted the decisive role the ambiguity plays in such knowledge construction and

transfers. Effects of these variables can be moderated by firm‟s abilities and level of know-how,

time period of collaboration and above all learning capacity.

To support the approach of division of knowledge into tacit and explicit forms Polanyi (1966) says

that “Organizational knowledge is created through a continuous dialogue between tacit and explicit

knowledge. As organizational knowledge creation is a continuous process with no ultimate end, an

organization needs convergence of this process at some point in order to accelerate the sharing of

created knowledge beyond the boundary of the organization for further knowledge creation”.

Human Resource Development:

HRD is e relatively new discipline originating from organizational development. HRD targets the

organizational development through individual development. HRD, human empowerment, employ

the tools of skill building, training opportunities etc.

According to (Hassan, 2006), “Human resource development is a process of developing and /or

unleashing expertise through organization development, (OD), personnel training and development

for the purpose of improving performance. HRD is based on the beliefs that organizations are

human-made entities that rely on human expertise in order to establish and achieve their goals and

that HRD professionals are advocates of individual and group, work processes and organizational

integrity”.

According to (Raiden and Dainty, 2006) Human resource development (HRD) is summary of all

the activities to develop individual as well as organization to achieve greater efficiency in a firm.

Smith, (2004) terms Human resource development (HRD) as an effort to raise the knowledge and

skills level of the people in relation to their work.HRD improves the skills of individuals resulting

in improved performance that strengthens the organization.” HRD is an important developmental

program to ensure that the organization has an institutionalized way of developing, utilizing and

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committing human resources in order to meet current and future organizational challenges.HRD

contributes to the strengthening of a firm‟s human capital base by raising the level of know-how,

skills and capabilities of individuals in an organization and thus contributes to improved

performance and competitive advantage. HRD supports both the process and the outcomes of PM

to deliver properly at different levels of organizations”. Adhiakari,( 2010).

In recent years, attempts to define and characterize the emerging field of HRD have increasingly

acknowledged the influence of OD on HRD‟s development, to the extent that HRD may be seen as

„living in the shadow of OD‟ .In the U.S., HRD is often seen as encompassing OD, career

development and individual training and development .Grieves and Redman (1999) draw attention

to HRD‟s role in organizational solutions to strategic issues, focusing on identifying the core skills

and knowledge of the HRD professional by comparing the roles of HRD and OD practitioners as

internal change agents. Iles and Yolles(2003).HRD is studied differently at different levels.The

concept of HRD changes as we move from individual to organization and to societal level.

In micro level analysis of HRD, an idividual seems to be autonomous, casual as well as formal,

having long term orientation, aimed at development of competence and promoting the mobility of

labour.On the contrary, at macro level it reflects the characteristics of in voluntary and more

formal actions, looking for short term goals. Macro level analyses generally assume that HR

activities are multidirectional which include both types of opposing traits/ features mentioned

earlier, such as proactive and passive etc. Garavan, McGuire and Donnell(2009).

Organizational Learning V.S Organizational Knowledge Formation Process:

The similarity between organizational learning and organizational knowledge formation is that

both starts form an individual, and organizational learning helps in creation and formation of

knowledge or we can say that organizational learning helps in organizational knowledge formation

process. Individuals, within the organization, are involved in interactions through the various

entities in terms of interpersonal knowledge and behaviors, organizational environment and

intergroup/intragroup teamwork. In learning process individuals act as the agent of the

organizational learning process; on the other hand, organizational learning acts as vehicle for the

knowledge-sharing activities. Therefore an individual assumes a key role in the learning of the

organization and contributes in knowledge formation (Song & Chermack, 2008).

Organizational learning V.S HRD:

Organizational learning and HRD are also linked, HRD assists organizational learning process.

HRD provide knowledge to the organizations, it helps to develop skills of individuals and provide

knowledge to the organizations. HRD activities promote both, the organization and individual.

Individual learning owe too heavily on personal motivation of the employee. Although it is

rhetorically related to career motivation by the organizations but lack certainty hence less believed.

Strategic HRD assumes the duty for the construction of learning culture that not only responds to

the corporate strategy but also shape the strategy. This view may be taken as contrary to the

agenda of HRD, claiming for the self-actualization of employees. Donnell, McGuire and Cross

(2005). “Organizational learning occurs when members of the organization act as learning agents

for the organization, responding to changes in the internal and external environments of the

organization by detecting and correcting errors in organizational theory-in-use, and embedding the

results of their inquiry in private images and shared maps of organization. In addition,

organizational learning establishes a link between the environment and the HRD outcomes that

encourages proactive rather than reactive behavior. Thus, SHRD practices have the objectives to

channel organizational inquiry, implement organizational learning and maximize HRD outcomes.

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To fulfill these objectives, SHRD must be well-organized and planned, as well as integrated into

every aspect of the organization”. Tseng and McLean (2008).

Knowledge Creation Process V.S HRD:

Individual and organizational learning processes have been dominant themes in the disciplines of

HRD and other adult education fields. However, literature does not explain the knowledge creation

process. It does not throw light on the interplay of individual and organizational learning processes

and creation of knowledge in the organization.

Although these variables are logically related; however, limited attention has been paid in

academic literature to integrate these and explore any influence on sequential basis. Song &

Chermack, (2008).

Methodology:

Sample

Purposive sampling was designed for the collection of data. Respondents from different working

business were selected for attempting the questionnaires. Data from 100 individuals were possibly

collected.

Instrument

To make the understanding of this research easier and convenient a 5 point Likert scale was used

for measuring the dimensions of all variables.

Hypothesis

Organizational learning is positively linked with Human resource development with the

moderating effect of Organization knowledge formation.

Now we can see from Table 3 that The Cronbach‟s alpha value for 100 results of performance

related questions is 0.966 which is higher than 0.6 which shows that there is internal consistency

of items or respondents answers and our instrument of research is good

Table 1

Reliability Analysis for Social Networking Websites, Social Capital and Career (N=134) Cronbach's Alpha Cronbach's Alpha Based on Standardized Items N of Items

.966 .966 25

Here we use the descriptive statistics to measure the basic feature of all received data from the

respondents. We can observe the Mean, Standard Deviation, Variance and Standard Error, etc are

shown in this table.

Table 2

Descriptive Statistics to Evaluate Validity of Scales (N=100) N Minimum Maximum Mean Std.

Deviation

Kurtosis

Statistic Statistic Statistic Statistic Statistic Statistic Std. Error

OL1 100 1 5 1.98 .943 .975 .478

OL2 100 1 5 2.02 .932 .933 .478

OL3 100 1 5 1.96 .994 2.032 .478

OL4 100 1 5 1.91 1.006 1.556 .478

OL5 100 1 5 2.07 1.018 .942 .478

OL6 100 1 5 2.09 .911 1.257 .478

OL7 100 1 5 2.10 .969 .638 .478

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OL8 100 1 5 2.02 .985 1.195 .478

OL9 100 1 5 2.13 .971 .599 .478

OK1 100 1 5 2.12 1.008 .111 .478

OK2 100 1 5 2.07 .977 .788 .478

OK3 100 1 5 2.16 .884 .481 .478

OK4 100 1 5 2.30 .990 .288 .478

OK5 100 1 5 2.14 .975 .406 .478

OK6 100 1 5 2.11 .920 1.522 .478

OK7 100 1 5 2.30 .990 .288 .478

OK8 100 1 5 2.15 1.019 1.781 .478

OK9 100 1 5 2.09 .975 -.033 .478

Ok10 100 1 5 2.16 .873 2.422 .478

HRD1 100 1 5 2.29 .924 .403 .478

HRD2 100 1 5 2.10 1.000 .268 .478

HRD3 100 1 5 2.17 .900 1.173 .478

HRD4 100 1 5 2.15 .957 1.725 .478

HRD5 100 1 5 2.00 1.035 1.719 .478

HRD6 100 1 5 2.03 .870 1.089 .478

Valid N (listwise) 100

Operational Definitions

Organization learning

Organizational learning is defined as the process by which knowledge about action outcome

relationships between the organization and the environment is developed.

Organization Knowledge Formation process

Organizational knowledge creation process is the process of making available and amplifying

knowledge created by individuals as well as crystallizing and connecting it with an organization‘s

knowledge system.

Human Recourse Development

Human resource development is a process of developing and/or unleashing expertise through

organization development (OD) and personnel training and development for the purpose of

improving performance.

Results and Discussions

Correlation matrix for Organization Learning, Knowledge Formation Process and Human

Resource Development are listed below. It shows reliability and validity of items. The relationship

among variables in Pearson Correlation Table 5 shows strong.

Table 3

Correlation matrix of variables (N=100)

Variables I II III

I OL Pearson Correlation

Sig. (2-tailed)

.842**

.000

.770**

.000

II OKF Pearson Correlation

Sig. (2-tailed)

.842**

.000

- .792**

.000

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III HRD Pearson Correlation

Sig. (2-tailed)

.770**

.000

.792**

.000

-


Regression is computed in table 2 & 3 to verify the positive effect of Organizational Learning and

Organization Knowledge Formation Process on Human Resource Development. In Table 2 the

value of Δ R ² depicts that 1% change in independent variable Organizational Learning will cause

58.8% change in dependent variable HRD. (F=142.304, p<.002). The value of standard error is

0.071 which clearly shows that the results are closely scatters and so reliability of results increases.

Also the value of t in table 2 is 3.246 which are greater than the value of 2.7. So it also supports the

positive relationship between dependent and independent variables.

Table 4

Multiple Regression Analyses for Organization Learning on Human Resource Development with

the presence of Moderating effect of Knowledge Formation Process (N=100)

Model Variable B SE β T P

I OL .229 .071 .345 3.246 .001

R² = .592, Δ R² = .588

F = 142.304, df (99)

Predictors: (Constant), OL

Dependent Variable: HRD

We can similarly observe from table 3 that Δ R² =65.6% which means that 1% change in

moderating variable Organization Knowledge Formation process will cause 65.6% change in

dependent variable HRD (F=1487.272, p<.001). Also t value is 4.522 which depict a strong

positive relationship between these variables. Standard error in these results is also less than 1 so it

also supports our hypothesis. The significance is the probability of rejecting the hypothesis when it

is true and it simply means the chances of error. The significance level is 0.000 and we can say that

the confidence level is 100%.

Table 5

Multiple Regression Analyses for knowledge formation process on HRD (N=100)

Model Variable B SE β T P

I OKF .314 .069 .493 4.522 .000

R² = .663, Δ R² = .656

F = 95.495, df (99)

a) Predictors: (Constant), OL

b) Dependent Variable: HRD

Discussion

This research studies the relationship among the three variables. Organization Learning was

selected an independent variable and Human Resource development was selected as dependent

variable while Organization Knowledge Formation was impacting its role as a moderating

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variable. Independent variable was observed by its two dimensions Adoptive and Generative

Learning. It is hypothesized that higher the degree of these two dimensions in the presence of

moderating variable dimensions MIS and User Involvements higher will be the degree of HRD. As

correlation among these variables is a new research area and no previous empirical work has been

done on that. So after analyzing the data through SPSS software the hypothesis according to some

statistical standards is accepted. It was observed that some organization do their more focus on

conducting workshops and seminars but they don‘t focus on learning of their employees from

their surroundings and each other as well and have no well established information sharing

network so their human resource is not properly developed. Meanwhile those business

organizations that are in great competitions are doing their more focus on their individual employ

learning and strong information collecting and sharing network with some HRD practices. And

their employees are well developed and more creative. MIS produce a moderating role and covert

the tacit knowledge which you learn in an organization as an individual or in a group to explicit

knowledge which is easily accessible and helps the employees in their grooming and enhancing

their technical skills. It goes without saying that firm should consistently provide opportunity to

learn their employees through strong organizational learning process for their better development.

That result also implies that HRD practices in an organization would not only be sufficient for

their good performance until they adopt the employees learning procedures

Conclusion and Suggestions

In all the above discussion it is shown that human resource development is dependent on

organization learning and organization knowledge formation process positively impact to make

that relation stronger. If the organizations try to increase the development of their human resource

it has to enhance the learning ability of their employees. During this research study and data

gathering it was found out that factors of organization knowledge formation not only enhance the

affect of organization learning on HRD but also have its own positive impact with HRD.

As this research is mostly captured the business organization only so it is suggested to new

researchers to do their work in a wide gap of non business organization in Pakistan like Govt.

Educational and Health institutions.

Limitations of the Study:

Major limitation of the study was short time period allocated for completing this study. Lack of

time effected many factors and many elements remained untouched due to limited time. Sample

selected for study was limited only to major organizations in Islamabad. Another limitation of the

study was that only those people could be selected as samples that were easily approachable and

non probability convenience sampling was used. Also, we just considered two dimensions of

organizational learning and other proprietary assets were not taken into consideration due to lack

of time.

Acknowledgement

The authors are highly thankful to Prof DR. Mujahid Kamran (Vice Chancellor, University of the

Punjab, Lahore, Pakistan), Prof. DR. Liaqat Ali (Principal, Hailey College of Commerce,

University of the Punjab, Lahore, Pakistan), Prof DR. M Masoom Yasinzai (Vice

Chancellor,Quaid-e-Azam University, Islamabad, Pakistan) for their support in publishing this

research and authors are also thankful to Beenish Jawaid, Ahsan Ullah, Hafiz Wasim Aqeel, Fateh

Muhammad Ghumru (students Department of administrative sciences, Quaid-e-Azam University,

Islamabad, Pakistan) for their untied work and support in completing this research.

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Impact of organizational Structure and time on efficiency: Evidence

from Pakistan

Hassan Mobeen Alam

Assistant Professor

Hailey College of Commerce, University of the Punjab, Lahore - Pakistan

Abstract

This study provides a scientific approach to different organizations for calculating their efficiency

either they are production based or services oriented organizations. In centralized organizations

time factors which are also the dimensions of work norms like scheduling, synchronizing and time

allocations are considered very rigid while in decentralization they are flexible and beneficial for

organizational performance. This study focuses on centralization so its finding will justify that

whether above stated two hypothesis have any theoretical background or not. This study will help

organizations to decide about their structure in order to achieve their desired performance.

Keywords: Impact , Organizational Structure, Time , Efficiency, Evidence ,Pakistan

1. Introduction:

The success of any strategy depends heavily on its fit with organizational structure; the strategic

planner must recognize that a firm‘s organizational structure with associated work norms

influences firm performances. This piece of research has a special focus on centralization, work

norms of time and efficiency as dimensions of organizational structure, work norms and

organizational performance respectively and it will further exploit scientifically the relationship of

centralized organizational structure with time the dimension of work norms to achieve the efficient

organizational performance which will further help the employers and many business firms to

measure the efficiency by adopting the specific organizational structure with specific work norms.

Organizational structure plays an important role in planning, decision making, and execution of

those decisions in a firm. Its role has not been studied on the work norms to achieve organizational

performance. In their work ―time dimensions of work: relationship with perceived organizational

performance‖ Lim and Seers (1993) used time as dimension of work norm and studied its impact

on performance. But this paper was left with major limitation that it ignored the relationship of

specific organizational structure i.e. centralized organizational structure with time dimension of

work norm. The researchers have used this gap as a theoretical background to study the

relationship among centralization, time and organizational performance.

Time is the one of the dimension of work norms which having further dimensions which are

synchronization, scheduling, allocation of time, autonomy of time use, orientation towards future.

These are the basic ground for our further research that how the centralized organizational

structure integrates different time dimensions of work norms for achieving the efficient

organizational performance.

2. Problem Statement:

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How time as a work norm plays an intervening role in achieving efficiency in a centralized

organizational structure ?

3. Detail of Study:

The purpose of this study is hypothesis testing. The causal relationships of independent variable

(organizational structure), moderating variable (work norms) and dependent variable

(performance) are investigated in this study. So the hypotheses are developed to test the

relationship between these variables. In social science researches like this research, typical units of

analysis include individuals, dyads, groups, social organizations, social artifacts and cultures.

Data collection is done through the use of questionnaires and sometimes interviews from

individuals, groups or social organizations. The extent of researcher interference is at moderate

level because at this level the researcher will be testing cause and effect relationship. In this study,

the cause and effect relationship is tested between the three variables; organizational structure,

work norms and performance. This research is conducted in, non-contrived settings using the same

natural environment in which employees normally function, called field studies.

4. Literature Review:

4.1. Organizational Structure:

This concept of organizational structure has been discussed by Jusuf Sehanovi´c & Miroslav Zuga

(1990) as an enterprise which represents the totality of links and relationships between and within

its factors at all levels of the organization in precisely defined quantities. These elements are:

organization of production means and rational design of environment; organization of the working

community (personnel); division of the task to every detail; organization of interior relations; and

determination of time sequence of tasks. They also considered the factor of IT that it, together with

the other factors, influences the development of organizational structure. Their application

influences the efficiency of handling the business of the enterprise, with notable business

improvements, particularly since personal computers and computer networks have been used.

Steven Lysonski, Michael Levas & Noel L. (1995) viewed it in the context of marketing that an

effective marketing organizational structure can be viewed as a control mechanism that compares

the marketing effort to the environment of the firm. The major dimensions that characterize an

organization‘s structure are its degree of centralization of decision making, the formalization of

rules and procedures, and structural differentiation. Theodore P. Stank, Patricia J Daugherty &

Craig M.Gustin (1994) assert that organizational structure influences the flow of information and

the context and nature of human interactions and it impacts collaborations internally and with

external channel members as well as influencing method of coordination, allocation of power and

responsibility and levels of formality and complexity. They studied the dimensions of

organizational structure as well and stated that they have great deal of impact on firm performance.

These dimensions are centralization, formalization and specialization. Centralization refers to the

location of decision making authority and control within organization. Formalization is the degree

to which decision and working relationships are governed by formal rules and standard procedures

and policies. Specialization refers to the division of tasks and activities across positions within the

system.

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Jacky Hong (2002) viewed centralization and decentralization as a prospect of future research that

should measures these concepts to allow further assessment of the constructs and improve research

validity and reliability. Future research should address other performance attributes associated with

centralization and decentralization e.g. differential customer service levels, efficiencies associated

with centralized firms is needed and also to examine that other performance attributes such as

market focus, speed and flexibility are more likely to be associated with centralization than

decentralization.

5. Methodology:

A list of questions has been formed to be asked from the respondents. The questions are printed in

a document called a questionnaire. The questions are stated in such a way that they collect true

data from respondents to get a true picture of the responses from the target sample of people. Each

question is given a scale. The scale has been defined according to the 5 point Likert‘s scale.

The scale which is have used is:

1 2 3 4 5

Strongly disagree Disagree Neutral Agree Strongly Agree

The sample of 30 is taken for the purpose of pilot study. This sample is made by non-probability

sampling technique, because in this sampling the elements do not have a known or predetermined

chance of being selected as subjects. In the non-probability sampling, the judgmental sampling is

used for the purpose. The sample has been chosen from different organizations like high schools,

travelling agencies, construction companies. Due to time limitations the location was limited to the

capital city Islamabad only. Unit of analysis is individual in our case. After the conducting of pilot

studies, we chose a sample of size 100, to proceed further in our research. We used the same

method of sampling technique as in the pilot studies of sample size 30.i.e, non-probability

judgmental sampling.

6. Data analysis

6.1. Hypothesis

H1: There is a positive and significant association between centralization and efficiency

H2: There is a positive and significant association between time and efficiency

Table 1

Reliability of the instrument: RELAIBILITY ITEMS CRONBACH‟S ALPHA

VALUE

Eefficiency .64

Ccentralization .62

Time .76

All variables .70

Table 1 shows that reliability of the questioner i.e. Alpha value of efficiency, Centralization, time

and overall are .64, .62, .76 and .70 respectively

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Table 2 Correlation

Correlations

Centralization Efficiency Time

Centralization Pearson Correlation 1 .635** .371**

Sig. (2-tailed) .000 .000

N 100 100 100

Effeciency Pearson Correlation .635** 1 .483**

Sig. (2-tailed) .000 .000

N 100 100 100

Time Pearson Correlation .371** .483** 1

Sig. (2-tailed) .000 .000

N 100 100 100

**. Correlation is significant at the 0.01 level (2-tailed).

There is positive and strong relationship between efficient and centralization and time i.e. .635 and

.483 with sig values .000 and .000 respectively which shows that efficiency highly depend on

centralization and less on time but both the dependencies are statistically significant.

6.2. Regression Analysis

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7. Findings and conclusion

Standard errors of both the models i.e. 2.76 and 2.61 shows the reliability of the model with R-

square i.e. .40 and .47 respectively which shows that more than 40% efficiency depends upon the

centralization and time which was the main concern of the study. Correlation also shows the same

results. Over all sig value i.e. 0.000 and 0.000 which is less than 0.01 shows the goodness of the

model i.e. there are one or more variable in the study which has positive and significant impact on

dependant variable i.e. efficiency. Details of the model i.e. beta coefficients also supports the

results i.e. beta value of centralization alone is 1.181 with significant value 0.000 which is

statistically significant at 1% LOS. But if centralization come with time and combined effect of

both the variables are seen on efficiency then their beta values are .98 and .26 with sig value less

than 0.01 so both the said variables are also statistically significant at 1% LOS. Here one thing

must be note that centralization alone effect more on efficiency if we eliminate time but it does

mean that centralization with time have negative impact as supported by above findings. Time

domain also has positive and significant impact on efficiency. On the basis of above analysis we

can accept our both hypothesis which are main domain of our study i.e. efficiency more depend

upon centralization alone and less with time.

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SMS Advertising: Youth attitude towards perceived

informativeness, irritation and credibility.

Faria Muzaffar

MBA Student, Department of Business Administration,

Fatima Jinnah Women University, Rawalpindi, Pakistan.

Sohail Kamran (Corresponding Author)

Assistant Professor, Department of Business Administration,

Fatima Jinnah Women University, Rawalpindi, Pakistan.

Abstract

SMS advertising is rapidly becoming one of the most popular direct marketing tools for different

businesses across the world. Consequently, businesses need to understand the factors which

influence the customers positive response towards SMS marketing. The purpose of this study was

to investigate the youth attitude towards SMS advertising. Data was gathered through a

questionnaire from 152 undergraduate students aged 18-23, studying in different universities of

twin cities of Rawalpindi and Islamabad, Pakistan. Regression and correlation analysis was used to

find out the relationship between the dependent variable of attitude towards SMS advertising and

independent variables of perceived ad informativeness, ad irritation and ad credibility. Firstly,

study findings revealed that ad informativeness has a positive linkage with youth attitude towards

sms advertising. Secondly, Irritation does not affect the youth attitude towards sms advertisements

significantly. And lastly, results demonstrated that credibility strongly affect youth attitude towards

sms advertising. Managerial implications are that the information provided in the advertisements

via mobile devices must be authentic, easily understandable and informative for customers.

Furthermore, adoption of permission based marketing and use of Urdu language in SMS ads may

lead to increased customer acceptance and more positive response towards SMS advertising in

Pakistan.

Keywords: SMS marketing, Youth response to SMS Ads

1. Introduction

Mobile advertising has become one of the trendiest applications in mobile commerce,

predominantly in the form of SMS advertising (Drossos et al, 2007). Mobile advertising includes

the activities that deliver advertisements to mobile devices using wireless network for creating

brand awareness and promoting the products to the prospective customers (Yunos & Gao, 2004).

SMS advertising delivers personal marketing messages to the prospective and existing customers,

consequently, it is considered more effective as compared to the conventional media (Leppäniemi

& Karjaluoto, 2008). Kavassalis research findings reported better effectiveness of mobile

marketing over traditional media (Kavassalis et al. 2003). It is expected that mobile marketing will

develop itself as an incomparable targeted medium among all advertising media (Leppäniemi &

Karjaluoto, 2005). According to Mobile Marketing Association (MMA, 2009) different mobile

devices and options may be used for mobile marketing such as, different mobile applications and

software, mobile web sites, Mobile video and TV, Multimedia Messaging Service (MMS), Short

Message Service (SMS) (MMA, 2009). However, this paper only focuses on the youth response

towards SMS advertising.

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Contemporary businesses have taken advantage of mobile marketing in creating strong relationship

with its customers. It helps in conveying business message to consumers and provides interested

consumers with the relevant information (Frolick and Chen, 2004). Some of the benefits of SMS

advertising include low cost SMS advertising campaigns (Michael & Salter, 2006), possibility of

quick response to SMS ads from consumers end (Yaniv, 2008), high Response rate for the

correctly targeted SMS advertising campaigns as compared to traditional medium, (Rettie et al.

2005) high brand recall among customers (Kavassalis et al. 2003), messages delivery at anytime

and location (Nysveen et al. 2005) and groups within the mobile marketing system such as

consumers, companies, advertising agencies, and marketers can interact with each other in more

innovative and stylish way than past (Hanley and Becker, 2008).

In year 2008 $4.2 billion and in 2009, $6.4 billion were spent on SMS advertising worldwide. The

worldwide SMS advertising expenditures are forecasted to cross the figure of $14 billion by 2012

(eMarketer, 2008). This indicates a drastic growth in the SMS advertising by different companies

worldwide. Pakistan is the seventh largest country of the world in terms of mobile phones users

with total number of subscriptions crossing the figure of 100 million in October, 2010 and more

than 60% of population are having a mobile phone (Telecom indicators, 2010). Mobile marketing

remains a relatively new phenomenon in the developing countries such as Pakistan. However,

there is an immense growth potential in the SMS marketing activities across the world including

the developing nations like Pakistan.

SMS marketing facilitates to generate brand awareness, customer loyalty, and in making sales

(Bragge et al. 2005, Sutinen & Tirri 2005).Therefore, mobile marketers need to recognize and

understand important variables which influence consumers response to mobile marketing

campaigns (Stewart & Pavlou 2002).

Modern consumers have accepted the mobile marketing applications across the world rapidly.

Therefore, marketers should focus on looking for the factors that drives customers approval to

these mobile marketing strategies (Becker, 2005). Nonetheless, there is a shortage of empirical

researches that study the importance of the factors such as, consumer response that determine SMS

marketing effectiveness (Becker, 2005, Drossos et al. 2007). Similarly, there is not published

research on consumers response to SMS advertising in Pakistan. So, this research intends to

investigate the youth consumers response towards perceived informativeness, irritation and

credibility in Pakistan.

2. Literature Review and Development of Hypothesis

2.1 Attitude towards SMS advertising

Consumers attitudes are basically their inclination toward products and services. An Individual

attitude demonstrates that he or she likes any product or service or not Consumers attitudes have

three main elements; emotional, cognitive, and behavioral. Emotional element comprises of people

liking or feelings regarding any thing. The cognitive element includes beliefs concerning an object,

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and the behavioral part refers to the actions people take about an object (Severin & Tankard,

2001).

Studies conducted by various researchers have established that the consumers attitude towards

conventional advertising in general terms is found to be negative (Alwitt and Prabhaker, 1994).

However, previous studies demonstrate diverse attitude towards mobile marketing. Mobile

advertising is more innovative. Therefore, the attitude towards mobile advertising is continually

changing. The attitude towards mobile advertising is dependent on the attitude the consumers have

about the broad advertising perspective (Bauer et al. 2005). According to Barutcu (2007) people

from different age groups and occupations vary widely in terms of their attitude towards mobile

marketing. Youth demonstrated positive attitude towards mobile entertainment whereas old

consumers reported a negative attitude towards mobile shopping. Most important customers for

mobile advertisers are the young people living on high income, do not use internet services, and

work as officials in public organizations (Barutcu, 2007).

According to Ravald and Gronroos (1996) consumers background, values, requirements, liking

and financial resources might be different from one consumer to another. Therefore, they possibly

react in a different way to the different services (Ravald and Gronroos, 1996). Age is considered

as one of the most important demographic variable in order to describe the acceptance of

technology between two or more groups of consumers (Morris and venkatesh, 2000). However,

Dickinger et al. (2004) proposed that advertisements via wireless medium have become popular

among all age groups in the modern societies (Dickinger et al, 2004). Young consumers have

different lifestyle than the old people which may cause significant differences in their intention and

perception towards mobile services (Kumar and lim, 2008).

2.2 SMS ad in formativeness

Customers generally more easily understand and accept those SMS ads, which are relevant to their

interests (Nasco and Bruner, 2008). Consumers acceptance of SMS advertisements is dependent

upon perceived utility of SMS ads and information contained in them (Bauer et al. 2005).

Similarly, consumers do accept SMS ads which are linked with their interests and requirements.

(Carrol et al, 2005, Siau and Shen, 2003). Consumer will react positively, if the information

delivered through SMS is accurate, timely and useful. These features hold great importance as far

as ads information effectiveness is concerned (Siau and Shen, 2003). According to Okozaki (2004)

attitudes toward SMS ads have two different backgrounds. Firstly, perceived informativeness that

positively influence attitude towards wireless advertising. Secondly, perceived irritation which

negatively influence consumers attitude toward SMS ads

According to Blanco et al. (2010) mobile advertising plays a vital role in creating a positive effect

on the consumers attitude and behavior. The purpose of the study was to investigate two important

aspects namely informativeness and entertainment affect the consumers attitude. The results

indicated that entertainment and informativeness do affect the consumers attitude and there is also

an impact of the general belief of the consumers about mobile advertising. However, the marketers

must concentrate on improving these two aspects. Study results also showed that majority of the

respondents consider SMS advertising as uninteresting communication medium and it is less

entertaining than other mediums. They also think that mobile advertising is unable to provide

relevant information. (Blanco et al. 2010).

H1: Youth have a positive attitude towards the perceived SMS ad informativeness.

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2.3 Irritation

Consumers mostly have no control over receiving undesired advertisements information. This

unwanted information delivery might create resentment among consumers about the business

delivering those marketing messages (Milne and Rohm, 2004). Most researchers focus more on the

acceptance of mobile marketing and ignore the privacy issues associated with it. (Bruner and

Kumar, 2007, Drossos et al., 2007, Ferris, 2007; Leek and Christodoulides, 2009).Dickinger et al.

(2005) However, sending messages without prior permission and invading consumers privacy have

the strongest negative influence on the consumers attitude towards SMS advertising. This

potentially causes anger and irritation among consuemrs (Dickinger et al., 2005). Rettie and Burm

(2001) reported that 90% of the study participants would disapprove to receive SMS ad from an

unfamiliar company (Rettie et al., 2005). Consumer will read and pay more attention to those

companies SMS ads for which they have already subscribed. Because opting to receive company

advertisements potentially depicts consumers interest in their products and services. Contrary to

this consumers ignore unknown companies SMS advertisements (Godin, 1999).

Al-alak and A.M. Alnawas (2010) have empirically assessed the impact of trust, privacy concern

and consumer attitude on intention to purchase. The results showed some interesting facts. The

consumers who were exposed to extensive advertising had a negative attitude towards mobile

marketing. They were less likely to participate in permission based advertising programs. People

who believed the sms advertising messages that were useful for them expressed a positive attitude

towards such programs. They were convinced to buy the advertised products. However, the study

also indicates negative relationship between individual usage and past experience of the

consumers. Consumers were less liable to receive wireless advertising messages especially those

who had a negative attitude towards direct advertising. Furthermore, the consumers who were of

the view that the mobile device is for personal use were disinclined to purchase the advertised

products. It is often suggested that the mobile operators and advertising agencies must concentrate

on making efforts to resolve such negative issues by developing a close relationship between the

consumers and delivering the relevant data to its customers (Al-alak and Alnawas, 2010).

Bamba and Barnes (2007) have found that the consumers perception of SMS ads is usually

negative. The ads that are unwanted annoy the consumers the most. The purpose of their study was

to understand the occurrence of consumers‘ willingness to give permission to receive text

messages advertisements. The results showed that the consumers did not permit the delivery of

sms ads that were irrelevant and accepted ads that were relevant even if the brand name was not

familiar. The marketers have to make a lot of effort to convince the customers to buy their

products and services through mobile marketing. It is sometimes disturbing for the customers to

receive SMS ads while traveling or working. If the marketers wish to make their ads more

accepted and attractive, they need to study what the customers actually want (Bamba and Barnes,

2007).

Another study conducted by Tsang et al. (2004) revealed negative customers attitude toward SMS

advertisements sent without prior permission to the customers. Study respondents view these SMS

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ads as annoying and irritating. But, consumers attitude will become positive if SMS advertisements

are sent with prior permission by the companies (Tsang et al. 2004).

H2: Irritation negatively effects youth attitude towards SMS advertising.

2.4 Ad Credibility

Consumers receive a large number of marketing information everyday; so they focus on and

involve themselves in ad information in a highly selective way. Generally consumers pay more

attention to the advertisements of more familiar brands (Kent and Allen 1994).

Mackenzie et al. (1989) maintains that corporate credibility positively influences attitude toward

the advertiser, which is a vital predictor of consumers attitude toward the advertisement

(Mackenzie et al.1989).

Successful relationship marketing involves effective commitment of the service provider. This also

calls for tailoring the marketing offerings according to the specific customers needs. This will

create a positive influence on customers and more loyalty towards the services offered. The

important point is to provide the customers with value maximizing services and increasing the

consumers acceptance in order to create trust and customer retention. Developing relationship

based on trust and interactivity could definitely make the customers more enthusiastic towards the

company (Fullerton, 2005).

Consumers prefer to receive sms ads from known companies as they worry about spam ads

(Vatanparast, 2007). Customers trust in SMS advertising companies will have a positive effect on

perceived value of SMS ads and accepting it as a valuable service. (Vatanparast, 2007, Merisavo,

et al., 2007). However, According to Nielsen global online consumer survey, SMS ads are the least

trusted among all other major advertising mediums. July, 2009 figures show that In India and

Venezuela 43%, Brazil, 36%, Vietnam 42% and Pakistan 35% customers trust the SMS ads, which

is very low trust as compared to the other advertising channels (AC Nielsen, 2009).

Okozaki et al., (2007) maintain that trustworthiness in mobile advertising positively affects

consumers attitudes toward SMS advertising. They maintain that customers trust affects the

attitudes toward mobile advertising in both significantly and strong manner.

H3: credibility positively effects youth attitude towards SMS advertising.

3. Methodology

The present study investigated young consumers response towards sms ads by identifying attitude

towards the advertisement as dependent variable and ad credibility, ad informativeness, and

irritation as independent variables. Quantitative technique was used to determine the relationship

between dependent and independent variables.

3.1 Location and Sample of Research

Current study was carried out in the twin cities of Rawalpindi and Islamabad, Pakistan. Simple

random sampling approach was used to collect the data from the respondents. 250 questionnaires

were distributed randomly among the undergraduate students of four private universities of the

twin cities. However, only 152 questionnaires were completely filled and returned by the

respondents. So, the response rate remained only 61%. Respondents belonged to the age group of

18-23 years with the mean age of M=20.45 year and S.D =1.80. Gender divide of the respondents

was a little uneven with (64, 42%) of the respondents were female and (88, 58%) were the male

undergraduate students.

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3.2 Questionnaire Development

Questionnaire was designed based on the previous literature with regard to SMS marketing and

consumer attitude towards sms advertising (Al-alak and Alnawas, 2010; Blanco et al, 2010; Kumar

and Lim, 2008). The survey questionnaire studied three different aspects of SMS advertising

namely ad informativeness, irritation and credibility on the consumers attitude towards sms ads.

Questionnaire included fourteen items in aggregate. Attitude towards ad included three items, ad

informativeness included four items, irritation included three items and SMS ad credibility

included four items. Present research used two different scales to gather data from respondents.

Nominal scale was used to ask the respondents age, gender and education. Five point Likert scale

questionnaire ranging from 1= strongly disagree to 5= strongly agree was used to measure the

response of dimensions of attitude towards SMS advertising. The questionnaires were

administered by personal delivery.

3.3 Pilot Testing of Questionnaire

A sample of 46 undergraduate students was used in the pilot testing to validate the designed

questionnaire. Pilot testing results showed adequacy as Cronbach alpha ranged from 0.71 to 0.83

for different variables. Pilot testing findings indicated Cronbach alpha for individual variable of ad

informativeness =0.79, ad credibility=0.71, ad irritation =0.83, attitude towards sms ad= 0.74 and

lastly, the entire questionnaire Cronbach alpha value was found 0.77. Cronbach alpha ranges for all

variables are larger than 0.6, which indicates a valid questionnaire.

3.4 Data analysis

Statistical package for social sciences (SPSS) version 16 was used for computing and analysis of

the data. The statistical tests were applied to check the normality and reliability of data, correlation

analysis, and regression analysis.

4. Data Results and Analysis

4.1 Reliability analysis

Insert table 4.1 here

Reliability analysis was conducted to find out the reliability of the questionnaire. Cronbach alpha

value of (Ad informativeness=0.71), (Attitude towards ad=0.68), (irritation towards ad =0.73) and,

(credibility of ad= 0.77) and finally for the whole questionnaire, it was 0.754. All variables alpha

values are well above the acceptable range of 0.6, which indicates a reliable questionnaire. Alpha

value of the entire questionnaire is close to the alpha value of research conducted by Barutcu,

2007, which was 0.8 (Table 4.1).

4.2 Normality analysis


Skewness and kurtosis statistics was used to check the normality of the data. The values of both

these descriptive statistics must be between +1 and -1. The skewness of the ads information is .936

and kurtosis was observed to be -.238. The skewness and kurtosis of the dependent variable,

attitude towards the ad is .029 and -.322. The skewness of the other two independent variables

irritation towards the ad and credibility of the ad is observed to be .364 and -.9. The kurtosis of

these two variables is -.2 and -1 respectively. The above mentioned Skewness and kurtosis values

demonstrate that the data is normally distributed (Table 4.2).

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4.3 Correlation Analysis


Pearson correlation matrix shows four variables and their relationship to each other in table 4.3.

Correlation value of ad information and attitude towards the ad is estimated to be 0.235 and the

significant value is 0.004. This implies that both the variables, ad information and attitude towards

ad, has a positively weak significant relationship. The relationship indicates that the ad information

would not strongly affect attitude towards the ads. However, it does not mean that ad information

does not have anything to do with the attitude. It affects the response of the consumers but with

the low degree.

The correlation value of ad information and irritation towards ad is 0.138 and the significant value

is .090. This means that the two variables have a non significant positively weak relationship. The

relationship signifies that the two variables are not affected by each other.

The Pearson value of attitude towards ad and irritation towards ad is estimated .063 and the

significant value is .442. This portrays that both the variables, attitude towards ad and irritation,

has a non significant relationship. The results indicate that the attitude towards ad is not affected

by the respondents irritation or annoyance. Therefore, the attitude towards the ad is not affected.

This is probably because of fact that general attitude of the youth remains same in some situations.

As, this study targeted age group of 18 to 23, it is observed that youth segment is not affected by

the sms ads to a great degree. They have a high resistance towards sms marketing.

The correlation value of attitude towards ad and credibility of the ad is 0.350 at significance value

of 0.000. This represents a positively moderate significant relationship between the two variables.

The values indicate that the higher the credibility of the ad the more the favorable reaction of the

consumers towards the advertisement. The credibility evaluates the reliability and the efficiency of

the source. If the consumers believe that the source is highly credible, they will have a positive

response towards the ad. The results depict a moderate significant relationship. This means that

the variables are affecting each other in a reasonable manner. However, there are other variables

that strongly influence the attitude.

The value of Pearson correlation of ad credibility and ad information is 0.402 at significance level

of 0.000. This also constitutes a perfectly positive significant relationship between the two

variables. This strong relationship signifies the importance of ad information from the consumers

view point. The information contained in the ad has a strong influence on building credibility. If

the consumers perceive that the ad contains relevant information, the credibility will eventually

increase.

Similarly, the correlation analysis of credibility towards the ad and the irritation towards the ad

shows .066 and the significant value is .416. These findings reveal that both the variables have a

non significant relationship (please see Table 4.3).

Adjusted r square was found 0.117, which entails that the independent variables namely

credibility, ad information and irritation can cause 11.7 percent variation in the dependent variable.

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4.4 Coefficients

Insert table 4. 4 here

Table 4.5 shows the value of beta and significant value of the independent variables. The first

variable, ad information has a significant value of .199 and the beta value is .109. From the values

we found that the ad information has a non significant relationship with the dependent variable.

The results are consistent with the results of research conducted by Blanco et al. 2010. The

significant value of informativeness was calculated to be .38 and the current research has a value

of .199. Both show the non significant relationship.

The second variable has a significant value of .722 and beta value is estimated to be .028. Irritation

towards the advertisements is said to have a non significant relationship with the dependent

variable.

The third variable, credibility of the ad shows some positive results. The significant value is .000

and beta value is .305. This result shows that the independent variable, credibility of the ad, has a

significant relationship with the dependent variable (table 4.4).

The F statistics value was found to be 7.6% and the significant value was .000. The significant

value signifies that the data fits the model well.

4.5 Hypothesis Results and Discussion

Based on the correlation values of ad informativeness relationship with the dependent variable

attitude towards ad, H1 is accepted. Therefore, it can be concluded that the youth have a positive

response towards the perceived ad informativeness.

Study results predict that informativeness has a positive association with the consumers response

via mobile devices. Study findings show a positive but weak relationship with the dependent

variable. This is what the respondents perceive about the informativeness factor. A research

conducted by siau et al. (2003), quality of information must be given high importance.

Appropriate time management is crucial in delivering the messages to the customers. The

necessary part is to create the advertising messages according to the customers requirements. So,

delivering comprehensible marketing messages on youth mobile devices will increase the business

credibility and fulfill the recipients informativeness need.

The results of the current research are consistent with the previous research conducted by Barutcu,

(2007). The previous research analyzed the consumers attitude towards mobile marketing and the

results showed a positive attitude of consumers towards mobile marketing. The results of the

current research also signify a positive attitude of the consumers towards sms marketing. Both the

researches focused their study on younger generation, and have undergraduate or professional

degrees.

Irritation has no significant impact on the consumer attitude towards sms advertisements. The

results indicate that the irritation has a negative effect on the value of mobile marketing. A low

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correlation coefficient indicates that influence of irritation is not as strong as the power of the

variables such as ad credibility and ad informativeness. As, the study findings do not support the

notion that SMS ads do irritate the customers. So, H2 is rejected on the basis of study findings.

Although, previous studies such as Tsang et al. (2004), Bamba and Barness (2007) and Dickinger

et al., (2005) mentioned that sending SMS ads without prior permission could cause anger and

irritation among the ad respondents. However, the present study results revealed that SMS ads do

not irritate and annoy the young customers to great deal. This may be because of the fact that youth

interaction with the technological products such as mobile phone is quite different as compared to

the old people. So, they are least bothered about these unwanted SMS ads.

This might be the main cause of disagreement of present study findings from previous studies of

Tsang et al. (2004), Bamba and Barness, (2007) and Dickinger et al., (2005). Results might have

been different, if the sample of the study was old people. However, adaptation of permission

marketing concept could increase the acceptance and positive response towards SMS ads among

all the age segments of the society, as it aims to eliminate the resentment and irritation among the

ad receivers.

On the basis of study findings H3 was accepted. As, the results signify a positive relationship

between ad credibility and consumers attitude towards ad. So, it can be concluded that higher ad

credibility could result in to more favorable response from the consumers. The present study

findings show congruence with the findings of Okozaki et al., (2007), Vatanparast, (2007,

Merisavo, et al., (2007), as their research findings also portrayed a positive effect of

trustworthiness and credibility on the consumers response towards SMS advertising.

5. Conclusion

SMS marketing is becoming a useful direct marketing tool and contemporary businesses across the

world are widely using the technology to reach the target market. Likewise, many companies in

Pakistan are also using SMS advertising to deliver marketing messages to both prospective and

existing customers. However, this is vital to be familiarized with the aspects of SMS advertising,

which actually affect the consumers attitude towards the technology. SMS advertising is still in the

introductory phase and a lot need to be understood by the marketing practitioners about customers

attitude for making it a highly successful direct marketing tool.

This research identified the factors affecting the young consumers response towards sms

marketing. Study findings suggest that young consumers attitude towards the sms advertisements

is rather positive in Pakistan. The basic concern is the relevance of the information provided to the

consumers through the SMS. If the content of the advertisements are relevant and informative the

consumers have high credibility towards the source. Study results also revealed that young mobile

users are not irritated to great extent from sms advertising.

In order to market products and services successfully via mobile devices, marketers must

understand the users attitudes, perceptions, demographics and behavioral patterns. The results of

the research indicated a positive attitude towards the emerging sms advertising in Pakistan.

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Therefore, it is important to gather sufficient amount of information regarding the user and then

formulate effective advertising messages.

The findings of the study lead to some managerial implications. Firstly, Different companies in

Pakistan send marketing messages to different people anonymously or without prospecting on their

mobile phones. The major reason of this practice is an enormously low cost of sending an SMS

within the country. This raises some ethical issues such as, violation of consumers privacy rights

and in some events probably irritate them as well. The consumers might not have wanted to

receive the messages and might be annoyed with undesirable messages, as consumers have not

permitted in advance to business for sending marketing messages. If companies continue to send

marketing messages anonymously on people mobile devices then Pakistani consumers behavior

might be converted from positive to negative towards sms advertising. Sending sms advertisements

without prior permission might also harm the company‘s reputation among the public to a great

extent. Usually individuals do have a larger social circle in the collectivistic societies like Pakistan.

So, negative word of mouth might be disseminated quickly and easily to the extended social circles

of people in the event of annoyance with SMS message. The best possible way to avoid customers

resentment and to increase the chances of SMS advertisement acceptance among customers is the

adoption of permission based marketing concept by the marketers.

Secondly, Most of the SMS advertisements are delivered in English language, which is Pakistan‘s

official language, but a significant amount of population do not understand English language.

Therefore, to increase the informativeness and credibility associated with the SMS advertising

messages companies should send most of the messages in Urdu, which is widely understood as a

national language of Pakistan.

Some limitations in this study were also identified. The data was gathered from the undergraduate

students of twin cities of Rawalpindi and Islamabad. This might restrict the generalization of the

study results across the youth segment in Pakistan. So, the same study could be conducted with the

youth from across the country belonging to different walks of life such as employed, students,

unemployed less literate and illiterate youth. This will increase the chances of generalization of the

study findings. Secondly, the one more future research direction could be to study the attitude of

old aged people towards the SMS advertising in Pakistan or in any other country.

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http://www.pta.gov.pk/

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Appendix

Table 4.1 Reliability analysis

Variable Cronbach alpha No. of items

Ad in formativeness 0.71 4

Attitude towards ad 0.68 3

Irritation towards ad 0.73 3

Credibility of ad 0.77 4

Table 4.2 Normality analysis

Variable Skewness Statistic

Kurtosis Statistic

Ad in formativeness .936 -.238

Attitude towards ad .029 -.322

Irritation towards ad .364 -.270

Credibility of ad -.900 -1.0

Table 4.3 Correlation Analysis

Variable

Ad in

formati

veness

Attitude

towards

ad

Irritation

towards

ad

Credibility

of ad

Ad in formativeness Pearson correlation

Sig. (2-tailed)

N

1

152

.235

.004

152

.138

.090

152

.402

.000

152

Attitude towards ad Pearson correlation

Sig. (2-tailed)

N

.235

.004

152

1

152

.063

.442

152

.350

.000

152

Irritation towards ad Pearson correlation

Sig. (2-tailed)

N

.138

.090

152

.063

.442

152

1

152

.066

.416

152

Credibility of ad Pearson correlation

Sig. (2-tailed)

N

.402

.000

152

.350

.000

152

.066

.416

152

1

152

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Table 4.4 Coefficients

Model Unstandardized

coefficients

B Std

error

Standardized

Coefficients

Beta

t Sig

constant

in

formativeness

Irritation

Credibility

2.182 .480

.111 .086

.046 .128

.169 .046

.109

.028

.305

4.545

1.289

.357

3.650

.000

.199

.722

.000

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Organizational Strategic Life Cycle with System Dynamics Perspective

Bahman Hajipour

Assistant professor chamran university of Ahvaz, Iran.

Mohammadreza Zolfagharian

MA in industrial management, Imam Sadiq University, Iran.

Maysam Chegin

MA in industrial management, Imam Sadiq University, Iran

Abstract

The purpose of this conceptual paper is to develop a model for explaining the relationship between

stages of organizational life cycle and proper strategy school for strategy making. We consider

three stages for organizational life cycles, namely commercialization, growth and stability; and for

strategy schools we use strategy classification introduced by Mintzberg & colleagues. Using

system dynamics methodology, we linked stages of OLC with strategy school characteristics. We

have found out that in the stages of commercialization, growth, and stability, the mainstream

schools respectively are entrepreneurship, power and planning. Dynamic relation between OLC

and strategy schools is a subject that did not surveyed clearly in other studies and can be a

precedence stage for strategic planning.

Keywords: organizational life cycles (OLC), strategy schools, system dynamics.

1.Introduction

"The greatest constant of modern times is change" (sterman, 2000:3). Accelerating changes in all

aspects of organizational activities have provided dynamic behavior, which cannot be scanned and

controlled without flexible and holistic methods. In this changing environment, all concepts of

organization would be changed from static and mechanistic to dynamic and organistic

perspectives. One of these key concepts of organization is strategy. Strategy, against planning, is

defined as decision making in a dynamic environment. Farjoun (2002) introduces two concerns for

mainstream strategy research:

1) To explain what determines business performance

2) To identify what affects business strategy

Although there is a considerable amount of research on frameworks explaining differing

competitive success for firms in special times, explaining dynamic processes, which lead to this

position, is far less developed (porter,1991,p1& Cockburn et al.,2000,p1123). At this position, we

need some methodologies, which visualize these dynamic processes and provide useful platform

for challenging mental models of managers to reach an agreement.

System dynamics methodology could play this role efficiently. As David Norton wrote:" Bob

Kaplan and I have long believed that Dynamic Systems Simulation would be the ultimate process

of an organization's strategy and the perfect foundation for a Balanced Scorecard" (2000).System

dynamics is founded by John D.Forrester in 1968 at Massachusset institute of technology. SD with

two functions of explanation and conditional prediction through causal loop along with stock &

flow diagrams can greatly help in recognizing dynamic processes in complex world. Recognizing

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nonlinear relationships of endogenous variables is the biggest claim of this approach that resulted

in intersubjectivity activities.8

One of the important areas which SD can help strategists is depicting the dynamic processes,

which lead to strategic, schools change in organizations. In this article, using system dynamics

methodology, we want to model organizational strategic life cycle in organizations across

changing endogenous variables. Therefore, we first review the literature of organizational life

cycle and strategic schools and then propose our organizational strategic life cycle model.

2. The organizational life cycle (OLC) concept

The status of the organizational life cycle (OLC) concept has grown among researchers studying

different management sides. Revising a diversity of management aspects at different life-cycle

stages also provides a dominant change management tool based on changes in management

practices and the internal logic of organizational development. (Shirokova, 2009)

The life-cycle concept has been rising in two guidelines — creating normative models and

developing empiric ones. Currently, the most popular normative models are those proposed by L.

Greiner (Greiner 1972) and I.Adizes (Adizes 1999). Each life-cycle stage is supposed to consist of

a distinctive pattern of variables linked to the organizations inside environmental characteristics

(Flynn 2001; Lester et al. 2003). If an organization grows during a cycle of stages, a variety of life

cycle periods can be established to express certain behaviors and sets of characteristics aligned

with the organizational context and structure. (Mulford 2004; Hoy 2006)

Organization and management study uses the life-cycle concept to make clear changes finally

occurring within organizations. The majority of these changes caused by company growth and

management performance are becoming more complicated. For several years, management

theorists have been dedicating time and energy to clarify the organizational life process. (Chandler

1962; Greiner 1972; Torbert 1974; Galbraith 1982; Churchil/Lewis 1983; Quinn/Cameron 1983;

Miller/Friesen 1984; Smith et al. 1985; Scott/Bruce 1987; Kazanijan 1988; Hanks 1990;

Dodge/Robbins 1992; Hanks et al. 1993; Adizes 1999; Flynn 2001; Lester et al. 2003; Mulford

2004; Hoy 2006).

Though researchers seriously disagree in their attitudes on the number of stages and characteristics

to explain them, a number of authors present generalized models, which assist in explaining and

making relative study of diverse approaches.

When integrating many models of the organizational life cycle, there are commonly four certain

outlines of organizational life cycle stages: conception and development (courtship),

commercialization, growth, and stability (Kazanjian, 1988: Kazanjian and Drazin, 1990).

2.1.Conception and development (courtship) Stage

A novel firm is described as youthful, small sized, and dominated by the founder. Entrepreneurs

require rotating their dreams into actuality by rising business ideas, building prototype products or

services, and selling their thoughts and ideas to financial supporters (Kazanjian and Drazin, 1990).

The firm faces high ambiguity, both internally and externally. The main hub of the conception and

8 With these descriptions, system dynamics and strategy could be seen as synergetic pair. SD models offer an effective

tools for supporting business strategy and an opportunity for considering all stakeholders of organization as customers,

competitors, etc. Furthermore, it lends holistic and causal-nonlinear thinking in understanding dynamic processes

which make performance differentiation with means for communication and consensus building within a management

team. In return, strategy with its rich multidisciplinary essence brings an accumulated wealth of concepts, evidence,

methods and perspectives on which SD scholars can use (Gary and et al,2008 & lyneis,1999).

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development (courtship) stage is the foundation of the idea for a new business. ―Small

organizations have a flat structure and an organic, free flowing management style that encourages

entrepreneurship and innovation.‖ (Daft, 2007)

A critical difficulty in the conception and development (courtship) stage is securing financial

resources. Moreover, the main stress in the conception and development (courtship) stage is on

short-term survival, since short-term growth will bring further investment from incumbent and

venture capitalists (Milliman, Von Glinow, & Nathan, 1991). It was determined that a start-up

alliance with a prominent partner brings a quicker preliminary public offering than does an alliance

with a less prominent partner. Prominent incumbents make higher the reputation and legitimacy of

a start-up firm. Since an entrepreneurial firm is unknown to the corporate community, it may be

evaluated by other companies based on the social standings of the business associations it has

made (Stuart et al., 1999).

At the conception and development (courtship) stage, firms focus on R&D actions to get

innovative opportunities. In order to establish significant revenue flows, they call for strong

development technology at the beginning. Discovering alliances involve finding out new ideas,

innovating, and keeping on fundamental research while creation new capabilities and investments

in the firm‘s absorptive capacity (Koza & Lewin, 1998).

2.2.Commercialization Stage

In the commercialization stage, the firm focuses on emphasizing sales, and achieving consumer

reception in the market. As firms mature, entrepreneurs spend further time formalizing managerial

processes and routines (Walsh & Dewar, 1987). For example, firms often require formalizing their

manufacturing processes during commercialization. In this stage, functional organizational

structures are created and more authority is delegated. Yet after gaining financial support from

established institutions-venture capital firms, investment banks, and so on- firms‘ products or

services require to gain customer reception. (Van Batenburg, 2003)

Firms at the commercialization stage have not built up their marketing and distribution channels.

For instance, although firms in the biotechnology industry will possibly have a model product,

they require attaining convinced complementary capabilities such as manufacturing, distribution,

and marketing skills. Several growing biotech firms try to find partners that can supply

downstream activities to the value chain (Rothaermel, 2001). Firms at the commercialization stage

must then cautiously assess their functional strengths and weaknesses to find out reasonable

resource growth objectives. For example, shaping alliances with recognized firms can let growing

firms contribute to stable distribution channels and customer bases. Consequently, the majority of

the alliances at the commercialization stage are in the divisions of manufacturing, marketing, and

explaining primary engineering troubles. (Shirokova, 2009)

2.3.Growth Stage

As a firm goes into the growth stage, its size and dimension becomes bigger. In addition,

efficiency and productivity get better due to the accumulation of knowledge and skills. Therefore,

the formal structure of the organization is established. At the same time, when the organization

accomplishes stable growth, the main troubles at this stage consist of manufacturing in volume,

manufacturing efficiently and with high quality and establishing market share. (Van Batenburg,

2003)

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When a firm goes into the growth stage, the main internal focus is about problems of how to

produce, sell and distribute the products in volume even as achieving profitability. Increasing

changes involve utilizing accessible manufacturing techniques, using the same distribution

channels, and marketing similar groups of customers (Shulman, Stalkamp, 2003).As ―experiential

learning‖ characterizes, formerly a firm has allocated itself to a definite technology area to

accomplish economies of scale. The relevance of each partner‘s fundamental knowledge will be

positively linked with efficiency building. Here, ―fundamental knowledge‖ refers to a general

understanding of the technology upon which a company is based. Therefore, firms at the growth

stage initiate to discover alliance partners with productive equipment, market knowledge, and

product development that involve particular assets (Lane & Lubatkin, 1998).

2.4.Stability Stage

The organization goes into the stability stage when growth rate slows. Its managers should make a

decision whether to spread out or keep the firm stable by sustaining or demanding the

improvement of the current level of growth. The majority of firms plan the beginning of a second-

generation product in order to enhance growth rate (Kazanjian and Drazin, 1990). However, at this

stage, an organization‘s inflexible structures and resistance to change make it hard to change.

As the growth rate of stable firms slows, they initiate to investigate innovative areas, which need

new knowledge and skills. Therefore, stable firms look for alliance partners from which they know

how to learn latest skills and access new resources. In an effort to attain long-term survivability, an

incumbent might attempt to expand its enterprise into distinct areas. (Fletcher, Taplin, 2000). If

stable firms anticipate being unsuccessful because of the innovative destruction process, they

exploit their financial and managerial resources to adjust to technological changes that threatens

their dominance. Therefore, firms at the stability stage attempt to achieve new technology

throughout forming new strategic alliance with partners of different strategic scope that is able to

contribute to developing the essential new technologies. (Shulman, Stalkamp, 2003). Generally,

nearly all mature firms are in need of complementary resources that can achieve the partner‘s

technological convergence.

3. The 10 schools of strategic planning

Some of the mainly interesting questions in business management centre on issues of strategy.

Should a company expand or stick to its knitting? Should it try to achieve market share, or center

on return on capital? Is there a right time to adopt a specific strategy? Why do some strategies

succeed while others fail?

Considering the scope of the subject, it is no wonder that strategic management has spawned a vast

literature. The problem, however, is that management strategists tend to see strategy in the same

way the six blind men saw the elephant-one looked at the tusk and thought the elephant was like a

spear, another grabbed the trunk and thought it was like a snake, another touched the ear and

thought the animal was like a fan, and so on.

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3.1.The Design School

The new view sees strategy formation as attaining the vital fit between internal strengths and

weaknesses and external threats and opportunities (Learned et al, 1965). Senior management

formulates obvious and simple strategies in a deliberate process of conscious thought - which is

neither formally analytical nor informally intuitive - and communicates them to the staff so that

everybody can put into practice the strategies. This was the dominant sight of the strategy process

at least into the 1970s given its implied influence on most teaching and practice. (Mintzberg,

Ahlstrand and Lampel, 2008)

3.2.The Planning School

This school started in parallel with the design school. However, the planning school predominated

by the mid-1970and while it faltered in the 1980's it continues to be a significant influence

nowadays. The planning school mirrors the majority of the design school's hypotheses except a

rather significant one: that the process was not just intellectual but formal, decomposable into

separate steps, described by checklists, and supported by techniques (mainly with regard to

objectives, budgets, programs, and operating plans) ( Malmlow, 1972). This intended that staff

planners changed senior managers, as the key players in the process. Now, numerous companies

obtain slight value from their annual strategic-planning process. To meet the new challenges, this

process should be redesigned to support real-time strategy making and to support 'creative

accidents'. (Mintzberg, Ahlstrand and Lampel, 2008)

3.3. The Positioning School

This prescriptive school was the main view of strategy formulation in the 1980's. It was given

impetus particularly by Harvard professor Michael Porter in 1980, subsequent previous work on

strategic positioning in academe and in consulting, all preceded by a extensive literature on

military strategy, dating back to 500 BC and that of Sun Tzu, author of The Art of War. In this

view, strategy reduces to common positions selected throughout formalized study of industry

conditions (Porter, 1980). Thus, planners became analysts. This demonstrated particularly

productive to consultants and academics alike, who could sink their teeth into hard data and so

promote their "scientific truths" to companies and journals alike (Porter, 1985). This literature

developed in all guidelines to contain strategic groups, value chains, game theories, and other ideas

- but forever with this analytical bent. (Mintzberg, Ahlstrand and Lampel, 2008)

3.4. The Entrepreneurial School

Much similar to the design school, the entrepreneurial school centered the process on the chief

executive, but unlike the design school, and in difference to the planning school, it embedded that

process in the mysteries of intuition (Pelling, 2004). That shifted the strategies from precise

designs, plans, or positions to unclear visions, or perspectives, usually to be seen through

metaphor. The idea was applied to particular contexts – start-ups, niche players, confidentially

owned companies and "turnaround" conditions, even if the case was surely put forward that each

organization requests the discernment of a visionary leader. (Mintzberg, Ahlstrand and Lampel,

2008)

3.5. The Cognitive School

On the academic border, there was concentration in the foundation of strategies. If strategies

developed in people's mind as frames, models, or maps, what could be understood about those

mental processes? Mostly in the 1980's, and continuing at present, investigation has developed

progressively on cognitive biases in strategy making and on cognition as information processing

(Laurendeau, 1990). Meanwhile, another, newer branch of this school adopted a more subjective

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interpretative or constructivist view of the strategy process: that cognition is used to construct

strategies as creative interpretations, rather than merely to map truth in some more or less objective

way. (Mintzberg, Ahlstrand and Lampel, 2008)

3.6. The Learning School

Of all the described schools, the learning school became an absolute wave and challenged the

universal prescriptive schools. Dating back to early work on "incrementalism", as well as

conceptions like "venturing", "emerging strategy" (or the growing out of individual decisions

rather than being immaculately conceived) and "retrospective sense making", (that we act in order

to think as much as we think in order to act) a model of strategy making known as learning school

was developed that different from the earlier schools (Mintzberg, 1989). In this view, strategies are

emergent, strategists can be found throughout the organization, and so-called formulation and

implementation intertwine. (Mintzberg, Ahlstrand and Lampel, 2008)

3.7.The Power School

This relatively small, but different school has focused on strategy making rooted in power, in two

senses (Pelling, 2004). Micro power sees the development of strategies inside the organization as

political, a process involving bargaining, persuasion, and conflict among inside actors. Macro

power takes the organization as an entity that uses its power over others and among its partners in

alliances, joint ventures, and other network relationships to negotiate "collective" strategies in its

interests. (Mintzberg, Ahlstrand and Lampel, 2008)

3.8. The Cultural School

As contradictory to the power school that focuses on self-interest and fragmentation, the cultural

school focuses on general interest and integration. Strategy formation is viewed as a social process

rooted in culture (Eagleton, 1991). The theory focuses on the power of culture in disappointing

important strategic change (Kogut, Zander, 1996). Culture became a big subject in the United

States and Europe after the shock of Japanese management (see Kaizen and Competitive

Advantage: US versus Japan) was completely realized in the 1980's and it became obvious that

strategic benefit can be the product of exclusive and difficult-to-imitate cultural factors.

(Mintzberg, Ahlstrand and Lampel, 2008)

3.9. The Environmental School

It maybe not be a rigorously strategic management but if one takes that expression as concerned

with how organizations apply their degrees of autonomy to make strategy, the environmental

school nonetheless, deserves attention due to the light it throws on the demands of the environment

(Haberburg, 2000) (Hannan, Freeman, 1977). Among its most perceptible theories is the

"contingency theory", that considers what reactions are expected of organizations that face

particular environmental situations, and "population ecology", writings that claim severe limits to

strategic choice. (Mintzberg, Ahlstrand and Lampel, 2008)

3.10.The Configuration School

This school enjoys the most extensive and integrative literature and practice at present. One side of

this school, more academic and descriptive, sees organization as configuration-coherent clusters of

characteristics and behaviors - and so serves as one way to combine the claims of the other

schools: every configuration, has effect in its own place, for example in planning, in machine-type

organizations under conditions of relative stability, entrepreneurship under more dynamic

configurations of start-up and turnaround (Fort, 1932). However, if organizations can be described

by such states, then change must be described as rather dramatic transformation - the leap from one

state to another. Therefore, a literature and practice of transformation - more prescriptive and

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practitioner oriented (and consultant promoted) – developed as the other side of the coin. These

two very different literatures and practices nevertheless complement one another and so belong to

the same school. (Mintzberg, Ahlstrand and Lampel, 2008)

4.New Business Systems Approach to Strategy Formulation

Returning to the blind men and the elephant metaphor, "scholars and consultants should

undoubtedly persist to probe the significant aspects of each school", say Mintzberg, Ahlstrand and

Lampel. "But more importantly, we must shift further than the restriction of each school. In

addition to probing its parts, we must pay more attention to the integral beast of strategy

formulation. We shall never find it, never really see the whole. But we can surely see it better."

Think of growing your business as growing a perfect human being, Clearly, narrow strategies

aimed at perfecting different functions of this person would not create a perfect man. The same is

also correct for the business strategy development in the new era of systemic innovation where

good in parts is no good at all. The old linear and static approaches might work well for the old era

of slow, linear and incremental change. The emerging era of rapid, systemic and radical change

requires more flexible, systemic and dynamic approaches to strategy formulation.

Certain positive moves have been seen recently. Some of the more recent approaches to strategy

formulation take a wider perspective and cut across the above ten schools in eclectic and

interesting ways, for example Learning and Design in the "Dynamic Capabilities" approach, or the

"Dynamic Strategy" one based on knowledge working.

4.1. Organizational strategic life cycle model

Aging chains is one of the SD's structures that are widely used to capture the demographic

structure of a population. Using this, we model the Organizational strategic life cycle, which start

from courtship phase in Adizes organizational life cycle. Causal relationships derived from

characteristics of this phase can lead organizations to two fates. The First is moving to select

entrepreneurship strategy or death. This trend will repeat for organizations with entrepreneurship,

power and planning strategy (as you see briefly in figure 1). The final stage, decline, can lead to

several points. Some firms after the stability stage anticipate being unsuccessful, so they exploit

their resources to innovations. If they were successful to form new strategic alliance with partners,

we can hope they will not direct to decline. At the other hand, some firms unsuccessfully appoint

death. Other firms may follow other strategies to rescue from death .

Figure1: Organizational strategic life cycle using aging structure

organizations in

courtship phase

organizations with

entreprenurship strategy

organizations with

power strategyorganizations with

planning strategycourtship rate entrepreneurship

rategrowth rate planning rate

decline rate decline rate2decline rate3 decline rate4

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However, the decline stage is a multi-strategy phase that intensely depends on firm situations.

Therefore, we leave studying this stage to other researchers, because it needs separable studies to

clarify its dimensions. This model with its details (that come later) could be used for explanation

and even conditional predictions in special industrial or business clusters. In the following section,

we will explain model completely.

1. Building blocks of organizations is based on courtship phase. This phase belongs to the

founders‘ aspirations and dedicated to decide upon participating in a close contest with relentless

competitors (See figure 1).

R1 LOOP: As soon as aggregating organizations in this phase, the founders, authority rise,

because they are the only ones who play in the ring. This space will improve their creativity and

so, their capacity in solving problems, which organizations face every moment. This potential will

lead to enhancing organizational performance that brings revenue for organizations. With growing

revenue, organizations will eager more to select entrepreneurship schools as their strategy.

R2 LOOP: After increasing founders‘ authority in organizations, another scenario may happen.

Authority brings commitment and this will provide willingness for keeping on the way, they

started. Survival sense, and even development, makes founders as risk takers who are thirsty of

investment. This leads to more production (It is necessary to mention that organizations in this

phase produce just single product). The more production, the more sales and revenue will increase.

This loop again makes founders enthusiastic to choose entrepreneurship schools as their strategy.

R3 LOOP: As we mentioned, investment of organizations through producing more products

brings more sales that increase revenue for organizations.

B4 section: One of dangerous threats in the courtship phase is exclusive focus on making money.

These results from sweetness brought to founders by the coming of the first bills to the

organizations. Exclusive focus on making money restricts paying attention to quality that decreases

customer satisfaction. Customer satisfaction relative to production identifies inventory of

organization. By increasing inventory, it's cost rises and by subtracting this from sales, revenue of

organization will be defined. If revenue decreases dramatically, it can be the death of organizations

and its discontinuation in the way of development. Rate of exiting organizations from development

road is defined as decline rate in figure2.

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Figure 2: Transiting organizations from courtship phase

organzations in

courtship phase entrepreneurship ratecourtship rate

decline rate

founders

commitment

willingness for

contiueing+ risk taking+

investment+

production of single

product

+

founders

authority+

+

creativity of

management

+

organizational

performances

revenue

sales+

founder capability in

solving problems

+

+

+

+

inventory

Exclusive focus on

making money

pay attention to

quality

-

customer

satisfaction-

-

inventory cost+

+

+

+

+

-

-

R1

R2

R3

B4

2. After exiting from courtship phase, organizations usually select entrepreneurship school as their

strategy. The aim of this school is the survival and solving primary problems of employees. In

figure 3, we show the dynamic processes which will happen after selecting entrepreneurship

school.

R1 LOOP: The more organizations with entrepreneurship strategy, the more willingness for

marketing. This will lead to developing the scope of actions that put more pressures on founders.

In this situation, founders will subtract their pressure by delegating some tasks to their

subordinates. Delegation would bring formalization for organizations because founders are

frightened from decreasing the quality of decision-making. This will force founders to use formal

controls, which drive organizations to the next level, organizations with power strategy.

R2 LOOP: by increasing delegations in organizations, employee authority will raise which flow

innovation in the veins of departments. Innovation provides capabilities for employees in solving

problems, which increases organizational performance. Revenue will be the souvenir of high

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performance that induces founder's investment on producing more multi-product. This production

brings more sales, which increase transformation rate from entrepreneurship strategy to power

strategy.

B3 LOOP: Increasing willingness for marketing may have another effect. This may causes

founders not to take enough care about the aim and the process of action (this can result from

developing the scope of action directly). employees' knowledge Decrease about the philosophy of

process leads to their frustration that worsens product fitness. This will raise cost of production,

which may decline revenue dramatically and therefore will exclude organizations from their

developing road.

Figure 3: Transitting organizations from entrepreneurship strategy

organizations withentrepreneurship strategy

decline rate1

growth rate

willingness for

marketing +

delegation

employees

innovation

organizations capability

in solving problems

+

organizatonal

performance

+

revenue

+

investment

+

production of multi

product

+

sales+

formalization+

formal control

+

+

+

founder pressure

+

employees

authority+

+

+

+

founders blind

arrogance

+

product fitness

cost-

-

<revenue>

-

developing the

scope of action

+

knowing the aim and

process of action

frustration of

employee

-

-

- -

+

entrepreneurship

rate

organizations in courtship phase organizations with power strategy

R1

B3

R2

3. Increasing growth rate drives organizations to select power strategy. The main goal of this

strategic school is growth, which will be earned from the dynamic interactions occur after selecting

this school. (See figure 4)

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R1 LOOP: As soon as, organizations select power school as strategy, their focus on efficiency

increases. This concentration on efficiency leads to intense control, which brings formalization and

bureaucracy to organizations. By increasing bureaucracy in organizations, managers think about

prevalence of flexibility. This may occur with social control & self-discipline. By this idea,

extending control between units stops and innovation rises. The more innovation, the more

development projects start that create production of more new products and therefore, cover more

clients. Growing clients will bring more sales and this increases planning rate, which transforms

organizations strategy from power to planning school.

R2 LOOP: Growing clients have another effect. With increasing sales and revenue in these

organizations, R&D budget grows and this leads to more development projects and this loop will

continue as you see in figure 3.

R3 LOOP: Selecting power strategy induces willingness of organizations for acquiring popularity

that complies with production of more new products and other effects happen, as we mentioned

before.

B4 LOOP: Increasing bureaucracy in organizations decreases flexibility that exacerbates

managers‘ capability in solving problems. This will worsen organization's performance and decline

revenue and therefore, sales decrease too. Decreasing sales will trigger organizational disposal

rate, which impedes organizations from moving forward.

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Figure 4: Transiting from power strategy

+

organizations with

power strategy 0planning rate

decline rate2

focus on

efficiecy +

intense control

+

formalization

+

bureacracy

+

willingness for

acuiring popularity

+

extending control

between units

innovation between

units

-production of more

new products

clients

+

sales

+

+

+

+

organizations willingness

to increase flexibility

+

social control & self

discipline+

-

revenue

R&D budget

+

more development

projects

+

+

+

flexibility

-

organizations capability

in solving problems

+

organizations

performance+

+

-

growth rate

R1

R3

R2

B4

5. Conclusion

The aim of this article was explaining the relationship between OLC and type of strategy. By using

system dynamics methodology, we discovered the following results. By considering the courtship

stage as foundation of analysis, we achieve to three stages of organizational strategy life cycle,

namely: commercialization, growth, stability.

In the stage of commercialization, the entrepreneurship school is the mainstream strategy of

organization. After the entrance of main factors in SD models, we found that this claim is true.

Therefore, we can conclude that managers should follow the principle of entrepreneurship.

The result of this research shows that in the stages of growth, the suitable school for strategy

managing in the organizations is power school, following the causal effects of main factors. In this

stage, managers are directed to the principles of power strategy.

Finally, in the stage of stability, managers should pay attention to the principles of planning

strategy. This claim is supported by using system dynamics modeling which showed in the

stability stage, planning is a good method for achieving organizational performance.

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Development of Islamic Banking in Pakistan

Hassan Mobeen Alam



Muhammad Arslan, Muhammad Saleem, Hassan Raziq & Abdul Aleem

M.Com Scholars (Session 2009-11)

Hailey College of Commerce

University of the Punjab, Lahore - Pakistan

Abstarct

The purpose of this study is to analyses the development of Islamic banking and the role of the

central bank in the development of Islamic banking in Pakistan. The study will help the higher

management to make policies which in turn will help the Islamic banking to grow and develop in

low income developing country like Pakistan. Islamic banking is growing and developing

worldwide especially in Islamic countries. The development of Islamic banking in Pakistan is

admirable. Central bank of Pakistan is playing an important role in the development of Islamic

banking. The goal of central bank of Pakistan is to make Islamic banking as the first priority in the

banking system. Islamic banking is a parallel banking system against conventional banking. There

is generally an increasing trend in the total assets, total deposits, total financing, total investments,

total number of branches, profits, earnings per shares, share holder equity and other financial

indicators which shows the financial growth and development of the Islamic financial institutions.

Islamic banking is developing and growing due to the increasing population and prosperity of the

Muslims. Islamic banking is providing a wide variety of the products which are competitive to the

conventional banking system. Islamic banking is widely accepted by the Muslims as they feel a

need of Islamic economic system. Secondary data obtained from the research articles and from the

official websites of the various departments in order to support our opinion. In this article, we have

discussed the world wide history of Islamic banking and international scope of Islamic banking as

well as focused on history of Islamic banking in Pakistan and the role of central bank of Pakistan

in development of Islamic banking. Key words: Islamic banking, State Bank of Pakistan, Pakistan, Riba.

1. Introduction

According to Islamic point of view, interest based financing is illegitimate (Anwar, 2003). In

Quran, Allah gradually Prohibited riba in four revelations. In Makkah, first revelation is in Chapter

al-Rum (39). In Madina, second revelation is in Al-Nisa` (160-161). In Chapter „Al `Imran: ―O you

who believe! Do not devour riba multiplying it over, and keep your duty to Allah that you may

prosper‖ (3:130). In Madina, the last revelation for the prohibition of riba in Chapter al-Baqarah

(275-281). The Holy Prophet Muhammad (S.A.W.W) said in his speech regarding interest: ―Allah

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has forbidden you to take interest; therefore all interest obligations shall henceforth be forego.

Your capital is yours to keep. You will neither inflict nor suffer any inequity. Allah has judged that

there shall be no interest‖ (Ahmad & Hassan). Shariah regulates the Islamic banking and economic

system, which firmly prohibits interest (riba) charges on loans (Roy, 1991). Under the Islamic laws

Islamic banks are restricted to give and take interest (Aggarwal & Yousef, 2000). Shariah manage

the Islamic banking, source of shariah is Quran and the Sunnah, according to the Islamic rules

interest base transactions are not allowed and it is the major characteristic of the Islamic banking.

The primary sources of Shariah rules are the Quran, Sunnah, jurists and explainer of Islamic law

(Blominvest bank, 2009). Islamic banking system is a banking system which is established on

the basis of the philosophy of Islamic laws (called shariah) and directed by Islamic economics.

Two fundamental Islamic rules of Islamic banking are the profit and loss sharing, notably, the

restriction of the receiving and payment of interest.

Historical Prospective of Islamic Banking

When we view in historical background, the principles of Islamic banking seem to be proved

practical. Back to 7th century AD, Arabian Peninsula constituted of dispersed groups of states

trading over far distances in the unfriendly environment. The economic restriction was low

liquidity and scarcity, as a result of that usury and hoarding cultivated. High interest rates have

exploited the poor peoples, that could either lower down the trade volume or could raise the

suppliers cost. Islamic principles controlled economic inconsistency, helped trade to grow and

liberalized the trade volume by lowering financial burdens. Giving pensions to the deserving

peoples was the first step taken by the Bait al Mal and act as a State Bank' of the Muslim

community (Roy, 1991). The actual Islamic financial institutions were initially established in

Pakistan at the end of 1950 and starting local banks in village areas. The Islamic Banks secondly

were established in the Mit Ghamr, a city of Egypt in the Nile delta from continuously 1963 to

1967(Zainol, Shaari & Ali, 2008). Islamic Banking system was started when Mit Ghambr bank

established in Egypt in 1963 and this bank had to close due to the threat by its administration in

1971 (Memon, 2007).

In the late 1950s, countryside of Pakistan was a region where the first modern Islamic banking

scheme had started. Deposits were made without taking interest by a few persons; the facility of

credit was given to poor who had land for agriculture purpose. A minimum fee of administration

was charged by them in order to cover costs for banking operations. There were many borrowers,

but depositors gave their payments to the organization as a one-time commitment. As a result of

that, this project had come out with shortage of funds. In 1963, a similar experiment was started as

a Bank saving scheme by Mit-Ghamr, in the Nile delta (Roy, 1991). Ahmen El Najjar opened up

his efforts to establish profit and loss sharing based saving banks in Mit Ghamr, a town of Egypt

during 1963 (Ariff, 1988). Starting of modern Islamic banking dates back to 1963 with the

foundation of Mit ghamr saving association, started in Egypt, supported by Tabung Haji in

Malaysia in the time of early sixties(Blominvest bank, 2009).

A meeting was held in the early era of 1970s in which foreign ministers of Islamic states

participated to talk about interest free Islamic banking. In 1972, a meeting of Islamic countries‘

foreign ministers was arranged again in which they formed a committee to established agreement

for Islamic banking and upcoming years of 1973-1974, this committee authorized the articles of

inter-governmental financial agency and formed the Islamic Development Bank abbreviated as

IDB. Dubai Islamic bank revolutionized the Islamic banking when it was formed in 1975. In Cairo,

during 1977, Faisal Islamic banks were established (Roy, 1991). Many Islamic Banks were

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established in Middle East such as in 1975, Dubai Islamic Bank, in 1977, the Faisal Islamic Bank

of Egypt and the Faisal Islamic Bank of Sudan and in 1979 the Bahrain Islamic Bank (Ariff, 1988)

In August 1983, Iran established a complete Islamic banking system and made the banking system

interest free. Comprehensive laws regarding Islamic finance were passed in Malaysia in 1983

(Blominvest bank, 2009). ‗Bank Islam Malaysia Berhad‘, was the first Malaysian Islamic bank

formed in 1983 under the Banking Act 1983 (Bank Negara, 2008). Sudan introduced the Islamic

banking system in 1984. In 1991 a body named Accounting and Auditing Organization for Islamic

Financial Institution (AAOIFI) was introduced to make the banking system completely Islamic

(Blominvest bank, 2009).

International Scope of Islamic Banking

Islamic finance industry has made prominent improvements at global level in the last thirty years.

Especially, during the last ten years the Islamic Financial Sector (IFS) has made a healthy growth

(between 15 to 20 percent per annum); (Islamic banking sector review 2003 to 2007). Current

figures recommend that Islamic banking assets are increased by 29 percent (The Economist,

2009b). Over the last twenty years and onward, a complete Islamic banking system has developed

and is still increasing at a remarkable rate of 15 percent to 20 percent. It shows that the rate of

growth is doubling after each five years. This can be proved by the fact that in 75 countries, there

are 475 Islamic financial institutions. (World Takaful Report 2010 - Ernest & Young). In 2009

total assets of Islamic banking were $822 billion and it is expected that the volume of these assets

reach to $1.00 trillion by the end of 2010 (Ernest & Young, 2010).

Now a days, more than 390 Islamic banks and institutions are working in 75 countries, which are

estimated to grow at 10%-15% during 2009. Across the global banking industry, Islamic banking

has one of the fastest-growing zones. While the claims about the size of the industry differ, the

IMF puts the total assets of Islamic banking at USD 250 bin, expected to reach USD 1 trillion by

2016 (Blominvest bank, 2009). Islamic Finance (IF) is growing significantly all over the world.

Internationally all the Islamic Financial Institutions (IFIs) are likely to be now a one trillion dollars

industry (Islamic Banking sector review 2003 to 2007). The modern banking system has got

the attention of all the people in the world in the 1970s. An estimation shows that almost US$ 700

billion amounting assets have achieved with annual growth exceeding 10.0 percent during the last

ten years (S&P, 2009) - and estimations are that it will grow up to US$ 1.6 trillion by 2012.

Islamic Banks has getting the 75 percent growth regarding shares (Wyman, 2009). There are considerably diverge results regarding the various estimates of Islamic banking

industry‘s size as it is today. Recent McKinsey study which is titled as; The World Banking

Competitiveness Report 2007/08: Islamic banking has got the ‗Trillion Dollar Opportunity‘, the

value of assets in Islamic banking and assets under administration is anticipated to reach USD 1

trillion by 2010. Whereas, the Euro money Finance Review for 2007/08 has stated that the

financial size of markets are ranked between USD 700 to 750 billion, and with an annual growth

rate of 15%. According to Financial Insights, finance has been growing at 20-30% per year over

the last ten years, while Ernst & Young is expecting that financial assets will get a USD 2 trillion

in 2010. This positive growth has been catalyzed by rolling demand for products of Shariah-

compliant, not only from financiers in the Middle East and other Muslim countries, but also by

different investors worldwide. Apart from its vast geological stretch, Islamic banking is making

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frequently expansion across the complete range of financial activities including insurance and

capital market investments and retail banking (Blominvest bank, 2009).

With respect to the to the Institute of Islamic Banking and Insurance, presently there are more than

300 Islamic financial

Institutions are working in the following countries of the world:

Albania British

Virgin

Islands

Egypt Indonesia Kazakhstan Morocco Pakistan Senegal Trinida

Algeria Brunei France Iran Kuwait Netherlands Palestine Sri Lanka Tobago

Australia Canada Gambia Iraq Lebanon Niger Qatar Switzerland United

Arab

Emirat

es

Bahamas Islands

Cayman

Germany Italy Luxembourg Nigeria Russia Sudan United

Kingdo

m

Bahrain Cyprus Guinea Ivory

Coast

Malaysia Oman Saudi

Arabia

Turkey United

States

Bangladesh Djibouti India Jordan Mauritania Philippines South

Africa

Tunisia Yemen

(Memon, 2007)

2. History and Development of Islamic Banking in Pakistan

In Pakistan, the purpose of many laws and principles was to remove the riba. Quaid-e-Azam

revealed his interest for the formation of interest free banking in Pakistan, when he inaugurated the

central bank of Pakistan (State Bank of Pakistan). Before 1970, Islamic banking was almost

unknown, in early years of twenty first century Islamic banking has become a reality that cannot be

ignored and by the end of 2004 the size of Islamic banking industry reached to a billion. The total

value of shari‘ah compliant accounts worldwide is almost USD 500 billion and is growing at an

average rate of 10-15 % (Zainol, Shaari & Ali, 2008).

Interest free economic system is very important for both economical and religious level. Efforts for

interest free banking were begun during 1970s and practical implementation was taken during

1980s. It is honorable that Pakistan was one of those countries which introduced Islamic banking

system at regional and national level.

(Roy, 1991). Pakistan has introduced banking system in 1980‘s when State Bank of Pakistan made

some changes in the rules and regulations of banking ordinance (Khattak & Rehman, 2010).

During 1970 efforts had started for eradication of interest but the most prominent steps were taken

in early 1980s. It was a very courageous and bold decision. At that time, Pakistan was considered

as third country in the world who was trying to put into practice interest free banking at national

level (Banking sector review 2003 to 2007).

After many years of study, Council of Islamic Ideology (CII) appointed by the government of

Pakistan began the process for the implementation of Islamic banking in February 1979 and made

three credit institutions Mutual Funds Investment Corporation of Pakistan, National Investment

Trust, and the House Building Corporation were asked to remove interest immediately. (Kennedy,

1990). In Pakistan, NIT (National investment trust) and ICP (Investment corporation of Pakistan),

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two Government-owned mutual funds, started to abolish interest from their financial operations by

avoiding investing their funds in interest holding securities. A new system was introduced on

substitution of old scheme by ICP in October 1, 1980, which is based on profit and loss sharing

deals. The implementation of Islamic banking in Pakistan was a gradual process which began in

February 1979.This implementation was a result of yearly study and preparation of Council of

Islamic Ideology (CII), which was a government-appointed council. When the President declared

that Interest should be removed within 3 years, then after that 3 credit institutions were compelled

to eradicate the interest from their operations. These three institutions were National Investment

Trust, House Building Corporation and Mutual Funds related to Investment Corporation. (CII,

1980)

The functions of ICP were to enhance the private sector equity base, make efforts for the

development of capital markets, and changing the assets and liabilities into profit and loss sharing

(PLS) modes in 1980. After that all of the financial institutions have changed their modes to PLS

modes. The CII did not proposed any changes in the framework of the banking system, which once

had given thorough instructions for the procedures. The major plan was that the central bank, the

commercial banks, and other specialized financial credit institutions would remain working intact;

but their financing operations will depend on an un-defined rate of return, rather than interest-

based transactions. The prediction of that report was that the Islamization process will be

implemented in different phases that allows them a watchful move on the part of the persons who

make policies and bankers toward complete Islamization (Khan & Mirakhor, 1990)

Separate Interest-free accounts had been started in all the commercial banks of Pakistan, on

January 1, 1981, and a foreign bank (Bank of Oman) had also started to drum up deposits on profit

and Loss sharing account. Bankers were given instructions for financial help to Govt. products

operations, which was based on sale on deferred payment (Banking sector review 2003 to 2007).

Inland bills and financing of import and then Rice Export Corporation of Pakistan was initiated in

March, 1981, mark-up basis was imposed on Trading Corporation and Cotton Export Corporation

of Pakistan. At the same time, important changes were made in the concerned rules and laws

authorizing the State Bank to give finance on Participation Term Certificates. Moreover, advances

on promissory notes, prop up by Mudaraba Certificates and Participation Term Certificates were

enhanced from July 1, 1982, in order to meet the working capital requirements of industry and

trade on a careful basis. Under the practice of Musharaka, banks were allowed to provide finance

in a selective basis. In June 1984, the government made restrictions on dual window functions of

the banks, also stated that these functions should be terminated within 12 months. On July 1, 1985,

all the financial and banking system based on fixed interest were converted under the forms of

Islamic finance which do not involves interest factors, except deposits of foreign currency that

keep on going to earn interest (Khan & Mirakhor, 1990).

In Pakistan, Meezan bank was the premier Islamic bank that introduced certificates. By the end of

2007, there are six operational Islamic banks present in Pakistan. It includes the Meezan Bank of

Pakistan, Dawood Bank of Pakistan , Dubai Islamic Bank of Pakistan ,Albarka Bank of Pakistan

and the Global Emirate Bank of Pakistan. (Khattak & Rehman, 2010). In 2003, only one Islamic

bank and three conventional banks start their Islamic banking operations and opened up their

branches. Presently the Government has issued Islamic banking licenses to six Islamic banks and

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12 conventional banks and allowed them to run their Islamic banking branches (Banking sector

review 2003 to 2007). The full fledged 6 Islamic Banking and 13 conventianal banks started

Islamic Banking system with more than 200 branches in over all Pakistan (Memon, 2007). Six

full fledge Islamic banks and thirteen conventional banks partially practicing Islamic banking, are

operating in many cities of Pakistan (Ahmed, Rehman & Saif, 2010). Today, banking services are

provided by all five major banks of the Pakistan. Total Islamic banking assets as on June 2008

were 225 billions which obtained the 4.5% market share of the all banking sector assets. Islamic

Banking sector has captured the 4.2% of the total deposits of the banking sector of Pakistan.

Islamic Banking sector has a branch network of all most 330 branches with existence in more than

fifty cities and towns which covers all the provinces of the country including AJK (Banking sector

review 2003 to 2007).

It is also essential to make a comparison between the progress of Islamic banking sector in

Pakistan and the rest of world for the purpose of defining a way for the Islamic banking sector of

the Pakistan .In 1983, first Islamic bank of the Malaysia starts its operations and the share in the

market of the banking sector of the Malaysia presently stands at 13% approximately. Official

target set by the Malaysia by 2010 was to achieve 20% market share (Bank Negara Malaysia‘s

website). Islamic Banking system of Bahrain has obtained 8 percent share over the 30 years.

Likewise Indonesian Islamic banking system was set up in mid of 90s last century (Bank

Indonesia, 2007).

Performance of the Pakistani Islamic banking sector is much better than the performance of the

rest of world Islamic banking sectors. The progress of the industry, from 2003 to 2007 , in terms of

increase in number of organizations, branches, total assets, total deposits, total financing and

investment along is admirable. From 2003 to 2007 the total assets of the Islamic banks increased

by 193 billions. Year by year growth in total assets of the Islamic banks are shown in the table

given below

(SBP, 2007)

(SBP, Annual Accounts for Years Ending Dec. 2003 to 2007)

Year Total assets(billion) Marginal

increase in

assets (billion)

2003 13 -

2004 44 31

2005 71 27

2006 119 48

2007 206 87

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Year by year Percentage of Islamic banking total assets in the total banking industry of the

Pakistan are given below in the table.


Growth in the deposits of the Islamic banking sector in Pakistan is remarkable from 2003 to 2007.

Total deposits of the Islamic banks increased by 139 billion during 2003 to 2007. Year by year

growth in the deposits of the Islamic banks are shown in the table presented below:


Year % of IB assets in total banking sector assets

2003 0.5

2004 1.5

2005 2.0

2006 2.8

2007 4.0

Year Total deposits

(Billion)

Marginal increase

in deposits

(Billions)

2003 08 -

2004 30 22

2005 50 20

2006 84 34

2007 147 63

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Year after year Percentage of the total Islamic banking deposits in the total deposits of the banking sector of

the Pakistan is given below

Growth in the financing and investment of Islamic banking sector has increased from 10 billions to 138 billions during

the era of 2003 to 2007. Increase in financing and investment from 2003-2007 is given below in the table

Year % of total IB deposits in total banking sector deposit

2003 0.4

2004 1.3

2005 1.8

2006 2.6

2007 3.8

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Year after year Percentage of the total banking financing and investment in the total financing and investment of the

banking sector of the Pakistan is given below in the chart

Year % of total IB financing and investment in total

banking sector financing and investment

2003 0.5

2004 1.3

2005 1.7

2006 2.3

2007 3.5

(SBP,Annual Accounts for Years Ending Dec. 2003 to 2007)

Branches of the banks are increased by 176 from 2003 to 2007. Table showing the year after year development in the

number of branches is provided below.

Year Total financing and

investment(billion)

Marginal increase in finance and

investment(billion)

2003 10 -

2004 30 20

2005 48 18

2006 73 25

2007 138 65

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Year Total branches

Marginal increase in

branches

2003 10 -

2004 23 13

2005 37 14

2006 93 56

2007 186 93

(Annual Accounts for Years Ending Dec. 2003 to 2007)

(Banking department, state bank of Pakistan)

CREDIT RATINGS OF ISLAMIC BANKS

1 Bank Islamic Pakistan

Limited June, 2010 A A1 PACRA Rating Outlook - Negative

2 Dawood Bank Limited June, 2010 BBB+ A-3 JCR-VIS

3 Dubai Bank (Pakistan)

Limited June, 2010 A A-1 JCR-VIS

4 Emirates Global Bank June, 2010 A - A2 PACRA Placed on Rating Watch Rating

Outlook - Negative

5 Meezan Bank Limited May, 2010 AA - A-1 JCR-VIS

(SBP) (Akbar, 2010)

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Islamic Banking progress and shares in market in Pakistan

Description Dec-06 Dec-07 Dec-08 Dec-09 Dec-10

Total Assets 118 206 276 366 424

%age of Islamic Banking

Industry in total banking industry 2.9% 4% 4.9% 5.6% 6.4%

Growth (YOY ) 65.3% 73.1% 34% 32.7% 31.2%

Deposits 83 147 202 283 338


Industry in total banking industry 2.8% 3.8% 4.8% 5.9% 6.7%

Growth (YOY ) 68% 75% 37.4% 39.9% 38.2%

Financing. & Invest. 72 138 186 226 233


Industry in total banking industry 2.4% 3.5% 4.3% 4.5% 4.6%

Growth (YOY ) 52% 89% 34.8% 21.3% 17.7%

Total no. of IB institution 16 18 18 19 19

No. of Branches* 150 289 515 651 684

Source: Annual Accounts except for September 2010 Accounts

*number includes sub-branches

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Sources: (SBP bulletin 2006-10)

3. Role of Central Bank in The Development of Islamic Banking in Pakistan

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State bank of Pakistan is acting efficiently and effectively in the development of Islamic Banking

in Pakistan. To push up the banks in the development of the country, the Central bank of Pakistan

has opened up a full Separate department named Islamic Banking Department‘. The objective of

the Islamic Banking Department of the Central bank of Pakistan is to enable the Islamic banking

that users and suppliers prioritize as their 1st choice of banking. In order to develop Islamic

Banking industry, Shariah Compliance transparency is very important according to its best

international practices (State bank of Pakistan). To change the interest based financial system into

the interest free Islamic financial system, many efforts were made since 1979. Initially, State Bank

of Pakistan introduced 12 modes of Islamic financing to replace the financial system. In 1980, The

Council of Islamic Ideology advised to State Bank of Pakistan to change the discount rate in

money market by introducing profit and loss sharing system (Memon, 2007). State Bank of

Pakistan took first step in 1980 for the implementation of Islamic banking system changing the

rules and regulations in Banking Ordinance. Each and every commercial bank became interest

free after adopting profit and loss sharing system on 1st July 1985 (Khattak & Rehman, 2010).

State Bank of Pakistan started Islamic Banking system in year 2000 and registered Meezan Bank

in 2002 as full fledge Islamic bank. The entry of Islamic Banking in Pakistani banking market

brings a great competition with already exist conventional banks as there is a difference of

products, service and operations (Ahmed, Rehman & Saif, 2010). On 15th September, 2003,

Islamic Banking Department was formed with the objective of developing and promoting the

Shariah Compliant Banking as a well-suited banking system in the region. Islamic Banking is one

of the growing fields in worldwide financial market, having a wonderful potential and growing at a

very fast pace globally. By the grace of Allah, Islamic Banking in Pakistan has also been making

progress during the last Five years. At this time there are 6 licensed full fledged Islamic Banks and

12 conventional banks with Islamic Banking windows with the total network of 336 branches

operating in more than 50 cities of all over the country as on 17.07.2008 and few more players

have also send their application which are under consideration. The high priority area for State

Bank of Pakistan is the Islamic banking. Different steps are being taken for banking industry in

Pakistan in order to make them vigorous enough so that they can offer a workable alternative to

conventional banking (State bank of Pakistan). Islamic Banks are mostly required Interest-free

liquidity management. Five per cent Cash Reserve Requirement (CRR) and eight per cent

Statutory Liquidity Requirements (SLR) for both Islamic banks and conventional banks are the

requirement of the State Bank of Pakistan (SBP) (Memon, 2007). The Mission statement of State

Bank of Pakistan is to develop a sound Islamic banking system that is aligned and compatible with

the worldwide financial sector that should provide unique Shariah compliant products and services

to its clients in order to achieve equitable economic growth in Pakistan. (State bank of Pakistan).

4. Conclusions and Policy Implications Islamic Banking sector is growing and developing all over the world especially in Muslim

countries. Base of the banking is the laws called Shariah. In Pakistan, Islamic banking is growing

at very fast rate as compared to the other countries of the world. The reason for this fast

development in Islamic banking sector in Pakistan is the active role of the central bank of the

Pakistan. State bank of Pakistan is supporting the Islamic banking to make it as the first choice of

the banking for this purpose state bank has established a separate Islamic Banking Department.

Because Islamic banks have captured a reasonable share of the market, therefore many commercial

banks has also started their Islamic banking operations to get their share in the market.

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Islamic Banking is very innovative because they introduced a wide range of products and modes of

financing. All major and big banks of Pakistan are providing Islamic banking services. Islamic

Banking is a parallel banking system against conventional banking.

There is generally an increasing trend in the total assets, total deposits, total financing, total

investments, total number of branches, profits, earnings per shares, share holder equity and other

financial indicators which shows the financial growth and development of the financial

institutions. Credit rating of the Islamic banks is normally satisfactory. Islamic banks are

performing their operations in Pakistan successfully. Acceptance of Islamic banking system in the

country shows that people are very satisfied with the practices of Islamic banking. Presently six

full fledge and 12 dual window banks are performing there operations in Pakistan. Oliver Wyman,(

April 2009 ),The Next Chapter in Finance - Higher Rewards but Higher Risks‖, by 2012 it is

expected that Islamic banking sector will successfully get a market share of 12 percent.

No doubt, many efforts were taken to explore the Islamic economic system to improve the banking

system. As Islamic banking is still a new concept and people know little about it so there is a need

to educate the people about what Islamic banking is. To develop Islamic banking system there is a

need of trained human resource whose specialization will be in Islamic economic system not in the

interest base economic system. To develop Islamic banking, it is mandatory to create harmony in

the opinion of different sects. Central bank should bring improvement in interest free banking

infrastructure. Banks should extend the interest free financial services towards low level income

community. The regulatory bodies of banking system should make rules and regulations regarding

the Islamic banking and make it sure that there is proper implementation of corporate governance

in interest free banking system. Introduction of dual capacity efforts interest free financing also

help the Islamic banking to grow. Promotion and improvement of interest free banking system in

Pakistan can only be done by creating a communication channels with developed economy as well

as local and abroad money and funds provider and investors. Introduction of liquidity and

monetary policies and management is now basic necessity for the promotion of Islamic banking

system. Interest free bank should also introduce new products and services to capture the

maximum portion of the banking sector.

References

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VOL 3, NO 1

Abu Umar Faruq Ahmad & M. Kabir Hassan. Riba and Islamic Banking. Journal of Islamic

Economics, Banking and Finance.

Ashfaq Ahmad, Kashif-ur-Rehman & Muhammad Iqbal Saif . (2010). Islamic Banking Experience

of Pakistan: Comparison between Islamic and Conventional Banks. International Journal of

Business and Management, Vol. 5 (2).

Muhammad Anwar (2003), Islamicity of Banking and Modes of Banking, Arab Law Quarterly,

Vol. 18(1) , 62-80

Muhammad Ariff (1988), Islamic Banking, University of Malaya, Asian-Pacific

Economic Literature, Vol. 2(2), 46-62 Charles H-kennedy. (1990). Islamization and legal reforms in Pakistan. Pacific affairs, 36(1), 62-

77

Delwin A.Roy.(1991). Islamic Banking, Middle Eastren study, 27(3), 427-456

Mohsin S. Khan & Abbas Mirakhor. (1990). Islamic Banking Experiences in the Islamic Republic

of Iran and in Pakistan. Economic Development and Culture change.38 (2), 353-375

Naveed Azeem Khattak & Kashif-Ur-Rehman,(2010). Customer satisfaction and awareness of

Islamic banking system in Pakistan. African Journal of Business Management, Vol. 4(5), 662-671,

Noor Ahmed Memon. (2007). Islamic Banking: Present and Future Challenges. Journal of

Management and Social Sciences, Vol. 3(1), 01-10.

Oliver Wyman,( April 2009 ),the Next Chapter in Finance - Higher Rewards but Higher Risks‖,

Rajesh K. Aggarwal and Tarik Yousef, (Feb., 2000), Banks and Investment Financing: Journal of

Money, Credit and Banking, Vol. 32(1), 93-120

Muhammad Shaukat Malik, Ali Malik and Waqas Mustafa, (2011)Controversies that make

banking controversial: An analysis of issues and challenges. American journal of social and

management sciences, vol (1), 41-46

The Funds & Investments Report (2010), by Earnest & Young, available at

http://www.ey.com/Publication/vwLUAssets/_Financial_Investment_Report/$FILE/IFIR%202010

%20finalv3.pdf

World Takaful Report (2010), by Earnest & Young,

Available

athttp://www.ey.com/Publication/vwLUAssets/EY_WTR_2010/$FILE/EY_WTR_2010.pdf

Zairian Zainol, Rohaya Shaari and Hafizi Muhammad Ali (2008), ―A comparative analysis of

bankers‘ perceptions on Islamic banking‖, International Journal of Business and management,

Vol.3(4), 157-168

Retrieved from http://www.sbp.org.pk

Strategic plan for banking industry in Pakistan (State Bank of Pakistan)

http://www.sbp.org.pk/

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(Council of Ideology, 1980).

Islamic banking bulletin, vol-4&10,(SBP),(2006-2010)

Retrieved from (www.investorpedia.com).

Pakistan‘s Banking Sector Review 2003 to 2007(state bank of Pakistan)

Finance Outlook 2009, Standard & Poor‘s, and February 2009.

Bank Negara Malaysia’s website

(Economic Research Department, blominvest bank, 2009).

.

http://www.investorpedia.com/

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Entrepreneurial Skills Enhance the Achievement Level

of School Leaders

Asst. Professor. Farah Naz

MPhil Education Management (on final thesis of PhD)

University of Management & Technology,

Lahore, Pakistan

Farhat Munir

DHA School, Lahore, Pakistan

Abida Khalid

Asst. Professor , University of Education, Lahore, Pakistan

Ijaz Ahmed

PhD Scholar, University of Management & Technology,

Lahore, Pakistan

Abstract

Educational systems of almost every country of the world are facing the challenges of new

dimensions. To manage with such fast growing challenges it has to coordinate with the global

demands. Education being an industry has to work under the same patterns as any business

organizations do. It is widely agreed that the intention of Conservative education policies is that

the ‗schools are to become business with a primary focus on profit and loss account‘ (Ball, 1990,

p68). In business sector business entrepreneurs are going to be encouraged. So it is the high time

to realize the worth of educational entrepreneurs to make it successful as business and strengthen

the country‘s economy. The objective of this article is to analyze the results of a survey carried out

among school leaders at different schools in Lahore. The aim of this study was to investigate

entrepreneurial skills in school leaders.The research involves analysis of data gathered from school

leaders serving in different schools at Lahore Pakistan.Education has become the back bone of

every country‘s economy. So it has become very necessary to develop the educational on the same

patterns as any business organizations do. For this the role of school leaders should become

significant and functional. They should become forward to lead the educational systems as

business. They should be more focused to quality and profit to up lift the country‘s economy. The

research has the implications for the school leaders and policy makers in term of identifying the

importance of entrepreneurial skills for school heads in order to refine and up lift the educational

system to strengthen the country‘s economy. The research will be valuable in terms of training of

school heads. It will also provide the policy makers an insight about its importance in global

perspectives.

Key words School leader, Entrepreneurial education, Entrepreneurial skills

Introduction

Entrepreneur is not a new term in business organization. It was first used as a technical economic

term in 18th century by Richard Cantillon.

According to Long (1983), the definition of entrepreneurship can be traced back more than 800

years ago to the French word ‗entreprendre‘ which means ‗to do something‘ Then in 1730,

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Cantilion used the term describe a self employed person who has risk taking tolerance ,a

characteristic which is believed to be vital in providing for one‘s own wellbeing( Outcalt, 2000)

Entrepreneurship ―consists in doing things that are not generally done in ordinary course of

business routine‖ (Schumpeter, 1951, pp. 255).

―Entrepreneurship is a dynamic and social process where individuals, alone or in collaboration,

identify opportunities for innovation and act upon these by transforming ideas into practical and

targeted activities, whether in a social, cultural or economic context.‖ This definition indicates the

objective of entrepreneurship in education that includes development both of personal qualities and

attitudes and of formal knowledge and skill

Entrepreneurship as a term will not be associated to education. However the term has a long

history connected to the content of education and qualification. Since the middle of 1700

entrepreneurship has been a research theme within the disciplines of economics and social

sciences. Today Entrepreneurship in education has a broad definition, which includes economic,

social and cultural factors.

Interest in entrepreneurship has been intense in many parts of the world. This prolonged and

heightened interest in entrepreneurship is promoted by several factors. First for the developed

economies, entrepreneur activity is a mean of revitalizing their economy and a way of coping with

unemployment problems. Moreover, it has been accepted as a potential catalyst and incubator for

technological progress, product and market innovation (Mueller and Thomas, 2000; Jack and

Andrson, 1999).

Change is the challenge for almost every country of the world. The more a country is equipped to

deal with this challenge the more it is considered successful and developed. Like all the

departments of life education is also facing the same challenge. Since education has become an

industry and it is contributing a lot in the economy of the country it has become very important for

it to meet the global demands effectively. Almost every country of the world is allocating its

maximum budget on education and the developed countries are on the top. Researches are

introducing different areas and new terms to deal with this change effectively.

The term entrepreneurship is not new in education. It has been frequently used in the economics of

education. As education has become one of the major sources of economic development for every

country of the world. So it has become very important to see the educational development in global

perspectives.

It widely agreed that the intention of Conservative education policies is that ‗schools are to become

business, run and managed like businesses with a primary focus on the profit and loss account‘

( Ball, 1990, p.68)

It is not enough to have new ideas, they must lead to ―the successful production, assimilation and

exploitation of novelty in society‖ through innovation ( European Union, 1996,pp.9) May authors

consider that entrepreneurship and innovation are closely linked ( Drucker 1985; Fulop,1991;

Kanter, 1989; Schumper, 1951).

―Entrepreneurship is initiating and building an enterprise rather than watching one. It is the

knack of sensing the opportunities where others see chaos , contradiction and confusion. It is the

ability to build a ‗founding team‘ and control resources Finally it is the willingness to take

risks‖(Cromie 2000)

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Entrepreneur

Entrepreneur is defined as ―A person who is self motivated, always love challenges, can function

without guidance and usually can visualize what is needed to be done in as a heart beat.

In general, it is important to understand that entrepreneurs have a vision for a better way of doing

things, thinking beyond the constraints of current rules and resources. Perhaps more importantly,

they have the passion and sense of urgency that literally compels them to take the risks necessary

to realize that vision.

Entrepreneurship is most commonly thought of in term of business. However, entrepreneurship

may be related to all dimensions of life. In the broadest sense of the term entrepreneurship can be

the means to stimulate the creativity and innovation necessary to create a better community, a

better nation and a better world. To achieve this goal, government policies should focus on the

educational aspects of the vast human potential for entrepreneurship which exist in every society.

The country like Pakistan is one of the developing countries of the world facing a lot many

challenges of economy and employment. The most precious asset of a country is people who have

the potential to spark and do business to strengthen the economic growth. These are called the

‗entrepreneurs‘. So developing countries should focus on their people resources to support their

economy.

Abraham Maslow indicated that ―The most valuable 100 people to bring into a deteriorating

society would not be economists, or politicians, or engineers, but rather 100 entrepreneurs‖

In addition it has a more critical role for economies of developing countries since entrepreneurship

is seen as an engine of economic progress, job creation and social adjustment.

The fast growing world of change has made the role of entrepreneur very important and functional.

It also has increased the need of entrepreneurial education because this is the best way to improve

the economy of educational organization. Although many researches support that entrepreneurial

skills can be developed through education and training but there are theories which support that

personality and family role model is very important in this regard.( McClelland, 1971; Dunn and

Holtz Eakin,2000).

Education is the only tool through which we can deal with the challenge of the change. Now it has

become the current demand of education to provide a balance between the needs of the students in

light of changing global demands. Entrepreneurial competency is considered to be one of the major

factors in increasing prosperity in increasing prosperity in globalizing society. This has become

the major concern of the governments to foster entrepreneurial culture and skill in students.

Educators including universities ―have an obligation to meet students expectations with regard to

preparation for the economy in which they will operate‖ (Galloway, 2005b) Authors, for example

Gibb(1996), Chell and Allman (2003) and Kirby (2004) have raised issues about the provision of

entrepreneurship education and the pedagogical and delivery developments required to meet

appropriately the needs of an entrepreneurial society.

The successful implementation of the government projects for education depends on its ability to

secure the compliance of teachers. The management of the service is inseparable from the

management of the workforce. One key role of the management at school level therefore is the

management of teachers. Ball observes that the ‗control is to be exerted over teachers work by the

use of techniques of management. The task of schooling is increasingly subject to the logics of

industrial production and market competition‘ (Ball, 1988, pp. 292).

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Hellawell suggests that the head ‗ is going to be under considerable pressure to ensure that

workforce is operating in a cost effective fashion. Under such circumstances I would anticipate a

greater degree of convergence between the managerial methods of head teachers and those of

managers in other spheres‘ (Hellewell,1990,p,408).

Methodology

The hypothesis of the current research is that the entrepreneurial skills enhance the achievement

level of leaders at school level in Lahore. To investigate this study a survey research design has

been adopted.

Sample

The sample used in this study was comprised of 86 men and 108 women aged between 20 to 40

years and above (n=200) serving as school leaders in different schools in Lahore. The demographic

details are shown in table 1.

A total of 200 school leaders were contacted during this study and all of them willingly

participated in the survey. The sample size, response rate and the demographic mix were

considered sufficient to perform meaningful statistical analysis

Variable Frequency Percent

Sex male 86 43

female 108 54

Age 20-29 36 18

30-39 86 43

40-and

above 77 38.5

Marital Status married 167 83.5

unmarried 26 13

Qualification BA/BSc 43 21.5

MA/MSc 135 67.5

any other 8 4

Professional

Qualification PTC 5 2.5

CT 6 3

BEd 82 41

MEd 20 10

any other 52 26

Experience

less than3

yrs 17 8.5

3-9 41 20.5

10 -above 131 65.5

Monthly Income

less than

ten th 2 1

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10-15 th 35 17.5

15-20 th 38 19

20-25 th 77 38.5

25-30 th 20 10

above 30 th 25 12.5

Total 200 100 100

Instrument

I adopted the questionnaire developed by Paul Lain Waight (March,2006).

It was comprised of 30 items.

Variable name

Scale Item Component

1 2 3 4 1 I get a sense of pride when I do a good job on my school projects

2 I have always worked hard in order to be among the best is my filed

3 I feel very good because I am ultimately responsible for my own school success.

4 I do every job as thoroughly as possible.

5 I usually perform very well on my part of any school project. I am involved with.

6 I believe it is important to make a good first impression.

7 I get my biggest thrills when my work is among the best there is.

8 I feel good when I have worked hard to improve my school.

9 my knack for dealing with people has enabled me to create many of my school opportunities.

10 I believe that any organization can become more effective by employing competent people.

11 I get a thrill out of doing new, unusual things in my school affairs.

12 I often approach school tasks in unique ways.

13 I get excited when I am able to approach school opportunities in unique ways. 14 I believe it is important to approach business opportunities in unique ways.

15 I enjoy being the catalyst for change in school affairs.

16 I always feel good when I make the organizations I belong to function better.

17 I believe that to be successful head teacher must spend time planning the future of his/her school.

18 I will spend a considerable amount of time analyzing my future school needs before I allocate any resources.

19 I spend a lot of time planning my school activities.

20 I believe it is important to analyse your own weaknesses in school dealings.

21 I believe it is important to continually look for new ways to do things in school.

22 I make a conscientious effort to get the most out of my school resources.

23 To be successful I believe it is important to use your time wisely.

24 I feel uncomfortable when I'm unsure of what my school associates think of me.

25 I feel self-conscious when I am with very successful head teachers.

26 I feel very self-conscious when making school proposals.

27 I seem to spend a lot of time looking for someone who can tell me how to solve all my school problems.

28 I feel inferior to most people I work with.

29 I feel like a total failure when my business plans don't turn out the way I think they should.

30 I often put on a show to impress the people I wok with.

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Procedure

The questionnaire was administered on a small scale (n=200) among school leaders in different

schools at Lahore. A total of 200 questionnaires were distributed and all were returned giving a

100% response rate.

Analysis

Data was analyzed using the exploratory factor analysis using extraction, rotation and verimax

methods.

Exploratory Factor analysis for entrepreneurial skills

All the data collected for entrepreneurial skills were analyzed using rotation and extraction

methods. Then it was analyzed that whether the factors satisfied the Kaiser criterion (eigen value ≥

1). Then we applied the factor loading criteria. Only one item has to be removed for not loading

on any factor.

Table 3 Factor analysis Self satisfaction (S_score) Eigen Value 3.29

Variance explained 41.20

Mean 22.29

Std. Deviation 5.89

I often put on a show to impress the people i work with 0.84 I feel inferior to most people i work with 0.72 I seem to spend a lot of time looking for someone who can tell me how to solve all my problems

0.70

I feel like a total failure when my business plans don't turn out the way i think they should

0.68

I feel very self conscious when making school proposals 0.62 I feel self concious when i am with very successful head 0.53 qs1R 0.47

I feel uncomfortable when i am unsure of what my school associates think of me 0.43

KMO .72

Barllet 502.10

Cronbech alpha .792

Table 3 shows the factor 1 characterized by complacency. An example of this is ― I feel very self-

conscious when making school proposals. This factor was termed as Self- satisfaction.

Factor 1 had an eigen value 3.29 and % of variance 41.20. It had loading on 7 items. KMO is .72

and reliability on Cronbach alpha is .792

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Table 4 Factor analysis Instigation (I_score)

Eagen Value 2.18


Mean 24.74

Std. Deviation 2.97

I have always worked hard in order to be among the best in my field 0.69 I often approach school task in unique way. 0.68 I do every job as thoroughly as possible 0.57 my knack for dealing with people has enabled me to create many of my school oppertunities

0.55

I believe it is important to approach business oppertinities in unique ways 0.55 I get a sense of pride when i do good job on my school projects 0.52

KMO .629

Barllet 163.68

Cronbech alpha .649

Table 4 shows the factor 2 characterized by initiation. An example of this is ―I often approach school

task in unique way”. This factor was termed as instigation.



Table 5 Factor analysis Excitement (E_score)

Table 5 shows the factor 3 characterized by enthusiasm. An example of this is ―I get excited when

I am able to approach school opportunities in unique way‖. This factor was termed as instigation.



Eigen Value 2.15


Mean 16.92

Std. Deviation 2.55

I get a thrill out of doing new,unsual things in my school affairs 0.82 I get excited when i am able to approach school opportunities in unique way 0.78 I believe that any organization can become more affective by employing complete people

0.70

I enjoy being the catalyst for change in school affairs 0.59

KMO .716

Barllet 153.7

Cronbech alpha .696

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Table 6 Factor analysis Accomplishment (A_score)

Eigen Value 2.37


Mean 29.82

Std. Deviation 3.57

I feel very good because i am ultimately responsible for my own school success. 0.63 I will spend a considerable amount of time analyzing my future school needs before I allocate any resources

0.63

I believe it is important to make a good first impression 0.60 I always feel good when i make the organizations i belong to function better 0.56 I believe it is important to analyze your own weaknesses in school dealings 0.55 I spend a lot of time planning my school activities 0.54 I make a conscientious efforts to get the most out my school resources 0.53

KMO .657

Bartllet 201.7

Cronbech alpha .674

Table 6 shows the factor 4 characterized by completion. An example of this is ―I believe it is

important to make a good first impression‖. This factor was termed as Accomplishment.



Table 7 Factor analysis Drive (D_score)

Eigen Value 1.86


Mean 17.55

Std. Deviation 2.36

I get my biggest thrils when my work is among best there is 0.715 To be successful i believe it is important to use your time wisely 0.688 I feel good when i have worked hard to improve my school 0.683 I usually perform very well on my part of any school project i am involved with 0.641

KMO .652

Barllet 89.624

Cronbech alpha .616

Table 7 shows the factor characterized by force. An example of this is ― To be successful I believe

it is important to use your time wisely‖. This factor was termed as Accomplishment.



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Table 8 ANOVA S-score, I-score, E-score, A-score,D-score by age

Sum of Squares

df Mean Square F Sig.

S_Score Between Groups 535.67 5 107.13 3.26 0.008***

Within Groups 6310.66 192 32.86

Total 6846.34 197

I_Score Between Groups 106.78 5 21.35 2.49 0.032**

Within Groups 1651.14 193 8.55

Total 1757.93 198

E_Score Between Groups 7.5 5 1.5 0.22 0.952


Total 1297.01 198

A_Score Between Groups 41.23 5 8.24 0.63 0.672

Within Groups

2498.29 193 12.94

Total 2539.52 198

D_Score Between Groups 134.04 5 26.8 5.29 000*


Total 1106.77 197

* ** *** significant at .5 level

Table 9 ANOVA: S-score, I-score, E-score, A-score, D-score by marital Status

* ** *** **** Mean difference is significant at .5 level

.

Sum of Squares


S_Score Between Groups 171.53 3 57.17 1.662 0.176****

Within Groups 6707.56 195 34.39

Total 6879.09 198

I_Score Between Groups 37.49 3 12.49 1.423 0.237***


Total 1758.48 199



Total 1297.87 199

A_Score Between Groups 242.67 3 80.89 6.893 000*


Total 2542.87 199

D_Score Between Groups 31.26 3 10.42 1.885 0.133**


Total 1109.19 198

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Table 10 ANOVA: S-score, I-score, E-score, A-score,D-score by Professional Qualification

Sum of Squares



Within Groups 6707.56 195 34.39

Total 6879.09 198

I_Score Between Groups 37.49 3 12.49 1.423 0.237


Total 1758.48 199

E_Score Between Groups 44.33 3 14.77 2.31 0.078****


Total 1297.87 199

A_Score Between Groups 242.67 3 80.89 6.893 000*


Total 2542.87 199

D_Score Between Groups 31.26 3 10.42 1.885 0.133**


Total 1109.19 198

* ** *** ****significant at .5 level

Table 11 ANOVA: S-score, I-score, E-score, A-score, D-score by Experience

Sum of Squares



Within Groups 5718.65 160 35.74

Total 5901.24 164


Within Groups 1440.39 160 9

Total 1458.44 164



Total 924.7 164

A_Score Between Groups 85.76 4 21.44 1.662 0.161**


Total 2150.26 164

D_Score Between Groups 39.75 4 9.94 1.958 0.103*


Total 852.03 164

* ** *** significant at .5 level

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Table 12 ANOVA: S-score, I-score, E-score, A-score,D-score by Monthly Income

* ** significant at .5 level

Results

Factor s of drive ( D_score) and achievement ( A_ score) are found significant by age, marital

status , monthly income and professional qualifications. Factors of self satisfaction ( S_ score) are

found significant by age and monthly income. Factors of excitement ( E_score), instigation(I_

score) are found less significant at .5 level. This shows that the research hypothesis is accepted at

.5 significant level.

Findings/Discussion

The study has shown that the entrepreneurial skills positively affect the achievement level of

school leaders with the high level of significance. Other variables like age, marital status,

experience, professional qualifications and monthly income were also checked against factors of

self-satisfaction, instigation, excitement, derive and was found that drive effects the

entrepreneurial skill but less than achievement level and it has the high significance on

entrepreneurial skills but less than achievement. The fast growing economic crisis has changed the

economic scenario of almost every country of the world and as education has become the basic

weapon to fight against such economic challenges so it has become the need of hour to develop a

team of educational entrepreneurs to strengthen the country‘s economy.

Conclusions

This study has supported the research hypothesis. Further research should be conducted to explores

the barriers and factors effecting entrepreneur skills of school leaders.

Sum of Squares


S_Score Between Groups 586.34 5 117.26 3.596 0.004*

Within Groups 6196.86 190 32.61

Total 6783.2 195



Total 1709.87 196



Total 1199.98 196

A_Score Between Groups 75.9 5 15.18 1.199 0.311

Within Groups 2418.66 191 12.66

Total 2494.56 196

D_Score Between Groups 66.29 5 13.25 2.472 0.034***


Total 1090.57 196

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References

Barrow, M. V., Jr. (2000). The Specimen Dealer: Entrepreneurial Natural History in America's

Gilded Age. Journal of the History of Biology, 33(3), 493-534.

Hannafey, F. T. (2003). Entrepreneurship and Ethics: A Literature Review. Journal of Business

Ethics, 46(2), 99-110.

Kent, C. A. (1989). The Treatment of Entrepreneurship in Principles of Economics Textbooks. The

Journal of Economic Education, 20(2), 153-164.

Shane, S. (2000). Prior Knowledge and the Discovery of Entrepreneurial Opportunities.

Organization Science, 11(4), 448-469.

Stevenson, H. H., & Jarillo, J. C. (1990). A Paradigm of Entrepreneurship: Entrepreneurial

Management. Strategic Management Journal, 11, 17-27.

Thornton, P. H. (1999). The Sociology of Entrepreneurship. Annual Review of Sociology, 25, 19-

46.

Tripathi, D. (1985). An Integrated View of Entrepreneurship. Economic and Political Weekly,

20(48), M163-M168.

ASST. PROF. FARAH NAZ

Ms. Farah Naz is an educationist with a vast experience of over 23 years in teaching, management

and educational quality assurance. She has served in almost all the provinces on various

appointments including Azad Jammu & Kashmir. She had been heading the quality assurance

department of ―The Educators a project of BSS‖. She is M.Phil in Education Leadership &

Management. Presently she is serving as Assistant Professor in University of Management &

Technology. She is also Deputy Director Education in Bahria Foundation (Pakistan Navy). She is

on her final thesis of PhD. She is a member of visiting faculty at University of Education Punjab.

She is author of various international research articles.

Farhat Munir

Farhat Munir is a Ph.D scholar at the University of Management and Technology Lahore Pakistan.

She has eight years teaching and administrative experience. she is working as Controller

Examination in DHA School System

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Empirical Analysis of Determinants of Dividend Payout:

Profitability and Liquidity Ch. Muhammad Adil

Shaheed Zulfiqar Ali Bhutto Institute of Science and Technology, Islamabad.

Nousheen Zafar

PhD Scholar , Mohammad Ali Jinnah University, Islamabad.

Noman Yaseen Shaheed Zulfiqar Ali Bhutto Institute of Science and Technology, Islamabad.

Abstract

This study aims at the re-evaluation of the incremental information content of profitability and

liquidity for dividend payout. This study proxy the operating cash flows as measure of liquidity

and earnings per share, dividend per share, size and return on equity as measure of profitability of

firm. Sample of 100 firms are randomly selected from KSE 100 Index. These companies represent

88% of total capitalization of KSE. Common effect model has been applied to the panel data

analysis revealed that there is a strong relationship between dividend payout with EPS (Earnings

per Share) ROE (Return on Equity) CFOP (Cash Flow operating) and the results for these

variables are significant but the variable S (Size) shows the results insignificant. The study implies

that profitability is the stronger factor that affects dividend payment decision but the liquidity of a

firm is also important for dividend payments.

Key Words: Dividend pay out, Liquidity, Profitability, EPS, ROE, Operating Cash flow

Introduction

Dividend policy is considered to be one of the most important financial decisions that corporate

managers encounter. Because dividend policy forms the basis upon which other theories of

finance, such as asset pricing, capital structure and capital budgeting, rely (Allen and Michaely,

1997; Baker and Powell, 1999; Barker, 1999a). Dividend decisions may increase the market value

of the company but on the other hand it may mean less availability of internal funds and more

reliance on external sources and expansion purposes. Dividend policy decision is affected by many

factors. These factors may considerably vary from country to country. Dividend decision being an

important financing decision of a company has engrossed academicians and researchers in both

developed as well as developing countries.

By dividend policy, we mean the payout policy that managers follow in deciding the size

and pattern of profit distribution to shareholders over time. Furthermore, while determining

dividend payment, a careful management strikes a balance between shareholder's expectation and

firm's long term interest. The basic objective of the corporate managers is to maximize share

holders wealth and for this they seek to maximize shareholder wealth by making efficient

investment strategies, financed by an optimal capital structure. if these decisions are handled

efficiently, this is expected to be reflected in value of firms.

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While current cash flow data appears to explain future cash flows better than do current

earnings, the grouping of cash flow and accruals data generates the greatest illustrative power (Al-

Attar and Hussain, 2004). Even if accruals and cash flows are equally valuable in measuring firm

performance, cash flows should be more useful than accruals in predicting dividend changes since

cash flows are a more direct liquidity measure.

In order to discover the factors contributing towards dividend payout, liquidity as well as

profitability of a firm matters a lot. This study is an attempt to find out profitability and liquidity

relationship, specifically in context of dividend payout, by indicating the ability of cash flows as a

measure of liquidity and earnings per share and return on equity as a measure of profitability of a

firm.

Over the time, number of factors identified in the literature as being important to be

considered in making dividend decisions increased significantly. Thus, extensive studies were

done to find out various factors affecting dividend payout ratio of a firm.

Previous empirical studies have emphasized mainly on developed economies. The

undertaken study examines the relationship between determinants of dividend payout from the

perspective of a developing country like Pakistan. Focus of this paper will be mainly on the critical

evaluation of Miller and Modigliani‘s analysis of dividends that suggested that dividend changes

depend on management‘s expectation of future earnings and cash flows. While the Lintner‘s

previous work recognized the relationship between earnings and dividend changes. Through the

observation of Pakistani data we will see how the relationship between profitability and liquidity

effects dividend payments.

Problem Statement

Determinants of dividends payout is still a puzzle even after a long financial discussion. In

context of Pakistan it is once again an unresolved issue.

Objectives of the Study Being an effort to find out the effect of profitability and liquidity of a firm on its dividend payout

decision, main objectives of this study are:

1. To discover the relationship between firm‘s profitability and liquidity and its decision to pay

out dividends.

2. To institute the fact that operating cash flows, earning per share and return on equity is good

predictor of dividend changes.

3. To present dividend payout as an indicator of financial health of the firm.

Literature Review

Dividend payment modeling works starts from Lintner‘s (1956) inventive study which

argued that the main determinants of changes in dividend are current earnings and preceding year

dividend level. Researchers have proposed many different theories about the factors that weight a

firm‘s dividend. A number of factors have been identified in previous empirical studies to

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influence the dividend policy decisions of the firm. To, itemize few profitability, risk, cash flows,

agency cost, growth, taxes, price earnings ratio etc.

Determinants of Dividend Policy

There are so many characteristics that have been found to be related to dividend policy

such as the firm‘s, profitability, liquidity, size, Financial Leverage, Growth Opportunities,

investment opportunities, Information Asymmetry, Agency Costs, Ownership Structure, Stock

Exchange Status etc. Among all factors profitability and liquidity are very important determinants

of dividend payment. Cash flow which mainly determines the liquidity of the firm has also been

argued to be able to assess firms' performance, although the results are questionable throughout

countries and time.

Corporate Profitability

Profits have long been regarded as the primary indicator of the firm‘s capacity to pay

dividends. Linter (1956) conducted a classic study on how U.S. managers make dividend

decisions. He developed a compact mathematical model based on survey of 28 well established

industrial U.S. firms which is considered to be a finance classic. According to him the dividend

payment pattern of a firm is inclined by the current year earnings and previous year dividends.

Farrelly, Baker and Edelman (1986) surveyed 318 New York stock exchange firms and

concluded that the major determinants of dividend payments are projected level of future earnings

and pattern of past dividends. Pruitt and Gitman (1991) asked financial managers of the 1000

largest U.S. and reported that, current and past year profits are important factors influencing

dividend payments. Baker and Powell (2000) conclude from their survey of NYSE-listed firms that

dividend determinants are industry specific and anticipated level of future earnings is the major

determinant.

Fama and Babiak (1968) and Fama (1974) results support Lintner's view that managers

prefer a stable dividend policy, and are reluctant to increase dividends to a level that cannot be

sustained. Therefore, these researchers concluded that changes in per share dividends are mostly a

function of a target dividend payout based on earnings and the last period's dividend payout.

Murray (1981) by using non-capital market data to test the theoretical implication that dividend

payout is negatively correlated with earning uncertainty. Murray concluded that earning

uncertainty is a determinant of the dividend policy.

Aivazian, and Booth (2003) find that for both U.S. firms and promising market firms,

profitability affects dividend payments, higher debt ratios correspond to lower dividend payments,

and market-to-book ratio has a positive effect on dividend payments. Naceur et al (2006) examined

the dividend policy of 48 firms listed on the Tunisian Stock Exchange during 1996-2002. Results

indicate that highly profitable firms with more stable earnings can afford larger free cash flows and

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thus pay out larger dividends, and fast-growing firms dispense larger dividends so as to appeal to

investors.

Omar (2009) describes that factors influencing cash dividend change in companies listed in

Bahrain Stock Exchange. A sample of thirty five Bahraini companies was tested. Descriptive and

statistical tests were used to estimate the data of the study. Cash dividend change in Bahraini

companies is tested with regard to four specific characteristics, namely: previous year dividends;

financial leverage, profitability; and size of firm. The regression model results explain that cash

dividends policy is significantly associated to profitability change in previous year dividends, and

size of Bahraini companies listed in Bahrain Stock Exchange, but not to financial leverage.

Liquidity:

Cash flows are the proxy for liquidity. Indeed, the importance of cash flow data for

assessing a corporation‘s liquidity and solvency is reiterated in the UK standard FRS1 (para.1b).

Future cash flows are, of course, a potentially important input for share valuation models and a

matter of concern for corporate creditors.

The dividend policy is not only used to signal the probable level of earnings but also the

volatility of earnings. For a Given level of cash flow, firms with more volatile earnings promise a

lower dividend. Here an important insight is that dividends vary with the total volatility of future

cash flows and only by the market related risks. (Bradley, Capozza, Seguin, 1998)

Since dividends must be paid in cash, firms with insufficient cash may be enforced to

reduce their dividends. Thus it is expected that firms will reduce dividends in years of insufficient

liquidity. Further research indicates that: (a) higher dividend payout ratios corresponds to higher

cash flows and (b) firms that persistently generate more operating cash flow than earnings are

likely to have more dividend payout ratios(Ingram and Lee,1997; Andreas Charitou,2000)

Barker (1999) find that the use of price-earnings ratios and price-cash flow ratios is

widespread within the investment community. Cash flow data are also employed in discounted

cash flow valuation models, but these are less popular among analysts. While much of the debate

regarding the relative usefulness of cash flows versus earnings revolves around share valuation, it

must not be forgotten that future corporate cash flows are of concern to company creditors too.

Size

Bodnaruk (2007) examine that there is a negative relationship between the size of the

firm‘s shareholder base and its cost of capital. Consistent with this, He find that firms with smaller

shareholder bases payout less of their net income, have higher cash holdings and lower capital

expenditures.

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Amidu (2007) evaluates that managers consider a large firm to be more impressive and

they expect to earn more return than they would in a small firm. This is obviously not in the

interest of the existing shareholders. The results seem to suggest that, for listed firms on GSE, size

and leverage do not necessarily influence their return on assets. Surprisingly, the negative

association of firm‘s size and return on assets indicates that, increasing size is associated with

decrease in profitability.

Olatundun (2003) describes that small firms are less liquid when compared with large

firms; therefore their dividend decision depends more on the availability of cash flow. So,

according to him dividend pay-out policy is dependent on cash availability and a firm‘s ability to

increase or decrease dividend partly mirrors its liquidity position.

Hypothesis H1: Earning per share and dividend payout is positive and significant relations.

H2: Return on equity and dividend payout is positive and insignificant relations.

H3: Operating cash flow and dividend payout is positive and significant relations.

H4: Size and dividend payout is positive and insignificant relations.

Methodology

Sample

In order to find out the determinants of dividend payout, specifically focusing on liquidity

and profitability of a firm, 100 firms are randomly selected from KSE 100 Index. KSE 100 index

represents 88% of total capitalization of KSE stock exchange. We excluded the firms (i) whose

data of dividend payout (DPO), earnings per share (EPS), return on equity (ROE), cash flow per

share (CFPS) and size (S) was not available (ii) the firms that belongs to financial sector.

Data

Panal data for dividend per share, Earnings per share, Return on equity, and Cash flow per

share pertaining to the year 2005-2009 has been collected for 100 firms. The information on DPO

is the total cash dividend (interim and final) paid by the firm for each number of shares

outstanding. EPS is net income per share, ROE is net income per each rupee invested by the

shareholders, and CFPS measure the operating cash earnings per share of the company. EPS and

ROE are proxies for profitability while CFPS is the proxy for liquidity.

Variables of the Study

Dependent Variable:

Dividend payout (DPO): A value calculated by dividing a dividend per share by the earning per

share. (Mohamed, 2007)

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Independent Variable: Return on Equity (ROE): The amount of net income returned as a percentage of shareholders

equity. Return on equity measures a corporation's profitability by revealing how much profit a

company generates with the money shareholders have invested. (Mohamed, 2007)

Earnings per Share (EPS): The portion of a company's profit allocated to each outstanding share

of common stock. It is calculated by dividing Net income with average outstanding

shares. Earnings per share serve as an indicator of a company's profitability. (Mohamed, 2007)

Cash Flow per Share (CFPS): A value calculated by dividing a firm's cash flow by the average

number of shares of capital stock that are outstanding. This measure signals a company's ability to

pay debt, pay dividends, buy back stock and facilitate the growth of business i-e a measure of

financial flexibility. (Mohamed, 2007)

Size (s): Size of the firm can be determining through the natural log of total assets of the firm.

(Olatundun, 2003)

Statistical Model

The association between dividend per share and earnings per share, return on equity, cash

flow per share and size has been tested by applying Regression to Panal data for our sample for the

period 2005-2009. Following model applies to the data.

DPO

it = β0it

+ β2EPSit

+ β3ROEit

+ β4CFPSit

+ β5Sit+ ε

it

Where: DPO= Dividend Pay Out

EPS= Earnings per Share

ROE= Return on Equity

CFPS= Cash Flow per share

S = Size

β = Coefficients for variables

ε = Error term

Empirical Analysis

Correlation

Correlation is a measure of relationship between two or more variables. Correlation

Coefficients can range from -1.0 to +1.0. The value of -1.0 represents a perfect negative correlation

while a value of +1.0 represents a perfect positive correlation. A value of 0 shows there is no

correlation. The most widely used type of correlation is Pearson (r), it also called linear

correlation. Pearson Correlation considers that two variables are measured on at least interval scale

and it determines the extent to which values of two variables are ―proportional‖ to each other.

Coefficient of determination r square will represent common variation in the two variables, the

strength and magnitude of the relationship.

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Table 1

** Correlation is significant at the 0.01 level (2-tailed). * Correlation is significant at the 0.05 level (2-tailed).

The table is showing correlation between dependent and independent variables that are

dividend per share, earning per share, return on equity, operating cash flow and size and dependent

variable dividend payout.

The correlation between earning per share and dividend payout is significant. Correlation

value .000 is significant at .01 levels. Earnings per share value are .71. So it shows there is a strong

positive correlation. Also It reflects a linear positive relationship between earning per share and

dividend payout.

The correlation between return on equity and dividend payout is insignificant. Correlation

value .603 is insignificant at .05 levels. Return on equity value is .05. It shows there is little

positive correlation. Also it reflects a little but positive relationship between return on equity and

dividend payout.

The correlation between operating cash flow and dividend payout is insignificant.

Correlation value .687 is insignificant at .05 levels. Amidu (2007) describes that increasing in

liquidity reduce the dividends. Operating cash value is -.041. It shows there is some negative

correlation. Also it reflects a little but negative relationship between operating cash flow and

dividend payout.

Correlation value .052 is insignificant at .05 levels. The correlation between size and

dividend payout is insignificant. According to Kania (2005) results there is positive correlation

between firm size and dividend payout. Size is .195. It shows there is some positive correlation.

Also it reflects a little but positive relationship between size and dividend payout.

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Regression The research study uses multiple regression models in order to analyze relationship

between dependent and independent variables. The multiple regression models are characterized

by one dependent variable and multiple independent variables. The multiple independent variables

explain variations in the dependent variable. The multiple regression models are as under:

Y = β0+β1X1+β2X2+β3X3………+ βnXn (1)

Where Y is dividend payout (dependent variable)

X is other factors affecting dividend per share β is the regression coefficient which may be

positively or negatively affect dependent and independent variables.

Y D = β0+β1 X eps+ β2 X roe + β3 X cfop + β4 XS ………. (2)

Y D = β -.737+β.725 X + β -.847 X roe + β-.790 X + β .104 XS ………. (2)

Where Y = Dividend Payout (dependent variable) β1X1 = Earnings per Share, β2X2=

Return on Equity, β3X3 = cash flow operating, β4X4 =Size, (independent variables). The coefficient

of determination is represented by (R2) which measures the proportion of variability in the value of

the dependent variable.

Table 2

a Predictors: (Constant), S, ROE, EPS, CFOP

The coefficient of determination ‗R2‘ = 0.619 which show that 61.9% of variation in

dividend payout is explained by earning per share, return on equity, operating cash flow and size.

Table 3

a Predictors: (Constant), S, ROE, EPS, CFOP b Dependent Variable: D

The F-test value is 38.514 and is significant because the significance level is = .000 which

is less than 0.05. This also implies that the correlation between dependent variable and

independent variables is statistical significant and the regression model is valid. The valid

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regression model implies that independent variables return on equity, earning per share and

operating cash flows are explaining that there is significant relationship with dividend payout

(dependent variable).

Table 4

a Dependent Variable: D

The regression coefficient for earning per share (β1) = .725 which implies that one percent

increase in earnings per share increase 72% percent in dividend payout if other variables are kept

controlled. The T-test value is 11.855 which are significant at .000 because significance level is

less than .05. It implies that the relationship between earning per share and dividend payout is

positive and significant and overall regression model is valid. Kania (2005) concludes in his paper

that a higher EPS growth allows a greater capacity for the firm to increase dividends. To reject the

alternative hypothesis the benchmark of the value is P <0.05. So therefore the null hypothesis will

accept and alterative hypothesis will be reject that is:

H1: Earning per share and dividend payout is positive and significant relations.

The regression coefficient for return on equity (β2) =-.847 which implies that one percent

increase in return on equity decrease 84.7% percent in dividend payout if other variables are kept

controlled. The T-test value is -1.068 which is insignificant at .288 because significance level is

less than .05. It implies that the relationship between return on equity and dividend payout is

negative and insignificant and overall regression model is valid. Amidu (2007) find out that

surprisingly the negative association of firm‘s size and return on assets indicates that, increasing

size is associated with decrease in profitability.

The results show that there is a negative relationship between dividend increases and

subsequent declines in profitability (Grullon, 2002). To reject the alternative hypothesis the

benchmark of the value is P <.05. So therefore the null hypothesis will accept and alterative

hypothesis will be reject that is:

H2: Return on equity and dividend payout is positive and insignificant relations.

The regression coefficient for operating cash flow (β3) = -.790 which implies that one

percent increase in operating cash flow decrease 79% percent in dividend payout if other variables

are kept controlled. The T-test value is -5.027 which significant at .000 because significance level

is less than .05. It implies that the relationship between operating cash flow and dividend payout is

negative and significant and overall regression model is valid. Olatundun (2003) describes that

coefficient of operating cash flow is significant for small firms and not significantly for average

and large sized firms. To reject the alternative hypothesis the benchmark of the value is P <0.05.

So therefore the null hypothesis will accept and alterative hypothesis will be reject that is:

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H3: Operating cash flow and dividend payout is positive and significant relations.

The regression coefficient for size (β4) = .104 which implies that one percent increase in

size increase 10.4% percent in dividend payout if other variables are kept controlled. The T-test

value is 1.312 which insignificant at .193 because significance level is less than .05. It implies that

the relationship between size and dividend payout is positive and insignificant and overall

regression model is valid. To reject the alternative hypothesis the benchmark of the value is P

<0.05. So therefore the null hypothesis will accept and alterative hypothesis will be reject that is:

H4: Size and dividend payout is positive and insignificant relations.

Conclusion This study shows that there is a strong relationship between dividend payout with EPS

(Earnings per Share) ROE (Return on Equity) CFOP (Cash Flow operating) and the results for

these variables are significant but the variable S (Size) shows the results insignificant. It implies

that if the liquidity of the firm is available then the firm would pay dividend and earnings per share

(EPS) and dividend per share (DPS) also indicates that the firm would pay dividend. Another

factor is very important which is ROE (return on equity).it affects a lot upon firms dividend

payment decision as per study conducted by Olatundun (2003) coefficient of operating cash flow is

significant for small firms and not significant for average and large sized firms. This shows that in

case of large firms the return on equity of the firm would decrease and liquidity would also

decrease and resultantly it would have a negative relationship with dividend payouts. In this study

we have taken large companies that could be the reason that ROE and CFOP has a negative

relationship. However the results might improve in future research by increasing the sample size of

the companies and also we can include financial sector into our sample.

Limitations

o Financial sectors may be included in the sample size.

o During 2005-09 the economic instability prevails in the country so that‘s the reason

that dividend payout results are not supporting the theories

o For improved results the sample size has to increase.

o Some companies show their strength for that purpose

o Window dressing

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References

Allen, F, R. and Michaely. (1997), ―Dividend Policy‘, in R. Jarrow, V. Maksimovic and W.

Ziemba (eds.)‖ Handbooks in Operations Research and Management Science, Vol. 9, pp.

793–837.

Al-Attar, A. and Hussain, S. (2004), ―Corporate data and Future Cash Flows,‖ Journal of Business

Finance and Accounting, Vol. 31, No. 7, pp. 8.

Aivazian, V. and Booth, L. (2003), "Do Emerging Market Firms Follow Different Dividend

Policies from U. S. Firms?‖ Journal of Financial Research, Vol. 26(3), pp 371-387.

Amidu, M. (2007), How Does Dividend Policy Affect Performance Of The Firm On Ghana Stock

Exchange? Investment Management and Financial Innovations, Vol. 4.

Baker, H. and Powell, G. (1999), ―How Corporate Managers View Dividend Policy,‖ Quarterly

Journal of Business and Economics, Vol. 38, pp. 17–35.

Baker,H.K, and Powell G. E, (2000), ―Determinants of corporate dividend policy: a survey of

NYSE firms‖, Financial Practice and education, Vol. 9, pp 29-40.

Baker, R., (1999a), ―The Role of Dividends in Valuation Models used by Analysts and Fund

Managers”, European Accounting Review, Vol. 8, pp. 195–217.

Bradley, M. Capozza, Dennis, R. and Seguin, P.J. (1998), ―Dividend Policy and cash flow

uncertainty‖, JEL Classifications.

Bodnaruk, Andriy and Per Östberg, 2007 ‘Does Investor Recognition Predict Returns?‘ Working

Paper.

Charitou, A. and Vafeas, n. (1998), ―The Association between operating cash flows and dividend

changes: an empirical evidence‖, Journal of Business finance and Accounting, Vol. 25 (1)

& (2).

Farrelly, G. E., Kent B. H and Richard B. E, (1986), ―Corporate Dividends: Views of Policy

makers‖, Akron Business and Economic review, Vol. 17:4 (Winter), pp. 62-74

Fama, E. F. and Harvey B, (1968), "Dividend Policy: An Empirical Analysis," Journal of the

American Statistical Association, Vol. 63, pp. 1132-1161.

Fama, E. F, (1974), "The Empirical Relationship between the Dividend and Investment Decisions

of Firms," American Economic Review, Vol. 64, pp. 304-318.

Grullon, G., Michaely, R and Swaminathan, B. (2002)Are Dividend Changes a Sign of Firm

Maturity? The Journal of Business. pp. 1-65.

Ingram, R. W. L. and Thomas, A. (1997), ―Information provided by accruals and cash flow

measures of operating activities‖, ABACUS, Vol, 33.

Kania, S. L and Bacon, F. L. (2005) What Factors Motivate The Corporate Dividend Decision?

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Lintner, J. (1956), ―Distribution of incomes of corporations among dividends, retained earnings,

and taxes‖, American Economic Review, Vol. 61, pp. 97-113.

Mohamed, N., Hui, S.W., Omar, H. N. and etl. (2007), Empirical Analysis Of Determinants of

Dividend Payment: Profitability And Liquidity. pp. 1-20.

Murray, E. K. (1981), "A Theoretical and Empirical Study of Uncertainty as a Discriminant of

Dividend Payout Decision," D. A. I., 41(8), 3700-A.

Naceur, S. B, Goaied, M. and Belanes A. (2006), "On the Determinants and Dynamics of Dividend

Policy", International Review of Finance, Vol. 6, pp. 1-23.

Olatundun J. A, (2003), Cash Flow and Dividend Changes in Nigeria. Blackwell Publishing Ltd,

pp. 35-49.

Omar, I. H. and Juhmani. (2009), ―Determinants of dividend payout policy: evidence from

Bahraini firms". Journal of International Finance and Economics, Vol. 12, pp. 369-384.

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dividend decisions of major US firms", Financial review, Vol.26 No.33, pp.409-30.

http://findarticles.com/p/articles/mi_6765/is_2_9/ai_n36509554/

http://findarticles.com/p/articles/mi_6765/is_2_9/ai_n36509554/

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A Paradigm Shift in Social Work in Pakistan

Zahid Javed

PhD ,Associate Professor/Chairman, Department of Social Work,

University of the Punjab, Lahore Pakistan.

Muhammad Arshad

Lecturer, Department of Social Work, University of the Punjab, Lahore Pakistan.

Aliya Khalid

Assistant Professor, Department of Social Work, University of the Punjab, Lahore Pakistan.

Abstract This paper has been prepared to study the phenomenon of paradigm shift in Social Work in

Pakistan. In the context of Social Welfare there is a visible change from residual to mainstreaming

approach of Social Work Practice. Residual approach addresses marginalized groups of the

society. However, mainstreaming approach refers to the process of creating such conditions in

social setups and structures for enabling people to contribute productively as an individual as well

as members of the society. Because merely working for marginalized groups are inadequate to

meet the diversified societal challenges and social problems. It is an attempt to see the implications

resulted by this paradigm shift in its historical perspective which need to be studied. The study will

provide opportunities of creating research based knowledge and preparing the Social Workers for

delivery of Social Welfare Services effectively and efficiently. The impact of charities as well as

donations on developing countries, globalization and role of corporate sector are other significant

aspects which also need to be addressed by the academicians and professional social workers for

meeting the challenges and performing their role more productively in globalize world.

Keywords: Paradigm Shift , Social Work , Pakistan

Introduction

Social Work Practice is undergoing a paradigm shift globally. Since inception, it has been

practiced with a residual approach. Now, there is a visible change from residual to mainstreaming

approach of Social Work Practice. Residual approach ―based on the idea that governments should

play only a limited role in the distribution of social welfare. The assumption is that the majority of

the population will be able to locate their own sources of assistance, whether through the market

mechanism of work, or from family and perhaps church or charity. The state should only step in

when the normal sources of support fail and the individual is unable to help themselves‖

(Leighninger, 2008). However, mainstreaming approach refers to the process of creating such

conditions in social setups and structures for enabling people to contribute productively as an

individual as well as members of the society.

―Social Work as a profession grew chiefly out of the development of social welfare policies and

programs in the United Slates, Europe, and Muslim countries. Judeo-Christian and Muslim

practices and beliefs underlie many of the early attempts to provide help to the poor, the sick,

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widows, orphans, the "insane" (Leighninger, 2008). However, feeling of belongingness, provision

of mutual assistance and protection is as old as human beings. ―Dating from this early phase of

human development mutual assistance and protection can be called one of the fundamental drives

which compensates for destroying or enslaving fellow men‖ (Lander, 1961).

By over viewing the concept of Social Welfare in Europe, USA and Sub-continent generally and in

Pakistan particularly reflects that almsgiving and charity for poor, orphans, widows, blinds and

lames were appreciable and source of salvation. However, thousands years ago the tribal and the

religious leadership has been providing protection to helpless, needy and vulnerable. ―Two

thousand years before the birth of Christ, a ruler of Babylonia, Hammurabi made the protection of

widows and orphans an essential part of his code (Leighninger, 2008). The presence of the

Xenodochia (guest houses) in Greece and Egyptian temples shows that it is an ancient tradition.

Later on ―The Jews developed many social welfare practices. These included the education of

orphans, burial of the dead, consolation of the bereaved, visitation of the ill and infirm, and the

care of widows, divorcees, and the aged. Provision for the poor was made primarily through

various agricultural practices, which included ―gleanings,‖ or the practice of leaving grain dropped

during the harvest which could be picked up by the hungry‖ (Leighninger, 2008).

Following Judaism, ―Christianity carried on the charitable tradition, adding a particular emphasis

on love and compassion. Since the founders of the Christian Church were Jews, it is not surprising

that many parts of New Testament focused on charity. The basic principle underlying early

Christian approaches to social welfare was similar to the Hebraic idea that poverty was not a

crime. Even though discretion should be observed in giving aid, and rules set up for discriminating

between the various classes of poor people, evidence of need was still the paramount factor in

offering help. It was assumed that need came about as a result of misfortune for which society

should take responsibility‖ (Leighninger, 2008).

The early Christians helped one another, facing poverty and persecution. However, as pointed out

earlier that later on they followed the Greek tradition of xenodochia (guest houses) because

Christianity in medieval period became state religion and church entrusted the administration of

charity to the bishop, the local priest and the deacons. During this period begging was considered

socially respected, as an easy way of living and shared with missionaries, monks as well as

university students. Institutions for the poor were established for the monasteries, serving as

orphanages, as home for the old, the sick and the handicapped and as refuge for the homeless

(Lander, 1961).

Islam also contributed to charitable traditions which emphasizes on social reforms. Islam promotes

the welfare of disadvantaged through its compulsory contribution in the form of Zakat. It is not

considered as a charity but obligatory for all Muslims who are financially able to contribute 2.5%

of their net wealth annually which is spent to support the needy. It is an act of social justice

through the redistribution of wealth. In addition to this, other contributions are also made which

are called Sadqa, Khiraat, Usher and Khumas (Syed, 1975; Shaghil, 1989; Sardar, 1979)

In Sub-continent, a centuries old tradition of charity (dan, pun) existed, aimed to provide welfare

services to widows, orphans, poor and disabled. The presence of ashram (widow home and

orphanages), Janj ghar (community centers for Hindu marriages) and Buddhists monasteries have

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been providing services to disadvantage, monks and students. Khanqah (shrines of Muslim saints)

and masjid (mosque, place for Muslims to offer prayers), have also been used for provision of food

and stay for occasional travelers.

In Christianity, almsgiving and charity was praised by the church. However, the state responded it

otherwise. During this course of history, a conflict developed between the clergy and the state by

growing influence of the church. It threatened the secular authorities. The begging was

discouraged and in 800, they ordered to fine those citizens who would give alms to able-bodied

beggars. Monasteries, abbeys, and convents were partly replaced and hospitals (hotels de Dieu)

were instituted where old, sick persons, orphans, abandoned children and pregnant women were

looked after. The conflict existed until the middle Ages (Lander, 1961).

However, this conflict became more violent in 16th

century during the period of Reformation.

During this period Martin Luther (1520) appealed Christian nobility and the German nation, to the

princess to forbid begging and to organize the ―Common Chest‖ in all parishes for the receipt of

money and clothes to assist the needy. Similar programs of poor relief were carried out in Zurich,

Switzerland in 1525. France, Austria and the Scandinavian countries developed programs which

resembled with the concept of Luther (Lander, 1961).

In England, until the fourteenth century, the king and Parliament were not concerned with the

charity of the Church and the guilds. However, by the gradual disappearance of feudalism in

England, the King and nobles faced the problem of maintaining the order among the laborers and

prevent vagrancy.

The Elizabethan Poor Law of 1601

The law distinguished the three classes of the poor: The Able-bodied-Poor, the Impotent Poor and

Dependent Children. Able-bodied Poor were forced to work in the ―houses of Corrections‖ or

―work houses‖ and citizens were forbidden to give them alms. The Impotent Poor were the sick,

the old, the blind, the deaf, the lame and mothers with young children. They were unable to work

and placed in alms houses. However, Dependent Children were the orphans, and children who had

been destroyed by their parents or their parents were so poor that they could not support them.

They were to be apprenticed, the boys until they were 24 years old and the girls until they were 21

or married (Fink, Wilson & Conver, 1960).

In Great Britain, The Poor Law of 1601 set the pattern of public relief under governmental

responsibility for three hundred years and later reforms made the legislation more focused on

provision of protective services. Labor Reforms of 1802, Poor Law Reforms of 1834 and

enactment of Factory Act 1847 improved the conditions of children of factory workers as well as

prisoners. However, ―during the 19th century three main factors influenced the philosophy of poor

relief in England, which were categorized as the role of social reform movements, the Charity

Organization Societies and the social research‖ (Lander, 1961). This turning point in the field of

Welfare in England was an outcome of the efforts of Sir William Beveridge.

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Beveridge Report.

During World War II, Sir William Beveridge was appointed for surveying the structure and the

efficiency of the British Social Services and to make the recommendations for necessary reforms.

The report presented by him recommended a comprehensive plan of social security. The Beveridge

Report became the foundation of the modern Social Welfare Legislation of Great Britain and

model for other countries.

The United States of America (USA) followed English Poor Law because majority of colonists

came from England. They brought with them English ideas, customs, English common laws and

English institutions. Church as well as Charity Organizations Society Movement also made

contributions for improving conditions of poor in USA (Fink, Wilson & Conver, 1960). America

followed the same pattern of Social Services i.e. from alms houses to Social Security. Institutions

were built to provide caring services for marginalized segments of the society. However, later on a

new school of thought appeared, advocating deinstitutionalization of disabled, psychiatric as well

as other sicks. The concept of Community Care emerged in USA. Foster Care and Half Way

Homes were introduced and developmental aspect of Social Work became more prominent and

significant in USA.

Social Welfare is a wider umbrella for provision of social services—education, health, portable

water and sanitation etc. According to Friedlander ―Social Welfare is the organized system of

social services and institutions designed to aid individuals and groups to attain satisfying standards

of life and health, and personal and social relationships which permit them to develop their full

capacities and to promote their well being in harmony with the need of their families and the

community‖ (Lander, 1961). For the delivery of Social Welfare services, Social Work emerged as

a profession based on scientific methods in modern era. Primarily ―Organized work intended to

advance the social conditions of a community, and especially of the disadvantaged, by providing

psychological counseling, guidance, and assistance, especially in the form of social services‖.

(Answer.Com, 2011) )―

It was considered that ―Social Work seeks to enhance the social functioning of individuals, singly

and in groups, by activities focused upon their social relationships which constitute the interaction

between man and his environment. These activities can be grouped into three functions: restoration

of impaired capacity, provision of individual and social resources, and prevention of social

dysfunction‖ (Skidmore, Thackeray & Farley, 1997).

As explained above the earlier approach of social work was residual in nature, addressing

marginalized groups of society, by practicing their methods of Case Work, Group Work,

Community Development, Social Welfare Administration and Social Action (Lander, 1976). These

methods have proven their adequacy and efficacy to help directly as well as indirectly to

individuals, groups and communities in problematic situations.

In present era, human life and social structures are under serious threats. Societies are striving

against socio economic, political and cultural oppressions and pressures. Social Workers realize

that merely working for marginalized groups is inadequate to meet the diversified societal

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challenges and social problems. Now there is a shift over from residual approach to

mainstreaming, focusing the developmental aspects. The role of Social Work is viewed as ―The

social work profession promotes social change, problem solving in human relationships and the

empowerment and liberation of people to enhance well-being‖ (Answer.Com, 2011).

In the developed countries, Social Work practices are leading from traditional approach to

developmental approach. Now Social Work is focusing on empowerment and liberation, equity

and social justice. Some new concepts have been introduced for development of the communities

of developing countries. Networking has been increasingly recognized as an important aspect of

Community Work. Apparently it is also a new concept for the welfare of communities, whereas

social workers have been practicing it as one of the primary methods of Social Work—Community

Development, since emergence of the Profession. According to Bureau of Social Affairs, United

Nations (1955) ―Community development is a process designed to create conditions of economic

and social progress for the whole community with its active participation and fullest possible

reliance upon the community initiatives‖ (1955).

The UK framework for national occupation standards for community development work gives the

following definition: ―Community development is a long term value based process which aims to

address imbalances in power and bring about change founded on social justice, equality and

inclusion‖ (Gilchrist, 2009). Community Development ensures the participation of the community

in development process, relying on its resources. It ultimately aims for sustainable development by

creating a just and humane society. It is based on time tested principles and processes, ensuring

active participation of people in development process. A new term has been coined as

Participatory Development, denoting a change in welfare approach.

―Participatory Development is a community-based action for transformative change. Participation

is transformative concept. It is a way of life, a way of seeing the world, a way of being in the

world. We say this to emphasize that it is not simply an approach of working in community; it has

far reaching implications for practice. Its philosophy is founded on principles of peace, justice,

equality and profound belief in the work of everyone and the sanctity of natural world‖ (Ledwith

& Springett, 2010).

―Within the term Participatory Development we embrace a diversity of roles, but we locate

community development at the heart of the process. The key purpose of community development

is collective action for social change, principled on social justice and a sustainable world‖

(Ledwith & springett, 2009).

In present era, because of socio-economic and other political compulsions, it is becoming difficult

for developing countries to invest more and more on delivery of services —education, health,

sanitation and employment etc for their citizens. In view of the changing scenario, an International

donor agency, Multi Nationals and Corporate Sector is playing its role in developing countries to

alleviate poverty and infrastructure growth for delivery of basic necessities of life. The programs

and services of these organizations have far reaching impact on the life and society. It need to be

viewed as a phenomenon of paradigm shift in the context of globalization for restructuring of

Social Work profession to provide social welfare services in more effective and efficient manner.

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Moreover collaborating the efforts of Multinationals, NPOs and Corporate Sector to enhance the

role of social work and getting its recognition in the developing countries like Pakistan.

In Pakistan, being a Muslim country its religious institutions-Zakat, Sadqa, Khiraat and Usher are

functioning which is administered by the Ministry of Social Welfare, Zakat and Bait Ul Mal.

However, some new initiatives have been taken by the Government like Pakistan Poverty

Alleviation Fund (PPAF), Poverty Reduction Strategy Papers (PRSP) and Benazir Income Support

Programme (BISP) have been introduced which enable people to minimize and mitigate their

problems. These programs are aimed to lead them to independence and self-reliance. Although

most of the efforts are translated into actions by public sector programmes and policies. In addition

to these efforts public provides assistance to poor and needy persons through cash and kinds as

well as sadqa and khiraat. However, the changing socio political scenario in the globalize world

has created such conditions for the communities, as well as corporate sector to build those

mechanisms to collaborate their efforts for public welfare and development.

Discussion

Social Welfare is not a new idea; it is as old as human beings. During primitive as well as early

periods of history, tribal and religious leadership has been providing social services to needy. The

Jews and the Christians helped one another facing poverty. But later on they followed the Greek

tradition of Xenodochia which continued till medieval period in Europe. This welfare approach

manifested in Social Legislation of Great Britain. Pakistan inherited the same pattern of Social

Welfare which was characterized by residual approach, focusing on provision of social services &

Institutional care.

The following table summarizes changes which took place for the welfare of needy and deserving

people during different periods of history.

Table No.1

Sr. No. Name of Institution Functions

1. Tribal/ Religious Leadership Tribal and religious leadership has been providing social services to needy.

2. Xenodochia (guest houses) - Serving as orphanages, homes for the old, the sick, and the handicapped and as

refuge for the homeless.

3. Jewish - social welfare practices

- education of orphans

- burial of the dead

- visitation of the ill and infirm

- care of widows, divorcees and aged

- Provision for the poor through various agricultural practices including

―gleanings,‖ of the practice of leaving grain dropped during the harvest

which could be picked up by the hungry.

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4. Church The tradition of Xenodochia (guest house) was followed by the Christianity.

5. Mideval Europe - Begging was considered as an easy way of living

- Shared with missionaries, monks as well as university students.

- Socially respected

6. Post Industrial Europe - Monasteries, abbeys, and convents were partly replaced

- Hospitals (hotels de Dieu) were instituted

- Old, sick persons, orphans, abondand children and pregnant women were

looked after by Institutions.

7. Modren Europe - Legislation was enacted for poor relief ( Poor laws and Elizasthan Poor Law

1601)

- Legislation for the protection of child labour.

- Factory legislation

- Prison Reforms.

- Comprehensive plan of social security in the light of Beveridge Report.

8. United State of America

(USA)

- The pattern of social services in America was:

From alms houses to social security.

- Institution building for provision of services for marginalized segments of the

society.

- Deinstitutionalization of disables, psychiatric as well as for other destitute.

- Emergence of concept of Community Care.

- Foster Care and Halfway Homes.

- Prominence of developmental aspects of social work in recent years.

9. Indian sub-continent before

colonization.

- Old tradition of charity (dan, pun) existed

- Services for widows

- Orphans, poor, disabled.

- Ashram (widow home and orphanages).

- Janj Ghar (community centers for Hindu marriages)

- Monasteries of Buddhists

- Khanqah (shrines of Muslim saints)

- Masjid (used for provision of food and stay for occasional travelers).

10. Institutional care for

marginalized groups in

- Adoption of same British welfare approach and legislation and concept of

Institutional care. The following is the detail of Institutions for underprivileged

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Punjab, Pakistan * segments of the society.

- Ghewara: For care of illegitimate and abundant babies

- Nigheban: Rescue and rehabilitation services for run away, lost and kidnapped

children.

- Chaman: Education and training services for mentally retarded children

- Nashemen: Skill training and rehabilitation services for disable children.

- Kashana: Rehabilitation services for destitute girls.

- Dar-ul-Aman: Psycho-Socio and legal support for destitute women.

- Aafiat (old home): Welfare of infirm and aged people.

- Orphanages & Model

Children Homes: Care, protection and development of orphan children.

- Child Protection Institutions (CPI): Provision of protective services to the

vulnerable children.

11. Donor Agencies and some

newly emerged actors

International donor agencies, Multi Nationals and Corporate Sector is playing

its role in developing countries for: alleviation of poverty.

Infrastructure growth for delivery of basic necessities of life - education, health,

food, portable water, and sanitation etc.

Civil Society Organizations (CSOs) and Non Profit Organizations (NPOs).

[

* Source: www.punjab.gov.pk/departments

Conclusion Before 1947, Pakistan as a part of India was ruled by the British. The British influence remained

prominent and significant on colonized Sub-continent. Besides other areas, Social Welfare

Practices were also influenced by the English philosophy of social welfare which was based on

welfare of its citizens by legislation and implementation through its institutions. This approach was

residual in nature. It continued even after the lapse of more than sixty years in Pakistan. Now in

Europe, USA and other developed countries, the nature of provision of social services has been

changed qualitatively, focusing on the developmental aspects referring the mainstreaming

approach of Social Work. During this process, several new actors—civil society organizations

(CSOs), Non Profit Organizations (NPOs), Donor Agencies and Corporate Sector have shown

their visible presence in social sector which were not considered a stakeholders previously.

These newly emerged actors are playing a vital role in social development of these countries. In

Pakistan, Corporate Sector, NPOs and CSOs have also become an important stakeholder in

development sector. However, unlike developed countries, the profession of Social Work is

legging behind in Pakistan as less effort have been made to identify the potential collaborative role

of social work for engaging these newly emerged stakeholders of social sector.

This article is an effort to offer the professional social workers and researchers to make their

contributions for fill this gap which will help for collaborating the efforts of newly emerged actors

of development and channelize their resources for the welfare and development of community and

society at large.

http://www.punjab.gov.pk/departments

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References

Abid, S.Q. & Abid, M.(2009)History & Civilization of the Muslim World, Lahore:Research

Society of Pakistan, University of the Punjab.

Answers. (n.d.). Retrieved May 08, 2011, from Scial Work: http://www.answers.com

Departments. (n.d.). Retrieved May 03, 2011, from Government of the Punjab:

www.punjab.gov.pk

Encyclopedia of Social Work. (1977). Encyclopedia of Social Work , II (17) .New York, USA: National

Association of Social Workers.

Fink, A.E., Wilson, E.E. & Conver, M.B. (1960)The fields of Social Work, New York: Holt,

Rinchart and Winston.

Gilchrist, A. (2009) The well connected communities, Bristol: The Policy Press.

Lander, W. F. (1961). Introduction to Social Welfare (2nd ed.). London, England: Prentice-Hall,

INC.

Lander, W.A. (1976) Concepts and Methods of Social Work (2nd

ed.), New Jersey: Prentice-Hall,

Inc.

Ledwith, M. & Springett, J. (2009) Participatory Practice: Community-based action for

transformative change, Bristol: The Policy Press.

Leighninger, L.(2008). The History of Social Work & Social Wefare In: Comprehensive Book of Social

Work & Social Welfare. Comprehensive Book of Social Work & Social Welfare , I . Hoboken, New

Jursey, USA: JOHN WILEY & SONS, INC.

Lurie, H. L. (Ed.). (1965). Encyclopedia of Social Work. Encyclopedia of Social Work (15) . New York,

USA: National Association of Social Workers.

Sardar, Z. (1979). The future of Muslim Civilization. Lodon.

Shaghil, M. (1989). Islamic Economics: Aglobal Perspective. New Delhi: Ashish Publishing

House.

Skidmore, R.A., Thackeray, G.M. and Farley, W.O. (1971) Introduction to Social Work (2nd

ed.),

Boston: Allyna Bocom, Prentice Hall.

Social Work Review. (1982). Social Work Review , Lahore: Department of Social Work, University of the

Punjab

Syed, A. A. (1975). Islam the Religion. Karachi: Syed Publication.

(1955). Social Progress Through Community Development. New York: Bureau of Social Affairs,

United Nations.

Rehmatullah, S.(2002)Social Welfare in Pakistan:Karachi: Oxford University Press

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FFiinnaanncciiaall FFaaccttoorrss iinn CCaappiittaall SSttrruuccttuurree DDeecciissiioonnss:: PPaanneell DDaattaa AAnnaallyyssiiss ooff

PPaakkiissttaann‟‟ss MMaajjoorr MMaannuuffaaccttuurriinngg SSeeccttoorrss

Farah Riaz (Corresponding Author)

Lecturer, Department of Management Sciences,

COMSATS, Institute of Information Technology, Quaid Avenue, The Mall, Wah Cantt – Pakistan

Dr. Muhammad Afzal (Co-Author)

Chairman, Department of Management sciences

COMSATS Institute of Information Technology

Park Road Chak Shahzad, Islamabad -Pakistan

Abstract

Capital structure is one of the important areas of firms‘ strategic and financial decision making as

it enables managers to finance a firm‘s overall operations with different sources of funds. Several

financial and business factors play a fundamental role in an effective decision making of firms‘

choices of capital structure. The aim of this study is an attempt to investigate the role of firm‘s

financial factors that might determine the capital structure and influence the strategic financial

decisions of the firms. The study is based on a theoretical model, termed as ‗Leverage Model‘ in a

pooled cross-sectional framework. Panel data analysis technique is applied to individual firms

from textile, engineering, sugar, chemical and cement sectors, listed at Karachi Stock Exchange

(KSE) during the study period 2001 to 2008. Empirical findings reveal that firm‘s profitability and

growth in assets are found to have significant negative association with debt ratios whereas, mixed

results are observed for tangibility and size of the firm. Other factors like sales growth rate and

dividend pay-out ratio are found to be less significantly related when firms from Pakistan‘s large-

scale manufacturing sectors are taken into account.

Keywords: Capital structure, financial factors, leverage model, panel data analysis

11.. IInnttrroodduuccttiioonn

Capital structure is one of the most significant and complex areas of corporate strategy and

financial decision making. Capital structure is the mix proportion of a firm‘s long-term debt, short-

term debt, common equity, preferred equity and other sources of funds that a firm needs to finance

its operations. Capital structure is a way through which a firm finances its assets and overall

operations besides some combination of equity, debt, or a combination of securities. Debt

financing includes bond issues or long-term notes payable, while equity is classified as a common

stock, preferred stock and retained earnings. Short-term debt such as working capital requirements

is also considered a source of funding in determining the capital structure. A company's proportion

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of short-term and long-term debt must be analyzed well while considering the capital structure. In

finance, capital structure of a firm is measured in terms of leverage (firms‘ lever up their

profitability by raising their level of debt). Leverage of the firm is the use of fixed cost by the firm

in order to raise its profitability.

Pakistan‘s manufacturing sector is comprised of two groups; large-scale manufacturing and small

& medium scale manufacturing.1 Manufacturing sector is one of the most important sectors due to

its remarkable contribution to country‘s GDP.2 Large-scale manufacturing sector is a growing

sector in Pakistan and there are a large number of sub-sectors in the sector. Unfortunately, several

firms from Pakistan‘s manufacturing sector have been facing a slump in their levels of productivity

and profitability due to certain disorders and irregularities among economic factors like increasing

energy and power crises, rising cost of doing business, growing demands within the country while

depressing demand in exports, worsening law and order situation and sudden targeted terrorist

attacks in the country which have contributed to the decelerated growth of the manufacturing

sector.3

To make a realistic analysis based on the availability of relevant data, we have selected five sectors

which are considered the backbone of Pakistan‘s manufacturing sector. These are: textile,

engineering, sugar, chemical and cement. The growth of manufacturing sector depends on several

economic and business factors. Our objective is to empirically analyze the capital structure of the

listed manufacturing firms and its determinants that are most likely to influence the firms‘

financial decisions. We refer to these factors as firm-specific factors (sales growth rate, return on

assets, tangibility, dividend pay-out ratio, growth in assets and size of the firm). A few studies

(Mazhar and Nasr 2010, Shah and Hijazi 2004, Mahmud 2003) have been done which have

empirically examined the determinants of capital structure among Pakistan‘s manufacturing firms.

Investigating the role of firm-specific factors in determining the capital structure (leverage ratios)

among five major manufacturing sectors of Pakistan and to examine the sector-wise variations in

capital structure determination based on the firm-specific factors are the principal objectives of this

paper. The remaining paper is organised as follows: section 2 carries the review of studies. Section

3 discusses the methodology and data sources. Empirical results and conclusions have been given

in sections 4 and 5 respectively.

22.. RReevviieeww ooff LLiitteerraattuurree Several studies have been done on diverse aspects of the firms' choice of capital structure in

Pakistan as well as abroad. Modigliani and Miller (1958, 1963) argue that under the conditions of

perfect capital markets and without transaction or bankruptcy costs, the financial leverage of the

firm is unrelated to its value. Further research has shown that Modigliani and Miller‘s assumptions

are unlikely to be valid as the conditions of perfect capital markets do not prevail in real life.

Researchers have identified several firm-specific factors, based on three most accepted theoretical

models of capital structure: the static trade-off theory, the agency theory and the pecking-order

theory. Myers and Majluf (1984) put forward Pecking Order theory, arguing that equity is a less

preferred means to raise capital because investors may believe that by offering new equity,

managers may take the advantage of over-valuation. Frank and Goyal (2005) showed that how

much debt and equity financing should be used by the firms in order to equalize the costs and

benefits generated from debt and equity financing. Trade-off theory allows the bankruptcy cost to

exist and states that firms get advantage to finance with debt and there is a cost of financing of

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

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

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

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debt. Empirically, this theory may explain the differences in debt-to-equity ratios between

industries, but it doesn't explain differences within the same industry. Harris and Raviv (1991)

reviewed the capital structure theories based on four different models: agency costs, asymmetric

information, product/input market interactions, and corporate control considerations (excluding

tax-based theories).

Rajan and Zingales (1995) investigated the determinants of capital structure in USA. They argued

that larger firms tend to be more diversified and fail less often and size may be an inverse proxy

for the probability of bankruptcy. Therefore one can suggest that firms with large size survive with

higher gearing ratios as compared to the small size firms. Other studies (Jensen and Mekling 1976,

Scott 1977, Stiglitz and Weiss 1981, Harris and Raviv 1990) measured tangibility or the fixed asset

ratio as a proxy for collateral value. According to these authors collateral may help moderate the

risks of adverse selection and moral hazards faced by lenders. Bevan and Danbolt (2001) analyzed

that tangibility was positively correlated with the level of long-term debt and negatively

correlated with short term debt significantly. Barclay et al. (1995) found no significant size effect

and Titman and Wessels (1988) found large companies to have significantly lower gearing ratios

than smaller firms. Bauer (2004), Hall et al. (2004), Danbolt et al. (2000), Bevan and Danbolt

(2001) analyzed the capital structure of European firms with a wide range of firm-specific

variables. Other researchers like Ramlall (2009), Abor (2008), Eldomiaty (2007) among others

also analyzed the capital structure in the African firms.

Mahmud (2003) investigated the relationship between economic growth and capital structure

decisions of firms in three Asian countries: Japan, Malaysia and Pakistan taking several firm‘s

factors (growth, size, and fixed asset ratio, profitability, operating leverage and dividend policy).

Findings show that Japanese and Pakistani firms have high leverage ratios compared to Malaysian

firms. In another study, Bas et al. (2009) comprehensively examined the determinants of capital

structure. Their results demonstrate that large and listed companies in developing countries are

able to finance their operations through an additional debt financing as debt is easily available to

them. Jong et al. (2006) examined the capital structure of several firms from 42 countries,

confirming that the conventional firm-specific factors explain corporate leverage relatively well in

both developed and developing countries. Booth et al. (2001) looked at the corporate leverage in

developing countries including Pakistan and reported that capital structure decisions of firms in

these countries were affected by the same firm-specific factors as in developed countries. Kim et

al. (2006) developed a model of dynamic capital structure and analyzed the effects of determinants

of capital structure of listed Korean manufacturing companies, showing that the firms leverage

may also be affected by size, profitability and growth opportunity.

In context of Pakistan, Mazhar and Nasr (2010) examined the capital structure decisions among the

firms registered on Islamabad Stock Exchange and concluded that all determinants: tangibility,

size, growth rate, tax provision, and profitability are significantly related with the leverage whether

positively or negatively. Moreover, government owned and private companies of Pakistan use

different patterns of financing, and that government owned companies employ higher levels of

debt as compared to private companies. Furthermore, Shah and Khan (2007), Shah and Hijazi

(2004) and Javaid and Iqbal (2007) studied several factors that determine the firms‘ choices of

external financing.

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33.. MMeetthhooddoollooggyy aanndd DDaattaa

To analyze the impact of firm-specific factors on firms' capital structure, we use leverage model

that consists of three dependent variables (total debt-to-equity ratio, total debt-to-assets ratio and

total capitalization ratio) and six explanatory variables (sales growth rate, tangibility of assets,

profitability, dividend pay-out ratio, annual growth in assets and size of the firm). We formulate

three sub-models namely: Model-I, Model-II and Model-III taking three dependent variables. Total

debt-to-equity ratio describes the level of firm‘s financing with a proportion of debt and equity

provided by its creditors and shareholders. It also indicates the creditworthiness and financial risk

of the firm. It is measured by dividing total debt of the firm by its shareholder‘s equity. Total debt-

to-total assets ratio highlights the relative importance of debt financing to the firm by showing the

percentage of firm‘s assets supported by debt financing. It is measured by dividing total debt of the

firm by its total assets. Total capitalization ratio is measured by dividing total fixed liabilities by

firm‘s total capital.

Several studies have shed light on the specific characteristics of firms and industries that determine

leverage ratios. Following literature, we selected six firm-specific variables, discussed below:

1) Sales growth rate represents the percentage change in the sales of a company in a given year

with respect to the previous year sales. It tells whether the company‘s sales increase or

decrease during a specific year and also tells the magnitude of change. Previous studies

reported a positive relationship (Abor 2008 and Titman and Wessels 1988).

2) Tangibility refers to fixed assets ratio.4 Firms with high ratio of fixed assets can afford higher

debt due to the higher collateral value of their assets. Consequently a positive relationship is to

be expected.5 Tangible assets can be used as collateral and thus can lower the risk of a creditor

and increases the value of the assets in case of bankruptcy. ‗The more tangible the firm‘s

assets, the greater is its ability to issue secured debt‘.6 Therefore a positive relationship is

expected (Bevan and Danbolt 2000, Harris and Raviv1990, Rajan and Zingales 1995).

3) Return on assets measures the profitability of the firm, i.e. how efficiently and effectively a

firm can generate its profits by utilizing its total assets. Studies showed that when firms‘

profitability rises, they prefer to invest internally generated funds instead of external

borrowings. The pecking-order theory also supports the same argument. For that reason, a

negative relationship would be found (Abor 2008, Eldomiaty 2007, Bauer 2004, Booth et al.

2001, Bevan and Danbolt 2000, Rajan and Zingales 1995, and Titman and Wessels 1988).

Contrary to this, profitable firms prefer debt over equity owing to their tax deductibility of

interest payments. Therefore, they can easily obtain loans from the bank due to their ability of

covering interest charges. Same findings are suggested by trade-off theory. Hence, a positive

relationship might be expected (Modigliani and Miller 1963, Danbolt 2000). Return on assets

(profitability ratio) can be calculated by dividing earnings (income) before interest and taxes

over the book value of total assets. The expected sign could be negative or positive.

4) Dividend pay-out ratio is a measure of percentage of earnings, a firm has allocated/distributed

in the form of dividends. Since dividends are included in cash outflow category, firm needs

cash in order to pay-off dividends to its shareholders. A positive relationship is expected

between dividend pay-out ratio and leverage ratios if a firm prefers debt over equity (Mahmud

2003). However sometimes firms have to pay high dividends simply because there are less or

no growth opportunities and it seems to be difficult for a firm to raise its level of long-term

debt. Therefore in order to retain their shareholders, firms have to raise their dividends,

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providing a non-positive relationship with the firm‘s leverage (Abor 2008). Literature shows

that in most of the Asian countries where industries are at growing stages, a positive

relationship is predicted as these firms prefer debt over equity in order to meet their financial

requirements. Dividend pay-out ratio is measured by dividing annual cash dividends by its total

earnings available for shareholders.

5) Growth in assets is the percentage change in the book value of total assets in a given year with

respect to the previous year assets. Firms having more opportunities to grow tend to raise their

equity financing instead of debt financing.7 High growth in firm‘s assets may prefer additional

debt financing instead of issuing new equity. Moreover, firms with higher leverage would

obtain less funding from their shareholders to invest in projects. Therefore, firms with highly

profitable projects prefer equity financing rather than debt. In this case, firms‘ growth rates will

be positively associated with short-term debt ratios.8 Studies show that Pakistani firms avail

growing opportunities by reinvesting their internally generated funds and then by raising their

equity funds (Shah and Hijazi, 2004). This also supports the pecking-order theory hypothesis,

yet it contradicts the extended version of pecking-order theory which suggests that firms‘

internally generated funds are not enough to fulfil the needs of their growing firms, so they

need to raise their funds through external financing.

6) Size of the firm is another important determinant of capital structure. Size can be measured by

the natural logarithm of the book value of total assets or natural logarithm of total sales. The

general perception about size is that large firms can afford heavy debts due to high assets base.

Hence the previous studies found a positive relationship (Abor 2008, Rajan and Zingales

1995). Other studies found a negative relationship, arguing that large-sized firms with large

asset base utilize their internally generated funds instead of raising their debt level (Mahmud

2003). Following literature we also take natural logarithm of total sales as a measure of firm

size besides we also use natural logarithm of total assets as a proxy to measure the size of the

firm.9

Now we mathematically specify the models below:

Model-I

TDERit = β0 + β1 SGR it + β2 TANit + β3 ROAit + β4 DPRit + β5 GASit + β6 SIZEit + µ1t .….…

(1) Model-II

TDARit = β0 + β1 SGR it + β2 TANit + β3 ROAit + β4 DPRit + β5 GASit + β6 SIZEit + µ2t .……

(2)

Model-III

TCPRit = β0 + β1 SGR it + β2 TANit + β3 ROAit + β4 DPRit + β5 GASit + β6 SIZEit + µ3t .…...…

(3) Where

i = ith firm from the textile, engineering, sugar, chemical or cement sector

t = time period (2001-2008)

TDER = total debt to equity ratio

TDAR = total debt to total assets ratio

TCPR = total capitalization ratio

SGR = sales growth rate

TAN = tangibility of assets (fixed asset ratio)

ROA = return on asset (profitability of the firm)

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DPR = dividend payout ratio

GAS = annual growth in asset

SIZE = size of the assets (natural log of total assets)

µ1t, µ2t, µ3t = the error terms that satisfy the classical regression assumptions

The study sample for the analysis comprises of five sectors from Pakistan‘s large-scale

manufacturing. The study sample has been taken from the balance sheet analysis of the joint stock

companies listed at KSE over the time period 2001 to 2008 (Table 1).

Table 1: Study Sample for Analysis

A panel regression model is applied10

for the purpose of estimation and empirical analysis based

on a balanced panel of all the firms from five sectors for which the data and information was

available in every year. All the observations in the data set are pooled together. Using ordinary

least squares (OLS) approach, ‗Panel Data Analysis‘ technique is applied.11

Panel data analysis is a

comprehensive technique that provides more informative data in a combine set of cross-section

and time-series data set. Panel data is also helpful in minimizing the errors or biases in the data set.

The empirical analysis section includes both descriptive and quantitative analysis. Descriptive

statistics analyze the average values, range and dispersion of values of the underlying variables.

Quantitative analysis includes correlation analysis that will determine the degree of association

between the pairs of explanatory variables whereas regression analysis is done to examine the

relationship between explanatory variables and leverage measures.

44.. EEmmppiirriiccaall AAnnaallyyssiiss


Except total debt to equity ratio (TDER) and size of the firms (SIZE), arithmetic mean of the other

factors do not differ noticeably implying that the former factors suggest a conspicuous difference

among firms. Since standard deviation is also high degree of variation among the firms.

Table 2: Descriptive Statistics

Table-2 presents the summary of descriptive statistics of dependent and explanatory variables. The

mean values of variables demonstrate the average value attained by each variable within the

manufacturing sectors included in the sample during a year. Total debt-to-equity ratio (TDER)

shows the highest average value in the manufacturing sector as compared to total debt-to-total

assets ratio (TDAR) and total capitalization ratio (TCPR), showing that manufacturing sector in

Pakistan is financed with debt more than three times than equity. Standard deviation among

variables represents the extent of dispersion in the data from the mean value. Similarly, total debt-

to-equity ratio (TDER) is showing the maximum variations in the data set among other leverage

ratios while sales growth rate (SGR) only shows the maximum extent of variation in the

manufacturing sector as compared to other firm-specific variables. The values of range shows the

difference between the lowest and highest value in the observation a variable attained in the

sample data whereas CV represents the coefficient of variation among the values in the

observations.

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4.2 Correlation Analysis

In order to examine the possible degree of multi-collinearity among the independent variables, a

correlation test has been performed over all the sectors included in this study.

Table 3: Correlation Matrix – Firm-specific Factors

Table-3 presents the results of correlation analysis, taking a combined sample of all the firms from

five sectors chosen for the study. The results from the table demonstrate that only tangibility shows

a weak negative and significant association with all variables except sales growth rate (p<0.01 &

p<0.05). Return on assets relates positively with dividend pay-out ratio while negatively with

tangibility (p<0.01). Growth in assets remained insignificant in relation with all other variable

except for the negative association with tangibility (p<0.01) whereas, size of the firm associates

positively with assets growth rate (p<0.01) and negatively with tangibility (p<0.05). The findings

also confirm the nonexistence of multi-collinearity among the explanatory variables.

4.3 Regression Analysis of Leverage Model

Regression analysis technique is utilized for modelling and analyzing the leverage ratios along

with firm-specific factors. Ordinary Least Squares (OLS) Method is applied to formulate the

‗Leverage Model‘ and is further divided into three sub-models. A regression analysis has been

performed individually on these sub-models. Panel Data Analysis is implied in order to test these

models separately, taking relevant data of the firms from five manufacturing sectors (textile,

engineering, sugar & allied, chemical and cement) listed in Karachi Stock Exchange. The

regression results are shown in Table 4:

Table 4: Regression Results of Model I

Table-4 presents the regression results of Leverage Model I. Sales growth rate (SGR) remained

insignificant while tangibility of assets (TAN) showed a significant positive association in sugar

chemical sectors but negatively related with debt ratio in Cement sector. Return on assets (ROA)

found to be negatively related in some sectors, confirming that more profitable firms prefer to

reinvest their internally generated funds (Booth et al. 2001, Titman and Wessels 1988, Kester

1986, and Rajan and Zingales 1995 etc). Growth in assets (GAS) found to be negatively related in

case of Textile and Sugar sector only, arguing that many Asian firms prefer new equity over debt

so high growth may not be associated with high debt ratio. Dividend pay-out ratio (DPR) and size

of the firm (SIZE) coefficients remained insignificant with the leverage ratio across all the sectors.

The value of F-statistics demonstrates that Model I is significant in Textile, Chemical and Cement

sectors only (p<0.01 & p<0.10).

Table 5: Regression Results of Model II

Table-5 presents the regression results of Leverage Model II. Sales growth rate (SGR) coefficient

is significant and positive in case of Sugar and Cement sectors only while tangibility (TAN) is also

positively related with leverage in case of Textile, Sugar and Chemical sectors. Return on assets

(ROA) coefficient displays similar results as in case of Model I. Dividend pay-out ratio (DPR) and

growth in assets (GAS) related negatively with the leverage ratio only in Textile sector but

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remained insignificant across all the sectors. Size of the firm (SIZE) coefficients is negatively

related in Textile and Sugar sectors (Mahmud 2003) while positively related with leverage in

Chemical sector. The value of F-statistics demonstrates that Model II is found to be statistically

significant in all sectors (p<0.01).

Table 6: Regression Results of Model III

Table-6 presents the regression results of Model III. Sales growth rate (SGR) and dividend pay-out

ratio (DPR) proved to be insignificant across all sectors. Tangibility of assets (TAN) is found to be

positively related with leverage among all sectors except in cement sector in which its relationship

is negative. Growth in assets (GAS) relates negatively while size of the firm (SIZE) relates

positively with leverage in Textile sector whereas remained insignificant among other sectors. The

F-statistics demonstrate that Model III is significant statistically in Textile, Engineering and Sugar

sectors only (p<0.01).

Table 7: Regression Analysis of Leverage Models

Table-7 presents an overall analysis of three leverage models, taking a combined sample of all the

firms from Textile, Engineering, Sugar & Allied, Chemical and Cement sectors. The findings are

somehow encouraging and also consistent with the previous researchers‘ findings. Overall analysis

of all the firms shows that the leverage model with total debt-to-total assets ratio (TDAR) found to

be the most significant amongst all three models. This is one of the important ratio is and many

researchers have utilized this ratio as proxy to measure firm‘s leverage [Eldomiaty (2007),

Mahmud (2003), Danbolt et al. (2000) etc]. Empirical findings show that when all 236 firms are

taken together, all explanatory variables (except SGR) show significant association in case of

Model II (TDAR), with the significance of the model (F=31.8; p<0.01). Model I is also found to be

significant while Model III remains insignificant as none of the explanatory variable is

contributing in TCPR, except TAN.

The empirical findings of all three leverage models are encouraging and also consistent with our

predicted relations of firm-specific variables with the leverage measures, except in case of size of

the firm in which we expected to have a positive relationship on the basis of previous literature but

our findings advocate its significant negative relationship with leverage. Analysis shows that

firm‘s profitability is found to be significant negatively related with leverage measures, revealing

that more profitable firms usually reinvest their additional earnings instead of additional debt

financing, as already discussed in the pecking order theory. Growth in assets, in most cases, also

shows negative relationship with leverage.

Firms whenever raise their funds through debt financing usually invest into tangible assets. Higher

tangibility is also consistent with higher values of collaterals, hence related positively (Jong et al.

2006, Booth et al. 2001, Bevan & Danbolt 2000, Rajan & Zingales 1995 etc.) except for cement

sector where it shows negative association with leverage ratios (Mamud 2003).

Large size Pakistani firms are able to survive with higher leverage ratios as compared to smaller

firms (Shah and Hijazi 2004). Size of the firm (SIZE) coefficient in Textile sector showed different

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signs in analysis. It shows negative relationship with debt-to-total assets ratio whereas, positive

relationship is analyzed with total capitalization ratio, confirming that long-term debt ratio varies

directly with long-term debt financing in Textile sector. Opposing to this, the ratio of debt to total

assets varies inversely with the increasing firm‘s size in Textile and Sugar sectors, consisting with

the previous findings (Mahmud 2003).

Sales growth rate (SGR) coefficient relates positively with debt-to-total assets ratio only in Sugar

and Cement sectors, contrasting with the negative behavior in case of Pakistani firms (Mahmud,

2003). Dividend pay-out ratio (DPR) found to be insignificant in most of the cases.

55.. CCoonncclluussiioonnss

This study is conducted to examine Pakistan‘s competitive performance in five sectors from

Pakistan‘s large-scale manufacturing; i.e. Textile, Engineering, Sugar, Chemical and Cement. A

comprehensive review of existing literature in this context has been conducted, in which their

methodologies and empirical findings are critically analyzed. To analyze the firms‘ capital

structure, we formulated ‗Leverage Model‘ using Ordinary Least Square (OLS) Regression.

Pooled cross-sectional (Panel Data) analysis is applied separately on data samples among different

sectors during 2001 to 2008 inclusive. The main objective of the study is to test whether the

chosen firm-specific factors are the significant determinants of a corporate choice of capital

structure among five sectors. Analysis reveals that variations in capital structure exist not only

among various sectors but it also exists among the individual firms within these sectors. The

leverage ratios also vary across every sector as well as in individual firms.

Empirical analysis of firm-specific factors exhibit that return on assets (ROA) is negatively

associated with debt ratios because that more profitable firms usually reinvest their additional

earnings instead of additional debt financing. Growth in assets (GAS) is also significant and

negatively associated. Tangibility of assets (TAN) as well as Size of the firm (SIZE) displays

mixes results with debt ratios due to variations in firm‘s assets and operations. In case of Dividend

pay-out ratio (DPR), high dividend payments may suggest that firms have to finance its operations

growth from internal resources. However, such results cannot explain to us any clear relationship

and overall we conclude that this factor is found to be less significantly related with debt ratios.

Sales growth rate (SGR) also behaved in similar manner. These findings also show an association

with the previous researchers‘ findings.

Our study also encompasses with some limitations. The study is based on secondary database that

is available online at State bank of Pakistan‘s website. The study sample is restricted to eight years

only; 2001-2008 due to the unavailability of past data. Moreover, only major non-financial sectors

are selected due to the differences in the financial setup of the firms from Pakistan‘s financial

sector. There are several other economic and institutional factors in the economy that might have

an influence on the growth, performance and capital structure decisions of the firms. The prospects

for future research on the analysis of capital structure and influential behavior of several financial

and institutional variables seems to be very encouraging. In our point of view, research-based

capital structure models are very comprehensive in a sense that more valuable and extensive

research can be carried out on them with a wide range of explanatory variables.

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EEnndd NNootteess

Note 1: In this study, large-scale manufacturing is taken into account as our study is based on the analysis of firms

from major listed manufacturing sectors in Pakistan.

Note 2: Large-scale manufacturing contributed to 23% in GDP growth rate during 2009-10 (Government of Pakistan

(GOP), 2009-10).

Note 3: Economists are of the view that Pakistan‘s manufacturing sector faced the most difficult period of its recent

history with a negative growth of 8.2 percent during July-March 2008-09 as compared to the 4.1 percent positive

growth during the last year, 2007-08.

Note 4: Rajan and Zingales, (1995) termed this ratio as ―tangibility‖.

Note 5: Mahmud (2003), p.731.

Note 6: See Booth et al., (2001) for their analysis of firm-specific variables in developing countries.

Note 7: As suggested by Rajan & Zingales (1995).

Note 8: As Titman and Wessels, (1988) already analyzed that in case of growing firms, short-term debt ratios are

more likely to relate positively with firm‘s growth rates.

Note 9: Abor (2008), Mahmud (2003), Bauer (2004), Danbolt et al. (2000), Rajan and Zingales (1995).

Note 10: Panel data analysis is a modern technique that involves pooling of all observations on a cross-section of units

over several time periods. It also increases the degrees of freedom by reducing the collinearity among explanatory

variables.

Note 11: A balanced panel data is a set of data that contains equal number of observations in cross-sectional as well

time series units. For further details, see Gujarati and Sangeeta, (2007, p. 654).

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Annexure Table 1: Study Sample for Analysis

Table 2: Descriptive Statistics

Variable Mean Median Std. Dev CV Range

MANUFACTURING SECTORS (N=1888)

TDER 3.234 1.673 11.629 3.596 340.2

TDAR 0.692 0.662 0.365 0.527 4.126

TCPR 0.486 0.260 5.395 11.10 233.2

SGR 0.183 0.109 5.060 27.650 274.7

ROA 0.526 0.532 0.208 0.395 1.006

DPR 0.024 0.026 0.365 15.21 13.10

TAN 0.197 0.000 0.528 2.680 12.83

GAS 0.165 0.092 0.314 1.903 4.134

SIZE 7.137 7.008 2.261 0.317 84.75

Table 3: Correlation Matrix – Firm-specific Factors

Major Manufacturing Sectors (N=1888)

Variable SGR TAN ROA DPR GAS SIZE

SGR 1.000

TAN -0.006

(0.805)

1.000

ROA -0.001

(0.955)

-0.180**

(0.000)

1.000

DPR -0.006

(0.805)

-0.157**

(0.000)

0.073**

(0.001)

1.000

GAS 0.020

(0.396)

-0.081**

(0.000)

0.039

(0.089)

-0.001

(0.962)

1.000

SIZE -0.011

(0.647)

-0.058*

(0.012)

0.042

(0.066)

0.028

(0.220)

0.122**

(0.000)

1.000

Note-1: * and ** Correlation is significant at 5 percent and 1 percent level respectively.

Note-2: Explanatory variables: Sales growth (SGR), Tangibility (TAN), Return on assets (ROA),

Dividend pay-out ratio (DPR), Growth in assets (GAS), Size of the firm (SIZE)

Period of study: 2001-2008

Sector Sample Data Total Observations

Textile 121 firms 968 firm-years

Engineering 35 firms 280 firm-years

Sugar & Allied 32 firms 256 firm-years

Chemical 31 firms 248 firm-years

Cement 17 firms 136 firm-years

Total 236 firms 1888 firm-years

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Table 4: Regression Results of Model I

Model I: TDERit = β0 + β1 SGR it + β2 TANit + β3 ROAit + β4 DPRit + β5 GASit + β6 SIZEit + µ1t

Textile Engineering Sugar Chemical Cement

Constant 4.353

(2.501)

[1.74]*

1.886

(2.253)

[0.837]**

-7.345

(15.11)

[-0.486]

1.882

(0.412)

[4.571]***

12.98

(4.952)

[2.622]***

SGR -0.006

(0.049)

[-0.121]

-0.002

(0.114)

[-0.013]

-1.239

(2.928)

[-0.423]

-0.061

(0.126)

[-0.487]

-1.143

(0.938)

[-1.219]

TAN 2.457

(2.004)

[1.226]

5.430

(3.836)

[1.416]

12.94

(8.431)

[1.534]*

0.443

(0.416)

[1.064]*

-7.584

(3.775)

[-2.009]**

ROA -0.127

(0.646)

[-0.197]

-3.676

(5.209)

[-0.705]

-16.02

(13.75)

[-1.166]

-5.739

(0.741)

[-7.743]***

-16.79

(5.062)

[-3.317]***

DPR -0.965

(0.715)

[-1.35]*

-1.050

(2.036)

[-0.516]

-0.668

(6.213)

[-0.107]

-0.253

(0.228)

[-1.109]

-0.338

(0.453)

[-0.745]

GAS -2.143

(1.090)

[-1.965]**

-1.948

(1.549)

[-1.257]

10.98

(5.718)

[1.919]*

-0.120

(0.418)

[-0.288]

-0.864

(1.533)

[-0.564]

SIZE -0.254

(0.289)

[-0.877]

-0.007

(0.126)

[-0.055]

0.4784

(1.9797)

[0.242]

0.038

(0.055)

[0.676]

-0.451

(0.655)

[-0.689]

Obs. N=968 N=280 N=256 N=248 N=136

R² 0.241 0.129 0.176 0.387 0.228

D-W Stat 1.890 1.747 1.999 0.841 1.906

SE 9.719 10.520 21.901 1.412 6.762

F-Stat 1.839* 1.378 1.617 16.195*** 3.011***

Note-1: *, ** and *** Significant at 10 percent, 5 percent and 1 percent level respectively.

Note-2: Regression Coefficients in bold, Standard Errors in parenthesis & t-statistic in brackets

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Table 5: Regression Results of Model II

Model II: TDARit = β0 + β1 SGR it + β2 TANit + β3 ROAit + β4 DPRit + β5 GASit + β6 SIZEit + µ2t


Constant 0.732

(0.060) [12.3]***

0.854

(0.060)

[14.32]***

2.711

(0.376)

[7.206]***

0.502

(0.042)

[11.91]***

1.246

(0.162)

[7.704]***

SGR -0.001

(0.001)

[-0.398]

-0.0004

(0.003)

[-0.121]

0.237

(0.073)

[3.249]***

-0.007

(0.013)

[-0.539]

0.166

(0.031)

[5.411]***

TAN 0.168

(0.048)

[3.511]***

0.032

(0.102)

[0.314]

0.756

(0.210)

[3.602]***

0.080

(0.043)

[1.878]*

-0.154

(0.123)

[-1.249]

ROA -0.023

(0.015)

[-1.495]

-1.465

(0.054)

[-10.65]***

-2.391

(0.342)

[-6.99]***

-0.883

(0.076)

[-11.64]***

-0.968

(0.165)

[-5.852]***

DPR -0.052

(0.017)

[-3.052]***

-0.111

(0.054)

[-2.064]

-0.171

(0.155)

[-1.107]

-0.020

(0.023)

[-0.868]

-0.014

(0.015)

[-0.929]

GAS -0.121

(0.026)

[-4.653]***

-0.029

(0.041)

[-0.696]

0.079

(0.142)

[0.552]

0.003

(0.043)

[0.071]

0.007

(0.050)

[0.143]

SIZE -0.015

(0.007)

[-2.15]**

-0.003

(0.003)

[-0.874]

-0.328

(0.049)

[-6.647]***

0.013

(0.006)

[2.236]**

-0.062

(0.021)

[-2.892]

Obs. N=968 N=280 N=256 N=248 N=136

R² 0.269 0.392 0.403 0.457 0.413

D-W Stat 0.621 0.686 0.700 0.616 0.956

SE 0.231 0.277 0.545 0.145 0.221

F-Stat 11.85*** 29.31*** 27.86*** 33.86*** 15.11***



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Table 6: Regression Results of Model III

Model III: TCPRit = β0 + β1 SGR it + β2 TANit + β3 ROAit + β4 DPRit + β5 GASit + β6 SIZEit + µ3t


Constant -0.261

(0.157) [-1.66]*

0.144

(0.126)

[1.147]

-0.818

(0.677)

[-1.208]

-2.253

(4.314)

[-0.522]

0.057

(0.430)

[0.132]

SGR -0.001

(0.003)

[-0.283]

0.002

(0.006)

[0.302]

0.040

(0.131)

[0.306]

-0.234

(1.316)

[-0.178]

-0.025

(0.081)

[-0.303]

TAN 0.726

(0.126)

[5.77]***

0.719

(0.290)

[3.365]***

1.552

(0.378)

[4.109]***

7.688

(4.359)

[1.764]*

-0.953

(0.329)

[2.91]***

ROA -0.041

(0.041)

[-1.01]

-0.967

(0.290)

[-3.33]***

-1.487

(0.616)

[-2.415]**

7.176

(7.764)

[0.924]

0.289

(0.440)

[0.658]

DPR -0.048

(0.045)

[-1.071]

-0.085

(0.114)

[-0.75]

-0.038

(0.278)

[-0.138]

3.406

(2.391)

[1.425]

-0.001

(0.039)

[-0.026]

GAS -0.128

(0.069)

[-1.872]*

-0.099

(0.086)

[-1.152]

-0.021

(0.256)

[-0.083]

-3.413

(4.374)

[-0.78]

0.003

(0.133)

[0.026]

SIZE 0.041

(0.018)

[2.238]**

-0.002

(0.007)

[-0.337]

0.060

(0.089)

[0.674]

-0.174

(0.581)

[-0.299]

-0.042

(0.057)

[-0.74]

Obs. N=968 N=280 N=256 N=248 N=136

R² 0.441 0.366 0.416 0.124 0.167

D- W Stat 1.661 1.527 1.378 2.063 1.957

SE 0.611 0.586 0.981 14.787 0.587

F-Stat 7.380*** 9.054*** 5.396*** 1.001 1.535



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Table 7: Regression Analysis of Leverage Models

Model I: Total debt-to-

equity ratio (TDER)

Model II: Total debt-to-

assets ratio (TDAR)

Model III: Total

capitalization ratio (TCPR)

Constant 2.157

(1.169)

[1.846]*

0.650

(0.035)

[18.53]***

-0.396

(0.544)

[-0.727]

SGR -0.007

(0.053)

[-0.141]

0.001

(0.002)

[0.516]

0.00005

(0.025)

[0.004]

TAN 3.738

(1.326)

[2.819]***

0.326

(0.040)

[8.193]***

1.461

(0.617)

[2.368]**

ROA -0.706

(0.746)

[-0.947]*

-0.100

(0.022)

[-4.465]***

0.131

(0.347)

[0.378]

DPR -0.879

(0.513)

[-1.714]*

-0.073

(0.015)

[-4.740]***

0.308

(0.239)

[1.293]

GAS -0.734

(0.861)

[-0.853]

-0.097

(0.026)

[-3.766]***

-0.330

(0.400)

[-0.825]

SIZE -0.081

(0.119)

[-0.679]

-0.014

(0.004)

[-3.795]***

0.014

(0.055)

[0.260]

N 1888 1888 1888

R² 0.351 0.492 0.144

D-W Stat 1.905 1.497 2.004

SE 11.597 0.348 5.395

F-Stat 2.910*** 31.798*** 1.256



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Comparison of the multiple intelligences of the students

whose mothers‟ are illiterate and graduate

Gulap Shahzada (Corresponding & Principal author)

Institute of Education and Research

University of Science and Technology, Bannu, Pakistan

Dr. Safdar Rehman Ghazi



Habib Nawaz

Institute of Management Sciences


Fayyaz Khan



SaifUllah



Abstract

The paper aimed at to investigate the difference between the students whose mothers are illiterate

and graduate. Central tendency, mean score was used in order to measure student‘s self-perceived

multiple intelligences and independent-t test was used for mean comparison of the multiple

intelligences of the students. Results of the study revealed that there is a significant difference

between multiple intelligences (verbal/linguistic, logical/mathematical, visual/spatial, musical,

bodily/kinesthetic, interpersonal, intrapersonal, naturalistic intelligence) of the students whose

mothers are illiterate and graduate. The researcher recommended that the government and all

stakeholders in education sector should make effort to implement its policy on basic education for

all and thus create an enlighten society in which mothers would be educated enough to have a

positive influence on their children intelligence.

Key words. Mother, Illiterate, Graduate, Multiple intelligences

1. Introduction

The theory of multiple intelligences was created after the pull in the early 1900‘s to better

understand human intelligence. This was the time in which the IQ tests were familiar. However,

these IQ tests only tested a very narrow group of skills, similar to standardized tests, and Howard

Gardner decided that intelligence should not be regarded in such an abbreviated way. Instead

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intelligence had more to do with solving problems and ―fashioning products in a context-rich and

naturalistic setting‖ (Armstrong, 1994).

This was the point when Gardner (19983) identified eight different intelligences that were

useful in mapping out a broad range of abilities. The eight intelligences are as listed below:

(1) Linguistic intelligence: The ability to use word most effectively either orally or in writing.

(2) Logical/Mathematical Intelligence: The capacity to use numbers effectively and reason

well.

(3) Spatial intelligence: The capacity to understand the visual-spatial world accurately and

perform transformations on those perceptions.

(4) Bodily/Kinesthetic intelligence: ―Expertise in using one‘s whole body to express ideas

and feelings and facility in using one‘s hand to produce or transform things.‖

(5) Musical intelligence: The ability to ―perceive, discriminate, transform, and express

musical forms.‖

(6) Interpersonal intelligence: The capacity to ―perceive and make distinctions in the moods,

intentions, motivations, and feelings of other people.‖

(7) Intrapersonal intelligence: ―Self-knowledge and the ability to act adaptively on the basis of

that knowledge.‖

(8) Naturalist Intelligence: ―Expertise in the recognition and classification of the numerous

specials—the flora and fauna—of an individuals environment.‖ (Armstrong 1999)

To what extent does an increase in maternal education improve children‘s academic

performance? That is, if a program could somehow increase mothers‘ schooling, how much benefit

would we expect to see in their children‘s cognitive development? Would these benefits be found

if the mother obtained non-traditional forms of education such as Adult Basic Education or

vocational training? Positive correlations between mothers‘ educational attainment and children‘s

well being, and particularly school outcomes and cognitive development, are among the most

replicated results from developmental studies (Bee et al., 1982; Haveman & Wolfe, 1995). The

processes by which maternal education affects children‘s development may be both direct and

indirect. Direct effects may consist of enrichments to the child‘s home learning environment and

mother-child interactions (Bee et al., 1982; Richman, Miller & Levine, 1992). Maternal education

may also benefit children indirectly by increasing maternal earnings and family income.

Nevertheless, surprisingly little is known about the causal nature of this relationship. Most studies

estimating associations between maternal education and child outcomes are correlation and

therefore likely biased by the omission of many spurious factors (e.g., maternal personal

endowments such as verbal ability) that could be driving the maternal education-child development

association.

Belsky (1984) pioneered theories of the processes of competent parental functioning. His

model focused on factors affecting parental behaviour and how such factors affect child-rearing,

which in turn influences child development. The model presumes that parenting is directly

influenced by forces emanating from within the individual parent (personality), within the

individual child (child characteristics of individuality), and from the broader social context in

which the parent-child relationship is embedded. Specifically, marital relations, social networks,

and jobs influence individual personality and general psychological well-being of parents and,

thereby, parental functioning and, in turn, child development.

Through an intensive literature search, (Belsky 1984) drew the following conclusions regarding the

determinants of parenting.

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―Parenting is multiply determined by characteristics of the parent, of the child, and of

contextual subsystems of social support; These three determinants are not equally influential

in supporting or undermining parenting; and Developmental history and personality shape

parenting indirectly, by first influencing the broader context in which parent-child relations

exist (i.e., marital relations, social networks, occupational experience).‖

There is evidence that parents' education will affect students' academic achievement in

Mathematics. According to Grissmer (2003), parents' level of education is the most important

factor affecting students' academic achievement. Taiwo (1993) submits that parents' educational

background influence the academic achievement of students. Musgrave (2000) states that a child

that comes from an educated home would like to follow the steps of his/her family and by this,

work actively in his/her studies. Onocha (1985) concludes that a child from a well educated family

with high socio-economic status is more likely to perform better than a child from an illiterate

family. Similar results were found by Teese (2004), in his analysis of the students' performance

where he found clear and consistent trends for children from lower socio-economic background.

Coleman (1998) state that the relationship between socio-economic disadvantage and learning

outcomes has been accepted almost as an article of faith by educators.

A further consideration is how parental attitudes influence the-child cognitive development,

although models of family patterns typically address this relationship, few empirical

prospective longitudinal studies have been conducted. A study by Engel and Keane

illustrates the influence which maternal attitudes may have on a child's intelligence. In their study

a group of 44 black males were followed from birth to 66 months, with assessment of intellectual

development at 1 4 , 18, 22, and 66 months: Mothers were rated for "psychological mindedness,

"

the extent to which one perceives others to have psychological, as well 'as physical, needs. The 'mothers' psychological mindedness when the boys were 14 months was found to profit the

boys' intellectual development, as measured by the Bayley Mental Scale, at 22 months (r `4 6 , 2

<.001) and at 66 months, as measured by the WPPSI (r - .48,.Q <.05). These findings suggest that

intervention aimed at raising a mother's psychological mindedness may in turn positively

influence her child's intelligence.

Maternal education has been deemed by some of the single best predictor of children‘s

later intellectual functioning because of its ability to consistently predict children‘s cognitive and

academic outcomes across different measures and populations (Bee et al., 1983; Smith et al.,

1997). Duncan and Brooks-Gunn (1997) coordinated analyses among 12 groups of researchers

working with different developmental datasets. Eight of the datasets included measures of both

maternal education and children‘s academic or cognitive outcomes at various points in

childhood and adolescence. Analyses conducted with all of these datasets indicated that maternal

education was positively and significantly associated with children‘s cognitive and educational

outcomes (Duncan & Brooks-Gunn, 1997). For example, Smith, Brooks-Gunn and Klebanov

(1997) conducted analyses with two samples of young children from different datasets. They

found that maternal education was positively associated with measures of children‘s intelligence

at 2-, 3-, and 5- years of age in the Infant Health and Development Study sample, and children‘s

verbal ability at 3- and 4- years of age, as well as math and reading achievement at 5- and 8-

years of age in a sample drawn from the National Longitudinal Survey of Youth.

Maternal education is associated not only with children‘s academic achievement, but also

their academic difficulties such as grade retention and special education placement. Both grade

retention and special education placement in elementary school are an indication of severe

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academic problems (Dauber, Alexander, & Entwisle, 1993). Holloman, Dobbins and Scott (1998)

found that maternal education was negatively associated with special education placement by 10

years of age, particularly for a learning disability. Children of mothers with less than a high

school diploma were twice as likely to be in special education as children of mothers with a high

school diploma. Byrd and Weitzman (1994) found that children of mothers who did not graduate

from high school were 1.4 times more likely to repeat kindergarten or first grade compared to

children of mothers who had graduated from high school. Despite being used as tools for

remediation, grade retention and special education placement do not seem to improve, and may

even harm, a student‘s subsequent educational achievement (Reynolds & Wolfe, 2000; McCoy &

Reynolds, 1999).

Statement of the problem

The problem under study was to find out the differences between multiple intelligences of

the students whose mothers are illiterate and graduate.

Significance of the study

Understanding of multiple intelligences and the influence of mother education on

students multiple intelligence may provide us with opportunities to look differently at the

students. Parents can make efforts to provide encouraging environment for their children

intelligences rather than to impose their own wishes or decision on them. Children can lead

towards self actualization if parents care for their individual potentialities. Education

stakeholder will know the role and importance of mother education and government of Pakistan

may think seriously regarding female education as female literacy rate is alarmingly low.

Objectives of the study

i. To investigate the differences between multiple intelligences of the students whose

mothers are illiterate and graduate?

ii. To give recommendations and suggestions in the light of the findings of the study.

Research question

i. Is there any difference between the multiple intelligences of the students whose

mothers are illiterate and graduate?


Population

Students enrolled in 1st year, in all government degree colleges, session 2010, in district

Bannu constituted population of the study.

Sample

A Multistage sampling method following proportion allocation technique 379 male

students and 335 girls students total 714 students were randomly selected as a sample of the study

form ten government degree colleges of district Bannu.

Multiple intelligence inventory based on Howard Gardner multiple intelligences theory,

developed by Armstrong (1994) was used to measure students multiple intelligences. This

inventory contains 40 items five statement for measuring each intelligence.

For the reliability and validity and to remove language ambiguity the multiple intelligence

inventory was personally distributed among 50 subjects as a pilot run. The subjects were part of

the population but were not included in the selected sample of the study. The reliability of forty

items at Cronbach‘s alpha obtained was .784 which is commendable.

3. Data Analysis

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The collected data was entered in SPSS-16 and was analyzed using appropriate statistical

tests. The central tendency and variability of the multiple intelligences of the sampled students was

measured using Mean and SD respectively. Independent Samples t- test was used to compare the

mean scores of multiple intelligences of the students whose mothers were illiterate and gradate.

4. Findings of the study

Mean scores of verbal/linguistic intelligence of the students whose mothers are illiterate

and graduate are 3.17, 335 and SD .72, .73 with p and t value .02, -2.22 whish show that there is

significant difference between the linguistic intelligence of the students whose mothers are

illiterate and graduate. This difference is in favour of the later students.

Mean score of the students logical/mathematical intelligence whose mothers are illiterate

and graduate are 2.90, 3.20 and SD .87, .87 with p and t value .01, -2.40 which show that there is a

significant difference between the logical/mathematical intelligence of the students whose mothers

are illiterate and graduate. This difference is in favour of the later students.

Mean scores of the students visual/spatial intelligence whose mothers are illiterate and

graduate are 3.13, 3.04 and SD .71, .62 with p and t value .26, 1.11 which show that there is

significant difference between visual/spatial intelligence of the students whose mothers are

illiterate and graduate.

Mean scores of the students musical intelligence whose mothers are illiterate and graduate

are 2.03, 2.26 and SD .73, .75 with p and t value .00, -2.74 which show that that there is significant

difference between musical intelligence of the students whose mothers are illiterate and graduate.

This difference is in favour of later students.

Mean scores of the students bodily/kinesthetic intelligence are 3.58, 3.71 and SD .72, .69

with p and t value .12, -1.51 which show that there is significant difference between the

bodily/kinesthetic intelligence of the students whose mothers are illiterate and graduate. This

difference is in favour of the later students.

Mean scores of the students interpersonal intelligence whose mothers are illiterate and

graduate are 3.35, 3.58 and SD .69, .61 with p and t value .00, -3.00 which show that there is a

significant difference between interpersonal intelligence of the students whose mothers are

illiterate and graduate. This difference is in favour of the later students.

Mean scores of the intrapersonal intelligence of the students whose mothers are illiterate

and graduate are 3.37, 3.57 and SD .61, .55 with p and t value .00, -3.00 which show that there is

significant difference between the students intrapersonal intelligence whose mothers are illiterate

and graduate. This difference is in favour of the later students.

Mean scores of naturalistic intelligence of the students whose mothers are illiterate and

graduate are 3.23, 3.58 and SD .67, .75 with p and t value .06, 1.82 which show that there is a

significant difference between the naturalistic intelligence of the students whose mothers are

illiterate and graduate. This difference is in favour of later students.

5. Conclusions

There is a significant difference between the multiple intelligences (verbal/linguistic,

logical/mathematical, visual/spatial, musical, bodily/kinesthetic, interpersonal, intrapersonal, and

naturalistic) of the students whose mothers are illiterate and graduate.

6. Recommendations

The government and all stakeholders in education sector should make effort to implement

its policy on basic education for all and thus create an enlighten society in which mothers would be

educated enough to have a positive influence on their children intelligence.

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References

Armstrong, T. (1994). Multiple Intelligences in the Classroom. Alexandria, VA: Association for

Supervision and Curriculum Development.

Armstrong, T. (1994). Multiple Intelligences: Seven ways to approach curriculum. Educational

Leadership. 52(3). Retrieved on May, 12, 2001, from:

http://www.ascd.org/readingroom/edlead/9411/armstrong.html

Bee, H. L., Barnard, K. E., Eyres, S. J., Gray, C. A., Hammond, M. A., Spietz, A. L., Snyder, C., & Clark,

B. (1982). Prediction of IQ and language skill from perinatal status, child performance, family

characteristics, and mother-infant interaction. Child Development, 53, 1134-1156.

Dauber, S. L., Alexander, K. L., & Entwisle, D. R. (1993). Characteristics of retainees and early precursors

of retention in grade: Who is held back? Merrill-Palmer Quarterly, 39, 326-343.

Duncan & J. Brooks-Gunn (Eds.), The consequences of growing up poor (pp. 133-189). New York: Russell

Sage.

Duncan, G. & Brooks-Gunn (Eds). (1997). The consequences of growing up poor. New York, Russell Sage

Foundation.

Gardner, H. 1983. Frames of Mmind: A Theory of Multiple Intelligences. London: Fontana Press.

Gardner, H. 1999. Intelligence Reframed. New York: Basic Books

Grissmer, R. H. 2003. Beyond Helping with Homework: Parents and Children Doing Mathematics at

Home. Teaching Children Mathematics, 14, 120 - 131.

Haveman, R., & Wolfe, B. (1995). The determinants of children‘s attainments: A review of methods and

findings. Journal of Economic Literature, 23, 1829-1878.

Hollomon, H. A., Dobbins, D. R., & Scott, K. G. (1998). The effects of biological and social risk factors on

special education placement: Birth weight and maternal education as an example. Research in

Developmental disabilities, 19, 281-294.

McCoy, A. R., Reynolds, A. J. (1999). Grade retention and school performance: An extended investigation.

Journal of School Psychology, 37, 273-298.

Onocha, C.O. 1985. Pattern of Relationship between Home and School Factors and Pupils' Learning

Outcomes in Bendel Primary Science Project. Journal of Science Teachers Association of Nigeria

(STAN). 23(1), 56-63.

Reynolds, A. J., & Wolfe, B. (1999). Special education and school achievement: An exploratory analysis

with a central-city sample. Educational Evaluation and Policy Analysis, 21, 249-269.

Richman, A. L., Miller, P. M., & LeVine, R. A. (1992). Cultural and educational responsiveness in maternal

responsiveness. Developmental Psychology, 4, 614-621.

http://www.ascd.org/readingroom/edlead/9411/armstrong.html

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Smith, J. R., Brooks-Gunn, J., & Klebanov, P. K. (1997). Consequences of living in poverty for young

children‘s cognitive and verbal ability and early school achievement. . In G.

Taiwo, H. G. 1993. Family Environment and Educational Attainment of Some School Children in Western

Nigeria. Journal of the Science Teachers Association of Nigeria, 46 (2), 107-116.

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Annexure

Multiple intelligences of the students whose mothers‘ illiterate and graduate (N=714)

S.

No Intelligence

Mothers‘

education N Mean SD P

value

T

value

1 Verbal/linguistic Illiterate

Graduate 535

93

3.17

3.35

.72

.73 .02 -2.22

2 Logical/mathematical Illiterate

Graduate 535

93

2.90

3.20

.87

.87 .01 -2.40

3 Visual/spatial Illiterate

Graduate 535

93

3.13

3.04

.71

.62 .26 1.11

4 Musical Illiterate

Graduate 535

93

2.03

2.26

.73

.75 .00 -2.74

5 Bodily/kinesthetic Illiterate

Graduate 535

93

3.58

3.71

.72

.69 .12 -1.51

6 Interpersonal Illiterate

Graduate 535

93

3.35

3.58

.69

.61 .00 -3.00

7 Intrapersonal Illiterate

Graduate 535

93

3.37

3.57

.61

.55 .00 -2.97

8 Naturalistic Illiterate

Graduate 535

93

3.23

3.58

.67

.75 .06 -1.82

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Impact of Corporate Governance on Financial Performance: Evidence from textile

industry of Pakistan.

Dr. Mubbsher Munawar Khan, Zia-ur-Rehman,

M. Khyzer Bin Dost, Mubashra Mumtaz

Abstract This study is an effort to explore link between corporate governance practices and financial

performance of listed Textiles companies of Pakistan. For this paper Financial Performance is

selected as dependent variable measured with its three dimensions .i.e. Return on equity, Price

earnings ratio and Earning per share. Corporate Governance is taken as independent variable

measured with its following dimensions (Risk Management, Internal Audit, Accountability,

Ownership structure, Director‘s remuneration, Dividend Policy and Sustainability). Five- point

Lickert Scale questionnaire was employed to collect data for imploring feedback showing

reliability above 70%. Afterwards quantitative techniques were used for data analysis to scrutinize

impact of variables. In this way connection among corporate governance practices and financial

performance is measured. Eight companies sample of was selected. Conclusion divulged that

dynamics of ownership structure, internal audit, accountability and sustainability are directly

related with financial performance, whereas director‘s remuneration, risk management and

dividend policy are inversely related with financial performance of selected companies.

Keywords: Return on equity, Price Earnings ratio and Earning per share, Corporate Governance,

Risk Management, Internal Audit, Accountability, Ownership structure, Director‘s remuneration,

Dividend Policy and Sustainability.


Since 1980 companies are directed and controlled with a new paradigm ―Corporate

Governance‖ (Cadbury, 1992). Governance and stewardship has become an important scenario and

standing issue between shareholders and stakeholders. In recent years from the moment when

management of firm and its ownership being separated it becomes crucial for the shareholders to

establish and accomplish a system that scrutinize the managerial activities. A competent system of

governance helps to balance the rights of both managers and owners and induce the management

to make investment in the projects and schemes which are beneficial for overall business (Vishny

& Shleifer, 1997). Corporate Governance is a construct much used in economics literature. It is

used to secure/motivate management by exercising enticement mechanisms, such as contracts,

organizational designs and legislation (Mathiesen, 2002).

Ownership structure Ownership structure is a vital element impacting financial performance in cram of

corporate governance and has obtained substantial significance since (Means & Berle, 1932)

recognizing the importance of classification of control and ownership of 200 big companies in US.

The ownership configuration diverges from country to country and is affected by capacity of

company, instability of the operational settings of corporation, stricture and different department‘s

particular behaviors (Demsetz & Lehn 1985). The investor rights protection‘s power and

imposition of the privileges establish the model of ownership concentration (Glavic, P. 2005).

Ownership structures play an important role for tenacity of the agency problem and shaping the

errands and function of board of directors (John & subnet, 1998). Internal and external

mechanisms of corporate board of directors play vital role in resolving complications and conflicts

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arising in the areas of financial reporting between the of shareholders and managers mangers

exercise their powers for their own well being at the expenditure of investors and involve in many

immoral activities such as manipulation of accounts, unethical financial reporting etc (Ridley, J. &

Chambers, A, 1998). Board of directors performs two imperative roles in an organization one

monitoring management on behalf of shareholders and other making the availability of resources

(Tsui & Gull, 2000). Board Capital is directly associated with both functions of board, it consists

of experience, level of skills and strategically wisdom (Hillman & Dalziel, 2003). There is direct

linkage between board capital and performance of organization. Implication of corporate

governance practices improves the performance of board of directors and ultimately the graph of

firm‘s progress moves upward (Shaheen & Nishat, 2004).

(Payne, et al. 2009) scrutinizes the connection between board effectiveness and firm‘s

financial performance and recommended five characteristics of a team: power, knowledge

opportunity, information, and incentives, and squabble that these elements lead to board

effectiveness and promote financial performance of organization.

Accountability

(Luo, 2005) propounded that there exists orderly relationship between corporate

accountability and firm‘s performance as accountability principally consists of disclosure and

transparency of financial reporting and strategic decisions. Further accountability reduces the

monitoring cost, resolve agency problem and improve market functions. (Ridley.J, 1993) argues

that accountability is the key mainstay of corporate governance and crucial for fair financial and

economic growth. The terms of Accountability and transparency were intimately used to

strengthen of corporate governance perception. At present these are coupled with provisions like

disclosure, competence, financial system, efficiency and competence. These ideas primarily

inclined executive and administrative practice and afterward created unrestricted policy argument,

eventually turned into fundamental concept of corporate regulations intended to put managers

under strong control of shareholders (Miller. L, 1999). Corporate enticement for unethical

activities will be more when irregularity of the information about firm‘s earning is high.

Accountability therefore provides persistent guide to information symmetry, ethical reporting, and

presents firm‘s crystal clear picture of earning (Kim & Joe, 2008).

Director‟s Remuneration

Remuneration is the financial and/or monetary complement of a job carried out by an individual,

divided into direct and indirect compensation (Dutra, 2002). Talha, et al. (2009) declared that there

exists direct relationship between remuneration committee and corporate governance committee.

These committees play a vital role in fixing the director‘s remuneration. So, corporate governance

practices can be referred as best source to resolve to the problem regarding remuneration of

directors. Fair and true policy of remuneration plays a remarkable role in progressive financial

performance. In epistemology director‘s remuneration as factor has extensively been discussed

being an integral part of corporate governance with more attention on the pay for performance as

compare to other manage-able factors (Gibbons & Murphy 1990). There is a direct affiliation

among remuneration of executives and financial performance. They present this relationship by

taking into consideration the manufacturing companies (Krauter & Sousa, 2009).

Risk Management

There is logical relation between corporate governance, risk and accounting management.

Managerial accounting and risk management are an integral part of decision making and firm‘s

action plans. It is becoming essential to reinforce and improve the decision making process by

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implementing corporate governance practices (Seal, 2006). Risk is a chance of making profit as

well as possibility of loss. Entire business cycle budges around this leeway of occurrence. So risk

becomes an indispensable constituent of any business and administration risk happens to be main

job and art of management (Winkle, 2005). (Knight, 1921) is considered as a founder of presenting

the concept of risk; he identified the distinguishing characteristics between quantifiable or

assessable elements and subjective elements. Assessable elements referred as risk while subjective

elements are considered as a source of uncertainty. Risk as an exposure to a proposition of which

one is uncertain and step by step process of managing risk is called Risk management (Holton,

2004). To manage risk properly, a comprehensive framework of risk management is presented as

Type of risks including political, economic, financial and operational. Impact on business firm

including, reduce investor confidence, increase uncertainty, regulation and cost. Managerial

response to risk impacts: policy toward corruption, financial instrument, shareholders vs.

stakeholder‘s interest, lobbying and intelligence and mode of entry. Framework can be altered

according to country and firms environmental conditions (Wyk, et al, 2004)

Internal Audit

Audit is a system which defends the investor‘s concern by solving the agency impasse and

it is an element of corporate governance that controls the divergence of interest between managers

and investors (Paul A. Griffen et al., 2008). Internal audit plays an important task in recognizing

the potential risks and opportunity. It appraises the firm financial and operational performance

through accounting data. It identifies the areas not conforming to rules, regulations and dynamics

which create hurdles in way of achieving strategic business aims (Toshiyuki sue yoshi et al.,

2008). Internal audit is important for external audit, as internal audit has more information about

firm‘s operations, financial position, processes, internal control system. Reports prepared by the

internal audit department are a major source of assistance for external auditors (Sandra Ho et al.,

2010). The independence of audit department is indispensable because independence of internal

audit results in enhanced monitoring of financial as well as operating performance of organization.

Independence of audit department is interlinked with better corporate governance (Scott N.

Bronson et al., 2009).

Dividend Policy

Dividend policy is product of compliance with practices of corporate governance. This

policy adheres a critical role in building reputation of firm and represents a true picture of its

financial position. (Lintner, 1956) conduct a research and he developed a model consisting of six

variables for dividend policy: financial consistency, type of ownership, size of the firm,

expenditures resulting from usage of equipment and plant, intention to take the help from external

finance resources and utilize the stock dividend.

Dividend policy is a mechanism which is used to resolve agency problem as there exist a

disagreement of interest between large and small shareholders especially at event of deciding

dividend payout ratio. Large shareholders reduce the dividend payout ratio towards small holding

shareholders, the mechanisms of paying dividend is different in different ownership structures. So

compliance with corporate governance regulations regarding dividend policy and rights of

stakeholders help us to get rid of such type of conflicting situation (Klaus Gugler et al., 2002). A

negative relationship is seen between governance of a firm and dividend payout policy.

Governance structure facilitates to diminish agency problem and ensure that equity holders have

absolute legal safety. Profit of the company will be allocated in schemes or proposals that will

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generate profit for company as whole not only form managers. So profit of company should be

endowed in projects rather than paying out dividends (Todd Mitton, 2004).

Sustainability

Company policies and actions adopted to congregate requirements of venture and its stakeholders,

to protect, sustain and enhance the human and natural resources (Deloitte & Touche (1992).

Corporate sustainability is a valued tool for an organization in to cut down its cost, identifying and

mitigating risks, produce innovative products and adjust mechanism of organizational structure

according to changing requirements of business (Azapagic, 2003), Sustainability reporting has two

important functions: It evaluates the current situation of firm‘s social, economic and environmental

dimensions and communicates sustainability progress to firm‘s stakeholders (Hamman, 2003). In

building sustainability task of social responsibility is considerable. Development of sustainability

does not consist only on corporate social responsibility and economic competence rather it requires

active contribution of government, society and other regulatory agencies. Malovics et al. (2008).

Research methodology of the project is described below in the figure1.

Fig 1. RESEARCH METHODOLOGY

Research model

ANALYSIS AND INTERPRETATION OF DATA

The data was collected to investigate that whether Code of Corporate Governance affect the

pecuniary performance of selected organization or not. Analysis and interpretation of data is based

on following independent variable i.e. ownership structure, accountability, director‘s remuneration,

internal audit, risk management, dividend policy, sustainability and three dependent variable

(return on equity, price earning ratio and earning per share ). The data was collected through

personally administered questionnaire of 32 statements by the researcher. Questionnaires were

Corporate

Governance

Ownership

Structure

Accountability

Director's

Remuneration

Risk

Management

Internal Audit

Dividend

Policy

Sustainability

Financial

Performance

Earning per

share

Return on Equity

Price/Earning

ratio

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distributed in 8 companies by the researcher which was filled by the respondents. The statements

of questionnaire were scored using five-point Likert type rating scale. The data so collected by the

researcher was entered into the statistical software SPSS and was analyzed with the help of this

software. The analysis of data was presented in the form of tables and diagrams. Regression

analysis was conducted to find out whether Corporate Governance affects the firm‘s performance

or not. One Sample Test was also used to see up to what extend the provision of Code is

implemented in target population.

Empirical Results:

Table 4.1.1 shows that the dependence of Price earning Ratio 2007 (dependent variable) on

director‘s remuneration and overall corporate governance (independent variable. Highest R value

of .90 shows the goodness of the model. Regression analysis shows that 81% change in dependent

variable is due to the independent variable, while remaining 19% is unexplained variability.

Table 4.1.1 represents Regression coefficients i.e. Beta (β) of overall corporate governance with

Price earning Ratio 2007 is 21.24 with significant value .09 which shows positive and significant

relationship between overall CG and Price earning Ratio 2007. Regression coefficients i.e. Beta (β)

of director‘s remuneration with Price earning Ratio 2007 is -38.59 with significant value .01 which

shows negative and significant relationship between directors‘ remuneration and Price earning

Ratio 2007.

Table 4.1.1

Coefficients

Model Unstandardized Coefficients

Standardized Coefficients

t Sig.

B Std. Error Beta

(Constant) 79.581 42.654 1.866 .121

overall corporate governance

21.244 10.258 .412 2.071 .093

director's remuneration

-38.588 10.676 -.719 -3.614 .015

Table 4.2.1 shows Regression coefficients i.e. Beta (β) of ownership structure with price earning

ratio 2007 is 43.69 with significant value .015 which shows positive and significant relationship

between ownership structure and price earning ratio2007. Regression coefficients i.e. Beta (β) of

director‘s remuneration with price earning ratio is -38.26 with significant value .004 which shows

negative and significant relationship between director‘s remuneration and price earning

Table 4.2.1 Coefficients



t Sig.

B Std. Error Beta

(Constant) 23.251 39.232 .593 .579

ownership structure

43.697 12.104 .513 3.610 .015

director's remuneration

-38.264 7.618 -.713 -5.023 .004

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Table 4.3.3 shows Regression coefficients i.e. Beta (β) of internal audit with return on equity 2006

is .62 with significant value .19 which shows positive and insignificant relationship between

internal audit and return on equity 2006. Regression coefficients i.e. Beta (β) of risk management

with return on equity 2006 is -.085 with significant value .56 which shows negative and

insignificant relationship between risk management and return on equity 2006. Table4 3.3 Coefficients



t Sig.

B Std. Error Beta

(Constant) -1.518 .523 -2.905 .034

internal audit .622 .183 .866 3.400 .019 Risk Management

-.085 .136 -.159 -.626 .559

Table 4.4.3 shows Regression coefficients i.e. Beta (β) of overall corporate governance with return

on equity 2005 is .88 with significant value .07 which shows positive and insignificant relationship

between overall corporate governance and return on equity 2005. Regression coefficients i.e. Beta

(β) of risk management with return on equity 2005 is .11with significant value .76 which shows

positive and insignificant relationship between risk management and return on equity 2005. Table4.4.3 Coefficients



t Sig.

B Std. Error Beta

(Constant) -1.774 .741 -2.395 .062


.884 .385 .755 2.297 .070

Risk Management

.110 .364 .099 .301 .775

Table4. 5.3 shows Regression coefficients i.e. Beta (β) of overall corporate governance with return

on equity 2005 is .92 with significant value .04 which shows positive and significant relationship


(β) of sustainability with return on equity 2005 is .11significant value .83 which shows positive

and insignificant relationship between sustainability and return on equity 2005.

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Table 4.5.3 Coefficients



t Sig.

B Std. Error Beta

(Constant) -1.864 1.105 -1.686 .153


.926 .334 .790 2.770 .039

Sustainability .111 .513 .062 .217 .837

Table4 6.3 shows Regression coefficients i.e. Beta (β) of overall corporate governance with return

on equity 2005 is .93 with significant value .025 which shows positive and significant relationship


(β) of accountability with return on equity 2005 is .24with significant value .68 which shows

positive and insignificant relationship between accountability and return on equity 2005. Table4 6.3 Coefficients



t Sig.

B Std. Error Beta

(Constant) -2.337 1.632 -1.433 .211


.952 .296 .812 3.212 .024

Accountability .247 .554 .113 .445 .675

Table 4.7.3 shows Regression coefficients i.e. Beta (β) of risk management with earning per share

2006 is 2.7 with significant value .17 which shows positive and insignificant relationship between

of risk management and earning per share 2006. Regression coefficients i.e. Beta (β) of dividend

policy with earning per share 2006 is -4.67 with significant value .027 which shows negative and

significant relationship between dividend policy and earning per share 2006. Table4 7.3 Coefficients



t Sig.

B Std. Error Beta

(Constant) 8.580 4.631 1.853 .123

Risk Management

2.692 1.692 .473 1.591 .172

Dividend Policy -4.664 1.504 -.922 -3.101 .027

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FINDINGS AND CONCLUSION

To discover the impact of the independent variables Corporate governance (ownership structure,

accountability, director‘s remuneration, dividend policy, risk management, internal audit and

sustainability), Regression analysis was applied Governance on the reliant variable - financial

performance (return on equity, price earnings ratio and earnings per share). Results indicated that:

Effect of overall corporate governance and director‘s remuneration on price earnings ratio (2007)

was analyzed. Overall corporate governance has positive and significant impact on price earning

ratio (2007), whereas director‘s remuneration has negative and significant impact on price earning

ratio.

The effect of ownership structure and director‘s remuneration was analyzed on price earning ratio

(2007). The findings represented that ownership structure has positive and significant impact on

price earning ratio (2007), whereas director‘s remuneration has negative and significant impact on

price earning ratio (2007).

We analyzed the effect of internal audit and risk management on return on equity (2006). The

results showed that internal audit has positive and significant impact on return on equity (2006),

whereas risk management has negative and insignificant impact on return on equity (2006).

We analyzed the effect of overall corporate governance and risk management on return on equity

(2005). The results showed that overall corporate governance has positive and significant impact

on return on equity (2005), whereas risk management has positive but insignificant impact on

return on equity (2005).

The effect of overall corporate governance and sustainability was analyzed on return on equity

(2005). The findings represented that overall corporate governance has positive and significant

impact on return on equity (2005), whereas sustainability has positive but insignificant impact on


The effect of overall corporate governance and accountability was analyzed on return on equity

(2005). The findings represented that overall corporate governance has positive and significant

impact on return on equity (2005), whereas accountability has positive but insignificant impact on


We analyzed the effect of risk management and dividend policy on earning per share (2006). The

results showed that overall corporate governance has positive but insignificant impact on earning

per share (2006), whereas dividend policy has negative and significant impact on earning per share

(2006).

Conclusion The present research study investigated the relationship of practices of corporate governance on

financial performance of textile sector of Pakistan. Three financial ratios i.e. return on equity,

price earnings ratio and earnings per share were used to analyze the effect of corporate governance

on financial performance. As prior discussion stated that Code of Corporate Governance establish

power-sharing relation between shareholders and management of company. Analysis discovered

that although provisions of Code of Corporate Governance are being executed in selected

organization but people have fewer knowledge that these provisions are termed as Corporate

Governance, as proved in One Sample Test overall corporate governance as (t=.57, sig≥.10) The

reason behind this dilemma is that Code was introduced in Pakistan in the 2001 and new ideas

always take time to be fully accepted by the people. Study observed that circumstances are

encouraging for the execution of Corporate Governance Practices and it is anticipated that future

will bring lots of development in corporate structure of Pakistan It is anticipated that this

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introduction and overview of current situation of Corporate Governance in Pakistan will provide a

basic framework for future research and debates regarding improvement of financial and operating

performance by applying relevant rules and regulations.

Limitations The barrier in the way of implementation of Code of Corporate Governance is that current Code is

Anglo-American based which comprised on Dispersed ownership structure whereas our ownership

structure is Concentrated -family based.

Company ordinance 1984 and Code do not recognize the minority shareholders (the shareholders

who represent less than 10% of company‘s shares). So there is no such provision that exist in the

code to deal such shareholders. The minimum condition for shareholder to file a case in Court

against coercion is that the complaint is initiated by 20% of the shareholders. Shareholders

representing less than 20% but at least 10% of company‘s share have right to ask SECP to assign

an examiner to inspect the affairs of corporation.

Companies do not prefer in Pakistan equity culture and there is lack of penal provisions which

results in unsuccessful execution of corporate governance. So it is believed that code of good

corporate governance will prove more effective with the addition of penal provision.

Financial press of Pakistan is not playing its mandatory role in endorsement of corporate

governance practices. It is not paying suitable consideration to the efforts essential for good

corporate governance.

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Rationale and Proclivity of Sales Promotion influencing the Impulsive Buying

Behavior of the customers: An experimental study on cellular service providers

in Pakistan Dr. Mubbsher Khan, Zia-ur-Rehman Khizer Bin Dost

Abstract

This endeavor is to explore the relationship between sales promotion and impulse buying behavior

of the customers in Pakistan. In this study Impulse buying behavior is taken as dependent variable

measured with its three dimensions .i.e. income level, tendency to spend and worth of product.

Whereas sales promotion is taken as independent variable measured with dimensions of offered

period and return policies. Five- point Lickert Scale model questionnaire was employed to collect

the data and for imploring the feedback from the customers. Then quantitative techniques were

used for data analysis through SPSS 16 to scrutinize the impact of the variables recommended in

the questionnaire to investigate in the consumers, regarding relationship between sales promotion

and Impulse buying behavior. The sample of 60 customers was collected from the various major

shopping areas of Lahore Liberty market demeanor this study. The conclusion divulge through

Regression analysis that dynamics of sales promotion and Impulse buying behavior has an

insignificant positive relation between dependant and independent.

Keywords: Sales promotion, Incentives, Offer Period, Return Policies, consumer impulse

buying behavior, income level, tendency to spend and worth of product.

Literature Review

Consumers customarily countenance the decision of what product to acquire and in what number.

The decision making process many a time happens to be intricate and complex by momentary

price cutback for assorted products (Gupta, A. 1993). A consumer‘s decision on product and

purchase capacity depends on extent of price decline and time until next price reduction. Retailers

too want to identify how premeditated verdicts such as the product assortment presented in their

stores, and how these intended decisions such as price promotions and particular displays influence

the probability of consumers adding impulse behavior to their sales (Brandweek, 1994).

Triumphant retailers construct most advantageous utilization of space available in the store and in

warehouse. Strategic approach is used to make the best use of available space which is quite

costly. Key factors in the proper use of space include location of merchandise on floor patterns,

appropriate displays and inventory levels (Hausman.A, 2000).

This stratum emphasizes the taxonomy of consumer products is divided into impulse and

non-impulse items. The major imperfection of this line of research is bewildering impulse buying

and unplanned buying. Dynamic may sway this impulse behavior. Moreover consumer‘s frame of

mind or poignant state, time and money available would all affect impulse buying behavior

(spring, 1991).

Impulsive buying tendency is an individual‘s attribute which diverges among people and

influences their extent of real impulse buying behavior. It is consumers, not products, which

experience consuming impulses. Important most market stimulus in consumer behavior and retain

a decisive influence in impulse buying are products. Music clothing and extremely personalized

products are highly declared as impulse goods; where as practical goods are graded among those

bought on least impulse.

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Premeditated buying activities take more time to collect information and to reach lucid decision

making. Unplanned buying requires purchasing without pre- planning and embrace impulse

buying (Rook, D.W, 1995). The most important and unique factor between planned and impulse

purchases is the comparative velocity with which buying decisions are made (Joseph, 2009). In an

attempt to eradicate the problems caused by the imprecise conceptualization of impulse buying and

eliminate the inconsistencies in the literature. (Hodge, 2004, p. 11) states that impulse purchases

are unplanned, decided on the spot. It shoots from reaction to a stimulus and involve a cognitive

reaction, an emotional reaction, or both. Impulse buying is connected with the diverse features of

marketing for example, quality of the product or services, advertisement, pricing acceptability of

the product, bundling and promotional frames were influencing the perceived value of the product,

variety seeking and corroboration behavior that resulted in purchase intention (Munger & Dhruv,

2003). Impetuous buying predisposition as an individual‘s attribute diverges among groups and

influences their extent of real impulse buying behavior because of different income levels

(Shoham.A, 2003). It is consumers, not products, which experience consuming impulses. The most

important and unique factors between planned and impulse purchases is the comparative velocity

and tendency to spend with which buying decisions are made through routine response behavior

which results into low cost purchases decision effort (Joseph, 2009). (Hodge, 2004, p. 11) states

that impulse purchases are unplanned, decided on the spot. It shoots from reaction to a stimulus

and involves a cognitive reaction, an emotional reaction, or both. Impulse buying is connected

with the diverse features of marketing for example, quality of the product or services,

advertisement, pricing acceptability of the product, bundling and promotional frames were

influencing the perceived value of the product, variety seeking and corroboration behavior that

resulted in purchase intention. (Rook, 1987) propounds that impulse buying is powerful and

persistent urge to buy something immediately from consumer abrupt incident; it is an immediate

and sudden purchasing intentions without pre-planned shopping of any specific product. Such

behavior impetuous after experiencing an urge to buy without any planned reflection. Impulse

buying in retail environments has been seen dramatically increasing because of a rampant

consumer behavior due to increase in personal disposable incomes and availability of credit facility

(Ferrell, 1998). Impulse buying behavior is unexpected and compelling habitually based income

levels that play an important role while determining the consumer impulse buying behavior as it

helps the consumer to decide about the purchase of the product (Bayley & Nancarrow 1998).

Impulse purchasing is not considered as erroneous by consumers rather, consumers expressively

declare it as a positive evaluation of their conduct ( Friese, 1996). Impulse buying as an

individual‘s different expectation that influence‘s decision making across situations like tendency

of spending money illogically (Beatty, 1998). Impulse buying behavior is a sensible unplanned

behavior keeping in view the value and importance of product which consumer perceives based on

objective evaluation and emotional preferences Ko (1993).

Sales Promotion The American Marketing Association (AMA) defines sales promotion as a marketing pressure

created through non-media and media activities to augment consumer demand for a limited and

predetermined time period. Different Techniques of sales promotions are viewed in literature as:

Cash Rebates i.e. price decrease is given to buyers making timely payments. Cash reimbursement

and refund offers by manufacturers. Price packs, given as percentage discounts offered on the

products. Seasonal offers price reduction to buyer who purchases merchandises out of season

(Manohar. U, 1992). Financial implications of offering a discount to retail customers to encourage

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cash payment rather than credit card payment to increase buying behavior (Charles & Michael,

1982). Different sales promotion techniques differ considerably from country to country.

Promotions aggravate two reactions in people firstly it increases consumption as more quantity of

a product is obtained, secondly tendency of consumers for buying products for future use. Most of

the time, it is seen that consumers get fascinated by the sales promotion and buy products although

they do not want to buy. People who change brand due to a promotion are observed to change back

to their preferred brand later on(Gupta, 1993). Sales promotions encourage brand and product

purchase as well as consumption (Brandweek, 1994). Consumer sometimes thinks that he or she

has been involved in unwanted situation of paying just to augment the position of product. This

situation results into negative effect and customers stops further purchasing brands (Simonson,

1989). Consumers can be characterized based on their brand purchasing prototype within a product

class (Morrison, 1966). Consumers' purchasing behavior can be distinguish as emphasizing, i.e., a

tendency to repurchase the last brand bought (Morrison, 1966). Purchase behavior can be

characterized as habit of looking for varied products (Kalwani, 1992). If consumer feels being

influence by retailer, can retaliate by stop purchasing the brand to penalize (Simonson, 1989).

Several models of consumer response to promotions suggest that a current decision on brand and

purchase quantity depends on the expected time until the next price reduction and the expected size

of future reduction return policies, money back guarantee or replacement of the products given by

the retailer to increase the confidence of the consumer (Casielles. 2005). (Sen, 1978) states that a

purchase strategy as a general buying pattern which incorporates dimensions of buying behavior

such as brand loyalty.

RESEARCH MODEL

RELATIONSHIP BETWEEN DEPENDENT AND INDEPENDENT VARIABLES

INCENTIVES

RETURN

POLICIES

OFFER

PERIOD

CONSUMER

IMPULSE

BUYING

BEHAVIOR

S

A

L

E

S

P

R

O

M

T

I

O

N

INCOME

LEVEL

TENDENCY

TO

SPEND

WORTH

OF

PRODUCT

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Research hypotheses It is necessary to consider while carrying out the study of the brand choice the literature

that dynamics of price, losses and gains, reference price, immediate price reductions and loyalty

are promotion actions which retailers frequently use for promotions and these have considerable

impact on the brand and consumer buying behavior (Go´mez, 1997), coupons, rebates or games,

celebration of anniversaries or special dates (Suri et al., 2000). Keeping in view this facet into

account, it is intended to distinguish the following hypotheses founded on the analysis of previous

studies and research works that acknowledge the need to introduce sales promotions into the brand

choice models by ( Lam et al., 2001).

.

H1: There is a positive relationship between Sales Promotion and Consumer Impulse Buying

Behavior.

H0: There is no positive relationship between Sales Promotion and Consumer Impulse Buying

Behavior

Methodologies The design of the study consists of a small interface of experiment with the consumer. The

survey aimed to reveal consumer attitudes towards cellular service providers. Since the list of the

target population was difficult to get, a non-probability sampling technique was applied. In this

study, convenience sampling procedure was used to collect the data on the perception of the

customers.

The survey was designed to take approximately 10 minutes for the respondents to

complete. It primarily consisted of multi-choice or check box answers instead of open ended or

fill-in answers. Our research was based on 61 respondents. The data then was analyzed by SPSS

16.0. To interpret the data, frequency and percentage were used in the first phase. To test some

hypotheses, correlation matrix, regression, cronebach Alpha test were used as statistical tool.

The purpose of this study is hypothesis testing. Research exploration is co-relational

because in this study we are involved in demarcating the significant variables connected with the

predicament. This study has been conducted in the natural environment of the organization with

least amount of intrusion by the researcher with the normal flow of work so it has minimal

interference where work proceeds normally so it is a non-contrived study setting. The unit of

analysis of this research is individuals and time horizon of this research is cross-sectional.

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Results Analysis

Demographic profile of respondents

Table 1: Demographic data for genders

GENDER

The graph below inferences that most of the female genders are the one who go for impulse buying

decision.i.e. 55.7% are male respondents in our research while male comprises of only 44% of the

total respondents.

AGE

Statistics

Gender age income

N Valid 61 61 61

Missing 0 0 0

Gender

Frequency Percent Valid Percent

Cumulative

Percent

Valid Male 27 44.3 44.3 44.3

Female 34 55.7 55.7 100.0

Total 61 100.0 100.0

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Table 2: Demographic data considering different age groups

From the table its easily visible that the age group 26-30 are the one who go maximum times for

impulse buying while 40+ are the one who go minimum times for impulse buying since this is the

age group when they are most active having some power of purchasing too.

Age


Cumulative

Percent

Valid 20-25 21 34.4 34.4 34.4

26-30 26 42.6 42.6 77.0

31-35 5 8.2 8.2 85.2

36-40 6 9.8 9.8 95.1

40+ 3 4.9 4.9 100.0

Total 61 100.0 100.0

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INCOME

Table 3: Demographic data considering their income level

From the table and graphical presentation it is clear that most of the impulse buying is being done

by the person whose income level lies in the range of 25001-35000 which comprises of 39% of

total 61 respondents.

Income


Cumulative

Percent

Valid < 15000 17 27.9 27.9 27.9

15001-25000 13 21.3 21.3 49.2

25001-35000 24 39.3 39.3 88.5

35001+ 7 11.5 11.5 100.0

Total 61 100.0 100.0

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Consumer impulse buying behavior

Case Processing Summary

N %

Cases Valid 61 100.0

Excluded 0 .0

Total 61 100.0

a. Listwise deletion based on all variables in the procedure.

ANOVA

Impulse purchase

Sum of

Squares df Mean Square F Sig.

Between Groups 43.250 4 10.812 .735 .572

Within Groups 823.963 56 14.714

Total 867.213 60

Post hoc test Multiple Comparisons

Dependent Variable: impulse purchase Tukey HSD

(I) age (J) age

Mean Difference

(I-J) Std. Error Sig.

95% Confidence Interval

Lower Bound Upper Bound

20-25 26-30 -1.12271 1.12541 .855 -4.2948 2.0494 31-35 -1.23810 1.90876 .966 -6.6182 4.1420

36-40 -.07143 1.77565 1.000 -5.0763 4.9335

40+ -3.57143 2.36753 .561 -10.2446 3.1018

26-30 20-25 1.12271 1.12541 .855 -2.0494 4.2948

31-35 -.11538 1.87314 1.000 -5.3951 5.1643

36-40 1.05128 1.73729 .974 -3.8455 5.9481 40+ -2.44872 2.33890 .832 -9.0412 4.1438

31-35 20-25 1.23810 1.90876 .966 -4.1420 6.6182

26-30 .11538 1.87314 1.000 -5.1643 5.3951

36-40 1.16667 2.32271 .987 -5.3802 7.7136

40+ -2.33333 2.80130 .919 -10.2292 5.5625

36-40 20-25 .07143 1.77565 1.000 -4.9335 5.0763 26-30 -1.05128 1.73729 .974 -5.9481 3.8455

31-35 -1.16667 2.32271 .987 -7.7136 5.3802

40+ -3.50000 2.71235 .698 -11.1451 4.1451

40+ 20-25 3.57143 2.36753 .561 -3.1018 10.2446

26-30 2.44872 2.33890 .832 -4.1438 9.0412

31-35 2.33333 2.80130 .919 -5.5625 10.2292 36-40 3.50000 2.71235 .698 -4.1451 11.1451

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ANOVA

impulse_purchase

Sum of

Squares df Mean Square F Sig.

Between Groups 37.800 3 12.600 .866 .464

Within Groups 829.413 57 14.551

Total 867.213 60

POST HOC TEST Multiple Comparisons

Dependent Variable: impulse purchase Tukey HSD

(I) income (J) income

Mean Difference

(I-J) Std. Error Sig.

95% Confidence Interval

Lower Bound Upper Bound

< 15000 15001-25000 2.04525 1.40544 .471 -1.6742 5.7647 25001-35000 .51961 1.20923 .973 -2.6806 3.7198

35001+ 1.63866 1.71309 .774 -2.8950 6.1723

15001-25000 < 15000 -2.04525 1.40544 .471 -5.7647 1.6742

25001-35000 -1.52564 1.31363 .653 -5.0021 1.9508

35001+ -.40659 1.78831 .996 -5.1393 4.3261 25001-35000 < 15000 -.51961 1.20923 .973 -3.7198 2.6806

15001-25000 1.52564 1.31363 .653 -1.9508 5.0021

35001+ 1.11905 1.63861 .903 -3.2175 5.4556

35001+ < 15000 -1.63866 1.71309 .774 -6.1723 2.8950

15001-25000 .40659 1.78831 .996 -4.3261 5.1393 25001-35000 -1.11905 1.63861 .903 -5.4556 3.2175

Reliability Analysis

All questionnaires were valid for analysis as missing values were converted 3 (neither agree nor

disagree). For a reliability check, the Cronbach's Alpha of each scale above 0.60 found , as shown

in the following table.

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Table 4: Consumer impulse buying behavior

Measurement scale for impulse buying behavior is 64.5% reliable.

Table 6: Sales promotion

Measurement scale for impulse sales promotion is 51.9% reliable.

Correlation Analysis

Table 9: Correlation between dependent variable and independent variable

Sales promotion and impulse purchase

Correlations

sales_pro impulse_purchase

sales_pro Pearson Correlation 1 .230

Sig. (2-tailed) .075

N 61 61

Impulse_purchase Pearson Correlation .230 1


N 61 61

Correlation is significant at the 0.075 level (2-tailed).

The upper table shows the significant relationship of .230 between sales promotion and impulse

purchases

Reliability Statistics

Cronbach's

Alpha N of Items

.645 5


Cronbach's Alpha N of Items

.519 5

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REGRESSION ANALYSIS

Table 7: Sale promotion vs. impulse purchase

Model Summary

Model R R Square

Adjusted R

Square

Std. Error of the

Estimate

1 .230a .053 .037 3.73114

a. Predictors: (Constant), sales_promotion

The value of R square is .053.

7. Discussion

Rook (1987), in his seminal article, emphasizes the need for a theoretical framework to

guide empirical research on impulse buying (Rook, 1987, p. 191). He also calls for work on the

effects of personality traits and the social environment on impulse purchasing (Rook, 1987,

p. 196). Furthermore, another under-researched area that remains is consumers‘ cognitive

processes or impulse buying motivations for new products (Bagozzi, 1999; Waarts et al.,

2002).

From table 4 it can be interpret that measurement scale of sales promotion is 51.9% reliable

and consumer impulse buying behavior is 64.5% reliable and visual merchandising is 51.9%

reliable. Hence, it can be interpreted that the hypothesis is untrue and there is an insignificant

positive relationship among the variables and level of significance is .075 for two tails and

confidence interval is 99.925%. From table 7, it is interpreted that Value of adjusted R2

(.053)

shows the effect independent variable on dependent variable, remaining effect will be caused by

other variables which are not the part of this study. Table represents ANOVA summary also from

this analysis significance is found .005. From table 6 the coefficient of independent variable sales

promotion β=0.334 have positive effect on dependent variable consumer impulse buying behavior.

8. Conclusions

The study focuses on understanding the relationship sales promotion to consumer impulse

buying behavior. Charles and Michael (1982) proved in their research that cash discount can

increase the customer buying behavior. Similarly Givon(1984) and Kalwani (1992) proved their


Coefficients Standardized Coefficients t Sig.

95% Confidence Interval for B

B Std. Error Beta Lower Bound Upper Bound

1 (Constant) 10.497 2.811 3.734 .000 4.872 16.122

sales_pro .124 .068 .230 1.815 .075 -.013 .261

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research of increasing sales through variety seeking behaviors, Morrison (1966) developed the

relationship of buying behavior with consumer status ,and Blattberg (1978) same developed

relationship with buying behavior but with brand loyalty, Schneider and Imran (1990) have found

promotions to be associated with brand switching. So we got area to find significant relationship

between sales promotion, visual merchandising and consumer impulse bung behavior.

The people with whom you are going for shopping are the main factors for impulse buying

behavior which broadly defines about the Emotional appeal of advertisements includes Price of

product, your income status, and Standard of living, which clearly defines the individual

purchasing power. Discount offers during festival seasons attract customers for their impulse

buying behavior. The answer to the research study concerning the relative strength of the retail

environment in impulse purchases is deep this is not to say that if a retailer puts items on special

display they will not generate impulsive purchases, they will. The study makes a useful

contribution to retailers‘ understanding of impulsive buying behavior among consumers.

9. Limitations

The data comes from a small panel and from a very small area where researchers gather

data in forms of thousands. Secondly, while we have included the major gap that exists between

variables to influence impulse buying behavior, there is the possibility that other unmeasured

factors (e.g. time of day) also influence purchase decisions. Thirdly, Shortage of time was another

limitation in this study. Due to which data collected was limited to very small area. Lastly, the

respondents were very non-serious many questioners were found on which pattern of filling

questionnaires found.

10. Future Implication The results of this study can be helpful for retailers. One of the major implications of this

research is that retailers can increase sales by offering the right promotional tools to encourage

product sale. So decision should carefully be planned. Promotions that emphasize in-store display,

cash rebates, and price packs are likely to be more effective than coupons.

Another fruitful area that a retailer must keep in mind that the promotion pattern should be

regular or long lasting so that consumer perception can be improved .Giving short term incentives

for temporary periods can cause low quality perception in consumer s which can effect impulse

purchase

To increase impulse purchase at store a wide range of competitors‘ products can be helpful

to encourage impulse purchase since consumer compare price level and a deep discount is

attractive to them. A haphazard approach to store layout generates less than desired results.

The unplanned purchases customers make on a shopping trip. Items with high impulse

success get great locations in the store. The cash desk area is a prime location for these products.

Marketers have to go a long way to understand the impulse buying behavior as it is a very

subjective and its depends on multiple factors, but marketers can take advantage for this behavior

and in almost every product category impulse buying witness. The research study is comprised to

pilot study there is a great potential in this area so further study can be helpful to solve many

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problem areas of retailers related to sales promotions, visual merchandising, and impulse psyche

of consumer.

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References

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Anja Schaefer & Andrew Crane (June 2005).Addressing Sustainability and Consumption.

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Ann Elizabeth Ericson, (2001) University of Iowa ―Antecedents of older adolescent‘s

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Aradhna Krishna, Imran S. Currim, Robert W. Shoemaker (Apr., 1991), ―Consumer Perceptions

of Promotional Activity‖ Source: The Journal of Marketing, Vol. 55, No. 2 pp. 4-16

Published by: American Marketing Association

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of consumer marketing, Vol 20, No.2.

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promotion: the effect on brand choice‖ European Journal of MarketingVol. 39 No. 1/2, pp.

54-70.

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methods on consumers' product evaluations and purchase intentions‖ vol. no:3 ,2003,

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buy‘‖, Journal of Marketing Research, Vol. 30, pp. 522-4.

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ANNEXURE

Questionnaire

This questionnaire is the measurement of research work being conducted as an important necessity

of the subject ―Marketing Research‖ at Department of Administrative Sciences (DAS) Quaid-i-

Azam University Islamabad (QAU). The rationale of this study is to recognize the Impact of Sales

Promotions and Visual Merchandising on Consumer Impulse Buying Behavior. This

questionnaire is purely for research and all the information given will be kept confidential. You are

gently requested to present information as absolute as possible.

Age: 20-25 years 26-30 years 31-35years

Gender: MALE FEMALE

Income: Under Rs. 15,000 Rs. 15,000 – 25,000 Rs. 25,000 – 35,000 Rs. 35,000 +

According to you, which of these factors affect your impulse buying behavior?

SA: Strongly Agree A: Agree NA/NDA: Neither Agree nor Disagree

DA: Disagree SDA: Strongly Disagree

1 2 3 4 5

SALES PROMOTION

i. Attractive price of product affects my impulse buying

behavior

ii. Discount offers regarding product attracts me

iii. Various schemes like (buy 1 get 1 free) affect my buying behavior positively.

iv. Availability of discounted products motivates me to buy.

v. Promotions can save me a lot of money.

vi. When I take advantage of a ‗‗buy-one-get-one-free‘‘

offer, I feel good.

vii. Mostly products that offer money back guarantee have

good quality as compared to those who did not offer.

SA A NA/

NDA

DA SDA

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viii. Sometimes I'm a bit out of control about what I buy.

ix. If a product that I usually buy is being promoted, I will

rush for my purchases.

x. When I use coupons, I feel that I am getting a good

deal.

xi. I have favorite brands but if I see any price pack I buy

in large size because of limited offer period.

xii. I feel comfortable to buy those promoted goods which have replacement facility.

xiii. The promoted brands have limited offer period.

VISUAL MERCHANDISING

xiv. Display of product in store attracts my attention.

xv. Packaging of product attracts me to by the products.

xvi. Placing of product in store gains my attention towards it.

xvii. Compatibility of another product with the product you are buying.

xviii. Complementary products placement in nearby shelves attracts me to buy both products.

CONSUMER IMPULSE BUYING BEHAVIOR

xix. I do not feel I can afford to make any unplanned

purchases while shopping.

xx. I feel that I have enough extra money on shopping trip so that I can exceed a little if I find something I really like.

xxi. It is fun for me to buy spontaneously.

xxii. Sometimes I'm a bit out of control about what I buy.

xxiii. I have often bought a product that I did not need, while

knowing that I have very little money left.

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Tracing Consumer Animosity Literature for Predicting Negative

Consumer Response

Dr. Mubbsher Munawar Khan


University of the Punjab, Lahore

Abstract Companies need to understand probable negative reactions of the customers. This negative

reaction sometimes have no direct relation with the product or service company offers, rather it has

some socio psychological reasoning. This paper spots lights on consumer animosity, one of the

socio psychological construct which explains probable negative reaction of the consumers. Tracing

the consumer animosity literature, this paper highlights its peculiar features and emphasizes

importance for theory and practice. It also indicates the gaps in the literature reflecting direction

for future research.

Keywords: Interreligious, Multicultural, Animosity, Socio Psychological

Introduction

Marketing strategy focuses on the marketing mix of the product. This includes product features;

distribution structure; pricing strategy and communication program. These components of the

marketing plan relate to the internal environment of the company and are controllable to a great

extent. On the other hand when we look at the external environment of the company, sometimes

there are certain socio psychological situations which negatively impact the consumer behavior

despite an appropriate marketing plan. Though these are uncontrollable but are important enough

to be comprehended in order to draw a strategy to reduce negative impact of these situations.

A few constructs had been introduced in the marketing literature to capture probable negative

response of the consumers. This includes ethnocentrism; consumer racism, market alienation,

differentiation. In this paper I am focusing on a comparatively new marketing construct i.e.,

consumer animosity, to identify and measure the negative consumer response. Consumer

animosity is used in the marketing literature to gauge the probable negative response of consumers

towards foreign goods.

Initially, the animosity construct was introduced by Klein et al. (1998) in the context of Chinese

consumers‘ attitudes toward Japanese products. This pioneer study was conducted in Nanjing

province of China where Japan had committed massacre of Chinese during Second World War.

Klein et al. (1998, p. 90) define consumer animosity as the ―remnants of antipathy related to

previous or ongoing military, political or economic events‖.

Although the concept of consumer animosity is comparatively new in the international

marketing literature, still we can find many studies conducted in different regions of the world

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based on different sets of inter-country relations. A brief review of existing literature in a

chronological order is given below.

Klein and Ettenson (1998) have focused on the Chinese‘ animosity towards Japan due to

war and indicated that though Chinese consumers knew high quality of Japanese products but still

they are not willing to buy. Klein and Ettenson (1999) have focused on American consumers‘

animosity towards Japan because of economic reasons. This study also compares the impact of

ethnocentrism with consumer animosity on consumers mind. Shin (2001) has studied Korean

consumers‘ animosity towards Japan on the basis of war and economic reasons. Jung, Ang, Leong

and et al. (2002) have based their study of consumer animosity in Thailand, Indonesia, Korea,

Malaysia and Singapore against USA and Japan due to the economic crisis. Nijssen and Douglas

(2004) have researched consumer animosity of Dutch customers towards Germany based on war,

occupation and economic reasons. This study is conducted in Netherlands, which has a high level

of foreign trade and consumers do not have much choice of local alternatives.

Shimp, Dunn and Klein (2004) have talked about consumer animosity between regions of

the same country. They studied animosity between North America and South America. This

research introduces regional animosity. Regional animosity reflects personal preference for own

geographic region and admits some animosity toward people from a different region. The study is

based on historical divide between the northern and southern regions of the United States. Hinck

(2004) has coined the term, domestic animosity and studied animosity prevalent in East Germany

towards West Germany on economic reasons. Hinck et al. (2004) have studied animosity of West

German customers towards East Germany based on economic reasons. He suggests that specific

choice and preference constructs previously applied in international research could also explain

domestic phenomena.

Kesic, Pirirajh and Vlasic (2005) have studied animosity in Croatian customers towards

Bosnia-Herzegovina, Serbia, USA and Western Europe due to civil war. Cicic et al. (2005) have

studied interethnic animosities in Bosnia-Herzegovina. Similarly Ettenson and Klein (2005) have

measured animosity in Australia towards France due to diplomatic reasons. They have provided a

strategic analysis of consumer protest which has managerial implications. They have employed an

animosity model regarding consumer purchase behavior in two longitudinal studies in order to

analyze Australian consumers' boycott of French products.

Shoham et al.(2006) have studied inter-ethnic animosity between Jewish Israelis vs. Arab Israelis

due to armed disputes. They have studied Jewish Israelis' reactions to Arab Israelis purchase

reactions to Arab Israelis‘s products and services. They have examined animosity, its antecedents,

and its impact on purchases of a large Jewish majority in Israel. Edwards, Gut and Mavondo

(2007) have studied consumer animosity in context of business to business purchases in Australia

towards France due to diplomatic reason. They have investigated the comparative impact of

animosity between firms in the B2B sector and firms in in B2C markets. Their results show that

consumer animosity was less prominent in B2 than in B2C. Riefler & Diamantopoulos (2007)

have reflected possible problems related with the measuring of consumer animosity and also

suggested an alternate model to capture animosity.

Looking in detail to various contributions on consumer animosity, animosity appears to be

an important indicator of consumers‘ unwillingness to buy foreign commodities (Klein &

Ettenson, 1999). All the studies discussed above have also consistently found animosity of in-

groups to be negatively linked towards purchase intent of products associated with out-groups.

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Literature also identifies certain other peculiar features of consumer animosity which are discussed

in the following.

Objectivity of Evaluation

Consumers harboring animosity can objectively evaluate the conflicting country‘s goods

but are reluctant to buy these goods. Respondents do not under evaluate the quality of the product

but still deny buying them. These findings are supported by almost all studies with different

product categories conducted in different regions of the world. Only one study reflects that

animosity in some extreme contexts (e.g., tension between Arab Israelis and Jewish Israelis)

affects the products‘ judgments (Shoham, et al., 2006).

Stability of Animosity

Literature reflects that consumer animosity could remain for the short lived as well as for a longer

period. Consumer animosity can be situational as well as stable in character as far as the

consequences are concerned (Riefler & Diamantopoulos, 2007). For example, on the one hand,

Klein et al. (1998) found out that, sixty years after the massacre of Nanjing, anger toward Japan

was so intense that consumers in Nanjing were still forgoing Japanese goods. On the other hand,

consumer anger which previously did not exist was generated suddenly by France‘s nuclear tests

that could affect product purchase, even if only temporarily (Edwards & Moss, 2000). Inter Country Animosity

Most of the previous animosity studies have focused on one or more countries as the target

of animosity and investigated its impact on consumers buying behavior. While a few studies have

focused on inter regional animosity within the country, only certain recent studies have looked at

the animosity between the ethnic groups within the country.

The factors that influence animosity between countries may also be valid within a given country.

For example, Tibetans may have remnants of antipathy towards the Chinese because of prior

military events. Latino Americans may exhibit remnants of antipathy toward white Americans

because of current perceived exclusion from well-paying professional positions. Algerian

immigrants to France may not have forgiven the French for the ill-treatment of civilians during

French-Algerian war of the 1950s (Ouellet, 2007).

Types of Animosity

Human history is cluttered with disputes, tensions and wars among nations. Consequently,

many nations still harbor feelings of antipathy and hate for each other. Many ongoing and

historical issues have also caused tension among the nations: Pakistan and India over the Kashmir

valley; Palestine and Israel over the Gaza region; Iran and United States over Iran‘s nuclear

program to name but a few. Certain recent events have also divided world opinion and caused

animosity among the nations. For instance the attacks in United States on 11th

September 2001 and

United States‘ invasion of Iraq and Afghanistan in presumed retaliation. France also had to face

consequences of animosity because of nuclear tests on Mururoa Atoll in South Pacific.

Various economic reasons like supporting the home industry and saving domestic

employment could sometimes also be responsible for harboring disliking towards certain country‘s

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products. Another shape of animosity is social-cultural animosity. Consumers have such feelings

when they believe that their own cultures are threatened by brands associated with other cultures.

Social-cultural animosity also includes religious animosity, which occurs when members of

one religious group feel animosity towards another religious group (Rice & Wongtada, 2007).

Religion related events also breed animosity, agitation of Islamic countries against Denmark

following the publication of blasphemous caricatures of Prophet Muhammad (Peace be upon him)

in a Danish newspaper. Many Islamic countries boycotted imports from Denmark as a protest.

Some religious extremist burned a Christian priest alive along with his family in India. Similar

religious riots in Gujarat, India in the year 2002 are also the manifestation of religious animosity

prevalent within the country. Result of referendum regarding mosques‘ minarets in Switzerland,

ban on publicly wearing burqa (Islamic dress for females) in France and agitation against

constructing Islamic-Centre in New York are most recent manifestation of increasing religious

intolerance and antagonism.

Research Gap

Animosity appears to be based in a dominated group‘s antipathy towards the dominating

group, potentially because of the latter‘s efforts to impose its cultural domination (Ouellet, 2007).

However, within-country boundaries, similar animosity of ethnic subgroups towards each other

and the possible impact on their attitudes and consumer behavior did not attract much attention.

Keeping in view that many countries pride themselves of cultural diversity (Aggestam & Hill,

2008; Chavan, 2005; Leibold & Hugo-Burrows, 1997; Roberts & Hart, 1997) and taken account of

the increase in ―ethno marketing‖ (Pires, Stanton, & Cheek, 2003), this represents a substantial gap

in the marketing literature.

A few exceptions include Ouellet (2007) who have investigated cross-ethnic product

purchases and introduced the consumer racism construct in an attempt to explain attitudes of a

country‘s majority towards minority-owned businesses. This study provides empirical evidence of

the effects of consumer racism on domestic cross-ethnic product purchase in three countries. His

model suggests that consumer racism affects ethnic majorities' judgments of and willingness to

buy products from each country's dominant ethnic minority.

In the similar manner, Shimp et al. (2004) had expanded the concept of animosity to

regional animosity between northern and southern regions of the United States and relate it to

preferences for their own (in-group) geographic region compared to people from an out-group

region. Hink (2004) has also studied consumer animosity between East Germany and West

Germany. His findings suggest that regional animosity within country borders follows the same

pattern as external animosity in that it lowers the willingness to purchase products from the

opposed region. Only Shoham et al. (2006) have studied consumer animosity between two

religious communities. Specifically, they analyzed the response of Jewish majority consumers

towards Arab minority‘s products in Israel.

Although these studies though also include the development of consumer racism construct

focus on minority business ownership and on regional animosity respectively, they provide

important insights into the relationship between different subgroups within one country. Moreover,

these works demonstrate that constructs commonly associated with cross-country attitudes and

purchase behavior such as consumer racism and animosity, are equally relevant in within-country

settings.

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In the extant literature on consumer animosity, intergroup animosity within the country

could not get much attention of the researchers. Future researches on consumer animosity could be

focused on this direction. In this context study of inter-religious animosity between communities

and its impact on purchase behavior could be quite interesting.

A recent exploratory study in Austria identifies the top three countries which are the target

of Austrians animosity. Number one is USA, number two is Germany and at number three is

Turkey (Riefler & Diamantopoulos, 2007). The main cause of Austrians‘ animosity towards

Turkey is mentality, the second is the role of woman and third reason for animosity towards

Turkey is due to the Muslim religion not agreed or liked by Austrians, who are majority Christians.

The origins of animosity are not only war and economy related but can include other causes

like mentality and religious differences (Riefler & Diamantopoulos, 2007). Moreover, such causes

can be both temporary or permanent as well as both of macro and micro-level of nature (Jung, et

al., 2002).

Conclusion

World is fraught with disputes, hatred, dislike, intolerance, antipathy and antagonism

among the nations. Eventually all these feelings could converge into consumer animosity which

results in the rejection of the products of the country who is the target of such animosity. These

feelings are prevalent not only in inter country context but also within the country context.

Consumer animosity is a useful construct being successfully employed to capture potential

negative impact. It has massive managerial consequences. If a company is aware of prevalent

animosity, it can adopt damage control strategies. For example a famous European retail chain

works with a different name in some Islamic countries in order to avoid possible anti-western

feelings.

This paper stresses the need to understand within country animosity and adopt strategies to

tackle the consequences. Studying the impact of interreligious animosity on buying behavior in the

multicultural societies is suggested as a useful direction for future researches. Such studies could

have not only theoretical contribution by extending the extant literature but also sufficient

managerial implications.

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References Aggestam, L., & Hill, C. (2008). The Challenge of Multiculturalism in European Foreign Policy.

International Affairs, 84(1), 97-114.

Chavan, M. (2005). Diversity Makes Good Business. Equal Opportunities International, 24(7/8),

38-58.

Cicic, M., Brick, N., Husic, M., & Agic, E. (2005). The Influence of Animosity, Xenophilia and

Ethnocentric Tendencies on Consumers' Willingness to Buy Foreign Products - the Case of

Croatia. Paper presented at the 34th European Marketing Conference (May 24-27), Milan.,

Edwards, R., Gut, A.-M., & Mavondo, F. (2007). Buyer Animosity in Business to Business

Markets: Evidence from the French Nuclear Tests. Industrial Marketing Management,

36(4), 483-492.

Edwards, R., & Moss, S. A. (2000). Negative Country of Origin Events: The Case of French

Nuclear Tests. International Journal of Business Studies, 8(1), 23-36.

Ettenson, R., & Klein, J. G. (2005). The Fallout from French Nuclear Testing in the South Pacific:

A Longitudinal Study of Consumer Boycotts. International Marketing Review, 22(2), 199-

224.

Hinck, W. (2004). The Role of Domestic Animosity in Consumer Choice: Empirical Evidence

from Germany. Journal of Euro - Marketing, 14(1,2), 87-104.

Hinck, W., Cortes, A., & James, K. (2004). An Empirical Investigation of Eastern German

Products in Western German Markets. Journal of International Business and

Enterpeneurship Developmaent, 2(1), 104-111.

Jung, K., Ang, S. H., & Leong, S. M. (2002). A Typology of Animosity and its Cross-National

Validation. Journal of Cross-Cultural Psychology, 33(6), 529-539.

Kesic, T., Piri-rajh, P., & Vlasic, G. (2005). The Role of Nationalism in Consumer Ethnocentrism

and the Animosity in the Post-war Country. Paper presented at the 34th European

Marketing Conference.

Klein, J. G., & Ettenson, R. (1999). Consumer Animosity and Consumer Ethnocentrism: An

Analysis of Unique Antecedents. Journal of International Consumer Marketing, 11(4), 5-

24.

Klein, J. G., Ettenson, R., & Morris, M. D. (1998). The Animosity Model of Foreign Product

Purchase: An Empirical Test in the People's Republic of China. Journal of Marketing,

62(1), 89-100.

Leibold, M., & Hugo-Burrows, R. (1997). Broad Marketing Implications of Recent Trends in the

Multicultural South African Market Environment. Journal of Marketing Theory and

Practice, 5(1), 67-77.

Nijssen, E. J., & Douglas, S. P. (2004). Examining the Animosity Model in a Country with a High

Level of Foreign Trade. International Journal of Research in Marketing, 21(1), 23-38.

Ouellet, J.-F. (2007). Consumer Racism and its Effects on Domestic Cross-Ethnic Product

Purchase: An Empirical Test in the United States, Canada, and France. Journal of

Marketing, 71(1), 113-128.

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Pires, G., Stanton, J., & Cheek, B. (2003). Identifying and Reaching an Ethnic Market:

Methodological Issues. Qualitative Market Research: An International Journal, 6(4), 224-

235.

Rice, G., & Wongtada, N. (2007). Conceptualizing Inter-Attitudinal Conflict in Consumer

Response to Foreign Brands. Journal of International Consumer Marketing, 20(1), 51-65.

Riefler, P., & Diamantopoulos, A. (2007). Consumer Animosity: A Literature Review and a

Reconsideration of its Measurement. International Marketing Review, 24(1), 87-119.

Roberts, S. D., & Hart, H. S. (1997). A Comparison of Cultural Value Orientations as Reflected by

Advertisements Directed at the General U.S. Market, the U.S. Hispanic Market, and the

Mexican Market. Journal of Marketing Theory & Practice, 5(1), 91-99.

Shimp, T. A., Dunn, T. H., & Klein, J. G. (2004). Remnants of the U.S. Civil War and Modern

Consumer Behavior. Psychology & Marketing, 21(2), 75-84.

Shin, M. (2001). The Animosity Model of Foreign Product Purchase Revisited: Does it Work in

Korea? . Journal of Imperical Generalisations in Marketing Sciences 6(1), 6-14.

Shoham, A., Davidow, M., Klein, J. G., & Ruvio, A. (2006). Animosity on the Home Front: The

Intifada in Israel and its Impact on Consumer Behavior. Journal of International

Marketing, 14(3), 92-114.

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Website Quality of Higher Education Websites: Young User‟s Perception

Dr. Sayyid Salman Rizavi

Assistant Professor, Hailey College of Commerce,

University of the Punjab, Lahore, Pakistan

Dr Mubbsher Munawar Khan

Assistant Professor, Hailey College of Commerce,

University of the Punjab, Lahore, Pakistan

Sayyid Haider Mustafa Rizavi

Credit Manager, Askari Bank Limited, Lahore, Pakistan

Abstract

Higher Education Websites are an important interface between the students and the higher

education institutions. The nature of interaction between students and the institution has evolved a

lot after the dramatic increase in the use of internet. It is, thus, imperative to study and analyze the

quality issues of websites developed for the higher education institutions. As a very large

proportion of users of such site are young people so, in this paper, we focus on the youngsters of

age 18 to 25 years with some respondents above 25. We try to understand the perception of them

about such websites. In order to do that the authors conducted a small survey of 234 young

students who are presently enrolled in a higher educational institution or have been enrolled in the

past 5 years. The respondents belong to the Lahore regions which is the second largest city of

Pakistan. We use Principal component analysis using varimax rotation with Kaiser Normalization.

The WEBQUAL slightly modified according to our needs was used for the survey.

Keywords: Higher Education, Website Quality, Factor Analysis, Young Population

Introduction

Human interaction has evolved a lot after the advent of the internet. The method of interaction has

changed dramatically. One of the principal medium of interaction is the dynamic websites. The

educational institutions are relying more and more on the internet to secure admissions, remain

connected to the students and provide help and support to them. The principal users of such

websites are naturally youngsters. The major part of the students is youngsters who use the internet

more than their seniors few years back did. In the region in which our survey is conducted, the

emergence of private institutions along with increased number of public sector institutions has

given rise of lot of competition. This has given rise to heavy marketing campaigns that include the

use of good websites. In order to attract students and retain them and to provide better image of the

institution, the websites quality of such institutions is improving a lot. The culture of student-

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institution interaction is different in different parts of the world and hence the perception of a good

website quality. Thus it is necessary to gauge the perception of users of these websites in different

cultures and regions in a comparable way. For this purpose we used a standard questionnaire

covering the common dimensions of a good quality website to know about are the user

requirements. If the website is according to the perception of a good quality site then the users will

rate is as good quality and will feel comfortable in using it.

Website Quality Issues: A brief review of literature

Online service quality has some unique features not found in traditional service quality. Initially

instruments were created for measuring the perception regarding service quality in general. Later

instruments specific to online service quality and measurement of consumer perception evolved.

The first significant contribution to measuring the online service quality was by Parasuraman,

Zeithaml & Berry (1988). They think of customer perception about online service quality as a

comparison between different dimensions of a website with the substitutes of that website. This

model is applied in many studies but also been criticized. (Buttle, 1995). Yang, Jun & Peterson

(2004) conclude that SERVQUAL model is not fully applicable to online services as it does not

take into account different special features of online services. It fails to use previous research in

social sciences. (Andersson, 1992). Also expectations may be influenced by a bias created by

trying to conform to social norms. (Babakus & Inhofe, 1991).

The website design has been thought to be the most important feature of online services. Speed and

convenience comes after that. A third such specific feature is given by (Park & Baek, 2007) which

he called system interface.

Due to the abovementioned facts, E-Qual was developed to gauge the user perception of the

quality of e-commerce websites by (Barnes & Vidgen, 2001). They established WEBQUAL for

online service quality creating seven quality dimensions. SITEQUAL was also created by Yoo &

Donthu (2001). All the above three can be used to develop good instruments for website service

quality.

Methodology

We base our questionnaire on WebQual (Loiacono et al., 2000) where some new questions were

added according to our needs. The question cover dimensions of website quality and also some of

the aspects of websites for educational institutions. There are 26 questions which are stated for the

user to agree or disagree which is recorded on a Likert-Scale. Some optional personal information

was asked. The respondents were young existing or previous students of any public or private

higher educational institution. In total 300 questionnaire were distributed out of which we got back

238, the response rate being 79 percent.

The objective was to know the user-perception about a good website quality of higher educational

institutions. This will enable us to know the properties of a good quality website in order to launch

a site for the needs of a particular region; Lahore in this case. The point to keep in mind here is that

the student enrollment is highly concentrated where most of the students in the higher educational

institution of the Lahore region come from Lahore and the small cities near Lahore. Principal

component factor analysis was used with varimax rotation. We used SPSS 16.0 for analysis. The

correlation matrix lets us know if the variables are correlated normally i.e. not very low or very

high correlation. The determinant of the correlation matrix will let us know about the possibility of

multicollinearity. Eigenvalues greater than unity are considered. Varimax rotation is used to

maximize the loading of variables on the relevant factor. Answers determining multiple factors

will be excluded.

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The questionnaire contains question on different dimensions of website quality. Quality of

information is related to the main display of the website and first impression that the user gets

depends on this quality. This dimension is found to be important by authors like (Liu & Arnett,

2000). The higher education or university website should be easy to use. The user-site interaction

should be clear. This is an essential part of any website quality. Website Quality surveys like, for

example (Cao, Seydel, & Zhang, 2005), usually include such dimensions. The content of the

website is what makes it specific. The educational websites must contain good information not

only about the administrative procedures of the institutions but also good educational information

like course material and help and guidance to the students. Studies like (Longwell, 1999) and (Bell

& Tang, 1998) have discussed content and design of the websites. User-site interaction is an

integral part of any dynamic website. Studies like (Cao, Seydel, & Zhang, 2005) etc. include such

dimensions. One unique feature of educational websites is the educational content that should be

treated as different form normal information related to any website. Studies like (Tarigan, 2008)

and (Barnes & Vidgen, 2001) include the elements of trust. The user should feel safe in all

respects. For example, the potential student should feel safe and secure while entering personal

information to secure admission in a higher education institution.

Results

The questionnaire we used contained 26 questions. The questions were reduced to seven different

dimensions confirming the relevance of the WEBQUAL The dataset includes 234 respondents.

Table 1 related to descriptive statistics provides an insight to the data set.

The descriptive statistics indicate that a 45 percent of the respondents were female. Majority have

an educational background of intermediate or graduation.

Table 1: Descriptive Statistics of respondent‟s background

Frequency Percentage

Gender Male 129 55

Female 105 45

Total 234

Age 18-20 82 35

21-25 112 48

25 and above 40 17

Total 234

Education Intermediate 53 17

Graduation 135 23

Masters or above 46 47

Total 234

Principal component factor analysis with varimax rotation is used. The absolute value of Spearman

correlations for variables ranged between 0.35 and 0.6, mostly significant at 5% level of

significance.

SPSS 16.0 is used for our analysis. The coefficients less than 0.4 are suppressed. As a result, the

questions were reduced to six different factors. The determinant of the correlation matrix was

0.001. This shows that multicollinearity may not be of much problem. The Bartlett test of

sphericity is found to be significant at one percent. The Kaiser-Meyer-Olkin measure of sampling

adequacy is found to be appropriate (KMO= 0.81) hence confirmatory factor analysis could be

used. Table 2 provides these results at a glance.

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Table 2: Diagnostic Test for factor analysis

KMO and Bartlett's Test

Kaiser-Meyer-Olkin Measure of Sampling

Adequacy.

.811

Bartlett's Test of

Sphericity

Approx. Chi-Square 1703.049

df 276

Sig. .001

Test for Multicollinearity

Determinant of Correlation Matrix 0.001

Table 3 provides the Rotated Component Matrix using varimax rotation with Kaiser

Normalization. Six components are extracted. The factors explain a good percentage of variation.

Most of the factors reconcile with WEBUAL.

Table 3: Rotated Component Matrixa

Component

1 2 3 4 5 6

Label

Usability

(Content +

Ease of

use)

Educationa

l

information

Trust

Interaction

Informatio

n Quality

Language

q4 .755

q6 .681

q11 .631

q7 .694

q10 .683

q9 .565

q8 .523

q17 .502

q15 .552

q18 .536

q25 .516

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q19 .513

q26 .505

q13 .692

q21 .633

q5 .617

q22 .681

q12 .644

q16 .622

q20 .611

q14 .562

q1 .751

q3 .683

q2 .612

q23 .714

q24 .723

Extraction Method: Principal Component Analysis.

Rotation Method: Varimax with Kaiser Normalization.

a. Rotation converged in 6 iterations. Values less than 0.4 are not displayed.

The first factor is usability and the second is educational information. The rest are trust,

information, interaction and language. All the six factors are explained by several questions and

uniquely identify the factors. Five factors are identical to WEBQUAL but one of them, educational

information, is new. It seems that educational information becomes important when we are

specifically looking at higher education websites. This is obvious as it is the main objective of the

website. Usability contains six different questions and educational information contains 5 different

questions. The rest contain four or less. The questions are connected and fall into different factors

according to expectations.

Conclusion

Educational websites are special in the sense that they have some special features not required in

other websites. It is imperative to consider this difference and organize surveys taking into account

the special features of higher education websites. In the present study we find six different factors,

mostly reconcilable with WEBQUAL, which include a special feature on educational help and

information provided on the higher education websites particularly universities. The results show

the importance of the usability. Educational information comes as a second important factor. The

higher education websites, hence, shall be designed and modified according to the factors found

important. The same can be used to rank the higher educational websites.

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References

Andersson, T. D. (1992). Another model of service quality: a model of causes and effects of

service. In P. Kunst, & J. Lemmink, Quality Management in Service.

Babakus, E., & Inhofe, M. (1991). The role of expectations and attribute importance in the

measurement of service quality. Summer Educators‟ Conference. American Marketing

Association.

Barnes, S. J., & Vidgen, R. (2001). An evaluation of cyber bookshops: the webqual method.

International Journal of Electronic Commerce , 6 (1), 11-30.

Bell, H., & Tang, N. (1998). The effectiveness of commercial Internet web sites: a user's

perspective. Internet Research , 8 (3), 219-228.

Buttle, F. (1995). SERVQUAL: Review, Critique, search agenda. European Journal of Marketing ,

30 (1).

Cao, M., Seydel, J., & Zhang, Q. (2005). B2C e-commerce web site quality: an empirical

examination. ndustrial Management & Data Systems , 105 (5), 645 - 661.

Liu, C., & Arnett, K. P. (2000). Exploring the factors associated with website success in the

context of electronic commerce. Information and Management , 38 (1), 23-34.

Longwell, F. (1999). Effective websites can facilitate work site sales. Natinal Underwriter , 103

(49), 27.

Parasuraman, A., Zeithaml, V., & Berry, L. (1988). SERVQUAL: A multiple item scale for

measuring consumer perceptions of service quality.Journal of Retailing ,64(1), 12-40.

Park, H., & Baek, S. (2007). Measuring Service quality of online bookstores with WebQual.

HCI'07 Proceedings of the 12th international conference on Human-computer interaction:

applications and services.

Tarigan, J. (2008). JURNAL AKUNTANSI DAN KEUANGAN , 10 (1), 34-47.

Yang, Z., Jun, M., & Perterson, R. T. (2004). Measuring customer perceived online service quality.

International Journal of Operations & Production Management , 24 (11),

Yoo, B., & Donthu, N. (2001). Developing a scale to measure perceived quality of an internet

shopping site (SITEQUAL). Quarterly Journal of Electronic Commerce , 2 (1), 31-46.

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Appendix

Questionnaire

Quality of Higher Education Sites This questionnaire is meant for research on the quality of higher education websites. Please fill in the questionnaire if

you have been enrolled in a higher educational institution during the last five years. All information will remain will

be kept confidential and used only for research.

Part I (Please mark the relevant option by putting a cross „x‟)

Name: (optional):

Age in years Education Marital Status

18-20 Intermediate Married

21-25 Graduation Unmarried

25 and

above

Masters Other

Part II

Please read the following statements and let us know about how much you agree or disagree with the statement by

encircling a choice. Choices are 1=strongly disagree, 2=disagree, 3=Neutral, 4=agree, 5=strongly agree.

1 2 3 4 5

Strongly

disagree

Disagree Neutral Agree Strongly

Agree

1. The information on the website should be in accordance to its purpose 1 2 3 4 5

2. The website should provide correct and relevant information 1 2 3 4 5

3. The site should provide information on proper time 1 2 3 4 5

4. The information provided should be easy to understand 1 2 3 4 5

5. I should be able to keep information private 1 2 3 4 5

6. The site should have attractive appearance 1 2 3 4 5

7. The site should create an overall positive experience 1 2 3 4 5

8. The site should convey a sense of community 1 2 3 4 5

9. The site should be easy to learn to operate 1 2 3 4 5

10. The site should be easy to navigate 1 2 3 4 5

11. The content should be easy to read 1 2 3 4 5

12. The site interacts clearly and understandably 1 2 3 4 5

13. All personal information should be kept secure 1 2 3 4 5

14. It should be easy to communicate with the site 1 2 3 4 5

15. The site should have a good reputation 1 2 3 4 5

16. The site creates a sense of personalization 1 2 3 4 5

17. The site provides and educational environment 1 2 3 4 5

18. The site should provide information on courses with material 1 2 3 4 5

19. The site should provide online learning opportunities 1 2 3 4 5

20. The site should be interactive 1 2 3 4 5

21. I should feel safe to upload my personal information 1 2 3 4 5

22. The site should not share my information with other organizations 1 2 3 4 5

23. The site should not allow unethical content 1 2 3 4 5

24. The site should be displayed in both English and local language 1 2 3 4 5

25. We may be able to download educational information 1 2 3 4 5

26. The site should provide access to libraries and journal databases 1 2 3 4 5

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Effectiveness of Foreign Aid in the Light of Millennium Development Goal on the Education Sector: A case study of Pakistan

Muhammad Khalid Rashid

Ph.D Scholar

Department of Economics National College of Business Administration and Economics,

40-E/1, Gulberg III, Lahore, Pakistan

Mumtaz Anwar

Assistant Professor

Department of Economics

University of the Punjab, Lahore, Pakistan.

Abstract

Aid recipient developing countries have remained stagnant and they are becoming more aid

dependent after receiving large amount of aid from developed countries. This reality provokes

vigorous debate on the effectiveness of aid. This study analyzes the effectiveness of aid in the

education sector of Pakistan during the period 1973-2008. This study focuses on the second

Millennium Development goal, which attributes to achieve universal primary education. We

estimate econometric model to test the short run and long run relationship between foreign aid and

gross primary enrollment in the education sector of Pakistan. For this purpose, Augumented

Dickey Fuller test, Johansen Likelihood Ratio test and Vector Error Correction Methods are used.

The results show that foreign aid has significantly increased primary school enrollment in

Pakistan. The results proved the short run as well as long run relationship between foreign aid and

primary school enrollment.

Key Words: Universal Primary Education, Millennium Development Goal, Foreign Aid

JEL Classification: F35, I21, O12, O19

1. INTRODUCTION Most of the developing countries are dependent on foreign aid to expand the productive capacity of their economies due to the lack of internal resources. The international community has put a lot of effort and financial support into upgrading the social sectors of developing countries during the last few decades. World Bank is the major external financer of education sector in developing countries with accumulative spending of 3.4 billion dollars in fiscal year 2009

i. Moreover, with

the adoption of the Millennium Development Goals (MDGs) ii, one must expect the priority

accorded to the social sectors to be upheld. This paper used Official Development Assistance (ODA) that is a subcategory of foreign

aid and account for all official aid in different sectors. According to the World Bank, ODA comprises flows that meet the Development Assistance Committee‘s (DAC) definition of ODA and are made to countries on the DAC list of aid recipients. Usually, this aid is specified to

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promote the economic growth or to combat natural disasters. This study focuses on the effectiveness of foreign aid in the education sector of Pakistan. The provision and financing of education, especially at primary level around the world is the

responsibility of the public sector because of the difference between social and private returns.

According to the article 37(b) of the constitution of Pakistan, ―The state shall remove illiteracy and

provide free and compulsory secondary education within minimum possible period‖. Despite such

commitments, Pakistan spends less on education than developed countries. Even Government

spending on education in Pakistan has declined from 2.5 percent of GNP in 1996 to 1.4 percent of

GNP in 2008 iii

. Pakistan is among the signatories of the Millennium Development Goals as well

as the Dakar Framework of Action (2000). In this context, policies like National Plans of Action

for ―Education For All‖ (EFA) has been initiated to achieve these goals. There are eight bilateral

donors providing aid to the education sector of Pakistan. Among these, World Bank is the largest

donor followed by United States Agency for International Development and Asian Development

Bank. The World Bank assists the education sector in four different phases. In the first phase,

during the 1970‘s, they helped to promote the vocational and higher education projects. In the

second phase, during the late 70‘s, they shifted their concentration towards different projects of

primary education because of high social rate of return in this sector. In 1985, during the third

phase, emphasis was increased on provincial based projects especially in the province of the

Punjab. Moving towards the fourth phase in 1990‘s, the World Bank shifted their support to

province based sector programs.

The gross primary enrollment in Pakistan in 2007 was 84 percent of the relevant age group while during the same year; this ratio was 108 in South Asia and 105 in the World on average. The above data shows that the condition of the education sector in Pakistan is very poor as compared to the World and other countries in the region. While examining the effectiveness of foreign aid in the education sector of Pakistan, the question arises; Does foreign aid effect primary school enrollment in Pakistan? The education sector is selected for this study because it is generally believed that this sector

influences the human development. It is commonly held that an educated population is a

prerequisite for a well-functioning economy. Through foreign aid the Government may be able to

increase spending in this sector and may influence the human development. Consequently, an

educated labor force contributes to overcome the economic problems like poverty; hunger etc and

can play an effective role in economic development.

This paper comprises five parts. Section II reviews the literature. Section III elaborates the

specification of the model and econometric methodology. The results about the long run and short

run relationship among variables are discussed in section IV. Section V concludes the findings of

the study and policy implications emerging from the study.

2. REVIEW OF LITERATURE

Most of the studies on foreign aid concentrate on its effectiveness on economic growth. These

studies focus on international cross sectional analysis rather than individual country. This study

emphasizes on aid data disaggregated by sector. Aid for social sector, like education, affects

economic growth through many ways such as increase in productivity and diffusion of knowledge.

(Nelson and Phelps 1966; Lucas 1988; Romer 1990; Mankiw, Fomer and Weil 1992; Appiah and

McMahon 2002). Importance of aid in this sector may be justified because it provides resources

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for building schools, free textbooks and training of the teaching staff etc. It can be helpful to

improve the quality of services in this sector.

Asiedu and Nandwa (2007) analyzed the effect of foreign aid on education. They found a

significant effect of foreign aid on growth. They took in to account both heterogeneous nature of

aid and heterogeneity of aid recipient country. They disaggregated the data in different segment of

education and run separate regressions for each country with respect to the level of incomes. They

found that the effect of aid varies by level of income and level of aid. Wolf (2007) examined the effectiveness of aid on education, health and water & sanitation.

The study also included some social sectors like freedom of press and decentralization. This study concluded that aid for health and education sectors had a significant positive impact on the outcomes but the effect of total aid was found negatively associated.

Thiele et al (2006) discussed the aid portfolio of various donors. They argued that donors

were different in terms of their generosity and their aid allocated to achieve different goals of

MDG‘s. They concluded that targeting of aid have to improve to increase the effectiveness of aid

in aid recipient countries. So they ultimately blamed the insufficient targeting of aid.

Pettersson (2006) used sectoral data and proved a significant relation between government

spending and DAC aid for education sector. He considered aid for education as exogenous variable

because this study examined the real effect of fungiblity of aid.

Michaelowa and Weber (2006) revealed a positive relation between aid for education and

primary school enrollment. According to this study, the political and institutional background of

the aid recipient country also matters. The study concluded that if bad governance was observed,

the aid would be no more effective and even in case of some countries, the impact of aid turned to

be negative. Dreher et al. (2006) examined the effectiveness of aid on education. This study analyzed

the relationship between aid for education and educational attainment. They analyzed that educational attainment is a function of multiple factors like educational expenditure of aid recipient country, quality of institutions etc. they concluded that there is a positive and significant relation between aid and primary school enrollment.

Filmer and Pritchett (1999) analyzed cross-country patterns in school enrollment and educational attainment by household wealth in 35 developing countries. They concluded that in most countries the deficit of universal primary education comes from the poor, however, the achievement of higher level of enrollment for this group is due to social inclusion, reaching out and bringing the poorest in to what is already the norm for the rich and for those in the middle with respect to wealth status.

It seems that multiple factors are responsible for primary school enrollment. As no comprehensive study is available which shows the long run as well as short run relationship between foreign aid and MDG in the education sector of Pakistan so this study will contribute in an important way that it will observe the short run and the long run behaviour of foreign aid in this sector.

3. THE EMPIRICAL MODEL AND DATA

The main factors that are identified for education sector are foreign aid for education, population

ages 0-14 and public spending on education etc. For the purpose of selection of variables, this

study followed Dreher et al. (2006), Michaelowa & Weber (2006), Pettersson (2006) and Wolf

(2007). However, in addition to that, some other variables like number of primary schools and

number of teachers in primary schools are also included in this study by assuming that these

variables have significant role in this sector.

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The study covers the period from 1973 to 2008. The choice of the period is based on

availability of data. Data for social indicators has been taken from various issues of Pakistan

Economic Survey and World Development Indicators and the data on foreign aid for health and

education sectors are taken form OECD‘s Creditor Reporting System (CRS) that contains

information on the sectoral allocation of aid iv

. This study used the amount of aid commitments at

current prices in million US Dollar. Although the data based on disbursement should be preferred

but information on disbursement by sector is available only from 1990 onward so due to

unavailability of data, aid commitment is used in this study.

The Model

In regression equation, we have employed Gross Primary Enrollment (GPE) as a dependent

variable. It is because, according to the MDG, it is one of the indicators used to assess progress

towards achieving Universal Primary Education. The functional form of the model is written as

follows:

GPE f FAE,POP,PS,PSE,TPS

Or

t 1t 2t 3t 4t 5tY f X ,X ,X ,X ,X

And the econometric model is written as:

t 0 1 1t 2 2t 3 3t 4 4t 5 5t 1tY X , X , X , X , X e

Where:

tY GPE = Gross Primary Enrollment

1tX FAE = Foreign Aid for Education

2tX POP = Population ages 0-14

3tX PS = Number of Primary Schools

4tX PSE = Public Spending on Education

5tX TPS = Number of Teachers in Primary Schools

1te Error Term

t 1,2,3…………

Econometric Methodology

For the estimation purposes, three steps methodology has been employed i.e. checking the

stationarity of the data, estimating the long run function and estimating the parsimonious error

correction model along with the stability and other diagnostic tests. First, we have applied

Augumented Dickey Fuller (1979, 1981) tests to each of the variables and determine the

stationarity property in their level as well as in their differences and all the variables found to be

integrated of the same order. In order to find the long run relationship among variables, Maximum

Eigenvalue test and Trace Statistic are used. Finally, parsimonious Vector Error Correction Model

(VECM) is used to determine the short run relationship between these variables.

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4. EMPIRICAL RESULTS

The model is estimated by using annual time series data for the period 1973 to 2008. It

provides a framework to clarify mainly the role of foreign aid in the determination of primary

school enrollment in Pakistan that is the objective of the study. The estimated function asserts the

long run as well as short run relationship between these variables.

Testing of Unit Root

To test for stationarity in these variables, we used Augmented Dickey Fuller (ADF) test. In

ADF Test, lagged differences are included to remove possible serial correlation in the error

terms. This test confirms the order of integration of the individual series. ADF test statistics

corresponds to the t-value of parameter for the individual series.

The results presented in table 1 show that null hypothesis of unit root (=0) cannot be rejected

for any variable in the level form. However, the null hypothesis of unit root is rejected for all

variables in the first differenced form at 5% level. Thus our test results show that all variables

are I(1). The results obtained in this part provide basis to move to the co-integration technique.

The Long-run Function: A Co-integration Analysis

One of the objectives of the study is to analyze the long run relationship between Gross

Primary Enrollment and foreign aid in Pakistan. Here the existence of cointegrating relationship

amongst Gross Primary Enrollment and its determinants are estimated. Before we run

cointegration test we need to specify the lag structure. For this purpose, we employed Akaike

Information Criterion (AIC) and Schwarz Bayesian Criterion (SBC), as suggested by Enders

(1995) and Davidson (1998) to investigate the optimal lag length. It is important because an

appropriate lag structure may over parameterize and it can reduce the power of cointegration test.

The appropriate lag length of the VAR is two. To find the long run relationship, Johansen

cointegration procedure is used. The results from the Johansen cointegrated test (both Trace test

and Max Eigen value test) are presented in tables 2 and 3. All the variables included for the test

have the same order of integration.

The empirical results in tables 2 & 3 show that there exists a long run relationship between

Gross Primary Enrollment and its determinants. Significance of the variables confirms their

validity in the model. The results of estimated function are presented in the following equation.

t 1t 2t 3t 4t 5tY 10574.57 6.62*X 390.69*X 84.81*X 3978.66*X 7.34*X [T-Value] [4.927] [3.163] [5.512] [11.734] [1.561]

The estimated coefficients have expected signs and are significant except TPS 5t(X ) . The

estimated equation indicates that the FAE, POP, PS and PSE determine GPE. Although the impact

of Teachers in Primary School is not significant, however, t-value is greater than one; therefore,

this variable is not redundant. The cointegration analysis indicates that the estimated coefficient of

foreign aid for education 1t(X ) is 6.624 (t = 4.927) that is positive and significant, implying that

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in the long run it has positive and significant effect on Gross Primary Enrollment. It shows that

with the one million dollar increase in foreign aid, the gross primary enrollment will increase by

6624 units. The analysis indicates that there is positive long run relationship between GPE and

Population ages 0-14. The estimated coefficient of POP (X 2 t) is 390.697 (t = 3.163), which is

positive and significant. It implies the importance of population ages 0-14 in determining the GPE

in Pakistan. The analysis also shows that there is positive and significant long run relationship

between GPE and number of primary schools in Pakistan. The estimated coefficient of PS (X 3 t) is

84.818 (t = 5.512), which is positive and significant. It indicates that it also plays an important role

in determining the Gross Primary Enrollment in Pakistan. The analysis also indicates that there is

positive long run relationship between GPE and Public Spending on Education. The estimated

coefficient of PSE (X 4 t) is 3978.660 (t = 11.734), which is positive and significant. It implies the

importance of Public Spending on Education in determining the GPE in Pakistan. The estimated

co-efficient of number of TPS (X 5 t) is 7.345(t = 1.561) that is positive. The t-value shows that this

variable is significant at about 8 percent (not 5 percent) level of significance.

The Short-Run Dynamic Model: The Error Correction Approach

To determine the short run relationship between variables, we used VECM followed by

Hendry‘s approach known as ―general to specific.‖ we include different lags of explanatory

variables from top to low and first lag of Error Correction Term (ECT). The following Error

Correction Model (ECM) is established using the two lags structure as suggested by AIC and SBC.

t 0 1 t 1 2 t 2 3 1t 4 1t 1 5 1t 2 6 2t 7 2t 1Y Y Y X X X X X

8 2t 2 9 3t 10 3t 1 11 3t 2 12 4t 13 4t 1 14 4t 2X X X X X X X

15 5t 16 5t 1 17 5t 2 1 t 1 1tX X X ECT e

After estimating the above model, we gradually eliminate the insignificant variables using the

general to specific approach in order to get a parsimonious model. The results of the preferred

model are presented in table 4.

The error correction coefficient is estimated as -0.50 with t =-2.89 enters into the short run

dynamic equation at highly significant. The estimated coefficient of ECT indicates that

approximately 50 percent of the dis-equilibrium in the determination of Gross Primary Enrollment

is corrected within the one year which shows a high speed of convergence to equilibrium if there

appears a dis-equilibrating shock.

In the above estimated model, the coefficients of lagged changes in foreign aid for

education are positive and significant which shows that the changes in previous period of foreign

aid for education has positively affected the short-term changes in gross primary enrollment. The

results of the analysis suggested that the impact of changes of foreign aid for education on the

determination of the gross primary enrollment works through transmission lags. This finding may

reflect the situation that primary school enrollment may increase due to increase in foreign aid for

education.

Diagnostic Tests

The validity of the estimated model is tested using the standard diagnostic tests. The high

probability values of all the diagnostic tests show that the model specification is appropriate and

parameters of the model are stable. Moreover, the high probability value of different tests for

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heteroskedasticity and serial correlation prove that these problems do not exist in the model.

Similarly, CUSUM and CUSUM of square tests show that there is no instability in the model. v

5. CONCLUSION AND POLICY IMPLICATIONS

This study has been analyzed the effectiveness of foreign aid on the education sector of Pakistan.

In this regard, one of the MDG; enhancing gross primary enrollment is analyzed. For this purpose,

the study covers an extensive review of literature on the subject. Considering the theoretical

developments and empirical evidence, an econometric model was developed containing the wide

range of determinants in these sectors. In the end, the dynamic function was specified to analyze

the short run and the long run behaviour of the determinants in the education sectors in Pakistan.

After confirming the order of integration of each variable by using ADF test, Johansen

cointegration and ECM tests are used to determine a long run and short run relationship among

variables. These econometric models were estimated over the period 1973-2008 using annual data.

The cointegration analysis in the education sector indicates that the estimated relationship of

foreign aid with gross primary enrollment is positive and significant, implying that in the long run

there is an increase in gross primary enrollment due to increase in foreign aid. So, we can say that

there is a positive relationship between them. In error correction model, short run relationship has

been proved and the error correction coefficient is highly significant with theoretically correct

sign, which show that the economy will converge to its equilibrium within one year if there

appears a dis-equilibrating situation.

In view of commitments to the achievement of MDG, the Government of Pakistan has

developed a National Plan of Action on ―Education For All‖ for the period 2001-2015. The gap in

financial resources required to implement this plan is enormous and will have to be met from

external assistance. As the results of this study indicate that with one million dollar increase in

foreign aid, the gross primary enrollment will increase by 6624 students. As foreign aid has a

significant role in the education sector thus it is recommended that efforts should be made to

obtain the required assistance through grants and loans and its effective use. The data shows that

public spending in this sector is very low and it is further decreasing with the passage of time. It is,

therefore, suggested that all efforts should be made to enhance the budgetary allocation in these

sectors otherwise it would not be possible to achieve the MDGs by 2015.

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References

Appiah, E.N., & McMahon, W.W. (2002). The Social Outcomes of Education and Feedbacks on

Growth in Africa. Journal of Development Studies, 38(4), 27-68.

Asiedu, E. & Nandwa, B. (2007). The Impact of Foreign Aid in Education Growth, UNU-WIDER

Research Paper 2007/60

Dickey, D.A., and William, A.F., (1979). ―Distribution of the estimators for Auto Regressive time

series with unit root‖, Journal of the American Statistical Association, 74:366, 427-431

Dickey, D.A., and William, A.F. (1981). ―Likelihood Ratio Statistics for Autoregressive time

series with a unit root‖ Econometrica 49: 4, 1057-1072

Dreher, A., Nunnenkamp, P., & Thiele, R. (2006). Does Aid for Education Educate Children?

Evidence from Panel Data. Kiel Working Paper 1290. Kiel Institute for the World

Economy.

Enders, W., (1995). ―Applied Econometric Time Series‖, John Wiley and sons Inc. New York

Engle, R.F and William, J. G., (1987). ―Co-integration and error correction: Representation,

Estimations and Testing‖, Econometrica, Vol. 55, No. 2.

Filmer, D., & Pritchett, L. (1999). The Effect of Household Wealth on Educational Attainment:

Evidence from 35 Countries. Population and Development Review 25(1): 85-120

Johansen, J., (1984). ―Econometric Methods‖, (Third Edition) Mc Graw. Hill Book Company.

Johansen, S., and Juselius, K., (1990). ―Maximum Likelihood estimation and inference on co-

integration with application to the demand for money‖, Oxford Bulletin of Economics and

Stastics, vol. 52, No. 2.

Lucas, R. E. (1988). On the Mechanics of Economic Development. Journal of Monetary

Economics 22(1): 3-42.

MacMahon, W. (1998). Education and Growth in East Asia. Economics of Education Review,

17(2): 159-72

Malik, R. (2007) Aid Effectiveness and the Role of Donor Intervention in the Education Sector in

Pakistan: A Review of Issues and Literature. RECOUP Working Paper No.6 Mehbub Ul

Haq Human Development Centre.

Mankiw, N. G., Romer, D., & Weil, D. N. (1992). A Contribution to the Empirics of Economic

Growth. Quarterly Journal of Economics, 107(2): 407-37

Michaelowa, K., & Weber, A. (2006). Aid Effectiveness Reconsidered. A Panel Data Evidence for

the Education Sector. HWWA Discussion Paper 264, revised.

Nelson, R.R., & Phelps, E.S. (1966). Investment in Humans, Technological Diffusion and

Economic Growth. American Economic Review 56 (2): 69-75.

OECD (2009). International Development Statistics, Online: Databases on Aid and Other Resource

Flows. http//www.oecd.org/dataoecd/50/17/5037721.htm

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Pakistan, Government of, (various issues). ―Economic Survey, Islamabad‖, Ministry of Finance,

Economic Advisory Wing.

Pakistan, Government of (2008). Donor‟s Directory, Ministry of Education: Islamabad.

Pakistan, Government of, (2003). Financing Education In pakistan: An Estimation of Required

and Available Resources to Achieve EFA Goals. Islamabad: Ministry of Education.

Pettersson, J. (2006). Foreign Sectoral Aid Fungibility, Growth and Poverty Reduction. Paper

presented at the WIDER Conference On Aid: Principles, Policies and Performance, 16-17

June 2006.

Pritchett, L. (2001). Where Has All the Education Gone? World Bank Economic Review.

15(3):367-391.

Romer, P.M. (1990). Endogenous Technological Change. Journal of Political Economy 98 (5): 71-

102.

Thiele, R., Nunnenkamp P., & Dreher, A. (2006). Sectoral Aid Priorities: Are Donors Really

Doing Their Best to Achieve the Millennium Development Goals? Kiel Working Paper

1266. Kiel Institute for the World Economy.

Wolf, S. (2006). Aid and Public Expenditure in Africa: Does Aid Increase the Efficiency of Public

Service Delivery? Paper presented at the WIDER Conference On Aid: Principles, Policies

and Performance, 16-17 June 2006.

World Bank, (2009). World Development Indicators CD-ROM. Washington, D.C.

World Bank, (2009). Reshaping Economic Geoghraphy.World Development Report. The World

Bank, Washigton, D.C.

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Annexure

Table 1: Augmented Dickey-Fuller Test Results for Unit Root

Variables At Level

With Trend Variables At First Difference

With Trend Results

ADF-Statistics ADF-Statistics

GPE -2.748 GPE -4.958* I(1)

FAE -2.660 FAE -9.939* I(1)

POP 0.682 POP -5.052* I(1)

PS -0.890 PS -5.322* I(1)

PSE 0.336 PSE -4.370* I(1)

TPS -1.006 TPS -4.521* I(1)

Note: 1. * Denote significant at 5 percent 2. I(1) indicates stationarity of the data after first differencing

Table 2: Johansen Cointegration Test (Trace Test)

Null Hypothesis Alternative

Hypothesis

Trace Statistic 5% critical values

r = 0 R ≥ 1 206.3739* 95.75366

r 1 R ≥ 2 132.1868* 69.81889

r 2 R ≥ 3 75.10228* 47.85613

r 3 r ≥ 4 39.80338* 29.79707

r 4 r ≥ 5 15.44589 15.49471

r 5 r ≥ 6 3.327057 3.841466

Note: 1. * Indicates significant at the 5 percent level.

2. Author‘s calculations

Table 3: Johansen Cointegration Test (Maximum Eigen Value Test)

Note: 1. * Indicates significant at the 5 percent level.


Null Hypothesis Alternative

Hypothesis

Max-Eigen Statistic 5% critical values

r = 0 R = 1 74.18710* 40.07757

r 1 R = 2 57.08456* 33.87687

r 2 R = 3 35.29891* 27.58434

r 3 R = 4 24.35748* 21.13162

r 4 R = 5 12.11884 14.26460

r 5 R = 6 3.327057 3.841466

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Table 4: Results of Short Run Dynamic Model for Education

Dependent Variable Y t

Variable Coefficient t-Statistic Prob.

C -133.4952 -0.940778 0.3566

X 1 t –1 *** 3.547107 2.738292 0.0117

X 1 t –2 *** 4.807205 3.287175 0.0032

X 2 t 6023.557 1.566573 0.1309

X 2 t-1 ** 16008.91 2.237870 0.0352

X 2 t-2 *** 9828.704 2.694920 0.0129

X 3 t 15.92774 1.183818 0.2486

X 5 t 6.923816 1.323121 0.1988

X 5 t-1 *** 19.88502 3.307439 0.0031

ECT t-1*** -0.501922 -2.894569 0.0082

R2 0.73

Adjusted R

2 0.62

F-statistics 6.74

Prob (F-Statistics) 0.000105

Note: ** and *** shows rejection of the Null Hypothesis of insignificance

at .05 and .01 level respectively.

Appendix-I

List of Variables and data sources

Variable Source

Gross Primary Enrollment

(total, in thousand)

Pakistan Economic Survey 97-98, 08-09

Foreign Aid for Education

(at current prices, million US$)

OECD, CRS, online

Population ages 0-14

(% of total)

WDI, 2008

Total number of Primary Schools



Public Spending on Education

(% of GNP)

Pakistan Economic Survey (various issues)

Teachers in Primary School



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Appendix-II

Millennium Development Goals and Targets

Goal 1: Eradicate extreme poverty and hunger

Target 1: Halve, between 1990 and 2015, the proportion of people whose income is less than one dollar a

day.

Target 2: Halve, between 1990 and 2015, the proportion of people who suffer from hunger.

Goal 2: Achieve universal primary education

Target 3: Ensure that by 2015, children everywhere, boys and girls alike, will be able to complete a full

course of primary schooling.

Goal 3: Promote gender equality and empower women

Target 4: Eliminate gender disparity in primary and secondary education, preferably by 2015, and in all

levels of education not later than 2015.

Goal 4: Reduce child mortality

Target 5: Reduce by two-thirds, between 1990 and 2015, the under-five mortality rate.

Goal 5: Improve maternal health

Target 6: Reduce by three-quarters, between 1990 and 2015, the maternal mortality ratio.

Goal 6: Combat HIV/AIDS, malaria and other diseases

Target 7: Have halted by 2015 and begun to reverse the spread of HIV/AIDS

Target 8: Have halted by 2015 and begun to reverse the incidence of malaria and other major diseases.

Goal 7: Ensure environmental sustainability

Target 9: Integrate the principles of sustainable development into country policies and programmes and

reverse the loss of environmental resources

Target 10: Halve, by 2015, the proportion of people without sustainable access to safe drinking water and

basic sanitation.

Target 11: By 2020, to have a achieved a significant improvement in the lives of at least 100 million slum

dwellers.

Goal 8: Develop a global partnership for development

Target 12: Develop further an open, rule-based, predictable, non-discriminatory trading and financial

system.

Target 13: Address the special needs of the least developed countries.

Target 14: Address the special needs of land locked developing countries and small Island developing

states.

Target 15: Deal comprehensively with the debt problems of developing countries through national and

international measures in order to make debt sustainable in the long term.

Target 16: In cooperation with developing countries, develop and implement strategies for decent and

productive work for youth.

Target 17: In cooperation with pharmaceutical companies, provide access to affordable essential drugs in

developing countries.

Target 18: In cooperation with the private sector, make available the benefits of new techniques, especially

information and communications.

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Appendix-III

Diagnostic Tests for Education Sector

Probability

Model Specification Test

(Ramsey RESET Test)

F-Statistics 0.062

Log likelihood Ratio 0.093

0.804

0.759

Normality Test

(Jarque-Bera Statistics) Jerque-Bera Statistics 0.5005 0.778

Heteroskedasticity Test (The

White Test)

F-Statistics 1.465

2-Statistics 21.556

0.236

0.252

ARCH Test

(Autoregressive Conditional

Hetroskedasticity Test)

First Order F-Statistics 0.206

2-Statistics 0.218

0.652

0.640

Second

Order

F-Statistics 0.102

2-Statistics 0.225

0.902

0.893

Third Order F-Statistics 0.126

2-Statistics 0.432

0.943

0.933

Fourth

Order

F-Statistics 0.310

2-Statistics 1.4246

0.868

0.839

Serial Correlation

(Breusch-Godfrey LM Test)

First Order F-Statistics 0.871

2-Statistics 1.257

0.360

0.262

Second

Order

F-Statistics 1.084

2-Statistics 3.088

0.356

0.213

Third Order F-Statistics 0.724

2-Statistics 3.233

0.549

0.357

Fourth

Order

F-Statistics 0.864

2-Statistics 5.079

0.503

0.279

Source: Author‘s Calculation

CUSUM and CUSUM of Squares Test of Stability

-15

-10

-5

0

5

10

15

86 88 90 92 94 96 98 00 02 04 06 08

CUSUM 5% Significance

-0.4

0.0

0.4

0.8

1.2

1.6

86 88 90 92 94 96 98 00 02 04 06 08

CUSUM of Squares 5% Significance

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BIS: Automated information system for knitting in textile

M. Shakeel Faridi 1, Zahid Javed

2, Fahad Jaan3, Tasleem Mustafa

4, Chaudhry. Muhammad Nadeem Fasial 5

1-4Department of Computer Science, University of Agriculture

Faisalabad, Pakistan

5Department of Management Studies, the University of Faisalabad

Faisalabad, Pakistan

Abstract

The production of top quality materials / products at high speed with less time is only possible

through and efficient information systems. Technologies that carries the flow of work has been

widely applied in the various industries, such as OA (Office Automation), manufacturing, banking,

security, education and research institutions, financial services, telecommucation industy and so

on. The basic objective to adopt such technologies is to improve the business processes through

automation using information system. In this research work the authors would like to presents the

flow of information in an automated manner for knitting of yarn in textile industry, where it is

implemented in Masood textile. This automation in information system developed efficiently in-

house ERP (Enterprise Information System).; it not only helps nut also support the management to

manage the business processes.

Keywords: Enterprise information system, Information system, Automation, Business processes

integration, Knitting, automated information management system.

Introduction

Why is Automation very important? During development and manufacturing quick information turn around,

that is required to hit the target and also to sustain the speed of process. Process automation has become

very much common in industry [1, 2]. Every company that is involved especially the production oriented

business use the automation information system for better management and to track the business processes /

operational activities [10]. Nowadays automated information system based applications are very much

capable in collecting and measuring the required details for manufacturing or manufacturing related

processes because process could be complex and the information required is huge [11].

The systems are based on automation is very simple thought which the information is forward to

accomplish the business functions. These systems work on pre-defined procedure and required less humans

interaction and maintenance as compare to traditional information system. These AI based applications

fetch the information and send it for further operations. The automated system works for government,

private and especially in business context e.g. customer satisfaction, sales department and operational

tracking. [13, 14]

Automation in business functions provides enterprise integration by passing the information

amongst the systems and processes [3]. The integration in business functions enables the systems for both

data and flow of work; because to integrate the flow of work operational and functions integration is

required. The reason is that information is swap between the applications, systems at different locations in

ERP.

The production of top quality materials / products at high speed with less time is only possible through

information systems. The ERP system in MTM (Masood Textile Mills) is consists of different applications

as per their requirement for manufacturing, tracking and also to manage the resources. Each application has

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a distinct task and can be adapted separately to specific processes and requirements. An overlook of the

system architecture for knitting is shown in figure 2. The objective of this research work is to define the

processes for knitting and role of information system to make them fast, automated and efficient for

tracking and monitoring during production.

i. AUTOMATION

Computer and related technologies are very much efficient and capable of carry out the functions that

acquire humans efforts. While the execution of such function through machine or automation is just

because, the humans do not wish to perfrom the same function again and again and also can not perform

them consistently, accurately and reliably. Mass production is the major cause for the development of such

automated system because the humans can not perform the jobs fastly as machine or automated system can

[4, 5].

The automation also offer the economicle benefits at enterprise level is the major cause of

attentions towards, the capabilities of automation system [6, 7, 8 ]. Atutomation is simply defined as

atomatic control of manufacturing throught number of successive stages or the use of automative control to

replace or reduce the humans efforts[4].

Process automation is described using the dedicated ` moulding and appropriate drawing tools for

work flow. While in transformation, set of rules are defined for the movement of information in the system.

Where the data is read and receive from the sources agent and proceed for further operation in an

understand format and this level of movement is responsible between the different connected components.

The benefits of Business process automation include the work flow, data integration, and reduction of hand

written form, human errors and better process flow and also to allow the new services to the customers for

real time monitoring in business processes. [9]

Fig.1 Representing States and State Transitions Using a State Diagram in an automated system

ii. AUTOMATED INFORMATION IMPLICATION IN TEXTILE INDUSTRY

Information management systems are broad level systems, these systems incorporates huge amounts of data

across an organization. Data is entered into systems thought-out the organization. Where it is the

responsibility of data management system is to pull these data elements into unified systems. Organizations

collect the massive data depends on the nature and size of the organization, and system consist on different

Transitions 1

Transitions 2

Transitions 3

Transitions 4

Start

State

1

State

2

State

N

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software applications with single platform. In order to access and to utilize the information, they need a

well-planned and mature information management system.

The given model for automation in information system shown in Figure2 is practically

implemented in Masood textile mills. It shows the flow of working and information during knitting process

to fabric. As knitting process consists of different processes, different departments play their contribution

during manufacturing process. The automated information system divides these processes in different

states. Each state has number of transaction. That starts from purchase order originate by the customers and

the role of each department till the job completion or final state. Each state is directly or indirectly

communicates with the other to describe the flow of process along with information.

MTM (Masood textile mills) have their complete and fully developed ERP system. It almost

contain all important applications that provide the vie solutions for textile operation and management.

Where the knitting processes is totally based on automation. The AIS (Automated information system)

includes different agent‘s works together in knitting e.g., customer, PPC (production and planning

department), Head office, vendors, store, knitting department, third parties manufacturing units.

In (state1) customer originate the PO (purchase order) and system forward it to PPC department

(production & planning control department) to check the availability of vacant slot for execution or

availability of resources, if not then PO return back to customer with PO status either successful or not.

If resources are available the PO (purchase order) forward towards head office for YD (Yarn

Demand). Head office in (state2) generates the inquiries to yarn vendors for YO (Yarn order) and also give

the feedback or status of Yarn to the PPC department. Yarn store (state3) receives the yarn as per

requirement from vendor or Yarn supplier.

If yarn (State4) does not meet the requirement the store department reject the order and update the

status back to head office. Accepted yarn issues to the knitting department knitting for fabrication. In case

(state5) if knitting department reject transaction due to excessive load. The store issues the yarn to third

knitting parties or for fabrication.

After the (State6) completion of order job or fabrication the knitting department or third party

knitting vendor / manufacturer issue the knitted fabric to the Grey Fabric store for delivery.

In case of any discrepancy related to job order or problem in production the system back to the

knitting department or to the third party. Finally the product delivers to the customer and closed the job

successfully.

During the manufacturing and execution, an intelligent system clearly defines the steps for

production and also provides the support in an efficient manner which is not possible traditionally. In order

to access and to utilize the information, they need a well-planned and mature information management

system. The role of information system toward automation and order tracking and monitoring support the

organizations for batter management and also to serve their customer efficiently.

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Figure 2 : Automation in knitting & flow of information

CONCLUSION

During manufacturing and execution for manufacturing, intelligent system clearly defines the steps for

production, planning and also provides the support in efficient manners, which is not possible traditionally.

In order to access and to utilize the information, they need a well-planned and mature information system.

Where it serve for automation and monitoring and tracking that support the organizations towards the better

management and also to serve their customer efficiently and timely?

ACKNOWLEDGMENT

Lastly, we offer our regards and blessings to the Management team of Masood textile mills who supported us in any

respect during the completion of the project.

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References

[l] K. Snnivasan. The Evolving Role of Automation in Intel Microprocessor Development and

Manufacfuring. Intel Technical Journal, May 2001.

[2] JOSEPH A. REINE, JR.t, The Operational Information System and Automation of Sterlington Steam

Electric Station, ire transactions on industrial electronics

[3]U. Singh and D. Caceres - KEMA Inc, An Integrated Approach for Implementing a Distribution

Automation System, 2004 IEEUPES Transmission 8 Distribution Conference & Exposition: Latin America

[4] E. L. Wiener and R. E. Curry, ―Flight-deck automation: Promises and problems,‖ Ergonomics, vol. 23,

pp. 995–1011, 1980.

[5] R. Parasuraman and V. A. Riley, ―Humans and automation: Use, misuse, disuse, abuse,‖ Human

Factors, vol. 39, pp. 230–253.

[6] D. D. Woods, ―Decomposing automation: Apparent simplicity, real complexity,‖ in Automation and

Human Performance: Theory and Applications, R. Parasuraman and M. Mouloua, Eds. Mahwah, NJ:

Erlbaum, 1996, pp. 1–16.

[7] C. E. Billings, Aviation Automation: The Search for a Human-Centered Approach. Mahwah, NJ:

Erlbaum, 1997.

[8] C. D.Wickens, A. Mavor, R. Parasuraman, and J. McGee, The Future of Air Traffic Control: Human

Operators and Automation. Washington, DC: National Academy Press, 1998

[9] U. Singh and D. Caceres - KEMA Inc, An Integrated Approach for Implementing a Distribution

Automation System, 2004 IEEUPES Transmission 8 Distribution Conference & Exposition: Latin America

[10] Rowan D.A.; 1989; On-line expert systems in process industries; AI Expert, august 1989, pp. 30-38.

[11] hitch R.; 1992; Artificial intelligence in control: some myths, some fears but plenty of prospects;

Comp. & Control Eng. J., July 1992, pp. 153-163.

[12] Chaudhry Muhammad Nadeem Faisal, Muhammad Sheraz Arshad Malik ―Usability evaluation of

Software as Service from Individuals perspective‖ Vol. II No. 7 (March 2011). ISSN: 1697-9613 (print) -

1887-3022 (online). www.eminds.uniovi.es

[12]http://www.wisegeek.com/what-is-an-information-management-system.htm

[13]http://prtl.uhcl.edu/portal/page/portal/HR/HANDBOOKS/Automated_Information_Systems

[14]http://www.wisegeek.com/what-is-an-information-management-system.htm

`

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Analyzing development in Iran Industrial Productivity during 4th

development Plan by numerical taxonomy

Mohsen Fathi Almas

Higher Education Institute of Jahad Daneshgahi Yazd

Taranoosh Jafari

Higher Education Institute of Jahad Daneshgahi Yazd

Abstract

Productivity of production factors is one of the main ways to find about capability of an industrial

activity for achieving relative advantages in internal and external levels. Through improving

productivity of production agents, reduction of production costs and competition advantages in

market for producer is achievable. On the other hand, investors make their decisions based on

productivity level along with value added index. Although, maximum productivity rates are

feasible in production section, it seems that this section is still far from its designated objectives

and as a result, production factors currently are blamed for negative contribution in national

economic development. This may be rooted in the fact that generally national development

programs take all sections of the industries as the same group to put forward a general plan for all

of them, failing to take into account differences between fields of industries. In this regard, this

work tries to introduce a guideline for decision makers through recognizing main indexes affecting

industrial development to achieve a more accurate policymaking tool for industries in national

level. The study takes into account 5 different indexes including inputs, outputs, value added,

number of employees, and investment in two-digit ISIC coding frame, generated by Iran statistics

center for the 4th

development Plan (2004-2008). Results introduce Oil Refinery industries- Coke

industries, etc. (code 23) as the fields with highest development rate while tanning and processing

leather, bag/suitcase production, etc. (code 19) ranked at the lowest rate of development.

Keywords: Analyzing development , Iran Industrial , Productivity , Development Plan , Numerical

taxonomy

Introduction

Nowadays, the ways toward fast economic development centered around industrial section, which

is recently happened in some countries and regions all around the worlds, have received significant

attentions from many researches. In developing countries, some Int‘l economic bodies and

academic establishments, since 1970s several studies have been commissioned focusing on

industrial development. Cleary, these works are mainly aimed to provide more reliable guidelines

for economic policy makers. This is while, faster economic development of modern age put more

emphasize on accuracy, reliability and compatibility of the policies along with successful

experiments; so that failing to adopt proper policies will led to irrevocable consequences.

On the other hand, productivity of economic production is one of the main indexes to measure

ability of an industrial activity for achieving relative advantages both in national or international

level. To put it in another way, since more productivity leads to less production costs and higher

profit margin, competitive advantages of industries and its survival is mainly rooted in productivity

growth. Such growth triggers significant increase in demands, and more importantly competitive

advantages for domestic products in int‘l markets, which leads to optimum resource utilization and

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production development. As a result, more capacity for new investments is developed followed by

more and better of innovations and creativity. The fact that developing countries fail to use their

resources in an optimum way is due to low productivity rate. By this assumption, it is possible to

improve performance and production rate of different sections of industry through higher

productivity level (Sobhani & Mohammadlo, 2008)

Whereas productivity is the main factor toward permanent economic development, so realization

of intrinsic, permanent economic development and productivity growth from one hand, and

deemphasize of access to cheap workforce and raw materials as relative advantage from the other

hand, clarify necessity for academic and comprehensive recognition of the factors affecting on

productivity.

In addition, through time and development of different theories and patterns regarding economic

development, new variables are now considered as engine, which receive attentions from many

economists. In this regard, due to ever increasing complexity and variability of investment and

related processes, the role and position occupied by investment and capital in development and

growth patterns is permanently under revision and survey (Mahdavi 2004). An increase in capital

utilization has changed world‘s economy dramatically. One clue for such change is replacement of

capital mobility instead of goods mobility. It is reasonable to say that relative advantages of

investment may be considered as a tool for underdeveloped countries toward economic

development. To facilitate macro industrial decision making, the study is aimed categorize

different national industrial fields based on two-digit ISIC codes into three category through

analyzing several indexes effective on industrial development including productivity, investment

and value added.

Theoretical framework Nowadays, developing countries are desperately looking for permanent economic development,

though it is not feasible unless through achieving higher indexes of productivity of production

factors. The higher productivity rate, the less production costs and consequently more competitive

advantages in int‘l market. Many researches currently are in hand in many developed and

developing countries, this fact leads to consider productivity rate meaningfully/positively effective

on industrial products export (Roberts & james, 1997). On the other hand, technology transfer and

better utilization of interest gauges is only facilitated through growth of industrial products export,

which fosters learning by exporting. It is expected, therefore, that it may empower and foster

production and export development through a cyclic and progressive process (Aghion & Howitt,

1998). Speaking about Iran, due to ineffective management of resources in national economy, and

lack of enough experiences and skills regarding exports among industries managers, not taking

into account Oil industry, direct foreign investment in other industries will led to technology

transfer and more educational and training chances regarding successful export. Nowadays,

improving productivity of organization is one of the main headaches among executive managers

and decision makers, so that many countries have placed their development programmed toward

improving productivity. As a result, during last 15 years, the world economy has experienced

about 45% productivity growth (Faraji, 2006). Moreover, productivity is a way for better living

condition through employing labor, intellectual power and tool in better way. To put in another

way, any decision made based on sound mind and observation, surely leads to an activity with

better results. On this regard, higher productivity comes with better living condition (Amini &

Hejazi, 2007). In this way, work force productivity is one of the main presumptions of

organization productivity, and any quest and effort toward improving organization productivity

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without employees‘ productivity is doomed to fail. In addition, work force is the main factor of

developing and productivity improve, this is while, workforce productivity rate in Iran is less than

average rate among Asian countries (Nejhadhaji and Irani, 1996). Thus, due to its close relation

with underdevelopment of nations, human resources productivity is among factors which are under

intense attention of researchers and scholars for many years. At national scale, the higher human

resources productivity level, the higher GDP rate or production to capital and work force rate.

Moreover, human resources productivity is highly effective on competitive advantage of domestic

products in Int‘l markets (Tabatabie, 2000). Many researches, in this filed have been conducted

focusing on productivity. What follows is a brief look on these works.

In one of the multidimensional researches in this field, researchers focused on productivity process

in Indian Andraperadesh Producing Industries between 1976-86. The study used Translog

Production function and Divisia index for calculating four industries (cotton fabrics, tobacco,

carbonated drinks and foods, paper and paper products). Descriptive variables in this regard

include capital deposit, work force, and consumed fuel, while time variable is considered as an

input for assessing technical advance in production equation and GDP is considered as dependent

variable. By calculating total productivity rate using Divisia index, researchers conclude that total

productivity of the effective factors move in descending trend except for cotton fabric industries.

In addition, total productivity of cotton fabric industries face with mild oscillations (Seshaiah &

Reddy, 1993).

In another research about growth of productivity in Turkish producing industries based on private

and public sections, researchers concluded that reduction of industries‘ productivity is rooted in

commercial limitations. The results illustrate that while total productivity growth in private and

public sections is the same, public companies significantly utilize more resources and production

factors in comparison with private section industries (Krueger & Tancer, 2001).

There are no researches with similar nature conducted in Iran regarding small industries in

comparison with large industries (due to lack of statistics in this field). However, a research is

currently in hand for calculating productivity of large industries. What follows are the main

findings:

Azerbaijani conducted a study on state‘s large industries between 1967-8. The study applied Kab-

Doglas production function with fix replacement function equal to 1 and Kendrick productivity

and Solo production function as two indexes applied for estimating total productivity of production

factors. Results show that, machineries, tools, fabricated products, metal and chemical industries

enjoy highest productivity of production factors. Afterward the study concludes that these

industries have relative advantages and highest capacity for investment, production (productivity)

and creating value added in comparison with other industries, and with access to rare resources, the

industries can trigger a dynamic and productive national economy in a short period of time

(Azerbaijan, 1989, Molaie, 1999).

In another study, researchers tried to calculate productivity in Iranian large industries, and to this

end, Solo‘s different explicit and tacit models were applied for adopting the optimum production

function for stating relation between employment, capital rate and production. Moreover,

exponential function utilized to take into account capital deposit. Results showed that, although

none of the functions is meaningful for all industrial activities, logarithmic functions are still

meaningful for some activities. The study concludes that changes in Iran‘s total industrial

production is not owned to growth of productivity in industries, and only state investment policies

and supports are the one to blame for producing activities especially in large industries section

(Hashemian Sfehani et, al.1998).

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Another research about productivity indexes divided the indexes into two groups: micro indexes

and macro indexes. Work force and capital productivity in the later group is illustrated based on

production to contributions ratio and in the former group, production growth in relation to a set of

production factors is illustrated using Solo and Divisia primary indexes. Moreover, exponential

function applied for estimating capital deposit. Productivity indexes showed that micro

productivity of workforce totally experiences 48.9% growth while capital productivity undergoes

negative growth equal to 13% during the period under consideration. Surveys on micro

productivity based on industrial activities classification showed that workforce productivity is on

ascending trend in all industries except for food, and paper industries. However, capital

productivity showed increase only in mineral non-metal and main metals industries while in other

industries it goes through descending trend. (Tavakoli et. al. 2000)

Surveying Method

The study uses descriptive-analytical method and the case study is comprised of domestic

industries (23 industries)- due to small portion in GDP, tobacco and recycling industries are

omitted. This work first started with library studies to determine industries productivity

improvement indexes followed by field studies to gather required data from national statistic

annual report.

There are several methods for determining development indexes (Feiz Pour 2004), and the study

applied Numerical Taxonomy Method (NTM) (Eghbali, 2007, pp.128-136; Azadeh, 2007).

Introduced by M. Adenson in 1763, and revised and developed by a group of mathematicians, the

method is one of highly reliable methods for classifying regions based on development rate and

how the regions have access to facilities (Ziary 2008, pp. 145& Azar 2002, pp. 36). This technique

employs variety of indexes through a 9-step process to classify industries from development

viewpoint. What follows is a brief introduction to the steps:

Step one: Determining regions under consideration and development indexes:

Step two: Organizing data into matrixes

Step three: Normalizing the matrixes applying following relation:

(1) i

iij

ij

XXZ

Where

Xi: average of indexes or each column in the matrix

i : Standard deviation of each column in the matrix

Step four: Determining combined distance between the regions based on following

relation:

(2)

m

j

ZbjZajDab1

2)(

Where

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a & b imply for two regions under consideration. The operation is a type of couple calculation

between the two regions. Relation (2) leads to:

1. Distance between region a and b equals to b to a.

2. Each region‘s distance to itself is equal to zero.

Step five: Determining shortest distance

Step six: homogenizing

(3)

Upper limit Or(+) = dr + 2 dr

Lower limit Or (-) = dr -2 dr

Step seven: Determining patterns This step tries to define difference between ideal and current condition for each regions (as

determined in step 4) as follows: little differences means developed and wider differences means

under developed regions.

(5)

m

j

ZbjZijCio1

2)(

Step eight: Ranking development rate

This step ranks development rate of the regions. Development rate of a region (Fi) is calculated by

applying following relation:

(6) Fi=Cio/Co

Where Fi: development rate of region

Cio: development pattern of each region

Co: upper limit of development

Placing average and standard deviation of Cio in the following relation yields Co:

(7)

Cio Co= Cio+ 2

Step nine: Analyzing results and determining quality of development

Calculated Fi for each regions are analyzed in this step. Taxonomy model place Fi between 0 and 1

( 10 iF ), and defines three classifications as follows:

Having access to facilities (high quality of development)

Having access to limited facilities (average quality of development)

Having no access to facilities (low quality of development)

Having Fi, and based on the model, regions with their Fi between 0 and 0.775 ( 77500 . iF ) are

at first classification, region with their Fi beween 0.775 and 0.884( 88407750 .. iF ) are at second

classification and regions with their Fi between 0.855 and 1 ( 18850 iF. ) are at the third

classification. It is noticeable that, Taxonomy model‘s reliability is ascertained by many

researchers how have applied the model.

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Following are indexes applied by the study for measuring domestic industries development rate:

Index 1: value of input/value of output

Index 2: value of output/number of employees

Index 3: value added/number of employees

Index 4: value of investment/ number of employees

Findings

Before starting calculating developing rate of domestic industries between 2004 and 2008, we need

to have a look at price rate of each industry during the years under consideration. Following table

lists the industries under consideration along with their prices during the years.

Table 1: Industrial goods index Code Industries 2004 2005 2006 2007 2008

15 Food and Drinks 188.6 198 231.5 257.6 288

17 Fabrics 172.5 166.7 195.3 211 215

18 Garment-processing, painting- fur 146.7 145.4 140.1 159.5 194.1

19 Tanning, processing, bag and suitcase 178.8 186.1 190.5 201.3 235.8

20 Wood production and stopper 124.4 139.3 141.5 147.1 155.5

21 Paper and related products 170.3 191.9 208 236.2 276

22 Publication and recorded media 155.7 159.7 159.8 167.7 182

23 Coal, refinery and etc. 139.9 139.6 155.2 174.9 196.5

24 Raw and chemical materials 265.1 295.1 376.2 457.2 510.2

25 Robber and plastic 169.4 175.5 185.5 203 234.1

26 Non-metal mineral products 190 200.8 201.4 207.1 243.6

27 Main metals 182.4 205.1 229.2 277.3 332.5

28 Fabric metal products 168.7 169.9 185.4 220.5 320

29 Machineries and unclassified equipment 183 187.6 204.2 225.9 287.3

30 Office machineries, calculators 158.2 165.3 174.2 185.2 202.7

31 Power plant machineries and power transmit 144 129.8 128.1 128.7 128.9

32 Broadcasting and related equipment and

systems

168.5 179.1 185 197.4 232.6

33 Medical, optical and precise machines 152.5 146.8 121.7 131.1 124.2

34 Car industries, trailer, half-trailer 197.8 213 221.9 240.5 254.7

35 Transportation equipment 153.1 148.9 155.3 161.7 168.7

36 Furniture and unclassified products 145.7 147.3 149 151.9 153.2

Following table lists the results from adjusting development indexes of domestic industries

productivity based on price index.

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Table 2: Development indexes of domestic industries productivity based on price index of each industry

Code 2004 2005 2006

Index 1 Index 2 Index 3 Index 4 Index 1 Index 2 Index 3 Index 4 Index 1 Index 2

15 1.47 95.27 30.44 4.02 1.47 97.74 31.14 3.62 1.60 49.06

17 1.56 44.97 16.11 2.11 1.59 49.52 18.31 2.49 1.62 40.24

18 1.62 36.11 13.83 0.70 1.75 42.78 18.36 1.70 2.37 26.58

19 1.51 38.84 13.16 0.93 1.53 50.22 17.50 1.29 1.66 40.10

20 1.86 64.04 29.53 3.38 1.81 62.19 27.79 1.65 2.03 36.46

21 1.58 115.89 42.31 6.44 1.58 87.84 32.22 5.86 1.56 67.54

22 2.13 55.15 29.28 4.91 2.00 61.15 30.63 4.95 1.76 71.28

23 1.87 648.64 301.72 9.42 1.95 735.21 358.09 6.59 1.89 737.84

24 2.47 136.88 81.43 10.99 2.47 126.37 75.27 2.29 2.39 113.03

25 1.59 90.67 33.74 4.55 1.52 95.21 32.57 11.44 1.67 84.94

26 2.23 51.54 28.38 5.37 2.29 56.98 32.09 3.72 2.14 56.29

27 1.75 192.35 82.35 5.03 1.58 185.07 67.95 9.24 1.65 166.66

28 1.81 68.63 30.72 4.60 20.5 87.09 44.70 3.84 1.77 42.09

29 1.70 70.83 29.06 3.38 1.69 72.18 29050 3.27 1.73 60.54

30 1.83 116.63 52.75 1.22 1.92 117.27 56.17 0.76 1.70 98.17

31 1.57 112.14 40.70 4.18 1.70 146.34 60.36 4.86 1.68 125.06

32 1.58 164.77 60.35 5.28 1.44 164.52 50.32 6.08 1.47 167.78

33 1.66 59.61 23.75 2.66 1.80 70.58 31.41 5.59 1.81 68.06

34 1.52 223.61 76.28 7.44 1.60 267.58 100.47 6.33 1.38 244.22

35 1.57 90.85 33.14 3.62 1.64 124.99 48.87 6.35 1.63 126.44

36 1.79 47.93 21.16 5.91 1.74 67.61 28.69 4.26 1.88 39.32

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Code 2004 2005 2006

Index 1 Index 2 Index 3 Index 4 Index 1 Index 2 Index 3 Index 4 Index 1 Index 2

15 18.47 2.36 1.42 107.92 31.91 4.65 1.39 113.65 31.81 7.36

17 15.42 2.20 1.53 64.46 22.45 5.33 1.49 80.62 26.35 4.45

18 15.37 0.38 1.78 51.15 22.42 1.00 1.74 54.62 23.27 0.88

19 15.92 0.66 1.43 94.26 28.45 1.98 1.53 83.32 28.88 2.14

20 17.50 0.74 1.93 85.56 41.25 3.21 1.87 97.93 45.64 1.10

21 24.31 2.74 1.53 100.94 35.17 6.43 1.53 107.65 37.29 6.16

22 30.73 3.48 1.85 76.52 35.27 3.48 1.64 81.90 32.09 2.58

23 348.16 18.44 1.98 1071.73 529.78 10.58 1.98 1188.42 589.62 13.99

24 65.69 4.27 1.88 122.05 57.08 14.92 1.93 157.05 75.75 5.83

25 34.03 4.51 1.52 107.60 36.71 5.01 1.48 129.84 41.89 7.15

26 30.04 3.59 2.33 82.16 46.95 5.56 2.30 86.28 48.79 8.43

27 65.61 4.00 1.76 210.98 90.84 15.43 1.84 278.29 127.04 13.00

28 18.35 1.26 1.70 86.96 35.73 2.78 1.53 77.42 26.84 2.94

29 25.56 2.41 1.62 89.30 34.21 3.20 1.60 89.11 33.41 3.90

30 40.57 7.74 1.48 91.42 29.84 3.16 1.78 121.68 53.28 5.16

31 50.82 4.13 1.51 219.76 74.27 10.00 1.46 281.31 89.13 13.81

32 53.91 4.87 1.41 205.52 59.42 4.62 1.75 189.86 81.54 4.94

33 30.48 3.00 1.78 106.77 46.94 4.24 1.92 137.63 66.08 8.59

34 67.88 13.63 1.38 353.74 97.62 7.72 1.29 412.31 91.67 16.35

35 48.88 1.65 2.10 208.98 109.65 5.67 1.74 290.06 123.79 13.13

36 18.45 1.14 1.75 86.99 37.18 2.67 1.73 106.20 44.84 3.01

Inserting numerical value of productivity development indexes yields domestic industries development rate.

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Table 3: Domestic industries development rate during 2000 to 2004

Year Development

quality

2004 2005 2006

Rank Code Rank Rank Code Rank Rank Code Rank

Access to facilities 1 23 0.255 1 23 0.29 1 23 0.19

2 24 0.55 2 34 0.65 2 34 0.66

3 27 0.64 3 27 0.69 3 24 0.66

4 34 0.65 4 24 0.71 4 27 0.71

5 32 0.71 5 31 0.73 5 30 0.71

6 26 0.71 6 35 0.74 7 26 0.73

7 23 0.72 7 28 0.74 7 26 0.73

8 21 0.73 8 26 0.75 8 32 0.74

9 28 0.75 9 22 0.76 9 25 0.75

10 36 0.76 10 25 0.76 10 22 0.76

11 30 0.76 11 33 0.77 11 33 0.76

12 20 0.76 12 32 0.77 12 35 0.76

13 31 0.77

14 25 0.77

Access to limited

facilities

15 29 0.79 13 21 0.79 13 0.78

16 35 0.79 14 30 0.79 14 0.79

17 15 0.80 15 34 0.80 15 0.79

19 17 0.85 17 20 0.83 17 0.80

20 18 0.87 18 15 0.84 18 0.81

19 18 0.86 19 0.81

20 17 0.86 20 0.82

21 0.83

No access to

facilities

21 19 0.89 21 19 0.89

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Year Development

quality

2007 2008

Rank Code Rank Rank Code Rank

Access to facilities 1 23 0.19 1 23 0.15

2 27 0.63 2 27 0.60

3 35 0.46 3 35 0.61

4 24 0.67 4 33 .068

5 34 .69 5 26 0.68

6 31 0.70 6 24 0.69

7 26 0.71 7 31 0.69

8 33 0.75 8 34 0.70

9 20 0.75 9 32 0.70

10 22 0.79 10 30 0.73

11 32 0.77 11 36 0.76

12 21 0.77 12 20 0.76

13 25 0.77

Access to limited

facilities

13 36 0.78 14 21 0.78

14 25 0.79 15 29 0.79

15 28 0.79 16 22 0.79

16 29 0.79 17 15 0.80

17 17 0.80 18 18 0.81

18 15 0.81 19 17 0.81

19 18 0.82 20 28 0.81

20 30 0.82 21 19 0.82

No access to

facilities

21 19 0.84

As it is clear looking at results of analysis on productivity development of domestic industries that

coke, refinery, etc. (code 23) enjoy highest rate of development while tanning and leather

processing, bags and suitcase industries (code 19) ranked at the bottom of development scale.

Following table lists summary of results regarding productivity development rate of domestic

industries.

Table 4: number and percentage of domestic industries based on type and quality of development

Year Development

quality

2004 2005 2006 2007 2008

Access to facilities Number 14 12 12 12 23

% 66.7 57.1 57.1 57.1 61.9

Access to limited facilities Number 6 8 9 9 8

% 28.5 38.1 42.9 42.9 38.1

No access to facilities Number 1 1

% 4.8 4.8

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Diagram 1: Domestic industries percentage based on type and quality of development

Discussion and conclusion

Despite commonly accepted necessity of productivity and the fact that it is highly emphasized in

development programs and also 20-year development perspective charter, difference between

realized and ideal national development level hints necessity for conducting researchers about

productivity and the key factors in this regard. Productivity at commercial agencies level can be

defined as output of an agency (value of produced goods, value added and similar items) to total

input rate; this definition encompasses all production factors such workforce, capital, energy, etc..

Productivity is a index therefore, pointing out order of combination and utilization of productive

input toward objective of the agency, so that maximum performance is realized by minimum cost.

This work is aimed to survey several indexes effective on developing industries through

determining development rate of each ISIC code groups during 4th

development program. As it is

clear from the results, development rate is not the same among different industries, this implies

difference in access to facilities between different industries. For instance, industries code 19

(tanning, leather processing and bags/suitcase production, etc.) as one of traditional industries

classified as under developed industries during first 2 years under consideration, though they

improved during next years. Other field of industries, desperately in need for more attention of

decision makers, is industries in code group 15 (Food and drinking industries). As this field of

industries is taken into account as a ground for national independency by authorities, and Iran has

no limitation in access to raw materials, it is reasonable to say that the industries have high

potential for development upon proper planning by authorities. On the other hands, industries in

code group 17 (fabrics industries ), previously known as one of the main pillars of national expert,

recently has been disregard by authorities as they have found oil industries more profitable and

0%

10%

20%

30%

40%

50%

60%

70%

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know ranked in semi-developed group. Experts of the field believe that failing to access modern

technologies is the main cause for bankruptcies in the industries leading to lose of many jobs.

Generally, Iranian industries are at acceptable condition, and virtually none of them is at under

developed class. A positive point is small gap between industries in semi-developed class and

developed class, which implies for good condition of domestic industries in comparison to other

countries.

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References

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productivity factors in Iranian industries group, 2000; Tehran, Program and Budget Org.

Ali Nejad Haji, Farhad Irani, human force productivity, Tadbir, No. 64; 1996/

Alireza Amini and Zohreh Hejazi Azad, analyzing role of health and hygiene on improving

workforce productivity in Iran‘s economy, Iran Economic Researches Quarterly, No. 30, 2007,

137-163.

Amir Hedayat Tabatabie, Fast assessment of productivity, Manshour Bahrevari Press, 2000.

Azadeh, A,.Ghaderi, S.F, Ebrahimipour, V, (2007). An integrated PCA DEA framework for

assessment and ranking of manufacturing systems based on equipment performance, Engineering

Computations, Vol, 24, Issue 4, pp. 347-372

Azizollah Farhadi, Alireza Bastani, ―surveying relation between open door economic policies and

productivity growth in case study countries‖ Articles introduced in first national conference of

productivity and development, East Azerbaijan; Programming and Management Org. 2006.

Bernard, A and Jenson, J. B, Exceptional exporters performance: cause, effect or both? Journal of

International Economics, Vol. 47, 1999, pp. 1-25.

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Eghbali, Ali Reza (2007). The Ranking Iran‘s Banks by Taxonomy Numerical Analysis. Journal of

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Esmaiel Abonori and Arash Khoskar, ―role of income distribution increase on workforce

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Karim Azaerbaijani, Measuring and analyzing domestic industries productivity, Esfahan,

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Role of Emotional Intelligence on the Relationship among Leadership Styles, Decision

Making Styles and Organizational Performance: A Review Rana Rashid Rehman

M.Phil Scholar, Quaid-i-Azam School of Management Sciences (QASMS),

Quaid-i-Azam University, Islamabad, Pakistan.

Abstract

This paper constructs a conceptual model to study the impact of emotional intelligence on the relationship

among leadership styles, decision making styles and organizational performance. Study also give the brief

review of emotional intelligence, leadership styles and the relationship among leadership styles, emotional

intelligence and other studied variables. The paper has conceptual based theoretical evidences to support the

model. Research findings of the previous literature supports the idea that emotional intelligence moderates

the relationship among leadership styles and decision making styles as emotional intelligence strongly

associated with leadership styles and decision making styles. Emotional intelligence also moderates the

relationship between leadership styles and organizational performance. Study further founds that decision

making styles have an effect on organizational performance.

Keywords: Emotional Intelligence, Leadership styles, Decision making styles, Organizational performance.

1. Introduction

Leader is a personality who has the capability to influence others and the leadership is what leaders do to

influence group to achieve some defined goals. To successfully perform the activities, leaders have to make

decisions at every step to achieve the desired results. Thus, effective decision making is one of the attribute

of an efficient leader (Tatum, Eberlin, & Kottraba, 2003). The fortune of every business relies upon the

decision making capacity of business leadership. Every decision by the management of a business

influences the overall business performance. Therefore, decision making process can be considered as think

tank of any business. Past researchers found that emotional intelligent is an essential part of an effective

leadership and have a strong association with decision making and organizational performance. One of the

study by Abraham (2000) determines that an emotionally intelligent person have high organization

commitment, and use positive emotions to boost their decision making competence. Holt and Jones (2005)

found that emotional intelligence influences organizational performance. Based on the these findings, the

present study propose the conceptual model by defining the relationship among emotional intelligence,

leadership styles, decision making styles and organizational performance based on theoretical evidences

from the previous research findings.

The paper consists of four sections which deal in turn with introduction of the study, literature review and

methodology. The paper rounds off by discussing and concluding the major findings of the study supported

by literature.


2.1 Emotional Intelligence

The definition of emotions and its measurement changes with the passage of time. Salovey and Meyer

(1990) define emotions as an organized response which crosses the many psychological subsystems such as

psychological, experimental, cognitive and motivational subsystems. At earlier stages, intelligence

researcher measures emotions with respect to various subsystems such as occasionally emotions and social

emotions (Gardner, 1983), and consider emotional intelligence as a part of social intelligence (Salovey &

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Meyer, 1990). Salovay and Meyer (1990) are the first who uses term ―emotional intelligence‖ and define it

as the ―ability to monitor one‘s own and other‘s feelings and emotions to discriminate among them and to

use this information to guide one‘s thinking and actions‖. Author further elaborate the concept of emotional

intelligence by explaining it through three dimensions of adaptive abilities; appraisal and expressing the

emotions, utilizing and regulating the emotions in solving problems. Later on, Goleman (1995) expanded

the construct of emotional intelligence by adding specific social and communication skills which influence

by understanding and expression of emotions. Salovey and Mayer (1997) give the revised model of

emotional intelligence by focusing more on the cognitive components of emotional intelligence. The

revised model composed of four categories of emotional intelligence: perception appraisal and expression

of emotions; employing and analyzing emotional information; emotional facilitation of thoughts and

regulation of emotions for further emotional growth. Later on many researcher defines and measures

emotional intelligence according to the scope of their studies such as GENOS EI Inventory which is

specifically designed for workplace emotional intelligence, Bar-On emotional quotient inventory which

deeply measures the emotional intelligence construct (Bar-On, 1996) and Bernet (1996) developed the

Perception of Affect scale based on the premise that being able to attend rapidly, appropriately and

effortlessly to feelings is the cornerstone of emotional intelligence. However, Saloney and Meyer

(1990) definition of emotional intelligence provides the foundation of this conceptual model.

2.2 Leadership Styles

Transformational and transactional leadership are the most widely studied leadership styles in behavioral

sciences. The evolution of transformational leadership can be traced from the developing theory of

transformational leadership in 1978 and concept enriched with different aspect with the passage of time.

Burn‘s theory of transformational leadership argued that transformational leader has high moral qualities

and leader prefer group interest over his own interest (Burns, 1978). Tichy and Devanna (1986) determine

the characteristics of transformational leadership which includes courage, values, openness, visionary and

showing off learning behavior on the part of transformational leaders. Bass and Avolio (2000) explain

transformational leadership style by five aspects that is (1) Idealized Influence (Attributed) –attributed by

communicating and imparting the sense of mission in the followers. (2) Idealized Influence (Behavior) – the

leader act as a role model towards the followers. (3) Inspirational motivation – The leader simplify the paths

for the followers by eliminating problems. (4) Intellectual Simulation – leader encourage rational reasoning,

creativity and encourage the followers to solve traditional problems in a new way. (5) Individualized

Consideration – leader considers individuals needs of the followers and truly affiliate with them and give

them care and respect.

Krishnan (2004) argues that transformational leader is the leader‘s ability to motivate followers in achieving

more than they planned. .Many researchers (Bass and Riggio, 2006; Baldoni, 2005) agree that

transformational leadership has four elements including idealized influence, inspirational motivation,

intellectual stimulation and individualized consideration. Simic (1998) argue transformational leadership

qualities is an important determinant for management success. Burns (1978), a pioneer of transactional

leadership defines transactional leadership as development of relationship between leader and followers.

The main focus of the transactional leadership is to know about the needs of the followers and clarifies role

for them to meet organizational goals. Bass (1985) defines transactional leadership as one who builds

leader-member exchange relationship, fulfills their needs in exchange of follower‘s performance and has

ability to build confidence in subordinates. Bass and Stogdills (1990); and Avolio et al. (2004) describe the

qualities of the transactional leadership in two ways; contingent rewards and management by exception.

Hellriegel and Slocum (2006) define transactional leadership by dividing management by exception in two

facets; active and passive management by exception and by contingent rewards. Author define active

management by exception as leader monitor the follower performance and guide them to achieve the goal

while passive management by exception includes leaders involvement when followers give unexpected

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performance. Transactional leader provides rewards for the achievement of goals while no penalties for the

failure in achieving the goals.

3. Methodology

The aim of this paper is to provide the conceptual understanding of the proposed model through literature

reviews. The core concept of the study is to determine the relationship among emotional intelligence,

leadership styles, decision making styles and organizational performance. After defining the main variables

of this study; the following part of the study explains the relationship among studied variables and provides

theoretical evidences that emotional intelligence moderates the relationship between leadership styles,

decision making styles and organizational performance. Paper also provides link between decision making

styles and organizational performance from the literature.

3.1 Leadership styles and decision making Styles

Decision making is one of the most important aspects of the leadership. Scott and Bruce (1995) define that

an individual can involve in decision making process by adopting any of the five decision making styles

(DMS). (1) Rational DMS. (2) Intuitive DMS. (3) Dependent DMS. (4) Avoidant DMS. and (5)

Spontaneous DMS. Based on the leadership styles it is logical to ask whether these leadership styles have

different decision making styles or not? Drive and Brousseau (1990) determine that people have different

decision making styles and these decision making styles differ with respect to number of alternatives used,

amount of information and the extent they coordinate different resources of input. Kedia and Nordtvedt

(2002) founds that there is a relation exist between leadership styles and decision making styles and argue

that transformational leaders use more comprehensive style (high number of alternatives used, large amount

of information and high coordination of different resources of input) of decision making while transactional

leaders use less comprehensive styles as compared to transformational leadership. Researchers further

found that transformational leaders are the rational decision makers (Tambe & krishan, 2000) and don‘t

avoid decisions (Steplen & Roberts, 2004).Spice and Sadler (2005) conclude that rational decision cannot

be taken in haste and require time which determine that transformational leaders are unrelated to

spontaneous decision making style. Based on this review of literature, we can say that leadership styles

have an impact on decision making styles.

3.2 Leadership Styles and Organizational Performance

Leadership styles have been studies against numerous variables such as organization commitment,

perceived performance and satisfaction. Many researchers reported a relationship between transformational

leadership and higher levels of follower effort, satisfaction with the job and leader, and perceived

performance which ultimately affect organizational performance. (Bass, 1985; Bass, 1990; Yammarino &

Bass, 1990; Yukl, 1994). In organizations, transformational leadership is considered a more effective

leadership style and is constantly found to promote organizational performance (Lowe and Kroeck, 1996).

Compelling vision of the future, defining and communicating high level of performance expectations,

acting as role model, and displaying a sense of confidence in followers‘ ability to meet expected goals,

transformational leaders have been found to positively influence performance of the followers and

consequently, the organizational performance (Shea, 1999; Waldman & Yammarino, 1999). Elenkov (2002)

founds that transformational leadership directly and positively predicted organizational performance.

Author further argues that managers who displayed more transactional-leadership behaviors also made a

positive contribution to the achievement of organizational goals. Researcher founds that contingent reward

leadership (a part of transactional leadership) was positively related to follower performance and job

satisfaction which ultimately effect organizational performance (Podsakoff, Todor, Grover & Huber, 1984).

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On the basis of these research findings, we found that leadership styles have an impact on organizational

performance.

3.3 Emotional Intelligence, Leadership Styles and Decision Making

Barling et al. (2000) studied the relationship between the transformational/transactional leadership and

emotional intelligence. Authors argue that emotional intelligence prompt leaders to use transformational

behaviors. Barling et al. (2000) founds that emotional intelligence is positively related to the

transformational leadership and contingent reward (a component of transactional leadership). Later on,

Palmer et al. (2001) concludes that emotional intelligence is strongly correlated with transformational

leadership style. Abraham (2000) founds that an emotionally intelligent individuals have high organization

commitment, high success rate (Miller, 1999), and use positive emotions to enhance their decision making

capability. George (as cited in Gardner and Stough, 2001) argues that emotional intelligence enhances

leaders‘ ability to get solutions for the problems and to tackle issues and opportunities facing by them and

by their organizations as well. Leaders within this context, are able to enhance decision making capability

through their knowledge and management of emotions, and the leaders who are able to correctly recognize

emotions are more able to decide whether the emotion is attached to opportunities or problems and

therefore use those emotions in the procedure of decision making. Based on these literature findings, we can

say that emotional intelligence has an impact on the relationship between leadership styles and decision

making styles.

3.4 Emotional Intelligence, Organizational performance and Decision Making

Holt and Jones (2005) concluded that emotional intelligence has an impact on organizational performance.

Druskut, Sala, & Mount (2006) studied the various ways through which emotional intelligence affects

organizational performance. Authors concluded that emotional intelligence have an impact on performance,

helps in developing international business capabilities, and affects many business outcomes. Melita, Ceasar,

Gerald, Anthony and Ronald (2003) founds that emotional intelligence training is an evolutionary means of

organizational performance. Jordan & Troth (2002) founds that emotional intelligence influence the

employee preferred style of conflict resolution which contributes towards the understanding of

organizational performance and its determinants.

In relation to the decision making and organizational performance; Allen, Amason, David & Schweiger

(1994) founds that strategic decision making influence organizational performance. Amason (1996) founds

that top management teams make decisions which influence the organizational performance. Irene, Abdul

and Rasheed (1997) further found that rational decision making have a positive association with

organizational performance.On the basis of this literature review we can say that emotional intelligence

have an impact on the relationship between leadership styles and organizational performance and decision

making styles affects organizational performance.

In nutshell, based on the above literature reviews and research findings, we can conclude that

1) Emotional intelligence will moderate the relationship between leadership styles and decision

making styles.

2) Emotional intelligence will moderate the relationship between leadership styles and organizational

performance.

3) Decision making styles influence the organizational performance.

[Insert Figure 1]

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In this proposed model as depicted in Figure 1, transformational and transactional leadership styles are

taken as independent variables while decision making styles and organizational performance act as

dependant variables. Emotional intelligence is taken as moderating variable which influence (moderates)

the relationship among independent and dependant variables.

4. Discussion and Conclusion

The present study examines the relationship among emotional intelligence, leadership styles, decision

making styles and organizational performance. Efficiency of the organization depends on the leadership

styles and decision making behavior prevailing in the organization through proper communication of the

policies and plans, rules and regulations, allowing incentives, co-operation and build effective work

environment which encourage the employees in a positive way. This can only be done through effective

leadership and by adopting rational decision making processes. A study by George (as cited in Gardner and

Stough, 2001) argues that emotional intelligence enhances leaders‘ ability to solve problems and to address

issues and opportunities facing them and by their organizations. Leaders within this context are able to

enhance decision making capability through their knowledge and management of emotions, and use those

emotions in the procedure of decision making. The present study found that emotional intelligence

moderates the relationship between leadership styles and decision making styles. Many researchers

(Melitaet al., 2003; Holt & Jones, 2005; Druskut et al., 2006) found that emotional intelligence have a

positive influence on organizational performance. This study found that emotional intelligence moderates

the relationship between leadership styles and organizational performance and decision making styles have

an impact on organizational performance (Schweiger, 1994; Amason, 1996).

5. Limitations and Recommendation for Future Research

The present study is based on the theoretical evidences from the literature to supports the conceptual model

while not on the qualitative or quantitative evidences. The validity and accuracy of the conceptual model is

restricted to the variables defined in the conceptual model. The future studies can be conducted to

empirically test the proposed relationships in the conceptual model.

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Annexure

Figure 1: Proposed Conceptual Model

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Are Equity markets Efficient? Evidence from Emerging Economy

Syed Kashif Saeed(Corresponding Author), Shahid Mehmood Sargana, Usman Ayub

COMSATS Institute of Information Technology, Islamabad, Pakistan.

Abstract

This study investigates that whether Karachi Stock Exchange is efficient or otherwise over the

period from July 1997 to April 2010. To examine the efficiency, various stock market anomalies

(i.e. Days of week Effect, With-in month Effect, Turn of Month Effect) have been estimated.

Results show no evidence for presence of Days of week Effect whereas the presence of other two

effects cannot be rejected.

JEL Code: C10, G12, G15

Keywords: Efficient Market Hypothesis, Stock Market Anomalies, day of the week (DoW)

effect, Within Month (WiM) effect, turn of the month (ToM) effect.

Introduction

A market anomaly (or inefficiency) is a price or return distortion in a financial markets which can

be caused by lack of stock market transparency or due to other reasons, so these anomalies are in

contradiction of common belief in finance that financial markets are efficient. This important

belief in financial markets that security prices reflect, fully and quickly, all available information is

known as Efficient market Hypothesis (EMH). Initially, the concept of EMH was applied to the

stock market only whereas later on it was taken as a general notion to all financial assets (Fama

1970; Fama 1991). So when market uses all available information prudently and nothing is ignored

provided the avoidance of systematic errors, the results that prices are always at the levels

corroborating with its ―fundamentals‖. Although, theoretically very well received but when tested

empirically then various deviation from EMH were found known as market Anomalies. Some

famous anomalies are Monday effect, weekend effect, January effect etc. Mehdian and Perry

(2001) argue that once identified anomalies began to wipe out. This study intends to analyze

whether these market anomalies exist in equity markets of Pakistan in one way or another. We

have done so first by taking the whole sample and then by breaking the sample into various sub

periods in order to examine the time varying impact also.

Literature Review

When various market anomalies were identified then researchers tried to provide the

theoretical justification for these. For example, as EMH assumes the availability of full

information free of cost therefore if information was not costless then financial incentive exists for

obtaining it. But again if the information was already ‗fully reflected‘ in security prices then

financial incentive became impossible to obtain (Grossman and Stiglitz 1980). Jensen (1978)

argued that prices reflect information up to the point where the expected profits to be made by

acting on the information do not exceed the marginal costs of obtaining it. It is also observed that

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anomalies began to disappear once they are identified (Mehdian and Perry, 2001). In this section,

we will look at various types of empirically founded market anomalies.

―The January effect‖ is generally defined as that the expected returns of stocks will be

relatively higher in first month of the year in comparison of the rest of the month. This effect was

initially registered by Rozeff and Kinney (1976). Later on it is also documented, in same US

markets, that this January Effect is restricted to first few days of month of January only (Keim,

1983).

Gultekin and Gultekin (1983) investigate the 17 countries (including Australia, Belgium,

Germany, Japan, Norway, Spain, and Switzerland etc) for January effect. They argue that

significance of ―January effect‖ cannot be rejected in these countries. The January Effect, i.e.

higher mean daily return in the month of January, is also found significant in Singapore market by

various researchers9.

The day-of-the-week effect allows average stock returns to be different across various days

of the week. One specific variant of DoW effect is Monday Effect according to which, ―the mean

return on Monday is negative and generally the lowest while the mean return on Friday is positive

and generally the highest‖. Cross (1973) and Board and Sutcliffe (1988) identified these effect and

later on various researcher10

augmented the research in other markets as well.

Extensive research have been conducted to investigate the presence of the DoW effect

across the globe [French (1980), Gibbons and Hess (1981), Keim and Stambaugh (1984), Wong

and Ho (1986), Condoyanni et al (1987), Lakonishok and Smidt (1988), Aggarwal and Rivoli

(1989), Wong et al (1992), Abraham and Ikenberry (1994), Wang et al (1997) and Mehdian and

Perry (2001)]. This extensive research also concludes that in near past various anomalies11

has

significantly declined. (Mehdian and Perry, 2001; Wong et al, 2006)

Another phenomenon that ―the average stock return is higher on the trading day

immediately before holiday in comparison with rest of trading days‖ is referred as Holiday Effect

in financial literature. Pettengill (1989) and Ariel (1990) are among those who initially

investigated Holiday Effect in US markets and found significant, i.e. the average stock returns are

significantly higher on holidays than the remaining trading days. Kim and Park (1994) later on

corroborated their research findings and argue that null hypothesis for Holiday Effect cannot be

accepted. In contrast to US markets, results for Holiday Effects are mixed across other stock

markets of the world, for example Holiday Effect cannot be documented in France, Italy,

Switzerland, UK and West Germany but cannot be rejected in Australia, Canada, Hong Kong,

Japan, Singapore market (Cadsby and Ratner, 1992; Tan and Wong, 1996).

Within month effect (WiM) or Time of Month (ToM) Effect refers to change in average

return as month progresses. Ariel (1987) documented that average returns are relatively higher in

the start of month whereas lower for rest of the month. Later on various researchers have identified

the start and remains of month in literature in different ways (e.g. Peterson, 1990, Kohers and

9 See Agarwal and Rivoli (1989); Wong and Ho (1986); Lee (1992) and Chan et al (1996)

10 See Chang et al. 1993, Coutts and Hayes, 1999, Al-Loughani and Chappell, 2001)

11 Monday Effect and January Effects etc

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Patel, 1999). Some divide the month into two parts, distinguishing between the first half and

second half of the month (Ariel, 1987) whereas some researchers distribute month into three equal

parts that is each third of the month (Kohers and Patel, 1999). Chandra (2009) argues in favor of

presence of ‗Within month effect‘ in Indian stock markets.

Another variant of WiM Effect is the ToM effect. ToM effect refers to the phenomenon

that at the turn of the month, unusual higher stock returns are evidenced. In literature, ToM effect

is defined as ―the period from the last trading day of the previous month to the first three trading

days of the current month‖.

The empirical evidences regarding the presence of ToM effect are not conclusive among

various markets across the world. Lakonishok and Smidt (1988) investigate and find significant

ToM effect, using the Dow Jones index for the period of 1897-1986. Cadsby and Ratner (1992)

argue that null hypothesis for the turn-of-the-month effects cannot be rejected in France, Hong

Kong, Italy or Japan but can be rejected in Australia, Canada, UK and West Germany. Tan and

Wong (1996) investigate and find a significant turn-of-the-month effect in Singapore markets over

the period 1975-1994. Chandra (2009) argues that Turn-of-the-Month effect cannot be rejected in

Indian stock markets.

Data:

The purpose of the present study was to investigate the presence of various stock market anomalies

in Karachi stock exchange. Our sample period consist of July 01, 1997 to April 30, 2010. The price

has been taken from index of Karachi stock exchange called KSE-100. As time period is relatively

long, therefore we have decided to further divide the sample into sub sample of almost three years

each. The division of sample period into further sub periods will help in enhancing understanding

regarding the evolution process in stock market, if any.

Whole sample period: July 01, 1997 to April 30, 2010

Sub- sample period:

First period July 01, 1997 to June 30, 2000

Second period July 01, 2000 to June 30, 2003

Third period July 01, 2003 to June 30, 2006

Fourth period July 01, 2006 to April 30, 2010

Methodology

In order to test various market anomalies, daily return of stock prices i.e. continuously

compounded rate of change is calculated using the following formula:

1

ln( )*100tt

t

PR

P

Where Pt and Pt-1 are the prices index of Karachi Stock Exchange at time t and at t-1

respectively.

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The basic regression equation for week day effect is as follows:

1 1 2 2 3 4 4 4 5 5tR D D D D D (1)

We have not included here intercept to avoid dummy variable trap. We can avoid that by not

including intercept or by reducing one dummy e.g. D3 for Wednesday.

One problem indicated by econometricians that the error term of above regression can have

autocorrelation problem. To avoid this problem we have added the lagged value of returns as well.

1 1 2 2 3 4 4 4 5 5

1

n

t t i

i

R D D D D D R

(2)

Where:

D1 = 1 if there is Monday; 0 otherwise.

D2 = 1 if there is Tuesday; 0 otherwise.

D3 = 1 if there is Wednesday; 0 otherwise.

D4 = 1 if there is Thursday; 0 otherwise.

D5 = 1 if there is FRIDAY; 0 otherwise.

Rt-i = Lagged values of returns

For analyzing Within Month Effect, following regression equation will be estimated:

7 7 8 8 9 9tR D D D (3)

Where:

D7= 1 if the trading days are from 1st to 10

th of the month; 0 otherwise.

D8 = 1 if the trading days are from 11th

to 20th

of the month; 0 otherwise.

D9 = 1 if the trading days are from 21st to end of the month; 0 otherwise.

For analyzing Turn of the Month (ToM) Effect, Hansel and Ziemba (1996) has suggested

the event window of five days i.e. last two trading days of month and first three trading days of

following month (-2, +3). So according to same intuition following regression equation will be

estimated:

0tR TOM (4)

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Where:

TOM= 1 if trading days are last two trading days and first three trading days adjacent months; 0

otherwise.

Findings

Table 1 shows the descriptive statistics of the daily returns of the Karachi stock Exchange

index 100 for the entire period from July 1997 to April 2010. The first column reports statistics for

the entire sample period. The average (mean) daily return was negative at 0.06 percent (almost

21.6% annualized). The null hypothesis for normality is rejected at 1% level of significance, as

shown by majority of the studies that financial time series are not normal.

The second column reports statistics for the sub-sample period from July 1997 to June

2000. The average (mean) daily return was at 0.03 percent (almost 10.8% annualized). Here also,

the null hypothesis for normality is rejected at 1% level of significance, as shown by majority of

the studies that financial time series are not normal. The third column reports statistics for the sub-

sample period from July 2000 to June 2003. The average (mean) daily return was negative at 0.10

percent (almost 30.7% annualized). The fourth column reports statistics for the sub-sample period

from July 2003 to June 2006. The fifth column reports statistics for the sub-sample period from

July 2006 to April 2009.

Table 1: Descriptive Statistics of the daily returns of the Karachi Stock Exchange Index

(KSE100)

Full Sample

1997-2010

Sub-Sample

1997-2000

Sub-Sample

2000-2003

Sub-Sample

2003-2006

Sub-Sample

2006-2010

Mean -0.000557 0.000225 -0.001038 -0.001771 0.000161

Median -0.000095 0.000000 -0.001500 -0.001571 0.000000

Maximum 0.132133 0.052784 0.060418 0.077414 0.132133

Minimum -0.127622 -0.082547 -0.057967 -0.085071 -0.127622

Std. Dev. 0.017139 0.015468 0.015427 0.014866 0.020869

Skewness 0.364332 0.217971 0.477042 0.118838 0.370527

Kurtosis 8.408492 5.600692 4.705473 7.200085 8.893271

Jarque-Bera 4154.692 226.8626 124.2738 578.1086 1469.992

Probability 0.000000 0.000000 0.000000 0.000000 0.000000

Observations 3348 783 781 784 1000

Table 2, 3, 4, 5 and 6 shows the results of regression model in equation 2 for estimating Days of

Week (DoW) effect. Table 2 consists of regression results for the entire sample i.e. from 1997 to

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2010. The coefficients of all dummy variables are insignificant that we cannot reject null

hypothesis for days-of-week effects.

Table 2: Regression Model (2); July 1997 to April 2010

Sample (adjusted): 7/03/1997 4/30/2010

Variable

Coefficien

t Std. Error t-Statistic Prob.

Mon

-

0.000486 0.000661 -0.735597 0.4620

Tue

-

0.001001 0.000660 -1.516555 0.1295

Wed

-

0.000596 0.000660 -0.903807 0.3662

Thu

-

0.000391 0.000660 -0.592412 0.5536

Fri

-

0.000058 0.000660 -0.087895 0.9300

RPKP(-1) 0.091187 0.017228 5.292810 0.0000

The non-presence of days-of-week effects can be the indication of informationally

efficiency of markets. It can also be said that participants in this market are aware of various

anomalies documented by researchers around the globe which is being taken away through the

process of arbitrage. Table 3, 4, 5 and 6 consists of regression results for the sub-sample from 1997

to 2000, 2000-2003, 2003-2006 and 2006-2010 respectively. The above regression model was

estimated for sub sample for robustness of results and also to see that whether this effect has been

time varying across sample period. Largely, leaving 2000-2003 periods, result for days-of-week

effects are same. Therefore we can safely accept the null hypothesis for absence of days-of-week

effects.

Table 3: Regression Model (2); July 1997 to June 2000

Sample (adjusted): 7/03/1997 6/30/2000

Variable

Coefficien


Mon -0.000387 0.001209 -0.320251 0.7489

Tue -0.000468 0.001206 -0.387961 0.6982

Wed 0.001411 0.001206 1.169856 0.2424

Thu -0.001755 0.001211 -1.448756 0.1478

Fri 0.002055 0.001209 1.699626 0.0896

RPKP(-1) 0.220555 0.035012 6.299345 0.0000

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Sample: 7/03/2000 6/30/2003

Variable

Coefficien


Mon -0.002239 0.001228 -1.822859 0.0687

Tue -0.001793 0.001231 -1.456064 0.1458

Wed -0.001353 0.001231 -1.098926 0.2721

Thu -0.001008 0.001231 -0.818153 0.4135

Fri 0.001632 0.001233 1.323439 0.1861

RPKP(-1) 0.081662 0.035801 2.280972 0.0228


Sample: 7/01/2003 6/30/2006

Variable Coefficient Std. Error t-Statistic Prob.

Mon 0.000238 0.001193 0.199485 0.8419

Tue -0.002360 0.001192 -1.979653 0.0481

Wed -0.003329 0.001189 -2.800258 0.0052

Thu -0.002250 0.001187 -1.895489 0.0584

Fri -0.001235 0.001186 -1.041293 0.2981

RPKP(-1) -0.010506 0.035850 -0.293058 0.7696


Sample: 7/03/2006 4/30/2010

Variable

Coefficien


Mon 0.000071 0.001472 0.047845 0.9618

Tue -0.000115 0.001472 -0.078246 0.9376

Wed 0.000534 0.001473 0.362330 0.7172

Thu 0.002303 0.001473 1.563603 0.1182

Fri -0.002053 0.001472 -1.395186 0.1633

RPKP(-1) 0.079871 0.031617 2.526216 0.0117

Table 7, 8, 9, 10, and 11 shows the results of regression model in equation 3 for estimating With-

in-month effect. Table 7 consists of regression results for the entire sample i.e. from 1997 to 2010.

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Sample (adjusted): 7/02/1997 4/30/2010

Variable

Coefficien


D7 -0.001924 0.000515 -3.734197 0.0002

D8 -0.000877 0.000543 -1.614151 0.1066

D9 0.000897 0.000483 1.858290 0.0632

Table 8, 9, 10, and 11 consists of regression results for the sub-sample from 1997 to 2000, 2000-

2003, 2003-2006 and 2006-2010 respectively. The above regression model was estimated for sub

sample for robustness of results and also to see that whether this effect has been time varying

across sample period.


Sample (adjusted): 7/02/1997 6/30/2000

Variable

Coefficien


D7 -0.002134 0.000958 -2.226906 0.0262

D8 0.000660 0.001008 0.654211 0.5132

D9 0.001961 0.000901 2.177742 0.0297

The results for with-in-month Effect largely reject the null hypothesis of market anomaly. Leaving

sub sample of 2006-2010, the coefficients for D7 (first 10 days of month) are significant for entire

sample period and also for sub sample periods, whereas both D7 (first 10 days of month) and D9

(last 10 days of month) are significant at 1% for full sample period.


Sample: 7/03/2000 6/30/2003

Variable

Coefficien


D7 -0.002550 0.000960 -2.655051 0.0081

D8 -0.001269 0.001017 -1.247742 0.2125

D9 0.000457 0.000896 0.510267 0.6100


Sample: 7/01/2003 6/30/2006

Variable

Coefficien


D7 -0.002685 0.000929 -2.888911 0.0040

D8 -0.001398 0.000972 -1.438209 0.1508

D9 -0.001273 0.000867 -1.467352 0.1427

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Sample: 7/03/2006 4/30/2010


D7 -0.000686 0.001145 -0.598661 0.5495

D8 -0.001372 0.001213 -1.131486 0.2581

D9 0.002119 0.001077 1.966818 0.0495

Table 12, 13, 14, 15, and 16 shows the results of regression model in equation 4 for estimating turn

of month (TOM effect. Table 12 consists of regression results for the entire sample i.e. from 1997

to 2010 whereas Table 13, 14, 15, and 16 consists of regression results for the sub-sample from

1997 to 2000, 2000-2003, 2003-2006 and 2006-2010 respectively.

The TOM effect is significant when tested for entire sample period at 5% level of significance.

When same effect is tested for each sub sample, the coefficients of TOM is not significance in all,

except in 2000-2003, sub sample period.


Sample (adjusted): 7/02/1997 4/30/2010


C -0.000207 0.000337 -0.613178 0.5398

TOM -0.001522 0.000704 -2.163079 0.0306


Sample (adjusted): 7/02/1997 6/30/2000


C 0.000489 0.000629 0.777162 0.4373

TOM -0.001157 0.001317 -0.878984 0.3797


Sample: 7/03/2000 6/30/2003


C -0.000555 0.000628 -0.884358 0.3768

TOM -0.002107 0.001112 -1.894787 0.0907


Sample: 7/01/2003 6/30/2006

Variable

Coefficien


C -0.001465 0.000605 -2.420302 0.0157

TOM -0.001326 0.001260 -1.052740 0.2928

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Sample: 7/03/2006 4/30/2010


C 0.000505 0.000752 0.671702 0.5019

TOM -0.001498 0.001568 -0.955229 0.3397

Conclusion:

This paper provides a detailed examination of the daily stock returns of the KSE100 index in

Pakistan. KSE 100 index is an index based on Market capitalization of 100 companies in Karachi

stock exchange in Pakistan, which make it a good representative of the equity market in Pakistan.

According to my review, this is the first paper to examine, Days of week Effect, Within Month

effect, Turn of Month Effect in on paper for Karachi stock Exchange. We have used data for the

period July 1997 to April 2010, and further divide the sample period into four sub sample to

analyze any effect which may be time varying as well.

To our surprise, in majority of sample period, except for July 2000 to June 2003, we find no

evidence for Days of week effect. This result is in line with Mehdian and Perry (2001) and Wong

et al (2006) arguing that anomalies began to disappear once identified. The results for WiM Effect

show significant difference for the trading days in three parts of the month, suggesting the

presence of WiM Effect.

Whereas the results for Turn-of-Month (TOM) effect show significant return when month ends and

new month start, suggesting the presence of TOM Effect. It is important to note that that TOM

effect is very much evident in full sample but when estimated for sub sample than TOM effect is

not present, may be due to short of data in sub sample.

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ORGANIZATIONAL CLIMATE: STIMULATING CREATIVITY AND IDEA

GENERATION FOR DISCOVERY OF INNOVATIVE SOLUTIONS

Jahanzeb Shah (Corresponding author)

Shaheed Zulfiqar Ali Bhutto Institute of Science & Technology (SZABIST),

Islamabad, Pakistan.

Dr. Bakhtiar Ali

Assistant Professor, Faculty of Management Sciences,

Shaheed Zulfiqar Ali Bhutto Institute of Science & Technology (SZABIST),

Islamabad, Pakistan.

Abstract

This paper investigates an important aspect of supplementing idea generation within the middle

management teams in mobile phone industry in Pakistan. Prior research has not been conducted to

find out the association between organizational climate dimensions and idea generation within the

same context. It is declared that eight organizational climate dimensions in Pakistani context were

found to be the main contributor in augmenting idea generation that may increase creativity. In this

study, it has been found that, tough and rigid climate characterized by rigid rules and regulations is

prevailing in mobile telecom industry as workers execute their activities in predefined way and

have no autonomy to alter or redefine their assignments. It is suggested that excessive use of

unwarranted power structures negatively impact creativity within the mobile phone industry firms.

Managerial Implications for research and practice are measured.

Keywords: Idea generation and creativity (IGC), Organizational Climate (OC), Mobile

Telecommunication Industry, Challenge, Freedom, Trust/openness, Idea Time, Idea Support,

Debate, Risk Taking, Playfulness/Humor

1. Introduction

For the past few decades, Government of Pakistan is trying its level best to make the corporate

sector attractive for investment and overall uplift of economy because organizations from different

industries are playing a significant role in the economic development of Pakistan e.g.

Telecommunication, Banking, Oil & Gas sector etc. For this continual process towards

development, HR Management Practices in a business concern must be taken in to consideration

for un-exhaustive operations and enhanced organizational performance.

1.1 An Overview of Pakistani Telecom Industry

In today‘s era of rapid globalization, the telecom and mobile technology is playing its pivotal role

in making the life patterns of its customers easier day by day. Now, the mobile Industry of

Pakistan is quite vibrant and still growing in a highly dynamic, sophisticated and competitive

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market environment.

The history of cellular mobile telecommunication services can be traced back to early nineties and

now Pakistan is having substantial standing in telecom sector by providing its subscriber with the

cheapest calling rates in South Asian region. Telecom Industry of Pakistan is currently providing

its subscribers with the modern and latest facilities like DSL ( Digital Subscriber Line), Local

Loop, LDI (Long distance and International), WLL (Wireless Local Loop) and ISP (Internet

Service Provider) and certain more advanced technological milestone of cellular industry are yet to

arrive in Pakistan like WiMax and 3G cellular systems.

Although, due to deteriorating law and order situation in the Pakistan and financial crunch in the

whole world, the cellular industry pace has also been slowed down but still it is growing at a fast

pace. As per Pakistan Telecom Authority (Industry Analysis Report, 2008), Mobilink has 35.3%

market share and currently leading the market, chased by Ufone (20.8%), Telenor (20.5%), Warid

(17.8%), Zong (5.4%) and Instaphone (0.4%) and overall cellular subscriber base in Pakistan has

reached up to 9.2 million in Sep 2008.

A study (Rafiq and Gao, 2008) revealed certain important aspects about the market dynamics of

mobile telecommunications industry in Pakistan. It highlighted that a complex system of humans

and technology is operational in mobile telecom industry in Pakistan. The report also elaborated

about robust growth of mobile telecommunication industry in Pakistan as some indicators of

favorable conditions for the same have been identified in this study. They further contended that a

current competitive environment for mobile telecommunications is backed by fair regulations and

policies devised by Pakistan Telecommunication Authority (PTA). The study also illustrated that

this healthy competition among mobile operators is affecting the working patterns of mobile phone

companies and they are delivering qualitative value-added services at highly compatible rates to

their consumers. Due to this tough competition, some companies did not survived in this field and

only those are survivors who are responsive to the market dynamics and customer need of this

industry.

Therefore, the organizational climate for the current survivors‘ operators in the mobile telecom

industry is of greater importance and there is need to empirically measure the impact upon idea

generation and creativity in these mobile operator companies.

This will make certain that mobile phone operators will introduce new novel ideas and creative

packages as per their customer‘s needs and wants, if and only if, the organizational climate with in

these companies are conducive for idea generation and creativity.

1.2 Problem Statement

The purpose of this paper is to empirically measure and identify the impact of organizational

climate (OC) on the idea generation and creativity (IGC) for innovation with specific focus on

mobile phone industry in Pakistan.

The statement of the problem is given as follows:

Do organizational climate factors foster idea generation and creativity for innovation in mobile

phone industry of Pakistan?

In other words, to determine the organization climate dimensions that significantly affect idea

generation and creativity in mobile phone industry of Pakistan.

1.3 Objective of the Study

Every organization is to capture much more customers by getting open ideas and introducing

creativity and innovations through creative thinking and continuous improvements in their

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products and services and as the economy is becoming more and more service, based industry

organizations in particular must be open to their changing customer needs and demands. Therefore,

the main objective of this paper is to identify the critical factors, which may be having a significant

impact on idea generation and creativity of individuals and groups within mobile phone industry

organization. Having empirical results based on quantitative data collection along with statistical

analysis and interpretation, we may have an opportunity to properly conclude about the problem

statement and offer some recommendation.


Skimming through the literature on creativity studies, an exhaustive list of studies are available

that highlight importance of organizational climate. However, let us have a look why to study and

explore organizational climate with respect to idea generation/creativity.

2.1 Why to study and explore Organizational Climate?

The simple rationale for conducting a study on organizational climate in contrast to study based on

organizational culture can be logically justified. Thomson (1998:240) asserted this by saying that

―Changing the culture of an organization by tackling it head on as a single facet of organizational

life is really, really tough. To go deep into cultural change, you have to be talking about beliefs and

values, and these go to the very soul of the organization and its people. It is much easier to change

the climate and language of the business.‖

Moreover, studies on effects of Organizational Climate in Pakistani corporate sector not reported

yet. The reason for this is a high level of hierarchical structures having aristocracy, centralized

authority and power at top level in Pakistan‘s corporate and public sectors (Islam, 2004).

In line with review of literature related to organizational climate, it needs to clearly differentiate

organizational climate from organizational culture. There is a significant difference between

organizational culture and climate. However, the study of organizational climate is often closely

related to organizational culture.

Climate portrays organizational environments as being inherent in the organization's value system,

but tends to present these social environments in relatively persistent terms and unfolding them in

terms of a preset dimensions (Dennison, 1996). Therefore, climate is generally categorized as

temporary affair when having a candid control and only limited to those characteristics of the

social environment, which are deliberately perceived by organizational members.

On the other hand, it was argued that culture is the phenomena that is shared by majority of the

organizational members, can pass on from older members of group to younger members and

clearly outlines the way of looking towards the world (Isaksen and Ekvall, 2007).

Moreover, a clear distinction between organizational culture and climate has been made and

established that culture is based on the values, beliefs, history, traditions, etc., portraying the

intimate details of the organization. While, climate is a persistent patterns of behavior, attitudes,

and mannerism that portray life in the organization. Culture, generally, is what the organization

values and what the true ideology is, on the other hand, climate is what organizational members

experience and go through in performing their activities (Isaksen and Ekvall, 2007).

The climate or working environment is a strong factor influencing idea generation and creativity

and can have an extremely strong impact if altered. Therefore, most organizations find it easier to

generate novel ideas than to successfully implement them. For example, a climate that discourages

employee risk-taking is always a major barrier to innovation because people are often de-

motivated by the fear of failure, ultimately making the experimentation extremely difficult, if not

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impossible. Therefore, a need is there to have an organizational climate conducive for idea

generation and creativity for better organizational performance.

2.2 Idea generation and creativity: A way towards continuous success

Today, organizations are striving for a competitive advantage, which could be achieved through

special focus on improvement of some systems and processes, which makes one organization

entirely different from other organizations, that, is also providing same type of goods and services.

Idea generation, or the function of generating workable ideas, is considered as a move focused

towards creative problem solving (Titus, 2000).

On the other hand, creativity is a process that fosters an organization systems and processes that

leads to a competitive advantage (Cook, 1998).

Even though, creativity cannot be empirically measured, it is considered a critical part of research

in a various field of studies (Hocevar, 1981).

Similarly, creativity is a significant feature of life that we perform in daily routine. It spans from a

situations at work that become enjoyment, an imaginative descriptions that becomes a hi-tech

innovation (Bonnardel, 1999).

Moreover, it is also argued that though the terms ‗creativity‘ and ‗innovation‘ are often used

interchangeably, they should not be treated the same thing. Creativity is a much broader concept

whereas innovation is the more restricted process of turning an idea into a product or service

(Couger, 2005).

In addition, creativity and innovation are two key ingredients for any organization to achieve and

maintain a sustainable competitive advantage. Organizations therefore continually have to

improve, adapt, innovate, create and develop. As employees‘ creative ability makes a significant

contribution to organizational innovation, effectiveness and survival, there is a need for

organizations to create an organizational context or climate that is supportive to the idea generation

and creative thinking. The driving force behind this approach is to achieve (a) increase in

efficiency, (b) quality, (c) foster innovation and creativity and (d) responsiveness to customers

(Politis, 2005).

3. Theoretical Framework and Hypothesized Model

Based on the relevant literature review and the resulting theoretical framework, it has been

established that the significant dimensions of the organizational climate are influencing the ability

of employees to foster/obstruct idea generation and creativity. The framework of the study

includes a hypothesized model based on nine dimensions of organizational climate (independent

variables) that are assumed to have a significant impact on idea generation and creativity

(dependent variable).

A study (Isaksen et al., 2001) suggested nine dimensions of creative climate having an impact on

organizational creativity. The operational definitions of the above-mentioned dimensions are as

follows:

3.1 Challenge/ Involvement

The extent to which organizational members are concerned in operations and achievement

of goals and objectives of organization. The employees‘ motivation working in a highly

challenging climate‘ is an intrinsic one and they are very much concerned towards the growth and

achievements of their organization. They feel joy and take keen interest in their job. In contrast, a

climate having no challenges and concerns for work and job having no zeal, commitment and

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devotion gives rise to stress, frustration and dissatisfaction. The lack of interest steers the

employee‘s behavior to perceive their job as only a routine activity.

3.2 Freedom

It means that how much employees are free and autonomous to shape and regulate their behavior

in the organization. A climate having higher level of freedom, employees purposely do their job in

such a manner they like but candid control is exerted for alignment. There is discretion in their

daily routine activities. Initiatives and information sharing are open to all so that to plan and

decide about the job activities. Contrary, tough and rigid climate is characterized by rigid rules

and regulations. Workers execute their activities in predefined way and have no autonomy to alter

or redefine their assignments.

3.3 Trust/openness

The trust and safety in working relationships is the core value of favorable climate. Having high

level of trust among organizational members, there may be a climate of openness and mutual

agreement among them. A state of respect, support and assistance ship would be there. When there

is lack of trust among sides, suspicion and confusions may arise and therefore, people remains at a

safe distance and do not share their ideas. Therefore, there is a communication barrier between the

organizational members.

3.4 Idea Time

The extent of time up to which new ideas are initiated, explored and explained. High idea-time

situation, discussions and recommendations are welcomed. Sufficient and flexibility in time is

given to explore and develop new avenues, alternatives and ideas.

On other hand, time is constraint for idea generation and creativity. The time constraint hinders

creativity.

3.4 Playfulness/Humor

The workplace having enlightened moods and congenial climate is conducive for creativity.

Having light fun and decent jokes at work will build an atmosphere of easiness and will enlighten

peoples mood. The climate having too much seriousness and formalities lead to cumbersome

behaviors. Decent Jokes and light words exchange are considered undesired.

3.5 Conflict

It is existence of negative personal and emotional disagreements among the organizational

members. A climate having high conflict situations, individuals and teams do not have empathy

toward each other. Lobbying, leg pulling, power, authority and territory struggles are few

examples of conflicting organizational climate. Contrary, maturity is given importance and

everyone is accepting right to disagree. Diversity in organizations is dealt with great care.

3.6 Idea Support

It means that the how new novel ideas are dealt. The climate of support and assistance ship is

always open, candid and honest and all organizational members contribute, receive and process

ideas and suggestions in logical fashion and professional way. In this atmosphere, new ideas are

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initiated and encouraged. However, when idea support is missing, there is a deadlock in minds of

members for creativity.

3.7 Debate

The positive cross talk among organizational members on certain viewpoints and ideas because of

difference in experiences and knowledge. In the debating organization, everyone has the right to

be heard. While, missing climate of debates lead to stubborn attitudes and self-centered behaviors

among members.

3.8 Risk taking

The extent to which an organization bears uncertainty in their work patterns. By high risk-taking

climate, bold decisions and initiatives are taken without having known outcomes. Members take

calculated risk on their ideas and suggestions based on the premise that if clicked they will the first

explorer of the same novel idea. People have a firm belief that no risk means no gain and high

risk, high gains. In a risk-shunning climate, members are too much vigilant, hesitant and pre-

occupied. There is always a run for a safe side and take cove for making any decisions.

4. Proposed Hypothesized Model of Idea Generation and Creativity

The JS model of idea generation and creativity as presented in Fig.1 includes nine independent

variables including Challenge/Involvement, Freedom, Trust/Openness, Idea Time,

Playfulness/Humor, Conflict, Idea Support, Debate and Risk taking. Idea generation and creativity

(IGC) is the dependent variable in this hypothesized model. As depicted in the figure,

organizational climate is comprised of many factors within the organizational settings and it

ultimately influences various organizational procedures and psychological processes. The variables

as given in the hypothesized model have considered to be having a direct impact on the idea

generation and creativity of individuals, working groups and the organization as a whole. The

hypothesized model sketch out few significant climatic factors that affect IGC, which in turn,

influence the productivity and effectiveness of the organization.

4.1 Hypotheses of the Study

Based on proposed JS model shown in Fig. 1 and review of related literature, few hypotheses for

this study have been developed to testify the research in question.

The hypotheses are as follows:-

H1 Challenge/ Involvement being an organizational climate dimension positively augment idea

generation and creativity.

H2 Freedom being an organizational climate dimension positively augments idea generation

and creativity.

H3 Trust/Openness being an organizational climate dimension positively augments idea


H4 Idea Time being an organizational climate dimension positively augments idea generation

and creativity.

H5 Humor being an organizational climate dimension positively augments idea generation and

creativity.

H6 Conflict being an organizational climate dimension is negatively related with idea


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H7 Idea Support being an organizational climate dimension positively augments idea


H8 Debate on ideas being an organizational climate dimension positively augments idea


H9 Risk taking being an organizational climate dimension positively augments idea generation

and creativity.

5. Methodology

5.1 Sample

By using convenience sampling procedure and a self-administered questionnaire, 150 respondents

from entry, middle and senior level management were chosen as sample from 05 mobile telecom

operators/organizations operating in the Pakistan. The respondents were assured of the

confidentiality of their responses. It was also clearly spelled out that the data collected will be used

only for academic research purposes. They were also persuaded to give their answers about the

construct what they really feel applicable in their work environment. Nevertheless, 104

questionnaires were collected back, which represents a response rate of 69.3 %. 06 questionnaires

having certain ambiguities in responses being less suitable for analysis were discarded. A total of

98 questionnaires filled in all respect were included in the data analysis, which was conducted

using the Statistical Package for Social Sciences (SPSS) software.

5.2 Measures

5.2.1 Career and Demographic variables

Respondents name was made optional in the instrument/measure. Moreover, age, gender, post

field/cadre, education level, job tenure, organizational name/sector, and organizational size were

asked. The responses were measured using eight different scales developed by the researcher,

which has different ranges between two-points (e.g. gender) to four-point (educational level).

5.2.2 Organizational climate measure

The researcher developed this instrument based on a study (Isaksen and Ekvall, 2007) conducted.

The developed instrument includes 09 dimensions derived from Creative Climate Questionnaire

(CCQ) (Ekvall, Arvonen and Waldenstrom-Lindblad, 1983) which was further refined, after

extensive research work done, as Situational Outlook Questionnaire (SOQ) containing dimensions

such as Challenge/ involvement, Freedom, Trust/ Openness, Idea Time, Playfulness/Humor,

Conflict, Support for ideas, Debate and Risk taking.

As far as the content validity of the measure is concerned, it is asserted that these items of SOQ

(version 6), finally refined in 1995, are the most valid and reliable tool to measure organizational

climate in perspective of creativity (Isaksen and Ekvall, 2007). The original SOQ questionnaire

contains 53 items but the questionnaire adopted for this study contains 45 closed ended

items/questions. Moreover, a 06 items scale for idea generation and creativity were developed

from few studies based on organizational climate and creativity (Eisenberger and Aselage, 2008;

Eisenberger and Rhoades, 2001; McNeely and Meglino, 1994)

The responses for 45 items, after pilot testing and exploratory factor analysis, were calculated on 4

points Likert-type scale, which ranges from 0-3 i.e. ‗Not applicable at all‘ to ‗Applicable to a

higher degree‘.

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The responses on the items per dimension were averaged in order to obtain the result per

dimension. The total scores for each dimension for a complete work environment are calculated by

taking the cumulative averages of the individual‘s results for a single respondent.

5.2.3 Reliability and Validity

Reliability and validity analysis on for the measure to be used in empirical research is pivotal for

various reasons. Initially, it may lead to a conviction that the results or finding concisely is

reflecting the proposed hypotheses. Secondly, an empirically validated instrument may be utilized

in other field of studies for research purposes in diverse populations‘ samples and longitudinal

studies (Flynn, Schroeder and Sakakibara, 1994).

Reliability refers to an instrument‘s ability to present coherent results if used repeatedly

(Gatewood and Field, 1990). Coefficient (Cronbach‘s) alpha is the basic measure for reliability

(George and Mallery, 2000). Essentially, for this study, the items of instrument in each variable or

factor were clubbed together, and coefficient alpha was calculated for each dimension.

It is recommended that in order to conduct an exploratory study, alpha value of 0.6 is acceptable

one. The overall alpha value found (0.84) for this measure pointed out that this instrument is

profoundly a reliable one (Nunnally and Bernstein, 1994).

The questionnaire developed for this study was initially pilot tested by the researcher and based on

high factor loading and reliability statistics of 0.84, a 45 items scale was finally selected for

collecting the data for 09 dimensions of Organizational Climate.

6. Analysis of Data and Results

The data analysis was conducted keeping in view the objective of research and hypotheses

developed. The analysis conducted was of two major types, the one was the simple descriptive

statistics regarding the career and demographic variables of respondents, the other was the

principal axis factor analysis along with correlation, regression, ANOVA, and model fit statistic

test. Prior to the analysis of data and testing the proposed model, a KMO Test for Sampling

Adequacy and Bartlett‘s Test of Sphericity was also computed. This was to establish that the

sample chosen for the study was representative one.

The Kaiser-Mayer-Olkin (KMO) measure of sampling adequacy was performed in order to check

the adequacy of the sample for factors extraction. The KMO value of 0.68 is generally believed to

be an acceptable one (Kim and Mueller, 1978).

Bartlett‘s test of sphericity was applied to check the multivariate normality of the data distribution.

This procedure also validates that whether the correlation matrix is an identity matrix (factor

analysis would be futile exercise if a correlation is an identify matrix) A significance p-value <0.05

specified that the data has not generated an identity matrix (George and Mallery, 2000).


Table 1 to 7 represents descriptive statistics of sample under consideration, which include

demographic characteristics such as age, post field/cadre, gender, education level, job tenure,

organizational name/sector, and organizational size.

6.2 Proposed Hypotheses Testing

As discussed earlier, factor analysis was used to identify the vital and significant factors for this

study. Therefore, an exploratory factor analysis was carried out on the independent variables items

that make up the proposed climate dimension to conclude the number of essential factors among

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09 variables under study.

It is suggested (Podsakoff et al., 2003) that an exploratory factor analysis may be conducted on all

items in order to evaluate the possibility of common method bias. Therefore, factor analysis based

on Kaiser‘s Criterion was conducted and the unrotated factor solution for all 09 independent

variables was calculated. Factors having highest factor loading were identified and redundant

factors were discarded.

Foregoing in view, the first independent variable among 09 variables named as Challenge/

Involvement from the proposed model, containing 05 items indicated the presence of two factors,

which explained 42.2 % and 21 % of the variance respectively. Likewise, for second independent

variable named as Freedom from the proposed model having 06 items, a factor solution also

indicated the presence of 02 factors that explained 44.4 % and 18.8% of the variance respectively.

In addition, factor analysis of remaining 07 independent variables named as Trust/Openness, Idea

Time, Playfulness/Humor, Conflict, Idea Support, Debate and Risk taking have showed presence

of 02 factors for ‗Trust/Openness‘ having 38.3 % and 18.2 % variance explained.

A single factor for ‗Idea Time‘ having 43.1% of variance explained, single factor for

‗Playfulness/Humor‘ having 62 % of variance explained, single factor for ‗Conflict‘ having 47 %

of variance explained, 02 factors for ‗Idea Support‘ having 37.2 % and 28.3 % of variance, 02

factors for ‗Debate‘ which accounted for 40.2 % and 26.6 % of the variance and single factor for

‗Risk taking‘ which account for 55 % of the variance in the factor solution.

As mentioned earlier, the subject factors were iterated based on Kaiser's criterion i.e. (Eigen

values>1.0), which clearly indicates that few pressing factors needs to be retained for the analysis

and redundant factors may be discarded.

Table 8, 9 and 10 explains KMO & Bartlett‘s statistics for nine variables under study. Moreover, in

line to ascertain the validity of the study conducted, correlations between the variables were

calculated as shown in Table 11.

No correlation exceeded, generally, from a recognized limits (0.90 or greater), indicating no

apparent evidence of tribulations with validity of data. A proposed JS model as shown in Fig.1 was

constructed relating nine dimensions of Organizational Climate with Idea generation and

Creativity (IGC) and to ascertain its influence upon IGC, being considered a dependent variable in

this proposed model. This model has been validated and model fit statistics is clearly illustrating a

statistically significant positive relationship (p<0.01) for 08 independent variables named as

Challenge/ involvement Trust/Openness, Idea Time, Playfulness/Humor, Conflict, Idea Support,

Debate and Risk taking on dependent variable i.e. Idea generation and Creativity. No negative

relationship was reported in this model fit statistics. The t-values for each of them were found

significant at it ranges between -2 to 2 and F value for the tested model was 12.15, so the results

have been significantly proved and strong enough for validating few of the proposed hypotheses in

this case.

The proposed JS model is strongly validated by having clear and tangible quantitative

outcome/results on the respective hypothesis tests. Testing the respective hypothesis, the first

hypothesis (H1), which hypothesized that Challenge/ Involvement being an organizational climate

dimension positively augment and enhances idea generation and creativity, was confirmed by the

data as the path coefficient = 0.190 and t-value calculated is 2.87. The level of significance for this

variable computed as 0.005 (p<0.01).

However, the second hypothesis (H2) hypothesized that Freedom being an organizational climate

dimension positively augments idea generation and creativity. Interestingly, this hypothesis was

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found insignificant at p<0.01 with a path coefficient = 0.113 and t-value calculated is 1.60. The

level of significance for this variable computed as 0.113 (p>0.01).

On the other hand, the Third hypothesis, (H3), hypothesized that Trust/Openness being an

organizational climate dimension positively augments idea generation and creativity. This

hypothesis again was found significant at p<0.01 with a path coefficient = 0.185 and t-value

calculated is 2.545. The level of significance for this variable computed as 0.013 (p<0.01).

Table 12 illustrates the results of regression for the respective hypothesis test. Similarly, (H4), (H5),

(H6), (H7), (H8) and (H9) have also been validated as depicted in the Table 12. Additionally, Table

13 shows the one-way ANOVA statistics clearly depicting a high regression sum of squares in

comparison to the residual sum of squares, which indicates that the 08 independent variables explain

most of variation in dependent variable i.e. Idea Generation and Creativity (IGC) with a significant F-

value.

Moreover, a highest significant level value i.e. p<0.01 is ascertaining that the model is a fit and is

empirically validated in this case so; we may conclude that the 08 proposed hypotheses were

practically supported by results/data computed.

6.3 Proposed Model Analysis

The hypothesis tests are clearly validated as discussed earlier. However, to test the complete model

for its overall impact and significance, the data was loaded and regression was again calculated for

complete model fit.

Table 14 shows the whole model test statistics for clear representation.

The regression analysis for complete model has been conducted and is clearly illustrating a

statistically significant positive relationship (p<0.001 and p<0.01) for 02 independent variables

named as challenge/ involvement and debate on dependent variable i.e. Idea generation and

creativity. The t-values of two of these variables were found significant at it ranges between -2 to 2

and portrays that these two independent variables have considerable impact in the whole proposed

model.

7. Discussion and Conclusion

This paper underscores the impact of organizational climates dimensions and its degree of

importance upon Idea Generation and Creativity (IGC). The organizational climate dimensions

play a decisive role in motivating the workforce to think creatively and augment organizational

performance by having radical product innovations. HR and marketing practitioners are required to

be proactive in order to discover the pressing factors that are more crucial and of significant

importance for enhancing idea generation and creativity of the workforce and gaining better

organizational performance and goals.

The most notable finding of the study is that a high level of importance and value that has been

calculated for Challenge/Involvement and Debate i.e. two important variables of organizational

climate. It is concluded that least concern was reported about Freedom, Trust/Openness, Idea

Time, Playfulness/Humor, Conflict, Idea Support, required when we test all independent variables

in a complete model upon idea generation and creativity.

However, the sample of study have clearly acknowledged the hypotheses tests conducted one by

one and eight organizational climate dimension such as Challenge/ Involvement, Trust/Openness,

Idea Time, Playfulness/Humor, Conflict, Idea Support, Debate and Risk taking, as a better

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motivating instrument, and they are least concerned with Freedom at workplace in their

organizational climate, for idea generation and creativity.

When one by one test of hypothesis is conducted, No ‗Freedom‘ essential at workplace is totally in

contrast to the recommendations given (Isaksen et al., 2001) as they advocated that Freedom mean

how much employees are free and autonomous to shape and regulate their behavior in the

organization. A climate having higher level of freedom, employees purposely do their job in such a

manner they like but candid control is there for alignment. In this study, it has been found that,

tough and rigid climate characterized by rigid rules and regulations is prevailing in mobile telecom

industry. Workers execute their activities in predefined way and have no autonomy to alter or

redefine their assignments.

The Management at Mobile Telecom Industry of Pakistan has a strong predisposition to safeguard

the established customs, and as a result, upfront rules and standing operating procedure (SOPs) are

in practice for the employees to keep the employees on track and under proper control. It has been

contended by (Adams, 1986, p. 149) ―Although no manager wanted his or her own freedom on

initiative reduced, it was an unusual manager who did no attempt to routinise the areas under his or

her control‖.

Based on the results and discussion made above, it is concluded that an approach to enhance and

boost up idea generation, creativity for the purpose of innovation with the help of better

organizational climate is a useful technique of the significance importance and has pivotal role for

better and enhanced organizational effectiveness, performance and productivity.

This study is an empirical investigation based on the sample taken from mobile phone industry in

Pakistan and derived from the results computed, the objective of the current study, i.e.

organizational climate factors foster idea generation and creativity for innovation in mobile phone

industry of Pakistan, has been achieved.

It is recommended that the strategic management of mobile phone industry must focus upon

further improvements of their organizational climate as the climate dimensions play a pivotal role

in the performance and productivity of any individual, group or organizations.

8. Recommendations And Research Implications

This paper has offered understanding regarding the impact of key factors associated with

organizational climate. Taking into account the finding of this study, senior management may

further introduce the challenging assignments and project for which employees may be provoked

and encouraged to react accordingly.

However, in Mobile Telecom Industry of Pakistan, Freedom is being considered a low motivator

for IGC but it must also be given to the employees as Freedom and autonomy will give them a

sense of cohesion and dare to personally initiate action to achieve their goals in the way they feel

easy and comfortable.

Trust and openness will encourage the long-term loyalty and devotion within individual, among

groups and other organizational tiers. The time to generate idea may also will be helpful for

solution of various problems in order to reach at a logical conclusion. In addition, Playfulness and

Humor is the oxygen for the healthy environment in organizations. Management must maintain

and cheer up friendly and congenial environment.

Conflict is negatively related to the idea generation and creativity in our case and we can clearly

declare that disagreement and arguments on new and novel ideas may be useful, as it will serve as

a trigger to further improve and filter out the novel ideas.

Idea can only become a reality if it is properly supported and fueled so supporting a new idea by

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management may encourage the employee to further enhance his creativity and he would try his

level best to utilize his full potential.

Debate, normally, is considered as wastage of time but in presenting valuable ideas for creativity

and innovation, management must welcome such forums and platforms where ideas can openly be

discussed.

Finally, support for risk-taking attitude, based on the premise that learning and new ideas could be

the outcome of risk taking, must be provided by management to make the employee feel at higher

satisfaction level. In fact, the employees‘ behavior can be altered in such way when they will make

mistakes and handle them. This will determine whether employee feel liberated to act creatively

and innovatively or not.

Moreover, mistakes can be discounted, censored, used to punish someone or considered as a

learning opportunity. Acceptance of mistakes is an important component that encourages and

elevates creativity and innovation (Brodtrick, 1997).

The HR and Marketing experts may alter and improve their organizational climate and its working

in order to augment organizational performance in a better way. Therefore, this study offers

empirical findings and results that may be helpful for the strategic decision makers such as Top-

level HR and marketing managers in organizations as the results have clearly showed the

considerable relationships and links between organizational climate and idea generation and

creativity.

This study contributed to the literature by discovering certain key facts regarding the insight of

employees of Mobile Telecom Industry of Pakistan about their various organizational climate

dimensions and its impact on idea generation and creativity for sound performance which were not

empirically investigated up till now.

9. Research Limitations

Although, a sample chosen for this study was very limited in number/size, however, based on

statistical significance of sample chosen, the response rate to our survey was good enough and it is

confidently believed that the non-response bias has not unsubstantiated the results of this study.

Moreover, due to limited time and financial constraints, the study was restricted to a sample

chosen from mobile Telecom industry of Pakistan.

10. Future Research Opportunities

This study was carried out in Pakistan so generalizing the results to other Asian Countries may be

not wise idea as the economic and political situations are very different among the third world

countries. The future research may focus on the impact of Organizational Climate dimensions in

public sector telecommunication industry organizations not limited to Mobile Telecom Industry of

Pakistan as conducted in this study so that to have a clear assessment among private and public

sector companies working in Telecommunication Industry in Pakistan.

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Annexure Table 01: Gender

Gender Frequency Percent

Male 85 86.7

Female 13 13.3

Total 98 100

Table 02: Employee‘s Age

Table 03: Post-Field Cadre in Org.

Cadre Frequency Percent

Marketing 18 18.4

Sales 26 26.5

IT 18 18.4

HR 13 13.3

Finance 23 23.5

Total 98 100

Table 04: Education Level

Education Level Frequency Percent

Ph.D 10 10.2

MS 27 27.6

Master Degree 22 22.4

Bachelor Degree 24 24.5

Others 15 15.3

Total 98 100

Age Frequency Percent

20 to 30 yrs 73 74.5

30 to 40 yrs 15 15.3

40 to 50 yrs 8 8.2

Above 50 yrs 2 2

Total 98 100

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Table 05: Job Tenure

Years Frequency Percent

1-3 yrs 31 31.6

4-7 yrs 23 23.5

8-10 yrs 29 29.6

Above 10 yrs 15 15.3

Total 98 100

Table 06: Name of Organizations

Name of Organization Frequency Percent

Mobilink 23 23.5

Telenor 17 18.3

Warid 38 38.8

Ufone 10 10.2

Zong 10 10.2

Total 98 100

Table 07: Size of Organizations

No. of Employees Frequency Percent

0-1000 employees 2 33.3

1000-5000 employees 2 33.3

Above 5000 employees 2 33.3

Total 6 100

Table 08: KMO and Bartlett's Test for first three independent variables.

Challenge/

Involvement Freedom

Trust/

Openness

Kaiser-Meyer-Olkin Measure of Sampling

Adequacy. .692 .70 .617

Bartlett's Test of Sphericity Approx. Chi-Square 67.076 136.134 94.982

df 10 15 15

Sig. .000 .000 .000

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Table 09: KMO and Bartlett's Test for next three independent variables.

Idea Time

Playfulness/

Humor Conflict

Kaiser-Meyer-Olkin Measure of Sampling Adequacy. .631 .618 .665


df 6 3 6

Sig. .000 .000 .000

Table 10: KMO and Bartlett's Test for last three independent variables.

Idea Support Debate Risk taking

Kaiser-Meyer-Olkin Measure of Sampling Adequacy. .507 .513 .501


df 6 6 3

Sig. .000 .000 .000

Note: If KMO value > 0.5, the sample is adequate for factor analysis.

Bartlett‘s Test significance (p value<0.01)

Table 11: Correlations

Challenge/

Involvement

Freedom Trust/

Openness

Idea Time Playfulness/

Humor

Conflict Idea

Support

Debate Risk

Taking

Trust/Openness .452(**)

Idea Time .306(**)

Playfulness/

Humor .198(*) .454(**)

Conflict -.197(*) .392(**) .466(**) .504(**)

Idea Support .178(*) .283(**) .151 .407(**) .639(**) .423(**)

Debate -.222(*) .301(**) .325(**) .430(**) .342(**) .405(**) .297(**)

Risk Taking .181(*) .268(**) .421(**) .365(**) .520(**) .249(**) .641(**)

Note: ** p< 0.01 level (1-tailed), * p< 0.05 level (1-tailed).

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Table12: Results of Regression

Model

Unstandardized

Coefficients t Sig.

B Std. Error

1 (Constant) .661 .192 3.450 .001

Challenge / Involvement .190 .066 2.870 .005*

Freedom .113 .071 1.600 .113

Trust/Openness .185 .073 2.545 .013*

Idea Time .252 .067 3.740 .000*

Playfulness/ Humor .177 .064 2.755 .007*

Conflict .167 .073 2.300 .024*

Idea support .175 .092 1.908 .059*

Debate .537 .056 9.559 .000*

Risk Taking .456 .086 5.277 .000*

Dependent Variable: Idea Generation and Creativity (IGC)

Note: * p<0.01

Table 13: Analysis of Variance

Model Sum of Squares df Mean Square F Sig.

1 Regression 11.148 9 1.239 12.153 .000

Residual 8.969 88 .102

Total 20.117 97


Table 14: Complete Model Results of Regression

Model Unstandardized Coefficients t Sig.

B Std. Error

1 (Constant) .661 .192 3.450 .001

Challenge/ Involvement .190 .066 2.870 .005*

Freedom -.093 .063 -1.475 .144

Trust/Openness .080 .066 1.224 .224

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Idea Time .040 .063 .627 .533

Playfulness/ Humor .030 .067 .491 .625

Conflict -.072 .075 -.955 .342

Idea support -.068 .095 -.714 .477

Debate .585 .080 7.309 .000**

Risk Taking .010 .099 .199 .843

Note: ** p<0.001, *p<0.01


Fig. 1:

Proposed Research Model

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Triangular relationship among poverty, income inequality and growth

in Pakistan: 1973-2006

Muhammad Usman

Graduate Student in B.SC(Hons)

Department of Economics, Government College University, Lahore, Pakistan

Saima Sarwar(Corresponding Author)

Lecturer


Bilal Mehmood

Lecturer, Department of Economics, Government College University, Lahore, Pakistan

Abstract

In this study we have tested a relationship among three important macroeconomic variables i.e. poverty, income inequality and GDP in Pakistan using a time series data from 1973-2006. The results showed that there exists a causal relationship among poverty ,income inequality and GDP while the income inequality has been a more significant variable affecting poverty. Which proves that income inequality is one of the major variable to tackle with the poverty. To see whether there exists a long run relationship among these variables or not, Johansen test has been applied which confirmed that these variables are cointegrated which means that there exists a long run relationship among them. On the other side from the double log model showed that the poverty elasticity with respect to income inequality is more elastic as compared to poverty elasticity with respect to GDP which means that relative small reduction in income inequality can bring a large reduction in the poverty.

Keywords: Poverty, Income Inequality, Johansen Test, Growth, Elasticity, Distributional policy, Causality, Double Log Model.

1.Introduction

Poverty has been one of the major area of analysis in development studies. For many years economists focused only on growth to tackle with poverty, but now the income distribution is also being considered to be as much important as growth in order to reduce the poverty. This view has now changed the perspective to deal with poverty. Now rather giving full attention to achieve higher growth, government introduces different policy measure to control the income distribution imbalances so that the gap between rich and poor can be minimized. World bank (2005) estimates also supported the argument that the effects of inequality to reduce poverty is seem to be larger than the effects of economic growth, as measured by the inequality and growth elasticity‘s of poverty.

Growth and development is needed to increase the income of the people while the distribution policy keep an eye on whether poor class are getting their share from the growth or not. Growth is good for poor but it is not necessary that the growth will always reduce the Poverty. There is no doubt that economic growth can help to reduce poverty by increasing the income of poor people. But various studies found that economic growth alone is insufficient for reduction in the poverty (Kakwani (1993); Kakwani and Pernia (2002); Osmani (2002)}. The pattern and sources of growth, as well as the level of income inequality play a major role to tackle with poverty. So the development strategy with targeting the growth and income inequality will provide the optimum

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result in case of poverty reduction. Poverty has been a serious issue for Pakistan throughout the history .We have population of 158.17 million and the poverty head count is 22.3% which means around 35 million people is still below poverty line. But the nature and intensity of the poverty is not same throughout the region.

2.Literature Review

The literature on the triangular relationship among poverty, income inequality and growth has been divided into three separate sections.

Growth and poverty

Income inequality and poverty

Growth and income inequality

2.1 Growth and Poverty

There is broad consensus that there is significant relationship between the growth of GDP and poverty. And from many years growth is considered to the dominant variable of poverty reduction. Because GDP growth and poverty is linked through real wage rate and employment opportunities with the rise of GDP growth or National income (NI) more jobs will be created which will reduce the poverty from the economy. On the same ground most of the economists believe that higher growth rate of GDP is considered to be helpful to reduced the poverty. The same view is supported by the World Bank report according to which on average a 1% increase in GDP per capita leads to a 1.7% reduction in poverty in 14 countries during the 1990s.(World Bank et al 2005). Fafchamps, Teal and Toye (2001) also that growth has the potential to shift the population above the poverty line and hence reduce the poverty.

But the significance between poverty and growth lies in the concept of elasticity of poverty and growth of GDP. The higher growth poverty elasticity means the small increase in the GDP growth will lead to relative large reduction in poverty and when the growth poverty elasticity in low or it is less then one it means the large increase in the growth of income will lead to relative small reduction in poverty

Ravallion and chen (1997) used the data of 41 developing country including Pakistan to measure the growth poverty elasticity. He used the poverty headcount to measure the people that live below the poverty line .By using the double log model he estimated that in the developing countries on average the growth elasticity of poverty as measured by the individual below the conventional 1 $day threshold was around 3%. This means that 1% increase in the growth leads to 3% reduction in the proportion of the people live below poverty line.

Dollar and kraay (2001) found by using the sample of 92 countries spanning the last four decade and explored that growth is good for poor people. And when the average income of the countries rise the average income of the poor fifth people also rises and it holds across regions, periods, income levels, and growth rates. Hence the growth in the GDP or NI will certainly reduce the absolute poverty as it rise the income of the poor people. But they were failed to explore the different factors that accounts for the variations in the share of poorest fifth people of the society across countries and across time.

Adams (2003) examined the data of 50 developing countries tosee the impact of economic growth on poverty and inequality. He found that growth is a dominant factor to reduce poverty in the developing world. He explored tht either the growth is measured by per capita GDP or survey mean income (consumption), there is a strong statistical link between growth and poverty reduction. He also observed that the elasticity of poverty with respect to growth is -2.59 when growth is measured by survey mean income (consumption). Which means , on average, a 1 percentage increase in economic growth (measured by survey mean income) will produce 2.59 percent reduction in the proportion of people living in poverty ($1 a person a day).

Pasha et.al (2003) assembled the available data on Asian countries and then analyzed the relationship between growth and poverty reduction in a long-term perspective. They further

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analyzed the impact of different variables on the intensity of this relationship. The results indicated that there exists a strong positive relationship between growth and poverty, but this relationship was highly variable across countries and time periods. In order to identify the nature and intensity economic growth and poverty, they computed the growth elasticity of poverty, which indicates the percentage change in the incidence of poverty with a 1% increase in per capita income. They found the growth poverty elasticity –0.9 for the region as a whole. According to their research the gain from the growth will be limited unless we achieve the pro poor growth.

Kalwij and Verschoor (2007) examined the growth poverty and income inequality relationship by using the panel data of 58 developing countries from 1980-88. The result of this study shows that there exist significant negative relationship between growth and poverty. They found that the income elasticity of poverty was -1.31 in the mid-1990s on average and it ranges from −0.71 for Sub-Saharan Africa to −2.27 for the Middle East and North Africa. This implies that the one percent increase in growth will reduce the poverty by .71 percent in sub Saharan Africa and 2.27 percent in Middle East.

2.2. Income inequality and poverty

From the last few years Income inequality becomes the one of major key variable in the discussion between growth and poverty reduction strategy. And if we some how control over this variable then the fruits of growth will be trickle down to whole society and growth will have a more significant effect on poverty reduction. Hence the poverty will reduce more in countries where income inequality is low then in countries with high income inequalities (world bank report 2005).

Ravallion (1997) used cross-country regressions to estimate the poverty elasticity with respect to growth with different levels of initial inequality. He found that at a higher initial income inequality poverty with respect to growth, is lower. The result of this study suggest that a country with a Gini coefficient of 0.25 have a poverty elasticity of –3.3, which implies that 1 percent increase in the growth rate will reduce the incidence of poverty by 3.3 percent. While the country with Gini coefficient of 0.6 has a poverty reduction of 1.8 percent with 1% increase in the growth rate.

Ravallion (2004) examined that how the pro poor growth effects the poverty reduction and how income inequality offset the affects of growth on the poverty. This research deals with the analysis of two countries only one is India and second one is the China. By using the data of poverty income inequality he found that the more equally distribution incomes are the more poverty reduction in average income. Because with the help of equal distribution all the people will be benefit from the growth of GDP as the growth in GDP will higher the income of poor people as well.

Haroon Jamal (2006) proved the relationship among poverty, growth and inequality in the context of Pakistan. Time series data form 1979 to 2002 are used for this purpose. The major source of this data was Pakistan economic survey and household income expenditure survey. As there is not a proper times data on poverty and income inequality in case of Pakistan so consistent poverty and inequality measures are interpolated to estimate the poverty elasticity with respect to growth and inequality in a multivariate regression analysis. The study explored that poverty elasticity with respect to inequality is 8.3 which confirm the importance of inequality in poverty reducing effort.

Kalwij and Verschoor (2007) examined the growth poverty and income inequality relationship by using the panel data of 58 developing countries from 1980-88.They further analyzed that how the change in income inequality effects the growth poverty elasticity. The result of this study shows that high income inequality can offset the effect of growth to reduce the poverty. They found that the Gini coefficient elasticity of poverty was calculated 0.80 on average and it ranges from 0.01 in South Asia to 1.73 in Latin America. Which implies that 1% reduction in Gini coefficient will reduce the poverty by 0.01% in South Asia and 1.73% reduction in poverty in Latin America.

2.3. Growth and inequality:

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The link between the growth and inequality is usually explained with the help of KUZNET‟S HYPOTHESIS. According to this hypothesis the income inequality increases initially with the rise of GDP growth then it reaches at maximum point and afterward it start reducing and becomes stable at a lower specific point. Although several studies found support for Kuznet‘s hypothesis like Pauker (1973) Ahluwalia (1976) while few of the later researches fails to find any support of this hypothesis like Anand and Kanbur (1993),Ravallion (1995) and Deininger and Squire (1998).

Alesina and Rodrick (1994) analyzed the relationship between distribution polices and economic growth in a simple model of endogenous growth. They used the cross country data of more then 50 countries for their analysis of 1960-85. The result suggested that the greater the income inequality the lower will be growth. They further explored that there exist the positive relation between the rate of taxation and income inequality.

Deininger and Squire (1998) used new cross-country data on income and asset (land) distribution to analyze that whether there exists a negative relationship between initial inequality in the asset distribution and long-term growth and whether inequality reduces income growth for the poor. The result of this study suggested that there exist strong negative relationship between the initial income inequality and growth and income and land inequality can also reduce the growth of poor income. But they found little support for the Kuznet‘s hypothesis.

Almad heshmasti (2004) examined the causal relationship between inequality and growth by using the cross country data of 146 countries (including Pakistan).He further included openness, wages, and liberalization as a variable in the regression analysis. He explored that there exists significant relation between the Inequality and growth and Kuznets hypothesis represents a global U-shape relationship between inequality and growth.

Mauro Caselli (2005) explored the consequences of income inequality on economic growth in developing countries. He used the data of 40 countries including Pakistan for regression analysis from 1965-94. The findings of this paper showed that higher initial income and land inequalities have a growth-reducing impact in the long run.

Hafeez et.al (2008) attempted to analyze the factors responsible for income inequality among the different groups of countries at different stages of economic growth and tested the Kuznet‘s hypothesis by breaking panel of countries into four sub-panels; low income, lower middle income, upper income and higher income countries. For this purpose they used that data of 51 countries. The results of the study find the evidence of the existence of inverted U-shaped hypothesis for income growth. Which mean with the starting phase of the development the income inequality increase then it reaches at maximum after then it will become stable at a lower level.

3. Research Objectives

The objective of this research is to analyze whether there exists significant causal relationship among absolute poverty, income inequality and growth in Pakistan. And if there exists then it has been seen that whether poverty has long run relationship with the GDP and income inequality or not.

4. Hypotheses

H1 : There is significant relationship among poverty, income inequality and GDP.

H2:There is causal relationship among poverty, income inequality and GDP.

H3:There is long run relationship among poverty, income inequality and GDP

5. Research Methodology

5.1. Variables and Data Sources

5.1.1. Poverty

This research uses the income approach to define the poverty in country. The poverty headcount ratio is used to capture the effect of poverty in the economy. Where poverty headcount ratio shows

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the proportion of the national population whose incomes are below the official threshold. Data has been taken from HIES published by federal Bureau of Statistics.

5.1.2. Income inequality

Income inequality shows the disparity in levels of income among individuals in the economy. The well known tool to measure the income inequality in the economy is the Gini coefficient, which can be measured with the help of Lorenz curve .Its value lies between 0 to 1, the more it will closer to zero the more faire will be the income distribution of the economy. This study also uses Gini coefficient for measuring inequality. Again data for income inequality has been collected from the various issues of Household Income and Expenditure Surveys (HIES) published by the Federal Bureau of Statistics (FBS), Pakistan social and living standard measurement survey (PSLM) and economic survey of Pakistan.

5.1.3. GDP growth

GDP shows the market value of all final good and services produced within the boundary of a country in a given years. While GDP growth shows the annual percentage increase in the final good and services produce with in the boundary of the country in a given year. A rise in the GDP growth certainly has a significant impact on the absolute by raising the income of the poor. Data has been used from World Development Indicators.

5.2. The model

This research dose not base upon single alone model rather it is based upon three specific models which are used for some specific purpose. First of all granger causality model is used to find out whether there lies causal relationship among poverty, income inequality and growth. Second the cointegration test is used to find out whether there exist long run relationship among poverty, income inequality and growth. Third one is the double log model which is used to find out the overall elasticity of income inequality and GDP with respect to poverty.

5.2.1. Granger causality test

The null hypothesis (Ho) of this test is that Xt dose not granger causes Yt. The causality between GDP and poverty is tested through Granger causality test where as equation 4.1 is used to check whether poverty dose granger cause GDP and equation 4.2 is used to check whether GDP does not granger cause the poverty.

m

i

m

i

tjtjitit PovertyGDPPoverty1 1

11 4.1

m

i

m

i

tjtjitit PovertyGDPGDP1 1

21 4.2

Similarly to test the granger causality between poverty and Gini coefficient equation 4.3 and 4.4 is regressed and to test whether the GDP and Gini coefficient has a casual relationship or not equation 4.5 and 4.6 is regressed.

4.3

m

i

m

i

tjtjitit PovertyGINIGINI1 1

21 4.4

m

i

m

i

tjtjitit GDPGINIGDP1 1

21 4.5

m

i

m

i

tjtjitit PovertyGINIPoverty1 1

11

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4.6

5.2.2. Cointegration Tests

Granger causality test doesn‘t tell us whether the causal relationship between the variables exist in the long run or not, so in order to find out whether there exist long run relation among poverty ,income inequality and growth cointegration test is used . Different cointegration tests are used to find out whether there exists the long run relationship between the variables or not. i.e Eangle granger ,cointegrated regression Durbin Watson test (CRDW) and johansen cointegration test. Both Eangle granger and johansen cointegrated tests are more reliable and realistic as compare to CRDW therefore these two test are used to test whether the variables are cointegrated or not.

5.2.2.1. Engle-Granger test for Cointegration

This test is used to identify whether there exists long run relationship between two variables or not. The first step of this test is to run an OLS regression (eq-4.7), saving the residuals and then regress the ∆Ut on Ut-1 (eq-4.8).

ttt uxy 10 (4.7)

∆Ut = γU(t−1) +Vt (4.8)

The variables Yt and Xt has a long run relation if the coefficient of Ut-1 is negative and statistically significant.

For the given analysis we will run this equation.

tGDPPoverty (4.9)

Poverty = α + β Gini + μ (4.10)

After regressing the equation 4.9 and 4.10 the error term of each regression estimate will be saved and the difference of error term will be regressed on its previous lag value. The poverty has a long run relationship between the GDP and GINI if the coefficient of Ut-1 is negative and statistically significant .

5.2.2.2. Johansen cointegrated test

Engle granger test is useful to find out whether the two variables are co integrated or not but the johansen methodology is more advance and reliable in nature to test whether the variables are cointegrated or not. On the other side johansen test can be used even when there are more then two variables. Johansen methodology takes its starting point from Vector auto regression (VAR).

5.2.3. Double log model

Double log model is used to identify the average elasticity of GDP and Gini coefficient with respect to poverty, so that we can know that which variable (Gini coefficient or GDP) is more responsive to reduce the poverty. This will certainly help us to make useful policy to tackle with the poverty in the economy.

ln Pt= α + βln GDPt+ γln GINIt +μ (4.11)

Where Pt= Poverty

GDPt= Growth

GINIt= Income Inequality

Equation 4.11 shows the double log model where the β and γ will provide the elasticity of poverty with respect to

growth and income inequality respectively.

m

i

m

i

tjtjitit GDPGINIGINI1 1

21

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6. Estimation and result

6.1 Granger causality test

Before going to apply the Granger causality test it has been first checked out whether the variables are stationary at level or not for this purpose ADF and KPSS test is used. After estimating the ADF and KPSS test result it has been found that the variables are stationary at level . Table 1 shows the final result of granger causality test between poverty and GDP and it is found that there exist unidirectional causality between the poverty and GDP and GDP does granger cause the poverty as p-value <alpha (2.E-15 < 0.05) which means we will reject Ho .On the other side poverty does not granger cause the GDP as p-value >alpha (0.5353> 0.05) which means we will not reject Ho.

(Table 1 here)

Table 2 shows the final result of granger causality test between poverty and Gini coefficient and it is found that there exists bilateral causality between the poverty and Gini. This means both variable granger causes each other. Gini does granger cause the poverty as p-value <alpha (2.E-104 < 0.05) which means we will reject Ho. On the other side poverty does granger cause the Gini as p-value <alpha (2.E-72< 0.05) which means we will reject Ho.

(Table 2 here)

Table 3 shows the causality between the Gini and GDP and it has been found that there exists undirectional causality between the GDP and Gini. GDP does granger cause the Gini as p-value <alpha (1.E-11 < 0.05) which means we will reject Ho. On the other side Gini does not granger cause the GDP as p-value >alpha (0.9515> 0.05) which means we will reject Ho.

(Table 3 here)

6.2 Cointegration test

Engle granger and johansen methodology is used to test whether there exists a long run relationship among poverty, income inequality and GDP. Under this heading the estimates of these result will be interpret.

6.2.1. Engle granger test on poverty and GDP

The results table 4 show the output of equation. 4.4

(Table 4 here)

After estimating the eq. 4.4, the difference of this regression line error term (VT= Ut-Ut-1) is regress on previous lag value of error (Ut-1) which is shown in table 5.

(Table 5 here)

From the above output we can see that:

VT = -0.203 ut-1 + et

Tau value =t = (-7.5)

As the coefficient of Ut-1 is negative (-0.203115) and it is statistically significant (as p-value < alpha (0.00<0.05) which means the coefficient -0.203115 is statistically significant. Therefore we can conclude there exist long run relationship between the poverty and GDP. On the other side, if we compare the t-stats values (tau value) to the critical table value of dickey fuller then still we found that GDP and poverty is co integrated. As the tau value < dickey fuller table value (-7.5 < -2.6) at alpha=0.05.

6.2.2. Engle granger test on poverty and Gini coefficient

(Table 6 here)

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After estimating this, the difference of this regression line error term (VT= Ut-Ut-1) is regress on previous lag value of

error (Ut-1) which is shown is table 7.

(Table 7 here)

VT = -0.0434 ut-1 + et

Tau value =t= -1.08

The coefficient of Ut-1 is negative (-0.04345) but it is not statistically significant (as p-value > alpha (0.288>0.05) which means the coefficient -0.0434 is statistically insignificant) therefore we can conclude there exist no long run relationship between the poverty and Gini coefficient at alpha = 0.05. On the other side, if we compare the tau value to the critical table value of dickey fuller then still we found that Gini and poverty is not co integrated. As the tau value < dickey fuller table value (-1.8 > -2.6) at alpha=0.05.

6.2.3. Johansen test

Before going to apply the johansen test, the VAR lag order selection criteria is used to take a decision about the number of lag terms. Final prediction error, Schwarz information criterion and Hannan-Quinn information criterion shows the number of lag should be three (appendix number 5). The table 8 shows the trace and maximum eigen value statistics in 2

nd and 4

th column

respectively while 3rd

and 5th

column shows the critical value of trace test and maximum eigen value respectively. Null hypothesis r = 0 in the table is used to test the hypothesis that the variables are not cointegrated against the alternative that at least one or more cointegrated vector ( r > 0) exists.

(Table 8 here)

Since Jtrace >C.V (43.25 > 29.79) and Jmax > C.V ( 24.14>21.13) therefore we will reject Ho this means that there exits at least one or more cointegrated vectors. In order to test whether there exist at most one cointegrated vector ( r ≤ 1) against the alternative that there exist two or more cointegrating vector Jtrace and Jmax of r ≤ 1 is used. As Jtrace >C.V (19.10 > 15.49) and Jmax > C.V ( 14.43>14.26) at r ≤ 1 therefore we will reject the Ho. The rejection of the null hypothesis indicates that there exist at least one cointegrated vector. The last row of the table 5.8 tests the hypothesis that there exists at least two cointegrated vector against the alternative that there exist more then two cointegrated vectors. The calculated statistics of both the test is again greater then there respective critical values therefore we will again reject the Ho. This means these variables are cointegrated or having a long run relationship.

6.3. Double log model

In order to have more reliable result it has been tested whether there exist the problem of multicolinearity , Heteroskedasticity and auto correlation in the above regression analysis or not. In order to check whether there exist the problem of multicolinearity in the data correlation matrix is computed which is given below table 9.

(Table 9 here)

Form the result of correlation matrix we can see that the correlation between the log GDP and log Gini is -0.5 which means there doesn‘t exist severe problem of co linearity in the data. In order t check whether the variables are normally distributed or not Jarque-Bera test is used and it shows that all the variables are normally distributed.

In order to remove the auto correlation from the regression analysis the lag of poverty (dependent variable) is introduced in the model. First of all it has been found that how many lag term should include in the model for this purpose serial correlation LM test is used and it is found that only AR(1) and AR(3) is significant among different AR lag values. So AR(1) and AR(3) is included in

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the model to remove the auto correlation. The result of double log model with the inclusion of AR(1) and AR(3) is given in the table 10.

(Table 10 here)

The result from the model shows that d=2.07 which shows no auto correlation in model. On the other side the coefficient of log GDP become insignificant as p-value of it > than the alpha (0.59>.05). While all the remaining coefficient is significant as p-value of all the remaining coefficient is less then the alpha (0<0.05). The β < 1 shows that growth poverty elasticity is inelastic which means that relative large increase in GDP will relative create a small reduction in poverty. And γ>1 shows that the poverty elasticity with respect to income inequality is elastic which means that relative small increase in the income inequality will bring a relative large increase in the poverty.

The coefficients of variables shows elasticity estimates in the model. From here we see that growth poverty elasticity is inelastic and poverty elasticity with respect to income inequality is elastic. This means that income inequality is more important variable to reduce the poverty rather then the GDP. On the other side if we analyze the historical trend of GDP and poverty we will find that in some decade the GDP growth has a positive relation with poverty and in some decade it as a negative relation with poverty. Because of which it may possible that the coefficient of log GDP become insignificant in the model on the same time the result of double log model shows that the GDP has a little impact to reduce poverty ( 1 unit rise in log GDP will reduce the poverty by 0.0019 unit).

So the result of double log model shows there exists significant relationship between poverty and inequality while the relationship between the poverty and GDP is insignificant. While the result of granger causality test shows that poverty, income inequality and GDP has a causal relationship (either is bilateral or unidirectional). While the Johansen test also proves that there exists a long run relationship among poverty ,income inequality and GDP.

7. Conclusions

In this research the data from 1973-2006 has been used to test whether there exists a significant relationship among poverty, income inequality and GDP in Pakistan. The expected result was that both the variables (GDP and income inequality) have a significant impact to reduce the poverty. As GDP and income distribution policies can really help to rise the income of the poor. On the same time it has also been tested that whether the poverty, income inequality and GDP granger causes each other or not. The results of this research shows that there exists granger causal relationship among poverty ,income inequality and GDP while the income inequality has a significant relation with poverty. This proves that income inequality is one of the major variable to tackle with the poverty. It is also tested in this research whether the poverty ,income inequality and GDP are cointegrated or not. The result of Johansen test shows that these variable are cointegrated which means that there exists a long run relationship among these variable. On the other side from the double log model it can be seen that the poverty elasticity with respect to income inequality is elastic which means that relative small reduction in income inequality can bring a large reduction in the poverty. On the other side the poverty elasticity with respect to GDP is inelastic and insignificant. Unfortunately in past we achieved higher GDP growth rates most of the time but the nature of that growth was anti pro poor because of which it could not help to reduce the poverty. So in order to tackle with the poverty, the combination of two policies should be used. From the one side the policies targeting the pro poor growth should be introduced on the other side different policy measure should be taken to improve the income distribution. So, by targeting the pro poor growth and income distribution policies the poverty can be reduced at a faster rate.

7.Policy Recommendations.

The following study suggests pro- poor growth policy which can reduce poverty, income inequality and unemployment. In order to reduce the poverty ,income inequality and unemployment the focus should be on that sector which employed the largest poor population of

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the country. This shows the significance of the agriculture sector in Pakistan, as agriculture sector employed the largest labor force of our economy. It means that the development of the agriculture sector or in other words rural development, will make the biggest contribution to reduce the poverty. Secondly we must ensure fair income distribution through providing job opportunity coupled with higher wage rates certainly effects the distribution of income. For the fair income distribution the target should be to rely mostly on the direct taxes through which we can reduce the burden from the poor class. But unfortunately in case of Pakistan, most of the tax revenue is generated through the indirect tax. Currently 60% of the tax revenue is collected through indirect taxes (Economic survey 2008-09). Such a high dependence on the indirect taxes will certainly create a more burden on the poor class of the economy. And it also worsens the income distribution of the economy. Moreover such programs which directly target the poor people i.e. micro-finance facility; streamlining programs such as Emergency Relief Assistance, Benazir income support program, Susti Roti scheme should be focused. Program like Micro Finance enables the poorer sections of the society to develop their assets and bring out from the vicious circle of poverty. Rural sector development strategy should be adopted.

Acknowledgment

Authors are very thankful to Prof. Dr. Ikram-ul-Haq, Vice Chancellor, GC University, Lahore, Pakistan for appreciation and encouragement in research activities.

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References

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[23]Kakwani, N., & Son, H. (2003). ―Pro-poor Growth: Concept and Measurement with Country Case Studies.‖ Pakistan Development Review, 42 (4), 417–444.

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Annexure

TABLES:

Table 1 Granger causality test on GDP and poverty

Null Hypothesis: F-Stats Prob. Decision

GDP does not Granger Cause POVERTY 150.72 2.00E-15 Reject Ho

POVERTY does not Granger Cause GDP 0.6397 0.5353 Accept Ho

Table 2 Granger causality test on Gini efficient and poverty

Null Hypothesis: F-Statistic Prob. Decision

GINI does not Granger Cause POVERTY 6.6E+08 2E-104 Reject Ho

POVERTY does not Granger Cause GINI 2743568 2.E-72 Reject Ho

Table 3 Granger causality test on Gini efficient and GDP

Null Hypothesis: F-Statistic Prob. Decision

GINI does not Granger Cause GDP 0.0497 0.9515 Accept Ho

GDP does not Granger Cause GINI 74.293 1.E-11 Reject Ho

Table 4 Regression line taking poverty as a dependent variable


C 32.29754 2.182479 14.79855 0

GDP -1.20E-12 1.08E-12 -1.11356 0.274

Table 5 Regressing VT on Ut-1

Variable Coefficient Std. Error

t-

Statistic Prob.

C -1.095604 0.275310 -3.97953 0.0004

UT(-1) -0.203155 0.027007 -7.52226 0.0000

Table 6 Regressing poverty on Gini coefficient


t-

Statistic Prob.

C -55.45780 14.50238 -3.82404 0.0006

GINI 229.5471 38.41193 5.97593 0.0000

Table 7 Regressing VT on Ut-1


t-

Statistic Prob.

C -0.072162 0.272159 -0.26514 0.7927

UT(-1) -0.043459 0.040204 -1.08096 0.2881

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Table 8 Trace test and Maximum Eigen test statistics

Ho Jtrace critical value Jmax critical value Decision

r =

0 43.25406 29.79707 24.14893 21.13162 Reject Ho

r ≤

1 19.10513 15.49471 14.43048 14.26460 Reject Ho

r ≤

2 4.674647 3.841466 4.674647 3.841466 Reject Ho

Table 9 Correlation matrix

LNG LNGDP LNP

LNG 1 -0.5 0.66

LNGDP -0.5 1 -0.51

LNP 0.66 -0.51 1

Table 10 Double log model after removing the auto correlation

Dependent Variable: Poverty


t-

Statistic Prob.

C 4.457301 0.175853 25.34677 0.0000

lnGini 1.069511 0.135245 7.907971 0.0000

lnGDP -0.001949 0.003587 -0.54352 0.5914

AR(1) 1.363538 0.027615 49.37700 0.0000

AR(3) -0.420431 0.021681 -19.3918 0.0000

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Empirical Relationship between corruption and poverty:

A case study of Pakistan

Muhammad Gulzaib Chaudhary

Graduate Student in B.SC (Hons)


Saima Sarwar(Corresponding Author)

Lecturer


Abstract

This is a study to see the relationship between corruption and poverty in case of Pakistan. Time period of the study is from 1995-2009 due to the non-availability of data for corruption before 1995. Double log model has been applied to see the relationship among different variables with respect to poverty. And the results showed that corruption has a positive impact on poverty. While government expenditure has negative impact on it. It means that it can be used as a best policy tool for the eradication of poverty. But the relationship between GDP and poverty has been also found positive which may be due to the the structural imbalances in the society which restrict the poor to take full benefits from overall growth and concentration of wealth remains in few hands of upper class.

Key Words: Corruption, Poverty, Growth, inflation, LM test, Elasticity, Income distribution, Investment.

1.Introduction

Corruption is considered a major cause for all evils around the world, at all levels of society from governments, civil society, judiciary functions, military and other services, and so on. The impact of corruption in poor countries on the poorer members of those societies is even more tragic. Corruption and poor governance have been the major causes of regimes failures in the sub-continent. In Pakistan, currently more than 40% people are living below the poverty line according to the recent survey of 2010. People in the rural areas are poorer than in the urban. Corruption also emerged as a core poverty issue as a result of the participatory poverty assessments carried out within the framework of World Bank's Voices of the Poor initiative that brought together the experiences of over 60,000 poor men and women around the world. Poor people engaged in that study reported hundreds of incidents of corruption as they attempted to seek health care, educate their children, claim social assistance, get paid, and attempt to access justice or police protection, and seek to enter the marketplace.

Attitudes towards corruption and its impact vary substantially. Based on the results of the 2003 Global Corruption Barometer, corruption hits the poor hardest. According to Global Corruption Barometer, 2003, two out of five respondents on a low income believe that corruption has a very significant effect on their personal and family life. The same answer came from only one in four respondents on a high income. So, 41% of respondents on low income felt their lives were "very significantly" affected by corruption, as opposed to 27.5% of those on medium income and 25.4% of those on high income.

http://www.worldbank.org/poverty/voices/reports.htm#cananyone

http://www.transparency.org/surveys/barometer/barometer2003.html






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Pakistan is also facing poverty issue from its independence. If we try to summarize the main reasons for this problem then it can be said that the first reason for poverty can be the rapidly growing population of the country. Population-wise Pakistan is the 6th largest country in the world and its population growth rate is 1.8%, which is the highest in the region. Pakistan‘s GDP growth rate is less than 3%. So, there is a shortage of goods and services like food, clothing, housing facilities, education and health etc all these things are inadequate to meet the necessities of a growing population. One earning hand has to feed a large number of family members. Due to the high level of demand and less production, there is general poverty. The second reason can be considered the engagement of the large share of its population with agriculture sector. Nearly 66% of the population belongs to rural areas and they have less money to fulfill their basic needs like food, health, education and housing etc, that‘s why the poverty level is growing day by day. The third reason for poverty is the unfair distribution of income among people. The poor are becoming poorer and the rich becoming richer. In Ayub‘s era there were 22 families, who had control of the majority of the national income. In the present, the situation is the same with a slight difference. Such unequal distribution of income is creating restlessness among the less income class. And lastly for poverty is inflation, which is a king of regressive tax on the fixed income class. Due to inflation, the salaried and fixed income group is more affected than the business class. The employees‘ salaries are not increased by the government in proportion to inflation, but their expenditures are increasing, day by day, due to dearness. Indirect taxes like general sales tax, customs duty, excise duty etc, affect the investment climate and poor consumers greatly. Ultimately there will be poverty. Black marketing, hoarding, smuggling, profiteering, nepotism, corruption of a specific community is exploiting the poor people of Pakistan, making them more poor (Ahmad, 2009).

2. Nature Of The Relationship Between Corruption And Poverty

Poverty is a complex phenomenon. It is multidimensional, including low income, low levels of education, vulnerability, powerlessness, and caloric intake. Very few studies have examined or established a direct relationship between corruption and poverty. Corruption, by itself, does not produce poverty. Rather, corruption has direct consequences on economic and governance factors, intermediaries that in turn produced poverty. Relationship examined by researchers is an indirect one.

In an Economic Model corruption affects poverty by first impacting economic growth factors, which in turn, impact poverty levels. Increased corruption reduces economic investment, distorts markets, hinders competition, and increases income inequalities. By undermining these key economic factors, poverty is exacerbate. Countries with higher corruption experience less economic growth. Corruption affects through impacting investment, entrepreneurship, distorting market, undermining productivity, income inequality and is associated with slower growth. If the rate of economic growth increases, the number of people above the poverty line tends to rise as well.

Corruption also impedes economic growth. Economic theory supports the notion that corruption hinders economic growth in the following ways: corruption discourages foreign and domestic investment, taxes entrepreneurship, lowers the quality of public infrastructure, diverts talent into rent seeking and distorts the composition of public expenditure. These theoretical propositions demonstrate that high levels of investment and low levels of aggregate economic growth. So there is an inverse relationship between corruption and economic growth.

Corruption discourages domestic investment. It hurts entrepreneurship especially among small businesses and decreases revenue from taxes and fees. Corruption exacerbates income inequality. Several studies have demonstrated a relationship between corruption and income inequality. The theoretical foundations for this relationship are derived from rent theory and draw on the ideas of Rose-Ackerman (1978) and Kruger (1974), among others. Propositions include, corruption may

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create permanent distortions from which some groups or individuals can benefit more than others. The distributional consequences of corruption are likely to be more severe the more persistent the corruption. The impact of corruption on income distribution is in part a function of government involvement in allocating and financing scarce goods and services (Gupta, Davoodi, and Alonso- Terme, 1988).

The Gupta et al. study examined these propositions through an inequality model using a Gini coefficient to measure inequality. The model specified the personal distribution of income in terms of factor endowments, distribution of factors of production and government spending on social programs. The statistically significant results include: Higher corruption is associated with higher income inequality such that a worsening of a country‘s corruption index by 2.5 points on a scale of 10 corresponds to an increase in the Gini coefficient corresponds to an increase in the Gini coefficient (Worsening inequality) of about 4 points. Even controlling for stage of economic development, corruption appears to be harmful to income inequality. Corruption tends to increase the inequality of factor ownership.

In Pakistan, Corruption creates irresistible economic pressure, social and economic injustice and it makes a wide gulf between rich and poor. The main causes of corruption are temptation of wealth, lust of power and luxuries of life. Religious, social, linguist and regional diversities and differences also breed conflict and confrontation, bias and hatred among the people. Secondly, feudalism, capitalism and uneven distribution of wealth and opportune, non-availability of fundamental rights and liberties are also spread by corruption. Thirdly, the non-availability of basic necessities and facilities like education, health –care and job also paves the way to spread corruption in a society or state. External factors like the agent or agencies of hostile neighboring states like India also play a vital role in spreading corruption in Pak-land, in order to destabilize, disintegrate the state and demoralize the people. Feudal lords influence the public policy. They control politics. They make decisions in their own interest and favor. Rent seeking attitude greatly influence public policies and it is a part of their politics. Rent seeking attitude leads to corruption.

Politics is all linked with money. They are the elites, moneyed people contest elections, the concept of private property has given birth to ―elitism‖. In Pakistan, private property is a source of elitism that land and it determines the extent of power. The National Assembly is dominant by feudals. So these feudals have strong hold over public policy which is then exploited by their hands for attaining their personal objectives. Rather Public policy should have objectives and goals which can take into account welfare of the whole society. e.g. population growth should be brought down from 1.5 to 1.2 or government of Pakistan has to follow millennium development goals which they aim to achieve by 2015 or reducing poverty from 32%.

3.Literature Review

Dwivedi (1967) elaborated that in Pakistan the major cause of sustainable corruption is not only the poverty but also the environment and the supporting conditions during its evolving stage which nurtures the dishonest actions by mishandling, rather ignore the circumstances and the consequences of the situation. According to his findings that corruption is the end product of a process of administration and is preceded by mal administration.

Zaidi(1997) highlighted that social instability causes both corruption and poverty. In Pakistan the lack of inter person, inter city and inter provincial collaborations, coupled with misunderstandings among the decision makers makes the policy making and extremely complex and fruitless act which wastes all the time, energy, resources and most importantly the time, the precious asset of invaluable financial potential if its utilized in right direction with harmony, efficiency and mutual understanding towards the economic development and sustainable growth of Pakistan. He believes that political violence, ethnic differences, isolation and lack of unity among the administrating bodies are the major sources of corruption., and hence all; this ultimately leads to poverty which cannot be eradicated from its grass roots unless a strong and firm action is taken to reduce corruption, if complete elimination is not possible.

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Gupta et al. (1998) conducted cross-national regression analysis of up to 56 countries to examine the ways that corruption could negatively impact income distribution and poverty. The study described that income inequality has been shown to be harmful to growth, bias in tax systems that can reduce the tax base and progressively of the tax system, increasing income inequality and poor targeting of social program.

The Kenya Urban Bribery Index results indicated that those with low-income are more vulnerable to corruption than those with higher income levels. Those on the lowest income reported a 74.4% incidence of bribery encountered and those on the highest income reported a 61.9% incidence. Similar comparisons exist for other social-economic categories, such as, for example, education and employment. The findings indicate that those likely to be poor (i.e. unemployed, those with low education, etc.) are more vulnerable to corruption than the better off socio-economic groups. Respondents with primary education and below encounter bribery in 75% of their interactions with public organizations, as compared to 67% for those with secondary school education and 63% for those with tertiary education. The unemployed encounter bribery the most (in 71% of their interactions), self- or family employees 68% of the time, the business and non-profit sector 61% of the time, and the public sector employees report encountering bribery in just over half (52%) of their interactions, significantly lower than all the other groups (Kenya Urban Bribery Index).

Shag-Jin (1999) found that corruption is a major obstacle to economic development. Corruption hinders economic development by reducing domestic investment, discouraging foreign direct investment, encouraging overspending in government, and distorting the composition of government spending (away from education, health, and infrastructure maintenance toward less efficient but more manipulable public projects). Economic consequences of corruption include low labour productivity, reduced investment, and consequently lower growth. Corruption results in reduced domestic investment, reduced foreign direct investment, overblown government expenditure, distorted composition of government expenditure away from education, health, and the maintenance of infrastructure, toward less efficient but more manipulatable public projects.

Stephan & Dearden (2000) examined that corruption negatively impacts upon investment climate.

It has been found in various cases across the regions that the corruption significantly slows down foreign direct investment. In addition, corruption also impacts on the flow of foreign aid. If corruption reduces domestic investment and reduces foreign investment, one would think that it would also reduce the economic growth rate. Corruption also negatively impacts government‘s public finance.

Adams (2003) examined the data of 50 developing countries to analyze the impact of economic growth on poverty and inequality. He found that growth is a dominant factor to reduce poverty in the developing world. He also observed that the elasticity of poverty with respect to growth is -2.59 which means , on average, a 1 percentage increase in economic growth (measured by survey mean income) will produce 2.59 percent reduction in the proportion of people living in poverty ($1 a person a day).

Pasha et.al (2003) also worked on Asian countries and found that there is a long run relationship between growth and poverty. They further analyzed the impact of different variables on the intensity of this relationship. The results indicated that there exists a strong positive relationship between growth and poverty, but this relationship was highly variable across countries and time periods. In order to identify the nature and intensity economic growth and poverty, they computed the growth elasticity of poverty, which indicated that the growth poverty elasticity is –0.9 for the region as a whole. According to their research the gain from the growth will be limited unless we achieve the pro poor growth.

Soomro examined that high and rising corruption increases income inequality and poverty. As evidence suggests corruption worsens the relative, and sometimes absolute poverty: corruption lowers economic growth, biases the tax system to favour the rich and well-connected, reduces the effectiveness of social programs, biases government policies towards favouring inequality in asset ownership, lowers social spending, reduces access to education by the poor, and increases the risk

http://www.transparency.org/dnld/kubi.pdf


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of investment by the poor. It certainly results in increase in poverty inequality and poverty which leads to corruption. Poor cannot have equal access to the public goods as well as labour market.

Hollister and Palmer assessed the effects of inflation on poor by taking into account three aspects.

i.e. expenditure, income and wealth aspects. When he examined the poor price index relative to

CPI, they found that expenditure effects of price rise hurt the poor less than the non poor segment

of the society.

Powers examined the relationship among poverty, inflation and unemployment. The findings

suggested that effects of unemployment were robust for poverty but the effects of inflation are

more serious on poverty. He concluded that inflation is associated with uncertainity and

consumption poverty. Hence inflation can decrease permanent income leading to decrease in

consumption.

4. Objective of the Study

Corruption is a major problem all over the world. Corruption hinders economic development by reducing domestic investment, discouraging foreign direct investment and encouraging overspending in government. Due to corruption deserving people cannot obtain proper medical care, employment, education etc. so the main objective of this study is to see the role of corruption in poverty. Many other variables have also been included to make a comprehensive analysis on the determinants of poverty in case of Pakistan. Therefore the hypothesis of this study is:

4.1. Hypothesis

H1: Corruption is the major factor contributing to poverty in Pakistan.

5. Methodology

This study presents the analysis of Corruption and Poverty in Pakistan. It‘s a time series analysis including the time period 1995-2009. The variables used in this analysis are: Poverty, Corruption, Government expenditure and GDP and inflation.

5.1. Variables and Sources of Variables

5.1.1.Poverty

The dependent variable used in this study is poverty. The measurement of the poverty is based on Head count index and Gini co-efficient. The data on poverty used in this study has been taken from HIES and Economic surveys.

5.1.2.Corruption

One of the independent variable used in this study is corruption. The measurement of corruption is based upon Target-group perception. The data in corruption used in this study is constructed by Transparency International in terms of the degree to which corruption is perceived to exist among public officials and politicians. The main advantage of this index is that it fulfills the requirement of definition used in this study for corruption (the misuse of public office for private gain). The index score range is in 0 (totally corrupt) and 10 (clean).

5.1.3. Government expenditure

Another independent variable used in this study is government expenditure. Data on this variable has been taken from World Development Indicators (WDI) CD.It is defined as spending by the government of any sort, at any level, ie. central government, local government, defence, etc.

5.1.4. GDP

GDP is one of the most important determinants for economic development. It is defined as an approximation of the value of goods produced in the country during a year. Data on this variable has been taken from World Development Indicators (WDI) CD.

5.1.5. Inflation.

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Consumer Price Index has been used for measuring inflation. Data has been taken from World Development Indicators(WDI).

5.2. Model

The model to be used in this study is as follows:

Poverty = f (COR, GEXP, GDP, INF)

The Regression equation becomes:

lnY= β0 + β1ln X1 + β2 lnX2 + β3lnX3 + β4lnX4

Where,

Y= Poverty

X1=Corruption (COR)

X2= Government expenditure (GEXP)

X3= GDP (GDP)

X4= Inflation(INF)

The estimated Regression equation becomes:

Y=37.80 + 1.2255X1 –1.308278 X2 + 0.00047X3 + 0.0698X4

There are very few studies which examined or established a direct relationship between corruption and poverty. Corruption, by itself, does not produce poverty. Rather, corruption has direct consequences on economic and governance factors, intermediaries that in turn produced poverty. Relationship examined by researchers is an indirect one. Increased corruption reduces economic investment, distorts markets, hinders competition, and increases income inequalities. By undermining these key economic factors, poverty is exacerbated. Nation with higher corruption experiences less economic growth. Corruption affects through impacting investment, entrepreneurship, distorting market, undermining productivity, income inequality and is associated with slower growth. If the rate of economic growth increases, the number of people above the poverty line tends to rise as well.

6. Estimation Results

This study is based on Double-Log model, this model is linear in parameters β0, β1, β2, β3, β4 linear in the logarithms of the variables Y and X1, X2, X3, X4 and can be estimated by OLS regression. Because of this linearity, such models are called Log-Linear Model as well. The OLS estimators obtained will be best linear unbiased estimators of β0, β1, β2, and β3 respectively. Before applying model stationarity of all variables have been checked by using Augmented Dickey Fuller (ADF) test. All variables are stationary at level. Estimation results of model have been presented below in table 1.The variables used in the analysis are: Poverty, Corruption, Government Expenditure, and GDP.

(Insert table 1 here)

From this model the results are showing the same trend. All variables are having the same sign as expected. But only corruption, inflation and govt. expenditure variable is significant. Overall model performance is satisfactory which can be viewed with the help of un weighted statistics of the model given below in table 2:


From these result, this can see according to the model about 78% of the variation in the dependent variable is due to the variables included in the analysis. Which means that these variable contribute about 78% to overall poverty in Pakistan.

It can also be observed that in case of Pakistan corruption is having positive effect on poverty. There are many reason of it. And one of the most important is the political corruption or instability in the Pakistan. Government expenditure is having negative effect on poverty. GDP is having

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positive effect on dependent variable. And inflation is showing positive relationship with poverty which means that if inflation is high then more will be poverty.

Now as we have used double log model which not only tell us about the nature of relationship among variables but also give us their elasticity estimates. Therefore the regression results show that the elasticity of poverty with respect to the Government expenditure, GDP, inflation and corruption. The coefficient of govt. expenditure not only tell us that if the govt. increases its expenditure on developmental projects then employment opportunities are generated. This will ultimately help the poor to increase their income. So the coefficient tells us that if government expenditure goes up by 1 percent, on average, the poverty goes down by about 1.30 percent. Similarly if there is 1% increase in inflation, it will lead to 0.06% increase in poverty. Estimates show that corruption is going to affect with high magnitude to poverty as compared to other variables. And change in govt. expenditure has a tremendous effect on poverty level in case of Pakistan.

To see whether our model is a best fit, different diagnostic tests have been applied to check it. For example LM test been applied to check hetroscadasticity. The result are shown below in table 3. The null hypothesis of this test is there is no auto correlation among variables in model. And it is rejected when probability approaches to zero and accepted when it deviates from zero. So here we accept the null hypothesis that there is no serial correlation in model overall.


Moreover Model specification test has been used to check whether this model was correctly specified or not. For this purpose RESET test was applied. Results are given below in table 4. Its null hypothesis is that model is correctly specified. And we reject it when probability of F-test becomes zero. But here we see that it is not zero so it means that we accept null hypothesis and conclude that our model is appropriately specified.


7. Conclusions

This study tried to find out the relationship of poverty with different macroeconomic variables specially with corruption. Because Pakistan is facing both of these problems at its maximum level. Most of the time the relationship between these two variables have proved to be bidirectional. And in case of Pakistan same phenomenon has been observed. To measure all this we have taken data of 15 years from 1995-2009. The reason behind the selection of this time period is the non availability of data on corruption before 1995. We all know that corruption is a curse that destroys the economy of a country and creates problems for the population. It hurts the confidence of people and they take less interest in the different economic activities. Therefore corruption is a major cause of poverty because it discourages wealthy people to invest in the country and domestic investors do not invest their amount in the country and want to establish their business in other countries where they feel more secure. Not only this, the foreign investors also do not invest their amounts in such countries where the corruption is more common.

The results of the model showed that there exists a positive and significant relationship between corruption and poverty. Other variables that have been included in this study are Government expenditure, GDP and inflation. These also show their nature of relationship with respect to poverty as expected except GDP. Government expenditure has negative relationship with the poverty while GDP has a positive relationship with the poverty in case of Pakistan. This may be due to the concentration of wealth in few hands of the nation. And due to the fact that trickle down effect of growth has not been observed in case of Pakistan at any regime of high growth rate. Poor are getting poorer and richer are getting richer. The top 20 % of population enjoys fruits of growing economy implies that there is prevailing the phenomenon of ―Growth without development‖. Moreover inflation has also shown a positive relationship with poverty which is also justifiable. Because these rising prices make their real purchasing power very low and leave them unable to fulfill their basic needs with in their budget constraints. This forces them to involve

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in corrupt activities to come out of their vulnerable condition. So on the basis of these results we can reject our null hypothesis and accept that corruption is one of the major contributors to poverty in Pakistan.

8. Recommendations

Pro poor growth Strategy is the major solution for removing all types of evils from the society. Rising prices, unemployment , proportional tax system are the major characteristics of our society. Which lead to corruption as well and all these factors collectively pave way for the emergence of poverty. So the strategy should be made in such a way that poor class could also go hand in hand with the other segment of the society in nation building process. Employment opportunities must be provided on merit. It will restrict corruption and ultimately income of that class will also start rising. Government must initiate the policies and Programmes for poverty alleviation. Govt. expenditure on development purposes can be a helping tool for reducing in poverty. Benazir Income Support Program (BISP) can be seen as an example in this case because it helps needy people to fulfill their needs as government provides financial support to them. Such programs are very helpful in elimination of poverty. Public Sector Development Program (PSDP) also plays a key role in development. There must be a check and balance in the economy so that fruits of high GDP growth could be trickled down to the lower strata of society or state. System of Direct taxes must be there, So that everybody has to bound to pay the tax. Due to increasing corruption level in Pakistan foreign investors do not want to investment in Pakistan and domestic investors also like to establish their business in other countries. This is also one of the cause of lower income generation for a country. Government should take necessary action to eradicate the corruption from the country to make all departments efficient. Corruption reduces the government revenues and its bad effects are seen on the country development. Educating the people to play an active role in the fight against corruption at all levels, and creating awareness of ill effects of corruption is very important because in this way we can mobilize public support in the fight against corruption. Head of the institutions and other leaders should be selected on the basis of merit and honesty and they should also be equally held accountable like anyone else. Mass media can be used as an effective tool to fight against corruption.

Acknowledgment

Authors are very thankful to Prof. Dr. Ikram-ul-Haq, Vice Chancellor, GC University, Lahore, Pakistan for appreciation and encouragement in research activities.

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References

[1] Amjad, R., & Kemal, A. R.(1997). ―'Macro Economic Policies and Their Impact on Poverty

Alleviation in Pakistan.‖, The Pakistan Development Review, 36(1), 39-68.

[2]Banfield, E. C. (1975). ―Corruption as a Feature of Governmental Organization.‖, Journal of Law and

Economics,18, 587-605.

[3] Dollar, D. and Kraay, A. (2001), ―Growth is good for poor‖, world bank policy research paper 2587,(1)

[4] Dwivedi, O. P.(1967). ―Bureaucratic Corruption in Developing Countries.‖, Asian Survey , 7 (4),

245-253.

[5] Elizabeth, T. P. ― Inflation, Unemployment, and Poverty Revisited‖, Federal Reserve Bank of

Cleveland

[6] Global Corruption Barometer 2003, Published by Transparency International.

[7] Gujrati, D. (2002). Basic econometric, ( 4th

ed), Mcgraw Hills Company.

[8] Gupta, S., Davoodi, H., & Alonso-Terme, R. (1998). ―Does corruption affect income inequality and

poverty?‖, IMF working paper. Kenya Urban Bribery Index.

[9] Hussain & Akmal (1989). ―Is Pakistan‘s Economic Crisis Financial or Real?‖, Economic and Political

Weekly, 24(8), 403-404 .

[10] Krueger, A. O. (1974), ―The Political Economy of the Rent-Seeking Society.‖ American Economic

Review 64: 291–303.

[11] Johnston, M. (1998). ―Fighting Systemic Corruption: Social Foundations for Institutional Reform‖,

The European Journal of Development Research, 10 (1), 85-104.

[12] Pasha, H. A., & Palanivel, T. (2003). ―Pro-poor Growth and Policies: The Asian Experience.‖,

Pakistan Development Review 42 (4), 313–348.

[13] Robinson, G., Hollister & John, L. P. (1968). ―The impact of inflation on the poor.‖, The Institute for Research on Poverty, University of Wisconsin.

[14] Rose-Ackerman, S. (1978) Corruption: A Study of Political Economy. New York Academic Press.

[15] Shag-Jin, W. (1999). ―Corruption in Economic Development: Beneficial Grease, Minor Annoyance, or

Major Obstacle?‖World Bank Policy Research Working Paper No. 2048.

[16] Soomro,M.M. ―Corruption and Economic Development‖.

[17] Stephen J., & Dearden, H. (2000). “Corruption and Economic Development”, Manchester

Metropolitan University,Department of Economics.

[18] Tanzi, V. and Davoodi. H (1997). ―Corruption, Public Investment, and Growth.‖ IMF Working Paper.

Washington, D.C.: International Monetary Fund. 1997.

[19] World Bank (2005), Economic Growth in the 1990s: Learning from a Decade of Reform, Washington,

DC: World Bank.

[20] Noi, H., & Nam, V. (1999). ―Voices of the Poor Programme‖, World Bank.

[21] World Bank (2007), Pakistan: Promoting rural growth and poverty reduction.

[22] Zaidi, A. (1999). Issues in Pakistan's Economy, Oxford University Press, Karachi.



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Annexure

TABLES:

Table 1: Dependent Variable: Poverty

Variables Co-efficients

Intercept 37.80063

(7.160564)

lnCPI 1.225586

(1.999997)

lnGovernment

expenditure

-1.308278

(-3.289949)

lnGDP 0.000447

(1.264257)

lnINF 0.069867

(1.932461)

Table 2: Overall model fitness

Table 3: Breusch-Godfrey Serial Correlation LM Test:

F-statistic 0.181140 Prob. F(2,8) 0.8376

Obs*R-

squared

0.649848 Prob. Chi-Square(2) 0.7226

Table 4: Heteroskedasticity Test: ARCH

F-statistic 1.876614 Prob. F(1,12) 0.1958

Obs*R-

squared

1.893301 Prob. Chi-Square(1) 0.1688

R-squared 0.789041

F-statistics 9.350643

Durbin-Watson 1.715701

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IMPACT OF MACRO-ECONOMIC FACTORS ON STOCK PRICES

Aima khan

MS Scholar, Faculty of Management Sciences, International Islamic University Islamabad

Hira Ahmad

MS Scholar, M.S, Faculty of Management Sciences, International Islamic University Islamabad

Zaheer Abbas

Assistant Professor, Faculty of Management Sciences, International Islamic University Islamabad

Abstract

This research is conducted to investigate the impact of macro-economic variables on stock returns. Time frame of data is monthly taken from June 2004 to December 2009. Independent variables are exchange rate, inflation, T-Bill rate, Money supply and Interest rate and dependent variable is Stock returns. In order to check the stationarity of time-series data Augmented Dickey Fuller test (Dickey and Fuller, 1981), Phillips-Perron test (Phillips and Perron, 1988) unit root test has been applied. Co-integration, Vector Error Correction Model and variance decomposition has been applied to check long and short term relationship between the variables. Whereas Ordinary least square test has been applied to test the co linearity between the variables. Results indicate that all variables except money supply have significant impact on stock returns in Pakistan.

Key words: Stock returns, Interest rate, Inflation, T-bill rate, macroeconomic variables, stock markets.

1.Introduction

Macroeconomic factors are significant in predicting market returns. Thus it can be claimed that stock returns variability is fundamentally linked to economic variables. Most of the studies conducted on the relationship between macroeconomic factors are based on developed countries. A very few researches are done on developing or less developed stock markets. Emerging markets have become focus of investigation in last decade, because before this decade, international investment were very low so a very little was known about these markets. Emerging markets have such characteristics that truly distinguish them from other markets. As emerging markets go through many phases of emergence so it will be wrong to consider them statistic. (A. Hooker 2004) We have conducted our research on impact of macroeconomic factors on stock returns. Among all macroeconomic factors we studied the impact of factors that include exchange rate, inflation, treasury bill rate, money supply and interest rate. In this research we have seen that how all these factors affect stock returns in Pakistan. Macroeconomic factors are the factors that affect the economy. In other words these factors provide a framework of a country‘s economy. Economic indicators are best defined by the independent variables we have chosen, those are explained as follows. Exchange rate is the worth of one currency in terms of the other. It can also be explained as the value of foreign currency in terms of host currency. CPI is a measure that examines the weighted average of prices of a basket of consumer goods and services, such as medical facilities, transport and food. T-bills are the debatable debt obligations issued by

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the government and supported by its non-risky characteristic with maturity of one or less than one year. Money supply is the total amount of money in circulation in a given economy at a given time. An interest rate is the cost a borrower pays for borrowing money from a lender and the return a lender receives by lending it to the borrower. Interest rates are typically calculated on an annual basis, known as the annual percentage rate (APR). Stock returns are the return of a market as a whole and stock market is not a cause of economic growth but a reflector. The KSE-100 Index was introduced in November 1999 having base value of 1,000 points. The Index consists of 100 companies. These companies were selected on the basis of each sector representation and highest market capitalization, which captures over 80% of the total market capitalization of the companies listed on the Stock Exchange. Among the 35 sectors, 34 companies are selected excluding Open-End mutual funds. These companies are selected on the basis of largest capitalization among the sectors and other 66 companies are selected in descending order on the basis of largest market capitalization. Total return index include dividend, bonus and rights which are adjusted. KSE-100 index is actually used to compare stock price performance over a period of time. Actually KSE-100 index indicate the performance of equity market in Pakistan. Thus KSE-100 index can be considered as an economic indicator which is designed to track economic activity of the country. KSE-100 Index =

Sum of Shares Outstanding x Current Price ——————————————————————— x 1000

Base Period Value Or Market Capitalization ————————————— x 1000

Base Divisor [www.kse.com.pk/information/doc/BrochureKSE100_Idx.pdf] As we know that the economy of Pakistan has gone through a great extent of volatility so there is a need to examine that how this large volatility in economy has affected the stock market returns. We have collected monthly data from June 2004 to December 2009. We have analyzed the data by using simple linear regression technique. From our research we have concluded that exchange rate and interest rate have significant and negative relationship whereas, inflation and T-bill rate have significant and positive impact on stock returns. However, money supply showed an insignificant and positive relationship. After considering all the factors and analyzing our results we have concluded that macroeconomic factors have a very significant impact on economy.

2. LITERATURE REVIEW

In previous literature, much work has been done on impact of macroeconomic variables stock returns. For example, Flannery and Protopapadakis (2001) surveyed the impact of macroeconomic variables on stock market. They studied stock returns as dependent variable and trade balance, spending on constructions, inflation, employment and unemployment, new home, housing starts, consumer credit, industrial production, money supply, personal consumption and income, producer price index, Real GNP and GDP and Retail sales as independent variables. According to them, macroeconomic variables excellently measure market risk, because major changes influence position and cash flows of organizations and may leave an impact on the interest rate. In this study GARCH model is extended and fixed co-efficient model have been used to find the impact of the macro variables on returns of stock. Research is conducted on the time frame of 1980 to 1996. Stock returns are calculated on the daily basis and the opening and closing value of are taken and their mean and standard deviation are calculated to find daily value. Identifying macro-economic determinants that affect accumulated returns on equity as explained by the authors has various

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benefits. First, it may imply blocking opportunities for investors, so they can secure risk. Second, if investors are risk averse to fluctuations in these variables, these variables may constitute priced factors. The same relation has been studied by Maysami, Howe and Hamzah (2004).Differently from literature the authors have used composite indices instead of only stock market. They have taken different indices like stock market .property, finance and hotel index. They have taken the indices of Singapore. Macroeconomic variables include interest rate, price levels, industrial production, exchange rate and money supply. The impacts of macro economic variables on stock returns have been examined by applying dividend discount model. The authors have measured the co integration of composite indices through Johansen‘s (1990) VECM. Significant relationship between stock market and property catalogue and an insignificant relationship among hotel and finance catalogue was found in Singapore. Authors have found a negative relationship among interest rate inflation and CPI. Four major stock markets Brazil, Russia, India and China stock markets have been investigated by Gay Jr (2008). The factors effecting stock markets surveyed by authors are oil prices and exchange rates. The author finds no alliance among macroeconomic indicators and stock returns of BRIC. To determine the result he used Box-Jenkins Autoregressive Integrated Moving Average (ARIMA). Wongbanpo and Sharma (Aug. 2001) used a hypothesized model to study the relationship of stock returns and macroeconomic variables. Hypothesis of these model have been checked through Granger, causality, unit root PP and ADF tests. Variables include Gross national product, money supply, interest rate, CPI, and exchange rate. These variables have been taken from securities markets, goods market, and money market. The Asian economies which have been studied include five countries: Singapore, Indonesia, Thailand, Malaysia and Philippines. Data for chosen factors has been attained from 1985 to 1996 from stock exchanges of these countries. Results of these tests reveal alliance between market returns and these indicators in long and short run. These indicators influence and are influenced by market. Moreover, GNP and CPI have positive relation with stock returns. The relationship of interest rate to stock returns varies according to country. In the same way, money supply yields different effects according to economy. Li (2002) conducted a research on macroeconomic determinants and the Correlation between Stock and Bond Returns among G-7countries.Variables are inflation, interest rate, industrial production and GDP. Monthly data of indices has been taken from 1958 to 2001.whereas daily data ranges form 1980 to 2001. Affine model measures the co movement of indices. Macroeconomic variables showed an impact on major trends instead of monthly trends. Specifically the expected inflation has a significant impact on the co integration of indices whereas unexpected inflation and interest rate have comparatively less significant impact on this co movement. Also that forecasting of relation among indices helps investors in taking decisions for efficient allocation of assets. Gjereand and Saettem (1998) examined whether relationship of major economic variables and market returns in advanced economies stands true for a narrow and exposed economy like Norway using vector auto regression. Norwegian economy is rich in natural resources and therefore is open to foreign effects. Domestic variables include Inflation, stock returns and interest rate. Real activity variables include industrial production, and consumption. Where as, international indicators include OECD industrial production, oil prices and FOREX. Moreover, Interest rate was found to have the most significant effect. Oil prices were also having impact due to Norway's natural resources. Inflation was found having less impact. Real activity was not indicated as a significant determinant. Some indicators were in contrast with European economies' results. A theory about developed economies‘ stock returns affectedness by macroeconomic variables was

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also found true for small emerging economies. Brahmasrene and Jinanvakul (2007) used Unit root, Granger causality and integration tests to survey the impact of macroeconomic variables on stock returns. The data on Industrial production, money provision, FOREX, CPI and interest rates have been taken from Jan.1992 to Dec.2003 has been used. The authors have tested data after liberalization and after crisis. The authors have found that in after liberalization period industrial production was the most significant variable having negative relationship with stock returns. Moreover, oil price was also significant variable after liberalization. In after crisis period, results indicate that causality exist between stock returns, money provision, nominal exchange rate and discount rate in unidirection. Money supply affected stock returns after in after crisis period. But in both periods co integration was found between market returns and other major economic indicators. Bilson, Brailsford and Hooper examined emerging markets by using Principal component analysis and multifactor models which include integration and correlation. The paper addresses the question whether emerging stock markets are influenced more by their own macroeconomic variables than world market returns and whether these variables explain the difference in returns in emerging markets, which would imply that emerging markets are different from developed economies. The data for 20 emerging economies has been taken. These include Latin American economies: Argentina, Venezuela, Colombia, Brazil, and Mexico. Asian economies include Pakistan, India, Indonesia, Philippines, Thailand, South Korea and Taiwan. European economies are: Greece, Portugal, and Turkey. Middle East economy is Jordan and African are Nigeria and Zimbabwe. Monthly data from Jan. 1985 to Dec. 1997 has been tested for four variables Money supply, real activity, goods prices and exchange rates. The study indicates that these emerging economies are not affected by world market returns but their returns yield impact on world market returns. As far as local macroeconomic variables are concerned, their explanatory power for returns is also not high although they explain to some extent. Exchange rate was found to be the most significant factor. Money supply was found relatively more significant than goods prices or real activity. Commonality in impacting factors is found most on regional level. NORLI ALI (2001) investigated the impact of variation in macroeconomic determinants on performance of the stock prices of Malaysian economy using Arbitrage Pricing Theory and Error Correction Model. The sample data is divided into pre and post crisis period. Six macroeconomic variables inflation, interest rate, exchange rate, money supply, industrial production and market return. Data has been taken on monthly basis from Jan 1987 to Dec1999 and Jan 1987 to Dec 1996.Market performance showed a significant impact. Whereas in pre-crisis period a significant impact of interest rate, market return and money supply has been found on portfolio returns. High impact of macroeconomic determinants including exchange rate, interest rate and money supply has been found on Malaysian stock market. Abugri (2006) surveyed the impact of local macroeconomic variables on stock returns and global variables' impact on returns of emerging markets using Vector Auto Regression on six variables .Domestic variables include Money supply, exchange rates, industrial production and interest rates. Global variables are MSCI world index and US treasury bills for three months. Countries are Chile, Argentina, Mexico and Brazil. The results of the study indicate that impact of local macroeconomic variables on returns of stocks varies significantly according to country. So investors should first know about the country they are investing. The impact of global macroeconomic factors was found very significant. Chancharat, Valadkhani, Harvie (2007)examined the impact of international linkages and domestic macroeconomic variables on the Thai stock market returns before and after 1997 using GARCH model. Their dependent variable is Thai stock market returns and their independent variables are international stock markets and macroeconomic variables. Singapore is the only country who has

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positive effect on Thai market. Indonesia and Malaysia are the two countries who affect the Thai market before 1997 and Philippines and Korea after 1997. In macroeconomic variables only oil price changes affect the Thai stock returns. Overall international linkages do have an impact on Thai stock market returns but macroeconomic variables have no impact on the stock market return. Basher and Sadorsky (2006) examined the impact of change in oil prices on stock returns of emerging economies. The authors have used Multifactor model, which is related to Capital Asset Pricing Model (CAPM) and Equity Pricing Model. The authors have also taken into account other risks like market risks, skewness, total risks etc. The 21 emerging markets selected by the author include Indonesia, Mexico, Philippines , India, Chile, Brazil, Israel, Venezuela, Jordan, South Africa, Malaysia, Peru ,Argentina, Pakistan, Turkey , Colombia, Poland , Korea , Srilanka, Taiwan , and Thailand. Developed economies include Australia, Belgium, Hong Kong, Germany, France, Italy, Netherland, Norway, UK, Canada, Denmark, Spain, Switzerland and USA. The data for stock prices has been taken from 1992 to 2005 on daily basis in US dollar terms. According to results the risk of oil prices has a strong impact on stock returns but the significance of the results depends on frequency of data. However, the conditional risk shows asymmetrical results. Odusami studied the impact of oil shocks on stock returns of USA using GARCH model. He took stock market returns as the dependent variable and unexpected oil price shocks as independent variable. The author finds two things in this article, 1- The unexpected oil price shocks have negative effect on the stock market returns of USA. It means that there is a significant non-linear relationship between crude oil price and US stock market returns. 2- The author also tries to find out that if there is any link of the information which is given at the end of the OPEC minister‘s meeting on the US stock market return and he finds that there is no significant impact of Organization of Petroleum Exporting Countries (OPEC) ministers‘ meetings‘ information on US stock market return. He applied this model to the time series of the daily excess returns on the value-weighted NYSE/AMEX/NASDAQ index and daily return on one month West Texas Intermediate (WTI). Chang (2009) studied the impact of macroeconomic factors on US stock returns through Markov regime Switching Model. For this purpose author has considered three variables: interest rate, default premium and dividend yield. The author has used in-sample and out-of-sample performances. Impact has been examined by using GJR-GARCH models. Dynamics of stock returns have been divided in to three dimensions including conditional volatility, conditional mean and transition probabilities. The author has also examined the influence of theses regime models on performance of asset allocation. Among all three macroeconomic determinants default premium and dividend yield reflects economic conditions of a country and hence show positive relation to return, whereas interest rate reflects tight monetary policies and hence is negatively related to stock returns. Results have shown an impact of macroeconomic determinants on stock returns and volatility but this degree of impact changes with variation in circumstances of stock market. This paper also confirmed that this model is more predictive for out-of-sample data than other models. Ayub Mehar (2000) studied the consequences on stock market due to macro economic determinants. This study is conducted in Pakistan to see the impact of macroeconomic factors on stock returns. According to him when considering the long term price changes it is due to the major policies of country rather than just news or rumors. Funds investment has direct correlation with GDP, higher the GDP higher will be the market capitalization. Samarakoon in his study investigated the relationship of inflation and stock market return in Sri Lanka. Fisher hypothesis has been used to find out the inflation using different data. Developing countries has a negative relationship on stock returns. Nelson found negative relationship among inflation and stock return in his studies conducted on the data of 1953-1974 in US. He used expected and unexpected inflation as a measure. Jaffe and Mandelker & Fama and Schwert results were similar.

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Gulketin conducted this research for 18 countries and got the same result. Data in this study is collected from All share index (ASI) and Sensitive Price index (SPI) which included 15 blue chip stocks. The study is carried out for the period Jan 1985- August 1996.Inflation is measured by CCPI (Columbo Consumer Price Index).ARIMA model have been devised for estimation of three types of inflation. Among the types of expected inflation contemporaneous inflation showed no strong relationship among inflation and stock returns. Lagged inflation do not have significant impact on returns in long-term but they sometimes do have effect. Unexpected inflation was found to be negatively related with stock returns. Lucey and Nijadmalayeri (2000) used a GRAPH model of returns of stock market used by Flannery and his companion Protopapadakis. They studied influences of changes in US economy‘s macro indicators on developed countries‘ economies such as United Kingdom, Canada, Germany, Japan, France, Singapore, Hong Kong and Italy. Three variables arnYield on Government bond of one year maturity, difference between one year and ten year maturities of Government bonds, and change in percentage terms in exchange rate with respect to Dollars. Moreover, dummy variables for calendar time have also been checked. The results indicate that because of strong position of US economy, its changes impact stock returns of developed economies due to global integration. But intensity of these returns varies according to economies and market sizes. Gunasinghe(2005)examined the behavior of stock markets in South Asia to find relationships among the govt. related policies and stock market returns. Dependant variable is stock market behavior in terms of integration and volatility transmission while Independent variable: liberalization policies early 1990‘s Harmonization of government policies, Revolution in information technology, Establishment of growth oriented institutions. Model used in this study are correlation analysis, a multivaried co-integration test and generalized impulse response(GIR). Data is collected from Monthly stock indices of Bangladesh India and Pakistan, the study is conducted in the time period from 1992 –2002. Results of this study showed a marginal growth of integration for india-srilanka and india-pak combinations for the period of 1197-2002 compared to 1992-1996, there is no efficient relation between the 3 national stock prices and the variety of channels, Effective functions of these channels have been adversely affected by the presence of capital controls in each country. These markets are not totally independent of each other, Shocks originating from Indian stock market may marginally transmitted to other markets. Marie- Claude Beaulieu‖, ―Jean-Claude Cosset‖, ―Naceur Essaddam.‖ examined the relation of political uncertainty and the common stock returns of Quebec firms in 1995. Their dependent variable is common stock market returns and their independent variable is political uncertainty. The result of the article is that there is a relation between political uncertainty and the common stock returns. And the referendum has the positive effect on the common stock returns of the Quebec firms. They took data for stock returns from DataStream. The data used to measure growth options is taken from Stock Guide. They estimate abnormal return in multivariate linear regression (MLR). To assess the robustness of their result to the changeability of the portfolio returns they use GARCH model. Liow, Ibrahim and Huang studied Macroeconomic risk influences on the property stock market using three step estimation strategy. Variables are risk premia in property stocks and major macroeconomic factors. Four major markets, namely, Singapore, Hong Kong, Japan and the UK have been studied. Macroeconomic risk is measured by the conditional volatility of macroeconomic variables. Results shows that the expected risk premia and the conditional volatilities of the risk premia on property stocks are time-varying and dynamically linked to the conditional volatilities of the macroeconomic risk factors.

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3.Data and methodology

In our study we are considering the impact of macroeconomic factors on stock returns. There are many macroeconomic factors but we have confined our studies to FOREX, inflation 3 monthT-bill rate,money supply and interest rate and these are our independent variables. The dependant variable in our study is stock returns that can be defined as the return of market in our case it is KSE-100 Index. We have taken data of market return from kse-100 index from June 2004- December 2009. Data is taken on monthly basis. This period was selected because it was the maximum data available on IMF site. The data of KSE-100 index was taken from business recorder and for macroeconomic factors from International Financial Statistics. KSE-100 = c + β1 (ER) + β2 (INF) + β3 (T-bill) + β4 (MS) + β5 (INT) + εt……….(1)

In equation (1) we have taken log of all independent variables except T-bill rate.ER represents Log of exchange rate INF represents Log of inflation, T-bill represents 3-month Treasury bill rate, MS represents Log of money supply and INT represents Log of interest rate. Where c is the constant, where the regression line intercepts the y-axis, representing the amount the dependent y i.e. KSE returns will be when all the independent variables are 0.

3.1.Stationarity:

In this paper, we are investigating the co-integration of macroeconomic variables and stock return. For this reason, we need to check whether variables are stationary or non-.stationary. Stationarity of variables means that there is no trend i.e; no autocorrelation exist among the variables. If variables are non-stationary, it means there is trend i.e. autocorrelation exist. In order to teat stationarity of variables Augmented Dickey Fuller test (Dickey and Fuller, 1981), Phillips-Perron test (Phillips and Perron, 1988) unit root test can be applied. 3.2. Co-integration test and VECM: Co-integration test explains long-term relationship between dependant and independent variables. If long-run equilibrium relationship is found ,it means, variables are co-integrated, johansen and juselius method follow most of complications related to Engle and Granger method such as if there exist more than two variables than there can be long-term relationship in this approach we have to follow the integration pattern and finally it is based on two step approach. This method provides foundation to cointegration test with reference to Vector Auto Regression (VAR) model. Johansen method was used.

……………(2)

In equation (2) xt represents (n × 1) vector of non stationary I(1)variables, A0 represents (n × 1) vector of constants, k represents the number of lags, Aj represents (n × n) matrix of coefficients and εt is supposed to be (n × 1) vector of Gaussian error terms. The above vector autoregressive method was altered into a vector error correction model (VECM) as to use it as Johansen and Juselius test. Where Δ represents the difference operator and I represents an (n × n) identity matrix. The Trace and the Maximum Eigen Value test was applied in order to check the quantity of characteristics roots that were different from unity insignificantly. 3.3. Variance Decomposition: Vector Auto Regression (VAR) was applied in order to check short-term connection between macroeconomics determinants and stock returns. To explain the applications of macroeconomic factors and stock returns, variance decomposition was applied. Where ε‘s represent stochastic error terms, known as innovations or shock as in VAR.

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3.4. Ordinary least square method (OLS): OLS was used to find the unknown parameters in a linear regression. The objective of OLS is to closely adjust a function along the data. It performs so by minimizing the sum of squared errors from the data. Ordinary Least Square method can be explained as follow:

…………..(3)

In equation (3)β represents a (p×1) vector of unknown parameters; εi‘s are errors which account for the discrepancy between the actually observed responses yi and the predicted outcomes x′iβ; and ′ denotes matrix transfer, so that x′β is the dot product between the vectors x and β. This model can also be written in matrix form as equation(4):

…………(4)

Where y and ε represents (n×1) vectors, and X is an n×p matrix of regressors, which is also sometimes known as the design matrix.

3.5. MODEL: In order to examine long-term relation between macroeconomic indicators and Karachi Stock Price Index following model has been used.

KSE 100 = c + β1 (ER) + β2 (INF) + β3 (T-bill) + β4 (MS) + β5 (INT) + εt………(5)

4. RESULTS

4.1. Unit root test: It is necessary to test the stationarity of variables before testing the relationship between them. In this study two tests have been used to check the stationarity of all dependant and independent variables. The first one is Augmented Dickey Fuller (ADF) test and the other is Phillips-Perron (PP) test to investigate unit root test for tie series. According to the results of these tests all the given variables were non-stationary at level and became stationary at first difference. Thus both tests revealed that all variables were integrated at first difference as shown in the table 4.1 in appendix. Results show that all the variables became stationary at the same level which is at first difference, variables are I(1) series. As all variables are stationary at the same level, we expect cointegration might exist. we check them for integration. Johanson co integration test has been used. 4.2. Johanson Co-integration test: Co integration has been applied to test the long-run equilibrium relationship of the variables. Results of the coinegration show two equations are found significant. Results indicate that only KSE and Exchange rate‘s likelihood ratio exceeds the critical value at 5% level. It means that co integration exists. However, likelihood ratio of inflation, T-bill rate, M2 and interest rate does not exceed the critical value. Therefore, there are two cointegrating equations at 5% level. 4.3. VECM: Further, Vector error correction model has been used to test further long-run relationship among variables. In this test, we have checked to test the predictive power of variables. On the basis of 2 cointegrating equations, this test has been applied. Results mean that if some disturbance occurs in long-run equilibrium relationship, it takes this much time to be back to equilibrium.

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Results of the first equation show that it takes one and half months to be back to equilibrium after some fluctuations. The other one also shows the same results. It means on average, it takes one and a half months to be back to equilibrium after fluctuations. 4.4. Variance decomposition: Variance decomposition has been applied to see how much variation in one variable is caused by the other variable. Results reveal that variation in KSE is described most by inflation.Then interest rate effects and then M2 causes variation in KSE.In the end we apply linear regression model.Results are given in the table below. 4.5. Linear regression: According to the results exchange rate has significant but negative impact on stock returns. This is because when price of local currency falls relative to dollar, foreign investors withdraw funds as a result stock returns decline. This finding supports the traditional approach on relation between currency and capital markets. The effect of change in exchange rate on the economy will be highly dependent on the level of international trade and the trade balance. Inflation is found to have significant and positive effect on stock returns although theory says that increases in the price level reduce the real level of the stock price index. This is because increase in inflation rate leads to tightening of economic policies which in turn rises the discount rate by increasing the nominal risk free rate resulting in decline in stock returns. When T-bill increases, investors prefer to invest in T-bills instead of stock markets. As a result, demand for stock decreases, resultantly stock market returns go down. Interest rate is having significant and negative impact on stock returns. This is because when interest rate rises, risk and required rate of return of investments also increase resulting profits of firms to decrease and in the same way stock value also fall. 5.CONCLUSION This study examines the impact of macroeconomic variables on stock returns. The macroeconomic variables include exchange rate, inflation, t-bill rate, money supply and interest rate. The results showed that all the variables were non-stationary at level but stationary at first difference. There were two long-run relationships between macroeconomic factors and KSE returns. OLS has shown that exchange rate and interest rate have negative while inflation and t-bill have positive impact on returns. Whereas only supply has a positive but insignificant impact on stock returns. According to VECM, these variables take almost one and a half month to get back to equilibrium after short term fluctuations. Whereas, impact of inflation is more on KSE returns than any other macroeconomic factor. According to the results, the paper proposed that increasing exchange rate and interest rate influence the returns in a negative manner. Thus controlling these rates, stock returns can be enhanced. Inflation and T-bill are showing positive relationship. It might be because of varying circumstances in Pakistan economy. With the change in Government, monetary policies keep on changing due to which there is no impact of money supply on stock returns.

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References

Robert D. Gay, Jr., Nova.(2008) Effect Of Macroeconomic Variables On Stock Market Returns For Four Emerging Economies: Brazil, Russia, India, And China

Mark J. Flannery and Aris A. Protopapadakis(2001) Macroeconomic Factors Do Influence Aggregate Stock Returns by

Abeyratna Gunasekarage, Anirut Pisedtasalasai and David M.Power.Macroeconomic Influence on

the Stock Market Evidence from an Emerging Market in South Asia by Kim Hiang Liow, Muhammad Faishal Ibrahim and Qiong Huang .Macroeconomic risk influences

on the property stock market by Department of Real Estate, National University of Singapore, Singapore.

Lalith P. Samarakoon Stock market returns and inflation Babatunde Olatunji Odusami Behavior of stock markets in south Asian econometric investigation

Crude oil shocks and Stock Market Returns Marie- Claude Beaulieu‖, ―Jean-Claude Cosset‖, ―Naceur Essaddam.Political Uncertainty and

Stock Market Returns: Evidence from the 1995 Quebec Referendum S. Chancharat, A. Valadkhani, C. HarvieThe Influence of International Stock Market and

Macroeconomic Variables on the Thai Stock Market.‖ Ayub Mehar Stock market consequences of macro economic fundamentals Maysami, Howe and Hamzah (2004) The relationship between macroeconomic variables and stock

market indices‖. Wongbanpo and Sharma (Aug. 2001)stock market and macroeconomic fundamental interactions:

Asian 5 countries Gjereand and Saettem (1998)Causal relations among stock returns and macroeconomic variables in

a small open economy Brahmasrene and Jinanvakul (2007)Co integration and causality between stock index and

macroeconomic variables in an emerging market Abugri(2006)Empirical relationship between macroeconomic volatility and stock returns :

Evidence from Latin American Markets. Chancharat, Valadkhani, Harvie (2007)The Influence of International Stock Market and

Macroeconomic Variables on the Thai Stock Market. Lucey and Nijadmalayeri (2000) impact of US macroeconomic surprises on stock market returns

in developed economies www.finance.yahoo.com www.zhvsec.com

www.brecorder.com

www.kse.com.pk

www.imf.org

www.wikipedia.com

www.emeraldinsight.com

www.j-store.com

www.ssrn.com

www.springerjournal.com

www.google.com, www.google.com/finance, www.investopedia.com, www.sciencedirect.com

http://www.finance.yahoo.com/

http://www.zhvsec.com/

http://www.brecorder.com/

http://www.kse.com.pk/

http://www.imf.org/

http://www.wikipedia.com/

http://www.emeraldinsight.com/

http://www.j-store.com/

http://www.ssrn.com/

http://www.springerjournal.com/

http://www.google.com/

http://www.google.com/finance

http://www.investopedia.com/

http://www.sciencedirect.com/

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Appendix:

VARIABLES

Augmented Dickey-

Fuller test statistic

Null Hypothesis:

Variable is Nonstationary

LEVEL 1st

DIFFERENCE

Phillips-Perron Test

Statistics

Null Hypothesis:

Variable is Nonstationary

LEVEL 1st difference

KSE 100 -2.110378 -4.633414

-2.001686 -6.430827

ER -0.231114 -2.992609

0.636810 -5.135226

INF 0.578931 -2.742614

0.915960 -5.576555

T-bill -2.409600 -4.045989

-2.388378 -7.001979

MS -1.321070 -4.842596 -0.854638 -9.750497

INT -1.213826 -3.992983 -1.118426 -8.283548

Suggest that coefficient is significant at probability level of 1% at first difference.

Unit root test: Table.4.1

Included observations: 64

Test assumption: Linear deterministic trend in the data

Series: KSE ER INF TBILL M2 INT

Lags interval: 1 to 2

Likelihood 5 Percent 1 Percent Hypothesized

Ratio Critical Value Critical Value No. of CE(s)

108.6866 94.15 103.18 None **

68.94639 68.52 76.07 At most 1 *

43.04700 47.21 54.46 At most 2

22.95829 29.68 35.65 At most 3

9.308759 15.41 20.04 At most 4

1.872978 3.76 6.65 At most 5

*(**) represents rejection of the hypothesis at 5%(1%) significance level.

Likelihood test showed 2 cointegrating equations at 5% significance level.

Johanson co integration test: Table 4.2

Test critical values (MacKinnon, 1996)

1% level

-3.5345

-3.5312

1% first difference

-3.5362

-3.5328

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Error Correction: D(KSE) D(ER) D(INF) D(TBILL) D(M2) D(INT)

Co-iEq1 -0.638532 -0.013047 -0.016799 0.002433 -0.023447 -0.133353

(0.16822) (0.02788) (0.02143) (0.00928) (0.03919) (0.08759)

(-3.79589) (-0.46802) (-0.78385) (0.26206) (-0.59823) (-1.52244)

Co-iEq2 -0.650934 -0.269531 -0.178065 0.116457 -0.032894 -0.218328

(0.64662) (0.10716) (0.08238) (0.03569) (0.15066) (0.33670)

(-1.00667) (-2.51529) (-2.16149) (3.26311) (-0.21833) (-0.64844)

Vector error correction: Table 4.3

VAR of KSE:

1 0.063873 100.0000 0.000000 0.000000 0.000000 0.000000 0.000000

2 0.099839 82.41360 5.371807 1.374826 0.233494 4.244912 6.361363

3 0.124300 70.82455 3.610544 4.455617 0.215390 9.272056 11.62184

4 0.141052 61.81053 7.255997 6.450202 0.380406 10.61124 13.49162

5 0.155617 54.97805 12.03680 8.113036 0.748434 10.72842 13.39525

6 0.169148 50.55516 14.40112 10.09699 1.142224 10.78098 13.02351

7 0.182199 47.70011 14.86216 12.27346 1.413478 10.93495 12.81585

8 0.194313 45.83147 14.53889 14.22785 1.554419 11.05631 12.79107

9 0.204848 44.65686 14.00989 15.76349 1.611346 11.08908 12.86934

10 0.213578 43.96981 13.46414 16.90207 1.620841 11.05617 12.98697

Variance Decomposition:

Table 4.4

KSE-100 ER INF T-BILL MS INT

1 -4.274774

3.279924

8.548309

0.469463

-1.817297

S.E 0.640082

0.937997

1.482944

0.456732

0.280088

t value -6.678482

3.496730

5.764419

1.027874

-6.488308

Linear regression model:

Table 4.5

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FRUITS OF STATE‟S FINANCIAL LIBERALIZATION IN JAPAN AND KOREA,

LESSONS FOR PAKISTAN.

Dr. Nasir Karim

Associate Professor, CECOS University, Peshawar

Syed Muhammad Taqi

Director IMIS , CECOS University Peshawar

Dr. Ayaz Khan

Associate Professor, Commerece College Peshawar

Abstract

At the time of the industrial take off of the country in the years 1945-55, Government of Japan

took initiative by directly controlling credit and its allocation to various sectors. As a result during

the next two decades high macroeconomic growth and industrial development was recorded.

Japanese financial system during 1945-1973 was characterized by (a) excessive role of indirect

finance (b) reliance of large city banks on the bank of Japan (c) high leverage of industrial

companies and (d) tight control on interest rates which government ensured to sustain at low

levels. Close relation was maintained between banks and industrial firms. The natural offshoot of

decisive role of government regulations in the financial sector emerged in the shape of industrial

elevation. The same pattern was adopted by the Koreans and they seized the opportunity of making

industrial growth by leaps and bounds through financial liberalization for import and export sectors

of the economy.

Key words: Financial Repression, Financial Liberalization, Interest Ceiling, Financial Savings,

Investment, Credit policy , Industrial Growth,

Introduction

Financial liberalization means deregulating domestic financial market and liberalization of capital

account. McKinnon-Shaw, in his hypothesis, presented the argument that financial repression

distorting incentives of savers and investors in an economy is the outcome of suppressive

regulations in the financial markets. The kind of regulations such as interest rate ceiling of

deposits, minimum/maximum lending rates and quantity restrictions on lending cause real interest

rates to be negative and fluctuating particularly in the highly inflation ridden economy.

Regulation does lead to negative impact on the amount of domestic savings and thus capital

formation, which retards economic growth and development. Therefore, McKinnon-Shaw

hypothesis presented the prescription of (McKinnon, 1989; Shaw, 1973) financial liberalization

with special emphasis laid on deregulation of interest rate restrictions.

However, there a still few ardent advocates of financial control policy and they express

their lamentation on the demise of financial repression. The fate of financial repression was sealed

in most of the countries in the after math of growing cognizance of costly distortions caused by it,

along with its negative ramifications emerging in the shape of below – market interest ceilings.

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Financial repression has got a chequered history where governments have resorted to long

term intervention in the financial sector to protect financial stability and to safeguard the public

from unexpected losses. But on the parallel side, its manifestations were concentration of wealth

and monopoly power, to generate fiscal resources and to benefit the favored groups through

channeling through the financial system instead of transparent of public finances.

In wake of the exemplary results achieved by some fast developing countries of the would

owing to the support of their governments in liberalizing their small enterprises and national

industries, Pakistan needs to start following their pattern for the rapid growth and strength of small

enterprises, national industries and export sectors of the economy. The two fast developing

countries of the East Asia i.e. Japan and South Korea are the two examples where financial

interests of small enterprises and national industries are fully safeguarded by the state.

Essentially it is the market forces which control the loaning and investment in a country. The type

of financial liberation that has been introduced in Pakistan under the financial sector adjustment

loan programme is dependent on securities-based financial system where deposit banks are

allowing short term funding and conventional commercial banking services are provided. In

Pakistan securities markets are narrow, debt-equity ratio of the corporate sector is high and at the

same time many financial institutions are in favor of adopting universal banking approach. For

rapid development of real sector close relationship between banks and industrial firms is a must.

The arrangement that ―financial development encourages economic growth to facilitates the

movement of funds to the best possible user‖ (Golsmith 1960, Page 400) hold true when the

financial regime is strictly regulated by the government and at the same time networking between

the banks and firms is closely maintained. Development can be accelerated if the policies of the

state are directed to make the finances available to the best user without any hindrances.

Normally migration of funds to the ―best user‖ cannot be fully controlled by the state ( Fry (1989)

(Lee 1991) World Bank (1989) but in case of Japan and Korea it has proved otherwise (Vitas And

Wang 1992).

Objectives of research study.

1. The core objective of the study is to analyze the impact of financial liberalization policy

Japan and South Korea and its role in boosting the industrial growth and development

of these countries with special reference to petrochemical, steel, automobile and

aircraft.

2. To find as to how the financial liberalization can be applied in Pakistan‘s fragile and

declining industrial sector with a view to reverse this order and to fully utilize the

potentials of business community in elevating the industrial growth in the country on

the lines of Japan and Korea.

3. To find the ways and means to curb the spiral of back breaking galloping inflationary

spells and unemployment monster in the country through the tools of financial

liberalization.

4. To analyze the role of financial liberalization in reducing the debt servicing burden of

the country through revival and enhancement of industrial growth in textile, energy and

automobile industries and agriculture sector.

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Japan’s Model:

Government of Japan took initiative by directly controlling credit and its allocation to various

sectors at the time of the industrial take off of the country in the years 1945-55. The period 1955-

73 earmarked the era of high macroeconomic and industrial growth in Japan.

Japanese financial system during 1945-1973 was characterized by (a) excessive role of indirect

finance (b) reliance of large city banks on the bank of Japan (c) high leverage of industrial

companies and (d) tight control on interest rates which government ensured to sustain at low levels

(Suzuki 1980). Close relation was maintained between banks and industrial firms. Such

contracting banks were also very wide-spread and the big companies, especially general trading

companies, played pivotal role in channeling funds to small firms which were associated with

major enterprise groups, (Horiuchi (1988), Corbett (1987).

The establishment of various heavy industries, such as petrochemicals, steel, automobiles and

aircraft, in which Japan never had a competitive advantage till 1950s and 1960s, was the natural

offshoot of decisive role of government regulations in the financial sector. Strict controls were

placed on foreign investments and acquisition of technology. Only selected ―National Champion‖

firms and ―Leading edge‖ industries were allowed financial aid. To rebuff the possibility of wrong

investment and production decisions by the beneficiary firms, the government facilitated these

firms with managerial leadership and control measures.

On the other hand elite firms in engineering, shipbuilding, steel and motor vehicles sector were

given state support and aid on a large scale as a matter of state policy (Eccleston 1986 p. 62).

These sectors were protected from the damages of competition by import tariffs and were sheltered

from cyclical depression by state organized cartels. This is further endorsed by Magaziner and

Hont 1980 in a research study undertaken to analyze Japanese government‘s policy and

intervention in the steel, shipbuilding, motor cars, industrial machinery and information electronics

industries. The study does not give specific details about the extent of financial support provided to

different industries rather it only signifies a thorough debate on different official actions taken by

the government which often go much beyond the provision of finance.

Industry was offered financial support both directly and indirectly. By the general regulations, cost

of funds to industry was kept low by regulating deposits and lending interest rates and to some

particular sectors preferential credit facilities were made available. In post war Japan, and

particularly after 1955, the level of interest rates was kept low by the government in order to

increase investment and decrease the cost of manufactured exports. The bank of Japan got more

effective control in order to fully implement the artificially low rate policy of the Japanese

financial system and also to stimulate financing of high growth industries (Royama 1984).

Credit Policy

The separation of Japanese financial system into various parts greatly helped the operation of

credit policy. In big cities, the large banks which benefitted from the regulations of deposits rate

were financing the large firms. However, the bank of Japan used to encourage banks to lend to

some sectors or to discourage lending to some others through persuation and administrative

guidance. There were private financial institutions that were allowed to raise funds through issuing

medium term debentures. The private financial institutions were catering to the long term financial

requirement of the industries. These long term credit banks played a very important part and

mostly provided finances on complimentary rates as compared to the commercial banks.

In case of firms and projects which could not approach the big cities for their financial needs, they

were provided the opportunity to avail this facility from (i) small regional and local commercial

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banks (ii) mutual institutions that specialized in offering financial services to small firms, farmers

and workers and (iii) government financial institutions that specialized in lending to high priority

sectors such as small business and housing, agriculture and exports investment projects.

In Japan government financial institutions were mostly funded from The Trust Fund Bureau which

managed the resources collected by the postal saving bank, the postal insurance service and the

social security system.

As a matter of financial policy, Japan had discouraged provision of loan for the housing finance as

well as for consumer credit. Resultantly it affected the level of household consumption and

savings.

Eceleston has criticized the dualistic nature of Japanese industry. The small member of large

corporations and group of big firms were usually protected during economic recession. But the

large number independent small firms were given no support when they were in trouble.

Government regulations:

Without proper regulation by the government in the financial market of Japan‘s industrial and

export profile, their rapid up-gradation was a mere fantasy. During the high growth period,

government sought to maintain a highly segmented financial structure owing to which the

authorities were in a position to influence the pattern of credit allocation. The growth of

speculative and non-productive investment and also the emergence of a black economy were

prevented by this policy. In financial market, the government provided incentives to the ―national

champion‖ firms and at the same time losing firms in the declining sectors were phased out in a

much better way. The maintenance of balance between these two objectives was the target of

national financial policy instead of cheapening credit (Patrick 1986).

Although maintaining a segmented structure and subsidized credit schemes was costlier but still its

benefits outweighed the costs. Owning to this government policy, dependence of large firms in

Japan on subsidized credit flows has declined where as financial support to declining industries

remained intact for longer periods.

In order to minimize dislocations in labor market and regional economics, it has been objective of

the policy to soften out the adjustment process and reduce capacity in a desirable manner. The

same view is further supported by Vitas 1990 who contends that the total resources of the trust

fund bureau increased over time as compared to total assets of financial system and GNP, as a

result of postal savings bank in mobilizing household deposits (vitas 1990). The amount of subsidy

allowed to preferential credit is generally below the markets rates to the extent of 1 to 2 percent

points.

To finance governmental financial institutions greater generosity was shown in allowing the

subsidy. In case of small firms the difference between the rates of finances, availed from informal

sources and money markets, were covered by interest rate subsidy.

Korea’s regulation:

In 1960s and 1970s government of Korea introduced greater regulations in the financial markets

which were adopted in three phased strategy for the implementation of operational credit policy.

During the first phase i.e., 1950s and 1960s credit policy was directed towards selected activities,

mainly exports and industrial investment. Export promotion measures that included the use of

multiple exchange rates, direct cash payments and permission to borrow in foreign currencies and

to import restricted commodities under the export-import link which really strengthened the credit

policy of the government. In heavily protected domestic market this link allowed exporters to

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benefit from scarcity rents. However in 1960‘s this policy was replaced by the government and

instead incentives in the field of export by allowing tariff exemptions for imports to exports

products of the country was allowed. These export oriented policies were supplemented by the

subsidized credit scheme. Various measures adopted by the government like use of trade

promotion meetings, company specific exports targets, close monitoring of exports and special

awards for export achievements, played a significant role in the performance of export sector.

In 1970 the government brought some changes in the credit policy in the development of heavy

and chemical industries were placed on the top of the preferential list. This was the second phase

of the Korean government credit policy. During this period the government was fully in control of

entire credit system and credit on preferential rates was made available to the strategic industries

i.e. development of heavy and chemical industries. Under this policy between 43 and 50 percent

was preferential finance out of the total lending. In 1983 export of heavy and chemical industries

touched 56 percent of total exports.

In the third phase of the government credit policy approach of the government was changed in

1980‘s in the light of the achievements and the problem of the heavy chemical industries. How the

government directly interfered in industrial and financial restructuring of industries and companies

which were in trouble. Now the credit policy was aimed at ―picking winners‖ and also ―phasing

out losers‖. The government now started lending to small and medium- size firms so that a more

balanced industrial sector is produced instead of enjoying hegemony by a few business giants

(World Bank1987) .

In most of the late industrialist countries, the state interferes with subsidies to distort

relative prices in order to stimulate industrialization and economic activity (Amsden 1989). But, he

opines that in Korea the government had strict control on the subsidy recipients & their

performance standards were thoroughly monitored. The aim of the industrial policy to boost up

industrial exports in high value added sectors was achieved as a result of import protection, export

promotion, industrial licensing to large business magnets and also the availability of cheap debt

finance.

Some critics of Korean credit policy as a result of which typical enterprises was highly

leveraged and especially vulnerable to reduction or withdrawal of credit (Kuznets 1685). The

Korean policies were violating laissez-faire approach (Dombusch and Parik 1987). A sheltered

market was credit for the development of infomt industries by using Tariff and licensing &

subsidies. Thus through the credit system preferred sectors were favored with subsidized rates.

Bank deposits rapidly increased in the mid 1960s when real deposit rates were increased by the

government, Role of the government in credit allocation was increased in order to allow greater

subsidies to preferential industrial sectors.

Loans to unproductive sector such services and leisure‘s and consumer loans were totally

discouraged (cho 1989).

It was observed that credit policy was fully controlled by the deep interference of the government.

New comers with minimum equity stakes were encouraged in this way competition in the market

was stimulated (|World Bank).

However this situation ultimately leads to selected future industry leaders on the ―survival of

fastest growing‖ basis. Not only additional credit was stopped but also the existing loans were

recalled from the firm that could not meet the performance standards and boost up their exports.

On the other hand the successful firms were facilitated with more preferential finances. This

discipline exercised by the government played a very important role in achieving the targets fixed

by the government of Korea (Amsden1989).

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In case of Japan only access to credit facilities was encouraged instead of large subsidies, where as

in Korea interest rate subsidies were quite large and attractive. The interest rate subsidies were

occasionally quite large. Export and investment finance were made available that were lower than

market rates by 5 to 24 percentage points during 1960 and 1970 (Cole and Park (1987) Page 83,

(World Bank 1987) Page 83). In some other reports between 1970 and 1976 subsidies between 7

and 28 percent of gross capital stock of manufacturing sector were allowed (Cold and Park 1983

Page 191). Availability of credit, especially by direct and indirect exporters, was more important

than the cost subsidy (Rhee 1990). In contrast to this Korean policy, Japan‘s credit policy was not

directed to allow large subsidies and only credit facilities were made available to priority

borrowers.

In order to increase the country, the exporters were given a number of incentives i.e. exemption

from import duties of intermediate goods that were used as inputs for export products, reduction of

corporate taxes for exporters, and also financial facilities on preferential rates. However

international comparative advantage patron was adopted soon as the industrial incentive system

could not produce the desired results (koo 1984).

In 1970 the intervention of the government in credit management brought fruitful result despite the

high cost. Production capacity was so rapidly expanded by the preferred sectors that the firms did

not have sufficient time to gain experience and also adopt new technologies. As a result of this

situation quality of the products deteriorated leading to decline in exports. Moreover many of the

firms suffered from low quality products, excess capacity and high production costs. This dual

nature of the credit system created a major unbalance in the industrial structure of the country as

the sectors which was not supported by the government was compelled to borrow from the

informal market at a very high rate. High inflation and low saving was the outcome of the selective

low cost interest policy of the government leading to deterioration of the external balance of the

country. Subsequently in 1980s government was in a portion to reduce intervention in financial

market when the subsidized firms gradually became competitive and less dependent on credit

subsidization (Rhee 1990). This is understood by west Phal (1990) who has noted that the Korean

government‘s industrial policies have been used with the context of a consistent strategy of

industrialization. The objective of the strategy has been to build comparative advantage in new

industries or the rebuild it in old ones. According to westphal the selective intervention of

government of Korea remarkably contributed to the rapid industrial development of the country.

He was also of the opinion that the government should strictly intervene in the priority sectors,

through credit rationing, import protection and other measures, to achieve the desired results

(pp53-56).

The government intervention in credit markets was accompanied by rapid growth and structural

change in the financial sector. The M3/GNP ratio which measures the relative size of the financial

section increased from about 0.03 in 1962 to 1.26 in 1989. The financial intermediation ratio

outstanding domestic financial assets, the ratio of financial assets to nominal GDP, almost tripled

over this period. The financial interrelation ratio divided by GNP at current prices also increased

sharply. The institutions and assets were rapidly diversified. Korea‘s financial sector now includes

well organized and fast growing money and capital market for individuals and institutions in the

form of fixed deposits to cash management, investment banking and asset management.

The rapid growth of credit extended by non-bank financial intermediaries such as investment and

finance companies and merchant banking firms and direct financing through capital market have

been the most significant developments in the financial system of Korea. The share of the non-

bank financial intermediaries in total financing of the non financial sector went to 30.3 percent

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during the 1985-89 period from 12.3 percent during the 1970-74 period. The share of funds raised

through the money and capital markets almost doubled between the two sub-periods. Deposit

money banks have maintained their share at around 25% after a period of relative decline. The

decline of the foreign financing and informal borrowing from the unregulated credit markets

resulted in the large gain of the non-bank financial intermediaries and direct financing.

Lessons for Pakistan in the Japanese and Korean Experiences.

Since the creation of Pakistan in 1947 as a result of partition of sub-continent, the country

experienced persistent uneven development. Pakistan‘s economic growth has excessively been

dependent on agriculture sector, which is considered as the back bone of the economy. However,

political instability, military regime takeovers, Pakistan alliance with USA in the Afghan War

against the former Soviet Union, waves of terrorism, corrupt political setups and gross financial

mismanagement in the shape of writing off of billions of domestic loans on political basis, large

scale illegal smuggling across the boarders has, in fact, derailed the economic growth of the

country and the fate of economic breathing was left at the mercy of seeking loans from IMF,

World Bank and other agencies at higher interest rates and unfavorable terms and conditionalities.

Above all, Post 9/11 events and Pakistan opting to become US ally in the Afghan War, and the

resultant waves of terrorists activities in the country for the last ten years, has struck deadly blow

to the industrial growth and economic health of the country, which in turn has arrested the socio-

economic growth in the society.

To turn the tide and put the country back on the way leading to economic growth and prosperity, it

is imperative that viable financial liberalization policies must be implemented, in letter and spirit,

on the pattern of Japan and Korea which will bring enormous dividends in the shape of large scale

savings, capital accumulation, soft credit to industrial sector, investment and industrial revival

leading to economic uplift in the country.

To cope with such challenge, in Pakistan a sustainable mechanism is needed through which the

requirements of real investors are properly met with. Such policy must be strengthened and

improved. To achieve this purpose, emphasis should be laid on the continued credit planning and

its effective implementation. Regardless of the fact that market based policy investments should

receive due recognition and encouragement, but the role of government in determining the market

trends should be delineated and must be clearly visible. Therefore, the state should guide the

market and not simply follow the market. Albeit money and capital markets at domestic and

international level are controlled by the monopolists coupled with heavy indebtedness of Pakistan,

the significance of state intervention cannot be ruled out. The enormous ramifications of black

marketing on the economy makes the financial system prone to unpredictable shocks which, in

turn, presents a highly precarious fiscal picture from every facet of the economy. The perceived

benefits of following the policy of financial liberalization under these circumstances may not

materialize and its costs may outweigh the dividends, leading to various forms of complications.

With a view to linchpin the accelerated growth of government debts, the budget deficit should not

be curbed to offset the imbalance caused by piling debts. The reform in financial sector adjustment

loan has contributed to a remarkable extent towards a very rapid increase in the cost of public

borrowing.

The financial sector liberalization reduces the capacity of the government to select and support

―winners‖ and phase out the ―losers‖. This becomes important when we realize the need to direct

our policies towards macroeconomic strategy to strengthen the micro foundation of the economy.

Therefore, following the example of Japan and South Korea, there is a need for clearly announcing

and implementing a dualistic macroeconomic strategy, one segment of which aims at encouraging

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a small group of ―national champion‖ firms to materialize the country‘s full economic potential

and rapidly upgrade technological and organizational capabilities. The prevailing fiscal policies in

place are bereft of fetching the said objectives. To accomplish this goal, dynamic investment and

financing strategies become inevitable which can guarantee comparative advantage in the

respective domains. In Germany, Japan, South Korea, China, Taiwan and Sweden the government

has played a key role in encouraging firms to focus on dynamic comparative advantages. On the

other hand, the market has a short-term orientation, and investment funds in a laissez-faire regime

normally concentrate in activities which yield highest short-term profitability. The behavior of the

domestic and foreign firms is somewhat different in this respect. Hence during 1960-89 South

Korea maintained strict restrictions on foreign companies and on aggregate foreign investment

(Singer and Ansari 1988). At present rapid economic and financial development is possible by

more effective monitoring and supervision of subsidized financial units, greater operational

flexibility, better coordination of public and private sector policies, and more prompt response to

national and international challenges and opportunities.

Long term and short term financial, credit and economic policies need to be formulated followed

by its implementation vigorously pursued by well trained and experienced professionals. The

market short term approach should be replaced by the government long term policies followed in

the wake of extending full fledged support and guidance to the ―national champions‖. Moreover,

better opportunities and well trained manpower be made available to new comers. To be more

competitive in international market and also to meet the future challenges, more attention should

be given to research and technology.

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References

Alter, G. (1990), ―Interest Rate Liberalization‖ World Bank.

Amsdem, A. (1989), Asia`s Next Giant: South Korea and Late Industrialization.

Ansari, J. (1993) ―The Adjustment Assistance Policy of the World Bank. An Assesment‖

Journal of the Institute of Bankers in Pakistan.

Buffee, E. (1984) ―Financial Repression .the New Structuralists and Stabilization policies in the

semi industrialized Countries ―Journal of Development economics, PP.451-452.

Corbett. J. (1989), ―International perspectives on Finance Evidence from Japan‖, Oxford review

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Cho, y. (1989), ―Finance and Development – the Korea Approach‖. Oxford Review of Economic

Policy, Vol. 2, PP. 156-169.

Cole, D. and Park. C (1983), ― Financing Development in Korea‖, Cambridge

Dorntusch, R. and Park, Y. C. (1987), ―Korea Growth Policy Brookings Papers‖ No. 2, PP. 389-

446.

Eccleston, B. (1986), ―The State, Finance and Industry in Japan‖ in A Cox (ed) . The state, Finance

and Industry Wheatsheaf Brighton.

Fry, M.J. (1985), ―Money interest and Banking in Economic Development‖. Ballimore.

Goldsmith, R. (1969), ―Financial Structure and Development‖ Yale Conn.

Horiuchi, A. Packer, F. and Fakuda, S. (1988)‖ What Role has the main bank played in Japan‖

Journal of the Japanese and International Economies No.2, PP.159-180.

Horiuchi, A. Packer, F. and Fakuda, S., (1990), ―Financial Liberalization the case of Japan‖ .EDI

mimo.

Kuznets, P. (1985), ―Government and Economic Strategy in Korea‖ Pacific Affairs Vol. 58, PP.

44-67.

Koo, S-Y. (1984),―Role of the Government in Korea`s Industrial Development‖, KDI Working

papers, (mimo)

Long, M. and Vitas, D. (1991), ―Financial Regulation Policy Research Working paper‖ WPS 803,

World Bank.

Lee, J. (1991), ―Financial Sector and Economic Development‖, Asian Development Bank.

McKinnon, R. (1973), ―Money and capital in Economic Development‖, Brookings.

McKinnon, R. (1990), ―Financial Liberalization and Economic Development‖ Oxford Policy Vol

.2.No.4.PP, 38-61

Magizner, I. and Hout, T. (1980), Japanese Industrial policy University of California Berkley.

Patrick, M. (1980), ―Japan`s Rich Technology Industries‖, Washington.

Rhee, Y. (1990), The Role of Export initiative in Economic Development: Lesson from Korea.

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PP.73-88.

Suzuki, Y. (1980), ―Money and Banking in Contemporary Japan‖. Yale UP.

Singer, H. W. and Ansari, J. (1988), ―A Rich and Poor Countries‖ Routledge London (4th

Ed).

Taranishi, J. (1990), ―The Financial System and the Industrialization of Japan ―Banco Nazonaildel

Lovera Quarterly No 174, PP. 309-34.

Vitlas, D. and Wang, B. (1992), ―Credit Policies in Japan and Korea‖ .WPS 147 World Bank.

World Bank, (1989), ―World Development Report 1989‖. Washington.

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World Bank. (1987), ―Korea: Managing the Industrial Transition‖. Washington.

World Bank. (1992),‖ Structure and Sector Adjustment Operation. The second OED Review‖,

Washington.

Zaman, R. M. (11 June, 1993), The News Karachi.

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E-Procurement in the organizational performance: Business case of export

based textile industry

Salman Khalid (Corresponding Author)

School of Management Studies

The University of Faisalabad, Faisalabad-37610, Pakistan

Shahbaz Ahmad

Department of Computer Sciences, National Textile University,

Sheikhupura Road, Faisalabad-37610, Pakistan

Muhammad Zohaib Irshad Department of Business Administration

The Government College University Faisalabad, Faisalabad-37610, Pakistan

Abstract Purpose: The Purpose of this paper is to examine the factors influencing e-procurement adoption

in export based textile firms located within Faisalabad, Pakistan.

Design/Methodology/Approach: The paper reports on an extended multi-method case study and

examines two industrial firms through in-depth interviews with managers involved in the e-

procurement projects. Both cases were presented and explored individually, for identification of

relevant drivers and problematic factors.

Findings: The research identifies seven drivers which can form the basis of a business case for e-

procurement project, and eight problem factors are identified which have the potential to militate

the original business case. The findings also revealed that e-procurement is being used in the

export based textile sector for transactions of routine, non-strategic purchases.

Research Limitations/Implications: The research focuses on the export based textile firms of

Faisalabad, Pakistan, yet could have implications for other complex systems of organizations such

as public sector, or other multinational companies considering implementing e-procurement in

developing countries.

Originality/Value: Much research on e-procurement has been conducted in the service sector and

this paper contributes to the small but growing number of studies of e-procurement in the context

of the manufacturing firms by studying e-procurement in the textile industry (Pakistan). The paper

provides managers with empirical evidence of the drivers and of the problems encountered in

implementation of e-procurement.

Keywords: E-procurement, textile industry, supplier relationship, supply chain performance and

integration, drivers and barriers

Paper type: Research paper

Introduction In the emerging global economy, e-procurement has increasingly become a necessary

component of business strategy, provided organizations with vast opportunities to operate their

businesses beyond their traditional physical boundaries (MacGregor and Vrazalic, 2005). More

specifically e-procurement has provided manufacturing firms with more effective solutions to

drive value into their existing business (Neef, 2000).

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The competition of today‘s global marketplace is driving organizations to reshape their

supply chain to increase efficiencies and to reduce overall cost. Procurement is the key point of

contact with most supply chain stakeholders. The decisions taken by procurement professionals

can have great impact on the overall supply chain and production processes of firm. Therefore,

many organizations are attempting to redesign and rationalize their procurement process.

Procurement is considered as a strategic activity in the value chain as it usually represents

one of the largest expense items in a firm‘s cost structure. According to Hawking et al. (2004), the

purchase of goods and services represents the single largest cost item for any firm since each dollar

a company earns on its sale, it spends about $0.50-60 on goods and services ( Aboelmaged, 2009).

Huge capital is spent on the purchase of (raw) materials and services to support the business‘s

operations than on all other expense item combined (Hawking et al., 2004). The purchasing

expenditure in relation to cost of goods sold averages 50 percent and may be as high as 80 percent

(Van Weele, 2005), therefore reduction in cost of bought- in- goods and service has been major

focus in much of manufacturers.

The Aberdeen Group (2001) conducted a study on spending analysis practices of 157 firms,

revealed that only a few firms truly know and understand how much they spend on products and

with which supplier. Further, Turban et al., (2006) indicated that purchasing officers in

(traditional) manual or even slow systematic procurement transactions tend to waste time on non-

value-added activities such as data entry, expending delivery, costing and invoicing, which is

considered time consuming and costly to trace, and handling of errors in ordering.

Traditionally, procurement has involved variety of communication mediums including the

use of phone, fax, mail, other electronic data interchange, and more recently e-mail and the internet

to facilitate procurement process between the various parties. The distinctive features of the

internet and related web-based technologies can potentially support and improve the activities of

procurement process through transforming traditional paper-based processes to e-procurement

(Gebauer et al., 1998).

Although, there are many definitions of term e-Procurement and confusion exits in defining

the term (Vaidya et al., 2004; World Bank, 2003; Murrray, 2001). E-procurement includes

sourcing, negotiation with suppliers, and research and development (R&D) co-ordination,

established by using Internet and other technological tool (Yen and Ng, 2003). While Presutti

(2003), defined e-procurement as all technologies used to facilitate buying using the Internet. E-

procurement is considered to be part of broader concept called information technology (IT), which

the American Heritage Dictionary (2005) defined as ―the development, installation, and

implementation of computer systems and applications‖. Rai et. al. (2006) presented four groups of

e-procurement innovations, which based on the major procurement process: electronic reverse

actions, electronic catalogue management, electronic order fulfillment and electronic payment and

settlement innovations. There is a large variety of e-procurement classifications, but common all is

the fact that e-procurement is composed of different applications (Knudsen, 2003).

Literature Review The literature on e-procurement has been growing since the late 1990s when papers began

to appear on the impact of internet and e-commerce on supply chain management (SCM)

(Aboelmaged, 2009).The literature advances a large array of benefits driving e-procurement

adoption (Tomorrowfirst, 2000). There have been extensive studies available on benefits and

disadvantages of e-procurement in literature. Generally advantages cited include lower purchasing

cost, improved communication, achieving compliance to contract, reduction in transaction cost,

enhanced planning, improved in procurement personnel efficiency and faster cycle times (Tatsis et

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al., 2006; Puschmann and Alt, 2005). Similarly, there has been a never ending discussion of the

disadvantages or barriers in implementing e-procurement in existing system, which include

problems in implementing and managing change, technology immaturity, conflict with suppliers,

organizational size to materialize savings, and cost of implementing e-procurement systems and

applications (Tanner et al., 2008; Shakir et al., 2007). Angeles and Nath (2007) explored the

challenges to e-procurement and identify three important issues, which include lack of system

integration and standardization, immaturity of e-procurement market services and buying difficult

of integrating e-commerce with other systems.

As literature gets rich, there has been little evaluation specifically of the business case for

e-procurement (Smart, 2009). It may be argued that the benefits identified from existing literature

on e-procurement, can help to create a basis for business case, but this has to be balanced with the

evidence of risks, adoption or implementation of problem, and barriers. The evidence of above

problem areas is now emerging from more recent studies. Croom (2005), states that there has been

poor validation for many e-business projects, due to survey results indicating that the justification

from adopters is based on reducing costs. Another survey based study of Tanner et al. (2008)

revealed that the potential and benefits of new information Technology (IT) investments such as e-

procurement are difficult to appraise. Similarly, the study of Rajkumar (2001) suggested that

benefits may prove difficult to measure as there are less visible costs in such implementation

including consultants, catalogue development and staff training programs and integration. Abery

and Glindemann (2004) suggest that alleged process cost reductions are a myth and a case based

upon process improvement alone will not justify the investment in e-procurement systems and

application. Min and Galle (2001) study smaller firms, observed that smaller organizations may

lack e-commerce capability and so reap fewer rewards, like technologies, cost of entry may be

high and benefits would be much lesser extensive.

Methodology The study has employed a cross-sectional case study method and examines two textile

firms through in-depth interviews with managers involved in e-procurement project. The firms

select for research are multinationals involved in buying and trading in international marketplaces.

The firms are situated in varying textile sectors (manufacturer units, and chemicals). They all

possess some common characteristics such as similar operations size and scope, being similar at

stages of usage of e-procurement systems and applications. For this research tow key research

questions were articulates:

Research question 1: What were the main drivers for e-procurement project adoption?

Research question 2: What key issues faced firm during and post implementation of e-

procurement project?

Once the firm showed its consent to participate, considerable time was spent indentifying

the appropriate respondent. To get valid responses, manager who owned projects or manager close

enough to the e-procurement project were selected for interview, i.e. those who involved in initial,

set up, ongoing phases, as well as senior executives of firm were interviewed. The senior

purchasing executives of firm were interviewed initially in order to establish the understanding of

the background, to projects and corporate level drivers. Middle and lower level managers were

then interviewed with same two questions. Unsurprisingly, the lower level managers were able to

provide more insight as they had usually struggled with day-to-day issues of implementation of

new projects and changes.

A minimum of five respondents was used in each firm and interviews took place over a

number of weeks during October 2010 to February 2011. The interviews were recorded and coded

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for further analysis. Techniques used in coding and interpreting interviewed data were based on

Mile and Huberman (1994). Approach. i.e., conduct within- case analysis, tabulating of responses

in the key areas, then to perform cross-case analysis to compare and contrast the results.

Cases

Company A

Company A started out in 1992, not only the largest socks manufacturer in South Asia, has

it also delivered the highest quality products to the global markets under various brand names.

Operates under two unites, one in Pakistan other is in Bangladesh. The central procurement team

of company A determines overall strategy is located in the Pakistan (Faisalabad) head office,

supported by the local and regional procurements group.

At the time of this case research being undertaken, the company had been involved in it e-

procurement project for eight years, and had successful implemented a range of solutions at

different points. Reverse actions have been used on a limited occasions for leverage, and some

routine products as well. RFX tools such as supplier‘s research, comparable quotations through

price and non-price criteria, and tendering, are deployed across a range of segments, to assist the

relevant departments in the contract award process. Similarly, the company A has deployed an

online buying tool based on ―Systems, Application and Products in Data Processing‖ (SAP) which

automates the RTP cycle of e-procurement.

The initial push behind these technological advance projects was a global program devised

to manage the indirect spend which had been under local (Faisalabad‘s unit) control. The firms set

a target of saving approximately 12 percent of its global indirect spend of PKR 700 million.

However, this figure was an estimation based on the existing systems and reporting was unable to

produce reliable figure. It was also identified that some e-procurement tools had been adopted

locally without any strategic co-ordination. The central (Faisalabad) procurement team recognized

the need to establish a common global process and database to manage this savings program,

found e-procurement as the means to achieve the desired targets.

Looking at the roots of the projects, these drives were clear for managers, who were

interviewed; they were honest in admitting that the e-procurement case was less well articulated.

The drivers discussed are all based on the certain assumptions of what e-procurement would

produce, i.e. improved process, improved data, transparency, and common standards, etc. The

main driver was the lack of information regarding indirect spend was major problem before

implementation of e-procurement applications and systems. The e-procurement system did not

provide the expected results, as full spend visibility is not yet available. The respondent

(managers) honestly admitted that they had not really understood what the technology would

deliver required results in this regard. The issue of visibility had been future complicated by the

differing accounting and reporting regulations in various parts of the world. The respondents of the

concerning authorities revealed that the firms had engaged an additional software company to do a

more detailed analysis of its global spend data to jump to the required results. In response to the

question of how many business cases were put forward prior to starting any e- procurement

project, three managers stated:

A future problem was recognized at change in people‘s job function, due to technological

advancement in routine operations which the firm had underestimated. The managers of firm were

realistic in starting e-procurement project but they had poor at dealing with the change to roles and

task of employees. Similarly, the changes in roles at both central and regional locations were

unclear, leading to confusion over responsibilities, once new application and systems were being

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introduced. The firm can only achieve their learning point from moving transactional to strategic

activities, which will result in achieving the results of saving program.

Company B

Company B was incorporated in 1981 is a manufacturer of chemical used in industrial and

established agricultural chemical in 2003, serving primarily to the United Arab Emirates and

European markets. Procurement exists as a Head Office (HO) function situated at Faisalabad with

some centralized personnel, although many of the procurement specialists are attached to

individuals business units located within markets.

The firm had undertaken its e-procurement project over a period of three to four years and

had adopted a number of successful solutions to address specific issues. Initially, the focus of e-

procurement project was on automation of the buying process and web-based system (SAP) was

implemented to manage the RTP cycle. Option of reverse auctions were adopted in only a limited

way and other tools to support marketing intelligence and sourcing were introduced once the basic

buying application functional. To ensure the reliable implementation of e-procurement practices, a

pilot project was undertaken, before implement to business units.

A key issue for which firm consider e-procurement project, was that due to poor

management information system firm had unreliable data and it incurred PKR 700 to 850 million

as total global spend. The driving forces for e-procurement program related to these global spent

and other key issues as shown here. Firstly, compliance contract and suppliers was major concern

for firm. Although the Head Office (HO) team has established prescribed central contracts and

bound regional businesses would order against these agreements, customized agreements were

available for privilege customers, and record keeping was very poor. Allied to compliance is the

key issue of existing management information which an e-procurement system was expected to

deliver, sometimes suppliers often to asked managers how firm was performing against contracts.

Secondly, vendor‘s price reductions were considered as a major driver; however, until

transparency in reporting was not established it would be difficult to monitor the level of savings

firm being achieved. On other hand firm was equally concerned with transaction efficiency,

namely reducing the purchase order cost transactions. Finally, the firm identified the need to

improve on time payment to suppliers where performance was not up to mark. This results in poor

relations with suppliers and affects the negotiations.

In effect, the approach was that e-procurement should support a wider transformation

program within the procurement function. The Head Office (HO) central team would be reduced

by 45 percent, with transactional buying being de-centralized and central team focusing on

strategic activities rather than transactional. This customizes approach of e-procurement led to the

presentation of a financial business case, which had to be drafted in accordance with nominal

capital expenditure rules. Full detail of the business case cannot be revealed here, however, total

cost in the implementation of e-procurement were established at PKR 500 million, including

systems, both application and system software purchases, consultancy and training support,

redundancy and concerning staff re-deployment. Initially reduction in vendor price and benefits

from business case were established at 15 million, which represents an estimated 3 percent of

global spend in all categories. This figure, produced by the e-procurement project team, and

recognized as fairly speculative, given the poor legacy data. Interesting, during interview one of

the e-procurement manager, added that this project was not just about the savings, leadership

wanted to use this technology to further as a public relations exercise.

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Discussion In this section author present some thematic findings from the individual organizational

cases. Here it should be clarified that this paper reports selectively on some findings in this project

through specific research questions. The information collected during interviews was supported by

various company information sources, which allow us to draw useful conclusions on the issues the

companies faced during phases of developing a case and ongoing use of the electronic

applications.

From the interviews with respondents the e-procurement drivers were identified which

applied on both cases and these are presented in Table I. It was evident that the projects were

initially driven by issues such as poor data visibility of spend, targets to improve existing

processes, aim of raising levels of productivity, and need to improve compliance with in

procurement operations. In reality, appropriate data were not available in firms to calculate

accurate savings targets and then to measure the benefits once projects were started. Both cases

revealed that the firms had difficulties in achieving expected results, adoption and integration. This

demonstrates as during interview one respondent stated, a misunderstanding or confusion exits

among what the technology could actually deliver. One can also perceive from this that the early

publicity and some of the literature on e-procurement have simplified the functionality and

deliverables (Smart, 2009). It emerged that procurement professionals are tempted to see e-

procurement as a solution for their problems and to set unattainable targets.

Table I: Summarize the drivers for e-procurement in both cases. Drivers Company A Company B

Intent to establish common processes ✔ ✔

Move procurement executives from transactional to strategic level ✔ ✔

Regulatory compliance ✔ ✔

To get visibility of global spent ✔ ✔

Supplier qualification and selection ✔

Improve payment and invoice system ✔ ✔

Reduction in numbers of supplier‘s ✔

The change management issues have been identified in both cases, and considered as key

success factors in an Information Technology (IT) project, firms have to understand the

importance of this requirement. Respondents in all two firms reported that their failure to

implement change effectively put e-procurement project at risk as savings and benefits postponed

or fail to become visible. Both cases reveal that the delivery of e-procurement is more problematic

than they had expected. In reality, business cases put forward can be based on false assumptions,

what will be achieved through such projects. The full range of issues and problems encountered

both firms in the implementation and usage phase of e-procurement summarized in Table II.

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Table II: Summarize the problem factors affected e-procurement implementation and development Problematic factors Company A Company B

Lack of knowledge regarding original business case ✔

Poor legacy of data and system ✔ ✔

Inappropriate training requirement ✔ ✔

Change management ✔ ✔

Re-defined job‘s (Tasks and Roles of employees) ✔ ✔

Unclear about what the technology could deliver ✔ ✔

Unachievable targets set initially ✔

Different standards (Accounting/Auditing/ Reporting) ✔

Unsurprisingly, it became clear from the interviews with respondents that the various e-

procurement applications are used for Varity of different purposes and inherent drivers. In both

cases, the firms developed a high budget for investment in e-procurement, based on overall savings

more than cost outlays. No formal evaluation was conducted on how much each application

individually could contribute to targets savings. Therefore, it derives that firms need a clearer

understanding of what individual components of e-procurement application can contribute, within

an overall business case context. This would allow managers for more accurate measuring

benefits, and to compare the contribution or value of alternative software. The mechanisms

address different business issues and it is necessary to understand which issues in purchasing

management each is designed to improve process.

Conclusion This paper has examined the issues faced in developing a business case and factors during

implementation of and usage of e-procurement project, through real world case examples from

textile industry. It is clear from the above cases that even large firms with significant resources are

struggling to achieve the full amount of the benefits which e-procurement offers. Both cases

suggest that due to lack of empirical data of the success factors in achieving e-procurement, firms

have taken a tentative approach to initiate this technology. However, it is not to suggest that these

projects have been a failure, both firms have gone some considerable way towards achieving the

targets they established.

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References

Abery, J. and Glindemann, C. (2004), ―The 10 nuggets of e-wisdom‖, Supply

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Aboelmaged, G.M., (2009). ―Predicting e-procurement adoption in a developing country:

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Shakir, M., Smith, G. and Gulee, E. (2007), ―E-procurement: reaching out to small and

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CONTROL MECHANISMS IN NON-FINANCIAL CORPORATIONS Shama Sadaqat

Hailey College of Commerce, University of The Punjab, Lahore, Pakistan

Nadeem Ayub Bhutta

Assistant Professor, University of Central Punjab, Lahore, Pakistan

Farah Adnan

Hailey College of Banking and Finance, University of The Punjab, Lahore, Pakistan

Muhammad Farhan Akhtar


Khizer Ali


Abstract

In this modern era of globalization without the development of business activities, no country can

be sure of its progress and prosperity. Likewise, survival in cutthroat competition, growth and

success of a business organization depends upon the effectiveness of its internal and external

mechanisms. According to the categorization, organizations are divided into: sole proprietorship,

partnership and corporation (Joint Stock Company). The corporation can be either public or

private. Publicly owned corporations enlisted on the Stock Exchanges. The listed corporations can

be (a) Financial or (b) Non-Financial. This paper relates to the third type of business organization

i.e. corporation, in a transitional economies like Pakistan, with an attempt for studying the internal

and external mechanisms engaged for the control of non-financial corporations. Generally three

hypothetical perspectives are leading the corporate literature, to recognize and comprehend the

mechanisms in use for the control of non-financial listed corporations. (1) Inter-corporate

Alliances. (2) Managerialism; and (3) Agency Theory. These hypothetical approaches applied to

illustrate the findings of hypotheses developed for the present study.

Keywords: Control systems; Control mechanisms; Corporate Governance; Performance

monitoring; Non-Financial Corporations

1.0 INTRODUCTION

In the present era, ―Corporation‖ has opened new doors of the economic development for countries

suffering from economic stagnation. By establishing corporations in Public and Private sector,

transitional countries can improve overall performance of their economies. Despite the fact,

Pakistan has sufficiently expanded its Corporate sector is still lagging behind when compared with

the other transitional economies of the world. This may be because corporation seems to be as one

of the most powerful engine or the business, commercial and economic growth.

Debate of the control of corporation and its governance is not new but under debate from the day

when the first artificial being (Corporation) was came in to existence. This is not an issue of

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commerce and business administration alone, but also frequently addressed in the disciplines like

Financial and Development Economics, Political Science, Law, Ethics, Environmental Studies,

Sociology, etc, etc.

The issue of the control of the corporation and its governance is critical in case of listed

corporations. Common stockholders have little or no influence in the conduct of corporation‘s

affairs and they have to be dependent upon the CEO and management to manage the firm in good

faith of the owners. If the standard of the control of corporation and its governance is poor, the

public will have less confidence in investing in that particular firm and will diminish the efficiency

of the stock market as a source of long-term und for corporation. A good corporate control and

governance system is, hence, beneficial particularly for listed and generally for the economy as a

whole. The investing public has become more conscious of their rights as stockholders. They have

high expectations from the CEOs. Increasing participation by institutional investors has also raised

the standard of the control of corporation and its governance o listed firms. As institutional

investors have larger stockholdings in listed firms, they can exert stronger influence on the

management and BOD of these firms, for better financial disclosures and higher standard of

business conduct.

It is the era of dispersed corporate ownership and passivity of stockholders. As pointed out by

Pound, a new model of ―governed corporation‖ is emerging. Under this model a corporation

controlled and governed, rather than managed, by its three critical constituencies – Stockholders,

Directors and managers. The result is, improved decision making for mutually desired outcome of

improved performance by a corporation, that is, ―Healthier, more self-renewing and more flexible‖

(1995:89,94,98).

Internationally, norms are changing, as BoD and stockholders are encouraged to make corporate

management more accountable for their performance. All over the international forums, the topic

of the corporate control and its governance is on the top agenda. The World Bank, international

monetary fund, Asian Development Bank, Islamic Development Bank, Organization of Economic

Corporation for Development (OECD), Group Eight, Commonwealth, WTO, all is concerned

about the corporate affairs. Concerns about the control of corporation and its governance have

rapidly risen especially after the series of corporate failures and collapses o the BCCI, the Daiwa

bank, the Maxwell, the Parwaja, Enron, WorldCom, etc.

Why ought to care about the control and governance of corporation? There are many reasons: as

appalling corporate governance can damage national economic and eventually global financial

stability. The financial crises in Asia, Russia, Argentina and elsewhere have demonstrated this.

Though circumstances differed, what all countries had in common was obscure control of

corporation and its governance structure that led to inefficient economic decision making.

In many transitional economies, poor control of the corporation and its governance has blamed for

the delay in restructuring after privatization. It means privatization succeeded in transferring

ownership of firms from public to private sector, ambiguous property rights, inadequate regulatory

and institutional framework resulted in unchecked internal and external mechanisms and concrete

ownership, employed for the control of corporation and its structure of governance. In many cases,

the rights of minority stockholders not protected indeed. It is also significance to note that the

challenge to advance the control of corporation and its governance is not restricted to budding

economies of the globe. Even the most highly developed economies are questioning and headed

for the better practices for the control of corporation and its governance. In United States, the

separation of Chairman and CEO- preferred by many investors is unusual. In addition, more

transparency in mergers & acquisitions, better treatment of minority shareholders is being called in

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European countries. In Japan, efforts are exerted for improvements in areas such as disclosure of

information and practices of BoDs. In UK, France, Australia, Germany and Sweden important

long-term efforts have undertaken in the area of the corporate law and the regulation of takeovers.

In transitional economies, knowledge of the de facto elements of the control of corporation and its

governance are essential. First, it enables each corporate player to fulfill his/her role in the internal

and external mechanisms. Second, because these mechanisms as a whole are in a developmental

stage, their knowledge may enable corporate players to identify deficiencies and advocate for

appropriate improvements to these mechanisms.

2.0 LITERATURE REVIEW

The purpose of this section is to review the existing corporate literature. An agreement exists in

literature that the control of corporation is the power to determine the broad policies for guidance

of the corporation (Goldsmith & Parmelee, 1940). The control of corporation refers not day-to-day

decision- making or the operational management of the corporation but rather to concept of the

control on the policy (Juran & Louden, 1966 and Bunting & Mizruchi, 1982) and overall strategic

control of the corporation (Scott, 1979).

In the literature on the BoD there appears to be a consensus that the primary constituency, to which

the BoD is accountable, is the stockholders of the corporation. The BoD as steward and legal

trustee of the stockholders is responsible for the rights, interests and security of the corporation.

The BoD, thus, is the permanent group responsible for the actions, activities, performance, results

and future of the corporation (Loudan, 1982 and Bilimoria, 1990).

However, due to globalization, the governance role of BoD broadened than the profitability,

maintenance and betterment of stockholders‘ wealth of financial, economic, social, ethical,

environmental and legal concerns.

Therefore, the BoD performs three interrelated governance functions: Legitimizing (fulfilling the

legal requirements); Directing (determining the mission, direction and broad strategies and policies

of the corporation); and, Auditing (overseeing).

An overview of the extensive body of corporate literature suggests three hypothetical perspectives

on the control of corporation mechanisms employed and corporate governance, relevant to the

evaluation of the board of directors and effectiveness with regard to the overall performance of the

corporation.

1. Agency Theory: Agency theory analyses the managerial incentive problems that are persuaded by

the severance of corporate ownership and corporate decision-making (Alchian & Demsetz, 1972;

Fama & Jenses, 1983). The theory defines the relationship between stockholders and managers as a

contract between principals (stockholders) and agents (managers), in which agents‘ behavior is

conditioned by the incentive structures that are implicitly or explicitly incorporated in the contract.

Agency problems arise in corporations because the managers stop bearing the full wealth effects of

their own decisions, if they do not own a substantial part of the corporation‘s equity. Under such

circumstances, the agents are possible engage in behavior that promotes their private wealth or

power but that is jumbled and disorganized from the stockholders‘ point of view. (Jensen &

meckling, 1976). Examples of such disorganized management actions are the unnecessary use of

corporate resources for managerial perquisites, which may vary from free lunches to private jets

(Jenses & Meckiln, 1976). Studies propose that agency problems can be solved in the course of (1)

optimizing risk-bearing characteristics of principals and agents, (2) escalating incentive association

between principals and agents (3) effectual principal monitoring of agents ( bestty & Zaja, 1994,

Zahra, 1996; Zahra & Pearee, 1989 and Zajae & Westphal, 1994).

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2. Managerialism: It claims that stockholders of corporation are becoming less influential in the

control of corporation and its governing affairs. This results that the ―Management‘ superseded the

function of overall corporate governance by the ‗ownership‘ (Nicholas, 1969). This separation of

ownership and control divided the corporate elite into two distinct camps of ‗owners‖ and

―managers‖ (Useem, 1980). Crosland has even gone forward by arguing that the stockholders have

no desire to govern and control the corporation, since ―the majority is ignorant of business – 40%

stockholders are women and the reminder too busy with their full-time jobs elsewhere‖ (1956). The

separation of ownership and control of corporation led to the raise of bureaucratic form of

corporations (Berle & Means, 1932; chandler, 1977). A main recognizing attribute of corporate

bureaucracies is the extent of formalization or the dependence on formal rules by which social

positions and practices are defined autonomously of the individual personality and values of

corporate contributors. Managerial perspective on the board of directors hold that boards are largely

irrelevant for corporate policy and decision making, which is performed by managers. The role of

non-executive directors (outside members) is to add prestige to the board of directors and provide

occasional counsel to the CEO. Management who retains control of the director selection process

and the director information apparatus dominate BoDs. This rubber stamp nature of BoDs (Herman,

1981) is further compounded by directors‘ lack of ownership interest in the corporation.

3. Inter-corporate Alliances: The hypothetical perspective of the power elite holds that the corporate

governance and control is applied through the association of relationships among firms. Mills saw

the social structure of America as a single power pyramid. At the top is a small group of economic

military elite, second level of professional managers including politicians and rest is of an

undistinguished mass of immobilized citizens. A devise for further concentrating economic power

and social contacts among corporate elite is the interlocking directorate. Mizruchi (1982) has

identified three models for interlocking directorates: coordination, cooperation and control. The

nature of dependence relations between firms differentiates these models. The coordination model

refers to interlocking directorates as a means for ensuring mutually beneficial corporate policy

through reciprocity and cooperation between firms that are in an essentially non-hierarchical

relationship. The cooperation model refers to director interlocks as a mechanism for gaining

support and cooperation of external agencies on which the corporation is dependent. The control

model refers to interlocking directorates as the means for corporations to dictate the policy of other

firms that are dependent upon it.

Mechanisms for the control of corporation: concentration of corporate ownership, by concentration

of corporate ownership‘ we mean that the ownership of large-block stockholdings in a firm by few

individuals, families, groups and institutions. The greater the percentage of stock owned, greater

the power to obtain representation on the BoD, Exercise influence over the management team and

overall control of the corporation. Various ratios, measuring the extent to which the ownership in a

corporation is concentrated, have been proposes and used in empirical analysis. Such measures

have also considerable importance, for example, ownership concentration indices plays a vital role

in the implementation of anti-trust laws in the unites States (Smyth, Boyes & Pesean, 1975).

3.0 THEORETICAL FRAMEWORK

The three perspectives on the control of corporation, as already discussed in the chapter of

literature review, have implications for the internal as well as external mechanisms employed for

the control of corporation in the non-financial firms. 1. Inter-corporate Alliances: This approach suggests that a privileged inner group, consisting of

large block holders, top managers and outside directors, who collectively sit on multiple BoDs

control the corporation through the structure of inter corporate ties. Further, the inter-corporate

alliances approach suggests that although interests of the inner circle are similar to those of the

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capitalist class of owners. The elite group will act in concern to maximize its own returns and to

perpetuate its own power and exclusiveness.

2. Managerialism: This theory suggests that managers control the corporation through their strategic

positions and seek to perpetuate their own existence and power regardless of the performance of

owners. Further it suggests that outside members of the BoDs (non-executive directors) can do little

to prevent this state of affairs. Thus, managerialism suggests that the owner-oriented criteria will

tend to be discounted in managerial evaluation decisions by the BoDs of firms that exhibit a high

degree of managerial control of the corporation.

3. Agency Theory: Agency theory suggests that the controversy of who controls the corporation is

not an issue. External market mechanisms, such as internal mechanisms, managerial labor market

or devices like the BoD, serve to align the interests of owners and managers. Agency theory points

to the dominance of the market in ensuring that managerial behaviors match the interests of owners.

Thus the theoretical frameworks on the internal and external mechanisms for the control of

corporation have different implications for the governing performance of the BoD. That is, for the

control of corporation, internal and external mechanisms employed in non-financial listed firms

will vary according to the control perspective adopted by a particular organization.

4.0 RESEARCH METHODOLOGY

Objective of the Present Study is to focus attention on one of the most important field of

management: the control of corporation and its internal and external mechanisms employed in the

non-financial listed firms.

Research Method considered, for the present study was Case Study Method. The case study

method, ―place, more emphasis on a full contextual analysis of fewer events or conditions and their

interrelations‖ (Cooper & Emory, 1995). The Universe (population), the corporate sector of

Pakistan consists of 42,348 corporations. Of these 39,444 corporations are in private sector 2,212

non-listed public corporations, and 768 listed corporations (Dawn, 2005).

This study is relating to the non-financial listed corporations, listed on KSE (Karachi Stock

Exchange, Karachi). More than 200 listed corporations are financial corporations. From the

remaining non-financial listed firms 531 corporations constitutes the sample for the present study.

(Data was not available for all 531 corporations)

4.1 Data Sources All the data was collected from the secondary published sources.

4.2 Explanation of Variables:

Measures: Managerial Control of the Corporation, was conceptualized and indicated by the two

observed variables: the dispersion of the corporations‘ stock, (this measure was calculated as 100

minus the percentage of total common stock held by the firms 5%owners. Several previous studies

have indicated that less than even a 5% ownership of common stock is sufficient to exercise

significant control in listed firms.) and Top Executives‘ Strategic Position (role and status in the

organization, this measure was the percentage of stock not held by the insiders or 100 minus the

percentage of the corporation‘s stock held by corporate insiders).

Size of Firm, the measured employed to operational size of the firm was sales of the corporation.

Accounting Performance, of the firm was measured in terms of firm‘s return on equity.

Market Performance, for the purpose of this study, market performance of the firm was measured

as the market or stockholders rate of return, defines as:

Pt + DPSt

Where,

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Pt = closing stock price

DPSt = dividends per share paid in fiscal year, adjusted for stock dividends &

Splits ( Murphy, 1985). Data for this measure were collected from Balance Sheet Analysis.

Corporate Miscoduct, in the broad usage of the term, corporate misconduct is any violation of

administrative, civil or criminal law committed by corporations ( Clinard and Yeager, 1980;

Clinard, 1983). Two measures of this variable were employed in this study: (1) the total number of

legal fillings or investigations against the corporation in each year, and (2) the total number of

cases lost or settled by the corporation during each year.

Technological Competitiveness, the measure for investment in technological competitiveness was

Research & development expenditure (R & D). The total amount of this variable in terms of sales,

obtained from annual reports was employed.

Industry Performance was operational as the total return to investors. Industry total returns to

investors in the stocks of firms of an industry that includes both price appreciation and dividend

yield. Returns were adjusted for stock splits, stock dividends, re-capitalization and corporate

reorganizations as they occurred. Data for this variable was collected Balance Sheet Analysis.

H0: There is no significant effect of type of control and type of performance indicators on internal

and external mechanisms employed in non-financial firms for the control of corporation.

H1: There is significant effect of type of control and type of performance indicators on internal and

external mechanisms employed in non-financial firms for the control of corporation.

Inter-corporate Alliances, suggest that as greater power accrues to the decisions of

corporation, owners and managers (from the collective possession of multiple linkages

advantageous to the corporation), BoD will seek to enhance its power and position as the inner

circle by positively rewarding the top executives of the corporation. Top executives, who are

important members of this dominant stratum, rewarded with greater compensation and enhanced

endurance in the corporation.

Thus, the inter corporate alliances perspective suggests that there will be a positive relationship

between network control of the corporation and level of internal mechanism, a positive association

between network control and changes in the internal mechanism and a negative relationship

between network control and the external mechanism employed for the control of corporation.

Managerialism, this theory of management control of corporation suggests, direct control of the

corporation by managers‘ influences the level of, changes in, and components weightings of

internal mechanism, as well as external mechanism. Level of internal mechanism, the top

executives have an interest in increasing and perpetuating their own power and prestige, and in

employing corporation‘s resources in the service of their own objectives, hence the theory of

managerialism suggests that direct control of corporation will be positively associated with the

internal mechanism. That is, managerialism suggests that high degree of direct control by

managers will be associated with higher level of internal mechanisms, since the BoDs of firms

controlled by managers will be unable to prevent the uneconomic employment of the corporation‘s

resources in the favor of managers. For the same reasons, the theory of managerialism suggests the

direct control of the corporation will positively influence changes in the internal mechanism. The

theory of managerialism suggests, there will be a positive association between direct control and

the proportion of short-term components for the following reasons:

Since future in uncertain and a variety of factors outside the control of management may encroach

their intended results, managers will prefer that the bulk of their compensation be not deferred to

some future point. Further, the period for which compensation committees evaluate executives is

usually short (an annual evaluation) executives will attempt to maximize short run profitability at

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the expense of long run gains. In this event managers will prefer to be rewarded for the current,

rather than future performance of firm. In this regard, managerialistic approach suggests that direct

control of the corporation will be positively related to the proportion of short-term compensation

components. Finally as regards the incidence of executive turnover, managerial theory suggests

that there will be a negative relationship, between the direct control and the incidence of executive

turnover, since managers who control the corporation will seek to ensure their own perpetuation

and power. In other words, this perspective suggests that higher degree of managerial control of

the corporation will be associated with a lower likelihood of executive turnover. As regards the

direct impact of various performance criteria available to evaluate managers, the theory of

managerialism suggests that managers, performances for firm size and accounting criteria will

dominate (since these are stable and controllable factores), and that diffuse ownership and a

powerless BoD will be unable to enforce the use of market criteria ( factors that are variable and

possibly outside managers control) to evaluate managers. Thus the theory points to the likely non-

significant effects of the firms‘ market performance on executive compensation and turnover

decisions. Further the managerialistic view suggests that there will be positive relationships

between firm size and level of compensation, between firm size and the proportion of short run

components of the compensation package, since size represents a performance criteria preferred by

managers on account of its stable controllable nature. Additionally, the theory suggests that

managers will attempt to ensure the employment of accounting performance criteria since

accounting data are highly vulnerable to manipulation by managers towards their own ends

(Solomen & smith, 1979) for this reason, the managerialistic approach points to the likely positive

relationship between accounting performance of the firm and the level of changes in, and the

proportion of short term compensation, and the likely negative relationship between accounting

and executive turnover.

As regards the criteria of performance relevant to the general public, the theory suggests that

corporate misconduct will be positively associated with the level of executive compensation, with

changes in compensation, and with the proportion of short run (current) components of the

compensation package, and negatively associated with the incidence of executive turnover since

such behaviors are likely to inflate both short run profitability and firm size, ends for which

managers controlling the corporation will seek to be rewarded. In other words, the managerialistic

perspective suggests that powerful managers will seek to discourage their BoDs from penalizing

them for corporate illegal activities. Hence, managerialism suggests that instead of being employed

as a disciplining criterion for the evaluation of managerial compensation and turnover, corporate

misconduct will instead be employed to favor managers‘ short term and firm expansion quests.

With regard to the criterion of technological competitiveness also of general concern to the public,

since such expenditures may have attached to them considerable downside risks and reduced short

run profitability, managers will seek to ensure that their compensation is disassociated from this

criterion. Thus, the theory of managerialism suggests that this criterion will be non-significantly

(or, at best, negatively) associated with the level end changes in executive compensation, and non-

significantly (or, at best, positively) associated with the incidence of executive turnover.

Agency Theory, suggests that financial market and labor market mechanisms (like threat of the

corporate takeover, or the threat of replacement by other executives) together with the internal

monitoring and aligning structures (like the presence of an audit committee on the BoD or the

award of stock options to top executives) will discipline management to reduce its opportunities

inclinations regardless of who controls the corporation. Hence, agency theory suggests that there

will be no relationship between the control of corporation and the level of, changes in, or

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composition of executive compensation, or between type of control and the incidence of executive

turnover. Further, Agency theory points to the centrality of the market as the locus of control, to

the requirements of which the internal mechanisms of the control of corporation are adjusted.

Hence agency theory suggests that the existing external mechanisms reflect the market‘s

evaluation of the firm‘s current and future performance. To this extend, the agency theory says that

the level of internal mechanism, and external mechanisms, is associated with market information

regarding the firm‘s performance. Following the logic, agency theory suggests that stock market

performance of the firm will be positively associated with the level of internal mechanisms, with

changes in external mechanisms, and with the proportion of long-term components of the

performance of the firm, and negatively associated with the control of corporation.

5.0 DATA ANALYSIS

Since, the data used in this study have meaningful ratio scales, all analysis based on the covariance

between variables rather than their correlations. In the case of analyses employing the BoD change

variables, the SPSS software used to construct the input matrices.

Table 1: Covariance Matrix for Type of Control, Type of Performance Indicators and

Internal Mechanisms12

The covariance matrix and results of this model reported in Table 1. The general fit statistics of the

model suggests that the model fits satisfactorily. The chi-square statistics was 19.78 with 24 degree

of freedom, the adjusted goodness of fit was 941 and root mean square residual was .010. The

12

N=531

For this and other tables DISP = %age of stock not held by the powerful owners (5%)

INVINSTK = %age of stock not held by insiders

INTLK = No. of interlocking directorates AROR = Accounting rate of return

MROR = Marketing rat of return

NOFIL = No. of filings/ investigating NOJAF = No. of judgments against the firm

RD = Research & development expenditures

SALES = Total sales INDRT = Industry total return to investors

1 2 3 4 5 6 7 8 9 10

1 DISP .097

2 INVINSTK .019 .016

3 INTLK .011 .001 .035

4 AROR .031 .034 .001 .242

5 MROR .091 .050 .009 .021 .021

6 NOFIL .020 -.001 .022 .064 .009 .978

7 NOJAF .040 -.001 .027 .068 .009 .428 .892

8 RD .024 .005 .025 .010 .005 .165 .132 .169

9 SALES .025 .003 .017 .019 .089 .079 .165 .132 .063

10 INDRT .023 .001 .021 .026 .049 .105 .037 .129 .066 .527

Chi-square:

Degree of freedom:

Root mean square residual:

19.78

24

0.010

Adj: Goodness of fit:

Value of P:

0.941

0.707

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standardized estimates show that the estimated loadings of the observed variables on the constructs

of direct control and corporate misconduct are significant.

Table 2: Covariance matrix for the type of control, type of performance indicators and

external mechanisms

1 2 3 4 5 6 7 8 9 10

1 DISP .012

2 INVINSTK .019 .016

3 INTLK .002 .332 .066

4 AROR .621 .032 .081 .892

5 MROR .123 .050 .909 .081 .521

6 NOFIL .028 -.051 .022 .041 ,119 .982

7 NOJAF .256 -.001 .027 .069 -.009 .429 .832 .

8 RD .064 .025 .025 .019 .005 .165 .152 .969

9 SALES .023 .003 .917 .014 .084 .073 .168 .132 .033

10 INDRT .003 .001 .031 .026 .049 .155 .637 .729 .036 .427

Chi-square:

Degree of freedom:

Root mean square residual:

24.15

24

0.008

Adj: Goodness of fit:

Value of P:

0.939

0.456

The covariance matrix, results of the analysis employing changes in the BoD compositions

reported as the dependent variable of interests in table 2. The model achieved a chi-square

statistics of 24.15, which was significant with 24 degree of freedom. The adjusted goodness of fit

index was .939 and root mean square residual was .008. These general fir indices indicate that the

model fits satisfactorily.

6.0 RESULTS & CONCLUSIONS

To evaluate the influence of Direct Control and performance indices of market rate of return,

accounting rate of return, firm size, corporate misconduct and technological competitiveness,

structural equations models developed. With level of the structures and compositions of BoDs,

internal and external mechanisms employed for the control of non-financial listed firms, as the

independent variable of interest. These models also tested the effects of direct control on the firms‘

performance.

The findings of the analysis presented above capitulate diverse insights in to the context of the

control of corporation by broadening current appreciative of the idea of the control of corporation

to incorporate explanations based on inter corporate alliances approach (the network control),

managerialism (on the strategic position) and on agency theory (market evaluation).

Specifically, results of the analysis employed tests of the direct effects of type of control

established well-built support for the significance of the measure of market performance of the

corporation in the internal & external mechanisms used for the control in non-financial listed firms

of Pakistan. In this perspective, the proposal of inter corporate alliances approach received

dependable and vigorous support from the data. On the other hand, managerialism and agency

theory both for the control of corporation had momentous direct belongings, despite the fact that

they were rather less consistent. It suggests that a kind indulgent of the nature and consequences of

the control of corporation cannot markdown persuades of the associations of the network control,

or managerialism in shaping the corporate policy.

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The hypothesis rising from theories of inter corporate alliances were sustained with a consideration

to the intensity of internal mechanisms, transformation in external mechanisms and stockholder

rate of return on the level of internal mechanisms and external mechanisms. Hypotheses emerging

from the managerialist perspective received some support with endorsement obtained for the direct

effects of managerial (direct) control on the accounting performance of the firm, on the level of

internal and external mechanisms and on changes in the internal and external mechanisms.

Further the general lack of significance of coefficient involving the interaction of direct control

and stockholder rate of return (DIRRET) or support of these coefficients in a direction opposite to

that predicted. It further suggests endorsement of the noting that BoDs of firms dominated by

powerful managers‘ fail to serve owners‘ interests. However, the hefty number of consequences

are not in agreement with the hypothesis specified by the theory of managerialism proposes that

even in firms, subjugated by managers, BoDs appraisals of top executives taken into deliberation

at least to mere amount, the interests of the corporations‘ owners. Findings are as the degree of

managerial control increased, firm size and the levels of and changes in the compensations of

CEO‘s were negatively associated, may be interpreted that the preference of managers‘ are not

always continued at the disbursement of owners, even in the firms having exceedingly

authoritative managers. Market performance as an important criterion for the evaluation of top

managers was not ever-present. For instance, in neither the CEO compensation nor turnover

decision in firms restricted by commanding managers, or the firms managed by corporate elite,

market performance indicate that in firms characterized by a high degree of managerial control,

market performance often tends to either delinked with the reward and turnover of the CEO or be

otherwise employed in ways contrary to the preferences of the corporation.

Additionally the analysis described earlier also examined the influence of firm size and industry

performance on the nature of corporate control and the performance indicators. It indicates that, as

expected, firm size influenced direct control. Also as expected, effects on industry performance

and significant effects on the accounting and market performance of the firm.

The present study examined the propositions of differing perspectives regarding the control of

corporation for the governing performance of the BoD in the non-financial listed firms. In

particular, the performance of the BoD examined with respect to its ability to maintain owners‘

interests in the face of different control situations. This study contributes the extent knowledge in

three ways. First, the present study tries to implement a broader understanding of the construct of

the control of corporation. Second, this study examined the associations connecting the internal

and external mechanisms and firm performance gauge in non-financial firms. Third study engaged

SEM (structural equation modeling) techniques at the same time testing the illuminating power of

the viewpoint of inter-corporate alliances, managerialism and agency theory for the determination

of the internal and external mechanisms employed for the corporate control.

The findings of the present research proposed further examination on the areas of the control of

corporation. Further research should more richly examine the temperament of the rewards to

managers for appealing in long-term investment decisions and corporate illegal behaviors, both of

which may have outcomes to managers diverse from those preferred by the owner of the

corporation.

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References ABDULLAH, MIAN MUMTAZ (1999) Good Corporate Governance and role of audit, Dawn

Economic & Business Review, Karachi, May 17-23

AHIMUD, Y. and KAMIN, J. (1979) Revenue vs. Profit Maximization: Differences in behavior

by the type-of-control and by Market Power, Southern Economic Journal.

ALI, RAMLY BIN HJ (1996) Corporate Governance in Malaysia for Vision 2000: Issues and

Expectations

ALTAF, ZAFAR (1983) Pakistani Enterpreneurs, Croom Helm, London.

AMJAD, RASHID (1976) A Syudy of Investment behavior in Pakistan, 1962-70. The Pakistan

Development Review, Vol. XV, No.2 Summer.

ANJUM, JAMAL AHMED (1999) DEFINING Good Corporate Governance, Daily DAWN,

March 16.

ANSHEN, MELVIN and BACH, GEORGE LELAND (1960) Management and Corporations

1985, McGraw-Hill Book Company, New York.

CUBBIN,J and LEECH, D. (1983) ― the effect of shareholders dispersion on the degree of

control in British Companies: Theory and measurement,‖ Economic Journal.

DAILY, CATHERINE M. (1996) ― Governance pattern in bankruptcy reorganizations.‖ Strategic

Management Journal, 17

DAVIS, G.F. and STOUT, S. K. (1992) Organization theory and the market for corporate

control: A dynamic analysis of the characteristics of large takeover targets, 1980-1990.

Administrative Sciences Quarterly.

DEMSETZ, HAROLD (1988) Ownership, control and the firm, Basil Blackwell, Cambridge,

Massachusetts.

DENIS, DAVID J., DENIS, DIANE K.and SARIN, ATULIYA (1997) Ownership structure and

top executive turnover, Journal of financila Economics.

DHARWADKAR, RAVI (2000) Privatization in Emerging Economies: An Agency theory

perspective, Acadamy of Management Review, download from

http://www.findarticles.com.

DONALDSON, THOMAS and LEE E. PRESTON (1995) ― The stakeholder theory of the

corporation: Concepts, evidence, and implications.‖ Academy of Management Review.

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EVAN, W. M. and FREEMAN, R. E. (1988) A stakeholder theory of the modern corporation:

Kantian capitalism. In T. Beauchamp & N. Bowie (eds.), Ethical theory & Socity.

FATIMA, MEHNAZ, (2000) Corporate governance reform efforts in 1999, dawn economic 7

business review, karachi, january, 03-09

KEASY, K and WRIGHT, M. (1993) ― issues in corporate accountability and Governance,‖

Pitman Publishing, London.

LAMBERT, RICHARD A. and LARCKER, DAVID F. (1985) Executive compensation,

corporate decision-making and shareholder wealth: A review of the evidence, Midland

Corporate finance Journal, 2.

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MARIOLIS, PETER (1975) ―Interlocking directorships and control of corporations: The theory

of Bank Control.‖ Social Science Quarterly.

MEHMOOD, FARHAN (2001) Corporate governance and the takeover law, Dawn Economic &

Business Review, karachi, january29-February 04.

MOHIB, ABBAS A. (2000) Mdern corporate governance: lessons for Pakistan, Dawn Economic

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ZAHRA, S. and PEARCE, J. (1989) Boards of directors and corporate financial performance: a

review and integrative model. Journal of management.

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MONEY SUPPLY & STOCK MARKET PRICES: A STUDY ON KARACHI STOCK EXCHANGE

Qurat-Ul-Ain Zafar

MS Scholar, Faculty of Management Sciences, International Islamic University Islamabad, Pakistan

Mahira Rafique

MS Scholar, Faculty of Management Sciences, International Islamic University Islamabad, Pakistan

Dr. Zaheer Abbas

Assistant Professor, Faculty of Management Sciences, International Islamic University Islamabad, Pakistan

Abstract

This paper aims at investigating the relationship between money supply and stock returns with

reference to Pakistan economy. Monthly data of stock returns and money supply is taken from

June 2004 to Dec 2009. The techniques applied on the data are ADF, Johansen Co-integration and

Pair wise Granger Causality Tests. It was empirically found that, money supply does not impact

the returns of stock (KSE100 Index) but stock returns do have impact on the money supply. Keywords: Money supply, Stock returns.

1. INTRODUCTION & LITERATURE REVIEW

The relationship between money supply and stock returns has been a keen topic of discussion

among economists for some time now. According to some, the relationship exists but the direction

(as to being unidirectional or bidirectional) still invites debate. Whereas, others argue that if the

stock market is efficient, its returns should already depict any changes in the macroeconomic

variables and henceforth they negate existence of causal relationship between money supply and

stock returns.

Money supply is the total amount of money available in an economy at a particular time period.

The standard measure usually used to define money includes currency in circulation and demand

deposits. Money supply in any country is controlled by central bank. Whereas, stock returns is the

money gained or lost on stock prices. It is usually represented as rate of return. Money supply can

impact on the stock returns individually, and along with other macroeconomic variables as well.

Diverse literature is available on determining the relationship between money supply and stock

returns.

Sprinkel‘s work (1964) is considered as pioneering step in this regard. In his work, he studied the

relationship between money supply and stock price in the United States. He used the data from

1918 to 1960 and found a strong relationship between money supply and stock prices. His

conclusions although were primarily based upon graphical analysis. Portfolio Theory also explains

relation between money supply and stock returns. According to this theory, ―investors will shift

their portfolio choices to financial assets (including equity) rather than holding on to non-interest

bearing money as a result of an increase in money supply.‖ Jakkaphong Janrattanagul (2009) used

multiple linear regression model to analyze the relationship between money supply and Thailand

stock market returns. He used monthly data from 1990 to 2008. His study showed a positive effect

of money supply on stock market movement in Thailand. Shiblee (2009) used Pearson Correlation

Coefficients to check the relationship between money supply and stock price. Data from industrial

sector of NYSE was taken for a period of 1990 to 2007. She found Linear Relationship between

http://papers.ssrn.com/sol3/cf_dev/AbsByAuth.cfm?per_id=1561112

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Money Supply (M1) and Stock Prices and it was concluded that money supply showed the

strongest relation with respect to stock prices and can be used to predict stock prices.

Habibullah and Baharumshah (1996) studied whether output and money supply can be used to

predict stock prices by using a two-step tri-variate co-integration approach. They took monthly

data on these variables and found no co-integration between money supply, output and stock

markets in Malaysian economy. However, Habibullah (1998) in his later study found causality

between stock returns and money supply in Malaysian economy. V. Rasiah (2010) in his study

compared several macroeconomic variables with Malaysian stock market for a period of 1980 to

2006. Among the four variables studied, money supply was an important one. Using Vector Error-

Correction Model and calculating variance decompositions from unrestricted VAR, it was

concluded that stock returns are co-integrated with the variables under observation including

money supply. Thus Malaysian capital market provides ample evidence that the macroeconomic

variables do affect stock market returns.

Tarun Chordia, Asani Sarkar, and Avanidhar Subrahmanyam studied common determinants of

trading volume and daily bid-ask spreads for the stock and bond markets. They used weekly data

from 1991-1998. VAR model was used and results showed that stock and bond spreads and

volume are predictable. Their study show causative relationship between financial market liquidity

and monetary policy. Liquidity of one market strongly predicts the liquidity of other market.

Lawrence S. Davidson and Richard T. Froyen (1982) discussed the relationship between stock

returns and monetary policy changes as measured by federal fund rate. They used ―Tobin‘s

theoretical model‖ and ―Rozeff‘s predictive monetary portfolio‖ model. The results showed that

market quickly utilizes most recently available information on monetary aggregates. They found

that increase in federal fund rate tends to decrease the stock returns over 6 – 9 month period.

Bouakez, Essid, Normandin (2010) in their paper, have addressed these three questions

empirically: ―(i) Do stock returns respond to monetary policy shocks? (ii) Do stock returns alter

the transmission mechanism of monetary policy? and (iii) Does monetary policy systematically

react to stock returns?‖ Structural Vector Auto Regression on U.S data was applied and the

surprising results found for all three questions were in negation, thus contradicting other research

conclusions.

In Pakistan, Husain and Mahmood (1999) check a causal relationship between money supply and

stock prices. In this regard, three different models were used, namely: 1) Augment Dickey Fuller

Test 2) Durbin Watson Statistic 3) Error Correction Model. M1 and M2 were taken as variables

representing Money Supply whereas stock price indices for 1991 to 1999, were taken for six

sectors (including five sectoral and one general). They conclude that money supply and prices of

stock are non efficient with respect to each other vis-a-vis Pakistan.

Sulaiman D. Mohammad, Adnan Hussain & Adnan Ali (2009) in there paper, check relationship

among M2, Gross Fixed Capital Formation, Whole Sale Price Index, Industrial Production Index,

Call money Rate, Foreign Exchange Reserve and Foreign Exchange Rate. Quarterly data was

taken for a period of 1986 to 2008. Econometrical study using descriptive statistics, unit root and

auto regressive integrated moving average (ARIMA) model were used besides augmented dickey

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fuller (ADF) test. Of the selected variables, Empirical study showed that M2 is a significant

measure of stock prices and affected them negatively.

Thus these contradictory results, urged us to conduct a fresh study to explore the relationship

between stock returns and money supply in Pakistan.

2. DATA SOURCES

In this paper, the sample covers monthly data from June 2004 to Dec 2009. We have used M2 as

proxy of money supply, where:

M2 = M1 + saving deposits + time deposits + Money Market Mutual Funds (Non-Institutional)

Where:

M1 = Currency Notes + Coins + Checkable Deposits + Traveler Cheques

While KSE 100 Index has been taken as proxy for stock returns.

Monthly data of M2 has been retrieved from the published data of IMF. Whereas KSE 100 Index

Data has been taken from published data of Stock Exchange Securities, available at authentic

sources like Business Recorder.

3. METHODOLOGY

In this paper, the main purpose of our study is to check the nature and direction of relationship between money supply and stock returns. This topic has already been explored: [Husain and Mahmood (1999)] in Pakistan but the paper under reader‘s consideration provides a fresh insight into the subject and takes into account fresh time series data. In this paper, the sample covers monthly data from June 2004 to Dec 2009. We have used M2 as proxy of money supply, where: M2 = M1 + saving deposits + time deposits + Money Market Mutual Funds (Non-Institutional) Whereas KSE100 Index has been taken as proxy for Stock Returns. For the purpose of calculation, firstly the natural log of M2 has been taken while stock returns have been calculated by taking first difference of natural log KSE100 Index. Numerically represented as: Rt = LN KSE100 t – LN KSE100 t-1

Firstly, economic variables need to be tested for stationarity. Stationarity means that variables

shouldn‘t show any trend. That is, no autocorrelation should exist. To check for stationarity among

variables, Augmented Dickey Fuller (ADF) test was applied in this context. The test uses three

models:

Model 1 (without any intercept and trend)

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Model 2 (with intercept but no trend)

Model 3 (with both intercept and trend)

Of these three models, only model 2 & model 3 were estimated in our calculations. The test was

performed for the complete natural log series of both; Money Supply (M2) and Stock Index (KSE

100 Index). The series were not found to be stationary at level (original series). Thus, there was a

need to run the series in order of integration by taking difference of series. When ADF‘s calculated

value exceeds critical value, Ho (series is unit root/ non stationary) is rejected and series is

deemed to be stationary, thus depicting no auto correlation. Once the variables are estimated to be stationary, the long term relationship between them is checked through co-integration. Two or more series are said to be co-integrated, if they share a particular behavior with reference to long term fluctuations although they may be otherwise unrelated. In this regard, Johansen Co-Integration Test with Eigen value was run. Johansen‘s methodology is typically used in a setting where all the variables are I(1). Granger Causality Test (given by Clive Granger) was then run to ascertain if one time-series is useful in forecasting the other one. That is, whether a particular lagged series of values of one variable (X) is helpful in providing significant information about the lagged series of values of another variable (Y) and vice versa. Henceforth, it tells about Lead-Lag relationship between the two series of variables. The Null Hypothesis for Granger Causality Test is:

H0: no causality

If P value < 0.1, we reject H0 the results would be deemed significant and causality would be

present.

If P value > 0.1, then H0 would be accepted. Hence, there would be no causality and the results

would be insignificant. Lag of X is causing Y:

--------Eq(1)

Where H0: ∑ i = 0

That is, X does not cause Y

Lag of Y is causing X:

--------Eq(2)

Where H0: ∑ i = 0

That is, Y does not cause X

If no co-integration is found, then granger causality test is run at first difference.

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4. RESULTS:

First we check the stationarity of the data by applying unit root test. To apply unit root test we first take the natural log of M2 and KSE100 index. In unit root we apply ADF test. We apply ADF at level and at first difference. The results of ADF are reported in table 1. 4.1 Augmented Dickey-Fuller Unit Root Test: We only apply 2

nd and 3

rd model of ADF. The results shows that acceptance of the presence of

unit roots at level indicates that none of the series is stationary at level in both models. And the series become stationary at first difference in both models. This suggests that both series are integrated at same order. As both series are integrated at same order, there is a possibility of co-integration among the series. 4.2 Johansen Co-integration Test: Next, co-integration regression is applied and Johansen co-integration test is used and results are reported in table 2. The tables shows that as likelihood ratio of M2 and KSE does not exceed the critical value at either 5% or 1% significance level, so we accept the null hypothesis (Ho = no co-integration between series exist). Thus there is no co-integration among both series which indicates absence of a long term relationship between the two. 4.3 Pair wise Granger Causality Test: Finally, we run Granger Causality Test to check Lead-Lag relationship between the two series of variables. As there is no co-integration among both series, so we run Granger Causality Test at first difference. The results are reported in table 3. The results indicate that as probability of ‗M2 does not Granger Cause KSE‘ is greater than 0.1, so we accept Ho that M2 does not Granger Cause KSE and there exists no causality. Whereas the probability of 2

nd null hypothesis is less than 0.1, so we accept Ho that KSE does Granger Cause

M2. Thus, there exists a unidirectional relationship between KSE and M2. This means that KSE returns drive monetary policy makers to influence monetary policy.

5. SUMMARY AND CONCLUSIONS:

The purpose of this paper is to study the relationship between money supply and stock returns in the context of Pakistan. For money supply, M2 is used and for stock return, KSE100 index is used. The monthly data of M2 and KSE100 Index from June 2004 to Dec 2009 was taken. ADF, Johansen Co-integration and Pair wise Granger Causality Tests are used on data. Firstly, the stationarity of data has been checked by applying ADF test and found data stationary at 1

st difference. 2

nd and 3

rd models of ADF were used and both variables became stationary at same

level. Secondly, Johansen Co-integration was applied to check the co-integration among M2 and KSE100 Index, and it was found that no co-integration existed between both series. Lastly, Pair wise Granger Causality Test was used to check the causal relationship between both series and results show KSE 100 Index does Granger Cause M2. Thus, the KSE returns drive monetary policy makers to influence monetary policies and not conversely. Thus, monetary policy designers ought to keep a keen look on the stock market indices as they play a driving role in formulating the final monetary policy. The ups and downs in the stock market should be reflected in the monetary policy as per the findings of this study. Hence, monetary policy can be forecasted on the basis of KSE Returns.

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REFERENCES

Bouakez H., Essid B. O., & Normandin M. (2010, September 10). Stock Returns and Monetary

Policy: Are There Any Ties? Working Paper 10-26.

Chordia T., Sarkar A., & Subrahmayam A. (2001, December 11). Common Determinants of Bond

and Stock Market Liquidity: The Impact of Financial Crises, Monetary Policy, and Mutual

Fund Flows.

Davidson L. S., & Froyen R. T. (March 1982). Monetary Policy and Stock Returns: Are Stock

Markets Efficient.

Engle, R., & C. Granger. (1987). Cointegration and Error Correction: Representation, Estimation,

and Testing. Econometrica 251-276.

Husain F., & Mahmood T. (Winter 1999). Monetary Expansion and Stock Returns in Pakistan.

The Pakistan Development Review 38 : 4 Part II, 769–776.

Mohammad S. D., Hussain A., & Ali A. (2009). Impact of Macroeconomics Variables on Stock

Prices: Empirical Evidence in case of KSE. European Journal of Scientific Research 38

No.1, 96-103.

Rasiah R. R. V. (2010). Macroeconomic Activity and The Malaysian Stock Market: Empirival

Evidence of Dynamic Relations. The International Journal of Business and Finance

Research, 4.

Shiblee L. (2009, December 29). The Impact of Inflation, GDP, Unemployment, and Money Supply

on Stock Prices.

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Annexure

AT LEVEL AT FIRST DIFFERENCE

Intercept Intercept

&Trend Intercept

Intercept

& Trend

Model 2 Model 3 Model 2 Model 3

KSE -2.11 -1.84 -4.64 -4.84

M2 -1.32 -1.82 -4.84 -5.01

Critical

Value@1%

-3.53 -4.1 -3.54 -4.11

Critical

Value@5%

-2.91 -3.48 -2.91 -3.48

Augmented Dickey-Fuller Unit Root Test:

Table 1 Included observations: 64

Test assumption: Linear deterministic trend in the data

Series: KSE M2

Lags interval: 1 to 2

Likelihood 5 Percent 1 Percent Hypothesized

Eigenvalue Ratio Critical Value Critical Value No. of CE(s)

0.078492 5.653239 15.41 20.04 None

0.006566 0.421625 3.76 6.65 At most 1

*(**) denotes rejection of the hypothesis at 5%(1%) significant level

L.R. rejects any co-integration at 5% significance level.

Table 2 : Johansen Co-integration Test:

Sample: 1 67

Lags: 2

Null Hypothesis: Obs Probability

DM2 does not Granger Cause DKSE 64 0.33571

DKSE does not Granger Cause DM2 0.04311

Table 3: Pair wise Granger Causality Test

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Trade Flow Factors & Capital Account:

A study of Economic Growth in SAARC Countries

Ms. Nishwa iqbal

PhD Scholar of International Islamic University Islamabad, Department of Management

Sciences, Pakistan

Ms. Shazia Iqbal Khalid

PhD Scholar of International Islamic University Islamabad, Department of

Management Sciences, Pakistan

Mohammad Nisar

MS Scholar Faculty of Management Sciences, International Islamic university Islamabad

Dr. Zaheer Abbas

Assistant Professor of International Islamic University Islamabad, Department of

Management Sciences, Pakistan

Abstract

Main purpose behind this study is to explore the ultimate impact of Trade flow factors and Capital

Account on the Economic and Financial Growth of SAARC countries. Where SARRC includes

Pakistan, Nepal, Bhutan, Maldives, Sirilanka, India & Bangladesh established on 8th

December,

1985. After becoming members these countries agreed to share trade agreements with each other.

In order to find the relation data have been collected from international monetary fund for the

period of 20 years from 1990-2009. Where AFD and Co-Integration Test were applied, in addition

to these OLS test was also applied to find out growth is affected by trade flow factors and capital.

Findings show that exchange rate has a positive significant impact on the growth level in SAARC

countries. While trade restrictions have insignificant relation with growth, inflation has negative

insignificant relation with financial growth in SAARC countries. Capital Account impact on the

growth has also been checked where insignificant relationship have been found during the

investigation period.

Key Words: Growth, Capital Account, Exchange Rate, Trade Restriction, Inflation

1. Introduction

Firms initially work at their home level and earn profit which affects the growth of the economy.

Gradually it is suggested by the experts to expand the business across the borders of its country so

firms start operations around the world and become international firm. While working across the

borders earnings of firm involve exchange rate, any favorable changes in currency also changes the

economic growth. Afterwards at some stage when it is considered suitable for the firms they open

their subsidiaries in foreign countries controlled by their home county‘s main firm they are called

multinational firms. In this case firms directly invest in fixed assets of the foreign countries. At the

end of the period after earnings are transferred back to home country, this shift of profits boost the

economic growth of home country.

In previous decades the flow of capital across the boarders was not easy because of the trade

restrictions imposed by the Governments. This hurdles the expansion of many economies and their

growth altimately. But since the 19th

century the rising concept of borderless organization counties

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open the borders for foreign companies and investors. This results financial dealings around the

globe for investment in order to fulfill the need and demand of customers. Such openness of

economic transactions give rise industrialized economies. The elimination of borders among

countries brings exchange of money, people, products, services, skills etc. many researchers have

worked on the elimination of borders and opening of new doors of trade including DFI, Portfolio

Investment & Capital Investment (Capital Account).

Studies have been conducted on the trends of foreign direct investment and capital flows in

various countries. Research findings elaborate the observations regarding the impact of capital

mobility on economic growth. Few discussions have been made regarding the economic

integration of the markets in the past. Taylor, 1986 found elaborates that mobility of capital shows

a decreasing trend in the era of inter-war while a rising trend in the movement of capital across the

countries can be observed during the period of 19th

century. The main reason behind this upward

trend was openness of borders for each other and origination of the concept of borderless

organizations (Taylor, 1996).

In connection with the business operations across the country borders there are some

trade factors which affect the growth of economy i.e. Inflation, Trade Restrictions & Exchange

Rate. Inflation rate reduce the purchasing power of consumers as goods and services prices rise. In

order to control the higher inflationary affect central bank play an important role so that economy

can grow fastly and level of prices remain at some level between inflation and deflation(Web

source).

Trade restrictions on the other hand are the barriers on the flow of capital from one

country to another country Imposed by Governments in order to save local business. In some cases

governments imposed quotas on the imports or exports of products or services which hurdles or

restricts the free movement of capital across the borders and the trade growth ultimately. Another

trade factor which is very important from economic growth perspective i.e. Exchange rate is the

rate of exchange of one currency in terms of another country‘s currency. A strong currency few

amount will be used in exchange to receive more amount of a weak currency. Higher rate affect

the economy growth as it shows the increased demand of country‘s currency and ultimately its

products and services.

All above discussed are various changing the trends of economic growth of various

countries; which is explained by GDP or Gross Domestic Product. A high level of GDP shows

growth of the country‘s economy i.e. economy is moving towards prosperity and healthy

conditions by using all resources at its maximum level (web source). This Paper will focus study of

factors which affects the level economic growth in SAARC countries.

Where SAARC stands for “South Asian Association for Regional Cooperation” . It was

established after government leaders of states of Pakistan, Bhutan, Bangladesh, Maldives, Nepal,

Sirilanka & India accepted on 8th

December, 1985 the charter of this cooperation (Web source).

Through the platform provided by SAARC members countries get together in a friendly

environment to resolve various issues and make different economic dealings beneficial for each

other. While working together and opening the borders for trade purposes there are different forces

that have changed the tendency of economic growth of these member countries in recent years. It

has been still under discussion that what are those forces and how they have changed the level

growth. In this regard all SAARC member countries have been targeted to find out how growth in

these countries is affected by trade factors and capital account movements.

The research study made has been designed as follows: Literature and historical

discussions have been made about these counties where trade factors and capital account are

http://www.saarc.org/

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discussed in detail. Review part of the paper have been followed by theoretical framework where

a model have been proposed suggesting the possible impact on the growth, this part have been

followed by the methodology portion where details about data collection .and testing have been

given. Conclusion part has been added to the knowledge after the results and discussions where

test results are discussed and also their possible affects on the proposed model. Paper add to the

knowledge how trade restrictions, inflationary situations, exchange rate fluctuations & capital

account movements affect the growth of SAARC countries, it further bring into reader‘s dictionary

that how it vary among these countries


This portion reviews the work done by previous researchers on the economic growth and the

possible factors that have changed the trends of growth. After discussing the growth factors in

general sense, studies related to SAARC countries have been also focused.

Countries deal with each other in financial terms in order to get benefits from cross border

economies. Openness of borders gave birth to the welcoming behavior of people from different

regions; it further lessens the investor‘s hesitation to invest across the boundaries of their countries.

Globalization has changed the way people think about the trade and investment. Investors from all

around the globe are integrated on the same plate form to invest their funds and take benefits from

the potential of business out of their countries. In addition to this people expands their businesses

and open new lines of their business.

This expansion of business gives rise to the mobilization of capital from one country

to another and also creates new markets. Jho, (2003), in his study support and elaborate the idea

that among many other factors globalization affect the capital and also the industries (Jho,

2003).The new markets developed have high potential to absorb the funds from around the globe.

With the global integration and openness among the whole world, globalization gives rise to the

firms becoming MNCS and Transnational firms. Multinational firms also play their major role in

elimination of borders as they start manufacturing their products around the globe by opening their

subsidiaries in other counties duly controlled by headquarter located in home country, at the end

when profits are returned back to home it plays a vital role in economic growth of the country. In

this way movement of money and return back with profit changes the level and trends of growth in

various countries.To support the above a few findings by previous researchers are as follows:

2.1 Capital Account & Economic Growth:

Capital Account is very important from investment and growth point of view. It

comprises of Direct Foreign Investment, Portfolio Investments & Capital Investment. Capital

account has played its role in the development of economies; many authors have worked on the

issue and found that there exist a relationship between capital account and growth. Works done by

Kim.et.al (2004) elaborates that emergence of new markets begins due to openness of borders for

capital account. Researchers further argue that this liberalization of capital reduce the possible

impact of current account on the capital flows .It further reduces the impact of flow of capital on

factors a macro level. Work done by scholars also adds to the knowledge that rising trends of

investment as well as expenditures are linked with liberalization of capital account (Kim.et al.

2004).

Discussions have been made by previous researchers on the liberalization of flow of

capital where findings suggest that it has significant impact on the growth of country‘s economy.

They further found that this openness of FDI and other different structures of capital have not only

affected the development of a single country but it also changes the track of growth mechanism of

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whole globe (Garcia & Santana, 2004). Henry, (2007) supports the theory by adding that financial

growth also depends upon the free movement of investments around the globe (Henry, 2007). In

addition to the cause and effect relationship various authors have also worked to find out how

growth is related with capital movements and flows across the borders of a country. Saidi & Aloui,

(2010), found that there exist a direct link between both i.e. country growth and flow of capital

(Saidi & Aloui, 2010).

2.2 Trade Flow Factors & Economic Growth

Trade flow factors are also very important from growth point of view; where inflation is a

very crucial factor changing the shape of economy. Various research works have been done by

previous scholars to find out how inflation affects the economic position of a country and also the

world after the liberalization of trade. Study made shows that if inflation increases beyond some

level it spoil the economic position of a country (Arai.et al. 2002). In addition to inflation there is

another factor very important from growth point of view i.e. trade restriction which also hurdles

the economic growth and advancement in financial sector. Ideas have been explored by various

researchers and various theories and concepts are also suggested by them. Kreickemeier & Moller,

2006 movement of capital by decreasing trade restrictions lay its role for the welfare of people of

country and also in growth of the country (Kreickemeier & Moller, 2006).

In addition to the factors discussed above exchange rate also act as important variable that

transform the economies into new dimensions of growth or failures. Scholars have worked by

using the historical data of exchange rate and growth various countries where results show that

exchange rate fluctuations are very crucial for the accomplishment of the country‘s financial

position. Where studies made on Nigerian economic growth demonstrates that increasing exchange

rate push the economy situation toward prosperity and development (Aliyu, 2009). Taking into

account the above discussion study targets determination of growth of SAARC countries; by using

values for capital account and trade factors.

3. Theoretical Framework

Capital

Account

Factors affecting Trade Flows

Inflation

Exchange Rate Govt

Restriction

National Income

Economic

Growth

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4. Methodology

4.1 Data

This paper divides study work into two categories of research work. First category

comprises of exploration of possible impact of capital account on growth of SAARC countries.

Second category focus on impact of trade factors on Economic Growth. For this purpose SAARC

countries have been focused to find the results. Data was collected from the source of International

Monetary Fund for the period of twenty years from 1990-2009. For data Collection SAARC

countries focused includes Pakistan, Bangladesh and Nepal, India, Sri Lanka, Maldives & Bhutan.

In order to reach the findings ADF and OLS test have been applied. In addition to this to find out

long term relationship Co integration test was also applied among capital account and trade flow

factors.

4.2 Equation

(Equation No.1)

4.3 Variable Measurement

Gross Domestic Product shows total Gross Domestic earnings during the year by adding

manufacturing and service sector output.

Exchange Rate shows exchange rate of country‘s currency.

Inflation is measured by taking Consumer Price Index Values.

Trade Restriction calculated by GDP/(Imports+ Exports)

Capital Account is the value of Capital Account given during the period.

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4.3.6 Expected Parameterization

5. Results & Discussion

After completion of data collection Unit Root Test ADF have been applied to find out how much data are

integrated and how it fluctuates over the time period. Results shown in Table 1 depicts that data values comes

stationary at first difference and rejected the null hypothesis except one variable i.e. GDP where data comes stationary

at level and rejected the null hypothesis. So it can be said that exchange rate, capital account, inflation, trade

restrictions are stationary at first difference i.e. CA(1), EXCH(1), INF(1), TR(1) but not at CA(0), EXCH(0), INF(0),

TR(0). Table 1 explains ADF values for all variables where the critical value is also given which can be compared to

the values of 1st difference. For GDP results of ADF shows that GDP is stationary at level which can be shown as

GDP (0).

After applying ADF and verifying the data stationarity Long-term relationship among Exchange Rate,

Inflation , GDP, Trade Restrictions & capital Account have been find out by applying Co Integration test. Table 2 give

the view of the findings achieved for the test. Results show that all these variables have long-term relationship for

these countries where value of maximum likelihood is greater than critical value i.e. 96.55118>68.52 from at most 1 to

at most 5. This significance have shown that after the creation of SAARC trade barriers have been reduced between

these countries which provides economic growth and trade factors a chance flourish and prosper.

The last part of data analysis add to knowledge about the Ordinary Least Square method applied to find out

the impact of Exchange Rate, Inflation, Trade Restrictions & capital Account on economic growth in the SAARC

countries. Table 3 shows results for OLS method applied where CA t. statistic value is equal to 0.007188<2, this

depicts that there is positive insignificant relationship between the variables and capital account does not cause any

significant changes in growth of the economy in SAARC countries. The main reason may be that elements of current

account dominate the influence of capital account elements (FDI, Portfolio Investment, and Capital Investment) in

these countries, as import and export transactions among these countries are higher than the capital intensive

investments. After capital account another very important variable Exchange rate has also been added to the model.

Results shows that it has a positive significant impact on the financial growth of SAARC countries i.e. t. statistic value

8.102536>2.00, which is highly significant value. Trade restrictions impact have also been checked which shows has t

statistic value 1.378579<2.00. Results findings suggest that it is not significantly affecting the growth during the

period of 1990-2009 so the relationship between the variables is positive insignificant for SAARC countries. The main

reason behind it may be that during this period although these restrictions were eliminated but flow of trade was

distributed among the member countries so the share of trade was not at increased level to any single party which can

significantly bring changes in the growth. The last factor under discussion is inflation where t .statistic value -

0.178151<2.00. This shows that it has negative insignificant impact on the growth of the SAARC countries.

Regression results for cross country Dummy has also be achieved with the help f OLS test where Pakistan is

kept as base country dummy. DBANG is dummy for Bangladesh and it has a t.value of 4.262368, findings suggests

that it is highly significant with respect to base country i.e. Pakistan. DBHUTAN is dummy for Bhutan and it has t

value of 4.833814 showing it is significantly different from base country. Given below in the Table 3 there are dummy

DIND, DNEP, DSIRI for India, Nepal & Sirilanka respectively. Regression values for these three dummy are

Coefficient Expected Sign

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2.399600, 4.252872 & 12.56504 which shows that these entire three dummy are significantly different with respect to

base country. Whereas DMALD is dummy for Maldives with a regression value of 0.951996, this value explains that

dummy is insignificantly different from base country. R.Square value is also given in Regression Table.no.3 which is

0.710553. This value shows that more than 70 percent of the movements in natural log of GDP are explained by the


6. Conclusion

The research work put forward the relationship between GDP and other factors including trade flow factors

and capital account. Previous studies done by other reviewers and researchers suggests that trade flow factors have

significant impact on the development of economic position of SAARC countries. Reducing the barriers and

welcoming trade from other countries leads to huge capital movements across the borders which extend to the transfer

of human capital and skills as well. People of these countries get job opportunities and higher education across the

border.

Results analysis and discussion made above supports the theory that exchange rate has a positive significant

impact on the growth level in SAARC countries. While few other factors have insignificant relationship with the

economic growth. Results suggests that trade restrictions have insignificant relation with growth and inflation has

negative insignificant relation with financial growth in SAARC countries. In addition to the variables brought under

discussion Capital Account impact on the growth has also been checked which shows insignificant relationship for

SAARC during the investigation period. Debate has been made on the issue that its affect may be eliminated by

current account elements in these countries.

Work done can help the policy makers to focus on the capital intensive trades as well in addition to the other modes of

trade. Study made can be extended to other regions as by targeting other corporations or association in various areas.

References

Taylor, A.M. (1996),‖ International Capital Mobility in History: The Saving-Investment‖, Working Paper 5743

National Bureau Of Economic Research.

Inflation, Retrieved on 15 December, 2010 from http://www.investopedia.com/terms/i/inflation.asp.

Gross Domestic Product, Retrieved on 15 December, 2010 from http://www.thinkplaninvest.com/2009/04/what-is-

gdp/.

South Asian Association for Regional Cooperation, Retrieved on 15 December, 2010 from http://www.saarc.org/.

Kim.S., Kim,S.H.,& Wang.Y.(2004), “Macroeconomic Effects of Capital Account Liberalization: the Case of Korea”,

Review of Development Economics ,Vol. 8 No.4,Page. 624–639.

Garcia,F., & Santana,J.R. (2004) ―New evidence of the impact of capital account liberalization on economic growth‖,

Working paper series, Retrieved on 15 December, 2010 from http://ideas.repec.org/p/ecm/latm04/86.html.

Saidi,H., & Aloui, C. (2010). ―Capital Account Liberalization and Economic Growth: GMM System Analysis‖,

International Journal of Economics and Finance, Vol. 2, No. 5.

Henry, P.B. (2007), ―Capital Account Liberalization: Theory, Evidence, and Speculation‖, Journal of Economic

Literature, Vol. XLV, pp. 887–935.

Hahn. E, (2007), ―The Impact of Exchange Rate Shocks On Sectoral Activity and Prices in the Euro Area‖, Working

Paper Series No 796.

Aliyu, S.U.R. (2009), ―Impact of Oil Price Shock and Exchange Rate Volatility on Economic Growth in Nigeria: An

Empirical Investigation”, Research Journal of International Studies - Issue 11.

http://www.investopedia.com/terms/i/inflation.asp

http://www.thinkplaninvest.com/2009/04/what-is-gdp/

http://www.thinkplaninvest.com/2009/04/what-is-gdp/

http://www.saarc.org/

http://ideas.repec.org/p/ecm/latm04/86.html

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Annexure

Variables level 1st diff Critical Value

CA -3.23164 -7.06584 1% -3.48

5% -2.883

10% -2.5781

EXCHA -2.24312 -5.13608 1% -3.48

5% -2.883

10% -2.5781

GDP 3.915119 1.988118 1% -3.48

5% -2.883

10% -2.5781

INF -4.23275 -7.43778 1% -3.48

5% -2.883

10% -2.5781

TR -1.9616 -5.02047 1% -3.48

5% -2.883

10% -2.5781

Table 1: Unit Root test

Eigenvalue LHRatio 5% cv 1% cv Result

0.306703 96.55118 68.52 76.07 None **

0.140628 47.10111 47.21 54.46 At most 1

0.123788 26.64143 29.68 35.65 At most 2

0.045701 8.801541 15.41 20.04 At most 3

0.01825 2.486462 3.76 6.65 At most 4

Table 2: Co integration

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Variable Coefficient t-Statistic Prob.

C -1506413. -6.870516 0.0000

CA 0.034727 0.007188 0.9943

DBANG 682370.2 4.262368 0.0000

DBHUTAN 854905.9 4.833814 0.0000

DIND 666546.9 2.399600 0.0178

DMALD 554798.7 0.951996 0.3429

DNEP 732312.7 4.252872 0.0000

DSIRI 1851159. 12.56504 0.0000

EXCHA 10972.32 8.102536 0.0000

INF -107142.8 -0.178151 0.8589

TR 50104.89 1.378579 0.1704

R-squared 0.710553

Table 3: OLS Results for Variables & Cross country Dummy

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Business Processes Reengineering in The Islamic Republic of Iran Customs Administration

(A Case Study in Zahedan Customs Organization )

Dr. Badrodin Orei Yazdani

Faculty of Management and Accounting, University of Sistan and Baluchestan, Iran

Dr. Habibollah Salarzehi

Faculty of Management and Accounting, University of Sistan and Baluchestan, Iran

Mohsen Shahbeigi

Master of Industrial Engineering, Iran, zahedan

Abstract

The economic-social evolutions in recent decades at the world have forced the customs as general

reconsidering their own situations, functions and traditional roles, they obtain the required

preparation to accept the new responsibilities. Concentrating to the determining roles and effects of

business particularly external trade in achieving of a permanent and all-directions development at

the our country, the important function that the customs are accountable in providing of necessary

fields in order to access development, is understandable. On the other hand, it seems that the

affairs relative to business specially formalities of the goods release through customs of our

country especially Zahedan customs follows long and complicated rules and administrative

bureaucracy so that about ten percent of the total sum exchanged at the international business, is

the costs to supply of the documents and formalities relative to them. The main objective of

present study is the analyze of the goods release process through Zahedan customs by

reengineering approach. In this direction the present customs formalities in order to the goods

release through Zahedan customs has been investigated and the most important presumable

obstacles on the way of efficient getting the goods through were indentified and analyzed, and

finally two process es were evaluated to make the original and mild changes that their main part is

possible using the abilities of information technology in order to improve processes, their

presentations and validities by distribution a questionnaire to customs experts and clients.

Keyword:Business process reengineering, The Goods release process , Information technology.

Introduction

During recent decades, by considering to the ascending developments in international commercials

and increasing in exports amounts between countries, customs and customs affairs have had key

roles in worlds and nowadays they are one of the most important factors in equation and

international commercial policies. ―Customs‖ has devoted especial condition to itself in some

countries regarding to political and economical evolutions. Eliminating the rites and varying the

customs tariff are one of the issues that are posed in European unions for couple of years and / or

some countries to ―Gatt‖ system has shown their tendency to be convergent and having the same

international commercial relationships and applying the commercial exchange facilities.

Nowadays, foreign business issues play a key role in the most important global evolutions and they

are in the head of all political, economical, cultural, social affairs. Diplomacy is the international

ritual typically based on foreign business and customs has the international position among them

and is responsible to form the commercial policies in foreign business field / aspect. Reengineering

of business is one of the novel managing approaches in order to creating variation and basic and

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wonderful evolutions to achieve the customer satisfactory organization attention to itself in order

to creating wonderful improvement in their various processes. Hence , we attempt to pass an

important and useful pace in order to create fundamental variations and achieve excellent goals of

Zahedan customs by selecting this research in M.Sc thesis format by title ― Analyzing goods

release in Zahedan customs by reengineering approach ―.

Literature Review

Reengineering of business processes is one of the recent innovations of industrial engineering and

management that attempts by emphasizing on the rate of basical / radical design of strategy,

process , policies and guidelines and also organizational structure in order to optimizing affair

processes (Rotabkhan , 2000). Reengineering of business is an expanding strategy of improving

business that is posed for the first time by Michael Hamer and James Champi and Theas,

Davenport and short since 1990s (O‘neil , Terziovskia et al., 2003).

1990s were the summit point of reengineering approach. Since companies needed a novel method

regarding to develop in novel techniques in order to increase their competitive powers.

Reengineering has posed this method and after that / then several researches have done by

researchers and also important / prominent companies such as Oticket, Ford motor, America and

Italy bank, Progressive Insurance Company, Commercial relationships system services company

AT&T, Pasific soft company, Birmanghham mid shire building institute, International signα

company, Kingstone hospital, National Volkan insurance company, Ximence Tiksrorf computer

services company , … that have achieved valuable / worthful results. Reengineering is one of the

novel approach in company and organization evolutions that is managed since 1990s and has

considered because of basic problems resulting of applying old organizing methods in novel era

and they could achieve competitive advantage and remarkable evolutions and have known that

evolutionary method appropriately and applied it by suitable methodology. Approaches and

different methodologies are proposed by researchers for reengineering that we can consider

different classification for them. The quality of emphasizing and focusing on factors such as

Information Technology(IT),strategy,quality management, process and labor. Another approach is

the quality of viewing methodologies in innovating essence of reengineering and its inner essence ;

as an example , Hammer and Champy believe that reengineering is much more dependent to

creativity, innovation and novel thinking than curing and past experiences, they believe that

organization should define reengineering, separately. By this sight, defining a structural approach

for reengineering is impossible. However, Davenport, Short, Harrison and furey believe that a

defined / determined frame and applying experiences, proposing schemes and work schedules by

training and motivating individuals are needed for running reengineering project. One of the main

unit of Electronic Government is Electronic Business that customs organization has one of the

most important role in this aspect normally.

Based on this structure and regarding to global evolutions, some procedures are running for

mechanization of affair in Iran customs. Establishing of commercial single window is one of the

procedures that can carry out in order to meet the needs, facilitating and decreasing the time of

goods / items release in customs.

Commercial single window is a system that helps businessmen offer information for passing legal

requests regarding to exports or imports in a body unit. In applicable sight, single window provides

a physical or electronical input for offering and maintaining all data. This input is managing by a

unit that after that this information will be transferred to all related units. The following factors are

the commercial single window advantages:

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1.Decreasing costs via decreasing delays

2. Accelerating endorsing and releasing the goods

3. Providing the possibility of explaining rules because of making requests predictable for imports

and exports

4. Allocating sources more efficiently

5. Increasing the income transparence / transparency

Research Importance:

The scientific and technological developments of twentieth century also include management and

we can probably say that the rate of developing managing techniques are more than many sciences

and techniques. Managing the expanding and developed new organizations is in need of applying

novel techniques and technologies that should be exerted by managers and the reengineering

techniques of organizations is one of the most efficient of them. Exerting appropriate management

without analyzing methods that means defining the organizational problems and offering their

solutions are not possible. Our country prominent developments in social and economical affairs

have resulted in ascending expansion in organizations and we can observe the expansion of

previous organizations and creating and establishing new institutes. Hence, employing novel

management techniques are accounted necessary for exploiting limited organizational facilities.

Research Objectives:

Regarding to research issue, we can summarize the most important objects of this research as

follows:

-investigating the current position of releasing goods / items in Zahedan customs

- priorship of reengineering aspects

- introducing scientific and performing approaches in the aspect of improving the goods / items

release regarding to foursome criteria of reengineering (quality, cost, speed, customser

satisfactory)

Research Assumptions:

Main Assumptions:

-The goods / items release process in Zahedan customs is not satisfactory in clerks‘ sights

regarding to foursome engineering criteria

- The goods / items release process in Zahedan customs is not satisfactory in customer‘ sights

regarding to foursome engineering criteria.

Secondary Assumption:

- The goods release process in Zahedan customs has not appropriate rate in clerks‘ sights.

- The goods release process in Zahedan customs is not satisfactory considering to service quality in

clerks‘ sights.

- The goods release process in Zahedan customs is not appropriate considering to expenditures in

clerks‘ sights.

- The goods release process in Zahedan customs is not satisfactory in clerks‘ sights.

- The goods release process in Zahedan customs has not appropriate rate in customers‘ sights.

- The goods release process in Zahedan customs is not satisfactory considering to service quality in

customer‘ sights.

- The goods release process in Zahedan customs is not appropriate considering to expenditures in

customer‘ sights.

- The goods release process in Zahedan customs is not satisfactory in customer‘ sights.

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Research method:

This research is descriptive-passable considering to type and scientific – applicable considering to

object. The object of passable research is not creating variation by exact comparing various

features of factors in Ali Tile Aid in passable approach but also persue / follow a variation that has

occurred normally (Kochak Zadeh, Spring 86). In this research, a research inquiry is employed in

order to investigating current quality barriers such as process rate, service quality and its

expenditure. After depicting and describing current processes under investigation, the proposed

sample of processes is depicted in desired position. In this research, we employ reengineering

methodology of Davenport and Short.

Figure 1 demonstrates this methodology:

Sights

Developing

sights and

business and

process objects

Identification

Identifying

the processes

that need

designing

Understanding

Understanding

the current

processes and

measuring them

Identification

Identifying

the

qualifications

and

investigating

the needs to

IT

Primary

Sample

Designing

Figure 1. Theoretical frame of research, Davenport and Short methodology (Davenport & Short , 1990).

Statistical Population:

In this paper, we employed two statistical population for collecting the primary needed

information:

-The statistical population of customer that includes all individuals under the title of factor, the

goods owner or the goods owner‘s representative that refer to Zahedan customs.

- The statistical population of clerks that includes clerks and experts who are involved in processes

which are related to goods release in Zahedan customs. Inquiry, is the primary reference for

collecting information in this research. The inquiry of this research is comprised of four written

questions and twenty eight ones by five (aspects) scale of Lickert besides the questions related to

population identification variables. Interviewing by experts who are involved in goods release

process and some experienced factor and also employing library references are the other collecting

information resources / references in this research.

By considering to the fact that / regarding to the fact that more than 80% (eighty percent) of fourty

customers and fifteen experts are fixed involved in goods release process in Zahedan customs, all

of them are employing for collecting and analyzing by census method.

Analyzing the processes:

In this research, the related process to goods release and optimization are carried out in two stages:

depicting the diagram of processes and analyzing and optimizing in managers and clerk's sights in

release units. Analyzing the goods release process by the two methods: first, depicting the

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processes and second, analyzing the related processes to goods release in the main individuals‘

sights whom these procedures are advantageous for them.

The desired proposed position is depicted and investigated in two stages. In the primary / first

pace, the primary proposed model is designed under the title of mild reengineering. Customs

should achieve a mild variation during a five-year-old view. However, regarding to the fact that

many countries and less customs throughout the country are moving toward being electrical and

employing infra structures of information technology and electronic customs to facilitate

international business more and more, Zahedan customs is also forced to move toward

fundamental variation in the first stage of Iran membership in global commercial organization.

Investigating the assessment service process

Then, we imply the assessment service process in this paper as one of the most important processes

subject to / so that we employ the process diagrams in depicting this process. Diagram processes

are divided to some horizontal rows. The performing method in customs assessment service that

act under Asycuda ―Negar‖ project can be defined as follows:

After allocating the registration number (Cotage number) of the statement by the identification unit

and document receivers, the statement will be referred to assessment service. The evaluator

determined by observing the concepts of performing rules of customs affairs, will visit the goods /

items, reflexes and signatures the assessment results according to desired information in statement

related place / location / position. After endorsement, the valuator should reflex the laboratory

results (if it is needed) in written form which is in the endorsement of the statement and the related

position, enquiry and then if the imported goods is according to the appendix statement documents

and after confirmation all stages, signature the statement in the fourth place (d) and refer it to the

related expert. The expert transfers the statement with the filled form of worth investigation for

investigating the worth of determined goods in valuating unit after complete observing the

conception existed in 115-117 performing rules of customs affairs and after confirming the

endorsed materials, recall the statement from computer system, investigate it with the printed

endorsement, catch the recalling number and put the mentioned number in place (b). Then, write

the name, family name and date in related place, (d), and endorse it.

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1.Recieving statement and related document from identification unit

2. Identifying the evaluator by the assessment responsible

3. Percent assessment by assessor and writing the personal point of views in endorsing the

statement

4. Do the goods transport by trucks?

5. Referring to transportation organization and paying the foreign trucks transportation fees

6. Receiving the certificate of paying transportation fees

7. Should the goods be tested?

8. Carrying out the standard test

9. Receiving the test result

10. Should the goods be test sanitarily?

11. Carrying out the sanitary test


13. The goods include 2% fees

14. Referring to office and paying the fees.

15. Receiving the certificate of paying

16. Do the goods need the permission of agricultural separation?

17. Carrying out the agricultural separation

18. Receiving the certificate of agricultural separation

19. Should the goods be tested atomic energy organization?

20. Carrying out the atomic energy test


22. Investigating by the expert of evaluating and endorsing service

23. Carrying out the process related to valuation unit

24. Receiving from the valuating unit and investigating the endorsement

25. Allocating the assessment number to statement / endorsement letter by the expert of assessment

service

26. Investigating and endorsing the statement by the boss of assessment service

27. The end.

Depicting the primary proposed sample for the desired position

After depicting the process diagram in current position, investigating and analyzing it, we depict

the primary desired sample of the investigated process according to figure 3.

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In this research, the other described infrastructures are also investigated and analyzed the same as

assessment service process in current position and the desired position. The summary of created

variations are according to table (a) after reengineering of any sub-process.

Table (a)

Changes After

Reengineering

Before

Reengineering

Number

of

delays

Number

of

actions

Number

of

personel

s

Number

of

delays

Number

of

actions

Number

of

personel

s

Number

of

delays

Number

of

actions

Number

of

personels

4 2 1 5 15 1 9 17 2 entrance

information unit

6 4 2 3 7 3 9 11 5 identification unit

5 4 3 9 14 3 14 18 6 assessment service

4 7 1 1 4 1 5 11 2 valuation unit

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2 4 1 2 6 1 4 10 2 emission customs

permission unit

2 3 1 1 6 3 3 9 4 Storage unit

2 4 2 7 9 3 9 13 5 exit unit

Propositions in accordance with / according to fundamental and mild variations: Alongside the

fundamental variations, we can imply the Asycuda World software as a prominent technique in

electronic customs that systems such as web-based worth, electronic unit window are its subsets.

This software acts under web so that the merchant / businessman or factor can connect to customs

and the adjacent organizations such as bank, commercial organization, standard office, sanitation ,

… from his / her work room or everywhere that is connected to internet and endorse his / her

goods electronically and release it finally. All the investigated process are carried out

electronically so that the process of entering information of statement is eliminated applicably. All

documents that are related to businessmen and factors and also the related information to debit rule

14 are in customs database and system controls their credit automatically. All needed permissions

for releasing goods are cought from related organizations connected to the system automatically.

In assessment service process, the goods assessment is carried out in three forms of documental

assessment, physical assessment or none of them. By employing the web-based worth system,

goods assessment is carried out complete electronically and systematically. Ultimately, by making

relationship between businessman and bank and paying salaries, entering his / her goods and

catching customs permission via system, the fund unit and emission customs permission is

eliminated applicably. After inquires and analyzing more investigated infrastructures, most

problems of goods releasing process in Zahedan customs and their solutions are identified based

on table (b).

Table (b):The problems of goods releasing process in Zahedan customs

Row Process problem Solution

1 Creating systematic profiles by the

entrance information unit for anybody

who endorses so that some personal

information that are repeated by any

statement of anybody who endorses

should be existed and maintained

previously in order to decrease typing

and entering statement information time

Typing the repeated information of

statements by the entrance information

unit or any time stating of the goods that

wasted the time

2 Establishing the card reader in

emission/issuance customs permission,

Paying customs salaries, entrance

information expenditures and printing

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the entrance information unit of

statement, the identification unit and the

exit unit for paying the mentioned

expenditures and removing the need of

referring to the bank

the statement, debit rule 14 and

decreasing the payment resulting of

weight differences and goods worth in

bank regarding to the almost large

distance between bank and customs

3 Creating the intranet facilities for each

expert of identification unit and making

documents according to factors in order

to controlling debit of rule 14 issue of

customs rule about each statement which

is believed to them

Limiting the control of rule 14 to one

person / an individual that has resulted in

extra movements and wasting time

4 Designing a software for intellectualizing

the current system Asycuda in order to

automatic decreasing of the proportion of

cooperation companies after catching the

registration number (Cotage) of

statement

Controlling the proportion of cooperation

companies manually which is resulted in

wasting time and energy and decreasing

the needed exactness

5 Providing the increasing cooperative

facilities of Zahedan customs with the

producing industry in the form of

evaluating goods in the location of

exporting producing units

Loading and transporting exported goods

of producing units around Zahedan to

customs which has resulted in increasing

expenditures and the goods releasing

time

6 Establishing the representatives of

adjacent organizations to customs in the

form of commercial- physical single

window in customs

Discattering the adjacent organizations to

customs such as standard office,

sanitation, that their large distances have

resulted in increasing expenditures and

the goods releasing time

7 Eliminating the assessment service

expert in order to decreasing the stages

of assessment service unit

In the Zahedan customs, the duty

/responsibility which is given to a service

expert and a assessment service boss is

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the same that has resulted in doing the

work again and wasting the time

8 Establishing one of the financial affair

unit personnel in evaluating service in

order to emit income bill in needed

cases.

Referring the customer to the financial

affairs unit in order to receiving income

bill regarding to the distance between

units from technical units of Zahedan

customs.

Conclusions:

Customs is one of the organizations that has much relationship and cooperation with customers.

The heterogeneous official methods and the slow carrying out affairs has resulted in organization

irresponsibilities toward gradual approaches. Reengineering of processes in a radical approach that

has resulted in improving the processes, structure, managing systems and ultimately the efficiency

of organization. One one hard, the obtained results of analyzing inquires have shown the

individuals‘ worries and delays in goods release process in Zahedan customs. Hence, we attempt to

improve and develop these processes in all aspects by proposing some suggestions / propositions

in order to improve and alter these processes and confirmation them by the manager of Zahedan

customs. The key role of information technology (IT) and its qualifications are completely

apparent / vivid in these propositions and authorities should inform that they must first provide the

needed infrastructures such as ones related to information technology before any actions for

running / performing the propositions and then carry out the needed actions.

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References

Aggarwal, sumer. (1998). "Re-engineering: a Breakthrough or Little New?" Socio-Econ. Plann.

Sci 32: 155-167.

Attaran, Mohsen. (2004). "Exploring the relationship between information technology and

business process reengineering." Information & Management 41: 585–596.

Gunasekaran, A. and B. Nathb (1997). "The role of information technology in business process

reengineering." Int. J. Production Economics 50: 91-104.

Maris G Martinsons , P. S. H. (1998). "Chinese Business Process Re-engineering." International

Journal of Information Management 18: 393-407.

O‘Neill, Petters. and Amrik. S. Sohal (1999). "Business Process Reengineering

A review of recent literature " Technovation 19: 571-581.

Silvestroa, Rhian . and Charls. Westleyb (2002). "Challenging the paradigm of the process

enterprise :a case-study analysis of BPR implementation "Omega 30: 215 - 225.

Teng, James. TC., Kirk. D. Fiedler, et al. (1998). "An Exploratory Study of the Infuence of the IS

Function and Organizational Context on Business Process Reengineering Project

Initiatives." Omega, Int. J. Mgmt Sci 26: 679_698.

Teng, James. T C., Varun. Grover, et al. (1994). "Re-designing Business Processes Using

Information Technology." Long Range Planning 27( 1): 95_106.

Terziovskia, M., P. Fitzpatrickb, et al. (2003). "Successful predictors of business process

reengineering (BPR)in financial services." Int. J. Production Economics 84(1): 35-50.

Wu, Ing-Long. (2002). "A model for implementing BPR based on strategic perspectives:an

empirical study." Information & Management 39: 313-324.

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OBSCURITY and AMBIGUITY in IGBO ORAL TRADITION

Mrs Ekwutosi Onwukwe

Department of English Language & Literature Alvan Ikoku Federal College of Education

Owerri, Imo State

Abstract

In this paper I have tried to discuss the role of obscurity and ambiguity in artistic creation with

particular reference to Igbo Oral Tradition. This tradition was seen to have two main divisions

according to Emenanjo‘s classification. The first division consisted of the major genres and the

second division of the minor genres. The genres discussed in this paper were selected from the two

main divisions. The writer then went on to examine and analyse the nature of our folktales,

masquerade songs, anecdotes, proverbs, and riddles (being the genres chosen) with obscurity and

ambiguity as parameters of judgement. It was seen that these two factors were the very substance

of creativity. The pleasure, excitement, intellectual relaxation, instruction that imaginative

literature give are as a result of the artist‘s inventive mind and deliberate couching of ideas,

meanings, objects, in emotive and connotative language.

Keywords: Obscurity , Ambiguity in Igbo Oral Tradition

1. Introduction

Igbo Oral Tradition has had a considerable lot written about it by a comparatively small number of

people. Much of the effect so far has been to gather all there is in our oral tradition and to attempt

to categorise it into various genres. Different criteria have been used for this, some conflicting

while others compliment and adjust earlier efforts. The aim of this paper, however, is not to tread

the-oft-beaten path but to seek new pastures. This writer intends to focus attention on the obscure

and ambiguous nature of Igbo oral tradition.

This tradition can be said to be made up of the following according to Acholonu, quoting

Emenanjo‘s classification:

The major genres: (1) ifò or irò -- folktales

(2) egwuregwu ọdịnala -- traditional drama

(3) abụ̀ ọdịnala -- traditional poetry and verse

The minor genres: (4) ụkàbụilu -- anecdotes

(5) ilu -- proverbs

(6) àgwụ̀gwà -- riddles

(7) okwu ntụhi ̀ -- tongue twisters or tonal puns

The genres in the two major divisions are further divided into their various kinds. For instance,

under the folktales we have the

(a) trickster tale (usually involving animals like the tortoise),

(b) the ‗why‘ or aetiological tales, etc;

And under traditional poetry and verse we have

(c) satirical songs, praise songs, the elegy, etc.

This paper in trying to account for or explain the factors of obscurity and ambiguity in Igbo

traditional literature will concentrate on the folktale, the anecdote, the masquerade song, proverbs

and riddles.

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2. Obscurity and Ambiguity Defined

The word obscure means something that is hidden, unknown, unclear; while ambiguity according

to Abrams (1981:8) points to ―the use of a word or expression

to signify two or more distinct references, or to express two or more diverse attitudes or feelings.‖

From the foregoing both words can be said to mean the same thing; that is, vague. However, the

obscure and the ambiguous can also refer to the distant past, something that is ‗indistinct,

unintelligible and doubtful‖ according to the dictionary.

The obscure and ambiguous are cherished elements of the creative artist, for through these he

expresses his unique experiences. Emenanjo (1983:7) agreeing with the above says:

... in a literary medium the creative artist could communicate with himself only,

to the utter disregard of the world outside of him ... it does appear to me that for

the creative artist, language is regarded more as an agent of creativity than as a

medium of communication. Whatever communication is achieved by the resultant

poem, play, or story is purely secondary, and an afterthought ... I am sometimes

astonished when I read or hear of the different interpretations that have been

given to my poem Ụkọ N‟uju.

3.0 The Obscure and Ambiguous in Igbo Oral Tradition

The Igbo are a people that are said to be wise and who take a particular delight in knowledge and

wisdom. Like Socrates (in Iwuchukwu, 1993), the Igbo believe that ―knowledge is virtue.‖ This

knowledge can be arrived at either through inductive or deductive reasoning; it is not a thing so

obvious. This explains the love for ambiguity and obscurity in Igbo oral tradition. This tradition is

a repository of the Igbo man‘s way of life – his music, beliefs, sense of propriety and heroism,

religion etc are all embedded in it.

The Igbo traditional artist did not create solely with the intention to instruct. Just as his counterpart

all over the world he knew and knows that he is not a historian, nor a teacher but an artist. This

why he is called ‗onye nkà ‘ (an artist) and not ‗onye nkuzi‘ (a teacher). In Igbo land the word

‗nkà‘ connotes aesthetics and ‗onye nkà ‘ is a gifted person who can create novelty out of the

familiar, or couch the common phenomena of life in pithy sayings. This explains his ability to

generate interest amongst his audience even when he told stories that were familiar to them. In this

he was just like his Greek, Roman and English counterparts whose stories, dramas, and songs were

well-known to the audience. Emenanjo (1983:5) writes:

In the great Greek Dionysian festivals only a very thin line

separated the audience from the performer, for in moments of great

excitement and ecstasy knowledgeable members of the audience joined

the recitation, singing, dancing and acting.

However, if the folktales, songs and festival plays were well-known to the audience, genres like

anecdotes (ụkàbụilu), proverbs (ilu), riddles (àgwụ̀gwà), or tongue twisters or tonal puns (okwu

ntụhi)̀ in the Igbo oral tradition traded and still trade in obscurity and ambiguity.

I will now in what follows discuss some of the genres found in Igbo oral literature.

4.0 The Folktale

The folklorist tells his stories with a sense of mystery and with words pregnant with meanings to

the delight of his eager listeners. Stith Thompson (1977) in his book The Folklore writes ―the

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teller of stories has everywhere and always found eager listeners ...‖ Why ‗eager listeners‘?

Normally in a story-telling session, the narrator begins his tale by saying, ―n‟otù mgbe ‖ (once

upon a time), or ―n‟oge gara aga‖ (in days gone by). Various communities have various openings

(depending on their dialect), but all set the tale in a vague and distant past – a time when men and

animals lived together and animals spoke just as men (the audience would be told in some cases).

This kind of distancing makes the tale immediately attractive because what is remote and

unfamiliar is usually loved. Thus the beginning of the tale immediately enraptures the listeners.

Then the narrator proceeds and adds ―n‟otù obodo ọ wụ‖ (in a certain town or country), or ―n‟ala

mmụọ‖ (in the land of the spirits). The locale could even stretch from this world to the spirit

world, a ―never, never land‖ (and where men intermarry with spirits and animals speak as men).

Thus, the physical setting is ambiguous and fluid. Communities have various ways of making the

opening of the folktale attractive. Where he sets the locale of the story in the abode of the spirits,

he uses his imagination to create a plausible land of spirits. Everything negative, or ugly or

fearsome must be obtainable in the spirit world. It is a place where the inhabitants communicate

through the sign language and enter into their houses with their backs. The colour of the skin could

be green or red and he could also portray them as speaking only three times a year and that through

their noses. The artist creates this bizarre world which his listeners are willing to believe because it

very much resembles the human world, only people do things the other way round and are a bit

different. Wit such remote and strange details, the artist is able to hold his audience in rapt

attention.

If the land of the folktale is an ambiguous land that encompasses the terrestrial and the

transcendental worlds, the artist, to sustain his narrative of wonder and marvels, draws his

characterisation from man, animals, spirits, and sometimes the natural phenomena like winds,

mountains, rivers and trees. These objects are given human attributes like the power of speech.

However, he realises that since he is talking to mortals, he has to be a little this-worldly so that the

pleasure his listeners will derive from his tales will be relevant to them. To achieve this he engages

his characters in events and incidents that demonstrate values of men like, ―evil does not pay,‖ or

―good will always triumph in the end.‖ Stock characters of the folktale are usually jealous wives,

the wicked step-mother, the poor and maltreated orphan boy, the servant-turned king or made rich,

the wicked old woman (who sometimes is a spirit incarnate), the tortoise, the hare, the demon

lover; the stock events are the quest mission, the calabash forgotten in the farm, the putting away

or neglect of the hated wife and her child, the wrestling contest, the kind deed or wicked deed done

to an old woman, etc; the motif are the magic ring motif, the speaking flute motif, the old woman

who is a symbol of retributive justice, and the faithful dog motif. In a welter of interaction between

the characters and the motifs and the events, the deed is enacted and the moral drawn. The wicked

are normally punished and the good rewarded. The audience enjoys the story and identifies with

this ideal world where people receive their due reward. In this way, an artist is able to entertain his

audience through the skilful use of imaginative devices which take root from the obscure and

ambiguous. The following Igbo folktale will illustrate some of the above features.

Once upon a time, in a very far land, lived a man, his wife and their two children (a boy and a girl).

In time the wife died and this man married again. The second wife hated her step-children and

wanted to do away with them. She was so embittered by their presence that one day she suggested

to her husband that they lead these two children into the thick and evil forest. The man agreed to

her suggestion and they set off with the children. The little boy as they were going picked a

handful of pebbles which he dropped on the way as they went along. On arrival at the evil forest,

they were abandoned by their parents. However, they succeeded in retracing their way back back

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home by following the trail of the pebbles. Their step-mother was very disappointed and annoyed

when she saw them and together with her husband led them back again to the forest. This time the

boy dropped pieces of food as they went along. Because of this, they could not find their way back

because the birds of the air had eaten up the food. They wandered in the bush and eventually

stumbled upon an old woman‘s hut. The old woman was said to be very wicked, and when she saw

these two kids, she was excited. She took them in and decided to retain the girl as her servant and

the boy she kept in a fattening room to be eaten up when the time came. The days and months

passed. One day she looked into the room where the boy was and noticed that he had grown fat.

She lit a mighty oven and after some time asked the girl to see if it was hot enough. The girl

refused upon which the old woman decided to do it herself. As she opened and peeped into the

oven, the girl quickly pushed her in and closed the door. The old hag was roasted inside and the

girl immediately made her way to where her brother was. They ran out of the hut and looking

around saw their faithful dog which led them back home. When they got home they discovered

that their step-mother had died while their father was very happy to receive them. The moral of

this story is that evil will always be punished. The old woman drowned in the pool she prepared

for some other person while the wicked step-mother was punished by death.

Obscurity and ambiguity do not only make for interest in Igbo oral tradition. Through them ideas

and meanings are communicated succinctly. As observed earlier, the Igbo pride themselves in

wisdom and they respect the wise and intelligent person. Among the Igbo it is believed that only a

fool opens his mouth wide to talk – he is normally regarded as a person who does not ‗bite‘ his

words. On the other hand, the man who is spare in his use of words and is diplomatic is regarded

as wise. This attitude has cultivated a love of the obscure and the ambiguous among the Igbo. Thus

from childhood, people are tarined and train themselves vigorously in the use of wise and pithy

sayings and other rhetorical devices. The speech of the typical Igbo man is in obscure and

ambiguous language being interspersed with proverbs, anecdotes, and riddles; in fact one senses a

―conscious clothing and concealment of ideas‖ (Acholonu, 1985). Without trying to be dogmatic,

the Igbo man‘s speech could be described as poetic, and all over the world poetic language is

known to be more powerful and obscure than ordinary language. It is more effective in

communication (especially where the speaker does not want to be abrasive) because it is full of

depth, and the hearer as he meditates on it understands better what has been said. Thus, lasting

impressions are made when ideas are encapsulated in connotative and obscure language.

5.0 The Anecdote

The anecdotes which spice the daily speech of the traditional Igbo man or woman is, according to

Acholonu (1985) ―condensed folktales and expanded proverbs‖ and to Egudu ―a brief story which

often embodies witticism or a ludicrous situation and which is used to embellish speech, reinforce

or illustrate an argument or convey moral lessons‖ (quoted in Acholonu, 1985). It is usually

ambiguous in nature but it makes its point all the same. She continues ―sometimes when

discussing the ambiguity and paradox of language as a medium of expression the Igbo employ

anecdotes for illustration.‖ A child was told to pound some foofoo in the mortar if he knew how to

pound, but if not, he should pound it on his thigh. This child did not understand the instruction and

turned round to ask for the meaning. In reply he was told that the money used to marry his mother

was wasted money. He is regarded as a fool for not understanding the simple instruction given him

at the beginning. The ambiguity of this anecdote illustrates the nature of Igbo speech and Igbo oral

tradition.

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6.0 The Masquerade

It serves to be ambiguous on certain occasions when being explicit would7land or get one into

trouble. In the village, masquerades and their choruses are sometimes used as instruments of

sanction against certain bad characters. In their songs they carefully avoid naming the culprit, but

their language is so carefully fashioned that those who know the offender will know that he is the

one being referred to. One such chorus goes like this:

Égbé n‟ebu ọkụkọ̀ ọ lọtala

Agavu

Ọgankwọ

O bute o rie

Obunike

Ụmụ kọleji lezienụ anya unu.

This chorus is alluding to a known rogue in the area. He is not mentioned by name but is referred

to as a hawk which carries away chickens (égbé n‟ebu ọkụkọ̀), agavu (a snatcher), ọgankwọ (the

market hawk), o bute o rie (he carries away and eats), obunike (he takes by force). The names

given him are powerful metaphors that carry all that is repugnant in stealing and that ridicule the

offender. The last line warns students on holiday to be on the alert. This is done on purpose to

further expose the thief, for the students would want to know why the particular reference to them,

why they should be on the alert because of an ordinary hawk. With this kind of reaction they

would be given the full story. If the chorus was straightforward and plain, the students would not

have cared about the thief, but being couched the way it was, they inquired and got to know about

this. This is one of the big advantages that poetic language has over prose.

7.0 The Proverbs

The dictionary defines the proverb as a ―short, pithy, traditional saying in common use‖ (Collins,

1975). The abundance of proverbs among the Igbo shows how much they value this figure of

speech. It is usually a mark of wisdom for the person who is adept in its use. It is known in literary

circles as the ―palm-nut with which words are eaten in Igbo land.‖ ―Proverbs are so integral to

socio-linguistic communication among the Igbo, that to speak without proverbs is tantamount to

climbing a palm tree with bare hands‖ (Acholonu, 1981). The proverb is a figure of speech, a

genre in our oral tradition, ―where a world of meaning is neatly and precisely compacted in a few

words‖ (Onwukwe, 1984).

There are different kinds of proverbs for different occasions. Some proverbs serve to warn people

of the importance of taking prompt action on an issue. The following proverb is illustrative of this

kind – “ka a gụpụ aka ènwè n‟ofe mgbe ọ na-aghọbeghị aka mmadụ” (take away the monkey‘s

hand from the soup pot before it becomes a human hand); “ka a bịa, ka a bịa mere ọkụkọ adịghị

anyụ mamịrị” (procrastination cost the chicken its ability to urinate). There are proverbs, too, that

seek to hush the talkative person or gossip; for example, “à jụrụ gị nkịta nne gị , ọ̀ mụrụ òlé ?”

(who asked you the number of puppies your mother‘s dog bore?) Other proverbs fulfil different

functions and a number of proverbs could mean the same thing. What is necessary is that the user

be intelligent enough to use each proverb correctly, for a wrong use often exposed the user to

ridicule.

8.0 Riddles

The riddle is another form of our orature that seeks to equip people with a sharpened mind to

understand their environment in order to fit into the society. It creates in people, especially

children, the ability to make quick and sensible associations to quizzes thereby developing in the

child the desire to always perceive absolutely. The following are a few examples:

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“Gwam, gwàm, gwam, ihe ji ntụ tee onwe ya ma o nweghị aka?” (Tell me, tell

me, tell me the thing that smeared itself with ash but has no hands?) This is the

fruited pumpkin.

“Gwam, gwàm, gwam, ihe nwere ụkwụ ma ọ dighị aga ije? (Tell me, tell me,

tell me what has legs but does not walk? This is the tree.

Acholonu (1985) says that ―riddles are figurative in the sense that they can be metaphoric but they

are more complex than ordinary metaphors.‖ She then goes on

to make the following categorisations:

(1) ―The simplest group of riddles are those that make a direct comparison between the

riddle and its derived meaning.‖ This means that the words that form the riddle are

derived from the characteristic of the object being referred to. This makes this

category of riddles very ambiguous because the thing referred to could share its

characteristic with other things. She cites as an example the following:

Gwam, gwàm, gwam, ọ chata - ụdarà (Tell me what ripens by becoming lighter

in colour? -- Ụdarà (Acholonu, 1985). Ụdarà is not the only fruit that gets lighter

in colour when it ripens as she rightly remarks.

(2) Riddles that follow the pattern of sounds which may not even be related to the

object or ideas referred to. To my mind, riddles of this nature are metaphysical in

concept because they seek to reflect the effect of the riddle on the mind of

respondent. There is no connection, whatsoever, between the riddle and the object

referred to and there is no way one can guess the right answer. Again, I make use of

her example to illustrate this:

Tingọrị (sound, symbol) – A tụnye mkpụrụ osè n‟ime mmiri ,

ị ̀ga-agụta ya? (Can you pick a seed of pepper from the ocean?)

How on earth is the sound of pepper falling into the ocean related to the sound of the word

„tingọrị‟? The comparison is obvious. The sound of „tingọrị‟ is lenghty just as it would take long

to find this pepper seed in an ocean.

From the foregoing, we can see that obscurity and ambiguity are the very substance of

artistic creation and of Igbo oral tradition in particular. Through them the artist is able to create

figures of speech and events that give pleasure and impart instruction. Perhaps the artist in the Igbo

society did not find this difficult because the life of his people was steeped in mystery. Thus, he

was able to create from the communal pool making it possible for our oral tradition to have this

obscure flavour.

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References

Abrams, M.H. (1981) A Glossary of Literary Terms 4th Ed. Canada: Holt, Rinehart and

Winston.

Acholonu, C.O. (1985) Western and Indigenous Traditions in Modern Igbo Literature

Druck U. Verarbeitung: Hundt Druck Gmblt. Printed in Germany.

Foreman, J.B. (1975) Collins English Gem Dictionary Great Britain: Collins Clear-

Type Press.

Iwuchukwu, C.B. (1973) Philosophy of Education Nigeria: Luton Press Ltd.

Little, W. et al (1973) The Shorter Oxford English Dictionary New York: Oxford

University Press.

Acholonu, C.O. ―The Igbo Folktale as Imaginative Literature‖ Published in AṄỤ (No. 3), a

Magazine on Igbo Culture.

Acholonu, C.O. (1981) ―Obscurity in Oral Tradition.‖ Paper presented at the 6th Ibadan

Annual African Literature Conference.

Emenanjo, E.N. (1983) ―What is Language? Its Role in Communication and Creativity.‖

Paper presented at the English Week, Alvan Ikoku College of Education, Owerri.

Onwukwe, E (1984) ―Folklore and Education‘‖ Paper presented at the School of Arts Week,

Alvan Ikoku College of Education, Owerri.

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Affordable Housing Delivery In Nigeria Some Fundamental Challenges.

Arc. Ikechukwu Onyegiri

Department of Architecture, Evan Ewerem University Owerri.

Abstract

Our society is traditional, their elites are conservative and there is an understandable resistance to

imposed, universally applicable ‗Western‘ solutions to the problem of affordable housing delivery

in Nigeria. These are problems to which we must find their own solutions, but hopefully not

without the understanding and support of our governments and private sectors favorably disposed

towards sharing in a genuinely Nigeria route to development. Nigerians need to survive the

wounds of near-homelessness including good governance, increased access to land, credit,

affordable housing and environmentally sound and serviced human settlements. The aim of this

paper is to highlight the characteristics of some fundamental challenges confronting the delivery of

affordable housing in Nigeria. The paper begins by outlying the development context within

which housing (or shelter) programmes need to be seen in Nigeria.

Keywords: Affordable Housing delivery, Development Challenges, availability of land resources.

1.0 Introduction

All the states in Nigeria face formidable housing problems in one way or the other.

Almost without exception they have poorly developed housing institutions and markets, meager

stock which is in poor condition, a huge backlog of housing need and weak policy responses. It

then focuses on the seemingly intractable problems surrounding the availability of land and the

implications which poor and inefficient land supply practices have on urban development and the

tentative nature of the construction industry. The absence of affordable sources of institutional

housing finance is also a problem but, despite the difficulties, the paper concludes that there are

some possible positive developments that could emerge in this area.

2.0 Housing in the context of other development challenges

Nigeria is a country of Paradox. It has abundant human (about 120million people in 2003) and

natural resources (e.g. crude oil, tin, coal, etc), but has failed to release its development potentials.

The consequence of poor economic growth (GDP) growth rate averaged about 2% in the last

decade in the face of population growth rate of 2.83%) indicates poor human development. About

70% of Nigerians live below the poverty level of US$1 per day. With human development index

(HDI) of 0.463 in 2003, the UNPD Human Development Report for 2003 ranked Nigeria 58th

out

of 88 forest countries in the world.

The severity of poverty is also reflected in the countries poor environmental conditions, all of

which can obstruct the nation‘s attempt to achieve the Millennium Development Goals (MDGs), as

well as the important goal of the 2002 World Summit on Sustainable Development (WSSD) of

reducing by 50% the number of people lacking access to basic sanitation and descent housing.

Environment sustainability is a major pre-requisite for sustainable development. This makes the

need to incorporate housing affordability into poverty reduction efforts imperative. The problem

of providing adequate shelter needs to be seen into the context of these other, highly formidable

challenges. Policies for the provision of housing also need to be seen within the context of

urbanization and the nature of urban development. The level of urbanization in Nigeria is modest

by global standards, but because of this limited urban base, Nigerian cities are experiencing some

of the fastest rates of urbanization in the world (UNCHS, 1996a). The development of Nigerian

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cities is also distinctive. It is different to the juxtaposition of effluence and squalor which

characterizes many developing countries‘ cities, or the very high population densities which are a

feature of our major cities.

The striking feature of most Nigeria cities is the extent of informal development. In many cities

the informal sector predominates, (UNCHS, 1996a). Global Coalition for Africa, the United

Nations Economic Commission for Africa and the World Bank, attributes this form of

development to‖ incremental forms of housing investment where owners become ‗self-developers‘

and rely on small crafts and trades to build their own units.‖ Renaud(1999). He also adds that this

is why many such cities have the appearance of ―endless, almost permanent, construction sites.‖

The implications of these circumstances are that it is not only the income poor who are unable to

access housing of reasonable quality, but that there are many other households not necessarily on

low incomes who are also unable to secure decent housing. In such circumstances,

UNCHS(Habital) has identified the concept of ‗housing poverty‘. Why should households with

reasonable incomes experience housing poverty? This paper seeks to address this question and to

explain some of the causes for it in Nigeria.

3.0 Difficulties associated with land supply

One of the principal difficulties associated with the provision of housing is the problem of ensuring

land supply. This problem confined to Nigeria cities, is almost unique.

Traditional, or ‗customary‘ land ownership in many Nigeria cities is held on family or private

basis. Under these circumstances, decisions about the use of land are made according to the

requirements of land owners. Hence, decisions may be taken individually by family heads or

owners, they may be collectivized within a council of elders, but in any event they are rarely

recorded in writing and hence there is no evidential basis for use rights. The concept of any kind

of ‗ownership‘ may be entirely obstructive. With the colonization of Nigeria during the nineteenth

century, the circumstances surrounding the ownership and control of land became more

complicated.

In colonial Anglophone Africa, as McAuslan (2003) points out,‖… the common law, the doctrines

of equity and statute of general application applying in England …would apply in the particular

country in this case Nigeria. The application of colonial land law was essentially capitalist,

embodying the notion of exclusive private property ownership with proof of title exercised through

formal registration. What complicated matters, however, was that the colonial power imposed the

process of colonialism in the application of land law. They imposed their own laws alongside the

customary law of the indigenous tribes.

The result, according to Larbi (1995), was ―complex tenure system shaped by both customary land

laws and (the British conveyance system‖.

4.0 The 1996 Global Report on Human Settlement s(UNCHS Habitat, 19996b) defined the concept

of ‗housing poverty‘ in the following terms,‖… individuals and households who lack safe, secure

and healthy shelter with basic infrastructure such as piped water and adequate provision for

sanitation, drainage and the removal of household waste.‖ But, the growing complexity of land

law was not to rest there. What has happened since colonialization has further complicated the

application of land in Nigeria. According to McAuslan (2003), the post-war period since

independence has seen two broad phases in the development of land law. The first of these has

been a process of ‗substitution‘ in which the aim has been to ― record the customary rights and

interest in the land …metamorphose them into ‗equivalent‘ rights and interests recognized by the

common law, register them and provide a frame work for the operation of a market in these newly

minted rights and interests.‖ The second phase has seen attempts at‘ integration‘, the basis for

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which is ―the rejection of any notion of a hierarchy of land laws … there is just one land law …

based one philosophy which can apply to all land people.‖ As a consequence, there was attempt to

resolve the gulf between these very different systems of land use and control by the adoption of

different methods. In the 1970s‘ Nigeria opted for state ownership of land since it was deemed to

be more closely identifiable with the extensive and traditional communal ownership of land

associated with African societies.

Both developments have been problematic. The country in seeking to nationalize development

rights, generally registered applications and issued Certificates of Occupancy for a limited period

such as 99 years. Mabogunje (2003) asserts that these kinds of reforms have not been successful.

Citing the Nigerian experience he claims, ―Considerable difficulties have arisen over the

expeditiousness with which such certificates are issued, the requirements that they must be

referred back to the governor when such land is being assigned or mortgage and the practice of

many State Governors to use such referrals to raise revenue by charging exorbitant fees for their

approval.‖

―Land delivery has been impeded by inappropriate legislation and by limited capacity to deal with

land, the restrictions on the development of free market in land were amongst the most severe

constrains on the housing market in Nigeria.

5.0 National Sites and Services Programme

The National Sites and Services Programme was adopted by the Federal Government in 1986 as a

viable alternative for housing delivery through increased supply of serviced plots at affordable

costs. The aim of the programme was to create easy access to develop land, which had for long

hindered home ownership. The programme involves the provision of serviced land for housing

development and commercial activities in a well laid out and planned environment. Such services

include roads, drains, water supply, electricity and other municipal services. Since the

commencement of the programme in 1986 only about 20,000 plots have been allocated in about 20

states of the federation in 2000, 14 years after.

6.0 Environmental Ecological Degradation

The ecological footprint of a city is the amount of land and national resources required in

sustaining its metabolism. If the ―footprint analysis‖ of Lagos is taken for example: Lagos has an

estimated population of about 10 million, out of a total Nigerian population of about 120 million.

The total land area in Nigeria is 923,773sqkm (92.38 million hectares) and that of Lagos

3577sqkm(0.36 million hectares) According to Earth Council report, a biological reproductive

area of 1.7 hectares per capital is required for basic living. This means that sustaining the people

living in Lagos requires 17 million hectares. This leaves an ecological deficit, which has to be

made up from elsewhere. The area required for food production is 0.2 hectares per capital. For

Lagos population, that translates to two million hectares.

The area required for wood and other products is 0.11 hectares per person or 1.1million hectares

for Lagosians and for carbon sequestration (cleansing), 1.5 hectares per person o 15 million

hectares just for Lagos alone. Though ―footprint analysis‖ is not an exact science, it however,

helps us to understand the magnitude of dependence of cities on outside resources and the effects

of urbanization.

It could be said that environmental degradation is caused by greed but reinforced by poverty. This

is as a result of social-economic and political synergies that interact with each other in ways that

can increase the state of lack in which poor people live. The struggle for short – term profit,

encouraged by unregulated tree market has led to unacceptable human and environmental abuses

in the name of ―economic growth‖

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7.0 The implications of these constrains on the land market

The principal outcome of these constraints on the operation of the land market is that access to

formal land ownership in many Nigeria cities is effectively precluded to all but a minority of

affluent and influential people. The National Sites and Services programme adopted by the

Federal Government in 1986 as a viable alternative for housing delivery through increased supply

of serviced plots at affordable costs is a typical example.

The aim of the programme was to create easy access to develop Land, which had for long hindered

home ownership. The programme involves the provision of serviced land for housing

development and commercial activities in a well laid out and planned environment. Such services

include roads, drains, water supply, electricity and other municipal services. From the

commencement of the Programme in 1986 only about 20,000 plots was allocated in about 20 states

of the federation. These, of course where taken by the rich and the privileged. In turn, these

circumstances encourage the growth of an informal market in land amongst those who are

excluded from the formal market and a dual system emerges. Or, more accurately, a number of

informal systems arise. In many Nigerian cities, this type of informal land supply greatly exceeds

the formal provision and because land, and the various ordinances which govern its use, are

integral to the form of residential development which takes place these areas become developed as

‗unauthorized areas‘, they are constructed without reference to planning codes, they are invariable

without basic infrastructure and they sometimes represent health and fire hazards.

They range from areas of quite high standard, self-built housing permanent materials, to some of

the poorest areas of squatter settlements (such as those in Lagos, Onitsha, Aba, to mention but a

few). Without legal title, residents of such areas are also penalized in other ways, most notably in

their inability to access formal loan fiancé and infrastructures. Hernando do Soto (2000) highlights

this problem I his book. ―The Mystery of Capital‘, . ―The poor inhabitants of these nations-the

overwhelming majority do have things, but they lack the process to represent their property and

create capital. They have houses but not titles ;crops but not deeds; businesses but not status of

incorporation. It is the unavailability of these essential representations that explains why people

who he adopted every other Western invention, have not been able to produce sufficient capital to

make their domestic capitalism work‖

The existence of these extensive areas of ‗informal settlements‘ has, however, been the focus of

attention of policy-makers for some time. The main policy response has been in terms of

upgrading the physical condition of some of the worst of these settlements by improving water

supplies and other forms of infrastructure. Over time, however, there has been an increasing

recognition that without conferring rights of ownership through land allocations to individuals and

corporate developers as well as provision of basic infrastructures, there will be no sustainable

improvements in living commitment through its millennium Declaration to improve the lives of

100 million slum dwellers by 2020. This is to be achieved through a global initiative entitled

‗Cities without slums‘ and accompanied by a campaign advocating action plans to ensure the

extension, where possible, of security of tenure to the inhabitants of such areas,(Erguden,2002).

A second implication of these constraints on the operation of land markets is that they effectively

preclude the development of a house-building industry and all the backward‘ and ‗forward‘

economic linkages that this entails. An effective house building industry is essential to increase

the supply of hosing, reduce the overall housing shortage and seek to drive down costs. The

‗backward‘ and ‗forward‘ linkages create employment and reduce the need for the expensive

import of materials. Within a capitalist economy a secure supply of land with good title is he life-

blood of the commercial house-builder. But a prospective developer in Nigeria currently will

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experience considerable difficulties in securing a reliable supply of land, especially with good

legal title. This means that those developers that do exist invariably service only the affluent end

of the market where legal land title can be secured, but at a considerable cost. There are very few

capable building contractors and even fewer developer who could supply housing ahead of demand

in Nigeria. The construction industry has no speculative elements; there is no Nigerian equivalent

of the British ‗spec builder‘ constructing large numbers of houses and selling them at or near

completion at prices which a household with median income can afford to buy.

7.0 Sources of housing finance and the availability of credit

The outcome of these previous consideration is that privatized housing markets, in terms of the

regular exchange of dwellings between willing buyers and seller, simply do not exist on any scale

in Nigerian cities. Housing finance by its very nature is a capital intensive venture which if it is to

e financed through personal financial resources will require slow and tedious accumulation of

savings. However, since housing provides benefits over many years, long-term credit financing is

a more logical option as it will spread the repayment burden. But this requires the availability of

long-term funding and for which must be institutional capacity, structure and mechanism that will

allow a convenient and effective linkage between the savers/investors and the consumers of such

funds. Without an effective financing system, no housing policy can be effectively implemented.

A financing framework which facilitates financial intermediation for activities. Indeed the

framework must effectively reconcile the affordability limitation housing finance consists of

institutions as well as their relationship and the processes involved. However, the emphasis in this

review will be on relevant institutions and their of households with viability requirement of

financial institutions.

Housing Corporations, and the Federal Mortgage Bank of Nigeria (FMBN):and now the In

Nigeria, housing is typically financed through a number of institutional sources: Budgetary

appropriations, Commercial/Merchant Bank, Insurance Companies, State newly established

Mortgage Institutions all these constitute the formal institutions. Informal institutions such as

thrift and credit societies, and money lenders who have contributed and are still contributing

substantially to the finance of housing construction also persists. The housing fiancé institutions

servicing these limited markets are a further reminder of the colonial past in that ‗building

societies‘ have been the most prevalent institutions in Anglophone Africa.

Insurance companies have funds appropriate for financing housing construction. However, under

our current insurance decree, only up-to 25% of life and 10% of non-life policies can be invested

in real estate. Life premiums are not only long-term but relatively cheaper than deposits.

However, the investment emphasis of these institutions has been short-term due to the preferences

of these companies and to a lesser extent the legal restriction imposed. Indeed, while percentage

allocated to real estate declined since 1985 from 12.1% to 7.2% in 1986, that allocated to mortgage

loans declined steadily since 1984 from 7.1% to 4.8% in 1985, 3.90,10 in 1986, 3.6% in 1987.

The modest of scale of these institutions is not only a reflection of small markets but also because of

the poor macro-economic environment prevailing in Nigeria. During the 1980s and 1990s,

moreover, the financial institutions suffered as a result of Structural Adjustment Programmers

(SAPs), which removed government support and other special tax and regulatory privileges. Many

institutions of the kinds above have either been privatized or liquidated, (Lohse,2002). But with

very high interest rates and relatively short loan repayment periods, the ratio of repayments to

incomes is many times the affordability level of average households, hence, these institutions are

inappropriate or the vast majority. A variety of other sources of private sector housing finance exist

including savings and credit co-operatives and employee savings schemes as well as a whole range

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of traditional forms of rotator credit associations,(see Osondu and Middleton, 1994).These

invariably involve relatively small sums, but where the former have been linked to other sources of

funding, such as public subsidies or grant aid from donor agencies, they have been used successfully

to underpin modest house building programmes. These kinds of initiatives provides nowhere near

the scale of funding which is needed to address the backlog of housing need, however.

The new housing policy has established a two-tier housing finance structure with FMBN-as an apex

institution and a decentralized network of Primary Mortgage Market institutions such as building

societies, housing co-operatives, home savings and loans associations. This structure aims to

streamline processes and organizational relationships within the housing finance system and

encourage expansion in private initiative. In this regard, the legal framework for the organization

and implementation of the apex role of FMBN has been defined by the Mortgage Institutions Decree

No.53 of 1989.But, exciting developments in terms of micro-finance for shelter are taking place in

Nigeria and are being led by the development of coordinated savings schemes by National Housing

Fund. National Housing Fund (NHF) – was established in 1992.

The concept of the National Housing Fund as proposed in the National Housing Policy is to ensure a

continuous flow of long-term funding for housing development and to provide affordable loans for

low income housing. The promulgation of the National Housing Fund Decree heralded the

emergence ad establishment of a battery of mortgage fiancé institutions in Nigeria. Quite a number

of them had been I operation prior to that. Good as the intention of the scheme appear, the

technicalities and modalities of releasing the loan to the mortgage institutions to un lend to the

members of the public have not been worked out and as such most potential clients have been

frustrated by the high interest rate and cost of funding. Most of the mortgage institutions on their

own have been mobilizing funs by accepting deposits and savings at very high interest rate in a

highly competitive marketing environment. Most customers o the other hand are prepared to wait

for the National Housing Fund than take loans at high interest rate which is presently being dictated

by the money market condition.

Having assisted with the establishment of these financial arrangements in Nigeria, the NHF through

the apex mortgage bank is pushing ahead exploring the feasibility of extending this community

based funding approach to every part of Nigeria, especially the private sector. These developments

are welcome, but what is desperately needed now in Nigeria are other similarly effective initiatives

in mainstream housing finance to carter for the low income groups. But, without headway in

resolving the difficulties over land supply it is wishful thinking to assume that such developments

can take place in housing finance albeit affordable housing development in Nigeria.

8.0 The Use of Local Building Materials:

The use of local building materials and intermediate technology is absent, followed by lack of the

provision of other basic infrastructures like safe drinking water, roads electricity supply and other

social amenities that should be targeted towards improving the quality, livability and attractiveness

of low cost housing.

Presently houses are built and rely solely on cement. The nation needs about 8.5milliom metric

tons yearly. While our cement companies are only able produce about 2-3million metric tons.

This short fall has always accounted for the galloping cost of cement need year as shown in the

table below.

Over half of Nigeria‘s cement need is imported. According to recent survey, Nigeria is the world

largest importer of cement with about 70.5% dependence on importation. The chances of the local

industry rising to the task remain very slim as only four (4No) out of the seven (7No) of the

cement companies in the country are still limping along at various levels of capacity utilization.

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Cost of Cement Per 50Kg Bag (EAGLE CEMENT) Price

Years 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000

Amount 32 40 85 180 410 430 500 550 600 650 1000

Year 2002 2003 2004 2005 2006

Amount 1000 1100 1200 1250 1500

There is need to critically look at the use of cement blocks in housing construction especially the

low-income housing. Research has shown that a 22.5mm block wall plastered and painted on both

sides with emulsion paint cost N1,700/m2 while a similar solid brick wall plastered and painted on

one side with emulsion N1500/m2. A savings of N200/m2. A further savings, it has been

observed could be made with the use of compressed stabilized earth brick whose same action as

above will cost only N850/m2.

Thus achieving the construction of housing for income groups require creative framework through

–

Indigenous design and construction as opposed to imported design and conventional construction

methods.

Evolution of Simpler Form of Design: A need to do away with over – designing and concentrate

more on function design. The local Architects have to take the lead in the regard. A more cost

effective design is highly desirable at this point in time if mass and cheap housing is to be assured.

9.0 Conclusion.

The paper has outline that shelter needs in Nigeria are but one of a number very pressing

development problems. It has argued, moreover, that one of the most difficult impediments to

reform in the housing sector has been over the issue of access and rights to land. The paper has

advocated that the ways forward in forward in addressing current problems of housing supply in

Nigeria involve a more widespread acceptance of market forces to liberalize land supply,

encourage the development of a construction sector oriented towards middle and low income

groups and supported by appropriate technology and sources of private finance. One would hasten

to add, however, that there are shortcomings in advocating unequivocal market force solutions to

the housing problems of lower income groups. It should also be acknowledge that the almost

unique problems which surround the issue of land supply have not risen by chance but as a result

of the conflict between the tradition values of our societies and those imposed by the former

colonial

Powers.

Recommendation

Review of land use Decree of 1976-Whereby all lands in government ownership is feed in order to

enhance intense private sector participation in the industry by making access to land very easy.

This would help in the empowerment of the real sector and thus an active and vibrant industry. A

situation such as witnessed in the real sector and thus an active and vibrant industry. A situation

such as witnessed in the recent Budgets for social housing would become a child‘s play if more

land is freed or ceded to the private sector.

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Government should therefore undertake steps by all appropriate means and to the fullest of funds

at his disposal to achieve progressively the tenets of adequate shelter for Nigerians especially the

vulnerable group. This must be done without discrimination as to status, sex, tribe and without

fear of favour. It is indeed hoped that the above framework which is indicative of bright prospect

for financing housing cost ruction will rapidly expand the quantum of finance available and

dampen the high cost of funding and construction. With the restructuring of the domestic

economy, it is my belief that there is a bright prospect for housing financing large scale in Nigeria

in this new millennium.

It is recommended that more emphasis be placed on providing low and medium income housing

units in Nigeria using earth blocks and intermediate technology. It is also expected that to avoid

the takeover of these houses by the high income group, national or state monitoring groups made

up of NGOs, government institutions and other public and private stakeholders be established to

monitor progress and make sure that target populations benefit. The use of this sample stabilized

earth blocks and combining this can be possibly done by giving long term loans with sustainable

interest rates and no collateral. Co-operative,

Communal and self build practices must be encouraged by the appropriate ministries and NGO‘s

to further help increase self reliance and help. Establishment of the construction Bank is a sine-

quo-non in this regard.

The national Road and Building Research Institute must be empowered to do a lot of research into

cheap and effective materials for both housing and road constructions. Efficient land markets and

sustainable land use polices are indispensable there is need to change the Land Use Decree to a

more housing friendly legislation.

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Federal Office of Statistics (FOS) (1994) Social Statistics in Nigeria, FOS, Abuja 8-Federal Office

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Durand-Lasserve, A. & Royston, L. (eds) (2002) Holding their Ground: secure land tenure for the

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Infrastructures Implication.

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McAuslan, P(2000) Bringing the law back in: urban law in Africa and the Habitat

McLeod, R (2002) Research on bridging the finance gap in housing also infrastructure and the

development CLIFF-the Community Led Infrastructure Financing Facility, unpublished paper,

Homeless International, Coventry 14-Osondu, I.N. and Middleton, A. (1994) Infonnal Housing

Finance in Nigeria, paper presented to the ENHR Symposium entitled ‗Housing for the Urban

Poor‘ Birmingham

Payne, G,(1999) Making Common Ground: public-private partnerships in land for housing,

Intermediate Technology Publications.

Rakodi, C. and Leduka, C.(20003) Informal Land Delivery Processes in African Cities:Working

Paper 1,The University of Birmingham

Renaud, B. (1999) The Financing of Social Housing in Integrating Financial Markets:a view trom

developing countries, Urban Studies, vo/36No4pp 755-773

The World Bank, (2000) Can Africa claim the 21st Century? Washington DC Habitat International

Vol.22, No3,pp2S9-271

UNCHS(Habitat) (1996a) The Human Settlements Conditions of the World‘s Urban

Poor, Nairobi, Kenya

UNCHS(Habitat) (19996b) An Urbanizing World; Global Report on Human

Settlements Oxford University Press, Oxford

UNCHS(Habitat)(2001) Cities in a Globalize World: Global report on Human Settlements

Earthscan.

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Balance of Payments, Exchange Rate Regime and Monetary Policy

Dr. Saqib Gulzar

Department of Management Sciences

COMSATS Institute of Information & Technology, Pakistan

Khuram Shafi

Department of Management Sciences

COMSATS Institute of Information & Technology, Pakistan

Abstract

No country can effectively control its exchange rate variation without appropriate control over its

payment balances. If one country has a deficit in its balance of payments then how could its

currency be strong? Deficit in balance of payments always depreciates the local currency which

makes imports of goods and services more expensive and causes high inflation. Exchange rate

regime is distressed by a deficit in balance of payments and sovereignty of monetary policy is

agitated with a change in exchange rate regime. The main objective of this paper is to demonstrate

the relationship between these three elements and how deficit in balance of payments agitates the

exchange rate regime and monetary policy.

Keywords: Balance of payment, Exchange rate regime, Sovereignty, Monetary policy.

1. Introduction:

Balance of payments, exchange rate regime and monetary policy are basic factors that play an

imperative role in the economic development of a country. It is very difficult for a country to

control the exchange rate variation without proper control over its balance of payments. High

payment balances lead to depreciation of the home currency that means an appreciation of foreign

exchange rates. This appreciation makes the imports of goods and assets more expensive and

exports cheap. As a result the demand for domestic products and services increases due to

expensive imports and cheap exports. If the local producers fail to fulfill this excessive demand

then imports increases and exports decrease and cause a deficit in balance of payments. It also

makes upward pressure on local market prices and causes high inflation. Deficit in balance of

payments induces authorities to fix the exchange rate by pegging the currency or adopting a

currency board. The rapid changes in the exchange rate regime disturb the monetary policy. Under

different exchange rate regimes the monetary authorities play different role for controlling the

foreign exchange rate. It has been observed that under the free floating exchange rate regime,

monetary authorities are more freely implement policies than any other type of regime. The deficit

in the balance of payments affects, including changes in exchange rates and in interest rates, affect

directly or indirectly all parts of the economy.

The main objective of this paper is to find out the keen relationship between balance of payments,

exchange rate regime and monetary policy; they are correlated with each other and effect the

economic growth of a country. We demonstrate the keen relationship in Figure 1. We find that

changes in the balance of payments (deficit or surplus) cause changes in the exchange rate regime

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and monetary policy. We find that a deficit in the balance of payments weakens the home

currency. Therefore, it is suggested that country must control its payment balances to strengthen

the home currency and enable free implementation of monetary policy.

2. Balance of Payments

The balance of payments is an account that systematically measures all economic transactions

between the home country and rest of world over a specific period of time. The transactions are

measures in term of receipts and payments. It covers the exchange of all goods and service. The

balance of payments is composed of three major accounts: current account, capital account and

reserve account. The current account consists of goods balance (imports - exports) and it accounts

for all tangible items. Services balance includes all intangible items like legal services, technical

services, consultancy etc and Income balance includes the interest earned from foreign

investments. The capital account consists of ―investment transactions‖ It includes the result of both

the financial and non financial assets transactions. The net result obtained from the current account

and capital account must be financed by the official foreign reserve. The official foreign reserves

account consists of reserve assets in the of foreign currency, gold, securities investment, IMF loans

and the foreign exchange reserve of private banks with the central bank. A deficit in the balance of

payments means that the imports bill exceeds the exports bill. This deficit induces the authorities

to fix the exchange rate by main trading country‘s currency or a basket of currency.

3. Exchange Rate

The exchange rate represents the relationship between one country and the rest of world. It

influences the price of goods and services and assets traded (imports and exports). Under the fixed

exchange rate the price of goods and assets are predictable. When the exchange rate is flexible, the

foreign exchange market determines these exchange rates based on demand for and supply of

currency.

3.1 Exchange Rate Regimes

There are three major types of exchange rate regimes: floating fixed and peg exchange rate regime.

Each exchange rate regime has specific characteristics and produce different results. Under the

floating exchange rate regime the monetary authorities are independent. They lay down a monetary

policy but no exchange rate determination policy. The exchange rate is determined by demand and

supply mechanism. Under the fixed exchange rate regime, a monetary authority determines or

fixes the exchange rate but there is no permanent monetary policy. Monetary policy changes as

Balance of

Payments

Exchange Rate Regime

Monetary Policy Control

Deficit

Fixed

Loose Tight

Floating

Surplus

Figure: 1

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required by exchange rate fluctuation. In other words, we can say that monetary policy is based on

balance of payments. If foreign reserves increase then its monetary policy base increases.

3.2 Exchange Rate Inconsistency

The standard of exchange rate management is that currency is determined by market demand for

and supply of currency. When the market is disrupted by seasonal and asymmetrical factors the

central bank steps in and plays a vital role for controlling the market disruption. These unexpected

fluctuations in the exchange rate disturb the domestic economy. The countries that have fixed or

peg exchange rate regime don‘t have such a type of problem. They have fixed it and a currency

board controls and determines an inelastic exchange rate. But the countries having the floating

exchange rate regime, their central bank interfere in the foreign exchange market to a certain level.

History show that the cost of currency misalignment is greater under the peg exchange rate

because the exchange rate is fixed and the equilibrium level is not determined by demand for and

supply of currency. This is one of the reasons of a currency crisis. While fixing the exchange rate it

tries to control the free international trade of goods. But here the government fails to make any

adjustment in the exchange rate to compensate the balance of payment deficit. So the fiscal policy

can‘t make any adjustment in exchange rate to control the deficit in the current account.

4. Determination of Exchange Rate

Balance of payments is a collection of various economic factors that play a significant role in the

determination of the exchange rate. Change in the balance of payment‘s accounts causes a change

in the exchange rate. The balance of payments plays a vital role in the determination of the

exchange rate under different regimes. We discuss here two regimes, floating and fixed exchange

rate regime.

4.1 Floating Exchange Rate Regime

When there is a floating exchange rate regime existing in the country, monetary authorities do not

interfere in the evaluation of the exchange rate. Under this situation the exchange rate is

determined by demand for and supply of currency. Surplus in the balance of payments account

appreciates the local currency which makes domestic products and assets more expensive in the

international market. That puts downward pressure on the balance of payments account. Surplus in

balance of payments also means the excessive demand of local goods and assets which leads to a

reduction in the foreign exchange rate and lower the prices of local products in the domestic

market. It also increases the foreign exchange reserve. But when there is a deficit in the balance of

payments account it will depreciate the local currency which means appreciation of the foreign

exchange rate. The depreciation of the home currency makes domestic products cheap in the

international market. So, their international demand increases which makes an upward pressure on

the balance of payment. If the domestic producers are not able to fulfill this excessive demand then

imports increase as compared with exports and in the result there is deficit in the balance of

payments.

4.2 Fixed Exchange Rate

Under the fixed exchange rate regime the monetary authorities interfere in exchange rate variation

and use the official foreign reserve to equilibrate the balance of payments. When the balance of

payments is in surplus it means there is excessive demand for local goods, assets and currency.

Under the fixed exchange rate regime the monetary authority plays its role and supplies the

excessive demand for currency by purchasing government securities from the domestic market. On

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the other hand the deficit in the balance of payments means less demand for local goods, assets and

currency which means the excessive supply of local currency in the domestic market or inflation is

prevailing in the country. If the fixed exchange rate regime is prevailing in the country the

monetary authority again plays its role and sells the government securities in the domestic market

to control the money supply in circulation. One thing here is important: if the government doesn‘t

have a sufficient amount of foreign reserve then they are bound to devalue the home currency.

5. Monetary Policy

Monetary policy is the process of controlling the national money supply in the local economy to

achieve some specific objectives like stabilizing price level, achieving reasonable economic

growth, employment opportunities, enhancing foreign investment, controlling the interest rate, and

many others depends upon the economic situation of a country. For achieving the said objectives,

the monetary authority takes various steps including buying and selling of local securities to

private banks and financial institutions, controlling interest rate, monitoring money in circulation,

meeting the reserve requirement and many others. We can divide the monetary policy in to two

categories under the different exchange rate regime, the loose monetary policy and tight monetary

policy.

5.1 Loose Monetary Policy

Under the fixed exchange rate regime the monetary policy looses its control and that leads to a

deficit in the balance of payments. When there is fixed exchange rate regime in a country the

government makes changes in the domestic currency supply on each working day to keep the

exchange rate at a certain desirable fixed level. Under this situation the government sells its own

currency in order to keep the exchange rate fixed. When the supply of money in circulation

increases, it lowers the interest rate as more money is available for loans as compared to demand

for it. Low interest rates encourages capital outflow because outside the country investors have a

healthy return which leads to a deficit in the balance of payments. At the same time, the high

supply of money increases the local income level which leads to an increase in imports as people

have more money to spend so they demand the foreign products. In the end it affects the current

accounts balance and imports increases as compared to exports so that there is a deficit in the

current account.

5.2 Tight Monetary Policy

When the exchange rate regime is freely floating, the monetary policy is independent. Tight

monetary policy causes an increase in the interest rate as the government controls the money in

circulation in local market. Healthy interest rates attract foreign investors and cause an increase

capital inflow which leads to a surplus in the balance of payments. Local currency is appreciated

due to surplus in the balance of payments which leads to an increase in the prices of domestic

products in the international market. If the country‘s exports are based on inelastic products, then

the change in price level will cause an increase in revenue and a surplus in the current account.

6 Conclusion

The prime objective of monetary policy is the price stability. But under the deficit in the balance of

payments it seems to be difficult. Deficit in the balance of payments not only depreciates the local

currency against foreign currency but also increases the domestic price level. Rapid variation in the

exchange rate causes by the deficit in balance of payments induces the authorities to fix the foreign

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exchange rate at certain desired levels by adopting pegging exchange rate regime or a currency

board. Under both regimes monetary authorities loose their control. In the end, it is concluded that

the balance of payments has the major influence on exchange rate regime and monetary policy and

change in the balance of payments brings changes in the exchange rate and monetary policies. It is

strongly suggested that countries have a deficit in the balance of payments must take the following

steps to control the deficit. It will not only make the local currency strong but will also helpful in

achieving healthy economic growth.

i. Try to increase the official foreign reserves that may be in the form of foreign currency, gold

foreign reserve of private banks at the central bank and foreign securities investment. It will

help to finance the net result obtained from the current account and capital account.

ii. Increase in foreign reserves also helps to enhance the confidence of lending authorities and

control the exchange rate variation.

iii. Establish more domestic as well as international industries inside the country to increase

domestic production. This will not only help to fulfill the domestic demand but also increase

exports, provide employment and lead to healthy economic growth.

iv. Try to convert raw materials into finished or semi-finished goods. This step will help to

increase the export value and reduce the trade balance of payment deficit.

v. Impose tariffs, import quotas and exchange rate control.

vi. Try to increase the interest rate. It will help to increase the saving habits of residents of the

country and also attract foreign investments. This step will help to overcome the shortage of

capital investments.

vii. Attract foreign direct investments by providing then extraordinary production facilities.

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References

Virginie Coudert & Marc Dubert, (2004-05), “Does exchange rate regime explain differences

in economic results for Asian countries?‖, CEPII working Paper No. 2004-05 May

Akiko Terada-Hagiwara (January 2005), ―Foreign Exchange Reserves, Exchange Rate

Regimes, and Monetary Policy: Issues in Asia‖ ERD working paper No. 61.

Mohammad Ishaq Javed and Dr. Shaikh Muhammad Ashfaq (2004), ―The problem of deficit in

balance of payments‖, Dawn the Internet edition, http://DAWN.com Monday 4th

October 2004.

Robert A. Mundell, (1968), ―The Appropriate Use of Monetary and Fiscal Policy under Fixed

Exchange Rates‖ International Economics, New York: Macmillan, 1968, pp. 233-239.

Liu Hongsheng, Hu Yunquan & Hui Xiao feng. (2003), ―Renminbi,s Exchange rate regime for

greater flexibility‖ , Proceedings of 2003 International Conference on Management & Engineering,

Georgia, USA. 1494-1497.

Yuhai Su, (Aug 2004), ―Analysis on the option of RMB Exchange rate regime‖, Chinese

Business Review, Volume 3, No8 (serial No.14)

Jerry Mushin Exchange-Rate Policy and the Efficacy of Aggregate Demand Management The

Business Economist Volume 33 No 2

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Cloud Computing: SMEs Issues and UGI based Integrated Collaborative

Information System to Support Pakistani Textile SMEs

Chaudhry Muhammad Nadeem Faisal

13

Engr. Muhammad Khalil Azher14

Engr. Babar Ramzan15

Muhammad Sheraz Arshad Malik16

Faculty Members

The University of Faisalabad

Faisalabad-38850, Pakistan

ABSTRACT- Cloud computing is a style of computing where information technologies

enable business products, services and solutions as a service over the internet. It is a concept where

it is characterized into three main entities - Software, Hardware and Network. The collective

nature of all these entities is known as the Cloud computing. The concept of cloud computing is

currently in very early stages of development. There are a lot of researches being carried out in this

area. Authors focus to analyze the cloud computing and also to propose a concept based of

qualitative studies for business process integration and Industrial collaboration, in the context of

SMEs in Textile sector. Here the authors propose services oriented cloud based infrastructure as an

ideal for SMEs especially for those companies having their no information system based

infrastructure and solution to the challenges that they are facing. The primary aim of their research

work is to integrate process not only within the organization but also with the partners and

customers. It also takes care of the IT investment of the enterprise having lack of resources.

KEYWORDS: SOFTWARE AS SERVICES (SAS), CLOUD COMPUTING, SMES, BUSINESS

PROCESS INTEGRATION, B2B COLLABORATION, (UGI) UNIFORM USER GRAPHIC

INTERFACE, VALUE ADDED PROCESS, E-GOVERNMENT

1. INTRODUCTION

Now a day‘s most of the companies provide cloud base resources / services over the internet.

Today the cloud computing is rendering users with services to access hardware, software

services and data resources while using the internet [1]. In computer science the word

―broadcast‖ means computing at a remote location inside the cloud, either through your own

13

Chaudhry Muhammad Nadeem Faisal is currently working with the University of Faisalabad in the School of Management studies, School

of Textile Engineering, 38850, Faisalabad Pakistan.

Chaudhry Muhammad Nadeem Faisal is also with the Riphah International University as Visiting Faculty member, with FSD campus, Pakistan 14

Engr. Muhammad Khalil Azher is currently working with the University of Faisalabad in the School of Textile Engineering, 38850,

Faisalabad Pakistan.

Engr. Muhammad Khalil Azher is also working as Visiting Faculty with the GC University Faisalabad in the Department of Industrial Management, 38000, Faisalabad Pakistan. 15

Engr. Babar Ramzan is currently working with the University of Faisalabad in the School of Textile Engineering, 38850, Faisalabad

Pakistan. 16

Muhammad Sheraz Arshad Malik is currently working with The University of Faisalabad in the Department Information technology as IT

Manager, 38850, Faisalabad Pakistan

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computer or with any other device through the web using an internet connection. "The cloud is

a smart, complex, powerful computing system in the sky that people can just plug into [2]."

The major contributions of this study is to make the structure, constant and smooth flow of

information with help of cloud based services in efficient manners to support SMEs in

textile sector. As in SMEs, the textile manufacturing process is divided into clusters e.g.

ginning, spinning, weaning, processing and made ups. Only few corporate level industries

possess their own complete units for manufacturing. SMEs sector majorly faces the

problem due to dis-integration and cluster based industry in different geographical

locations. As they have to support each other in value addition process of a product. This

purposed cloud based concept will provide and facilitate the SMEs in reducing operational

and inventory cost, improving delivery, revenue and market share.

1. BACKGROUND

In response to rapid environmental changes, diverse business development and continuous

improvement in their information systems, many organizations think to enhance their

business processes through integration and B2B (Business 2 Business) collaboration for

future. Pakistani entrepreneurs have been facing tremendous changes within economic,

commercial and technological environments. It is evolving an urgent problem for them

how to utilize information technology and to build an effective information system. The

poor performance of entrepreneurs in textile SMEs is only due to limited resources and

unawareness about the Information system capabilities, poor implementation, lack of

business processes integration and industrial collaboration.

Government should provide them such resources in order to serve better and to win

competitive advantage and for future growth. As entrepreneurs alone themselves, are not

in position to overcome these challenges due to lack of resources and poor information

based system. There are numerous issues currently facing by the Pakistani SMEs in textile

sector are as, excessive regulation, energy shortage, water shortage, difficulties in

marketing and selling the products, unawareness about the technology, lack of expertise in

information technologies, obsolete technology, limited R&D (Research and Development )

support, lack of capital and financial resources, low skill mix of the labor / work force,

limited productivity of works and rising competition due to imported products. [8]

In this paper, the author‘s contributions are not only to bring the SMEs issues in textile

sector but also to propose a premature graphical prototype of cloud based infrastructure

(Fig. 3). It helps to define the importance of integration in business processes and

(Business 2 Business) B2B collaboration between the textile industries specifically in

SMEs. The objectives of this SOA (Services Oriented architecture) based infrastructure is

to provide capabilities and enterprise solutions to those companies having limited

resources, expertise and are not capable to design and implement their own Information

system. Business processes integration not only to manage the resources, but also provides

an efficient way for the flow of information in reverse order to improve the flow of work

and material. The purpose of this research work is suggest the implementation of SOA

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(services oriented architecture) at government level to support the Medium and Small level

industries having lack of resources, expertise and human powers in textile industries.

OBJECTIVES

To indentify and analyze the SMEs Clusters.

Business process integration for SMEs and B2B collaboration in between the different

clusters.

Uniform user graphic Interface (UGI) based applications to increase the adoptability of

applications within the workers

1. TEXTILE SMEs IN PAKISTAN

SMEs sector have been serving as respirator for the economic development with its

contribution towards GDP value addition and export earning. As the developed countries

like USA, UK, Germany, Canada and Japan have focused on this sector which paying a

fruitful results in the economic development [7].

Definition of SMEs according to the Pakistan SMEs Policy, is given bellow in the Table.1

Table.1 Definition of SMEs in Pakistan

Enterprise Category Employment Size

(a) Paid Up Capital

(b) Annual Sales (c)

Small & Medium Enterprise

(SME) Up to 250

Up to Rs. 25

Million Up to Rs. 250 Million

Small Medium Enterprise sector is the backbone of Pakistan economy, as it plays vital

role in the social and economical development of the Pakistan. According to the statistics

collected from SMEDA (Small Medium Enterprise Development Authority), there are

about 3.2 million business enterprises in Pakistan, (44% Rural & 56% Urban), where they

produce a wide range of goods and services, provide employment for a large number of

skilled and semi-skilled workers, account for a substantial proportion of manufacturing

output, and make a major contribution to the country‘s balance of payments. [7]

Here author focus of attention on the textile manufacturing related SMEs is, specifically in

Faisalabad. As Faisalabad is the third largest city of Pakistan having 45932 SMEs

manufacturing units, from them 22378 related to business of textile sector.

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Fig.1 Textile value chain & number of SMEs units with Employment size in Faisalabad

Table.2 Total Number of SMEs in Textile sector in Faisalabad

Ginning Units: 26

Spinning Units: 44

Weaving Units: 21842

Printing Units: 192

Apparel & Made Ups : Small & Medium 274, Large Units 12000 registered 300

Manufacturing Unit =192

Employment Size = 12000

Small & medium manufacturing Unit = 274

Employment Size = 20,000

Large Units: 26

Total Number of Units 1200

Registered Number of Units 300


Manufacturing Unit = 26

Employment Size = 790

Manufacturing Unit = 44


Others Cluster Actors Cotton Ginner

22 units (in Faisalabad Region)

156 units (in Southern Punjab

region)

Small & medium Manufacturing Unit =21842

Larges Units: 32


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Table.3 Textile SMEs Employments size in Faisalabad

Ginning Units: 790

Spinning Units: 200,00

Weaving Units: 400,000

Printing Units: 12,000

Apparel & Made Ups : 250,000

Table.4 Survey results on SMEs

Entrepreneur’s Education: Only 49% entrepreneur in SMEs sector having college or

graduate level qualification.

Technical Training: 70% entrepreneur in SMEs sector had not obtained any training.

Computer Usage: only 46% have computer. While from them 57% SMEs it for just

maintaining books of accounts while 43% for letter writing/email/internet.

Power Outages: 62% did not have their own power generation mechanism.

1. CLOUD COMPUTING IMPLECATIONS TO SUPPORT SMES

It is a style in which all the information technology related capabilities are providing

services and transferring technology, data and software applications from local systems

thought network into Clouds. According to the [3] ―the aims of the cloud computing is the

migration of users‖, data and processing from desktop PCs (client system) and corporate

servers to the cloud [3]. It is also defined by [4] why not just move all processing power to

the cloud and walk around with an Ultra-light input device with a screen? The Cloud

computing brought a lot of services i.e. database, storage, backup, data replication, data

protection and maintain the security of the services [4, 9]. Cloud computing in simple

words is the delivery of services or capabilities over the network and it is segregated into

three following entities.

a) Software as a service (SaaS): Applications based services delivered over the network. b) Platform as a service (PaaS): A software development framework / components all

delivered on the network on demand, the users have to pay. c) Infrastructure as a service (IaaS): An integrated environment of computing resources,

storage and network fabric delivered to network users have to pay for usage model.

4.1. SOFTWARE AS A SERVICE

Software as a service is link to the concept of cloud computing a new paradigm e.g.,

Google applications [12]. The paradigm focuses on sharing data and computation over the

scalable network nodes. Nodes include the end user computer, data center and web

services and are essentially the ‗rental‘ of software. [9]

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Figure 2 Concepts and layers of Cloud Computing

Figure.2 showing the different layers of cloud computing. SAAS (software as a service)

term is used to provide software and application services to users as they need to access. It

is also defined by [10] Today, most of what we use the web, on a day-to-day basis are not

just web pages they are applications. It is increasingly prevailing distribution model based

on applications that are hosted by provider to customer through network. It is support web

based services and service oriented architecture (SOA) is mature and new development

approach. [9]

4.1.1. BENEFITS OF SOFTWARE AS SERVICES

Easier Management.

Automatic updates.

Compatibility.

Effective collaboration.

Global accessibility.

Different companies provide similar service oriented architecture, through web based

application in order to solve the enterprise problems and derive their perspective solutions.

The BScaler enterprise recourse Manager™ provides the Cloud based ERP (SAS) to the

Small medium level industries which include the B2B / SMEs [10]. SaaSplus, Inc is a

Cloud computing based SaaS ERP Company in USA also offering Web based ERP

applications that enable Customer Relationship Management (CRM), supply chain

integration, manufacturing resources planning (MRP) and B2B collaborations [11].

Fig. 3 Flow of Information and Business Process Integration

Software as a Service

Cloud based ERP / IS

Operations Finance Services Sales

DASHBOARD FOR EXECUTIVE

http://whatis.techtarget.com/definition/0,,sid9_gci1125212,00.html

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The purposed concept of computing is derived from the real world service model to give

out the processing time to SMEs in textile sector to mange their business processes

individually. So this requires the deployment of datacenter and storage which must be in

control of government and at a place where the uninterrupted power supplies i.e. electricity

or solar panel are available. SMEs can freely access the desired business applications

accordingly. Here the focus is on the cloud based services oriented infrastructure (SAAS

Based ERP) that will not only facilitate the SMEs to manage their business activities, but

also to develop fastest supply chain with smooth flow of information between different

cluster of SMEs where they exist demographically at different locations.

The division of this service oriented model for E-government into three levels figure.4

First part is to manage the business resources and transaction individually, in second to

make collaboration between business to business (B2B) in different cluster of SMEs. The

third phase to provide the service oriented architecture (SAAS Based ERP) with uniform

user graphic interface based applications (UGI) for better understanding, memorability and

adoptability as discuss later.

Fig.4 Cloud based services oriented architecture for textile SMEs

The cloud based infrastructure poses tremendous potential to meet the above mentioned

challenges as its goals are to obtain better resources, utilization of IT capabilities and its

focus on providing the cost effective services for SMEs. It will help SMEs to produce a

valuable product or services with concrete flow of work, material, and information. The

informational/ functional integration and collaboration within the clusters facilitate them in

planning, which involves demand forecasting, level of inventory, manufacturing and

production planning. This level of integration between the different clusters of SMEs in

textile value chains makes fastest the supply chain process to reduce the emission of

carbon. It can also raise the utilization rate of resource and reducing the electricity cost and

consumption as Pakistani SMEs facing now a days.

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This will help to resolve the biggest issue in Pakistani textile sector, that is the workers as

well as entrepreneurs are not very much familiar with software and computer based

applications. It is also costly for the entrepreneurs to spend time and money for training.

ERP based software as services with uniform user graphic interface enhance the workers

adaptability and memorability while working consistently. They can easily adopt such

application with uniform user graphic interface while changing their job from one

organization to another. So in this way, they can work efficiently and consistently, it also

reduces the human mistake and builds confidence in them while working in textile sector.

CONCLUSION

This paper discusses how to make an organizational process and information centric with cloud

based application. It suggests to the government to offer such application to entrepreneurs so

they can reduce their operational cost. To develop this cloud computing infrastructure there are

high prioritiy needs i.e. complete support of Government authorities and the support of the

autonomous bodies that are directly responsible for the development of SMEs in Pakistan.

Pakistan is a developing country where no any organization is ready to take the initiatives to

promote the awareness and capabilities of information technologies in entrepreneurs. This way

government can supply the business communities with enterprise application via cloud

computing and can raise the utilization of data center considerably to reduce the consumption

of energy. Therefore, cloud computing is the best Environment to establish the e-government

The Ministry of Industries, commerce, science and technology, and the Small and Medium

Enterprise Development Authority (SMEDA). The authors have recommended that there

should be some actions taken by the government officials to regulate, promote and to create

cloud computing environment for textile SMEs in Pakistan.

FUTURE WORKS

In previous discussion, authors discussed the business process integration, B2B collaboration as

Cloud computing offering at enterprise level e.g., software as a services In Fig.4, a conceptual

prototype of efficient web based ERP SAS (software as services) information system is

proposed. But there is still need to formulate the requirements for designing it, for future

requirements as it may carry the extensive process of investigation and imperials studies to

gather the basic requirements for an effective information system and, its implementation at

government level to support textile SMEs as shown in Fig.5.

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Fig.5 Working Methodology of Inforamtion System in Textile Indistry

G2B and B2B

Layer 1: Business process

integration Layer 2: Industrial collaboration

Layer 3: Uniform user graphic interface

NETWORK

DATA CENTER

Software

As services

Infrastructure

As services

Platform as

services

BUSINESS PROCESSES

Work Follow + Raw material Follow

Flow of Information

Flow of Information

Procureme

nt

Processing Distributio

n Logistics system

CLOUD BASED INFRASTRUCTURE

CLOUD BASED INFRASTRUCTURE FOR

BUSINESS

Manufacturer

Retailer

Distributor

Supplier Collaboratio

n

INFORMATION SYSTEM CAPABILITIES

APPLICATION INTERFACE

IS MODEL FOR BUSINESS PROCESS

INTEGRATION

INDUSTRIAL COLLABORATION

Business Transactions / Collaboration based

transactions

Data

Trans

Designer

Data

Employee

personal

experienc

e

CAD data

Distribut

or

Retail

er

Operation

al /

maintenan

ce

Suppli

er

Application

User

Uniform user Graphic Interface

E-

government

Management

G2B, B2B

Government to Business

Invento

ry

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REFERENCES

[1] Lizhe Wang, Jie Tao, Marcel Kunze ―Scientific Cloud Computing: Early Definition

and Experience‖, Proceedings of the 2008 10th IEEE International Conference on High

Performance Computing and Communications - Volume 00 Karlsruhe, Germany, pp. 825-

830, 2008.

[2] H, Steve, ―Cloud computing made clear‖, Business Week, Issue 4082, pp.59-59, May,

2008.

[3] B. Hayes, ―Cloud computing‖, Communications of the ACM, Vol. 51 no, pp.9-11,

May, 2008.

[4] A. Weiss, ―Computing in the Clouds‖, networker, vol. 11, no. 4, p.18, Dec, 2007.

[5] R. Buyya, A. Sulistio, ―Service and Utility Oriented Distributed Computing Systems:

Challenges and Opportunities for Modeling and Simulation Communities‖, Simulation

Symposium, pp. 68-81, 2008.

[6] Geva Perry, ―How Cloud & Utility Computing Are Different, at GigaOm.‖ [Online]

[Cited Nov 21, 2008] Available: http://gigaom.com/2008/02/28/how-cloud-

utilitycomputing-are-different.

[7] Small & Medium Enterprises Department State Bank of Pakistan, SME Finance

Quarterly Review First Quarter, 2008

[8] http://www.smeda.org/ SMEDA, Small and Medium Enterprise Authority

[9] Chaudhry Muhammad Nadeem Faisal, Muhammad Sheraz Arshad Malik ―Usability

evaluation of Software as Service from Individuals perspective‖ Vol. II No. 7 (March

2011). ISSN: 1697-9613 (print) - 1887-3022 (online). www.eminds.uniovi.es

[10] BScaler enterprise recourse Manager, available online at: http://www.bscaler.com/

retrieved (02-02-2011)

[11] BScaler, available online at: http://www.bscaler.com/saasplus/index_saasplus.htm

retrieved (02-02-2011)

[12] Chaudhry Muhammad Nadeem Faisal, Issues in Cloud Computing: Usability

evaluation of Cloud based application, LAP LAMBERT Academic Publishing, Germany,

ISBN-10: 3838362829, ISBN-13: 978-3838362823, PP, 34.

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Psychological contract breach and work place deviance: moderating

role of relational contract

Muahammad Farooq Hussain

Associate Professor

University of Central Punjab, Lahore, Pakistan

Muahammad Farhan Younas

University Of Central Punjab, Lahore, Pakistan

Numan Ahmed


Adil Humyaun


Rizwan-ul-haq


Fahim-ul-noor


Hassan Yameen


Abstract

This research is an attempt to observe the relation among psycho contract breach with workplace

deviance. In our research we are also examining the moderate function of relational contract

among PCB with workplace deviance. The purpose of our study was to check the relation of

employees with their employers in the financial sector organizations. The findings come out with

this result that relation among employee and employer breaks when there is conflict between both

sides. The employer should safe the psycho contract relation to breach out. In this cross sectional

findings we examine the connection within PCB and WPD by collecting the data of N= 250

employees of financial sector in Pakistan. The result shows so as to PCB is completely correlated

to WPD and further results prove to relational contract has no effect on the model.

Key words: Psychological contract breach (PCB), Work place deviance (WPD) and Relational

contract (RC).

Introduction

In the recent area where organizational structures are changing rapidly, the phenomena of

psychological contracts are taking place in organizations. It is very vital to comprehend the impact

of psycho contract and its antecedents on organization. Our research is based on psychological

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contract breach that leads towards workplace deviance. From the last two decades it observed that

psychological contract is taking place in organizations or more we can say that psychological

contract take into account by researchers and organizations. Psychological contract concept is first

discussed through (Argyris, 1960) and after that discussed through (Levison, 1962) with somewhat

different idea. In simple it is a relationship among worker and its association (Agyris, 1960).

Psycho contract is with reference to an individual belief, that what he perceived during its job.

Psychological contract is a worker insight what he perceive and what he get in return from its

organization (Rousseau, 1995). According to the perception perceived by employee, psychological

contract is further divided into two types; Transactional contract and Relational contract

(Rousseau, 1995). Transactional contracts are short term in nature, because it is purely related to

monetizable exchange (Robinson & Morrison, 1997). In transactional contract employee is more

attractive towards its income than job. Relational contracts are long-standing and socio-fiscal in

nature (Robinson & Morrison, 1997). Relational contract occurs when employee is more loyal

towards its organization. From the last 10 years Psychological contract is becoming alarming

problem for the organization due to its antecedents.

Psychological contract is becoming more important when the phenomena of psychological contract

breach takes place. PCB occurs although worker perceives when association unsuccessful to

execute its obligations/promises (Rousseau, 1995). The worker who perceives psychological

contract breach responds negatively. Commit a breach responses possibly will arise in the shape of

anger, irritation, reduced loyalty, obligation moreover workplace deviance. Perception about

breach may arise shortly after job or may after several years of service. The employee who

perceives breach usually not takes interest any more in his/her job. In our model we are discussing

psychological contract breach leads towards workplace deviance.

From last few years the phenomena of work place deviance has generated interest among

researchers and market managers. It becomes an interest factor for researchers due to its harmful

affects on organization. Workplace deviance is about an employee‘s behavior against its

organization norms (Robinson & Bennett 1995). WPD is a type of frustration that is experienced

by organization from its employees. Workplace deviance is an professional offense (Kowk, Au &

Ho, 2005). Workplace deviance might be minor, like embarrassing co-workers, abusing staff,

leaving early, to major issues like theft, not working properly and giving organization‘s private

information to rivals. If any employee violates organizational rules and norms, then employee

involves in workplace deviance (Robinson & Bennett, 2000; Spector & Fox, 2002).Workplace

deviance is further divide into two parts; Interpersonal deviance and Organizational deviance. IPD

occurs among employee with employer (abusing, embarrassing co-workers and leaving early).

Organizational deviance occurs between employee and its organization (sabotage, theft).

The research is an effort to check the collision of PCB on workplace deviance under the

moderating role of relational contract. In our model relational contract is moderating variable

among PCB with WPD. Relational contract is a type of psycho contract. Relational contract based

on loyal relationship between employee and its organization. We assume that, when a person is

having relational contract with its organization and its psychological contract breaches it leads

towards more deviance. But According to our cross sectional study and inadequate facts, literature

review indicates that relational contract as a moderator has not been used in association with PCB

with WPD.

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Literature Review

Psychological contract and psychological contract breach

Psycho contract is defined as ―person viewpoint, wrought up the organization regarding term of a

trade concurrence between employees with their association‖ (Rousseau, 1995). Psycho contract is

a type of contract that is an informal, un-written and non-verbal contract among worker and

manager (Rousseau & Robinson, 1994). Psycho contract was first discuss in 1960s and 1970s by

Argyris, to some extent dissimilar conceptualization. Schein (1980) also described the

psychological contract as an unwritten and non-verbal agreement built by employee. Psychological

contract examines the relationship among two parties i.e. worker and boss (Rousseau, 1989).

Psycho contract is about employee expectations from its organization (Rousseau, 1995). Psycho

contract is a societal swap process among the worker with the employer (Robinson & Morrison,

1995). Psycho contract refer to employees perception (Robinson, 1990). Rousseau (1997) also

mentioned that psychological contract may vary in strength and geniality. Psycholo contract is

about individual‘s point of view on its agreement between that individual and other person

(Rousseau & Greller, 1994). In nature, psychological contract was inherently subjective

(McFarlane Shore & Tetrick, 1994). There are two kinds of psychological contract, relational and

transactional contract (Guzzo & Noonan, 1994). Psychological contract has two types, relational

and transactional contract (Rousseau, 1995). Relational contract define as long time contracts and

more related to socio-emotional exchange where as transactional contracts define as short time and

more associated with economic resources exchange (Rousseau, 1995). The TC is connected with

fiscal swap over where as RC is connected with common swap over (Rousseau & Park, 1993).

Transactional contract and relational contract both are different from each other in term of

obligation (Robinson, Kraatz & Rousseau, 1994). Transactional contract can be defined as

economic exchange during a specific period of time (Robinson, 1994). Psychological contract is

built by employee or individual in three ways (Rousseau, 1995). First, individual may perceive

positive communications from employer or during interviews may receive promises from the

recruiters. Second, employee observes the supervisor attitude towards organization and

organization‘s response towards supervisors. Third, sometime organization provides some positive

signals for instance benefits, settlement and recital remarks that sometime play an significant job in

building psychological contract (Rousseau, 1995). Psychological contract takes interest when

phenomena of psychological contract breach take place, that is when obligation and perception of

an employee or individual is not fulfilled by the employer or organization it perceives

psychological contract breach (Robinson & Morrison, 1997). When an employee perceptions/

expectations not fulfill, then feeling of psychological contract breaches (Rousseau, 1995). It also

defines as a difference among what perceived and what we get in return (Morrison & Robinson,

1997). A PCB arises when employee compares its psychological contract and the actions taken by

its organizations (Robinson, et al, 2004).

The PCB occurs when employee is not receiving according to its expectations (Robinson, 1997).

Breach occurs when organization is not fulfilling its promises according to its employee

(Rousseau, 1995).

Workplace Deviance

Workplace deviance is about an individual or employee behavior violates organizational rules and

also threatens the well-being of an association and its members (Robinson & Bennett, 1995). WPD

is becoming an important and interesting variable as a result of its destructive belongings on the

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association and its employees (Robinson & Greenberg, 1998). According to different surveys it is

proven that workplace deviance is becoming common and expensive problem for the organization

(Bennett & Robinson, 2000). Workplace deviance negatively affects both its employee and

organization e.g. (Gundlach & Douglas, 2002). Workplace deviance is an individual behavior in

which employee will be motivated to violate (Kaplan, 1975). As a result of its costly behavior with

destructive possessions on association are attracted researchers to know about its predictors such

as, (Seabright & Schminke, 2002).

Usually those employees experiences workplace deviance, are more likely to quit, reduce

productivity, feel job-stress (Griffin & O‘Leary-Kelly, 2004). There are two dimensions of

workplace deviance: interpersonal deviance and organizational deviance (Robinson & Bennett,

1995). Interpersonal deviance occur when member of the organization are targeted, it may include

disrespect, rude behavior etc (Giacalone, Riordan & Rosenfeld, 1997). It‘s all about how an

employee harms its co-workers (Robinson & Bennett, 1995). Organizational deviance occur when

organization itself targeted, it may include stealing (Giacalone, Riordan & Rosenfeld, 1997). In

Organizational deviance the organization is itself targeted and up to which extent the employee

harms its organization (Robinson & Bennett, 1995). It is important to differentiate interpersonal

deviance and organizational deviance from each other because they both have different results

(Giacalone, Riordan & Rosenfeld, 1997).

Psychological contract breach and workplace deviance

When psychological contract breaches an individual may threat the well being of its organization

(in both way personal and interpersonal deviance) Robinson & Bennett (1995). There are two

types of deviance: Interpersonal and organizational deviance (Robinson & Bennett, 1995).

Contract breach leads to workplace Deviance that may define as frustration against organization

(Robinson & Bennett, 1997).PCB is completely in relation with WPD.

H1: Psychological contract breach is positively related to Interpersonal workplace deviance.

H2: Psychological contract breach is positively related to Organizational workplace

deviance.

Relational contract

Relational contract define as long time contracts and more related to socio-emotional exchange

where as transactional contracts define as short time and more associated with economic resources

exchange (Rousseau, 1995). The relationship among relational contract and transactional contract

are different but they may relate with employee‘s working behavior in different ways (Raja, 2004).

The level of contract in both employee and employers relation with subject matter of RC is

stronger than TC (Coyle-Shapiro & Kessler, 2000). Relational contracts are strongly affected by

contract breach than transactional contracts (Robinson, 1994). In relationship with a person

attitude of relational contract, we suggest that the relationship between promise and what our

studies shows that there should not be consisting of disagreement effect. Researcher‘s findings say

that individual person having many parts when they conclude their result (Rice, Phillips, &

Mcfarlin, 1990). Where as, the level of relational contract also describe that disagreement effects

may be having the necessary relation with higher order (Migonance & Herrbach, 2004) In

relational contract the relationship of employer with employee, the employee seeks to be more safe

for maximum time working within the organization (Denise Rousseau).Relational contract of

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employer & employee are the relationship between them that would reflect the long term

relationship (Rousseau, 1988).

Relational contract as a moderator

We take relational contract as a moderator. Psychological contract breach leads to a number of

circumstances it may cause increase in employee turn over ratio and may it result in the shape of

workplace deviance. We assume that when there is relational contract among worker and its

association with PCB it would lead towards workplace deviance. Relational contract moderate

both psychological contract breach and workplace deviance. In relational contract employee is

more loyal towards its organization and it expectations towards its organization are also very high.

So, when a psychological contract breaches it may create high feelings of violation due to

relational contract and it lead towards workplace organization.

H3: Relational contract moderating the relationship between psychological contract and

Interpersonal workplace deviance.


Organizational workplace deviance.

Theoretical frame work

1.

2.

Psychological contract breach (Independent variable)

Interpersonal work place deviance (Dependent variable)

Organizational work place deviance (Dependent variable)

Relational contract (Moderator)

Psychological

contract breach

Interpersonal work

place deviance

Relational contract

Psychological

contract breach Organizational work

place deviance

Relational contract

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Methodology Sample and procedures

Our research consists of employees of 29 organizations of financial sector in Pakistan. These

financial sectors include both private and public organizations. In this cross sectional field survey

the data was collected from 300 employees of different organizations of financial sector. After

discarding unusable questionnaires, we left with 250 useable responses. The education of

respondents range from intermediate to post graduate students and 67 % of the sample consisted of

graduate employees and 44% of employees were specialized in finance. The mean age of the

respondents is 33.47 years with (S.D = 10.93) and 75 % of the respondents were male. The

89% of the respondents are from private organizations and 25% of the respondents have more than

10years of experience. We have used 5 or 7 point likert scale on which participants responded.

Measures

All measures were collected through self reported instrument in which participants responded on 5

or 7 point likert scales. Reported values above the mean considered as higher level of

constructs in the questionnaire. As English is the medium of instruction in Pakistani education

institutions. Few other studies are conducted in English in Pakistani context like (Butt, Choi &

Jaeger, 2005; Raja et al., 2004). This raised our confidence in not using translated scales, to

avoid translation and back translation issues.

Psychological contract breach

PCB is calculated with Rousseau 05-items scale. Responses were given on 5-point scale from 1=

strongly disagree to 5= strongly agree. Relational and transactional contract were measured using

10 item scale for each type. An example thing for CB is ―feel that my employer has come through

in fulfilling the promises made to me when I was hired‖. Cronbach‘s alpha of this scale is (0.63).

Workplace deviance

Workplace was measured using Aquino, Lewis & Bradfield, (1999) 14-item scale. 6-items were

used for interpersonal and 08-items were used for organizational workplace deviance. Response be

specified on 5-ponit range from 1= Never, 2= 0 to 3times, 3= 4 to 10item, 4= 11 to 20 item to 5=

more than twenty. An example piece in support of IPWPD is ―I swore at a co-worker‖. An

example piece in support of OWPD is‖ I made unauthorized use of organizational property‖.

Cronbach‘s alpha for IPWPD is (0.78) and Cronbach‘s alpha for OWPD is (0.84)

Relational contract

Relational contract was measured using Rousseau (2000) 10-item scale. Responses were given on

5-point scale from 1= strongly disagree to 5= strongly agree. A sample item is‖ Provides stable

benefits to employee‘s families‖. The cronbach‘s alpha of this level is (0.79). Control variable

The Outcome of one-way ANOVA show considerable alternatives in dependent and moderator

variables with one demographic: Organization name. All other demographic factor like age,

gender, qualification, designation, was showed insignificant impact on moderator and workplace

deviance. Therefore, only one variable organization name was entered into the equation as control

variable, when we performed Linear Regression in this study.

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Results

-----Insert Table 1 Here-----

Descriptive Statistics and Correlations Table 1 shows descriptive statistics, mean, standard deviation correlations for the entire

variables used within this research. Alpha reliabilities are reported in bold parenthesis in front of

each variable. The descriptive analysis results revealed mean value for Psychological Contract

Breach 2.75 (S.D = 0.74) the mean value for Relational Contract 3.02 (S.D = 0.68) the mean value

for Interpersonal Work Place Deviance 1.81(S.D =0.71) and mean value for Organizational Work

Place Deviance 1.51(S.D =0.58).

PCB is positively linked with IPWPD and it is Sig. at .05 level of significance i.e. (r = 0.14, p<

.05) Relational Contract is negatively correlated with Psychological Contract Breach and it is Sig.

at .01 level of significance i.e. (r = -.42, p<0.1). Psychological Contract Breach is positively

correlated with Organizational Work Place Deviance and it is Sig. at .05 level of significance i.e. (r

= 0.15, p< .05).

Regression Analysis

Contract Breach, Interpersonal Work Place Deviance and Organizational Work Place

deviance. Table 2 shows results of regression analysis. In first step of regression analysis we entered

organization name as a control variable. In second step we regressed interpersonal work place

deviance with contract breach which showed the following results (ß=.13, p=.05). In the new step

of organizational work place deviance was regressed with psychological contract breach and it also

showed positive relation with (ß=.15, p<.05). Hence, hypotheses of the direct relations are

approved, H1: Psychological contract breach is positively related to Interpersonal workplace

deviance.

H2: Psychological contract breach is positively related to Organizational workplace deviance.

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Table 2

Regression analysis for Contract Breach, Interpersonal Work Place deviance,

Organizational Work Place Deviance, Relational Contract and outcomes

**. Correlation is significant at 0.01 levels (2-Tailed).

*. Correlation is significant at 0.05 levels (2-Tailed). ***p< .001, **p< .001, *p< .05

Moderation analysis

In our moderation regression analysis table 3 taking interpersonal work place deviance and

organizational work place deviance as a dependent variable. In step 1 we take organization name

as a control variable, in step 2 we take psychological contract breach as an independent variable

and relational contract as a moderator, in step 3 we take interaction term to find out the

moderation. After conducting the moderation analysis into our model which is basically the

relational contract which according to our belief was influencing the relationship of psychological

contract breach and interpersonal work place deviance, organizational work place deviance. But

after conducting the whole study of sample size 250 respondents and running the proper

moderation analysis we found that our hypothesis is rejected (H3: Relational contract moderating

the relationship between psychological contract and Interpersonal workplace deviance.


Organizational workplace deviance) and there is null relationship. Moderation plays no role with

in the original relation of the main conceptualization.

Interpersonal work place deviance

Organizational work place deviance

Predictors β R² ∆R² β R² ∆R²

Model 1:

Step 1 Control (organization Name) .02 .01

Step 2

Contract Breach .13* .04 .02* .15* .03 .02*

Relational contract .34 .05 .006 .43 .05 .01

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TABLE 3

RESULTS OF MODERATOR REGRESSION ANALYSIS

Interpersonal Work Place Deviance

Organizational Work

Place Deviance

PREDICTORS β R² ∆R² β R² ∆R²

MODEL 1

MODERATION OF RELATIONAL

CONTRACT

STEP 1

CONTROL .02 .01

STEP 2

CONTRACT BREACH .13* .04 .02* .15* .03 .02*

RELATIONAL CONTRACT .02 .05 .001 .05 .01 .004

STEP 3

Contract Breach*Relational Contract .34 .05 .006 .43 .05 .01

N=250 Organization Name was used as control variable. ***p< .001, **p< .001, *p< .05

Discussion

The rationale of this research is toward examining the relationship of PCB with interpersonal work

place deviance, organizational work place deviance and relational contract as a moderator in the

financial sector organizations.

In our results we come to know that psychological contract breach is positively connected through

interpersonal work place deviance and organizational work place deviance (Hypotheses 1, 2).

Relational contract has no significance relationship between IPWPD and OWPD (Hypotheses 3,

4).

In our research we have discussed that psychological contract breach affects workplace deviance.

If there is an increased psychological contract breach than there is an increased possibility of

workplace deviance. Relational contract affects workplace deviance and psychological contract

breach according to our assumption in the study. We assumed relational contract because it is kind

of loyalty bonding towards the organization. Relational contract to a greater extent influences

workplace deviance as the employee mind frame is attached with the workplace.

Psychological contract breach occurs due to some dissatisfaction towards job and expected results

are not given according to the expectations. This should be prevented to increase the overall

performance of the employees. Management should see the employees as an important asset and

every possible measure should be taken to increase the job satisfaction and decrease the

psychological contract breach.

Different incentive packages should be given when employee performs according to the

organization‘s expectations. So that there is an increased motivation for employees to work

effectively and on time.

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Limitation of study

In this study there are several limitations. Firstly, the research we conducted was cross sectional in

its nature, to explain these relationships in a better way the research should be longitudinal.

Secondly, our research was based on self reported measure, while pervious researchers also used

self reported measures in their studies (1996; Morrison & Robinson, 1997; Robinson & Morrison,

2000) and it may cause common method error.

There are many moderators and mediators that can be explained between psychological contract

breach and work place deviance.

Practical implementation & Future research

Our study shows practical approach towards the organization and employee relations. Employees

have the tendency to deviate if their expectations are not met and they can damage the repute and

image of the organization. Management and board of governors should be able to implement some

comprehensive plans towards the betterment of the employees. Improved salary packages, highly

integrated career path and giving what is promised is the hallmark of any organization.

By following this approach an organization would be able to increase the overall productivity of an

organization and the profitability. Relational contract has no effect on interpersonal workplace

deviance, organizational work place deviance and psychological contract breach according to our

study. There are many moderators and mediators that can be explained among PCB and WPD.

The researcher should use some different moderator to check the association of PCB and WPD.

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References Amy E. Colbert and Michael K. Mount, James K. Harter, L. A. Witt, Murray R. Barrick.(2004).

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Jonathan L Johnson and Anne M O‘Leary-Kelly. (2003). The effects of psychological contract

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J.S.C and I.K. (2000). Consequences of the psychological contract for the employment

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analysis of age as a moderator. Journal of Vocational Behavior, 72,143–158.

Muhammad Ahmad -Ur- Rehman, Inam-ul-Haq, Farooq Ahmed Jam, Ahmad Ali, Syed Tahir

Hijazi (2010). Psychological Contract Breach and Burnout, Mediating Role of Job Stress

and Feeling of Violation. European Journal of Social Sciences, 17 (2) 232.

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Academy of Management Journal, 47(3), 350–367.

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study of psychological contracts. Journal of Organizational Behavior, 2, 389-400.

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Delivered Inducements: Relational and Transactional Contract Elements and the Mediating

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Sandra L Robinson & Denise M Rousseau. (1998). Violating the psychological contract: not the

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Variables Mean S.D 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15

1.Gender 1.26 0.43

2.Material Status 1.57 0.49 -0.31**

3.Age 33.47 10.93 -0.23** 0.58**

4.Organization Name

18.26 9.11 -0.07 0.29** 0.41**

5.Organization Type

2.82 0.52 -0.17** -0.01 0.05 -0.1

6.Department 4.88 2.58 0.11 -0.01 -0.06 0.03 -0.01

7.Designation 2.79 2.17 0.1 -0.16* -0.24** -0.22** 0.11 0.17**

8.Education 2.86 0.64 0.06 0.11 0.19** -0.04 0.04 -0.11 -0.05

9.Specilization 2.1 1.24 -0.19** 0.15* 0.14* 0.06 0.09 0.04 -0.05 -0.05

10.Organization Experience

3.02 1.44 -0.06 0.41** 0.55** 0.25** -0.15* 0.04 -0.15* 0.09 0.06

11.Total Experience

3.68 1.33 -0.23** 0.59** 0.67** 0.31** -0.04 -0.01 -0.17** 0.19** 0.11 0.76**

12.Relational Contract

3.02 0.68 -0.01 -0.04 0.08 0.01 -0.05 -0.07 0.05 0.05 -0.1 0.01 0.01 (0.79)

13.Psychological Contract Breach

2.75 0.74 0.05 -0.13* -0.21** -0.1 -0.04 0.03 -0.06 -0.06 0.04 0.04 -0.08 -0.42** (0.63)

14.Interpersonal Work Place Deviance

1.81 0.71 -0.09 -0.14* -0.25** -0.14* -0.05 0.12 -0.04 -0.03 0.08 -0.1 -0.2** 0.02 0.14* (0.78)

15.Organizational Work Place Deviance

1.51 0.58 0.08 -0.24** -0.32** -0.1 -0.04 0.1 0.01 0.01 0.05 -0.1 -0.19** 0.05 0.15* 0.56** (0.84)

Annexure

Table 1: Mean, Standard Deviation, Correlation and Reliabilities

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Appendix:

Name of Organizations

1. State life insurance company

2. Royal bank of Scotland

3. Habib bank limited

4. Muslim commercial bank

5. Barclays bank

6. Al-Habbib bank

7. Faysal bank

8. Al-Barka bank

9. Warid

10. FGS Textile

11. SMEC pvt ltd

12. KZEN Forex Advisor

13. Standard chartered

14. The bank of Punjab

15. Allied bank

16. Askari bank

17. Soneri bank

18. Al-Falah bank

19. First woman bank

20. National bank of Pakistan

21. United bank limited

22. ATLAS bank

23. Telenor Pakistan

24. Dubai Islamic bank

25. Sitara Chemical limited

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DOMESTIC AND MACRO ENVIRONMENTAL SOURCES OF STRESS

TO THE NIGERIAN WORKERS NKWAM C. UWAOMA PhD

DEPARTMENT OF PSYCHOLOGY

IMO STATE UNIVERSITY, OWERRI

IMO STATE, NIGERIA

Abstract

The general objective of this paper is to investigate how the domestic and macro-environmental

factors can be sources of stress to the Nigerian workers. Specifically the paper unveiled the

warning signs of excessive stress at work, the domestic and macro-environmental sources of

stress and various ways of reducing domestic and macro-environmental stress.

Keywords: Stress, Domestic stress, Macro-environmental stress, Sources of stress, Nigeria,

Workers, Nigerian workers, Reduction of stress, Excessive stress, Warning signs.

1. Introduction Nigerian workers are living and working in a difficult economy wherein they find it harder than

ever to cope with challenges on the job. They live in stressful home environments, face domestic

stress, on their way to their offices they struggle with stressful traffics, and the same stress awaits

them on the job. Office noise, heat, pollution and crowding daily stare them in the face. Urgent

job demands, undefined and non-directional supervisions, unpaid and insufficient salaries, and

unfriendly office environments governed by bickering, scheming, fear and seeming bleak future

elicit stressors for the Nigerian workers. For Nigerian workers, the troubled economy may feel

like an emotional roller coaster. ―Layoffs‖, non-promotions due to insufficient funding and

policies, ―budget cuts‖ and epileptic salary payments have become bywords in the workplace and

of course, household phrases, resulting in increased fear, uncertainty, and higher levels of stress.

While some stress is a normal part of the workers‘ life and can be perceived as not

seemingly harmful, excessive stress interferes with the workers‘ productivity and reduces their

physical, mental, social and emotional health. Since job and workplace stress escalate in times of

economic crisis, it is very vital to identify specific sources of stress that compound issues for

workers in such a situation. In real practice, there are many sources of stress for the Nigerian

workers. Could it be as a result of environmental, domestic, economic, social, religious, or

organizational factors? Again, how do these stressors affect Nigerian workers‘ productivity?

The general objective of the paper is to investigate how the domestic and macro environmental

factors can be sources of stress to the Nigerian workers. Specifically, the objectives include;

(1) To investigate the warning signs of excessive stress at work.

(2) To investigate domestic violence as sources of workers‘ stress.

(3) To investigate the macro-environmental sources of workers‘ stress.

(4) To attempt ways of reducing workers‘ domestic and macro environmental stress.

Observations seem to suggest that the ability to manage stress in the home and workplace

can make the difference between successful and failed workers. It is also perceived that emotions

are contagious, and stress has an impact on the quality of workers‘ interaction with others. It is

therefore assumed that the better workers are at managing their own stress, the more they will

positively affect those around, the less other people‘s stress will negatively affect them, the more

their productivity and the better their work culture and environment will be.

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1. WARNING SIGNS OF EXCESSIVE STRESS AT WORK

When workers feel overwhelmed, they lose confidence and become irritable or

withdrawn which makes them less productive and effective and their work less rewarding. If the

warning signs of work stress go unattended, they can lead to bigger problems both for the

employers and employees. Apart from interfering with job performance and satisfaction, chronic

or intense stress can elicit physical, emotional, mental, and organizational problems. Some of

these warning signs and symptom according to Johnson (2006) include:

- Feeling anxious, irritable or depressed.

- Apathy, loss of interest in work

- Problem sleeping.

- Fatigue

- Trouble concentrating

- Muscle tension or headaches

- Stomach problems

- Social withdrawal

- Loss of sex drive

- Using alcohol or drugs to cope

Lazarus (1966) categorized the signs into: emotional disturbances such as fear,

anxiety, and depression; psychomotor disturbances such as muscle tension, and facial

expression; cognitive dysfunctions such as impairment of thought, judgment and

memory, and abnormal physiological changes and reactions in the nervous system.

2. DOMESTIC VIOLENCE AS SOURCES OF STRESS

Almost all types of domestic stress have their sources directly and indirectly linked with

domestic violence. Domestic violence is generally referred to as a pattern of abusive behaviors

by one or both partners in an intimate relationship such as marriage, dating, family, friendship or

cohabitation. It is also seen as misuse of power and control by one person over another who is or

has been in an intimate relationship.

Domestic violence, being the major source of domestic stress has many forms:

- Physical aggression (hitting, kicking, beating, shoving, restraining, throwing objects)

among individuals sharing close ties.

- Threats (verbal, emotional, physical)

- Harassment

- Sexual abuse, intimidation and harassment

- Spousal rape and battering

- Emotional abuse

- Damage to property jointly owned or reverend

- Economic deprivation and financial abuse

- Controlling and domineering\Intimidation

- Passive and/or covert abuse (e.g. neglect).

- Creating, mounting and sustaining pressure on other

- Desertions, unavailability and abandonment.

These domestic sources of stress constitute abusive behaviors in any relationship that is used by

one partner to gain; manipulate or maintain power and control over another intimate partner

(Dutton, 1994; Markowitz, 2000; Johnson, 2006).

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Despite the daily dangers presented by domestic violence, it may or may not constitute a

crime, depending on local status, cultural and traditional perceptions, severity, persons involved,

and duration of specific acts. For instance, in a typical Igbo culture, domestic abuse, spousal

abuse (e.g. wife beating and battering), child abuse or intimate partner violence (IPV) is not seen

as a crime either against a person, gender or society. Worse still there is paucity of

documentations and actual report of cases of domestic violence in the appropriate quarters.

However, domestic violence is a serious and preventable public health problem affecting

many Nigerian citizens/workers irrespective of their social status, sexual orientation, gender,

religious inclinations and age (Watts & Zimmerman, 2002). Meanwhile popular views present

women as being more victims of domestic violence (Dutton, 1994). Even though this view may

be culturally influenced, it still holds water. For instance, Igbo culture exposes males to be hard,

more painstaking, and reserved, while at the same time teach females to be docile, expressive

and seemingly sentimental. Indeed, it would even attract more social sanctions and humiliation

if a married Igbo man, no matter how smallish or weak he may be, reports to his kinsmen that his

wife beat him up. But the woman‘s relatives would hang on their war weapons on hearing that

their married sister/daughter is battered by her husband. In all, men that are victims of domestic

violence are very hesitant to report such or seek help.

All forms of domestic violence or abuse have one purpose: to gain and maintain total

control over the victim. An abuser uses many tactics to exert power over his/her partner;

dominance, humiliation, isolation, threats, intimidation, denial and blame, all of which are

measurable sources of stress. With all these challenges, the Nigerian worker becomes completely

worn out and defeated at home. He carries the defeat and weakness to the organization where his

productivity becomes negatively affected. Again, the home frustration elicits a transferred

aggression at the work place and as such destroys his relationships with colleagues.

3. MACRO-ENVIRONMENTAL SOURCES OF STRESS AND THE NIGERIAN

WORKER.

The perception of stress is highly a personal matter. However, many forms of stress

emanate from environmental circumstances. There are numerous macro-environmental sources

of stress, but for the purpose of this discussion, only environmental noise, heat, pollution,

crowding, global economic melt down, poor workers‘ remunerations, internal displacement and

political instability would be highlighted.

Excessive or high level of noise relates with high blood pressure (Cohen, et al, 1980).

Noise generates restlessness, cognitive distortions and poor concentration. It also induces

tension, fatigue, headaches and sleep problems, which put together, are major signs of stress.

Cohen, Glars and Phillips (1977) in their research, revealed that people exposed to excessive

noise at work experience more nausea, headaches and moodiness than others not exposed to

noise. Evidence also attests to the low productivity and incessant health problems of workers

near major airports, busy motor parks and busy traffics (Cohen et al, 1980).

Excessive heat, according to Fisher, Bell, and Bauym (1984), impairs task performance

and increases the likelihood of aggressive behavior. Recall that aggressive behaviours are signs

of workplace stress. The Nigerian work environments severally lack adequate power supply

thereby generating excessive heat. Even though the Federal Republic of Nigeria has invested

huge amount of money in the power sector, not much has been achieved in this direction. Apart

from the heat this situation generates, many companies are collapsing or performing below

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expected production level. This again has laid to layoffs, poor workers‘ remunerations and

unemployment, exposing Nigerian workers to stress.

In a study conducted by Rotton and Frey (1984), it was found that psychiatric

emergencies increased when air pollution was high. Increase in psychiatric conditions does

favour neither the workers and their families nor the organizations that employ them. High

medical bills are incurred and great levels of absenteeism and low productivity are recorded.

Included in our environmental pollution are air, water and land pollutants and environmental

degradations. Workers daily lose their lives in the face of chemical poisons and their unhealthy

disposals.

Crowding is another source of Environmental stress. Our office spaces are small and are

jam packed with people. The workers‘ residences are densely populated with poor

infrastructures, and there is evidence of an association between high density and aggression, poor

task performance and social withdrawal (Simdstrom, 1978).

Global economic meltdown, our contemporary worry, has brought a lot of stress on the

workers. This new entrant to the macro-environmental sources of workers‘ stress goes with

budget cuts, payoffs, downsizing of workers, and unemployment. The fear and anxiety of not

knowing who will be laid off next, when next to receive salaries, or whether one would ever be

promoted constantly mount pressure on workers.

Poor workers‘ remuneration is very stressful. The laborer deserves his wages is a golden

slogan globally recognized. When this principle is manipulated, distorted or avoided, workers

feel stressed. Sometimes, it is not that the Nigerian workers are poorly remunerated, their

salaries are unduly delayed. Thus, they live in financial uncertainties, confusion and without

good plans. These are extreme manifestations of distressful environmental conditions.

Internal displacement, a forceful and sudden removal of a person from his habitation, is

yet another macro-environmental source of stress. Often workers are internally displaced as a

result of wars, erosion, flooding or earthquakes. Such displacements are unplanned, unfortunate

and distressful. Sometimes, the workers are rendered homeless, helpless and abandoned. This

greatly reduces their productivity and increases their health hazards. Ordinarily, no worker puts

in his/her best under stressful internal displacements.

Nigerian state is, in recent times, known for its political instability. This is a stressful

condition for all citizens especially employed workers whose means of livelihood has become

unstable, unpredictable and unreliable. The political instability in Nigeria has created a situation

where ―anything can happen and nothing can happen‖. The effects of the present political

instability in Nigeria includes folding of companies, withdrawal of expatriates and foreign

investors, increased cases of kidnapping, assassinations and all forms of social vices and massive

retrenchment of workers. All these put together generate fear, anxiety and confusion among

workers.

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4) REDUCTION OF DOMESTIC AND MACRO-ENVIRONMENTAL STRESS

The Nigerian Domestic and macro environmental stress can be reduced thereby

increasing the workers‘ level of productivity. Thus this section discusses various ways this can

be achieved as listed below;

i) Take care of yourself

When stress on the job interferes with your ability to work, care for yourself, or manage

your personal life, it is time to take action. Start by paying attention to your physical and

emotional health. When you take care of yourself and your needs, you are more prepared to face

your work stress without becoming overwhelmed and over burdened.

ii) Do Exercises

Aerobic exercise – perspiring - has been found to be an effective anti-anxiety treatment

that lifts mood, increases energy, sharpens focus and relaxes mind and body. Try to get at least

30 minutes of heart pounding activity on most days. You can break this exercise into small time

segments.

iii) Adequate dieting

You are what you eat. Eat small but frequently throughout the day. This helps to

maintain an even level of blood sugar in your body. Low blood sugar makes one to feel anxious

and irritable. Consult your dietitians for food that have a calming effect.

iv) Take enough sleep

Stress and worry cause insomnia (sleeplessness) which heightens and sustains stress.

One‘s ability to perform is hampered when he does not sleep well. When one is well-rested, it

becomes easier to keep his emotional balance which is a key factor in coping with job and

workplace stress.

v) Prioritize and organize your job

Take simple steps when surrounded with jobs and work pressures just to regain control

over yourself and the situation. This can be achieved by creating a balanced schedule, not over-

committing yourself, leaving earlier in the morning and planning for regular breaks. Other steps

include prioritizing of tasks, breaking projects into small steps and delegating responsibility.

vi) Use of Improved Emotional Intelligence

Retain a large measure of self control and self confidence by understanding and practicing

emotional intelligence.

Emotional intelligence is the ability to manage and use your emotions in positive and

conservative ways. It involves a pattern of communicating with people in ways that will draw

them to you through timely overcoming of differences, repairing of wounded feelings and

diffusing of tension and stress.

vii) Improve your Managerial Skills

One‘s managerial skills can become better through improved communications, consulting

others (both those under and above), offering rewards and incentives, and cultivating and

sustaining friendly social climate.

viii) Drink alcohol in moderation and avoid nicotine.

Temporarily alcohol reduces worry and anxiety but too much of it causes and sustains anxiety.

Drinking to have relief from tension may at the end make an individual addicted to alcohol.

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CONCLUSION

Workplace stress is inevitable. It is environmentally, socially, domestically, religiously

and organizationally induced and sustained and as such drastically retards the Nigerian workers‘

productivity. Stress as it affects the Nigerian workers manifest in various ways spanning from

fatigue, muscle tension, and headaches, stomach problems, and social withdrawal to loss of sex

drive, use of alcohol, apathy, trouble concentrating and anxiety. However it can be reduced via

exercises, taking care of one, adequate dieting, taking enough sleep, use of improved emotional

intelligence, prioritizing of job and development and proper utilization of managerial skills.

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References

Baum, A. (1990). Stress, intrusive imagery, and chronic distress. Health Psychology, 9, 653—

675

Cohen, S, Evans, G.W, Krantz, D.S & Stokols, D. Physiological, motivational and cognitive

effect of aircraft noise on children. Am. Psych – 35, 231 – 243.

Cohen, S. Glass D.C. & Phillips, S. (1977) Environment and health. In H. E. Freeman, S. Levin

and L.G. Reeder. Handbook of medical sociology. Eaglewood Cliffs, Angel prentice-Hall.

Dutton, D.G. (1994). Some evidence for heightened Sexual attraction under conditions of high

anxiety. Journal of personality & Soc. Psy., 30, 510 – 517.

Johnson, S.L. (2006) Therapist‘s Guide to Clinical Intervention: Academic Press. London.

Markowitz, J. H. (2000) Hostility is associated with increased platelet activations in coronary

heart disease. Psychosomatic medicine, 60, 568-591.

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Comparative study of English teacher‟s behavior of public and private

school‟s as perceived by their students.

LIAQUAT HUSSAIN

Assistant Professor IER Gomal University, DIKhan, KPK, PAKISTAN.

MUHAMMAD ABRAR KHAN SADOZAI

M.Phil Scholar IER, Gomal University, KPK, PAKISTAN.

KHUDA BAKHSH MALIK

Ph.D Scholar IER, Gomal University, DIKhan, KPK, PAKISTAN.

Abstract

The problem under study was ―Comparative study of English teacher‘s behavior in public and

private school‘s as perceived by their students‖. The main objectives of the study were to know

the teaching behavior of the private and public schools and to compare the teaching behavior of

both types of schools. The study was significant because it, enable the teachers to get feedback

and improve their behavior. The study helps to identify the extent of student‘s dissatisfaction

from behavior of their teachers. The population of the study was all the teachers of private and

public schools. A sample of 100 students of 9th

class from public and private schools were

selected on random basis. The null hypothesis that there is no significant difference between

English Teachers‘ behavior in public and Private Schools was tested. Questionnaire was used as

instrument for data collection. The result shows that there is no significant difference in the

teaching behavior of private and public schools.

Keywords: Teacher‘s behavior, public and private schools, secondary level, English teachers

1. Introduction

To teach all students according to today‘s standard, teachers need to understand subject matter

deeply and flexibly so that they can help students, create useful cognitive map. In education, a

teacher is a person who educates others. A teacher who educates an individual student may also

be described as a personal tutor. The role of teacher is often formal and ongoing. In many

countries a person using to become a teacher at state funded schools must first obtain

professional qualification or certificate from a university or collage. These professional

qualifications may include the study of pedagogy, the science of teaching. Teachers may use

lesson plan to facilitate their students, provide a course of study which covers a standardized

curriculum. Teachers teach literacy, mathematics, arts, business, science or some of the other

subjects. Other teachers may provide instruction in craftsmanship or vocational training, and

religion, or spiritually, civics, community or life skills.

The definition of behavior is that the action or reaction of something as a machine or substance

under specified circumstances, ―The behavior of small particles can be studied in experiments‖

the aggregate of the responses or reactions or movements made by an organism in any situation.

The teaching behavior of secondary school teachers in Pakistan needs revolutionary efforts to

improve the teaching. One of these efforts may include the improvement in teacher training so as

to train the teachers positively to meet the demands of the day.

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More C. Shipley (1972) has started 14 principle of good teacher in his book synthesis of teaching

methods‖

This study is somewhat related with these principles. It aims to investigate the teaching behavior

of English teachers in public and private schools. As we know that in Pakistan, English language

is being taught as a second compulsory language. It is a modern foreign language and occupies

an international position hardly enjoyed by any other language. Moreover, the political superman

of the English people led to the rapid spread of the English language. The finding of this study

shows the actual position as to what extent the English teachers are making efforts for

improvement of their teaching behavior. Constant efforts are being made to meet the challenges

of explosion of knowledge through different teaching behavior.

STATEMENT OF THE PROBLEM

The problem under study was ―Comparative study of English teacher‘s behavior of public and

private school‘s as perceived by their students‖.

OBJECTIVES OF THE STUDY

Following were the main objectives of the study.

1. To know the behavior of English Teachers in Govt. Schools

2. To know the behavior of English Teacher in Private Schools.

3. To compare the behavior of English Teacher in Govt. and Private Schools.

SIGNIFICANCE OF THE STUDY The study was significant as its findings can.

1. Help to know how the teacher‘s behavior is perceived by their students.

2. Enable the teachers to get feedback and improve their behavior if required.

3. Help to identify the extent of student‘s dissatisfaction from behavior of their teachers

4. Inform the authorities to take necessary measure to take proper, remedial steps brining

positive change in behavior of the teachers.

HYPOTHESIS

H0: There is no significant difference between English teacher‘s behavior in public and Private

schools.

LIMITATION

Because of non-availability of standardized instruments researcher developed instrument was

used for collection of data.

DELIMITATION

1. Study was delimited to D.I.Khan District.

2. 5 public and 5 private schools of D.I.Khan were included in the study.

3. 100 student of 9th

class were taken, such that 10 students were taken from each school on

random basis.

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REVIEW OF RELATED LITERATURE

Teaching is essentially a spiritual process involving the contact of mind with mind. A good

teacher is a powerful and abiding influence in character formation; therefore the provision of

proper teaching staff in any educational institution is an important considering, for more

important fine building, rich curriculum and expressive equipment. The present conditions call

for teachers with a broad, deep and though understanding of the life. Pupils learning in many

ways need different point of views from acting on his pupils by suggestions, initiations and

sympathy

TEACHER’S EFFECTIVE BEHAVIOR:

Teacher‘s effective behavior has a great impact on student‘s achievement. ―Keith godhamer

(1973). Prose variables have positive relationship with measure of student‘s achievement, Rose

shine and trust (1971).

William. J. Gangey (1981.p.104) has discussed about improving behavior of pupil in an

appropriate manner. He says although behavior modification after has the image of a sinister

exact, science that feature brain washi8ng techniques, it is really only a more systematic way of

improving what teachers have been doing all through history.

SOME RELATED FINDINGS:

To teach all students according to today‘s standards, teachers need to understand Subject matter

deeply and flexibly so they can help students create useful cognitive maps, relate one idea to

another and address misconceptions, Shulman(1987).

Representation of ideas in the form of new analogies and metaphors including the way they

speak about teaching, not only includes references to what teachers ―should‖ do it also includes

presenting the material by using figurative language and metaphors (Glatthorn 1990).

LEARNING STYLES AND PUPIL PERFORMANCE

According to Marricon (1969P. 164) some studies of classroom daily activities of teachers,

primarily serve to show one how things are, although in doing so they may offer a basis for

decision as to how teachers might be helped.

METHODOLOGY OF THE STUDY

POPULATION

All the English teachers and students of public and private schools comprised population for the

study.

SAMPLE

100 students of 9th

class from 10 public and 10 private schools were selected on random basis,

such that 10 students were selected from each school on random basis.

INSTRUMENT

A questionnaire was developed by the researcher with the help of related literature for collecting

data from the students. The questionnaire was validated by the expert‘s views.

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PROCEDURE

First of all questionnaire was developed with the help of related literature. For the development

of the instrument discussions with concerned advisor and the experts in institute of Educational

Research were carried on. Unsuitable questions were crossed out. Researcher personally visited

the public and private school and distributed the questionnaire. These questionnaires were again

collected personally. Data were arranged in the form of tables.

DATA ANALYSIS

Mean, Standard deviation and t-statistics were used for analysis of data.

PRESENTATION AND ANALYSIS OF DATA

Table: Showing the Mean, SD, and t-vales of both public and private schools.

Schools Mean S. D T. Calculated

Public

Schools 10.35 5.143

0.511

Private Schools 11.35 4.3683

The above table shows that t- value calculated 0.511 is less then the t-value tabulated 1.96 at 0.05

level of significance, which means that there is no significant difference between teaching

behavior of the public and private schools teachers.

FINDING

Major findings are as under:

1. Mean, Standard Deviation of score of the public schools were 10.35, and 5.143 respectively.

2. Mean, Standard Deviation of score of the private schools were 11.35, and 4.368 respectively.

CONCLUSION

From the findings of the study we reach to the following conclusion.

The t-value calculated is 0.511 and t value tabulated is 1.96. The calculated value is less then

tabulated value and 0.05 level of significance. Which shows that both the groups were same,

so null hypothesis that, there is no significant difference between English teacher‘s behavior

in public and Private schools is here by accepted.

DISCUSSION

Many efforts are made for the improvement of education and effective teaching. The findings of

many researches shows that those teachers are effective who take care of individual differences

and different flexible grouping instruction.

In Pakistan, there are two schools of thoughts, one is in favor of English and the other is against,

both of the classes are extremists a part from sentimental considerations either in favor or

against, the fact remains that the study of English as a second language is indispensable for any

Pakistani young man who wants to reap the full benefits of modern education and technology.

English should mainly be studied as library English‖. This is one may start believing that the

main purpose of English language is to give the students an understanding of the western way of

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life. To accept it, to be the main purpose of teaching English in Pakistan is quite misleading.

Therefore, the main purpose of teaching English in Pakistan is not to give our students access to

literature but to make them active user of simple, natural and living English. Therefore, the

students should be taught by using good and effective and modern teaching methods and also

keeping good behavior.

The teacher of English needs a sound knowledge of general linguistic. It is highly desirable for

the teacher of English to know the exact aims of teaching English in Pakistan. And through good

and positive behavior they can create a favorable environment in the class, which will help the

students a lot in acquiring and learning English languages. Many students shirk to learn English

language or they are not interested and consider it as a difficult subject for themselves. Teachers

of English can motivate them to learn and produce interest in this language by good teaching

behavior.

According to Guildewel (1966) More frequent pupil interactions, wider dispersion of social

power within the peer group and more self initiated work and personal responsibility are

important in that they not bear upon the immediate situation in the classroom: but also upon

more persisting characteristics or pupil.

RECOMMENDATIONS

In the light of findings and conclusion of the study it was suggested that:-

1. English teachers should use polite language in Govt. Schools.

2. Teachers of Private Schools should help their students in solving their personal problems.

3. All the English teachers should use A.V aids in their classes.

4. All the English Teachers should use polite language with the students because they are

not satisfied with their behavior.

5. Govt. School teachers are not regular in their class. They should be regular in their

classes.

6. The methods of teaching of English teachers are not satisfactory so teacher should be

informed to improve their method of teaching.

7. The majority students claimed that teachers do not discuss their problems so teacher

should be informed about this to discuss the personal problems of the students.

8. Private school teacher should provide guidance to their students.

9. The teachers should be more cautious towards academic problems of the students.

10. A wrong response to a question by a student should be treated with kindness and proper

correction may be made in polite manner.

11. Regular variations and innovation in teaching method and style may be ensured by

English teacher.

12. The English teacher should provide better guidance to teach English language effectively.

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References

Admis. Harold P. And Dickey, Frank G. (1956). Basic Principles of Students teaching. New

York, American Book Coj.

Belleck, A (1995) ―The language of The Class‖ Teacher college press New York.

Ball, D.L., 8 Cohen, D.K (1996) reform by the book‖ What is or night be the role of curriculum

materials in teacher learning and instructional reform? Education researcher, 25 (9). P-

6,8.

Deighton (1971) encyclopedias of education vol-7.

Good C.V (1972) Dictionary of education. Mc Graw-Hil Company New York.

Inamaullah. M (2005) patterns of classroom interaction PP-21,22. I.E.R Dept: Kohat University.

Miller, K.B Effective and responsible Teaching behaviours ―research on teaching behavior‖ (San

Fransico) and Bass publisher P-19,20,20.

Ornstein, A.C., Thomas. J., 8 Lasley, I (2000) strategies for effective teaching New York. Mc

Graw-Hill.

Sulman, L. (1986) those who understand. Knowledge growth in teaching. Education researcher,

15 (2), P-4-14.

Sulaman, L. (1987) knowledge and teaching behaviour. Foundation of new reform Harvard

Educational Review, 57(1), P-1-22.

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Relationship between the job satisfactions of elementary school teachers with

their teaching behavior

LIAQUAT HUSSAIN

Assistant Professor IER Gomal University, DIKhan, KPK, PAKISTAN.

MUHAMMAD ABRAR KHAN SADOZAI

M.Phil Scholar IER, Gomal University, KPK, PAKISTAN.

KHUDA BAKHSH MALIK

Ph.D Scholar IER, Gomal University, DIKhan, KPK, PAKISTAN.

Abstract

The problem under study was ― Relationship between the job satisfactions of elementary school

teachers with teaching behavior‖. The main objective of the study was to find the relationship

between the job satisfaction and teaching behavior. The study was significant because it tells

about the job satisfaction and teaching behavior of elementary school teachers. The research

hypothesis that ―There is no relationship between the job satisfaction and teaching behavior‖ was

tested. The study was delimited to only one district. All elementary school teachers form the

population of the study. 50 teachers were selected as a sample of the study, 5 teachers from each

of 10 schools (2 female + 3 male) were selected on random basis. Two Questionnaires were used

for data collection. Co-relation was used as statistical technique for data analysis. One

questionnaire was for Job Satisfaction, and the other for teaching behavior. The results show that

there is a strong relationship between the job satisfaction and teaching behavior.

Keywords: Teaching Behavior, Job satisfaction, Correlation, Professional, Elementary school

teachers

INTRODUCTION Professions are more than institutions on paper. They are groups of people with common goals

who have attempted to institutionalize or systematize their patterns of behavior. All professions

attempt to establish a standard of behavior, which is clearly evident to members and non-member

alike. There are many professions and there is likely to be a wise variety of standards. The

lawyer attempt to win cases and the judges try to do justice where as the doctors attempt cure

patient. Objectives of different professions require different skills and knowledge. They also

imply quite different types of training. More important than their differences, however, are

certain commonalities, which all the real professions share.

Katzell (1961) considers the following factors responsible for job satisfaction and job

performance.

i) Motivation for the job. It may be economical, social, religious and somewhat emotional or

sentimental.

ii) Expectations made with the job.

iii) Aspiration of worker and the rewards obtainable through the various modes of behavior

possible in the work situations.

Morale is a powerful force. Workers with high morale take interest in their job.

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Consequently, their productivity is high and booster for their hidden potentials. Demoralized

workers feel dissatisfaction with their status. They don't take much interest in their job. They just

try to kill the time and their performance is extremely poor. No education system prospers

without the active involvement of teachers. Teachers play a vital role in the implementation of

organized educational system in any society in general, and in developing society in particular.

Pakistan is a developing country and is facing problems related to its teachers.

The basic drive by which the life of the organism is activated is the tendency of an

individual to actualize his personality. Every teacher wants a good status, hand some salary and

good working conditions like other people. The absences of such amenities cause frustration

among the teacher affecting their performance. Naturally every individual strive the fulfillment

of his drive sometimes called need as asserted by Maslow. According to Maslow (1857) human

need can be identified with higher needs coming after lower needs.

A number of studies conducted through out the 1970's and 1980's indicate a gradual reduction in

teacher satisfaction. For example, Fuller and Miskal (1972) found that about 89% of teachers

participating in their study were satisfied or very satisfied with their job, but Bentzen, William

and Hack Men (1980) in investigation reported that slightly more than 75% of the teachers were

satisfied with their job.

Previous researcher shows that high degree of job satisfaction has significant

relationship with good and effective teaching. Therefore it is great need to conduct researcher in

the field of education especially teaching to achieve maximum goals of education. It was because

of these factors that the researcher felt it to explore the relationship between their performance

and job satisfaction of primary school teachers.


The problem under study was ―Relationship between the job satisfactions of

elementary school teachers with their teaching behavior ".


Following were the main objectives of the study.

i) To find out the level of job satisfaction of elementary school teachers.

ii) To find out the teaching behavior of elementary schools teachers.

iii) To find out the relationship between job satisfaction and teaching behavior of elementary

School teachers.

SIGNIFICANCE OF THE STUDY

i) The study is significant because it tells us about the job satisfaction of the teachers, teaching in

different schools at elementary level. Through this study we are able to know about whether the

school teachers are satisfied with their jobs or not.

ii) The study also tells about the teaching behavior of the teachers such as motivation of students,

course completion, regularity, attendance, use of A.V aids and etc. Through this study we will be

able to know the styles of teacher and so we can easily deem the teaching behavior and in this

way the teaching behavior of a teacher can be changed accordingly.

HYPOTHESIS

Following null hypothesis was tested.

H0: There is no relationship between the job satisfaction and teaching behavior.

H1: There is a relationship between a job satisfaction and teaching behavior.

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LIMITATIONS

Following were the major limitations of the study.

i) There was no built in Questionnaire for the teaching behavior of the teachers.

ii) There was no built in Questionnaire for the job satisfaction of the teachers teaching at

elementary level.

DELIMITATION

Following were the delimitations of the study.

i) The study was delimited to the District Tank.

ii) The study was delimited to Govt; Boys Middle School no; 1, Govt; Boys Middle Schools no;

2 Thatour, Govt; Boys Middle Schools no; 3 Amakhail, Govt; Boys Middle School Sabirabad,

Govt Boys middle School Mohallah Maidan, Govt Girls Middle School Mulazai, Govt Girls

Middle School Wazirabad, Govt Girls Middle School Cantt, Govt Girls Middle School Qutab

Colony, Govt Girls Middle School Sabirabad.

iii) The study was only delimited to fifty teachers.

DEFINITIONS OF THE TERMS

Job Satisfaction: means the satisfaction of teachers about their job.

Teaching Behavior: means the study and the behavior of teachers during teaching learning

process.

Elementary Schools: mean schools having the classes of secondary i.e. up to 8th class.

REVIEW OF RELATED LITERATURE

The question of job satisfaction is not simple it is considered complex and controversial. Many

attempts have been made in the literature to define job satisfaction.

According to Locke (1976) job satisfaction may be defined as a pleasurable or positive

emotional state resulting from an appraisal of one's job experiences. The matter of job

satisfaction was started with the vast movement concerned with work measurement in the era of

industrial revolution in the early years of this country.

Frederick Tyler (1911), perhaps, was the first researcher who marked the beginning of

work. Tyler's work based on the assumption that individuals would be motivated to perform well

if rewards were related directly to the performance of carefully planned tasks.

Likert (1932) and Argys (1964) contributed greatly to the development of theories of job

satisfaction. Motivation the internal processes which spur us on to satisfy some need, was the

important and main point of their work.

So, job satisfaction and dissatisfaction of the worker constitute an important

determination of worker's mental health.

Locke (1969) estimated that the number of studies might be exceeding four thousand.

Since then, of course, a great many more studies have been published. According to Michael

grumbler (1976) " The traditional modal of job satisfaction is that total body of feeling is

involved

Following research studies show different factors related to job satisfaction.

a) The higher the pay, the greater the satisfaction , Lawer and porter (1963).

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b) Morse (1968) did find a positive relationship between a person's expectation

and his job satisfaction.

c) An early study , Hoppock, (1935) was followed research efforts indicating a clear

positive relationship between job level and job satisfaction.

Henry Murray (1939) is credited with what is possibly the earliest possible approach to the

study of what motivates people. Murray made long list of needs that people are motivated to

satisfy.

Hoy and Miskal (1978) reformulated Hertzberg's theory to include three than two factors;

motivators, hygiene's, and ambient. Ambient function as either satisfiers or dissatisfies and

include such variables as salary, professional growth possibilities, risk opportunities, relationship

with superiors, and status. Schaffer (1953) has argued that "job satisfaction will very directly with

the extent to which those needs of an individual which can be satisfied are actually satisfied.

Vroom (1964) also sees job satisfaction in term of the degree to which a job provides the person

with positively valued outcomes.

Fulfillment theories have considered fact satisfaction measure combing have overall

satisfaction .the crucial issue is whether the person when combined. We know that some job

factors are more important than other job factors for each individual therefore, the important

factors need to be weighted more in determining the individual's total satisfaction. However,

there is evidence that the individual's fact satisfaction scores reflect this emphasis already and

thus do not need to be further weighted (Mobley & Locke 1970).

Modem two-factor theory was originally developed in a book by Hertzbcrg. Peterson, Mousner

and cap well (1957), in which the authors stated that job factors could be classified according to

weather the factors contribute primarily to satisfaction or to dissatisfaction. Two year later,

Hertzberg, Mousner and Snyder man (1959) published the results of a research study, which they

interoperated as supportive of the theory.

Wiles (1950) found also seven different factors of job satisfactions and a comfortable Living.

Vitals (1953) have pointed out ten factors that are responsible for job satisfaction and interest in

job. Sergiovanni (1967) conducted a study about teachers to find the factors of job satiation

and dissatisfaction. Results of this study were much the same as Herzberg‘s achievement.

METHODOLOGY

Population

All elementary school teachers form the population of the study.

Sample

50 teachers were selected as a sample of the study. 5 teachers from each of 10 schools (2 female

+ 3 male) were selected on random basis.

Instrument

Two Questionnaires were used as instrument for data collection. One questionnaire for Job

Satisfaction and the other for teaching behavior. There were 14 questions in each of the

questionnaire.

Procedure

First of all the two questionnaire developed by the researcher himself. Each

Questionnaire consists of 20 questions; the questionnaires were given to the experts for different

departments of Gomal University. According to their suggestions six question were crossed out

from each of the questionnaire. The final version of the questionnaire consists of 14 questions.

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The questionnaires were distributed among the elementary school teachers. The

questionnaire consist of strongly agree, Agree, undecided, disagree. After filled up by teacher the

data was arranged in the form of tables. The mean standard deviation, variance and correction

were applied for the analysis of data.

Statistical analysis

The mean, standard deviation, and correlation statistics were used for the analysis of data.

DATA COLLECTION AND ANALYSIS

Table 29: Shows the correlation between the Job Satisfaction and Teaching behavior

Descriptive Statistics

N Mean Std. Deviation Correlation

x 14 21.79 18.264 .789

y 14 43.79 11.597

The above table shows that there is a strong correlation of .789 between the job satisfaction and

teaching behavior.

FINDINGS

1. The Mean and Standard deviation for the job satisfaction were 21.79 and 18.264

respectively.

2. The Mean and Standard deviation for the Teaching behavior were 43.79 and 11.597

respectively.

3. The correlation value between the job satisfaction and teaching behavior was 0.789.

CONCLUSIONS

The correlation value between the job satisfaction and teaching behavior was 0.789. This is a

very strong correlation. Therefore the null hypothesis that ―there is no significant relationship

between the job satisfaction and teaching behavior‖ is hereby rejected. The conclusion is that

there is a strong relationship between the job satisfaction and teaching behavior.

RECOMMENDATIONS

Following recommendations were made in the light of the findings.

1) There is a strong correlation between the job satisfaction and teaching behavior, so

this should provide positive results in enhancing the student‘s academic

achievements. So it is recommended that it should be maintained.

2) The results also show that teaching is an honorable profession, so the new teachers

could be motivated towards teaching profession.

3) The majority of the teachers are satisfied with their pays and salaries, therefore the

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existing pay scales and salaries should be maintained the same.

4) This research will provide guideline for the new researcher in this field.

5) The research may also be conducted at the secondary, higher secondary, college and

university levels.

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References

Bentzen, W.H (1980), a study of schooling, 2nd edition, delta keppen publishers, USA,

pp-45.

Lock. E.A (1976) nature& Courses of job satisfaction, 2nd

edition, Rand publishers, USA,

pp-67.

Fuller.N.M (1972), work attachment and job satisfaction, Chicago, American

educational research association.

Hertzberg.F (1959) the motivation to work, New York Wiley, p113.

Journal of applied psychology vol: 34 no. 5, October 1951, p 307.

Likert and Argyrus (1964) , leadership style and job satisfaction in primary school, in

dimension. Pp-65.

Mayo.N , M(1976) job satisfaction, London, Mac Milan press, USA.pp-6.

Mouser .(1959). the motivation to work, New York Wiley.pp-76.

Tyler.F (1911), job satisfaction, the concept and its measurement, (work research report)

department of employment. Uk.pp-13.

Vroom (1960), work and motivation. John Wiley and sons.pp-6.

Wayner.k , Miskal.C (1978) Education Administration, theory research and practice, 3rd

Edition, New York Random house, Pp182-183.

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Survey obstacles of implementation of Electronic

Commerce in transport Industry

Freyedon Ahmadi

Public management Department, Payame Noor university, 19395-4697 Tehran, I.R. of IRAN Zahra Avajyan


Abstract

In those regions of the world where there is old, established and often congested road

Infrastructure, any e-commerce-based methods that could lead to trip reduction and/or trip

rationalization can contribute to an improvement in the quality of life. In those regions of the

world where new road infrastructure is being built, or could potentially be built, it is important

for transportation planners and new media and e-commerce planners to develop mutually

supportive systems that avoid the problems of congestion and pollution. While preliminary, this

conceptual framework helps in understanding the relationships between e-commerce activities

and physical travel. in Iran used of ecommerce in transportation is a new issue and this study was

attempted to show an obstacle for implantation of Electronic Commerce in transport Industry.

The result of this study was shown four obstacles such as Structural , Contextual ,Behavioral and

Natural.

Key words: Electronic transport, Information Technology, Electronic Commerce, E_commerce,

Introduction

Our current time has been named as the period of electronic phenomenon. This is because most

electronic phenomena in it such as electronic commerce, electronic banking, electronic

government, electronic transformation and totally electronic life. By benefiting from information

technology in transport industry appeared in electronic transports. There is no more geographical

& time limits with a wide change in information systems of transport industry.

Electronic Commerce has entered into the trade world in 1996 which means three years after

internet. Electronic transport is one of the important phenomena out of applying the information

technology and communication and it is the information manager which has created a deep

change in the manner of selling transport and receiving the loss while there is an increase in

relationship level with the insurer from one side and developing of superficial sale & buy field of

different types of transports on the other.

Electronic Commerce may provide different facilities for betterment of service quality to

citizenship with quick access to all required services and information or issuance of considered

transport premium by asking the rate of damages.

Any establishment of electronic commerce and benefiting from IT in dealing of transport

companies and customer could provide limitless advantages such as day & night services, lack of

personal reference for receiving of compensations, supplying of quick & insured services,

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prevention from transport misuses and increasing the income of transport company, therefore it

seems that the establishment of electronic commerce is an inevitable and necessary parameter.

The collection of these factors made different countries of the world to accelerate the preparation

and regulation of different policies in the field of electronic commerce and its facility and

encouragement.

The history of Electronic Commerce

The history of electronic commerce is originated into two phenomenons as internet &

electronic transfer of data both with a time origin of decade 60. We have the appearance of

electronic transfer of financial resources among the banks through special & safe networks in

decade 70. This could change the financial resources completely. Un-expected progress of

internet was for the first time with electronic mail in 1972 and with development of modern

technologies which may cause a new version of data transfer protocol of TCP/IP. At the

beginning of decade 80 we had electronic commerce among commercial companies with a

considerable progress. At that time there were electronic message transfer technologies such as

electronic data transfer and electronic mail among all commercial companies. Appearance of

internet was a new possibility for electronic commerce such as On-line services. The application

and development of internet with appearance of web was started. Internet caused a change of

electronic commerce into low-cost methods for performing the commercial activities along with

wide variety. Any organization may refer to electronic commerce due to one of the following

factors:

High rate of operation costs and long-term of relevant processes of replying to the customer, high

rate of overhead costs and lack of applying any technology in creation of a competitive

advantage.

Theoretical format & research model

Regarding the theoretical format of the research in which we have used a famous three-fold

model and with the purpose of UNCTAD studies and Economic Information Unit (EIU) and the

experiences of the authors in transport industry as well we may reach to some other factors

which have been selected as the natural factors. These are the real items of complexity and

variety of subject matter. More factors and information about determination of risk rates in

transport fields, may cause more difficulties in selling of its products through internet.

In addition to legal & supportive challenges, natural problem of internet sale including

complexity of different transport products are the major difficulties of transport companies in

electronic processes.As a result we may reach to a four-dimensional model and following

classification (Figure 1):

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(Figure 1: Explanative model of implementation obstacles of electronic commerce in Transport

Industry)

Research Hypothesis

1. There is a meaningful relation between structural factors and lack of implementation &

development of electronic commerce in Asia Transport Company from the point of view of

specialists and managers

1-1: There is a meaningful relation between the lack of special human force and effective

structural factors in lack of implementation of electronic commerce in Asia Transport Co.

Structural factors

Lack of special human force

Weak executive &

coordinative structure

Weak inter-organizational

technology

Non-enough budget

Contextual factors

Lack of tele-

communication fields

Weakness of legal &

judicial

Weak culture

Great development costs

Behavioral factors

Personnel resistance against

changes

Lack of supports & necessity

of master managers

Natural factors

Complex transport fields

Necessity for primary visits &

evaluation of damages by person

Implementation &

development of

electronic insurances in

Asia Insurance Co.

(E_insurance)

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1-2: There is a meaningful relation between the lack of executive & coordinative structural force

and effective structural factors in lack of implementation of electronic commerce in Asia

Transport Co.

1-3: There is a meaningful relation between the weak inter-organizational technology and

effective structural factors in lack of implementation of electronic commerce in Asia Transport

Co.

1-4: There is a meaningful relation between the lack of enough budget and effective structural

factors in lack of implementation of electronic commerce in Asia Transport Co.

2.There is a meaningful relation between behavioral factors and lack of implementation &



2-1: There is a meaningful relation between personnel resistance against any changes and

behavioral factors in lack of implementation of electronic commerce in Asia Transport Co.

2-2: There is a meaningful relation between lack of supports & necessity feeling of junior

managers any effective behavioral factors in lack of implementation of electronic commerce in

Asia Transport Co.

3.There is a meaningful relation between contextual factors and lack of implementation &



Indirect theory 3-1: There is a meaningful relation between weak telecommunication

infrastructures and effective contextual factors in lack of implementation of electronic commerce

in Asia Transport Co.

Indirect theory 3-2: There is a meaningful relation between weak legal & judicial infrastructures

and effective contextual factors in lack of implementation of electronic commerce in Asia

Transport Co.

Indirect theory 3-3: There is a meaningful relation between weak cultural infrastructures and

effective contextual factors in lack of implementation of electronic commerce in Asia Transport

Co.

Indirect theory 3-4: There is a meaningful relation between high development costs and effective

contextual factors in lack of implementation of electronic commerce in Asia Transport Co.

4. There is a meaningful relation between natural factors and lack of implementation &



4-1: There is a meaningful relation between inspection necessity & personal evaluation and

effective natural factors in lack of implementation of electronic commerce in Asia Transport Co.

4-2: There is a meaningful relation between complex transport fields and effective natural factors

in lack of implementation of electronic commerce in Asia Transport Co.

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Subjective & time scope of the research

The subject of this research is Electronic Commerce in Asia Transport Co. along with a

consideration of current obstacles from the point of view of culture and organizational behavior

and its location is Central Organization of Asia Transport Co. in Tehran and its time scope for

considering the relevant obstacles against electronic commerce progress in Asia Transport Co. is

from the middle of 2008 up to now.

Research method

This is an explanative research with benefiting from library, field and measuring methods for

it. We have divided its varieties into three independent, dependent and adjusting groups

(Electronic Commerce development as a dependent variety and environmental, structural,

behavioral and natural obstacles with a consideration of independent variations such as age, sex,

academic records and so on as the adjusting varieties).

Research tools and collecting of information

There is a questionnaire in accordance with Likkert five-option criteria for collecting of

information through different studies of essays and researches and through interview with

specialists and persons in charge of transport and study of different books, magazines and

Persian/English contexts and key factors for preparing the questions of questionnaire. The

questions of mentioned questionnaire would be prepared in two sections of relevant questions

about sample sociology and relevant questions of testing the research theories.

Remaining & Narration condition of questionnaire

We have used Chronbach α method in order to determine its measuring situation in this

research. For a 25-piece one the final obtained measuring digit was equal to %83.6. If it is more

than 0.7 it is possible to say that it will remain. The validity of its content has been confirmed

and certified by different consultant professors and managers of technical departments of Asia

Transport Co. and IT specialists as well.

Information analysis method

In order to have data analysis from the samples, we have used both explanative statistical

methods for presenting the society information by the use of abandon tables and circular

diagrams and comprehensive statistics of sign & dependency test (for testing of parameters and

statistical theories), Freedman test (for classification of field , structural, behavioral and natural

obstacles) and linear multi-variety regression test.

number of 110 persons have been determined by the help of limited sampling formula.

Sampling method:

The sampling method in this research is simple classification sampling method from all parts of

statistical society of Asia Transport Co. in Tehran (153 persons). Table 1 show the relationship

among major factors, parameters and different questions of the questionnaire.

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Analysis of research findings: Followings are different explanative statistical tests and

comprehensive statistical one.

A-Explanative statistical tests

Regarding the statistical distribution it was specified according to different varieties such as age,

sex, academic record, C.V, and organization position. It was revealed that about %45.29 of the

respondents were females and %45.71 males. In addition about %70.71 of them had B.S degree,

%29.19 M.S degree, %7.14 were managers, %8.57 were assistants and more than %42 were the

presidents and the remained were computer & transport specialists.

B-Comprehensive statistical tests

Following tests were applied in the step of data analysis collected by the questionnaire:

1-Sign test (two-phrases)

At first we investigated about the questions of the questionnaire and then on major parameters.

According to the results it was revealed that all respondents specified the mentioned items as the

major obstacles against any development of electronic commerce.

2- Pierson dependency test for indirect theories

Pierson dependency test was used for considering of indirect & major theories of the research.

The test process includes a comparison between the meaningful level with test errors level (here

it is equal to 0.05) which may show the situation of parameter and/or question in the considered

society which have been mentioned in table No. 2. Regarding the obtained results out of Pierson

dependency test in meaningful level (0.001) it has been confirmed that there is a relation between

all mentioned factors in indirect theories and major ones in lack of electronic commerce

development in Asia Transport Co. In most cases there is a powerful relation among mentioned

parameters. Therefore Zero theory has been rejected in most cases (lack of dependency) along

with confirming the claiming theory.

Table 1- The relationship among major factors & parameters and questions of questionnaire

No. Factor Parameter Description(Annual)

1 Structural Lack of special human force Lack of special human force

2 Structural Non-enough budget Non-enough allocated budget for project performance

3 Structural Weak structural format Lack of any coordinating organization for any

programming & performing of electronic transport in

Transport industry

4 Structural Weak structural format Lack of necessary universality among IT managers in

transport industry

5 Structural Weak structural format Lack of clear strategy for complete plan of

information technology

6 Structural Weak technology of organization Lack of communication network or branches and

supervisions

7 Structural Weak technology of organization Lack of electronic transfer with Country's banks

8 Structural Weak telecommunication

infrastructure

Low speed of internet in Iran

9 Contextual Weak telecommunication Lack of suitable telecommunication infrastructure and

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infrastructure

10 Contextual Weak telecommunication

infrastructure

Lack of efficiency of wide band between te centers

and branches

11 Contextual Weak telecommunication

infrastructure

Lack of rules in country for considering internet

crimes

12 Contextual Weak legal infrastructure Lack of official digital signature and electronic

negotiations and electronic documentation

13 Contextual Weak legal infrastructure Lack of confidence of insures to benefit from internet

services in the field of electronic transport

14 Contextual Weak cultural infrastructure Lack of confidence of insurers for putting personal

information on internet

15 Contextual Weak cultural infrastructure Lack of interests of insurers in benefiting from

internet services in the field of electronic transport

16 Contextual Weak cultural infrastructure Lack of usage of internet banking accounts by major

distribution of insurers

17 Contextual Weak cultural infrastructure Habit for face – to – face relation

18 Contextual High rate of development costs High rate of software development costs for creation

of electronic transport

19 Contextual High rate of development costs High rate of hardware development & communicative

for creation of electronic transport

20 Behavioral Personnel resistance Usual traditional methods in work performance

21 Behavioral Personnel resistance Lack of enough intend in personnel specially in IT

personnel

22 Behavioral Personnel resistance Lack of job immunity and a threat of unemployment

among the personnel

23 Behavioral Lack of necessity feeling of managers Lack of necessity needs of managers to submit

transport affairs through electronic way

24 Natural Complexity Complexity of different transport behaviors such as

medicine and responsibility with lack of easily

change into electronic format

25 Natural Necessity for visit Necessary visits by person and with personal

evaluation with lack of possibility to change into

electronic format.

3- Pierson dependency test for major theories

Pierson dependency test has been applied for considering the major theories of the research.

According to the findings it was revealed that all major theories have been certified and

confirmed by the respondents. Table 3 shows the obtained results.

4- Freedman test

Freedman test was applied in order to classify all varieties of relevant obstacles against any

implementation of electronic commerce. Followings are the relevant results of Freedman test for

classifying the levels:

The lack of executive structure has the highest rate (2.38) among all structural factors and the

lack of human force has the lowest priority with a grade of 2.67. The lack of cultural

infrastructure has the highest rate (2.19) among all contextual factors and the lack of

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telecommunication has the lowest priority with a grade of 3. The lack of support & necessity

feeling of junior managers has the highest rate (1.45) among all behavioral factors and the

personnel resistance against any change has the lowest priority with a grade of 1.55. The

complexity of transport fields has the highest rate (1.42) among all natural factors and the

necessity for inspection and personal evaluation has the lowest priority with a grade of 1.58. In

addition, according to the results of test we have behavioral factors among all major varieties

with the highest rate (2.10) and contextual ones with the lowest one (2.98).

Table 2- Dependency coefficients of structural, contextual, behavioral & natural factors

Varieties of

structural factors

Lack of special human

force

Lack of executive

structure

Lack of technology Non-enough budget

Pierson dependency

coefficient

0.6 0.62 0.66 0.73

Meaningful level 0.001 0.001 0.001 0.001

Varieties of

contextual factors

Weak

Telecommunication

Weak legal

infrastructure

Weak cultural

infrastructures

High rate of

development costs

Pierson dependency

coefficient

0.64 0.72 0.68 0.67


Varieties of behavioral factors Personnel resistance against change Lack of support & necessity feeling

of junior managers

Pierson dependency coefficient 0.745 0.829

Meaningful level 0.001 0.001

Varieties of natural factors Complexity of transport fields Necessity for inspection & personal

evaluation

Pierson dependency coefficient 0.901 0.882

Meaningful level 0.001 0.001

Table 3- Dependency coefficient of major theories of the research

Research varieties Structural factors Contextual

factors

Behavioral

factors

Natural factors

Pierson dependency

coefficient

0.245 0.549 0.605 0.703


The findings of the above-mentioned test show that from among all research varieties we have

natural factors with the highest dependency with lack of development of electronic commerce

and after behavioral factors. Then we have contextual factors and finally the structural ones.

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4- Linear multi-varieties regression test

Table 4- Regression test among the lack of development of Electronic Commerce with structural

factors and showing their order

Parameter Non-enough budget Weak executive structure Weak technology Weak human force

Beta coefficients 0.202 0.19 0.17 0.08

As it is revealed from the above table the greatest obstacle against any development of electronic

commerce is non-enough budget among all structural factors.

Table 5- Regression test among the lack of development of Electronic Commerce with

contextual factors and showing their order

Parameter High rate of

development costs

Lack of cultural

infrastructures

Lack of legal

infrastructure

Weak

communications



commerce are development costs among all structural factors.

Table 6- Regression test among the lack of development of Electronic Commerce with

behavioral factors and showing their order

Parameter Lack of support & necessity need of managers Personnel resistance against change

Beta coefficients 0.5 0.25


commerce is lack of support of managers among all structural factors.

Table 7- Regression test among the lack of development of Electronic Commerce with natural factors


commerce is complexity of transports among all structural factors.

Followings are tables 8 to 9 of major varieties of model from the point of view of effects on lack

of implementation & development of electronic commerce.

Table 8- Regression test for lack of development of electronic commerce and its obstacles

Multi-folds regression model

for lack of transport

development & its obstacles

Non-standard coefficients

Standard

coefficients

Test

statistics

Meaningful level

B coefficient Std Error Beta coefficient

Fixed amount 0.698 0.19 3.59 0.001

Structural factors 0.148 0.04 0.18 3.84 0.001

Contextual factors 0.186 0.05 0.21 4.06 0.001

Behavioral factors 0.235 0.03 0.36 7.61 0.00

Natural factors 0.253 0.03 0.51 10.05 0.001

Parameter Complexity of transport Inspection necessity

Beta coefficients 0.5 0.25

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From among these four factors we have natural & behavioral factors as the most effective ones

and structural factors with the lowest effects. In fact, followings are the order of factors from the

point of view of effectiveness on lack of development of electronic commerce:

Table 9- Order of factors from the point of view of effectiveness on lack of development of

electronic commerce

Parameter Natural factors Behavioral

factors

Contextual

factors

Structural factors


Conclusions

We have used in this research from dependency test in order to consider any relation of varieties

and then linear regression test. Then it has been used from special theories for comparing the

average along with Freedman Variance analysis. The results confirmed all hyposesize .

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References

Aslani Mahmoodi(2003), " Information System Strategy in Iranian Transport Companies",e-

commers seminar, Bazargani publisher.

Khojir,faramarz(2003), " Electronic Commerce as a difficult competition with costs pressure",

transport world Latest news,Research Center of transport publisher,No. 66.

Shahidi,mehdi(2003),e-commerce & transport", Transport world Latest news,Research Center

of transport publisher,No. 62.

Sarrafizadeh,asghar(2007),"information technology in organization", Mir Publisher.

Ghasemzadeh,F.(2003)," Legal challenges in implementation of Electronic Commerce in Iran

",E- commers Seminar,Bazargani Publisher.

Kameli,A.(2003)," Marketing & Sale of Transport in Electronic Commerce ", Asia Expert

Journal ,No.32.

Kamings,t.;worly k.(2007),organization development,Farazandish Sabz.

Karimi,a.(2003),the role of it in transport industry, Asia Expert Journal ,No.30,31.

Mottaghi Sabet,M.(2008)," investigation of The obstacles of implementation of e-transport in

Asia Transport company",Payam-Noor University.

Meshkani Farahani,Sara,(2006)"",Asia journal ,No.44,45.

Nahavandian,m.(2003),e-commerce development in iran,Bazargani Publisher.

Nasiriyar,M.(2006)," Recognition the challenges in applying information technology ", Tadbir

,No.167.

Hemmati,a.(2003),"the role of transport in electronic commerce", E-commers Seminar,Bazargani

Publish.

Bromideh, Ali, A. And Aarabi ( 2005 ) , ― The Impact Of E-Commerce On The Iranian

Transport Companies ,‖ MBA Thesis In E-Commerce & Industrial Marketing

Management, Lule & University of Technology , Sweden. http://epubl.luth.se/1404-

5508/index-en.shtml

Bromideh,Ali,A, and Amani, Mohammad, M. ( 2004) , ― The Necessity Of ICT And -E-

Commerce Applications In The Iranian Transport Industry: An Unbundling Proposal ,‖

Presented In The 1 ― Conference On Transport & ICT, Bimeh Markazi Iran ( Central

Transport Of Iran ) , Iran.

Carl Gersh & Paul Weiser (2001) ; Capita@lizing on e-Business in Transport :Strategies For

Success", sengen, August 2001 .

The Economist Intelligence Unit(2007) ;"e-Transport-creating a competitive Advantage " , 2007.

Richard Burdev & Stephen Dias(2004) "On e-Transport Strategy " , Goldman Sachs , 2004.

SwissRe, ( 2006 ). ― World Transport In 2005 : Transport Industry On The Road To Recovery, ―

( New : Statistical Appendix, Updated February 2006 ). Sigma No. 5, Zurich.

UNCTAD ( 2002) : ― E-transport ―,www.unctad.org/docs/ecdr 2006 ch8-en.pdf.

UNCTAD ( 2002) : ―E-commerce & Development Report",New York & Geneva.

http://epubl.luth.se/1404-5508/index-en.shtml

http://epubl.luth.se/1404-5508/index-en.shtml

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Exploring the casual relationships between organizational citizenship

behavior, organizational Agility and performance

Freyedon Ahmadi


Abstract

The main aim of this paper is survey relationship between three variables such as OCB, OA, and

performance in wood industries in Iranian corporations. The result of this study indicated there

are positive and meaningful relationship between OCB and OA as well as between OA and

performance but there are direct relationship between OCB and performance. In the other word

this study illustrates the mediating role of OA between OCB and performance.

Keywords: Exploring , Casual Relationships , Organizational citizenship behavior,

Organizational Agility , Performance

Introduction

Organizational agility or the ability to execute innovations and competitive moves with speed,

surprise, and competitive disruption has attracted significant attention as a business capability for

competing effectively in the current business environments (Sambamurthy et al. 2003). Agile

firms are resilient to shocks and upheavals in their business environments, adaptive to emerging

opportunities, and entrepreneurial in creating new business models or significant competitive

moves (Bharadwaj and Sambamurthy 2005). Research indicates that firms that have the ability to

continuously generate competitive actions, i.e., more agile, outperform less agile firms (Smith et

al. 1991).

One of the reasons underlying the heightened attention to organizational agility is the growing

sophistication of information technologies. As information technologies provide superior

information management capabilities, analytical decision support, and enhanced communication,

firms are able to utilize information technologies in creating new business models and

competitive advantage (Weill and Vitale 2002). Sambamurthy et al. (2003) argue that

information technology (IT) management capabilities provide a platform for firms to develop the

appropriate digitized processes and knowledge systems that

Enhance their agility

Literature review

Organizational agility

Organizational agility has been defined as a firm‘s ability to sense opportunities and threats and

respond by assembling the needed organizational resources with rapidity (Overby et al. 2006;

Sambamurthy et al. 2003). Agility includes the ability of a firm to detect opportunities and

threats, assemble needed assets and capabilities to launch an appropriate response, judge the

benefits and risks of

Initiating an action, and execute actions with competitive speed and success. Firms encounter

pressures for change in many forms, driven both by external and internal factors, such as new

competition, new technologies and production processes, emerging markets, changing risk

profiles, new customer needs, and new business opportunities. Organizational responses to such

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changes can also occur in a variety of forms, such as building new infrastructure capabilities,

leveraging new technologies and platforms, reducing exposure in high-risk markets, developing

new products or services, or even pulling out of a high risk market or exiting lines of business

that are deemed unprofitable or otherwise unattractive (Bharadwaj and Sambamurthy 2005).

Therefore, agility is both the ability to detect opportunities for competitive actions as well as to

initiate appropriate actions. The detection of opportunities occurs either through a process of

sensing and probing the environment or through a process of anticipating future trends,

opportunities, or threats. Similarly, competitive actions are launched either reactively as a

response to sensed opportunities or proactively to create competitive leadership opportunities as

first movers.

Bharadwaj and Sambamurthy (2005) distinguish between two major types of organizational

agility: entrepreneurial and adaptive agility. Entrepreneurial agility enables proactive actions

that are aimed at competitive leadership. In contrast, adaptive agility enables competitive actions

that are launched in response to sensed opportunities or threats in the business environment. This

distinction is consistent with prior ideas in strategy research, such as the Miles and Snow‘s

(1978) typology, which distinguish between offensive and defensive modes of strategy

execution.

Entrepreneurial agility refers to the ability to launch competitive actions whose focus is on

creating new bases for competitive advantage, disrupting rivals‘ existing advantages, or

transforming the competitive landscape through new business models. These actions are meant

to be frame-breaking, because they introduce a new business model, business process, or product

or service that is revolutionary in nature. They often transform the industry and create a

competitive advantage because other firms have to play catch-up. Examples include the online

commerce models pioneered by Amazon, the search engine and advertising models pioneered by

Google, the build-to-order models pioneered by Dell, or the solution selling (ready-to-pour

concrete as opposed to cement bags) model pioneered by Cemex. Entrepreneurial agility also

includes the ability to opportunistically exploit emerging technological, economic, or social

trends with first-mover speed before other firms.

Adaptive agility refers to the ability to launch competitive actions whose focus is on keeping

pace with innovative industry practices or being resilient to changes in business environments.

Adaptive agility includes resilience to the emerging threats in a firm‘s business environment,

whereby a firm is able

to take actions to defend its competitive positions. High levels of resilience capability ensure a

firm‘s preparedness to mitigate the risks due to natural disasters or even business events, such as

supplier created shortages or demand spikes (Hamel and Valikangas 2003). Further, adaptive

agility also includes

a firm‘s ability to keep pace with innovative industry practices, supplier management practices,

or customer relationship management practices. For example, with the emergence of the Internet

as a channel for online commerce and customer relationship management, firms have responded

by adapting

their channel strategies to create multichannel models of customer relationship (Gulati and

Garino 2000).

Recent strategy research adopts a dynamic perspective, whereby it argues that firms that

continually launch competitive actions in the form of pricing, product, promotion changes, or

new business models outperform those that launch few competitive moves (Smith et al. 1991).

Agility reflects the ability of

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firms to launch more competitive actions (Sambamurthy et al. 2003).

Entrepreneurial agility allows firms to continually seek growth options by penetrating new

markets, implementing new forms of customer relationship building strategies (e.g., enhanced

personalization), offering new products and services, or implementing new business models.

This capability strengthens

the ability of firms to capture first-mover advantages and erect barriers to competitive imitation

(Dehning and Stratopoulos 2003; Piccoli and Ives 2005). Primarily, entrepreneurial agility

enables firms to develop superior insights about emerging opportunities or shape new

competitive playgrounds that favor them and enable them to sustain their competitive advantage.

At the same time, adaptive agility reflects a firm‘s ability to defend threats to its current

competitive position, or keep up with emerging industry best practices. Adaptive agility allows a

firm to develop a repertoire of routines that it can activate when it encounters significant threats

or disruptions. Further, adaptive agility reflects the ability of a firm to rapidly sense and interpret

changes in its environment or industry best practices and activate the needed assets, resources, or

capabilities to respond to those changes. Even when it encounters entrepreneurial moves by its

rivals, a firm with high adaptive agility would be able to develop an effective early imitation

strategy to reduce the window of opportunity for the rivals and dissipate their temporary

competitive advantage. Thus, while entrepreneurial agility captures a firm‘s ability to sustain its

competitive advantage by continually creating new bases of advantage, adaptive agility captures

a firm‘s ability to preserve its existing bases or catch-up with the successful actions of its rivals.

Organizational citizenship behavior Organizational Citizenship Behaviors (OCB) is defined as those extra work-related behaviors

which go above and beyond the routine duties prescribed by their job descriptions or measured in

formal evaluations (Bateman and Organ, 1983). Since these efforts are made beyond the

requirements specified in the job description, their presence cannot be enforced (Organ, 1988),

and their absence cannot be penalized (Van Dyne et al., 1995). Examples of these efforts include

cooperation with peers, performing extra duties without complaint, punctuality, volunteering and

helping others, using time efficiently, conserving resource, sharing ideas and positively

representing the organization (Turnipseed and Rassuli, 2005).

Workers, who go above and beyond the minimum requirements of their job description, by

suggesting improvements, affect performance and result with enhanced workgroup efficiency.

OCB impacts workgroup efficiency during times of crisis management. For example, having

conscientiousness and helping others result in decreased inter-group conflict and allow managers

to focus on more pressing matters (MacKenzie et al, 1999). Having workers highly engaged in

OCB may improve managers‘ efficiency by allowing them to devote a greater amount of time to

long-range planning matters. Subsequently, managers benefit from positive OCB as well as

employees (Turnipseed and Rassuli, 2005).

According to Turnipseed and Rassuli (2005), OCB elements which enhance performance

include: elements which add social capital, helping or altruistic elements, elements resulting with

time savings or problem solving, and other elements which provide socio-emotional support by

boosting morale or developing a nurturing culture. Walz and Niehoff (1996) argue that only the

helping-type of citizenship behavior element of OCB is linked to performance, while

Karambayya (1990) suggests that more OCB elements are found in high-performing workgroups

compared to low-performing workgroups.

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OCB and performance Several studies link OCB to performance while separating employees into two groups, the best

performing and the worst performing. These research works attempt to understand which

employee characteristics managers use to rate them as best performing. These employees may be

performing extra work behaviors or they may be involved in activities contributing to the

organization. Organ (1990) points out that OCB not only adds to performance, but it may also

influence how managers evaluate employees. Katzell and Yankelovich (1975) argue managers

believe OCB contributes to performance and suggest analyzing them with that in mind. OCB has

now been included in performance evaluations (Werner, 1994). The problem with having

managers identify which employees or groups of employees may be classified as being the best

performers is that these managers are those who might be highly engaged in OCB thereby

creating bias. Further, some employees may use ―impression management style in order to create

a favorable impression of themselves (Bolino and Turnley, 2003). In order for OCB to directly

impact performance, these behaviors must be redirected towards promoting organizational

effectiveness. Organ (1988) points out in order for OCB to affect performance, the individual

contributions must be aggregated throughout the organization. Organ (1988) argues that even

though co-workers may benefit from employees who help others with heavy workloads or those

who offer advice to newer employees, individual acts of OCB do not affect performance.

Understanding the overall level of OCB and relating it to firm‘s performance may shed some

light on extant literature. In order to confirm OCB is significantly related to performance, we

propose:

H1: OCB is significantly related to firm's performance.

Organizational Agility and performance

Operational capability is a firm‘s functional capability and is defined as the ability to achieve the

operational goals of speed, quality, cost, and effectiveness in managing interactions with

customers, suppliers, and other important stakeholders (Hammer 2004; Helfat and Peteraf 2003).

Operational capabilities reflect how well developed a firm‘s portfolio of business processes,

including manufacturing, customer relationship, logistics and delivery, procurement, and

customer service, are in supporting the firms‘ business strategies. Since a firm‘s operational

capability is embedded in its specific operational activities, such as manufacturing, product

development, or customer service (Helfat and Peteraf 2003), this capability is viewed as being

idiosyncratic to the firm and not easily imitable.

Hammer focus attention on two significant types of operational capabilities: operational

innovation and operational excellence (Hammer 2004). Operational innovation involves radically

changing or reinventing business processes to create new ways of performing operational tasks.

This often entails rethinking how to conduct the operations of an industry. It also involves the

implementation of new ideas that a firm adopts or invents for its products and services,

production processes, and managerial and administrative activities (Weerawardena

2003).operational excellence refers to the improvement of existing modes of operation to

improve its speed, and reliability, and cost. Often, the goal of operational excellence is to reduce

errors, costs, and/or delays, but without fundamentally changing how the task is accomplished

(Hammer 2004). Operational excellence has also been discussed in terms of organizational

effectiveness and efficiency(Porter 1996), which involve performing similar activities better than

rivals using concepts and tools, such as Total Quality Management (TQM) and Six Sigma

(Powell 1995). According to Hammer (2004), whereas operational excellence activities are

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usually abundant inside a firm but have a narrow scope, operational innovation activities are

usually rare but have a wider scope. Thus, operational innovation capability is a firm‘s capability

to invent and deploy new ways of business operations by rethinking how to do the work in its

industry. On the other hand, operational excellence capability is a firm‘s capability to provide

high performance, i.e., effectiveness and efficiency, by improving its current modes of business

operations in its industry.

In order to confirm organizational agility is significantly related to performance, we propose:

H2: organizational agility is significantly related to firm's performance

OCB, organizational agility and performance

Since both OCB and organizational agility have been theorized to positively contribute towards

organizational performance, it stands to reason that organizational agility should also be

positively impacted by employees going above and beyond what is required of them. Thus, we

propose:

H3: OCB actions significantly affect the organizational agility practices.

Subsequently, the question which arises is, ―Does the inclusion of organizational agility help to

better explain the relationship between OCB and performance?‖ In other words, is the

relationship between OCB and performance mediated through organizational agility? Thus, we

propose:

H4: organizational agility mediates the relationship between OCB and firm‘s performance.

The hypotheses presented in this section form a theoretical contingency model as described in

Figure 1

Figure 1: Hypothetical relationship between OCB, Organizational Agility and Performance

Survey instrument The data used for this study was collected from a 50 company operating in the wood industry.

A survey questionnaire was distributed to managerial employees and was conducted on site. A

total of 170 surveys were collected, but due to missing data only 147 surveys were used for this

study. The participants answered a total of 70 questions on a 5 point Likert-scale, ranging from

1, strongly disagree, to 5, strongly agree. The survey questionnaire was designed to collect

information concerning three areas of management constructs: OCB, Organizational Agility, and

performance. In order to minimize the potential bias, the questions were designed to ask

Organizational

citizenship

behavior

Performance H1

Organizational

Agility

H

2 H

3

H

4

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managers to evaluate what their personnel exhibit in general, in lieu of asking how much the

survey participants contribute. This approach was used to decrease the potential bias due to ―self-

appraisal and impression-management.‖ There were 20 questions pertaining to OCB, 40

questions for Organizational Agility, and 10 questions for performance.

Data Analysis The first step of analysis was to perform an exploratory factor analysis (EFA) in order to

understand the statistical relationship between the data and the constructs in question. The EFA

was conducted using the maximum likelihood method of extraction since the data was found to

have passed the assumption of multivariate normality. The factors were rotated using vari-max

rotation in order to simplify the factor structure and to make its interpretation easier and more

reliable.

The two indicators used for performance are customer satisfaction and productivity. We

conducted the reliability analysis Cronbach‘s alphas. The results indicated that the Cronbach‘s

alphas for all three constructs (OCB, five items: = 0.7061; organizational agility, two items: =

.8719; Performance, two items: = 0.7559) either exceeded or were close to the recommended

critical point of 0.70 (Hair et al., 1998), indicating an acceptable level of internal consistency.

The correlation analysis conducted in this study is depicted in Table 1.

X1 X2 X3 X4 X5 X6 X7 X8

Altruism α=0.748 Courtesy 0.415**

Conscientiousness 0.461** 0.395**

Sportsmanship 0.447** 0.411** 0.401**

Civic Virtue 0.398** 0.417** 0.116 0.461**

entrepreneurial

agility

0.417** 0.368** 0.347** 0.447** 0.361**

adaptive agility 0.214* 0.324** 0.318** 0.298* 0.247* 0.237*

Customer

Satisfaction

0.311** 0.218* 0.217* 0.317** 0.318** 0.361** 0.315**

productivity 0.307** 0.3014** 0.318** 0.214 0.317** 0.347** 0.361** 0.328**

** Significant at 0.01 level, * Significant at 0.05 level

Table 1: Correlations between OCB, organizational Agility and performance

The result indicates the variables are positively related and somewhat correlated, with strengths

ranging from .116 to .461. Even though correlation by itself does not imply causation, it is none-

the-less required in order for there to be a causal relationship (Hair et al., 1998). Therefore, this

result is useful towards making causation in this study.

The structural model was analyzed using the Amos 18. The final SEM framework for this study

is presented in Figure 2. The analysis of the structural model resulted with a chi-square value of

28.168 with 17 degrees of freedom and a probability level of 0.043. This test statistic indicates

the overall fit of the model to the data. Since the probability value of the test is just below the .05

level used by convention, we are forced to investigate the models fit by examining the fit indices.

The chi-square test is sensitive to sample size and the models degrees of freedom, and for this

reason the test is difficult to use as a sole indicator of SEM fit (Hair et al., 1998). The latent

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variables were: OCB=Organizational Citizenship Behavior; OA=organizational agility;

PER=Performance. The observed variables were: Altruism; Courtesy; Conscientiousness;

Sportsmanship; Civic Virtue; entrepreneurial agility; adaptive agility ; Customer Satisfaction;

Productivity.

Chi-square=28.168, dof=17,

prob. =.043, RMSEA=0.069, NFI=0.935, CFI=0.973, RFI=0.894, TLI=0.955 Figure 2: Relationship between OCB, Organizational agility, and Performance

Since the chi-square test is known to be sensitive to sample size and non-normality in the

underlying variables, further investigation is required in order to determine if the overall fit of

the model to the data is truly acceptable. The comparative fit index (CFI) can also be used to test

the absolute fit of the model. In this case the CFI value is 0.973 which is above the .9 level used

by convention. Thus, it is safe to say that the model does fit the data very well. The Tucker-

Lewis Index (TLI) is another fit index whose value closest to one indicates good model fit. The

TLI for the model in this study is 0.955, which also indicates great fit. The Root Mean Square

Error of Approximation (RMSEA) is another fit index whose value signifies the level of error of

approximation. Values under .07 would indicate a reasonable amount of error, and values near

.05 would indicate a close fit to the model. The RMSEA for this study is .069, which also reveals

a very good fit between the model and the data in question.

RESULTS

As depicted in Figure 2, all causal paths were shown to be significant except for the direct path

from OCB to performance. The path from OCB to performance is not statistically different from

Civic Virtue

Altruism

Sportsmanship

Courtes

y

Conscientiousness

OCB PER

OA

0.121

0.618** 0.512**

0.51*

0.44*

0.57*

0.51*

0.61*

Adaptive agility Entrepreneurial agility

0.75** 0.38*

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zero at the .05 level. Therefore, H1 which states that OCB is significantly related to performance

is not supported. H2 describes the causal relationship between OA and performance. In this case,

the relationship is statistically significant at the. 01 level which supports the idea that

implementing OA methodology does affect the performance. The causal path from OCB to OA

is also statistically significant at the .01 level, which fully supports H3. Since the direct path

from OCB to performance is insignificant and the remaining paths (from OCB to OA and OA to

performance) are positive and significant, it appears that OA fully mediates the relationship

between OCB and performance, which supports H4.

Our result does not support the hypothesized direct relationship between OCB and performance.

This finding suggests that employees who work above and beyond what they are required to do

will not directly affect firm‘s performance. In other words, there needs to be a management

methodology (i.e., OA) that complements positive OCB in order to impact firm‘s performance.

Our result was able to replicate the findings of other research studies which suggest a causal

relationship exists between the OA and performance constructs. This confirmation helps to

uncover the fully mediating role of OA between OCB and performance. This implies that OCB

does have an effect on the performance of a firm even though it is not directly related to it. In

other words, OCB by itself does not have a direct effect on customer satisfaction or productivity,

but when these actions are directed towards OA, increased performance would result.

One may argue how engaging in OCB, such as being helpful to co-workers and being involved

with company activities, would not directly affect customer satisfaction or productivity.

However, by the similar token, we argue how these same actions, when directed toward

implementing OA, would result with increased customer satisfaction and productivity. For

example, experienced employees who help others improve the quality of their work would in

turn affect customer satisfaction and productivity as well. Further, we argue assessing

employees‘ OCB level can be a good indicator of how a new management methodology such as

OA can turn out. This may bring about a significant managerial implication for firms that are

looking to improve performance by implementing a new innovative management methodology

such as OA. OCB and OA researchers may also benefit from this study as an extension to the

current body of literature in the field.

CONCLUSION This study illustrates the mediating role of OA between OCB and performance. We add to extant

literature by clarifying the relationship between OCB and performance in that there is no direct

link from OCB to firm‘s performance. This result provides several valuable managerial

implications. For example, managers employing OA may refine their appraisal system to include

identifying and rewarding employees who engage in positive OCB. These employees‘ positive

OCB actions are not directly reflected in firm‘s performance. However, positive OCB actions

facilitate the management methodologies that have direct impact on firm‘s performance.

Managers may also consider assigning these positive OCB employees to areas where a new

management methodology is being implemented such that they indirectly contribute towards

firm‘s performance.

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Measurement of organizational citizenship behavior (OCB) in general inspection

organization in Iran

Freyedon Ahmadi


Seyed Ali Akbar Ahmadi


Golamhosain Homauni


Abstract

Theory and research on Organizational Citizenship Behaviors (OCB) has resumed OCB as a set

of desirable behaviors that contributes to the organizational effectiveness. So far OCB has been

connoted as one of the antecedents of organizational performance. Based of many researches

OCB has much benefit for organization such as productivity, improvement of staff performance,

profitability and so on. Important of OCB spatially for general inspection organization as control

tools is very much. So these study we attempted measurement of OCB in general inspection

organization in Iran. The result of this study show that although level of OCB was high in

sample unit but level of OCB in politics section, planning section and social section was higher

than economy section, produce section and spacial section.

Key words: OCB, Civic virtue, Altruism, Conscientiousness, Interpersonal harmony, Protecting

company resources, Sportsmanship and Courtesy

Organizational citizenship behavior explained

In the 1930s Chester Bernard observed the phenomena of organizational citizenship behavior,

which he then termed "extra role behaviors" [Bernard 1938]. His notion that employees

demonstrated OCB is the earliest example identified in this review. Katz and Kuhn [1966]

defined supra-role behaviors that improved the effectiveness of the organization. In the words of

Katz and Kahn [1966] this, "includes any gestures that lubricate the social machinery of the

organization and do not directly adhere to the usual notion of task performance". The extra-role

behaviors identified included helping other workers with work-related problems, accepting

others into the work group without a fuss, either putting up with or minimizing interpersonal

conflict in the organization, and protecting and conserving organizational resources. Katz and

Kahn coined the term "citizenship" to represent the workers that displayed these extra-role

behaviors.

Managers and executives value employees who display "citizenship behavior" perhaps because

they make their job easier. The extra time obtained by management allows and the manager to

improve the organizational effectiveness by having more time for managerial issues. Bateman

and Organ [1983] in the seminal article, Job satisfaction and the good soldier: The relationship

between affect and employee "citizenship" began a large series of articles into the topic of OCB.

It is crucial to clearly differentiate between in-role and extra-role behaviors at work. In role

behavior is a technical performance required by the job. In other words, in-role behavior is that

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which acceptable behavior to management is. Extra-role behavior on the other hand, is referred

to as "innovative and spontaneous behavior". Extra-role behaviors include the in-role behavior

and extra-role gestures that enhance or improve organizational effectiveness, informal acts of

cooperation, goodwill, and helpfulness [Organ & Batman 1983]. Some examples of extra-role

behaviors are helping to orient new workers in the organization, not abusing the rights of other,

and being friendly to the

Customers. A basic notion underpinning this concept of in-role and extra-role work behavior is

the idea that any employer can in affect force a certain degree of work out of an individual who

needs a job, thus, the in-role. Nevertheless, the organization can encourage the extra-role

behaviors that can increase their competitiveness. For example, if an employer hired a worker

and stated that he or she ought to be able to produce 350 widgets per shift. If the employee was

unable to accomplish that task, one can say that the in-role behavior was not achieved and thus,

no extra-role behavior occurred either. If the employee achieved the goal of 350 widgets per

shift, the employee could then be encouraged to engage in extra-role behavior. Thus, Organ

[1990] theorized that in-role and extra-role behaviors are influenced by different motivational

dynamics. Perhaps in role behaviors or to achieve a certain degree of work from an employee, a

manager may be more apt to use extrinsic tactics. While with an employee that is achieving the

in-role duty, intrinsic tactics may encourage extra-role behavior.

Along with the understanding of in-role and extra-role behavior, a distinction must be made

between the formal and the informal functions of an organization. Organ [1988] defined the

formal organization as including the organizational systems, policies, rules, and regulations that

govern task behavior to achieve effective technical production. Thus, one can clearly understand

that in-role behavior is a requirement by management to obtain the job. The informal

organization exists in any business and can be thought of as a pre-requisite of an effective

organization [Organ 1990]. In the informal organization, extra-role behaviors such as welfare of

co-workers, low absenteeism, or teaching new

hires the ropes are abundant.

Organ [1988] defined organizational citizenship behavior as, "OCB represents individual

behavior that is discretionary, not directly or explicitly recognized by the formal reward system,

and that in the aggregate promotes the effective functioning of the organization."

Organ then proceeds to define what he meant by discretionary, "We mean that the behavior is not

an enforceable requirement of the role or the job description, that is, the clearly specifiable terms

of the person's employment contract with the organization; the behavior is rather a matter of

personal choice, such that its omission is not generally understood as punishable". He gives a

clear explanation of what does and does not constitute OCB behavior in his example of a college

professor. He states, "Thus, college professors who prep for their courses, teach, do research, and

write are not by our construction exhibiting OCB, no matter how good their teaching and

research is judged by others". The notion is that fulfilling one's contractual obligations to the

organization in

which one works is just the in-role requirements. An OCB for the college professor may include

picking up trash on the classroom floor after or before class and tossing it in the wastebasket or

perhaps engaging in a conversation in the community that will promote the organization in a

positive manner.

Organ [1988] provided a multi-dimensional scale of organizational citizenship behavior. The

scale contained five dimensions that make up the OCB construct. The five dimensions identified

by Organ are altruism [welfare], courtesy, sportsmanship, civic virtue, and conscientiousness.

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Altruism is the category consisting of discretionary behaviors that aim at helping certain people

in an organization with a relevant task or problem. Courtesy includes proactive gestures that

consider consulting with other workers in the organization before acting, giving advance notice,

and passing along information. Sportsmanship refers to the forbearance of doing some action

such as filing petty grievances. Civic virtue is the involvement that the employee shows in the

political life of the organization. Finally, conscientiousness is originally termed general

compliance, which involves employees going beyond the minimum requirements of the

organization.

Research in the area of OCB has expanded in the literature since the work of Organ and Batman

[1983] in which they used the Job Description Index at two points in time, finding higher

correlations than in previous satisfaction-performance studies. Skarlicki and Latham [1995]

found that peer evaluations correlated negatively with a professor's publications and years on the

job. Schnake [1991], Organ, and Katherine [1995] have conducted meta-analysis of the OCB

literature. Organ and Katherine [1995] conducted a meta-analysis with 55 studies, which showed

that job attitudes are robust predictors of OCB. Different task, leadership, cognitive and positive

affect studies have also been

conducted [Organ & Konovsky 1989; Farh, Podsakoff & Organ 1990].

An interesting line of research involves unions, their members, and the role that OCBs can play

within a union [Latham & Karambayya 1997; Skarlicki & Latham 1996; Skarlicki & Latham

1997]. Articles in the marketing and organizational decision journals have studied salespersons

and managerial performance appraisals and evaluations [MacKenzie, Podsakoff & Fetter 1991;

1993]. Not all studies have embraced the new conceptualization of OCB as a new and better

measure of performance. Morrison [1994] calls for research clarifying the meaning of in-role and

extra-role performance or reconceptualizing OCB [Van Dyne & Graham 1994]. Still, studies

continue to explain OCB in regard to rewards, in-role, extra-role, dispositional factors [big-five],

personality, and satisfaction [Eastman 1994; Konovsky & Organ 1993; Organ 1994: Moorman

1993].

Moorman and Blakely [1995] found that a collectivistic individual is more apt to engage in

OCBs. The study demonstrated robustness of OCB to the issues of self-report bias and common

method variance in that the use of multiple means of obtaining data is possible [e.g. employee

self-report and the manager rating of the employee's OCB]. These findings are important because

they point out the need for research to understand the Mexican or other international

environment. For instance, Mexico ranked high on collectivism in Hofestede's [1980] study this

study may find that Mexican nationals are more apt to display OCB than United States citizens

are. Power distance as described by Hofstede [1980] regarded that small power distances cultures

require that inequities among people should be minimized [U.S. culture]. On the other hand, a

large power distance cultures believes according to Hofstede that inequalities among people are

both expected and desired [Mexico's culture].

Dimensions of OCB

McClelland (1961) argued that OCB can be best understood when OCB is viewed as motive

based behaviors. McClelland‘s work suggested that all people have some degree of achievement,

affiliation, and power motives. The achievement motive pushes people to perform in terms of a

standard of excellence, seeking the accomplishment of a task, challenge, or competition. The

affiliation motive pushes people toward establishing, maintaining, and restoring relationships

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with others. The power motive pushes people toward status and situations in which they can

control the work or actions of others.

Organizational citizenship behavior was described by Organ and his colleagues (Smith, Organ, &

Near, 1983) as having two basic dimensions—altruism and generalized compliance.

Altruism is helping behavior directed at specific individuals. When individuals have specific

problems, need assistance, or seek help, altruistic people go the extra mile in assisting them. The

other class of citizenship behavior is generalized compliance, which is a more impersonal

conscientiousness: doing things ―right and proper‖ for their own sake rather than for any specific

person. Organizational participants‘ behavior far surpasses any enforceable minimum standards;

workers willingly go far beyond stated expectations.

In attempting to further define organizational citizenship behavior, Organ (1988) highlights five

specific categories of discretionary behavior and explains how each helps to improve efficiency

in the organization.

• Altruism (e.g., helping new colleagues and freely giving time to others) is typically directed

toward other individuals but contributes to group efficiency by enhancing individuals‘

performance.

• Conscientiousness (e.g., efficient use of time and going beyond minimum expectations)

enhances the efficiency of both an individual and the group.

• Sportsmanship (e.g., avoids complaining and whining) improves the amount of time spent on

constructive endeavors in the organization.

• Courtesy (e.g., advance notices, reminders, and communicating appropriate information) helps

prevent problems and facilitates constructive use of time.

• Civic Virtue (e.g., serving on committees and voluntarily attending functions) promotes the

interests of the organization.

Empirical research on the dimensions of organizational citizenship behaviors (OCB) has

generated somewhat conflicting results. A few researchers have been successful in identifying

four categories of OCB (Moorman & Blakely, 1995) but the weight of the factor analytic

evidence suggests a two-factor structure. Williams (1988)also found a two-dimensional

definition of OCB:

1) benefits to the organization in general, such as volunteering to serve on committees (OCBO),

and 2) benefits directed at individuals within the organization, such as altruism and interpersonal

helping (OCBI). More recently, Skarlicki and Latham (1995) examined OCB in a university

setting; their data also supported a two-factor structure, (organizational and interpersonal) could

be referred as OCB.

In two separate factor analytic studies, DiPaola and Tschannen-Moran (2001) found that there

are not five separate dimensions of the construct, or even two for that matter, but rather that one

dimension captures all aspects of OCB. In other words, both benefits to the organization (helping

the organization) and benefits to the individual (helping individuals) combine into a single,

bipolar

construct.

Since Organ (1988) introduced the concept of OCB into organizational research, it has tended to

be conceptualized in terms of positive contributions

to the colleagues and to the organization, which implies an active positive contribution. Yet the

operationalization of OCB (Farh et. al., 1997) reveals a different picture. There are two types of

citizenship behaviors exist in the OCB measures:

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(1) Active positive contributions or commissions (e.g., helping others) and (2) avoiding to

engage in behaviors that are harmful to others or to one‘s organization (e.g., not abusing others‘

rights). This latter behavior that tends to be labeled as omission is a passive behavior that is

based on the moral rule

―Do no harm or more specifically ―Do no harm through action‖ (Baron, 1998).

Discussion on dimensions of OCB is carried further for a through conceptualization of OCB by

investigating the various antecedents of OCB.

Based on what say about OCB , many category were done by researchers, but this research we

follow of Mark´oczy & Xin used of seven dimension of OCB and was measured it in auditor

organization in Iran .

Methodology

The Sample

In this study 100 people of six section of general inspection organization in iran were selected as

sample. This amount people were determined the below formula:

935.005.96.11.0499

5.005.96.1500

)1()1(

)1(

22

2

2

22

2

2

PPZdN

PPZNn

The measures

For measuring of OCB were used of seven dimension based of Mark´oczy & Xin study that were

done in cultural of USA and Chinese in University of California. Based their study seven

dimension of OCB are:

Civic virtue, Altruism, Conscientiousness, Interpersonal harmony, Protecting company

resources, Sportsmanship and Courtesy. A 1–5 Likert scale was used to measure the degree

subjects considered the listed behaviors to be OCBs.

The result

Based of data gathering , the mean level of OCB dimension in six section of auditor organization

in iran were shown in table one.

Table 1: The mean level of OCB dimension in six section of auditor organization in iran

Civic

virtue

Altruism Conscienti

- ousness

Interpersonal

harmony

Protecting

company

resources

Sportsman-

ship

Courtesy OCB

Economy

section 3.11 2.92 3.06 3.25 3.31 3.15 3.18 3.12

Planning

section 3.35 3.5 3.62 3.83 3.71 3.51 3.46 3.58

Social

section 3.65 3.58 3.53 3.73 3.64 3.37 3.48 3.57

Politics

section 3.46 3.44 3.72 3.8 3.72 3.64 3.54 3.62

Produce

section 2.98 2.86 2.98 3.23 3.04 3.11 3.01 3.04

Special

section 3.13 3.03 3.24 3.21 3.06 3.17 3.13 3.11

Total 3.3 3.24 3.39 3.54 3.44 3.36 3.32 3.37

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Based of the table 1, resulats indicat although level of OCB was high in sample unit (abve of

medume (3)) but level of OCB in politics section (3.62) , planning section (3.58) and social

section (3.57) was higher than economy section (3.12) , produce section (3.04) and spacial

section(3.11).

Civic virtue has the most mean in social section and lowest mean in produce section. Also the

most mean of altruism belongs to social section and lowest to produce section. Planning section

has the most mark in Conscientiousness and produce section has the lowest mark in

Conscientiousness dimension. The highest mean in Interpersonal harmony belongs to planning

section and lowest belongs to Special section. The Protecting company resources as one

dimension of OCB has the most mean in Politics section and Special section has the lowest mean

in protecting company resources dimension. Finally politics section has the most mean in

Sportsmanship and Courtesy dimensions and Produce section has the lowest mean in these two

dimensions.

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References

Barnard, C. I. (1938). The Functions of the Executive, Harvard University Press, Cambridge,

MA

Bateman, T. S., & Organ, D. W. (1983). Job satisfaction and the good soldier: The relationship

between affect and employee citizenship. Academy of Management Journal , 26,

587_/595.

C. A. Smith, D. W. Organ, & J. P. Near.Organizational citizenship behavior: Its nature and

antecedents. Journal of Applied Psychology, 68,653-663 (1983).

D. C. McClelland. The achieving society. New York: Free Press (1961).

D. Skarlicki & G. Latham. Organizational citizenship behavior and performance in a university

setting. Canadian Journal of Administrative Sciences, 12, 175-181 (1995).

D. W. Organ. Organizational citizenship behavior: The good soldier syndrome. Lexington, MA:

Lexington (1988).

Jonathan Baron. Judgment Misguided: Intuition and error in public decision-making. Oxford

University Press: Oxford (1998).

Katz, D., Kahn, R.L. (1966). The Social Psychology of Organizations. and end, Wiley, New

York

M. F. DiPaola & M. Tschannen-Moran. Organizational citizenship behavior in schools and its

relationship to school climate. Journal of School Leadership, 11, 424 – 447 (2001).

P. Farh, E. Christopher & L. Shu-Chi. Impetus for action: A cultural analysis of justice and

organizational citizenship behavior in Chinese society. Administrative Science Quarterly,

42(3), 421–444 (1997).

R.H. Moorman & G. L. Blakely Individualism-collectivism as an individual difference predictor

of organizational citizenship behavior. Journal of Organizational Behavior, 16, 127-142

(1995)

Smith, C. A., Organ, D. W., & Near, J. P. (1983). Organizational citizenship behavior: Its nature

and antecedents. Journal of Applied Psychology, 68, 653_/663.

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Survey and Study anti-corruption strategies in Iran

Freyedon Ahmadi

Public management Department, Payame Noor university, 19395-4697 Tehran, I.R. of IRAN Zahra Avajyan


Abstract

The preoccupations about conceiving and promoting efficient anti-corruption strategies exist in

most states, especially in the developing countries. The opportunity of such strategies derives

from the direct link, demonstrated theoretically and empirically, between the effects of the anti-

corruption strategies and government performance, translated both in the economic and social

results and living standard, welfare etc. In the last decades, the transnational actors – UN, World

Bank, OECD, EU etc. - have affirmed as promoters of own anti-corruption strategies, directing

the states‘ efforts, conferring adequate levels of relevance, effectiveness, efficiency or

sustainability. In Iran general inspection organization have many tasks that one of the important

duty is fighting with corruption and prepare strategy for it. So in this research is attempted

prepare strategies for fighting with corruption. The result indicated that for fighting with

corruption in Iran there are strategies that is implementation in four sections such as economy,

social, politic and administration.

Key words: Corruption, economy section, social section, politic section, administrative section

Introduction

Definitions of corruption abound, but the most commonly used one refers to the abuse of a

public position for private gain. Corruption is facilitated by bribery, embezzlement and theft but

also by nepotism and cronyism. Corruption affects both the private and public sectors and is

often subdivided into grand and petty corruption which ranges from the provision of small ‗gifts‘

in the former to the misappropriation of public assets at the highest levels in the latter (McCusker

,2006). The size and incidence of corruption might be attributed to four key factors: The level of

public benefits available, the discretionary power of officials, the level of risk associated with

corrupt deals and the relative bargaining power of the corruptor and corrupted (Rose-Ackerman

1997).

What types of corruption are the most damaging and in which institutions or countries? What are

the relationships between corruption and poverty and how can a state reduce corruption? Within

those two framing questions, three broad levels of assessment should occur: causes and impact of

corruption – for example, how far the causes of corruption are influenced by geographical,

political, economic and cultural factors, and by the relationships between political and

administrative processes, and between public and private sector ,the political, economic,

institutional and social environment – for example, whether the corruption is country or

institution specific and whether different political, administrative and economic configurations

give rise to differing levels or types of corruption and thus to differing impacts on different

groups in society . the global economy and the links between corruption, fraud, organized crime

and international illicit capital flows – for example, how crime is organized and to what extent

corruption is a necessary or sufficient condition for particular forms of criminal behavior, i.e.

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what the shape of crime would be if there were more or less corruption, organized crime and

money laundering? (Doig 1998).

A further indication of the propensity for corruption within a given society might be provided by

an application of the corruption formula, C = M + D – A, that is, corruption (C) equals monopoly

power (M) plus discretion by officials (D) minus accountability (A) (Klitgaard 1998).

Basic approaches to anti-corruption In designing an anti-corruption strategy it is imperative to be cognizant of the fundamental

characteristics and nature of corruption itself. Essentially, it must be recognized and appreciated

that theories of corruption causation have to be interpreted in the context of actual and/or likely

human behavior, drivers and interaction. It should also be noted that some commentators have

suggested that economic progress may in fact be dependent upon, rather than impeded by corrupt

practices. A useful analogy for understanding the impact of, and solutions to, corruption is to

compare its nature with that of a pandemic. There are (at least) three key schools of thought on

corruption reduction and prevention. First, interventionism, in which the relevant authorities wait

for the corrupt action to occur and then intervene to capture and punish the offender. This school

stimulates retribution, rehabilitation and deterrence but there remain a number of obstructive

variables including: the harm has already occurred and cannot be undone ,the majority of crimes

remain unreported .the demand on finite resources will inevitably be infinite given the degree of

supervision necessary to ensure that the deterrence effect operates. If the dark figure of crime

prevents most crimes being detected, reported and responded to, what reasonable measure of

deterrence can pertain?

Second, managerialism, in which those individuals or agencies seeking to engage in corrupt

behavior can be discouraged or prevented from doing so by establishing appropriate systems,

procedures and protocols. In essence, managerialism advocates the reduction or elimination of

opportunities such that those who generally benefit from them cease to be able to do so. There

are limitations with this school of thought also, key amongst which are the fact that individuals

do not necessarily operate according to the predetermined principles of managerialism.

Organizations contain three broad categories of people who will react differently to corrupt

influences: category I: people who want to do the right thing and require guidance on how to

achieve this, category II: people who are too timid to take the risk of operating outside set rules

Category III: people who are corrupt and will operate outside of the rules entirely.

Managerialism attempts to provide one set of rules to deter a number of differently motivated

individuals. The consequences of this approach are that the success of the anti-corruption effort

is fragmented, intercepting the less scheming corrupter but not the more damaging highly

planned exploits of others. Equally, managerialist control of corruption ignores market forces.

Finally, organizational integrity which involves the integration of an organization's operational

systems, corruption control strategies and ethical standards so that a norm of ethical behavior is

created. This school of thought presupposes that deviance stems from the organization rather

than the individuals of which it is comprised, as if the breach of ethics involved in corrupt

practices occurs almost by osmosis from the malfeasant organization to the innocent individual

within it. Arguably, targeting individuals in anti-corruption efforts is likely to be less successful

than targeting the organizational context in which individuals operate. It has been suggested that

the organization must provide a structural framework that removes the possibility of corrupt

practices. In short, the ability of the individual to interpret the rules or to decide whether to apply

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a particular protocol should be circumvented by a system which cannot be manipulated (Larmour

& Wolanin 2001).

Cross- sect oral strategies Sound anti-corruption strategies recognize the level and degree of formal and informal

interaction between agencies, organizations and individuals. It is imperative that such strategies

incorporate changes in the practices of the public and private sectors. In addition, efforts should

be made to increase public awareness of corrupt practices and to garner support from the public

in the detection and reporting of corrupt behavior. These issues are discussed in greater detail

below.

Public sector It has been suggested that strategies that reduce the benefits of paying and/or receiving bribes

can only result in positive results for the anti-corruption effort. Reform of the civil (public)

service is an essential initial policy. The provision of adequate pay is a useful first step because,

if the service pays lower salaries than can be obtained by similarly qualified personnel

elsewhere, then there is, arguably, a temptation for civil servants to engage in bribery. However,

it is possible that higher pay may simply increase the level of bribe sought by the official

concerned. Thus, it might be essential to remove other benefits (such as a pension scheme) from

those civil servants who, despite receiving pay increases, continue to engage in corrupt behavior.

Equally, the selection of civil servants needs to be transparent, to avoid the potential for bribery

of officials in exchange for a government post. A further level of civil service control, which

relates both to the briber and bribe, could also be instituted whereby the civil servant who

accepts a bribe could be fined a multiple of bribes received, as well as losing his/her post,

pension and allied benefits. The briber could be penalized in terms of the profits made from the

bribe rather than in relation to the level of the bribe itself. Similarly, it might be possible to

include a debarment procedure which would prevent a briber from contracting with the

government on any project for a specified and economically debilitating period. Other reforms

such as those of the judiciary and the provision of independent review and investigative bodies

are essential if the civil service reforms are to have full resonance. More broadly, corruption

within the public service might be mitigated by reducing the benefits under the control of

officials. First, it might be possible to eliminate programs identified with corrupt practices. Thus,

for example, if a state department has no direct authority to restrict exports or to license

businesses (both activities facilitating the demand for corrupt payments), with that decision being

taken by an independent body, there will be no point in bribes being sought or proffered.

Secondly, if policies increase privatization then competition may control contracts rather than

bribery of a monopolizing state (Rose-Ackerman 1997). Civil service reform or the creation of

professional and well-motivated civil service is integral to the anti-corruption process. Political

appointments destabilize the civil service, undermine continuity and hamper development of

institutional values and standards. There is a need for merit based recruitment and promotion

mechanisms that restrain political patronage and create an impartial civil service, combined with

credible monitoring and law enforcement. Increasing salary reform for the civil service is often

portrayed as key, but salary reform alone will not eliminate incentives for bureaucratic

corruption where high level civil servants retain control of resources. The success of civil service

reform also hinges upon the independence and integrity of the judicial system. Judicial reform

aims to put mechanisms in place that provide for job stability, career paths and adequate salaries.

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It also requires strengthening the prosecutors‘ and defenders‘ offices and establishing internal

controls to prevent corruption within the judicial system through such entities as professional

ethics codes and inspection systems (Tay & Seda 2003).

Private sector The business sector must also be included in any anti-corruption approach. This cooperation

should be orchestrated through the creation of self-regulatory practices in the form of codes of

conduct subject to external and objective monitoring. The aim should be placed realistically at

setting and adhering to minimum standards. However, this model has attracted criticism from

commentators on the activities of corporations in developed economies and has largely given

way to the Sarbanes Oxley legislation and related regulatory framework (Carr 2006). The

business sector has historically been seen as part of the corruption problem rather than central to

its mitigation, given that the business sector has long recognized the competitive advantage to be

achieved through selective acts of bribery, whether in a blatant pay off situation or the more

common (and corporately more excusable) payment of ‗speed‘ money to oil, rather than start, the

wheels of bureaucracy. The introduction of the Convention on Combating Bribery of Foreign

Public Officials in International Business Transactions (OECD 1997) has, arguably, put pressure

upon the business sector to develop integrity management systems. It is suggested that such

systems need to reflect both the corporate culture and the culture of the country in which they

operate.

Another issue is the interface between the public and private sectors which, in an increasing

industrialized environment, has facilitated a high degree of mutually beneficial, yet corrupt,

practices. This is said to be particularly acute in smaller countries in which citizens may be

influenced by kinship loyalties that may subsume a broader anti-corruption effort. The impact of

this discontinuity may be exacerbated if the level of knowledge and understanding of the broader

impacts of sustained corruption upon a society is at a low level. The OECD has developed

guidelines for managing conflict of interest in the public service which seek to raise awareness of

the issue and lay down instances of prohibited conduct, the occurrence of which would result in

corrupt practices (OECD 2003).

Public support It has long been maintained that anti-corruption campaigns cannot succeed without attaining and

maintaining public support. Two broad and complementary strategies can increase that support

and impact upon the success of anti-corruption strategies. First, there are public awareness

programs which focus upon the harm done by corruption, the misuse of public money, the denial

of access to public services and the public duty to complain when public officials act corruptly.

Second, there is the empowerment of civil organizations to the extent necessary for them to be

able to monitor, detect and reverse the activities of the public officials in their midst. This

strategy involves drawing on and utilising the expertise of accountants, lawyers, academics,

nongovernment organizations, the private sector, religious leaders and ordinary citizens (Kindra

& Stapenhurst 1998).

Assessment and design It has been suggested that any anti-corruption effort should have a plan to alter the behavior of

people who misuse power for private gain as its primary driver. It is suggested that in any act of

corruption there are three actors: the person initiating the corrupt act, the person who participates

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actively or passively, and the individual or larger group of people who may pay the costs of that

corruption, even if they are not aware of it. To be successful, an anti-corruption strategy should

consider each actor, understand their motivation and alter the factors underpinning that

motivation by engaging in the process of cost benefit analysis that the actors undertake. It must

be ascertained whether the aim of the anti-corruption strategy is to seek retribution against

malfeasance, or restitution. Aside from the moral case for and against each in the corruption

context there remains an issue of practicality. The former requires an effective criminal justice

system and the latter would require effective asset tracing and confiscation systems.An

assessment should be undertaken of the relative benefits of targeting vulnerable departments or

anti-corruption agencies in terms of achieving systematic anti-corruption reform. Risk

assessments of departments and their procedures may identify important corruption

vulnerabilities and thereby direct and enhance anti-corruption efforts. It has been suggested that

the targeting of the public sector through processes such as the redrafting and updating of

legislation, enhancing the judiciary and ensuring the accountability of public service departments

is, while both logical and laudable, time consuming, expensive and prone to relapse. Similarly,

authorizing externally appointed and funded agencies to engage with countries on corruption

issues may have negative impacts, given that such agencies will, without significant host country

government support, possibly be doomed to short-term success and run the risk of creating an

atmosphere of resentment (and subsequent non-cooperation) among the targeted sectors in that

host country (Doig & Riley 1998).Anti-corruption instruments need to pursue a set of policies

and programs that go beyond relying on government leadership and regulation because state

institutions are generally weak and agencies and officials more likely to be part of the problem

than instrumental in the provision of solutions. Engaging external participation in anti-corruption

processes involves forging broad based coalitions to increase pressure for anti-corruption actions,

following policy reforms that eliminate administrative opportunities for corruption, reinforcing

media independence and citizenship participation, enhancing the effectiveness and accountability

of independent oversight institutions and building the capacity and independence of prosecutorial

agencies and the judiciary with appropriate checks and balances for holding them accountable to

the public (Bhargava & Bolongaita 2004).

Specific methods and measures In order to be holistic in approach, anti-corruption strategies need to incorporate policies in

relation to a number of sectors vulnerable to corruption and amenable to change. Underpinning

dedicated efforts in relation to those sectors are a number of guiding principles which influence

the nature and direction of the anti-corruption strategy. There are tried and tested mechanisms for

the mitigation of corruption such as anti-corruption commissions. Equally, a number of

pragmatic and innovative mechanisms have been mooted. What is clear in terms of corruption is

that lower and higher income countries share a common view as to the major causes of

corruption and of the value of anti-corruption efforts designed to undermine those causes.

Although there is a degree of disparity between the desire to eradicate corruption and the actual

delivery of anti-corruption efforts, there is nevertheless room for optimism. These issues are

discussed in more detail below.

Huberts (1998) has distinguished six strategies:

Economic – emphasizes the need for the economic stimuli for corruption to be reduced and

suggests that such might be achieved by, inter alia, paying higher civil service salaries

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Educational – aims at altering the attitudes and values of the populace and civil servants alike via

training and education campaigns and engagement of the media

Cultural – ensuring that the behavior and attitudes of those in power are subject to stringent

codes of conduct and their behavior filters down to civil servants

Organizational or bureaucratic – strengthening internal control systems such as auditing to detect

corrupt activity, and staff rotation to reduce the propensity for individuals to establish themselves

in entrenched corruption

Political – increasing in transparency in terms, for example, of the monitoring of party finances

and more broadly, a clearer and more definite separation of powers in terms of the judiciary and

the state

Judicial or repressive measures – advocates harsher penalties for corrupt practices but also the

creation of independent anti-corruption agencies.

It has been suggested that there are four broad themes forming the basis of most anti-corruption

strategies. The first seeks to utilize regulation as a counter to corruption. The second seeks to

provide financial aid with conditions of non-corrupt behavior attached. The third seeks to employ

the media as a means of investigating corruption and publicizing its effects. The fourth seeks to

engage the NGO and allied sectors in pricking the consciences of governments and international

organizations which can in turn bring pressure to bear upon corrupt countries (Carr 2006).

A combination of these generic strategies can be seen in Transparency International‘s Anti-

corruption handbook (2004) which provides a number of measures including strategies to

provide anti-corruption education, establish anti-corruption agencies, render party political

funding more transparent and facilitate and encourage the involvement of nongovernmental

actors such as the media and the private sector in anti-corruption efforts. Of these, an oft cited

and successful component of anti-corruption strategies is the independent, well-resourced and

politically supported anti-corruption agency. Less well known, but of potentially significant

value, is the proposed special governance zone concept (based in principle upon free trade

zones).

In this study based of the above literature was attempted to determining strategy fit to Iran

situation. For achieve this aim was used idea of excerptors have enough knowledge about issues.

35 excerptors in 7 organizations of Iran selected as samples. These excerptors were said there are

several strategies could be implemented in four sections in Iran. These sections are economy,

social, political and administrative.

Kind of strategy to fighting with corruption

Economy section

1. Deleting planning that creates opportunity for corruption.

2. Generating proper privatization and limiting the role of government in economic section.

3. Modify the structure and work process in organizations.

4. Modify the rules of tax and customs.

5. Improvement of rules in banks issues.

6. Improvement of financial systems in public sectors

7. Improvement management of public costs.

Administrative sector

1. Pay attention to ethics principles

2. Implementation of pretences policy in governmental sections.

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3. Pay proper salary to personnel's in organization

4. Emphasize to enhance administrative efficiency

5. De centralization of decision making in offices.

6. Clearing of supervisor and bosses asserts in organizations.

7. Using heavy penalties for corruption action in every section.

8. Preparing competitive service in public sector in society.

9. Using proper auditor system in organizations.

Social section

1. Enhancing public services in society

2. Prepare public education and communication in society

3. Public auditor and public participation

4. Accessible to information for all people in society

Political section

1. Enhancing governmental respondents to people

2. Generating political computations

3. Generating independent party

4. Clarify in financial situation of party

5. Clarify commitment of leader of party

6. Enhancing and improvement of regain corporative

7. Corporative With global and international organization that fighting with corruption

Conclusion It has been argued that most anti-corruption programs rely on legal and financial institutions such

as the judiciary, police and financial auditors to enforce and strengthen accountability in the

public sector. The assumption here is that more and better enforcement of rules and regulations

will reduce corruption. The problem with such an approach is that in many poor countries the

legal and financial institutions are weak and often corrupt themselves (Svensson 2005). A more

fundamental cause for the relative failure of anti-corruption strategies is that they are ‗more often

limited to rhetoric, and are only rarely sustained‘ (Wei 2001: 6). Wei suggests that this is because

some political leaders fear the political risks associated with radical and entrenched reform of

corrupt processes/practices and that the cost of creating significant reforms and achieving

essential progress is often prohibitive. There remain a number of difficulties with tackling

corruption. First, anti-corruption efforts that seek to establish and appeal to a moral or ethical

high ground via education of the corruptors and corrupters are, some argue, unlikely to succeed.

The very mechanisms of government create overriding incentives for corrupt rather than anti-

corrupt activities. Second, this also reduces the deterrence component of anti-corruption

penalties within the criminal law or code of the country concerned. The corrupt individual

arguably considers the prospect of being caught rather than the punishment they might incur in

the unlikely event of interception. Third, it is not unusual to discover corruption and

incompetence within government occupying the same space and this may be exacerbated by

systems of allocating influential government positions on the basis of patronage rather than

ability. A corrupt appointment process simply facilitates further corruption by the post-holders

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(Cobb & Gonzalez 2005). Others have expressed doubt about the argument that corruption can

be fought through a series of anti-corruption agencies, the creation of all-encompassing laws and

the establishment of codes of ethical conduct. In many cases it is suggested that these are

constituents of a perception of successful anti-corruption efforts which disguise the lack of real

progress on the ground (Kaufmann 2005).It is suggested that a broad based approach must be

adopted in relation to anti-corruption strategies if systematic corruption is to be mitigated.

Successful campaigns against corruption have included measures to reduce the opportunities for

and benefits of corruption, to increase the likelihood that it will be detected and to make it far

more likely that a transgressor will be punished. Conversely, difficulties with anti-corruption

strategies have included limits being placed upon power or commitment at senior, and therefore

influential, political and social levels, overly ambitious anti-corruption promises leading to

unrealistic and unachievable expectations and subsequent loss of public confidence, piecemeal

and uncoordinated reforms, failure to establish institutional mechanisms that outlive the

reformers, failure of the government to include and utilise private sector opinion leaders and

failure to devise effective communications programs (Kindra & Stapenhurst 1998).

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References:

Bhargava V & Bolongaita E 2004. Challenging corruption in Asia: case studies and a

framework for action. Washington DC: World Bank

Carr I 2006. Strategic improvements in the fight against corruption in international business

transactions. Journal of business law June: 375–395 Cobb L & Gonzalez M 2005. Corruption as a system of interlocking vicious cycles: lessons from

NationLab. Louisville CO: Aetheling Consultants

Doig A & Riley S 1998. Corruption and anti-corruption strategies: issues and case studies from

developing countries, in UNDP, Corruption and integrity improvement initiatives in

developing countries. New York: United Nations Development Programme: 45–62

Huberts LWJC 1998. What can be done against public corruption and fraud: expert views on

strategies to protect public integrity. Crime, law & social change 29: 209–224

Kaufmann D 2005. Ten myths about governance and corruption. Finance and development

September: 41–43

Kindra GS & Stapenhurst R 1998. Social marketing strategies to fight corruption. Washington

DC: Economic Development Institute of the World Bank: 1–32 Klitgaard R 2000. Subverting corruption. Finance and development 37(2): 2-

5.http://www.imf.org/external/pubs/ft/fandd/2000/06/pdf/klitgaar.pdf

Larmour P & Wolanin N (eds) 2001. Corruption and anti-corruption. Canberra: Australian

Institute of Criminology and Asia Pacific Press

McCusker, R., (2006), ―Review of Anti–corruption Strategies‖, Technical and Background

Paper, No. 23, Australian Institute of Criminology, Canberra, Australia

OECD 2003. OECD guidelines for managing conflict of Interest in the public sector. Paris:

OECD, 1997. Convention on Combating Bribery of Foreign Public Officials in

International Business Transactions.

http://www.olis.oecd.org/olis/1997doc.nsf/LinkTo/daffe-ime-br(97)20 Rose-Ackerman S 1997. The political economy of corruption, in Elliott KA (ed), Corruption and

the global economy. Washington: Institute for International Economics: 31–60 Svensson J 2005. Eight questions about corruption. Journal of economic perspectives 19(3): 19–

42

Tay S & Seda M (eds) 2003. The enemy within: combating corruption in Asia. Singapore:

Eastern Universities Press

Wei S 2001. Corruption and globalisation. Policy brief no. 79, April. Washington DC:

Brookings Institution

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Survey relationship between organizational entrepreneurship and social capital in public

sector in Iran

Freyedon ahmadi

Public management Department, Payame Noor University, 19395-4697 Tehran, I.R. of IRAN

Abstract

More recently, the theory of social capital has been expanded to the field of entrepreneurship

research. At the company level, the entrepreneurship literature has highlighted the significance of

social capital in understanding how firms create and manage a network and what the outcomes

are. At the individual level, studies have demonstrated that an entrepreneur‘s personal network

allows access to resources that are not possessed internally .The general consensus is that a high

level of social capital, built on a favorable reputation, relevant previous experience, and direct

personal contact, often assists entrepreneurs in gaining access to venture capitalists, key

competitive information sources, potential customers, and others. In this study, researcher has

attempted to indicate relation of organizational entrepreneurship and social capital in

governmental company in Iran. For achievement to this aim were selected 52 companies and

relation between dimension of organizational entrepreneurship and dimension of social capital

were measured. The result of this study were shown that there are meaningful relation between

structural, relational, and cognitive dimensions of social capital and organizational

entrepreneurship , but the role of cognitive dimensions is very important .

Key words : Organizational entrepreneurship, social capital, governmental company, Iran

Introduction

Today, rapid advance in science and technology has brought new tastes which has led to the

transformation of invention, innovation and creativity systems and has caused entrepreneurship

to be seen as a phenomenon that has undergone such changes. After entrepreneurship was

introduced to be the engine of economic development by Joseph Schumpeter, entrepreneurship

became several times more important. Due to the importance of entrepreneurship and the effects

it has had in different structures, entrepreneurship has become the factor that helps organizations

in promoting their organizational excellence and staff talents.

Governments especially count on entrepreneurship for implementing special programs of

development. The Islamic Republic of Iran has also made entrepreneurship one of their main

axes in the Fifth Development Plan. Today, organizations know it is urgent to have

organizational entrepreneurship which is an organizational strategy to respond to the rapid

increase of new competitors, the formation of distrust towards traditional management methods

and companies and the exit of the best work forces from companies to becoming independent

entrepreneurs.

Literature review

Organizational entrepreneurship

Organizational entrepreneurship is consisted of activities that aim to create new business, new

products and market development. Organizational entrepreneurship has three main concepts:

renewal of strategies (Renovation of strategies or restructuring the organization structure),

innovation (offering something new to the market) and business within the company

(entrepreneurial company activities that has led to new business and work in the mother

company). Tendency has increased towards responding to such rapid entrepreneurship

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competitor, lack of confidence in traditional methods of business, many smart people creating

small independent businesses, international competition and productivity.

Today, many companies have understood the importance of organizational entrepreneurship and

in fact such change in strategy is the response to three needs which have been imposed on

companies: Rapid increase of new competitors, creating a sense of distrust in companies towards

traditional management methods, the best work forces getting out of companies and establishing

their own individual and independent entrepreneurship.

These factors have challenged each and every company and have even caused industries with

advanced technology to face numerous problems. The speed of innovation, rapid environmental

changes and their tendency toward more complexity and lack of environmental sustainability and

market has forced organizations to change their approach and previous strategies. Thus, many

Organizations have no choice but to follow organizational entrepreneurship to survive in the

current dynamic environment.

Just like any live creature, an organization is born, grows, ages and gets old and sooner or later

will die. The emergence of these organizations takes place in two basic stages:

The first stage is when changes occur in the outside world; such as war which can destroy

production facilities in a country, but leave the trained work force remaining; or in many other

countries, it may highly increase the number of population for some years. Such changes affect

the various aspects of life even to an extent where it is necessary to replace some changes in the

number of goods and services. For example, before the war in Japan at the end of World War II,

the Japanese industry was destroyed which caused Japan to rebuild their industry all over again.

Another example could be the population explosion in America in the late 1940's and 1950's

which caused massive market creation

For products and services for specific ages; this specific population shaped the market during the

1970's and 1980's and continued in the 1990's.

The second stage is in the entrepreneurial process of an idea. Here, the question is that where do

entrepreneurs get their ideas from? Many entrepreneurs get their ideas from their work

experience; these people learn new skills by working in a particular field and then use them in

finding new opportunities. In this method, organizations have the role of schools but with the

difference that

Individuals are paid for what they do. "Steve Vosnock", one of the employees at "Hewlett-

Packard" learned how to use micro processors (which have existed in the market since the

1970's) to produce personal computers (PC). Some may think that perhaps the CEO of "Packard"

should have humbly asked "Vosnock" to invent personal computers for the company, because

"Vosnock" himself was Unable to tell the CEO to produce PCs.

The third type of organizational entrepreneurship is "organization transformation & renewal".

This kind of entrepreneurship is only fit with the initial definition of entrepreneurship given by

Joseph Schumpeter, if organizational transformation is consisted of innovation, new combination

of resources and results and creating sustainable economic value.

The fourth type of organizational entrepreneurship is one of the subsets of organizational

development which includes not only the evolution of an organization, but also the competitive

environment that exists in the industry; it causes the formation of something different from what

already existed in the industry.

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Organizational Entrepreneurship Dimensions of Thompson

Thompson has determined five dimensions for the formation of entrepreneurship in

organizations, all of which are essential for an entrepreneurial organization. The below figure is

shown these dimensions.

Figure 1: Organizational Entrepreneurship Dimensions of Thompson

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Social capital

In recent years researchers concerned with understanding why some organizations perform

better than others frequently have looked to the resource based view of the firm as a model for

explaining the sustained competitive advantage some organizations possess (Barney, 1986,

1991). According to the resource-based perspective, successful organizations have unique

capabilities or resources that give them an advantage over their competitors. Such resources are

particularly valuable when they are rare, inimitable, and no substitutable (Barney 1986, 1991).

Consistent with the resource-based view, Nahapiet and Ghoshal (1998) maintain that the

development of social capital within an organization is likely to be a source of competitive

advantage for a firm. In other words, they assert that networks of strong interpersonal

relationships within an organization ultimately facilitate its success. As mentioned earlier,

Nahapiet and Ghoshal's (1998) framework integrates previous research in the area and offers

three specific aspects or dimensions of social capital: a structural dimension, a relational

dimension, and a cognitive dimension.

Structural Social Capital

Nahapiet and Ghoshal (1998) conceptualize the structural dimension of social capital as

encompassing network ties, network configuration, and network appropriability. Network ties

are connections between members of an organization. Previous research using network analysis

indicates that these connections can have a significant influence on information transfer

(Krackhardt & Hanson, 1993), organizational learning (Fisher & White, 2000), and the execution

of organizational activities (Shah, 2000).

Although formal and informal networks can both play a significant role in the overall

configuration of interpersonal linkages (Ibarra, 1992), the important factors to consider in

understanding a network configuration revolve around such characteristics as structural holes,

centralization, and density. These characteristics are often a key determinant of the extent of

movement of information, knowledge, and assistance within an organization, beyond what is

attributable to simply the individual linkages (Krackhardt & Hanson, 1993; Seibert et al., 2001;

Walker et al., 1997).

Finally, network appropriability can significantly affect the flow of information and assistance

within a network (Nahapiet & Ghoshal, 1998). Network appropriability relates to the ease with

which different types of relationships can be transferred within a network. Similarly, connections

established between individuals in informal (e.g., social) contexts also may be relevant in more

formal (e.g., work) contexts. Thus, networks created for one purpose may often be useful for

other purposes (Fukuyama, 1995; Putnam, 1993).

Relational Social Capital

According to Nahapiet and Ghoshal (1998), the relational dimension of social capital is

characterized by high levels of trust, shared norms and perceived obligations, and a sense of

mutual identification. Their conceptualization of relational capital, then, is quite similar to

Granovetter's (1973) notion of strong ties, which he describes as connections between

individuals that are characterized by trust, reciprocity, and emotional intensity. Researchers have

not been entirely consistent in their definition of the relational aspects of social capital, but it is

clear that what are being described are interpersonal connections that are inherently affective in

nature (Krackhardt, 1992).

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Interpersonal trust arises from a belief in the good intentions, openness, competence, and

reliability of another party (Mishira, 1996). In addition, high levels of trust result in a willingness

to be vulnerable to the actions of the other party (Mayer, Davis, & Schoorman, 1995). Prior

research suggests that trust facilitates social and resource exchange, increases communication,

and enhances cooperation between individuals (Jones & George, 1998; Misztal, 1996; Putnam,

1993; Tsai & Ghoshal, 1998). Thus, high levels of trust ultimately may increase innovation,

enhance teamwork, and improve organizational functioning (Bouty, 2000; Jones & George,

1998).

Cognitive Social Capital

According to Nahapiet and Ghoshal (1998), mutual understanding among employees is achieved

through the existence of a shared language and from the exchange of shared narratives. Where

shared language and shared narratives both exist, employees can more easily discuss problems,

transfer ideas, share knowledge, and offer more effective assistance to one another (Klimoski &

Mohammed, 1994; Nahapiet & Ghoshal, 1998). Shared language provides organizational

members with the ability to communicate more effectively (Boisot, 1995). High levels of

cognitive social capital give employees a common perspective that enables them to perceive and

interpret events in similar ways (Boland & Tenkasi, 1995; Nohria, 1992). Shared narratives are

the myths, stories, and metaphors that organizational members communicate to one another

(Nahapiet & Ghoshal, 1998). These narratives also assist or generational members in interpreting

and understanding their experiences in a common way (Morgan, 1986). Both shared language

and shared narratives, therefore, serve to increase the level of understanding among

organizational members. These assets also increase the ability of employees to anticipate and

predict the actions of other coworkers, thereby facilitating the utilization of various members'

inputs, successful coordination of activities, and adaptation to changing conditions (Klimoski &

Mohammed, 1994; Krackhardt, 1992).

Theoretical Framework Based on the review of the extant literature and the discussions that followed, a theoretical model

proposed for empirical testing is provided in figure 2.

Figure 2: Relationship between social capital and organizational entrepreneurship

dimension

Providing of ideas and design

Soft entrepreneurship

Cognitive

Relational

Structural

Organizational

Entrepreneurship Paradigm of risk-tasting

Paradigm of creativity

Hard Entrepreneurship

Social

capital

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Based of figure 2 Hypotheses of this research are defined as fallows:

H1: Empowerment of structural dimension of social capital facilitates organizational

entrepreneurship in governmental company in Iran.

H2: Empowerment of Relational dimension of social capital facilitates organizational


H3: Empowerment of cognitive dimension of social capital facilitates organizational


Research Method

Participants:

Ninety four employees of 52 public sector organization in Tehran province participated in

current study. This amount of employees is determined by the below formula:

04.96)1.0(

5.005.96.12

2

2

2

0

d

Pqtn

94

500

04.951

04.96

11 0

0

N

n

nn

The participants ranged in age from 25 to 53. There were 51 males and 43 females that

participated in the study. Education ranged from high school through graduate school, with the

majority of the participants holding Associates or Bachelors degrees.

Analysis and Results Descriptive Statistics

Table 1 presents the descriptive statistics for the SC (social capital) & OE (organizational

entrepreneurship) variables. The mean for Hard Entrepreneurship is 2.02, for Paradigm of

creativity is 2.18 , for Paradigm of risk-tasting is 3.71 , for Providing of ideas and design is 3.34

for Soft entrepreneurship is 3.54 and for OE is 3.12 Therefore Hard Entrepreneurship have at

least mean among dimension of Entrepreneurship.

The mean for Structural in public sector organization is 3.11; Relational is 3.04, Cognitive 3.19

as well as for SC is 3.19. Therefore Cognitive have greatest mean among dimension of Social

capital.

Table1. Descriptive statistics of selected variables

Variable Description Mean Standard Deviation

Hard Entrepreneurship 2.02 0.127

Paradigm of creativity 2.18 0.201

Paradigm of risk-tasting 3.71 0.181

Providing of ideas and design 3.34 0.165

Soft entrepreneurship 3.54 0.134

entrepreneurship 3.12 0.179

Structural 3.11 0.133

Relational 3.04 0.154

Cognitive 3.19 0.155

Social capital 2.63 0.170

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The output given in Table 2 depicts that there is a significant positive relationship between OE

and SC at the 0.05 significance level. This means that SC is positively associated with

entrepreneurship. As such when the social capital increases, it is expected that dimension of

entrepreneurship will be improvement. The result shows that correlation between dimension of

social capital and entrepreneurship, positive and meaningful. Based on Table 2 all of Hypotheses

are accepted.

Table2. Pearson Moment Correlations

Structural Relational Cognitive Social capital

Hard Entrepreneurship 0.235* 0.298* 0.337* 0.307* Paradigm of creativity 0.434* 0.463* 0.490* 0.476*

Paradigm of risk-tasting 0.232* 0.214* 0. 247* 0.228* Providing of ideas and design 0.251* 0.267* 0.241* 0.260*

Soft entrepreneurship 0.244* 0.227* 0.298* 0.273*

entrepreneurship 0.241* 0.271* 0.328* 0.303*

Conclusion

In this study researcher was attempted to identify impacts of social capital on improvement of

organizational entrepreneurship. Today important of organizational entrepreneurship is

increasing and use of tools to increase of organizational entrepreneurship has more important. So

in this study pay attention to social capital as instrument to improvement entrepreneurship in

organizational level. Further dimension of social capital and amount of it impacts was measured.

Cognitive dimension have the most correlation with organizational entrepreneurship.

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References Barney, J. B. 1986. Organizational culture: Can it be a source of sustained competitive

advantage? Academy of Man- agement Review, 11: 656-665. Barney, J. 1991. Firm

resources and sustained competitive advantage. Journal of Management, 17: 99-120.

Boisot, M. H. 1995. Information space: A framework for learning in organizations, institutions

and culture. London: Routledge.

Boland, R. J., & Tenkasi, R. V. 1995. Perspective making and perspective taking in communities

of knowing. Organi- zation Science, 6: 350-372.

Bouty, I. 2000. Interpersonal and interactional influences on informal resource exchanges

between R&D researchers across organizational borders. Academy of Manage- ment

Journal, 43: 50-65.

Fisher, S. R., & White, M. A. 2000. Downsizing in a learning organization: Are there hidden

costs? Academy of Man- agement Review, 25: 244-251.

Fukuyama, F. 1995. Trust: The social virtues and creation of prosperity. New York: Free Press.

Granovetter, M. S. 1973. The strength of weak ties. American Journal of Sociology, 78: 1360-

1380

Ibarra, H. 1992. Structural alignments, individual strategies, and managerial action: Elements

toward a network theory of getting things done. In N. Nohria & R. G. Eccles (Eds.),

Networks and organizations: Structure, form, and action: 165-188. Boston: Harvard

Business School Press.

Jones, G. R., & George, J. M. 1998. The experience and evolution of trust: Implications for

cooperation and teamwork. Academy of Management Review, 23: 531-546.

Klimoski, R., & Mohammed, S. 1994. Team mental model: Construct or metaphor? Journal of

Management, 20: 403- 437.

Krackhardt, D., & Hanson, J. R. 1993. Informal networks: The company behind the chart.

Harvard Business Review, 71(4): 104-111.

Mayer, R. C., Davis, J. H., & Schoorman, F. D. 1995. An integrative model of organizational

trust. Academy of Man- agement Review, 20: 709-734.

Mishira, A. K. 1996. Organizational responses to crisis: The centrality of trust. In R. M. Kramer

& T. M. Tyler (Eds.), Trust in organizations: 261-287. Thousand Oaks, CA: Sage.

Misztal, B. 1996. Trust in modern societies. Cambridge: Polity Press.

Morgan, G. 1986. Images of organization. Beverly Hills, CA: Sage.

Nahapiet, J., & Ghoshal, S. 1998. Social capital, intellectual capital, and the organizational

advantage. Academy of Management Review, 23: 242-266.

Nohria, N. 1992. Information and search in the creation of new business ventures: The case of

the 128 Venture Group. In N. Nohria & R. G. Eccles (Eds.), Networks and organizations:

Structure, form, and action: 240-261. Bos- ton: Harvard Business School Press.

Putnam, R. 1993. The prosperous community: Social capital and public life. American Prospect,

4(13): 35-42.

Seibert, S. E., Kraimer, M. L., & Liden, R. C. 2001. A social capital theory of career success.

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Shah, P. P. 2000. Network destruction: The structural implications of downsizing. Academy of

Management Jour- nal, 43: 101-112.

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Walker, G., Kogut, B., & Shan, W. 1997. Social capital, structural holes, and the formation of

an industry network. Organizational Science, 8: 109-125.

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Quality Management of Technology Related Services for Student Satisfaction at Private

Universities of Pakistan

Ms. Seema Arif

Asst. Professor , Faculty of Management Studies

University of Central Punjab

Khayaban-i-Jinnah. Lahore. 54770. Pakistan

Ms. Maryam Ilyas

Lecturer

College of Statistical & Actuarial Sciences. University of the Punjab

Quaid-i-Azam Campus, Lahore. 54660. Pakistan

Abstract

This study aims to know about interpersonal and technological linkages between the university

management and use of technology. The study identifies the challenges faced by the

management in procuring customer satisfaction with the services by approaching the problem

from a different angle, i.e. how to reach at best combination of technology and human agency

that would most satisfy customers as well as keep the costs down. Thus, it extends the research

literature on integration of digital technologies in higher education system at private universities

from Pakistani perspective. In this case study, a satisfaction survey was conducted with 400

students of a private university. The results were analyzed using SPSS and exploratory factor

analysis and binary logistic regression was applied to find out student satisfaction and

dissatisfaction with various aspects of technology services to mark risk factors associated with

student loyalty. The results demonstrate weak loyalty of students. The significant risk factors

associated with negative word of mouth were a consequence of poor operations and teacher‘s

poor use of technology during lectures.

Keywords: Higher education. Service quality. Digital technology. Student satisfaction. Student

loyalty.

Background The business world today is known for its competitiveness where the cutting edge is the

technology (Brynjolfsson and Hitt, 2000; Salinas, 2008; MIT Review, 2010). On one hand,

there is increasing emphasis upon technology-assisted services and transactions, while on the

other ‗Self-service technologies‘ (SSTs) continue to be a critical factor determining the quality

customer-organization relationships (Meuter et al., 2000; Lin and Hsieh, 2007). Therefore, in

this case, private universities operated as businesses (Aldridge and Rowley, 1998; Albatch,

2007; Chieh Hsiung, 2009) are not an exception where the technological infrastructure such as

web and internet facility, computer labs, use of multimedia and projectors in the classroom are

highlighted while marketing the brands and products of university. Furthermore, the operational

use of technology is also exploited as a marketing strategy (Green and Gilbert, 1995; Brynjolfsson and Hitt, 2000; Selwyn, 2007), such as one window services for admissions and

paying of fees, the web portals maintaining student records for attendance, grades, and course

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work progression, granting the opportunity to every student for electronic communication

between the student and the faculty as well as management and student. All of these attractions

have increased customer expectations from the universities that their needs would be timely

addressed and there will be minimum hassles in provision of services (Hu and Kuh, 2001;

Abouchedid and Nasser, 2002; Makarem and Mudambi, 2009). Since many of the services are

technology integrated, hence, students expect that speed and efficiency would be the integral

part of the services delivery in their day to day university life experiences (Green and Gilbert,

1995; Aldridge and Rowley, 1998; Hu and Kuh, 2001; Abouchedid and Nasser, 2002; Makarem

and Mudambi, 2009).

Previous research results show that student satisfaction vary greatly regarding different

aspects of the service experience (Anderson and Sullivan, 1993; Aldridge and Rowley, 1998;

Abouchedid and Nasser, 2002; Aldemir and Gülcan, 2004; Alves and Raposo, 2007). The major

predictor of quality and business success is the customer loyalty (Lin and Tsai, 2008; Klefsjö et

al., 2008) and in HE perspective it is expressed in student behaviors such as student

reenrollment in other university programs, and spreading positive word of mouth (Anderson and

Sullivan, 1993; Aldemir and Gülcan, 2004; DeShields et al., 2005; Petruzzellis et al., 2006;

Alves and Raposo, 2007 and Douglas et al., 2008). According to Brown and Mazzarol (2009),

perceived image of the university is very important and perceived quality of ―humanware‖ (e.g.,

people and process) and ―hardware‖ (e.g., infrastructure and tangible service elements) play an

important role in perception of total quality and predicting student loyalty which is generated by

student satisfaction with student services.

Technology plays a critical role in student achievement in the present ‗digital age‘.

Aboudan (2008) has alerted that today we deal with students who are ‗digital natives‘ and ‗multi-

tasking‘ adults; they become numb with under-stimulation. Thus, a classroom with ‗black and

white atmosphere‘ (O'Brien and Bauer, 2005) will not keep students engaged, and now teachers

must shift to ―multiple literacies‖ (Miller, 2007) bringing real life color to the classroom giving

them a chance to remain busy shifting rapidly from one task to another in a rapidly twitching

speed of decision-making and stimulating interactivity (Hu and Kuh, 2001; Selwyn, 2007;

Ramsden, 2008).

Moreover, students' self-attribution for achievement goals is mainly on the basis of

autonomous interest (i.e., personal goals) and without much gender difference, the success is

mostly attributed to personal causes and failure to external causes (Sweeney et al., 1982; Mezulis

et al., 2004; Chen et al., 2009). According to Lipshitz (1989), attributions influence decision

making processes; past experiences generating positive or negative affect subsequently influence

the present and the future (Weiner, 2010) and in this case experiences are assumed to influence

students‘ decisions related to use of technology as well as reenrollment in university‘s programs

and/or spreading positive word of mouth about the university.

Esther Baldwin (2010) has stated in an interview that ―the way that companies implement

business processes, organizational change, and IT-driven innovation is what will differentiates

the leaders from the laggers. Rather than leveling the playing field, IT is actually led to greater

discrepancies.‖ One way of revising business processes can be replicated by leveraging

information technology and private universities managed as businesses are no exception. On the

other hand Brynjolfsson (2000; 2009) has stated that ―What we‘re going to see in the coming

decade are companies whose whole culture is based on continuous improvement and

experimentation—not just of specific processes, but of the entire way the company runs. I think

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this revolution can be fairly compared to the scientific revolution that happened centuries ago.‖

Thus, quality management may sound synonymous with application of IT innovation or

excellent provision of technology related services in the university.

The purpose of the study

The study aims to know about the relationship between student perceptions of quality of

the technology services provided and student satisfaction. It is assumed that satisfaction will

lead to loyal behavior, whereas, dissatisfaction may cause decline in positive word of mouth and

corresponding loyalty. Therefore, it is important to know what factors lead to decreased student

satisfaction and increased student dissatisfaction? Whether they are related to infrastructure

related to technology or are product of ‗human agency‘ involved in delivery of the services

(Durrant, 2009)? In other words: What is helping the university to gain loyalty? Is it perceived

quality of ―hardware‖ (infrastructure and tangible service elements, etc.) or ―humanware‖

(people and processes), which moderate the ongoing operations to reach quality (Mazzarol,

2009).

Research Hypotheses

H1 There is relationship between student loyalty and satisfaction with campus life.

H○ There is no relationship between student loyalty and satisfaction with

campus life.

H2 There is relationship between student loyalty and satisfaction with infrastructure

of technology.


infrastructure of technology.

H3 There is relationship between student loyalty and satisfaction with technology

based operations.


technology based operations.

H4 There is relationship between student loyalty and satisfaction with teachers‘ use

of technology in classrooms.

H○ There is no relationship between student loyalty and satisfaction with teachers‘

use of technology in classrooms.

H5 There is relationship between student loyalty and satisfaction with teachers‘ use

of technology during reenrollment and advising.

H○ There is no relationship between student loyalty and satisfaction with teachers‘

use of technology during reenrollment and advising.

Method

The data used in this study was collected through the Student satisfaction survey for

technology services. The questionnaire was designed on five point Likert Scale for

undergraduate and graduate programs in business and IT school of private universities. It gathers

information about students‘ background such as age and gender, program they are enrolled in

and time since they are enrolled. Since, it is satisfaction survey aimed to find out student

satisfaction with technology services, the major areas identified were the quality of infrastructure

of technology used in student portal, web and internet facilities, and classroom technology like

multimedia, and overhead projectors, etc. The second area was the use of technology in

operations, such as fee processing, attendance records, delivery of notifications etc. The third

major area was related to use of technology during advising and reenrollment at the beginning of

every new semester. Satisfaction and dissatisfaction with use of technology in these areas were

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tested against student autonomy, and student loyalty, i.e. positive word of mouth. In order to

remain unbiased and critical, a neutral factor, satisfaction with campus life was also added to

know whether satisfaction/dissatisfaction can be attributed to technology related factors, human

factors, or other factors.

The questionnaire composed of 42 items and the response options for all items were:

1="strongly disagree," 2="disagree," 3="neutral,‖ 4= ―agree," and 5="strongly agree." The

questionnaire was peer reviewed for content validity and was pilot tested with 90 students before

administering it for the final study. The reliability coefficient for the pilot was found to be 0.84

for the pilot and 0.86 for the main study. The questionnaires were distributed to 450 students

studying at PCBA-PICS campus of The University of Central Punjab during April-May, 2010

using convenience sampling technique. 80% of the questionnaires were returned, i.e. 360 out of

450, out of which only 313 were complete and were processed further to tabulate results.

All the data were explored through SPSS 15. The data were analyzed by exploratory

factor analysis to identify the natural connections among different items of questionnaire and to

group the items having maximum correlations with one another and minimum correlations with

other items (Anderson, 2003). Correlation analysis was conducted to test relationships between

variables. Binary logistic regression was further applied to explore the significant risk factors

(Agresti, 2007) associated with dissatisfaction and consequent intention to discontinue with the

university.

Data Analysis

Of 313 students, 95 (30%) were females whereas 218 (70%) were males. Further, in

terms of enrollment in a certain program, 105 (34%) were found to be from MBA, 137(44%)

from BBA and 71(22%) were from EMBA. Average age of students was 21 years and average

studentship time of sample students at university was approximately 8 years. Multiple items

included in each factor were summed (Spector, 1992) to construct subscales. The means of these

subscales are showed in Table.2. The average student loyalty score was approximately 8

showing that the students were not loyal to the university as the minimum possible score of the

sub scale (containing three items) could be 3 and maximum score could be 15. The second

factor, satisfaction with campus life was identified by three items so the possible score on this

sub scale could lie between 3 – 15. The average student satisfaction with campus life (9.3834)

showed mild satisfaction. Average student satisfaction with infrastructure of technology

(identified by four items) was 11.0895 below the mean value (12) showing student

dissatisfaction. Further, the students were found to be dissatisfied with the technology based

operations, teacher‘s use of technology and teacher‘s use of technology during enrollment and

advising.

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Characteristic Minimum Maximum Average Std. Deviation

Age 15 26 21.4089 1.83245

Time period of studying at this college 2.00 9.00 7.9233 1.12967

Student Loyalty 3.00 15.00 7.9233 3.20764

Satisfaction with Campus Life 3.00 15.00 9.3834 3.22351

Satisfaction with Infrastructure 4.00 19.00 11.0895 3.70183

Satisfaction with Operations 5.00 22.00 14.1597 4.12311

Teacher‟s Use of Technology 4.00 18.00 11.3578 3.24824

Teacher‟s Use of Technology

during Advising and Enrollment

3.00 15.00 8.3802 2.46628

Table 1.Demographic Characteristics of Sample

Exploratory Factor Analysis

Different items included in the questionnaire measuring various aspects of student satisfaction

and loyalty were factorized using common factor analysis. Principal axis factoring followed by

varimax rotation identified high factor loadings (approximately 0.6 or more) for all the factors

identifying common factors (Widaman, 1990; Fava & Velicer, 1992). All factors were found to

be fulfilling the minimum identifiability criteria of at least three items per factor (Anderson &

Rubin, 1956; Zwick & Velicer, 1982 ; Fava & Velicer, 1996). Scree plot identified six factors

(see Table 2) to be extracted explaining 65.566% of the total variance. KMO and Bartlett‘s

sphericity test (KMO =0.834, χ² = 4058.534, p < 0.000) showed that the items included in the

common factors fit well making exploratory factor analysis worthwhile. Internal consistency of

each subscale (factor) was measured by using Cronbach‘s Alpha which was found to be more

than 0.8 for all factors meeting the minimum cut point (Wang, 2003).

N

o.

Factors Items Factor

loadings

Cronbach‘

s Alpha

1 Student

Loyalty

I advise my friends to join this college. .875 0.924

I'll enroll again at this college, if I faced the

same choice again.

.816

I take part in promotional activities of my

college.

.912

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2 Satisfaction

with

Campus Life

Campus life of my college is cool. .763

0.879 I enjoy social networking in college. .903

I feel safe and secure inside the campus. .744

3 Infrastructure

of

Technology

My college offers high-tech facilities for

teaching and learning.

.634

0.833

The bandwidth of the internet provided at

my university is appropriate.

.840

I can easily approach portal from my home

for enrollment and registration.

.797

Most of the equipment is outdated or out of

order.

.582

4 Satisfaction

with

Technology

based

Operations

Procedure for re-enrollment is user friendly. .806

0.835

Paying fees and bills is designed to suit

student convenience.

.599

I got proper orientation / coaching to use

portal for re-enrollment.

.846

Procedure for re-enrollment is illustrated by

FAQ's on the portal.

.805

I am in favor of redesigning of the

enrollment process.

.577

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5 Teacher‟s Use

of Technology

Teachers make good use of technology

during lectures.

.766

0.874

Intellectual growth of the students is

stimulated through assignments that include

use of information technology (IT).

.842

Teachers' make good use of teachers' portal. .569

It is easy to access teachers via email/phone. .672

6 Faculty Using

Technology

during Re-

Enrollment &

Advising

While advising, advisor efficiently makes

use of web portal.

.790

0.845

Advisor for registration is knowledgeable of

the registration process.

.774

Advisor is not empowered enough to make

decisions in my favor.

.761

Table 2. Exploratory Factor Analysis and Reliability Analyses


Pearson product moment correlation was determined to test certain hypotheses (see

appendix, Table 3). Student loyalty was found to be significantly correlated with satisfaction

with campus life (r =0.358, p < 0.01), satisfaction with infrastructure of technology (r = 0.803, p

< 0.01), satisfaction with technology based operations (r = 0.650, p < 0.01), teacher‘s use of

technology (r = 0.681, p < 0.01) and teacher‘s use of technology during advising and enrollment

(r = 0.398, p < 0.01).

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Loyalty Operations Campus

Life

Teachers‟

use of

technology

Advising Technology

Infrastructure

Loyalty 1

Operations .650 1

Campus Life .358(**) .358(**) 1

Teachers‟ use

of technology

.681(**) .801(**) .367(**) 1

Advising .398(**) .426(**) .291(**) .408(**) 1

Technology

Infrastructure

.803(**) .704(**) .336(**) .736(**) .400(**) 1

Table 3. Correlation Matrix

Binary Logistic Regression

The above quoted results express only one strong link for student loyalty, satisfaction

with infrastructure of technology (r = 0.803, p < 0.01); whereas, other correlation values are not

so strong. In order to further manipulate the results, binary logistic regression was applied to

identify the significant risk factors associated with student loyalty. The dependent variable,

student loyalty (No=1 and Yes=0), was recorded and binary logistic regression was used to

model it. The predictor variables considered were infrastructure of technology, technology based

operations, satisfaction with campus life, teacher‘s use of technology in class rooms and

teacher‘s use of technology during advising. All independent variables were also recoded

(Dissatisfied=1 and Satisfied=0).

95.0% CI for Exp (β)

Variables

Entered

β Wald Significance Exp

(β) Lower Upper

Operations 1.539 23.475 .000 4.661 2.501 8.687

Teacher‟s Use

of Technology

1.472 18.650 .000 4.359 2.235 8.504

Campus Life 1.463 11.568 .001 4.318 1.859 10.031

Technology

Infrastructure

1.229

11.052

.001

3.418

1.656

7.054

Faculty using

Technology in

Advising

-1.958

35.784

.000

.141

.074

.268

Constant -2.561 22.916 .000 .077

Table 4. Logistic Regression Results for Predicting Student Loyalty

Results of logistic regression indicated that five – predictor model provided a statistically

significant improvement over the constant only model, χ2

(5, 313) = 165.714, p <0.001. The

Nagelkerke pseudo R2 indicated that the model accounted for about 55.2% of the total variance.

Thus, the set of predictors discriminates between those who are disloyal and those who are loyal.

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Table 4 represents the regression co-efficients (β), the wald statistic, significance level, odds

ratio [Exp (β)], and the 95% confidence intervals for odds ratio for each predictor.

The Wald test identifies the statistical significance of the predictors of word of mouth.

Odds-ratio was considered the parameter of interest and the results would be interpreted in terms

of odds-ratio (Hosmer and Lemeshow, 2000) keeping the other independent variables constant.

Odds-ratio considered as adjusted odds-ratio identify the contribution of a particular variable

when the other variables are held constant (Meyers, Gamst and Guarino, 2006).

As shown in Table.4, the influence of satisfaction with technology based operations is the

strongest; students dissatisfied with technology based operations were 4.661 times more likely to

be disloyal than those who were satisfied with technology based operations, adjusting for the

other predictor variables (Adjusted OR = 4.661, 95% C.I. = 2.501 - 8.687; Wald χ2 = 23.475, p

< 0.001). Similarly, students who were dissatisfied with teacher‘s use of technology and campus

life were 4.359 (Adjusted OR = 4.359, 95% C.I. = 2.235 - 8.504; Wald χ2 = 18.650, p < 0.001)

and 4.318 (Adjusted OR = 4.318, 95% C.I. = 1.859 – 10.031; Wald χ2 = 11.568, p < 0.01) times

as likely to have negative word of mouth as compared to their counterparts, respectively.

Adjusted odds – ratio for satisfaction with infrastructure of technology was 3.418 (Adjusted OR

= 3.418, 95% C.I. = 1.656 - 7.054; Wald χ2 = 11.052, p < 0.01). So, the students who were

dissatisfied with infrastructure of technology were 3.418 times as likely to be disloyal to the

university as those of their counterparts.

The influence of satisfaction with teacher‘s use of technology during advising was not

strong as the odds ratio 0.141 (Adjusted OR = 0.141, 95% C.I. = 0.074 - 0.268; Wald χ2 =

35.784, p < 0.001) indicated that students who were dissatisfied with the teacher‘s use of

technology during advising were 0.141 times less likely to be disloyal than those who were

satisfied with the teacher‘s use of technology during advising.

Conclusion

The binary logistic regression analysis identified the significant risk factors associated

with student disloyalty as poor ‗technology based operation‘, teacher‘s poor ‗use of technology

during lectures‘, ‗dissatisfaction with campus life‘ and ‗infrastructure of technology‘ as for all

these factors the odds ratio turned out to be more than ‗1‘ and the lower bound of the confidence

interval does not go below one.

Thus, it is concluded that it is the perceived quality of ―humanware‖ (people and

processes), rather than ―hardware‖ (infrastructure and tangible service elements, etc.) which

moderates the student perception of quality of service delivery.

Implications

We have observed the students belonging to digital generation attributing the reasons of

dissatisfaction to management‘s poor operational strategies or teachers‘ poor use of technology

in the classroom. The research results have confirmed previous findings of McFarland and Ross

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(1982) that students tend to attribute dissatisfaction to external factors rather than internal ones.

Research findings have not only indicated that dissatisfaction with technology integrated services

is more frustrating than unavailability of the technology (Slewn, 2007; Arif and Ilyas, 2010),

they have also solicited Selwyn‘s view that modest use of technology in university is attributed

to a variety of operational deficits on the behalf of students. Since, limited, linear, and rigid use

of technology is challenged by customers of higher education (Selwyn, 2007), the higher

education communities must ensure expansive and empowered use of ICTs within university

settings.

It has also been commonly observed that use of technological infrastructure raises student

expectations about speed and efficiency of the service and thus creates more conflicts than

virtually possible otherwise. It is imperative, therefore that the technology itself and the

knowledge of people about it must evolve constantly (Sethuraman and Parasuraman, 2005).

More innovations should be designed regarding technology use making it user friendly for both

faculty and students. Technology should improve student teacher interaction and thus student

satisfaction. Moreover, in order to retain quality customers, the university management should

focus more on delivery of technology integrated services fostering ways and techniques that

enables the creative, productive, and empowering use of ICTs and other educational technologies

in classrooms.

Flynn et al. (1995, p. 683) are of view, ―Quality management is a philosophy that

pervades the entire organization, rather than the responsibility of a few isolated individuals or

departments.‖ Still, many organizations are run on 20th century principles and management

thinks that by adding some of the elements of successful ‗digital organizations‘ can help them

sustain and grow, but unfortunately this is not a smart strategy. Baldwin and Martin (2007) think

that such strategies only makes things worst. One has to think in holistic terms, making parts fit

into a harmonious whole to create value for the customer. Thus, it is important to design

operations according to customer needs conforming to Brynjolfsson and Saunders (2009) that

leading organizations are more responsive; do less long-term planning and let forgo short term

profits. They have quicker cycle times, more flexibility, and a higher metabolism for processing

information.

Research has published a link between teachers‘ poor use of technology in classrooms

and student disengagement, i.e. leading to student belief that technology is best used for

entertainment, like playing games and chatting on internet social sites rather than information

seeking and problem solving of real life (Arif, 2008; 2009). Currently, we are faced with the

serious challenge, that is to bring such students into safety net of engagement, who are in other

words ‗distracted by entertainment through technology‘ (O'Brien, D. G., & Bauer, 2005; Côté

and Allahar, 2007). All businesses have right to make profits but still it is advisable that they do

so while keeping in view the collective good of stakeholders, i.e. we must keep in mind what is

important for the next generation and would be beneficial for community – knowledge and skills

related to effective use of technology. It applies most critically to higher education which frames

the attitude of future generation towards ways and means of problem solving through

technology.

Keeping in mind that technology is the ―cutting edge‖, may we ask ourselves a simple

question at the business and IT school of the university: whether or not we are producing

managers that will not only be able to sustain the quality of future business environment, but also

continue towards improvement meeting the needs and challenges set by times to come. Can we

sit silent? The value of service quality is often challenged by value of money; both quality and

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technology are expensive investment; but dearer are the future generations which must not be

devaluated at any cost, since, the biggest risk might be doing nothing at all as professed by

Latham (2008). Therefore, not only the universities should take technology services seriously by

considerably improving the infrastructure, but they should team up with the people who can

make best use of the available resources.

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Workplace Friendships and Organizational Outcomes

Pakeeza

Student of BBA (Hons)

Iqra National University, Peshawar, Pakistan

Mohammad Haris

Student of BBA (Hons)

Iqra National University, Peshawar, Pakistan

Dr. Muhammad Sajjad (Corresponding Author)

Department of Business Administration

Sarhad University, Institute of Science and Information Technology,

Peshawar, Pakistan

Abstract

This study is conducted to examine the affects of workplace friendships on organizational

outcomes. Today organizations are becoming of aware the importance of social interaction and

relationships at workplace. These workplace friendships can be formal, informal, among

different cultures, gender, and age. As workplace is a source of many types of relationships

demanding supervisors, subordinates, competitive co-workers and clients. A survey was

conducted by floating questionnaires at different educational institutions of Peshawar, Pakistan.

Simple regression analysis has been applied based on the relationship of dependent and

independent variable. SPSS 16.0 were used for data analysis. It was found that workplace

friendship has significant and strong relationship with organizational outcome. This research

help the managers to increase their organizational outcome and on the other hand help them to

solve the problems that are created by workplace friendships and as well as to reduce the

organizational stress and motivate the employees toward organizational goals in both public and

private institutes.

Keywords: workplace friendship, organizational outcome, formal friendships, informal

friendships

1. Introduction

In workplace people from many types of relationships which can be inform of formal, informal,

male to male, male to female, female to female, boss to employees and supervisor to

subordinates relationships. These relationships have a great deal of outcome on the over all

performance of the organization which can be inform of punctuality, interest, loyalty, production,

overtime, violence, abuse, non friendly and the effect on over all work performance.

Workplace friendships have a great deal of impact on the over all outcomes of the organization

which can be in positive or negative form. These relationships are intense and complex and

impacts the over all performance of the organization. The workplace is a source of many types of

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relationships demanding supervisors, unpredictable subordinates, and competitive coworkers and

challenging clients, but with whom we may share considerable interests (Fritz & Omdahl 2006).

Workplace relationships can be multiplex, intense, interdependent and complicated, but they are

especially significant because of the amount of time spent at work and the frequency with which

workers change jobs and form new relationships. Workplace friendships engaged in mutual

commitment, complete trust and shared values. It creates interests among people which is

beyond mere acquaintanceship excluding romance. Such relations engross norms of openness,

informal relations and inclusiveness of modern management strategies which are increasingly

shared by frequently new job entrants (Berman et al,2002)

Friendships among coworkers are unique type of relationships. They develop between both peers

and supervisors and subordinates. They develop between the people within the same

organization unit and in different organizational units. They involve unique functions and

developmental processes.Friendships often presuppose enduring relations among equals.

Workplace friendships involve people from different gender, age and cultures. Workplace

relationships carry out many important tasks which includes mentoring, information exchange,

social support, influence and control.(Sias, 2005).

1.1 Problem Statement:

This research is aimed to find the relationship between the workplace friendships

and the organizational outcomes.

1.2 Objective of study:

To know the workplace friendships and their real impact on the organizations

over all performance.

To know that what kind of problems are created by workplaces friendships for

the managers and how they deal with it.

To check that weather workplace friendship helps to reduce workplace stress

and motivate the employees towards organizational goals.

1.3 Scope of Study:

This research will mainly focus on the workplace friendships and the organizational

outcomes in Public sector and private sector institutes in Peshawar, Pakistan that how

they effect the over all performance of the organization. All the data used in this research

is primary data that is collected from the different public and private sector institutes

regarding workplace friendships and organizational outcomes.

1.4 Significance of Study:

This study will help us to better understand the workplace friendships and their real

impact on the over all organizational performance. This study will also help the managers

in the organization to know about the workplace friendships so that they can have better

understanding about the employees behavior and their impact on the over all performance

of organizations.

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Workplace friendship have direct relationship with a lot of other study areas like

job satisfaction, job cohesion, intention to leave the job and organizational commitment.

The term is closely related to the aspect of informal friendship where friendship is to be

considered a voluntary action. At workplace, when people failed to have informal

relations with other co-workers, they try to find out co-workers of similar interests. These

common interests leads them towards socialization process and to have informal

friendships. These friendships must be identified and investigated thoroughly apart from

regular relational roles as these roles enhance the performance of the organization. (Sias,

Smith & Avdeyeva, 2003).

Friendships in a society as well as on the workplace has different evolving stages which

ranges from just friends to close friends and then to best friends. (Sias et al, 2003). Prior

to this, in another study, Sias and Cahill (1998) found that workplace friendships are

influenced by contextual and individual factors. The additional factors are organization

contextual factors which includes socializing process, time span of the friendship and

common life events. These factors exist only at workplace and consist of common tasks,

physical work proximity, work related issues and spending the leisure time. The outcome

of the workplace friendships can be judged by observing the employees that in which

way they work closely with each other like in groups or teams and to what extent they

consider their organization as single unit. (Carolyn, 2009).

Friendships in workplaces are formed because of working closely, similar employment

statues and shared values and objectives. According to Morrison there are several

motives involved in explaining these relationships: the first being the prospect of a better,

more enjoyable working environment, with friends providing social support at, for

example, times of stress. Further intrinsic rewards accrue from the sharing of information

and knowledge in the completion of tasks. Team working activities further enhance

relationships and increase the likelihood of future co-operation. A further motive for

developing friendships is the prospect of an entirely personal reward. In this case we

observe individuals using friendly networks to leverage better jobs for themselves by

manipulating friendships with others outside of their immediate work environment

(Morrison, 2009).

Majority of American managers have a positive orientation towards workplace

friendships and they feel work place friendships improve communication and help

employees get their jobs done. While there is some concern that workplace friendships

lead to office gossip and romances, these outcomes are also perceived as manageable for

example, through workplace training and policy development (Berman et al, 2009).

Peer relationships perform a variety of important functions in the workplace. Peer co-

workers are the most likely, and most important, source of emotional and instrumental

support for employees, primarily because co-workers possess knowledge and

understanding about the workplace experience that external sources do not (Ray,1987).

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Regardless of the amount of work-related information employees received from their co-

workers, the quality of that information did differ between peer relationship types. In

particular, employees with higher proportions of information peer relationships reported

receiving lower quality information than those with higher proportions of collegial peers.

Collegial peer relationships are characterized by greater amounts of trust and self-

disclosure. These peers appear to be more forthcoming with information, therefore the

information they provide to one another is perceived as more accurate, useful and timely

than information received from the more superficial and role-bounded information peers

(Sias, 2005).

Workplace norms can be analyzed in terms of typically salient role structures rather than

more generally created and these norms have a great affect on the workplace friendships

(Morris & Leung, 2010). Organizational culture has a very big impact on the workplace

friendships and its outcomes it can take both direct and indirect pathways in order to

demonstrate the organizational productivity (Tesluk et al, 2005).

In organizational culture the workplace friendships differ on the basis of age, rank,

gender which can also have an affect on the organizational outcomes. With changing

demographics and increasing representation of the workforce, there will be increasing

diversity along gender, race and language lines in the workplace. Workplace friendships

involve mutual commitment trust and shared values or interests between people at work

in ways that go beyond mere acquaintanceship, but exclude romance. These relations

involve heightened norms of openness, informality and inclusiveness, which increasingly

are part of modern management strategies and are also shared by most recent job entrants

(Burwell, 1999).

Workplace friendship prevalence and job satisfaction is significant for men but not

women can only be speculative. Men derive satisfaction and identity from being part of a

team; so perhaps when men have friends at work, compared to when they do not, they

will work better and more successfully within the team, achieve goals and there by derive

satisfaction from their job on the other side women derive more social and emotional

support from their friends. Women tend to seek emotional support when they are

unhappy in a way that men will not and thus, may make more friends than men when

they experience dissatisfaction (Morrison & Wright, 2009).

The stronger people‘s social relationships in workplace and the more they feel trusted and

trust others, the higher their job satisfaction is likely to be and organizations should be

thinking much more about supporting strong working relationships to help deliver

innovation, ideas and a happier workforce. Both perceive work as an important part of

their life and for both ideal work includes some necessary criteria. The difference occurs

when women and men try to put these criteria in the order of preference which can have a

bigger impact on the over all outcome of organization (Fodor, 2005).

Formal and informal mentoring both have significant relationship and positive correlation

with individual‘s psychological development. Further it has been observed that with the

inclusion of same gender the formal mentoring remained significant but the informal

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mentoring became insignificant. This study was conducted on a Malaysian public

University and it concludes that same age did not act as a mediating variable for formal

and informal mentoring program (Ismail et al, 2009).

Technologies are having a real impact on the workplace: not by supplanting traditional

forms of communication but by creating new ways to interact with people. People still

talk face to face, but it is clear from our work that people do not need to work in the same

place in order to develop workplace friendships.Deviant behavior has a big impact on

workplace and its outcome so remodeling the organizational norms, attitudes and social

values is necessary for that organization in face of deviant employees (Steven et al,

2006).

Deviant employees can lead the workplace to workplace aggression. Workplace

aggression varies depending on their source of the aggression (e.g. supervisors, peers,

subordinates). Employees are unlikely to expect to experience aggression from their

colleagues, so inside aggression may break their trust and lead to feelings of betrayal.

Workplace friendships can lead to work place aggression and violence which can affect

the overall performance and outcome of organization and can bring big losses to the

organization (Barling, 1996).

Better workplace friendship suggests better collegial relationships that facilitate the

accomplishment of organizational goals. Workplace friendship has positive influence on

organizational outcomes, e.g. performance improvement and positive work attitude; by

contrast, organizational political behaviors damage self and organizational interests and

influence personal and organizational performance. Negative health-related consequences

of workplace violence should be diminished by interventions that enhance the availability

of instrumental or informational support for employees experiencing workplace violence

which can help them control their aggression in the workplace (Schat & Kelloway, 2009).

Workplace friendship gradually evolves from a voluntary and reciprocal relation into a

purposive relationship, and consequently, conflicts of interests in a highly political

environment as a result of self-interest, managers should attempt to reduce employee

perception on organizational politics and promote workplace friendship by encouraging

teamwork and the division of labor and rewarding employees based on team or individual

performance in order to improve the organizational identification of employees (yen et al,

2009).

People make friends at workplace in order to enhance their own working conditions but

sometime friendships at workplace operate as the boundary between the social norms

governing friendship and the expectations surrounding organizational work roles. A

person‘s ability to maintain a friendship while sustaining his or her performance levels

are dependent upon the ability to handle contradictory behaviors such as making

objective judgments about friends, whilst simultaneously providing unqualified support

for them. Workplace friendships can present a major, distracting influence, both to the

friends themselves and to those on the periphery of friendly relationships. When work

turns out to be too much fun, one wonders just how much actual work is being done. It‘s

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argued that these distractions are as likely to hinder workplace performance as to enhance

it (Morrison & Nolan, 2007).

2.1 Theoretical Frame Work:

On the basis of above mentioned literature review, researchers intend to take

Workplace Friendships as Independent Variable, while Organizational Outcomes as a

Dependent Variable.

[Insert Figure 1]

Following hypothesis has been developed from the theoretical framework

H1: Workplace has positive and direct impact on organizational outcome.

Workplace friendships has further subdivided into formal friendships, informal

friendships, peers to peers friendships, boss to employees and supervisors to subordinates

as shown in figure. 2.

[Insert Figure 2]

Furthermore Organizational Outcome has been subdivided into punctuality, interest,

loyalty, performance, over time, working environment, and non friendly.

[Insert Figure 3]

3. Methodology

3.1 Target Population:

The target population of the study is composed of the Professors, Assistant

professors, lecturers and other staff of different Public and Private sector universities in

Peshawar.

3.2 Sampling Technique:

Non probability convenient sampling: The non probability convenient

sampling technique is used because of convenient accessibility and proximity of the

subjects to the researcher. The other reason for selecting non probability convenient

sampling is due to limitation of time and lack of resources.

3.3 Statistical Software:

SPSS® version 16.0 was used to perform al l the stat is t ical tes ts

as a prel iminary s tep to data analyses .

3.4 Sampling procedures:

The total sample size of questionnaire was 250 which were distributed in different

universities in Peshawar, out of which 178 were filled back. The rest were non

responsive.

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3.5 Data:

The data which is collected for this research is primary data.

3.6 Method of Collection:

The primary data is collected through floating questionnaires in different public

and privet sector universities such as IQRA University, IM Sciences, IMSTUDIES, CITY

University, IBMS, FAST National University, Department of Economics Peshawar

University, UET Peshawar and Department of Social Sciences Peshawar University.

3.7 Methods of Analysis: The following methods were used for research analysis:

Descriptive analysis

Frequency distribution

Graphical representation(Pie charts)

Regression Analysis

3.8 Pilot Test:

Before distribution of the final questionnaire, 80 questionnaires were distributed

in different institutes for the pilot test. In which some of the respondent faced problem in

answering question regarding the vertical and horizontal organizational structures. They

also faced problem in answering the question ―My co-workers are one reason I look

forward to my job‖. So keeping in mind these problems these questions have been

removed from the final questionnaire and some wording changes were made to other

question for easy understanding of the respondents.

Analysis

Reliability Analysis:

[Insert Table 1]

While the reliability of the instruments regarding the workplace friendships was checked

the response was greater than the required standard (.700). The reliability of the

instruments regarding workplace friendships was (.805) which is highly reliable.

While the reliability of the instruments regarding the organizational outcomes was

checked the response was greater than the required standard (.700). The reliability of the

instruments regarding organizational outcomes was (.802) which is highly reliable.

[Insert Table 3]

Table 3, gives the summary of the regression analysis. The high Value of R = 0.634 shows the

strong and

Positive relationship between the workplace friendships and organizational outcomes. The

value of R square

represents that the study explained the 40 percent variation in this specific area and the

rest of 60 percent is

still unknown and requires more sophisticated and thorough study.

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[Insert Table 4]

Table 4 is about to show the level of significance between workplace friendships and

organizational

outcomes. The significance value 0.00 confirms the significant relationship between

independent and dependent variable.

[Insert Table 5]

Table 5. shows the level of significance for both variable separately. For both variables

level of significance is 0.001 and 0.000 respectively which are less than 0.005.

Conclusion and Recommendations

5.1 Conclusion:

In the most of organization that data has been collected from shows that workers

have up to some extent formal communication they do meet their colleagues beside

meetings. They have the opportunity to know about their colleagues and most of the

times they communicate to each other through some formal procedures.

Most of the organizations do encourage informal friendships and building close

friendships in the workplace and workers also tolerate informal communication and build

strong social relationships in workplace and most of the workers do socialize with their

co-workers outside the workplace.

While the respondents were asked on their friendships on the basis of age, gender and

rank a very little percent of them were agreeing or disagreeing and most of them were on

neutral side which shows that most of the workers were not clear on their friendships

regarding their age, gender and rank.

Most of the organizations permit their workers to have friendships with the people of the

opposite gender and having friendships with the people of the opposite gender doesn‘t

affect their working performance.

Most of the workers try to develop friendships in their own respected departments or with

the people who are most doing the same task as him/ her. These friendships bring to the

most of the respondents job satisfaction and they enjoy working with their co-workers.

Most of the respondents think while having friendships with the people of the own

department helps them to do their tasks easily and on time. The other benefit is that their

co-workers help them in solving their problems and also these close friendships help in

generation new ideas and innovations.

Workers in most of the organizations have good working relationships with their

supervisors and their supervisors help them in completing their tasks on time and when

they face problems in their work or feel stressed their supervisors help them to get out of

it.

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In some organizations the bosses have developed good friendships with their employees

and lesson to their workers problems and encourage their employees to do their tasks on

time and motivate them for achieving the organizational goals.

The working of the organization has encouraged most of the employees to perform better

and improve the over all organizational outcome. Workplace friends discourage their

friends from too many absentees which have a positive effect on the organizational

outcome. Most of the workers are highly committed to their job and every time they try

to perform their best for the organization. Most of the workers have trust on their co-

workers which brings a positive working attitude and enhance the over all performance.

Workers believe that working with their friends in a group helps them to do the task

easily and on time and achieve the organizational goals effectively and efficiently.

Some workers are not happy with the package that they get from their organization which

in one or other way affects the organizational outcome. Some of the workers believe that

the organizational politics also play a big role in the over all outcome of the organization

and so the organization must be careful while making polices for the workers in-order to

avoid this.

Recommendations

Organizations must introduce a good pay system on the basis of the scale.

For having a better employee performance organizations need to introduce some other

beneficial programs beside their pay.

Having friendships in the organizations motivates employees to perform their tasks in a

better way so friendships should be encouraged by the organizations.

Friendships in the organizations help the employees from too many absentees so

organizations should encourage the friendships in the organization.

Politics must be kept away from the organizations.

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Annexure

Independent Variable Dependent Variable

Figure 1. Model of the Study

Figure 2. Subdivision of Workplace Friendships

Figure 3. Subdivision of Organizational Outcome

Organizational Outcomes

Punctuality

Non friendly

Working Environment

Over time

Performance

Loyalty

Interest

Workplace Friendships

Formal Friendships

Boss to Employees

Supervisors to Subordinates

Peers to Peers Friendships

Informal Friendships

Work Place

Friendships

Organizational

Outcomes

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Cronbach's

Alpha N of Items

.805 30

Table 1. Reliability Analysis Workplace Friendships


Cronbach's

Alpha N of Items

.802 18

Table 2. Reliability Analysis of Organizational Outcome

Model Summary

Model R R Square

Adjusted R

Square

Std. Error of the

Estimate

1 .634a .402 .398 .34619

a. Predictors: (Constant), W.F.

Table 3. Model Summary

ANOVAb

Model Sum of Squares df Mean Square F Sig.

1 Regression 14.151 1 14.151 118.075 .000a

Residual 21.093 176 .120

Total 35.244 177

a. Predictors: (Constant), W.F.

b. Dependent Variable: O.T.

Table 4. ANOVA

Coefficientsa

Model

Unstandardized Coefficients

Standardized

Coefficients

t Sig. B Std. Error Beta

1 (Constant) .545 .168 3.234 .001

W.F. .752 .069 .634 10.866 .000

a. Dependent Variable: O.T.

Table 5. Coefficients

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Knowledge Engineering: How to Design Knowledge Based E-Recruitment

Portal Using CommonKADS

Chaudhry Muhammad Nadeem Faisal17

Inam Illahi18

Engr. Sajid Hussain19

Muhammad Sheraz Arshad Malik20

MIS Research Group

Abstract

Knowledge based systems and portals that use knowledge based techniques to support the

humans in decision making, learning and actions. These are AI (Artificial intelligence) based

tools works in intelligent ways and are capable to corporate with humans or users. These

systems / portal (KBP) provide the documentation of knowledge, intelligent decision, self

learning, and explanation. To develop the knowledge based Portal (knowledge based E-

recruitment portal), here author adopt and practically implement the knowledge engineering

based techniques and methodological strategies of CommonKADS. The purpose of this paper

is to develop the understanding of CommonKADS methodology, its implementation and the

basic principles, checklists and documents procedure of knowledge engineering to facilitate

knowledge management for the designing of knowledge based portal (KBP).

Keywords: Knowledge based system, Knowledge Engineering, E-recruitment,

CommonKADS, Knowledge Management, KE Designing Models, Expert system

1. INTRODUCTION

In response to globalization, customer orientation and specialization, the companies are

emphasizing on the talent recruitment, sustainment and the development of exiting employees.

Because the companies are very much conscious about the fact that the human resources are

changing from cost factor to success factors and the statistics also shows that the decline in the

population will be main problem in the coming years. Companies in all over the world are in

continues process to acquire more information about the applicant‘s and their assessment has

gained with increasing interest on the biases of efficient employee selection, Trichet, Leclère

(2003). Because it is generally accepted, that the personality profile of a candidate with his skills

is very important for the organization future, Berry Linoff (1997); Lackes, Mack (1998). The

17Chaudhry Muhammad Nadeem Faisal is currently working with the University of Faisalabad in the department of Management

studies, department of textile engineering, 38850, Faisalabad Pakistan. (Graduate from BTH (Sweden) for MS CS & Continuing

for MS HCI - Uppsala University)

Chaudhry Muhammad Nadeem Faisal is also with the Riphah International University as Visiting Faculty member, with Riphah

International University campus FSD, Pakistan, (Advance Business Courses from School of Business Administration BTH-

Sweden) 18Inam Illahi is currently working with the University of Faisalabad in the department of QEC as Deputy Director QEC, 38850,

Faisalabad Pakistan. (Graduate from Sweden for MS Software) 19Engr. Sajid Hussain is currently working with the University of Faisalabad in the School of Textile Engineering as faculty

member, 38850 Faisalabad Pakistan. (MSc Textile Engineering student at National Textile University Faisalabad, PK ) 20Muhammad Sheraz Arshad Malik is currently working with the University of Faisalabad in the department of Information

Technology as IT Manager, 38850, Faisalabad Pakistan. Phone (Graduate from France for MS Information System)

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eHRM is a web based tool to automate and support HR processes. It facilitates in recruitment

process with the help of information technology and is a growing trend for human resource

related knowledge.

Knowledge management is a combinational discipline, to manage the peoples, process and

technology. Knowledge capture is an important key for social perspective where huge amount of

data is available via the internet, as it is the combination of two, the knowledge, and information

technology. The main objective of knowledge management is to capture, store and the

deployment of knowledge using the information technologies; where as the knowledge

engineering about the system engineering to design KBS (knowledge based system). In this

sense the Knowledge Management is always a collection of different techniques use the

organizations to acquire knowledge. Author objectives to focus on the Knowledge engineering

base techniques with particle implementation of CommonKADS methodology to design

Knowledge base e-recruitment portal and to reduce the organizational expenses for

advertisement with traditional media and also to promote the e-HR based recruitments system for

better performance. As such knowledge based portals works affectively and are more efficient to

deals with applicant‘s information as compare the traditional methods or media using by human

resource departments traditionally for the selection of desired candidates.

The purpose of this work is to develop the understanding of CommonKADS methodology, its

implementation, basic principles, checklists and documents procedure of knowledge

engineering to facilitate knowledge management for the designing of knowledge based portal

(KBP). A practical guideline and procedure for the acquisition of knowledge will discuss here.

2. BACKGROUND

Knowledge Management could not carry on without information technologies, it is the

information technology that mange and arrange the knowledge Alun Preece (2001); Rongrong

LU, Jun‘e LIU (2008). The effective management of Knowledge is an important to gain the

competitive advantages by organizations and can effectively use their resources. Knowledge

Engineering appeared (1990) as a mature field related to the software engineering with rage of

techniques, elicitation and modeling and complete tool kit for auto reasoning with completes

mechanisms, Alun Preece (2001); Christine W. Chan, (2002). The knowledge engineering

includes the requirement analysis, conceptual modeling, knowledge base construction, operation,

validation and maintenance.

Knowledge Engineering is a discipline, it involves the different step for the integration of

knowledge and knowledge based system in a systematic way. The integration is only possible

with the help of information system in order to solve the problems that acquire the human

efforts. It has a great contribution in common with software engineering as well as in others, AI

(Artificial Intelligent), Data mining, and expert system, DSS (Decision support system) and GIS

(Geographic Information system) Sandra m. parker, Robert b. Parker (1989); Hiroshi Motoda

(1991); Li-Yen Shue, Sim Kim Lau (1995). While the Knowledge management concerning to

capture, store and deployment of data with help of information technology, where the mostly

data is gather from individuals. The definition of knowledge management is as defined by Civi,

E. (2000) as "the acquisition, sharing and use of knowledge within organizations, including

learning processes and management information systems" and by Bukowitz, W. R. and

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Williams, R. L. (1999) as "the process by which the organization generates wealth from its

intellectual or knowledge-based assets" also defined by Darroch, 1. (2003) as ''the process that

creates or locates knowledge and manages the dissemination and use of knowledge within and

between organizations" on the other hand the role of the knowledge engineering is to provide the

capture data in timely Alun Preece (2001). We believe that current knowledge management

practice are significantly under-utilizes knowledge-engineering technology, despite recent efforts

to promote its use. In this article author focus on knowledge engineering processes for the

designing of knowledge based system that provides the job related information. In this work,

author is going to use the knowledge Management three facets Christine W. Chan, (2002).

A. Knowledge Capture: acquisition of knowledge

B. Knowledge Store: store the knowledge in a structure way

C. Deployment of Knowledge: deployment using the web browser.

The knowledge engineering includes the number of principles, as there are different types of

knowledge and acquisition expertise, different form to present and way to use the knowledge

with structure form to increase the efficiency. Knowledge engineering is systematic approach

and series of task to gather the information to designed knowledge based system. It helps to

solve the problems with human experts, Hiroshi Motoda (1991); Li-Yen Shue, Sim Kim Lau

(1995); Soumitra Dutta (1997). Knowledge engineering has emerged as an important discipline

to design Knowledge-based system which can further enhance the effectiveness and productivity

of the current information systems of the business and social communities. In this research work

our focus to draw the documentation based procedure and checklist for knowledge based system

using a CommonKADS methodology for job based portals (Knowledge Based e-recruitment

portal). It delivers the appropriate information to the desired individual in a systematic way. By

which both job seeker and employers meet for specific purposes. To develop a knowledge based

portal, authors adopt and practically implement the knowledge engineering based techniques,

methodological strategies of CommonKADS, which enables us to overcome the problems that

are being faced by job seekers and employers, to support the e-HR for recruitment. Knowledge

based strategies provides the guide lines and facilities communities to maximum utilization of

resources. It also make fasten and effective for the selection of suitable able individuals

according to the defined eligibility criteria. To design the knowledge based system knowledge

engineering describe the following phases, eliciting, structuring, formalizing, and

operationalizing, Schreiber A Th. et al (2000).

Figure 1 CommonKADS mode set to design knowledge base system

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There are following models describe by Schreiber A Th. et al (2000) to design and to manage

the knowledge for KBS, Schreiber A Th. et al (2000).

1) Organization model

Include the supports analysis of an organization,

Goal: to indentify and discover the problems, opportunities and possible impacts

of knowledge based system development.

2) Task model

describes the tasks that are performed or will be performed in the organizational

environment or system

3) Agent model

Describes the capabilities, norms, preferences and permissions of agents (agent =

executor of task as here in this system job seeker, employer and portal handler are

the agents).

4) Knowledge model

Gives an implementation description - of knowledge involved related to tasks.

5) Communication model

The Models of communicative transactions between agents (job seekers,

employers and portal handlers in this case).

6) Design model

The structure description of the system (KBS) needs to be constructed.

3. KBP DESING PROCEDURE AND IMPLEMENTATION

3.1 Organization Model Organizational model consists of five work sheets:

OM-1: identifies knowledge-oriented problem and opportunities and possible solution in the

context of organization‘s missions, goals and its environment.

OM-2: describes the organizational aspects that can affect or affected by the chosen

Knowledge solutions these include structure, process, people, resources and Knowledge.

OM-3: describes the processes in OM-2 work sheet in terms of tasks and their Main

characteristics.

OM-4: describes the knowledge assets used in the organization‘s tasks, and their

characteristics.

OM-5: gives the checklists questions for the business feasibility, technical feasibility, Project

feasibility and suggested actions

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Table.1: Organizational Model Problems & Opportunities Work Sheet OM-1

Problems and

opportunities

1) A lot of skilled talent being wasted

2)Unemployment is increasing

3)Fresh graduates have no proper information about jobs being offered

4)People are not aware of proper application methods and resume preparation

5)Employers not finding their required skilled workers and professionals

6)They have no proper channel to advertise their job offers

7) They are not having so many options to get categorized applicants.

8) Increase the satisfaction level among the employer and job seeker through this system.

Organizational

Context

Mission:

1. Make Awareness in between the people how to properly apply for job to find best one and a

new job.

2. Find the Job hunter to select the best one for proper vacancy and according to the nature of

work.

External Factor:

1. Organization concerned with application

2. Requirement / Analysis specification process

3. Found out the best one on the basis of application and decision to meet the requirement of job

hunter

Strategy:

1. Provide job to job seekers relevant to there qualification, experience and interest.

2. Understanding the condition of

3. Unemployment and to guide them.

4. Employers can get good professional

5. For there organization. Provide all job related information for the job seekers

Solutions

1 Develop a web based automated system for creating resume for the job seekers.

2 This System will help for jobseekers how to fulfill the requirements and eligibility criteria of

the organizations

Table.2: Organizational Model variant aspects work Sheet OM-2

Structure See Figure 2

Process See Figure 4

People

1. Portal Handler

2. Graphic Designer

3. Web Programmer

4. Job Seeker

5. Employer

Resources

Computers having good specifications

Databases

Broad band Internet

Telephones

Knowledge

JS (Job seeker) Validation:

Knowledge used to register the jobseeker on portal.

Assessment Criteria:

Knowledge for Assessing the experience, education, Location and joining date of the job

seekers if he is selected for an interview.

Assignment/Interview Notification :

Knowledge used for Selecting a job seeker for a particular Employer.

Updating Resume Information:

Knowledge used to get the resume to be modified.

Culture and

Power

1. Hierarchal Organization

2. Effectively handle the communication among the job seekers and Employers by the

people of organization.

3. Internal Communication will provide the information to both for conducting

Seminars, Events.

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Figure 2 Web Portal Based Organizational Structure

Figure 3 Activity Diagram for Web Portal

Universities records

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Figure 4 Process Diagram

Tabel.3: Organizational Model Work Sheet OM-3

Task Performed by where Knowledge Asst Intensive Sig

JS Register Job seeker Job Portal JS (Job seeker) Validation No 5

Make Resume Job seeker Job Portal Resource Resumes No

5

Modify

Resume

Job seeker Job Portal No 3

Apply Online Job seeker Job Portal No

4

Place

Advertisements

Portal Handler Job Portal No 4

Application

Assessment

Employer Job Portal Assessment Criteria yes 2

Send interview

Notification

Employer Job Portal Assignment /Interview

Notification

No

3

Handling

Seminars

Portal Handler Job Portal No

2

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Knowledge

Asst

Processed

by

Used

In

Right

Form

Right

place

Right

time

Right

Quality

Resource Resumes Job seeker Make

Resume

No Yes Yes No

JS

Validation

Job

Seeker

JS (Job seeker)

Register

No Yes No Yes

Assessment

Criteria

Employer Application

Assessment

No Yes No No

Assignment

Interview

Notification

Employer Send interview

notification

No Yes Yes Yes


Business Feasibility

Proposed System will help out the job seekers to efficiently get information of

different jobs and they are using efficient record keeping mechanism and they can

easily apply online for job. Well organized record keeping mechanism, fast retrieval

of record, remote access, online case registration, data security and application

Tracking. This system will really be beneficial for employees and employers which is

not possible in any manual way of job finding and hiring. Time and information is

managed to enhance the quality of the service. Benefits are high as compared to Cost.

Technical Feasibility

1. This System includes Knowledge management but it doesn‘t include

Complex reasoning and methods for developing this system.

2. Essential Feature related to proposed solution is the security which is

controlled by different Encryption Techniques.

3. By using Model Based Testing techniques evaluation of our project will be

done to ensure it as a quality product.

4. Simple User Interface is built in system for users. Different methods and

techniques are used to develop it.

5. Other information systems have no interaction with provided proposed

solution.

6. Technology risks are easily handled in our System. There is no need of

organizational changes in our Suggested System

Project Feasibility

Project Team should have knowledge about the Assessment Criteria and Data bases

and also categories of different jobs. Actors in this system are showing complete

commitment. Work is totally according to the requirements. Interactions path into and

from the organization is well defined. Risks to this project has also been discussed and

found that there are no risks present in our project.

Proposed Actions

Proposed system will definitely provide perfect login activity for both the employers

and the job seekers to register. Requirements are collected for making prototype. All

the tasks will be effectively managed in our system. If there is change in organization

then system will be flexible to adopt those variants. It is required to have proper

project scheduling, resource distribution, requirement analysis, gathering and system

development to get best solution, like our project.

3.2 Task Model

Task model defines the task being performed in the environment, the relationship agent.

Task model helps to know the processes being performed in organization in terms of task.

Now task are performed by the agent and agent model describes the entire agent involved in

doing task and their different properties. In this knowledge model author have described the

knowledge used in the tasks and its validity and appropriateness of the knowledge.

Task.1 The job seeker has to register on the portal. (JS Register 1).

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Task.2 the Job seeker has to make his resume and to enter his person information,

experience and academic related information (Make Resume 2).

Task3 To edit or and to modify the existing resume (Modify Resume 3).

Task.4 Job seeker has to apply against the appropriate job in which he is interested (Apply

Online 4).

Task.5 the employers have to Place the advertisement or information they need (Place

Advertisements 5).

Task.6 The employers have to access the information and CV against their Advertisement

(Assess Resume 6).

Task.7 is to send the notification to the selected candidate by the employers as per

requirement (send the interview notification 7).

Task.8 this task is related to the arrangement of seminar (Seminar Handling 8).

Table 1: task model analysis worksheet tm-1: Task (1) Job seeker registration process

Task Model Task Analysis Worksheet TM-1

Task c.f OM-3 JS (Job seeker) Register, 1

Organization c.f OM-2 JS (Job seeker) Registration

JOB PORTAL

Goal and Value

To enable our jobseeker to get information about jobs

and to apply online.

Dependency and Flow 1. Input Task:

2. Output Tasks: None

Jobseeker Registered

Objects handled

1. Input Objects

2. Output Objects

3. Internal Objects

None

Jobseeker Validated

Jobseeker information

Time and

Control

Frequency, Duration

Control Constraints &

Conditions

Many times, short, filled all the requirements for

registration.

Agents OM-2:People, System,

resources

OM-3: Performed by

Job Seeker, System

Knowledge and

Competence

c.f. OM-4 JS (Job seeker) Validation

Resources OM-2 Web form, jobseeker

Quality and

Performance

Measures

Perfectly Registered.

Task Model Knowledge Item Worksheet TM-2

Name

Possessed by

Used in

JS (Job seeker) Register

Job seeker

JS (Job seeker) Validation, 1

Domain Web Portal

Nature of the Knowledge Bottleneck/ to be improved

Formal, rigorous X

Empirical, quantitative

Heuristic, rules of thumb Highly

Specialized, don specific

X

Experienced based

Action based X

Incomplete

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Uncertain, may be incorrect

Quickly changing

Hard to verify X

Tacit, hard no transfer

From the knowledge of the Knowledge Bottleneck/ to be improved

Mind X

Paper

Electronic

Action skill X

Other

Availability of Knowledge

Limitations in time X

Limitations in space

Limitations in access X

Limitations in quality

Limitations in form

Table 2: task model analysis worksheet tm-1: Task (1) Job seeker resumes preparation Process


Task c.f OM-3 Make Resume, 2

Organization c.f OM-2 Resume Preparation

JOB PORTAL

Goal and Value

To enable our jobseeker to make his resume

according to the standard by using standard formats.


2. Output Tasks: JS (Job seeker) register

Jobseeker made Resume

Objects handled

1. Input Objects

2. Output Objects

3. Internal Objects

Resume Format

Resume

Jobseeker‘s educational and professional

information

Time and Control Frequency, Duration

Control

Constraints & Conditions

Many times, long, appropriate format.


resources

OM-3: Performed by

Job seeker, Databases of different formats.

Knowledge and

Competence

c.f. OM-4 None

Resources OM-2 Standard Resume Templates

Quality and

Performance

Measures Effective Resume prepared.


Name

Possessed by

Used in

Domain

Resume Preparation

Job seeker

Make Resume, 3

None


Formal, rigorous X

Empirical, quantitative X

Heuristic, rules of thumb

Highly Specialized, don specific

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Experienced based

Action based

Incomplete X

Uncertain, may be incorrect X

Quickly changing

Hard to verify



Mind X

Paper

Electronic

Action skill X

Other




Limitations in access

Limitations in quality X

Limitations in form X

Table 3: task model analysis worksheet tm-1: Task (3) to modify the resume process


Task c.f OM-3 Modify Resume, 3

Organization c.f OM-2 Editing Resume

JOB PORTAL

Goal and Value

To enable our jobseeker to modify his information

about resume.


2. Output Tasks: Make Resume

Jobseeker updated his resume.

Objects handled

1. Input Objects

2. Output Objects

3. Internal Objects

1. Resume, need Update

2. Resume updated

3. Information that has to be modified by the

jobseeker


Control


Many times, short, include update information


resources

OM-3: Performed by

Job Seeker/ System

Knowledge and

Competence

c.f. OM-4 Resource Resume

Resources OM-2 Old resume, jobseeker

Quality and

Performance

Evaluate Effective updation has been made

Table 4: task model analysis worksheet tm-1: Task (4) Apply Online


Task c.f OM-3 Apply Online, 4

Organization c.f OM-2 Apply Online

JOB PORTAL

Goal and Value

To enable our jobseeker to apply for job.

Dependency and Flow 1. Input Task: Upload resume for job

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2. Output Tasks: Jobseeker has applied for job

Objects handled 1. Input Objects

2. Output Objects

3. Internal Objects

Resume

Information sent to job seeker.

None

Time and

Control

Frequency, Duration

Control


Many times, very short,

None

Submission of Successful application.

Agents

OM-2:People, System,

resources

OM-3: Performed by

Job Seeker/

Knowledge and

Competence

c.f. OM-4

None

Resources

OM-2

Upload, jobseeker

Quality and

Performance

Evaluate

Apply for Job

Table 5: task model analysis worksheet tm-1: Task (5) Advertisement placement by employers


Task c.f OM-3 Place Advertisements, 5

Organization c.f OM-2 Advertisements

JOB PORTAL

Goal and Value

To give the information about the requirements and

eligibility criteria for job by the company to job seeker. It is

connecting layer among the jobseekers and the employers.

Dependency

and Flow

1. Input Task:

2. Output Tasks: Getting information about the job from the

company.

Advertisements placed


2. Output Objects

3. Internal Objects

Requirement of company Advertisement made and

placed.

Knowledge about Experience, Education and

Location and Interview date is included.


Control

Constraints &

Conditions

Many times, short

None

Make advertisements to give information to customers.


resources

OM-3: Performed by

Graphics Designer, Employer

Knowledge and

Competence

c.f. OM-4

None

Resources OM-2 Employers, broadband internet, computer

Quality and

Performance

Evaluate Best Advertisement made by the developer and mentioned

the minimum requirements.

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Table 6: Task Model Analysis Worksheet Tm-1: Task (6) Access Resume By Employers


Task c.f OM-3 Assess Resume, 6

Organization c.f OM-2 Application Access

JOB PORTAL

Goal and Value

To select a best employee for any organization

Dependency

and Flow

1. Input Task:

2. Output Tasks: Check Eligibility requirements.

Developer selected the best employee according to the

minimum requirement mentioned by the Employer.


2. Output Objects

3. Internal Objects

Company requirement.

Selected jobseekers

Information regarding eligibility requirement has checked

by the portal Handler.

Time and

Control

Frequency, Duration

Control


Many times, Long

None

Eligibility Criteria is checked.

Agents


resources

OM-3: Performed by

Employer

Knowledge and

Competence

c.f. OM-4 Assessment Criteria

Resources

OM-2

Employer, Internet, computers

Quality and

Performance

Evaluate

Best Selection of the Employee for the particular Job companies.


Name

Possessed by

Used in

Domain

Assess Resume

Job seeker

Assessment Criteria, 7

None


Formal, rigorous X




Experienced based

Action based

Incomplete X


Quickly changing

Hard to verify



Mind X

Paper

Electronic

Action skill X

Other







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Table 7: task model analysis worksheet tm-1: Task (7) to send interview notification


Task c.f OM-3 Send Interview Notification, 7

Organization c.f OM-2 Interview call

JOB PORTAL

Goal and Value

To send the notification to the selected candidate

for the interview after comparison of the minimum

requirements from the company.

Dependency

and Flow

1. Input Task:

2. Output Tasks: Assess Resume.

Notification Sent.

Objects handled

1. Input Objects

2. Output Objects

3. Internal Objects

Selected candidate.

Send Notification

Selection Criteria with interview date.

Time ad

Control

Frequency, Duration

Control


Few times, short

None

Selection of Successful candidates.

Agents


resources

OM-3: Performed by

Employer, Portal Handler

Knowledge and

Competence

c.f. OM-4

Assignment/ Interview Notification

Resources OM-2 Internet, computers

Quality and

Performance

Evaluate

Our organization will successfully send the

notification to selected candidate for the interview.


Name

Possessed by

Used in

Domain

Send Interview Notification

Employer

Assignment / Interview Notification, 7

None


Formal, rigorous X




Experienced based

Action based X

Incomplete


Quickly changing

Hard to verify



Mind X

Paper

Electronic

Action skill X

Other







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Table 8: Task model analysis worksheet tm-1: Task (8) arrangement of seminar


Task c.f OM-3 Seminar Handling, 8

Organization c.f OM-2 Portal Handler & Employer

JOB PORTAL

Goal and Value

To send the notification to the candidate and conducting

interviews of candidates at run time.


2. Output Tasks: None.

Notification Sent.

Objects handled

1. Input Objects

2. Output

Objects

3. Internal

Objects

Registered candidate.

Send Notification

Run time selection of candidates.

Time and Control Frequency,

Duration

Control

Constraints &

Conditions

Few times, short

None

Selection of Successful candidates.

Agents

OM-2:People,

System,

resources

OM-3:

Performed by

Portal Handler

Knowledge and

Competence

c.f. OM-4

None

Resources OM-2 Employers, portal Handler, organizers

Quality and

Performance

Evaluate

Our organization will be organizing seminars to give

information to the registered candidate.

3.3 Agent Model Table 1 JS (Job seeker) (agent) involvements on the portal

Agent Agent Worksheet AM-1

Name Job Seeker

Organization

Job Seeker is a person who can register on our portal and see information about

different jobs offered by the companies. Job Seeker can also make and modify his

resume and can also apply online.

Involved in JS Registration, Resume Preparation, Editing Resume and Apply Online

Communication with Portal Handler, Employer

Knowledge JS Validation, Resource Resume

Other Competences Knowledge about using Internet and computers

Responsibilities and

Constraints

To get register himself, make resume, modify resume and apply online.

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Table.2 Employers (agent) involvements on the portal


Name Employer

Organization Employer can view resume of different job seekers and Assess their resume

according to their requirement and eligibility Criteria in order to get a best

professional. Employers can also send Interview notification to candidates.

Employer can also place advertisement to our portal.

Involved in

View Resume and Assess Resume and can also place advertisements. Send

Interview Notification to the selected candidates

Communication with Portal Handler , Job Seeker

Knowledge Job Seeker login Validation, Resource Resume

Other Competences

Expertise require to Assess Resume, Proper procedure to send the notification in

time.


Constraints

Included Assess Resume, place advertisement and also send notification to

selected candidates.

Table.3 portal handler (agent) involvements on the portal


Nam Portal Handler

Organization Job portal handles our portal in order to place advertisement of different

companies and also registering Job seekers and organizing Seminars and also

working as center.

Involved in Place Advertisements and Handling Seminars

Communication with Employer , Job Seeker

Knowledge Advertisements and Seminars Handling

Other Competences

Expertise requires making an effective resume and showing the requirements of

different companies to job seeker. Different Seminars are organized by the Portal

Handler by the coordination of external organizing body.


Constraints

Included make advertisements, Showing Requirements and managing

Seminars

Table.4 Check list for organization, task and agent model (3- Agents)

Organization Task / Agent

Model

Checklist for Check and Improvements

Impact and change

organization

Proposed solution will provide the efficient handling of databases.

This system will provide an easy and fastest way to select a best professional for any

company.

Enable our jobseeker to make resume according to standard.

Provide Job Search Facility

This system will enable our Employer to Efficiently view resumes of different

candidates and can easily check Eligibility Criteria and send notification back to the

candidate.

Effective changes and customization in Graphics of the portal.

Easy searching job criteria for the jobseeker.

Task/Agent Specific

impacts &

improvements

All the tasks are being done by the agents in sequence.

Portal Handler can get feedback from the Employer and jobseeker.

These tasks solve the problems being faced by the candidates in getting a desired job.

These tasks primarily fulfill the requirements of employers to get a good professional

who will help for them to get good results.

The Agents involved in these tasks have a broad and relational communication on

various aspects

Attitudes & commitments Individuals and employers get benefit from this system and would appreciate the

solution Provided by the system. Suggestions will be accepted for improvements and

changes of system warmly.

Proposed Actions As we made the Knowledge base Analysis now we are going for proposed actions

Resume will be made by the Job seeker on our portal.

Employer will assess candidate‘s resume.

Interview notification sent back to the selected candidate by the Employer.

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3.4 Knowledge Model for Portal

Knowledge model specifies knowledge and reasoning requirements of the perspective

system and its helps from input till the implementation of a system. Here author‘s

select knowledge intensive tasks and works as a tool to clarify the structure.

Knowledge model is use for analysis, process of information, phrased in vocabulary of

application as the domain (jobs) and reasoning tasks (Assessment, Qualification etc).

It use as a logical model but has no physical implementation with structure similar to

traditional models in Software Engineering. Reasoning task is described using a

hierarchal decomposition of functions and data or knowledge types that functions

operate are described as schema, Schreiber, A Th. et al (2000); Péter fehér (2000).

Knowledge model has three parts which is called knowledge category.

1) Domain Knowledge specific knowledge and information like, Job and job seeker

related.

2) Inference Knowledge describes basic inference steps and works as building blocks

for reasoning machine so here the assessment of resume.

3) Task knowledge the defined task to achieve the desired goals

Here discussion on tasks JS (Job seeker) Register and Application Assessment. In our

Project, These two tasks are knowledge intensive tasks.

3.4.1 JS (Job seeker) register

A. Domain Knowledge

Author will explore our first task which is JS Registration. JS Register is a knowledge

intensive task. And knowledge involves in Job seeker registration process to get a login

in to a system. Registration process is primary process which is done by job seeker for a

particular job if he wants to search for a job.

Has Need

Figure 4: Graphical representations of concepts, attributes and relationship

Here in above figure author describe the concepts, attributes and their corresponding value

types. Also describe the relation between concepts. These concepts are finding from JS

Register. Also describe some concepts by its explicit value-type definition as.

JTitle

JType

Age

JJob Title

JAge

JMin Qualification

JMin Experience

JApply By

JS

JSEmail

JSInterest

JType

JSStatus

JS# JSUserName

JSPassword

JSStatus

J-Details JS JSR

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Example (1)

CONCEPT JDetails;

ATTRIBUTES:

Value: JType;

END CONCEPT JDetails;

VALUE-TYPE JType;

VALUE-LIST: {Permanent (firstshift), permanent (secondshift), Intership (firstshift) , Intership (secondshift),

Contract (secondshift), Contract (secondshift)};

TYPE: ORDINAL

END VALUE-TYPE JType;

(2)

CONCEPT JS;

ATTRIBUTES:

Value: JType;

END CONCEPT JS;

VALUE-TYPE JType;

VALUE-LIST: {Permanent (firstshift), permanent (ssecondshift), Intership (firstshift), Intership (secondshift),

Contract (secondshift), Contract (secondshift)};

TYPE: ORDINAL

END VALUE-TYPE JType;

(3)

CONCEPT JDetails;

ATTRIBUTES:

Value: JTitle;


VALUE-TYPE JTitle;

VALUE-LIST: {System Analyst, IT Manager, Senior Sales officers, etc};

TYPE: ORDINAL

END VALUE-TYPE JTitle;

(4)

CONCEPT JS;

ATTRIBUTES:

Value: JInterest;

END CONCEPT JS;

VALUE-TYPE JInterest;

VALUE-LIST: {System Analyst, IT Manager, Senior Sales officers, etc};

TYPE: ORDINAL

END VALUE-TYPE JS;

(5)

CONCEPT JS;

ATTRIBUTES:

Value: JSStatus;

END CONCEPT JS;

VALUE-TYPE JSStatus;

VALUE-LIST: {Registered, Not Registered};

TYPE: ORDINAL

END VALUE-TYPE JSStatus;

(6)

CONCEPT JSR;

ATTRIBUTES:

Value: JSStatus;

END CONCEPT JSR;

VALUE-TYPE JSStatus;

VALUE-LIST: {Registered, Not Registered};

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TYPE: ORDINAL

END VALUE-TYPE JSStatus;

A. Rule

JDetails.JType = JS. JType ^ JDetails.JTitle = JS. JInterest => JS.JSstatus = ‗Register‘

JDetails.JType ≠JS. JType ^ JDetails.JTitle ≠ JS. JInterest => JS.JSstatus = ‘Cannot Register’

B. Rule Type

Figure 5: Job seekers interest

C. Inference Knowledge

Figure 6: Knowledge inference

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D. Task Knowledge

Figure 7: Task oriented knowledge

2.4.2 Assessment Criteria

A. Domain Knowledge

Author will explore our first task which is Assessment Criteria. Assessment Criteria is a

knowledge intensive task. And knowledge involves in Job seeker resume assessment

process and sends a notification call to the jobs seeker by the Employer. Assessment

process is secondary process which is done by Employer for a particular job seeker if

employer wants to hire a professional Employee

Has Need

Figure 8 Graphical representations of concepts, attributes and relationship

Resume

JDetails Employer Age

Qualification

Experience JJob Title

JAge

JMin

Qualification

JMin

Experience

JApply By

JSEmail

JSNotiStatus

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Here in above figure to describe the concepts, attributes and their corresponding value

types. Also describe the relation between concepts. These concepts are finding from

Assessment criteria. Also describe some concepts by its explicit value-type definition

as.

Example (1)

CONCEPT Resume;

ATTRIBUTES:

Value: Age;

END CONCEPT Resume;

VALUE-TYPE Age;

VALUE-LIST: {16-25, 25-30, 30-35, 35-40};

TYPE: ORDINAL

END VALUE-TYPE Age;

(2)

CONCEPT Resume;

ATTRIBUTES:

Value: Qualification;

END CONCEPT Resume;

VALUE-TYPE Qualification;

VALUE-LIST: {Bachelors, Masters, Doctorate};

TYPE: ORDINAL

END VALUE-TYPE Qualification;

(3)

CONCEPT Resume;

ATTRIBUTES:

Value: Experience;

END CONCEPT Resume;

VALUE-TYPE Experience;

VALUE-LIST: {1 year, 2 years, 3 years, 4 years, 5 years, 10 years };

TYPE: ORDINAL

END VALUE-TYPE Experience;

(4)

CONCEPT JDetails;

ATTRIBUTES:

Value: JAge;


VALUE-TYPE JAge;

VALUE-LIST: {16-25, 25-30, 30-35, 35-40};

TYPE: ORDINAL

END VALUE-TYPE JAge;

(5)

CONCEPT JDetails;

ATTRIBUTES:

Value: JMin Qualification;


VALUE-TYPE JMin Qualification;

VALUE-LIST: {Bachelors, Masters, Doctorate};

TYPE: ORDINAL

END VALUE-TYPE JMin Qualification;

(6)

CONCEPT JDetails;

ATTRIBUTES:

Value: JMin Experience;

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VALUE-TYPE JMin Experience;

VALUE-LIST: {1 year, 2 years, 3 years, 4 years, 5 years, 10 years };

TYPE: ORDINAL

END VALUE-TYPE JMin Experience;

(7)

CONCEPT Employer;

ATTRIBUTES:

Value: JSNotiStatus;

END CONCEPT Employer;

VALUE-TYPE JSNotiStatus;

VALUE-LIST: {select, reject };

TYPE: ORDINAL

END VALUE-TYPE JSNotiStatus;

Rule Resume. Qualification >=JDetails. JMin Qualification v Resume. Experience>= JDetails. JMin

Experience Employer.JSNotiStatus = ‘Select‘ Fdf

B. Rule Type

Figure 9: Rule against experience and qualification of job seeker

C. Inference Knowledge

Figure 10 Inference Structure for Resource allocation

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D. Task Knowledge

Figure 11: knowledge against task the assessment of job seeker

3.5 Communication Model

In Communication model all the communications between the tasks is described and

information flow in agents as explained using diagrams.

Figure 12: transactions in communication model between agents

Table.1 transaction (1) to fill registration form by agent 1

Communication Model Transaction Description Worksheet CM-1

Transaction

Identifier/Name

Transaction 1: Store Case Data: After filling form, JS (Job seeker) submit all

these information to portal database Knowledge system agent.

Information Object

Data object, transmits between Fill Form and Store

Application task.

Agents Involved JS (Job seeker), knowledge system / portal

Communication Plan Case communication plan

Constraints

After execution this transaction, resume should be ready for further processing,

for Applying jobs and assessment.

Information Exchange

Specification

Detailed specification is given in Worksheet CM-1

Given below.


Transaction Transaction 1

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Agents involved

1. Sender (JS)

2. Receiver (Web portal, Knowledge System)

3. Sender (Web portal, Knowledge System)

4. Receiver (JS)

Information

items

Core object for this transaction is JS data; this contains data filled in form.

1. Role: JS data is basic information object. No supporting item.

2. Form: it contains numeric and text data.

3. Medium: not applicable

To select a best employee for any organization.

Message 1. Create login

Specifications

Type: ASK

Content: request message data

From: JS (Job seeker)

To: Web portal, Knowledge System

2. Acknowledgement Message

Type: REPLY

Content: text message

From: Web portal, Knowledge System

To: JS (Job seeker)

3. Store case

Type: REQUIRE

Content: case data


To: Web portal, Knowledge System

4. Result message

Type: REPLY



To: JS (Job seeker)

Control over messages None

Table.2 transaction (2) to prepare the resume by agent 1


Transaction

Identifier/Name

Transaction 2: Store Data: After filling form according to the requirements and

personal information to registration form, portal handler submits all these

information to portal database. Portal handler agent makes this transaction with

Case Knowledge system agent.

Information Object

Case data object, transmits between Fill Form and Store

Application task.

Agents Involved JS (Job seeker), Web portal, Knowledge System

Communication Plan Case Communications plan

Constraints

After execution this transaction, Application should be ready for further

processing, like making Applying, resource allocation etc.


Specification

Detailed specification is given in Worksheet CM-2 given below.



Agents involved

1. Sender (JS)

2. Receiver (Web portal, Knowledge System)

3. Sender (Web portal, Knowledge System)

4. Receiver (JS)

Information

items

Core object for this transaction is resume data; this contains data filled in form.

1. Role: Resume data is core information object. No supporting item.



To select a best employee for any organization.

Message 1. Create resume

Specifications

Type: ASK

Type: Require


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From: JS (Job seeker) To: Web portal, Knowledge System

2. Acknowledgement Message Type: Agree



To: JS


Table.3 transaction (3) to advertise the jobs by portal handler or employer (agent 2 and 3)


Transaction

Transaction 3: Store Case Data: In this form the Portal Handler advertise the

job for employers as well as employers also advertise the job according to

there requirement.

Information Object

Case data object, transmits between Fill Form and Store and send applications

Application task.

Agents Involved Portal Handler, Employer, Web portal, Knowledge System

Communication Plan Case Communications plan

Constraints

After execution this transaction, Application should be ready

for further processing, like making Applying, resource allocation etc.


Specification




Agents involved

1. Sender (Portal handler, employer)

2. Receiver (web portal knowledge system)

3. Sender (web portal knowledge system)

4. Receiver (Js (Job seeker), employer)

Information

items

Core object for this transaction is job data; this contains data given by

employer.

1. Role: job data is the core information object. No supporting item.



Message 1. Create job

Specifications

Type: REQUIRE


From: Portal handler

To: knowledge system

2. Acknowledgement Message Type: AGREE


From: knowledge system

To: Portal handler


Table.4 transaction (4) to apply online against the advertise jobs by job seeker (agent 1)


Transaction

Identifier/Name

Transaction 4: apply for the desired job mentioned on web portal knowledge

base system by the portal handler and employers

Information Object

Case data object, transmits between Fill Form and requirements as mentioned

on the web portal Application task.

Agents Involved JS (Job seeker), web portal knowledge system, employers


Constraints


for further processing, like making Applying, resource allocation etc.


Specification




Agents involved

1. Sender (JS)

2. Receiver (Employer knowledge system, employer)

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3. Sender ( Employer knowledge system, employer)

4. Receiver (JS )

Information

items

Core object for this transaction is applicant data; this contains data filled in

form.

1. Role: applicant data is core information object. No supporting item.



Message 1. Create application

Specifications

Type: REQUIRE



To: web portal knowledge system, employer

2. Acknowledgement Message Type: REPLY


From: web portal knowledge system, employer

To: JS (Job seeker)


Table.5 transaction (5) to assessment of resume (agent 2 and 3)


Transaction

Identifier/Name

Transaction 5: assessment and check the selection criteria

Information Object Case data object, Application for assessment

Agents Involved

Employers

Employers knowledge base system,


Constraints


processing, like making Applying, resource Allocation etc.


Specification




Agents involved

1. Sender (Employers)

2. Receiver (Employers knowledge system)

3. Sender (Employers knowledge system)

4. Receiver (Employers)

Information items Core object for this transaction is assessment data; this contains data filled in

form.

1. Role: assessment data is core information object. No supporting item.



message 1. assessment

specifications

Type: REQUIRE


From: Employer

To: employer knowledge system



From: employer knowledge system

To: Employer

From: employer knowledge system

To: Employer


Table 6 transaction (6) to send notification to selected candidates (agent 2 and 3)

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Transaction

Identifier/Name

Transaction 6: After the assessment criteria the employer send the interviews

call to the selected candidates

Information Object Case data object, transmits decision, JS (Job seeker), organization

Agents Involved Employer, Web knowledge system,


Constraints


for further processing, like making Applying, resource

allocation etc.


Specification




Agents involved

1. Sender (employer,)

2. Receiver (web Portal Know ledge base system)

3. Sender (web Portal Know ledge base system)

4. Receiver (JS)

Information

items

Core object for this transaction is test data; this contains data filled in form.

1. Role: test data is core information object. No supporting item.



Message 1. Create interview call

Specifications

Type: ASK


From: Employer

To: knowledge system



From: knowledge system

To: Employer


Table7: transaction (7) arrangement of seminar by (agent 2 and 3)


Transaction

Identifier/Name

Transaction 7: After filling form, portal handler send notice to all JS (Job

seeker) for free entry in Seminar arranged by Portal Handler, Organization for

run time interview calls,

Information Object

Case data object, transmits portal handler, web portal knowledge system, JS

(Job seeker), organization

Agents Involved Portal handler, Web portal knowledge system, Organizer


Constraints


processing, like making Applying, resource allocation etc.


Specification

Detailed specification is given in Worksheet CM-2

given below.



Agents involved

1. Sender (Portal handler, employer,)

2. Receiver (web portal knowledge system)

3. Sender (web portal knowledge system)

4. Receiver (Employer, JS)

Information

items

Core object for this transaction is seminar data; this contains data filled in form.

1. Role: seminar data is core information object. No supporting item.


3. Medium: applicable

Message 1. Create seminar

Specifications

Type: REQUIRE


From: Portal handler, employer

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To: web portal knowledge system

2. Acknowledgement Message

Type: REPLY


From: web portal knowledge system

To: Portal handler, employer


3.5 Design Model for Knowledge based system

Design model describes structure of knowledge based system that needs to be

constructed in term of subsystem, software modules, computational mechanism and

representational constructs required to implement knowledge and communication model

Schreiber, A Th. et al (2000). It basically covers the implemented of the system, mode of

designing and the implemented hardware, with architecture. Design model basically is

built on the analysis model by describing in details and how to retrieve the basic

function. The design model also bases on analysis and architectural requirements; it

represents the application components and overall architecture Schreiber, A Th. et al

(2000).

Table 1: Worksheet DM-1: System Architecture

Design Model Worksheet DM-1: System Architecture

Architecture decision Format

Subsystem structure Figure 13 shows the subsystem in the web portal system for JS (Job seeker)

Control model

Control in the system is based on Event driven, call and return Approach. Web

portal knowledge system, Organizer, JS (Job seeker)

Sub-system

decomposition

function-oriented

Figure 13: Design methodology

Table 2: System architecture and design tools

Design Model Worksheet DM-1: System Architecture

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Software package J2EE,JSP, ASP.net, SQL Server

Potential hardware Personal Computers and Microsoft Web Server

Target hardware Personal Computer

Visualization library Visualization library

Language typing Full O-O typing software

Knowledge

representation

Knowledge representation is procedural.

Interaction protocols ADODB, ODBC

Interaction protocols Software Environment supports message

CommonKADS support Limited support for CommonKADS

Table 3: Decision points

Design Model

Worksheet DM-3: Target Implementation

Platform

Architecture

component

Typical decision points

Controller

The Controller follows event driven approach. Concurrency is not needed in the

controller.

Task

The executable task can fail which will return 0 value and 1 for

Success. Initialization method is used to initiate a task.

Task method

The system will use If ELSE structure can be used to implement the control. It is

defined in the object control method, internal method control is procedural.

Inference

The Internal state variables are resources, when resources become available and

rule is found which is not satisfied by the case. Operations are resource finder and

monitoring which are used to implement inference.

Inference

method

In the Inference methods are part of inferences (i.e., included in the

Implementation of the execute operation). So relationship between inference and

inference method is one to one.

Dynamic role The Element data type is used for roles.

Static role The JS (Job seeker) registration access function, Resource Resume access

function, Assessment criteria access function. Assignment/ Interview notification

Knowledge

base

The knowledge base contains resource resume, Assessment Criteria knowledge,

they are represented using relational tables. Access and modification of resume

functions are making resume.

Views

The interface of the Standard (Graphical User Interface) GUI view is available to

user having Windows, menus, buttons.

Table 4: Design decision

Element Design decision

Controller

Transaction TR4 when JS (Job seeker) see any job relevant to our qualification

and experience then we apply

Task methods

After entering into the system, firstly jobseeker apply online, then after

applying, his resume has been assessed by the employer by checking eligibility

criteria and send back notification to the jobseeker.

Dynamic roles For dynamic role we choose element data type.

Inferences Inference method is being used by the message passing approach.

Inference methods gt_resume_resource method, match_assessment_criteria_method, are the

inference methods

Knowledge bases

J-registration, Resource Resume, Assessment criteria, Assignment/ Interview

notification

View objects Login views, view resume , view resume template

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3.6 CommonKADS METHODLOGY

CommonKADS configuration life cycle explains the iterative planning and monitoring steps

done to get the solution to the system Schreiber, A Th. et al (2000); Pradorn Sureephong et al

(2007).

3.6.1 CommonKADS Configurable Life cycle 0


Review

In first activity of CommonKADS life cycle author have sketched a plan for Web portal

project. Author decided to make the Organizational model, task model and agent model.

There is huge number of fresh graduates who are looking for opportunity and same

condition is with our many employers that they are unable to get a perfect professional at

right time and right place. Job seekers will be able to prepare a suitable resume to display

their qualification and experience and apply online. What it does for employers to place

their job advertisements and hire suitable employee for them.

Risk

CommonKADS methodology provides good understanding of risks and suggests

solutions to these risks. CommonKADS configurable life cycle provides a full activity to

deal with these Risks. Risks like this that an employee has not been able to get a job to

his satisfaction level. Problem in which number of users accessing our portal exceeds to

intended limit which may affect speed of accessing our portal or uploading and

downloading resumes.

Plan

Discussed in Review stage of the configurable life cycle is being elaborated here. In this

stage of cycle 0 authors divide the project work in various tasks and study these tasks in

various environments and make a documentary grip for these tasks. Initial timeline for

these tasks to complete was also designed in this activity of configurable life cycle.

Monitor

At this stage of configurable life cycle and monitored all activities and task which we

have described in review, risk and plan activities. For this project authors have

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conducted meetings with different employers and graduates to know their problems and

also require some useful suggestions from them.

3.6.2 CommonKADS Configurable Life cycle 1


Review

In second cycle of CommonKADS configurable life cycle, the author has inputs from

monitor activity of cycle 0. In this cycle our main focus will be on adjusting new

requirements from and implementing decisions taken in last activity and fill all the

requirement which we need to implement the system.

Risk

At this stage of configurable life cycle we have encountered another risk. Short time has

been identified as another major risk to Job Portal knowledge system. To cope with this

risk we develop a strategy i.e. parallel task processing.

Plan

Our plan is the same as author discuss in pervious life cycle.

Monitor

In this second cycle monitoring phase of configurable life cycle author have some

meetings with the experts and the distributed some questionnaires and got their

suggestions about our portal.

Conclusion

Authors used CommonKADS methodology in which different models like organization, task

and agent models have been used. Other than this author has also used design, knowledge

and communication model to explain and elaborate our project and have explored fully how

these methods will be implemented in our project. In this document we have analyzed the

job portal providing services to educated persons to apply for jobs and employers to find

good professional for their organizations. And the entire problems identified during analysis

are described in the context of CommonKADS methodology and knowledge engineering

approaches.

The objective of this work is not only to define the KE techniques with CommonKADS

methodological implication but also dedication to management for skill extraction from the

Knowledge.

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References

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7167/01/$10.00 © 2001 IEEE.

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Bukowitz, W. R. and Williams, R. L. (1999) the Knowledge Management Fieldbook, Pearson

Education, Harlow.

Darroch, 1. (2003) "Developing a measure of knowledge management behaviours and

practices", Journal of Knowledge Management, Vol.7 No. 5, pp. 41-54.

Schreiber, A Th. et al (2000): Knowledge Engineering and Management. The Common KADS

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Péter fehér (2000), the missing link in the integration of knowledge management practices and

technological solutions.

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of Software as Service from Individuals perspective‖ Vol. II No. 7 (March 2011). ISSN:

1697-9613 (print) -1887-3022 (online). www.eminds.uniovi.es

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nungsbeurteilung. In: Zeitschrift für Personalforschung 1998 (4), S. 424-451

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A Study of Owner‟s Inherited Factors Affecting Entrepreneurial Orientation in

Khyber Pakhtunkhwa-Pakistan.

HafizUllah

Lecturer , Institute of Management Sciences, Kohat University of Science & Technology,

Kohat Kpk, Pakistan.

Dr. Bahadar Shah Dean

Professor , Faculty of Law & Administrative Sciences, Hazara University, Garden Campus,

Mansehra. Kpk,Pakistan.

Muhammad Kaleem

Lecturer Institute of Management Sciences, Kohat University of Science & Technology,

Kohat Kpk, Pakistan.

Abstract

The purpose of the study is to measure the impact of Owner‘s inherited factors (Birth order, Family orientation and Motivations factors) on entreprenruial orientation in the province of Khyber Pakhtunkhwa (KPK). Quseduestionaire was used to gather data through stratified sampling method. 219 Questionnaires were distributed among members registerred with different (Khyber Pakhtunkhwa, Hazara and D.I.Khan) chambers of commerce and indutry in KPK. T-test was applied to analyze mean difference of repondents about entreprenruial orientation on the basis of owner inherited factors. The results of T-test has shown mean difference between the groups on the basis of their inherited factors which have an affect on entreprenruial orientation.It was concluded that enterprises operated by owner having first birth order , pull motivation and whose parents are self employed possessed better entrepreneurial orientation level than others.

Keywords: Entrepreneurial Orientation, Khyber Pakhtunkhwa, Birth order, Family occupation and Motivation.

1. Introduction:

Entrepreneurship is a phenomenon of great interest throughout the globe, especially in developing economies and it is considered to be important for economic development (Samli, 2002). Importance, concentration and research in entrepreneurship have been rising over the recent past (Green, David and Tyshkovsky, 1996; Outcalt, 2000;Alstete, 2002; Morrison, 2000; Rohaizat and Fauziah, 2002; and Frank, Korunka Lueger and Mugler ,2005) because of its role in economic growth and development of a country.

Entrepreneurial activities play an important role in local employment creation; resources utilization; and income generation and in helping to promote change and innovation in gradual and peaceful manner. Entrepreneurship has long been regarded as a significant factor in national economic growth and development (Schumpeter, 1934 and Wilken, 1979).It is the entrepreneurial activity that builds industries and businesses and turn companies and countries into economic power houses (Naqi, 2003)

Enterprises, creating and introducing new products and technologies, can generate extraordinary economic performance and have been seen as the engines of economic growth (Schumpeter, 1934, 1954; Brown and Eisenhardt, 1998).





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The 21st century is the century of entrepreneurship and every individual can be an agent for

change and innovation. As such entrepreneurs not only explain the level of income of a society, but also its dynamics of change. Differences in the rate of growth among countries or across periods of time in the country are determined by the supply and quality of its entrepreneurial capabilities, in other words, of its entrepreneurs (Alvaro, 2005).

As an entrepreneur is a human factor of production, he can not act in a social vacuum. He is influenced by the background into which he is born as well as environment in which he raised. Being an innovator and a decision maker, he derives strength from certain forces to plunge into business, fighting against uncertainties, bear risk and endure difficulties in the pursuit of profit. His motivation, caste, ethnic background, family structure, as source of support enable him to stay on track and moved in the desired direction (Altaf, 1983).

There are many research studies which measure the impact of the entrepreneur's education, career history, family and personal background on the enterprise growth and their entrepreneurial behavior, in other words entrepreneurial orientation is influenced by these entrepreneur‘s inherited factors(Boswell ,1972; Cooper and Gimeno –Gascon ,1992; Helfat and Lieberman, 2002 and Shane ,2000). This approach differentiates the entrepreneurial firms from others on the basis of their Owner‘s inherited factors.

As entrepreneurial orientation theories have emerged primarily from research in developed countries, it is important to examine the extent to which these apply in the context of developing countries such as Pakistan with special reference to Khyber Pakhtunkhwa (KPK), because the social ,economic structures, gender related issues, cultural differences, family prescriptions, poverty level, geographical regions, ethnic origin and the rural/urban divide due to uneven socioeconomic development and the impact of tribal, feudal etc. vary widely in developing countries with special reference to KPK.

The objective of this study is to measure the differences about entrepreneurial orientation of members registered with different chambers of commerce and industry in KPK on the basis of their inherited factors. Although the importance of different entrepreneur‘s inherited factors i.e. birth order, role of parents etc. (Matthews & Moser, 1996) has been widely discussed in the literature affecting entrepreneurial orientation but there is little empirical evidence to determine the affects of these inherited factors on entrepreneurial orientation in developing countries like Pakistan with special reference to KPK. In my study entrepreneurial orientation is dependent variable. The next section reviews these variables as given in the literature review.

2. Literature review:

2.1 Entrepreneurial Orientation:

The term ―entrepreneurship‖ has been defined for over 200 years from different prospective(Hebert and Link,1988). The traditional focus was on the efforts of an individual whose innovative behavior translates his vision into successful business enterprise (Collins and Moore, 1964). More recently, however, entrepreneurship has been conceptualized as a ―process” which can occur in enterprises of all sizes and types and which is distinct from, but dependent on, specific individuals (Burgelman, 1983; Gartner, 1985;Kao,1989; Miller, 1983; Wortman, 1987).

So in this way, entrepreneurship can be defined as ―process of creating value by bringing together a unique package of resources to exploit an opportunity‖ (Stevenson, Roberts and Grousbeck, 1989). This process includes both an entrepreneurial event and an entrepreneurial agent. The event refers to the conceptualization and implementation of a new venture. While agent on the other hand is an individual or group that assumes personal responsibility for bringing the event into successful business enterprise.

The entrepreneurial process has attitudinal and behavioral components (Bird, 1988;Long Tan and Robinson,1995). Attitudinally, it refers to the willingness of an individual or organization to seek new opportunities and take responsibility for effecting creative change (Miller and

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Friesen,1982,1884). This willingness is referred to as an ―entrepreneurial orientation‖. Behaviorally, it includes the set of activities required to evaluate an opportunity, define a business concept, assess and acquire the necessary resources and then to operate and harvest the rewards through firm‘s creation (Stevenson, Roberts and Grousbeck,1989).

Entrepreneurial orientation refers to the processes, practices, and decision-making activities used by entrepreneurs to act entrepreneurially that lead to the initiation of an entrepreneurial firm (Lumpkin and Dess, 1996). Miller (1983) defines an entrepreneurial firm as ―one that engages in product market innovation, undertakes somewhat risky ventures, and is first to come up with ‗proactive‘ innovations, beating competitors to the punch.‖ However, each dimension is suggested to be positively correlated (Lumpkin and Dess, 1996), which has been validated empirically (Rauch, Wiklund, Freese, and Lumpkin 2004).So Entrepreneurial firms are those whose entrepreneurial behavior focuses on risk taking, innovation, and proactiveness. So entrepreneurial orientation is evidenced through observable entrepreneurial tendency toward innovativeness, Proactiveness and risk taking.

The construct Entrepreneurial Orientation (multidimensional construct encompassing firm innovativeness, proactiveness and risk taking) is receiving increased attention in the field of entrepreneurship (Stevenson and Gumpert, 1985). This entrepreneurial orientation construct seems too applicable in all types of enterprises. Further Kreiser, Marino and Weaver (2002) founded that the entrepreneurial orientation construct was valid across different national contexts and applicable globally

The conceptualizations of entrepreneurial orientation include three dimensions: proactiveness, risk taking, and innovativeness. A literature review confirmed that these three dimensions are the most commonly used in entrepreneurial research. (Covin and Slevin,1989,1991; Knight,1997; Morris and Paul, 987; Miller,1983; Zahra and Covin, 1995; Zahra, 1993). Innovation refers to the seeking of creative, unusual or novel solutions to problems and needs. These solutions take the form of new technologies and processes, as well as new products and services(Vesper,1980; Schumpeter ,1934). Risk taking involves the willingness to commit large resources to opportunities which have a reasonable chance of costly failure i.e. that includes risk taking(Stewart ,2001;Gasse,1982), Proactiveness is the propensity to anticipate and act on future market needs and opportunity (Schwartz, Teach, and Birch, 2005;Kouriloff ,2000;Lumpkin and Dess, 1996) and has first mover advantage to become pioneer and also always strive to gain an edge over their competitors(Kerin,1992).

Empirically, the positive impact of entrepreneurial orientation on firm performance and growth has been supported by several studies (Stuart,1990;Lumpkin and Dess, 1996,2001; Wiklund, 1998,1999, Wiklund, and Shepherd ,2003; Zahra, Jennings, and Kuratko, 1999;Dess, Lumpkin and Covin,1997).

2.2 Owner‟s inherited factors affecting entrepreneurial orientation:

In Khyber Pakhtunkhwa mostly the family oriented businesses exist, like Arsheen ,London Book Stall, Saeed Book Bank of Peshawar are involved in family business. Similarly Al Syed medicos and Shaheen chemist expended their family business on large scale in Peshawar as well as setup their branches in Islamabad. Similarly in Partnership type of businesses mostly the relatives and friends are involved. Moreover Family businesses are generally operated by their elder child keeping in view his responsibility. In the same way success stories of their family members motivate them to behave entrepreneurially. Due to these circumstances entrepreneurial culture improves, and if we see example in KPK, Hafiz Misalas in Bannu, owner of city university in Peshawar, hand loom industry in Islampur of Sawat converted in power looms, import and export of carpets and rugs in Peshawar specially in Khyber bazaar, pickles and jams business in Abbotabad and Haripur, cutlery items in Dir, production of strawberry in Sawat, embroidery business in D.i.khan, beekeeping and honey production in karak as famous all over Pakistan are mostly involved in family type of businesses which reflect the inherited aspect of an entrepreneur affecting their entrepreneurial orientation . In the light of above examples and circumstances I

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have divided Owner‘s inherited factors affecting entrepreneurial orientation into following dimensions.

2.2.1 Birth order:

The studies of birth order shows interesting results. Henning's and jar dim (1977) as well as Helfat et al., (2002) reported that entrepreneurs tend to be the first born. Being the first born child, who received special attention and hence gained more self confidence. Hisrich and Brush (1984) in sample of 408 entrepreneurs founded that 50 percentages were to be first born. Studies have shown that first born children tend to take more responsibility and be high achievers which researchers say is likely to correlate with being an entrepreneur (Robinson, Stimpson , Huefner and Hunt , 1991). Owner who has first birth order increases his probability to run his enterprise with higher entrepreneurial orientation than others having different birth order and ultimately increase firm's entrepreneurial orientation. Hence,

Hypothesis (H1): Enterprise owned by owner having first birth order has different entrepreneurial orientation than others.

2.2.2 Family Occupation:

In term of the entrepreneur parent's occupation, there is strong support that entrepreneur tend to has self employed or entrepreneurial father .Entrepreneur whose father is self employed provides strong inspiration for him because at an early age, the independent nature of self employed is deep rooted by his father (Matthews and Moser ,1996) .Further more the entrepreneurial mother also increases the feeling of independence. Various studies described that that it is not easy to set up a business for the first generation entrepreneurs, but majority of the entrepreneurs set up their business if they already have a family background of business and mostly capital for start up is provided by family and friends (Lee and Tsang, 2001). Similarly according to Kolvereid (1996) entrepreneurs tend to have parents with entrepreneurial mind set .Thus entrepreneurs having entrepreneurial parents are more likely to behave entrepreneurially and to work with higher entrepreneurial orientation than other whose parents are job oriented and ultimately increase firm's entrepreneurial orientation. At the end it is stated that enterprises whose owner's parents are self employed possessed greater entrepreneurial orientation than others. Hence,

Hypothesis (H2): Enterprises whose owner’s parents are self employed possessed different entrepreneurial orientation than job oriented parents.

2.2.3 Motivational factors:

Research has also fined out that motivational factors, which provide more effective results. The entrepreneurial motives behind establishing business enterprise are divided into 'Push' and 'Pull' motivation (Gilad and Levine ,1986; Storey ,1992;Storey and Wynarczyk, 1996). Shane (2000) said that the owners of entrepreneurial firms compared to those of other firms might have different motives for setting up their business. We can distinguish ―Pull motivation‖ from ―Push motivation‖ which is influenced by the economic and social environment of an individual. These two motivational factors have been applied to entrepreneurial orientation.

The Pull motivation is related to the exploitation of an economic opportunity that encourages the entrepreneur to establish business enterprise associated with his or her own self-realization and freedom. So the pull motivation becomes economic opportunity, that is, reward seeking.

While Push motivation or ―forced‖ motivation occur due to pressure induced because of career limitations, unemployment, being dismissed, under-reward, or not fitting in and thus creation of business enterprise becomes an employment opportunity (Gilad et al., 1986; Olofsson, Petersson and Wahlbin 1986; Wickham, 2001).

Entrepreneur who establishes enterprise due to pull motivation as compare to push motivation increases his/her chances to run enterprise with higher entrepreneurial orientation (Shane, Locke and Collins, 2003; Segal, 2005).In order to analyze impact of their motivation as differentiating factor affecting entrepreneurial orientation, it is proposed that enterprise whose owner possessed

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pull motivation has more entrepreneurial orientation as compare to those who possessed push motivation.

Hypothesis (H3): Enterprises whose owner possessed pull motivation have different entrepreneurial orientation than those having push motivation.

2.3 Research framework and variables selection

The research framework employed in the study is presented in Figure 1. The owner inherited factors selected for analysis are reflected in the hypotheses development. The justification for selecting these variables has been discussed in the literature review section. In this study the dependent variable entrepreneurial orientation is measured on five point interval scales.

Schematic diagram of the theoretical framework (at the end as fig. 1)

3. DATA COLLECTION AND SAMLPE SIZE DETERMINATION

RESEARCH METHODOLOGY 3.1 Survey method

Survey research is excessively used in social sciences for data collection (Babbie, 1993). Survey research can describe the attitudes and behaviors of population by selecting in representative sample of individuals and entering their responses to set of questions. Finally survey strategy can also be an excellent vehicle for measuring attitudes and orientation in a large population (Babbie,1993). The potential of survey research is questionnaire technique.

3.2 Questionnaire development

The survey instrument used in the study is questionnaire. The questionnaire was consist of two parts. The first part consists of owner‘s inherited factors affecting entrepreneurial orientation. Questions about birth order, family occupation, and finally motivational factors affecting entrepreneurial orientation were asked from the respondents(Owners) in questionnaire. All these questions were asked on nominal scale.

The second part consists of entrepreneurial orientation measurement. Entrepreneurial orientation is measured by asking nine questions about innovativeness, risk taking propensity and proactiveness on five-point Likert scale from strongly agree to strongly disagree developed by Covin and Slevin (1989).Respondents were asked to indicate their degree of agreement or disagreement with each given statement on a five-point Likert scale from strongly disagree(1), disagree(2), neutral(3), agree(4) strongly agree(5). All these questions were asked on interval scale.

3.3 Population size of the Study

The Population of this study consists of 3496 members registered with different chamber of commerce and industry in KPK, working in different categories (www.kpcci.org.pk). The detail of population size provided by respective chambers is given bellow in Table 1.

3.4 Sample size determination

In order to determine the readability, clarity of questionnaire and reliability of measures the researcher conducted a pilot study. Researcher distribute questionnaire among thirty eight members in pilot study and cronbach‘s alpha was above the acceptable range .For sample size determination, the result of pilot study are given in the following Table 2.

The target population of the study included the total number of members registered with chamber of commerce and industries in KPK. The formula for finite population (Najeebullah, Shah and Nawaz, 2008) was used to compute the sample size for each population category. The population was made up traders, services providers and traders and manufacturers working in KPK on small and medium scale. In the social sciences, 95% confidence level is usable, which equals to 1.96 z-values.

http://www.emeraldinsight.com/Insight/ViewContentServlet?contentType=Article&Filename=Published/EmeraldFullTextArticle/Articles/0500110302.html#0500110302001.png

http://www.kpcci.org/

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Note. As population is the combination of three different groups, and also the population of traders‘ group with respect to others is too large. It can be seen from the above table that results of proportionate sampling do not give proper representation to each group. Therefore, situations like this Sekaran, (1999,p.270) said that ―disproportionate sampling decisions are made either when some stratum or strata too small or too large, or when there is more variability suspected within a particular stratum‖. So I applied disproportionate stratified sampling procedure which is shown in the right most to the above Table2.

3.5 Statistical methods:

Descriptive statistics were reported in Table 3 to develop profile of the sample.To test research hypotheses specified in the study, t-test of mean differences was applied to analyze Owner‘s inherited factors impact on entrepreneurial orintation.

4. Data Presentation, Analysis and Interpretation

After data have been collected from representative sample of the population, the next step is to analyze it in order to test the research hypotheses. A descriptive and inferential analysis of the primary data indicates mean differences among members about their different inherited factors. The evidence in the favor or against the hypotheses pinpoints the reality of the research study. Since data was collected from different chambers of commerce and industry in Khyber Pakhtunkhwa (KPK), therefore the analysis and their interpretation opens-up new levels of understanding about the different factors affecting entrepreneurial orientation in general, and KPK particularly. The data was analyzed using SPSS (V.18.0) to examine the Cronbach‘s alpha for the measure, to obtain frequencies outputs: Respondents‘ Profile and finally Hypotheses testing.

4.1 Checking the Reliability of measure: Cronbach‟s Alpha:

Cronbach‘s Alpha reliability coefficient of the dependent variables is obtained. This was above 0.80. The sample of the result obtained for Cronbach‘s alpha test for the dependent variable (entrepreneurial orientation) is, given below:

Reliability test: N of Cases = 219 N of Items = 09 Alpha = 0.89

The results indicate that the Cronbach‘s Alpha for the nine items is 0.89. The closer the reliability coefficients get to 1.0, the better. In general, the reliabilities less than 0.60 are considered to be poor, those in the 0.70 range, acceptable, and those over 0.80 good (Sekaran, 2000) As the Cronbach‘s Alpha for all the nine items used in this study is about .89, thus internal reliability of the measures used in this study can be considered to be good.

4.2 Descriptive statistics: Respondents‟ Profile

In the research study majority of the respondents were consist of those who were not elder child (n=128, 58.4%),While propotion of elder child having first birth order was (n=91, 41.6%). With in respect of family occupation ,respondents whose parents were selfemployed composed of (n=82,37.4%) and remainng (n=137,62.6%) parents were job oriented. Respondents with reppect to motivational factor,pull motivational onwers formed larger group of (n=144 ,65.8%) as compare to push motivational group(n=75 ,34.2%).

4.3 Hypothesis Testing

Three hypotheses were generated for this study as stated earlier. This call for the use of t-test because there are two groups and the dependent variable, entrepreneurial orientation, is measured on interval scale. The results of group statistics and Independent Samples Test are given below in Table 4 and Table 5.

All of the hypotheses were tested using independent samples t-test in order to analyze the differences statistically. Based on the results shown in Table 4, & 5, the difference in the means of 3.3468and 2.8576with standard deviations of .81982 and .65607 for first birth order and others about their entrepreneurial orientation level is significant as p<0.05 at 217 degree of freedom. Hence hypothesis H1 was accepted, which means there was a significant difference between


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entrepreneurially and non entrepreneurially oriented members with respect to their birth order. Similarly, the difference in the means of 3.6247and 2.7234with standard deviations of .75453and .54301for the self employed parents and others who are job oriented about their entrepreneurial orientation is significant as p<0.05 at 217 degree of freedom, therefore hypothesis (H2) was accepted, which means there was a significant difference between entrepreneurially oriented and non entrepreneurially oriented members with respect to their family occupation. And finally, the difference in the means of 3.6207and 2.7693 with standard deviations of .83789 and .53004 for those who possessed pull motivation and push motivation about their entrepreneurial orientation respectively is significant as p<0.05 at 217 degree of freedom. Hence hypothesis H3 was accepted, which means there was a significant difference between entrepreneurially oriented members and those who are not entrepreneurially oriented with regard to motivational factors.

Discussion: Following are the outcomes that I considered:

Birth Order:

The result of this research supported previous researches(Henning et al.,1977; Hisrich et al., 1984; Robinson et al., 1991 and Helfat et al., 2002) as already discussed in the literature review section. As per the birth order it was observed that the first child, especially the son becomes a good entrepreneur and possesses more entrepreneurial orientation because he receives more attention from his parents like his education, growth, training, attitude & behaviors etc. When he grows up then becomes an effective entrepreneur of the society by taking the responsibility of his family. The elder son shares family‘s burden and operates his family business with higher entrepreneurial orientation.

Family Occupation:

Similarly, the result of this research supported previous researches (Matthews et al.,1996; Lee et al., 2001; and Kolvereid ,1996) as already discussed in the literature review section.Inherent family business is creating an effective entrepreneur in the KPK. It was come on the surface that the successful entrepreneur builds up through family occupation. Informal relations plays very important role in this context especially from family member‘s side because those whose family members are business oriented their participation is high. For instance in district Bannu Hafiz Masla Jat is a famous one in the area. It was started by the elders members of family, now their children promoted it.They convert the product into the different range of Masala jat, also improved it packaging and developed the meaningful net work in the areas of KPK like D.I.Khan, Swat, Abbottabad, Kohat, Peshawar. Another case is the city university Peshawar. It was initiated by a primary school teacher then he build up to the college. Now this becomes an effective university of KPK which is controlling and managing by their children as well. Same is true for Qurtaba University D.I.Khan. It started from private Public School, grown to High school then college and now University at D.I.Khan with campus in Peshawar

Pull and Push Motivation:

Motivation is one of the significant factors of a successful entrepreneur affecting entrepreneurial orientation. By comparing pull and push motivation, the pull motivation is much better for promotion of entrepreneurial culture because the entrepreneurs having such type of motivation become more opportunity seeking oriented. They are self motivated committed with the market dynamism, informative and meaningful network oriented. They captured opportunities from the surroundings due to expectation for profits, or the gap between the expected utility and their opportunity cost. While on the other hand, Push motivation due to the lack of job opportunities from being unemployed, being dismissed from a job or leaving the firm voluntarily because the lack of satisfaction has not played too much contribution in entrepreneurial orientation development as already discussed in the literature review section(Gilad et al., 1986; Olofsson et al., 1986; Storey ,1992;Storey et al.,1996; Shane ,2000;Wickham, 2001; Shane et al., 2003; Segal, 2005).In the same way relatively in poor economies, it would be seen that necessity-based entrepreneurship is the dominant kind (e.g. India, Pakistan) while in richer economies like the

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U.S. the opportunity - based entrepreneur is more prevalent. U.S.A in 2003, where total opportunity-based entrepreneurial activity (TEA) was 9.1% and necessity-based TEA was only 1.7%. Thus only very few people were pursuing self-employment because of lack of opportunity. While India in 2001 necessity-based entrepreneurship was far higher at 7.5% than opportunity-based entrepreneurship of 3.7 %(Manzur, 2008).Likewise in 2009, the Global Entrepreneurship Monitor (GEM) which looks at 54 countries in the emerging and developed markets concluded that there are many more necessity-driven entrepreneurs in emerging markets than in the developed world (Keyes et al., 2010). Same is the case in Pakistan with special reference to Khyber Pakhtunkhwa (KPK) where level of entrepreneurial orientation is low as indicated by the research because mostly enterprises are established by the businessmen due to fulfill their needs, having necessity-based oriented motivation i.e. push motivation.

Conclusion:

Present study measured the difference in perceptions of entrepreneurial orientation among the owners registerred with different chambers of commerce and industry in KPK based on their various inherited factors (birth order,family occupation and motivations).The result of the study supported previous research as already discussed in the literature review section. The present study result also showed that there is significant difference of respondents perception towards entrepreneurial orientation on the basis of their inherited factors(birth order,family occupation and motivational factors), registerred with different chambers and industry in KPK. Similarly it was also founded that enterprises operated by Owner having first birth order have different entrepreneurial orientation than others. Also it was concluded that owners whose parents are self employed possessed more entrepreneurial orientation as compare to those who are job oriented. At the end enterprise whose owner possessed pull motivation has higher entrepreneurial orientation as compare to others having push motivation. The results of the current study have provided useful insight to detremine the entreprenruial orientation in our society in order to develop entreprenrial culture in Pakistan, particularly in KPK. It further discovers that both financial and moral support of immediate family members and more opportunities seeking motivation creates such an environment which promote entrepreneurial culture in the society, which is an important factor for the development of a country like Pakistan.

Figure1. Impact of entrepreneur‘s inherited factors on Entrepreneurial Orientation.

Table1. Details of population size of the study.

Categories

Khyber Pakhtunkhwa

(Sarhad) Chamber Of

Commerce and Industry

Hazara Chamber Of

Commerce and

Industry

D.I.khan Chamber Of


Total

Services

Providers

171 56 24 251

Manufacturers

and Traders

291 88 51 430

Traders 2039 560 216 2815

Total 2501 704 291 3496

Birth order (H1)

Family occupation (H2)

Motivational factors (H3)

Entrepreneurial Orientation



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Table2. Sample Selection Procedure (Pilot Study Statistics)

Sample (FINITE population) Stratified Samples

Disproportionate sampling

(from formula)

N SD() N

Services Providers 251 0.69 14

Manufacturers And Traders 430 0.79 29

Traders 2815 0.86 176

N= 3496 n= 219

Formula

na= [(nNaa)/((Naa)+(Nbb)…+Nnn))]

nb= [(n Nbb)/((Naa)+(Nbb)…+Nnn))]

………………………………………..

………………………………………..

nn= [(n Nnn)/((Naa)+(Nbb)…+Nnn))]

Pilot Study Statistics

Standard Deviation

() 0.78

Standard Error (E)

0.10

Z value at 95%

Confidence 1.96

Sample Population N 3496

Sample Size (n) 219

Formula

n = [2/(( E

2/Z

2)+(

2/N))]

Sample size(n)=219

Table3. Frequencies distributions of sample

Demographic Frequency Percentage Cumulative Percentage

Birth order Frequency Percentage Cumulative Percentage

First born 91 41.6 41.6

Others 128 58.4 100.0

Total 219 100.0

Family Occupation Frequency Percentage Cumulative Percentage

Self Employed 82 37.4 37.4

Job Oriented 137 62.6 100.0

Total 219 100.0

Motivation Frequency Percentage Cumulative Percentage

Pull motivation 75 34.2 34.2

Push motivation 144 65.8 100.0

Total 219 100.0

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Table .4 Group Statistics

Birth order N Mean Std. Deviation

Entrepreneurial

Orientation

First born 91 3.3468 .81982

Others 128 2.8576 .65607

Entrepreneurial

Orientation

Family Occupation

N Mean Std. Deviation

Self employed 82 3.6247 .75453

Jobs oriented 137 2.7234 .54301

Entrepreneurial

Orientation

Motivational

Factors N Mean Std. Deviation

Pull motivation 75 3.6207 .83789

Push motivation 144 2.7693 .53004

Table .5 Results of t-test of significant differences (Independent Samples T-test)

Variables Sample

size(n)

degree of freedom

(df)

t-value p-value

Birth order 219 217 4.89 0.000

Family Occupation 219 217 10.24 0.000

Motivational Factors 219 217 9.177 0.000

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An Empirical Study of Analyzing Customer Satisfaction towards Service Quality

in Islamic Banks of Sargodha, Pakistan.

Rizwan Ahmad Ch. & Usman Asif

MS Scholars , Riphah International. University, Islamabad, Pakistan

Abstract Banks are always trying to attract & retain Customers. Therefore today need is to provide better

Services Quality in order to make customer loyal. There Primary Products or Point of Parity are

the same, but the Point of Difference is only the Quality of Services. While the purpose right

behind for analyzing the Customer Service Quality in Islamic Banks of Sargodha is to find the

level of Services quality expecting by Customers & provided by Islamic banks of Sargodha &

then comparing them to fulfill the Service Quality gap. The SERVQUAL model (Parasuraman,

Zeithaml & Berry, 1985, 1988, 1991) & descriptive statistics analysis were used in evaluating

the level of Customer Quality. The result shows that Islamic Banks were not able to provide the

desire Service Quality as per expectations of Customers.

Key Words: Islamic Banks, Customers Expectation towards Banks, Satisfaction, Quality of

Services, Sargodha Pakistan.

INTRODUCTION

Inception of Islamic banking practices in Pakistan created multiple threats and opportunities to

meet customer‘s expectations by the provision of quality services (Ahmad, Rehman, Saif, &

Safwan, 2010). A healthy competition is running for Islamic banks to compete with their peers

and conventional banks for greater profits (Ahmad, Humayoun & Hassan, 2010). It was observed

that the banking industry experienced stiff competition with banks and with other financial

institutions to attract potential customers (Hull, 2002). Now there are more than 40

Conventional, 6 Islamic and Microfinance banks with their hundred of Branches

operating in Pakistan (State Bank Of Pakistan, June 2010). The increase in the Branch

networks of banks resulted into the strong competition. This study examines the service

quality with respect to customers of Islamic banks as Leeds (1992) explained that Better quality-

services always resulted into greater customer‘ satisfaction and also reduced customer erosion. In

order to maintain‘ long term relationship in banking sector customers, Service quality contributes

a lot to-gain competitive advantage (Zeithmal, Parasuraman, & Berry, 2000). Prudential

regulation imposed by the State Bank of Pakistan to improve their Bank Services. Currently

there are more than 06 Islamic Banks operating in this region & more then 10 Conventional

Banks offering some products related to Islamic Banks.

LITERATURE REVIEW

Services is defined as

―Benefits, activities & satisfactions offered for sale or provided with the buying of goods‖.

(American Marketing Association, 1960).

―Services are generally consumed‘ at the time it is produced, include all economic-activities,

whose output are not a physical products or construction and also provides added-value in forms

(such as comfort or health, amusement, convenience, timeliness,) & that are always intangible

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concerns of its first buyer‖ (Quinn, Baruch and Paquette, 1987). There are four main

characteristics of Services that differentiate it from goods, which are, 1-intangibility, 2-

inseparability, 3-heterogeneity and 4-perishability (Hoffman and Bateson, 2002; Parasuraman et

al., 1985). Quality‘ plays a vital role in the acquisition and retention of the customer (Galloway

and Ho, 1996).

Service quality can enhance the organization‘s long term benefits, competitive position and in

last leads to differentiation in future (Morre, 1987). Hanson (2000) suggested in his study that

organizations/firms should improve their service‘s to fulfill the customer‘s needs, wants and

requirements. Another study underlines the phenomenon that service quality is an important

indicator of customer satisfaction (Spreng and Machoy, 1996). Service quality has been defined

as the degree and direction between customer service expectations and perceptions (Newman,

2001). Perceived service quality is defined as how well a service satisfies the expectations of

customers (Berndt, 2009). Service quality has an impact on profitability and costs (Buttle, 1996),

as service quality influences customer satisfaction, it impacts customer retention, reduces costs

and increases profitability (Zeithaml et al., 2006). One study found that, many activities like

processing information rapidly have impact on customers & resulted in much delighted customers,

customer get dissatisfied due to the reliability of equipment lessened (Johnston, 1997). Due to the

increase in competition, service quality has got popularity among professionals and academia,

further Zeithmal et al. (2000) also explained that‘s to get competitive benefit & to sustain long-

term association with patrons play vital role. Leeds (1992) mentioned that dealing of bank

customers vital, because service-quality primarily depends on its.

Banks need to be more concentrate on service-quality to gain competitive position in market and

customer satisfaction (Caruana, 2002). It is found that customer‘s values and beliefs create its

perception / image in the mind of customer regarding service-quality & that beliefs vary from

one culture/nation to another (Furer, O., Ching-Liu, BS., Sudharshan, D. 2002). Due to culture,

demographics, geographic of a region, religion, and or any other attributes, there is almost no

consensus in the literature regarding service-quality uniform-dimensions among researchers. It

can be vary form one region to another. However, Parasuraman et al. (1988, 1991a,b) urbanized

SERVQUAL model / instrument to find out the degree of the dimensions of service quality,

which are frequently used almost by all researchers to explore service excellence. It consists of

twenty-two (22) items that are coupled into five different dimensions namely 1-reliability, 2-

tangibility, 3-responsiveness; 4-assurance and 5-empathy.

Different ways have been suggested to measure service quality, the most well known being that

of the SERVQUAL instrument (Parasuraman et al., 1988). This instrument is based on the

differences between the perceptions and expectations of customers regarding the dimensions of

service quality. The difference between the perceptions and expectations indicates the existence

of a gap. The instrument was developed with 22 statements reflecting each of the dimensions

identified, but this has been adapted depending on the industry in which the research has been

conducted.

This service quality model is as under:-

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*******************************************

METHODOLOGY

The purpose behind this study is to investigate the level of Customers satisfaction of Islamic

banks regarding facilities‘ provided in Sargodha (Pakistan). All customers of the Islamic Banks

of Sargodha are the population. A sample of 91 Islamic banks customers selected.

A convenience sampling, non-probability sampling design, method was used due to its

consideration as more appropriate to collect the Data. Convenience sampling was used due to its

easily accessibility of customers & data collection is easy, required less time as compare to

others methods & furthermore data can be collect from the members of the sample that are near.

As Food and Nutrition Technical Assistance Project (FANTA 1997) that non-probability

samples are not complicated and Economical than others probability sample‘s. To collect the

required information from Islamic Banks Customers, A-personal contact approach‘ is also used;

more the researcher clarified the queries of respondent raised by any.

The methodology used for Survey is Questionnaire. A survey is a means of gathering

information about a particular population by sampling some of its members, usually through a

system of standardized questions. Surveys can be conducted by mail, telephone, personal

interview, or Internet. They can be administered either to individuals or groups. The primary

purpose of a survey is to elicit information which, after evaluation, results in a profile or

statistical characterization of the population sampled. Questions may be related to behaviors,

beliefs, attitudes, and/or characteristics of those who are surveyed. Questionnaires structure

included open ended & closed ended Question. A 5-point Likert Scale (Ranging from strongly

disagree=1 to strongly agree=5 used for collecting of required information.

The Questionnaire was divided into two sections.

1. Demographic of the Respondent

2. The last section dealt with the respondents‘ satisfaction levels. Statistical Package for Social

Science (SPSS Version 14) package will be used to analyze the data set. A frequency

distribution was used to describe the sample. The mean and standard deviations of the

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attributes will also be computed. Finally, paired t-tests will be used to test the significant

difference between sample means.

The questionnaire (Attached as Annex ―A‖) designed for this study was based on the widely

accepted SERVQUAL model. A total of 22 attributes were categorized under five dimensions as

follows:

S.

# Attributes # of Questions

1 Tangibility 4

2 Reliability 5

3 Responsiveness 4

4 Assurance 4

5 Empathy 5

Total = 22

FINDINGS

1. Findings of Descriptive Statistics

120-questionnaires were distributed among sample to collect data. 103 collected back & 91-

questionnaires were useable for data analysis among them. Response rate is 76%, which is quite

reasonable for data analysis.

The list of Islamic Banks selected for the study as under:-

a. AlBaraka Islamic Bank

b. BankIslami Pakistan Limited

c. Dubai Islamic Bank Pakistan limited

d. Dawood Islamic Bank Limited

e. Emirates Global Islamic Bank Limited (Merged into Al Baraka Bank (Pakistan) Limited)

f. Meezan Bank Limited-Premier Islamic Bank In Pakistan

The gender-composition was 88 male (95%) and only 3 female (5%) respectively. The reason

behind less # of female‘s respondent was in Pakistani cultural males are responsible for earning.

Men fulfilled the necessities or responsible for outside the home on the other hand females

performed domestic-duties inside the house (Obbe, 1980). Both (these) groups include Business

men (68), Salaried Person (17), Students of different institutions (3) and House Wife‘s (3) as

mentioned in Table-A.

As per Qualification of the customers, majority of the respondent 68 (65 Male & 3 Female) were

Below Bachelor, 10 (All Males) of them has Bachelor Degree & remaining 13 (All Males) have

Master Degree (Table-B). As per segmentations of Customers according to the age 6 persons

(All Males) lies in age group b/w 18-22, 43 including 3 females lies in b/w 29-34 & 42

respondents lies in age group b/w 35 & above (Table-C). While 25 including 1 Female

customer‘s native language were Urdu & 66 had Punjabi as native language (Including 2

Females) as reported in Table-D.

Table-E showing marital status, 85Males & 3Female are married*, while only 3 person (Male)

are un-married** in respondent.

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Table-A

Your Position * Gender Cross tabulation

Count

Gender

Total 1.00 (Male) 2.00 (Female)

Your Position Business Men 68 0 68

Salaried Person 17 0 17

Students 3 0 3

House Wives 0 3 3 Total 88 3 91

Table- B

Qualification * Gender Cross tabulation

Count

Gender

Total 1.00 (Male) 2.00 (Female)

Qualification Below Bachelor 65 3 68

Bachelor 10 0 10

Master 13 0 13 Total 88 3 91

Table-C Age * Gender Cross tabulation

Count

Gender

Total 1.00 (male) 2.00 (Female)

Age 18-22 6 0 6

23-28 0 0 0

29-34 40 3 43

35 & above 42 0 42 Total 88 3 91

Table-D Native Language * Gender Cross tabulation

Count

Gender

Total 1.00(male) 2.00(Female)

Native Language Urdu 24 1 25

Punjabi 64 2 66 Total 88 3 91

Table-E

Marital Status * Gender Cross tabulation

Count

Gender


Marital Status Married 85 3 88

Un-married 3 0 3

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Table-E Marital Status * Gender Cross tabulation

Count

Gender


Marital Status Married 85 3 88

Un-married 3 0 3 Total 88 3 91

2. Results of Reliability and Validity of Data

Cronbach‘s alpha for instrument‘ (22 items) was 0.826. The Cronbach‘s alpha for individual

variables of Tangibility (0.842); Reliability (0.761); Responsiveness (0.746); Assurance (0.859);

and Empathy (0.710) were found to be within limits for further analysis as greater then Role of

Thumb (0.7).

3. Results of variability (Deviation)

Table F is showing the variability-statistics for the service quality of Islamic Banks and its

dimensions. The results shows‘ that Islamic banks service quality scores of all items are not more

deviate as Tangibility 4-items mean is 3.82 & Standard Deviation is .83, Reliability 5-items

means is 4.49 & Standard Deviation is .70, Responsiveness 4-items mean is 3.47 lowest as

compare to others factors & Standard Deviation is .94 as respondent might perceived that

employees of those banks remains busy & have less time to deal with them, 4-items mean of

Assurance is 4.49 (Highest) & Standard Deviation is .78 as per respondent might think that

employees although are busy but they have the knowledge to answer their questions, they feel

safe with bank for their transactions. And, for last 5-items Empathy mean is 3.79 & Standard

Deviation is .74.

Table-F

Descriptive Statistics

N Minimum Maximum Sum Mean Std. Deviation

Tangibility 91 1.75 5.00 347.75 3.8214 .83023

Reliability 91 1.60 5.00 408.60 4.4901 .70254

Responsiveness 91 1.75 5.00 315.75 3.4698 .94121

Assurance 91 2.50 5.00 409.25 4.4973 .78837

Empathy 91 2.00 5.00 344.60 3.7868 .74165


4. Analyses of Customers‟ Satisfactions

The purpose right behind of this study is of analyzing customers‘ satisfaction was to find/confirm

the result‘s of low or high service quality level & the degree of satisfaction or dissatisfaction.

The respondents (Islamic Banks Consumers) were asked to rate statements from 1 to 5 where 1 =

Strongly Disagree, 2 = disagree, 3 = neutral, 4 = agree and 5 = Strongly Agree based on their

level of satisfaction;. The table below showed that the mean for overall customer‘s satisfaction

was 4.013. This indicates that customers were agree/satisfied with the service provided by the

Islamic banks in Sargodha (Pakistan).

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Customers‘ Satisfaction

Description Mean

Overall Satisfaction 4.013

Limitations and Future Research The basic limitation of this‘ study is that all respondent belongs from a single region and the data

gathered from respondent not represent the whole World, although it may be eliminate in

upcoming or future research. If this Research study, taken as a national sample, then this would

provide‘ a better generalization for the Islamic banking sector in Pakistan, because Customer

Satisfaction issues always attached with the domain of Banks or any Customer Services

providing firms.

6. Conclusion and Implication

This study builds on earlier research of Ahmad et all. (2010) and find / examines the level of

service-quality of Pakistan Islamic banking industry from the customers‘ perspective.

Customer‘s perceptions are always very important weather it relates to any industry, but in

Banking Sectors Customers involvement is very high in the delivery of quality services, so their

Banking Customers satisfaction is the key for any Bank to gain maximum share in competitive

market.

In Pakistan, Customers are looking satisfied from the quality of servicers, but Banks‘ shouldn‘t

be happy as this study attributes had negatives aspects & scores as well from some consumers.

Islamic Banks should care of this & should work to improve & fulfilled these gaps. If these gaps

not taken so seriously, then this can create serious problems for delivery of services & will widen

in future.

In the era of competition Banks Management should work for quality push & should measure the

performance of their employees, so customer response can be find to become a globally

competent as response leads to perception then satisfaction, These measures / actions and

changes‘ may be expensive in terms of employee time, resources and effort, but banks needs to

find-ways to overcome these types of hurdles, otherwise they can lost their existing market share

due to increasing competition from National / international banks..

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References Adele Berndt., ―Investigating Service Quality Dimensions in South African Motor Vehicle

Servicing,‖ African Journal of Marketing Management, Vol. 1(1) pp. 001-009 April,

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Ahmad, A., Afzal-Humayoun, A., Ul-Hassan, (2010), An Analysis of Functions Performed by

Islamic Bank: A Case of Pakistan. European Journal of Social Sciences – Volume 17,

Number 1 (2010).

Ahmad, A., Rehman, K., Saif, M. I. & Safwan, M.N.(2010). An Empirical Investigation of

Islamic Banking in Pakistan based on Perception of Service Quality, African Journal of

Business Management, 4 (6), 1185-1193.

American Marketing Association, Committee of Definitions 1960, p. 21

Buttle, F. 1996. SERVQUAL: Review, critique, research agenda. European Journal of

Marketing. 30(1): 8–32.

Caruana A (2002). Service loyalty: the effect of service quality and mediating role of customer

satisfaction, European. J. Mark, 36(7/8): 811-28.

Food and Nutrition Technical Assistance Project (FANTA). Sampling Guide. Washington, DC:

Robert Magnani.

Furer, O., Ching-Liu, BS., Sudharshan, D. (2002). The relationship between culture and service

quality perceptions, Journal of Service Res, 2(4): 355-70.

Galloway L, Ho S (1996). The model of service quality for training, Training for Quality, 4(1):

20-26.

Hanson W (2000). Principles of Internet Marketing, Cincinnati, Ohio: South-Western.

Hoffman KD, Bateson JE (2002). Essentials of Services Marketing: Concepts, Strategies, and

Cases, 2nd ed. Harcourt College Publishers.

Hull, L. (2002). Foreign-Owned Banks: Implications for New Zealand‘s Financial Stability,

Discussion Paper Series, DP 2002/05.

Johnston R (1997). Identifying the critical determinants of service quality in retail banking:

importance and effect. Inter. J. Bank Mark, 15(4): 111–116.

Leeds B (1992). Mystery Shopping‘ Offers Clues to Quality Service, Bank Mark, 24(11): 24-27.

Morre CD (1987). Outclass the Competition with Service Distinction, Mortgage Bank,pp. 11-47.

Parasuraman A, Berry LL, Zeithaml VA (1991b). Understanding customer expectations of

service, Sloan Manage Rev., 39: 39-48.

Parasuraman A, Zeithaml VA, Berry L (1988). SERVQUAL: a multipleitem scale for measuring

customer perceptions of service quality. J. Retailing, 64: 12-40.

Parasuraman A, Zeithaml VA, Berry L (1991a). Refinement and reassessment of the

SERVQUAL scale, J. Retailing, 67(4): 42-50.

Quinn, J.B., Baruch, J.J. and Paquette, P.C. (1987). Technology in services, Scientific American,

257 (6):50-58.

Spreng RA, Mackoy RD (1996), An empirical examination of a model of perceived service

quality and satisfaction. J. Retailing, 72: 201–214.

State Bank of Pakistan (2010), Islamic Banking Bulletin, April - June 2010.

Zeithmal VA, Parasuraman A, Malhotra A (2000). Service quality delivery through websites: a

critical review of extant knowledge. J. Acad Mark Sci, 30(4): 362-375.

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REVISIONING SAARC

Dr. Muhammad Saleem Mazhar

Chairman, Department of Persian, University of the Punjab, Lahore-Pakistan

Naheed S. Goraya

Senior Research Fellow

Centre for South Asian Studies, University of the Punjab, Lahore-Pakistan

Jafar R. Kataria

Research Assistant

Centre for South Asian Studies, University of the Punjab, Lahore-Pakistan Abstract

Regionalism has enormously gained significance in modern times. In this globalized world, even the greater powers have tried to strengthen their position through alliances and other understandings with like-minded powers. SAARC, the brain child of Late President of Bangladesh, Zia-ur-Rehman was founded on December 8, 1985, in order to seek and promote the intra-regional cooperation and reciprocal assistance in economic, social, cultural and scientific fields. The success of SAARC is subjected to permanent shift among regional states rather than rhetorical claims. Bilateral disputes among the SAARC Countries have been the week motivational factors in upholding cooperation. Though the presence of SAFTA and Observer States is a good sign yet today after passing 25 years, SAARC falls among the failure regional organizations, unlike other regional organizations in the world. The paper shall try to analyze the factors which led to its failure, despite having immense potential for regional cooperation in South Asia and also why it has failed to merge itself into a political unit? The paper shall also look into the factors which encouraged the other counties to seek association with SAARC. The paper will seek the role of Observes in SAARC and also what contribution can made by them to SAARC and how SAARC can get benefit out of them because has not so far reached the point where a universal Organization becomes redundant.

Keywords: SAARC, Observers, South Asia, United Nation, SAFTA, FDI, Terrorism, East-West Connectivity,

1. Introduction

In the age of regionalism, politics is replaced by economics in shaping the inter-state relations. Post Cold War era in international relations and world politics has observed a strong surge towards regionalism. It has become very important in modern times on account of the difficulty of implementing the security provision of the Charter of the United Nations (Mahajan, 1995: 355). The early 1990s heard much talk of regionalism and regionalization of world politics. Trade within the regions expanded faster than trade between the regions, and many foresaw the emergence of regional economic blocs, European, North American, East Asian, etc (Huntington, 1996: 130). The world has changed today, being global in scope, revolutionary fundamental and structural in content. It is the age of regionalism and commercial diplomacy.

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The world now has been divided into two major categories:

1. World Powers: The states whose influence goes beyond a particular region

2. Regional Powers: The states whose influence is confined to a particular region (Iqbal, 2006)

South Asia accounts for nearly 23 per cent of the total world population. However, its share in the global GDP is less than 3 per cent. The region is home to the world‘s 400 million poor, which means nearly 30 per cent of the region‘s population lives below the poverty line. All SAARC countries have a rather low ranking on the human development index (HDI), which according to the Human Development Report 2007-08 is: Sri Lanka (99), the Maldives (100), India (128), Bhutan (133), Pakistan (136), Bangladesh (140), and Nepal (142). The HDI ranking is based on achievements in terms of life expectancy, education and real income. The low HDI ranking reflects poorly on these vital indicators in the region (Dawn, 2010, May 9). SAARC covers 21 per cent of the world‘s population and 3-5 per cent of total area but they account for only 0.25 per cent of the world‘s GNP. About half of the world‘s poor inhabit in this part of the world. The per capita GNP of all the members together is barely around US $ 350 only (Siddiqi, 2006: 10) (See Table 1).

2. Historical Evolution

Dash (1996) writes following seven factors which led Zia-ur-Rehman to think about the establishment of a regional organization in South Asia during 1975-79:

1. Change in the political leadership in the South Asian countries and demonstration of accommodative diplomacy by the new leaders;

2. Ziaur Rahman's need for Indian support to legitimize his coup d'etat regime;

3. An acute balance of payment crisis of almost all the South Asian countries, which was further aggravated by the second oil crisis in 1979;

4. Failure of the North-South dialogues, and increasing protectionism by the developed countries;

5. Publication of an extremely useful background report by the Committee on Studies for Cooperation in Development in South Asia (CSCD), identifying many feasible areas of cooperation;

6. Assurance of economic assistance for multilateral cooperative projects on sharing water resources of Ganga and Brahmaputra by United States President Jimmy Carter and British Prime Minister James Callaghan during their visit to India, Pakistan and Bangladesh in January 1978;

7. Soviet military intervention in Afghanistan in late December 1979 and the resulting rapid deterioration of the South Asian security situation.

The King of Nepal, Briendra Bir Bikram Shah Dev had during the speech at the first meeting of SAARC Summit in 1985 stated that, ―Regional cooperation can strengthen the building of a lasting edifice of peaceful co-existence through initiatives and interactions in the fields like the cultural, scientific, technological and economic spheres ‖ (http://india.foreignpolicyblogs.com/2010/05/12/saarc-iii-challenges-and-prospects/).

The origin of South Asian Association for Regional Organization (SAARC), the brainchild of Bangladesh‘s late President Zia-ur-Rehman, can be traced back to the initiatives launched between1971-81. It was established when its Charter was formally adopted on December 8, 1985 which states that, ―We, the Heads of State or Government of Bangladesh, Bhutan, India, Maldives, Nepal, Pakistan and Sri Lanka; Desirous of promoting peace, stability, amity and progress in the region through strict adherence to the principles of the United Nations Charter and Non-Alignment, particularly respect for the principles of sovereign equality, territorial

http://india.foreignpolicyblogs.com/2010/05/12/saarc-iii-challenges-and-

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integrity, national independence, non-use of force and non-interference in the internal affairs of other States and peaceful settlement of all disputes‖ . Its objectives were:

1. To promote the welfare of the peoples of South Asia and to improve their quality of life;

2. To accelerate economic growth, social progress and cultural development in the region and to provide all individuals the opportunity to live in dignity and to realize their full potentials;

3. To promote and strengthen collective self-reliance among the countries of South Asia;

4. To contribute to mutual trust, understanding and appreciation of one another's problems;

5. To promote active collaboration and mutual assistance in the economic, social, cultural, technical and scientific fields;

6. To strengthen cooperation with other developing countries;

7. To strengthen cooperation among themselves in international forums on matters of common interests; and

8. To cooperate with international and regional organizations with similar aims and purposes (www.saarc-sec.org).

Someone called SAARC as Snow White and the Six Dwarfs, while others saw it as the Big Bully and Six Dwarfs (Tamil Net, 2008, July 14). Since the world has undergone the experience of being known as global village, it is really difficult for any country to remain detached and restrained itself to one or two regional grouping.

Since its inception, SAARC has undergone following 4 evolutionary phases:

1. The Conception (1977-80)

Before the establishment of SAARC, its idea was discussed in at least three conferences:

1.1. Asian Relations Conference in New Delhi (April 1947)

The discussions about regional cooperation in Asia in general, and South Asia in particular, were mooted at the Asian Relations Conference held in New Delhi in late March and early April 1947 but it was ended without any positive results (Malik, 1993: 274).

1.2. Baguio Conference in Philippines (May 1950)

In May 1950, a regional conference, sponsored by Philippines was held in the city of Baguio. The official representatives of India, Pakistan, Ceylon (now Sri Lanka), Thailand, Indonesia and Australia attended this conference. It was arranged upon the invitation of President Elpidio Rivera Quirino, 6

th president of Philippines through UN

President Carlos P. Romulo (1949-50). Only economic issues were taken up and this regional meeting ended with the promise of a future alliance for common cooperation and aid (http:/www.jstor.org/stable/3023827).

1.3. Colombo Powers Conference (April 1954)

The Colombo Powers included India, Pakistan, Ceylon (now Sri Lanka), Burma (now Myanmar), and Indonesia, the host country (http://onlinelibrary.wiley.com/doi/10.1111/j.1467-7709.2005.00520.x/pdf).

2. The Meeting of Foreign Secretaries & Foreign Ministers (1981-84)

Four meetings at foreign secretary level took place in order to formulate the principles and identify its areas. These discussion of three years resulted in a shift to the political level in 1983 (Iqbal, Op.cit).

http://www.saarc-sec.org/

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3. The Summits (1985-2010)

These summits are the highest authority in SAARC and they are held annually So far there have been sixteen summits

3.1. First SAARC Summit (7-8 December1985, held at Dhaka

3.2. Second SAARC Summit (16-17 November 1986), held at Bangalore

3.3. Third SAARC Summit (2-4 November 1987), held at Katmandu

3.4. Fourth Summit (29-31 December 1988), held at Islamabad

3.5. Fifth SAARC Summit (21-23 November 1990), held at Male

3.6. Sixth SAARC Summit (21 December 1991), held at Colombo

3.7. Seventh SAARC Summit (10-11 April 1993), held at Dhaka

3.8. Eighth SAARC Summit (2-4 May 1995), held at New Delhi

3.9. Ninth SAARC Summit (12-14 May 1997), held at Male

3.10. Tenth SAARC Summit (29-31 July 1998), held at Colombo

3.11. Eleventh SAARC Summit (4-6 January 2002), held at Katmandu

3.12. Twelfth SAARC Summit (4-6 January 2004), held at Islamabad

3.13. Thirteenth SAARC Summit (12-13 November 2005), held at Dhaka

3.14. Fourteenth SAARC Summit (3-4 April 2007), held at New Delhi

3.15. Fifteenth SAARC Summit (2-3 August 2008), held at Colombo

3.16. Sixteenth SAARC Summit (28-29 April 2010), held at Thimpu

3. ACHIEVEMENTS

In order to meet the economic and political interaction, the regional organizations across the globe have gained importance. These regional blocs have emerged as platforms which wield influence in the world affairs but the performance of SAARC has not been totally gloomy. Despite failures, it has achievements at its credit too.

SAARC Development Fund (SDF) has come into operation with three Windows (Social, Economic and Infrastructure)

The regional convention on suppression of terrorism

SAARC Agricultural Information Center at Dhaka

SAARC Audio Visual Exchange Programme (SAVE)

Social Charter top set targets for eradication of poverty, population stabilization and human resource development

South Asian Preferential Agreement (SAPTA) , signed in 7th SAARC Summit in April 1993

Establishment of SAARC University, temporary campus in Jawaharlal Nehru University (JNU), New Delhi

Additional Protocol to 1987 SAARC Convention on Terrorism, signed in the backdrop of 9/11

Designated SAARC Decades

1991-2000 SAARC Decade of the Girl Child

2001-2010 SAARC Decade of the Rights of the Child

2006-2015 SAARC Decade of Poverty Alleviation

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2010-2020 SAARC Decade of Intra-Regional Connectivity

(http://www.saarc-sec.org/Designated-SAARC-Decades/11/)

SAARC has also developed collaboration, without MoU with other organizations such as Association of South-East Asian Nations (ASEAN), Deuteche Geselschaft fur Technische Zusammenarbeit (GTZ), United Nations Industrial Development Organization (UNIDO); and International Standard Organization (ISO)

4. FAILURES

Samuel (1996) writes that military alliances and economic associations require cooperation among their members; cooperation depends on trust, and trust most easily springs from common values and culture. As a result while age and purpose also play a role, the overall effectiveness of regional organizations generally varies inversely with the civilizational diversity of their membership (Huntington, Op.cit: 131). SAARC as regional grouping appears to have failed to live up to its promise. The substantive evolution in SAARC has been painfully slow. Not only has it been a singular failure in efforts to add an economic dimension of note to regional ties, its record in regional planning and problem-solving has been pathetic (Saleem, 2010). It is due to this reason that after 25 years, it seems very obvious that SAARC has done nothing in terms of implementation. The Prime Minister of India expressed his disappointment in sixteenth SAARC Summit by saying that, ―the glass of regional cooperation, regional development and regional integration is half empty‖ and emphasized that ―the region must be better connected, empowered, fed and educated‖ to achieve comparable success with other regional organizations (Hindustan Times, 2010, April 28). SAARC would have played a coordinating role in bridging the gaps in economic policies vis-à-vis globalization and learning replicable lessons from the innovative developmental activities related to poverty eradication pursued by some member states. Except for establishing 2 commissions on poverty alleviation, SAARC has not done enough in either of these areas (http://www.apcss.org/Publications/Edited%20Volumes/RegionalFinal%20chapters/Chapter9Rahman.pdf).

Thornton (1996) writes that ―SAARC‘s most difficult obstacle lies in the structural problem of the system, which is overwhelming predominance of India constrained by the presence of a Pakistan that is too strong to be dominated by India. South Asia must develop a framework in which India can find a style of regional leadership that the smaller states find acceptable. Clearly, SAARC as such will not be able to solve that problem; at most it can provide a stabilizing framework within which India and its more important neighbours become more comfortable with each other. That, however, could be a critical contribution‖ (http://jstor.org/stable/1046502).

It is due to this fact that India does not enjoy good relations with any of its neighboring countries and is having bilateral disputes with all her neighbors except Maldives and Bhutan. As earlier, Pakistan and India both had been reluctant, when SAARC was being established due to their own reservations, as Pakistan feared that it might be possible that India becomes a giant against Pakistan; while India was scarred that all small nations of South Asia will be blessed with an opportunity to solve their bilateral issues.

Since inception, there were two different perceptions behind the idea of the regional cooperation in South Asia. The Indian ambition to bring the neighbors under its fold its address its security concerns and neighbor‘s outlook to make a forum to check India interfering into their affairs (Op, cit, 2008, July 14).

The unavailability of economic incentives has been a reason for the failure of SAARC. It has not created any standard against which each country could be measured. Not much has been done as far as free trade is concerned. Nothing remarkable has been done in terms of human rights as SAARC has failed to perk up the lives of the people. The slogan of ‗People to People Contact‘ never reflected the real people rather reflected the

http://www.saarc-sec.org/Designated-SAARC-Decades/11/

http://www.apcss.org/Publications/Edited%20Volumes/RegionalFinal%20chapters/Chapter9Rahman.pdf



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governments. The common people have nothing to do with the foreign policies of the countries. In fact illiteracy, discrepancy and inequality are the factors which knocked down the noble concept of SAARC. The handling of SAARC affairs and decisions by security advisors and intelligence officers indicate the gravity of the problem that it has not moved an inch from the precincts of security (Ibid).

The trust deficit among member state has deep negative impact on the political will to realize the economic cooperation and integration. Apart from political confrontations, the economic factors have also played an unsupportive role. (Dawn, 2010, May 9). India being dominated in South Asian region (with 74% of the region‘s population, 75% of its GDP, 79% of its trade and 81% of the region‘s FDI flow), has the responsibility to make SAARC a successful regional organization (Ibid).

Owing to structural scarcity, nothing concrete has been done for the improvement of the life of common man.

Nothing remarkable has been done from the platform of SAARC for recent flood disaster in Pakistan (2010).

SAARC Food Security Reserve have not done anything remarkable so far (the worst example was of 1991 natural disaster in Bangladesh)

The intra-region trade has been dismal too. The combined trade of all eight member countries accounts for less than 2 per cent of global trade. The region accounts for 1.7 per cent of world exports and 3 per cent of global FDI inflows. The share of South Asia in total Asian exports and imports is merely 4.7 and 7.5 per cent respectively. Not only is global trade volume of SAARC member countries small but intra-region trade is also low. Intra-SAARC trade accounts for less than 5 per cent of the total trade of the region (Dawn, May 9, 2010). As Pakistan has not given India MFN status so far, India maintains high tariffs and non-tariff barriers on products of export interest to Pakistan (Dawn, May 9, 2010).

SAARC lacks the political cohesion, solidity and a shared vision because the inter-state politics has victimized its novel cause for which it was established. The efforts must be made top sketch out such approach because it was established to diffuse the political tensions but so far there has been fractional achievement.

Another factor that leads to the failure of SAARC, is the fact that from political to economic level, India and its neighbors have many disputes. India‘s security perception vis-à-vis its neighbors are creating more trouble. Besides all above, there are occasional conflicts among SAARC nations. ―Many reasons exist for the uneven progress of SAARC: most have to do with intra-regional political tensions, and most involve India. The chronic tension, occasional conflict, and perennial absence of trust between India and Pakistan; the periodic hiccups in relations between India and her other neighbors-Sri Lanka, Nepal, Bangladesh and so on. India as the largest country with boundaries with all the other member States without doubt bears a disproportionate responsibility for the success or failure of SAARC as compared with the others: it is condemned to be both the necessary engine as well as the likely obstacle in the fulfillment of SAARC‘s potential‖ (http://www.ifa.org.np/document/saarcpapers/rajan.pdf). SAARC can not make progress, as the states in the Western Europe could arrive at European Union (EU), only after resolving their security problems. The other factor lies in the fact that there is a constant US security umbrella which has ensured that the European political rivalries would not raise their ugly heads again; while in South Asia, the security dynamics between a large India and its smaller neighbors ensures that it would lead to an uneven road of economic and political cooperation (www.defence.pk/forums/.../56048-how-chinachanges-saarc-saarc.html).

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Today the natural resources and minerals are facing threats but so far nothing remarkable has been done in this regard. The reports show that there is a serious threat to natural resources and minerals which are converting into conflicting zones. In addition to the diminishing natural resources, there is a serious threat posed by climate change in South Asia. At 8 feet below sea level, Pakistan's financial capital Karachi shows up on the list of world's mega-cities threatened by global warming. Other South Asian cities likely to come under rising sea water in the next 100 years include Mumbai, Kolkata and Dhaka (http://www.riazhaq.com/2008/07/climate-change-likely-to-Flood-Karachi.htm). A high altitude stand-off at Siachin (55,00 m above the sea level in the disputed region of Kashmir) is causing serious threats. It is melting at an unprecedented rate; partly due to global warming mainly because of the permanent troops‗ deployments which will further aggravate the water crisis the two nations are facing (http://www.riazhaq.com/2009/11/pakistani-army-documentary-wins-top.html.

SAFTA has not been implemented in its true letter and spirit. It was created in 12th SAARC Summit and came into force on January 1, 2006. It provides that the members will reduce their tariffs to 0-5 percent by December 31, 2015, but it requires the bilateral conflicts of Pakistan and India to be resolved (Dawn, 2010, 9 May).

It seems that the time has come where Article X of SAARC Charter needs to be amended which states, ―Bilateral and contentious issues shall be excluded from the deliberations.‖ (http://www.saarc-sec.org/SAARC-Charter/5/). A proposal was made by ex- Pakistani President Pervaiz Musharraf at a three day International seminar on ‗Major Powers and South Asia‘ to amend it as it would help SAARC to resolve the inter-regional and bilateral South Asian conflicts. (Daily Times, 2003, August 12).This proposal was confirmed by the then Indian Prime Minister Mr. Vajpayee when he visited Islamabad to attend 12th SAARC Summit in 2004 (Europe backs Pak call to amend SAARC charter (http://forum.pakistanidefence.com/lofiversion/index.php/t18088.html).

5. SIXTEENTH SAARC SUMMIT- 28-29 APRIL, 2010

Sixteenth SAARC Summit was held at Thimpu (Bhutan) on 28-29 April, 2010, the first ever summit hosted by Bhutan since its establishment and for the first time, Austaralia and Mayanmar attended the Summit as observers. It was in fact the silver jubilee of the organization which ended with the declaration, ―Towards a Green and Happy South Asia‖. It issued two separate declarations on regional cooperation and climate change. An additional declaration was issued to mark the year 2010, as Silver Jubilee of the establishment of SAARC, while prior to it, there used to be only one declaration. The Summit issued a 37-point joint declaration, highlighting the importance of more cooperation to resolve the issues of poverty, energy, terrorism, water, promoting development and improving the living standard of the people in the region (The Nation, 2010, April 30). The decade of 2010-20 was declared as the ―Decade of Intra-Regional Connectivity in SAARC‖. Thus the silver jubilee of SAARC is an right time for reviewing the role of the regional body. A good point in this summit was that both Prime Ministers of India and Pakistan met each other with the decision of taking up again the bilateral talks. It was a good thing in the sense that Indo-Pak dialogues had been hung up after the Mumbai terrorist attacks in November 2008. South Asian leaders have admitted in this summit that their mutual differences particularly between India and Pakistan have led to the failure of SAARC. Though the focus of sixteenth SAARC Summit has been climate but there has been complete silence over water issues and water management (http://www.ipcs.org/article/south-asia/water-an-opportunity-for-saarc-3127.html).

http://www.riazhaq.com/2008/07/climate-change-likely-to-flood-karachi.html

http://www.riazhaq.com/2008/07/climate-change-likely-to-Flood-Karachi.htm

http://southasiainvestor.blogspot.com/2009/03/world-water-day-water-scarcity-hurting.html

http://www.riazhaq.com/2009/11/pakistani-army-documentary-wins-top.html

http://www.saarc-sec.org/SAARC-Charter/5/

http://forum.pakistanidefence.com/lofiversion/index.php/t18088.html

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6. ROLE OF OBSERVERS

When countries have sizeable stakes in certain region, they start attending as observers, in order to explore the political, economic and cultural avenues of those nations/ countries. The role observers have not been defined in the SAARC Charter. Observers and inclusion of states will lead South Asia towards a new power game. The success of SAARC is conditional on the perceptual move among regional states rather than metaphorical arguments. The regional organizations in 3

rd world countries are a mechanism to satisfy the national aspirations and

realize the national goals (http://india.foreignpolicyblogs.com/2010/05/12/saarc-iii-challenges-and-prospects/). Though not much credit can be given to SAARC in terms of economic integration yet the increasing number of states as observers is a good sign. The 14

th SAARC

Summit was important in a sense that it accepted Afghanistan as 8th

member of SAARC and 5 nations, US, European Union, Japan¸ China and South Korea) got observer status. All these states are economically sound and strategically important in international system. In 15

th

SAARC Summit (August 2009 in Colombo), the delegates of 9 countries participated as observers.

It was Afghanistan‘s great desire to become a member of SAARC since its inception. Its geographical location, social, cultural and economic links and Pakistan and India as good markets for Afghan commodities; made the membership case strong. Afghanistan joined as the eighth Member of the SAARC and China and Japan as Observers, during the 14

th Summit held in

New Delhi on 3-4 April 2007. The then Chairperson and Bangladesh‘s Prime Minister said that, ―I am happy to announce that the SAARC leaders have admitted Afghanistan as member of SAARC, subject to completion of formalities… we have also decided to accord observe status to People‘s Republic of China and Japan‖ (http://www.southasiaanalysis.org/%5Cpapers17%5Cpaper1626.html).

Afghanistan will certainly prove as a bridge between Central and South Asia. India and Bhutan were not quite happy due to Chinese presence as they thought that the focus on the region would get thinned. As far as China‘s role as observer, it will have several impacts which can be discussed as follows: The china card in the region can be used by the countries of South Asia other than India. The politicization of SAARC will take the focus of regional cooperation from socio-economic development to global power politics (Pattanaik, 2010). It will promote East-West Connectivity. China can not be artificially separated from a region with which she is so inextricably connected: by history, geography, ecology, and vital common interests whether they have to do with military security, terrorism or environmental security (http://www.ifa.org.np/pdf/prc/mrjosse.pdf). As China has common border with Pakistan, Afghanistan, Nepal and Bhutan, It can be very beneficial as observer in having a sound impact on the declining South Asian economy, through both trade and investment.

On March 3, 2007, Iran had made a formal application to the SAARC Secretariat for Observer status. At the fourteenth SAARC Summit ((3-4 April, 2007), held at New Delhi , on the theme of 'connectivity' a unanimous decision was taken to offer Iran an observer status in SAARC to enhance South Asia's links with Iran (Rajasingham, 2010). Iran has the distinction that it has common borders with two of the eight members of SAARC.

As having commercial and geographical links, it would be able to provide the South Asian region with ‗East-West Connectivity‘. From India‘s point of view, Iran‘s observer status in Iran has following advantages

To counter the war against terrorism

To fulfill the security and economic needs (As Iran holds 10% of world‘s oil and 15% of natural gas reserves)

Easy access to Central Asia ( North-South Connectivity) (Mohantay, 2007)

The role of observers carries both challenge and opportunity. It has enhanced the international stature of SAARC and created imperatives for peace and cooperation. It can boast foreign direct

http://india.foreignpolicyblogs.com/2010/05/12/saarc-iii-challenges-and-prospects/


http://www.ifa.org.np/pdf/prc/mrjosse.pdf

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investment, open up transit trade facilities, provide connectivity and inter-regional trade and economic cooperation opportunities among member state. US and South Korea were admitted as observers in the Standing Committee‘s meeting on November 10, 2006, held at Dhaka. With the coming of these countries as observers has given SAARC a much wider platform for business and trade and strategic developments. Though the presence of Iran and US in the region will contribute in the economic growth and mutual aid of the region, yet it might lead to the initiation of a new power game. It is evident from the fact that US has its own reservations as far as Iran-Pakistan-India (IPI) gas pipeline is concerned. This project will change the face of regional politics in South Asia. The point can not be negated that if US and Iran relations intensify over nuclear issue, Pakistan would not be able to move the project. Iran's association with SAARC will immensely help in stimulating SAARC while enhancing East-West connectivity.

Although the fear of big powers‘ own interest can not be set aside in the SAARC yet it will have some positive impacts too. The South Asian nations can get benefit in terms of economic stability and progress both with in the region and outside world. Despite many benefits, there lies an element of competition, having different political calculations (China‘s trade and commercial relations with India, but political convergence with Pakistan) (http://www.apcss.org/Publications/Edited%20Volumes/RegionalFinal%20chapters/Chapter9Rahman.pdf).

7. Conclusion

The evolution of SAARC was likely to gain massively from the historical and cultural knots that unite people across the national borders in South Asia. As SAARC has failed to deliver on social, cultural and economic front, it is the high time that this regional organization should have set and monitored targets. If this regional organization becomes successful in retaining an economic integration, it will open new avenues of revenue investment and employment in this part of the world and these nations will surely be in a position to fight against poverty.

There are many issues like natural disaster, apportionment of waters, sharing of energy resources, and preservation of environment, education, poverty alleviation and extremism / terrorism; which have nothing to do with bilateral concerns. Today Maldives is facing an alarming threat of submersion posed by global warming.

The distrust and mistrust among South Asian Nations has to be removed.

SAARC lacks a political will which led to the failure of leaders and officials to envisage the benefits of regional cooperation. India should re-examine its regional policy. No country should have any right to squeeze the water of any other country. If Pakistan and India resolve their differences, it can change the future course of South Asia. In order to reinvent itself, a fresh approach is needed for which SAARC must get out of the entrenched mindsets. India needs political farsightedness, sophistication and altogether different and diverse outlook. It must change its dichotomy in perception. The energy sharing plans can be conducive for meeting the energy crisis with in South Asian Countries

Visa free travel should be adopted with in the SAARC region. Myanmar, being historically a part of South Asia, should also be included in SAARC.

The cultural ties that exist in the region have been forgotten. To be successful, SAARC has to focus on culture, as the strength of harmony and regional support in South Asia lies not in its political units of today but in its people and culture. SAARC should follow and adopt a theoretical structure, model and framework. Extremism and terrorism must be eradicated from the region.

Workshops/ symposiums on the lines of SAARC Youth Summit might be arranged for students, teachers and researchers as SAARC will make progress by not only holding yearly summits but by bringing common people together by following SAARC Youth Action Plan.




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SAARC and China should join hands to establish tourism resorts

An institution for the conflict resolution mechanism should be formed in order to address the bilateral inter-state issues

SAARC has been failed to provide its people a better quality of life which is really pathetic. Thus the role of civil society of SAARC should be enhanced.

Media should play positive role in bringing harmony among SAARC countries

Terrorism and extremism needs to be curbed out and that demands for strong institutional building and flourishing of democracy in South Asia. It is mainly due to the reason that there has been a gap between the economic growth and poverty reduction.

The common social and economic challenges faced by the people must be dealt because it will ensure the regional securities rather than military pacts.

Trade could be used as a mechanism for development. Only India and Srilanka have free trade agreement. Free trade could have been a great success because trade can play a positive role for poverty alleviation (South Asia, being repository of the poorest people in the world, with more people without adequate access to energy than any where else in the world, along with imperative issues of mortality and health. The nations should themselves sort out what kind of developments their countries need and for that purpose, the South Asian Identity must be created; otherwise these yearly summits will be of no use. SAARC as a regional organization has the potential to play an influential role with far-reaching economic and political consequences. SAARC should work for the progress in law and order, education, poverty, environment and other areas.

The political and economic issues should be addressed simultaneously.

Less should be spent on military rather human resource development should be made and social sector should be developed. In principle, the political disputes among nations should not hamper the economic progress.

SAARC should work for the progress of its social charter. Peaceful nations can exist only when the political differences are removed. A regional agenda should be developed which must be included the voice of national concerns.

Water being a vital article of trade in South Asia has created the bilateral tensions as well. SAARC through collaborative projects and programs can provide an alternative platform.

The food for thought is whether SAARC can heed progress and be functional without resolving the political strains among South Asian countries and it is worth mentioning that India does not enjoy cordial relation with any of the South Asian Country except Bhutan and Maldives. The bilateral disputes among South Asian countries overrun into regional domain in terms of mistrust and aggression. Unless the core regional controversies and conflicts, like Kashmir issue, illegal migration, Siachin, water sharing and trade and transit facilities are resolved, the cooperation can not be made on successful grounds., Though the prospects of any remarkable breakthroughs are far-flung or virtually nil, SAARC will make cautious incremental growth but the persistent security dilemmas have to be removed. SAARC is a market of future due to human potential and huge market. It is attracting the world now and SAARC should get benefit out of it. SAARC should abstain from the impractical economic and social ambitions; rather it should be used as a mean to discuss the issues related to peace, security and development with international organizations and agencies to endorse welfare of the member countries.

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http://onlinelibrary.wiley.com/doi/10.1111/j.1467-7709.2005.00520.x/pdf



http://www.ifa.org.np/document/saarcpapers/rajan.pdf

http://www.ifa.org.np/pdf/prc/mrjosse.pdf

http://www.indexmundi.com/g/r.aspx?c=bg&v=66

http://www.ipcs.org/article/south-asia/water-an-opportunity-for-saarc-3127.html

http://www.riazhaq.com/2008/07/climate-change-likely-to-Flood-Karachi.htm

http://www.riazhaq.com/2009/11/pakistani-army-documentary-wins-top.html

http://www.saarc.sec.org/

http://www.saarc-sec.org/Designated-SAARC-Decades/11/

http://www.defencepk/forums/.../56048-how-chinachanges-saarc-saarc.html

http://www.jstor.org/stable/1046502

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Annexure

Country Real Growth Rate %

India 7.4

Bangladesh 4.9

Pakistan 2.7

Srilanka 6

Bhutan 21.4

Maldives 5.7

Afghanistan 3.4

Nepal 4.7

Table 1

(http://www.indexmundi.com/g/r.aspx?c=bg&v=66)

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IMPACT OF MODERNIZATION ON THE SOCIAL STATUS OF AGED

JAFAR R. Kataria(Corresponding author)

Research Assistant/ M.Phil Scholar

Centre for South Asian Studies.

University of the Punjab, Lahore-Pakistan

Mughees Bin Aziz

M.Phil Scholar,

Department of Sociology,

International Islamic University, Islamabad-Pakistan

and Visiting Faculty Lecturer

University of Central Punjab, Lahore-Pakistan

Abstract

Due to the higher fertility rate and decrease in the mortality the life span is increasing this has

affected the population of the aged. Aging is very important issue of every society especially in

Pakistan as the family institution is consider very important in Pakistani Society and aged are

major part of it, they are considered as the pioneer and the career of the traditions so they have

less acceptance and adoption for new modern ideas and value. The researches on Pakistani

context are not sufficient to address the issue as the aged population is facing the cost of

modernization thus this research will provide us information about this issue and also help

exploring the social status of the aged in modernizing society.

Keywords: Aging, Modernization, Social Ties, Socio Economic Status

1. Introduction

Modernization is a process of social and cultural change. Modernization means the

process of acceptance and adoption of new modern ideas and value. It changes the attitude of the

people and makes value it change the attitude of the people make them ready to adjust them self

according to new emerging situation or condition.

Social status can be understood as the degree of honor or prestige attached to one's

position in society (Robin et al., 1987). Social stratification is associated with the ability of

individuals to live up to some set of ideals or principles regarded as important by the society or

some social group within it (Harold, 1998). Although there are a few societies around the world

that ascribe everyone at least old people equal status, most societies do have some form of social

hierarchy with some people in stronger, more dominant positions, and other people in weaker,

lower positions. Often this inequity is built into the social system itself through various forms of

structural components and institutions. Social and economic roles are distinguished and accorded

differential status according to what a particular society or culture deems valuable (Moore,

1996).

Age is a dimension of homosapeins, which is inherited, in human biological being. It is

an ingredient in individual personality development, self-concept and mental life. It shapes social

interaction, group formation and social structure. It is also a component of the cultural codes

people use to negotiate to each other and to their environment. Most contemporary thinking

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about human development treats the life span as an integrated, contagious set of age-related

events from birth to death with which people cope in a variety of way.

Sociologists are playing an increasing and increasingly vital role in the study of later life

because of the increasing recognition of the significance of culture and cultural differences in

human life. Sociologist‘s goal in the study of old age is social advocacy and the educational

awareness.

Aging is a broad concept that includes physical changes in our body over adult life,

psychological changes in our mind and mental capacities social psychological changes in what

we think and believe and social changes in how we are viewed, what we can expect and what is

expected of us.

Older people are the keepers of tradition. They know about many unrecorded events that

have taken place over the years in families, at workplace, in communities, and in the nation. Old

age can be a time of extraordinary freedom and opportunity once the responsibilities of

employment and child rearing are set aside (Hoyert and Donna, 1992). Chronologically, the

onset of old age typically occurs in the late 70s although many people in their 80s or 90s show

few signs of it. Old age is characterized by extreme physical frailty. Mental process slow down:

chronic organic brain disease becomes more prevalent. Individuals in old age feel that death is

near, activity is greatly restricted. Social networks have become decimated by the deaths of

friends and relatives and by the individual‘s own disabilities (Atchley, 1997).

Growing old may be regarded as a time of ripeness and fulfillment or a period of

declining health and failing powers. There is nothing inherently problematical about growing

old. And yet in most nations of the world, old age is increasingly understood in "social problem"

terms. As we all must age and eventually any cultural belief system that cannot provide security,

meaning, and self-esteem for those who reach the conclusion of life's natural sequences will

eventually have to change (Sjaak, 1999).

The process of aging is around us as long as life itself. There have been people on earth

for thousands of years and even though average length of human life in most societies did not

extend into old age until this twentieth century. The aged are perceived as ‗natural‘ in that they

are conceptualized as prisoners of time, closer to death, less resistant to disease subject to

emotional swings and redial emotions as depression, made accultural through isolation stripped

through loss and all in all more greatly affected by biology and other phenomena. The aging

process is complex and is affected by the sociological, psychological, biological and

environment factors.

Feeling of social loss among the aged is tremendous. Mandatory retirements put them out

of work force; if working income becomes drastically reduced because of the weakness and

breakthrough of health. Older people are also thought as slow thinkers, forgetful, rigid, mean-

tempered, irritable and dependent and so on. An older one who is socially lonely may not eat

well and therefore develop physical symptoms of mal-nourishment which includes intellectual

functioning. Hearing loss can lead to suspiciousness that irritates people. Sleep is also affected

by aging, also complains of disrupted sleep as grows older. Snoring is also common among men

which also increase with age, its volume increases which is more than an inconvenient and

disrupts the sleep of others.

The most important fact to emphasize is that the status of the old man is never won but

always granted. They belonged to an unproductive minority, and their fate depends upon the

interests of the active majority. When the majority wished to avoid lawless rivalry between its

members and to maintain the established order they found it convenient to choose men of a

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different kind to act as intermediaries, adjudicators or representative figures, men upon whose

authority all could agree; and the aged obviously fulfilled these conditions.....they are necessary

for the working out of the problem, but once the answer has been reached they are eliminated

(Simone, 1999).

There is a general tendency in old age to shift toward more sedentary, more advisory and

supervisory activities, to those involving more mental exertion than physical, and those directed

toward group maintenance more than economic production. In all societies, the mores prescribe

some mutual responsibility within the family as between old people and their adult children.

Saving for old age appears to be a near universal desire and effort even if it is not always

successful. All societies value life and seek to prolong it even in old age (Rokeach, 1973).

Traditional family values are still very important in third world countries .Aged member

of family demand respect form the young members of family who have the responsibility for

caring for their elders however recent economic health and social change mainly the migration of

many young in search of job in cities or abroad, have produce a decline in the family tradition

system of assigning responsibilities and capacity to deal with some of the fundamental needs of

the aged member.

When society is modernizing the ideal type of family beings to change from extended

family system to nuclear family, when the society is modernizing, the culture, living condition,

education system, health care, more over everything goes under change (Social change)

These types of change make norms and values of the old obsolete. Now the importance of

old is much lesser and no need of, there skills and experiences are required. Young one can learn

there trait from out side family. As there impotence has been reduced they have feeling of

isolation and detachment from their family.

Modernization creates complete break between past present and the future because

modern man and women are living differently from their parents and grand parents. The living

condition education system, health care, roles are very different from there parents and grand

parents. These trends have brought decline in the social status of aged.


According to Hendricks (1982), gerontology has uncritically accepted the idea that, prior

to the unleashing of the forces of the modern era, the elderly were active in valued economic

and emotional roles in an extended family setting, thus ensuring that they were accorded

universal respect. In the after phase, values and role definitions are seen to have changed,

leading to an erosion of the position of the elderly as society develops in a manner in which old

people serve no valued function at all.

In 1972, Donald Cowgill and Lowell Holmes developed a theory of modernization as it

related to aging and old age. Their position was that as societies modernized undertaking the

shift from farm and craft production within families to a dominantly industrial mode of

production—repercussions of modernization would diminish the status of older people.

Cowgill‘s later theoretical refinements (1974) identified four key aspects of modernization that

undermined the status of older people: health technology, economic and industrial technology,

urbanization, and education.

According to Cowgill‘s theory, improved health technology, including advances in both

medical practice and public health, has positive effects of improving health and increasing

longevity, but it also has negative effects for older people. When people live longer, there is

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more competition in the labor market. Employers in industrializing societies prefer younger

workers with new occupational skills to older workers, forcing older workers out of the labor

market into retirement. Once retired, according to modernization theory, loss of income, prestige,

and honor arising from labor market participation lead to a decline in the status of older people.

Modernizing advances in economic and industrial technology create new occupations in factories

located near transportation and services. Younger people acquire the skills for new occupational

slots and join the industrial work force, relegating older people to less prestigious and

increasingly obsolete jobs. This often leads to retirement, reversing the roles of old and young. In

traditional societies, older family members control family production, and younger ones are

dependent on the old. When older people are excluded from the industrial labor market, they

become dependent on the young, losing social status.

Olson (1988) said that one of the principal areas of interest in the study of modernization

is the question of how modernizationa effects the elderly population. The Cowgill‘s theory of

modernization predicts that the traditionally high status of the elderly tends to change under

industrialization. The theory postulates that the proportion of elderly increases as a result of

advances in medical and sanitation practices which contribute to lower mortality rates and a

longer life span. Under these conditions the status of the elderly (status includes both physical

status-their economic well-being-and social status-their level of prestige) changes as the society

places a priority on younger workers who possess the job skills necessary in a technologically

advanced society. Under these conditions the elderly decline in prestige and may or may not

decline in their standard of living, but play a lesser role in the production system, and actually

drain resources from the society rather than adding to its output.

Clark (1973) identifies six silent aspects of aging which emerged years prior to her article

from the research cultural anthropologist. These are dying decrement and disengagement,

disease, dependency and regression, minority group status and life span development. Clark

stressed that these bio-cultural life events are shaped by the cultural content of aging must be

delineated in order to understand it. He concluded that anthropology offers the opportunity for a

fined grained analysis via ethnography that is required to understand the adaptive reaction made

by the old people and to reveal them as vibrant and vital participant in their cultural arena.

Fry (1980) remarks that Sociologists are playing an increasingly vital role in the study of

later life, not only because the event of aging is planet wide, international and cross-cultural but

also because of the recognition of the culture and cultural differences in human life.

Kay and Bergmann, (1980) suggest that depression is the most common functional

disorder in aged persons. He says that we must be careful to separate transient depressive

reactions from prolonged dysfunction depression in aged people. The belief that decreased self

regard is much more important then guilt in the causation of depression in older people has been

in a psychiatric literature. Older people are still capable of actions that produce guilt. Severe

depression reactions are often found associated with physical disease

Tylor and Ford, (1981) in his research find out that the social relationship in which older

ones engage are clearly as important as a part of their environment as physical or ecological

conditions. Some ideas of the density of the social networks in which old black and old whites

lives can be gained from living arrangements and frequency of contacts with friends and

neighbors. They found out that approximately the same proportion of old blacks and white lives

alone. White has but high proportions of couples living together. Whereas the number of older

blacks living alone seems high for a contemporary young group. This data is sketched simply to

show the social environment of old blacks and white. Though they share the same environment

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in the sense of living in the same neighborhood, but the older white seems to be unsatisfied by

their environment because they much anxiety in the future because of neighborhood but blacks

always show less worry and more satisfaction with their lives.

Lippman (1982) found out that elderly loneliness and ill health presents the major

problem of the old age. 97 percent of older people cite illness as compared with 88 percent of

staff. 75 percent of experts and 49 percent of young people. The largest discrepancy exists

between old and young and whilst for older people the level of homogeneity is very high. It is

significant that older people are more likely to think of loneliness as a problem of aging then of

themselves.

Mckee and Patrick, (1982) a common misconception about older people is that they had

it better in the good old days, but it is important to separate the rhetoric and ideology of aging

from the realities. Indeed ideas about aging and the realities of growing older have probably

always had both positive and negative elements. Certainly, this has been the case in western

civilization. For example, Aristotle had the following to say about elderly men. ―They have lived

many years; they have often been taken in and often made mistakes: and life on the whole is a

bad business. The result is that they are sure about nothing and under-do everything. They

―think‖, but they never ―know‖, and because of their hesitation they always add a ―possibly‖ or a

―perhaps‖, putting everything this way an nothing positively. They are cynical; that is, they put

the worse construction on everything they are small minded, because they have been humbled by

life: their desires are set upon nothing more exalted or unusual than what will help them keep

alive.‖

Thorndike (1982) in his research analysis concluded that the study of intellectual ability

over wide ranges have suggested that intellectual functioning decline slowly from the third

decade of life to the sixth and abruptly thereafter. In adult learning Thorndike reported that in

learning on a large series of tasks in several ages and socio-economic level, subject reached a

peak between 20-25 followed by a slow, uniform age related decline of approximately 0.5

percent per annum to about 50 years of age. Furthermore, the decline from 22 to 42 was similar

in proportion for both dull and gifted people. The developmental changes in intellectual

functioning with age are central to our understanding and assessment of the normal and clinically

diagnosed elderly. She also suggested different economic and structural reasons for the

preference for sons in rural areas. Unlike urban areas where children are seen as long-term

dependents, in rural areas elderly parents rely on their children for support in old age. According

to her, relationships with in China have traditionally been marked by strong intergenerational

support and reciprocity. But the way such support is actualized differs markedly in rural and in

urban areas.

Getzel (1985) the flow of mutual aid between generation, through the system of kin,

friends and neighbors and the aged repeatedly documented in the social gerontology. The myth

of the isolated elderly abandoned by their kin and the community is widely held by social

workers despite findings that the older persons have children who live nearby and frequently

visit. Families, friends and neighbors are the most significant source of aid to community aged as

they become less able to function independently. Informal social supports are continuous source

of social contact, material aid and instrumental assistance. Old persons are in turn significant

source of aid and to their children and to others. Even older persons without available kin are apt

to have neighbors as social support. Some studies indicate that even when older persons have had

troubled relations with their children, mutually is maintained into the late life.

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Blazer (1990) he also considered social stratification system related to aging. The

dynamic nature of the social stratification and aging process suggest that it have cumulative

effect on the health of the individuals over their life course. Blazer suggests that the frequency of

neurosis and schizophrenia to decline with age, while organic mental disorders and

psychosomatic complaints increase among the aged.

Schooler (1990) demonstrated that psychological performance is very much conditioned

by social roles and social situations people confront and the psychological skills transmitted,

evoked and rewarded in those situations. He suggests that some of the declines in individual

flexibility attributed to aging may infect stem from the fact that many elders are not faced

substantively complex demands in their every day lives.

Guttmann (1995) a cross cultural researcher suggest that old age derives its essential

human meaning from a species role as a post parental phenomenon, developing ultimately from

the natural parental functions. The role of elders in history has been to foster an environment for

effective parenting and help to maintain the evolutionary advantage of the human brain and the

propensity to new learning.

Atchley (1997) argues that a person who losses self esteem in later life tends to do so

because physical changes have become so pronounced that the person is forced to accept what he

or she sees as a less desirable self image. The person‘s self esteem is precarious or vulnerable as

a result of being either too dependent on social positions and roles or too narrow, or the

individual has lost control over her or his home or community environment to such an extent that

she or he is essentially defenseless. This last possibly is especially likely when a person moves

into a nursing home. Most people have the resources and defenses needed to retain or maintain

self esteem into old age, a fact made very clear by the multitude of studies showing that older

people living in community settings have stable, well defined personalities and high self esteem ,

and that self esteem increases with age.

Erickson considers old age as a good thing and not reaching old age suggests that ‗earlier

problems retarded your development. Erickson sees personality development in case of eight

psychosocial crises. He feels that each psychosocial crisis can be resolved positively or

negatively. His psychosocial theory is an approach to ego development closely aligned with

developmental tasks particular to various life stages.

Altman (1999) argues that addressing the concerns of these early theorists has offered a

number of useful insights to assessing the needs of older adults. The needs of our aging society

are diverse because of the very nature of the aging process and due to the diverse profile of the

older population. Lifespan studies suggest that older people are more unlike each other than

younger populations. Not only do people become more different from each other as they age, but

there are significant differences among the older adults in this population called aging. The

young-old, 65, are quite different from the old-old, 85 plus, in personality, health, vigor and

emotional stability. Therefore, to address the quality of life and basic needs of all older adults

demands a clear understanding of the diverse physical, mental, social, environmental attributes

of the individuals in later life.

Ge Lin ( 2002) stated in his article that The modernization thesis of Goode postulates

that, as a society becomes modernized, its patrilineal extended-family structure shifts to a smaller

nuclear family which, in turn, leads to the weakening of the extended kinship ties and

intergenerational support common to most preindustrialized societies.

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3. CONCLUSION

In the light of above mentioned researches it may be right to say that modernization has

adverse effect on aged population. Researcher found that modernization is affecting the social

status of old aged. It might be right to say that if the level of modernization becomes higher the

status of aged will become more adverse.

Socio Economic Status of the Aged in Pakistan is varied across and its relation with the

status of the house hold, thus it is observed that the upper and lower class due to the availability

and non availability of resources are excluded from the study and only the middle class Aged are

too be studied, and is observed that status of the aged who are living in the family with more

stronger social ties and are less modernized is quite better then those who are modernized having

comparatively weaker social ties. It is also studied that in the household with the stronger social

ties, the financial authority is the aged one regardless of that he is earning hand or not, where as

the case is totally opposite in the house hold with weaker ties, as no matter if the Aged is earning

or not he have less authority over the financial resources of the house. So it is quite right to

conclude at the time that in the house holds which are modernized and have less attachment with

the social ties the status of the aged is deprived and are felt as a burden on the house where as in

those house holds where the ties are stronger the Aged are given due respect and are treated as

the head of the family.

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References

Goode, W. 1970 ‗World Revolution and Family Patterns‘, New York: The Free Press.

Atchley, C. 1997. Social Forces and Aging, An introduction to social gerontology. 8th

ed.,

Wadsworth publishing company. Miami. PP. 45. 131-132.

Clark, A. P. 1973. Anthropology and Aging. Mc-Millan Press, New York. U.S.A. PP.89-91

Arifullah, S. and Bhatti, K. M. (1998) ‗Research Process Simplified‘ Islamabad:

PanGraphics (PVT) Ltd.

Babbie, E.1990. ‗Survey Research methods‘ California: Wads Worth Publishing Company

Belmont.

Neuman, W. L. 1991. ‗3rd

Edition Social Research Methods‘ U.S.A.: Allyn &

Bacon. A Viacon Company.

Webster, N. 1965. ‗Third New International Dictionary‘. U.S.A.: G. & C. Merriam Company,

Publishers.

Robin, F, E. Langer and F. John. 1987. Long term care for the elderly. Oxford university press.

NY. P.13

Harold, K. 1998. Social Stratification and Inequality: Class Conflict in the United States,

McGraw Hill Book Co. New York. P. 113.

Moore, C. 1996. The Mediation Process. (2nd ed.) Jossey Bass press club. San Francisco P. 56.

Hoyert, C. and L. Donna. 1992. Factors related to the well being and life activities of family

caregivers. The gerontologist 41(2): 74-81.

Sjaak, V. D. 1999. Old Age Across Culture and Time. Oxford Press Club. London. PP.32-33.

Rokeach, M. 1973. The Nature of Human Values. The Free Press. New York. P.68

Fry, C. L. 1980. Cultural Dimensions of Age. Brooklyn press, New York. U.S.A. PP. 25-31

Kay, P. and B. Bergmann. 1980. Aging in Sociological Perspective. Herper publishers, New

York. U.S.A. P. 77.

Gen Lin. 2002. ―Regional variation in family support for the elderly in China: a geo

developmental perspective‖.

Source.http://citeseerx.ist.psu.edu/viewdoc/download?doi=10.1.1.135.8068&rep=rep1&type=pdf

Olson, P. 1988. ―Modernization in the People's Republic of China: The Politicization of the

Elderly‖. The Sociological Quarterly, Vol. 29.2. Blackwell Publishing

Hendricks, J. 1982. ―The Elderly in Society: Beyond Modernization‖.

COWGILL, D. O. 1979. "Aging and modernization: a revision of the theory," pp. 54-67 in J.

Hendricks and C. D. Hendricks (eds.) Dimensions of Aging. Cambridge: Winthrop.

http://citeseerx.ist.psu.edu/viewdoc/download?doi=10.1.1.135.8068&rep=rep1&type=pdf

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ANALYZING EMPIRICAL RELATIONSHIP BETWEEN TRADE OPENNESS,

INDUSTRIAL VALUE ADDED AND ECONOMIC GROWTH:


Nazima Ellahi Lecturer Department of Economics,Foundation Universty Colege of Libral Arts and Sciencs Islamabad

Dr. Hafiz Zahid Mehmood

Assistant Professor

Department of Management Science, comsats Institute of Information Technology, Lahore Campus

Prof Dr. Mehboob Ahmad Head Department of Economics

Foundation University College of Liberal Arts and Sciences, Rawalpindi

Naveed Azim Khattak

Ph.D Scholar, Shaheed Zulfiqar Ali Bhutto Institute of Science and Technology, Islamabad

Abstract

Openness and trade liberalization influenced high rates of growth in the developing countries.

Liberalization and integration took place in the economies of almost all the developing countries

during the late 80s and early 90s, in the previous century, on the inspiration of international

donor agencies to implement the structural adjustment programmes. It is a well admitted fact that

along with trade variables industrial value added work as an impetus affecting economic growth,

positively. Pakistan also adopted the measures and policies to liberalize trade as a result of

Washington Consensus. This study is an attempt to investigate the empirical relationship among

the trade openness, industrial value added and economic growth of Pakistan. Annual time series

data set (1980 to 2009) was utilized to observe the connections amongst the indicators of interest.

Moreover, unit root test was applied to determine the time series properties while OLS technique

of estimation and Granger causality tests were employed to find out directions of causality. The

results inferred from the econometric model articulated that imports and exports affect positively

to economic growth till the industrial value added are taken into account. It is concluded and

recommended from the outcomes of the study that the developing countries must adopt and

pursue trade openness and liberalization to strengthen their economies and consequently enhance

the living standards of their population.

Key Words: Industrial value added, trade openness, economic growth.

1. INTRODUCTION

Openness to trade has been considered as an important determinant of economic growth and a

well debated issue in the recent growth literature. Initially, the developing nations of the world

followed restrictive trade policies but with the passage of time and emergence of globalization all

the nations realized the need to liberalize their economies in terms of trade openness. It work as a

as a key determinant for the improvement of a country‘s industrialization. Moreover,

development experienced by a country brings some changes in trade structure on the basis of

endowments and comparative advantage (Hultman, 1967).

In an empirical analysis Adenikinju and Olofin (2000) suggested that development of industrial

sector can be determined by trade openness and policies of trade. There are a number of ways

through which a positive link between industrial sector growth and trade policies can be

explained. Firstly, scale efficiency is improved through intensifying the scope of domestic

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industrial sector. Secondly, an open trade regime causes high competition in world market,

which further boosts firms to follow and engage in modern technologies and further augment

efficiency. Thirdly, an open trade regime relaxes constraints caused by foreign exchange as

observed in case of developing nations. Last but not the least, it causes high development in

technological progress. (Lucas, 1988, Grossman and Helpman, 1989; 1991; and Romer, 1990).

Furthermore a few more potential gains from trade sector reforms include, (i) opportunities to

access intermediate and capital goods embodying better technologies, (ii) stimulation of

productive performance, (iii) better resources allocation, and (iv) access of local producers and

consumers to less expensive and higher quality goods from abroad (Winter, 2004). However,

many observers like Noland and Pack (2003) and Milner (2006), believed that domestic policies

of institutional development, macroeconomic management, education, health, infrastructure are

largely unrelated to trade which may now be the main obstacles to reap the benefits of trade reform

in developing countries.

As development requires integration of various sectors of the domestic economy therefore, a

dynamic process must be adopted with the production of primary commodities to opt a

developmental shift. It may help embarking on secondary commodities production and

eventually expanding the tertiary sectors until all these sectors of the economy are integrated

(Wade, 2005). So, it can be concluded that trade openness, and industrial value added can be

important factors to enhance overall economic performance.

1.1 Research Objectives

Objectives of a study help to understand the key theme of the research and also play a backbone

role to determine outcomes and achieve targets. This study is based on the following objectives,

1. To examine the nature of link between exports, industrial value added and economic

growth in Pakistan.

2. To present policy recommendations regarding the trade and industrial sector to support

policy makers and help researcher to further highlight the matters regarding trade,

industrial value added and economic growth.

1.2 Organization of the Study

Section 2 provides brief review of theoretical as well as empirical literature. An overview of

trade openness experiences and its outcome for Pakistan are presented in section 3. Methods,

data set and variables description is contained in section 4, while discussion on results is given in

section 5. Finally, section 6 delineates the conclusions and recommendations.


The theoretical and empirical literature regarding the openness of trade, industrial sector and

economic growth has a number of contributions by recent development economists. In this

regard Ahmad and Dutta (2006) studied the dimensions of industrial sector growth, trade

openness policies and economic growth for Pakistan. The empirical analysis was conducted by

using the annual time series data over the period 1973-1995. The application of cointegration and

error correction methods of estimation found an existence of long run and stable relationship

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among industrial value added, capital stock, real exports and import tarrif and ratio of secondary

school enrollment.

In the same line another study by Carmen and Pilar (2004) investigated the role played by

manufacturing sector imports on real GDP and employment for China. This analysis was carried

by using quarterly time series data set over the period 1979-2002 and employing dynamic

econometric technique of estimation. Its major findings pointed towards a positive long run link

between economic growth and trade openness indicators. Similarly, many other studies

concluded that trade performance of developing countries is dependent on natural factors

endowment and comparative advantages given the imperfect competition, economies of scale

and technological spillovers (Verspagen 1992).

Njikam (2009) examined the phenomenon of trade openness and development of industrial

performance for Cameroon. The study was designed to explore the existence of relationship

between infrastructure and industrial performance during pre and post trade openness periods. In this

analysis they utilized the annual dataset during the import-substitution era (1986-1994), and

immediately after trade reform (1995-2003) for a sample of 29 industrial sectors. Major findings

state that development in infrastructure leads to enhance the productivity of industrial sector,

hence better quality of infrastructure must be included in priority for designing trade openness

agenda. However, Barua and Chakraborty (2006) analyzed the industrial sector performance for

India and observed high market and openness effects on industrial and exports performance.

Major conclusion drawn by them suggested that liberalization leads to high price cost margins

and reduction in concentration of industries, low producer surplus and consequently, consumer

welfare is enhanced.

Adebiyi (2006) investigated the relationship between policies of trade openness and economic

growth performance in Nigeria. This study applied Vector Auto regression techniques and

utilized annual time series data set. Major findings suggested that sustained economic growth in

Nigeria can be achieved by implementing a comprehensive trade openness programme.

Moreover a number of case studies for Pakistan have also been conducted to analyze the

relationship between trade openness and economic growth including Khan et al. (1995) which

showed that economic growth is enhanced through export promotion. Another analysis

conducted by Iqbal and Zahid (1998) concluded that Pakistan had gained walfare effects through

trade openness. Similarly, Mohsin et al. (2001) found evidence that trade openness has helped to

eradicate poverty in Pakistan. An evidence of positive relationship was found for the South

Asian region including Pakistan by Kemal et al. (2002). Khan and Qayyum (2007) also

examined a positive and robust relationship between trade and financial sector policies with

economic growth.

Findings of theoretical and empirical literature above can be summarized that literature

documented strong evidence in the favor of trade openness. Openness to trade is an important

factor to enhance the industrial growth and overall economic performance. But a successful

outcome requires a competitive economy along with strong institutional framework. Developing

nations like Pakistan must adopt the policies to improve trade as well as industrial performance.

Guerrieri (2002) stated that international trade is beneficial but it is not necessary for all the

countries to get the benefits, individually, at national level. Benefits by trade openness are

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dependent upon a great number of endogenous factors out of which specialization pattern is

significant for the benefits. However it also suggested that macroeconomic stability is a key pre-

requisite to get the maximum gains from trade liberalization.

3. AN OVERVIEW OF TRADE SECTOR IN PAKISTAN

Since its inception, being an agriculture sector dependent country, Pakistan had a very weak

industrial sector along with poor infrastructure facilities and instability in social as well as

political sectors. The major goal of so-called development economist and policy makers of that

time emphasized to strengthen the industrial structure those days. In this regards, the major

objectives included restricting the imports and promoting the exports culture within the country.

As a consequence high tarrif rate policies were adopted to discourage imports in the country.

During the era of sixties, large scale manufacturing sector started to develop, because of policies

designed to strengthen the industrial base including overvalued exchange rate, export bonuses,

preferential credit access to industries with export potential and automatic renewal of import

licenses.

With the nationalization during the decade of 70s government of Pakistan adopted a few

measures for the openness of trade sector along with removal the pre provided export bonus

scheme. Moreover, devaluation of Pakistani rupee, and confiscating restricted licensing scheme,

increased the exports in manufacturing sector.

Pakistan restricted and protected its trade regime until the late 1980s. Imports were far away

from domestic markets as a result of high tarrif rates and non tarrif barriers. Structural

adjustment programme proposed by international funding agencies (IMF and World Bank) was

introduced in the early 1990s in the country. Pakistan followed liberalization policy for its trade

as well as financial sector. These policies got momentum, especially during the mid nineties,

with the reduction of import duties and eliminating various subsidies (Siddiqui and Iqbal, 2005).

Consequently, a reduction in the share of Pakistani exports in the world was observed from

0.22% to 0.18% and remained stagnant over it. As compared to Pakistan, all other Asian

countries gained lots of benefits in the same time (Hussein, 2007). Structural adjustment

programme resulted in an upward trend in exports as well as industrial value added.

4. METHODOLOGY AND DATA

A number of studies used time series data set and econometric modeling to examine the possible

impact of trade openness on economic growth21

. This study adopted the variable scheme adopted

by Sultan (2008) to achieve the objectives using imports and exports as indicators of trade and

industrial value added a determinant of economic growth. The analysis used imports, exports and

industrial value added as independent variables, and real GDP as dependent variable. Moreover,

all variables were transformed into logarithm form utilizing annual data set over the period 1975

to 2009 in millions of US dollars. Major sources include World Development Indicators (WDI),

and International Financial Statistics (IFS).

21

These studies include Sinha (1999), Hossain and Karonaratne (2001), Dutta and Ahmad (2004), Naryan and Smith

(2005) Jin (2003) and Sultan (2008).

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As a first step, this study applied ADF Unit root test to examine the time series properties of

data. We found all the variables be stationary at their first level. Thus, Ordinary Least Square

(OLS proposed by Carl Friedrich Gauss) is used to estimate the model, because under certain

assumptions namely, the equation to be estimated; is linear in parameters, is non-stochastic, has

zero mean value, possesses equal variance of distribution etc. finally after having established the

longrun cointegration among the variables, study applied Granger Causality Test to find the

directions of causal relation between the variables.

5. METHODOLOGY AND ESTIMATION RESULTS The results of unit root are reported in Table 5.1. It is grabbed from the table that all the variables

i.e. exports, imports, GDP and industrial value added are non stationary at level and are

stationary at first difference. It is concluding that all the variables are integrated of order one.

Table 5.1: Unit Root Test Results

Note: * shows significance at 5% level of significance, For testing unit root null hypothesis is that

variable possesses unit root, hypothesis is rejected if the calculated value exceeds ADF critical value

at 5% level of significance.

In the second step correlation among the variables was observed. The correlation matrix in Table

5.2 presents the evidence of strong correlation. Positive correlation is indicated between

industrial value added, exports and GDP which implies that high industrial value added cause

GDP to be high. Not a single evidence of negative correlation has been found here. Furthermore,

for the serial correlation LM test was also employed to observe the existence or non existence of

autocorrelation. However, the F-statistic was found very high (F-Stat = 17.9) while probability

was found to be less than 0.05. Therefore, null hypothesis of autocorrelation at 5% level of

significance is rejected.

Table 5.2: Correlation Matrix

Variables D(LRGDP) D(LEXPORTS) D(LIMPORTS) D(LINVA)

D(LRGDP) 1 0.97 0.93 0.98

D(LEXPORTS) 0.97 1 0.94 0.98

D(LIMPORTS) 0.93 0.94 1 0.95

D(LINVA) 0.98 0.98 0.95 1

Serial Correlation LM Test

F-Stat n*R2 Probability F-Stat Probability (Chi square)

17.93959 17.67172 0.000020 0.000145

Note: Null hypothesis for testing correlation is existence of autocorrelation.

Variables

ADF at Level

ADF at First

Difference

Decision

LEXPORTS -0.6263 -3.3265* I(1)

LIMPORTS -0.1026 -2.8863* I(1)

LGDP -1.3027 -2.6987* I(1)

INVA -0.1026 -2.8863* I(1)

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Table 5.3 delineates the results of OLS method of estimation, where C is intercept term,

D(LEXPORS), D(LIMPORTS), D(LINVA) are independent variables and were first differences

of log of exports, imports and industrial value added, respectively. Dependent variable was

LRGDP which is log of real GDP. Furthermore it is observed from the table that coefficient of

exports possesses negative sign indicating a negative impact of growth rate of exports on growth

rate of economic growth. Moreover, it has an overall insignificant effect i.e. 1% increase in

growth rate of imports causes 1.16% increase in real GDP growth rate. However, industrial

value added is an important determinant of economic growth in addition to imports and exports.

Industrial value added has positive and significant impact on economic growth, but its

contribution is very small in economic growth as growth of trade variables. It s also observed

from the table that 1% rise in growth rate of industrial value added causes 0.0001% rise in real

GDP growth rate. Adjusted R2 is 0.96 which is indicating that 96% variation in explanatory

variables was caused by explained variables. Values of coefficients suggest that the effect of

growth rate of imports has more strong effect on dependent variable as compared to growth rates

of exports or imports.

The cointegration among the variables was found in the next step, i.e. it was an endeavor to seek

existence or non existence of longrun relationship between the variables. So, Johansson

bivariate cointegration test was applied to detect the status of longrun relationship.

Table 5.3: OLS Regression Results

Variables coefficients t-statistics Probability

C 7.7333* 3.83776 0.0008

D(LEXPORTS) -0.6397 -1.21322 0.2364

D(LIMPORTS) 1.1618* 4.83107 0.0001

D(LINVA) 0.0001* 3.14487 0.0043

R2 = 0.962921 F-stat = 243.38 D.W stat = 0.509 Prob(F-tat)=0.000

Note: * shows significance at 1% level of significance, ** at 5% and *** at 10% level of Significance.

All the variables are non stationary at their level but are stationary at first difference and hence

integrated of same order. After testing the existence of cointegration and longrun relationship

between the variables now we move to find the causality amongst the given variables. The

results of causality are given in appendix, which state that bidirectional causality exists between

imports and exports indicating imports cause exports which further cause imports to be high.

Moreover, industrial value added cause imports, a unidirectional causality running from

industrial value added to imports was found showing industrial value added growth requires

more technology and capital goods which is enhanced by growth of industrial value added. In

summary, if we import capital goods and technology from abroad, it will be helpful for the

improvement of industrial value added and its growth.

6. CONCLUSION AND POLICY RECOMMENDATION

Major findings of our analysis suggested that imports is an important determinant for growth of

industrial (Kemal, 2003) value added which further contributed positively to economic growth.

These findings can be summarized in another way that trade openness or the growth of imports

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and exports are not only determinant of economic growth but a positive and significant

contribution can be achieved by considering the industrial value added as well. The case study

found that potential benefits can be gained by Pakistan economy by adopting more trade

openness policies. Furthermore, these benefits can be positively exacerbated if the policies are

made taking industrial sector into account.

Industrial sector of Pakistan has not yet achieved the competition of world market through high

value added. So, if the demand of imported goods is associated with exports and industrial value

added, we can achieve high and sustained growth of real GDP. Therefore, it is recommended that

there must be reduction in tariff and non tariff barriers along with promotion of exports and

imports. Policies must be introduced to promote the imports of capital goods, in addition new

and advanced technologies must be promoted to enhance the growth of industrial value added

which in turn contributes to positive economic growth.

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REFRENCES

Adebayo, A. M. (2005). ―Trade Liberalisation Policy and Industrial Growth Performance in

Nigeria: An Error Correction Mechanism (ECM) Technique. Selected Papers for the

2004 Annual Conference of the Nigerian Economic Society, 119-145.

Barua, A., & Chakraborty, D. (2006). Liberalization, Trade and Industrial Performance:An

Empirical Analysis for India. Paper for APEA Conference Seattle.

Carmen, M., & Pilar. (2004). The Impact of Industry and Foreign Trade on Economic Growth in

China: An Inter Sector Econometric Model. Euro American Association of Economic

Development Studies Working Paper Series, no. 76.

Din, M., Ghani, E., & Siddiqui, O. (2003). Openness and Economic Growth in Pakistan.

Pakistan Development Review, 792-807.

Dutta, D., & Ahmad, N. (2004). Trade Liberalization and Industrial growth in Pakistan: A

Cointegration Analysis. Journal of Applied Economics, 1421-1429.

Grossman, G. M., & Helpman, E. (1989). Growth and Walfare in a Small Open Economy. NBER

Working Paper, National Bureau of Economic Research, Cambridge Massachusetts, No.

2970.

Hassan, M. M. (2001). Impact of Trade Reforms on Poverty. Pakistan Institute of Development

Economics 16th Annual General Meeting.

Hultman, C. (1967). Exports Expansion and Economic Growth: A Survey of Land Economics.

43, 148-157.

Hussain, I. (2007, June 17). Trade and Economic Linkages. Islamabad: Quaid e Azam

University.

IMF. (2008). International Financial Statistics (IFS). Issued by IMF Washington D.C.

Iqbal, Zafar, & Zahid G.M. (1998). Macroeconomic Determinants of Economic Growth in

Pakistan. PAkistan Development Review, 37(02), 125-148.

Kemal, A. R. (2003). An Assesment of the Impact of Trade Liberalization in Walfare in

Pakistan. MIMAP Technical Paper Series PAkistan Istitute of Development Economics,

No. 16.

Kemal, A. R. (2003). An Assessment of the Impact of Trade Liberalization in Walfare in

Pakistan. MIMAP Technical Paper Series PIDE, No. 16.

Khan, M. A., & Qayyum, A. (2007). Trade Liberalization, Financial Development and Economic

Growth. Pakistan Institute of Development Economics Working Paper , No.19.

Lucas, R. E. (1988). on the Mechanics of Economic Development. Journal of Monetary

Economics, 22.

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Naryan, & Kumar, P. (2005). Trade liberalisation and economic growth in Fiji : An empirical

assessment using the ARDL approach . Journal Of Asian pacific economy , 96-115.

Njikam, O. (2009). Trade Liberalization, Industrial Performance and Infrastructure Development

in Cameroon. Africa Studies Centre, Leiden, the Netherlands.

Romer, P. (1990). Endogenous Technological Change. Journal of Political Economy, 98.

Siddiqui, A. H., & Iqbal , J. (2005). Impact of Trade Openness on Output Growth of Pakistan:

An Empirical Investigation. MArket Forces, 01.

Sinha, D., & Sinha, T. (1999). Relation Between Openness and Economic Growth: Pstwar

Evidence from 124 Counteries. Journal of Economics, 67-83.

Sultan, P. (2008). Trade, Industry and Economic Growth in Bangladesh. Journal of Economic

Cooperation, 71-92.

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APPENDIX

Granger Causality Results

Hypothesis to Test

F-Statistics(probability)

LEXPORTS does not Granger Cause LRGDP 0.58431 (0.56555)

LRGDP does not Granger Cause LEXPORTS 0.78365 (0.46856)

LIMPORTS does not Granger Cause LRGDP 0.43751 (0.65090)

LRGDP does not Granger Cause LIMPORTS 2.48412 (0.10549)

LINV does not Granger Cause LRGDP 0.66570 (0.52396)

LRGDP does not Granger Cause LINV 0.94847 (0.40261)

LIMPORTS does not Granger Cause EXPORTS 2.99739 (0.06969)

LEXPORTS does not Granger Cause IMPORTS 3.95982 (0.03328)

LINV does not Granger Cause LEXPORTS 3.27533 (0.05687)

LEXPORTS does not Granger Cause LINV 1.15954 (0.33207)

LINV does not Granger Cause LIMPORTS 6.43980 (0.00629)

LIMPORTS does not Granger Cause LINV 0.02862 (0.97182)

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PROBLEMS FACED BY SCIENCE TEACHERS AT SECONDARY LEVEL

IN DISTRICT KARAK

Prof Dr. Rabia Tabbssum

Associate Professor, Education Department

Northern University Nowshera Pakistan

Dr. Muhammad Imran Assistant Professor, Institute of Education and Research,

Punjab University, Lahore

Dr. Ali Murtaza

Assistant Professor, Faculty of Education

Preston University, Islamabad, Pakistan


Assistant Professor, Institute of Education and Research,

Kohat University of Science and Technology

Abstract

In this research paper the author discuss to find out the problem faced by science teacher at

Public Secondary Schools of District Karak. In this definition education is the development of

those capacities in the individual, which will enable him to control his environment and fulfill

his responsibilities. The word Science has its origin from the Latin word, scientia, which means

―to know‖. ―Science is a systematized body of knowledge‖. The population of the study were

consisted all the Science teachers working in male and female Public Secondary Schools of

District Karak. A sample of 18 teachers was randomly selected from the population. A self

developed questionnaire was used for the collection of data. The questionnaire contained 38

items and two open ended questions. The questionnaire covered the areas of availability of

classroom, lighting arrangement, text book, note book, participation of the students, training of

the teachers, language of text books, teaching methodologies, availability of science lab, the data

was analyzed by using statistical method chi-square and percentage. The major findings and

conclusion of the study were that (1) Combine science lab is available in most of the schools but

separate lab for physics; chemistry and biology are not available. (2) There is deficiency of

science apparatus and the available apparatus are also not workable in most of the schools.(3)

There is a deficiency of science teachers in schools. The major recommendations of the study (1)

It is recommended that efforts may be made for provision of separate laboratories for physics,

chemistry and biology. (2) It is recommended that the already available apparatus may be made

workable.(3)It is recommended that refresher courses may conduct for science teachers.(4)It is

recommended that teacher may be motivated to use audio visual training aids regularly.

Keywords: Science Teachers, Pubic Secondary Schools, Science laboratory, Science

Apparatus

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1. Introduction

Education is a process that enables the individuals to adjust themselves in the society and

fulfill their personal needs; and the nations to have a literate society and better quality of life.

The strength of a nation is generally reflected by the quality of human resources produced by its

educational institutions. The socio-economic development of a society directly corresponds to its

quality of life. Thus education is valued all over the world and has been on top of the agenda of

every society. No uneducated society has ever attained the power. No educated society has been

left behind in the relentless march of history. (Nureen, 2003)

Teaching is the main part of educational process. Teaching is set of activities which is

designed and performed to achieve certain objectives in terms of changes in behaviour. It is the

process of helping others to achieve knowledge, skills and attitudes. According to Shami (2001),

teaching is a heart of the educational process. Widely recognized and accepted approach of

science teaching is that it should be taught as a process of inquiry. It implies that teaching

learning process should be made wherever of the knowledge. He further stressed as: Teaching is

considered appropriate only it if address all the objectives of science education which are spread

over knowledge domain, affective domain and psychomotor domain. In spite of this

classification the domain are interdependent. The teaching process delivers important

information of facts, concepts and principles so as to develop understanding increase the

knowledge and orientation with scientific process. This process results into not only help to use

the knowledge but also construction of knowledge. The scientific processes themselves identify

the desired skills such as observing, measuring, classifying, analyzing experimenting,

communicating, manipulating etc. During the teaching process focus is also on the development of

attitudes, interests, values, appreciations etc. These elements of affective domains develop during

teaching learning activities.


The main purpose of teaching is to develop the learners‘ capacities but each individual

student learns capacities differently and this difference may probably be enhanced through

teaching. It must be designed in such a way that appropriate learning conditions can be

developed and desirable changes can be brought in learning. Teaching is the way of

accomplishing the learning objectives‖. (Ahmed, 1996)

The word Science has its origin from the Latin word, scientia, which means ―to know‖.

―Science is a systematized body of knowledge ―Science is nothing but organized common sense‖

(Yadav, 1992).Science has affected every aspect of life and has revolutionized the society. On

the other hand, scientific knowledge is increasing with a great pace, never experienced in the

history of mankind. It is a recognized fact that modern citizen over it existence to science and

can be called as a scientific civilization. Obviously the rule of science and technology remains

the most important factor in the socio-economic of a society. It has been widely accepted that the

amicable survival of a nation in the 21st century depends upon scientific development as well as

scientifically literate society. The comer stone on which the edifice of development programmes

of a country must be built is its expertise in science and technology and its application in

agriculture and industry (Saud, 1998).Pakistan is a developing country and is continuously

striving for respectable status in the community of nation. Pakistan needs a strong base of

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science and technology to solve its problems of food, shelter, energy, health and security, the

exploitation of natural resources and the boosting of agricultural and industrial production.

Pakisan has established itself as a member of global nuclear power society (Iqbal, 2000).

Since independence in 1947, there has been growing consciousness about the role of

science in the development Pakistan, to become a modern state. The first education conference

1947 set the direction of our education system. ―Quaid-e-Azam Muhammad Ali Jinnah in his

message to the conference emphasized the importance of science education for the emerging

nation. ―The future of our state will and must greatly depends upon the type of education we

give to our children, and the way we bring them up as the future citizens of Pakistan. Education

does not mean academic education; there is an immediate need of scientific and technical

education to our people in order to build up our future economic life and to see that our people

take science, commerce, trade and particularly well- planned industries. We should not for get

that we have to compete with the world which is moving very fast.‖ (Govt. of Pakistan, 1947).

Science education at secondary level could not attract attention in terms of effort and

investment. With increased emphasis on quality of primary education and renewed efforts to

check high drop out rate in basic education, secondary level education now needs to be

developed for comparatively heavy influx of students. The ESR‘s included a reform in science

education at the secondary level by constructing science laboratories, provision of science

equipment, revision of Science Curricula and professional development of Science and

Mathematics teachers. Teaching of Science subjects in English is also part of the reform process

(Shami, 2008).

It is an accepted reality that the only road leading to national development passes through

the area of education. One cannot name even a single profession where the role of education

can be undermined. If education is viewed as the back bone and energizing force for the national

progress then how can the exalted and pivotal position of the teacher can be ignored who has

been assigned the responsibility of education for the future generation. The education standard

and professional competence of the teacher would always remain of primary concern and require

top priority for having the fruit of educational enterprise in its true spirit.

Teachers are the torch bears in creating social cohesion, national integration and learning

society. They not only disseminate knowledge but also create and generate new knowledge.

They are responsible for acculturating role of education. No nation can even marginally slacken

its efforts in giving necessary professional inputs to its teachers and along with that due status to

their stature and profession.

The teacher is of paramount importance in the teaching learning process. He is a pivot in the

system of education. The whole education system revolves around him, therefore he must always

try to improve his teaching skills and motivate the pupil‘s whole using various methods and

techniques of teaching suitable for their learning. Since the teacher has been assigned a

Herculean task of being the builders of nation, so he has to come up to fulfill the expectation of

the parents, society and students as well. The prime aim of teachers is to impart right education

and remove the signs of ignorance from all lifestyles. Are doctors held accountable for not

ending disease, dentists for not ending tooth decay welfare agencies for not ending poverty,

police for not ending crime, lawyers for not ending all disputes, or parliament for not ending who

knows what? No, we will always have disease, cavities, poverty, crime, disputes, and wasted

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resources. Yet teachers are expected to end ignorance because this is the only way to way to

prosperity and to survive in dignified manner amongst the comity of nations.

The educational system of any country hinges on the teacher, who occupies a pivotal position in

its evolution as he has been assigned the responsibility of educating the future generation it The

growing number of students and reports that are becoming available suggest that better education

of teachers may be the most crucial input for the development of human resources in the country

(Farooq, 1993).

Richardson (1985) Teachers play the most important and practical role in education. They are said

to be the builders or architects of a nation. Teacher is the central log in the machinery of education.

The quality and worth of teachers determine the quality of education. To develop an individual as a

scientist, we will have to develop a suitable science curriculum, Laboratories, for our educational

institutions and that will be only possible that we remove the problem faced by science teachers in

secondary level.

2.1 Statement of the Problem

The study was aimed to find out the problem faced by science teacher at Public Secondary Schools

of District Karak

2.2 Objectives of the Study

Following were being the objectives of the study: -

1. To find out the problem faced by science teacher at Public Secondary Schools of District

Karak

2. To offer recommendation for the removal of the problems of science teachers of Public

Secondary Schools of District Karak

2.3 Research Questions

The study was focus on answering the following specific research questions:

1. Are the classrooms available for science students?

2. Are the classes over crowded?

3. Is the lighting arrangement available properly?

4. Do you properly have been trained for teaching the current science text at Secondary level?

5. Do you properly have been trained in practical laboratory work in science subjects at

Secondary level?

6. Is combined science laboratory available for the students in school?

7. Is there separate Physics, Chemistry and Biology laboratory available for the students?

8. Do the science teachers have sufficient number of periods for practical?

2.4 Significance of the Study Science has influenced every aspects of life. It has affected social, cultural, and economic walks of

life every society. New discoveries and inventions in the field of science have created new needs

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for every country. Science must become an essential component in any educational enterprise.

Development of scientific literacy is one of the major purposes of our science technology.

In order to achieve our objectives in education, we need improvement not only in method

of teaching, curriculum and future system of evaluation but also try to solve those problems which

are faced by the science teachers during the teaching. This study will help us to know about the

major problems faced by science teachers particularly in Public secondary schools of District

Karak.

2.5 Delimitation of the Study

Due to limited time and resources, the study was delimited to Public secondary schools of

level of district Karak. The institutions in private sector were not being included in the sample.


The purpose of this study was to find out the problems faced by science teachers at secondary

level in district Karak. Design of the study was descriptive in nature. The researcher had to

depend upon the literature available and structured questionnaire administered to secondary

school science teachers working in the government schools of District Karak.

3.1 Population

The population of the study constituted all the male and female Secondary Schools science

teachers in District Karak. There were 58 secondary schools for Boys and 28 secondary schools

for Girls in district Karak.

3.2 Sample

A sample of 18 teachers was randomly selected from the population. The description of

the sample science teachers as under;

Male 9

Female 9

Total 18

3.3 Research Instruments

For the collection of data Questionnaire is more efficient in that it requires less time, less

expensive and permits collection of data from much large sample (Best and Kahn, 1992) There

were 38 items in the questionnaire and two were open ended questions. The Questionnaire was

developed in the light of the objectives of the study and was responded on the basis of ‗yes‘ ‗No‘

and ‗undecided‘ for obtaining the information from the sample secondary school science

teachers.

3.4 Data Collection

The researcher distributed the questionnaires himself to the respondent and through other

and collected and received the responses. Researcher received all the responses, so the response

percentage was 100 percent.

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3.5 Data Analysis

The data received from the respondents were collected, tabulated and analyzed in the

light of the objectives of the study. Data collected on the above mentioned three point

Questionnaire were analyzed by using the statistical techniques of percentage and Chi Square at

0.05 levels of significance.

4. RESULTS AND DISCUSSION

This section deals with the analysis and interpretation of data. The data collected through

research instruments were tabulated, analyzed, and interpreted in the light of the objectives of the

study by using chi-square.

Questionnaire for Science Teachers

Table 1: Frequency distribution of Science Teachers

Items Responses Yes No UD Total 2

Availability of classrooms for science

students

Responses 13 5 0 18 14.3* Percentage 72 28 0 100

Over crowdedness of classrooms Responses 11 7 0 18 10.3* Percentage 62 38 0 100

Availability of lighting arrangement in

classrooms

Responses 12 6 0 18 12* Percentage 66 34 0 100

Facing problems regarding the

availability of text book


Facing problem regarding the

availability of the note book

Responses 6 12 0 18 12* Percentage 34 66 0 100

Participation of students in teaching

learning process in science Subjects


Sufficient number of periods for

teaching theory in science subjects.


Availability of combined science

laboratory for the students in Schools


Sufficient number of periods for

practical in science subjects.


Availability of audio visual aids for

teaching science subjects

Responses 4 13 1 18

12.9* Percentage 22 72 6 100

* Significant df= 2 Table value of 2 at 0.05 = 5.991

The above table 1 shows that value at 2 degree of freedom the 2 value at 0.05 = 5.991 which is

greater than the table value the chi square (2) value. The table indicate that the calculated value

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of 2

(14.332, 10.3*, 12*, 20.3*, 17.3*, 6.3* and 12.9*) is greater than the table value of 2

(5.991), therefore there is significant difference in the responses of the respondents. Since more

responses are in category, ―yes‖ so it is concluded that the respondents feel that classrooms are

available for science students, classes are over crowded, proper lighting arrangement is available

in the classroom, students do not have problem regarding the availability of the text book,

student do not have problem regarding the availability of the note book, students as a whole take

participate actively in teaching learning process in science subjects,. The science teachers have

sufficient number of periods for teaching theory in science subjects, science teachers have

sufficient number of periods for practical science subjects, majority of the schools combined

science laboratory is available for the students in school and the respondents feel that audio

visual aids are not available for teaching science subjects.

5. DISCUSSION

The focus of study was to explain the problems faced by the science teachers of secondary level

in distract Karak. A Sample of 18 schools was selected and a questionnaire containing 38 items

was administered to the respondents for data collection. The findings of the study revealed that

majority of the respondent‘s opined positively about the availability of classrooms, lighting

arrangements, textbook, books. However a reasonable number of respondents opined negatively.

This means that sum of schools are deprived of this facility.

The study also reveled that sum of the schools were of the opinion that student class

participation level and regularity in completing home work is not satisfactory. This

unsatisfactory may be related to lack of combination of variety of lacking methodology i.e.

lecture method, demonstration method and cooperative learning method.

Another finding of the study is majority of the schools do posses combine science

laboratory and separate laboratory for physics, chemistry and biology is not provided .the

apparatus available in the laboratories are not in working condition. This means that science

teachers and students do not pay proper attention to the use and care of apparatus. Principles of

the schools can also held responsible for putting the apparatus in order but allocating sum funds

for the repair of apparatus. The study reveled that most of the schools do not have required

science teachers. This problem can tackled from two directions one is to take up a case with a

higher authorities for the provisions of science teachers 2nd

is that `other teacher who have study

it science at intermediate level can also be employed on teaching science subjects .

6. CONCLUSION

On the basis of interpretation and finding of data following conclusion were drawn

I. Majority of the respondents felt that classrooms are available for the science students, but

the classes are over crowded.

II. Majority of the respondents felt that lighting arrangement in the classrooms is proper.

III. Majority of the respondents felt that the student do not face problem regarding the

availability of science text book and note book.

IV. Majority of the respondents felt that the students take participation in teaching learning

process in science subjects.

V. Majority of the respondents felt that number of period for theory is sufficient but number of

period for practical is not sufficient for practical.

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VI. Majority of the respondents felt that number of the schools combined science laboratory is

available for the students in school

VII. Majority of the respondents felt that the audio visual aids are not provided to the teachers.

VIII. Majority of the respondents felt that the teacher do not use audio visual aids regularly.

7. RECOMMENDATIONS

On the basis of analysis of data, findings and conclusions the following recommendations

are offered.

I. It is recommended that teacher should use variety of teaching methodologies i.e. lecture

method, demonstration method, lecture cum demonstration method, and discussion method.

II. It is recommended that science teachers are overloaded. Their work load should be

rationalized.

III. It is recommended that allocation of period for theory and practical may be rationalized.

IV. It is recommended that efforts may be made for provision of separate laboratories for

physics, chemistry and biology.

V. It is recommended that refresher courses may conduct for science teachers.

VI. It is recommended that teacher may be motivated to use audio visual training aids

regularly.

VII. It is recommended that efforts may be made for provision of separate laboratories for

physics, chemistry and biology.

VIII. It is recommended that provision should be made for the required number of science

teachers may be ensured.

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References

Ahmed, T. (1996). A Handbook of Teachers, Research in Teaching of Biology. New Delhi:

A.P.H. Publishing Corporation.

Farooq , R, A (1993). Education System in Pakistan: Issues and Problems. Asia Society for

Promotion of Innovation and Reform in Education, Islamabad.

Iqbal,.Zafar. (2000). Teacher Education. Proceedings National Seminar on Education: The

Dream and Reality. Rawalpindi: Army Education Press.

Garrette, H.E, (1997) Statistics in psychology and Education. Lahore: Combine Printers

Good, C.V (1973) Dictionary of Education. London Mc Graw-Hill ,Book company

Noureen, S. (2003). Study to compare Foreign Aided community model and Government Girls,

Primary schools in Punjab. Journal of Educational Research Islamia University

Bahawalpur

Richardson, John. S. (1985) (Science teaching in secondary schools) London: Prentice -Hall,

Incorporation.

Saud, M., (1998), Islam and Evolution of science, Islamabad. Islamic Research Institute

Shami, P. A. (2001). Science Curriculum for the Primary School National Institute of Science

and Technical Education. Islamabad: Ministry of Education, Govt. of Pakistan.

Shami, P.A. 2008. Academy of Educational Planning and Management Ministry of Education

Islamabad

Yadav, M. S. 1992. Teaching of Science. Anmol, Publications, New Delhi, India

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ROLE OF BOADCAST M EDIA IN DISTANCE EDUCATION

Dr. Ali Murtaza



Prof Dr. Rabia Tabbssum

Associate Professor, Education Department

Northern University Nowshera Pakistan

Dr. Muhammad Imran Assistant Professor, Institute of Education and Research,

Punjab University, Lahore

Abstract

This study was designed to investigate how the broadcast media is being used in the program of

Bachelor of Education (B.Ed) through the mode of distance education. To find out the real

picture there was one region of Allam Iqbal Open University selected as target population. All

the students enrolled in Semester Autumn 2010 B.Ed students and their tutors of respective

division were the population. The objectives of the study were: To identify the modern tools of

Educational Technology used in Distance Education. To find out the problems involved in the

use of Educational Technology in Teaching Learning Process in Distance Education. To

Determine the Modern Technology used in Distance Learning. To know the effectiveness,

suitability and quality of Educational programme used for in teacher‘s training courses through

Distance Education. Study was completed by descriptive research applying with survey method.

Sample was collected through questionnaires by the researcher. Data was analyzed and the

results were converted into percentage and mean score. The major findings and conclusion

drawn were that the Instructional aids available in study center support in teaching learning

process. Students were satisfied with Radio and TV Programs. The Tutors have views that

programs broadcasted by Radio and TV had relevancy to the contents taught to the students.

Most of the respondents were agreed that the voice of presenter was attractive and effective.

Responded recommended that there is need to decentralized the distance education where

students can able to approach easily. Quantity of the broad cast media should be enhanced.

Key Words: Educational Technology- Broad Cost Media – Distance Education

1. Introduction

Educational Technology implies a behavioral science approach to teaching and learning in that it

makes use of pertinent scientific and technological methods and concepts developed in

psychology, sociology, communications, linguistics and other related fields. It also attempts to

incorporate the management principles of cost effectiveness and the efficient deployment and use

of available resources in men and materials. The term broadcasting covers the transmission of

programs by several types of distribution systems. The commonest of these, particularly in

developing countries, consists of transmitters broadcasting from towers to conventional aerial,

and receivers for radio and television. (David&John, 1982) Educational broadcasting is

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widespread in the Asia-Pacific region. In Japan, for example, the Japanese "University of the

Air" broadcasts over 160 television and radio courses. (http://www.unescobkk.org)


The electronic media (radio and television) are great assets in distance education. In the

traditional face-to-face teaching, the teacher is seen and heard by the students. The television

very much represents the physical teaching because of its audio-visual nature. Besides bringing

reality, the television is useful in teaching great audience at the same time. (Dr. Sydney 2000)

Distance Education has produced notable results in the development of education across the

World. It is indeed, a viable and levels in today‘s society because of its flexibility, cost

effectiveness and easy accessibility in different settings. Omelewa, (1982,).

These realities are having a profound impact on the classroom and demand programs that

prepare teachers with the capacity to meet them. We need teachers who are well versed in their

curricula, know their communities, apply their knowledge of child growth and development, use

assessments to monitor student progress and effectively engage students in learning. Teachers

need collaboration, communication, and problem-solving skills to keep pace with rapidly

changing learning environments and new technologies.

The appropriate use of media and technology has provided information access to all

students in remote, rural and urban areas as well as across nations. (Dr. Mohammad Habibur

Rahman 1995)

According to UNESCO (1978), the concept of educational technology has passed through

three stages of development. By 1967, it was referred to as audio-visual aids. Till 1975, it was

known as methods, materials and techniques. The concept of educational technology varies from

one group of people to another. The national Council of Educational Technology of U.K.

considers educational technology as ―the development, application and evaluation of systems.

Techniques and aids to improve the process of human learning. Gagne (1968,) views it as ―a set

of systematic techniques and practical knowledge for designing, testing and operating schools as

educational systems‖. Eraunt (1977,) viewed that educational technology ―as an instrument for

preparation and use of educational materials for improvement of curricula. There is a consensus

amongst all stakeholders that the quality of teachers in the public sector is unsatisfactory. Poor

quality of teacher in the system in a large number is owed to mutations in governance, an

obsolete pre-service training structure and a less than adequate in-service training regime.(

http://www.moe.gov.)Learning is the key process in human behavior, Parents and teachers are

greatly interested in child‘s learning. His instincts, attitudes, appreciations, skills and abilities are

primarily the product of learning. It influences our language, our goals. Child learns to sit, stand,

walk or run, to talk. He learns to hold a pen and to write. He makes use of language to identify

natural objects.

Briefly speaking, learning is a change in behavior- organization. It is the organism as a

whole that learns. Psychologist‘s remark, ―Learning as reconstruction, combine thinking, skill

information and appreciation in a single unitary process, and it is characterized by flexibility,

since it must constantly adapt itself to the circumstances of the situation and the environment.‖

Thus, the child in the school learns many subjects and gradually finds himself a totally change

man.

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This study was descriptive by nature. Therefore, survey method was adopted to collect

the data ―A survey design is one of the most effective ways to conducting descriptive research. It

is effective in gathering information that describes the nature and extent of specified data,

providing a systematic attempt to collect information. Describe it and explain perception, beliefs,

value and behavior‖ (Kanjai., 2010). One region of (AIOU) was selected for Pupil Teachers.

There were four districts in the respective region.

3.1 Population

The population consisted of enrolled Bachelor of Education (B.Ed.) students in Spring

2010. The Pupil Teachers were (1000) and (90) tutors of Allama Iqbal Open University

Islamabad,

3.2 Sampling

The representative sample was collected from the population. Population consisted on

two following categories; one is B.Ed. students while the second are Tutors were included as

population of the stduy. The list of students and tutors was taken from the regional office.

3.3 Research Instruments

Data collection tools were the questionnaires. Questionnaires were constructed based

upon the five point likert scale.

In both Questionnaires, the respondents were requested to give their responses in each

item in Yes or No and on a five point scale.

Strongly agreed=5, Agree=4, Uncertain=3, Disagree=2, Strongly Disagree=1

3.4 Data Collection

Data were collected personally and through colleagues at the time of meeting at study centers.

3.5 Data Analysis

Data were arranged by the researcher for the purpose of describing and analyzing as

follows:

1. Percentage of responses to each item was calculated.

2. Overall percentage to each item was calculated.

3. Overall mean score on each item was calculated.

For data analysis Mean has been categorized (1—1.69, 1.70—2.39, 2.40—3.00).

1—1.69 = Negative attitude

1.70—2.39 = Moderate attitude

2.40—3.00 = Positive attitude

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4. RESULTS AND DISCUSSION

Table: 1. Sample

Selected Return Percentage%

Pupil Students 190 180 95

Tutors 92 90 98

Total = 282 270 96

Above table shows that 95% students responded while Tutors were 96%. The total

respondents were 96%.

Table: 2. Availability of Radio Sets

Table 2 shows that 80% respondents had their own radio sets and 20% respondents were

with out radio sets while the mean score was 1.00.Mostly the students of that region have their

own radio sets.

Table: 3. Availability of T.V Sets

Table: 3. shows that 70% respondents had T.V sets where as 30% respondents were with

out T.V sets. The means score was 1.70

Table: 4. Opinion about interest

No. Statement Level Frequency Percentage Mean Score

2 Have you own

Radio set?

Yes

No

216

54

80

20 1.00


3 Have you own

T.V?

Yes

No

126

54

70

30 1.70


4 All Radio

program are

helpful to

increase interest

regarding the

subject.

SA

A

UNC

DA

SDA

49

89

46

51

35

18%

33%

17%

19%

13%

3.22

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Table 4 shows that 51% respondents were agreed with the statement while 32.77% respondents

disagree. The mean score was 3.22.Result of the respondents proved that the radio programme

are really helping to increase the interest in the contents. But there is also need to develop more

as per students needs.

Table: 5. Opinion about relevancy of Radio Broadcast program to the Course

Table 5 shows that 56% respondents were agreed and 31% respondents disagreed while

the mean score was 3.54. The result illustrated that Broad cast radio programs are very relevant

with course content.

Table: 6. Opinion about suitability of broadcasting Time.

Table 6 shows that 52% respondents were agreed with the statement and 30.00%

respondents disagreed while the mean score was 3.44. All the results show that broadcasting

radio programme is suitable for the learner. The statement is mostly accepted.

Table: 7. Audio Cassettes of Radio Broadcast Programme


5 Mostly broadcast

Radio Programs

are very relevant

to the course

content.

SA

A

UNC

DA

SDA

100

51

35

62

22

37%

19%

13%

23%

8%

3.54


6 Time of

broadcasting

radio

programmes is

suitable.

SA

A

UNC

DA

SDA

76

65

49

64

16

28%

24%

18%

24%

6%

3.44


7 Radio Programs

should also be

provided in audio

cassettes.

SA

A

UNC

DA

SDA

143

57

24

38

08

53%

21%

9%

14%

3%

4.06

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Table 7 shows that 74% respondents were agreed and only 17% respondents disagreed

while the mean score was 4.06. The result strongly strengthen that Audio Cassettes of Broad

Cast Radio programme are available.

Table: 8. Opinion about easy language

Table 8 shows that 78% respondents were agreed with programs and 18% respondents

were disagreed while the mean score was 3.99. Mostly respondents satisfied with the language

which used in the broad cast program.

Table: 9. Opinion about in time delivery of broad cast program schedule

Table 9 shows that 48% respondents were agreed 39% respondents were disagreed while

the mean score was 3.22.Most of the respondents were satisfied that in time delivering of broad

cast program schedule to the students.

Table: 10. Opinion about Usefulness of T.V in Distance Education


8 Radio broadcast

programs are

with logical

presentation easy

to understand for

all students.

SA

A

UNC

DA

SDA

124

86

11

30

19

46%

32%

4%

11%

7%

3.99


9 Schedule of

Radio

broadcasting

programs sent

well in time in

each semester.

SA

A

UNC

DA

SDA

52

78

35

83

22

19%

29%

13%

31%

8%

3.22


10 T.V. is very

useful for

teaching learning

in distance

education.

SA

A

UNC

DA

SDA

70

102

27

49

22

26%

38%

10%

18%

08%

3.53

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Table 10 shows that 64% respondents were agreed and 26% were disagreed while the

mean score was 3.53. Statement the TV is very useful for teaching learning in distance education

is accepted.

Table: 11. Opinion about Video Cassettes of T.V. Programs

Table 11 shows that 63% respondents were agreed with the 27% were disagreed while

the mean score was 3.45. It is concluded that all TV program of related courses are also provided

in the shape of video cassettes.

Table: 12. Opinion about Clarity of Presenter‟s Voice


mean score was 3.65.Statemet the presenter voice is very clear and understandable is accepted.

Table: 13. Opinion about Radio Programs minimize problems


11 All T.V.

programs of

related courses

are also provided

in video

cassettes.

SA

A

UNC

DA

SDA

62

108

27

43

30

23%

40%

10%

16%

11%

3.45


12 The presenter

voice is very

clear and

understandable.

SA

A

UNC

DA

SDA

65

124

22

16

19

24%

46%

8%

6%

7%

3.65


13 Radio programs

help the students

to minimize the

course work

problems.

SA

A

UNC

DA

SDA

57

92

49

61

11

21%

34%

18%

23%

4%

3.46

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Table 13 indicates that55% respondents were agreed and 26.66% were disagreed while

the mean score was 3.46.Statement of radio programs help the students to minimize the course

work problems is accepted.

Table: 14. Opinion about Duration of T.V. Program

Table 14 shows that 78% respondents were agreed 19% were disagreed while the mean

score was 3.96.Mostly the students agreed with the duration of all TV programs is reasonable.

Table: 15. Opinion about Language of T.V. Presenter


mean score was 3.86.Most of the respondents were stratified with the language of TV programs

presenter is easy to understand.

Table: 16. Opinion about interest of T.V Programs

Table 16 Shows that 67.78% respondents agree with interesting of T.V programs, where

as 28.89% disagree while the mean score was 3.54.


14 Duration of all

T.V. programs is

reasonable.

SA

A

UNC

DA

SDA

130

81

08

24

27

48%

30%

3%

9%

10%

3.96


15 The language of

T.V. program‘s

presenter is easy

to understand.

SA

A

UNC

DA

SDA

54

167

17

24

08

20%

62%

6%

9%

3%

3.86


16 Students Interest

is maintained in

T.V. programs..

SA

A

UNC

DA

SDA

62

118

11

57

22

23%

44%

4%

21%

8%

3.54

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Table: 17. Opinion about Change in Timing of Radio and T.V. Programs

Table 17 shows that 61.11% respondents were agreed with change of TV programs,

where as 37.78% disagree while the mean score was 3.34. Mostly respondent supported that the

TV programs are updated as per curriculum demand of the society.

Table: 18. Opinion about T.V programs available in cassettes

Table 18 shows that 60.00% respondents were agree with T.V programs available in

cassettes, where as 31.11% respondents disagree. While the mean score was 3.24.Most the

respondents were in the favor of TV program are available in cassettes too.

Table: 19. Opinion about T.V programs available in cassettes


17 T.V programs are

updated as per

curriculum

demand of the

society.

SA

A

UNC

DA

SDA

78

86

03

54

49

29%

32%

01%

20%

18%

3.34


18 T.V programs

available in

cassettes.

SA

A

UNC

DA

SDA

43

108

24

31

54

16%

44%

9%

11%

20%

3.24


19 The quality of all

T.V programs is

appreciated.

SA

A

UNC

DA

SDA

43

118

25

30

54

16%

44%

9%

11%

20%

3.24

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Table 19 shows that 60.00% respondents were agree with T.V programs available in

cassettes, where as 31.11% respondents disagree while the mean score was 3.24.

On open ended questions 80% responses were received.35% respondents given opinion

that distance learning system should be decentralized more. 25% said there is need to improve

the quality of broad cast media as per international standard.20% respondents said the electricity

is big problem to see the TV broad cast lectures.

5. Conclusion

The study was conducted to evaluate how and to what extent of modern trends are

applied as educational technology tools in the mode of distance education in Pakistan. In

Pakistan 68% population living in the rural areas and they don‘t have ample opportunities to get

education through formal system of education. Teacher Education is also one of the Key area in

our National Educational Policy 2009.This study evaluated the whole picture, how the broad cast

techniques is used to teach the pupil teachers? To covering the all aspects of the programs of

Radio/TV One region of Allama Iqbal Open University was selected as target population. All

Pupil teachers (B.Ed) of respective region were in population. The second population is the

Tutors of the same region in same program. Pupil Teacher sample was 180 and 95%

questionnaires received from them and Tutor of B.Ed program were 90 and 98% questionnaires

received. Questionnaires were prepared on five point rating scale and data was analyzed through

Percentage and Mean Score. The study was concluded as:

Majority of students had their own Radio, T.V sets,

Majority of respondents showed their response towards radio programs interesting,

relevancy with course and suitability of time.

Majority of the respondents were in favor of the programs provided in cassettes.

Majority of the respondents were in support of understandable of language and voice of

presenter.

Majority of respondents studied their course before attending T.V programs.

Majority of students satisfied with the presentation of lesson by Presenter.

61.11% respondents were agreed with change of TV programs.

78% respondents were agreed with the duration of all TV programs is reasonable.

82% the respondents were stratified with the language of TV programs presenter is easy

to understand.

67.78% respondents agree with interesting of T.V programs

60.00% respondents were agreeing with T.V programs available in cassettes.

Majority of respondents unflavored the supply of electricity to run equipments.

The conclusion of the whole study is Pupil Teacher of Bed program is very appreciated in

rural areas of Pakistan and students are very interested to improve their quality by learning

different skills and comprehension of the respective professional knowledge. The study shows

that there is need to do more advance the system of Broad Cast media in distance education.

Distance Education system should be more decentralized where the learner can approach the

easily. Opportunities of electronic technology should be enhanced for Pupil Teachers.

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References

Bhatt, B.D. & Sharma, S.R. (2007) Educational Technology, concept and techniques. New

Delhi-110002 Kanishka Publishers distributors.

David Hawkridge and John Robinson, 1982 Organizing Educational Broadcasting, London,

Croom Helm. P.25

Dr. Sydney .N., 2000 Turkish Online Journal of Distance Education-TOJDE April ISSN 1302-

6488 Volume :6 Number: 2 Article No:5 Rehman dr. 1995,wikieducator.org/images

Eranut (1997) in Service Education for Innovation London, NCET. P.3

Gagne R.M. (1968) Educational Technology as Technique Educational Technology 6 Nov.

18.P.7

Kanajai N. (2003) Educational Technology, India, Chandrigarh, Abhishek Publications. P.86

Masrur. R; (2003) thesis writing a systematic approach, a manual for Allama Iqbal Open

University graduates (MA, M.Phill, Ph.D) first Edition, Islamabad, Allama Iqbal Open

University.

Omolewa,M.(1982) Historical Antecedents of Distance Education in Nigeria, Vol.7. P.7

Rashid M. (1993) Study Guide on Educational Technology. Code No. 740, Unit 1-9, 2nd

ed. Islamabad AIOU.

Rahsid M.(1999) Non-Formal Education, Islamabad, National Book Foundation.

Rashid M. (1989) Study guide on Advance Course Non-formal Education, 1-9 M.Phill

Education, Islamabad.

Rashid M. (2010) Educational Technology, Pakistan Islamabad, Preston University Press.

Rashid M. (2001) Hand Book for writing Dissertation/ Thesis Islamabad National Book

Foundation.Regional Office AIOU.

Rehman dr. 1995,wikieducator.org/images

Shahid, S.M (2004-05) Modern Educational Technology, Lahore, Majeed Book Depot, 22-Urdu

Bazar.

Dr. Sydney .N., 2000 Turkish Online Journal of Distance Education-TOJDE April ISSN 1302-

6488 Volume :6 Number: 2 Article No:5 Rehman dr. 1995,wikieducator.org/images

UNESCO (1978) Final Report of the Seminar for the training of experts in Educational

Technology, Paris, UNESCO. pp.9-10,

http://www.unescobkk.org/education/ict/technologies/radio-and-television/

www ncate org 2010,TRANSFORMING TEACHER EDUCATION THROUGH

Massachusetts Ave , NW, Suite 500 Washington, DC

http://www.moe.gov.pk/nepr/NEP_2009.PDF

http://www.unescobkk.org/education/ict/technologies/radio-and-television/

http://www.moe.gov.pk/nepr/NEP_2009.PDF

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PROBLEMS FACED INTO THE USE OF INFORMATION

TECHNOLOGY IN DISTANCE EDUCATION

Dr. Ali Murtaza



Dr. Syed Shafqat Ali Shah

Assistant Professor, Institute of Education and Research

University of Gujarat, Pakistan


Assistant Professor, Institute of Education and Research,

Kohat University of Science and Technology

Abstract

There are different modes which applied to educate the human being. To invest in the field of

education is called best future investment in World. It is historically proved we can evaluate

this view by seeing the history of all developed nations. Distance Education is also the best mode

to educate the people who provide opportunity to second chance education especially in poor and

developing countries, where the formal system can not provide a first chance education to all

human being of their nation. Pakistan is one of the biggest country who using the distance

education mode to enhance education and learning. The Allama Iqbal Open University (AIOU)

nearly enrolled Eleven millions students in different program basics to Ph.D in 2009. The main

objective of the study was to highlight the problems into the use of tools of information

technology in distance education. Population comprised of the I.T users; persons were helping,

operating or supervising the IT tools as Planners, academicians, designers, programmers,

producers, operators, regional directors was taken as one sample while 100% of Deans

population was taken as second sample. For investigation all the related material/ reports profile

of the University were studied and questionnaires were also developed on five points rating scale

after the consultation of different scholars. The questionnaires were distributed by hand and by

post. The collected data was tabulated and analyzed. Conclusions drawn from the study are as

under: The use of IT is still limited. Computer net work was not used for distance learners,

radio, T.V. programmes and relevant material audio, videocassettes were prepared and CDs,

software still not prepared. University library was not computerized. Staff got training from time

to time in IT education in their specialization. But there is need to make IT system more

sophisticated according to new trends and students‘ needs. There is also need to develop regional

centres, which should serve as resource centres to the facilitation of distance learners.

Key Words: Information Technology, Application, Distance Education

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Introduction

All countries of the world consider education as a basic requirement for economic development

and political stability. To impart education various systems have been introduced. These systems

are formal, informal, non-formal and distance education. Formal system of education does not

fulfil the entire needs of the concerned society adequately. Due to internal differences,

inequalities and injustices all members of society cannot avail equal opportunities of education

hence some are left behind who need second chance of education in life. In these circumstances,

distance education provides opportunities to enhance education and skills, in Pakistan AIOU

plays a pivotal role in promoting education through distance education system. ―Allama Iqbal

Open University established in 1974 was the second open university in the World. (AIOU

2009).Public as well as political interest in distance education is especially high in geographic

regions where the student population is widely distributed (Sherry, 1996).

To disseminate knowledge and information, various teaching techniques are used in this

system. These techniques include print and electronic media, newspapers, radio, TV and

audiovisual equipments. In the present age of knowledge and awareness, the world scenario is

rapidly changing. The tremendous achievements in the field of information have transformed the

world into a global village. The things which were impossible and unimaginable even in the near

past are now part and parcel of our daily life. The electronic mail and internet are the most

significant achievements of the present age. Although, development of IT has influence the

whole sphere of human activity, the distance education is most susceptible. It is very easy for

distant learners to make the best use of information technology techniques. Now to be familiar

with the term information technology let us see the definitions.

―The whole gamut computer and communication is the subject of information

technology. It includes all activities connecting with fabricating of computers; producing

peripherals spares and accessories; and developing software dealing with collection, processing,

transmitting and presentation of data in the form of meaningful information in any medium. The

data may relate to any walk of life‖(H.R.Banarjee,1966,p98)

―The technology involved in acquiring, strong, processing and distributing information

by electronic means (including radio, television, telephone, computer)‖

(Khana Anil, 1994) ―Information Technology that merges computing with high speed

communications links carrying data, sound, and video.‖ (Williams, 1999) it means information

technology provides rapid, latest and accurate information in very limited time to the clientele.

By using this most modern technique efficiently, standard can be achieved. It helps to eradicate

the problems of distance learners and makes teaching learning process most effective and

fruitful. Information technology is concerned with improvements in a variety of human and

organizational problem-solving endeavors through the design, development, and use of

technologically based systems and processes that enhance the efficiency and effectiveness of

information in a variety of strategic, tactical, and operational situations. (http://www.answers.)

NRC, stated, Most people can agree that an ideal information infrastructure would have such

qualities as extended interoperability, broad accessibility, and support for broad participation.

To achieve this standard and strengthening the distance education system different latest

tools/techniques of information technology (Computer Software) internet, e-mail, web page, CD

Rom, On-line Services, Phone, Fax, voice and Video Communications, Satellite, Tele-

http://www.answers.com/topic/information-technology

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Conferencing, Radio & TV Programmes, LAN, WAN Projects, Computerized Library) can be

used in each module of the University.

Information Technology is divided into two parts first hardware wise and software wise.

Hardware is concerned with physical classification of all devices and software is concerned with

services and applications. Main emphasis is given on databases, web services, Internet and on-

line services.

Objectives of the study: the objectives were as:

1. To identify the use of Information Technology in distance education by AIOU, users

(academicians, officers concerned with Administration and Computer Professionals).

2. To highlight the problems of AIOU in the application of IT in its system.

3. To make recommendations for the improvement and uplift of information technology

system in distance education of AIOU.

Procedure of the Study:

Descriptive method of research was adapted. .‖ Surveys may be used for descriptive,

explanatory, and exploratory purposes. Survey research is probably the best method available to

the social scientist interested in collecting original data for describing a population too large to

observe directly‖(Bubbie,E. 1998,p.256).

A comprehensive questionnaire on five point rating scale was developed and structured

interviews from the Deans of four faculties conducted. There were one hundred twenty eight IT

users, comprises on Planners, academicians, designers, programmers, producers and operator of

AIOU selected as population. Sample of the study was 70% of the whole population and 100%

Deans. Scale values of each response were: Strongly Agree=5 Points, Agreed=4 Points,

Uncertain= 3 Points, Disagree = 2 Points, Strongly Disagree = 1 Point. To obtain mean score f

each below formula was used: SDA=1-1.5, DA=1.5-2.5, UNC=2.5-3.5, A=3.5-4.5,

SA=4.5-5.00

Summary of the returned questionnaires is given below;

Population Sample Questionnaire returned % Q. returned

128 91 80 88

The IT user qualification was as; Bachelor level twenty four, Master level forty two, Master of

Philosophy Six and Ph.D eight.

Regarding the application of Information Technology questions were asked those are described

on these tables;

Q.1. All the offices and regional Offices are connected through the computer Network.

Level Frequency Percentage% Mean Score

SA 04 05

A 14 19

UNC 26 34 2.8

DA 28 37

SDA 04 05

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On the above table shown only 19% were agreed and 42% disagreed. While Mean score

was fall in between range therefore the statement is rejected. There is need a networking CDs

and Videocassettes of all programme are not prepared in the system.

Q.2. University has designed its own web page.


SA 34 45

A 31 41

UNC 03 04 4.1

DA 08 10

SDA - -

The above Table shown 86% IT users were agreed while only 10% disagreed. While

mean score was 4.1. The statement revealed that University has designed its own web page.

Q.3. All information about admission programmes and fee structure is available on web.


SA 18 24

A 28 37

UNC 18 24 3.6

DA 12 15

SDA - -

The above Table shown 61% respondents were agreed and 15% disagreed. While mean score

was 3.6. Mostly respondents accepted that all information about programmes and fee

Q.4. All the data and basic information are provided by the computer to the distance learners


SA - -

A 08 10.5

UNC 22 29 2.2

DA 24 31.5

SDA 22 29

On above table shown only 10.5 % IT User was agreed while 60.5% were disagreed. While

the mean score is 2.2. It is revealed that all the data and basic information are provided by the

computer to the distance learners was not acceptable.

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Q.5. Tele/Video conferencing opportunities are sufficiently available at each level/courses.


SA - -

A - -

UNC 24 32 1.9

DA 26 34

SDA 26 34

On the above table 68% respondents were disagreed while 32% uncertain while 64% were

disagreed. The mean score is 1.9. Tele/Video conferencing opportunities are sufficiently

available at each level/courses was not accepted.

Q.6. Telephone /Fax is available for the students to get their queries solved.


SA 08 10

A 24 32

UNC 14 19 03

DA 24 32

SDA 06 07

On above table 42% were respondents agreed while 39% disagreed. The statement

Telephone/Fax is available for the students to get their queries solved was not accepted fairly.

Q.7. AIOU computerized library facilitates the distance learners.


SA - -

A 14 19

UNC 22 29 2.7

DA 28 37

SDA 12 15

Above table shown only 19% were agreed while 52% were disagreed. The statement

regarding AIOU computerized library facilitate the distance learners was rejected from the

respondents.

Q.8. Computer is frequently used in the system of distance teaching/learning.


SA 06 07

A 23 30

UNC 22 29 3.0

DA 16 22

SDA 09 12

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Table showed that 37% respondents were agreed while 34% were disagreed. The mean score

is 3.0. It is revealed the statement regarding the computer used frequently for distance teaching

learning system rejected.

Q.9. Radio programmes are prepared for all courses at each level.


SA 02 02

A 40 53

UNC 09 12 3.0

DA 21 28

SDA 04 05

Above table shown 55% respondents were agreed and 33% disagreed while the mean score is

3.0.the statement revealed that Radio program for all programme are prepared.

Q.10. Satellite Technology is used according to the requirements of coverage.


SA 08 11

A 37 49

UNC 12 15 3.4

DA 17 23

SDA 02 02

The above table shown 60% were agreed and 25% disagreed. The mean score is 3.4. Most of

the respondents were in favour the Satellite Technology is used according the requirements of

coverage.

Q.11. A separate Broadcast channel is specified for distant learners.


SA 08 11

A 12 15

UNC 20 27 2.7

DA 25 33

SDA 11 14

The above table shown 26% respondents were disagreed and 47% disagreed. The mean

score is 2.7. Mostly the respondents were not in favour of separate broadcast channel is specified

for distance learner.

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Q.12. Students have access to get response by e-mail for his query.


SA 02 02

A - -

UNC 13 17 2.0

DA 49 65

SDA 12 16

The above table shown 02% respondents were agreed and 81% disagreed while the mean

score is 2.0.The statement of students have access to get response by e-mail for his query was not

accepted at large scale.

Q.13. Opportunities are provided to all students to keep in touch by e.mil with University.


SA 03 04

A - -

UNC 12 16 2.2

DA 61 80

SDA -

The above table shown only 4% respondents were agreed and 80% disagreed.The mean score is

2.2. The statement Opportunities are provided to all students to keep in touch by e.mil with

University was not in favour.

Q.14. Quality of education in distance learners can be improved through IT techniques.


SA 42 55

A 21 28

UNC 13 17 4.3

DA - -

SDA - -

The above table shown 83% respondents were agreed and 17% were uncertain. Most of the

respondents accepted that quality of education in distance learners can be improved through IT

techniques.

Q.15. IT provides the fastest, riches, latest and accurate information.


SA 47 62

A 29 38

UNC - - 4.6

DA - -

SDA - -

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The above table shows 100% were agreed. IT is very helpful in providing fastest and latest way

of information.

Q.16. The involvement of private sector is also helpful to develop the IT infrastructure.


SA 24 32

A 47 62

UNC 01 01 4.1

DA - -

SDA 04 05

The above table shows 94% were agreed while only 5% were disagreed. The respondent

strengthened that involvement of private sector can be helpful to develop the University IT

infrastructure.

Q.17. IT is widely applicable to administrative/managerial activity.


SA 29 38

A 39 51

UNC 08 11 4.2

DA - -

SDA - -

Above Table shows 89% were agreed while 11% were uncertain. Maximum respondents

were in favour that IT is widely applicable for administrative and managerial activity.

On open ended question 33% respondents replied by saying all the regional offices should be

interconnected and students must have access to get solved their problems.25% respondents

recommended that Regional Offices should be more decentralized and there is need to provide

maximum facilities at these centre.15% respondents due to insufficient vision and lack of

political will tools of IT are not used properly in distance education.10% respondents said there

is need improve the use of IT tools between the tutors and distance learners. In structure

interview all the faculty deans of AIOU accepted it is the need of the society and modern age to

develop the infrastructure for IT tools. This way the distance learner and system will be more

approachable and well integrated to minimize the problems.

Conclusions:

The use of IT in distance education was limited.

Mostly the offices and regional offices have IT network but not used properly.

Except a few software about all educational programmes was not prepared.

University has designed its own web page.

Sophisticated techniques of IT like, on line services, internet, tele/video conferencing

were not used for distance learning.

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Adequate facility was available for students to get information by AIOU through phone

and fax.

The University was not computerized completely however; it is going to be

computerized.

Satellite Technology was used for TV programmes but on limited scale.

Most of the IT users were agreed that the IT training programme may be conducted

periodically.

Basic information about IT tools was not included in all courses at all levels.

Infrastructure of IT in the University was not developed completely, there is need to

develop more.

Most of the respondents were agreed that IT tools are helpful to minimize the problems

of distance learners and improving the quality of education; moreover, these will

contribute a lot on the development of electronic governance and managerial activities.

Lack of funds, planning, and coordination within departments, trained personnel, and

commitment of the organization were the main problems of the University.

The role of regional offices were limited, by expending its infrastructure, the system of

distance education can be strengthen.

Recommendations:

University may plan to uplift the Information Technology system and provide all types of

information and guidance by the computer network to the distance learners.

Regional Offices should be connected through network and may be strengthened as real

resource centres which provide all facilities by using IT tools for the benefit of distance

learners

Relevant material may be increased as audio, video, CDs, and software programmes also

in all programmes.

The web page should be more comprehensive to provide much more information to the

distance learners.

For the guidance and counselling on line services may be improved.

The opportunity of Tele/video conferencing should be provided by the AIOU.

University may establish its own separate Broadcast Channel.

Basic knowledge about IT may be included at all levels of study.

The strength of the IT users should be increased along with proper qualification.

Satellite technology may be used sufficiently.

Academic staff should be well-trained in IT Education.

The use of Internet may enrich through Regional Offices for distance learners and

especially for researchers.

University library should be fully computerized.

For better management and administration electronic governance system may be

introduce.

More funds may be allocated to uplift the IT system as a whole.

Regional Centre may establish at ― Thana‖ level in all Pakistn.

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References

A.Siddiqui Anwar Hussain, (1999) Jamia Nama, AIOU, Islalmabad

Allana,G.A.1985 Distance Education System and The Role of Allama Iqbal Open University,

Islamabad.

Asghar,M. Aslam, 1999, 25 Years of AIOU, 1974-1999, AIOU, Islamabad.

Babbie Earl, 1998. The Practice of Social Research 8th

Edit. International

Thomson Publishing Service Ltd.

Baqai Noor-ud-din ,2000, Short Term Plan to Promote Information Technology, The

News,Rawalpindi.

Danial George Mc, 1994, IBM Dictionary of Computing, Mec Graw-Hill New York

David Hawkridge and John Robinson, 1982 Organizing Educational Broadcasting, London,

Croom Helm:

Ghaznavi I. 1999. Pakistan Journal of Distance Education, R&E Centre, AIOU, Islamabad

Goraya Javid M. 2000, National IT Policy, The News, Rawalpindi.

Hawkridge David, 1983, New Information Technology; KIB, London, N Y.

Holmberg,1997 Distance Education; A Survey and Bibliography, London,NY

H.R.Banarjee,1966. An Encyclopaedia of Computer Terminology, Jacio Publishing

India

Khana Anil, 1994), Kapil‘s Dictionary of Computer Science, Jaico Publisher Bombay, India

Mac Bride and Others, 1980 Communication and Society Today and Tomorrow Many Voices

One World, A Report of International Commission for the Study of Communication Problems,

London, Kogan Page (UNESCO)

Mirabito Michale, MA, 1994, The New Communication Technologies; 2nd

Edition Focal Press

London.

Moor M.G.1975, Cognitive Style and Telematic Distance; Teaching, ICCE, Newsletter

National Research Council 2010,Office of Congressional and Government Affairs

2101 Constitution Avenue, NW Washington, DC 20418

Research & Evaluation Centre ,1999 AIOU Profile 1999; AIOU.Islamabad.

Sawyer Williams Hutchinson,, 2000, Using Information Technology, 3rd

Edition, Mc Graw Hill,

International Edition, New York

Sherry, L. (1996). Issues in distance learning. Retrieved March, 2011 from

http://www.cudenver.edu.public/education/edschool/issues.html

Spenscer, W.R. 1994, A Dictionary of Computer, CBS, Publisher, Dehli, India.

Stern Nancy, 1993, Computing in the Information Age, John wiley and Sons New York

Torsten Husen,1994), The International Encyclopaedia of Education,2nd

Edition, Vol.VIII,

Pergaman, Great Britain.

UCEA,1998), Distance Learning Programme, 2nd

Edition Peterson‘s Prensto, New Jersy, USA.

Webster Dictionary, 1974

Williams, Sawger Hutchinson, 1999, Using Information Technology, 3rd

Edition, Mc.Graw Hill

London

http://www.answers.com/topic/information-technology#ixzz11NZL1iuV

Zaki, W.M. 1975 Education of the People; AIOU, Islamabad.

Peter Little 1973

http://www.cudenver.edu.public/education/edschool/issues.html

http://www.answers.com/topic/information-technology#ixzz11NZL1iuV

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Attitude of University Students towards Ethnic Prejudice

S. Farhana Kazmi

Hazara University Mansehra (Pakistan)

Tahir Pervez,

PMA (Kakul Campus) National University of Science and Technology NUST (Pakistan)

Nagina Bano

Hazara University Mansehra (Pakistan)

Abstract

The investigation was aimed to explore the attitude of university students toward ethnic

prejudice. The precipitating event of the study was the renaming of ex-NWFP as KPK, which

infused new spirit in the dormant movement of ―Hazara province‖. Convenience sample of 200

students was drawn from different departments of Hazara University Mansehra, Comsat

University Abbottabad, Women Medical College Abbottabad and Sarhad University

Abbottabad. Sample consisted of 100 Pathans (50 males and 50 females) and 100 Hazarawals

(50 males and 50 females). Blatant and Subtle prejudice Scale( Coryn, Beale & Myers, 2004)

was adapted and employed to collect the data. Results revealed that high level of ethnic prejudice

was present between the both groups as both secured below cut of point (70) but Mean value of

Hazarawal (55.99) was less than Mean value of Pathan (59.79) which revealed Hazarawals were

highly prejudice towards Pathans because they were remained deprived of their identity for over

60 years and issue of renaming hurt them badly.

Key words: Ethnic prejudice, Hazarawals, Pathans , Renaming of ex-NWFP as KPK

1. Introduction

A large number of countries in the contemporary world have experienced ethnic revival

in recent times Pakistan is one of them. In the case of Pakistan, the regional assertion based on

the ethnic identities came to the fore in more pronounced ways in the 1990s. Ethnic disaffection

was simmering in Baluchistan and NWFP since the 1970s. Similarly, the Mohajirs of Pakistan

were emerging as an important ethnic group with the growth of MQM since the 1980s as a major

force in Urban centers in Sindh, especially in Karachi and the twin city of Hyderabad. Carli etal.

(2003) examines linguistic diversity and power interests considered a fundamental element of

ethnic and cultural identity. Klug (1999) claimed that the ethnic question is an instrument for

combating racism. Khanlou, Koh and Mill (2008) studied that in culturally diverse and

immigrant receiving societies can be subject to prejudice and discrimination.

Racism and prejudice are in full swing in the Muslim world (Itmr, 2000). Bhatt (1999)

stated that Pakistan was hardly a year old when its central government was first challenged by an

ethnic group and ended with the breakup of Pakistan in 1971, but with the passage of time

Bolachi, Sindhi, Punjabi, Siraiki and Pashto language movements also started ( Rahman,1997).

In views of Mir (2008) the roots of ethnic conflict in Pakistan, lie in the concentration

of Mohajirs (refugees) spoke Urdu and in Southern Punjab because of Siraki language.

Such problem is also running in Hazara Division as, as Tnoli (2010) stated that the

people of Hazara division from Kohistan to Haripur are united under a single agenda ―Sooba

http://www.springerlink.com/content/?Author=Jane+G.+Koh

http://www.springerlink.com/content/?Author=Catriona+Mill

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Hazara‖. Among more than twenty languages in Pakistan, name of the provinces also show

linguistic ethnicity as Sindh, Balochistan, Punjab and Khyber Pakhtunkhwa. Pathans are

Pakistan's second largest ethnic group and Hindkowans are believed to be the transitional group

of people between Punjabis and Pashtuns. Though they have similarities but cultural differences

exist between these two groups. Khyber Pakhtunkhwa ( North-West Frontier Province, the

official name by which it was known from 1901 to 2010) the renaming of NWFP was

controversial and was overwhelmingly rejected by some of the province's ethnic minorities

including the majority Hindko-speaking population of the Hazara region as well as Seraikis

and Chitralis. There was a widespread protest across Hazara. The protests took a new turn that

some Hazara residents said the new name should be Hazara-Pakhtunkhwa while others said the

name should not be changed since people were accustomed to North-West Frontier Province.

This major conflict of Pathans and Hazarawls motivated for a study of expected prejudice

between both groups.

Prejudice and discrimination are woven in the fabric of social culture and may reflect

more specific emotional responses to different out groups, including fear, anger, guilt, pity, and

disgust (Baron, Branscombe, Byrne & Bhardwaj,2009; Fiske ,2004). Primary function of

ethnicity is to differentiate the group members from the generalized others (Sing, 2001). Mullick

and Hraba (2001) revealed that people shared an ethnic hierarchy of out-groups in social

distance, with Pathans at the least and Muhajirs at the most social distance. Ethnicity is focused

on the rise of ethno nationalism which created a situation of ethnic explosion in urban

Sindh(Waseem,1996).

Prejudiced attitudes can be found in many cultural elements, including language,

education, and religion, norms of morality, economics and ethnics negative perception (Gershaw,

1998 ; Axelson, 1998). cultural prejudice is perpetuated by religious supremacist, nationalism,

stories, myth, lies, families, media and schooling has become part and parcel of language itself

(Alertpak,2009).Cultural and sometimes physical characteristics use to classify people into

groups (O‘Neil, 2006; Yasmeen, 2010). In views of Rakoczy (1996) ethnicity is based

on cultural or social similarities. Racial stereotypes exist among the races (Piston, 2010).

Members of each racial group possess characteristics or abilities specific to that race, especially

to distinguish it as being either superior or inferior to another racial group (Matthew, 2005).

Brigham (2008) stated that failing to treat a person as a unique individual is often seen as a

central characteristic of stereotyping and prejudice.

Prejudice intergroup behavior largely determined by situational factors and is relatively

independent of an individual‘s attitudes (Duckitt, 2010). Various causal factors have been traced to

develop prejudice e.g., fear and pride (Parsad ,1998), tough situations and scarcity of resources

(Smith 1987) ,self-preservation, uncertainty, insecurity (Solomon, Greenberg, & Pyszczynski ,1999;

Brewer, 1999; Hogg, 2000). In views of Hello, Scheepers, and Gijsberts (2002) education is often

found to be a strong determinant of ethnic prejudice. Farley (2000) contends that higher levels of

prejudice are seen in people of lower class. Hraba, Dunham, Tumanov, and Hagendoorn (1997)

concluded that group status has greater impact on prejudice than does in-group bias. Sari (2007)

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

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

http://en.wikipedia.org/wiki/Hazara,_Pakistan

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

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

http://findarticles.com/p/search/?qa=Mohammad%20Waseem

http://answers.yourdictionary.com/author/christy-rakoczy

http://www.yourdictionary.com/cultural

http://www.yourdictionary.com/social

http://www.springerlink.com/content/?Author=Spencer+Piston

http://www.springerlink.com/content/?Author=John+Duckitt

http://en.wikipedia.org/wiki/Self-preservation

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revealed that individuals‘ perception of threat over economic and socio cultural resources to their in-

group‘s position has the most powerful effect on prejudice.

Tension is hidden roots of racial prejudice ( Shipler, 2002) and it will more strongly influence

the racial policy preferences of people who are feeling anxious than it will for people who are not

(Suthammanont, Peterson, Owens & Leighley ,1988). Nesdale, Maass, Griffiths,

and Durkin

(2003) tested liking for out group members was reduced when the ethnic composition of the out-

group differed from that of the in-group. Hutchison and Rosenthal (2011) predicted more positive

out group attitudes, more perceived out group variability and more positive behavioural intentions.

Enoch (1994) suggested that ethnic prejudice exists latently even in apparently tolerant societies and

tends to surface when a 'suitable' target group becomes available.


2.1 Objective of the Study

The main objective of the study was to investigate the level of the ethnic prejudice between

Pathan and Hazarawal university students.

2.2 Sample of the study

The study was conducted in Mansehra and Abbottabad located in Hazara division of KPK (

Pakistan). Convenience sampling was used in order to collect data from university students

belonging to master level of Hazara University Mansehra, Comsats University Abbottabad,

Women medical college Abbottabad and Sarhad University Abbottabad. Sample was divided

into two ethnic groups Pathan (Pashto speakers) and Hazarawl (Hindko speakers). 100 males and

100 females were selected from each group. 80 students (40 boys and 40 girls) were taken from

Hazara University Mansehra, 50 students (30 boys and 20 girls) from Comsats University

Abbottabad, and 50 students (30 boys and 20 girls) from Sarhad University Abbottabad and 20

girls from Women medical college Abbottabad.

2.3 Research instrument

Blatant Subtle Prejudice Scale was adapted. In original form it was used to measure

prejudice among American and Arab people (Coryn, Beale, and Myers, 2004). Minor changes

with reference to nomenclature were applied with due permission of the author. Preset Scale was

used to measure ethnic prejudice between Hazarawals and Pathans university students.

Questions 1 to 7 and 13to 19 were scored the positive statements as 1, 2, 3, 4, 5 for

SA,A,UD,D,SD and the reversed scoring was used for the items having negative tones (from

Question 8 to 12) 5, 4, 3, 2, 1 score was assigned on SA,A,UD,D,SD. After giving scores to all

the items, it was summed up to get the total score. A high score indicated low level of prejudice

and low score showed high level of prejudice. The reliability statistics for the Aggression Scale

is 0.714shows to be reliable at KR21 formula .

http://www.springerlink.com/content/?Author=Christina+Suthammanont



http://www.springerlink.com/content/?Author=David+A.+M.+Peterson

http://www.springerlink.com/content/?Author=Chris+T.+Owens

http://www.springerlink.com/content/?Author=Jan+E.+Leighley

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2.4 Procedure of the study

To collect data for the present study students were approached individually with the

consent of authority. They were informed about the detail and importance of the study. They

were assured that information provided by them will be kept confidential and will be used only

for research purpose. They were briefed about the objective of the present study and the Blatant

Subtle Prejudice Scale was administered to them.

3. Results and Discussion

The present study was aimed to investigate the levels of the ethic prejudice among

university students. Results indicate that both groups expressed high level of ethnic prejudice as

both secured below cut of point (70) as above seventy show low prejudice and below seventy

show high prejudice. Mean value of Hazarawals (55.99) is less than Mean value of Pathans

(59.79) which shows that Hazarawals expressed more prejudice towards Pathans (Table 2).

Hazarawals were expressed more Prejudice because presently Hazarawals are suffering

from different issues, chief among them is change of province name from NWFP to Khyber

Pakhtunkhwa which hurt them badly. It was against Hazarawals‘ expectations and they fear that

they will lose their identity. They felt threats to their independence and have feelings of

deprivation ,the perception of challenges( competition for jobs), and the discrepancies between

their expectations and actual attainments, which produces frustration. Hazara division, however,

has always been neglected for over 60 years. ‗Hazarians‘ have been compromising on their

identity and no consideration for their rights has been compensated by the Pakistani government.

Present findings associate with Gross (1998), Stephan (1969) and Petty (1998) when

attainments fall short of rising expectations, relative deprivation is relatively acute and results in

collective unrest and prejudicial attitudes. study has also the support of Baron, Branscombe,

Byrne and Bhardwaj( 2009) and Sari (2007) that feeling secures in one‘s subgroups

distinctiveness result in less prejudice towards similar out group, in contrast feeling insecure

about distinctiveness of one‘s subgroups result in greater prejudice towards similar out group.

Previous research has shown that on similar ground people in the U.S. generally possess more

unfavorable dispositions toward Arab-Muslims (Agerström & Rooth, 2008).

In the present study insignificant differences on ethnic prejudice scale between boys and

girls similar to the findings of Ekehammar, Akrami, and Araya( 2001) that both gender may in

fact have the same amount of prejudice and contrary to (e.g.,Brinkman & Rickard ,1996 ;

Castillo,2003; Pettigrew , 2006)who reported gender-based differences. Present judgment also

coincides with Hughes (2003) that gender differences in racial attitudes are small, and

inconsistent.

As Hazarawal males and Pathan males carry education in same institutes and same is in

the case of females. They remain in contact with each other in daily life so they have same level

of prejudice and there are no significant differences. According to Ray (1983) the contact

http://www.springerlink.com/content/?Author=Britney+G.+Brinkman

http://www.springerlink.com/content/?Author=Kathryn+M.+Rickard

http://antoniofernndez-castillo.cgpublisher.com/



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hypothesis, the more one gets to know personally individual members of a minority group, the

less likely one is to be prejudiced against that minority group.

4. Conclusion

It is clear from the study that both ethnic groups Pathan and Hazarawal were highly

prejudice about each other. It is concluded that both groups are showing highly prejudice

attitude because of present conflict in province, such as change of name of NWFP.

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Castillo. (2003). Blatant and Subtle Prejudice in Childhood: Psychometric Properties of a Scale

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Prejudice In The Aftermath of terror. Retrieved November 15, 2010 from

http://www.uiowa.edu/~grpproc/crisp/crisp.9.12.html

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Annexure

Table 1 Alpha Reliability Coefficient for PrejudiceScale (N= 200)

Variable No. of Items M SD Reliability Coefficient

PS 19 57.89 8.4

0.714

Table 1 shows that Blatant and Subtle Prejudice Scale is reliable at KR21 formula.

Table 2 Difference between Pathan and Hazarawal students on level of Ethnic prejudice

(N=200)

Pathan (n=75) Hazarawal (n=75)

M M t

Suicidal Ideation 59.79 55.99 3.276

df= 198; **p<0.001

Above table reveals that there is significant difference between Pathan and Hazarawal students with

reference to ethnic prejudice.

Table 3 Gender Differences between Pathan and Hazarawal students on level of Ethnic prejudice

s/no

Variables Pathan

(students)

Hazarawal

(students )

t

df P

A Pathan males and Hazarawal

females students

59.60 57.70 1.026

98 0.664 (insig)

B Pathan females and

Hazarawal males students

54.28 57.70 1.069 98 0.654 (insig)

C Pathan and Hazarawal

male students

59.60 57.70 1.143 98 0.256 (insig )

D Pathan and Hazarawal

females students

54.28 57.70 1.969 98 0.52 (insig)

Above table reveals that there is insignificant difference between Pathan males and Hazarawal females

students, Pathan females and Hazarawal males students, Pathan and Hazarawal males students, Pathan

and Hazarawal female students on level of prejudice.

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Mergers and Acquisitions: An Impact on Financial Performance

(A case study of Standard Chartered Bank-Pakistan) Dr. Nasir Karim

Associate Professor, IMIS, CECOS University, Peshawar Pakistan Amjad Ameen

Assistant Professor, IMSciences, Peshawar

Dr Muhammad Ayaz

Associate Professor, Commerce College, Peshawar

Abstract

Standard Chartered Bank acquired Union Bank Limited in 2006.Financial data before and after

acquisition is analyzed for this purpose. Secondary data is used for analysis from 2004 to 2008.

Research revealed that the overall financial performance of the bank regressed after the

acquisition of the Union Bank Limited. However, decline in financial performance can be

attributed to excessive focus on expansion of the resources rather than opting to enhance the

operational effectiveness, in the wake of acquisition. Furthermore, the failure to gain

improvement in the operating performance of the SCBP is that, mergers and acquisitions is a

new process which lack confidence in the market regarding display of synergies of the

amalgamation strategies. It is recommended that certain factors such as coordination between the

merged and the acquired groups, modifications and innovations in the products, finding and

retaining talented managers by offering them incentives to motivate them, formulating and

implementing clear objectives, pre-approach plans for the purpose of integration of different

processes, managing intellectual capital, and managing the activism and motivational level of

sales force with a view to linchpin the customers switching to other competitors in the industry.

The ultimate corollary of implementing these strategies in letter and spirit will emerge in the

shape of improved performance and productivity of the bank.

Keywords: Mergers, Acquisitions, Financial Performance, Amalgamations.

Introduction When one company (the acquirer) procures another company (the target), it is called

‗acquisition‘. It is also termed as buying out or taking over a company. Such taking over is

undertaken by larger or stronger firms in order to gain control over the smaller firms. Merger

refers to the amalgamation or the joining of the operations of two firms in order to constitute one

large firm. Such forms of agglomerations are voluntary in nature and initiate with the exchange

of shares and the disbursement of cash to the acquired firms. Mergers are like acquisitions which

result in new company name. However, the two companies do not lose their original identities

and it is a voluntary combination of the two firms and not a hostile take over. Commercial banks

have turned into an era of great concern of economists. In Pakistan, the banking industry has the

major influence of financial institutions that belong to the government and they principally

facilitate the government monetary needs, public and private enterprises (Khan and khan, 2007).

The banking sector and the financial institutions in Pakistan have gone through many hard times

to preserve their profitability. The consolidation of minor institutions was emphasized in order to

transform them into large institutions through proper legal and regulatory structure. Banking

sector strengthening is crucial to gain economies of scale and to establish healthy banks that can

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face the challenges of hard times and surpass difficult business phases. To ensure the

strengthening and consolidation of banking sector, State Bank of Pakistan set up a minimum

capital requirement (MCR) for commercial banks that was intended to grow by Rs. 1 billion

every year, culminating it to Rs. 6 billion by the end of 2009. Certain banks have succeeded in

meeting the standard of MCR while others are making corresponding efforts and seeking to

merge with strong banks to reach the MCR. Thus, mergers and acquisitions trends have

contributed enormously to enhance the strengthening of the banking system. The process of

mergers and acquisitions is ongoing and is anticipated to grow further in future. Through

merging of private sector ownership with those of financial institutions, particular objectives

were anticipated to be achieved such as high financial depth, mediation and competence,

decreased interest spreads, proper management of costs on home debts, curtailing deformity of

interest rates makeup, increased control over monetary policy and gaining efficiency in financial

institutions.

Types of Acquisition. The acquisition can take place in two forms;

In first case, the acquirer purchases more than 51 percent of the shares of the target and

gains control over the management of the company. However, this whole process also

leads the acquiring company to shoulder the responsibility of all risks and liabilities of

the acquired company as well.

In second case, the acquirer procures all the assets of the acquired company and the cash

remitted by the target is paid to its shareholders by dividends or through liquidation.

Classification of Mergers.

1. Horizontal merger: When two companies dealing in similar business,

products, and operating in similar forms of businesses join together. The

companies involved in competition directly combine with each other to form one

large company.

2. Vertical Merger: It takes place to gain control over the supply chain of the

firm. It involves the integration of the company and its supplier.

3. Market Extension Merger: It involves the combination of two companies

that deal in the same products but operate in different market segments.

4. Product Extension Merger: Such mergers involve the joining of two

companies that transact in distinctive but related sort of products such as

Compressed Natural Gas (CNG) and petrol.

5. Purchase Mergers: This form of merger involves simply the purchase or

procurement of one company by another company.

Distinction between Merger and Acquisition. Regardless of the fact that both terms are used in the same sense, however, there exists difference

between both the terminologies.

In case of acquisition, the acquirer takes charge over the company and is considered as the new

owner of the company. Acquisition leads the acquired company to lose its existence i.e. the

acquirer swallows the target and continues to trade its stocks in its own name.

On the contrary mergers take place when two, similar in size, voluntarily join hands and

cooperate with each other in operating a new style of the company. In this case, the companies

give up their stocks and initiate the new merger by the issue of fresh stocks.

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Objectives of the research The main objectives of this study are to highlight and analyze the changes taking place in the

financial performance of Standard Chartered Bank Pakistan after acquisition of Union Bank

Limited and to provide an overview of the merger and acquisitions in the banking sector in

Pakistan.

Hypothesis The hypothesis tested in this study is;

―Merger/acquisition improves the financial performance of the banks‖

Methodology A ratio analysis is carried out to analyze the impact of mergers and acquisitions on Standard

Chartered Bank. Secondary data form the period from 2004 to 2008 is used for the study. The

financial ratios of the Standard Chartered Bank before the acquisition and after the acquisition

are calculated and compared to reach the conclusions. These ratios are given as;

Current Ratio

Debt/Equity Ratio

Debt/Assets Ratio

Receivable Turnover Ratio

Average Collection period

Assets Turn-over Ratio

Gross Profit Margin

Interest Coverage Ratio

Fixed Assets Turn-over Ratio

Return on Invest Ratio

Return on Equity Ratio

Net Profit Margin

Operating Profit Margin

Return on Capital Employed (ROCE)

Earning per Share

Scope of the research The study has been confined only to Standard Chartered Bank situated in Peshawar. The research

is primarily based on secondary data. The research provides a sound footing for those financial

organizations seeking to acquire minor institutions. Only short term effects are studied which

may not be the true indicator of the long term effects. Further research is suggested in this field.

Review of literature Banking consolidation requires strong policies on the part of the government. Amel (2002)

points out the fact that approximately 8000 amalgamations of the banks have taken place during

the period 1990-01. Many studies have been carried out that dictate that such banking reforms or

integrations of banks occur with a motive to gain competence in cost and revenue which fetch

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improvement in profitability resulting in financial soundness of the financial institutions (Gerger,

Hunter and Timme, 1993).

Hannan and Wolken (1989) undertook a research to analyze abnormal returns that were gained

as a result of 43 deals taken over during 1982-1987. They found that total value of shareholders

did not considerably improve. Their study found negative correlation of the acquired banks with

that of the variation in aggregate value. Rhoades (1993) conducted a research study taking into

consideration the in-market mergers that were undertaken during 1981-86 with the purpose to

assess the impact of such agglomerations on the financial performance of relevant institutions.

He resorted to Logit analysis. However, it was clear from the study that cost efficiency and

efficiencies in profitability were not gained through agglomerations due to horizontal mergers.

Houston and Ryngaert (1994) analyzed abnormal returns for a sample of 153 takeovers

undertaken during 1985-1991 for duration of four days following the takeover of target firms.

They found that the acquiring firms suffered a decline in their value while the acquired firm

achieved a gain. They concluded that post-merger performance was somehow related to market

expectations regarding the merger. Madura and Wiant (1994) analyzed abnormal returns of

acquiring firms quantitatively of 156 deals for a period of 36 months that took place during

1983-87. Their research demonstrated the fact that the returns of the acquiring firm were

negative in almost each month. Customer attrition was found to be one of the core factors

causing declining returns of the mergers. Akhavein, Berger, and Humphery (1997) examined

difference in profitability of similar set of large mergers. It was found that the profitability or

financial performance of these mergers greatly enhance in the wake of agglomerations. Their

findings indicated that after the merger of these banks, the grading did not vary significantly. De

Long, and Houston (2001) found that bank mergers are usually undertaken to gain enhancement

in the performance especially in cases when they are aimed to achieve economies of scale and

activity lines. They were of the opinion that following a merger, greater economies of scale are

achievable in the backdrop of greater volume of related or same banking products would result in

lowering down the average costs. Burki and Niazi (2003) studied the effect of bank reforms

initiated by the State Bank of Pakistan on the performance of commercial banks by the method

of Data Envelopment Analysis (DEA) for a period 1991-2000. Their findings revealed that the

banking efficiency decreased during the period under review. Suchismita Mishra et al. (2005)

analyzed the performance of the acquiring banks taking into account concentric mergers. They

reached at the conclusion that concentric type of mergers seem to significantly reduce the

unsystematic risk while the systematic risk reduction was found to have shown no significant

influence.

Analysis of the data This part of the study provides analysis of the data. Financial ratios of the Standard Chartered

bank are calculated and cross examined for post acquisition and after acquisition periods to reach

at the conclusions.

Results Ratios for Standard Chartered Bank are calculated in the tables given below. The year marked

with bold letters indicates the year of acquisition of Union Bank Limited by Standard Chartered

Bank of Pakistan. The results are given in two tables given below. Table 1 shows those ratios

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which manifested improvement after acquisition of the bank. Table 2 provides the ratios which

gives manifestation of non-improvement of financial performance associated with acquisition.

Table 1: Ratios of Standard Chartered Bank before and after acquisition

Ratios 2004 2005 2006 200

7

2008 Average

before

Acquisition

Average

after

Acquisition

Current Ratio 0.62 1.34 0.81 1.14 1.16 0.98 1.15

Debt/Equity 1.64 0.81 0.56 0.16 0.20 1.23 0.18

Debt/Assets 0.11 0.07 0.09 0.03 0.03 0.09 0.03

Receivable

turnover

0.31 0.48 3.71 1.49 0.75 0.39 1.12

Average

Collection period

1167

756

98.39

244

485

962

365

Assets Turn-over 0.05 0.06 0.06 0.09 0.08 0.055 0.085

Gross profit

margin

0.03 0.75 0.70 0.71 0.70 0.39 0.705

(Source: Survey Results)

Findings. The current ratio of the bank has improved on an average from 0.98 before acquisition to 1.15

after acquisition, which indicates that the bank has more liquid assets after acquisition which, in

turn, measures the ability of the firm to liquidate its obligations on maturity and improves its

creditworthiness vis-a- vis represent higher margin of safety for the creditors. The debt-to-equity

ratio has declined from 1.23 on an average to 0.18. The lower level of this ratio depicts that the

company stands better in terms of financial stability, which tantamount to long term solvency of

the entity. The debt-to-asset ratio shows how much a company‘s total assets have been financed

through debts. This ratio also decreases on an average from 0.09 before acquisition to 0.03 after

acquisition. Again, the lower level of this ratio portray financial soundness of the company. The

Receivable Turn-Over ratio shows a firm‘s strength in terms of its credit terms and policy,

which is used to evaluate a firm‘s ability with regard to collection of its credit sales in timely

manner. It is a gauge of a firm‘s effectiveness in terms of utilization of its assets. This ratio of

the bank increased from 0.39 before acquisition to 1.12 after acquisition. The higher this ratio,

the more efficient a company is in collection of its debts. Average collection period shows the

approximate number of days it takes for a company to collect payments from its receivables. The

average collection period decreased very sharply after acquisition. Assets Turn-Over ratio is used

to fined out an asset‘s dollar is contributing to sales/revenue. The asset turn-over ratio has

increased to 0.085 from 0.055which shows the increased amount of revenue after acquisition.

The Gross-Profit-Margin ratio measures the strength of a company in terms of profitability. The

higher this ratio, the greater the financial potentials a company have in terms of payments of

operating and other types of expenses. In other words, the ratio indicates the combined effects of

liquidity, asset management debt management on operating results of a business enterprise. This

ratio increased from 0.39 before acquisition to 0.705 after acquisition. The elevation in the ratio

can be attributed to remarkable boost in the revenues resulting from the amalgamation of the

two banks.

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Table 2: Ratios of Standard Chartered Bank before and after acquisition

Ratios 2004 2005 2006 2007 2008 Average

before

Acquisitio

n

Average

after

Acquisition

Interest coverage 0.64 2.93 2.03 1.54 1.47 1.8 1.51

Fixed Assets

Turn-over

0.02 0.04 0.02 0.01 0.027 0.03 0.0185

Return on Invest 0.02 0.04 0.02 0.01 0.027 0.03 0.0185

Return on Equity 0.35 0.45 0.14 0.06 0.02 0.4 0.04

Net Profit Margin 0.48 0.57 0.37 0.12 0.03 0.525 0.075

Operating Profit

Margin

65.13

74.3

9

60.08

44.37

43.79

69.76

44.08

Return on Capital

Employed

(ROCE)

0.55

0.05

0.03

0.02

0.003

0.3

0.0115

Earning per Share 0.64 1.07 1.44 0.73 0.18 0.86 0.46

(Source: Survey Results)

Findings. The Investment Coverage ratio reflects how convenient it is for the company to make payments

in terms of interest on remaining debts. The lower this ratio, the more hesitant are the creditors to

extend loan to company. On an average interest-coverage ratio of the bank has declined to 1.51

after the acquisition, which indicates that the bank‘s revenue are not sufficient to meet its interest

expenses. The Fixed-Asset Turn-Over ratio indicates the proportion of net sales that are

generated with fixed assets of the company. On average this ratio has declined from 0.07 to 0.04

after acquisition. The decline in this ratio shows inefficiency and ineffectiveness of the bank in

utilizing its fixed assets for generating sales. Return-on-Investment (ROI) compares the benefits

of an investment to its costs. The ROI ratio of the bank declined to 0.0185 after acquisition from

0.03. This shows that either aggregate assets of the bank have declined or the net profit margin of

the bank has decreased. Return-on-Equity (ROE) shows the efficiency of the bank in utilizing the

investments of the shareholders in the growth of earning of the bank. The ROE of the bank has

decreased from 0.4 before acquisition to 0.04 after acquisition, which, in turn, shows greater

equity financing of the bank. Net-Profit-Margin indicates the amount of profit that a company

makes after taxes in relation to sales. The net-profit-margin declined from 0.525 before

acquisition to 0.075 after acquisition. This phenomenon seems to be offshoot of mounting outlay

on interest payments which swallows major chunk of bank‘s revenues. Operating-Profit-Margin

compares earning before interest and taxes or operating profit to sales volume. The higher this

margin, the better position a company enjoys. The operating margin has declined to 44.08% after

acquisition from 69.76% before acquisition. Return-on-capital-employed is a measure for

assessing the efficiency of capital employed by a company. It is an indicator of evaluating

management‘s efforts in properly utilizing the funds of the owners and creditors. The Return-on-

capital-employed ratio declined from 0.30 to 0.0115. Earning per share indicates the growth rate

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at which the earnings of a company are growing per share. It reflects the true financial picture of

the bank in terms of long term sustainability. On an average earning per share declined from 0.86

to 0.46 after the acquisition, which is an evidence of poor financial health of the bank.

Conclusions In the aftermath of cut throat competition ensued by rapid waves of globalization, the regime of

mergers and acquisitions is rampant across the globe. In Pakistan also, this wave is on the rise

which fascinated high support from State Bank and Securities and Exchange Commission of

Pakistan. The main purpose of conducting this research was to assess the operational efficiency

and financial performance of the Standard Chartered Bank, Pakistan by comparing its financial

ratios before and after acquisition. The period of analysis ranged from 2004 to 2008. The

analysis shows that in some areas such as liquidity position and profitability parameters, the bank

has acquired improvement after the acquisition. However, some ratios calculated show that the

operating performance of the bank followed a downward trend. It may be concluded that after

the acquisition, the operating and financial performance of the bank has witnessed an overall

declining trend, particularly in the domain terms of return on investment. However, taking into

account the historical evidence of mergers and acquisition, such financial debacle seems to be

the basic ramification of massive emphasis on expansion of resources not followed by focusing

parallel concentration on operational efficiency and effectiveness. The futility inherent in pooling

enormous resources without putting them to proper utilization can hardly be overemphasized.

The failure to Standard Chartered Bank to derive the desired results from acquisition policy

seems to be partly caused by lack of confidence in the industry regarding the inherent synergies

associated with amalgamations. Moreover, mergers and acquisitions is a new phenomenon and it

is yet to gain impetus. So, it seems premature to predict rosy picture in the shape of speedy

positive outcomes from this mechanism.

Recommendations It is hard to foretell specific types of mergers and acquisitions which may guarantee

immediate success it a new development coupled with acute lack of well established

practices regarding the amalgamation adventures in the money market. One of the

inklings behind the declining performance shown by the financial institutions is the blind

following of instructions issued by the State Bank of Pakistan for the sake of their

survival rather than accomplishing inherent synergies embodied in the regime of viable

amalgamations. Hence the primary focus was to survive in the market rather than to focus

on gaining improvements in financial performance.

Amalgamations can play pivotal role in materializing the cherished objectives of

lowering costs and enhancing economies of scale if proper coordination is maintained

regarding information sharing between the relevant stake holders. The same contention is

maintained by majority of well reputed authorities in the financial discipline.

In addition to ratio analysis, other statistical methods can go a long way to identify

multiple dimensions of amalgamations including its far reaching results for the

economies as a whole.

Pakistan‘s banking sector still has untapped segments which possess great potentials of

profitability. Thus, the acquisition of Union Bank serves as launching pad for Standard

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Chartered Bank to satisfy the needs of underserved segments and enhance its consumers

and wholesale banking by bringing modifications and innovation in its products, leading

towards expanding its horizons to international framework.

Moreover, certain strategies could help the Standard Chartered Bank improve its overall

financial performance in the wake of finding capable managers and offering them

incentives to ensure long term marriage, formulating and sharing clear objectives, pre-

approach plans for the purpose of integrating different processes, tailoring messages to

keep every one informed and updated including clients and workers, identifying and

locking lucrative opportunities, paying due weight age to different cultures, managing

effectively the human capital, managing the activism and motivational level of sales force

to obstruct the process switching customers to the competitors camp, and pre-planning

regarding integration of new resources.

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References

Akhavein, J., A. Berger and D. Humphrey (1997), ―the effect of mega mergers on efficiency and

prices: Evidence from a bank profit function, Review of Industrial organization 12‖

Akhter M. Hanif (2002), :X-efficiency analysis of commercial banks in Pakistan: A preliminary

investigation‖, the Pakistan Development Review, Part-II.

Altunbas Y. and Jbanez D. M. (2004) ―mergers and acquisitions and bank performance in

Europe: the role of strategic similarities.

Burki, Abid A. and Niazi, Ghulam Shabbir Khan (2003), ―the effects of Privatization,

Competition, and regulation on banking efficiency in Pakistan 1991-2000‖, Strengthening

regulation policy and practice, university of Manchester, UK

De long, Gayle (2001), ―does long term performance of mergers match market expectations?

Evidence from the US banking industry‖, Financial Management Vol. 32, No. 2, PP. 5-25

Hannan, Timothy H. and John D. Wolken (1989),‖Returns to bidders and targets in the

acquisition process: Evidence from th banking industry‖ Journal of financial services

research, Vol. 3, PP. 5-16

Houston, J.F, C. James, and R. M Ryngaert (2001), ―where do mergers gain come from? Bank

merger from the perspective of insider and outsiders‖ Journal of Financial Economics 60,

PP. 285-320

Houston, J.F, and Michael D. Ryngaert (1994), ―the overall gaining from large mergers‖ Journal

of banking and finance, Vol. 18, PP.1155-1176

Madura, J. and K. J. Viant (1994), ―long term valuation effects of bank acquisitions‖ Journal of

Banking and Finance, Vol.19, Iss. 3, PP. 408-417

Mylondis N. and Kelnikola I. (2005), ―Merging activity in the Greek Banking system: A

financial accounting perspective‖

Ping-Wen Lin. (2002), ―cost efficiency analysis of commercial bank mergers in Taiwan‖

International Journal of Management. Vol. 19, Iss. 3, PP. 408-417

Rhoades, Stephen A. (1993), ―Efficiency effects of horizontal (in-market) mergers‖ Journal of

banking and Finance, Vol. 17, PP. 411-422

Suchismita Mishra, Arun J Prakash, Gordon V Karels, Manferd P. (2005), ―Bank mergers and

components of risk: an evaluation‖ Journal of Economics and Finance, Vol. 29, Iss. 1, PP.

85-96

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Timothy, A. Kruse, Hun Y. Park, Kwangwoo Park, and Kazunori Suzuki (2003), ―Long-term

performance following mergers of Japanese Companies: the effect of diversification and

affiliation‖American Finance Association, Washington DC, PP. 1-40

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An Investigation of influence of Local Events on Performance of Karachi Stock

Exchange 100 Index

Dr. Ashfaq Ahmad (Corresponding Author) Assistant Professor, Department of Business Administration,

University of Sargodha, Pakistan

Dr. Mumtaz Ali Assistant Professor, Department of Social Work,


Asad Afzal Humayoun PhD Scholar, Department of Management Scineces,

Foundation University, Islamabad, Pakistan

Abstract

Stock market is an important indicator of financial health of any country. It shows the ups and

downs in the economic conditions to reflect the market capitalization and investment ventures.

Karachi stock exchange is the biggest stock market of Pakistan. It deals in different stocks,

securities and financial instruments. This study investigates the influence of selected local events

on KSE 100 index. Data regarding KSE daily closing index was collected from print media. A

total of 1971 observations were recorded for 8 years from July 01, 1998 to June 30, 2006. A

regression equation was devised along-with Post-hoc Tukey test to find out the impact of events

on KSE index. The pre event, event and post event windows were worked out for all major

events. The results indicate that the abrupt events had an obvious negative event window relative

to the pre event and post event window. While on the other hand the events with a build up

period had a more negative impact during their pre event window. A normal level of index is

observed after the occurrence of specific event at the elimination of uncertainty.

Key Words: Karachi Stock Exchange, Local Events, Uncertainty.

1.0 Introduction

Financial market is an important segment of any economy in the recent age of globalization.

Financial market could be divided into money market and capital market. Stock market

represents the capital markets as a structured mechanism to facilitate the economic activities.

Stock market is considered as an important indicator of financial health of any economy. In

Pakistan, there are three stock exchanges to promote economic ventures. The Karachi Stock

Exchange (KSE) is the biggest stock market of Pakistan. It is located at Karachi, a commercial

hub of Pakistan. It experience ups and downs during the previous decades. It was declared as the

―Best Performing Stock Market of the World for the year 2002‖ (CNN news 01/01/2003).

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This study examines the influence of selected local events on performance of Karachi stock

exchange. Financial liberalization and deregulation during 1990s helped to enhance the

participation of private investors. Similarly, Govt. interventions and reforms also promoted the

stock exchange business in the recent age. In addition, foreign investors are encouraged to make

investment in different sectors. It helped the local investors to explore foreign markets and

foreign investors to invest in local markets like KSE, LSE and ISE. Stock market is directly or

indirectly linked with the favorable or unfavorable events within country or outside the country.

The events happening in the surroundings of the stock market or within the country have greater

impact than in the past. In this study events like Kargil conflict, Musharaf Takeover in Pakistan,

Pak-India border tension and Earthquake in Pakistan are taken as independent variables to find

out their impact on Karachi stock exchange. The common factor for the selection of these events

is the situation of uncertainty, fear and shock caused by their occurrence.

There are several studies that investigate the events studies to explore the influence of specific

events on stock market (Brown & Warner, 1985; Eckbo, 1992). This study examines the impact

of uncertainty caused by events of different magnitude on Karachi stock exchange especially

considering the local events. Investors play the most vital role in the development of an

economy. It is important to maintain the confidence of the investors in an economy in which they

are operating. It is found that a there is a significant volatility shifts in the return of portfolio due

occurrence of specific events (Chen et al. 2005).

2.0 Literature Review This study explores the impact of selected local events on Karachi stock market. The happening

of specific events could affect the stock indices, even within the same day. There are a number of

techniques applied by several researchers to investigate the influence of different events across

the globe. It is reported that the event study method is the common source of ―stylized facts‖ and

seminal event study of stock splits is applied for the same purpose (Fama et al. 1969). In

Pakistan, there are several studies that to investigate the influence the political and other news on

stock return. Similarly, this study is primarily undertaken to assess the magnitude to of influence

on stock market by occurrence of specific events.

Cutler et al. (1989) investigated the influence of political events on stock prices and reported that

there is no significant impact of these events on the performance of US stock market. Similarly,

there are number of studies that investigated the relationship between uncertainty, investment

and stock return (Hartman, 1972; MacKinlay, 1997; Binder, 1998). Similarly, it is reported that

increased uncertainty leads to increased investment spending regardless of the characteristics of

the adjustment cost function (Abel, 1983) that confirmed the results found by Hartman (1972).

Saltari & Ticchi (2005) confirmed the results of event study undertaken by Nakamura (2002) by

a different line of reasoning. Their analysis also contains more detail and differentiation. It is

reported that the effect of uncertainty on investment consists of two separate effects.

Aktas & Oncu (2006) investigated the pricing behavior of Turkish stock market with reference to

major political events to record the magnitude of influence on market participants. It was found

that efficient markets are affected by occurrence of unfavorable political events. Similarly, it is

reported that news regarding technological innovation has strong impact on stock market (Pastor

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& Veronesi, 2005). In addition, it is examined that how unfriendly environment news affects the

stock markets in India (Gupta & Goldar, 2005). It is also reported that the happening of a certain

events affects the stock return (Khan & Ahmad, 2009). It is found that the occurrence of event in

shape of acquisition, could affect the acquirer companies negatively (Selcuk &Yilmaz, 2011).

3.0 Methodology

This study investigates the effect of selected local events on KSE 100 Index. A number of local

events were selected. The events selected for this study includes Pak-India Kargal Conflict,

Musharaf Takeover in Pakistan, Pak-India border tension and Earthquake in Pakistan. They are

taken as independent variables and their impact is seen on the Karachi stock market. The

common factor for the selection of these events is the situation of uncertainty, fear and shock

caused by their occurrence. These events are considered as independent from Karachi stock

market‘s perspective and KSE Index is taken as dependent variable. Data regarding daily closing

index was collected from the print media. Relevant dates of news regarding the events under

study were gathered from the daily ‗Dawn‘. The KSE daily closing index was collected giving a

total of 1971 observations for a period of 8 years starting from July 1, 1998 to June 30, 2006.

The index for the days when stock market is closed or the days of any public holidays are not

considered under this study.

Procedure

This study examines the influence of selected local events on Karachi stock exchange. It is based

upon an alternative event study test statistic to analyze the event-induced-variance (Boehmer et

al., 1991). Similarly, there are several possible approaches available for formulating test statistics

to find out the event effect. The most flexible and most commonly adopted of these is based on a

multivariate regression model to pick up the event which is clearly laid out (Thompson, 1985). It

could be used to find out the impact of selected events on KSE-100 Index. The normal or

estimated (also known as the estimation) window is usually based on the sampling period of

around 110 to 220 trading days. This method helped to convert the qualitative value into

quantitative values. Thus based on the time period established with the help of event study

analysis KSE daily closing data was required. This method was used to classify the pre event,

event and post event windows for all the independent variables selected for study. The pre event,

event and post event is depicted in Figure 1.

{Insert Figure 1}

4.0 Results and Discussion

There were two kinds of events examined in this study. Firstly events that were sudden in nature

e.g. Musharaf Takeover, Clashes in Karachi and Earthquake in Pakistan. Secondly, those have a

build up period e.g. Kargal Conflict and Pak-India border tension. The results from the Event

Study regression analysis and Post-Hoc Tukey test show that all events in this study produce

significant models except Clashes in Karachi that is insignificant at 0.05. The values of R2 for the

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most of the events are more than 50 % except a low of 1.13% for Clashes in Karachi. The results

are shown in the table 1 as under:

{Insert Table-1}

Table 1 shows the Tukey test results for events under study. The pre event is labeled I while the

event and post event are labeled J. The difference between I-J or the mean difference is shown in

the next column. The impact of the Pak-India Kargal Conflict was not that severe when post

event window Index was gaining quite significantly with 113 points during event window and

176 points during post event window, being the significant sample size. The sudden nature of the

occurrence of Musharaf Takeover led to a significant fall in KSE index by almost 14 points from

pre event window to event window. But Karachi stock exchange being quickest to recover the

shock was above the pre event index level when it entered the post event widow as it had gained

about 100 points. The Pak-India border tension stemmed out of the scenario caused by

September 11th attacks on US. Thus the market was gaining during the event and post event

window. Clashes in Karachi resulted a negative move when the index entered from pre event

window into the event window, on other hand the index was back even above the pre event level

when it entered the post event window. The Earthquake in Pakistan caused the bullish trend on

KSE index. Thus the market was gaining during the event and post event window. Table 2

represents the regression coefficients for the selected events. The results are consistent with the

previous studies (Pastor & Veronesi, 2005; Aktas & Oncu, 2006).

{Insert Table-2}

Table 2 shows the regression coefficients for all the events under study. Pak-India Kargal

Conflict depicted that the pre event window caused the uncertainty among the investors and thus

led to the fall in index. The sample size being significant, the standard deviation is not so

different when the event windows are compared. Once again the pre event window is not

following the trend here, as the other two windows being 10 and 17 points, the pre event window

is around 14 points. The R-square shows that 51 percent variation in the dependent variable

explained by the regression model. Regression coefficients of Musharaf Takeover showed that

the index gained 14 points during the event window when looking at it by keeping pre event

constant. The index was recovering as mentioned in the Tukey test analysis during the post event

window period. The standard error supports the answer that the Index was deviating from the

mean during the event time period. R-square value shows that only 41 percent of variation in the

dependent variable is shown by the regression model. Pak India border tension was taking some

impact from the post event window of Afghanistan war. The standard error for the three

windows shows deviation from the mean and is not too significant for all the three windows. The

t-statistic shows that all the three windows are useful predictors. R-square is 68.6 percent to

indicate the proportion of variation in the dependent variable.

In case of Clashes in Karachi, by keeping pre event window constant it is evident that the event

window is at 1969.312 (i.e. 1784.244-14932). Thus KSE index lost points during the event time

period. The index was up again at 1796.753 (i.e. 1784.244+12.509) during the post event

window. The regression coefficients for Earthquake in Pakistan has depicted that the pre event

window caused the uncertainty among the investors resulted as the fluctuations in index. All

three windows for this event show a t-value either above 2 or below –2. The R-square indicates a

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high percentage of 79 percent. The F- values for all events show that the models are significant at

the 95% confidence interval. When the independent variables are examined on an individual

basis, the Karachi clashes indicate insignificance at the .05 level. The findings supported the

literature as it was evident from the similar investigations (Khan & Ahmad, 2009; Selcuk

&Yilmaz, 2011).

5.0 Conclusion

Stock market is an important indicator of financial health of any economy. It depicts the overall

trends pf the economy. Karachi stock exchange is the biggest stock market in the Pakistan,

located at Karachi, a commercial hub of Pakistan. This study investigates the impact of selected

local events on Karachi stock market. The selected events could be divided into two groups i.e.

events having sudden and abrupt occurrence as well events with build up period. The general

perception of events like war, terrorist attacks and calamities are negative on sensitive areas like

stock markets. But it is at times possible that certain events might only cause a negative trend in

a stock market due to the uncertainty triggered. The events study method led to dividing an event

into three times windows namely pre event, event and post event helped in studying the events in

more critical manner. Thus the three divisions of each event helped to assess the influence of

each on stock market. The results indicate that the abrupt events had an obvious negative event

window relative to the pre event and post event window. While on the other hand the events with

a build up period had a more negative impact during their pre event window. A normal level of

index is observed after the occurrence of specific event at the elimination of uncertainty. It is

found all the events under study had a negative impact but most probably not concentrated

during the actual happenings of the event.

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References

Abel, A.B. (1983). Optimal Investment under Uncertainty, American Economic Review, 73, 228-

233.

Aktas, H & Oncu, S. (2006). The Stock Market Reaction to Extreme Events: The Evidence from

Turkey, International Research Journal of Finance and Economics, 6, 78-89.

Binder, J. (1998). The Event Study Methodology since 1969, Review of Quantitative Finance

and Accounting, 11(2), 111-137.

Boehmer, E., Musumeci J. & Poulsen, A. B. (1991). Event-study methodology under conditions

of event-induced variance, Journal of Financial Economics, 30, 253-273.

Brown, S.J., Warner J.B., (1985), Using daily stock returns: The case of event studies, Journal of

Financial Economics, 8, 205-258.

Chen, D., Bin, F. & Chen, C. (2005). The Impacts of Political Events on Foreign Institutional

Investors and Stock Returns: Emerging Market Evidence from Taiwan, International Journal of

Business, 10 (2), 165-188.

Cutler, D. M., Poterba, J. M. & Summers, L. H. (1989). What Moves Stock Prices? Journal of

Portfolio Management, 15, 4-12.

Eckbo, B. E. (1992). Mergers and the value of antitrust deterrence, Journal of Finance, 47,

1005-1029.

Eckbo, B. E., Vojislav, M. & Joseph, W. (1990). Consistent estimation of cross-sectional models

in event studies, The Review of Financial Studies, 3, 343- 365.

Fama, E.F., Fisher & Jensen M. (1969). The adjustment of stock prices to new information,

International Economic Review, 10, 1-21.

Gupta, S. & Goldar, B. (2005) Do stock market Penalize environment-unfriendly behavior?

Evidence from India, Ecological Economics, 52:81-95.

Hartman, R. (1972), The Effects of Price and Cost Uncertainty on Investment, Journal of

Economic Theory, 5, 258-266.

Khan, A. & Ahmad, M.S. (2009). Trading Volume and Stock Return: The Impact of Events in

Pakistan on KSE 100 Indexes, International Review of Business Research Papers, 5 (5), 373-

383.

MacKinlay, C. A. (1997). Event studies in economics and finance, Journal of Economic

Literature, 34, 13-39.

Nakamura, T. (2002). Finite Durability of Capital and the Investment-Uncertainty Relationship,

Journal of Economic Behavior and Organization, 48, 51-56.

Pastor, L. & Veronesi, P. (2005). Technological Revolutions and stock Prices, Journal of

Business Finance and Accounting, 1-4.

Saltari, E. & Ticchi, D. (2005). Risk Aversion and the Investment-Uncertainty Relationship,


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Selcuk, E. & Yilmaz, A. (2011). The Impact of Mergers and Acquisitions on Acquirer

Performance: Evidence from Turkey The Impact of Mergers and Acquisitions on Acquirer

Performance: Evidence from Turkey, Business and Economic Journal, 1-8.

Thompson, R. (1985). Conditioning the return-generating process on firm-specific events: A

discussion of event study methods, Journal of Financial and Quantitative Analysis, 20, 151-168.

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Annexure

Figure 1

Event Study Windows

Table 1

Results of Post hoc Tukey Test for Selected Events

Event (I) (J) Mean Diff

(I-J) Sig.

95% Confidence Level

Lower

Bound

Upper

Bound

Kargal Conflict Pre-

event

Event -112.62 0.000 -145.46 -79.78

Post Event -176.05 0.000 -217.88 -134.22

Musharaf Takeover Pre-

event

Event 13.35 0.760 -32.45 59.15

Post Event -97.24 0.000 -136.19 -58.29

Pak-India Border

Tension Pre-

event

Event -320.09 .000 -379.98 -260.21

Post Event -489.96 .000 -548.92 -430.99

Clashes in Karachi Pre-

event

Event 14.93 0.893 -63.52 93.38

Post Event -12.51 0.686 -48.49 23.47

Earthquake in Pakistan Pre-

event

Event -436.54 .000 -606.79 -266.26

Post Event -1008.24 .000 -1166.92 -849.55

T0

T0

T1 0

T T2 T3

Estimation

Window

Event

Window

Post-event

Window

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Table 2: Multiple Regression Coefficients, Standard Errors in parenthesis, t-values in

brackets, p-values and F-statistics in italics for Events under study

Events Constant Pre-event Post Event R-Square F-

Statistics

Kargal Conflict

1145.482 -112.622 63.427 0.51 58.715

(9.195) (13.828) (16.977)

[124.581] [-8.144] [3.736]

0.000 0.000 0.000

Musharaf Takeover

1176.312 13.346 110.586 0.41 25.322

(14.948) (19.159) (18.583)

[78.694] [0.697] [5.951]

0.000 0.000 0.000

Pak-India Conflict

1795.35 -494.517 -164.764 0.69 197.258

(17.255) (25.364) (24.906)

[104.05] [-19.39] [-6.615]

0.000 0.000 0.000

Clashed in Karachi

1784.244 -14.932 12.509 0.013 0.564

(10.731) (32.091) (15.088)

[166.267] [-0.454] [0.829]

0.000 0.651 0.409

Earthquake in

Pakistan

8577.171 -436.59 571.708 0.79 117.231

(52.512) (70.969) (69.665)

[163.227] [-6.152] [8.207]

0.000 0.000 0.000

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Impact of Uncertainty Caused by International Events on Karachi Stock Exchange

Dr. Ashfaq Ahmad (Corresponding Author)

Assistant Professor, Department of Business Administration, University of Sargodha, Pakistan

Dr. Sadia Rafi

Assistant Professor, Department of Social Work, University of Sargodha, Pakistan

Dr. Mahmood Ahmad Bodla

Director, COMSATS Institute of Information Technology, M. A. Jinnah Campus, Lahore, Pakistan

Abstract

Stock market is an important indicator of economic growth of any country in the recent age. It

represents the overall health of the economy. This dtudy examines the impact of selected

international events on the Karachi stock exchange. The KSE daily closing index is recorded

from print media to gather 1971 observations for 8 years from July 01, 1998 to June 30, 2006. A

regression equation was devised along-with Post-hoc Tukey test to find out the impact of events

on KSE100 index. The pre event, event and post event windows were worked out for all major

events. Results show that Terrorist attacks on U.S has an obvious negative event window relative

to pre event and post event window, while the events with a build up period had a more negative

impact during their pre event window in case of Afghan and Iraq War. It is also found that when

the uncertainty was over and the outcome of the event was clear, the index started moving back

to normal level.

Key Words: Karachi Stock Exchange, International Events, Uncertainty, Pakistan

1.0 Introduction

Stock market indicates the financial health of any country. It depicts the overall trend within the

specific country regarding investment ventures. Investment is the driving force in the

development of any country. The variation in the interest rate by Pakistani Govt. resulted drastic

changes in the capital markets. Similarly, foreign remittances by the Pakistanis living abroad

have also helped in raising the foreign reserves to a respectful level and led to the bullish trends

in the Karachi Stock Exchange. The Karachi Stock Exchange (Guarantee) Limited (KSE) is the

biggest stock exchange in Pakistan. It is situated in Karachi, the largest industrial city and

commercial center of Pakistan. The Karachi Stock Exchange performed very well and declared

as the ―Best Performing Stock Market of the World for the year 2002‖ (CNN news 01/01/2003).

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This study investigates the impact of selected international events on the performance of Karachi

Stock exchange. The recent government incentives to corporate sector have opened up the

Pakistani markets for foreign investors and encouraged Pakistani producers to explore foreign

markets. Thus the events happening around the world have greater impact than in the past. In this

study events like Y2K Computer Problem, Terrorist attacks on US, war in Afghanistan, War in

Iraq and Tsunami disaster are taken as independent variables to explore their impact on the

Karachi stock market. The common factor for the selection of these events is the situation of

uncertainty, fear and shock caused by their occurrence.

Several studies provide a guide to the type of analysis that could best answer the questions

regarding events and their impact on stock markets. Brown & Warner (1985) suggest a logical

framework to examine the impact of events or shocks on stock markets. The main goal in

conducting event studies is to find out the effect of significant information on stock returns at the

time of the event announcement (Eckbo, 1992). This study contributes to the advancement of

event study methodology by conducting a thorough analysis of events of different magnitude and

their impact on stock exchange. Investors play the most vital role in the development of an

economy. It is important to maintain the confidence of the investors in an economy in which they

are operating. This study addresses the problem of uncertainties caused by events of different

magnitude and for how long do they last in Karachi stock exchange.

2.0 Literature Review This study examines how particular events affect the Karachi Stock Exchange–100 Index. As

information reached the market, indexes fluctuated strongly, with downward and upward moves

sometimes within the same day. Evidence of a significant effect may shed light on various

questions including the impact on shareholders welfare, market efficiency, or the effectiveness of

government intervention. Techniques have evolve from the seminal event study of stock splits by

Fama et al (1969) to the point that event study methods are a common source of ―stylized facts‖

which influence policy decisions and the direction of research.

Cutler et al. (1989) examined the impact of various political events on stock prices, but found no

evidence of significant impact of non-economic events on U.S. stock market performance.

Recent surveys of the state of the art of event study methods are provided by MacKinlay (1997)

and Binder (1998). The investment and uncertainty relationship is frequently analyzed in

literature since 1970s. One of the first models was developed by Hartman (1972), his study

focuses on the relationship between capital productivity and the uncertainty variable. Pindyck

(1982) used a neoclassical model that allows for asymmetric adjustment costs. He argued that the

impact of uncertainty on investment spending is dependent on the characteristics of the

adjustment cost function i.e. uncertainty may increase (decrease) investment when adjustment

costs are a convex (concave) function of investment. Similarly, Abel (1983) suggests that

increased uncertainty leads to increased investment spending regardless of the characteristics of

the adjustment cost function, thereby confirming the results found by Hartman (1972).

Veronesi (1999) found that uncertainty plays a major role in finance. Imperfect knowledge of

investors about macroeconomic variables or dividend enables them to make estimates vigilantly

based on available data. Nakamura (2002) indicated that if capital has shorter life than the firm‘s

planning horizon being the decreasing returns to scale, increased uncertainty about the future

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leads to a decrease in investment spending. Furthermore, in another study by the same author it is

claimed that uncertainty reduces investment spending when a firm is risk-averse (Nakamura,

1999). In a revision of the framework used in the Nakamura study, Saltari & Ticchi (2005)

confirmed its results but by a different line of reasoning. Their analysis also contains more detail

and differentiation. It is reported that the effect of uncertainty on investment consists of two

separate effects. The first effect is coined the ―flexibility effect‖, and is basically the standard

effect brought about by the convexity of marginal capital productivity in, for instance, prices.

The second effect is the ―risk-aversion effect‖ brought about by the entrepreneur‘s risk aversion.

Since the two effects work in opposite directions, the net effect is not clear in their model and it

depends on the relative magnitudes of both effects. It is reported that news regarding

technological innovation has strong impact on stock market (Pastor & Veronesi, 2005).

Similarly, it is examined that how unfriendly environment news affects the stock markets in

India (Gupta & Goldar, 2005).

3.0 Methodology

The events of this study were picked up to observe their effect on the Karachi stock market. The

events being independent from Karachi stock market‘s perspective and KSE 100 Index is taken

as dependent variable. Data was collected through the print media. Relevant dates of news

regarding the events under study were gathered from the daily ‗Dawn‘. The KSE daily closing

index was collected giving a total of 1971 observations for a period of 8 years starting from July

1, 1998 to June 30, 2006. The index for the days when stock market is closed or the days of any

public holidays are not considered under this study.

Procedure

Boehmer et al. (1991) propose an alternative event study to investigate the test statistic to

account for event-induced variance. There are several possible approaches available for

formulating test statistics to find out the effect of a specific event. The most flexible and most

commonly adopted of these is based on a multivariate regression model to pick up the event

which is clearly laid out (Thompson, 1985). Regression analysis is applied to find out the impact

of selected events on KSE-100 Index. The normal or estimated (also known as the estimation

window) is usually based on the sampling period of around 120 to 250 trading days. This method

facilitated to solve the problem of giving quantitative value to the qualitative variables. Thus

based on the time period established with the help of event study analysis methodology the

estimated time period, for which KSE daily closing data was required, was worked out. This

method was used to classify the pre event, event and post event windows for all the independent

variables selected for study. The pre event, event and post event is depicted in Figure 1.

{Insert Figure 1}

4.0 Results and Discussion

Regression analysis is used for data analysis to find out the impact of selected events on KSE-

100 Index. Statistical software SPSS is applied for the regression and Post hoc Tukey test. The

results show that all events in this study produce significant models. The values of R2 for the

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most of the events under this study is more than 50 % except Terrorist attacks on U.S. A. as it

ranges from a high of 82% for Y2K Computer Problem. The results are shown in the table 1 as

under:

{Insert Table-1}

Table 1 shows the Tukey test results for the events in this study. The pre event is labeled I while

the event and post event are labeled J. The difference between I-J or the mean difference is

shown in the next column. The impact of Y2K Computer problem was not that severe as KSE

Index was gaining quite significantly with 123 points gain during event window and 341 points

gain during post event window. The sudden nature of terrorists attack on U.S led to a significant

fall in KSE index by almost 126 points from pre event window to event window. But Karachi

stock exchange recovered the shock when it entered the post event window as it had already

gained about 16 points. Similarly, the impact of the Afghanistan war reflects that the index

gained 169 points during event window and 286 points gain during post event window. In case

of War in Iraq, the pre event and event as well as pre event and post event show a gain in the

KSE index level. In addition, the impact of the Tsunami Disaster was not that severe on KSE, as

index was gaining quite significantly with 651 points gain during event window and 1814 points

gain during post event window. Table 2 represents the regression coefficients for the selected

events.

{Insert Table-2}

Table 2 shows the regression coefficients for all the events under study. The pre event window

created the uncertainty among the investors in case of Y2K Computer problem. The sample size

being significant, the standard deviation is not so different when the event windows are

compared while the R-square shows a very high value of 82 percent. The regression coefficients

of Terrorist Attacks on US show that the index lost a significant number of points during the

event window when looking at it by keeping pre event constant. The event window index level

was 1163.472 (1293.337-129.865). The index was already recovering as mentioned in the Tukey

test analysis during the post event window period and the index level had reached 1304.701

(1293.337+11.364) having 13.7% R-square. The results of Afghan war depicted that the pre

event window led to the fall in index. The sample size being significant, the standard deviation is

not so different when the event windows are compared being the R-square of 52.3 percent. It is

evident that the pre event window is at 1300.833 (i.e. 1795.350-494.517). The event index level

for War in Iraq could also be higher for the fact that KSE was gaining even during the crisis

scenario, therefore a rise in index during the event window could most probably be due to an end

to uncertainty and the upward trend in KSE index simultaneously. The significance level of all

three windows also helps in identifying the variation while the R square indicated that 65.9

percent of the fluctuation in the dependent variable is reflected by the regression model. The

findings of the study supported the previous studies as it was evident in case of terrorist attacks

on world‘s capital markets (Cespedes & Christopher, 2003).

In case of Tsunami Disaster there is a rise in index during the event window. The deviation from

the mean as shown by standard error is quite high for all three-event windows; this is mainly due

to the sample size and level of fluctuations caused by the uncertainty as well as the growth trend

in KSE. The R square explains that dependent variable is influenced by 76 percent due to

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regression model. The F- values for all events show that the models are significant at the 95%

confidence interval. When the independent variables are examined on an individual basis, the

terrorist attacks on U.S indicate insignificance at the .05 level. The impact of various political

events on stock prices, but found no evidence of significant impact of non-economic events on

U.S. stock market performance Cutler (1989). It has been evident from the statistical results that

the abrupt events had an obvious negative event window relative to the pre event and post event

window. While on the other hand the events with a build up period had a more negative impact

during their pre event window. Once the uncertainty was over and the outcome of the event was

clear the index started moving back to normal level. The results are in line with literature as it is

reported that the terrorism could affect the global capital markets (Chen & Thomas, 2004).

5.0 Conclusion

The general perception of events like war, terrorist attacks and calamities are negative on

sensitive areas like stock markets. But it is at times possible that certain events might only cause

a negative trend in a stock market due to the uncertainty triggered. This study investigates the

influence of uncertainty caused by; selected international events on KSE. The events study

method led to dividing an event into three times windows namely pre event, event and post event

helped in studying the events in more critical manner. It shows the lasting impact of these events

under study. Thus the three divisions of each event brought under light the impact of an event

before it actually occurred, event, and its aftermaths. It has been evident from the statistical

results that the abrupt events had an obvious negative event window relative to the pre event and

post event window. While on the other hand the events with a build up period had a more

negative impact during their pre event window. Once the uncertainty was over and the outcome

of the event was clear the index started moving back to normal level. It is concluded that all the

events under study had a negative impact but most probably not concentrated during the actual

happenings of the event.

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References

Abel, A.B. (1983). Optimal Investment under Uncertainty, American Economic Review, 73, 228-

233.

Binder, J. (1998). The Event Study Methodology since 1969, Review of Quantitative Finance

and Accounting, 11(2), 111-137.

Boehmer, E., Musumeci J. & Poulsen, A. B. (1991). Event-study methodology under conditions

of event-induced variance, Journal of Financial Economics, 30, 253-273.

Brown, S.J., Warner J.B., (1985), ―Using daily stock returns: The case of event studies,‖ Journal

of Financial Economics, 8, 205-258.

Cespedes J. L. & Christopher K. (2003). The effect of September 11th terrorist attacks on world

stock markets, Southern Illinois University working paper.

Chen, A. H. & Thomas F. S. (2004). The Effects of Terrorism on Global Capital Markets,

European Journal of Political Economy, 20 (2), 349-366.

Cutler, D. M., Poterba, J. M. & Summers, L. H. (1989). What Moves Stock Prices? Journal of

Portfolio Management, 15, 4-12.

Eckbo, B. E. (1992). Mergers and the value of antitrust deterrence, Journal of Finance, 47,

1005-1029.

Eckbo, B. E., Vojislav, M. & Joseph, W. (1990). Consistent estimation of cross-sectional models

in event studies, The Review of Financial Studies, 3, 343- 365.

Fama, E.F., Fisher & Jensen M. (1969). The adjustment of stock prices to new information,

International Economic Review, 10, 1-21.

Gupta, S. & Goldar, B. (2005) Do stock market Penalize environment-unfriendly behaviour?

Evidence from India, Ecological Economics, 52:81-95.

Hartman, R. (1972), The Effects of Price and Cost Uncertainty on Investment, Journal of

Economic Theory, 5, 258-266.

MacKinlay, C. A. (1997). Event studies in economics and finance, Journal of Economic

Literature, 34, 13-39.

Nakamura, T. (1999). Risk Aversion and the Uncertainty-Investment Relationship, Journal of

Economic Behavior and Organization, 38, 357-363.

Nakamura, T. (2002). Finite Durability of Capital and the Investment-Uncertainty Relationship,


Pastor, L. & Veronesi, P. (2005). Technological Revolutions and stock Prices, Journal of

Business Finance and Accounting, 1-4.

Pindyck, R.S. (1982). Adjustment Costs, Uncertainty, and the Behavior of the Firm, American

Economic Review, 72, 415-427.

Saltari, E. & Ticchi, D. (2005). Risk Aversion and the Investment-Uncertainty Relationship,


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Thompson, R. (1985). Conditioning the return-generating process on firm-specific events: A

discussion of event study methods, Journal of Financial and Quantitative Analysis, 20, 151-168.

Veronesi, P. (1999). Stock market overreaction to bad news in good times: A rational

expectations equilibrium model, Review of Financial Studies, 12, 975-1007.

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Annexure

Figure-1:

Event Study Windows

Table 1

Results of Post hoc Tukey Test for Selected Events

Event (I) (J) Mean Diff

(I-J) Sig.

95% Confidence Level

Lower

Bound

Upper

Bound

Y2K Computer

Problem

Pre-

event

Event -122.41 0.102 -263.99 19.17

Post Event -340.11 .000 -403.42 -276.78

Terrorist Attacks on

USA Pre-

event

Event 125.88 .001 45.40 206.37

Post Event -15.66 0.518 -49.53 18.22

War in Afghanistan Pre-

event

Event -168.63 0.000 -251.44 -85.83

Post Event -285..24 .000 -357.74 -212.73

War in Iraq Pre-

event

Event -188.67 .001 -312.09 -65.26

Post Event -614.48 .000 -704.04 -524.93

Tsunami Disaster Pre-

event

Event -650.08 .000 -996.81 -303.35

Post Event -1813.54 .000 -2117.67 -1509.41

T0

T0

T1 0

T T2 T3

Estimation

Window

Event

Window

Post-event

Window

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Table 2

Multiple Regression Coefficients, Standard Errors in parenthesis, t-values in brackets, p-values and F-

statistics in italics for Events under study

Events Constant Pre-event Post Event R-Square F-

Statistics

Y2K Computer

Problem

1468.385 -122.410 217.691 0.82 85.815

(55.775) (58.053) (59.378)

[26.327] [-2.109] [3.666]

0.000 0.000 0.438

Terrorist Attack on

USA

1293.337 -128.86 11.364 0.137 8.668

(9.958) (31.71) (14.577)

[129.88] [-4.09] [0.778]

0.000 0.000 0.438

Afghanistan War

130.633 -168.39 122.194 0.523 47.158

(21.604) (34.38) (25.727)

[60.39] [-4.89] [4.75]

0.000 0.000 0.000

War in Iraq

2797.747 -187.503 427.955 0.66 136.125

(45.602) (53.473) (52.553)

[61.352] [-3.507] [8.143]

0.000 0.000 0.000

Tsunami Disaster

6381.554 -650.079 1163.46 0.76 107.539

(107.318) (144.708) (134.924)

[59.464] [-4.492] [8.623]

0.000 0.000 0.000

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Assessing the Training Transfer in National Institutes of Management (NIM)

of Pakistan: A Proposed Research Strategy

Muhammad Kaleem

Lecturer, institute of management sciences, Kohat University of Science and Technology

Kohat, Khyber Pakhtonkhwa, Pakistan.

Dr. Abdul Qaiyum Khan

Institute of management studies, university of Peshawar, kpk, Pakistan.

Hafizullah

Lecturer, institute of management sciences, Kohat University of Science and Technology

Kohat, Khyber Pakhtonkhwa, Pakistan.

Abstract

This study is part of my PhD dissertation to empirically investigate the transfer of public sector

training in Pakistan. It is further based on the case study of National Institute of Management- an

apex institution that imparts management training to middle level public managers in Pakistan.

The institute delivers the training program under the title ‗Mid Career Management Course

(MCMC)‘ in four different campuses each at Karachi, Lahore, Quetta and Peshawar. The course

is mandatory for officers in Basic Pay Scale of 18 for promotion to next cadre of civil

bureaucracy. The paper in hand is taken from the chapters pertaining to research approach,

framework and methodology. The adopted approach for the study is pure qualitative and

involves two major phases. Phase 1 entails the needs assessment while second phase is about

incorporating the need elements into an institutional policy. Needs Assessment phase is further

divided into four qualitative steps. First step is based on data gathered through focused groups of

trainee officers of each campus. Next step relies on data collected from the semi structured

interviews of public sector figureheads. In third step a research review is carried out to identify

best practices in public sector management training and finally the three steps are triangulated to

shape the policy draft of phase 2. The assessment procedure detailed above is guided from the

proposed Proactive Evaluation of Owen and Rogers (1999, 2006). For the policy draft the Dror‘s

(1987) optimal policy phases are taken as baseline framework.

Keywords: Public Sector, Management Training, National Institute of Management

1. Introduction

To cope with the challenges of contemporary dynamic work environments, it is inevitable to

groom workforce with most current and modern practices to improve job performance. Training

and development expenditures emerge to be important financial decisions that compel the

organizational decision makers to apply most effective strategies for optimum performance and

profitability. The assessment of such investments in human capital, in public sector particularly,

has received considerable research attention (Baharim 2008, Abozed, Melaine & Saci 2008).

This context makes it necessary for academicians and practitioners to understand the dynamics

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of effective training and its relevance to, and application on workplace. The problem area of this

research is public sector work environment issues related to executives of higher cadre (BPS 18)

including civil service and the extent to which the current training institutes and programs

address these issues. The institution selected for conduct of this enquiry is National Institute of

Management (NIM) which was formerly known as National Institute of Public Administration

(NIPA). Located in Karachi, Lahore, Peshawar and Quetta, it had been serving as an apex seat of

management training for current and future public managers and thus provides a forum where the

study under consideration can be conducted on subjects who are or would be at the helm of

public affairs. By doing so, this study would fill the gap in existing literature on perceived

relevance of training to actual workplace problems in public sector of Pakistan. Moreover the

study does not culminate merely on pronouncing some training impact factors as good and others

bad rather throughout the data collection and analysis, the focus is on recommendation for a

policy formulation as final product. The policy that can be adopted at institutional level and

synthesized from triangulation of a set of qualitative data and international literature on best

practices in public sector training. This work is expected to help the practicing public managers

by working out strategies to enhance the utility of a proposed training program both at

institutional and individual level.

This research is based on an assessment of management training in one of the public

sector training institutes of Pakistan. The assessment might be carried out through a number of

possible approaches. This research however used an approach outlined by Owen and Rogers in

their famous work in 1999 and modified later in 2006. Focus of this approach is needs

assessment through seeking direct responses of concerned stakeholders of a program under

consideration. Selection of proper methodology is highly interactive with the established

objectives of a research exercise (Saif, 1987). The objectives for this study have been clarified in

chapter 1 in brief, and in chapter 2 in detail. Throughout the study, two main objectives remain

focused; development of a draft policy for management development and training of public

servants at institutional level of National Institute of Management (NIM) and secondly

recommendation of strategic shifts in management approaches of public sector to enhance the

efficiency level of service delivery to masses. This chapter is aimed at outlining the procedures

and approaches applied to conduct the enquiry and to achieve the stated objectives.

For policy development Owen and Rogers (1999) recommend the needs analysis as

foundation stone. The research is exploratory in nature and for needs assessment its progress is

two dimensional i.e. needs provided by the trainees of concerned training institute and needs

provided by the pubic sector figureheads who would supervise the trainees at their workplaces.

This approach employs a number of various data collection techniques that are qualitative in

nature. The case study method helped in nearing the focal points systematically and allowed

going deeper in the identified need issues.

2. Research Approach

The paradigm of this study suits with qualitative analysis and is chosen with a vivid influence of

four groups of philosophies or school of thoughts. A glimpse of their discussion is necessary

before proceeding further

2.1 Interpretive Anthropology

The interpretive school, led by anthropologists like Clifford Geertz, advocates use of fine grained

or thick descriptions of what is happening in a particular program and believes that only then our

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impulse of understanding the essence of some problem can proceed. It has a provision of

generalization of findings to higher levels where actions and effects are intertwined into

strategies be they implicit or even tacit. Moreover at policy formulation level it regards the

implications of actions and their proscriptive nature in terms of both rules and sanctions. This

school recommends the enquiry of a discipline to be data driven and prefer this approach over

theory driven analysis (Dick, 2000). It calls for proceeding on basis of empirical observation of

practices and records the things as they are and not under the influence of a pre structured

theoretical base. So the role of researcher is more like an interpretive anthropologist, contrary to

the structuralist approach that uses theory and cultural artifacts as indicators and explanatory

devices of human actions. According to Shwandt (1994), of same school, the investigation must

be attempting to find the true interpretations beneath the layers of complex apparent discussions.

Same author has further explained the analysis of human discourses as interpretive science

tracing the meaning and not the laws as in experimental sciences.

2.2 Radical Constructivism

The philosophy held by the torchbearers like Ernst Glasserfeld cited in Schwandt (2001)) of this

school believes in knowing something into the wider context of its application in a field of

practice. It rejects judging of a case while standing apart from the experience of its practical

application. In other words the knowledge is always embedded as an integral part of the

experiences of knower. It supposes the knowledge as an activity rather than a product. The work

of this school is more prominent in analysis of patterns of teaching or training and learning. It

gives interesting definitions to learning and imparting the learning where learning is process of

knowledge construction by experience and training and development pedagogy or teaching is

more a matter of facilitation of this process rather than the communication of the content

(Shwandt 2001).

2.3 Social Constructionism

The qualitative analysis usually relies on stocks of information from individual mind and

subsequent cognitive processes. The social construction school advocates the integration of the

extrinsic and subjectively shared meanings of concepts with individual meanings and knowledge

(Gergen, 2000). The approach of this school is to see the world as a historically situated

interchanges of social artifacts among people.

According to Schwandt (2001) and Gergen (2000), for a constructionist it is not

necessary to be anti realist. The interest of the matter is not the reality but the image constructed

by the reception of same information in a group with a common and shared purpose of

accumulation of knowledge (e.g. group of trainees in a session).

2.4 Intelligence of Feeling

The undercurrent of this philosophy is the recognition of a specific inner knowledge that mostly

remains inexpressible but plays vital role in directing individual actions. This concept was

refined by Robert Witkin (1974) and renamed as ―Intelligence of Feeling‖ and according to him

represents reflexive component of knowledge accumulation. Polanyi (1983) augments this

discussion and refers to this clue of knowledge as being tacit and not expressible directly in a

discourse. This concept emphasized that any experiential learning that does not take into account

the stock of such untellable discourse is incomplete (Donmoyer, 2000). Same author argues that

teacher and student relationship is not necessarily like that of scientist and subject rather the

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knowledge accumulation is a shared activity and highly interactive in a learning set up. It

declares that learning is always a synthesis of shared experiences with both the trainer/teacher

and fellow learners.

2.5 The Case Study Approach

This research involves the analysis of inputs provided by the stakeholders of public sector

management training and development. It entails elaboration and construction/reconstruction of

training issues and is based on the interpretation of linear narratives. Researcher has to allow for

the induction of personal styles of changing constructions of discourses and integration of the

construction and interpretations evolved by the stakeholders as well. In such situation Robert

Stake (1995) recommends an approach that takes into account issues and not merely topics as to

drive the research effort to more realistic synthesis of situation. The book titled ―the art of case

study research‖ by the same author defines the case study approach as the one that revolves

around the complexity and particularity of a unique situation and relies highly on interpretations

of related discourses to study the possible dimensions of situations within particular

circumstances. He further calls for a central but comprehensive research question that guide the

rest of the enquiry and same should be led by interpretation of consequent discourses and sub

questions. The question(s) may be modified as the case is explored and some new stocks of

information may even change the design of the enquiry. The altering definition of the case may

force modification and boundaries of the investigation as the inclusion of the new issues are

considered. Stake (1995) further considers the issues as conceptual structure and involvement of

those issues will set primary and secondary research questions. As the enquiry goes deeper, it

must be kept aligned with the complexity and contexuality of the case. Quoting the importance

of identification of the issues to guide the case study, stake writes:

…..issues identification will draw the enquiry into vital problems of the case and will clue out the

complexity of human interaction while helping the researcher to expand on an instance and

analyze it in the light of long historical evidences. The issues are found to be the key units of

discussion in later phases of research/case study… (Stake, 1995. pp16.)

In nutshell, case study research has a central place in qualitative research to conclude the

research endeavor with a workable solution adoptable at macro level. According to Stake (2000),

case study acts like a self and integrated system and proves more purposive. A great contribution

is made through this form of study if findings and suggested remedies are transferable to other

similar work set ups. The stock of discourses generated in course of investigation should also be

suitable to different set of audiences.

3. Framework and Methodology

Two phases of fundamental nature form the basic skeleton of the framework of this research.

Both are vivid and pronounced till this point over and again in previous chapters. Phase 1 is

based on needs assessment of management training programs for public sector executives of

Pakistan. Phase 2 is for development of draft of a policy at institutional level. The input for needs

assessment is provided by two investigation exercises i.e. investigation from trainees of public

sector training institute through focus group and investigation from public sector high ups

through semi structured questionnaires. Our adopted framework of Owen and Rogers suggest

that needs assessment from stakeholders must be integrated with a review of available best

practice literature. For development of policy elements, Dror‘s optimal policy model based on

his work of 1973, 1978 and 1987 have been used as guideline.

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As an ethical responsibility of a researcher, all the participants of this research

investigation were made aware of the nature and purpose of study. The consent form printed on

letterhead of Institute of Management Studies, University of Peshawar, was administered well

before the actual arrival of participants for focus group discussion. The questions designed to

guide discussion of focus group were also disseminated in advance with the invitation and

consent letter.

The collected data were analyzed using popular qualitative approach of triangulation, i.e.

triangulation of different sources of data which in our case were needs assessment through focus

group and semi structured interviews and review of research for best and ideal practices. There

was no numerical interpretation required in adopted case study approach except the percentage

and frequency analysis of the number of responses. That needed the coding of information and

responses received from the subject respondents. The need issues were first identified and then

responses were analyzed according to two categories of either agreements or disagreements to

include an issue in our list of needs of management training and development. The coding

specifically helped in looking for similarities and differences among collected data to use that as

vote for particular need issue.

Fig.1 Research Framework

Review of Best Practices

Focus Group Semi Structured interviews

interviews

Triangulation

4. Overview and Details of Needs Assessment

As discussed earlier major part of phase 1 is concerned with needs assessment from two main

sources i.e. focus group discussion with public servants who are receiving training in NIM and

heads of the departments of public sector whose comments are vital as they are at helm of the

public affairs and lead the team of executives for whom the training is being designed and

recommendations are sought. The participants of both groups were representing 22 important

government departments. According to local classification of superior government services all of

these departments are major role players in influencing public participation, financial prosperity,

civic and health facilities and pubic financial aspect directly. The aim was to develop a set of

desired management training outcomes and the actual state of affairs in this training at NIM‘s

Need Assessment

Draft Policy Development

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level. Needs of target management training program are then found situated at intersection of

earlier two desired and actual outcomes. Symbolically

N = D ∩ A

Where N denoted target needs of a management training program, D is for desired state options

and A is for actual state options.

The goal of needs assessment was accomplished through the use of four qualitative steps.

In first step six focus groups interviews were conducted with NIM trainees where each group

pertained to one NIM campus in Karachi, Quetta, and Peshawar. As the sessions of advance

courses were going on in the time of data collection, each group easily comprised ten trainees.

The selection of the sampled trainees was purposive and almost all the participants had already

attended at least one course prior to the present one. The focus of the questions was to know the

extent to which the current or previous training programs prove successful to meet the

expectations of the sampled trainees. In second step, twenty heads of public departments (locally

called ‗Secretaries‘) were contacted to obtain their views through semi structured interviews,

about the necessary elements and considerations in any program of management training and

development. The purpose of this step was to inform the enquiry about the critical analysis of the

current training programs for public managers in NIM by the supervisors of potential trainees

and to know about suggested additions in any proposed program of same kind. Third step is of

trawl of international literature for fine grained synthesis by different authors to suggest best

practices in management training and development at institutional level. This step helped in

establishing benchmarks for an ideal training material and delivery. Fourth step was to integrate

and combine the obtained data and reflect their combined effect in establishing the need issues

first and then highlighting key needs of both potential trainees and needs of those who are to

utilize the trained nuances out of the trained human capital for the benefit of the workplace and

its beneficiaries. Details of the discussed steps are given below.

5. Step 1. Focus Group Discussion

Focus group sessions of this research were an interesting exercise to record perceptions and

observe attitude of our pubic sector executives about the current level of competence of

management training and development programs in NIM.

5.1 Perspectives on Focus Group

A number of definitions for focus group discussions/interviews are found in literature. Almost all

have common essence. Some fundamental perspectives include Wenger (1998) and Krueger &

Casey (2000). According to Wenger (1998), focus group consists of around 7-10 individuals

having common interests in a social issue and have frequent interaction with the issue of

consideration having got sufficiently socialized with concerned environment to develop their

own insights about the focused issues. Krueger & Casey (2000) argued that focus group

individuals should have a concern about a focused issue and should possess thrust to improve on

the current state of affairs. They also discussed role of moderator to be able to lead the discussion

of focus group to generate useful information and to a purposeful conclusion. Boonying (2007)

maintained that focus group individuals must be unfamiliar with each other in the sense that they

should not represent a pressure group nor should talk under a political influence of interpersonal

dynamics. The session should not last for more than two hours while 1 to 1-1/2 hours are ideal

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time. The moderator‘s participation into talk should have a nurturing effect on the discussion and

participants should not feel pressurized to come to certain point of view, solution, vote or

consensus (Boonying, 2007).

Krueger and Casey (2000) recommend that focus group discussions should be conducted

more than one time for the same focused issue but provided no ideal frequency. Repeated

discussion would help in judging the right trends and patterns of perceptions and attitudes of

participants about the issue. Great care is necessary at this stage in recording and coding of

information for facts are prone to distortion. Level of Resources must be high enough to timely

record, lead and analyze discussion.

5.2 Advantages

Focus group is a popular method of qualitative data collection. Various researchers have

associated number of advantages of using this particular approach. Krueger (1998) is of the view

that focus group is vital in exploratory and preliminary nature investigation. Where researcher

has still to develop a base of field knowledge for further enquiries. Race et al. (1994) regards the

importance of focus group when a program is to be evaluated as a set of various activities and a

further development of the same program is sought. They further commented that this approach

proved vital in defining new research avenues about already investigated areas. Morgan (1988)

maintains that focus group discussions can also be used as supplemental instruments to augment

a scientific enquiry where other data collection methods have central place.

Boonying (2007) counted few more advantages of focus groups like it is low cost and

expedites results. The group setting proves as a system of check and balance and thus chances of

getting biased or extreme views are reduced. The facilitator openly interacts with participants

and encourages interaction among them and thus attempts to explore a number of unexpected

issues.

5.3 Limitations

Apart from its vivid importance there are certain limitations as pointed out in work of different

authors. Morgan (1988) shows concerns about the facilitator‘s bias that often manipulates the

participants and drive the discussion to his/her own choice of conclusions. It greatly hampers the

reliability and validity of results obtained. The comments of participants should be taken as

contextual as possible and unnecessary generalizations may distort the findings. Boonying

(2007) criticizes the method for being purely qualitative and having no quantitative contributions

that can help in generalization of results on a vast majority of population. Besides, in a group

discussion, talk is normally dominated by few who are vocal and their opinions emerged

exertive, sidetracking other‘s ones.

5.4 Participants of Discussion

The individuals that were invited for focus group session of this research were all middle level

managers of public sector of Pakistan. Locally these services are called central superior services

and consists of an array of different groups of public sector service portfolios like Foreign

Services, District Management Group, Police Services…etc (to name few). All were at their late

thirties or early forties and consisting of ten members each from three campuses of National

Institute of Management (NIM), Pakistan. All these participants were invited through a letter of

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invitation on letterhead of institute of management studies, university of Peshawar and can be

seen in annexure.

5.5 Mode of Data Collection

The discussion of the focus group participants was audio taped as is in most of the cases of

qualitative data collection from group discussions. Consequently data collection and recording

process during the discussion did not get noticed and could not become a source of distortion of

observations. Participants openly commented on current status of management training and

elements like knowledge sharing among trainees, transfer design dimension of training, odds of

workplaces and particularly compare their expectations from a management training and

development program and the actual perceived outcomes. The findings synthesized out of this

focus group discussion greatly helped to inform the thesis with potential elements of training

programs that need to be reviewed and offer a room for improvement. Moreover following three

aspects are vital outcomes of this research exercise:

Knowing general range of perceptions of NIM Trainees about currently offered modules

of management training and development (details are in chapter 4)

Making a precise judgment of the differences of opinions among various levels of pubic

managers and differences depending on their departmental affiliations.

Getting a deeper insight about the perceptions of these trainees regarding the application of learnt

concepts back on their workplaces and those workplace elements that inhibit the transfer of

knowledge

5.6 Analysis of the Data

The audio taped recording was listened carefully and repeatedly. The next stage was of

transcription. The statements were written down indiscriminately and searched for the key

elements or needs issues that would serve basis for identification of major actual needs of a

training program. ―Analysis by induction‖ that is one of the standard qualitative data reduction

technique as proposed by various researchers, was applied to the written statements. For every

group of NIM trainees two sets of needs were generated. One is of actual major outcomes and

other is desired by the trainees. The suggested procedures of Denzin & Lincoln (2005) and Miles

& Hubermain (1994) were used for data reduction while the statements pointing to the similar

actual or desired outcomes and needs were sorted, tabulated and color coded through the

extensive use of Microsoft Excel. Analysis of the same color statements helped in identification

of similarities, difference and patterns in recorded data. This procedure fetched the research to

closer looks on criteria and standard to establish the major needs issues, actual need and desired

outcomes more clearly.

Once the categories were established again all the statements were analyzed for positive

or negative counts on the issues. Some statements were neutral and others look to be suggesting

something instead of merely declaring something good or bad. An arbitrary scale was developed

to assign weight age to each identified major need element. The more an element of major need

represents the identified needs issues the higher will be its corresponding weight age. According

to the scale, a strong weight is one that represents more than 35 % of need issues, a moderate one

is 20-35 % and weak is less than 20 %. By this way the comments pertaining to each need

elements were conveniently categorized as strong, moderate or weak. During this first step of

focus group and consequent analysis of data, there was an opportunity to develop and design the

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questions for next step i.e. semi structured interviews from figureheads of various public sector

portfolios.

6 Step 2: Perspectives on Semi Structured Interviews

For studies based on knowledge acquisition, the method of personal interview and particularly

the semi structured one are ideal approach (Flick, 1998). Semi structured interviews provide an

opportunity to simultaneously pursue a highly structured agenda with a provision to keep

clarifying emerging issues and confusions. In this research the anticipated questions for

interviews were sent in advance to the participants with consent letter. Boonying (2007)

advocates the practice of taking the participants into confidence about the interview well before

the actual conduction. An hour of such interview and discussion is enough time with

approximately 10-15 questions. This technique also allows for tap recording of the discussion

and later transcription of the recorded data provides protocol and categorized meanings to the

answers of the questions.

6.1 Overview of Participants

The participants of the semi structured interviews were public sector figureheads of various

departments pertaining to all four provinces of Pakistan. They were secretaries of various

government departments who are locally at one of highest ranks of public service hierarchy.

Each of them was contacted personally through letter of Director of Institute of Management

Studies (see annexure). The consent letter accompanied with interview questions was sent

immediately after completion of first step i.e. focus group. The questions that are discussed in

detail in chapter 5 were focused to investigate the views of these heads about the prospects of a

training program for management development of middle level public managers of Pakistan,

with a special reference to training programs being run in NIM.

6.2 Collection of Data

The discussion was audio taped and later transcribed as a grid. Language used for discussion was

a mix of both English and Urdu as is the case of most of educated class in Pakistan who use

English words and phrases extensively in Urdu conversation. The grid as explained in chapter 5

encompassed the tabulated responses to asked question. These were noted on a spreadsheet for

ease of analysis and categorization

6.3 Analysis

The respondents for this part of data collection comprised of senior officials who are at

supervisory roles of those executives who are or would be the NIM trainees at least once in their

career and for them this training is mandatory for promotion. Moreover the said participants

also had at least one opportunity to go through the training of management development in pre

service sessions. Their professional discussion and dialect made the analysis easy with the use of

color coding and labeling and looking for common words, statements and issues in discussion

and putting them into same category. The principles of distinctive features of Denzin & Lincoln

(2005) helped in componential analysis of recorded statements.

7 Step 3: Purposive Review of Research for Best Practices

This step was another round of going through available international and national literature on

management training and development. This time it was about the identification of best practices

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that either identified in a real set up or proposed by researchers after rigorous research efforts.

Once again the international literature was trawled for the work of Molander (1986), Wexley &

Baldwin (1986), Thomson et al. (1997), Mumford (1987), Storey (1989), Lees (1992), Baldwin

& Padgett (1994), Mumford (1997), Jansen & Van der Velde (2001), O‘Connor & Mangan

(2004), Espedal (2005), Bhiwajee (2007), Boonying (2007) and Baharim (2008). This purposive

search of the literature, specifically for identification of what is regarded, found or suggested as

best practice elements for a management training and development with a special reference to

public sector entities and executives. The internet based search engines and online access to

books, research journals and other write ups were helpful in this process. Local literature was

though very limited but made available after efforts. The official library of three training

institutes i.e. NIM, PARD (Pakistan academy for rural development) and PPSA (Pakistan

Provincial Services Academy) served as rich resource for local literature on public sector

management training and development. Work of Saif (1987), Islam (1990), Jones (1994, 1997),

Mishra (1997),Hameed (1999), Hashim (2001), Inayatuallh (2004), Iqbal (2004) and Hussain

(2008) were found suggesting a myriad of best practice options in local work set up. ―Context

Summaries‖ of each mentioned work were prepared and best practice options were sorted, color

coded and categorized according to the type of literature i.e. national and international.

8. Determination of the Net Needs for a Proposed Management Training Program

As a final step the problem now was to work out the intended needs of the management training

for the public sector of Pakistan which is to be proposed at the end of this thesis as final draft of

policy statement. A principal given by Owen and Rogers (2006) suggests that the desired state of

an intended program always lies at the intersection of findings of a number of qualitative

treatments/approaches about that program. In the case of this thesis the needs (N) that are to be

integrated in a proposed training program will lie at the intersection of the desired needs (D) and

actual state (A) of the current training programs.

N = D ∩ A or D - A

Extracting the required needs from the essence of three approaches i.e. focus group, interviews

and research review there was then a need of triangulation.

Through the use of spreadsheet and color coding of similar issues related to training

needs, the outcomes of all three approaches were compared, analyzed and combined for a final

set of desired elements of a public sector management training program for NIM-Pakistan. Again

the data reduction techniques of Denzin & Lincoln (2005) helped to generate these needs that

had a reflection of more than one qualitative treatments of data collection.

According to initial enunciation of locating the net needs at the intersection of desired

and actual state, now same principal has to be applied at the policy aspect of the needs

assessment as the efforts of this research are finally focused at producing a draft management

training and development policy for public sector. The elements to be included in policy

statements were mostly found in data collected from semi structured interviews and review of

research for best practices of management training. Now, the policy needs N(P), according to

this formula, were equal to the intersection of actual policy elements that were already applied

to the program of training in NIM i.e. A(P) and desired policy elements D(P) obtained from

synthesis of interviews of public figureheads and best practice reviews.

N (P) = D (P) ∩ A (P)

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9. Phase 2: Developing a Policy Statement

The needs elements worked out in the first phase were used in this phase for establishing policy

elements/needs for a management training and development program relevant to public

workplace needs and challenges. For this purpose the optimal model of Dror‘s 1973 and 1987

work were adopted as a framework. Though this model detailed around 18 interrelated steps and

measures this thesis could only make good use of four vital and independent steps out of them.

These four steps have been discussed in chapter 2 in detail.

Apart from Dror‘s contribution, Caldwell (2006) presented another perspective on policy

making elements, also discussed in chapter 2. His work uncovered nine elements of resource

allocation that are mandatory for policy making. In these nine elements some are of preliminary

nature e.g. power, finance, material and human capital. Some are of intermediate level e.g.

technology, knowledge and time. Some are important for the finale and feedback aspect e.g.

information and assessment. All of nine elements were integrated with adopted phases of Dror‘s

model as a rationale to recommend resource base for adopting of proposed policy for

management training in public sector. Now the adopted phases of Dror‘s optimal model became:

1. Working for allocation of certain resource policies

2. Evaluating each item‘s potential costs and benefits using reliable measures.

3. Choosing the best and workable alternatives with provided resource base

A technologically state of the art feedback and follow up system

10 .Triangulation: As Means of Validity

The term triangulation is derived from the name of geometric shape i.e. triangle which in

research world indicates the use of three distinct data collection and analysis techniques (Patton,

1987). For a final result and recommendations the outcomes of all three techniques are

combined. The method is more common in qualitative research. In this research, the undercurrent

of using three distinct techniques in phase 1 is the same approach i.e. Triangulation. Combining

the obtained results helped in concrete choices in policy formulation i.e. phase 2.

For future research avenues, the research is expected to serve a good torchbearer. The policy

guidelines that are synthesized from findings of this research may be validated through further

interviews or even focus groups of local and international experts in public sector management

training and development, seasoned civil servants and public policy analysts.

11. Summary

This paper detailed the methodological framework and applied approaches of data collection and

analysis used for a proposed study. The rationale behind using specific approaches was given

with literature support. Two phases are of vital importance i.e. needs assessment and drafting

policy steps for training and development of management executives of public sector of Pakistan.

The needs assessment is done using three distinct techniques of qualitative data collection i.e.

focus group, experts interviews and review of research for best practices in training. Focus group

respondents are middle level public managers who will be promoted on basis of performance

ratios of training in National Institute of Management (NIM). Interviews are semi structured and

will be taken from ―secretary‖ level public managers who locally served as Heads of public

sector entities. The research review is historical, national and international to find statements

pertaining to suggested best practices for management training and development. Triangulation

is next step to finally approach the policy development phase of this research. For that phase the

optimal model of Dror (1987) will be used as benchmark.

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12. Reference

[1] Abozed, M. Melaine, Y. Saci, K. (2008). ―The Influence of Work Environmental Factors

on Motivation to Transfer Management Training: Case Study of Libyan Oil Industry‖.

International Journal of Training and Development, 10 (2), 88-97

[2] Baharim, S. B. (2008). The Influence of Knowledge Sharing on Motivation to Transfer

Training: A Malaysian Public Sector Context (Unpublished Doctoral

Dissertation). School of Management, Faculty of Business and Law,

Victoria University, Melbourne Australia.

[3] Boonying, V. (2007). Using Proactive Evaluation to Develop a Policy for Public Sector

Training Programs in Emotional Intelligence in Thailand (Unpublished Doctoral

Dissertation). School of Education, Faculty of Arts, Education, and Human Development,

Victoria University, Melbourne Australia.

[4] Caldwell, B.J., (2006), Re-imagining Educational Leadership, London: Falmer Press.

[5] Denzin, Norman K. & Lincoln, Yvonne S., (2005), Handbook of Qualitative

Research, 3rd Edition, London: Sage.

[6] Dick, b. (2000). Data driven action research, retrieved march 28, 2010 from

www.scu.edu.au/schools/gcm/ar/arp/datadriv.htm

[7] Donmoyer, R. (2000). Generalisability and the single-case study. In R. Gomm, M.

Hammersley & P. Foster (Eds.), Case Study Method. London: Sage publications.

[8] Dror, Y., (1987), Advising Rulers, in N.W. Plowden (Ed.), Advising the Ruler, Oxford:

Blackwell, pp. 185-215.

[9] Flick, U., (1998), An Introduction to Qualitative Research, London: Sage.

[10] Gergen, M. M., & Gergen, K. J. (2000). Qualitative inquiry: Tensions and

Transformations. In N. K. Denzin & Y. S. Lincoln (Eds.), Handbook of Qualitative

Research (2nd ed., pp. 1025- 1046). London: Sage Publications.

[11] Krueger, Richard A. & Casey, Mary Anne, (2000), Focus Groups. A Practical Guide for

Applied Research, 3rd Edition, Thousand Oaks, CA: Sage

[12] Miles, M. B. & Huberman, M.A., (1994), Qualitative Data Analysis: An Expanded

Sourcebook, London: Sage.

[13] Morgan, D.L., 1988, Focus groups as qualitative research, London: Sage

[14] Owen, J.M., with Rogers, P. (1999). Program Evaluation: Forms and Approaches, 2nd

Edition. London: Sage.

[15] Owen, J. M. (2006). Program Evaluation: Forms and Approaches, 3rd Edition. Crows

Nest, NSW: Allen & Unwin.

[16] Patton, M.Q., (1987), How to Use Qualitative Methods in Evaluation, Newbury Park,

CA: Sage.

[17] Polanyi, M. (1983). Personal Knowledge: Towards a Post-Critical Philosophy. Chicago:

Chicago University Press.

[18] Race, K.E., Hotch D.F. & Parker T., (1994), Rehabilitation Program

Evaluation: Use of Focus Groups to Empower Clients, Evaluation Review, 18 (6), 730-

40.

[19] Saif, M. I. (1987). The Basics of Research Process. Sultan Printing Press, Dera Ismail

Khan, Pakistan.

[20] Stake, R., (1995), The Art of Case Research, Thousand Oaks, CA: Sage Publications.

http://www.scu.edu.au/schools/gcm/ar/arp/datadriv.htm

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[21] Stake, R. E. (2000). The Case Study Method in Social Inquiry. In R. Gomm, M.

Hammersley & P. Foster (Eds.), Case Study Method (pp. 19-26). London: Sage.

[22] Schwandt, T. A. (1994). Constructivist, Interpretivist Approaches to Human Inquiry. In

Schwandt, T. A. (2001). Dictionary of Qualitative Inquiry (2nd Ed.). London: Sage

Publications Ltd.

[23] Wenger, E., 1998, Communities of Practice, New York, NY: Cambridge University

Press.

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Microfinance Industry in Pakistan – Challenges and Opportunities

Dr. Rehman Gul Gilal

Assistant Professor

Department of Business Administration,

Shah Abdul Latif University, Khairpur, Pakistan

Muhammad Masihullah Jatoi

Assistant Professor

(Corresponding author)



Rahim Bux Soomro

Lecturer


Shah Abdul Latif University, Pakistan.

Abstract

This research paper presents the overview of microfinance industry in Pakistan. The paper traces

the development of microfinance sector in country, its current status and future prospects. Based

on expert‘s interviews, observations and literature review, paper outlines the key challenges and

opportunities microfinance industry faces today in Pakistan. The microfinance faces enormous

challenges such as financial and operational sustainability issues, outreach, institutional capacity,

innovation in microfinance institutes and law and order situation of country. In addition,

microfinance sector in country also has enormous opportunities, such as huge untapped market,

favorable political and legal environment and technological developments are few to name.

Finally the conclusions are drawn in the light of discussions in this research paper.

Keywords: Pakistan, Microfinance industry, Challenges, Opportunities

1. Introduction

Microfinance is one of those ideas that have brought the ray of hope and revolution in the lives

of poor households. Microfinance promises to fight against poverty by providing financial access

to poor households who have long been excluded from formal banking system due to their

inability to provide collateral. The microfinance revolution started in Bangladesh, when

Professor Yunus, an economics professor at University of Chittagong, started making small loans

to local villagers during 1970s, on the assumption that poor customers will benefit and repay

their loans reliably. Professor Yunus was right and eventually his project becomes successful.

Later Dr. Yunus established Grameen Bank, since then microfinance has become a success story

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and varieties of microfinance institutes serve millions of poor households across the world. In the

initial years the focus of microfinance institutes was on providing micro credit to poor women

entrepreneurs based on group lending, where every member of a group guaranteed the repayment

of all group members. However in the early 1990s most microfinance institutes started providing

range of financial products to the poor, including, saving, insurance, and money transfers. Over

the years microfinance has achieved astonishing results and demonstrated that poor people are

viable customers.

2. Microfinance Sector in Pakistan

The success of Microfinance Institutes in helping poor has attracted a worldwide interest. Most

government and other private institutes are replicating the Grameen model in their respective

countries to fight against poverty. Pakistan is also not an exception in doing so. Khushhali Bank

(KB) was the first specialized microfinance bank established in Pakistan, in year 2000, in

Government sector. Over the years KB has shown it‘s potential to fight against poverty by

providing financial excess to poor and the marginalized segment of population in country. Today

in Pakistan, over forty microfinance institutes including microfinance banks (Table1 shows the

details of microfinance banks in Pakistan), specialized microfinance institutes and non

governmental organizations are engaged in providing microfinance services to poor and

marginalized groups. Table 1 Microfinance Banks in Pakistan

No. Name of Institute Year of

Establishment

Target market

1 Khushhali Bank Limited 2000 Economically active entrepreneurs

including women; operate in whole

Pakistan

2 First Microfinance Bank Limited 2001 Economically active entrepreneurs


Pakistan

3 Network Microfinance Bank 2004 Economically active entrepreneurs

including women; operate only in

Karachi, Pakistan

4 Rozgar Microfinance Bank 2005 Economically active entrepreneurs

including women; operate only in

Karachi, Pakistan

5 Tameer Microfinance Bank 2005 Low income self-employed micro

entrepreneurs in whole Pakistan

6 Pak Oman Microfinance Bank 2006 micro entrepreneurs including women in

whole Pakistan

7 Kashaf Microfinance Bank

Limited

2008 Economically active entrepreneurs


Pakistan

Source: Author‘s own arrangement.

In March 2008, the outreach of microfinance sector in Pakistan was approximately 1.6 million

active borrowers and 1.7 million active savers, with a gross loan portfolio of Rs, 16.5 billion and

4.2 billion in saving respectively. Pakistan‘s microfinance sector was amongst the fastest

growing globally, with an expansion of nearly 47 percent during 2007 (Aban Haq 2008). By the

end of 2008 sectors outreach stood at 1.7 million active borrowers (Meher Shah 2009). The three

largest microcredit providers in Pakistan are: National Rural Support Program, Khushhali Bank

Limited (KBL) and Kashaf Foundation with market shares of 26.3%, 20.1% and 17.2%

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respectively (PMN 2009). The table 2 shows the outreach and market share of five largest micro

credit providers in country.

Table 2 Largest providers of microcredit in Pakistan (Active Borrowers)

S.no.

Microfinance Service

Provider

Active Borrowers

31 March 2009

Market share

% of Active

Borrowers

1 National Rural Support Program 459,801 26.3%

2 Khushhali Bank Limited 351,966 20.1%

3 Kashaf Microfinance Bank Limited 300,698 17.2%

4 First Microfinance Bank Limited 197,695 11.3%

5 Punjab Rural Support Program 78,869 4.5%

Source: Micro Watch, Pakistan microfinance Network (PMN) Jan-Mar. 2009.

3. Challenges and Opportunities in Pakistan Microfinance Industry

Microfinance has shown its ability to assist the poor to make significant strides towards reducing

their vulnerability, improving their livelihoods, paying for basic health care and financing their

children‘s education (Littlefield et al). However there is no easy riding for microfinance service

providers, there are many challenges and opportunities microfinance institutes are facing today.

In this section based on the expert interviews, observation and literature review, major

challenges and opportunities faced by microfinance institutes in Pakistan are discussed.

3.1 Challenges for Microfinance in Pakistan

The microfinance sector of Pakistan is one of rapidly growing sector in world, hence creating lot

of challenges for the operators. In the following section major challenges faced by microfinance

institutes in Pakistan are presented.

3.1.1 Financial sustainability

Financial sustainability of microfinance provider refers to the ability of the organization to cover

both the costs of operation and costs of capital from its revenues [5]

. Torre, M. L, et al, 2006

distinguish between operational and fully financial self sufficiency. He explains operational self

sufficiency as where the operating income covers operating costs, the costs of inflation, loan loss

provisions and currency loss provisions. He explains fully self sufficiency as, where operating

income is enough to cover not only operating costs, inflation costs and provisions, but also

financing costs, which include debt costs and adjusted cost of capital.

The biggest challenge of most microfinance institutes in Pakistan is to build a viable and

sustainable financial institute which allocate resources for the poor and become part of larger

financial system, but unfortunately very few microfinance institutes are able to achieve this most

important goal. The business models of most microfinance institutes are unsustainable, mostly

because they heavily rely on government and donor subsidies and in many cases their total

lending is based on subsidies and loan. Most microfinance institutes in Pakistan do not offer

saving products and worse is that the interests rate charged by these institutes are not enough to

cover their operational costs, consequently they rely on donor and soft loans. The table 3 and 4

shows the operational and financial self sufficiency statistics of selected microfinance banks of

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Pakistan. Only the First Microfinance Bank seems to be the sustainable. (Note that the

operational and self sufficiency ratios should be equal to or in excess of 100).

Sustainability ratios of Microfinance Banks in Pakistan

Table 3 Operational self sufficiency (OSS)

Microfinance Institute

Year of

Establis

hment

2000

2001

2002

2003

2004

2005

2006

2007

Khushhali Bank 2000 138% 179

%

79% 62% 53% 72% 77% 80%

First microfinance Bank 2001 116% 104

%

105% 94% 109% 90%

Network microfinance

Bank

2004 58% 76% 46%

Rozgar microfinance Bank 2005 70% 62% 49%

Tameer microfinance Bank 2005 53% 47%

Pak Oman microfinance

Bank

2006 80% 60%

Source: Pakistan Microfinance Network & Asian Development Bank Project completion report 2008

Table 4 Financial Self Sufficiency (FSS)

Microfinance Institute

Year of

Establis

hment

2000

2001

2002

2003

2004

2005

2006

2007

Khushhali Bank 2000 16% 98% 55% 46% 39% 51% 57% 58%

First microfinance Bank 2001 77% 82% 65% 87% 80%

Network microfinance

Bank

2004 42% 63% 39%

Rozgar microfinance Bank 2005 47% 46% 41%

Tameer microfinance Bank 2005 53% 43%

Pak Oman microfinance

Bank

2006 80% 43%

Source: Pakistan Microfinance Network and Khushhali Bank & Asian Development Bank Project completion

report 2008

3.1.2 Reach out the poor

According to estimates more than 27 million people live below $ 1 dollar a day and 116 million

live below $2 dollar a day in Pakistan, where as only 2 percent of poor in country have access to

microfinance services (State Bank of Pakistan). Considering the above dismal statistics there is

huge challenge as well opportunity for microfinance institutes in Pakistan to reach out poor and

marginalized segment of population, these people have long been excluded from formal banking

system. Another big challenge for microfinance institutes in Pakistan is the difficulty in reaching

poor women, particularly because of cultural and religious barriers it is quite difficult to access

them. By the June 2008 the female outreach of microfinance sector stood at 49 percent of the

total outreach which is far less from the neighboring South Asian countries (Aban Haq 2008).

3.1.3 Institutional Capacity

Microfinance sector in Pakistan is relatively young as compared to its counterparts in

neighboring South Asian countries like Bangladesh and India, therefore still in the phase of

development. Many microfinance institutes have transformed or in the process of transforming

as a full fledged microfinance bank. One such example is Kashaf Foundation which is now

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transformed as full fledged microfinance bank. Considering that, microfinance sector in Pakistan

is still in the development phase therefore, many institutes still lack institutional capacity to

exploit the huge untapped market. Worse is that, some microfinance institutes even struggle to

satisfy their existing customer base, mainly because these institutes still offer limited product

mix to their customers. To satisfy existing customers and increase outreach microfinance

institutes should develop market oriented products, increase their branch network and hire

qualified and trained professionals.

3.1.4 Product Innovation

Since its inception in Pakistan, microfinance industry is offering limited range of products and

service to its customers. Worse is that microfinance institutes do not undertake research, or take

customer input before developing new financial product or services. They tend to follow market

leader (leader may be global one or may be in other country or may be any regional one etc.).

Virtually there is no product innovation in microfinance industry of Pakistan. As a consequence

customers of microfinance institutes believe that microfinance products and services do not help

them and that they are negatively affected. Considering all this, product innovation has become a

need of hour for microfinance industry in Pakistan.

3.1.5 Customer Retention

As compared to other organizations acquiring new customers in microfinance institutes is

expensive and increase institutional costs. According to research microfinance institutes typically

break even on a customer only after the fourth and fifth loan cycle (Brand, M. and J. Gerschic

2000). Considering the importance of retaining customers in microfinance institutes, most

microfinance institutes in Pakistan are facing a big challenge to retain their existing customers

for longer period. Barely few customers are being graduated from program and qualify for higher

loans; mostly, customers leave after first or second loan cycle. Main reasons of customer dropout

in microfinance institutes of Pakistan are a) organizational structure and performance b)

customers own characteristics and c) industry structure (Gul G.R. 2008). According to Churchill

(2000) Microfinance institutes should work on ways to improve their customer retention rate

mainly for two reasons. First, customer retention provides a blunt indicator of customer

satisfaction, and second, it is important in forecasting the over all health of the microfinance

institutes.

3.1.5 Customer awareness

Level of customer awareness is a major challenge microfinance industry is facing today all

around world including Pakistan. The target market of microfinance institutes are poor men and

women, living near poverty line, mostly in rural or slums of urban areas. Majority of these

people are uneducated, and lack clear understanding about features, characteristics and proper

usage of financial products and services. It has been observed that because of illiteracy and lack

of basic understanding about the financial products, some of customers are perplexed and others

misuse the funds obtained from the microfinance institutes. As a result these customers fail to

repay loan on schedule which leads to loan delinquency and finally customer dropout, which is

ultimately a challenge and threat for microfinance industry. Therefore microfinance institute

should undertake task to aware and educate their customer before disbursing loan, which will

ultimately beneficial for both customers and microfinance institutes.

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3.1.6 Law and Order situation

Political instability and adverse law and order situation pose a major challenge to the smooth

operations and sustainability of microfinance institutes. Unfortunately for the last eight years and

so political instability and adverse law and order situation has hampered the growth of

microfinance institutes in troubled areas of country. According to the recent issue of ―Micro

Watch‖, (a quarterly update on microfinance outreach in Pakistan) forty four branches of various

microfinance institutes were closed down in Khyber Pakhtoon Khua province of country due to

adverse law and order situation. The major plunge in branches were seen in Malakand and

Mardan Districts, where National Rural Support Program (NRSP) was forced to close down 19

and 10 branches respectively due to increase in Talabanization in these areas (PMN 2009). Such

adverse situation clearly does not help the young and developing microfinance industry in

country to flourish.

3.2 Opportunities for Microfinance industry in Pakistan

Apart from the challenges which can be translated into opportunities, there are substantial

opportunities for microfinance industry in Pakistan, on which microfinance institutes can

capitalize and get advantage over their rival institutes. Some of these opportunities are presented

below.

3.2.1 To maximize outreach

According to rough estimates more than 90 percent microfinance market in Pakistan is untapped.

Last year the sector‘s out reach stood 1.7 million customers where as The Government of

Pakistan along with related players has developed five year growth strategy for microfinance

industry. The growth plan set a target outreach of 3 million by 2010 and 10 million by 2015

(Meher Shah 2009). Considering the fact, there is a huge opportunity for microfinance institutes

to reach out the untapped customers and increase their market share. Poor women entrepreneurs

also represent a lucrative market. Experience in Bangladesh and India has shown that women

entrepreneurs are better customers as compared to their male counterparts. Women are usually

more diligent and hardworking, and their loan repayment rate is also high as compared to men.

These characteristics of poor women entrepreneurs make them a lucrative market for

microfinance institutes in Pakistan.

3.2.2 Policy environment

Pakistan is one of those countries in the world which has adopted microfinance friendly rules and

regulations. The government of Pakistan and provincial governments of the country have

adopted positive and helping attitude towards the microfinance industry. Several steps have been

taken to provide favorable environment for the growing microfinance industry. One such step is

the five year tax exemption plan for microfinance banks in country. In Finance bill 2007, the five

year tax exemption plan was approved for microfinance banks started from 2007 to 2012 (PMN

2008). This tax exemption will help microfinance banks to accumulate earnings and plow them

back for the growth of institutes. In addition The State Bank of Pakistan is the regulating body of

microfinance banks in the country. In the role of regulating body State Bank has always

supported and allocated the required financial resource for microfinance institutes in country.

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3.2.3 Technological developments

In Pakistan there is great opportunity for microfinance industry to take advantage of fast

development of communication and mobile industry. According to Pakistan Telecommunication

Authority (PTA) there are over 93 million mobile subscribers as of May 2009. By taking

advantage of growth in mobile industry microfinance institutes can better and cost effectively

reach and serve their customers.

4. Conclusions

The paper has reviewed the current status of microfinance industry in Pakistan. In addition, the

paper has also outlined the most immediate and distant challenges microfinance sector faces in

country. The paper draws the conclusion that Pakistan microfinance industry is still in early

phase of development; therefore for un-halted growth microfinance sector requires not only

continuous support from government and regulatory bodies but also need necessary funding from

bilateral and multilateral donor agencies. In addition, the management of microfinance should

adopt a proactive strategy, so that challenges can be turned into opportunities. The microfinance

institutes should also stream line their operations and processes so that they can increase their

outreach and serve existing customers in a most cost effective way. Above all, the innovations in

all the areas will be the ultimate key for the success of microfinance sector in Pakistan.

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References Aban Haq,(2008). Microfinance Industry Assessment: A Report on Pakistan, Pakistan

Microfinance Network (PMN), Islamabad, Pakistan.

Asian Development Bank (2008). Pakistan: Microfinance development program, Project

Completion report, pp. 29

Brand, M. and J. Gerschic, (2000). Maximizing efficiency in microfinance: The path to

enhanced outreach and sustainability. Washington ACCION International

Churchill,Craig, (2000). Banking on customer loyalty Journal of Microfinance, Vol.2, no.2, pp1-

21

Littlefield et al, Cited in Graham A.N. Wright, David Cracknell, Leonard Mutesasira & Rob

Hudson, (2003). Strategic Marketing for Microfinance Institutions: Micro Save – Market-led

solutions for financial services. , pp. 1-30

Meher Shah, Aleena Naseem, (2009). Spot light on microfinance. Micro note, Pakistan

MicrofinanceNetwork (PMN), Islamabad, Pakistan

Pakistan Microfinance Network. (2009). Micro watch: A quarterly update on Microfinance

outreach in Pakistan; Jan- march, 2009, issue 2

Consultative Group to Assist Poor. (2006). Poverty and social impact assessment: Pakistan

microfinance policy, Final Report, Oxford Policy Management,

Gul .GR, (2008).An analysis of customer attrition in microfinance institutions, 5th

International

conference on innovation and management, Maastricht, Netherlands, Vol. 1 pages 1088-1094

Pakistan Microfinance Network (PMN) 2008. Pakistan Microfinance Review, 2007: Achieving

Efficiency. Islamabad Pakistan

Torre, M. L and Vento, G. A, (2006). Microfinance, Palgrave Macmillan State Bank of Pakistan.

(2009). Financial inclusion program, Available at http://www.sbp.org.pk.2009, 06, 08.10:00am

Telecommunication Authority Pakistan (2009) Cellular subscribers in Pakistan, Available:

http://www.pta.gov.pk/index.php. 2009, 06, 28.10:45 pm

http://www.pta.gov.pk/index.php

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IMPACT OF STAFF TRAINING ON CUSTOMER SATISFICATION USING

SERVQUAL MODEL: A CASE STUDY OF RETAIL BANKS OF PAKISTAN

Rahim Bux Soomro

Lecturer




Assistant Professor





Assistant Professor



Abstract

This thesis examined the impact of staff training on customers‘ satisfaction, mainly transfer of

training. In this study different branches of 09 retail banks were selected based on their location

and willingness to cooperate in different cities of the said region. Non-probability sampling

technique was adopted. A total of 180 respondents were contacted from different areas of

Interior Sindh for filling questionnaires. Six hypotheses were tested by Correspondence Analysis

technique by using SPSS V: 14 and found rejected. Results showed that whatever numbers of

trainings delivered to staff members but level of customers‘ satisfaction had remained same.

Means it has been learnt from this study that there was no proper transfer of training. Hence it

was established that by only providing ever-increasing number of training to staff members had

no impact on customer satisfaction with regard to reliabilty, empathy ,responsiveness, assurnace,

tangibility and over-all customer satisfication.

Key Words: SERVQUAL mode, Customer Satisfaction, Staff Training, Reliability,

Responsiveness, Tangibles, Empathy, Assurance.

1. Introduction Service quality is considered as a key factor in customer satisfaction with his or her bank at the

retail level. Further in retail banks, customers have unique needs and the exchange of

transactions between these customers and bank employees take place at the branch level and

within any service company, the main features that customers consider when determining the

quality are the service, rapid response, delivery times and cost. Berry (1985) and Zeithaml and

Bitner (1996) specified that service quality consists of five dimensions: tangibles (appearance of

physical facilities, equipment, personnel and written materials), reliability (ability to perform the

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promised service dependably and accurately), responsiveness (willingness to help customers and

provide prompt service), assurance (knowledge and courtesy of employees and their ability to

inspire trust and confidence), and empathy (caring and individual attention the firm provides its

customers).

Akin to the cost of producing poor quality products, the cost of delivering poor quality service

includes the costs associated with redoing the service, compensating for poor service, loss of

customers, and negative word of mouth (Bitner et al., 1994). Bowen and Schneider (1988)

differed services from goods in three important ways: they are intangible, they tend to be

produced and consumed simultaneously, and they tend to involve the consumer in their

production and delivery. The immediate delivery and receipt of services in the face-to-face in

service sector brings employees and customers close together and hence distorting the boundary

between the two groups (Parkington & Schneider, 1979).

Though all practices of personnel management are implied in the development of these

resources, training is the central activity in order to have qualified, flexible and well-prepared

employees (Bartel, 1994; MacDuffie & Kochan, 1995; Raghuram, 1994). Training, in this

regard, is seen as a very much useful among all human resource management practices for

coping with ever increasing expectations of various facets of customers in retail banks.

Noe (2009) states that Training is a planned effort by a company to facilitate employees‘

learning of job-related capabilities. These competencies include knowledge, skill, or behaviors

that are critical for successful job performance.

However, companies maintain an ambiguous position regarding investment in training. They

generally agree to take training as a vital way to improve workers‘ productivity, a present

demand for all companies. But, in practice, they usually face this challenge with cost

suppression, including those costs allocated to training.

Therefore radical objective of this study is to learning empirically the effects of staff training on

customer satisfaction in order to encourage organizations to invest more and more in staff

trainings.

2. Objectives of the study

Banking sector in Pakistan has been rising meaningfully despite its social and economic

problems. However, only a few studies have been found which made an effort to determine the

impact of staff training on customer satisfaction in banks by using SERVQUAL model. This

study is begun to realize this aim. The main objectives for conducting this research are:

Investigate the impact of staff training on satisfaction of customers in retail banks of

Pakistan.

To investigate why business organizations are trying to meet fashion of providing

increasing no of trainings without focusing on quality of training.

To find the reasons of ignoring the importance of investment in trainings in our

organizations commonly and in banks specially.

3. Literature review

In today‘s world of intense competition, the key to sustainable competitive advantage lies in

delivering high quality services that will in turn result in satisfied customers (Shemwell, 1998).

Within the internal resources which can be pondered as sources of competitive advantage, is the

human element, mainly due to its intangible characteristics: knowledge, skills and attitudes

(Barney, 1998; Kamoche, 1996; Mueller, 1996; Wright et al., 1994) and organizational

knowledge (Alavi, 2001; Bassi, 1998; Bollinger, 2001; Lee, 2000) are being given more and

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more significance. Adequate training enables the generation of a work force that is multi-

skilled, adaptable to rapid changes and has wide conceptual knowledge of the production

system (Pfeffer 1998).

Various studies on the effects of the combination of human resource practices show that training,

along with other activities positively affects results and is associated with a productivity increase

and a staff turnover decrease (Arthur, 1994; Huselid, 1995; Ichniowski, 1997).

It can be very difficult exercise to measure the quality of a service can be a very difficult.

Services can be characterized as being intangible, heterogeneous, and perishable, produced, and

consumed simultaneously at same time makes it strange to deliver, and challenging to

organizations to achieve a differentiation from the others.

Readings of Parasuraman et al. (1985) and Zeithmal et al. (1990) pointed out that the key

strategy for the success and survival of any business institution is the deliverance of quality

services to customers. In accordance with Looy et al. (2003), service is ―any activity that one

party can offer to another that is essentially intangible and does not result in the ownership of

anything‖.

According to Othman and Owen (2001a) SERVQUAL has proven to be the most popular

instrument for measuring service quality because it affords technology techniques for measuring

and managing service quality.

Parasuraman et al.(1991) gave the most popular tool is SERVQUAL, which measures the

difference between expectations and customer perceptions on five factors of service quality —

tangibles, reliability, responsiveness, assurance and empathy. Bitner and Hubber (1994)

customer satisfaction could be defined as ―the customer overall dis/satisfaction with the

organization based on all encounters and experiences with that particular organization‖.

Delivering high quality services is a prerequisite for achieving customer satisfaction and only

through customer satisfaction can the company gain loyal customers (Grönroos, 2000).

By focusing on the retail banking industry Rust and Zahorik (1993) seek to identify the

relationship among customer satisfaction, retention, and profitability, concluding that retention

rates drive market share and customer satisfaction is a primary determinant of retention. On other

hand Reichheld and Sasser (1990) also discuss the relationship between customer retention and

company revenues. They suggest that three relationships work in conjunction in such a way that

a small improvement in customer retention can have a large effect on company revenues.


Do staff trainings have any impact on customer satisfaction?

5. Hypotheses

H1: Retail banks with higher frequency of staff training will attain improved results with

respect to reliabilty in terms of customer satisfication.


respect to empathy in terms of customer satisfication.


respect to responsiveness in terms of customer satisfication.


respect to assurnace in terms of customer satisfication.


respect to tangibility in terms of customer satisfication.

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H6: Retail banks with higher frequecny of staff training will attain improved results with

respect to over all customer satisfication.

6. Research Methods

6.1 Sample and Data Collection

This study was conducted in 2009 in different cities of the Upper-Sind like Larkana, Khairpur,

Shikarpur, Jacobabad etc. Almost all the major banks (under study) have their branches in the

said region.

Nine banks were selected for this analysis. The data for this study was collected from 180 bank

customers(Twenty respondents from each bank) through a specifically designed questionnaire

covering the various attributes that can satisfy customers. Simple Random Probability sampling

technique was adopted in selecting respondents because it assures that each element in the

population has an equal chance of being of selected for a sample (Zikmund, 2006). A particular

branch of each bank was selected, based on its location and its willingness to cooperate in

different cities of the said region.

6.2 Research Instruments of Data Collection

A questionnaire based on SERVQUAL model was used to collect the data.

The instrument (Questionnaire) included only 25 closed-ended questions regarding the variables

of SERVQUAL model( like; reliability, Responsiveness, Assurance, Tangibility and Empathy)

along with questions about the respondents‘ demographic information, including name of the

bank they use for baking dealings, gender, age category, length of Banking usage and frequency

of banking transactions per month. Finally each item was based on a five point Likert scale (1)

strongly disagree to (5) strongly agree.

6.3 Theoretical Framework

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7. Findings and Interpretation of the results

In this study all the six hypotheses were tested, by applying technique of Correspondence

Analysis to assess the impact of staff training on customer satisfaction. For this study it was

performed through SPSS 14.0 version.

H1: The hypothesis is rejected owing to no significant change in figures of trainings and

reliability. It has been observed from data that a bank which has provided less no. of trainings

(112), its standard deviation is .40250 and a bank which has provided large no. of trainings

(315), its standard deviation is .55836. While in other cases somewhat same pattern can be

observed except two cases where S.Ds (.73011 and .63466) and training (288 and 286).

H2: This hypothesis is again rejected by applying a test of the Correspondence Analysis. The

results for relation between higher frequency of trainings and customer satisfaction with regard

to empathy are slight. It has been observed from data that a bank which has provided less no. of

trainings (112), its standard deviation is .69301 and a bank which has provided large no. of

trainings (315), its standard deviation is .64520 and hence very slight differnece is there.

H3: This hypothesis is being rejected on the ground that those banks which have provided less

no. of trainings (112, 138) to their staff memebers have higher rate of satisfication with low

variability (.36814, .32922) in term of reponsiveness in comparing to those bank which have

provided higher trainings (315, 303) with higher variaibility(.68765, .70373) received by

applying Correspondence Analysis.

H4: The null hypothesis for assurane has been proved rejected owing to whatever number of

training may be provided but customers remain indifferent regarding the assurance in different

banks like when 112 trainings were adminstrated by such a bank its S.D. is .53496 and in case of

138 trainings again in-significant value of S.D.(.48259) is available.

H5: The results of trainings do not find any noteworthy imapct on customer satisfication with

regard to tangibility and mix type of impact has been shown. Higher variability of S.D.(.77296)

can be found when less number of trainings (112) have been administrated. In another case from

table no:4.5 total 303 trainings have been provided in a year by a such bank but its S.D(.32622)

is very low.

H6: About testing the sixth hypothesis, as the results of other tables showed this hypothesis also

rejected and it can concluded the rejection of null hypothesis. It means that by only increasing

number of trainings customers cannot be come to be satisfied. Like when 138 trainings have

delivered to staff members, S.D is .26907 and 299 trainings have been conveyed to staff

memebers again somewhat low S.D. is.25704. It shows clearly that higher frequency of trainings

do not have any impact customers with regard to overall satisfication.

8. Conclusion

It has been learnt in this study that only by providing ever increasing opportunities of trainings

for staff members, banks cannot achieve satisfaction of customers. But banks are required to

measure training that either trainees have become fully involved in training sessions and also

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being properly trained by trainers or not. Because if trainees (staff members) are not learning

knowledge, skills, attitudes and behaviors provided to them in training sessions how tranfer of

training can be occured when trainess have learnt nothing. Therefore it is highly important for

banks (organizations) to evaluate trainings. There are so many models are available for

evaluation of trainings. In case of tangibility very mixed results were found and most of

respondents were dissatisfied from this factor. Therefore banks must look in this matter and

provide error-free accounting system, cleaned office spaces, properly designed layout of their

branches with modern equipment.

9. Recommendations

The results of this research were very advantageous for managers and bankers that quantity of

training is not plentiful but quality of training and effective conduction of training sessions with

competent trainers is highly important. An other very important factor is proper evaulation of

training. Because training sessions are properly evaulted then possibly encourging outcomes can

be achieved and this practice (eveaulation) leads to a clear commitment to invest more and more

in training. More importantly training should not provided because it has become a fashion and

other organizations and competitors are providing thereofre. Further alongwith training, certain

other factors are also important to proivde to bank emplyees to encourage them to serve

customers in well manner.

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REFERENCES

Alavi, M. a. (2001). Review: Knowledge Management and Knowledge Management Systems:

Conceptual Foundations and Research Issues,. MIS Quarterly, , 25 (1), 107–36.

Bartel, A.P. (1994). Productivity Gains from the Implementation of Employee Training

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Barney, J. a. (1998). On Becoming a Strategic Partner: The Role of Human Resources in Gaining

Competitive Advantage. Human Resource Management, 37 (1), 31–46.

Bassi, L. C. (1998). A Common Standard for Measuring Training Results. Training &

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Berry, L. Z. (1985). Quality counts in services, too:. Business Horizons , 44-52.

Bitner et al. (1994). Encounter Satisfaction versus Overall Satisfaction versus Quality: The

Customer's Voice. Service Quality: New Directions in Theory and Practice , 72-94.

Bitner and Hubber. (1994). Encounter Satisfaction versus Overall Satisfaction versus Quality:

The Customer's VoiceL. Service Quality: New Directions in Theory and Practice. , 72-94.

Bollinger, A. a. (2001). Managing Organizational Knowledge as a Strategic Asset. Journal of

Knowledge Management , 5 (1), 8–18.

Bowen and Schneider. (1988). Services Marketing and Management: Implications for

Organizational Behavior. Research in Organizational Behavior , 10, 43-80

Grönroos, C. (2000). Service Management and Marketing: a customer Relationship Management

Approach. England: John Wiley & Sons, ltd.

Huselid, M. (1995). The Impact of Human Resource Management Practices on Turnover,

Productivity and Corporate Financial Performance. Academy of Management Journal, 38

(3), 635–72.

Ichniowski, C. S. (1997). The Effects of Human Resource Management Practices On

Productivity: A Study of Steel Finishing Lines. The American Economic Review , 87 (3),

291-313.

Kamoche, K. (1996). Strategic Human Resource Management within a Resource Capability

View of the Firm. Journal of Management Studies, , 33 (2), 213–33.

Lee, C. a. (2000). Knowledge Value Chain. Journal of Management Development, 19 (9), 783-

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Looy et. al. (2003). Services management; an integrated approach. ( 2nd ed.). Great Britain:

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MacDuffie, J.P. and Kochan, T.A. (1995). Do US Firms Invest Less in Human

Resources: Training in the World Auto Industry‘, Industrial Relations, 34(2): 147–68.

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Mueller, F. (1996). Human Resources as Strategic Assets: An Evolutionary Resource-Based

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Noe, R. A. (2009). Emplyee Training and Development (4 ed.). Ohio.

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Appendix

Names of Banks under Study

Name of Bank Frequency Percent Valid % Cumulative

%

Valid 1 Habib Bank Limited 20 11.11 11.11 11.11

2 Bank Alfalah 20 11.11 11.11 22.22

3 Bank Islami 20 11.11 11.11 33.33

4 Standard & Chartered

Bank 20 11.11 11.11 44.44

5 United Bank Limited 20 11.11 11.11 55.56

6 Askari Bank 20 11.11 11.11 66.67

7 Muslim Commercial

Bank 20 11.11 11.11 77.78

8 Allied Bank Limited 20 11.11 11.11 88.89

9 Silk Bank 20 11.11 11.11 100.00

Total 180 100 100

Impact of Training on Relibility

Total

Training N Mean

Std.

Deviation Variance Min. Maxim.

112 20 3.4375 0.4025 0.162 3 4.38

138 20 3.2438 0.39419 0.155 2.25 3.88

142 20 4.0563 0.45789 0.21 3.38 4.75

286 20 3.6375 0.63466 0.403 1.88 4.88

288 20 3.1625 0.73011 0.533 1.88 4.38

294 20 3.2813 0.52389 0.274 2.5 4.5

299 20 3.8313 0.30692 0.094 3.38 4.38

303 20 3.1625 0.30913 0.096 2.38 3.63

315 20 3.475 0.43604 0.19 2.63 4.25

Total 180 3.4764 0.55836 0.312 1.88 4.88

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Impact of Training on Empathy

Impact of Training on Responsiveness

Total Training N Mean Std. Deviation Variance Min. Maxim.

112 20 3.5 0.69301 0.48 2.75 5

138 20 3.2 0.47016 0.221 2.5 4

142 20 3.925 0.65945 0.435 2.75 5

286 20 3.6375 0.51603 0.266 2.75 4.25

288 20 3.2125 0.77492 0.6 1.75 4.75

294 20 3.2375 0.86783 0.753 1.5 4.75

299 20 3.9375 0.43585 0.19 3 5

303 20 3.125 0.4624 0.214 2.75 5

315 20 3.5875 0.6452 0.416 1.75 4.5

Total 18

0 3.4847 0.68308 0.467 1.5 5


112 20 3.2 0.36814 0.136 3 4

138 20 3.1125 0.32922 0.108 2.75 4

142 20 4.425 2.27269 5.165 2.5 13.75

286 20 3.55 0.48395 0.234 2 4

288 20 3.425 0.74824 0.56 2 4.75

294 20 3.1375 0.56473 0.319 2 4

299 20 3.9375 0.44334 0.197 3.5 5

303 20 3.4125 0.70373 0.495 2.25 5

315 20 3.5625 0.68765 0.473 2 5

Total 180 3.5292 0.9878 0.976 2 13.75

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Impact of Training on Assurance


112 20 3.375 0.53496 0.286 3 4.75

138 20 3.15 0.48259 0.233 2 4.5

142 20 4.05 0.57124 0.326 3.25 5

286 20 3.8375 0.59202 0.35 2.5 4.75

288 20 3.5 0.72548 0.526 2.25 4.5

294 20 3.6125 0.64622 0.418 2 4.5

299 20 3.9875 0.46222 0.214 3.25 5

303 20 3.4625 0.72218 0.522 2.75 5

315 20 3.5625 0.67315 0.453 2.25 4.5

Total 180 3.6153 0.65607 0.43 2 5

Impact of Training on Tangibility

Total Training N Mean Std. Deviation Variance Min. Max.

112 20 3.78 0.77296 0.597 3 5

138 20 3.49 0.73835 0.545 2 4.8

142 20 4.1 0.52915 0.28 3 4.8

286 20 4.53 0.45085 0.203 3.4 5

288 20 3.87 0.75749 0.574 2.6 5

294 20 3.31 0.85956 0.739 1 4.4

299 20 4.15 0.68017 0.463 2 5

303 20 3.23 0.32622 0.106 2.6 3.8

315 20 4.01 0.57847 0.335 3.2 5

Total 180 3.83 0.75472 0.57 1 5

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Impact of Training on Customer Satification


112 20 3.468 0.32885 0.108 3 4.04

138 20 3.25 0.26907 0.072 2.64 3.8

142 20 4.102 0.61043 0.373 3.28 5.56

286 20 3.8345 0.44121 0.195 2.56 4.48

288 20 3.408 0.58307 0.34 2.28 4.44

294 20 3.3085 0.55819 0.312 2.2 4.25

299 20 3.954 0.25704 0.066 3.52 4.32

303 20 3.276 0.26656 0.071 2.96 3.84

315 20 3.628 0.40567 0.165 2.8 4.36

Total 180 3.581 0.5192 0.27 2.2 5.56

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EXAMING THE IMPACT OF HUMAN RESOURCES MANAGEMENT (HRM) PRACTICES ON

EMPLOYEES‟ PERFORMANCE

A CASE STUDY OF PAKISTANI COMMERCIAL BANKING SECTOR

Rahim Bux Soomro

Lecturer




Assistant Professor




Assistant Professor




Abstract

The nucleus endeavour of this study was to examine the impact of commonly HRM practices on

employee‘s performance. For all the seven HRM practices (training, selection, career planning,

employee participation, job definition, compensation, performance appraisal) support was

founded that these were correlated positively with the employee performance based on responses

from 150 employees of various commercial banks located in Upper-Sindh. A statistical

technique of Spearman Correlation was applied in order to examine impact of HRM practices on

employee performance. Further respondents gave highest importance to performance appraisal

and then to compensation among individual HRM practices.

Key Words: HRM Practices, Employee Performance, Banking Sector, Compensation,

Performance Appraisal, Pakistan.

1. Introduction

Every banking organization is being considered as one of the most vulnerable business

organizations all over the world. There is central role is being played by banks in the economy of

a country and thus in Pakistan too. Banks are guardian to the assets of the general people. The

banks play a very unavoidable role in a current world of money and economy. These are the

banking institutes which are not only influencing and but also facilitating a lot of different but

integrated economic activities like poverty elimination, production and distribution of public

finance, resources mobilization etc. This comprehensive but complex and painful process of

restructuring of banking system started since 1997. Therefore more and more private banks in

Pakistan are paying special attention towards creating and maintaining Human Resource

Managing department. Owing to sever competition among Pakistani banks, human capital is one

of a source of getting competitive advantage for any business (Becker & Huselid, 1998). Pfeffer

(1994) had argued that human capital has long been held to be a critical resource in most firms.

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Therefore a link between practices of HRM and employee and organizational performance has

drawn substantial attention over the past decade both in the US (Huselid, 1995; Pfeffer, 1998)

and the UK (Guest, 1997; Woodand deMenzes, 1998).

It is frequently held opinion that employees who are pleased with their jobs are likely to produce

better job result. The basis of this opinion is that higher levels of satisfaction grow morale and

lessen voluntary turnover (Dole and Schroeder, 2001). Petty et al. (1984) conducted a meta-

analysis and concluded that job satisfaction and performance are indeed positively correlated (r =

0.23, uncorrected). How to retain employees has become a very serious question for all banks in

the country. Use of best HRM practices is used as tool, in this regard, to create a centre of

attention for employees and to retain them. Huselid (1995) used eleven HRM practices in his

study which are personnel selection, performance appraisal, incentive compensation, job design,

grievance procedures, information sharing, attitude assessment, labour-management

participation, recruitment efforts, employee training and promotion criteria. This study used

seven HRM practices like training performance appraisal, career planning, employee

participation, job definition, selection, compensation. In the background of above-mentioned

situation, this study will attempt to find effect of certain HR practices on perceived employee

performance in banking sector of Pakistan.


According to Ulrich (1997), human resource management (HRM) plays a vital function in the

success of many firms regardless of their sizes. Service Quality has become a major issue in

service-oriented organizations like in banks. Generally banks throughout the world are providing

somewhat similar type of services (Lim & Tang 2000), quickly matching their competitors‘

innovations. However, customers can observe differences in the quality of service provided to

them by their concerned organizations (banks). As job of banks needs high-involvement of their

employees while serving bank customers, therefore there is a direct link between human resource

practices and employee performance to create firm-specific human capital. Firm-specific

human capital is important because these customer-contact employees manage the boundary

between the firm and its customers (Mills et al., 1983), and the behaviour of these employees

shapes customers' buying behaviour.

Ooi, Arumugam, Safa, and Bakar (2007) identified that HRM is considered as one of the crucial

subjects in the research area of management and business for the past few decades due to its

impacts on both the individual and organizational performance as a whole. Existing theoretical

work in business strategy has enhanced the worth of HR in generating constant competitive

advantage. In Accordance with the resource-based view of the firm (e.g., Barney, 1986,

1991, 1995), that firms can build up sustained competitive advantage only by creating

worth in a way that is unusual and hard for competitors to imitate competitive advantage .

There are number of studies showing that proper management of human resource plays a vital

role in formulating and implementing organisational strategy. Most of the research recommends

that practices of HRM are fundamental in order for an organisation to accomplish organisational

success (Barney, 1991; Jackson & Schuler, 2000; Pfeffer, 1994). There are number of

researchers who have found a positive impact of HRM practices on performance of

organisations. For instance, Backer and Gerhart (1996), Backer and Huselid (1998), and Dyer &

Reeves (1995) in their empirical studies found that firms which align their HRM practices with

their business strategy will achieve superior outcomes. Wood (1999) and Guest (2002) put stress

that a committed, competent and highly involved work-force is the one which is necessary for

best execution of business strategy. Exercising best human resources practices shows a stronger

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association with firm‘s productivity in high growth industry (Datta et al, 2003).Huselid (1995)

found that the effectiveness of employees will depend on effect of HRM on behaviour of the

employees.


How practices of Human Resource Management influences Employee Performance.

Hypothesis

H 1: There is positive association between Training and Employee‘s Performance.

H 2: There is positive association between Performance Appraisal and Employee‘s Performance.

H 3: There is positive association between Career Planning and Employee‘s Performance.

H 4: There is positive association between Employee Participation and Employee‘s

Performance.

H 5: There is positive association between Job Definition and Employee‘s Performance.

H 6: There is positive association between Compensation and Employee‘s Performance.

H 7: There is positive association between Selection and Employee‘s Performance.

4. Methodology

Data Collection in order to collect data from respondents samples of questionnaire based on

Questionnaires developed by Singh (2004) and Qureshi M Tahir (2006) were dispatched to

employees in different branches of banks during the study period located in various areas of

Upper-Sind like Sukkur, Jacobabad, Khairpur, Dadu, Shikarpur, Larkana etc. In above-

mentioned cities of the said region almost all the major banks (under study) have their branches.

A sum of 200 questionnaires were sent through courier services and 150 were completely filled

in by respondents and backed. To increase the rate of response, the targeted respondents were

informed regarding the research objective and confidentiality on separate sheet attached with

every questionnaire. Consequently, a response rate of almost 75% was attained. A well-liked

method known as ―pick any, tick any‖ (Sudhahar et al.,2006) was used where respondents were

merely required to put a tick-mark in any cell/no shown against each and every question. Further

questions were enquired on five-point likert scale from the respondents. 5 for strongly agree, 4

for agree, 3 for neutral, 2 for disagree and 1 for strongly disagree had been specified in order to

analyze data.

Research Variables From the review of literature, following variables which were expressed in

the theoretical framework are given below. Employee performance was the dependent variable,

which was going to be examined for relationship with all HRM practices.

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5. Analyses & Results

All seven hypotheses were tested in this study, by carrying out a technique of Spearman

Correlation and Descriptive Statistics for analyzing data numerically because this study aimed at

founding relationship between human resource management practices and employee

performance. As hypotheses were directional hypothesis, therefore one-tailed test was used.

SPSS v.13 on Windows XP was utilized for all analyses.

Table 1-Descriptive Statistics

EPP Training P A C P E P J D Compen. Selection

Mean

3.6867 3.8021 3.6953 3.6020 3.5045 3.8350 3.6707 3.6733

Median

4.0000 3.8300 3.7100 3.5700 3.6700 4.0000 3.8000 3.6250

Mode

4.00 4.00 3.57 3.43 4.00 4.00 4.00 3.50

Standard

Deviation

.74308 .48287 .57810 .58801 .83509 .67234 .66681 .70826

Range

3.00 2.67 3.71 3.57 4.00 3.50 3.40 3.75

Minimum

2.00 2.33 1.29 1.43 1.00 1.50 1.40 1.25

Maximum

5.00 5.00 5.00 5.00 5.00 5.00 4.80 5.00

Sum

553.00 570.32 554.29 540.30 525.67 575.25 550.60 551.00

Count 150 150 150 150 150 150 150 150

Employee job performance is a dependent variable. Training, Performance Appraisal, Career

Planning, Employee Participation, Job Definition, Compensation and Selection are the


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Table II- Correlations Results

H 1 suggests that there is positive association between training and employee‘s performance.

There is positive relation between training and employee performance (.17). Although this is not

a significant figure but at least it illustrates, definitely, that employees are satisfied that their

performance has been increased in last twelve months owing provision of training facilities.

H 2 suggests that there is positive association between performance appraisal and employee‘s

performance. There is also positive relation between performance appraisal and employee

performance (.13). It signifies that employees are satisfied, though not highly satisfied, with the

techniques in which they are being appraised by their concerned organizations.

H 3 proposes that there is positive association between career planning and employee‘s

performance. The relation between career planning and employee performance (.25) again it is

not very noteworthy but there is a clear positive relation between these variables. This relation

shows that concerned organizations have a clear path for successful career of their employee

hence performance of employees has been increased in last one year.

H 4 offers that there is positive association between employee participation and employee‘s

performance. There is also positive relation between employee participation and employee

performance (.20) but not very noteworthy. This denotes that there are somewhat greater

numbers of opportunities have been given to employees in decision making process at various

levels and resultantly their performance has been increased in the said time.

H 5 proposes that there is positive association between job definition and employee‘s

performance.

1 2 3 4 5 6 7 8

1. EPP 1.00

2. Training

0.17 1.00

3. Per. App.

0.13 0.22 1.00

4. Carr.

Plng.

0.25 0.23 0.39 1.00

5. Emp. Part.

0.20 0.21 0.22 0.25 1.00

6. Job Def.

0.26 0.32 0.21 0.37 0.25 1.00

7. Comp

0.07 0.19 0.28 0.32 0.23 0.24 1.00

8. Select 0.09 0.25 0.39 0.30 0.12 0.35 0.18 1.00

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Job definition and employee participation (.26) shows positive relation among themselves but

not very healthy. At least this relation proves that employees are pleased with their jobs and their

performance has been augmented.

H 6 suggests that there is positive association between compensation and employee‘s

performance. There is very slight but positive relation between compensation and employee

performance (.07). This weak relation clearly demonstrates that employees are not content with

compensations given to them by their concerned organizations.

H 7 proposes that there is positive association between selection and employee‘s performance.

In last relation between selection and improvement in performance of employee (.09) is very

fragile. Here employees are not comfortable with employee‘s selection procedures prevailing in

their organizations.

6. Conclusions

The results of this study indicate that there was a good relationship between the employee

performance and the HRM practices, therefore it can be concluded that all HRM practices are

equally vital for all employees of all levels in every organization. Further this study point to that

employees were very much pleased with their compensation and selection procedure adopted by

their respective organizations, therefore it is strongly advised that market-oriented compensation

may be made available to employees along with trustworthy selection procedures.

In accordance with arguments of Wright et al (2003) that an employee will apply flexible effort

if proper performance management system is in place and is supported by compensation system

linked with the performance management system. Therefore when respondents were enquired to

which HRM practice they are given maximum weight than they gave highest weight to

performance appraisal of 27% (41 out of 150). Possibly they might imagine this is the only

practice if went good in it, than all others will also go better like good compensation, training,

career planning and others. For employees second most important HRM practice was

compensation and it was 24 %( 36 out of 150). Observations of Singh (2004) are more pertinent

in our cultural context, argues that compensation is a behaviour aligning mechanism of

employees with business strategy of the firm. Therefore possibly, that most of employees were

not pleased with compensation packages. While remaining HRM practices have got mixed

response.

Table-III HRM Practices priority wise

HRM Practices Frequency Percent

1. Training 16 10.5

2. Performance Appraisal 41 27.0

3. Career Planning 14 9.2

4. Employee Participation 15 9.9

5. Job Definition 17 11.2

6. Compensation 36 23.7

7. Selection 11 7.2

Total 150 98.7

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7. Recommendations

In the era of strong competition among organizations all competitive edges can be overcome

except motivated human resource. Generally it is very difficult for any organization to duplicate

human potential of competitors than the plant, equipment or even products that a company

produces (Flanagan and Despande, 1996). Therefore organizations have to forward extraordinary

importance the human resource management practices because these are very significant for

continued existence of the organization. As the results of this research point to that the pleasant

working environment, provision of career development opportunities and rewards are key factors

that have an effect on the retention of employees with organization; should be focused and

attempted to improve them.

8. Limitations

The study is limited in following ways. First, owing to the small sample size generalizability of

these findings is confined. Second, there are many other factors which may affect the level of

employee performance but due to time restriction other factors were not taken for research.

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Annexure

BIO DATA OF RESPONDENTS

Variable Item Frequency Percentage

Gender Male 99 66

Female 51 34

Age of Respondents

20-25 38 24.7

26-30 68 44.2

31-35 31 20.1

36-40 6 3.9

41-45 3 1.9

46-50 2 1.3

51-55 0 0.0

Above 56 2 1.3

Education

Matriculation 1.0 0.6

Intermediate 13.0 8.4

Graduation 68.0 44.2

Masters 67.0 43.5

Diploma with Matric /Inter. 1.0 0.6

Other 150.0 97.4

Total years of

Experience

1 to 3 4.0 2.6

3 to 6 64.0 41.6

6 to 9 16.0 10.4

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9 to 12 16.0 10.4

13 to 15 2.0 1.3

16 to 19 2.0 1.3

20 or above 5.0 3.2

Total years of

Experience with this

Organization

1 to 3 88.0 57.1

4 to 6 44.0 28.6

7 to 9 15.0 9.7

10 to 12 3.0 1.9

13 to 15 0.0 0.0

16 to 19 0.0 0.0

20 or above 0.0 0.0

Designation

Branch Operations Officer 2

1.3

Customer Relationship Officer(CRO) 19 12.3

Relationship Manager(RM) 16 10.4

Customer Service Officer(CSO) 24 15.6

Operation Manager(OM) 17 11.0

Branch Manager(BM) 11 7.1

Assistant Branch Manager(ABM) 8 5.2

Teller 27 17.5

No Response 26 16.9

Department

Branch Banking(BB) 12 7.8

Operations 65 42.2

Credit 13 8.4

Consumer Banking 31 20.1

No Response 29 18.8

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Annexure contd..

Name of Bank Questionnaires Percent

1 Silk Bank 6 3.9

2 JS Bank 6 3.9

3 Bank Islami 5 3.3

4 Bank Alfalah 9 5.9

5 Muslim Commercial Bank 10 6.6

6 Standard Chartered 5 3.3

7 Askari Bank 9 5.9

8 Allied Bank Limited 8 5.3

9 United Bank limited 9 5.9

10 Habib Bank Limited 10 6.6

11 Faisal Bank 9 5.9

12 My Bank 8 5.3

13 NIB Bank 9 5.9

14 Bank Al Habib 8 5.3

15 Arif Habib Bank 8 5.3

16 Meezan Bank 9 5.9

17 KASB Bank 7 4.6

18 Bank of Punjab 7 4.6

19 Soneri Bank 8 5.3

Total 150 98.7

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STOCK MARKET REACTIONS DUE TO ANNOUNCEMENTS OF CONSUMER

PRICE INDEX AND THE INVESTIGATION OF ENDOGENEITY

Dr. Muhammad Imtiaz Subhani

HEAD RESEARCH – IURC

IQRA UNIVERSITY RESEARCH CENTRE- IURC

IQRA UNIVERSITY – IU, MAIN CAMPUS,

MS. AMBER OSMAN (CORRESPONDING AUTHOR)

ASSISTANT MANAGER RESEARCH – IURC

IQRA UNIVERSITY RESEARCH CENTRE- IURC

IQRA UNIVERSITY – IU, MAIN CAMPUS,

POSTAL ADDRESS: DEFENCE VIEW, SHAHEED-E-MILLAT ROAD (EXT.)

KARACHI-75500, PAKISTAN

Abstract In the financial market the very peculiar and key focus is about the trading volume response to Consumer price index (CPI). Therefore, taking CPI as one of the important economic variables, the Karachi Stock Exchange-100 index trading volume was investigated in connection with the CPI. The outcomes of this study suggested that CPI has a major association with the KSE-100 index trading volume. The statistical test further elaborated this significance and has revealed a negative relationship between CPI ―Consumer price index‖ and ―KSE-100 index trading volume‖. Another interesting key feature to this research was the presence of endogeneity in the data used for the research.

Key words: Consumer price index (CPI) announcements, Trading Volume, Endogeneity.

1. Introduction It is usually considered that financial markets respond to announcements about economic

variables such as money supply, consumer price index (CPI), wholesale price index (WPI), producer price index (PPI), unemployment rate, discount rate, industrial production etc.

Previous studies have examined the financial markets reaction to these announcements. But this study was only concerned with the association between CPI and KSE-100 index trading volume. This study has shown that there is a negative impact of consumer price index on KSE-100 index trading volume and the impact was significant. This study is helpful for investors in decision making about changing their investment portfolios around these announcements.

Different price indices are used to measure inflation. A price index is a measure of the Aggregate price level relative to a selected base year. In Pakistan a consumer price index (CPI), a sensitive

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price indicator (SPI) and a wholesale price index (WPI) are compiled and commonly have the base year 1991.

CPI is a principal measure of price fluctuations at retail level and it shows the cost of purchasing a representative unchanged basket of goods and services consumed by private households. In Pakistan, CPI covers the retail prices of 374 items in 35 main cities and reflects approximately the changes in the cost of living of urban areas.


Many previous studies have examined the stock market reaction to announcements of economic variables. Schwert (1981) examined the everyday returns to the Standard‘s & Poor‘s composite portfolio around the CPI announcement dates from 1953-78 and found that stock market responds negatively to the announcement of unanticipated inflation in the CPI.

Schwert (1989) reported that there are at least three theories that predict a positive relation between volatility and volume. First, if investors have heterogeneous beliefs, new information causes both the price changes and the trading. Second, if some investors use price movements as information on which to make trading decisions, large price movements cause large trading volume. Finally, if there is short-term "price pressure" due to illiquidity in secondary trading markets; large trading volume that is predominantly either buy or sell orders cause price movements.

Schwert (1989) results have shown a positive relation between stock volatility and trading activity and results supported the proposition that stock market volatility is higher when trading activity is higher and there was little evidence that financial volatility helps to predict future trading volume growth, except for stock volatility from 1920 to 1952.

Whereas, using hourly data Jain (1988) found that CPI announcement surprises have significant negative effects on stock prices and trading volume was not associated with surprises in the CPI announcements and the results were consistent with the hypothesis that market participants interpret the surprises in announcements in an analogous manner and do not engage in additional trading.

Castanias (1979) reported that the variance of stock prices rises around the days of most economic news events, which Castanias (1979) interpreted as a reflection of new information appearing. Using daily data Pearce and Roley (1985) did not find an association between surprises in consumer price index (CPI) announcements and stock market reaction. By using monthly data Chen, Roll and Ross (1986) found that inflation related variables were highly significant in the 1968-77 period and insignificant both earlier and later. Carlton (1983) reported that the inflation has a tremendous negative effect on volume traded. It appeared that the level of inflation, rather than the unanticipated component of inflation, was more significantly correlated with volume traded. A related reason for a decline in trading as a result of increasing inflation has to do with the different types of the commodity that are deliverable on the futures market.

Smirlock (1986) found a significant positive response of long-term rates to unexpected inflation. Smirlock (1986) also reported that the unanticipated component of the announced change in both the PPI and the CPI has an immediate positive effect on long-term rates in the post-79 period, but no effect in the pre-79 period.

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Using daily prices of indexed bonds Huberman and Schwert (1985) found that about 85 percent of the reaction of bond prices to unexpected inflation occurred contemporaneously with the sampling of individual commodity prices from 2 to 6 weeks prior to the announcement. The remaining 15 percent of the reaction to unexpected inflation occurred on the day following the announcement. Black (1986) stated that the noise makes trading in financial markets feasible and therefore allows traders to monitor prices for financial assets. Noise causes markets to be inefficient to some extent but often prevents traders from taking benefit of inefficiencies. In Black (1986) model of financial markets, noise was compared with information. Traders at times trade on information in the common way. Traders are correct in anticipating making profits from these types of trades. On the other hand traders at times trade on noise like if it were information. If traders anticipate making profits from the noise trading then it is incorrect. Though, noise trading is important to the existence of liquid markets. Black (1986) further stated that an individual with information or insights regarding individual firms liked to trade but realize that only another individual with information or insights get to the other side of the trade. From the viewpoint of someone who knows what both the traders know one side or the other must be making a mistake. In other words, it does not make sense to make a model with the information trading but no noise trading where the traders have diverse beliefs and beliefs of one trader are as good as any other trader's beliefs. Dissimilarities in beliefs should derive finally from differences in information. A trader with an exceptional piece of information knows that the other traders have their own exceptional pieces of information, and for that reason traders do not automatically rush out to trade. Black (1986) further mentioned that there was always a lot of vagueness regarding who is the noise trader and who is the information trader. Noise creates the possibility to trade profitably, but at the similar time makes it hard to trade profitably. Kandel, Ofer and Sarig (1993) found that the variance of the inflation anticipation errors declines with trading days in the period examined. The decrease in the variance indicates that traders learn by frequently observing prices around the distribution of other traders‘ information.

Kim and Verrecchia (1991) stated that the traders achieve their most favorable portfolios prior to the announcement through trading on what each one knows in the preannouncement period. Announcements change the traders‘ viewpoint and induce the traders to enter in a new round of trade. It is believed that traders are diversely informed and vary in the precision of their personal prior information hence traders respond in a different way to the announcement and it leads to the positive volume. When the new public information is released in period all traders revise their beliefs, and this revision is reflected in the change in market price. Relatively better informed traders revise their beliefs less because the new information is relatively less important to those traders than to those who are more poorly informed. The presence of differential precision thus causes differential belief revision among traders, which in turn creates trading volume.

Huang (2008) investigated the impact of US economic news on German stock index futures and compared it with the impact of domestic German news. Huang (2008) found that US economic news affects German stock futures on multiple dimensions including prices, trading volume, volatility, quoted spreads, inventory holding costs and the informational role of trading. Huang (2008) investigated the impact of 17 types of German economic news announcements and 24 types of US economic news. For most US announcements Huang (2008) sample covered the entire investigation period from 1991 to 2005. Huang (2008) findings strongly suggested that German traders actively form private opinions about the implications of US economic news rather than just 'free riding' on the US market's response.

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3. Research/ Econometrical Framework

Following model was used to find the relationship between CPI ―Consumer price index‖ and KSE-100 index trading volume and to test the hypothesis that there is an impact of CPI on KSE-100 index trading volume.

TV = α + β (CPI) + ū Equation -1

Where TV = Monthly KSE-100 index trading volume, CPI = Monthly CPI ―Consumer price index‖ and the coefficients α and β are regression parameters for the independent variable and ū = (1-R²) denotes the error term.

Same model was used by Jain (1988); Smirlock (1986); Pearce and Roley (1985) for examining the effects of such announcements on financial markets.

4. Data Collection

The sample period used in this study covers the 239 monthly period beginning at January 1991 and ending at November 2010. The monthly trading volume (Number of shares traded) of KSE-100 index data was obtained from Karachi stock exchange and monthly CPI ―Consumer price index‖ (Percentage change) data was obtained from Federal Bureau of Statistics.

5. Econometrical Test

Simple linear regression technique was applied on the 239 months period data of KSE-100 index trading volume and consumer price index to test the hypothesis that there is an ―impact of CPI on KSE-100 index trading volume‖ sign (-ve or +ve) shows the negative or positive impact of independent variable on dependent variable. The hypothesis was accepted at p< .05.

The estimation of error term was investigated to find out endogeneity, for the purpose Heckman‘s Correction was applied to see the endogeneity and a new variable was originated explaining trading volume significantly. Hence, it was concluded that CPI explained trading volume significantly and as well as the trading volume was explained significantly by another variable ignored identified through Heckman‘s correction.

6. Key Findings and Results

R Square value 0.42 suggested that there is 42% variation in KSE 100 index trading volume due

to the model having CPI ―Consumer price index.‖ as an independent variable. (R² = .42, F =

47.788 at p < .05). While the findings of regression coefficient suggest the following equation:

KSE-100 index trading volume = (5.622E8) + (-2500214.024) Consumer price index Equation -2

Results have shown that there is a negative relationship between CPI ‖Consumer price index‖

and KSE-100 index trading volume if CPI increases by 1 % the KSE-100 index trading volume

decreased by (2500214.024) shares significantly due to its linear relationship (β = -2500214.024,

t = -6.913 at p < .05). Constant value (5.622E8) suggested that if the value of Consumer price index becomes zero then the value of KSE-100 index trading volume would be (5.622E8) shares (α = 5.622E8, t = 10.345 at p < .05).

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While using hourly data, Jain (1988) found that CPI announcement surprises have significant negative effects on stock prices and trading volume was not associated with surprises in the CPI announcements.

Schwert (1981) found that stock market responds negatively to the announcement of unanticipated inflation in the CPI. Carlton (1983) reported that the inflation has a tremendous negative effect on volume traded. Using monthly data Chen, Roll and Ross (1986) found that inflation related variables were highly significant in the 1968-77 period and insignificant both earlier and later in explaining trading volume of stocks. Using daily data Pearce and Roley (1985) did not find an association between surprises in consumer price index (CPI) announcements and stock market reaction.

The above Econometrical findings and the relevant literature suggest the presence of endogeneity in the data for which the Heckman‘s Correction was applied. The multi-co-linear ignored variables with error term were found significant in explaining the Dependent variable (trading volume), as for the stated ignored variables, R Square value .403 suggested that there is 40.3% variation in KSE 100 index trading volume due to the model having only ignored variables (i.e. R² = .403, F = 44.514 at p < .05)

Coefficient output table gives the following regression equation for the ignored variables which were causing endogeneity (β = -7762.760, t = -6.672 at p < .05).Thus,

KSE-100 index trading volume = (3.681E8) + (-7762.760) Ignored variables Equation -3 Results have shown that there is a negative relationship between new variable and KSE-100 index trading volume if new variable increases by 1 unit the KSE-100 index trading volume decreased by (7762.760) shares due to its linear relationship.

Constant value (3.681E8) suggested that if the value of new variable becomes zero then the value of KSE-100 index trading volume was (3.681E8) shares (α = 3.681E8, t = 13.081 at p < .05). Furthermore, when the multiple regression was applied by keeping the CPI and the new/ ignored variable (which was identified via Hecksman‘s Correction), as the independent variables to explaining the trading volume of KSE 100- index, it was revealed that due the addition of new/ ignored variable which was causing endogeneity, the model explains the trading volume 69.9% (i.e. Adjusted R square = .699, F= 73.59 at p< .05) and rest 30.1% predictions were not possible to be measured and it also suggests the presence of exogeneity i.e. the presence of non measurable ignored variables.

6.1 Hypotheses Assessment Summary

Hypotheses R Square F statistics B (Beta) T statistics Empirical

Conclusion

There is an impact

of CPI on KSE-100

index trading

volume

0.42 47.79 -2500214 -6.9 Accepted

The Ignored

Variables (X)

explains KSE-100

index trading

volume

0.403 44.51 -7762.7 -6.7 Accepted

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7. Conclusion and Discussions

In this study a related reason for a decline in trading volume as a result of increasing consumer price index has to do with the different beliefs of market participants and it indicates that market participants respond differently to consumer price index announcements because each market participant interpret the CPI announcements in different way and, more over there are also the ignored variables which may be, money supply (M2) and/ or interest rates or some other variables which might act as the indicators in explaining the trading volume of KSE 100 index as suggested by the significant presence of endogeneity in data.

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References:

Black, F. (1986). Noise. Journal of Finance, 41, 529-543.

Castanias, R.P. (1979). Macro information and the variability of stock market prices. Journal of Finance, 34, 439-50.

Carlton, D.W. (1983). Futures trading, market interrelationships, and industry structure. American Journal of Agricultural Economics, 65, 380-387.

Chen, N.F., Roll, R., & Ross, S.A. (1986). Economic forces and the stock market. Journal of Business, 59, 383-403.

Huang, H. (2008). Price and liquidity effects of US economic news releases on German stock index futures. JEL, 1-49.

Huberman, G., & Schwert, G.W. (1985). Information aggregation, inflation, and the pricing of indexed Bonds. Journal of Political Economy, 93, 92-114.

Jain, P. C. (1988). Response of hourly stock prices and trading volume to economic news. Journal of Business, 61, 219-31.

Kandel, S., Ofer, A.R., & Sarig, O. (1993). Learning from trading. The Review of Financial Studies, 6, 507-526.

Kim, O., & Verrecchia, R.E. (1991). Trading volume and price reactions to public announcements. Journal of Accounting Research, 29, 302-321.

Mitchell, M.L., & Mulherin, J.H. (1994). The impact of public information on the stock market. Journal of Finance, 49, 923-950.

Pearce, D. K., & Roley, V. V. (1985). Stock prices and economic news. Journal of Business, 58, 49-67.

Schwert, G.W. (1981). The adjustment of stock prices to information about inflation. Journal of Finance, 36, 15-29.

Schwert, G.W. (1989). Why does stock market volatility change over time? Journal of Finance, 44, 1115-1153.

Smirlock, M. (1986). Inflation announcements and financial market reaction: Evidence from the long-term bond market. The Review of Economics and Statistics, 68, 329-333.

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Professionalisation of ELT in Saudi Arabia Dr Intakhab Alam Khan

King Abdulaziz University Community College, Jeddah- Saudi Arabia

Abstract

English Language Teaching (ELT) in Saudi Arabia is a key factor for all sort of educational

developments. ELT has now been considered as a Profession in most of the developed and

developing nations. Saudi Arabia is no exception. This paper is a modest attempt to explore the

status of ELT, issues related to it and possible changes in the near future. The teachers of English

should be suitably qualified, trained, and their qualification should be licensed by the

professional body (duly accredited by most institutions), and the teachers should be strong

enough as far as the professional ethics and dedication is concerned. They should be quite aware

of the differences between occupation and profession. And, if they are not, they should be

accordingly trained for character building, effective teaching and maximum results.

Keywords: profession, professionalisation, pre-service education, ELT, professional

development.

1. Introduction The teaching of English as a foreign or second language has become inevitable in even those

countries where English serves a very limited purpose. This period is noticing a rapid but

substantial growth in the field of ELT in particular. Countries like Saudi Arabia have become a

hub of such educational practices by which the target learners can be brought to the main stream

of global education.

It has been felt by the researchers and pedagogues if the level of education in general and

English education in KSA is supposed to be raised the teaching of English should be

professionalized. As a matter of fact, these days in most English language centres of the main

universities in the kingdom, there is a focus on pre-service teacher training courses as one of the

essential qualifications for recruitment as the target language teacher.

1.1. Teaching as a Profession:

‗Profession‘ can operationally be defined as an organized activity which includes three aspects:

qualification, licensing and dedication. Teaching in general requires all the three characteristics.

Therefore, the teacher of English should also possess the qualification of a true professional. He

is a professional because he is suitably qualified, his certificates are usually licensed and he is

dedicated the noble cause of teaching.

Larson (1977,37) pointed out in her seminal study, ‗The Rise of Professionalism: A Sociological

Analysis, the conditions of professional work have changed so that the predominant pattern is no

longer that of the free practitioner in a market of services, but that of the salaried specialist in a

large organization. In this age of corporate capitalism, the model of profession nevertheless

retains its vigor; it is still something to be defended or something to be obtained by occupations

in a different historical context, in radically different work settings, and in radically altered forms

of practice. The persistence of profession as a category of social practice suggests that the model

constituted by the first movements of professionalism has become an ideology -- not only an

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image which consciously inspires collective or individual efforts, but a mystification which

unconsciously obscures real social structures and relations.‘

1.2. The aspect of dedication in Teaching:

Teaching is the noblest profession. The aspect of social service is of prime importance in the

field of teaching. Teachers are known for the making of the future generation. With the change in

the social norms and value system, the teacher community also has become materialistic. The

teachers mold themselves according to the social needs rather than molding the society according

to the philosophical values. Most modern teachers forget the fact that their knowledge and

contribution can‘t be paid by any agency or institution. Instead they would earn virtues, respect

and satisfaction. Thus, all those who are in teaching profession must always think about the

social service, and they should be dedicated to this noble cause.

1.3. Morality and Teaching:

‗The loss of moral values is particularly due to the lack of proper education, lack of proper

parental guidance and guardianship, lack of teacher‘s accountability, fall of social values, money

mindedness and materialism etc.‘(Khan,1999.p.97). In this regards, Rest (1997,pp. 52-55)

opines, however in the context of America , ‗Increased character education is one alternative

available to help what many see as the mayhem of moral decline in America. Research suggests

a correlation between the teaching of character education of youth and its positive ethical results

throughout the United States‘. A lot of philosophers and educational thinkers have put forth

different useful contribution to the relationship that exists between the teaching and other noble

socio-philosophical concepts. ‗While these findings demonstrate positive changes experienced

by youth audiences, to date, no research has been conducted on the effects of teaching Character

Counts! on those implementing the program. Many feel that one's character is permanently

formed during childhood. However, character education is a lifelong process‘, say Sprinthall &

Sprinthall (1997,pp67-70). Farmer (2006, p. 80) states, ‗ I have suggested elsewhere that in

some respects architecture as practiced in the UK may serve as a model for ELT professionalism.

However, the opinion of Farmer may not be a good model of professionalism in India or Saudi

Arabia especially in the case of English teachers because the situations are very different.

A teacher is basically a moralist. He teaches his students different concepts related to

ethics, values, morality and code of conduct. He shows all these aspects by his deeds and not

only by words. Dalmau and Gudjonsdottir (2002,pp102-115) sought to identify the diverse roles

that professional educators embrace depending on their circumstances and opportunities. A true

teacher is always strong from the view point of ethics- the ability to distinguish between the vice

and virtue, moral and immoral, and right and wrong. If the teacher is professionally sound, he

should try his level best to come to the level of expectation of the management and the students.

1.4. Fear of Deprofessionalisation of ELT:

As teaching is a crucial profession, a proper training is always essential in order to inculcate

among the future or practicing teachers professional values, accountability and commitment.

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These days there are some organizations that have started promoting a short term teacher training

course even to those who don‘t possess the essential qualification, and they are licensed to teach.

Such kind of practices may be proved to be very dangerous for the educational system that

finally develops human resource. In short, it must be ensured that the teaching profession is not

de-professionalised because if a Chemistry graduate can‘t practice medicine, a social science or

a management graduate with a month teacher training should not join or continue teaching

because he is morally and technically a misfit in the educational system.

1.5. Characteristics of effective English teachers:

Teaching is an art as well as a science. Without the proper development of teaching skills a

teacher can‘t teach his classes. The teacher has to justify his position by showing different traits

as under:

1.5.1. Scholarship and Qualification:

Qualification and experience is the basic trait of a teacher, be English teacher or any other

subject. Therefore, he should have: a sound knowledge of the subject, knowledge of Educational

Theory, creativity, professionally trained. However, it doesn't mean that one possesses all these

traits without having a formal education and training in the field of teaching.

1.5.2. The general qualities of an effective English Teacher:

An effective teacher‘s qualities may be summed up as under:

He knows the objectives of teaching in general and English in particular,

knows English well,

uses psycholinguistic and sociolinguistic theories,

knows what has been learnt and what remains to be taught,

bothers about the performance of the target language learner,

communicates well in the target language,

reviews the previous knowledge and connects well to the new chapter or unit,

prepares well before starting a new lesson especially functional grammar,

assesses the learning individually as well as among colleagues,

keeps good records of the students and update from time to time,

shares his personal and academic experience,

motivates students to achieve the target language,

dedicates himself for the noble profession like teaching,

keeps himself in touch with the latest advancement in the field of ELT such as integrated

curriculum, integrated English, communicative approach to language teaching etc.,

knows about use of technological use such as language lab, computer assisted learning

and e-learning resources.

If we try to have a gist of the overall qualities of an ideal English teacher, the following

correspond:

i. A good English teacher must know why English is taught, what should be taught

within the course and finally how can the same be taught.

ii. He is able to diagnose the weakness and strength of the students in the learning of

English,

iii. He has an access to different methods and strategies of teaching of English as a

second/foreign language.

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The teacher himself is solely accountable for the attainment of aims and objectives of English.

The English teacher must know and try to achieve those aims. He should be clear about the

purpose of different activities chosen for the subject.

1.5.3. General categories of teachers:

As regards the types and variety of teachers there are many kinds. But, in my opinion, basically

there are three types of teachers:1- who actually teach,2- who manage in teaching and,3- those

who manipulate in teaching. At this juncture, I am reminded of one of the Indian educational

philosopher‘s opinion:

An average teacher teaches, a good teacher develops and an excellent teacher inspires‟. One

more line can be added: A bad teacher finishes the course.

The teacher is a friend, philosopher and guide. A good teacher is like a father, an ideal, a role

model. A teacher is an instructor, teacher, facilitator and curriculum developer. In sum, a teacher

is the maker of future generation. Now, at this point of time I wish to ask a question to me as a

teacher: am I doing the needful?

The teacher always plays a crucial role in the achievement process. As it is known

that there are verities of teachers in general and English teacher in particular. In my opinion there

are some who are teachers by chance, teachers by choice and some are forced teachers. In my

opinion, there are some teachers:

- who can teach in any condition,

- who can't teach,

- who can teach , but need motivation,

- who don't want to teach,

-who don't know what and how to teach,

- who are able to teach, but disinterested in teaching,

-who want to learn how to teach,

- who know that they are the best teachers,

- who can't develop at all,

-who want to develop for effective teaching.

Teaching of English requires sound knowledge, good training and enough dedication to prove

oneself as en effective and efficient teacher. A profession can't be treated as an occupation.

Therefore, it is always important that a teacher should basically join the teaching profession

knowingly in order to serve the society, not only to serve him.

2. Dimensions of Development:

There is nothing permanent except change. Though the teachers are the instruments of change

and development, they should also change, grow and finally develop. With the ongoing progress

in teacher‘s professional career they are supposed to face variety of issues, problems and

challenges. And, if they are not well equipped, they may not do the needful.

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The present age is known as cyber age, and the whole world is considered as a global village.

The chance of knowing, learning and developing is now much more than what it used to be

before. Technology has changed the life of even a common man or a villager to the extent that

the teacher should not live in the world of isolation. He should increase his knowledge, equip

himself with latest and sophisticated technology and apply the same in the classrooms in general

and English language in particular. The global educational input and output can be of much help

in the English classroom because English is an international language and it is going global day

by day.

Professionalization as a process has been described in two very different ways by Wilensky

(1964) and Abbott (1991). Wilensky, examining evidence from a range of professions, sees it as

a bottom up process in which practitioners sharing appropriate skills, knowledge and attitudes

establish their competence in the eyes of the public, start a university level training programme,

and finally apply for full professional status and monopoly of practice. Abbott cites evidence

from the development of the medical profession in the USA to suggest that the whole apparatus

of professional organization and education resulted from the imposition of mandatory regulation

by the government as a top down process.

Van Scotter et al (1991,p.2) support the trait models of professionalism, ‗When professionals

lobby the government for special privileges, they do so on the grounds that their profession is

different from other occupations. Since trait models have traditionally been the basis upon which

professionals have distinguished themselves from other workers, they are naturally reluctant to

abandon the model, since that might imply surrendering their superior status as well.

Consequently, most professionals have simply ignored the advances in sociology which have

discredited this model. They continue to measure their occupation against the characteristics

identified by various trait models in an attempt to support their claim to professional status; or to

lobby for particular reforms within their occupation to bring it closer to some supposed

professional standard.‘

2. Professionalisation of ELT:

Professionalisation is a process that is being focused in each area: industries, education, business

or any other. It takes time to implement any concept, but it would prove to be better and ideal in

the near future if professionalization is strictly implemented in the educational system of Saudi

Arabia because it is generally felt that the Saudi learners are often unable to join the international

main stream because of lack of proficiency in an internally important language like English. The

government of Saudi Arabia has made all necessary infrastructural facility and equipment

including internet based classes to improve the level of English. But the outcome is not what it

should actually be. Therefore, we need to redefine the roles of English teachers in the context of

professionalization. It may perhaps be quite useful towards realizing the general goal of teaching

English in the kingdom.

Graddol (2006, p. 15) suggests that speaking English may no longer be an advantage

in a globalized world where everyone speaks it. It follows that those who do not speak it are

disadvantaged. The second question is more difficult. Who are the ‗qualified‘ ELT practitioners

and can they show that only they can do the job? The simplest answer is: we should look for

genuinely dedicated, suitably qualified, appropriately trained, sophisticatedly equipped with

technology and as a whole a true professional of ELT.

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3.1. Pre-service Teacher Education:

The case of pre-service teacher training is different from country to country. In India, for any

recruitment at secondary education level, a certificate of education/training is a must. But, for

higher education, there is no condition of a pre-service degree/diploma of teaching. However, in

order to join an institution as a language expert a degree in Language teaching, applied

linguistics or education is always preferred.

In the case of Saudi Arabia, there is a four year teacher training course that is specialized

from the beginning of the program. Especially in the case of teaching of English language

teaching, such courses are quite beneficial. It is felt that at the tertiary level also, a specialized

certificate is found better in order to teach a specific group of students. However, there are many

appointments made every year without considering the actual need. And, mistakenly it is

considered that f one is a master or a doctor he should possess good level of teaching aptitude or

attitude.

There are many courses of teaching even in the place like the UK such as CELTA or DELTA.

Although the teachers may be benefitted by these courses yet can‘t be guaranteed as sometimes

in service teachers or even future teachers manage to go to a place and get a CELTA certificate

in a month time. However, a training degree such as B.Ed (Bachelor of Education) in India is not

able to train its trainees to a considerable extent even in one year time. Therefore many

educationalists always supported the idea of making one year course to a comprehensive two

year program. It is interesting to note that those who join B.Ed courses have already dome

graduation or post graduation in their respective fields. This way, the future teachers can be

appropriately development for the needful service to the community.

3.2. In-Service Teacher Education:

There are two main purposes of in-service teacher education: for those who have entered the

teaching profession by chance without having a required qualification or an appropriate training,

and those who are still in need of development. The second group always needs a continuous

professional development as it is rightly believed that education is a lifelong process. And, the

process of change and betterment doesn‘t stop. There are differences in opinions of the in-service

professional on the issue of development. The category of such teachers can be sub divided into

three: those who don‘t want to develop, those who don‘t know that they need development, and

finally those who live in fool‘s paradise considering that they are the best teachers. Many

scholars have put forth different outlook in various manners. Eldridge (2005, p. 9) finds that

conflicts of interest are inherent in teacher development. Richards and Farrell (2005, p. 6-7)

conceptualize teacher learning as skill learning, cognitive process, personal construction or

reflective practice, all of which reinforce a teacher centered view of teaching.

4. Professional Development of English Teachers:

4.1. English teachers in Saudi Arabia: International community

ESL/EFL teachers in particular are more responsible for imparting education to those students

who don‘t have favorable conditions for learning. In this case, the concerned teacher, apart from

being well trained, should be well motivated, have clear vision, know teaching strategies,

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motivating techniques so that his teaching can be more interesting, and the learning yields results

and outcomes.

In Saudi Arabia, in most technical/professional colleges, there are three kinds of

English teachers: native speakers, bilinguals, and the teachers from India, Pakistan and other

similar countries. The native speakers are not found as highly qualified as many others from

Asian countries as they have done M.A.(TOFEL) or M.A. in English with a degree or diploma in

teaching/education.

It has been noticed that most of the native speakers or near native speakers don‘t have master‘s

degree in English. Instead, they have done courses like CELTA/TESOL. It is good to have a

training/education/teaching certificate like CELTA, but it is not the only thing needed to be a

successful foreign language teacher. Most teachers with CELTA like background have done

courses like MBA, management, Sociology, History etc. In my opinion, as a biochemistry/

biology graduate or post graduate can‘t be licensed to practice medicine, a management graduate

/post graduate should not be qualified for teaching of English. At this point of technological and

educational development, while the whole world is looking for specialties, CELTA /TESOL like

certificates are promoting the practices of the general practitioners. But, the genuine issue is yet

to be discussed and resolved as to what extent such training courses are effective as far as the

teaching of English scenario in KSA is concerned.

British council all over the world is promoting CELTA even for those who know little

about English, however they can speak with a humble background of morphology. Moreover,

those native speakers or near to native speakers who have joined academic institutions in Saudi

Arabia because they were born in English speaking countries especially Great Britain, but they

are not native English language teachers. In a country like Saudi Arabia, the teacher should be

well equipped in the methodology of EFL apart from having a certificate in English language

and literature. In the entire process of teaching of a foreign language, the role of the learner‘s

mother tongue is inevitable. And, for native speakers or a native teachers, in most cases, Arabic

is all Greek and Latin to them. Moreover, in Saudi Arabia, there is much scope of American than

British English.

The other category of teachers of English belongs to the bilingual teachers. They are

generally from Egypt, Sudan, Jordan and other similar Arab countries. It is good to have such

teachers who are aware of the teaching/learning problems that exist in the Arab world in general

and Saudi Arabia in particular. But, interestingly, such teachers are also not effective. They are

not very motivated in teaching. Usually they have negative attitude towards learners, and they

don‘t want to develop thinking that their knowledge and experience is more than enough. They

teach English in the same way as English is taught in their own countries. In spite of the fact that

they should evolve bilingual strategies to facilitate the learners, they jump into the traditional

grammar and translation method as it seems easier for them as well as the students. And, finally

the target language suffers.

The third and the final group belongs to the teachers from India, Pakistan and

similar countries. Such teachers are highly qualified. Some of them have training

degrees/certificates. But, they also face problems in imparting English education in Saudi

because most of them are not aware of the problems of the Arabic speakers. Though such

teachers taught English in bilingual environments like Urdu/ Hindi/Punjabi etc. they aren‘t able

to compare their own scenario with that of bilingualism in Saudi Arabia. They think that they are

suitably qualified and appropriately experienced so they don‘t need any further research or

training for pedagogic and professional development.

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It is good to have such a combination of native speakers, bilinguals and unilingual

to have a good teaching facilitators. But CPD (Continuous Professional Development) must go

on in order to avoid waste of resource.Training and professional development is always essential

in this fast changing society. Thus, in order o be update, modern and sophisticated, on should

attend in-service training or professional development programs. It is always appreciated if the

teachers of English are research oriented, but ironically speaking, most teachers Saudi are

disinterested in any such program. They think that this is an academic embarrassment to take part

in any training program. They innocently forget that every teacher is not a born teacher. Instead,

some teachers can be made better by good and quality training.

Motivation is another important factor that contributes to the teaching learning effectiveness.

With the experience of Hawthorn in sixties, human relation was found as one of the motivators.

In other words, monetary incentives were not only responsible for motivation. But, both in Saudi

and India, even monetary incentives fail to motivate teachers. First there is no internal

motivation. In addition, recent 100% hike in the salary could also not motivate the teachers any

more.

4.2. Training and professional development:

Teacher factor is the most important of all in the educational setting. It is the teacher‘s

responsibility to afresh his knowledge update his potential and equip himself with the

advancement of the society and use of technology in general and educational environment in

particular. (Khan, 2005,p.43)

In order to justify the job of a teacher he has to attend trainings which are considered quite

essential in this fast changing society. Thus, in order o be update, modern and sophisticated, on

should attend in-service training or professional development programs. It is always appreciated

if the teachers of English are research oriented, but ironically speaking, most teachers in India

and Saudi are disinterested in any such program. They think that this is an academic

embarrassment to take part in any training program. They innocently forget that every teacher is

not a born teacher. Instead some are made good teachers. Professional development is always

needed for every teacher even if he is highly knowledgeable, experienced and trained.

5. Conclusion:

Teachers are respected in societies because they are part of the noblest profession. Teachers in

general and English teachers in particular are always accountable for bringing certain desired

changes in society in general and students in particular. English being the lingua franca holds

very important position in the global scenario of sociolinguistic perspective. It is rightly

considered as one of the major tools of socialization and technological as well as scientific

changes. Saudi Arabia is no exception to such changes and developments.

English as an international language and a means of instruction in Saudi Arabia is

being more emphasized these days. Many researches are being undertaken in the area to

diagnose problems and find out solutions. In spite of the fact that the government has taken many

genuine and serious steps to impart knowledge and develop the level of English in the country,

the students face a lot of problems during the courses of study. Apart from so many other factors,

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teacher remains the most crucial aspect of teaching-learning environment. It has been assumed if

English teachers are properly trained and appropriately educated in the branches like Educational

philosophy, educational sociology, educational psychology and pedagogy, the chances of further

waste can be minimized or even removed from the English education system of Saudi Arabia. In

other words, the teaching of English should be genuinely professionalized to make

teaching/leaning more effective and to account teachers more responsible for the desired

outcomes.

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References

Abbott, A. (1991). The Order of Professionalization. Work and Occupations,18, 355-384.

Bress, P. (2004). What, me? Take responsibility for my teaching? IATEFL

Teacher Development, SIG newsletter 2/04 5.

Dalmau, M.C. and Gudjonsdottir, H. (2002) Framing Professional Discourse with Teachers. In:

Loughran, J. and Russell, T. (eds) Improving Teacher Education Practice Through Self-Study,

London: Routledge

Eldridge, J. (2005). Rendering unto Caesar: The ambivalent case of in-service

teacher education. IATEFL Teacher Development SIG newsletter1/05

6-10

Farmer, F. (2006). Professionalism in ELT. Mexico: Plaza y Valdés

Goode, W. J. (1969). The theoretical limits of professionalization. In A. Etzione (Ed.), The semi-

professions and their organization. New York: The Free Press.

Graddol, D. (2006). English next. British Council.

Johnson, T.J. (1981)Professions and Power. London: McMillan

Khan, I.A. (2005). Teaching of English: The Bilingual Context, Delhi: Academic Excellence

Khan, I. A. (1999) IN Ravindra Kumar (1999).Morality and Ethics in Public Life. Delhi: Mittal

publication

Larson, M.S. ( 1977). The Rise of Professionalism: A Sociological Analysis, Berkeley:

University of California Press.

Millerson, G.(1964). The Qualifying Associations: A Study in Professionalisation,

London: Routledge and Kegan Paul

Pratte, R. (1981). Analytic philosophy of education: A historical perspective.

In J. Solis (Ed.), Philosophy of Education since mid- century. New York: Teachers College

Press.

Rest, J. (1997). Can Ethics be taught to adults? In M. Josephson (Ed.), Character Counts!

character development seminars. CA: Josephson Institute.

Richards and Farrell (2005). Professional development for language teachers. Cambridge:

Cambridge University Press.

Sprinthall, N., & Sprintall, L. T. (1997). How to raise a good child. In M. Josephson

(Ed.), Character Counts! character development seminars. CA: Josephson Institute.

Van Scotter, Richard, John Haas, Richard Kraft, and James Schott.(1991) Social Foundations of

Education , 3rd edition , Englewood Cliffs, NJ: Prentice Hall

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Wilensky (1964). The professionalization of everyone? American Journal of Sociology, 70, 137-

158.

About the Author

Dr. Intakhab Alam Khan ( M.A. in English; B.Ed.,M.Ed., M.Phil., Ph.D in Education) has earlier

served Faculty of Education, Jamia Millia Islamia (New Delhi, India) and College of Health

Sciences, Jazan (a part of Jazan University, Saudi Arabia). He is presently associated with King

Abdul Aziz University Community College, Jeddah, Saudi Arabia.

Dr. Khan writes in the area of Education, Teaching Methodology, English Language Pedagogy

and Philosophy of Teaching. He has to his credit 11 books and many national/international

papers and articles. He has participated and presented in many international conferences. Dr

Khan is the founder editor of GESD (an international journal for academicians) published from

Delhi, India.

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Association between Human Capital and Physical Capital Formation in

Pakistan: A Disintegrated Time Series Analysis

Muhammad Amir

Assistant Professor, Department of Economics, Government Dyal Singh College, Lahore,

Pakistan

Bilal Mehmood (Corresponding Author )


Dr. Muhammad Wasif Siddiqui

Associate Professor, Department of Economics, Government College University, Lahore,

Pakistan

Saima Sarwar


Abstract

In this study, we analyze the role of human capital as determinant of physical capital for

Pakistan. Data used in analysis is of 35 years that spans from 1973-74 to 2007-08. Johansen co-

integration is applied to test long run relationship between human capital and physical capital.

While for short run analysis Error Correction Model (ECM) is used. Human capital when

proxied using various levels of education, reveals absence of ability to retain physical capital in

the case of primary and college level education. But when represented by secondary, university

and vocational levels of education show conformity with theoretical expectations. Results reveal

a significant role of certain levels of education in determining the level of physical capital in

Pakistan.

Keywords: Capital Movement, Effective Labor, Human Capital, Johansen Co-integration,

Labor Productivity, Skills.

1. Introduction

Like physical capital, human capital can be increased by investing in education, training and

healthcare. In the era of knowledge-based economy, only cheap labor is no longer the decisive

factor in retaining physical capital while previously, it was considered so. During recent times,

managerial skills and technological innovations which require skilled and educated labor are

crucial for higher productivity.

Economic theory suggests diminishing returns in physical capital market and capital

being scarce in developing countries has higher marginal product as compared to that in

developed countries. Provided there prevails perfect competition in capital market, capital should

move from developed to developing countries until capital-labor ratio and eventually ratio of

respective rewards (interest to wage ratio) gets equalized in developed and developing countries.

Empirical evidence, however, has not fully supported this direction of capital movement. As a

developing economy, Pakistan can also benefit from such a theorized flow of physical capital.

Therefore this paper scrutinizes the role of human capital in attracting physical capital for the

case of Pakistan.

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2. Previous Research Nelson and Phelps (1966) studied the relationship between structures of capital technological

progress and found that technologically advanced countries have higher returns to education.

Uzawa (1965) and Lucas (1988) assume human capital as a factor of production, so according to

them human capital is skill embodied labour. According to Lucas (1988) human and physical

capital are used as factors of production as given by:

Y = AKα

(uhL)1-α

haγ

Where A is the technology level, K is physical capital, u is the time devoted to productive

activities, h is per capita human capital. Secondly, a share of human capital is not used in

production of output but it is used to produce more human capital, therefore human capital

generation is an automated process.

Two years later Lucas (1990) observed that if trade in capital goods is free then direction

of the capital flows must be from rich to poor countries as marginal productivity of capital is

higher in developing countries as compared to developed countries.22

So all new investments in

capital goods should flow to the areas where marginal product of capital (MPK) is relatively high,

until capital to labor ratios are equalized that will eventually equalize the interest to wage ratio in

two countries. Although capital flows from rich to poor countries but it falls short to the

magnitude predicted by theory. Besides the difference in external benefits of human capital (e.g.

cultural impacts) and imperfections in capital markets, the difference in human capital is the

actual cause of low pace of capital flight from rich to poor countries.

Building on Lucas argument, Romer (1990) presented his theory about impact of affected

human capital on long run growth. His model was based on two assumptions relating to

productivity. Firstly, firms make persistent investment to finance learning by doing. So firms

having more capital stock can spend more on education and this will increase the level of

knowledge capital. Secondly, he assumes that knowledge cannot be confined within boundaries

of a firm. It means technological development in a firm will not restrict other firms from availing

that technological development.

Azariades and Drazen (1990) discovered, while investigating the relationship between

physical and human capital formation, the inability of some developing countries to accumulate

physical as well as human capital due to institutional weaknesses. Despite having same

technologies as that in developed countries, they remain below the expected growth trajectories.

They revealed that countries‘ initial amount of human capital is so small that opportunity cost of

drawing resources from other sectors is higher than returns from investing in education.

Secondly developing countries fail to sustain investment in human capital formation. In similar

veins, Benhabib and Spiegel (1994) deduced that international technology spillover rates depend

upon the availability of human capital in follower country and this human capital is guaranteed

through education.

For rural areas of Pakistan, Fafchamps and Quisumbing (1997) investigated the impact of

human capital on the productivity of labor. They found that educated farmers have higher

incomes and human capital facilitates farmers to earn more incomes from non-farm activities.

Their study found no significant impact of education on productivity of labor in crop and live

stock production.

Abbas (2001) while conducting a comparative study of Pakistan and India to examined

impact of different levels of education, found positive correlation between human capital and

22

For further details, see Lucas (1990).

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physical capital. In addition to this, primary education has positive impact on India‘s economic

growth only, whereas human capital proxied by secondary education has positive impact on

economic growth of both Pakistan and India. Higher education also had positive impact on

economic growth of Pakistan but have negative impact in case of India.

Awang (2004) examined the significance of Information and Communication

Technology (ICT) for development of human capital in case of Malaysia. Considering education

and training as important factors of development of human capital, she used government

expenditures on education & training and years of schooling as proxy variables for human

capital. Her findings conform to the consensus that ICT can facilitate provision of public services

in a more efficient manner and that it facilitates the transformation of workers into skilled

workers.

Abbas and Peck (2008) have identified the crucial role of human capital to absorb the

world technological progress. They used health expenditures as a percentage of GDP taken as a

proxy for health capital. The enrollment rate at secondary level is taken as human capital. They

conclude that economic growth in Pakistan is endogenous in nature. Returns to secondary

education are below the expected level that implies deficiency in investment on human capital.

3. Hypothesis This study empirically tests the role of human capital in determining the physical capital. From a

theoretical perspective, this article is based on the theories forwarded by Romer (1990), Becker

and Tamura (1990), an increase in human capital stock leads to increase the physical capital.

H1: Human capital does attract physical in case of Pakistan‘s economy.

4. Research Method 4.1. Data Sources

The data is annual and spans over the period of 35 years from 1973-74 to 2007-08.The databases

consulted for data are various issues of Economic Survey of Pakistan, World Development

Indicators, World Development Reports and International Labor Organization Yearbooks.23

4.2. Model Development

Following Romer (1990), enrollment rates as a proxy variable of human capital are used. We

have disintegrated the enrollment rates for five different levels of education like primary,

secondary, college, university and vocational training in Pakistan. These enrollment rates are

obtained by following formula:

The model used in this study is borrowed from Romer (1990):

Yt = f (Kt, Lt, Ht) Its modified form in terms of Cobb-Douglas production function is given by:

Yt = At Ktα Ltβ Htγet Yt = Gross Domestic Product.

Kt = Gross Domestic Investment used as proxy variable for capital.

Lt = Employment level as proxy for labor.

Ht = Enrollment rates used as proxy variable for human capital.

23

Descriptive Statistics of the pertinent variables are appended.

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In order to study the impact of human capital on physical capital, we take gross domestic

investment as explanatory variable. For all proxy variables of human capital, following model is

estimated.

ln(GDINVt)= αt + β *ln(GDPt)+ + β *ln(Lt)+ + γ *ln(Ht)+ + εt Where GDINVt = Gross Domestic Investment

Following Barro (1991) gross domestic investment is used as a proxy variable for

physical capital. By replacing all five proxy variables for human capital, we get the following set

of models:

ln(GDINVt) = αt + β *ln(GDPt)+ + γ *ln(Lt)+ + δ *ln(Hp)+ + εt (Model 1)

ln(GDINVt) = αt + β *ln(GDPt)+ + γ *ln(Lt)+ + δ *ln(Hs)+ + εt (Model 2) ln(GDINVt) = αt + β *ln(GDPt)+ + γ *ln(Lt)+ + δ *ln(Hcol)+ + εt (Model 3)

ln(GDINVt) = αt + β *ln(GDPt)+ + γ *ln(Lt)+ + δ *ln(Huniv)+ + εt (Model 4) ln(GDINVt) = αt + β *ln(GDPt)+ + γ *ln(Lt)+ + δ *ln(Hvoc)+ + εt (Model 5)

Where Primary enrollment rate = Hp

Secondary enrollment rate = Hs

College enrollment rate = Hh

University enrollment rate = Huni

Vocational enrollment rate = Hvoc

5. Empirical Findings 5.1 Impact of Human Capital on Physical Capital

In order to test the long run relationship between two or more than two time series, co-

integration technique is used. Therefore, we have applied Johansen co-integration test to

investigate the long run relationship among dependent and independent variables.

In light of Trace statistics and Eigen value statistics, we discover that how many co-

integrating vectors exist, at a specific level of significance. The null hypothesis of

γ = 0, means that there is no co-integrating vector is tested against the alternative γ = 1, which

means there exits one co-integrating vector.



Above table shows that our education levels; secondary, university and vocational training

institutes are successfully attracting physical capital and having positive and significant impact

on physical capital. As it is log-linear form of Cobb-Douglas production function, the

coefficients are elasticity values representing rate of change in gross fixed capital formation as a

result of change in respective explanatory variable. Primary and college level estimated

coefficients are negative which means these two levels of human capital are unable to attract

physical capital. [Insert Table 3 about here.]

Results in above given table reveals but insignificant impact on GDINV in short run of primary,

secondary and university level education on physical capital formation. So, in short run

education at primary, secondary and university level attracts physical capital. Short run analysis

shows college level education and vocational training have negative impact on GDINV. The

error correction coefficient for primary level education is -0.59 which means primary level have

positive impact on physical capital only in short run but there are 0.59% chances that short run

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fluctuation will converge towards long run equilibrium, which means primary level education do

not attract physical capital. The secondary level education has positive impact on physical capital

both in short run as well in long run. College level education shows negative impact on physical

capital in short run and in long run. That means college level education can contribute towards

GDP but it fails to attract physical capital in the country. University level education has positive

impact on GDINV both in short and long run. Therefore, it can be inferred that universities are

injecting decent quality of graduates into the labor market that is positively affecting physical

capital. Vocational level training shows positive impact on GDINV in long run but in short run

this relationship remains negative. ECM coefficient for vocational level education is -0.01,

which means there are 0.01% chances that short run deviation may converge towards long run

equilibrium.

6. Conclusion and Recommendations It can be concluded from this article that primary and college levels of education has negative

impact on physical capital, hence is a bottleneck in attracting the physical capital. Secondary,

university and vocational levels human capital are performing well. Vocational level human

capital although positively affecting physical capital but magnitude is very weak.

Output per labor is a function of skill-embodied labor i.e. effective labor. For surviving in

knowledge based economy in 21st century, high quality human capital is of crucial importance.

Physical capital is likely to follow high quality human capital. For developing countries to attract

physical capital, it is necessary to upgrade their human capital, mainly through education at all of

its levels. In this regard, public-private partnerships should be encouraged to provide quality

education through regularly updated curricula.

Acknowledgment

Authors are very thankful to Prof. Dr. Ikram-ul-Haq, Vice Chancellor, GC University, Lahore,

Pakistan for appreciation and encouragement in research activities.

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References

Abbas, Q., & Foreman, J. (2008). Human Capital and Economic Growth: Pakistan 1960-2003,

The Lahore Journal of Economics, 13(1), 1-27.

Abbas, Q. (2001). The Role of Human Capital in Economic Growth: A Comparative Study of

Pakistan and India, The Pakistan Development Review, 39(4), 451-473.

Awang, H. (2004). Human Capital and Technology Development in Malaysia, International

Education Journal, 5(2), 239-246.

Azariaidis, C., & Drazen, A. (1990). Threshold Externalities in Economic Development,

Quarterly Journal of Economics, 105(2), 501-526.

Barro, R. J. (2001). Human Capital and Growth, American Economic Review, Papers and

Proceedings, 91(2), 12-17.

Benhabib, J., & Spiegel, M. M. (1994). The Role of Human Capital in Economic Development:

Evidence from Aggregate Cross-Country and Regional U.S Data, Journal of Monetary

Economics, 34(2), 143-173.

Fafchamps, M., & Quisumbing, A. R. (1997). Human Capital, Productivity and Labour

Allocation in Rural Pakistan, Stanford University Working Paper Series 97019, Stanford

University.

Gujarati, D. N. (2005). Basic Econometrics. McGraw-Hill, New York.

Lau, L. J., & Louat, F. F. (1991). Education and Productivity in Developing Countries: An

Aggregate Production Function Approach, World Bank Working Paper Series 612,

Washington D.C.

Ljungberg, J. (2002). About the Role of Education in Swedish Economic Growth, Historical

Social Research, 27(4), 125-139.

Lucas, Robert E. Jr. (1988). On the Mechanics of Economic Development, Journal of Monetary

Economics, 22(1), 3-42.

Lucas, R. E. (1990). Why doesn‘t Capital flow from Rich to Poor Countries? American

Economic Review, 80(1), 92-96.

MacMahon, W. W. (1998). Education and Growth in East Asia, Economics of Education Review,

17(2), 159-172.

Mankiw, N. G., Romer D. & Weil, D. N. (1992). A Contribution to the Empirics of Economic

Growth, Quarterly Journal of Economics, 107(2), 407-437.

Nelson, R. R. and Phleps, E. S. (1966). Investment in Humans, Technological Diffusion, and

Economic Growth, American Economic Review Proceedings, 56, 69-75.

Petrakis, P. E. & Stamatakis, D. (2002). Growth and Educational Levels: A Comparative

Analysis, Economics of Education Review, 21(5), 513-521.

Romer, P. (1990). Endogenous Technological Change, Journal of Political Economy, 98(5), 71-

102.

Romer, P. (1990a). Human Capital and Growth: Theory and Evidence, Carnegie-Rochester

Conference Series on Public Policy: Unit Roots, Investment Measures and Other Essays,

32(1), 251-286.

Solow, R. M. (1957). Technical Change and the Aggregate Production Function, Review of

Economics and Statistics, 39(1), 312-20.

Schultz, T. (1961). Investment in Human Capital, American Economic Review, 51(1), 1-17.

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Uzawa, H. (1965). Optimal Technical Change in an Aggregate Model of Economic Growth,

International Economic Review, 6(1), 18-31.

World Development Indicators CD-ROM, World Bank, Washington, DC, 2007.

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Appendix

Descriptive Statistics of the Data

LnYt LnKt LnLt LnHp LnHs LnHcol LnHuni LnHvoc

Mean 14.6427 13.0544 3.4279 -0.7608 -2.5671 -5.9143 -2.1684 -5.0156

Median 14.7005 13.2574 3.4298 -0.6646 -2.5745 -6.0563 -2.6424 -4.9269

Maximum 15.5190 13.7910 3.8737 -0.1184 -1.6517 -4.2161 -1.2392 -3.6878

Minimum 13.7538 12.1149 2.9307 -1.4351 -3.3755 -7.3310 -3.3061 -5.8920

Std. Dev. 0.5260 0.4381 0.2585 0.4484 0.5653 0.8372 0.7883 0.5621

Skewness -0.1569 -0.6545 -0.1060 -0.1159 0.1080 0.7719 0.0835 0.6300

Kurtosis 1.8780 2.3390 2.2223 1.5257 1.5261 3.1619 1.1667 3.1561

Jarque-Bera 1.9794 3.1357 0.9475 3.2482 3.2359 3.5143 4.9421 2.3510

Probability 0.3717 0.2085 0.6227 0.1971 0.1983 0.1725 0.0845 0.3087

Sum 512.49 456.90 119.98 -26.63 -89.85 -207.00 -75.90 -175.55

Sum Sq. Dev. 9.41 6.53 2.27 6.84 10.86 23.83 21.13 10.74

Observations 35 35 35 35 35 35 35 35

Table 1: Johansen Co-integration Results

Human Capital (in terms of Education at following levels) GDPt Lt Ht

Primary(HP) 2.79 0.50 -2.19

Secondary(Hs) 8.20 1.38 2.18

College(Hcol) 2.93 0.30 -1.35

University(Huni) 1.31 2.29 1.07

Vocational(Hvoc) 1.64 2.55 0.17

At 5% level of significance

Table 2: Elasticity Estimates

Elasticity of Gross fixed Capital Formation w.r.t Human Capital

Primary Secondary College University Vocational

Estimated Coefficients -2.19 2.18 -1.35 1.07 0.17

t-statistics 6.01 -3.38 4.95 -2.81 -4.64

At 5% level of significance

Table 3: Short Run Analysis

The ECM estimates for Human Capital as Determinant of Physical Capital

Regressors Short Run

Long Run Coefficient ECM

DlnHp 0.78 [1.68] -0.59 -2.19 [6.01]

DlnHs 0.02 [0.024] -0.04 2.18 [-3.40]

DlnHcol -0.10 [-0.59] 0.01 -1.34 [4.95]

DlnHuni 0.14 [1.04] 0.01 1.07 [-2.80]

DlnHvoc -0.11 [-0.42] 0.01 0.17 [-4.64]

Level of significance is at 5%

D Indicates differences of the variables used

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Relationship Marketing in Microfinance Industry: A Pakistan Perspective


Assistant Professor




Assistant Professor




Rahim Bux Soomro

Lecturer



Abstract

This paper addresses relationship marketing aspect in microfinance institutes. Still now no

researcher in both disciplines, microfinance and relationship marketing has ever written on the

nature of relationships in microfinance institutes, so In this paper effort has been made to

integrate the discipline of microfinance and relationship marketing and show that the nature of

microfinance business is relationship oriented and that the success of any microfinance institutes

is reliant on keeping, serving and enhancing the good relationships with its customers and other

stakeholders.

Key Words: Relationship Marketing, Stakeholders, Microfinance Industry.

1. Introduction The concept of microfinance was introduced in the of developing countries context to assist

poorest of poor. The main objectives were to alleviate poverty, empower disadvantaged

population groups specially women, create employment opportunities and stimulate economic

development of country by involving poor segments of population (Joanna 2001). Professor

Yunis was the first to give the idea, he established the Grameen Bank in Bangladesh in 1983 to

gives access of credit to poor segment of population on social collateral. This model was so

successful that almost all developing countries around the world are now replicating this model

in their respective countries to fight against poverty. In year 2006 Professor Yunis and Grameen

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Bank were jointly awarded Noble Prize for their pioneering work in lending to the poor.

Professor Yunis is also named as ―one of the world‘s greatest entrepreneurs‖ by ―Business Week

Magazine‖.

Microfinance was initiated by observing the needs of its target market (marginal income groups

and vulnerable social groups); however managers have run this industry as a product driven.

Mainly for two reasons first: microfinance industry is relatively young industry as compared

with other industries and Second: there is huge untapped market. Consequently microfinance

institutes followed ―Selling philosophy‖ of marketing in the hope that market potential is

unlimited and customer will come, the only focus was on making financial products available

and selling aggressively to customers. In doing so some microfinance institutes were successful.

However, over period of time the environment for microfinance sector has changed considerably

and made Selling philosophy inadequate. Microfinance institutes around the world are now

experiencing substantial customer drain and decline in profits. As a result, a strong need is felt

for a customer oriented philosophy that not only deals with these issues effectively but also

makes microfinance business more profitable for its stockholders and beneficial for society and

customers at large. Considering the relationship factor in microfinance industry relationship

marketing is the only answer of all questions. because the very nature and essence of

microfinance business is relationship oriented, right from financial product development to the

delivery of product, the customer interaction, satisfaction and retention is the main focus of

microfinance businesses, so keeping this fact in view the paper discusses the relationship

marketing aspects and benefits of relationship to society and microfinance business

2. Objectives and Significance of Study

The main objective of this paper is to establish up to what extent relationship marketing theory

can be applicable to Microfinance Institutes in Pakistan. To achieve this main objective

following aspects of relationship marketing in microfinance institutes were explored.

Target market of microfinance banks:

How firm contact and establish relationship with customers

How microfinance banks maintain relation ship with customers

What benefits customers enjoy with having relation ship with microfinance banks

The nature of relationship with other stakeholders

The paper is unique in the sense that still now no researcher in disciplines, (microfinance and

relationship marketing) has ever written any thing on the nature of relationships in microfinance

business, so this aspect makes the paper unique. In this paper effort has been made to integrate

the discipline of microfinance and relationship marketing and show that the long term success of

microfinance institutes is related with keeping and enhancing the good relationships with its

customers and other stake holders

3. Scope of Study

The paper begins with first the concept of relationship marketing and its characteristics; second,

definition of micro financing and microfinance industry in Pakistan; finally application of six

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markets in microfinance industry in Pakistan. Six markets model is an analytical tool, which

helps organizations to identify relevant stakeholders, assesses nature of relationship and

respective importance for organization.


Since this paper explores the relationship marketing practices in microfinance institutes,

therefore, the data and information were mainly collected through snap short observations and

interviews. Moreover, to get accurate picture of relationships in microfinance institutes

interviews were conducted with Customer Service Officers (CSO) and branch managers of

institutes because these employees have direct contact with customers and other stakeholders.

Further, for the purpose of validity and reliability of interviews the researcher has traveled

extensively with CSOs in the field and observed what they said is accurate or not. Considering

the nature of research secondary data was also collected from various sources including the

websites and internal records of these institutes.

5. Relationship Marketing Characteristics

Relationship marketing is quickly arriving and certainly here to stay. Some researchers term it

paradigm shift, providing the basis for general theory of marketing, for others it is just a passing

fad. Berry first introduced the term ―Relationship Marketing‖ to service marketing literature

defining it as attracting, maintaining, and enhancing customer relationships (Berry 1983). Shani

and Chalasani (1992) have defined relationship marketing as ―an integrated effort to identify,

maintain, and build up a network with individual customers and continuously strengthen the

network for the mutual benefit for both sides through interactive individualized and value added

contacts over a long period of time.‖

Relationship marketing has many themes that distinguish it from 4P‘s marketing like

Relationship marketing seeks to establish individualized ties with customers through strong

personal appeal and continuing commitment

Relationship marketing emphasizes on the retention of existing customers rather than

acquiring new customers.

Relationship marketing emphasis on internal marketing that is related with motivating and

retaining employees in the hope that satisfied employees serve customers well

Relationship marketing advocates interactive marketing concept that emphasize employees

skills and interaction between employees and customers

Relationship marketing embraces all those steps that companies undertake to know and serve

their valued customers.

Relationship marketing emphasize on doing with customer rather than doing for customers

Relationship marketing stresses the need for strategic alliances by discouraging competition.

The core of relationship marketing is its focus on a cooperative and collaborative relationship

between the firm‘s customers and other marketing actors.

Six Markets Model Six markets model developed by Adrian Payne, which helps to understand

and broaden the context of relationships in market place with various stakeholders. This model

emphasize that to serve and retain customers, organizations should extend the domain of

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marketing to six markets (Payne 1991) With the changing marketing environment it becomes an

imperative for businesses to formulate their marketing activities to, and to build relationships,

networks, and interactions with, number of different, but often equally important markets

(Lindgreen). According to Adrian Payne (1991) these markets shown in figure 1

Figure1 Payne (1991) Six Markets Model

Customer Market: customer include existing and potential customers

Referral Market: Referral marketing is a form of marketing which is done for you by your own

customers and other non customer groups. Basically referral marketing done by some groups

including your existing customers for you because they know you, likes, and trusts you and

wants to support you or introduce you to other customers.

Supplier Market: Supplier market provides raw materials, component part and or services to

business entities.

Employee Recruitment Market: Recruitment market consists of all future potential employees

and third parties that serve as access channel. Potential employees can be segmented by function,

job grade, geography and level of seniority. Channels include executive search companies,

employment agencies, job centers, advertising agencies and organizations own employees who

suggest potential applicants.

Influence Market: Influence market includes all the stakeholders who have interest in the

working of organization

Internal Market: The internal market constitutes of the business‘ own employees.

6. Application of Six Markets Model in Microfinance Institutes.

Based on the research following is the application of six market model in microfinance institutes.

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6.1Customer Market

Target market of most microfinance institutes are people who live near poverty line. (The people

who are poor but they want to improve their living standard by earning more). The customers of

most microfinance institutes are low income segment of population. These poor people do not

have access to formal financial institutions. This segment of population is usually self employed,

often household based entrepreneurs in rural areas like Farmers, small shop keepers and women.

The Relationship Initiation, Maintenance and Interaction with Target Customers: Good and

strong ties with customers are very important for success of any organization this is also true for

microfinance organizations. So any microfinance institute that is good at relationship with its

customer is at competitive advantage. Keeping this fact in view Microfinance Institutes establish

broad network of branches usually the main branch in each district along with the service centers

in most sub-divisions of districts with the aim reaching target market at their door steps. These

branches are staffed with highly qualified and properly trained staff with all supporting facilities.

The Customer Service Officer (CSO) is the key person, who is responsible for dealing with

customers, visits the rural market area, contact with the people and introduces the microfinance

institute and its financial products to them. In the first meeting with target customers in any

locality, the CSO encourage men and women to form a group, typically consisting of 20-25

members, known as a Community Organization (CO). CO is an important forum for empowering

people to take an active role in the management of local development initiatives. A CO is more

than a collection of individuals: it is an entity comprising of members who work for the

collective good of the community. A properly functioning CO has both social and economic

'value', thus in a position to contribute to alleviating poverty. On the social side, it brings people

together to work for the common good. On the economic side, the CO functions as a conduit for

the micro-credit that households use to generate income, and as a base for accumulating savings

and putting those savings to work for community development .the Institute provides loan to

each individual in group on social collateral, and make each member responsible for others loan

in Community Organization.

The CSO periodically visits and interact with CO members. In each meeting with CO members

the CSO carefully listen the opinions and problems of members and suggest them solutions, The

CSO also monitor progress and proper utilization of loan and at the same time he also encourage

CO members to pay back their installments of loan on time and suggest them for savings with

the institute. The progress of each CO is periodically reviewed. The community organizations

which perform well are extended credit with an increase in amount. This way the relationship

between community members and microfinance institute lasts longer and a true relation is

created. Two types of relations ships are quite evident in microfinance institutes in Pakistan

because of regular meetings one is relationship between CSO and CO members and second is

among CO members themselves.

6.2 Internal Market

Ballantyne (2000) have defined the internal marketing as:

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“Internal marketing any form of marketing with in an organization which focuses staff attention

on the internal activities that need to be changed in order to enhance external market place

performance‖

The recent research has shown that only satisfied employees can keep good relationship with

customers and contribute to the long term profitability of any business. One such example is

service – profit chain model put forward by Heskett and his associate researchers, they discuss

that satisfied, loyal and productive employees can create customer loyalty and customer

satisfaction which results in profitability of the organization (Heskett 1994). Like all other

organizations microfinance institutes are also adopting this strategy in Pakistan. The internal

marketing program of most microfinance banks is based on four principles (1) considering and

treating employees as internal customers (2)proper training and education (3)setting quality

standards for delivering service to target customers and finally (4) reward system based on

performance standards.

Most Microfinance institutes are successful in keeping and retaining their good employees. They

provide them good salaries; better working environment and other benefits. By working well in

the organization employees have good chances to be get promoted, because most microfinance

institutes in Pakistan only hire the initial level work force like CSO from the external sources

and the higher positions like team leaders, regional sales mangers, auditor‘s etc are only

promoted from the inside of the organization. The employees are promoted on criteria first good

past performance and second through internal examination system.

6.3 Supplier and Alliance Market Pakistan has an estimated population of about 160 million. The incidence of poverty is around 33

percent of the population, around 70 percent of population lives in rural areas. The poverty is

also increasing in the urban areas as well. Most of the people in rural and urban areas suffer from

financial exclusion because they have no access to any formal financial services. Considering the

demand of this huge segment of population microfinance banks in Pakistan are cooperating not

only with other major banks but they also cooperating with other national and local level non –

for profit organizations (NGO‘s) for providing better access and quality services to customers.

Usually three such types of partnerships and alliances could be observed

Alliances and partnership among microfinance institutes

Partnerships with government sector

Partnership with private sector

One such example is of National Support Programme (NRSP) which is another pioneer institute

in microfinance industry in Pakistan NRSP has partnerships with government, private sector and

with international organizations. Most microfinance institutes in Pakistan have adopted the

policy of compete and cooperate. To ensure cooperation these institutes constantly share

information and work on ways to reach target customers in coordinated way.

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6.4 Influence Market

Influence market includes all the stakeholders who have interest in the working of the

microfinance industry or individuals that have influence over existing or potential customers.

The influence market for microfinance business in Pakistan includes the Government regulators,

funding institutions, Sate Bank of Pakistan, venture capitalists, stockholders, bankers and labor

associations. To deal with influence market in Pakistan most microfinance institutes have

adopted the following strategy so that they can use influence market for their own interest. First

Managers in Microfinance institutes have taken measures to profile and identify major players

who have influence on their business and have ranked them in order of their importance. Second

Microfinance institutes have taken measures to increase the awareness of their business among

major influencers and third use influence market to increase the awareness of microfinance

business among its target market.

6.5 Recruitment Market

Recruitment market consists of all future potential employees and third parties that serve as

access channel. Potential employees can be segmented by function, job grade, geography and

level of seniority. Channels include executive search companies, employment agencies, job

centers, advertising agencies and organizations own employees who suggest potential applicants

(Payne 2005).

The Recruitment market of microfinance businesses in Pakistan comprises of fresh university

graduates in the disciplines of business administration, Commerce, Economics, and agriculture.

The age level of potential applicants is maximum around twenty eight years. The top executives

of the microfinance institutes deliver lectures, seminars and hold job fairs in the universities and

colleges around the country to attract and hire competent work force in their respective

organizations. Most microfinance businesses employ following three methods to hire employees

External source CSO‘s and account officers are only two positions which are filled through

external sources. Usually the openings are announced through leading national, regional and

local news papers. After screening the remaining applicants are called for written tests usually

conducted by Institute Of Business administration (IBA) a leading education institute of

Pakistan. The test results of qualified candidates are handed over to hiring microfinance business

which conducts the final interviews. The final selection is based on results of interview.

Internal sources almost in all microfinance businesses the higher positions except CSO and

accounts officer are filled with existing employees. The criteria for higher positions includes,

two years working experience as CSO and performance appraisal report of employee. If any

employee who fulfills the above said criteria, he is asked to pass written examination. Those who

pass written examination are called in for panel interviews and this way success full employee

are offered higher positions.

Outsourcing most microfinance institutes in Pakistan are outsourcing the lower level openings.

These openings include drivers, office boy, messengers and other lower level jobs.

6.6 Referral market

The referral market for microfinance businesses in Pakistan includes its existing customers,

insurance companies, commercial banks, non- for profit organizations, political parties and local

elected members of district government. Because of the relationship oriented nature of

microfinance businesses it depends heavily on referral markets particularly existing customers

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and locally elected district members. Here we mention the role of existing customers in

introducing the microfinance banks to other customers. As Most of microfinance institutes utilize

Social Mobilization as the primary means for reaching and supporting poor segment of

population. And essence of social mobilization is encouraging men and women to form a group,

typically consisting of 20-25 members, known as a Community Organization (CO).by forming

CO existing customers not only introduce the institutes to other customer but it is an also

important forum for empowering people to take an active role in the management of local

development initiatives. This forum promotes the microfinance institute to other customers.

7. Key aspects of Relationship Marketing in Microfinance Industry of Pakistan

In this segment we discuss key aspects and features of relationship marketing in microfinance

industry of Pakistan and our assumption is that every aspect of microfinance is relationship

oriented. Because of these aspects we believe that relationship marketing is best strategy for

microfinance institutes in Pakistan.

7.1 Customer Selection

The key foundation of relationship marketing is niche markets. Which means organization

identifies and serves some specific part of customer groups. The needs of that market are not

served well else where. Organization develops marketing mix so that they can serve unique

customer needs. This aspect is quite visible in microfinance institutes in Pakistan .almost all

microfinance institutes serves and direct their efforts to one specific market that is poor people

in rural areas mostly women. The customers of most microfinance institutes are low income

segment of population that does not have access to formal financial institutions. This segment of

population is usually self employed, often household based entrepreneurs in rural areas.

Microfinance institutes develop customize product by considering the needs of this customer

group and delivers the financial products at door steps of customers.

7.2 Product Development and Delivery of Products to Customers

Microfinance institutes offer the more customized financial products then any other business.

Products in microfinance institutes in Pakistan are developed considering the needs and wants of

target customers. As mentioned earlier the customers of most microfinance institutes are low-

income self employed segment of rural population usually women who have no access to formal

financial services. This group of customers needs wide range of financial product such as to seize

business opportunities, to spent money on home improvements and to meet expenses of school

fees, weddings of their children and other life events

Mostly the ideas of new product are come from customers because of continuous interaction and

listening to them. Thus the ideas of most products developed in microfinance institutes are based

on from direct feed back from CSOs who have established the relationship with customers. For

example FB Micro enterprise in Pakistan has created Community organizations. The CSOs of

institute periodically visits them. During group meetings with COs ideas for new products are

generated. ―We have many forums in which CO members including women can talk; just by

listening we hear what their needs are. That‘s how we get our ideas for new product,‖ told us by

one CSO during interview. Almost all microfinance institutes in Pakistan deliver products to

customers‘ door steps. This is another important aspect of relationship marketing for facilitating

customers.

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7.3 Customer Satisfaction and Retention

The other important feature of relationship marketing is customer satisfaction and retention. If

the business can accomplish the objective of customer satisfaction and retention with a

competitive advantage in attractive markets, the business will produce above average profits.

This feature of relationship marketing is perfectly applied in microfinance business. Almost all

microfinance institutes put their best efforts to retain their existing customers because of the

money and time associated with acquiring new customers. Most microfinance institutes have

perfect strategies for satisfying and retaining their existing customers. One strategy is

encouraging customers to form community organization. Which consists of 20- 25 members, and

loan is disbursed to them, all members of CO are responsible for each other. Because of

continuous interaction and mutual goal of CO members bond is created not only among CO

members but also with CSO. Second strategy is if any CO performs well in terms of pay back of

its loan the next time a loan with increment is given to CO members. Third strategy is if one CO

performs well then they have been given money to finance small projects of their own choice

like construction of roads, schools, health facilities or other community welfare projects.

7.4 Relationship Marketing in Microfinance benefits to Customers

Having in relationship with customers is not only beneficial for organization but also for

customers. Here we will discuss some benefits microfinance institutes have provided to its

customers in Pakistan.

Outreach one of the measures of microfinance institute‘s success is number of customers it

reaches. According to one report by Pakistan Microfinance Network (PMN) the number of active

borrowers has increased from 60000 to 600000 during the year 1999 to 2005, this increase is

encouraging although microfinance institutes in Pakistan have reached only six percent of

potential market. (See fig. no1). Another important aspect is number of women borrowers have

also increased substantially. This is also a healthy sign. We can observe from table 2 the

percentage of women borrowers.

Fig.1 Active Borrowers of Microfinance Institutes (Source; PMN, PIR2005)

Microfinance Institutes help Poor in Savings Money to save money was dream for many poor

people which is come true because of microfinance institutes in Pakistan. Almost seventy percent

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poor man and women save money. This is also good indicator how microfinance institutes work

for the betterment of its customers and society at large.

Role in Poverty Reduction The Government of Pakistan has used Microfinance as an essential

instrument to fight against poverty. To alleviate poverty in Pakistan, government has

established the Poverty Alleviation Fund and Khushhhali bank with the help of World Bank and

Asian Development Bank respectively. Although there is strong evidence from Grameen bank

that microfinance helps in alleviating the poverty, but surprisingly no work in Pakistan has been

undertaken to assess the impact of microfinance on poverty reduction.

Increase in the Amount of loan microfinance institutes first time give very small loan to

customers, usually Rs10000. the customers who pay back their loans on time are usually are

given increment in loan each time. This is a sign of trust by microfinance institute on their

customers and also a benefit to customers by having long term relationship with institute.

Employment generation microfinance sector programmers are seen as an effective tool in

reducing poverty. Most of skilled people become self employed because of micro credit. Other

people open small shop or invest in livestock which results in substantial employment generation

and increase in the income of households.

Health, nutrition, education microfinance institutes have also affected many social variables

positively just like heath, nutrition, and schooling of children. Research has shown that there is

great improvement in these social variables of microfinance customers.

Empowerment of Women microfinance institutes have also contributions in making women more

empowered. The rural women in Pakistan are now economically, socially and politically more

powerful than before. Nowadays it is a common belief that microfinance sector has promoted

gender equity in Pakistan.

8. Conclusions This paper is an effort to integrate the disciplines of microfinance and relationship marketing.

Currently most microfinance institutes are facing many problems like customer turnover,

competition, and constant demand from government and customers to perform for the betterment

of society. Research in other businesses has shown that Relationship marketing is a complete

marketing philosophy that deals with these issues effectively. The ideas presented in this paper

have also shown that relationship marketing philosophy is a suitable and can be put in practice in

microfinance institutes in Pakistan. From observations it is evident that most microfinance

institutes are following some aspects of relationship marketing philosophy unconsciously and are

bringing good results for stockholders, customers and society at large so there is need to follow

the strategy in a more holistic and systematic way.

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References

Adrian Payne. (1991). Relationship Marketing: The Six Markets Model (working paper).

Cranfield England: Cranfield University, School of Management,

Adrian Payne, Ballantyne, D. & Christopher, M. (2005). A stakeholder approach to relationship

Marketing strategy: The development and use of the ‗six markets‘ model. European Journal of

Marketing, 39 (7/8), 855-871.

Ballantyne, D. (2000). Internal relationship marketing: A strategy for knowledge renewal,

International Journal of Bank Marketing, 18 (6): 274-286.

Berry , L.L (1983) Relationship marketing ,in Berry, l.l ,Shostack, G.L and Upah ,G. (EDS),

Emerging Perspectives on service marketing, American Association, Chicago.

Dr. Adam Lindgreen and Michael Antioco Customer Relationship Management: One European

Bank's experiences, Department of Marketing, Catholic University 1-31

James L. Hesskett, Thomas O. Jones, Gary W. Loveman, W. Earl Sasser, Leonard a. Schlesinger.

L. A. (1994) Putting the Service Profit Chain to Work Harvard Business Review: Vol.72, no.2,

164- 74

Ledger, Joanna. Microfinance Hand Book: An International and Financial Perspective.

Washington DC: World Bank, 2001

Pakistan Microfinance Network (PMN). (2005). Performance Indicators Report 2005. Islamabad,

Pakistan. http://www.pmn.org.pk/link.php?goto=pir2005

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TIMELINESS ATTRIBUTES AND THE EXTENT OF ACCOUNTING

DISCLOSURE: A STUDY OF BANKING COMPANIES IN BANGLADESH*

Dr. Alim Al Ayub Ahmed Assistant Professor, School of Business Administration,

Asian University of Bangladesh

Dr. Madan Mohan Dey

Professor, Department of Accounting and Information Systems,

Rajshahi University, Bangladesh

Dr. Waheed Akhter Assistant Professor, Department of Management Sciences,

COMSATS Institute of Information Technology, Lahore, Pakistan.

Mr. Ali Raza M.Phil Scholar, Superior University, Lahore, Pakistan

Abstract This research paper attempts to examine the relationship between accounting disclosure in the

annual reports and their timely usefulness for investors. The study has focused the banking

industry of a developing country, Bangladesh. 15 banks were selected from Bangladesh that

constitutes 25% of the total population. The data was collected over a period of 5 years (2002-

2006) from the selected banks. Simple and multiple reg*ressions were used to see the impact of

accounting disclosure on timely usefulness of banks‘ annual reports. It was found that regulatory

changes have not improved timeliness in corporate reporting in the banking sector of Bangladesh

as measured by the extent of audit lag, AGM lag and total lag. The present research considers

only the annual reports for listed banking companies. The present study only focuses on the

banking industry of Bangladesh. This research could be expanded to other sectors of the country

to get more accurate picture of audit delay in the country. The study draws the attention of

regulatory authorities and provides additional insights into the underlying causes for the audit

delay in developing countries in general and in Bangladesh in particular.

Key words: Timeliness; Accounting Disclosure; Audit Lag; AGM Lag; Total Lag.

1. Introduction

The financial information of the organization should be crystal and easily explicable. This

information follows the certain rules of accounting which are differ from business to business.

Therefore it is mandatory to issue the accounting disclosures which are used to make financial

information (International Accounting Standard #1, Paragraph Tenth).

The regulatory body of banking regulation Basel Committee issued a notification bearing title

―Enhancing Bank Transparency”. It elaborates that the transparency is the crux of factor for the

* This research paper was presented at 2

nd International Conference on Business, Technology and Engineering

(ICBTE) organized by Iqra University, Islamabad, Pakistan at 23-24 January, 2010.

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properly supervision and strong banking system. It also directs to banks to arrange continue

monetary information and other stake holders information well in time so that the stakeholders

may take their decisions timely after assessing the bank performance (Hossain, M. 2008)

Timely disclosure of financial performance of an organization enhances the market efficiency

and helps to build the confidence of related stakeholders. Investors, being one of the important

stakeholders of an organization, are very keen to know about up to date information about their

investments for timely decisions. In developing countries, most of the companies attempt to

linger on the disclosure of their accounts due to their poor financial performance and to avoid

taxes. Most of them even do not present their annual reports before annual general meeting

(AGM) of shareholders (Karim, Ahmed & Islam, 2006). Previous studies have identified several

factors responsible for irregularities in the corporate financial reporting of various organizations

and financial institutions. These factors range from getting tax advantages, having conflict of

interests between management and shareholders, future investment projects as well as ineffective

supervisory control and overall weak regulatory environment (Wallace, 1988; Cooke, 1992;

Robbin and Austin, 1986).

The present study attempts to focus on possible irregularities in corporate financial reporting of

banking companies in a developing country, Bangladesh. Companies‘ Act 1994 requires that all

companies in Bangladesh should submit their annual reports before AGM at least nine months

prior to each financial year. Yet, in the past, most of the companies have delayed their accounts

hence deliberately violating the regulation. Though Securities and Exchange Commission (SEC)

of Bangladesh has initiated several measures to ensure the compliance of regulations by the

companies, most of the financial experts still believe that these measures have not been proved

effective.

The present study aims to investigate the extent to which the efforts initiated by regulatory

regime have been effective in reducing time lag in financial reporting in the banking sector of the

country. The organization of the paper is as follow: first it attempts to explore the un-weighted

scoring index to estimate the level of disclosure in the annual reports of listed banks in

Bangladesh over five year‘s period from 2002 to 2006. Then it measures the timeliness attribute

of financial statements through audit lag and AGM lag. Methodology section discusses the

procedure for selection of banks and type of data required for analysis. Finally, the paper

establishes the impact of disclosure score on timeliness using linear and multiple regression

analysis.

2. Scoring the Index

Various scholars have adopted different approaches to develop a scoring index to assess the level

of disclosure in annual reports of financial institutions and banking organizations. For example,

Hossain et al. (1994) and Ahmed and Nicholls (1994) have adopted a dichotomous procedure in

which an item scores one if disclosed and zero if not disclosed. The approach used by Courtis

(1979), Barrett (1976 and 1977) and Marston (1986) was for a weighted disclosure index to be

employed. In some cases the researchers predetermined the weights subjectively.

In the present study, the annual reports of the Banking organizations have been examined against

unweighted index. In case of unweighted disclosure index, while measuring the level and extent of

disclosure, the disclosure will be heated as a dichotomous variable. Here, the only consideration is

that if a company discloses an item of information in its corporate annual report it has been

awarded ‗1‘ and if not, it has been awarded ‗0‘. In the disclosure model which we have used and

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followed in this study, the total disclosure score for a banking company taken to be additive. In our

study, unweighted disclosure index have been considered. Among the total of 144 items in the

disclosure index we had 44 items, which consisted of sub-items. For scoring the sub-items the total

score‘1‘ has been distributed equally because we have thought that all the sub-items are equally

important.

3. Measuring Timeliness: Audit Lag, AGM Lag, and Total Lag

Three measures of timeliness are defined: (1) audit lag, (2) AGM lag, and (3) total lag:

Audit lag: Audit lag means the interval of days between balance date and the date of the

auditor‘s report. [The interval of the number of days from the year-end to the date recorded as

the opinion signature date on the auditor‘s report. Or the open interval of the number of days

from the year-end to the date recorded as the opinion signature date in the auditor‘s report.]

Audit delay represents the number of days elapsed between the balance sheet date and the date

auditor(s) sign(s) the financial statements.

AGM lag: AGM lag means the interval of days between the date of the auditor‘s report and the

date of the annual general meeting. The open interval of the number of days from the opinion

signature date on the auditor‘s report to the date of settlement of annual general meeting (AGM).

AGM lag represents the number of days elapsed between the date of signing auditor‘s report and

the day on which the AGM is actually held.

Total lag: Total lag refers the interval of days between balance date and the date of the annual

general meeting. The open interval of the number of days from the year end to the date of

settlement of annual general meeting. Total lag represents the total interval time after balance

date before the directors formally present financial results to the owner of the entity.

Audit lag and AGM lag subdivide total lag into two components: the interval of days it takes

before audited accounting information becomes available for release (through the press), and the

time management takes to organize all necessary activities to bring on the company‘s annual

general meeting.

4. Establish the Impact of Disclosure Score on Timeliness

To test whether disclosure level of sample banks is affected by the timeliness of the bank‘s

financial reporting, we have taken different measures of timeliness such as audit lag, AGM lag

and total lag to regress them with disclosure score. Accordingly, we have formulated different

null hypotheses. The following specific hypotheses have been tested regarding timeliness.

H1: Timeliness as measured by audit lag does not affect the disclosure score of the sample

banks.

H2: Timeliness as measured by AGM lag does not affect the disclosure score of the sample

banks.

H3: Timeliness as measured by total lag does not affect the disclosure score of the sample

banks.

H4: There is no significant association between three measures of timeliness [viz., audit lag

{AuL}, AGM lag {AgmL} and total lag {TotL} and the extent of disclosure.

4. Methodology

This section considers the research methodology of the present study. The aims of this chapter

are to set up the foundation of the statistical analysis and to highlight the statistical tools,

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techniques and applications of performance measurement regarding disclosure of financial

reporting. The present research decides to adopt the disclosure index method of measurement.

Using the disclosure index method the level of disclosure is measured by selecting items that might

be disclosed in annual reports and giving banks a score based on the number of disclosures actually

made. Despite its inherent problems (e.g., subjective judgments), disclosure index approach has

become an important vehicle for the measurement of the company information disclosure. Some of

the researchers used weighted disclosure indices while other researchers used unweighted disclosure

indices.

In weighted disclosure index, items are given different weights according to their level of

importance in financial disclosure. While in unweighted index, equal weights are given to each

item based on the assumption that all items are equally important (Hossain, 1998). The choice of

an unweighted index over a weighted one does not produce substantially different results (e.g.

Chow and Wong-Boren, 1987; p.537) and there are researchers who favored the use of

unweighted indices (e.g. Spero, 1979; p.57 and Rubbins and Austin, 1986). In the present study,

it has been decided to follow the un-weighted disclosure index approach in his study because we

assume that with respect to their level of importance, all items do not differ from each other and

are considered equally important for disclosure under present study. Most of the researchers as

mentioned above argue that the results obtained have been the same for the use of either method,

yet in our case, un-weighted disclosure index is an appropriate one to follow.

6. Sample Selection and Type of Data

The banking sector of Bangladesh comprises of four categories of scheduled banks. As of June 2008, 49

scheduled banks are operating in Bangladesh with a network of 6236 branches. The scheduled banks

have 3699 branches in the suburban or rural areas, which is 59.32 percent of the total number (SEC,

1993).

Before the study, it was decided that the sample would cover the annual reports of the banking

companies in Bangladesh for the year 2002 - 2006. The planned size of the sample represented 12

banks. The sample banks are listed on Dhaka Stock Exchange in Bangladesh. The sample banks

were selected by using of judgmental sampling approach, which is based on advance commencement

of business as banking companies in Bangladesh, (viz., the banks are old according to the year of

incorporation) and the availability of Annual reports.

The present study is based on the secondary information. The secondary information has been

collected from the corporate annual reports of the selected banking organizations. In the present

study the comprehensive corporate annual reports of the selected banking companies of the

selected years will be used to compute the disclosure scores. Banks‘ annual reports encompass

most of the secondary information of this research. We have also conducted intensive library

work to collect other secondary data. Statistical tools like average, standard deviation, simple and

multiple regression, correlation, t tests have been used to analyze the data.

In unweighted disclosure index, as discussed earlier, equal weights are given to each item so it is

important to know if the organization discloses a particular item or not. For this purpose, we have

used a dichotomous scale in our study. Hence a score of ‗1‘ has been given if the Bank discloses a

particular item and ‗0‘ if it does not disclose it. Total Disclosure Score (TDS) for a Bank can be

calculated using the following formula:

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TD =

n

i

di1

Where,

d = 1 if the item di is disclosed

d = 0 if the item di is not disclosed

n = total number of items

7. Results of the study

7.(a) Regression Studies between Disclosure Score vs. Audit Lag (AuL)

Table showing the Regression Studies between Disclosure Score vs. Audit Lag (AuL) (Insert Table 1)

From the regression result we observe that values of R2

are small in case of year 2002, 2004,

2005 and 2006 and the significance levels of the regression co-efficients are above .05 for the

said years. Further, we observe that values of R2

are high in case of year 2003 and the

significance level of the regression co-efficient is below .05 for this year. So, our null hypothesis

is rejected which means that timeliness as measured by AuL affects the disclosure score.

7.(b) Regression Studies between Disclosure Score vs. AGM Lag (AgmL) Table showing the Regression Studies between Disclosure Score vs. AGM Lag (AgmL)

(Insert Table 2)


are small and the significance levels of

the regression co-efficient are above .05. So, our null hypothesis is accepted at significance level

.05, which means that timeliness as measured by AgmL does not affect the disclosure score.

Further, we observe that values of R2

are relatively high in case of year 2002 and 2006 and the

significance levels of the regression co-efficient are below .12 of this year.

7.(c) Regression Studies between Disclosure Score vs. Total Lag (TotL) Table showing the Regression Studies between Disclosure Score vs. Total Lag (TotL)

(Insert Table 3)


are small and the significance levels of

the regression co-efficient are above .05. So, our null hypothesis is accepted at significance level

.05, which means that timeliness as measured by AgmL does not affect the disclosure score.

Further, we observe that values of R2

are relatively high in case of year 2002, 2003 and 2006 and

the significance levels of the regression co-efficient is below .11 in case of year 2003 and

regression co-efficient are below .16 in case of year 2002 and 2006.

7.(d) Independent Variables with their Labels and Relationships in the Regression

The description of the three independent variables, their labels and expected signs and

relationships are presented in Table 4.

(Insert Table 4) Table showing the list of independent variables, their labels and expected signs and relationships

in the regression

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7.(e) Multiple Regression Models

Multiple linear regression techniques are used to test two alternative versions of each hypothesis.

The model is created using UDI as the dependent variable.

UDI = + 1 AuL + 2 AgmL + 3 TotL + Where UDI = total score received each sample bank under unweighted disclosure index;

= the constant, and

= the error term.

7.(f) Regression Studies between Disclosure Score vs. Multiple Variables

The goal of this chapter is to examine the association between the extent of information

disclosure in published annual reports and timeliness. Accordingly we have formulated null

hypotheses (H4). The anticipated association is examined by that hypothesis. The multiple linear

regression technique is used to test the two alternative hypotheses. To test whether disclosure

level of sample banks is affected by multiple variables, we have taken the measures such as audit

lag (AuL), AGM lag (AgmL) and total (TotL) to regress them with disclosure score.

Table showing the Regression Studies between Disclosure Score vs. Multiple Variables

(Insert Table 5)

From the multiple regression result we observe that values of R2

are small in case of year 2002,

2004, 2005 and 2006 and the significance levels of the regression co-efficient are above .05 for

the said years. Further, we observe that values of R2

are high in case of year 2003 and the

significance levels of the regression co-efficient are below .05 of this year. So, our null

hypothesis is rejected which means that timeliness as measured by Multiple variables affects the

disclosure score only of the context of the year 2003.

8. Discussion and Conclusion Regression results for this study indicate that level of disclosure score has negative relationship

with Audit Lag, AGM Lag and Total Lag. Table 1 shows a significant linear relationship

between the level of disclosure score and Audit Lag for the year 2003. It indicates that audit

delay in the year 2003 has significantly affected the level of disclosure score for the selected

banks in Bangladesh. Table 2 shows no significant impact of AGM Lag on Disclosure score.

Due to this insignificant impact of AGM Lag, significant impact of Audit Lag became

ineffective on total Lag as it does not show any significant linear impact on level of disclosure

score as shown in Table 3. Results of multiple regression indicate that combined impact of Audit

Lag, AGM Lag and Total Lag has been significant on level of disclosure score for the year 2003

for the selected banks in Bangladesh.

The regression models of disclosure score formulated here are identical to identify the

relationship between disclosure score and timeliness attributes in the sample banks. The

inclusion of the timeliness attributes used in the regression models has been discussed. The

results suggest that the explanatory variables used in the studies of timeliness proved to be

significantly negatively associated with disclosure score. AGM lag and total lag found not to be

significantly associated with disclosure score. Other variable ‗audit lag‘ failed to establish

significant positive relationship with the disclosure score. From the multiple regressions result

shows that only for the year 2003 timeliness attributes affects the disclosure score and in case of

year 2002, 2004, 2005 and 2006 the timeliness attributes do not affect the disclosure more. The

average interval of time for the listed Banking companies of Bangladesh was found to be 3.4

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months (the mean audit lag over the 5 years period ranges from 95 days in 2005 to 121 days in

2003 with a mean delay of 102 days for the entire population).

Average audit lag for the listed Banking companies of Bangladesh was found to be 102 days as

compared to 40 days for that of USA and 80 days for New Zealand and Australia. It indicates

that list banking companies in Bangladesh are taking more time to complete their audit and

hence the information in the annual reports does not seem to help investors and other

stakeholders to make timely investment decision and ultimately leads to loss of confidence of

investors on companies‘ reports as well as their credibility.

9. Directions for future research:

The present research considers only the annual reports for listed banking companies of

Bangladesh. This is the first study in Bangladesh that has been conducted on audit delay of listed

Banks in the country. The present study attempts to bridge the gap that exists in timeliness of

annual reports and their audit delay in developing countries in general and Bangladesh in

particular.

Further research could be expanded to Islamic banking and Takaful (Islamic insurance) sector is

required to assess the audit delay longitudinally in Islamic banking and Takaful companies to

judge whether results for these sectors differ significantly from the present study. Though the

sample consisting 12 listed banks (25% of the population) in Bangladesh is reasonable for

present study, actual results might differ slightly if a larger sample of banks is taken for the

present study.

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Hossain et al (1995) Financial Management (in Bangali), Angel Publications: Dhaka.

Imam, S., Z.U. Ahmed & S.H. Khan (2001). ―Association of audit delay and audit firms‟ international

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Kong‖, The British Accounting Review, Vol. 26(1), pp. 43-59.

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Contemporary Accounting Research, 13(1), pp. 353 – 370.

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Accounting Research, Autumn, pp. 623 – 628.

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Annexure

Table 1: Results of Regression Studies between Disclosure Score vs. Audit Lag (AuL)

Year R2 F ratios Significance Level

Y_2002 .090 .985 .344

Y_2003 .520 10.826 .008

Y_2004 .069 .746 .408

Y_2005 .210 2.653 .134

Y_2006 .032 .328 .580

Table 2: Results of Regression Studies between Disclosure Score vs. AGM Lag


Y_2002 .237 3.111 .108

Y_2003 .039 .403 .540

Y_2004 .024 .250 .628

Y_2005 .009 .087 .774

Y_2006 .231 3.008 .114

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Table 3: Results of Regression Studies between Disclosure Score vs. Total Lag


Y_2002 .192 2.380 .154

Y_2003 .245 3.248 .102

Y_2004 .061 .650 .439

Y_2005 .136 1.580 .237

Y_2006 .190 2.348 .156

Table 4: Description of relationship of variables in Regression Studies

Variable Labels Variables Expected sign and relationship

AuL Audit Lag AuL has a negative relationship with the level of disclosure

AgmL AGM Lag AgmL has a negative relationship with the level of

disclosure

TotL Total Lag TotL has a negative relationship with the level of disclosure

Table 5: Results of Regression Studies between Disclosure Score vs. Multiple Variables


y_2002 .238 1.403 .295

y_2003 .525 4.982 .035

y_2004 .070 .338 .722

y_2005 .211 1.202 .345

y_2006 .233 1.370 .302

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Perception of Advertisement as a Source of Knowledge on Consuming

Behavior of University Students

Aneeza Bashir

Department of Psychology, University of Sargodha, Sargodha

Najma Iqbal Malik

Department of Psychology, University of Sargodha, Sargodha

Abstract

The present study was conducted to find out the impact of advertisement as a source of new

information on consumers‘ behavior with reference to their fast moving consumers goods

(FMCGs). Six brands of soap were taken as the unit of FMCGs and advertisement effects were

checked out relevant to these soap brands by using a self-explanatory questionnaire. The sample

was consisted of 150 university students (University of Sargodha). For results formulation

frequency, percentage, chi-square, and binomial test analysis were used. The study found out that

the purchase of expensive product was independent of consumers‘ income group and repetition

of advertisement. Results also revealed that consumers considered advertisement as a reliable

source of new information and the information gained from advertisement was independent of

the information gained from other sources. Results also indicated that poorly presented

advertisement had significant negative impact on consumers‘ behavior but it brand loyalty was

not affected.

Keywords: FMCG, Consumer Behavior, Brand loyalty

Introduction

Advertising sells a great deal more than products and services; it sells values, images, and

concepts of success and worth, love and sexuality, and popularity and normalcy for telling us

who we are and who we should be. The social consequences of advertising has long been the

subject of social commentary, with the main criticism that advertising presents an unrealistic or

idealized picture of people and their lives. According to Lasch (1978), in effect, advertising tends

to create an idealistic world in which people are rarely ugly, overweight, poor, struggling, or

disabled. Given the pervasiveness of advertising, it is not surprising that researchers have

theorized and investigated consumers‘ attitudes toward advertising and the consequences of

idealized images for more than three decades. Work of Bauer and Greyser (1968) served as a

foundation for researchers to examine consumers‘ attitudes towards advertising as they

suggested that advertising has two broad effects on society; economic and social.

Advertising is non-personal because it is directed to groups of people rather than to specific

individuals. Advertising communicates information about products or ideas, whether it is the

features of a new videocassette recorder or the benefits of voting for a particular candidate. An

identified sponsor such as a company selling a products or a non-profit group seeking donations

pays for the add message to be placed in the mass media that reaches many people at once. The

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information is intended to persuade or influence people to buy a particular product, vote for a

specific candidate, or donate money to a worthy cause. Sometimes the message is intended to

persuade people against acting in a certain way, which is the point of ads that highlight the

dangers of smoking or drug abuse (Jugneheimer & White, 1980). Advertising was seen as a

stimulus that gives rise to a conditioned response. But today much of advertising is designed to

move the consumer through a process of increasing commitment, culmination in purchase. This

technique is based on ―hierarchy of effects‖. The suggestion in all of them is that there are casual

relationship between changes in person‘s attitude about a product and person‘s attitude to buy

that product. The models of advertising suggest that to be effective, any piece of persuasive

communication must carry its audience through a series of stages, each stage being dependent on

the success of previous stage (Wilmshurst, 1985). According to the model of Lavidge and Steiner

(1961), people go through seven steps to reach the threshold of purchase by seeing an ad: (i)

unaware of good or service, (ii) awareness of product, (iii) knowledge of what product offer, (iv)

liking for a favorable attitude toward the product, (v) a preference for one brand over another,

(vi) a desire to buy the product and (vii) a conviction that buying would be wise. But Daniel

Starch put forward the idea in his model that in order to be more effective, advertising must be

seen, read, believed, remembered and acted upon. Similarly another model is AIDA model

which suggest that an effective advertisement is one that gains attention of the audience. When

people are exposed to any product, service or idea, it gain attention of the people that lead to

interest in the product, and then to create desire to own product and finally to action.

Several studies have described that attitudes toward advertising are a function of

consumers‘ perceptions of the various aspects of advertising such as its informational value and

its use of idealized images (Andrews, Durvasula, & Netemeyer, 1994; Muehling, 1987; Pollay &

Mittal, 1993). According to Grubb and Grathwohl (1967), all products and brands are thought to

have symbolic meanings and project certain images, and the purchase, display, and use of goods

communicate this meaning to consumers. Symbolic value is expected to equate the consumers‘

self-image, to have an impact on individual preference, where preferences may develop for

certain brands because they are perceived as reflecting their own self-image or projecting an

image that they aim to possess. If the meaning of a product is not associated with the consumers‘

self image, it is likely to have little influence on purchasing behavior. So the perceived image of

a product and consumer‘s own self-image highly influenced the impact of product. Researches

also indicated that consumers prefer the products, services, or stores that maintain images

compatible with their own personal perception of self (Dolich, 1969; Sirgy, 1980). With regard

to the economic point of view, some research findings support that advertising results in better

products and promotion competition (Andrews, 1989; Anderson, Engeldow, & Becker, 1978;

Muehling, 1987; Reid & Soley, 1982), while some researches indicate the opposite results

(Haller, 1974; Pollay & Mittal, 1993). Despite of these results, a lot of studies indicated that

consumers do not believe that advertising lowers prices of products (Andrews, Durvasula, &

Netemeyer, 1994; Muehling, 1987; Shavitt, Lowrey, & Haefner, 1998). Therefore consumers

seem to be somewhat ambivalent about the effects of advertising on the economy.

Another focus of research involving attitudes toward advertising includes personal uses

of advertising, such as source of knowledge about products. With regard to advertising being a

source of product information, it appears that sentiment has become more favorable during the

past few decades. A lot of studies have found that, on average, a majority of respondents do not

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feel advertisements are reliable sources of information about either product quality or product

performance (Barksdale & Darden, 1972; Barksdale, Darden, & Perreault, 1976; Barksdale &

Perreault, 1980). However, another research indicated that a strong majority of consumers do, in

fact, endorse advertising as a source of information (Calfee & Ringold, 1994). In more recent

studies, it is concluded that audience s do tend to use advertising to find out about local sales and

particular brands, as well as product and service availability (Pollay & Mittal, 1993; Haefner,

1998). These studies revealed that advertising is perceived as a source of knowledge in younger

audience more than older audience but there are mixed research findings regarding the

usefulness of advertising as a source of information about social roles and lifestyle imagery due

to different subject groups and operationalizations of constructs. The research findings of

Richins (1991) revealed that female college students felt advertising was important for helping

select particular fashion and personal care or cosmetic items. Another study reported that

advertising is only used by a minority of respondents for learning about fashion or buying habits

of specific reference groups (Pollay & Mittal, 1993). They also reported that students had more

favorable opinions about the value of advertising in providing social role, lifestyle imagery

information than adults. Customer roles (Sheth & Mittal, 1999) and consumer involvement

(Mowen & Minor, 1998; Katz, 1960; Mullen & Johnson, 1990; Chiagouris, 1997; Clark, Brock

& Stewart, 1994) also effects the buying behavior of consumer. Consumer innovativeness in part

accounts for the timing of the decision to adopt an innovation (Foxall & Goldsmith, 1994). The

most important thing, which influences the individual behavior, is the consumer‘s family, social

and cultural environment (Stanton & Futrell, 1987; Loudon & Bitta, 1994; Cacioppo, Haugtvedt

& Petty, 1992).

1.1. Rational of the Study

This study was conducted to find the impact of advertisement as a source of knowledge

on consumers‘ behavior with reference to their fast moving consuming goods (FMCG‘s). For

that purpose soap was taken as FMCG content and perception of advertisement as a source of

knowledge was checked out. Advertisement is everywhere in our life like on television, radio,

newspaper and billboards are common medium‘s through which advertisement reach to us.

Advertiser and marketers are more concerned to know what are the consumer‘s motives and their

purchasing pattern in order to use different strategies to influence their consumer behavior and

FMCG‘s are the main focus of marketing researchers.

The consumers use FMCG‘s in daily routine and demand uniqueness and variety among

them that is why marketer‘s focused heavily to judge psyche of consumers. Advertisements of

FMCG‘s are mostly concern about variety, upgrading of products, saving schemes to make it

more influencing and effective for consumer‘s psyche, so it is important to find out the elements

of good advertisements as if the consumers are prone to the advertisement effectiveness then,

which element of advertisement is more effective? Does the income play a role in determining

advertisement effectiveness or not? Does advertisement plays a role as a source of knowledge for

the consumer?

Malik (1999) had done a limited research on advertisement effectiveness and consumer

behavior of women university students but the present study intended to expand the sample in

order to study the buying behavior of male university students either they are influenced by the

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advertisement or not. This study may serve in helping advertisers and marketers to know the

perception of consumers about advertisements.

2. Method

2.1. Objectives of study

The study aimed to see the effects of advertisements on consumers‘ behavior by pursuing the

following objectives:

To study the impact and receptivity of electronic advertisement on university students.

To find out the receptivity of advertisement as a knowledgeable source.

To explore the impact of poorly presented advertisements on consumer behavior.

To determine the impact of repetition of advertisement on purchasing behavior of

consumer.

2.2. Hypotheses

A number of hypotheses were formulated in order to achieve the objectives of the study:

i. Information gained from advertisements will be independent of the opinions from other

sources.

ii. The purchase of expensive product will be associated with income level of consumer.

iii. Repetition of advertisement will be associated with purchase of expensive product.

iv. Brand loyalty is independent of the effect of advertisement.

2.3. Definitions of variables

2.3.1. Income Group: According to the need of the study two different income groups were

introduced in order to see the impact of advertisement on economic class. Two income groups

are:

2.3.1.1. High Income Group: High-income group involves the people having above Rs.

15,000 monthly father‘s income.

2.3.1.2. Low Income Group: Low-income group involves the people having up to Rs.

15,000 monthly father‘s income.

2.3.2. Brand Loyalty: Brand loyalty represents a favorable attitude towards a brand resulting

in consisting purchase of the brand overtime (Assael, 1992).

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2.3.3. Acceptance of Advertisement: Acceptance is the extent to which, a consumer relies on

the advertisement‘s information and act accordingly to the appeal, keyword / caption, stanza,

slogan and model personality (Wells et al., 1995).

2.3.4. Consumer Behavior: The decision process and physical activity individuals engage in

when evaluating, acquiring, using, or disposing of goods and services (Loudon & Bitta, 1994).

2.4. Sample

In this research, a sample of 150 students (N = 150) was selected from University of Sargodha

by convenient sampling technique. The sample consisted of both boys (n = 75) and girls (n =

75) students. Age level was constant ranging from 18 to 26 years. They all were viewers of

electronic advertising.

2.5. Instruments

The main objective of the study was to analyze the effectiveness of advertisements on the

university students of University of Sargodha. For this purpose a testing booklet consisting of

demographic data sheet and self-explanatory questionnaire was adopted from Malik (1999) and

used as a tool for data collection.

For this study a self-explanatory questionnaire consisting of 25 fixed item responses was adopted

along with the instructions. Questionnaire items contained informative queries about advertised

brand and its consumption process. Question no. 1 about father's income consisted of two-

response categories i. e. high-level income above 15,000 and low-level income up to 15,000.

Question no. 2, the brand of soap consisted of six brand names and one category of ―any other‖.

The items no. 3-20 of questionnaire had 3-response categories i. e., mostly, sometime, and never,

whereas items no. 21-25 had two response categories i. e., yes and no. The technique for coding

questions was that those questions showing high level of acceptability in favor of advertisement

were given high scores and those which show lower level of acceptability were given low scores.

So some questions were scored in negative direction. Coding scheme for question no. 11, 17, 19,

20 having response categories of mostly, sometime and never were assigned the score of 0, 1 and

2 respectively whereas coding scheme for question no. 3-10 and 12-18 having response

categories of ―mostly‖, ―sometime‖ and ―never‖ with scoring 2, 1 and 0. Rest of the questions

21-25 have ―yes‖ and ―no‖ response category with 1 and 0 scoring. Score range of scale was 0–

41.

2.6. Research Design

Present study was completed in two phases:

2.6.1. Phase I (Pilot Study)

Sample and Procedure: The questionnaire was pilot tested and distributed according to the drop

off method among the survey sample of students (N =30, boys n = 15, girls n = 15) of University

of Sargodha. Procedure was that willing students were given the questionnaire with some

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instructions to help out the filling of the questionnaire. Pilot study data were analyzed and results

were formulated.

2.6.2. Phase II (Main Study)

Sample and Procedure: After pilot study in phase II, a sample of N = 150 was used to collect the

data. Data were collected from n = 75 boys and n = 75 girls students. The questionnaires were

distributed by drop off method. Procedure was that willing students were given the questionnaire

with some instructions to help out the filling of the questionnaire. After data collection it was

analyzed by the help of SPSS.

Questionnaires were filled easily. Field experience was good, because the respondents were

educated and could understand the importance of the study, so they cooperated.

3. Results

3.1. Phase I (Pilot Study)

The data of 30 students of University of Sargodha was analyzed on the scores of ―Effects of

Advertisement‖ scale. As the first step the reliability of the scale was obtained by Coefficient

Alpha and validity of scale was measured by content and construct validity. The results indicated

a significant Alpha Reliability Coefficient of scale for the sample of the study (r = .65).

The scale, which was used in study was content valid. The content validity of the scale was high

because each and every item of the scale measured the effectiveness of the advertisement. Each

item was directly related to advertisement of particular brand. The items measured different

aspects of advertisement of particular brand, which might have an influence on consumers. If a

procedure lacks reliability, it also lacks content validity (Heiman, 1995). The satisfactory

reliability showed that the measure had content validity because if the reliability would not be

significant, the measure would not be content valid. Each item was derived from different

theories of advertising like pressure response theory, active learning theory of advertising and

low involvement theory given by Krugman (1965). So it was concluded that the scale used in the

study was content valid.

3.2. Phase II (Main Study)

The second phase (Main Study) was carried out on comparatively larger sample in order

to see the effects of advertisement on consumer behavior with respect to soap brands (FMCG‘s).

The results revealed that whatever the brand consumers had decided to purchase; the

advertisements influence them to change their brand loyal attitude to at least check the newly

advertised product once in a lifetime. The study explored the effectiveness of advertisements of

different brands of soaps so for that preferred brand of consumers was also found out with

relevance to its influential and persuasive advertisement.

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4. DISCUSSION

4.1. Phase I

The present study was aimed to determine effects of advertisement on consumer

behaviors. Psychometric properties of scale ―effects of advertisement‖ were also established on

the sample of our study.

The reliability estimate of the measure was computed to see the internal consistency of

scale. The Coefficient Alpha of scale was .65, which was significant (see Table 1). Our scale was

content valid. First of all it had face validity. All the items of scale were related to advertisement.

It was very clear from one glance that each and every item of scale inquired about different

aspects and components of advertisement with respect to its effectiveness. The items measured

the effects of advertisement of different brand of soaps. The scale contained the questions about

effective of components of advertisement. In the process of adaptation of this scale, committee

found out that either this scale met objectives of the study or not. As this test met our objectives,

so it was also proved to be valid. Scale was valid because it had satisfactory reliability (.65) and

according to Heiman (1995) that a test would be valid if it proved to be reliable.

The scale of ―Effects of Advertisement‖ used in the study was also proved to be valid on

the basis of previous researches in which this scale was used. Nazir (2000) conducted a study

―effects of advertisement on consumer behavior‖ using this scale. The results of the study proved

that this scale measured what it supposed to measure. Malik (1999) also conducted a similar

research on women university students by using this scale and gained significant results. In

nutshell the scale ―Effects of Advertisement‖ was a reliable and valid measure.

4.2. Phase II

Our hypothesis that purchase of expensive product will be associated with income level of

consumers was not supported as the results indicated that there was non-significant relationship

between income group and purchase of expensive product (see Table 1). So it can be concluded

that no matter to what social class consumers belong, advertisement effect them equally. It was

clear from this discussion that advertisement could attract any income group having no influence

on their purchasing attitude in order to buy the expensive product.

According to Kiechel (1993) although only whit-collar jobs are portrayed in advertisement but

still it had equal impact on all income groups. Relative Income Hypothesis given by Loudon and

Bitta (1994), which explained that people‘s consumption standards are mainly influenced by

their peers and social group rather than there absolute income level. Consumers wanted the

quality not the expensive product. If the quality of brand is good and satisfactory to their needs,

expensiveness becomes the secondary phenomenon. Results also revealed that repetition of

advertisement and purchase of expensive product had non significant relationship (see Table 2).

It could be explained, as consumers were not influenced by the repetition of commercials unless

the advertised product seemed satisfactory to them. Ray (1973) gave the think-feel-do model,

which described that consumers approached a purchase situation using a sequence of response

instead of being influenced by the repetition of advertisement. Marketers should not expect

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continuous positive change among consumers from increased repetitions of a commercial. At

some point message wear out occurs. Here, the positive effects of repetition diminish because of

audience boredom, inattention and increased cognitive response activity that is less positive in

content than the message. Similar findings were gained from previous researches (Munch &

Swasy, 1988, Cacioppo, Petty & Quintanar, 1982, Calder & Sternthal, 1980, Cacioppo, & Petty,

1979, Miller, 1976). It can be inferred that moderate level of repetition of advertisement over

time appears to influence attitudes positively.

Results also revealed that consumers considered advertisement a reliable source of

information as compared to any other source like friends and neighbors (see Table 3 & 4). These

results were also inline with a previous research according to which, there were non significant

relationship between social class and information searching (Hugstad, Taylor & Bruce, 1987).

Although the environmental factors are important in decision making and getting information but

the most reliable and trustworthy source is the ad of particular brand. Opinion leaders (models)

work as the informative agent, so advertisement becomes a reliable source. All these issues

covering appeal phenomena including attractive personality, keyword / caption and source of

information concluded that advertisement had a positive impact on consumers. The study also

revealed that there was non significant relationship between effective advertisement and

changing brand loyal attitude (see Table 5). Consumers did not change their tested brand after

watching the advertisement of new brand. But our results were not inline with previous research

literature finding by Assael (1995) that after 1990‘s there had been witnesses a decrease in brand

loyalty to burst of advertising mania. Effective advertising campaigns influence people. Brand

loyalty is not an all-or-none phenomenon. There are several types of brand loyalty besides

undivided loyalty. In some cases people may have divided loyalty between two brands. In some

cases they may largely loyal to one brand, but occasionally switch to other brands, perhaps to

break the monotony. Our findings of brand loyalty could be supported by the point that

consumers might continue to buy the same brand because other brands are not readily available,

a brand offers a long series of price deals, or consumers want to minimize decision making. On

the other hand it was also revealed from results that if the brand was poorly advertised, it had no

impact on consumers (see table 6). And consumers did not purchase the product frequently due

to its poor presentation. Consumers want new and novel things, so in order to fulfill their needs,

advertisers and marketers designed novel ads just to gain their attention. It was also found that

advertisement had negative impact on consumers (see Table 7). It means that may be due to

ineffective personality or model, poorly presented keyword / caption, people get negative impact

of advertisement. In order to be more effective and influential in a positive manner, the ad of

particular brand must have all the qualities of a good ad. In nutshell it was concluded that

people form attitudes towards objects on the basis of their beliefs, perception and knowledge

about these objects.

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Wells, W., Burnett, J., & Moriarty, S. (2000). Advertising principles and practice (5th ed.).

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Hill.

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Annexure

Table No. 1

Relationship between Income Group and Purchase of Expensive Product (N = 150)

Income

Expensive

Product

Low Level

(Up to Rs.15000)

High Level

(Rs.15000 & above)

Total χ²

Yes 41 48 89

No 37 24 61 3.07

Total 78 72 150

df = 1, p = n.s

Results in the above table indicate that there were non-significant relationship between the income group

and purchase of expensive product {χ² (1) =3.07, p = n.s}.

Table No. 2

Relationship between Repetition of Advertisement and Purchase of Expensive Product (N = 150)

Expensive Product

Repetition of

Advertisement

Yes No Total χ²

Mostly 17 14 31

Sometime 37 23 60 0.767

Never 32 27 59

Total 86 64 150

df = 2, p = n.s

The results of table 2 revealed that there was non–significant relationship between repetition of

advertisement and purchase of expensive product. {χ² (2) = 0.767, p = n.s}. People do not influence by the repetition

of advertisement in order to purchase expensive products unless it seems satisfactory to them.

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Table No. 3

Frequency and Percentages of Advertisement as Source of New Information (N = 150)

Response Category Frequency Percentage

Mostly Gain Information 32 21%

Sometime Gain Information 75 50%

Never Gain Information 43 29%

Total 150 100%

Results revealed that almost 21% - 71% of the consumers considered advertisement as a source of new

information and 29% thought that they did not gain any information from advertisement. Further to be more

confident in the advertisement task as an informatory agent of product, χ² was applied to find out the comparison

weather information gained from advertisement is independent of the other informative sources (friends, neighbors).

3.2.4. Table No. 4

Relationship between Information Gain from Advertisement and Some Other Sources (N = 150)

Other Opinion

Advertisement

Mostly Sometime Never Total χ²

Mostly 11 17 9 37

Sometime 39 21 13 73 15**

Never 24 16 0 40

Total 74 54 22 150

df = 4, **p < 0.01

The above table indicated that information gained from advertisement was independent of the opinion from

some other source {χ² (4) = 15, **p < 0.01}.

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Table No. 5: Brand Loyalty of Consumer and Effect of Advertisement (N = 150)

Response Category Score z

Changing tested brand with new advertised brand 85

Do not change tested brand with new advertised brand 65 1.63

Total 150

p = n.s

The results of binomial test suggest that advertisement had no significant impact on brand loyalty (z = 1.63, p = n.s).

Table No. 6 Frequency and Percentages of Effect of Poorly Presented Advertisement (N = 150)

Response Category Frequency Percentage

Mostly 72 48%

Sometime 37 25%

Never 41 27%

Total 150 100%

Effects of poorly presented advertisement were also explored and the above table revealed that almost 25 % - 48%

consumers feel that they will not purchase the product if it is poorly (bad location, unimpressive personality,

keyword / caption or slogan, attacking nature on other competitive brand) advertised.

To check weather purchase pattern was affected negatively due to poor advertisement as along with the consumption

blockage consumers feel bad about the product and bad image of the product force it to be out of market.

Table No. 7 Frequency and Percentages of Negative Effect of Advertisement (N = 150)

Response Category Score Z

Advertisement does effect negatively 101

Advertisement does not effect negatively 49 4.24**

Total 150

**p < 0.01

The results of binomial suggest that poorly presented advertisement had significant negative impact on

consumer behavior (z = 4.24, **p < 0.01).

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The Relationship between the Leadership Styles of Heads of Departments and Academic

Staff's Self-Efficacy in a selected Malaysian Islamic University

Ismail Hussein Amzat

Department of Foundation and Educational Administration, Sultan Qaboos University, Oman

Ali Khamis Ali Department of Educational Administration, Nizwa University, Oman. Faculty of Education and

Human Development.

Abstract

This study examines the perceptions of academic staff on the leadership styles practised by

Heads of Departments in a selected Malaysian Islamic University. It also investigates the

perceptions of academic staff towards these leadership styles in relation to their own self-

efficacy as well as the relationship between the leadership styles of Heads of Department and the

self-efficacy of academic staff. The Pearson Correlation showed that there was a positive

significant relationship between them. The findings of this study revealed that the higher the

Laissez-Faire leadership style exercised by the Heads in a selected Malaysian Islamic University,

the higher/greater is the self-efficacy of the academic staff

Keywords: Leadership styles, Head of departments, Academic staff, Self-efficacy

1. Introduction

At the helm of every successful organisation there is a good leader. Presently, higher

learning institutions are demanding a restructuring of the education system in order to meet new

developments in the world. The 21st has brought new and difficult challenges some of which are

globalisation and technology. The starting propositions are the role of universities‘ leadership to

adopt the changes and adapt to the new challenges. The impact of globalisation and technology

on educational development as an example has called for dynamic leadership and various

leadership skills and styles. Expectations of higher education are rising with ―government,

parents; employers and students alike have rising expectations of what higher education can or

should deliver‖ (Robin, 2009, p.25).

Sequential to the above matter, for the educational realm to grow and be able to face the

global challenges, educational settings need a variety of high quality leadership styles with

management skills. In light of this, universities are required to be governed effectively and

efficiently by their presidents/rectors while faculties need to be administered competently by

deans and heads of departments in order to adapt to the changes and effect continuous

improvement. The universities and faculties would find it imperative to stimulate their staff to

employ and capitalize on their skills and capacities effectively. It is also their duty to instigate

and encourage their staff to be more productive for the sake of the universities‘ development

(Sclecthly, 1991). Currently, we need a variety of leadership styles to manage and supervise the

state of affairs in higher learning institutions. Any organisation without a good leader faces

serious problems.

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There are many definitions of leadership in the literature. Leadership could defined as ―a

process or a way of social influence in which one person is able to demand assistance and

support for other people in the achievement of a common task‖ (Chemer, 2000, p.27). Referring

back into history, the early research on leadership was based on the psychological focus of the

day, which was of people having inherited characteristics or traits and leadership being defined

―in terms of traits, behavior, influence, interaction patterns, role relationships, and occupation of

an administrative position‖ (Yulk, 1998, p. 2). Similarly, ―Leadership is the process of

influencing others to understand and agree about what needs to be done and how it can be done

effectively, and the process of facilitating individual and collective efforts to accomplish the

shared objectives‖ (Yukl, 2002, p. 7). From these definitions, we can conclude that leadership is

about influencing followers in achieving targets and objectives with the help of different styles of

leadership in different situations. This study embarks on employing Kurt Lewin‘s leadership

styles theory according to which leadership styles were divided into three styles: Authoritarian

Leadership (Autocratic), Participative Leadership (Democratic) and Delegative Leadership

(Laissez-faire).

Moreover, leadership consists of knowledge and skills which influence and direct other

activities (Khalili, 1995). Based on Fiedler's model, school performance depends on styles that

the principal has stated in the situations that occur in the school. Till now, there is a lack of a

specific definition of leadership style in the literature. Authors rather define leadership in general

and few have defined it basically without any deep meaning of what leadership style is all about.

Based on extensive reading, the earliest studies defined leadership styles ―as the manner by

which individuals in a position of authority influenced group activity were conducted‖ This

definition was first defined by Lewin and colleagues in the late 1930s (Lewin, Lippitt, & White,

1939, Robert & David, 2000, p.1). Fertman (1999) added in a resemble manner to the

definitions mentioned early bydefining leadership style asthe manner and approach of providing

direction, motivating people and achieving objectives. They are behavioural models used by

leaders when working with others. He went on to say in his definition that leadership style is a

form of cross -situational behavioural consistency. It refers to the manner in which a leader

interacts with his or her subordinates.

In another definition, leadership style is seen as interaction between leaders and their

subordinates which determines the team‘s success in any hierarchical organisation (Martin,

Ganna, & Matthias, 2009). However, some authors perceived leadership style as exactly how

leaders carry out their responsibilities and they believed that there is no one standard, correct

style for all leaders in all circumstances at all times. Thus, the application styles depend on the

situation. The situation may demand a leader to be democratic and sometimes autocratic as long

as he/she applies the suitable style that is needed to reach the target and get the job done.

Different leadership styles produce different outcomes and are suited to different times and

situations. Fielder and Chemers (1984) felt that the use of the leadership role or function

involves the motivation, direction, supervision, guidance, and evaluation of others for the

purpose of accomplishing a task. With regards to the definitions stated above, leadership styles in

academic settings could be also be mainly defined as the approaches which an administrator

applies in making things work, developing a rapport with teachers and staff members and

supervising them in order to achieve educational goals and objectives.

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The Malaysian Islamic University has set up various organisational mechanisms to

facilitate consultation whether in the overall management of the University or in any particular

setting. Furthermore, in terms of staff performance, the annual report of the University

(2001/2002) reported that 60% of the respondents revealed that their superiors never discussed

their work performance with them. It was unanimously agreed that the evaluation of staff

performance must be made known to the staff so that the below par and mediocre staff would

have the chance to improve themselves, whilst better performing staff could be motivated to

improve further.

2. Purpose of the Study This study has three main purposes. Firstly, it aims to investigate the perceptions of

academic staff of the leadership styles of their Heads of Departments. Secondly, it aims to

investigate the perceptions of academic staff of their own self-efficacy. And thirdly, it attempts

to investigate the relationship between the leadership styles of Heads of Department and the self-

efficacy of academic staff in a Malaysian Islamic University.

3. Research Questions

1. Is there any significant difference in perceptions of the leadership styles of Heads

according to gender, age, academic qualifications, Faculties/Centres, length of service or

academic experience?

2. Is there any significant difference in the perceptions of academic staff of their own self-

efficacy according to gender, age, academic qualifications, Faculties/Centres, length of

service and academic experience?

3. Is there any significant relationship between the leadership styles of Heads and the self-

efficacy of academic staff?

4. Literature and Theories

Previous research has found significant relationships between leadership style and staff

self-efficacy (Teng, 2006). Besides, a relationship was also found between teachers‘/academic

staff self-efficacy and involvement in decision-making (Teng, 2006). The literature suggests a

correlation between school leadership and student outcomes as well as a correlation between

student outcomes and teacher efficacy (Phillips, 2009). Many educationists believe that the good

relationship of an effective principal with staff and students in secondary school administration is

the foundation for a school‘s progress and development. The relationship of educational leaders

and staff with students could be influenced by various school leadership styles involving some

aspects of human relations such as the relationship between staff and students, on the one hand,

and staff and the community, on the other (Northouse, 2006 and Nakpodia, 2009). In this

situation, educational administration must concern itself with the satisfaction of staff and

students in their work. This satisfaction could be found in an administrative environment where

there is an effective relationship between the principal, the staff and the students (Northouse,

2006 and Nakpodia, 2009).

4.1 The Democratic Leadership Style

From the literature, democratic leadership style has been defined with different

characteristics, looking into various angles and backgrounds. Lewin defined democratic

leadership style as a style that involves people in the decision-making while the execution of the

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decision may be from the leader after facilitating consensus in the group. At the same time, the

decisions may fail to reach the final stage when there are a lot of options flowing in and out

without limit and control. This could be the disadvantage of applying the democratic leadership

style. Additionally, in terms of policy-making, the democratic leadership style plays roles in

implementing policies collectively and tasks are achieved from group discussions. In this

situation, members are given freedom of expression in relation to the issue of division of labour.

In this kind of environment, criticism is allowed and praise is given (Lewin, 1939 and Miner,

2005).

A similar definition was given by Stowell (2004), who defined the democratic leadership

approach as an approach that exercises minimal control over the employees or workers. It

involves the employees in the decision-making process and allows participation (Stanley, 2006).

In fact, the democratic style or democratic leader encourages subordinates to identify problems

and suggest solutions to overcome them. Besides, he shares decision-making with group

members, explains to the group the reasons for personal decisions and objectively communicates

criticism and praise (Altalib, 1991). Democratic bosses allow consultation, inclusion and are

humanistic. They are people-oriented, building consensus, thriving on informality, tolerant in

handling conflict, and obtaining the entire team credit. (John, 1990).

From various authors‘ definitions, the literature and people‘s opinions, we can

comprehend and derive our conclusion that the democratic leadership style is about involving

employees in the decision-making process. The style is about participation, freedom of

expression and opinion for good decision-making to take place and the implementation of the

decision. Last but not least, democratic leadership style is people-oriented and seems to believe

in human relations.

4.2 The Autocratic (Authoritarian) Leadership Style The autocratic style is a style of controlling that expects leaders or managers to make all the

decisions for the workers or employees. This style is perceived as a work-oriented style and

works towards how the work is done (Stowell, 2004 and Stanley, 2006). According to Sinha

(1987), authoritarian leaders:

Use power and are status oriented, have an inflated ego, appeal to personal loyalty, and

over performance.

Are subservient to superiors and dominate subordinates, take up a moral and patronizing

stance, and are insecure, and mistrustful.

Are highly secretive and blame others for failures and claim success as their own. That is,

they do not give credit where credit is due (Maaran, 2001).

It had been shown that the autocratic leadership style may result in a rigid, unimaginative

organisation. Also, since subordinates are not invited to participate in the decision-making

process, they may not be committed to the aims of the organisation. The problem is that such

managers have little trust in their subordinates‘ ability, believe that only material rewards will

motivate people and issue orders to be fulfilled with no questions (Altalib, 1991).

The authoritarian leader, according to Lewin, tends to use power and authority to command.

It is a directive style where one-way communication takes place and little input is sought from

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followers. Besides, one of the drawbacks of this leadership style is that subordinates could be

frustrated by the autocratic ways of decision-making and it could lead to a decision failure when

there is no involvement and contribution from the subordinates (Lewin, 1939). Further, it could

be a better style when there is no need for contributions requested from the followers, and when

any lack of participation would affect the results of the decision. This style could also be

advantageous for enabling a quick decision-making process and it could motivate the respective

and powerful leader to control employees autocratically in putting things in order (Lewin, 1939).

In addition, autocratic bosses are resilient and focused on the bottom line, on output and results,

not people-oriented. They demand obedience and thrive in a formal, rigid, rule-bound

environment. They believe in little participation, and are most interested in personal power to

obtain credit (John, 1990).

From the characteristics and descriptions given for this style, we can understand that the

autocratic leadership style has been labeled and defined as a wrong style for leaders to apply. It

has been described in most of the literature somehow or bluntly as a bad characteristic and a

style in which a good relationship with the followers or subordinates does not exist without

considering its good side as every style has advantages and disadvantages. As a matter of fact,

being an autocratic or authoritarian leader does not mean being evil. We should take it positively

and look at the advantages of this leadership style. An authoritarian leader is perceived to be

good in terms of motivating people to work properly and produce good work. This kind of leader

helps workers in understanding the gravity of the work and the contribution of their work to the

system as well as reassuring them that what they do matters. Overall, it enables people to do

things the way they want, as long as the end result is acceptable (Goleman, 2000).

4.3 The Laissez-Faire Leadership Style Now we come to the style which people and researchers perceive at the weakest and most

ineffective management style. Laissez-faireleaders are the kind of leaders who relinquish their

responsibility or power by avoiding making decisions (Bass, 1990b). According to this style,

decisions are left for the subordinates to make and execute. It is a situation where subordinates

are yet to decide their tasks and job responsibilities.These descriptions are similar to

Lewin‘soriginal 1930s definition where he was saying that laissez-faire leaders minimize their

involvement in the decision-making, and let the subordinates decide on issues for themselves.

This situation occurs when a leader does not have the adequate understanding of a given

decisional problem. Besides, there are some situations in higher institution where the Laissez-

Faire approach can be effective when the staff are aware of the nature of their jobs and they are

competent to carry out the task successfully. Altalib (1991) has defined the Laissez-Faire leader

as a leader who has ―little confidence in his leadership ability, sets no goals for the group and

minimizes communication and group interaction‖ (p.55). Laissez-faire leadership is considered

as a ―hands-off‖ approach to leadership (Northouse, 2004).

The Laissez-Faire style is, just as the term suggests, to let (other people) do as they

choose and ignore others, and so members go their own way. The Laissez-Faire technique at the

university level is usually only appropriate when leading a staff of highly motivated and skilled

lecturers, who have produced excellent work in the past. Once the leader has established that his

team is confident, capable and motivated, it is often best to step back and let them get on with the

task, since interfering can generate resentment and detract from their efficacies or efficiency. In

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Lowa‘s leadership studies (cited by Luthans, 1995), Laissez-Faire was defined differently

compared to the previous definitions. It stated that ―…the Laissez-Faire leadership climate

actually produced the greatest number of aggressive acts from the group‖ (Luthans, 1995, p.

343). The greatest advantage of this style is that there is little work for the leader, and when

group members are "self-starters", the leader has to do very little to look good (Beach

&Reinhartz, 1989).However, there are some disadvantages to this style such as "lower

productivity or task accomplishment, poorer quality of work, and less satisfaction with work"

(Beach &Reinhartz, 1989, p.63).

Looking from another angle, this style could be advantageous for the subordinates,

according to Lewin, in receiving all the decision-making powers to make effective decisions

within their realm of expertise. Besides, subordinates might be motivated by receiving all these

powers which may help them to enrich their jobs. But this could lead to mismanagement, lack of

coordination and unstructured work. Furthermore, research such as Bass (1990a) and

Yammarino and Bass (1990) has found an adverse effect of the laissez-faire leadership style on

employees‘ work-related outcomes. Therefore, the leadership styles of leaders influence

positively or negatively groups or employees‘ ways of working. The result of Daniels (2003)

along with Ronald Lippitt on group structure and behaviour shows that the democratic leadership

style provides changes and these changes have good results eventually. A group with an

autocratic leader or structure has dysfunctional decision-making processes while the laissez-faire

group structure is found to be very inefficient and unproductive.

In conjunction with what had been said about the laissez-faire style above and its

negative impact on workers and the organisation, research conducted in Norway bySkogstad,

Einarsen, Torsheim, Aasland, Merethe and Hetland (2007) on laissez-faire leadership behaviour,

with a sample of 2,273 employees indicates that laissez-faire leadership was found to be

correlated with role conflict, role ambiguity and conflicts with co-workers. Besides, from the

result of Path analysis, the findings also found stressors mediated with the effects of laissez-faire

leadership on bullying at work and that the effects of laissez-faire leadership on distress were

mediated through the workplace stressors, especially through exposure to bullying. Therefore,

with this kind of result, laissez-faire leadership behaviour is perceived or claimed to be

destructive leadership behaviour.

In conclusion, with respect to the overall leadership styles and their impact as well as

influence on organisational development and employees, the literature and the citations above

have confirmed the effectiveness of the democratic leadership style in organisations. Thus, this

indicates the prosperity of/benefits gained by individuals and decision-making through

participation. The literature also speaks of the rigidity and authoritarianism of autocratic

leadership as well as the unproductive nature of laissez-faire leadership on the organisation and

followers.

4.4 Self-efficacy

Without any doubt, academic staff or teachers play an important role in improving

education. Besides, it is universally accepted that a teacher‘s self-efficacy and job satisfaction

lead to the best teaching and good students‘ outcomes. The theory of self-efficacy was developed

by a prominent scholar, Albert Bandura, (1986). He defined self-efficacy as how a person judges

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or perceives himself to be capable of using a set of skills to achieve a certain level of

performance. According to Bandura, self-efficacy could be a tool to predict leadership behaviour

and distinguish leaders from non-leaders. It helps to decide how much effort people will make on

an activity, how long they will persist when confronted with obstacles and hardship, and the

level of strength they will exhibit in the face of adverse situations.

In most cases, based on this theory, people with low self-efficacy may believe and

consider that things are tougher and harder than they really are, a belief and perception that

create stress, depression, sadness and slim down the vision of how best to solve a problem and its

challenges. High self-efficacy, on the other hand, helps to create feelings of serenity and

tranquillity in approaching difficult tasks and activities. As a result of these influences, the self-

efficacy belief is a physically and spiritually powerful determiner and predictor of the level of

achievement that an individual finally attains. Based on these reasons, Bandura (in press) argues

that ―beliefs of personal efficacy constitute the key factor of human agency‖ (p.3 as cited by

Pajares, 1996).

Various findings have shown the importance of a teacher‘s/lecturer‘s self-efficacy in

learning and teaching. These findings have different results. For instance, Gibson and Dembo

(1984), Dembo and Gibson (1985), and Ashton (1985) have arrived at their findings by applying

the concept of self-efficacy to teaching, using a two-factor dimensional construct of teacher

efficacy. The first factor represents a teacher's sense of teaching efficacy (TE), or belief that any

teacher's ability to bring about change is limited by factors external to the teacher, such as home

environment, family background, and parental influences. The second factor represents a

teacher's sense of personal teaching efficacy (PTE), or belief that he or she has the skills and

abilities to influence students‘ learning and behaviour. Researchers have examined and observed

the relationships between teachers' sense of efficacy and their behaviours, including classroom

instruction, behaviour management, and special education placement decisions. Based on Gibson

and Dembo‘s report in 1984, high-efficacy teachers spent more time monitoring and checking

students‘ work and more time leading students to correct answers through questioning rather

than giving the answer or calling on another student. Also the findings of Saklofske, Michayluk,

and Randhawa (1988)indicated that there were significant correlations between student teachers'

sense of personal efficacy and their supervising teachers' ratings of behaviours, such as lesson

presentation, classroom management, and questioning behaviours.

Multon et al. (1991) carried out a meta-analytic review of research into self-efficacy in

educational settings which provided support for the facilitating effects of self-efficacy on

academic performance, and concluded that self-efficacy beliefs accounted for approximately 14

percentile of the variance in staff, which influenced students‘ academic performance.

Subsequently, many studies have also been supportive of self-efficacy and performance links.

For instance, Lane and Lane (2001) report similar findings among a sample of postgraduate

students, which have been influenced by the academic staff efficacy. Chemers et al. (2001) also

find that academic self-efficacy is significantly and openly related to academic expectations and

performance. Chemers et al. (2001) point out that academic self-efficacy has greater and better

predictive power than more objective measures such as past performance. If the findings of

Chemers et al. (2000) are applied to dissertation performance, it can be recommended that

lecturers use self-efficacy judgments as the likely prediction of performance rather than

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performance in related modules, such as research methods, which is typically a pre-requisite

module.

4.5 Research Findings on Leadership Styles and Self-efficacy in the Teaching Environment

In an educational setting, Caitlin (1982) has also authenticated this relationship between

leadership style and teachers‘ personal efficacy or ability.The findings of Caitlin (1982) were

supported by Tseng (1985), who arrives at the conclusion (after the investigation through

teachers' perceptions in public junior high schools in Taipei, the Republic of China) that there is

a relationship between principals' leadership style and personal ability in the teaching profession.

Also, another study conducted by Braddy (1993), which investigated the relationship between

the leadership style of the principal and teachers' abilities in terms of participation in decision-

making in public schools in North Carolina, produced similar results. The findings demonstrated

that the more opportunities given by a principal to the teachers to prove themselves in

participation, the more the teachers will grow in their ability and self-confidence. Wu (1984) and

Kim (1986) indicated that there is a relationship between the leadership styles of school

principals and teachers' efficacies in their job.In the 90s, leadership was claimed to improve

teachers‘ or members of the academic staff‘s effectiveness and development (Smylie, 1995).

Besides, it demonstrates the successfulness of leaders that have the ability to solve matters and

contribute significantly to the effectiveness of the school and students‘ accomplishment

(Leithwood et al., 1999).

At the beginning of the 20th

century, similar findings to those of the 90s and 80s were

confirmed by Fullan (2001) and Segiovanni (2001) showing that leadership influences teachers'

performance and accomplishment and leads to student motivation. Hence, the excellence of

leadership will determine the motivation and inspiration of teachers/lecturers and the quality of

teaching in the classroom. For more development in the teaching setting, continuous learning and

quality in teaching should be proposed by a school‘s leaders based on people‘s findings to

improve the excellence of the academic staff, while the prominence of spreading good practice to

colleagues can lead to increasing the proficiency of teachers/lecturers throughout the school. In

the academic sector, there should be an increment of capability and self-confidence of the staff,

together with the greater responsibilities vested in them, which will give more courage to

teachers/lecturers to take calculated risks in their jobs and introduce innovative and inventive

teaching methods, which should have a direct relationship with and a positive effect on teacher

effectiveness.

Indeed, the literature and findings have confirmed the relationship between leadership

styles in the educational setting and teachers‘ or academics‘ personal efficacy. The linkages

between leadership style and personal teacher efficacy was confirmed in Hipp‘s, (1996, 1997)

findings. It was believed that teachers with high self-efficacy are in a better position to cope

with stress (Chwalitsz, Altmayer, &Russel, 1992), they are highly committed to teaching

(Coladarci, 1992), have great willingness to infuse new teaching methods (Ghauth&Yaghi, 1997)

and have a good relationship with the parents (Hoover-Dempsey, Bassler, &Brissie, 1992). Thus,

it is evidenced that there is a significant influence of school principals on teachers‘ experiences

on the job (Rosenholtz, 1985), the effort they put in (Geijsel, Sleegers, Leithwood, &Jantzi,

2003), and their commitment and willingness to change (Yu, Leithwood, &Jantzi, 2002) through

their leadership style.

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Additionally, it shows that school leaders are the determinants of a teacher‘s autonomy

(Campo, 1993; Corrigan & Garman, 1999; Riehl&Sipple, 1996). Hence, they determine the type

of support teachers receive (Smylie, 1988), in terms of granting teachers‘ demands and

expectations (Ross, 1995), providing teachers‘ professional growth (Blase&Blase, 2000), stress

relievers (Moore- Johnson, 1990; Smylie, 1988), and conflict managers and deciding overall

satisfaction (Bogler, 2001). As a matter of fact, all these factors are strongly related with a

teacher‘s personal self-efficacy. The conclusion can be drawn based on these findings by stating

that the leadership style of the school leaders may have something to do with teachers‘ personal

self-efficacy (Bandura, 1997; Hoy &Woolfolk, 1993).

According to Allinder‘s (1994) findings, teachers with a strong sense of efficacy tend to

exhibit greater levels of planning and organisation. Proper leadership styles provide a greater

sense of efficacy for teachers and will help teachers to display greater enthusiasm for teaching,

(Allinder, 1994; Guskey, 1984; Hall, Burley, Villeme, &Brockmeier, 1992), have greater

commitment to teaching (Coladarci, 1992; Evans &Tribble, 1986; Trentham, Silvern, &Brogdon,

1985) and be more likely to stay in teaching, (Burley, Hall, Villeme, &Brockmeier, 1991;

Glickman &Tamashiro, 1982).

In conclusion, from the definitions, findings and theories cited above, we can see the

similarities in definitions and findings during the 80s, 90s and the 21st century on the impact of

leadership and school development. This is illustrated in the findings on two aspects of school

leadership styles which are teacher performance and student achievement. Once the teacher‘s or

academic staff‘s behaviour has been influenced by school leadership styles, it affects teaching

positively or negatively and influences student outcomes. Furthermore, from the findings stated

above, we could observe a significant relationship between leaders and followers in China and

others. Besides, we could see the influence of leadership styles of the principals in school during

the 80s, 90s and the new era. Furthermore, we could the development in teachers; highly

efficacious through effective leadership styles; the ability to cope with stress; more commitment;

changes and professional growth.

From the literature and theories mentioned above, the theories of self-efficacy and

leadership styles have confirmed strong and significant relationships between the leadership

styles of the school leaders and academics‘ or teachers‘ self-efficacy, development, autonomy,

job satisfaction, commitment, professional growth, support and motivation to work hard with

great ability.

4.6 The Malaysian Context

There is a scarcity of research examining the influence, impact, effect or relationship

between leadership styles at the university level and the self-efficacy of academic staff in

Malaysia. The majority of the research conducted on self-efficacy was in schools, looking at

teachers‘ self-efficacy in relation to teaching and student development. Few studies have

investigated the principal‘s behaviour or leadership practices such as the latest research of

Masitah, Azizi, Ahamd and Bahaman, (2010) which examines the relationship between

instructional leadership and self-efficacy in environmental education among Malaysian

secondary school teachers. Their overall findings confirmed a moderate level of teachers‘ self-

efficacy and moderate principals‘ instructional leadership practices in environmental education.

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In this sense, this research is conducted to address the issue of leadership styles and

academic staff self-efficacy at the university level. To the best of the researcher‘s knowledge, it

is considered as a first research hypothesising leadership styles with academic staff‘ self-efficacy

in a Malaysian Islamic University and public universities as whole.

4.7 Malaysian versus International Results

According to the OECD Teaching and Learning International Survey TALIS report

(2009), in terms of school leadership style it was reported that school principals in Malaysia

favourthe administrative style rather than instructional leadership (supervision of instruction,

supporting teachers‘ professional development, setting the school goals). This is somehow a

weakness in Malaysia compared with most of the other TALIS countries.

Moreover, in relation to teacher development and teaching, the report of the OECD

Teaching and Learning International Survey TALIS stated that in Brazil, Malaysia and Mexico

over 80% consider they have not received enough professional development and teachers wanted

more development than they had received.In addition, in terms of motivation and job

satisfaction, in Malaysia, more than half of teachers claimed and testified they had received some

reward (monetary or non-monetary) to improve the quality of their work and for being

innovative in their teaching. This practice has meant that Malaysia has the 2nd

highest percentage

of the 23 countries in TALIS. In relation to job satisfaction across the borders, Australian

managers (individualist culture) seemed to be more highly satisfied than Malaysians (Fauziah,

2000).

4.8 Research Findings on Leadership Styles: Demographic Variables

4.8.1 Gender & Age

Since leadership is about influencing others as it was defined in the literature, this

influence could be seen or perceived positively or negatively by the followers if leaders apply

unsuitable leadership styles at the wrong time. Males and females normally have different

perceptions towards their leaders, as more females perceived their dean as practising ―selling

leadership style‖ compared to males in Jamaluddin‘s (1998) findings in relating ―selling

leadership style‖ in Indonesia with gender. In Malaysia, all the demographic factors show no

differences on perceiving women leaders‘ leadership effectiveness in Usher, (2009), with the

total of 110 workers in SOCSO of Penang branch. The same findings were reported by

Norfarhana (2009), where there were no significant differences between gender, age, educational

level and marital status with servant leadership attributes at the North Malaysian University with

a sample of 71 university management staff.

A study by Boatwright and Forrest (2000) confirmed gender differences, arguing that

women leaders value the relational aspects of their roles more so than men. On a different

leadership dimension, the tendency to lead autocratically or democratically, Eagly and Johnson

(1990) reported that female managers are considerably more democratic than male managers.The

area of leadership style in which women surpass men is gains in leader effectiveness.

Meanwhile, the areas in which men surpass women have negative or null relations to

effectiveness. Eagly and Carli (2003) reached the conclusion that female leaders, relative to male

leaders, are correctly described as possessing both advantages and disadvantages. According to

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Rosener (1995) and Helgeson (1990), they agreed and concluded that women are strong in

generating ideas and innovation. Furthermore, women realise the importance of networks and

connections in organisations, and they take a more proactive approach than men in addressing

problems (Bass &Avolio, 1994). Moreover, women in leadership emphasised personal relations

while men focused on task accomplishment as mentioned in Eagley and Johnson(1990), who

used a meta-analysis to assess the significance of gender differences in leadership styles.

In Helenrose and Looney‘s(2002) study, the differences in teacher efficacy were found

with respect to gender and academic domain, while no significant differences were found in

teacher efficacy with regard to prior experience, professional level, or age. Scribner (1999)

identified an inverse relationship between personal teaching efficacy and general teaching

efficacy; a positive relationship between female gender and personal teaching efficacy and

general teaching efficacy; a positive relationship between overall teaching efficacy and general

teaching efficacy with years of experience. In terms of age, since there are differences in males‘

and females‘ ways of perceiving their leaders, we expect the same differences in their ages as the

ages differed in Stogdil‘s ( cited in Bass, 1981) research where the older respondents used to

respond differently in perceiving their leaders compared to younger ones. Additionally, both

male and female academics exercise different styles of leadership in a series of research studies

conducted by Rosener (1990), Mazlan (2008) andKlenke (2003). Similarities were found in their

findings where women were perceived by the respondents to have a transformational leadership

style and men a transactional leadership style. Similar findings were confirmed in Eagly and

Johannesen(2001) where women were perceived as democratic and men as autocratic (Raja-

Suzana&Rudzi, 2009).

4.8.2 Length of Service and Work Experience Looking into demographics in terms of length of service and work experience towards

differences in leadership styles, Suhana (2000) reported in her findings that in both the initiating

structure and consideration dimension, the scores were high except for those who had served at

their present school for more than ten years. Similarly, Jamaluddin (1998) in his study found

working experience and occupational rank significant predictors on the ―telling leadership style‖.

In contradiction, a study conducted by Franklin (1989) revealed that the perception of school

climate, age, sex, level taught, years of teaching experience and academic qualifications did not

affect teachers‘ sense of efficacy regardless of the setting.

4.9 Self-efficacy & Demographics

On the issues related to academic staff self-efficacy and development at university in

Malaysia, a research conducted by Fauziah (2009), looking into levels of job satisfaction

amongst Malaysian academic staff applied a 7-item general satisfaction scale and had a sample

of 237 academic staff from all faculties. She reported that current status, marital status, ageand

salary appear to have a significant impact on the respondents‘ level of job satisfaction. In

addition, in terms of general satisfaction, the academic staff were moderately satisfied . General

satisfaction showed no indication of significant differences between genders. In terms of gender

and country in relation to satisfaction, there were no significant differences on whether the

respondents had their education in the Asian or Western countries. Overall, there were no

significant differences between male and female respondents with regard to general satisfaction

(Fauziah, 2009).

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As is evidenced by the breadth of research on the impact of demographics and leadership

styles, the mentioned research and cited findings above show great differences in findings in

terms of perceived leadership styles and the influence of demographics as well as relationships

with leadership styles in Malaysia compared with the global view. In Malaysia, the teachers or

academics seemed to be satisfied with their jobs and efficacious compared to other countries.

Therefore, it is interesting to see variance in findings on leadership styles in relation to

teachers‘/academics‘ self-efficacy, development and job satisfaction.

4. Methodology 5.1 Population & Sample

The population of this study consists solely of academic staff in one Malaysian Islamic

University. Table 3.1 shows the distribution of academic staff at the University according to

gender. A sample size of 302, according to a suggestion by Krejcie and Morgan (1970) on the

determination of sample size, was required for this research. The sample size was then selected

using the stratified sampling technique and both strata of male and female staff were represented

in the proportion in which they appear in the population.

5. Instrument & Data Analysis For the instrument, the Leader Behaviour Description Questionnaire (LBDQ) was used.

The instrument was adapted from Chee (1998). Initially the instrument was developed at the

Ohio State University and later refined by Halpin and Winer (1966). From this instrument

(LBDQ), the researcher adapted only 9 items and 5 items were taken from the

Management/leadership Assessment scale (MLA) by Heim and Chapman (2004). For self-

efficacy, the Collective Teacher Self-efficacy scale (CTS) was employed. The Collective

Teacher Self-efficacy scale was constructed by Schwarzer, Gerdamarie, Schmitz, and Gary

(1999).

For the data analysis, statistical analysis was conducted to answer the five research

questions. Descriptive and inferential statistics were used by employing the SPSS (16.0)

program. To answer the first, second, third and the fourth research questions, descriptive

statistics were used to indicate the percentages and frequencies of the respondents, their age, the

level of their qualification, Faculties/Centres, length of service and academic experience. The

means were then compared in order to determine the dominant leadership styles of the heads.

6. Findings 7.1 Leadership Styles & Gender

The t-test was used to examine the perceptions of academic staff on the leadership styles

of their heads according to gender. The results in Table 4.1 show that there was a significant

difference between male and female academic staff in terms of the perception of democratic

style, t=5.12, p≤ .01. The mean for the male respondents was higher (mean=78.73, SD=17.11)

than the mean for the female respondents (mean=67.9, SD= 17.5). Thus, the male academic staff

had a higher perception that their heads practised democratic style that their female counterparts.

For the Authoritarian leadership style the analysis shows that there was no significant difference

between male and the female academic staff on the perception (t= -2.57, p≥ .11). In terms of the

Laissez-Faire leadership style, the results show that there was a significant difference between

male and female academic staff on the perception of the Laissez-Faire leadership style and

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gender (t= –2.94, p .03). The mean for female respondents was higher (mean=41.9, SD=12.00)

than the mean for male respondents (mean= 37.6, SD=11) (Table 1).

7.2 Leadership Styles & Academic Qualifications One-way ANOVA was used to investigate the perception of the academic staff on

leadership styles according to their academic qualifications. The analysis showed that there was a

significant difference among academic staff on the Authoritarian leadership style while there was

no statistically significant difference between Democratic (F=1.85, p≥ .15) and Laissez-Faire

Leadership styles (F=1.35, p≥ .26) (Table 2).

A Post Hoc test was used to show the significance level. Post Hoc analysis using the

Tukey HSD criterion for significance indicated that significant differences were found between

Doctoral and Bachelor‘s degree holders on the leadership styles (p ≤ .012) while there are no

significant differences between Bachelor‘s and Master‘s Degree holders on the leadership styles

(Table 3). Thus, those academic staff members with Bachelor‘s degrees and Doctorates seemed

to perceive their heads to be more authoritarian as compared to the academic staff with Master‘s

degrees.

7.3 Leadership Styles & Academic Staff’s perceptions according to Faculties/Centres

One-way ANOVA was also used to examine the significant differences between the

Faculties/Centres and leadership styles. The assumptions of homogeneity of variance (Levene‘s

test) for the faculties and the leadership style were sustained. (Table 4).

7.4 Democratic Leadership Styles & Academic Staff’s perceptions according to

Faculties/Centres

Table 4 shows the ANOVA analysis which established a significant difference between

leadership styles and Faculty/Centre. The result indicated that there is a significant difference

between leadership styles (Democratic, Authoritarian and Laissez-Faire) and Faculty/Centre. For

the Democratic leadership style and Faculty/Centre F=7.33, p ≤ .001. As such, in this research, it

was reported that the Director of the Institute of Education seemed to be perceived as the most

democratic head when compared with the rest of the Faculties/Centres or institutes. The Institute

of Education has the highest mean at 85.33 among the various Faculties/Centres for being rated as

the most democratic faculty by the majority of the academic staff. This is followed by the Faculty

of ICT at 81.66, while the Centre for Languages & Pre-University Academic Development at

55.80 seemed to obtain the lowest mean pertaining to the item of practising the Democratic style.

7.5 Authoritarian/Autocratic Leadership Styles & Academic Staff’s perceptions according to

Faculties/Centres

One-way ANOVA analysis reported that there is a significant difference between the

Authoritarian leadership style at different Faculties/Centres (F=4.70, p≤ .001) (Table 5).

Descriptively, the Dean of the Centre for Languages & Pre-University Academic Development

seemed to be perceived by the academic staff at the Centre for Languages & Pre-University

Academic Development as an authoritarian leader with the highest mean score at 55.19, whereas

the majority of other respondents from the Centre for Languages & Pre-University Academic

Development rated their leader as autocratic. This was followed by the Matriculation Centre and

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Islamic Revealed Knowledge and Human Sciences. The Centre for Education with a mean =

37.91 was the lowest.

7.6 Laissez-faire Styles Leadership Styles & Academic Staff’s perceptions according to

faculty/centre

ANOVA analysis showed a significant difference between a Laissez-Faire leadership

style and Faculty/Centre (F=4.19, p≤ .001). Descriptively, the Dean for the Centre for Languages

& Pre-University Academic Development seemed to be perceived as more laissez-faire by

obtaining the highest mean at 45.77, compared to the rest of the Heads and the Faculties. This

was followed by Islamic Revealed Knowledge and Human Sciences at 43.9, while the

International Institute of Islamic Thought and Civilization had the lowest mean at 32.60.

7.7 Leadership Styles & Age, Length of Service & Academic Experience

A Spearman Correlation was used to examine a significant correlation between

leadership styles, age, length of service and academic experience. Table 6 shows that there was

no significant statistical correlation between leadership styles and age. However, there was a

positive significant correlation between length of service and both of the Democratic and

Authoritarian leadership styles (rho = -.192, p≤ -.175) and (rho= .126, p≤ .045), respectively. For

the Laissez-Faire leadership style there was no significant correlation between age, length of

services and academic experience and Laissez-Faire (rho = .042, p ≥ .490). As for academic

experience, there was no significant correlation between leadership styles and age.

7.8 Self-efficacy and Demographic Variables

Gender

The t-test was used to examine the perceptions of the academic staff‘s own self-efficacy;

this was done according to gender. The results illustrated that there was no significant difference

between male and female academic staff on self-efficacy, t= -.56, p≥ .57 (Table 7).

7.9 Academic Qualification & Faculties/Centre

One-way ANOVA was employed to investigate if there was a significant difference in

respondents' perceptions of self-efficacy according to Academic qualifications and

Faculty/Centre. In contrast, the results show that there is no significant difference of respondent

perceptions of self-efficacy according to academic qualifications (F=1.93, p≤ .14) and self-

efficacy and Faculty/Centre (F= .48, p ≤ .88) (Table 8).

7.10 Self-efficacy with Age of Service & Academic Experience

Table 9 shows that there was no significant correlation between the age of the academic

staff and self-efficacy (rho= .004, p ≥ .941). However, no significant relationship found between

length of service and self-efficacy (rho= .004, p≥ .942). Also, no significant relationship found

either for the academic staff and self-efficacy (rho = .051, p≤ .402).

A Pearson Correlation was employed to examine the relationship between the leadership

styles of the heads and the self-efficacy of the academic staff. The results show that the

Democratic and the Authoritarian leadership styles were not significantly correlated with the

self-efficacy of the academic staff. For democratic, r=.028, p .642, authoritarian, r=.101 p




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.096, the findings show that there was a positive significant correlation between the Laissez-

Faire leadership style and self-efficacy (r = .135, p .026). This means that there was a

significant association or relationship between the Laissez-Faire leadership style of the heads and

the self-efficacy of the academic staff at the university (Table 10). The academic staff, in

general, perceived their heads to be more laissez-faire in their leadership style. This means, the

higher the Laissez-Faire leadership style exercised by the heads, the higher the self-efficacy of

the academic staff. Hence, the more laissez-faire the heads are, the more efficacious they will be.

7. Summary

The result of the t-test analysis showed that there was a difference between the academic

staffs‘ perceptions according to the Democratic and Laissez-Faire leadership styles and gender.

The male academic staff seemed to perceive their heads as being more democratic than the

female academic staff. On the other hand, the female academic staff seemed to perceive their

heads as more laissez-faire than the male academic staff. From the Spearman Correlation

analysis, it showed that there was no relationship between the leadership styles, age and

academic experience.

In another finding, there was a strong correlation between the Democratic and the

Authoritarian leadership styles and length of service, while there was no relationship with the

Laissez-Faire leadership style. The ANOVA analysis showed that there was a significant

difference between the Authoritarian leadership style and academic qualifications on the

perception of the academic staff. However, there was a significant difference between the

leadership styles and the Faculty/Centre. Looking at the demographic variables and self-efficacy,

no relationship was found between demographic variables and self-efficacy. The result of the

Spearman Correlation indicated that there was no significant correlation between the Democratic

and the Authoritarian leadership styles and self-efficacy, whereas there was a significant positive

correlation between the Laissez-Faire leadership style and self-efficacy of the academic staff.

8. Discussion

With the literature and findings mentioned in this study, it is evidenced that

demographics, particularly gender, play huge role in determining the type of leadership styles of

leaders and how leaders were perceived by the workers or followers in different organisations.

Interestingly, the findings of gender and leadership styles are varied and inconsistent across the

borders especially in Malaysia.

In Malaysia, the cited findings had shown a very consistent result of influence of gender

or demographics in general and leadership as well as the workers‘ and staffs‘ perceptions of their

leaders‘ style or behaviour. According to the findings of Usher (2009), Norfarhana (2009) and

Khadijah (2004), in Malaysia, whether in educational realms or business settings, demographics

do not influence styles and the workers had similar perceptions about the leadership style of their

leaders. These findings were not in line with the present study or that of Suhana (2004), finding

differences between length and work experience but not finding any differences between gender

and leadership style as well as job satisfaction in the Malaysian working sector. Comparing

Malaysian studies with those from other environments, the present study did not support

Jamaluddin‘s (1998) findings relating to ―selling leadership style‖ (participative) with gender.

Thus, more females perceived their deans as practising ―selling leadership style‖ than males,

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while in this study, males perceived their deans/heads as being more democratic compared to

females.

In terms of leadership style and workers‘ or teachers‘ sense of self-efficacy, in Malaysia,

the present study supported somehow the latest study of instructional leadership and self-efficacy

at school level by Masitah, Azizi, Ahmad and Bahaman (2010), where moderate self-efficacy

was found among the teachers and where moderate leadership style practices were also found.

Comparing Malaysian findings with others globally, this present finding is consistent with

others such as Smylie (1995), Caitlin (1982), Tseng (1985), Wu (1984), Kim (1986) and Mitchell

(1989) in China, Allinder‘s (1994), Guskey, (1984);,Hall, Burley, Villeme, &Brockmeier (1992),

Coladarci, (1992) Evans &Tribble, (1986), Trentham, Silvern, &Brogdon, (1985), Burley, Hall,

Villeme, &Brockmeier (1991), Glickman &Tamashiro (1982), Teng (2006) and Philips (2009).

More on self-efficacy and academics‘ development in educational settings, the present study is

similar to research on school principals and teachers‘ job satisfaction by Rosenholtz, (1985) and

Geijsel, Sleegers, Laithwood and Jantzi (2003) where school principal leadership style

influenced the job satisfaction of teaching staff and their commitment as well as being willing to

change (Yu, Leithwood&Jantzi, 2002). All these studies found leadership improving workers‘ or

teachers‘ ability and development. Thus, the researchers found a relationship between leadership

styles and teacher s‘ personal efficacy across the nations.

In relation to gender leadership style, it is believed worldwide that women favour

transformational leadership while men prefer transactional leadership style (Rosener, 1990;

Mazlan, 2008; Klenke, 2003; Raja-Suzana&Rudzi, 2009). Similar findings were confirmed in

Eagly and Johannesen(2001) where women were perceived as democratic and men as autocratic.

The mentioned findings are partially supported by the present findings where male director/dean

was perceived as an authoritarian.Thus, this study is in line with Boatwright and Forrest (2000)

who confirmed gender differences, arguing that women leaders value the relational aspects of

their roles more so than men.

Furthermore, this research shows how male and female academic staff are differ in their

perceptions towards their heads‘ leadership styles. Male academic staff perceived their heads as

democratic while females, on the contrary, saw them as being rather autocratic or laissez-faire.

This has shown somehow a poor relation between heads of departments and female academic

staff. It shows the kind of leadership style applied by the heads in dealing with the female. In

terms of qualification, the academic staff with Bachelor‘s degrees and Doctorates seemed to have

different perceptions towards their heads compared with Master‘s degree holders. Hence, both

seemed to perceive their heads as authoritarians.

It is very interesting to see female staff perceiving their heads as autocratic compared to

male staff seeing them as democratic. Besides, it is also strange to see the academic staff with

Bachelor‘s degrees perceiving their heads as autocratic because they are somehow new to the

system and it is too early to evaluate the style of their heads while it is normal to see the

academic staff with Doctorates having the perceptions because they are experienced staff orhave

high cognitive thinking and intellect to evaluate the leadership style of their heads. In contrast,

the academic staff with lengthy experience seemed to be happy with their jobs and perceived

their heads as democratic in nature and some perceived them as autocratic. In relation to self-

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efficacy, gender, qualification, faculties, age and length of service differences did not have an

influence on academic staff being efficacious or inefficacious. Thus, the perceptions seemed to

beunanimous and most of the academic staff seemed to perceive themselves in all levels as

efficacious.

Disappointingly and, perhaps, surprisingly, laissez-faire leadership style was seen to have

a positive relationship with academic staff self-efficacy. This was despite the destructiveness and

ineffectiveness of laissez-faire style on workers and organisations as was mentioned in the

majority of the literature and findings especially the of study of Torsheim, Aasland, Merethe and

Hetland (2007),which found laissez-faire style to be a destructive style with its relationship with

stress and bullying at work. Besides, it is common to have a positive relationship between

democratic or participative leadership styles with self-efficacy while it is expected for

organisational development to discover a negative correlation between laissez-faire and self-

efficacy. But this research has uncovered another new and interesting finding where the

academic staff are efficacious when the leadership style is laissez-faire. Thus, the more the heads

of departments at the Malaysian Islamic University exercise laissez-faire leadership styles, the

more efficacious the academic staff will be.

It is very interesting to note that, even if the Heads of departments and Deans exercise or

apply the laissez-fair leadership style, the academic staff are still efficacious, exercise

responsibility and are committed to their work. Thus, it shows how academic staff are devoted

and ready to perform their job efficiently regardless of the leadership styles exercised by the

heads. This unexpected result of the present research could show a variation of perceptions

across the global and cultural differences across nations. As an implication, this could be a

setback in applying proper leadership styles by leaving things in academics‘ hands to decide and

decisions to make. In addition, it could show mismanagement of the leaders or heads by

relinquishing power unnecessarily without taking action when they should. Unfortunately, till

this moment, further research has not ventured to conduct a replication, continuation or a retest

of the hypothesis at the same university, academic staff and with large sample sizes to confirm

the result of this present study.

9. Recommendations

Heads of departments at a selectedMalaysian Islamic University should take the

initiative.

Heads of departments should be responsible, taking action with the ability of making

good decisions.

Heads of departments should apply an effective leadership style in matters related to

teaching and learning.

Academic staff should be given autonomy and the chance to participate in the decision-

making process as well as being empowered.

Further research on leadership styles at a selected Malaysian Islamic University should be

conducted, focusing on deanship styles and management styles as well.

Further research should be conducted to confirm the existent results and findings for

intensive solutions to be made.

Robust statistical analysis should be used and larger sample sizes should be selected in

coming research.

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10. Summary & Conclusion

From this research, male academic staff perceived their heads as more democratic than

the females, whereas, female academic staff perceived their heads as more laissez-faire than the

males. Besides, the academic staff with Bachelor‘s degrees and Doctorates perceived their heads

to be more authoritarian as compared to the academic staff with Master‘s degrees. Moreover, it

was also found that the Director of the Centre for Education was perceived as the most

democratic head as compared to the heads of the rest of the Faculties/Centres while the Dean of

the Centrefor Languages and Pre-University Academic Development was rated by academic

staff as more authoritarian and laissez-faire in nature.

Furthermore, the results of this research show that there was a positive significant

relationship between the Laissez-Faire leadership style and the self-efficacy of academic staff at

the Malaysian Islamic University while there was no significant relationship between the

Democratic and Authoritarian leadership styles and academic staff‘s self-efficacy. Thus, the

higher the Laissez-Faire leadership style exercised by the heads at the Malaysian Islamic

University, the higher is the self-efficacy of the academic staff. Therefore, it is obligatory for the

university management and leader at the Malaysian Islamic University to practise democracy and

apply democratic leadership styles for the academic staff to have a sense of belonging, freedom,

autonomy, participation and self-efficacy for the sake of student achievement.

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The demographics impact of Owner on entrepreneurial orientation:

Evidence from Khyber Pakhtunkhwa-Pakistan.

Hafiz Ullah

Institute of management sciences, Kohat University of science & technology, Kohat, KPK-Pakistan

Professor Dr. Bahadar Shah

Dean Faculty of Law & Administrative Sciences, Hazara University, Garden Campus, Mansehra, KPK-Pakistan

Dr. Najeeb Ullah Khan

Department of Public Administration, Gomal University, D.I.Khan, KPK-Pakistan

Abstract

The impact of demographic variables on entrepreneurial orientation has been discussed at the

global level.Similarly many studies are available on the developing countries but there are little

empirical evidence in developing countries like Pakistan with special reference to Khyber

Pakhtunkhwa (KPK).The purpose of the study is to analyse the demograhics(Gender, Age,

Domicile ,Education level and Type of ownership) impact of owner on entreprenruial orientation

in KPK.Quseduestionaire was used to gather data through stratified sampling method. Two

Hundered and nineteen questionnaires were distributed among members registerred with

different (Khyber Pakhtunkhwa, Hazara and D.I.Khan) chambers of commerce and indutry in

KPK. T-test and ANOVA test are applied to investigate mean difference of repondents (Owner)

on the basis of their demographic variables impact,about their entreprenruial orientation. The

results of T-test and ANOVA has shown mean difference between the groups on the basis of

their demograhics about their entreprenruial orientation.Only one hypothesis rejected which

shows that there is not significant differences between proprietor and partners type of business in

respect of entrepreneurial orientation.

Keywords: Entrepreneurial Orientation, Khyber Pakhtunkhwa, Age, Gender, Type of Owners,

Local and non local, and Education level.

1. Introduction: Nowadays entrepreneurship is playing very vital role in moving the economies of specially developing countries forward. The new stories of successful entrepreneurship are not only coming from Silicon Valley and Cambridge Research Park but also coming from Beirut, Saudi Arabia as well as from Pakistan. Specifically Air Blue Success story (the first paperless airline in the world which quickly acquired 30% share of the country domestic market (Keyes and Shadow,2010).Entrepreneurship is occurring in Pakistan and it is important that successful entrepreneurs such as those created Servaid Pharmacy, Air Blue or the university start up enterprises emerging now in different cities of Pakistan are recognized and receive visibility that they need to grow into larger business and this will compel the economy of the country forward. Further this will motivate our young generation to not become job seeker but to become jobs





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creators and entrepreneurs. Entrepreneurship is a phenomenon of great interest throughout the globe, especially in developing economies and it is considered to be important for economic development (Samli, 2002).In the same way enterprises, creating and introducing new products and technologies, can generate extraordinary economic performance and have been seen as the engines of economic growth (Schumpeter, 1934, 1954; Brown and Eisenhardt, 1998).

There are different research studies which measure the impact of the entrepreneur's education, age groups, gender, career history, their motivation on the enterprise growth and their entrepreneurial behavior, in other words entrepreneurial orientation is influenced by these demographics (Bates,1995; Cooper et al.1994; Dahl and Reichstein,2005 and Preisendorfer and Voss, 1990). This approach differentiates the entrepreneurial firms from others on the basis of demographic variables of their entrepreneurs.

Most of the emerging theories and literature reviews regarding entrepreneurship development are derived from the growing body of knowledge comprising of the studies conducted in developed countries. One of the main reasons is the scarcity of research conducted on entrepreneurship development in developing countries (Allen and Truman, 1993) like Pakistan. More over most of this work has been conducted by the international development agencies, which have tended to focus on 'macro-perspective'(Wees and Romijn, 1987) .But this study will discusses in detail the different demographic variables affecting entrepreneurial orientation with special reference to Khyber Pakhtunkhwa (KPK).

The objective of this study was to explore the profile of members registered with different chambers of commerce and industry in Khyber Pakhtunkhwa (KPK) and to measure mean differences about their entrepreneurial orientation on the basis of demographics. Although the importance of different demographic variables, such as gender, age groups, levels of education etc. (Gasse, 1985; Hirsrich,1986 and Matthews & Moser, 1996) has been widely discussed in the literature but there is little empirical evidence in developing countries like Pakistan with special reference KPK.

The Khyber Pakhtunkhwa is a fertile land having rich opportunities in different sectors of economy but enterprises are not operated successfully because of raw technology or low conceptual knowledge and skills are applied which not properly contributing in the economic development of country, in the sense that neither creating more job opportunities and nor reducing poverty as the need of province.


2.1 Entrepreneurial Orientation

The term ―entrepreneurship‖ has been defined for over 200 years from different prospective(Hebert and Link,1988). The traditional focus was on the efforts of an individual whose innovative behavior translates his vision into successful business enterprise (Collins and Moore, 1964). More recently, however, entrepreneurship has been conceptualized as a ―process” which can occur in enterprises of all sizes and types and which is distinct from, but dependent on, specific individuals (Burgelman, 1983; Gartner, 1985; Kao,1989; Miller, 1983and Wortman, 1987).

So in this way, entrepreneurship can be defined as ―process of creating value by bringing together a unique package of resources to exploit an opportunity‖ (Stevenson, Roberts and Grousbeck, 1989). This process includes both an entrepreneurial event and an entrepreneurial agent. The event refers to the conceptualization and implementation of a new venture. While agent on the other hand is an individual or group that assumes personal responsibility for bringing the event into successful business enterprise.

The entrepreneurial process has attitudinal and behavioral components (Bird, 1988;Long Tan and Robinson,1995). Attitudinally, it refers to the willingness of an individual or organization to seek new opportunities and take responsibility for effecting creative change (Miller and Friesen,1982,1984). This willingness is referred to as an ―entrepreneurial orientation‖.


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Behaviorally, it includes the set of activities required to evaluate an opportunity, define a business concept, assess and acquire the necessary resources and then to operate and harvest the rewards through firm‘s creation (Stevenson, Roberts and Grousbeck, 1989).

Entrepreneurial orientation refers to the processes, practices, and decision-making activities used by entrepreneurs to act entrepreneurially that lead to the initiation of an entrepreneurial firm (Lumpkin and Dess, 1996). Miller (1983) defines an entrepreneurial firm as ―one that engages in product market innovation, undertakes somewhat risky ventures, and is first to come up with ‗proactive‘ innovations, beating competitors to the punch.‖ However, each dimension is suggested to be positively correlated (Lumpkin and Dess, 1996), which has been validated empirically (Rauch, Wiklund, Freese, and Lumpkin 2004).So entrepreneurial firms are those whose entrepreneurial behavior focuses on risk taking, innovation, and proactiveness. So entrepreneurial orientation is evidenced through observable entrepreneurial tendencies toward innovativeness, Proactiveness and risk taking.

The construct entrepreneurial orientation (multidimensional construct encompassing firm innovativeness, proactiveness and risk taking) is receiving increased attention in the field of entrepreneurship (Stevenson and Gumpert, 1985). This entrepreneurial orientation construct seems too applicable in all types of enterprises. Further Kreiser, Marino and Weaver (2002) reported that the entrepreneurial orientation construct was valid across different national contexts and applicable globally.

The conceptualizations of entrepreneurial orientation include three dimensions: proactiveness, risk taking, and innovativeness. A literature review confirmed that these three dimensions are the most commonly used in entrepreneurial research. (Covin and Slevin,1989, 1991; Knight, 1997; Morris and Paul, 1987; Miller, 1983; Zahra and Covin, 1995; Zahra, 1993). Innovation refers to the seeking of creative, unusual or novel solutions to problems and needs. These solutions take the form of new technologies and processes, as well as new products and services (Vesper,1980 and Schumpeter ,1934). Risk taking involves the willingness to commit large resources to opportunities which have a reasonable chance of costly failure i.e. that includes risk taking(Stewart and Roth,2001;Gasse,1982). Proactiveness is the propensity to anticipate and act on future market needs and opportunity (Schwartz, Teach, and Birch, 2005; Kouriloff ,2000;Lumpkin and Dess, 1996) and has first mover advantage to become pioneer and also always strive to gain an edge over their competitors(Kerin,1992).

Empirically, the positive impact of entrepreneurial orientation on firm performance and growth has been supported by several studies (Stuart,1990;Lumpkin and Dess, 1996,2001; Wiklund, 1998,1999, Wiklund, and Shepherd ,2003; Zahra, Jennings, and Kuratko, 1999;Dess, Lumpkin and Covin,1997). 2.2 Demographic impacts The importance of different demographic variables, such as gender, age groups, levels of education etc. has been widely discussed in the literature affecting entrepreneurial orientation (Gasse, 1985; Hirsrich, 1986 and Matthews & Moser, 1996). Following is the detail of different demographic variables discussed in the literature review.

2.2.1 Gender:

There are different research studies which concluded that enterprises operated by female owner have low chances of success as compared to male (Boden, 1996; Boden and Nucci 1990 and Cooper et al. 1994; Matthews,1996). This has been justified by the fact that the disadvantage of female in accumulating both financial and human capital as well as less exposed to managerial experience. Women‘s motivations to start their own businesses to fulfill her needs and personal goal attainment, etc. as the main reason for women showing low performance and growth as compared to men(Lerner, Brush and Hisrich,1997).Similarly female Owner has low degree of risk taking capacity, innovativeness and proactiveness .Over al studies results described that men

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are more likely to start and run their business with higher entrepreneurial orientation than women (Kolvereid, 1996).According to these results, it is stated that enterprises owned by male owner have different entrepreneurial orientation than those operated by women. Hence,

Hypothesis (H1): Enterprises operated by male owner have different entrepreneurial orientation than those operated by female.

2.2.2 Age:

The relationship of age to the entrepreneurial orientation has also been vigilantly researched by Ronstadt(1983).In term of chronological age most of the entrepreneurs initiate their entrepreneurial career between the age of 22 and 40. Earlier start in entrepreneurial career is better than later. There are also miles stone year every year when individual is more inclined to start an entrepreneurial career. Generally male tend to start his first significant business enterprise in early 30s. The association of owner's age and entrepreneurial orientation has been discussed in literature (Preisendorfer and Voss,1990). Study conducted by Macrae(1992) and Birley & Westhead (1994), length of tenure has been recognized as an important factor. Enterprises started at earlier stage of life by entrepreneur (owned by young) have more entrepreneurial orientation than later ones (owned by old).Hence,

Hypothesis (H2): Enterprises with different age groups of Owner have different entrepreneurial orientation.

2.2.3 Domicile (Local and non local):

Non local members of society (marginalized groups) which consist of disproportionate supply of entrepreneurs also play an important role in entrepreneurial activities and contribute in society through their entrepreneurial orientation (Irastorza ,2006). For instance ―Dissentersin England, Protestants in France, Chinese in South East Asia, Indians and Arabs in Africa, or Parsees in India‖ (Greenfield and Strickon, 1995) Afghan refugees and Memons in Pakistan (Zeba ,2003) are some notable examples. As non local members are socially marginalized and feel discrimination by the majority of society members, always try to overcome this through their entrepreneurial orientation as a way to achieve high status in society with the support of their family and/or supply of networks(Claessens,1999). Owner who is non local enhances his chances to operate his enterprise with higher entrepreneurial orientation than local one and ultimately increase firm's entrepreneurial orientation. Hence,

Hypothesis (H3): Non local owner of enterprises have diverse entrepreneurial orientation than local one.

2.2.4 Level of education:

The entrepreneur‘s level of education has also been gained important research consideration .Although some may feel that entrepreneurs are less educated than general population, but research findings indicate that this is not clearly the case. Research has shown that entrepreneurs are more educated than general public ( Hisrich and Brush, 1986). Studies have shown that having more years of schooling sharply raises person probability of trying to start business enterprise (Selz.1995) with higher entrepreneurial orientation. Education has conventionally been found as key determinant of the entrepreneur‘s human capital, with a positive affect on the success of enterprise (Bruderl et al. 1992). Similarly attending training activities in this context is also an important factor and contains additional advantage particularly for those who are interested to start and promote their own business. This also increases his awareness and knowledge in order to flourish entrepreneurial orientation.So it is stated that; enterprises whose Owner/) with more years of schooling have more entrepreneurial orientation than others. Hence

Hypothesis (H4): Enterprises Owners with Difference of education level changes their entrepreneurial orientation.

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2.2.5 Type of owners (Sole proprietor and Partners):

Enterprises operated by the two or more partners are more successful than those having single one (Woo, Cooper, Dunkelberg, Daellenbach &Dennis1989) .Schutjens and Wever (2000) said that having business partner increases enterprise growth in respect of employment creation and sales turnover. Enterprises operated by more than one individual may survive for the longer period of time than those owned by single owner. Two minds are better than single one because this increases theirs risk taking capacity, to develop new ideas and beat the competitor collectively. Similarly they are more capable to manage their enterprise with higher entrepreneurial orientation. Due to these facts, hence it can be said that enterprises operated by larger number of individuals have more entrepreneurial orientation than single one. Hence,

Hypothesis (H5): Enterprises with single and partner Owners possess different entrepreneurial orientation

2.3 Research framework and variables selection:

The conceptual framework in this model is based on the demographic variables (Gerder, Age, local and Nonlocal, Education level and Types of Owner) and the dependent variable entrepreneurial orientation measured on five point interval scales. The schematic diagram of the theoretical framework is presented in Figure 1.

Schematic diagram of the theoretical framework

Figure 1 The demographics Impact on Entrepreneurial Orientation


3.1 Survey method and data collection:

Survey research is excessively used in social sciences for data collection (Babbie, 1993:256). Finally survey strategy can also be an excellent vehicle for measuring attitudes and orientation in a large population (Babbie, 1993).

Survey based methodology was used in this research in order to obtain data from the respondents registered with different chamber of commerce and industry in KPK. Data was collected in 2009. The data for this study was collected through a questionnaire by the researcher. 219

Gender (H1)

Age (H2)

Domicile (H3)

Education level (H4)

Type of owner (H5)


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questionnaires were successfully collected and were found to be complete and usable for data analysis.

3.2 Questionnaire development

The questionnaire was divided into two sections.The first sections was consists of demographic variables affecting entrepreneurial orientation. Questions about gender, age groups, domicile, type of owners and education level of Owner affecting entrepreneurial orientation were asked in questionnaire. All these questions wer asked on nominal scale.

The second sections was consists of entrepreneurial orientation measurement. Entrepreneurial orientation was measured by asking nine questions about innovativeness, risk taking propensity and proactiveness on five-point Likert scale from strongly agree to strongly disagree, developed by Covin and Slevin (1989). All these questionswere asked on interval scale.

3.3 Population of the Study and Sample size determination

Population size of the Study:

The Population of this study consist of 3496 members registered with different chambers in Khyber Pakhtunkhwa province like Khyber Pakhtunkhwa previously known as Sarhad Chamber (2501 members) , D.I.Khan (291 members) and Hazara(704 members) chamber of commerce and industry working in different categories. (www.Kpcci.org.pk) The detail of population size of the study provided by respective chambers is given bellow in Table 1.

Table 1. Details of population size of the study.

3.4 Sample size determination:

In order to determine the readability, clarity of questionnaire and reliability of measures the researcher conducted a pilot study. Researcher distribute questionnaire among thirty eight members in pilot study and cronbach‘s alpha was above the acceptable range .For sample size determination the result of pilot study are given in Table2.

Categories

Khyber Pakhtunkhwa

(Sarhad) Chamber Of


Hazara Chamber Of

Commerce and

Industry

D.I.khan Chamber Of


Total

Services

Providers

171 56 24 251

Manufacturers

and Traders

291 88 51 430

Traders 2039 560 216 2815

Total 2501 704 291 3496


http://www.kpcci.org/


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Table 2. Sample Selection Procedure (Pilot Study Statistics) Sample (FINITE population) Stratified Samples

Disproportionate sampling

(from formula)

N SD() N

Services Providers 251 0.69 14

Manufacturers And Traders 430 0.79 29

Traders 2815 0.86 176

N= 3496 N= 219

Formula

na= [(nNaa)/((Naa)+(Nbb)…+Nnn))]

nb= [(n Nbb)/((Naa)+(Nbb)…+Nnn))]

………………………………………..

nn= [(n Nnn)/((Naa)+(Nbb)…+Nnn))]

Pilot Study Statistics

Standard Deviation

(s) or() 0.78

Acceptable Margin of

Error (d) 0.10

Z value at 95%

Confidence 1.96

Sample Population

(N) 3496

Sample Size (n) 219

Formula

n0= z2s

2/d

2

n= n0 / (1+n0/ N)

The sample size is determined using Cochran's sample size determination formula (Cochran & Snedechor, 1980). Legend for Cochran's sample size determination formula:

d = acceptable margin of error of +/- 2% (0.02 x 5 point Likert type scale)

s =estimated standard deviation z = acceptable risk (z at 0.05, is 1.96)

(Z is used instead of t because, to determine the critical value of t, the sample

size needs to be known, but it is not known yet ( Levine et al, 2005).

N = population size

n0 = unadjusted sample size

n = adjusted sample size

The target population of the study included the total number of members registered with chamber of commerce and industries in KPK. The population is consisting of traders, services providers and traders and manufacturers on small and medium scale. In the social sciences, a 95% confidence level is usable, which equals 1.96 z-values.

Note. As population is the combination of three different groups, also the population of traders‘ group with respect to others is too large. It can be seen from the above table that results of proportionate sampling do not give proper representation to each group. Therefore, situations like this Sekaran, (1999,p.270) said that ―disproportionate sampling decisions are made either when some stratum or strata too small or too large, or when there is more variability suspected within a particular stratum‖. So we applied disproportionate stratified sampling procedure which is shown in the right most to the above Table 2.

3.5 Statistical methods:

Descriptive statistics were computed ito develop respondents profile .To analyze the data and test the null hypotheses specified in the study, t-test and ANOVA test were applied to investigate means difference of repondents about their entrepreneurial orientation on the basis of its demographic variables, one at a time conducted.

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4. Data Presentation, Analysis and Interpretation

After data have been collected from representative sample of the population, the next step is to analyze it in order to test the research hypotheses. The data was analyzed using SPSS (V.18.0) to examine the Cronbach‘s alpha for the measure, to develop respondents profile through frequency distributions and finally hypotheses testing.

4.1 Checking the Reliability of measure: Cronbach‟s Alpha]

Cronbach‘s alpha reliability coefficient of the dependent variables is obtained. This was above 0.80. The sample of the result obtained for Cronbach‘s alpha test for the dependent variable (entrepreneurial orientation) is given below:

Reliability test:

N of Cases = 219 N of Items = 09 Reliability Coefficient Alpha = .89

The result indicates that the Cronbach‘s Alpha for the nine items is 0.89. The closer the reliability coefficients get to 1.0, the better. In general, the reliabilities less than 0.60 are considered to be poor, those in the 0.70 range, acceptable, and those over 0.80 good (Sekaran, 2000). As the Cronbach‘s Alpha for all the nine items is about .89, thus internal reliability of the measures used in this study can be considered to be good.

4.2Demographic Characteristics:

In the study majority of the respondents were males (n=202, 92.2%).While (n=127,58%) respondents were between the age group of more than 40 years and second large group was of respondents between the age 31-40 (n=79 ,33.1%).Respondents with reppect to type of ownership ,soleproprietroship onwer formed larger group of (n=183 ,83.6%). Majority of the respondent were local (n= 147,67.1%). And also majority of the respondents reported that their education level was high, means that matric to bachelor level education (n= 147,67.1%). While the proportion of university level eduction is ver low(n= 20,9.1%).

Table 3: Frequency Distributions of Sample (n = 219) : Respondents‘ Profile Demographic Frequency Percentage Cumulative Percentage

Gender Frequency Percentage Cumulative Percentage

Male 202 92.2 92.2

Female 17 7.8 100.0

Total 219 100.0

Age Frequency Percentage Cumulative Percentage

Below20years 13 5.9 5.9

20-40yeares 79 36.1 42.0

More than 40 127 58.0 100.0

Total 219 100.0

Domicile Frequency Percentage Cumulative Percentage

Non local 72 32.9 32.9

Local 147 67.1 100.0

Total 219 100.0

Education level Frequency Percentage Cumulative Percentage

Primary 85 38.8 38.8

High 114 52.1 90.9

University 20 9.1 100.0

Total 219 100.0

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Type of owners

Frequency Percentage Cumulative Percentage

Sole proprietor 183 83.6 83.6

Partners 36 16.4 100.0

Total 219 100.0

4.3 Testing of Hypotheses

Five hypotheses were generated for this study as stated earlier. This call for the use of t-test for

hypotheses H1, H3, H5 because there are two groups and the dependent variable,

entrepreneurial orientation, is measured on interval scale. Similarly ANOVA is used for

hypotheses H2, H4 because there are more than two groups measured on nominal scale and the

dependent variable, entrepreneurial orientation, is measured on an interval scale. The result of

these tests in Table 4, Table 5and Table 6.and their interpretation is reported below: Table .4 Group Statistics

Gender N Mean Std. Deviation

Entrepreneurial

Orientation

Male 202 3.1144 .76963

Female 17 2.4248 .29196

Entrepreneurial

Orientation

Domicile


Non local 72 3.5015 .83835

Local 147 2.8450 .62565

Entrepreneurial

Orientation

Type of Owners


Sole proprietor 183 3.0795 .75329

Partners 36 2.9660 .83183

Table .5 Results of t-test of significant differences (Independent Samples T-test)

Variables Sample

size(n)

degree of

freedom (df)

t-value p-value

Gender(Male & Female) 219 217 3.66 0.000

Domicile(Local and Non local) 219 217 6.49 0.000

Types of Ownership (Sole

proprietor & Partners)

219 217 0.812 0.418

Hypotheses H1, H3 and H5 were tested using independent samples t-test in order to analyze the differences statistically. Based on the results shown in Table 4, & 5, the difference in the means of 3.114 and 2.424 with standard deviations of.76963and .29196 for the male and female about their entrepreneurial orientation perception is significant as p<0.05 at 217 degree of freedom. Hence H1 accepted, which means there was a significant difference between entrepreneurial and non entrepreneurial oriented members with respect to their gender. Similarly, the difference in the means of 3.5015and 2.8450with standard deviations of .83835 and.62565 for the non local and local entrepreneurs on their entrepreneurial orientation is significant, as p<.05 at 217 degree of freedom. Therefore hypothesis H3 accepted, which means there was a significant difference

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between entrepreneurially oriented and those who were not entrepreneurially oriented with respect to domicile (local and Non local). And finally, difference in the means of 3.0795and 2.9660 with standard deviations of .75329and .83183for those who have more than one partner and others (sole proprietor) about their entrepreneurial orientation perception respectively is not significant as p>0.05 at 217 degree of freedom. Hence hypothesis H5 rejected, which means there was not significant difference between entrepreneurially oriented members and others who were not entrepreneurially oriented with regard to type of owners.

Likewise Hypotheses H2, H4 were tested using ANOVA in order to analyze the differences statistically. ANOVA was used because there are more than two groups and the entrepreneurial orientation is measured on an interval scale. The results of ANOVA are shown in Table 6 given below:

Table 6.ANOVA to measure the mean difference among different Age groups with respect to entrepreneurial orientation

ANOVA


Sum of Squares Df Mean Square F Sig.

Between Groups 29.327 2 14.663 32.138 .000

Within Groups 98.553 216 .456

Total 127.880 218

The df is the third column refers to the degrees of freedom, and each source of variation has associated degrees of freedom. For the between groups variance, df= (K-1), where K is the total number of groups or levels. Because there was three groups, we have (3-1)=2df. The df for the with in groups sum of squares equals (N-K), where N is the total number of respondents and K is the total number of groups. As there was no missing response, the associated df is (219-3) = 216.

The mean square for each source of variation (column 5 of the Table6) is derived by dividing the sum of squares by its associated df. Finally, the F value itself equals the explained mean square divided by the residual mean square.

MS explained

F = --------------------

MS residual

In this case, F= 32.138 (14.663/0.456). This F value is significant at p<0.05. Hence H2 accepted, which means there were significant differences among different age groups in respect of entrepreneurial orientation.Finally the results of ANOVA for the Hypothesis H4 are presented following in 7.

Table 7.ANOVA to measure the mean difference among different educational groups with respect to entrepreneurial

orientation

ANOVA


Sum of Squares df Mean Square F Sig.

Between Groups 11.253 2 5.626 10.421 .000


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ANOVA


Sum of Squares df Mean Square F Sig.

Between Groups 11.253 2 5.626 10.421 .000


Total 127.880 218

The degree of freedom (df) is the third column refers to the degrees of freedom, and each source of variation has associated degrees of freedom. For the between groups variance, df= (K-1), where K is the total number of groups or levels. Because there was three groups, we have (3-1) =2df. The df for the with in groups sum of squares equals (N-K), where N is the total number of respondents and K is the total number of groups. As there was no missing response, the associated df is (219-3) = 216.

The mean square for each source of variation (column 5 of the Table 7) is derived by dividing the sum of squares by its associated df. Finally, the F value itself equals the explained mean square divided by the residual mean square.

MS explained

F = --------------------

MS residual

In this case, F= 10.421 (5.626/ .540). This F value is significant at p<0.05, therefore hypothesis H4 accepted, which means there were significant differences among different educational groups in respect of entrepreneurial orientation

Discussions:

As per my research analysis following are the outcomes that I considered:

Gender differences:

Women‘s productive role, particularly in business activities , empower them economically and enable them to contribute more to overall development of their country .But the participation of women entrepreneurs in KPK is very much low in business sector because our society is male dominated society although female‘s proportion in total population of Pakistan is more than 50% .

Moreover Women are less entrepreneurial oriented in KPK due to lot of problems. For instance social structures, work, and family life vary widely in developing countries (Allen et al.,1993; Aldrich, 1989). Women entrepreneurs in Pakistan and particularly in Khyber Pakhtunkhwa suffer from the lack of access to, including control over capital, business premises, information and technology, training, production inputs, and assistance from governmental agencies etc. Women especially in Khyber Pakhtunkhwa also face the problems of the cultural norm like the notion of ‗Izzat‘ (honor) etc. In addition, the main challenges they face are the limited mobility, lack of encouragement from male family members, and improper networking mechanisms and based on the widespread belief‖ in society that men are inherently superior to women and that women are best suited to be homemakers. The findings of my research supported previous researches (Boden, 1996; Boden et al.,1990;Cooper et al. 1994; Matthews,1996; Lerner et al.1997; Kolvereid, 1996) as already discussed in the literature review section.

Age group differences:

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Age is directly connected with the energy and initiative level of an entrepreneur. It is disclosed that successful owner were relatively younger in age. As per result of my research study is that the suitable age is 25 to 40 years, Which supported previous researche studies (Ronstadt1983; Preisendorfer et al.,1990; Macrae,1992; Birley et al.,1994) as mentioned above in the literature review section. Further, study on Internet café entrepreneurs in Indonesia, performed by Kristiansen, Furuholt, and Wahid (2003) founded a significant correlation between age of the SME owner and business Success. The people in this age of group are become more productive, initiative and motivated to achieve their targets regarding their entrepreneurial matters.

Domicile (Local and Non local):

The research study support the previous researchers(Irastorza ,2006 Greenfield and Strickon, 1995; Zeba , 2003; Claessens,1999) as discussed in literature review section, that people who are involved in the entrepreneurial business activities are almost non locals because they are socially marginalize and migrated ,that‘s why, their survival become a problem. This problem makes them a good entrepreneur which increased his/her entrepreneurial orientation. He/she has committed to take the calculated risk, innovations and become proactive. For example the Afghans have rich skills in carpet & rugs weaving and exporting businesses especially in Peshawar as well as the local weavers have a very minute part in such types of businesses. Likewise in the southern areas of KPK like D.I.Khan, its surroundings people of South Waziristan migrated and they become the part of business cycle of the city. For instance establishment of Toyota showroom, Gulf centre, Rose hotel, as well as involved in transport business etc. Similarly in the region of Hazara divisions, the rural communities transferred and enhanced their businesses in the city areas like embroidery & boutique centers, strawberry production and marketed it in to the surrounding markets.

LEVEL OF EDUCATION:

In this research education level is measured on three bases like primary level of education, high level and university level. As per my findings there is a prominent significant mean difference among these three groups regarding their entrepreneurial orientation as discussed in the literature review section by the different researchers (Hisrich et al., 1986; Selz.1995; Bruderl et al. 1992).Mostly those people who are in the space of high level education group are best entrepreneurs in the society and affecting entrepreneurial orientation much more than others. High level means the entrepreneurs come in the space of matriculation to bachelor level. The entrepreneurial concept is that the master or higher level of education is not necessary or compulsory for the competency of an entrepreneur. To become a successful entrepreneur for that purpose the entrepreneurial competencies or characteristics should be placed in the attitude of an entrepreneur. Education creates awareness among the entrepreneurs to enhance their innovative, competitive aggressiveness and risk taking capacity to flourish opportunities or in other words enhances entrepreneurial orientation.

Types of Owners (Sole proprietor/Partners):

In relation with respect to Partnership my researches do not support the previous research studies (Woo et al., 1989; Schutjens et al., 2000) especially in the KPK due to the following reasons:

In KPK mostly businesses are family oriented that is way these businesses are dominated by sole proprietors. Moreover there are too much cultural constraints due to this the partnership oriented businesses are not durable. For example In partnership type of business, mostly partners are relatives and friends etc. and some time this relationship become demerit and creates mistrust among the partners which leads to inconsistency in the business. In the same way all the partners are not actively participating in to the matter of business which creates disrupt in to the business cycle. The sleeping partner and the active partners involved in to the mistrust situations which again leads to inconsistency in the business. Similarly the people are initiating enterprises informally, which means that they have no idea of any necessary documentation which is very significant for the startup of any partnership business. It means that they are not signing any kind of partnership deed or something else. As per my research findings such type of situations

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creates embarrassments in partnership type of business which leads to overcome the importance of entrepreneurial orientation.

Conclusion:

This study was conducted to measure mean difference of respondents registered with different chamber of commerce and industry in KPK about their entrepreneurial orientation on the basis of demographic variables. The results of the current study have provided useful insight to determine the entrepreneurial orientation in our society in order to develop entrepreneurial culture in Pakistan particularly in kpk. It was also found that there was significant difference in perception of entrepreneurial orientation due to demographic variables i.e gender, age, domicile and education level of respondent while no significant difference was observed due to type of owners i.e. sole proprietor and partner has no significant difference in perception of entrepreneurial orientation.

References:

Allen, S., & Truman, C., eds.(1993). ―Women in business: Perspectives on Women Entrepreneurs‖, London: Rout ledge Press.

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Comparative Significance of the Four Perspectives of

Balanced Scorecard

Zafar Ahmed

Lecturer, Hailey College of Commerce, University of the Punjab, Lahore.

Zulfiqar Ahmed

Assistant Professor, Hailey College of Commerce, University of the Punjab, Lahore.

Muhammad Musarrat Nawaz


Khyzer Bin Dost

Lecturer ,Hailey College of Commerce, University of the Punjab, Lahore.

Muhammad Asim Khan

Research Scholar, Hailey College of Commerce, University of the Punjab, Lahore.

Abstract

Balanced scorecard has been emerged as a comprehensive tool of measuring business

performance. It has four perspectives that are financial perspective, customer perspective,

internal business perspective, and learning and growth perspective. This study was conducted to

know whether all the four perspectives of the balanced scorecard were equally significant. The

study was conducted at the managers‘ level in the commercial banks of Pakistan. The relative

importance of the different perspectives were found and compared.

KEYWORDS: Balanced Scorecard, financial perspective, customer perspective, internal

business perspective, learning and growth perspective.

Introduction

The history of the performance measurement is as old as the history of the business

organizations. Performance measurement has been there in its orthodox form where emphasis

was laid upon financial measures such as return on investment, earning per share, net profit rate

etc. As the financial measures were profit oriented, these were thought to be short term measures.

An organization may be financially sound for the time being because of its monopoly or it may

enhance its current profit by reducing research and development expenses. Under each of the

situations, the organization may be in trouble in the days to come especially in the competitive

environment. Later on, in 1980s, magnitude of performance was shifted to the non financial

measures such as customer satisfaction, delivery period, number of complaints etc. The tools

introduced were Total Quality Management, Six Sigma, Baldrige Award, CAMELS Rating

System etc. Now the existence of financial and non financial measurers at a time resulted in

confusion because the management can enhance one measure at the cost of other. We can reduce

the training, research and development cost to improve the current profitability. On the other

hand, we can spend more on non financial variables to have the future benefits but it would

reduce the current profitability. Thus the balance between the financial and non financial

measures was inevitable.

In order to create a balance between financial and non financial measures, Kaplan and

Norton introduced Balanced Scorecard in 1992. Kaplan and Norton were of the view that the

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long term profitability was dependent upon a large number of non financial measures such as

research and development, innovation, customer satisfaction, training etc. Thus Kaplan and

Norton laid more emphasis on leading instead of lagging measures. The Balanced Scorecard

introduced by Kaplan and Norton measures the performance of an organization from four

different perspectives. These are;

Financial Perspective

Customer Perspective

Internal Business Perspective

Learning and Growth Perspective

These perspectives represent three of the major stakeholders of the organization that is share

holders, customers and employees. The objectives for each perspective are set and the measures

are defined. A brief description of each perspective is given here under.

Financial Perspective

The Financial Perspective deals with the long term objectives of the organization. Kaplan and

Norton (1996) summarize the financial perspective as rapid growth, sustain and harvest. Growth

stage measures the volume of sales, sustain puts stress on return on capital employed; net profit

rate etc and the harvest stage deals with cash flow analysis. In short, financial measures are

similar to the ones we use in the traditional performance measurement.

Customer Perspective

The customer perspective measures the extent to which customer is satisfied with the

products or services of the organization. It can be divided into two measures.

i. Market Share

ii. Customer Retention and Customer Acquisition

Market share shows the ratio of sales of a specific product with total sales of that product

in a particular market. It can be measured in terms of sales revenue, sales volume and the number

of customers.

Customer retention deals with the existing customers. It can be measured by comparing

the number of old customers with the total number of customers. The retention of the existing

customer reflects the level of satisfaction of the customer.

Customer acquisition, on the other hand, attracts the new customers. It can be measured

by comparing the number of new customers to total customers. It shows to what extent our

product is attractive.

Internal Business Process Perspective

Internal business process perspective deals with innovation of the production process and

the product itself. Kaplan and Norton (1996) identified three basic internal business processes.

Innovation process aims at seeking the priorities of the customers to modify the manufacturing

operation for the production of desired product. The priority of the customer can be sought

through a market survey. It can be measured by the number times market survey is conducted.

Operation process begins with the receipt of an order and ends with the delivery of the

product or service to the customer. It includes the initial information about the product, response

to the customer queries when the product is in process, in time delivery etc. The important

measurers include the number of in time deliveries, number of unattended queries reported by

the customers etc.

The relationship of the company and its customer does not come to an end when the

product is delivered to the customer. This is basically the end of first phase of the relationship

and the beginning of the second phase which deals with the warranty and repair activities.

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Learning and growth perspective

Learning and growth perspective measures to what extent our human resources are

capable of meeting the future requirements. This perspective states that the organizations must

invest in human resources if they are to achieve their long term financial objectives. This

perspective tries to bridge the gap between the required and existing skills. Kaplan and Norton

(1996) were of the view that the objectives of this perspective were,

Satisfaction of employees

Retention of employees

Employee productivity

Employee satisfaction can be measured by a periodic survey, labour turn over is a suitable

measure for the retention of employees and the employee productivity can be judged by the sales

revenue per employee.

The investment in the human resources can be measured by the number of lectures,

seminars, workshops, training session etc. arranged by the organization.

Figure 1 shows the relationship of the four perspectives.

Figure 1

Literature Review

Colin Drury (2000) said that prior to 1980s, management accountant used to focus on the

financial measure such as return on capital employed, profit margin, earning per share etc.

Niven (2005) stated three problems with the traditional performance measurement system.

Traditional measures relied upon financial measures and the financial measures were short term

measures. It was evident from the fact that 2/3 of the fortune 500 companies in 1954 were either

found nowhere or if some were found there, they were not in that prosperous form.

Financial measures were lagging measures.

Slow response to change. In 1999, it was found that 75% failures of the CEOs came not because

of poor strategy but because of poor strategy implementation.

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Thus, managers needed to manage the determinants of performance at all levels. For that purpose,

emphasis was laid on non financial measures such as customer satisfaction, number of

complaints, number of intime deliveries etc.

The problems with non financial measures stated by Niven (2005) were as follows.

A large number of non financial measures were there and it was difficult to select some of them.

Non financial measures might be misleading.

Difficulty of translation of non financial measures into financial outcomes.

Niven (2005) stated the experience of Horizon Fitness. The CEO there was worried about the

strategy implementation. The author and the CEO developed Balanced Scorecard for the Horizon

Fitness. It was so effective that the sales revenue reached $85 million in the third year of

Balanced Scorecard implementation from $6.6 million in the first year of its operation.

Barkley (2000) said that a recent survey showed that 88% of the organizations felt that the

Balanced Scorecard had improved the performance of the employees. Balanced Scorecard was

considered motivating, measuring and rewarding the people and then innovating the strategies.

Will Kaydos (2004) explained that each old system was to be replaced with a new system. The

same was the case with performance measurement where Balanced Scorecard is very popular

those days. Finally the author stated that the Balanced Scorecard was the best performance

measurement system but its success is dependent upon its proper implementation.

Lincoln (2008) has quoted Bailey, CEO of Nemours, stating that the success that they had at

Nemours was proof of the usefulness of the Balanced Scorecard.

Martin (2004) explained that the Balanced Scorecard created a balance between short term and

long term measures, internal and external business processes, leading and lagging indicators,

objective and subjective measures etc.

Elefalk (1998) stated that the Swedish police adopted the Balanced Scorecard in 1998. The

perspectives of the Balanced Scorecard were different from the ones given in the original

Balanced Scorecard. The perspectives included in this Balanced Scorecard were operational,

staff, citizen and resources.

Stawar T (2002) studied Kaplan‘s famous book ―Balanced Scorecard: Measures that drive

Performance‖ and concluded that Balanced Scorecard was much more than the traditional

performance measures.

Richardson (2004) has given the following six elements of Balanced Scorecard success,

Develop your business strategy

Involve the senior leadership in the process of development of the Balanced Scorecard.

Develop your Balanced Scorecard according to the vision of your organization and describe the

vision of your Balanced Scorecard.

Implement the Balanced Scorecard everywhere in your organization.

Communicate the objectives of the Balanced Scorecard to everyone and educate all of your

employees about it.

Implement your Balanced Scorecard in such a way that it can be adjusted automatically in

accordance with day to day changes.

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Rhom (2004) said that Balanced Scorecards was equally applicable to public sector organizations

only after having certain modifications. This change may be in the form of an additional

perspective.

Stella Mooraj et al (1999) stated that the Balanced Scorecard was necessary good because it

covered all the features of the management control system.

Lapointe (1999) stated that Balanced Scorecard helped marketers and executives. It provided

measures for input and outcomes. He suggested that the Balanced Scorecard might be adopted or

adapted. Whatever the case was, it must have observed the organization from various angles.

Some organizations might be using some other names for the Balanced Scorecard and many

companies used it without even knowing it.

Averson (1998a) said that performance based management was introduced during and after

World War II by ―Whiz Kidz‖ in Ford Motor Company and the same was used in the Pentagon

during Viet Nam war.

Deming is considered to be the founder of modern performance based management who laid

emphasis on quality, innovation and employee empowerment.

Traditional performance measures used to assess the performance on the basis of number of

rejects. That was why the causes of defect remained unidentified. Deming emphasized upon the

detection of causes of defect at various stages of production. The system Deming proposed is

known as PDCAC (Plan, Do, Check, Act, Cycle).

Deming study was adopted in the USA in the form of Total Quality Management and Baldrige

Award. A brief description of Baldrige Award is given here.

National Institute for Standards and Technology evaluates the performance of large and small

manufacturing and service organizations through a structured questionnaire which is called

Baldrige Criteria. The winner is given a beautiful trophy in a grand ceremony in Washington.

This trophy is called Baldrige Award. The winner of the award is requested to give a

presentation on their best practices for the guidance of others.

In 1933, US Govt. introduced Govt. Performance and Result Act. The organizations used to

measure their performance on the basis of financial data such as profit. Later on, it was found

that the financial measures were the lagging measures which measured the things partially and

told the history.

Kaplan and Norton developed Balanced Scorecard in 1992. It was an alternative approach for the

measurement of performance of an organization. It comprised leading and lagging measures. It

measured the effectiveness of the strategy.

Hendricks et al (2004) stated that the first Balanced Scorecard type was adopted in 1950 in

General Electric.

A survey, conducted by Bain & Company on 708 organizations all over the world, showed that

62% of the responding organizations had adopted Balanced Scorecard. At the same time, 50% of

the fortune 1000 firms had been using Balanced Scorecard in some form. Another survey

conducted by Hendricks on 179 Canadian firms reported that 42 of those had adopted Balanced

Scorecard.

The author further stated that the Balanced Scorecard was a useful technique for

The prospector and analyzer type of organizations.

The large size organizations

The organizations having large environmental uncertainties

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The organizations having investment in intangible assets

So far as the relationship between Balanced Scorecard and financial performance was concerned,

a survey on 42 Balanced Scorecard adopter organizations showed that their financial

performance was not up to the mark before adopting Balanced Scorecard. The results did not

improve much after adopting the Balanced Scorecard. It was perhaps because of the fact that

most of the organizations adopted Balanced Scorecard after 2003 and this study did not cover it.

Lenhard (2007) explained that if the leaders did not know whether they were moving towards

their objectives or not, they needed to study Balanced Scorecard. In order to follow Balanced

Scorecard approach, the managers should have set the objectives and they were to select the

measures to assess whether the stated objectives were being achieved. The author stated three

stages for the development of Balanced Scorecard,

Beginning stage: Initial metrics are defined.

Present stage: Measure results from the beginning state to the present.

End stage: measure results from both the beginning and present state towards targeted objectives.

Figg (2000) said that many of the world‘s leading organizations had got benefits out of Balanced

Scorecard approach.

Despina (2008) stated that originally the Baldrige Criteria and Balanced Scorecard were

developed for the business organizations but these could be equally adopted by the nonprofit

organizations.

Ho and McKay (2002) said that Balanced Scorecard was a comprehensive measure and showed

that ABC Manufacturing Company was successfully using a Balanced Scorecard with very

simple and easy measures. The production manager of the company stated that he had never seen

a system better than Balanced Scorecard. On the other hand, Ho and McKay showed that a bank

introduced Balanced Scorecard and after three and half year, it was replaced with a

Compensation Plan Program. This bank states four difficulties in the application of Balanced

Scorecard,

Different interpretation of the Balanced Scorecard by the different managers

Branch managers thought it to be ineffective because it created hurdles for the employees to get

bonuses.

Balanced Scorecard did not ensure good customer services.

It required additional time of the management.

The main reason for the failure of the Balanced Scorecard shown in the article was frequent

regulatory changes.

Finally the author has given four findings for the successful implementation of the Balanced

Scorecard.

Prompt feedback.

Involvement of the employees

It might be effective during time of organizational change

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A number of well thought predetermined parameter.

Mazumder (2006) said that the performance of an organization provided basis for the various

economic decisions. Thus an organization ought to need a reliable system of performance

measurement. It is especially the case in public organizations where public money was involved.

The four types of the banks scheduled commercial banks, joint venture banks, foreign banks and

private banks were formed under special statute or under Banking Companies Act of Bangladesh

1991. Bangladesh Bank monitored the performance of these banks by using CAMEL rating

where C stands for Capital adequacy, A for Asset Quality , M for Management Capacity E for

earning available and L for Liquidity .

CAMEL rating ignored the non financial measures completely. On the other hand, Balanced

Scorecard was a comprehensive measure to achieve the long term objectives of the organization.

However CAMEL has not proved to be a comprehensive performance measure because it lays

emphasis on short term financial objectives of the organizations.

On the other hand, Balanced Scorecard laid emphasis on non financial measures also, which led

to future performance of the organization,

Financial perspective aimed to hit the quantitative measures such as Return on Capital Employed

(ROCE), Residual Income (RI), Net profit margin etc.

Customer perspective tried to know the level of satisfaction of the customers.

Internal process perspective aimed at the desired internal process to meet the expectations of the

customers.

Innovation and learning perspective innovated and improved the existing products and process to

meet constantly changing requirement of the customers.

All the perspectives of the CAMEL rating were covered by Balanced Scorecard but the

perspectives of the Balanced Scorecard were not met by the CAMEL especially the qualitative

measures.

Finally the author stated that in order to make the CAMEL competitive, measures like Customers

Perspective, Internal Process and Learning and Growth should have been introduced.

Steele J (2001) in an article stated that a number of organizations gained financial success

through Balanced Scorecard. According to a series of three surveys conducted to know the

application of the Balanced Scorecard, 40% of the organizations in North America were

following Balanced Scorecard.

The author gave a five point strategy to show what Balanced Scorecard meant to the managers.

These five points are,

It enables managers to review past and predict future performance.

It let the managers recognize useful measures.

It let the managers understand the big picture of enterprise strategy execution.

It let the managers to translate the objectives and measures into different levels within an

organization.

It empowers the front line employees with the collaborative tools necessary to encourage the

swift implementation of improvement initiatives.

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Research Methodology

This study was conducted to know whether all the four perspectives of the Balanced Scorecard

were equally significant. The study was conducted at the managers‘ level in the commercial

banks in Pakistan. To accomplish the objective, a sample of 27 out of total 34 commercial banks

was taken. These banks included public banks, private banks, foreign banks and Islamic banks.

The number of the respondents varied from bank to bank. Total number of respondents in this

study was 161. Out of total 161 respondents, 141 were post graduate, 19 were graduate and one

respondent was CA finalist.141 respondents were male and the remaining 20 were female. The

experience of the responding managers was ranging from one year to 35 years. Table 0.0 shows

the demographic characteristics of the respondents.

Table 0.0: Demographic Characteristics of Respondents

Gender N %age

Male 141 87.58

Female 20 12.42

Age N %age

21-25 24 14.91

26-30 50 31.06

31-35 28 17.39

36-40 27 16.67

41-45 12 7.45

46-50 4 2.48

51-55 13 8.08

56-60 3 1.86

Qualification

Post Graduate 141 87.58

Graduate 19 11.80

Other 1 0.62

Experience

1-5 Years 67 41.62

6-10 Years 31 19.25

11-15 Years 29 18.01

16-20 Years 15 9.32

21-25 Years 6 3.73

26-30 Years 9 5.59

31-35 Years 4 2.48

In order to know the significance of each perspective, the respondent were given a scale from 1

to 4 where 1 was most important, 2 was important, 3 was less important and 4 was least

important.

Findings

The study revealed the followings;

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Figure 2 shows the significance of Financial Perspective.

Figure 2 shows that 40% of the respondents considered financial measures as the most important.

27% reported these measures as important. On the other hand, 18% and 15% of the respondents

reported the financial measure as less important and least important respectively.

Figure 3 shows the significance of Customer Perspective.

Figure 3 shows that 55% of the respondents considered customer satisfaction as the most

important perspective of the Balanced Scorecard, whereas 32% reported customer satisfaction as

important perspective. 6% of the respondents considered this perspective as less important and

7% of the respondents declared it least important.

Figure 4 shows the significance of Internal Business Perspective.

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Figure 4 indicates that 9% of the respondents declared internal process perspective as the most

important. 24% of the respondents considered this perspective as important, 43% and 24% of the

respondents considered internal process as less important and least important respectively.

Figure 5 shows the significance of Learning and Growth Perspective.

Figure 5 shows that 44% of the respondents considered learning & growth in the total

measurement through Balanced Scorecard as the least important whereas 6% considered it most

important. 21 % of the respondents showed that it was important and 29% of respondents felt

that learning and growth was less important.

Conclusion

In order to draw relative significance of the four perspectives of Balanced Scorecard, figure 6

shows the mean value for each perspective. It is reminded again that 1 stands for the most

important, 2 for important, 3 for less important and 4 for least important.

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Figure 6: Mean value for each perspective.

Figure 6 indicates that the mean value for Financial Perspective is 2.08 which is close to

important, Customer Satisfaction 1.65 which is in between most important and important,

Internal Process Perspective 2.81 which is close to less important and Learning and Growth 3.11

which is towards least important.

We may draw a conclusion here that the respondents rate the customer satisfaction as the most

important perspective, financial perspective as important, internal process as less important and

learning and growth perspective as the least important perspective of the Balanced Scorecard.

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References

Drury, C. (2000a). Management & cost accounting. United Kindom: Business Press/Thomson

Learning.

Niven, P. ( Winter2005). Driving Focus and Alignment With the Balanced Scorecard. for

Quality & Participation, 28(4), 21-25. Retrieved July 15, 2009, from Academic Search

Premier Database.

Kaplan and Norton (1992). The Balanced Scorecard- Measures That Drive Performance.

Harvard Business Review, 71-79.

Barkley, S. (2000, Winter2000). Are You in Balance?. Outlook, 67(4), 34. Retrieved July 15,

2009, from MasterFILE Premier Database.

Kaydos, W. (2004). What Should Your Company Measure Beside Financial Results. Balanced

Scorecard Institute.

Lincoln, M. (2008). News Research Shows Balanced Scorecard Helps Companies Achieve an

Execution Premium. Business Wire.

Martin, J. R. (2004). The Balanced Scorecard Concepts. White Paper- Balanced Scorecard

Institite.

Elefalk Kjell (2001). The balanced Scorecard of Swedish PoliceService; 7000 officers in total

quality management project. Total Quality Management, 958-966

Stawar, T., & Zipple, A. (2002, Fall2002). THE STRATEGY-FOCUSED ORGANIZATION:

HOW BALANCED SCORECARD COMPANIES THRIVE IN THE NEW BUSINESS

ENVIRONMENT (Book). Psychiatric Rehabilitation Journal, 26(2), 212. Retrieved July

15, 2009, from Academic Search Premier Database.

Richardson, S. (2004, November). The KEY elements of Balanced Scorecard success. Ivey

Business Journal, 69(2), 7-9. Retrieved July 15, 2009, from MasterFILE Premier

Database.

Rhom, H. (2004). A Balancing Act. PERFORM, 2(2), 1-8.

Stella Mooraj, D. O. a. D. H. (1999). The Balanced Scorecard: a necessary good or an

unnecessary evil. Europeon Management Journal, 17(5), 481-491.

LaPointe, P. (1999). The Balanced Scorecard: Prelude to a Marketing Dashboard. White Papers-

Balanced Scorecard Institute.

Averson, P. (1998a). Background and History of Measurement Based Management Balanced

Scorecard Institute.

Figg, J. (2000, April). Balanced Scorecards Receive High Marks. Internal Auditor, 57(2), 16.

Retrieved July 15, 2009, from MasterFILE Premier Database.

Ho, S., & McKay, R. (2002, March). Balanced Scorecard: Two Perspectives. CPA Journal,

72(3), 20. Retrieved July 15, 2009, from MasterFILE Premier database

Lenhard Search Premier Database.(2007, July). Achieving Success Through a Balanced

Scorecard. FBI Law Enforcement Bulletin, 76(7), 24-24. Retrieved July 15, 2009, from

Academic

Despina Depias Wilson, Theresa del Tufo and Anne E.C. Norman (2007). The Measure of

Library Excellence: Linking the Malcolm Baldridge Criteria and Balanced Scorcard

Methods to Assess Service Quality. Jefferson, NC: McFarland and Company, Publishing,

Inc

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Mazumder, K. K. P. a. B. C. (2006). Performance Measurement of Baonks: An Application of

Balanced Scorecard. The Cost and Management, 34(6), 21-30.

Steele, J. (2001, September). Transforming the Balanced Scorecard into Your Strategy Execution

System. Manage, 53(1), 22. Retrieved August 6, 2009, from MasterFILE Premier

Database.

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THE RELATIONSHIP OF EMOTIONAL INTELLIGENCE WITH THE

STUDENTS‘ACADEMIC ACHIEVEMENT

Gulap Shahzada (Corresponding author)


University of Science and Technology, Bannu, (KPk) Pakistan

Dr. Safdar Rehman Ghazi



Abdullah Khan



Habib Nawaz Khan



M. Tahir Shah



Abstract

Objectives of this study was to investigate the nature of the relationship between emotional

intelligence and students‘ academic achievement. The population frame work of this study

consisted of all the degree collages students of 1st year. Multistage stage random sampling

technique was used for selection of the sample. Responses of the 714 sampled students were

collected using Armstrong multiple intelligence inventory. In order to observe the relationship

between the dependent and independent variables, Pearson Product Correlation Coefficient and

Statistics was applied. Results of the study showed that there is a significant relationship

between emotional intelligence and students‘ academic achievement. It was recommended that

component of emotional intelligence should be taught in schools and should be included in

school curricula.

Key words: Emotional intelligence, Intrapersonal, interpersonal, academic achievement

1.Introduction

Researchers are exploring new areas of human interests and unfolding mysteries. Knowledge is

increasing every moment. Knowledge of today becomes old the next day. We hear and see what

we have not heard and seen before. New theories related to man have been established and

attracting attention of the man. Every aspect of a child‘s personality, his reasoning capacities, his

dreams, his creativity, his interpersonal and intrapersonal skills and his emotions have become

the centers of human interests. AbiSamra (2000) reported that Emotional intelligence and

students‘ academic achievement are interrelated. He therefore solicited for inclusion of

emotional intelligence in the schools‘ curricula. The Multiple intelligences theory has been

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introduced by Howard Gardner (1983) and the Emotional intelligence theory by Mayer and

Salovey (1990) and Goleman. (1995). According to Goleman (1995) IQ alone is not the only

standard for success; Emotional intelligence, social intelligence and luck also play a great role in

a person‘s success. Goleman has observed that Emotional intelligence predicts as much as 80 %

of a person‘s success in the life, whereas the traditional measure, IQ, predicts only 20 % .

Some researches have explored intelligence and gender as predicators of academic achievement

among undergraduate students (Habibollah.,N., Rohani.,A., Tengku,A.,.H.& Jamaluddin.,

S.2008).

Some researchers are of the opinion that there is friendly relationship between intelligence and

academic achievement. Some say that there is a cause and effect relationship between

intelligence and achievement. Laidra, K., Pullmann, H., and Allik, J (2007) revealed that

students‘ achievement relied most strongly on their cognitive abilities through all grade levels.

The researcher is interested to probe into the dilemma to know the nature of the relationship of

Emotional intelligence with the students‘ academic achievement.

Which intelligence has a more strong relationship with academic acheivements. It is the focal

point of the reseachers attention now days. Resaechers have different claims and opinions about

the relationship of different intelligences with students‘ acaedmic achievement. The rapid

growth in the body of Knowledge about how the brain works has captured the interest and

imagination of educatotrs and the general public (Sylwster, 1994). Researchers are exploring, at

an unprecedented rate, about how the brain processes, stores, and retrieves information.. During

the 1990‘s, brain research exploded into dozens of subdesciplines, as social learning and

Emotional intelligence. The book Emotional intelligence by Deniel Goleman (1995) brought to

the public‘s attention the importance of our emotional lives.( Jensen, 1998). There is a rising tide

of understnading among educators that student‘s social and emotional learnig can and should be

promoted in school (Langdon, 1996).

According to Solovey and Mayer (1990), Emotional intelligence is being able to monitor on‘s

own and other‘s feeling and emotions, to discriminate among them, and to use this to guide on‘s

thinking and actions.Again Solovey and Mayer (1993) wrote that an emotinally intelligent

person is skilled in four areas: identifying, using, understanding, and regulating emotions.

Likewise Goleman (1995) stressed that Emotional intelligence consists of five components:

knowing on‘s emotions (self-awarness), managing them, motivating self, recognising emotions

in others (empathy) and handling relationship.

In the same way, AbiSamra (2000) reported that there is a positive relationship between

Emotional intelligence and academic achievement. And If Emotional intelligence is considered

now a days vital for success, then why don‘t we start teaching its components to our students at

school? If it affects students‘ achievement, then it is imperative for schools to integrate it in their

curricula, hence raising the level of students‘ success. Emotional intelligence has been found a

reliable predicator of academic achievement. (Parker, J.D.A.; Craques, R..; Harris, J.; Majeski,

S.A.; Wood, L.M., & Hogan. M.J., 2003).

In the start Psychologist from time to time propagated theories of intelligence and tried to

uncover the elements of intelligence. Then researchers recognized that there are other non-

cognitive aspects too. Robert Thorn Dike wrote about social intelligence in 1920. And as early as

1943 David Wechsler proposed that non- intelligence abilities are essential for predicting ability

to succeed in life. Imbrosciano and Berlach (2003) have remarked that ―Success‖ may be viewed

in three main domains. A good student is often referred to as being ―intelligent‖ or ―well

behaved‖ or academically ―successful‖. Arising from these are the questions; are there any

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connection between these domains? Is there a strong connection, between intelligence and

academic achievement? Do students with high intelligence behave better? These and many more

questions underscore the important place intelligence has been found to play in academic

success. But Some of research studies explored intelligence and gender is predicators of

academic achievement among undergraduate students (Habibollah.,N., Rohani.,A.,

Tengku,A.,.H.& Jamaluddin., S.2008). According to Watkins, Lei, and Canivez (2007) there has

been considerable debate regarding the causal precedence of intelligence and academic

achievement.

Laidara, Pullmann and Allik (2007) revealed that students achievement relied most strongly on

their cognitive abilities through all grade levels .Laidra et al (2007) investigated as predicator of

academic achievement in a large sample 3618 students (1746 boys and 1872 girls) in Estonia,

intelligence, as measured by the Raven‘s Standard Progressive Matrices was found to be the best

predicator of students grade point Average (GPA) in all grade.Deary, Strand, Smith, &

Fernandes (2007) found a strong and positive relationship between intelligence and academic

achievement. Goleman and Boyatzis.2001), suggest that EQ is more critical than IQ in

determining the success of students. A student‘s mood or emotions, and the way that they are

managed are postulated to have an influence on their creative and intellectual competencies and

on their ability to form and maintain healthy interpersonal relations.

Statement of the problem

Relationship between emotional intelligence and students’ academic achievement Objective of the study

Objectives of the study was to find out the relationship between students emotional intelligence and students academic achievement.

Research guiding question of the study

Is there any relationship between students’ emotional intelligence and their academic achievement?

Delimitation of the study

The study was delimited to the first year student of 10 Degree Colleges of district Bannu. Research Methodology

Population The study was concerned to find out the relationship between students self-perceived multiple intelligences and their academic achievement. There are 10 Government Degree Colleges in district Bannu; nearly 1585 students enrolled in 1st year, in all these 10 Government Degree Colleges, session 2010, constituted population of the study. Sample The sampling frame for the study was 1585 students. Out of ten, eight Govt. Degree Colleges

were randomly selected using cluster random sampling method four from urban and four

colleges from rural areas were selected using proportional allocation sampling technique. A

stratified random sampling method followed by technique of proportional allocation was used in

order to select the sizes of male and female. Using convenient sampling technique from Govt.

Boys Degree College NO. 1, Govt. Boys Degree College NO. 2, Govt. Boys Durani Degree

College, Govt. Boys Degree College Kakki, Govt. Girls Degree College Bannu City, Frontier

Education Foundation Girls Degree College Township, Govt. Girls Degree College Mandan,

Govt. Girls Degree College Surani; 130, 74, 83, 92, 155, 59, 91, 30 respectively, total 714

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students were selected as sample keeping in view students admission ratio. Among them 180

students were urban and 534 students were rural, 379 students were male and 335 students were

female.

Instrumantation

Multiple intelligence inventory based on Howard Gardner‘s Multiple Intelligences Theory,

developed by Armstrong (1994), was selected as a research instrument in order to measure

students emotional intelligences. The inventory was slightly modified and translated into Urdu

with the help of experts in order to make it easier and understandable to the students in local

environment. Students academic achievement were obtained from their matriculation detailed

marks certificate (DMC) issued by Board of Intermediate and Secondary Education Bannu.

Pilot Study

For the validity and reliability and to remove language ambiguity, the multiple intelligence

inventory was administered to 50 subjects. The reliability of forty items at Cronbach‘s alpha

obtained was .784 which is quite reasonable.

Inventory in its original form is already standardized, having high validity. Validation of the

inventory Urdu version was checked by experts such as Dr. Riasat Ali Director IER University

of Science and Technology Bannu. Hukam Zad Khan Chairman English Department University

of Science and Technology Bannu, and Professor Attaullah Khan Chairman Urdu Department

Government Degree College No: 2 Bannu. Suggestions of the experts were incorporated.

Data collection

Data collection method is an integral part of any research designs. Therefore, use of a suitable

method extremely enhances the value of the research. This research is a descriptive research.

Therefore the research tool was distributed among the 1st year students of eight Government

Degree Colleges. The research tool was personally administered to the subjects in groups in

order to clarify any doubt on the statement at the spot and collected all the completed responses.

The photo copies of detail marks certificate (DMC) of the students were collected from their

respective colleges record. Data was collected from different colleges on different days.

Data Analysis

The collected data was entered in SPSS-16 and was analyzed using appropriate statistical tests.

The central tendency and variability of the multiple intelligences of the sample students was

measured using Mean and SD respectively. Emotional intelligence and academic achievement

scores were correlated using Pearson Product Moment Correlation.

Formula used for the selection of the subjects was as under.

Formula=

Sample size for male=

Sample size for female=

The following 5-point Likert rating scale was applied to this study. The scale was

adopted from Ann Joe (1999). ―Job satisfaction of Middle Schools Principals in Virginia‖,

Dissertation submitted to the faculty of Virginia Polytechnic institute and State University for the

degree of Doctor of Education in Educational Administration Blacksburg Virginia USA.

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The scale options were given different weights from 1 to 5, as given below:

Scale Options Weight

1 Never 1

2 Seldom 2

3 Sometimes 3

4 Often 4

5 Always 5

The following range was assigned to the scale

Scale Options Range

1 Never 1.00-1.50

2 Seldom 1.51-2.50

3 Sometimes 2.51-3.50

4 Often 3.51-4.50

5 Always 4.51-5.00

The distribution of intelligence among all human beings is not the same. It is similar to the

pattern of distribution of health, wealth, and similar to other characteristics or endowments. It is

a normal distribution that is governed by a specific principle which say that the majority of

people are at the average, a few very brilliant and a few very tedious. According to the IQ normal

curve distribution therefore most of the people fall in the range 1.00 - 4.50.

Table 1 presents the coefficient of correlation between the statements ―people do come to

me for advice‖ and students‘ academic achievement is .09 with p value .01, the value of

r and p show that there is no correlation between the statement and academic achievement

of the students.

The coefficient of correlation between the statement ―having several very close friends‖

and students‘ academic achievement is .08 with p value .15, the value of r and p show

that there is no correlation between the statement and academic achievement of the

students.

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The coefficient of correlation between the statement ―enjoying social events and parties‖



students.

The coefficient of correlation between the statements ―enjoying being with different

types of people‖ and students‘ academic achievement is .02 with p value .00, the value of

r and p show that there is a significant positive correlation between the statement and

academic achievement of the students.

The coefficient of correlation between the statements ―enjoying complementing others

when they have done well‖ and students‘ academic achievement is .10 with p value .00,

the value of r and p show that there is a significant positive correlation between the

statement and academic achievement of the students.

The coefficient of correlation between the statements ―knowing own self well‖ and

students‘ academic achievement is .11 with p value .00, the value of r and p show that

there is a significant positive correlation between the statement and academic

achievement of the students.

The coefficient of correlation between the statements ―over reaction to minor problems‖



students.

The coefficient of correlation between the statements ―keeping of a diary to record

personal thoughts‖ and students‘ academic achievement is .00 with p value .00, the value

of r and p show that there is a significant positive correlation between the statement and


The coefficient of correlation between the statements ―knowing responsibilities and

being responsible for own actions‖ and students‘ academic achievement is .17 with p

value .91, the value of r and p show that there is no correlation between the statement and


The coefficient of correlation between the statements ―straight forward in saying what is

felt‖ and students‘ academic achievement is -.00 with p value .91, the value of r and p

show that there is negative correlation between the statement and academic achievement

of the students.

Table 2 shows the overall coefficient of correlation between the intrapersonal

intelligence and students‘ academic achievement is .15 with p .00 value which show that

there is significant correlation between intrapersonal intelligence and students‘ academic

achievement.

The overall coefficient of correlation between the interpersonal intelligence and students‘

academic achievement is .12 with p .00 value which show that there is significant

correlation between interpersonal intelligence and students‘ academic achievement.

Conclusions

There is a significant positive correlation between students‘ emotional intelligence and students‘

academic achievement.

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References

AbiSamra,N.(2000). The relationship between Emotional Intelligence and Academic

achievement in Eleventh Graders.Research in Education, FED, Alabama.

Bar-On, R. (1997). The Emotional Quotient Inventory (EQ-i): a test of emotional intelligence.

Toronto: Multi-Health Systems. Canada.

Deary, I. J., Strand, Strand, S., Smith, P., & fernandes, C (2007).Intelligence and educational

achievement. Intelligence. Scotland UK.

Gardner, H. 1983.Frames of Mind. The Theory of Multiple Intelligences.Basics Books Inc, New

York. USA.

Habibollah.,N., Rohani.,A., Tengku,A.,.H.& Jamaluddin., S.(2008). European Journal of

Social Sciences- Volume 7, Number 2 (2008) University of Mazandaran street of

Pasdaran, Babolsar, Iran.

Goleman, D. (1995). Emotional intelligence. New York: Bantam Books. USA.

Goleman, D., Boyatzis.(2001, December). Primal leadership: The hidden driver of great

performance. Harvard Business Review, New York, USA.

Imbrosciano, A., & Berlach, R.S. (2003).Teacher perception of the relationship between

intelligence,student behaviour, and academic achievement. Available at:

http://www.findarticles.com.

Jensen, E (1998). Teaching with the brain in mind .Alexandria, VA: Associatin for Supervision

and Curriculum Development. Alexandria, VA.

Langdon, C.A. (1996).The third annual Phi Delta Kappan poll of teachers: Attitudes towards the

public schools.Phi Delta Kappan.

Laidra, K., Pullmann, H., & Allik, J (2007). Personality and intelligence as predictors of

acedemic achievement: A cross sectional study from elementory to secondary school.

Personality and individual Differences.University of Tartu, Estonia.

Mayer, P., & Salovey, J.D. (1990). Emotional Intelligence imagination, cognition and

personality. Journal of personilty, University of New Hampshire.

Parker, J.D.A.; Craques, R..; Harris, J.; Majeski, S.A.; Wood, L.M., & Hogan. M.J.,

(2003). Academic Success in High School: Does Emotional Matters? ERIC

Clearing House. USA.

Sylwester, R. (994).How emotions affect learning. Educational leadership, West Mount Pleasant

Ave., Suite 105, Livingston, NJ 07039, USA.

Thorndike, E.L. (1920). Intelligence and its uses. Harper's Magazine, New York city, USA.

Wechsler, D. (1943). Non-intellective factors in general intelligence.Journal of Abnormal Social

Psychology, New york, USA.

Witikin, B.R. (1984). Assessing needs in education and social programs (1st ed). San Francisco,

CA: Jossey-Bass.USA.

http://www.findarticles.com/

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Annexure

Table 1: Relationship between emotional intelligence and students‘ academic achievement

S.NO Statement r p

1 People do come to me for advice. .09 .01

2 Having several very close friends. .08 .15

3 Enjoying social events and parties. .05 .15

4 Enjoying being with different types of people. .02 .00

5 Enjoying complementing others when they have done well. .10 .00

6 Knowing own self well. .11 .00

7 Over reaction to minor problems. .12 .94

8 Keeping of a diary to record personal thoughts. .00 .00

9 Knowing responsibilities and being responsible for own

actions. .17 .91

10 Straight forward in saying what is felt. -.00 .91

Correlation is significant at 0.01 level٭٭

Table2: Relationship of overall emotional intelligence with students‘ academic achievement

r p

1 Intrapersonal .1500. ٭٭

2 Interpersonal .1200. ٭٭

Correlation is significant at 0.01 level٭٭

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ENFORCEMENT OF FOREIGN ARBITRATRAL AWARDS AND POSSIBLE DEFENSES:

CHALLENGES AND OPPORTUNITIES FOR PAKISTAN

Naeem Ullah Khan*

Lecturer, University Law College, University of the Punjab, Pakistan

Samee Ozair Khan**

Assistant Professor, University Law College, University of the Punjab, Pakistan

*Lecturer, University Law College, University of the Punjab, Lahore, Pakistan

**Assistant Professor, University Law College, University of the Punjab, Lahore, Pakistan

ABSTRACT

In current scenario of Globalization trade and investment are indispensable and have become an

integral part of the national economy. The escalation of trade liberalization has led to raise

plethora of international trade and investment disputes. In this particular context, the

enforcement of foreign awards has become significant for national economic growth. This paper

highlights those defenses which can be taken as plea against the recognition and enforcement of

foreign arbitral awards. These defenses have been discussed at length by courts of diverse

jurisdictions. The jurisprudential Interpretation of these defenses has been discussed in the light

of judgments of competent courts of USA and UK. This paper inter-alia examines the attitude of

Pakistani‘s courts with special reference to the enforcement of Foreign Arbitral Awards.

Furthermore, after the comparative analysis of case law it may be concluded that courts in

Pakistan are also inclined to enforce Foreign Arbitral Awards. Pakistani‘s experience is still

evolving in a positive dimension but the pace is very slow. However, lot of challenges being

faced by Pakistan which can be converted into opportunities by initiating positive measures.

Key words: Trade and investment, Enforcement of foreign arbitral award in Pakistan, possible

defenses, challenges and opportunity and courts responses

I. INTRODUCTION

This paper seeks to examine the possible defenses that can be taken as plea against the

recognition enforcement of foreign arbitral awards as allowed in the article V of the United

Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards1958. The

subject has been studied with special reference to Pakistani Court's attitude and legal framework

for the implication of foreign awards. For judicial interpretation of these defenses leading cases

of American and English superior courts, have been referred to illuminate the subject matter.

Examination of these cases indicates that overall no hard and fast rules have emerged. As far as

Pakistan is concerned it is evident that only scarce number of cases in the superior courts have

been decided in the recent past here again there has been significant divergence in decision

making. Though the Article V of Convention referred to above allows that recognition and

enforcement of the Foreign Arbitral Award can be refused only if the aggrieved party furnishes

specific proof to the competent authority.

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II. BACKGROUND

In the contextual perspective of globalization trade and investment have become an

integral part of Economy of contemporary world. [With the advancement of legal framework and

technology the conflicts relating to commercial transaction are common.] Parties involved in

International business transactions in corporate arbitration, choice of forum and choice of law

clauses in their initial contracts and agreements for the settlement of commercial disputes.25

The United Nation Convention on the ―Recognition and Enforcement of Foreign Arbitral

Award 195826

(New York Convention) and UNCITRAL model law 198527

provide a uniform

legal framework to enforce arbitration agreements and foreign arbitral awards which contains

substantive and procedural defenses against enforcement of foreign awards. A party against

whom the recognition and enforcement of foreign Arbitral Award is sought may invoke these

defenses before a court of competent jurisdiction.

In year 2010 Pakistan has promulgated Arbitrational Agreements and Foreign Arbitral

Awards Act to give an effect to the New York Convention. The Act has repealed the Arbitration

(Protocol and Convention Act, 1937. The existing law provides statutory defenses in form of

Section 7.28

The approach behind the law is to establish a uniform framework for the

enforcement of civil and commercial Awards. Moreover, the Act provides that the courts in

Pakistan shall recognize and enforce the foreign arbitral Awards in the same manner as a

judgments or orders of the court in Pakistan unless there are some compelling factors.29

III. SIGNIFICANCE OF RECOGNITION AND ENFORCEMENT

Modern legal system can‘t operate fairly and transparently without recognition and

enforcement of arbitral awards and judgments in the cosmopolitan field of transnational trade.

Since the importance of international trade and investment cannot be ignored. In current global

economy it has contributed immensely to the all sided development of a nation30

. And the

recognition of foreign and domestic awards acts as moment force for national economy and

prosperity of a country. However, investment and trade among the nations is largely seen as the

key to economic growth, peace and better standard of living leading to a happier state of human

existence at a global level31

. No country can survive without the trade so, in the common

25 ―Susan Choi, Note, Judicial Enforcement of Arbitration Awards under the ICISD and New York Convention, 28

N.Y.U.J. INT,LL& Pol 175 (1997)‖. 26

―This Convention applies to the recognition and enforcement of arbitral awards made in the territority of a state

other than the Stat where the recognition and enforcement of such awards and sought and to arbitral swards not

considered as domestic awards.‖ 27

―United Nation Commission on International Trade Law was established by the UN General Assembly in 1966

since has been working for the Harmonization of International Commercial law sale of goods transport goods and

commercial Arbitration.‖ 28

These defense are thosed which are enshrined in Article V of New York 29

See generally section 6 of Recognize and Enforcement of Freign Arbitral Awards Ordinance, 2009. 30

Available at http://www.google.com visited on 24 July, 2009 31

― Views as to benefits of free trade owes much to the work of Adam Smith, (An inquiry into the Nature and

Causes of the Wealth of Nations, 1776) and David Ricardo (on the Principle of Political Economy and Taxation,

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parlance there is a slogan ―Aid for trade‖. Trade acts as a catalyst for the elimination of poverty,

unemployment and crimes in society.

An exclusive regulatory environment that promotes free trade is inadequate to promote

growth in trade. It needs to be backed by passable infrastructure in sectors that affect trade such

as transportation, banking, marketing, communication and sanctity of arbitration clauses in the

commercial contracts. Equally the legal framework which affects the rights and the obligations

of the parties and entering into business transactions at the international level needs to clear and

certain. Lack of legal certainty about the enforcement of foreign arbitral awards has the potential

to act as an impediment to trade.32

In nutshell the enforcement of an arbitration award is an

extremely important issue in commercial arbitration. If it is not possible to enforce arbitral

awards, arbitration becomes meaningless.33

So the parties would wish to know the nature and the

extent of the obligations they undertake and the remedies available to them should they breach

the contractual terms. Given the plurality of legal systems and the variation in liability schemes,

harmonization through strong, impartial and independent court system is the best option in the

context of international commercial transactions.

Non-recognition of Foreign Arbitral Award in globalized world may pose challenges and

threats for the foreign traders, investors, producers, manufacturers, importers and exporters, stake

holders. These participants of international trade may reluctant to invest in that country where

the recognition of foreign award is not respected and enforced.

IV. INTERNATIONAL FRAMEWORK FOR RECOGNITION AND

ENFORCEMENT OF AWARDS.

IV.I New York Convention- ―There is no question that the purpose of the Foreign Arbitral

New York Convention was to facilitate the enforcement of international arbitration awards. The

ability to enforcements awards promotes international arbitration as a dispute resolution

mechanism. This also works as catalyst for enhancement of trade and investment. 34

There are a

number of international conventions that have made the enforcement of arbitration awards a

relatively simple process. The relevant international conventions are the Geneva Protocol on

Arbitration Clauses, 1923 and the Geneva Convention on the Execution of Foreign Arbitral

Awards, 1927. The most important one is the New York (as earlier said) Convention on

Recognition and Enforcement of Foreign Arbitral Awards 1958 provides a international Legal

Framework relating to the Recognition and Enforcement of Commercial Awards in the territorial

jurisdiction of a State, other than the State where the recognition and enforcement of such

awards, are sought.‖35

1817). However, there are several eminent economists who do not entirely subscribe to such positive evaluation of

the free trade. (See Krugman, Increasing returns, Monopolistic competition and International Trade, 1979, 9(4)

Journal of International Economics 467). See I. Carr et al, International Trade Law 2005, at 1xxxvii and see also J.

Steglitz, GLOBALIZATION AND ITS DISCONTENTS (2002). Also see I. Haque and N. Khan, ―Trade Remedy

Laws of Pakistan under the WTO Regime‖ PLJ at … Feb, 2009‖ 32

See generally I. Carr, ―International Trade Law‖ at 1xxxvii, 2005. 33

I. Carr, ―International Trade Law (Lecture notes)‖ at 214, 1996. 34

Richard M. Mosk ―comments on Enforceability of awards (New Horizon of international commercial arbitration at327. 35

See generally Article I of the convention 1958.

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―Each contracting State recognizes arbitral awards as binding and enforced them in

accordance with the rules of procedure of the territory where award is relied upon.36

For the

purpose of recognition and enforcement the party has to be applied through a written application,

inter alia, the duly authenticated original awards are duly certified copy.37

Some times the

Recognition and Enforcement may be refused at the request of the party against whom it is

invoked by applying the grounds/defenses like when the award was obtained in contravention

with the principles of natural justice and public policy etc.38

The most important feature of the

convention is that it does not affect the validity of multilateral or bilateral agreements concerning

the recognition and enforcement of arbitral awards entered into by contracting State‖.39

―A parochial refused by the courts of one country to recognize and enforce the foreign

awards and would not only frustrate those purposes40

as set out in the New York Convention

1958. In the form of to encourage the recognition and enforcement of commercial arbitration

agreements in international contracts and to unify the standards by which agreements to arbitrate

are observed and arbitral awards are enforced in the signatory countries‖.41

IV.II UNCITRAL Model Law On International Commercial Arbitration- The United Nations

Commission on international trade law was a established in 1996. The fundamental principal of

UNCITRAL is to progressive development with respect to harmonization and unification of

trade Law. The major achievement of this commission is the creation of UNICITRAL Model

Law on international commercial arbitration the model law adopted for the purpose of revising

and updating the states in their national laws regarding commercial Arbitration42

. The Article 36

UNCITRAL Model Law on International Commercial Arbitration43

provides defenses against

36

See supra note, 8 Article III. 37

See supra note, 8 Article IV. 38

See supra note, 8 Article V. 39

See supra note, 8 Article VII. 40

D. Vagts, ―Transnational Business Problems‖ at 188, (1998). 41

Schard Vs Alberto-Culver Co. at 417 U.S at 520, n.15, 94 S.Ct , at 2457, n.15 42

Alebert Jan Van Den Beg (p 206) New Horizons in International Commercial Arbitration and beyond 43

―Grounds for refusing recognition or enforcement:

(1)Recognition or enforcement of an arbitral award, irrespective of the country in which it was made, may be

refused only:‖

―(a)at the request of the party against whom it is invoked, if that party furnishes to the competent court where

recognition or enforcement is sought proof that:

(i) a party to the arbitration agreement referred to in article 7 was under some incapacity; or the said

agreement is not valid under the law to which the parties have subjected it or, failing any

indication thereon, under the law of the country where the award was made; or

(ii) the party against whom the award is invoked was not given proper notice of the appointment of an

arbitrator or of the arbitral proceedings or was otherwise unable to present his case; or

(iii) the award deals with a dispute not contemplated by or not falling within the terms of the

submission to arbitration, or it contains decisions on matters beyond the scope of the submission

to arbitration, provided that, if the decisions on matters submitted to arbitration can be separated

from those not so submitted, that part of the award which contains decisions on matters submitted

to arbitration may be recognized and enforced; or

(iv) the composition of the arbitral tribunal or the arbitral procedure was not in accordance with the

agreement of the parties or, failing such agreement, was not in accordance with the law of the

country where the arbitration took place;

Or

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the recognition an enforcement of awards on the same grounds as provided in article V of the

New York Convention.

V. PROCEDURAL CONDITIONS OF RECOGNITION AND ENFORCEMENT

In the light of New York Convention and UNCITRAL Model Law on International

Commercial Arbitration, a party applying for enforcement of a foreign award is required to

produce before the court of competent jurisdiction following documents and must satisfied other

legal requirements.

(i) ―Submission of necessary documents- The original award or a copy thereof, duly

authenticated in the manner required by the law of the country in which it was made; The

original agreement for arbitration or a duly certified copy thereof, and Such evidence as may be

necessary to prove that the award is a foreign award‖.44

(ii) Commercial Transactions- “The award must be given in a convention country to resolve

commercial disputes arising out of legal relationship.‖ The term commercial construed as in a

wider sense. The Indian SC, In case of RM Investment & Trading Vs. Boeing, Co.45

& Anr. The

Supreme Court while constructing the expression ―Commercial relationship‖ observed that:‖

―The term ―Commercial‖ should be given a wide interpretation so as to cover

matters arising from all relationships of a commercial nature, whether

contractual or not….‖

In another case of M.H. Mehta vs. H.H Mehta46, the Supreme Court of India observed

that:

―The term Commercial‖ should be liberally interpreted as having regard to

manifold activities which are an integral part of international trade. The same

principle was lay down by Indian Supreme Court that term commercial should

be given a wide interpretation so as to cover matters arising from all

relationship of commercial nature whether contractual or not‖.

(v) the award has not yet become binding on the parties or has been set aside or suspended by a court

of the country in which, or under the law of which, that award was made; or

(b) if the court finds that:

(i) the subject-matter of the dispute is not capable of settlement by arbitration under the law

of this State; or

(ii) The recognition or enforcement of the award would be contrary to the public policy of

this State.

(2)If an application for setting aside or suspension of an award has been made to a court referred to in paragraph

(1)(a)(v) of this article, the court where recognition or enforcement is sought may, if it considers it proper, adjourn

its decision and may also, on the application of the party claiming recognition or enforcement of the award, order the

other party to provide appropriate security.‖ 44

Enforcement of Arbitration Awards IN India, Sumeet Kachwala 45

AIR 1994 SC 1136, Asian International Arbitration Journal Vol.4 Number 1, pp.64-82 (2008) 46

M.H. Mehta vs. H.H Mehta 1995(5) Comp. LJ 517

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(iii). Relevant Court- “The Indian Supreme Court has accepted the principle that enforcement

proceedings can be brought wherever the property of the losing party may be situated. This was

in the case of Brace Transport Corporation of Monrovia v Orient Middle East Lines Ltd”.47

The

while pronouncing judgment has quoted a passage from ―Red fern and Hunter on Law and

Practice of International Commercial Arbitration‖48

inter alia, as follows:

―A party seeking to enforce an award in an international commercial arbitration

may have a choice of country in which to do so; as it is some times expressed,

She party may be able to go forum shopping. This depends upon the location of

the assets of the losing party. Since the purpose of enforcement proceedings is

to try to ensure compliance with an award by the legal attachment or seizure of

the defaulting party‘s assets, legal proceedings of some kind are necessary to

obtain title to the assets seized or their proceeds of sale. These legal

proceedings must be taken in the state or states in which the property or other

assets of the losing party are located.‖

(iv). Written Agreement – The Convention expressly states that Arbitration agreements must

be in writing form otherwise party can not invoke these defense against enforcement of awards.

However, Article II sub clause 2 stated that:

―The term agreement in writing‖ shall include all arbitral clauses in a

contract or an arbitration agreement, signed by the parties or contained in an

exchange of letters telegrams.‖

(v) Time Limitation- “The Indian Arbitration and Conciliation Act, 1996 and Pakistani Law

relating to recognition and enforcement of foreign arbitral award Ordinance do not prescribe any

time period within which a foreign award must be applied to be enforced and law relating to

recognition and enforcement of foreign arbitral award in Pakistan. However, the High Courts of

diverse jurisdiction held that‖:

―The period of limitation would be governed by the residual provision under

the Limitation Act 1963 (No 36 of 1963), i.e the period would be three years

from the date when the right to apply for enforcement accrues. The High Court

of Bombay has held that the right to apply would accrue when the award is

received by the applicant.‖49

The private International Law deals with the recognition that the courts of one country

will effect give to the judgments of the courts of another country. In the event of a dispute over

an International Transaction, the winner will sometimes needs to go another country to find the

loser‘s assets.

47

1995 Supp. (2) SCC 280. 48

First Ed, 1986, Sweet & Maxwell. 49

2007 (1) RAJ 339 (Bom), AIR 1986 Gujarat 62.

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The winner would prefer to re-litigate not the merits of the dispute, but to have the

original judgment recognized and enforced.50

In case of Hilton vs. Guyot, the American Court set

out the basic principles of Recognition and Enforcement of Foreign Judgments and awards in

other countries. In this court relied upon the fundamental principles of International Law court

observed that Comity51

and reciprocity are the watches words for courts looking to foreign

judgments and awards. Of the two concepts, reciprocity is the one observed most frequently

around the world. The issue of reciprocity may be handled by treaty. If no treaty controls, a court

in one country will look at the approach of the other country toward the first country nationals.

VI. Defenses against Foreign Awards

Following are the seven potential legal defenses against the recognition and enforcement

of foreign arbitral awards and agreements as provided in ―Article V of the convention of

recognition and enforcement of foreign arbitral awards (New York Convention) 1958‖. There

defense have been explained in the light of case law of diverse jurisdictions relating to

Recognition and Enforcement of Award /Judgment with special reference to USA and England.

VI .I. Defense V (1) (a): Invalidity of Arbitration Agreement

The first defense against the recognition and enforcement of foreign arbitral award is

enshrined in Article-V (1) (a) of the Convention which provides that:

―Recognition and enforcement of the arbitral award may be refused at the

request of party against whom it is invoked, if it proves before the court of

competent jurisdiction that the parties in dispute were legally incapable under

the law applicable to them to enter into a contract or the agreement is not valid

under the law to which parties have subjected it or under the law of the country

where the contract or the agreement was made.‖

The convention thus, allows the courts of the state where enforcement is sought to

examine the validity of arbitral awards according to the principle of law of contract and the law

of arbitration agreement. A few relevant cases of apex courts of different jurisdictions are as

follows; In American Construction Machinery & Equipment Corp. Vs. Mechanized Construction

of Pakistan Ltd, case.52

The court observed that:

―The validity of the award was challenged on the ground that it could not be

enforced. Court observed that the award could not be enforced as it was not

valid under laws of Pakistan, because the parties did not validly choose

Pakistani laws as applied to their agreement.‖

It is worthwhile note that Arbitration Agreement must be valid, legal and not be

ambiguous. Indian Supreme Court in case of Khardah Company vs. Raymon & Co (India)53

, held

that:

50

159 u.s. 113 (1895). Supreme court of USA 51

―Comity‖ ―in the legal sense, is neither a matter of absolute obligation, on the one hand, nor of mere courtesy and

good will, upon the other. But, having due regard both to international duty and convenience, and to the rights of its

own citizens, or of other persons who are under the protection of its laws.‖ 52

659 F.Supp. 426 (S.D.N.Y.), affd, 828 F.2d 117 (2d Cir. 1987) 53

AIR 1962 SC 1810

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―An arbitration clause cannot be enforced when the agreement of which it

forms an integral part is declared illegal‖.

In another case i.e. Koch Navigation vs. Hindustan Petroleum Corp54, the Supreme Court of India held

that:

―Court must give effect to an award that is clear, unambiguous and capable of

resolution under Indian law.‖

―The defense of invalidity can be raised both in respect of choice of law issues and others

substantive issues sometimes parties take plea that an arbitration agreement is not valid because

underlying contract is not valid55

‖. ―This defense usually fails in United States due to doctrine of

separability56

. It means that where a contract is not valid the arbitration agreement is not

ultimately invalid,57

.However , the doctrine of separability is not absolute in English legal

system: Courts normally sustain arbitration clauses unless there are compelling reasons58

.‖

VI .II.. Defense V (1) (b): Procedural defect-violation of Due process of law

―Article V (1) (b) of New York Convention 1958

enables the court of competent jurisdiction to refuse

recognition and enforcement of foreign award where the

defendant proves that he was not given proper notice of

the appointment of the arbitrator or of the arbitration

proceedings, or was otherwise unable to present his case

or there is violation of principles of natural justice. It is

important to mention that this statutory defense also exists

in institutional arbitration rules. By applying this clause

enforcing court can review the procedural aspects of due

process of law, it can also ensure that dispute was fairly

and transparently resolve by an impartial arbitration

panel.‖

It is worth-mentioning to note that the following three situations may be considered as

violation of principles of natural justice and due process of law;

a) ―The party opposing enforcement was not present at the time of arbitration proceedings‖.

54

AIR 1989 SC 2198 55

―Gary B. Born, International Commercial Arbitration in the United States: Commentary and Materials, in

INTERNATIONAL Law 348.348 (Bary E. Carter et al, eds., 4th

ed.2003 at 350) Also see The New York

Convention on the Recognition and Enforcement of Foreign Arbitral Award: Analysis of the Seven Defenses to

Oppose the Enforcement in US and England by May Lu, Arizona Journal of International Law and Comparative

Law, Vol.23, No. 3 2006‖ 56

―According to the separability doctrine, an arbitration agreement is presumptively independent from the parties‘

underlying contract because the parties provide separate consideration through their exchange of promises to

arbitrate, Id.‖ 57

Id 58

―The New York Convention on the Recognition and Enforcement of Foreign Arbitral Award: Analysis of the

Seven Defenses to Oppose the Enforcement in US and England by May Lu, Arizona Journal of International Law

and Comparative Law, Vol.23, No. 3 2006‖

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b) ―The arbitration panel did not allow the party to present evidence in the support of his

case.‖

c) ―Arbitration panel did not permit the party to raise objections to the arbitration panel‘s

procedural ruling and composition59

.‖

In the American landmark case of Parsons & White More Overseas Co. v. Societe

Generale De I‟Industgrie Du Papier60

. Where the United State the Second Circuit of Court of

Appeals observed that:

―The arbitral tribunal did not violate the United States constitutional standard of due process of

law by refusing to reschedule a hearing because one witness had a prior speaking engagement.

Court further observed that overseas could not claim that the tribunal decided case with out

considering critical evidence and the arbitration tribunal acted within its discretion powers in

decline to reschedule a hearing for the convenience of an overseas witness.‖

―The second defense like the first defense is hardly difficult to prove and frequently it

remains unsuccessfully in the most of the cases. In another leading case of Laminories –

Trefillerecies Cableries de Lens s. A vs. Southwire Co.61

The court held that it is the

responsibility of arbitrator to determine what evidence is relevant and irrelevant and that absent a

clear showing of abuse of discretion, the court will not vacate an award based on improper

evidence or the lack of proper evidence.‖

―Sometimes the party deliberately rebuffs to participate in the arbitration proceedings; it

does not amount to deny recognition and enforcement of an arbitral award on the touchstone on a

denial of due process of law. In the leading case of Libyan American Oil Co.‟s62

, where Libya

deliberately declined to participate in the arbitration proceedings on the ground of sovereign

immunity theory but court rejected this argument and held that immunity had been waived, court

further held that party has been failed to explain its absence and such plea cannot deny the

recognition and enforcement of award by arguing that an opportunity was not granted to the

party to present its case before tribunal.‖

―In English legal system the same principles of due process of law (rule of law) have

been still observing in relation to the recognition and enforcement of foreign Arbitral awards. In

leading case of Omnium de Trailtement et de Valorisation S.A. (OTV‟s)63

;” ―where Omnium de

Trailtement et de Valorisation argued among other things that it was unable to present its case on

the grounds that the second arbitrator who over following the resignation of the initial arbitrator

59

―See generally article V (b) of New York Convention 1958 (the party against whom the award is invoked was not

given proper notice of the appointment of the arbitrator or of the arbitration proceedings or was otherwise unable to

present his case)‖. 60

―Parsons & White More Overseas Co. v. Societe Generale De I‘Industgrie Du Papier 508 F.2d 969, 975 (2d

Cir.1974)‖ 61

―484 F. Supp. 1063 (N.D. Ga 1980). Also see Enforcement of Foreign Arbitral Awards By R. Doal Bishop, King

& Spalding, Elaine Martin and Hughes & Luce, L.L.P. Houston – 11781 v‖ 62

―Libyan American Oil Co. (―LIAMCO‖) v. Socialist People‘s Libyan Arab Jamahirya. 482 F.Supp. 1175 (D.D.C.

1980) 684 F. 2d 1032 (D.C.Cir. 1981)‖. 63

Omnium de Trailtement et de Valorisation S.A. (OTV‘s) v. Hilmarton Ltd, (1999) 2 Lloyd‘s Rep, 222, 225

(Q.B.D. Comm. Ct.) (Eng).

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decided not to hear the oral evidence and the second arbitrator held only a short hearing to close

his decision but the court observed that there is no concrete evidence to support OTV‘S

argument. So, there is no violation of procedural rule and award is maintainable. However, there

are few cases in which US and English courts accepted the due process of law as a defense.‖

In Iran Aircraft Industries v. Avco.Corp.64

, Court refused to enforce an award on the

ground that one of parties was unable to present its case. Court also observed that there is a lack

of evidence to support the enforcement of foreign award. After analysis of these cases of English

and American courts it is concluded. That the plea of due process of law is hardly successful in

each and every case and it varies form case to case however, the implication of this

ground/defense heavily depends upon the judicial interpretation and attitude of courts.

Interpretation the term due process of law be generously interpreted by courts keeping in view

the changed scenario of globalized world. In Pakistan there is no case law developing.

VI .III. Defense V (1) (c): Jurisdictional defect-Excess of Authority

―Article V (1) (c) of the New York Convention 1958 provides that court may refuse

recognition of an award if ―the respondent asserts and proves that the award deal with a

difference not contemplated by or not failing within the terms of submission to arbitration or

contains decisions on matters beyond the scope of the submission to the arbitration.‖65

This

provision may also be traces in more detailed in section 10 (d) of the Federal Arbitration Act, 9

U.S.C. which authorizes vacation on award where the arbitrators exceeded their legitimate

powers and jurisdiction. The author refers here few case which reflects the judicial attitude and

come to conclusions that this like grand other defenses has been unsuccessful in number of

cases.‖ ―However, the most dominant point of view in the present time is the arbitration

agreement should be interpreted in a moderate manner. In United Steel Workers of American

case court held that the arbitrator premised the award on a construction of the contract and it is

not apparent that scope of the arbitration has been acceded. In Parson & Whitemore Overseas

Co. v. Societe Generale De L‟ Industries due peppier (RAKTA)66

. Case the court enforced an

arbitrator‘s award for loss of production of documents even though the contract provided that the

parties would not be liable for such loss.‖

―In International Standard Electric Corp. (ISEC‟s)67

case the defendant argued that the

panel exceeded its authority and acted beyond the scope of the parties‘ agreement while deciding

the damage issue. However, the court rejected this argument and observed that court had no

authority to reconsider panel‘s finding, nor could it undertake a de nove inquiry. So the award is

enforceable. In another case of Comprehensive Accounting Corp. vs. Rudeel68

where defendant

challenged the enforceability and recognition of the award on the ground that he did not actually

know about the arbitration clause but throughout confused to overturn an enforcing award.‖

64

Iran Aircraft Industries v. Avco.Corp. 980 F.2d 141, 146 (2d Cir. 1992).

65 New Horizons in International Commercial Arbitration and Beyound by Albert Jan van den Berg at 301 (2005)

16 Parsons & White More Overseas Co. v. Societe Generale De I‘Industgrie Du Papier 508 F.2d 969, 975 (2d Cir.

1974) 67

International Standard Electric Corp. (ISEC‘s) vs. Bridas Sociedad Anonima Petrolera Industerial Y Commercial.

745 F. Supp. 172 (S.D.N.Y. 1990). 68

Comprehensive Accounting Corp. vs. Rudeel, 760 F.2d 138 (7th

Cir. 1985).

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―In most interesting case the court refused to accept the whole of the award. A rare case

in which court held that the requirements of article V (1) (c) were satisfied and refused to

confirm an award accrued in Fiat S.P.A. vs. Munistg Finance & Planning of Susinamo69

the

Court observed that the tribunal exceeded its authority. When it purported to bind a non

signatory not expressly covered by the arbitration agreement when the issue submitted to the

arbitration court partly accepted and partially rejected the award. The case is only example which

divides the section v (1) (c) in to parts. In Pakistani jurisdiction there is no reported case on this

issue and that there is need to incorporate such provisions which can properly tackle the potential

problems in this critical situation and find out a solution.‖

VI .IV. Defense V (1)(d): Irregularity in the composition of Arbitral Tribunal or

Arbitral Procedure

Under this under this ground, enforcement may be refused if the respondent asserts and

proves that the composition and procedural working of the tribunal is not based on merit. The

clauses (d) of article V (1) New York Convention provides that:

―The Composition of the arbitral authority or the arbitral procedure was not in

accordance with the agreement of the parties or failing such agreement was not

in accordance with the law of the country where the arbitration took place.‖

―In Metex Andeslay‟s case award was made in Switzerland between a Finnish party and a

party owned by the Turkish state: The arbitration clause included the proviso‖:

―The Board of Arbitration shall take as base the provisons of this contract and

Turkish Law in force.‖

―In this case the Turkish party argued that this

proviso meant that Turkish law applied both to the

substance and the procedure in the award, the majority of

the arbitral Tribunals held that ―Turkish law in face

[should] not be understood as choice of procedural rules‖

―having prevailed in the arbitration, the Finish party sought

enforcement in Turkey. The court of First Instance and

court of appeal refused enforcement, holding that award

violated Art v(1) (d) of the convention.‖70

VI .V. Defense V (1)(e): Non Enforceability of an Award

The respondent party can oppose the enforceability of foreign award on the ground that

award is not binding. The article V (1) sub-clause (e) states that:

69

Fiat S.P.A. vs. Munistg Finance & Planning of Susinamo, 88 Civ. 6639 (SWK), 1989 U.S. Dist. LEXIS 11995

(S.D.N.Y. Oct. 12, 1989). 70

Court of Appeals, 15th

Legal Divisions, 1 February 1996, no.1996/627, Metex Andeslay vs. Turkys Electrik

Kumurugend Medurligi General Directorate, Ankara, Reported in Year Book xxII1997, pp 807-814 (Tukey No.1)

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―The award has not yet become binding on the parties, or has been set aside or

suspended by a competent authority of the country in which, or under the law of

which, that award was made.‖

Terms Binding, Set aside and suspend-explained

Binding- ―Article v (1) states that in the first place that

enforcement of an award can be refused if the party against

whom the award is invoked proves that the award has not be

come binding.‖ The earlier convention 1927 required that the

award had become ‗first‖ in the country of origin. This ward

substituted by Binding in New Youk Convenion. Accordingly,

no leave for enforcement in the country of origin is required

under this convention. This principle is almost acceptable in the

signatories countries‖.71

Set aside- ―Article v (1) states that enforcement of an award

can be refused if the party against whom the award is invoked

proves the award has been set aside by a court of the country

in which, or under the law of which, the award was made.

According to Article VI of the Convention, a court may

adjourn its decision on enforcement if the respondent has

applied for infact, only handful cases have setting aside of an

award in the country of its origion led setting aside of an

award in the country of its origion to a resueal of enforcement

abroad under the New York Convention. The Paris court of

Appeal in claude clair‘s case72

refused to enforce an ICC

Award made in Genva on the ground that award had been set

aside by the authority‖.

In the American legal system an arbitral award becomes binding when the arbitration

panel has resolve all the dispute and no further issue to another arbitration panel exists and award

should be final. It is worth while to note that author has been referred cases to illuminate the

subject matter. More over, the US court of appeals for the second circuit in Baker Marine‘s73

case in which two awards set aside in Nigeria were refused for enforcement.

In Fertilizer Corp. of India v. IDI Management‟s case IDI argued that the award was not

binding because it was under review by an Indian court for error of law.

―Suspension Defense V (1) (e) also provides that enforcement of an award can be refused

in the against whom the award has been suspended by a court of the country in which, or

under the law of which, the award was made has been suspended by court of the country

in which or under the law of which by the court of appeal of canton Genva. The Genva

71

New Horizons in International Commercial Arbitration and Beyond (p.305) (ed.2005) by Albert Jan Van Den

Berg. 72

New Torizons in International Commercial Arbitration and Beyound (p.305) 73

US Court of Appeal, Secand Circuit, 12 August (1999).

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court had done so because it considered the award to be arbitrary which is a ground for

setting aside that award is. The Swiss Arbitration Concordat, 1969‖.

Another aspect of ―article V(1)(e) describing for non recognition when the award has

been set aside or suspended by a court in the country of origin, has rarely been successful, but an

award may be set aside as the grounds other then those mentioned in the convention. However,

the burden of proof lies on the respondent that the suspension was ordered by court‖.

VI .VI. Defense Art-II: Award Contrary to Public Policy

―The convention allows the court in which enforcement of foreign arbitral award sought

to refuse enforcement, on the defendant‘s motion are so or sua-sponte, if enforcement of foreign

arbitral award would be contrary to public policy of the country. Article II makes it clear that a

country can consider a matter as non arbitral for the purpose of the convention only if it will not

expect the validity of an agreement for arbitration in respect of the matter, even if the agreement

is made after the dispute has arisen. In a Ras Al Khaimah Oil Co‟s, In Deutsche Schachtbau-und

Tiefbohrgesellschaft mvH v Ras Al Khaimah National Oil Co.74

reversed by HL on other

grounds) case court of appeal held that it was not contrary to English public policy to enforce a

Swiss Award given under an International Camber of Commerce (ICC) arbitration clause using

as the proper law internationally accepted principles of law governing contractual relation even

though at that time an English arbitrator had to applied by English court. Similarly in other

Westacre‟s Investments v Jugoimport-SDRP75

court of appeal upheld the same view that it is

contrary to English policy to enforce a foreign arbitral award accepting the validity of a contract

for the purchase of personal influence abroad‖.

However, in ECO Swiss China Time case the European court held that: ―

It would be contrary to the public policy within the New York Convention to

enforce an Award which had upheld a contract which violated the competition

rules by down by the concern article of the EC Treaty.‖

In American Parsons and Whittemore Overseas Co‟s case US court of Appeals, held that:

―The Convention‘s public policy defense should be construed narrowly,

enforcement of foreign arbitral awards may denied on this basis only where

enforcement would violate the form stare‘s most basic notions of morality and

justice and disallowed overseas proposed public defense.‖

Another, important case of Indian‘s Jurisdiction is referred whereas the Indian Supreme

Court held in a case titled as Renusagar Power Co. Ltd. Vs General Electric Co.76

held that:

―The enforcement of a foreign award would be refused on the ground that it is

contrary to public policy of such enforcement would be contrary to

fundamental policy of Indian Law; the interest of India; and justice or

morality.‖

74

1990 AC295 75

1999 3 All ER 864 76

AIR 1994 SC 860

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The above examination of cases shows that public policy defense has been accepted. A

part from these statutory provisions as provided in Article (V) of New York Convention 1958

foreign award are enforceable in U.S, England and India more or less on the same ground and in

the same circumstances.

VI .VII. Defense Art-II: Issue in Dispute beyond the Legitimate Jurisdiction of

Arbitration

The New York Convention in Article 2 provides that:

―Recognition and enforcement of an arbitral award may also be

refused if the competent authority in the country where recognition

and enforcement is sought finds that the subject matter of the

difference is not capable o settlement by arbitration under the law of

that country.‖

―It means unlike the procedural defenses, if the grounds of the disputes cannot be settled

by arbitration under the National Law of the enforcing Nation a court competent Jurisdiction

may refuse to enforce an award granted through a foreign arbitration panel‖. ―This defense may

be invoked sua sponte by courts. For instance in (Libyan American Oil Company vs. Socialist

People‟s Libyan Arab Jamabirya) the U.S. Court refused to enforce Arbitral Award because the

subject matter of the dispute, the validity of Libyan Nationalization of Libyan American Oil‘s

Petroleum rights, was not arbitrable. Under the U.S. standards, arbitrating this dispute violated

the Act of State Doctrine‖.

In another case of Koch Navigation vs. Hindustan Petroleum Corp,77

the Supreme Court

of India held that: ―Court must give effect to an award that is clear, unambiguous and capable of

resolution under Indian law.‖

In the light of the above case law the principle of public policy varies from case to case

subject to the facts and circumstances of each case for which no hard and fast rules could be

enunciated.

VII. Miscellaneous and other Grounds for Defense

(a) Lack of Reasons in award- The court may refuse to enforce a award which does not

contain the reasons. The Supreme Court of Italy refused the enforcement of English

award which did not contain reasons on which mandatory requirement of Art. VIII of the

European Court of 1961 were compulsory78

(b) Forum – nienceConnon ve- Some times, the court has competent jurisdiction, but may

refused the enforcement of an awarded on the basis of Doctrine of term-convenience. In

Monde Re vs Naftogat , the state court of Ukraine refused to enforce the award in U.S.A

made by Russian Court on the basis of doctrine of forum –non convention which allows

courts to decline jurisdiction of complex law suits which implicate foreign parties only .

77

AIR SC 78 In cortedi cassazfone [Supreme Court], 8 February 1982, na 722, fratelli Daminano Snc Vs August tropfer & Co. reported in

year book IX (1984) PP. 418-421 (italy no -57)

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the court reasoned that neither the foreign sovereign immunities Act (FSIA) Noritz

arbitration exception which a party may request enforcement of a foreign award made

pursuant to an arbitration agreement between a sovereign state and a private party is the

award is governed by the an enforcement treaty (New Year Convention 1958) affects the

doctrine of forums non-convenient.79

(c) Retrospective application of the Conventions- The countries does not contain a

provisions an the question of whether it applies retroactively. ―This issue has given rise to

a number of diverging court decision, although it is possible to discern a tendency in

favor of retroactively application, where by convention is applicable to the enforcement

of an arbitration agreement and award no matter when they were made. The issue has,

however, led to refused of enforcement of award in Commoditex SA Vs Alexandria

Commercial Co.80

and Strojexport Vs Edward Naseer and Co. Ltd.81

Refused to apply the

convention to an award before it entered in to force and Switzerland and Ghana

respectively‖. The issue of retroactivity is unlikely to rise in future again. However, an

amendment to convention would be positively undesirable since of it were introduced,

the traumatic experience regarding retroactivity might have to be repeated Article.82

(d) Fraud and misrepresentation- “An award may be vacated when

the award is procured by corruption, fraud, misrepresentation

or undermines; when there was evident partiality or corruption

in the arbitrators; when the arbitrators are guilty of misconduct

in refusing to adjourned a hearing, in refusing to hear evidence

material to the controversy or other misbehavior prejudicial to

a party, and when the arbitrators exceed their powers, decide a

matter not submitted, or fail to hear a matter that was

submitted are grounds against enforcement‖.83

(e) Lack of Impartiality- “It is an established principle of law

that the arbitrator is required to disclose to parties in

dispute any dealings that may create an impression of

possible bias and injustice between parties. Here referred

few case law where the court of competent jurisdiction set

aside the awards on this ground. In Ansros Compania

Maritimic, S.A‟s case court observed that there was close

personal and professional relationship between the

arbitrators and party in dispute so the award is not

enforceable. In other case the English Commercial court

of Queen‘s Bench Division in China Agribessiness

Development‟s case the court did not accept the plea of

79

See why are some awards not enforceable? A J. Van Den Berg published in New Horizons in International

Commercial Arbitration ad Bey and General editor Albert Jan Van Den Berg at p.313. 80

Reported in Year Book 1 (1976) p. 199 (Switzerland No.2) 81

Reported in Year Book III (1978) p. 276 (Ghana No. 1) 82

Id 83

See Fediral Arbitration Act (FAA) (9 USA sect.1 at )

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improper procedure and enforce the award. The award

was also enforced in Al Haddec Bros. Engerprises, Inc

M/s Agap‟s Case84

and held that New York Convention

allows recognition and enforcement of an award that

strictly complies with the laws of country where the

arbitration conducted under the English Legal System, a

sole arbitrator may decided a dispute and that award is

enforceable and binding‖.

VIII. LEGISLATIVE AND CASE LAW DEVELOPMENTS IN PAKISTAN

Prior to 2005, the law of arbitration awards in Pakistan was spread between these

enactment enforcement of domestic award was dealt with under the Arbitration Act, 1940.

Enforcement of foreign award was covered under the Protocol and convention Act, 1937. To

give effect the New York Convention Pakistan has promulgated an Ordinance in 2005 this

Ordinance is currently on extension. The existing law deals with the recognition and enforcement

of commercial and investment disputes awards the courts of Pakistan recognized the foreign

awards85

in the same manner as the judgment or degree of the Pakistani Court unless there are

some compelling reasons. In Fuerst Day Law sonltds case‟s the Indian supreme Court held that:

―Once the court determines that a foreign award is enforceable it can straight away be excuated

as decree.‖86

VIII.I. Law of Arbitration in Pakistan - In Pakistan the New York Convention provides for

certain basic procedures to be complied with. Diverse jurisdiction may have different domestic

requirements. In Pakistan, the procedures are enshrined in Section 587

of existing Act 2010, the

party seeking to enforce a convention award is required to produce the necessary documents

before the court of competent jurisdiction.

After the enforcement of Act 2010 radical changes have been made in law and discretion

of court which was available under Sect. 34 of the Arbitration Act, 1940 apparently is no more

available to Court. The question on which earlier while exercising discretion under Sect. 34 of

the Arbitration Act about convenience or inconvenience of the parties, availability of evidence

on a place other than the place of arbitration whether to stay proceedings or not was within the

discretion of the Court. However, while dealing with the matter under Sect. 4 of the Act court

has not such discretion except where cases fall within exception categories mentioned in the

section itself.88

84

Al Hadded Bros. Enterprise, Inc M/s Agapi, 653 F. Supp. 205 CD. Del. 1986) off with out op, 813 F., 2d 396 (3d

Cir 1987). 85

Foreign Arbitral Award ―means of a foreign arbitral award made in contracting states and such other sate as may

be notified by the federal government in official Gazzelle. 86

Furest Day Lawson Ltd. v/s Jindal Export Ltd. (2001)6 sec 356.

a) 87

the duly authenticated original award or a duly certified copy of it;

b) The original arbitration agreement or duly certificate copy of it.

When the award or agreement is in a foreign language, a translation of its certified by an official or sworn translator

by a diplomatic consular agents. 88

See Year Book Commercial Arbitration Vol. XXXII-2007 (General Editor Albert Jan Van Den Berg)

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It is interesting to note that Sect. 3 of the Act 2010 opens with the non-obstacle clause

that notwithstanding anything contained in any other law for the time being in force the court

shall have exclusive jurisdiction to adjudicate and settle matter related to or arising from the Act.

On reading Section. 4(2) with Article II of [the 1958 New York Convention], it is clear that on

filing of an application by any party to the proceeding the court has to stay the proceeding unless

it finds that the agreement is null and void or inoperative or incapable of being performed‖89

and

it is worthwhile to note that:

―Unless the court pursuant to section 7 refuses the application seeking

recognition and enforcement of a foreign arbitral award, the Court shall

recognize and enforce the award in the same manner as a judgment or order of a

court in Pakistan‖.

The section 7 of said ordinance provides conditions for the non-enforcement of

foreign award. Section 7 of the above said ordinance provides that;

―The recognition and enforcement of a foreign arbitral awards shall not be

refused except in accordance with Article V of the Convention‖.

―After examination of these statuary provisions it may be concluded that

foreign award shall not be enforceable, if the party opposing enforcement prove

that the parties to the agreement were under the law applicable to them under in

capacity, party was unable to presents its case, it was not given proper notice of

the appointment of arbitrator or no notice was served with regard to arbitration

proceeding. It is impliedly mention that even procedural discrepancy or other

illegalities, or irregularities can cause to the refusal of enforcement of foreign

awards in Pakistan. When the courts in Pakistan satisfied that the foreign award is

enforceable and satisfied all the perquisites of the enforcement then the award

shall be deemed to be the degree of that court, however, enforcement of an award

cannot be denied on the suspicious ground that the award is not acceptable to the

party against whom enforcement is sought otherwise this would be defeating the

very object of New York Convention and the said Act‖.

VIII.II. Judicial Trends in Pakistan - The Supreme Court of Indian in Big Endra Nath‟s case

held that, ―the curt should approach on award with a desire to support it, if that is reasonably

possible, rather than to destroy it by calling it illegal.‖90

However, Pakistani courts are looking

firm with regard to the enforcement of foreign arbitral award. The Supreme Court of Pakistan

held in M/s Eckhardt‟s & Co. vs. Mohammed Hanif,91

this is the first case in Pakistan which

interoperates the New York Convention 1958 on the recognition and enforcement of foreign

arbitral awards where the honorable Supreme Court held that:

― . . There is no cavil about the propositions that under section 34 of the

arbitration Act stay can be refused by the court if it is satisfied that there is no

sufficient reason for making reference to arbitration and substantial miscarriage

of justice would take place or inconvenience would be caused to the parties if

stay is granted. No hard and fast rule can be laid down or line of demarcation is

drawn to say in what case is refusal can be made. Each case has different facts

and grant or refusal of stay is dependent upon peculiar facts and circumstances

of each case. The Court can make objection assessment and come to the

conclusion weather stay of legal proceedings can be granted or refused.‖

89

id 90

See Bijendra Nath v. Mayank, (1994) 65 cc 117. 91

PLD 1993 SC 42

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―In the above case Mr. Justice Ajmal Mian appended separate note on the

following grounds that section 34 of the Arbitration Act in relation to a foreign

arbitration clause the Courts approach should be dynamic and it should bear in

mind that unless there are some compelling reasons such an arbitration clause

should be honored as generally the other party to such an arbitration clause is a

foreign party. With the development and growth of International Trade and

Commerce and due to modernization of Communication Transport system in the

world, the contracts containing such an arbitration clause are very common now

a days. The rule that the Court should not lightly release the parties from their

bargains, that follows form the sanctity which the Court attaches to contracts

must be applied with more vigor to the contract containing a foreign arbitration

clause we should not over look the fact that any breach of a terms of such a

contract to which a foreign company or person is a party, will tarnish the image

of Pakistan in the comity of the nations.‖

―In nutshell no hard and fast principle can be lay down or line of segregation can be

drawn to say in what cases refusal can be made. Each case has different facts and grant are

refusal of stay is depend upon peculiar facts and circumstances of each case the Court can make

objective assessment and come to the conclusion weather stay of legal proceeding‘s can be

granted or refused‖.

Upon the coming into the force of the ordinance this prescription has been removed by

section 2(4). Khilji J further interpreted section 4 of the said ordinance that ―Sub section (2) of

Section 4 of the ordinance 2005 taken away discretion of the Court whether or not to stay the

proceeding in terms of the Arbitration Agreement, even on the ground of inconvenience etc.

except where the arbitration agreement itself is mull and void, inoperative, or incapable of being

performed.‖ Khilji J thus held that arbitration agreement itself was perfectly capable of being

performed. In the light of above judgment it seems that Arbitration Agreement will be enforced

in line with the provisions of the Recognition and Enforcement of Foreign Arbitral Awards 1958

However, in the most famous HUBCO vs. WAPDA.92

Supreme Court of Pakistan applied

parochial nationalistic approach on the ground of public policy.

The approach of National Court towards the enforcement of arbitration towards is also

well expressed in Federation of Pakistan vs. Al Farooq Builders.93

Where the division Bench of

High Court of Sindh held that:

―Truly speaking the arbitrator is a judge of all matters arising out of a dispute

whether of fact or law and the court is not to act as a court of appeal sitting in

Judgment. Over the award the court should always endeavor to sustain the

award rather than destroy it unless it could be shown by sufficient and reliable

material on the record that the arbitrator was guilty of misconduct or that the

award was beyond the scope of reference or that it was beyond the scope of

reference or that it was violate of statute or in contradiction to the well settled

norms and principles of law.‖

In another case of President of Islamic Republic of Pakistan vs. Syed Tasleem Hussain Naqvi,94

it was held by the Supreme Court of Pakistan that:

92

PLD 2000 SC 841 93

2001 MLD 99 94

2004 SCMR 590

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―the award could be challenged only on thee grounds mentioned in section 30

of the Arbitration Act, 1940 i.e. if the Arbitrator had misconduct himself and

the proceedings and not on merits, for the court whole hearing objections

against the award could not sit as a court of appeal against the award and

interfere with it on merits.‖

―In the most recent case the plaintiff had not filed authenticated copy of

the award; court held that section 8 provided for producing either original

award or its authenticated copy. Original award having been produced,

conditions fulfilled, award enforceable court, while considering the

enforcement of a foreign award, merely acts as an executing court and whole

doing so it can not go behind the award and sit as an appellate court and make

reappraisal of evidence.95

In the same case defendant contended arbitrator had

no jurisdiction; award was contrary to law and public policy in Pakistan and

arbitrator guilty of misconduct. No material in that respect produced by the

party and the objection that award policy not established objections had no

merit and the award was enforced‖.

VIII.III. The challenges and opportunities for Pakistan- The position with regard to

enforcement of international arbitration agreement is not so clear. Local stakeholders are

reluctant to pursue the Arbitration clauses in their contracts because the picture is not much clear

with respect to the enforcement of Arbitration Awards and Agreements and there is a need to

build confidence of trade actors and it is possible only when three organs of the state, i.e.,

Legislature, Executive and Judiciary play its constitutional role in the administration of justice,

rule of law, economic growth and wellbeing of stakeholders. Pakistan can maximize the

opportunities for trade, investment and corporate governance and minimize the challenges by

adopting the principles of globalized economy in a cogent manner.

IX. Conclusion and Recommendations

It is very obvious that with regards to enforcement of foreign arbitral agreements and

awards, courts and the legislature have been removing all potential barriers in favor of complete

arbitral freedom. However, absolute an unchecked power may have serious consequences in

future. The New York Convention has provided legal barriers in the form of Article (V). The

U.S, English, Indian and Pakistani courts are following the Parsons case‟s standards of morality

and justice, an old precedent being subjected to the strict test of interpretation. It is very doubtful

if any case would satisfy this high level of scrutiny.

The legislature and policy makers should find out the uniform principles of the structure

and standard of seven legal defenses so that courts can effectively use these defenses against

unfair trade practices. The present standards of statutory defenses are not so clear, transparent

and predictable any jurisdiction world. Hence an initiative by the legislature in setting the

standard followed by uniform interpretation by the courts would effectively re-instate legal

defenses, a meaningful defense in the enforcement of foreign awards. In Nutshell the judicial

trends in Pakistan is evolving gradually and there is an utmost need to improve the condition for

the interest of economic development in Pakistan.

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Impact of Manufacturing Industry on Economic Growth in case of Pakistan:

A Kaldorian Approach

Khizra Safadr Khan (Corresponding author)

Ph.D scholar, Department of Economics,

GC University, Lahore, Pakistan

Dr. M. Wasif Siddiqi

Associate Professor, Department of Economics


Abstract

The aim of this study is to empirically test the validity of the Kaldorian approach to growth and

development in Pakistan during the period of 1964-2008. In order to obtain robust results, time-

series was smoothed by 10 year moving average. Ordinary Least square (OLS) regression

analysis is being employed to testify the relationship between growth of manufacturing sector

and economic development. The present study found the significance of Kaldor's first and third

law while some empirical support is found for the second law with some inferences about the

rate of returns, indicating importance of manufacturing sector in economic development of

Pakistan.

Key Words: Kaldor‘s Laws, increasing returns to scale, manufacturing industry.

1. Introduction

The development economists have always tried to examine the process of economic

development in order to recognize the resources for economic development. As far as historical

perspective of industrial development is concerned, it has positively contributed to the economic

development and living standard of many countries. The words of economy and economic

system are often used as synonyms. The contents of these two words are the same but economy

is related to the existence of different productive resources as land, labor, capital equipments,

entrepreneurship, and an economic system is related to the functioning and collaboration of these

productive resources. According to economists, the primary and the main objective of an

economic system is to conserve itself and then to explore new dimensions to develop. The focus

of the present study is to find out the contribution of the manufacturing sector in the economic

development of Pakistan.

During the process of economic development structural transformations are essential. The

contribution of agricultural, industrial and services sectors in GDP growth vary with time. For

any economy the role of manufacturing sector is of paramount importance, especially for

developing countries like Pakistan. Pakistan‘s industrial sector has been subjected to negligence

in the past, despite the fact that in the fiscal year 2008-2009, agricultural sector being the largest

sector, contributed about 21.8 percent in the total GDP and the industrial sector on the other hand

had a share of 46.2 percent in the total GDP. However, the Government of Pakistan has started

formulating policies to organize industrial sector, because agricultural sector is exposed to

natural calamities like floods, storms, famine etc. The impressive growth rates of developing

countries are largely due to their industrial development, for example, the Asian Tigers. On that

account it can be stated that industrial development might help in achieving impressive growth

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rates for less developed countries like Pakistan. The study thus aims to find out the significance

of the manufacturing sector towards the economic development in case of Pakistan.

Economists have evolved different models of economic growth to identify the factors that

contributed to the rapid growth some nations as compared to the others. The growth models can

be classified in three school of thoughts i.e., classical, neoclassical, and new growth theories.

A model related to the classical growth theory can be referred as Harrod-Domer model.

According to Harrod-Domer Model, the economic growth depends upon the quantity of labor

and capital, greater investment results in capital accumulation, which eventually generates

economic growth. The model has its practical implications for less developed countries where

labor is in abundant supply but physical capital is always in shortage leading to slow economic

growth. Developing countries lack adequate average incomes to support high saving rates and

thus capital accumulation. The model suggests the policy measures to enhance investment

through increased savings, and thus utilizing that investment for technological advancements.

Robert Solow and Trevor Swan proposed a model in 1950‘s known as Solow-Swan model,

attributed as neo-classical growth model. Solow-Swan model exhibited the relationship between

labor time, capital equipments, output and investment. According to the model, the role of

technological change is considered more important as compared to the capital accumulation. It

was the first effort by the neo-classical School of thought to analytically represent the long-run

economic growth. According to the model, countries utilize their productive resources efficiently

and are subject to diminishing returns of capital as employment of labor increases. Three

significant implications were suggested by this model. Firstly, accumulating capital relative to

labor generates economic growth. Secondly, poor countries with less capital per individual can

grow at a faster rate as compared to the rich nations, because investment in capital can yield a

higher return than rich countries possessing abundant capital and thirdly because of diminishing

returns to capital, countries will ultimately attain a position where economic growth will be

accompanied with the constant capital. This position is known as steady state. The model also

suggests that the economies can deal with this steady state by discovering new technologies.

The Endogenous growth theory or the new growth theory mathematically describes the

endogenous role of technology in course of economic growth. The model has incorporated a new

perception of human capital including skills, education and knowledge that enhances the

productivity of work force. According to the model, human capital in contrast to physical capital

is subject to increasing rate of returns. As capital accumulation is concerned with constant

returns, that‘s why economies are not been able to attain a steady position.

The model asserts that the economic growth rate primarily depends upon the type of capital

in which a country invests instead of capital accumulation. Empirical investigation has

recommended that variation in cognitive skills like skills, training and education, can principally

clarify the differences in growth rates across different countries.

In addition to the above stated growth laws from different school of thoughts, certain causal

relationships between growth of industry, its productivity and their impact on GDP growth have

been identified by Nicolus Kaldor called as Kaldor's growth laws. These laws can be stated as;

The growth of the GDP is positively related to the growth of the manufacturing sector, the

productivity of the manufacturing sector is positively related to the growth of the manufacturing

sector (known as Verdoorn's Law). Increasing returns to scale in manufacturing implying implies

a larger size of the industrial/manufacturing sector which in turns reduces the average cost of

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production. The growth of the industrial/manufacturing sector implies a positive impact on the

productivity

of non-manufacturing sector because of presence of diminishing returns to scale in the non-

industrial sector.


Kaldor initially tested these laws empirically by employing data for twelve OECD

countries (Japan, Italy, West Germany, Austria, France, Denmark, Netherlands, Belgium,

Norway, Canada, U.K. and United States) for the period of 1953-54 to 1963-64 and found a

strong correlation between growth rate of GDP and manufacturing growth rate. Afterwards,

Cripps and Tarling (1973), have utilized the sample of same twelve countries for the time period

of 1951 to 1970 by fragmenting the data into four sub-periods presented support for Kaldor‘s

first law. Fractional support for Verdoorn's law was also obtained along with a fully supported

verification of the third law. McComnie and De Ridder (1984) estimated the Verdoorn's Law by

employing both ordinary-least squares and instrumental variable approaches for U.S. state data.

The estimated results regarding degree of returns to scale ranging from 1.33 to 1.65 depend upon

the specification used. Thus providing support for the Kaldor's argument about the existence of

increasing returns to scale in manufacturing sector in case of advanced countries.

Leon-Ledesma (2000) attempted to test Verdoorn‘s Law with different specifications for

the 17 Spanish regions using a pool of average rates of growth between 1962-73, 1973-83 and

1983- 91 for the presence of dynamic increasing returns to scale. Kaldor‘s second law was

tested for the manufacturing sector along with agriculture, construction, services and total value

added. The results showed substantial increasing returns for Manufacturing, services and for total

value added. Fingleton and McCombie (1998) examined the role of increasing returns to scale

by estimating Verdoorn‘s law using data for 178 European Union regions over 1979-89

providing evidence of large increasing returns to scale.

Bernat (1996) extended McCombie and de Ridder‘s (1983) work in different ways. First,

Kaldor‘s laws are tested using more recent data to see if they held during the 1980s. Second,

McCombie and de Ridder only tested the first two laws whereas this study also looks at the third

law. The results presented by them clearly support Kaldor‘s first two laws for the period 1977-

1990 while providing only marginal support for the third law. One of the most important findings

of the analysis was the presence of significant spatial autocorrelation and after correcting for this

spatial dependence noticeably improved the fit of the models. Harris and Lau (1998) utilized the

Johansen Cointegration approach to estimate returns to scale for the UK industrial data from

1968 to 1991. According to them, as this approach incorporates the role of capital, the

simultaneity problems related with the only equation of Verdoorn‘s law can be overcome. The

results provided the evidence for substantial support of increasing returns for many

manufacturing industries in UK.

Libanio (2003) estimated first and second laws of Kaldor using panel data for a sample of

the seven largest economies in Latin America during the period 1985-2001 and estimation results

appeared to support Kaldor‘s views regarding the importance of manufacturing industry for

economic growth. According to the study an increase in the output leads to an increase in

productivity which in turns has a negative impact on general price level. This fall in prices thus

increases the overall competitiveness, exports and output. The study thus explains the fact that

once a country attains this growth advantage, the process of increasing returns and increased

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manufactured exports will help then to augment this growth advantage and thus experiencing

economic growth.

Wells and Thrilwall (2003) empirically tested the validity of Kaldorian laws for 45 African

countries over the period 1980–96, using data from the African Development Bank and World

Bank. They found some empirical support for Kaldor‘s growth laws in case of African countries.

The growth of GDP was found to be more closely related with the growth of the manufacturing

sector as compared to the agricultural or service sectors.

Dasgupta and Singh (2005) revisited the role of manufacturing and services in economic

development and explored the validity of the Kaldor‘s laws. Analyses was carried out at three

different levels including cross-sectional analysis of data from 30 developing countries for the

time period of 1980-2000, cross-sectional analysis of data for 29 Indian states during the 1990s

and an estimation of the contribution of un-organized and organized industrial sectors in the

Indian states toward economic growth. According to the results, both manufacturing and services

sectors were found to be closely related to the growth of GDP and the growth of services sector

in turns depends basically on the growth of manufacturing sector.

Dasgupta and Singh (2006) examined an extended dataset of 48 developing countries for

the period 1990-2000 to test Kaldorian laws. The results showed that manufacturing sector

contributes critically to the economic development, along with some vital contribution of the

services sector including ICT is observed in case of a number of developing countries including

India.

Jeon (2006) empirically tested the hypotheses that the manufacturing sector is considered

as the engine of economic growth in case of China during its reform period of 1979-2004. In

order to obtain robust results, both time-series and regional panel data formats were utilized.

Estimated results from both data sets confirmed the Kaldorian hypotheses about contribution of

manufacturing sector towards economic growth in China during its reform period.

Felipe et.al (2007) performed an analysis of structural transformation of the developing

Asia‘s growth experience during the decades of 1970s, 80, and 90s. The most prominent feature

of this transformation was found to be a significant decline in the agricultural share along with a

parallel increase in the share of services in GDP. The study has utilized the Kaldor‘s framework

to analyze the contribution of industrial sector towards economic development in Asian

developing countries. According to the estimated results both industry and services contributes in

economic development, along with some evidence of endogenous growth-induced technological

progress was also observed in case of developing Asia.

Chakerwarti and Mitra (2008) investigated the role of manufacturing sector as an engine of

growth and depicted the interconnection among several activities based on time series data on

employment in the organized sector of India. The objective of the study was to assess the role of

different sectors like construction, IT, services, manufacturing and irrigation projects in

generating employment opportunities. The authors employed a vector- auto regression (VAR) for

analytical purposes. According to the results, manufacturing sector appeared to be one of the

strong determinants of overall economic growth in addition to construction and services sectors.

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3.Research Method

3.1 Ordinary Least Square (OLS) Regression

There are different types of regression models in terms of parameters and variables. The

present study has employed Ordinary least Square Regression Model for analytical purposes.

The relationship between two variables in a regression analysis is expressed by a

mathematical equation called a regression equation or a model. A regression equation when

plotted, may assume one of many possible shapes, including that of a straight line. A regression

equation that gives a straight line relationship between two variables is called a linier regression

model; otherwise it is a non-linier regression model.

The equation expressing the relationships between two variables X and y can be written as

y = a + bx

Where, a represents the y-intercept and b expresses the slope of the line. In other words a

represents the point where the line intersects the y-axis and b shows the amount of change in y

due to change of one unit in X.

3.2 Data sources

Average growth rates of the variables are being employed for estimation purposes for the

time period of 1964-2008, obtained from various issues of Economic survey of Pakistan. The

Kaldorian hypotheses are tested using time-series data sets at the national level. According to

McCombie (1983) and McCombie & de Ridder (1983), as annual time series data sets contain

short-term cyclical fluctuations, the estimated results may provide some biased information

regarding contribution of manufacturing sector toward economic development because of the

presence of short-term cyclical changes. Atesoglu (1993) suggested that in order to remove

short-term cyclical fluctuations, the annual growth rate of each variable should be smoothed with

10-year moving average. Following Atesoglu (1993), a linear specification of 10-year moving

average is being employed to test the validity of Kaldorian laws in case of Pakistan

3.3 Theoretical framework

3.3.1 First Law

According to Kaldor, its first law can be stated as gGDP=f (gm), where gGDP is the growth of GDP

and gm is the growth of manufacturing output.

mGDP gg 10 (3.1)

Two side-tests of Kaldor‘s first law will also be performed to avoid the possibility of

‗spuriousness‘. The first is to regress the growth of GDP on the excess of the growth of

manufacturing output over the growth of non-manufacturing output (gnm), and the second one is

to regress the growth of non-manufacturing output on the growth of manufacturing output as.

)(10 nmmGDP ggg

(3.2)

mnm gg 10 (3.3)

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3.3.2 Second Law:

Kaldor‘s second law states that the growth of productivity of manufacturing sector is

positively associated with the its production growth, this law is also known as ―Verdoorn‘s

Law‖. The Verdoorn‘s Law can be specified as

mm gp 10 (3.4)

where pm is the growth rate of labor productivity in manufacturing, and ( i =0,1 )

are regression coefficients and the is called the ―Verdoorn coefficient‖. The eq. (3.4)

suffers with the problem of definitional identity as the labor productivity pm = gm - em ,

where em is growth rate of employment in the manufacturing sector, implying a strong

correlation between dependent and independent variables. In order to avoid this problem,

another specification can be employed.

mm ge 10 (3.5)

where em is the growth of labor employment in manufacturing, and 00 and 11 1

.

For estimation purposes, equation (3.5) is preferred due to the correlation existing between p and

g. Rowthorn (1975) suggested the appropriate specification of Verdoorn‘s Law as to regress g or

p on e. Kaldor inferred the slow rate of growth of UK manufacturing industries because of

shortage of labor. Then, the exogenous variable should be the rate of growth of employment, as:

mm eaap 10 (3.6)

or

mm ebbg 10 (3.7)

Another significant limitation of above mentioned specifications is that neither of them has

considered the role of contribution of capital to increasing returns in manufacturing sector. In

order to draw some inferences about degree of the returns to scale, it is necessary to make some

assumption about the evolution of the capital stock.

In order to include the rate of growth of the capital stock (k) , Kaldor has suggested the

following specification:

mmm kbgbae 211 (3.8)

Rowthorn has employed the rate of growth of capital stock in the manufacturing growth

specification as:

mmm kdedcg 211 (3.9)

From (3.8) and from eq. (3.9) measures the returns

to scale. Bairam (1987) pointed out that the estimation results from some

studies have obtained an insignificant value or sign regarding role of capital stock in returns to

scale , in equation (3.8), which might be due to the error mis-specification, while, the utilization

of equation (3.9) always yielded statistically significant k with correct sign.

3.3.3 Third Law:

According to Kaldor‘s third law, the growth of productivity of an economy as a whole is

positively related to the growth of manufacturing output because of the labor transferences to the

i

12 dd12)1( bb

1

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manufacturing sector from the other sectors including agriculture and service. It can be expressed

as (3.10)

Practically, it is complex to directly establish the relationship between the transference of

labor and the productivity of the economy because of difficulty of measurement of productivity

in many activities outside manufacturing (Thirlwall, 2003). Kaldor (1968) tried to solve this

problem on the basis of following empirical evidences.(3.11 and 3.12)

where em and eTotal are the growth rates of employment in manufacturing and total

economy, respectively. The seemingly contradictory results may be reconciled if there is positive

relationship between growth rate of overall productivity and growth rate of employment in

manufacturing sector and negatively related to growth rate of employment other than

manufacturing sector expressed as (3.13):

where enm is the growth rate of employment other than manufacturing. By utilizing the

details about employment growth which is encompassed in the dependent variable, the GDP

productivity of GDP by definition, Thirlwall (1983) and Atesoglu (1993) suggested to regress the

GDP growth on the employment growth in manufacturing and in non-manufacturing sectors as

(3.14)

Cripps & Tarling (1973) suggested to replace the employment growth in manufacturing

with the growth of manufacturing output, which was empirically tested by Drakopoulos &

Theodossiou (1991), Hansen & Zhang (1996) and Thirlwall (2003) as (3.15).

The specification of equation (3.15) is preferred, because according to Cripps & Tarling

(1973), ―most of the variation in productivity growth which is not associated with movements in

employment is concentrated in the manufacturing sector and is therefore correlated with the

growth of industrial output.‖ The specification of (3.15) is also justified by the fact that the

manufacturing output growth is the prime result of net addition in resources as compared to the

redistribution of resources from one use to another. The present study is going to estimate both

specifications of (3.14) and (3.15).

mGDP gddp 10

mGDP eeeg 10

totalGDP eyyg 10

nmmGDP eaeaap 210

nmmGDP ebebbg 210

nmmGDP ecgccp 210

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4.1. Kaldor's First Law

Kaldor‘s first law states that gGDP=f (gm), where gGDP is the growth of GDP and gm is the growth

of manufacturing output. Fitting a linear specification of this function to the time series data for

Pakistan from 1964-08 yields (t statistics in parentheses):

gGDP= 1.686 + 0.871 gm R2= 0.475 (4.1)

(0.675) (5.462) F stat (1,33)= 29.831

The results suggest that 47.5% of the variations in the data have been explained by the

model, implying that about half of the growth rate of Pakistan‘s economy is associated with the

growth of manufacturing output. The results indicate that with one unit increase in growth of

manufacturing output, GDP growth will increase by 0.871 units. If the manufacturing output

growth goes down to zero, even then the GDP would grow by 1.686 units because of the other

sectors of the economy. Both the coefficients have turned out to be significant and have positive

signs, so we can say that both the dependent and the independent variables have a positive

direction of relationship i.e., with an increase in manufacturing output the GDP is going to be

increased.

This simple regression is subjected to ‗spuriousness‘ because manufacturing output itself is

a component of the dependent variable (GDP). Two side-tests of Kaldor‘s first law are also

performed to avoid the possibility of ‗spuriousness‘ as described in theoretical framework. The

results are given in Equations (4.2) and (4.3), respectively

gGDP= 15.562 - 0.709 (gm-gnm) R2=0.385

(75.34) (-4.54) F stat (1, 33) = 20.695

gnm = 2.054 + 0.844 gm R2= 0.372

(0.687) (4.42) F stat (1, 33) = 19.56

In equation (4.2), R2 is relatively low, i.e., 38.5 percent of the variations have been

explained by the model, which is technically not a good fit. However, the regression coefficients

of the excess of manufacturing growth over non manufacturing growth are statistically

significant at 95 percent confidence level. Equation (4.3) is also statistically significant with

relatively low R2. But the close association between manufacturing output and non-

manufacturing output is confirmed. It shows that one unit increase in manufacturing output

would cause the non-manufacturing output to increase by 0.844 units.

In order to consider the manufacturing sector as the ‗engine of growth‘, it is necessary to

demonstrate that analogous results are not attained when the same exercise is repeated for other

sectors like agriculture and services. For agriculture sector, it appears to be a strong relation

between agricultural growth (ga) and GDP growth (R2=0.715), with a high regression coefficient

(0.710). However, the degree of ‗spuriousness‘ is high in case of agriculture because agricultural

output constitutes a larger fraction of GDP as compared to manufacturing sector. When the side-

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test is performed to find out the relation between GDP growth and the excess of agricultural

growth over non-agricultural growth (gna), no correlation along with a negative regression

coefficient is found, as expressed in eq. (4.2a). But the growth of agriculture output is proved to

be a driving force for non-agricultural output growth as it supplies raw material for

manufacturing activities.

gGDP= 5.529 + 0.710 ga r2= 0.715 (4.1a)

(5.119) (9.109) F stat (1,33)= 82.97

along with its diagnostic tests as

gGDP= 15.176 - 0.051 (ga-gna) r2=0.002 (4.2a)

(30.43) (-0.27) F stat (1, 33) = 0.073

gna = 7.404 + 0.626 ga r2= 0.466 (4.3a)

(4.584) (5.366) F stat (1, 33) s= 28.79

The results for the service sector are proved to be stronger as compared to that of

agriculture sector. Strong correlation between service sector growth (gs) and GDP growth is

found because services sector also constitutes a larger fraction of GDP. However, a relation

between the non-service output growth and service output growth (gs) is also found, as shown in

Equation (4.3b).

gGDP= 2.18 + 0.814 gs R2= 0.937 (4.1b)

(3.643) (22.1) F stat (1,33)= 488.42

The results for the diagnostic tests are as under

gGDP= 14.249 + 0.708 (gs-gns) R2=0.177 (4.2b)

(31.411) (2.663) F stat (1, 33) = 7.094

gns = 3.631 + 0.683 gs R2= 0.757 (4.3b)

(3.32) (10.137) F stat (1, 33) = 102.76

It is therefore, concluded that there exists substantial support for Kaldor‘s first law in case

of Pakistan. Agriculture and services are not proved to be serving as engine of growth firstly

because of the fact that they are mostly related to diminishing returns activities and secondly

because they do not possess any backward and forward linkages like that of manufacturing

sectors.

4.2 Kaldor‟s Second Law (Verdoorn‟s Law)

Kaldor‘s second law states that pm=f (gm), where pm is labor productivity growth in

manufacturing sector and gm is manufacturing output growth. The reasoning behind this law is

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that higher manufacturing output will stimulate higher labor productivity if production of

manufacturing sector is subject to static and dynamic increasing returns to scale (McCombie et

al., 2002, Dixon and Thirlwall, 1975).

Following the theoretical frame work, the empirical estimation of Verdoorn‘s law is based

on the equations from (3.4) to (3.9).

Pm=0.444 + 0.902 gm R2=0.863 (4.4)

(0.488) (16.291) F (1,42)= 265.39

The results indicate that the model has successfully explained variations in the data i.e., R2

=0.863. In this equation the Verdoorn‘s coefficient is positive as 0.902 implying a positive and

significant relationship between productivity growth in manufacturing and manufacturing output

growth. According to the results, increasing the growth of manufacturing output by one unit, the

labor productivity in manufacturing will increase by 0.902 units. These convincing results can be

due to the presence of multicolienarity as the labor productivity can be expressed as pm =gm -

em, implying a strong correlation between dependent and independent variables. This

problem could be solved as:

em= -0.444 + 0.098 gm R2=0.069 (4.5)

(-0.488) (1.768) F (1,41)= 3.127

The results show that a weak relationship exists between growth in manufacturing output

and employment in manufacturing. One unit increase in manufacturing output would cause the

employment to increase by 0.098 units. This relationship is also supported by the low value of R2

which is 0.069 in this case.

According to Rowthorn‘s specification of Verdoorn‘s law, equations 3.6 and 3.7 are

estimated as

pm= 14.605 - 0.292 em R2=0.013 (4.6)

(15.027) (-0.73) F (1, 41) = 0.533

and

gm=14.605 +0.708 em R2=0.069 (4.7)

(15.027) (1.768) F (1,41) =3.127

The above equations relate employment in manufacturing to productivity and growth in

manufacturing respectively. In equation (5.6) there is a negative relationship between the two

variables. It means with one unit increase in employment in manufacturing the productivity in

manufacturing will decrease by 0.748 units. This relation supports the use of capital intensive

techniques in the manufacturing sector. The employment of more labor with the given capital

will reduce the productivity of manufacturing sector. In equation (5.7) there is a positive

relationship between employment in manufacturing and growth of manufacturing.

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Considering the contribution of capital, eq. 3.8 and 3.9 are estimated as Kaldor‘s and

Rowthorn‘s specifications respectively.

em= -0.907 +0.95gm+0.038km R2=0.088 (4.8)

(-0.897) (1.711) (0.926) F (2,40) = 1.987

gm= 14.442 +0.701em +0.012km R2= 0.070 (4.9)

(7.752) (1.711) (0.103) F (2,40)=1.532

The returns of scale estimated from Kaldor‘s specification are 1.012 , as against Bairam

(1987), results from equation (3.8), k is statistically insignificant but has right sign showing its

positive relationship with employment growth in manufacturing sector. While, in equation (3.9),

k always has the correct sign and is somewhat more statistically significant, as according to

Rowthorn‘s specification the estimated returns to scale are 0.713 showing substantially low

returns as far as manufacturing sector of Pakistan is concerned.

4.3 Kaldor‟s third law

The theory behind Kaldor‘s third law is that the faster the manufacturing growth absorb the

labor from agriculture and other sectors where the marginal product is less then average product

(because of existence of diminishing returns). As labor transference takes place, labor

productivity outside the manufacturing sector increases and thus in turns raises the growth of

labor productivity in the economy collectively (and therefore GDP growth) as.

P GDP= 0.834 + 0.758 gm R2= 0.583 (4.10)

(0.503) (7.574) F (1,41) = 57.37

The results show that there exists an extremely strong relationship between growth of

productivity of an economy on the whole and the growth of manufacturing output. The variables

appeared to be significant and the positive sign shows that with one unit increase in the growth

of manufacturing output the overall productivity of the economy will increase by 0.758 units.

An improvement in the above specification by Kador (1968) is

g GDP =13.866 + 1.052 em R2= 0.165 (4.11)

(15.83) (2.88) F (1, 41) = 8.317

g GDP =16.288 -0.662 e Total R2= 0.013 (4.12)

(7.482) (-0.745) F (1,41) =0.555

where em and eTotal are the growth rates of employment in manufacturing and total

economy, respectively. In equation (5.11) the relationship between variables is positive i.e.,

employment in manufacturing is positively related to growth of GDP and in equation (5.12) the

total employment is negatively related to the growth of GDP. This usually is the case when there

exists the faulty policies of the government and the fruits of development are not distributed

evenly rather only a smaller proportion of the population enjoys the benefits of the economic

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development. So in that case, even if there is growth in GDP, the total employment is usually

undergoes a declining trend.

The productivity of GDP is positively related to the employment in manufacturing and non-

manufacturing sector as shown in equation (4.13).

p GDP= 12.246+0.481em -5.458 enm R2= 0.167 (4.13)

(10.479) (0.747) (-1.02) F (2,40) =4.005

The above results show a positive relationship between productivity growth of GDP and

employment in manufacturing, as with one unit increase in em the gGDP will increase by 0.481

units. However, productivity growth in GDP is negatively related to the employment in non-

manufacturing sector. As the results indicate, one unit increase in enm would decrease the pGDP by

5.458 units.

By regressing the growth of GDP on the growth of employment in manufacturing and in

non-manufacturing sectors yield following results.

g GDP = 14.252 +0.763em- 2.993enm R2=0.172 (5.14)

(12.97) (1.25) (-0.59) F (2,40) = 4.268

The above results show a positive relationship between growth of GDP and employment in

manufacturing, as with one unit increase in em the gGDP will increase by 0.763 units. However,

growth in GDP is negatively related to the employment in non-manufacturing sector. As the

results indicate, one unit increase in enm would decrease the gGDP by 2.993 units.

Cripps & Tarling (1973) suggested to substitute the growth of employment in

manufacturing for the growth of manufacturing output as

pGDP= 1.822 +0.704gm- 4.626enm r2=0.625 (5.15)

(1.097) (7.07) (-2.101) F (2, 40)= 33.28

According to the specification suggested by Cripps & Tarling (1973), Kaldor‘s third law is

proved to be significant in case of Pakistan. As the results exhibit a positive relationship between

productivity growth of GDP and growth of manufacturing production, as with one unit increase

in gm the pGDP will increase by 0.704 units. This positive relation is also confirmed by the

relatively high value of R2 which is 60.625 implying that about 62 percent of the variations in

the data is being capured by the above specified model. However, productivity growth in GDP is

negatively related to the employment in non-manufacturing sector. As the results indicate, one

unit increase in enm would decrease the pGDP by 4.626 units.

5. Conclusion

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In Pakistan, Kaldor growth laws are found to be significant to some extent using a time

series data from 1964-2008. The growth of GDP seems to be much closely associated with the

growth of manufacturing sector as compared to the agricultural or service sectors. Some support

for Kaldor‘s second law is found by using its specification which yielded high rate of returns,

and also for the third law which was found to be significant through its last specification, as labor

productivity seems to be strongly negatively influenced by the growth rate of non-manufacturing

employment activities.

The estimated results suggest the structural transformation in support of industrial

development to accelerate the growth rate of GDP along with its foreign exchange earnings

through exports. As manufacturing sector exhibit more forward and backward linkages as

compared to services and agriculture sectors, which ultimately have a positive impact on

economic development of Pakistan.

Almost half the growth of GDP is attributable to the growth of manufacturing output, so

increasing the share of manufacturing sector would certainly have far positive implications on

the economy in context with the output as well as the employment. It has been proved from the

study that there exists an increasing return to scale in the manufacturing sector so investing in

that sector would bear fruitful results and would raise productivity in an economy. So, it is

suggested that the government should give due importance to the promotion of the

manufacturing sector as in the long run it will drag the nation out of the list of less developed

countries and would eventually raise the standard of living of the people. The initiation of this

structural change can be considered as a big challenge for policy advisors.

Refrences

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Atesoglu, H.S. (1993). Manufacturing and Economic Growth in the United States. Applied

Economics, 25(6), 67-69.

Bairam, E. (1987). The Verdoorn Law, Returns to Scale and Industrial Growth: A Review of the

Literature. Australian Economic Papers, 26, 20-42.

Bernat, Jr. (1996). Does manufacturing matter? A spatial view of Kaldor‘s laws. Journal of

regional. Science, 36(3), 463-477.

Chakarvarty, S. & Mitra, A. (2008). Is Industry still the engine of growth? An econometric study

the organized sector employment in India. Journal of policy Modeling, 31, 22-35.

Cripps, T. F., & Tarling, R. J. (1973). Growth in Advanced Capitalist Economists 1950-1970.

Cambridge University Press.

Dasgupta, S. & Singh, A. (2005). Will Services be the new engine of Economic Growth in India?

Center for Business Research, University of Cambridge Working Paper No. 310.

Dasgupta, S. & Singh, A. (2006). Manufacturing, Services and Premature De-Industrialisation in

Developing Countries: a Kaldorian Empirical Analysis. Centre for Business Research, University

Of Cambridge, Working Paper No. 327.

Drakopoulos, S.A. & Theodossiou, I.(1991). Kaldor‘s Approach to Greek Economic Growth.

Applied Economics, 23,1683-89.

Felipe, J., Leon-Ledesma, M. Lanzafame, M. & Estrada, G. (2007). Sectoral Engines of Growth

in Developing Asia: Stylized Facts and Implications. Asian Development Bank, ERD (Economic

and research department) Working Paper Series No. 107

Fingleton, B. & J. McCombie (1998). Increasing Returns and Economic Growth: Some Evidence

for Manufacturing from the European Union Regions. Oxford Economic Papers, January.

Hansen, J.D. & Zhang, J. (1996). A Kaldorian Approach to Regional Economic Growth in

China. Applied Economics, 28, 679-85

Harris, R. I. D. & Lau, E. (1998). Verdoorn's law and Increasing returns to scale in the UK

regions, 1968-91: some new estimates based on Cointegration Approach. Oxford Economic

Papers, 50, 201-219.

Kaldor, N. (1967). Strategic Factors in Economic Development. New York, Ithaca.

Kaldor, N. (1968). Productivity and Growth in Manufacturing Industry: a Reply. Economica, 35,

385-91.

Kaldor, N. (1975). Economic Growth and the Verdoorn‘s law. A Comment on Mr. Rowthorn‘s

Article. Economic Journal, 85, 891-896.

Leon-Ledesma, M. (2000). Economic Growth and Verdoorn‘s Law in the Spanish Regions

1962–91. International Review of Applied Economics, January.

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McCombie, J.S.L. (1983). Kaldor‘s Laws in Retrospect. Journal of Post-Keynesian Economics,

5, 414-29.

McCombie, J. & J. de Ridder (1983). Increasing Returns, Productivity and Output Growth: The

Case of the United States. Journal of Post Keynesian Economics, Spring.

Rowthorn, R.E. (1975). What Remains of Kaldor Laws? Economic Journal, 85, 10-19.

Thirlwall, A. P. (1983). A Plain Man‘s Guide to Kaldor‘s Growth Laws. Journal of Post

Keynesian Economics, 5, 345-358.

Thirlwall, A (2003). Growth and Development: With Special Reference to Developing

Economies. 7th Edition, Palgrave, 121-122

Verdoorn, P. J. (1949). Fattori che regolano lo sviluppo della produttivita del lavoro. L„Industria,

1,310.

Wells, H. & Thirlwall, A. P. (2003). Testing Kaldor‘s Growth Laws across the Countries of

Africa. African Development Bank 2003, Published by Blackwell Publishing Ltd, 89-104.

Jeon, Y. (2006). Manufacturing, Increasing returns and economic development in China, 1979-

2004: A Kaldorian Approach. Working paper No. 2006-08 [Online] Available:

www.econ.utah.edu/activities/papers/2006-08.pdf (March 8, 2011)

Libanio, G. (2003). Manufacturing Industry and Economic Growth in Latin America: A

Kaldorian Approach. [Online] Available:

www.anpec.org.br/encontra2009/inscricaq.on/arquivos (March 8, 2011)

Annexure

Table 1: Kaldor‟s First law (Manufacturing)

Data: 1964-2008

Equations Variables R2 F-Statistics

http://www.econ.utah.edu/activities/papers/2006-08.pdf

http://www.anpec.org.br/encontra2009/inscricaq.on/arquivos

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Dependent Constant Independent

mGDP gg 10 gGDP 1.686

(0.675)

gm 0.475 29.831***

0.871

(5.462)***

)(10 nmmGDP ggg

gGDP 15.562

(75.34)***

(gm-gnm) 0.385 20.695***

-0.709

(-4.549)***

mnm gg 10 gnm 2.054

(0.687)

gm 0.372 19.557***

0.844

(4.422)***

Note: *** indicates that coefficients are significant at 1 percent level

**indicates that coefficients are significant at 5 percent level

* indicates that coefficients are significant at 10 percent level

Table 2: Kaldor‟s First Law (Agriculture)

Data: 1964-2008



aGDP gg 10 gGDP 5.536

(5.126)***

ga 0.715 82.884***

0.710

(9.104)***

)(10 naaGDP ggg gGDP 15.173

(30.45)***

(ga-gna) 0.002 0.077

-0.053

(-0.278)

ana gg 10 gna 7.406

(4.586)***

ga 0.466 28.788***

0.626

(5.365)***




Table 3: Kaldor‟s First Law (Services)

Data: 1964-2008



sGDP gg 10 gGDP 2.180

(3.653)***

gs 0.937 488.428***

0.814

(22.100)***

)(10 nssGDP ggg gGDP 14.249

(31.41)***

(gs-gns) 0.177 7.094**

0.708

(2.663)**

sns gg 10 gns 3.631

(3.328)***

gs 0.757 102.762***

0.683

(10.137)***




Table 4: Kaldor‟s Second Law (Verdoorn‟s law)

Data: 1964-2008


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mm gp 10 Pm 0.444

(0.488)

gm 0.863 265.39***

0.902

(16.291)***

mm ge 10 em -0.444

(-0.488)

gm 0.069 3.127*

0.098

(1.768)*

mm eaap 10 Pm 14.605

(15.027)***

em 0.013 0.533

-0.292

(-0.73)

mm ebbg 10 gm 14.605

(15.027)***

em 0.069 3.127*

0.708

(1.768)*

mmm kbgbae 211 em -0.957

(-0.897)

gm km 0.088 1.987

0.95

(1.711)*

0.038

(0.926)

mmm kdedcg 211 gm 14.442

(7.752)***

em km 0.070 1.532

0.701

(1.711)*

0.012

(0.103)




Table 5: Kaldor‟s Third Law

Data: 1964-2008



PGDP 0.834

(0.503)

gm 0.583 57.37***

0.758

(7.574)***

gGDP 13.866

(15.836)***

em 0.165 8.317***

1.052

(2.884)***

gGDP 16.288

(7.482)***

etotal 0.013 0.555

-0.662

(-0.745)

PGDP 12.246

(10.479)***

em enm 0.167 4.005**

0.481

(0.747)

-5.458

(-1.02)

gGDP 14.252

(12.978)***

em enm 0.172 4.268**

0.763

(1.25)

-2.99

(-0.59)

PGDP 1.822

(1.097)

gm enm 0.625 33.28***

0.704

(7.07)***

-4.626

(-2.101)**




mGDP gddp 10

mGDP eeeg 10

totalGDP eyyg 10

nmmGDP eaeaap 210

nmmGDP ebebbg 210

nmmGDP ecgccp 210

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Principals‟ Leadership Styles and Their Impact on Schools‟ Academic Performance

at Secondary Level in Khyber Pakhtoonkhwa, Pakistan

Muhammad Javed Sawati

Ph.D. Scholar, Department of Education, Hazara University, Mansehra, Pakistan

Saeed Anwar

Professor, Department of Education, Hazara University Mansehra, Pakistan

Dr. Muhammad Iqbal Majoka(CORRESPONDING AUTHOR)

Assistant Professor, Department of Education, Hazara University Mansehra, Pakistan The work presented in the manuscript is a result of original research conducted by Department of Education

Hazara University Mansehra, Pakistan. This research was not supported by any organization.

Abstract

This study was conducted to identify the leadership styles of secondary school principals and the

impact of these leadership styles on school‘s performance in Khyber Pakhtoonkhwa, Pakistan.

For identifying the leadership styles of school principals‘ two instruments (one for principals and

the other for the teachers) were developed and administered the sample of study. To find the

Schools‘ academic performance, schools‘ results in the previous five years in the relevant Boards

of Intermediate and Secondary Education were collected. On the basis of analyzed data,

Four major leadership styles of the principals were identified as Democratic, Autocratic, Free-

rein and Eclectic. However, a small proportion of the principal had no dominant leadership style.

Other major findings show that there are no gender differences in different leadership styles. The

findings also show that in general there is no significant effect of any particular style on school‘s

academic results. However there is a significant difference in performance of girls‘ schools in

comparison to boys‘ schools with principals having different leadership styles except the

autocratic style.

Keywords: Leadership styles, Academic performance, Democratic style, Autocratic style, Free-

rein style and Eclectic style

1. INTRODUCTION

Educational leaders play an important role to meet the quality education and organization of

the school. Most of educational experts consider administrators as the main source and driving

force for the organizational development and academic growth of students (Mirkamali, 1995).

The success of administrators is due to the method used in the administration process. The

administrator‘s leadership style influences the effectiveness and efficiency of the organization,

and is the function of several inter-related factors, such as the employees‘ level of psychological

and social maturation at work and their main expectations (Alagheband, 1997). Due to the

challenges of 21st century, the face of education has changed dramatically over the past century.

Every child with high school education may struggle to accomplish these challenges. Leadership

style of a principal depends upon his/her assumptions about human beings, human learning, and

human nature. These assumptions, consciously and unconsciously, are the foundation for

decision making and choosing a leadership style (Bayst, 1998).

Leadership is the process of influencing other to act for the accomplishment of specified

objectives (Dale & Beach, 1980). According Girja, in simple term a ―Leader‖ is an individual

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who leads the community or a group of persons joined for a common purpose . A leader is

obeyed, heard and honored by his followers. A perfect leader unifies and embodies the opinion

of the people and nobilities to any desired goal (Cited by Sheikh, 2001). A leader is a sort of

person who motivates a group of people to achieve its tasks and maintain team unity throughout

the process. Many of us tend still to believe that a ―Leader‖ implies one person dominating

another or a group of people (Sheikh, 2001). Leadership thus, is not only a personality trait; but

the way in which a leader or superior relates himself with his group of followers. It is the quality

of bringing together the people of diversified objects with the people of similar opinions and

objects. Leadership is a key factor to improve the condition of any department of life, and same

is the case with schools. Effective schools and outstanding performance do not exist without

effective and outstanding leadership. What we do at our school is normally called management.

It is concerned with the systems of our school. But to establish an effective school we not only

have to manage the school but to lead it. Leadership is something more than management. If we

just manage things around us and don‘t take initiative to improve our school and we don‘t lead

our school to achieve high standards of learning, our school will not be very effective. If we want

our school to be more effective, we need to be a committed leader and take initiative to improve

thing (Sheikh, 2001; AFAQ, 2007).

The style of a leader entails the behavior pattern that he adopts when working with and

through the subordinates, as perceived by those subordinates. Here it must be noted that it is the

perception of the subordinates based on their experience of the leader in guiding them in various

situations. Leadership essentially involves influencing others, and style is a form of behavior that

develops gradually, a leader‘s preferred style of behavior emerges which is identified by people

who come in contact with the leader (Sheikh, 2001).

The Principals have a fundamental responsibility to ensure overall student achievement and

motivation as well as teacher productivity and satisfaction. It is through effective leadership and

the modeling of values and beliefs important to education that principals are able to shape the

culture within schools (Stolp, 1994).

The job of Principal is very complex and extremely important in any education system. The

way in which he assumes the role, either as manager or leader, shapes how he thinks, acts, and

feels in the school. The principal‘s role in shaping the school‘s culture is dependent upon his

ability to understand and respond to upcoming situations with passion, purpose and directed by

values and vision. The Principal is responsible for encouraging and shaping the spiritual, beliefs,

ideas and attitudes that make learning more connected, value driven and meaningful (Deal and

Peterson, 1994).

Psychologists have begun to accept the fact that no single configuration of leadership traits is

predictive of successful performance. They turned their attention to the investigation of

leadership style. By leadership style we mean the behaviour of the leader what he does, what he

emphasizes and how he deals with the subordinates (Dale & Beach, 1980). According to Dilts

(1996) there is no one way to lead an individual or group and as a leader, different individuals

have different choice of communication, different degree of conscious awareness of behavioural

cues, meta-messages, group dynamics, and different beliefs and assumptions for achieving

targeted goals and objectives. Hence different leaders exhibit different behaviours / styles to

accomplish their job.

Different experts have identified different leadership styles having distinctive characteristics.

For example Avolio and Bass (2002) presented full range leadership theory according which

three leadership styles known as transactional, transformational, laissez-fair, were identified.

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Douglas (1996) and Robbins & Caulter (1999) claimed that decisions by leaders depend on three

main leadership styles that are democratic, autocratic and laissez-fair. A democratic style is

characterized by cooperation, collaboration, and coordination (Yukl, 2005); autocratic leadership

style allows no participation in decisions; and laissez-fair (free-rein) leadership style empowers

subordinates to work with freedom and free-will (Garrison& Bly, 1997).

According to Gutek and Morasch (1982) gender roles have very significant effect on

organizational performance, and in the view of Ridgeway (1997) gender play an inherent role in

making the workplace distinctive. In most of the previous studies female principals have been

observed to demonstrate democratic, more empowering, interpersonal leadership style contrary

to male principals‘ more autocratic, task oriented style (Eagly, Karau, & Johnson, 1992; Eagly &

Johannesen-Schmidt, 2001). According to Celikten (2005), school administrators in Turkey

consider female principals more capable as compared to male principals.

Nakornsri (1977) conducted a research to find difference between males and female

principals‘ administrative performance as perceived by teachers. In this study female school

principals were found to exemplify higher levels of educational leadership than did male

principals.

On the basis of his study, Nsubuga(2009) concluded that school performance and in particular

students‘ academic excellence in secondary school in Uganda was positively related to the

democratic leadership style and it was the most used style in secondary schools. Smith and Reed

(2010) have concluded from extensive literature that critical life events, culture, personal

characteristics, and socioeconomic variables contribute to vital variations in males and females

leadership styles in different societies. Therefore, they have recommended that further studies be

conducted in developed and less developed cultures and subcultures to explore leadership

patterns of male and female managers and leaders. Thus it was considered suitable to have

insight in leadership styles exhibited by school leaders in `Khyber Pakhtoonkhwa, Pakistan.

The objectives of the study were to: a) to identify different leadership styles of the Principals of

Government Secondary Schools of Khyber Pakhtoonkhwa, Pakistan; b) to compare the mean

leadership scores of the principals with different leadership styles; c) to find out the impact of

different styles of leadership on the academic achievements of the educational institutions under

consideration; and c) to examine the gender-wise effect of leadership styles on the academic

achievement of the secondary schools of Khyber Pakhtoonkhwa.

To achieve the objectives of this study, following research questions were addressed:

What are the different styles of leadership that can be observed in government schools of Khyber

Pakhtoonkhwa?

i. How do the principals with different leadership styles differ in leadership scores?

ii. How do the different styles of leadership influence the schools‘ academic performance?

iii. What difference does the gender make for leadership styles and what is its influence on

school‘s academic performance?


This study was descriptive in nature and carried out on in Khyber Pakhtoonkhwa, Pakistan.

All the principals and teachers teaching in government schools at secondary level constituted the

population of this study. At first step, 12 out of total 24 districts of Khyber Pakhtoonkhwa

province were selected through random sampling technique. At second stage, 156 secondary

schools were randomly selected from 12 districts of the region using stratified random sampling

technique. From each sample district 13 schools (9 for male and 4 for female) were selected

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using random sampling technique. Then from each sample school, one principal and five senior

teachers were selected as respondents of the study.

For data collection, two questionnaires ( one for principals and one for teahers) probing

leadership styles were developed after a thorough study of related literature. The instruments

were validated by taking the opinions from the committee of experts. To find out reliability of

these scales, Cronbach‘s Alpha was calculated and these values were found to be 0.778 and 0.69

respectively. To have data regarding academic performance of each sample school, results of

Secondary School Certificate were collected for previous five years from the corresponding

Boards of Intermediate and Secondary Education. On the basis of individual grades of students,

the academic performance of each school was calculated. The response rate from the sample

respondents was 79%., and hence 32 female and 91 male principals provided complete

responses.

Leadership scores in each of the three styles (Democratic, autocratic and free-rein) were

calculated for each principal on basis of principal‘s self-assessment as well as responses of the

corresponding teachers. The style in which an individual principal had equal to or more than

mean score, was considered as dominant leadership style of the principal. However, the principal

having a score higher than or equal to mean score in more than one style, were considered to

have eclectic leadership style. Thus on the basis of collected data, school principals were

categorized into four leadership styles i.e. democratic leadership style, autocratic leadership

style, free-rein leadership style and eclectic leadership style. Among these respondents, 19

principals were not included in final data analysis as they had no dominant leadership style. The

collected data was analyzed by using mean, standard deviation, t-test, ANOVA and Post Hoc

test.

3. RESULTS

The data regarding principals having different leadership styles were analyzed to make

comparisons among these styles. This analysis is demonstrated in the following tables:

Table# 1 Identified Leadership Styles of Principals of Government Schools of NWFP SN Leadership styles N Percentage

1 Democratic 50 41

2 Autocratic 18 15

3 Free-rein 10 8

4 Eclectic 26 21

5 No-Style 19 15

Table 1 shows that 41% of the principals were democratic, 15% were autocratic, 8 % were

identified as free-rein leaders, 21 % were eclectic, and 15 % had no dominant leadership style.

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Table# 2 Significance of difference among leadership scores of principals with different leadership styles

Source variance df Sum of square Mean Square F Sig.

Leadership Scores Between Groups 3 5167.55 1722.52 21.72 0.00*

Within Groups 92 7296.94 79.32

Total 95 12464.49

*p<0.05

Table 2 indicates that in the comparison of leadership scores among the four identified leadership styles of

principals, the ANOVA test illustrates a significant difference in leadership scores( p<0.05). To see the significant

difference between different pairs of leadership styles, Post Hoc test has been applied.

Table# 3 Significance of difference between mean leadership scores of principals with different leadership

styles

Dependent Variables

Leadership Style

( i )

Leadership Style

( j )

Mean Difference

( i-j )

Std. Error Sig.

Leadership Score Eclectic Democratic 17.02 2.27 0.00*

Autocratic 16.92 2.85 0.00*

Free-Rein 6.66 3.50 0.312

Democratic Eclectic -17.02 2.27 0.00*

Autocratic -0.103 2.52 1.00

Free-Rein -10.36 2.24 0.021*

Autocratic Eclectic -16.92 2.85 0.00*

Democratic 0.103 2.52 1.00

Free-Rein -10.26 3.67 0.057

Free-Rein Eclectic -6.66 3.50 0.312

Democratic 10.36 3.24 0.021*

Autocratic 10.26 3.67 0.057

*P<0.05

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Table 3 shows that mean leadership score of the principals with eclectic leadership style was

significantly greater than the mean leadership score of the principals with democratic and

autocratic leadership styles (p<0.05). Similarly, the mean leadership score for free-rein principals

was significantly greater than the mean leadership score of the principals with democratic

leadership style (p<0.05). However, there existed no significant difference between mean

leadership scores of the principals with styles free-rein and eclectic as well as free-rein and

autocratic.

Table# 4

Significance of difference between mean academic scores of schools having principals

with different leadership styles

Source of variance df Sum of square Mean Square F Sig.

Academic Scores Between Groups 3 188.32 62.77 0.195 0.900*

Within Groups 92 29658.78 322.38

Total 95 29847.10

*p>0.05

Table 4 shows that there was no significant difference between mean academic scores of the

institution having principals with different leadership styles ( p>0.05).

Table# 5 Correlation between leadership scores of principals sand academic score of schools.

Leadership Style N Correlation Coefficient

Eclectic 26 0.033891

Democratic 50 0.262892*

Autocratic 18 -0.23364*

Free-Rein 10 0.483445*

*Significant

Table 5 shows that calculated value of co-relation co-efficient between principals‘ leadership

style scores and schools‘ academic scores of sample schools was positive and significant for the

principals with democratic and free-rein leadership styles. There was no correlation between

leadership style and schools‘ academic scores for the principals with eclectic leadership style,

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and there was significant but negative correlation between leadership style and schools‘

academic scores for principals with autocratic leadership style.

Table# 6 Gender wise description of principals‟ leadership styles

Gender Female Principals Male Principals Total

Lea

der

ship

Sty

les

N % N % N %

Democratic 13 41 37 41 50 41

Autocratic 6 19 12 13 18 15

Free-rein 4 13 6 7 10 08

Eclectic 7 21 19 21 26 21

No-Style 2 06 17 19 19 15

Total 32 100 91 `100 123 100

Table 6 shows that 41% male as well female principals had democratic leadership style,

18% male and 19% female principal were with autocratic leadership style, 10% male and 13%

female had free-rein leadership style, and 26% male and 21% female principals exhibited

eclectic leadership style. However, 19% male and 6% female possessed no dominant leadership

style.

Table# 7

Gender effect on academic performance scores of schools having eclectic leadership.

Variable N M S.D t

Female 6 76.63 12.05 2.11 *

Male 17 64.27 13.01

* Significant at 0.05 level.

Table 7 reflects that mean academic score of girls‘ schools having principals with eclectic

leadership style is greater than the mean academic score of boys‘ schools with eclectic leaders.

As the t value (2.11) is significant at 0.05 level of significance, the female principals with

eclectic leadership style were more effective in term of schools‘ academic performance than their

male counterparts. Table# 8

Gender effect on academic performance scores of schools having democratic leadership.

Variable N M S.D t

Female 11 75.04 9.06

3.23 *

Male 35 63.88 12.48

* Significant at 0.05 level

Table 8 shows that mean academic score of girls‘ schools is higher than that of boys

schools and t-value (3.23) is significant at 0.05 level of significance. Thus there is significant

difference in mean academic scores of the schools for boys and girls having principals with

democratic leadership style. Hence female principals with democratic leadership style proved to

be more effective than male principals with democratic leadership style.

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Table# 9

Gender effect on academic performance scores of schools having autocratic leadership.

Variable N M S.D T

Female 6 70.40 9.23

1.80*

Male 12 60.94 12.62

* Non-significant

Table 9 reflects that mean academic score of schools with autocratic female principal is

greater than that of the schools with autocratic male principals. However, t- value (1.80) is not

significant at 0.05 level. Thus there was no significant difference between male and female

principals with autocratic leadership style in term of schools‘ academic performance.

Table# 10

Gender effect on academic performance scores of schools having free-rein leadership

Variable N M S.D t

Female 3 88.03 5.94

5.39*

Male 6 53.95 13.01

*Significant

Table 10 shows that mean score of girls‘ schools is greater than boys‘ schools having

principals with free-rein leadership style. As the t- value (5.39) is significant at 0.05 level of

significance, female principals with free-rein leadership style were more effective with reference

to schools‘ academic performance as compared to male principals with free-rein leadership style.

4. DISCUSSION

The analyzed data revealed that on the basis of school principals‘ and teachers‘ perception,

41% of the principals in public sector secondary schools had democratic leadership style , 15%

possessed autocratic leadership style, 8 % had free-rein leadership style, 21 % were practicing

eclectic leadership style, while15 % had no dominant leadership style. Thus democratic

leadership style was relatively more exercised by the principals as compared to the other

prevalent leadership styles. These findings are in line with the findings by Nsubuga(2009).

In the comparison of mean leadership score of the principals with different leadership style,

the mean score for principals with eclectic leadership style was significantly greater than the

mean leadership scores of the principals with democratic and autocratic leadership styles

(p<0.05). Similarly, the mean leadership score for free-rein principals was significantly greater

than the mean leadership score of the principals with democratic leadership style (p<0.05).

However, there existed no significant difference between mean leadership scores of the

principals with styles free-rein and eclectic as well as free-rein and autocratic. Thus mean

leadership score for principals with eclectic and free-rein leadership styles were greater than

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mean scores of those with democratic and autocratic leadership styles irrespective of the

strengths or weaknesses of these leadership styles.

In the comparison of gender, 41% male as well female principals were found to have

democratic leadership style, 18% male and 19% female principals had autocratic leadership

style, 10% male and 13% female principals had free-rein leadership style, and 26% male and

21% female principal exhibited eclectic leadership style. However, 19% male and 6% female

possessed no dominant leadership style. These findings indicate that in Khyber Pukhtoonkhwa,

Pakistan, male and female principals were near about similar in leadership styles. These findings

are contradictory to the findings by Eagly, Karau, & Johnson (1992) and Eagly & Johannesen-

Schmidt (2001). Perhaps this difference is due to the working environment in which male

principals exercise their potential and administrative power in schools for boys and female

principals work in the schools where teachers as well as taught are both females.

In the comparison of academic performance of the principals with different leadership styles,

no significant difference was found between the academic performance of the schools having

leaders with different leadership styles ( p<0.05).These findings are contradictory to findings by

Nsubuga(2009), who concluded that democratic school leaders were more effective than the

leaders with other styles.

With reference to gender, schools having female principals with democratic, free-rein and

eclectic leadership style had significantly greater academic scores as compared to schools having

male principals (t> critical value of t at 0.05). However, there was no significant difference

between academic performance of the schools having male and female principals with autocratic

leadership style. These findings support the results of the studies conducted by Nakornsri (1977)

and Celikten (2005).

5. CONCLUSIONS

On the basis of findings, following conclusions were drawn:

Majority of the principals possessed democratic style followed by eclectic, autocratic and

free-rein leadership styles respectively. Furthermore, the gender of the principals did not

specify leadership styles.

Leadership styles of school principals did not appear as a significant contributor for

schools‘ academic performance. However, female principals appeared to be more

effective in term of schools‘ academic performance as compared to male principals of the

same leadership style.

Autocratic male and female principals did not differ in academic performance of the

institution and this style had a negative correlation with academic performance of the

institution.

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References

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Bayat, M. (1998). Leadership Style and Job Satisfaction. Tehran University, Tehran, Iran.

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belong. Meta Publication, USA.

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Eagly, A., & Johannesen-Schmidt, M. (2001). The leadership styles of men and women. Journal

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Eagly, A. H., Karau, S. J., & Johnson, B. T. (1992). Gender and leadership style among school

principals: A meta-. analysis. Educational Administration Quarterly, 28 (1), 76-102.

Garrison, M. & Bly, M. A.(1997). Human Relations: productive approaches for the workplace.

London: Allyn & Bacon.

Gutek, B. A., & Morasch, B. (1982). Sex-ratios, sex-role spillover, and sexual harassment of

women at work. Journal of Social Issues, 38(4), 55-74.

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climates.” Journal of Social Psychology, 10, 271-299.

Nakornsri, Tinnakorn (1977). Principals Role Behavior and Administrative Performance as

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Ridgeway, C. L. (1997). Interaction and the conservation of gender inequality: Considering

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Robbins, S. P. & Caulter, M. (1999). Mangement. Ottowa: Printice Hall.

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Assessing effectiveness of Social Media and Traditional Marketing

Approaches in terms of cost and target segment coverage

Muhammad Tariq (Corresponding Author)

Sarhad University of Science and Information technology, 36 B, Chinar Road University Town,


Fazal Wahid

Sarhad University of Science and Information Technology, 36 B, Chinar Road University Town,


Abstract

Due to their invaluable contributions to the Swedish economy, the survival of Micro Firms

through revenue generating marketing practices has gained much interest. A common

misconception prevalent is that marketing in micro businesses is just a miniature of larger

enterprises. Since Micro firms are often cash-strapped which limits their revenue generating

ability through prevalent marketing practices which are resource intensive. In the back drop of

all the hype about social media as a marketing tool we got the clue to find the right marketing

approaches for these businesses regarding the choice of prevalent practices and social media as a

new marketing tool. The study suggests that Micro businesses have a tendency to carry out

marketing activities in a haphazard manner which limits their likelihood of achieving their

targets. It has also been indicated that conventional approach (low volume, high expense) to

reach target segments, still has a strong effect on micro firms in Sweden and is therefore more

appropriate for them as majority of their customers are geographically concentrated as well as a

major strata of these are yet to start active participation on the social media landscape. In terms

of costs social media is more effective only when used in tandem with conventional marketing

approaches.

Key Words: Social media, micro firms, Target market coverage, Costs

1. Background

In hindsight it becomes clear that marketing has undergone two notable changes in the past few

decades. The first phase was predominantly driven by manufacturers; while the second by

retailers. The former drove the market by aggressive promotional strategies while the latter

exploited closeness to consumers (Schultz & Schultz 1998). Ever since then marketing has

entered a third phase, influenced by the increased role of information technology (IT) in

consumer lifestyles which has led to a consumer dominant marketplace (Jim Blythe, 2006) and

in the new landscape “consumer really is king‟‟(Rob, 2009).

In the year (2006), Forrester Research identified an emerging trend taking place in online

communities known as “Groundswell” in which consumers interact through web 2.0 enabled

technologies which include, but not limited to, Facebook, LinkedIn, MySpace, and user-

generated content sites like YouTube, Helium, and Wikipedia etc for connecting with one

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another. Groundswell is formed by the intersection of people, interactive technologies, and

online economics (Charlene, 2008). It is defined as, ―A social trend in which people use

technologies to get information they need from one another, rather than from traditional

institutions like corporations‖ (Charlene, 2009). Groundswell is facilitated by Web 2.0

Technologies, a term coined by Tim O' Reilly, which uses collective intelligence of people. Web

2.0 is also known as social media (Tim, 2007). Social media is interactive in nature and is

therefore known as consumer-generated-media, new media or citizen media (Rob, 2009).

Conventional media is company-generated and information flows in one direction i.e., messages

are broadcast from company to target audience (one-to-many) and in social media (many-to-

many) in multiple directions.

Dave Evans in his ground breaking study (2008) defines social media as, “The democratization

of information, transforming people from content readers to content publishers. It is the shift

from a broadcast mechanism to a many-to-many model, rooted in conversations between

authors, people and peers”.

The rise of new social media can be seen from the fact that in first decade of 21st century several

words from social media have entered lexicon as word of the year such as ―Blog‖ (2004),

―Podcast‖ (2005), ―Facebook‖ (2007) and most recently a verb ―Unfriend‖ which means to

remove a friend on social network site (SNS) such as Facebook was chosen as the word of year

2009 by New Oxford American Dictionary.

A joint survey conducted by Forrester and the Association of National Advertisers (ANA) in the

United States demonstrate the importance of social media as it depicts how marketers plan on

advertising spending in 2010. Most marketers intend to increase marketing budgets to Social

media by a whopping 77%, Web advertising 73%, and Search engine marketing 59%.

Alternately, marketers plan to increase spending on conventional marketing only by 13% in

magazines, 9% increase on radio advertising, and a dismal 7% raise in newspaper advertising.

These changes have created several opportunities for micro firms to adopt social media

marketing as they are often cash-strapped and lack marketing expertise for carrying out

innovative marketing campaigns. Social media therefore is most relevant to Sweden whereby an

overwhelming majority of the businesses are small-sized.

According to business statistics for (2009), Sole proprietors constitute 74.7%, Small-sized firms

3.2%, Medium-sized 0.5%, Large enterprises 0.1% and Micro firms make up 21.5% of overall

Swedish employment market (ekonomifakta, 2009). This shows that significance of small

businesses are indisputable in Sweden as more than 96% of the employment is coming from sole

proprietors and micro firms together. It is therefore, important for these small businesses to

survive to sustain or increase their contributions towards themselves and alternatively to the

economy. Small firms need either to grow or reduce their operating costs by efficient utilization

of scarce resources, which typically characterize small firms. According to Huang and Brown

(1999) small firms face several constraints. These constraints, when ranked in descending

sequence of their importance, are sales and marketing 40.2%, followed by human resource

management (15.3%), general management 14.3%) and operations (8.6%). The reason is that

small firms are unable to employ seasoned marketers to carry out marketing activities for

themselves (Huang & Brown 1991). As a consequence, in these economic times small firms are

moving from conventional marketing practices such as television advertising, newspapers, radio,

magazines, word of mouth marketing (WOMM), public relations (PR) and relationship

marketing towards more affordable and interactive social media marketing.

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1.1 Problem Discussion

An interesting way to describe social media marketing is to compare it with conventional

marketing practices. The new trend, ―groundswell‖ enables consumers to connect with one

another and influence collective perception about a company or a newly launched product. As a

result netizens change behavior more quickly than tech-challenged offline consumers who stay

loyal to companies for a longer time. This trend is compelling companies to use media which

consumers value to get a positive image for themselves. The new approach to marketing has not

only brought companies to a new arena but, also, it has threatened the existence of conventional

forms of marketing practices (Charlene, 2008). Social media marketing has created new

challenges for advertisers, companies and strategists. Pre-test interviews coupled with the scarce

treatment of micro businesses by earlier researchers aroused much curiosity in our minds to

know exactly what the real marketing scenario in Sweden is. Due to the increasing popularity of

rapidly evolving social media marketing worldwide it would be interesting to know that whether

it is the right time for small firms in Sweden to adopt the social media bandwagon?

With these studies in backdrop we conducted two pre-test interviews with Micro firm managers

to find out the existing marketing scenario. Both the interviewees were knowledgeable about

conventional marketing practices such as the 4Ps, advertising, customer retention and Word-Of-

Mouth Marketing (WOMM), sales promotions, and web portals. Both were actively using media

sharing sites (YouTube & Flickr) and social media network sites (Facebook and LinkedIn) but

for personal purposes only. The young manager of the two interviewees was actively uploading

materials on Scribed and videos on YouTube. However, they both were unaware of the impact of

using social media for promotion of their businesses. The post-interview responses demonstrate

general mindset thinking more inclined to conventional marketing practices like marketing mix

(4Ps), promotional mix, word of mouth marketing (WOMM) and relationship marketing

strategies. To achieve this purpose, the following research question has been formulated.

1.1.1 Research Question

Which of the two types of marketing is more effective in terms of targeted segment coverage and

expenditures?


According to Schmiemann (2006), in the European Union 90% of the businesses are micro in

nature and same is true within Sweden where micro businesses are considered as the backbone of

the economy. These businesses create employment opportunities; germinate entrepreneurial

spirit in public and innovation in organizations. In spite of this still there is very scant published

material on micro firms and it is relatively complex to define micro firms as there are several

connotations of their qualitative and quantitative definitions. Micro firms in qualitative terms are

businesses which are owner managed, have a small market share and the owner manager has

discretionary power of making his or her own strategic decisions (Bolton Committee, 1971).

According to Johnson, (1999) micro business is a business having up to 10 employees. This

quantitative definition might cause some confusion as in this case the term SMEs can be used

interchangeably with small businesses which also cover the definition of micro firms.

In the year (2005), European Commission introduced new criteria for defining SMEs as shown

in table 1 (see annexure 1). Accordingly, Medium-sized, Small and Micro businesses are

businesses which have fewer than 250 employees or either an annual turnover not more than 50

million Euro. Whereas, Small-sized firms are businesses which have fewer than 50 employees

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and their annual turnover do not surpass 10 million Euros. Finally, Micro firms are businesses

which have fewer than 10 employees with annual turnover not exceeding more than 2 million

Euros. From this discussion evidently micro business is easy to describe but difficult to define.

Therefore for this paper we will follow the most recent definition of European Commission

(2005) for micro businesses as it is recognized and practiced worldwide by academics and

practitioners.

2.1 Marketing in Small Firms

First, we begin by defining marketing in the context of small firms as, “Small business

marketing consists of those business activities that direct the creation, development, and delivery

of a bundle of satisfaction from the creator to the target user and that satisfy the targeted user”

(Logenecker et. al, 2010). According to Timmons (1999) business mortality statistics for small

businesses show that, small firms experience a high rate of termination during initial years. The

rate of discontinuance can be as high as 70% during the first five years of inception. Whereas,

Marc (2004) argues that marketing practices like a careful analysis of target market can lower

failure rates of small businesses up to by 60%. At the same time small firms confront several

other problems which in descending sequence of their importance are sales and marketing

40.2%, followed by human resource management 15.3%, general management 14.3% and

operations 8.6% (Huang & Brown 1991). This indicates that marketing is the most pressing

problem confronting small businesses and still it has been recognized as most important business

function for small businesses (McKenna, 1991), and of-course marketing in small firms differ

from marketing in large firms (Bjerk & Hultman, 2002). The same course of reasoning is

applicable in the context of micro firms which are influenced by owner-manager and resource

scarcity (Karolina et al, 2007).

These challenges call for a marketing orientation in small firms to improve performance with

respect to competitors. According to Never and Slater (1991) a marketing orientation is defined

the, “organizational culture that most effectively creates the necessary behaviors for the creation

of superior value for buyers and thus continuous superior performance for the business”.

However, Mike (2002) state that there are other possible orientations which small businesses can

follow such as production orientation, product orientation, financial orientation. Most recently

Kotler and Keller (2009), advocated the concept of holistic marketing orientation meaning that

“everything matters” in marketing and that a wide, integrated orientation is needed to compete

effectively in marketplace and market space.

It has been agreed on that the principles of marketing theory are equally important for both small

and large firms (Sui & Kirby, 1998). There are several models of marketing that provide

guidelines for businesses to survive and grow in their respective industries. However, Welsh and

White, (1981) proclaims that „„a small business is not a little big business‟‟. There are several

points on which small businesses differ from big organizations like; owner-management has a

distinct strict discipline in small businesses, lack of trained personnel, short-ranged management

perspective, limited financial resources, adoption to steady state conditions and analytical models

used in big organizations have limited usage in small businesses (Welsh & White, 1981). This

shows that small businesses are not like big businesses therefore, the needs of these two types of

organizations differ from each other including its marketing needs.

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2.1.1 Towards a New Model of Marketing

One set of marketing theory cannot be generalized for two types of organizations with different

characteristics and requirements. The marketing theories which are written in the context of big

organizations have little or no relevance to small businesses (Chasten & Mangles, 2002).

Few research has been carried out on small businesses and those researchers tried to draw

models and theories specifically for small businesses but these efforts alone cannot help the

needs of the small firms in totality. For instance, Miller and Antilla (1987) researched 36 Finnish

and Swedish firms but they described their research as being „„too qualitative for examining

state-of-the-art marketing in small manufacturing firms‟‟. Similarly, most of the research that is

done on small businesses focuses on the problems or barriers present in the small firms (Simpson

et. al, 2006). Some research is practical in nature but lacks real time application. For instance, the

Growth/Stage Model by Siu & Kirby, (1998) advocates the consideration of the stage of growth

of small businesses while formulating marketing models for small firms, but the model is unable

to mention the impact of radical technological advances like the internet.

In the light of the above short comings in theories for the small firms, it can be argued that the

theories need to be either modified to suit the small businesses or a completely new set of

theories and models be drawn for the small businesses.

Simpson and Taylor (2002) came up with a new model of marketing, „„the role and relevance

model of marketing‟‟ (see Annexure 2 Figure 1). The role and relevance model of marketing in

SMEs explains the role and relevance of marketing in a small business environment. The model

places organizations in four quadrants depending on the relevance and role of marketing. These

quadrants comprise as; Marketing led organizations (MLO), Marketing dominated organization

(MDO), Marketing weak organization (MWO) and Marketing independent organization (MIO).

In Marketing-led organization (MLO), there is strong marketing orientation for maintaining or

increasing market share in a competitive business environment. Marketing-led organization is

perceived to be organizations pursuing best business practices to cope with changes in business

environment. In a Marketing-dominated organization (MDO) there is minor relevance and major

role of marketing in strategy making processes. Normally, such organizations have guaranteed

business from a major account or client. Therefore, marketing may be seen as unnecessary and

the organization might be called a marketing-nominated organization but in the long term

marketing can help the organization move to (MLO) quadrant in the model. In the Marketing-

weak organization (MWO) a sales orientation is prevalent with major relevance and minor role

of marketing. This type of organization does not have a proper marketing department and these

businesses are normally not interested in growth either. A Marketing-independent organization

(MIO) resembles a marketing dominant organization (MDO) but in such type of organization

there is no unconditional orientation and commitment towards marketing. However, a drawback

of (MIO) approach is that the organization future is at the mercy of the major client (Simpson &

Taylor, 2002)

From the above discussion we come to know that Marketing-led organization (MLO) is the best

strategy for a small business for maintaining or increasing market share in the domain of

competition. There are three possible alternative paths identified for small firms to reach the

desired (MLO) quadrant as shown in Figure 2 below.

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―Strategy A‖ as shown in figure 2 (see annexure 2) which follows the route (MIO-MDO-MLO) is

an innovative approach which is resource intensive in the beginning but should help the small

business later in exploiting actionable opportunities, ―Strategy B‖ which follows the track (MIO-

MWO-MLO) is more a reaction to market demands, and finally ―Strategy C‖ which follows

(MIO-MLO) path is seldom used by Small brick and mortar businesses (Simpson & Taylor,

2002). Later in the year, (2006) Simpson and Taylor carried out another research along with

Padmore and Hughes to test their new model. They found that there still lie some deficiencies in

their model but the model has been successful in taking the understanding of marketing in small

firms one step further by categorizing small businesses on the basis of marketing activities they

carry out inside (Simpson et. al, 2006).

2.1.2 Conventional Marketing Mix and Social Media

Traditional marketing practices are centered on the marketing mix model. The marketing mix

model was introduced by Borden in the 1950s (sited from Neil, 1984). Soon after in the 1960s

according to McCarthy (1960), the marketing mix model was termed the 4Ps of marketing as it

contains Product, Price, Place and Promotion variables. Ever since then it became the

indisputable marketing model and replaced the then existing functionalist approach and

parameter approach of Copenhagen Business School of Scandinavia (Alderson, 1957).

Further with the passage of time researchers like Booms and Bitner proposed more

supplementary ―Ps‖ of marketing to existing list of ―4Ps‖ such as people, process and physical

evidences constituting a ―7Ps‖ approach which is more inclined to services marketing (Fifield &

Gilligan, 1996), and personnel, physical assets, procedures and personalization (Goldsmith,

1999). Most recently Otalcan (2005) has introduced the concept of (2P+2C+3S) by including

Personalization, Privacy, Consumer, Community, Sales promotions, Site and Security in the

marketing mix list of variables which are more inclined to E-Marketing practices. It is important

to know that although the original marketing mix model has been oversimplified by restricting it

merely to 4Ps of marketing (Gronross, 1999) still it is interesting to know that embedded in the

Promotion ―P‖ are sub variables such as advertising which can be both below-the-line (BTL)

and above-the-line (ABL) or a hybrid combination of both known as through-the-line advertising

(ABL+BTL =TTL), Sales promotions such as (Samples, Premiums, Point of Purchase (POP),

Trade shows, scientific shows, sweepstakes), Personal selling, Public relations and Direct

marketing (Wilmshurst, 2007). Most recently according to Glyn and David (2009), with the

arrival of social media a new dimension has been added to promotion mix as social media in a

conventional sense can help companies to interact with consumers, while in unconventional

manner it makes possible for customers to interact directly with other customers.

The table 2 (see Annexure 1) reveals the fundamental changes that social media has induced by

making media instantly updateable, control, archives accessibility, freedom and in terms of

measuring the effectiveness of a marketing campaign. On the other hand traditional media is

unchangeable with archives not accessible and reaches a finite number of people (Stokes, 2008).

The above discussion is further elaborated by Charlene Li and Josh Bernoff (2008) who, based

on their observation of hundred of businesses, have come up with five common objectives such

as listening, talking, energizing, supporting and embracing as to why companies use social

media. These five objectives correspond to the traditional business functions as shown in the

table 3 (see annexure) which also reveals that how things have become different in the domain of

groundswell.

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3 Three Laws of Media

3.1 Sarnoff's Law

This law was postulated by David Sarnoff who is reckoned to be the pioneer of broadcasting

business for he founded the National Broadcasting Company (NBC). According to Campbell

Ewald (2009), Sarnoff‘‘s law for any one-to-one network is worthwhile the specific number of

participants in that network. So a network with 100 participants is worth 10 times more than a

network with only ten members. Dave Evans (2008), elaborates this law in other words as during

the process of broadcasting a single message is sent to infinite number of listeners therefore other

things remaining, ”A network with 100 people is therefore 10 times as valuable in terms of reach

as a network with only 10 people.” However, the drawback of Sarnoff‘s law is that it is

applicable only for one-way media like television, radio where there is no interaction between

the sender and receiver (Ewald, 2009).

3.2 Metcalf's Law

This law was postulated by Robert Metcalfe (1980), who founded the well known networking

firm 3.com. According to Dave Evans (2008), in any network of two way communications, the

value of such a network increases by the square of number (n2) of users in the network. This is

because people can communicate in two directions and there are more than one conversation

taking place at a time. According to Ewald (2009), therefore, a network with 100 users is worth

hundred times more than a network with 10 users. However Dave Ewald (2009) points out a

drawback with this law is that it assumes interactions, but is only applicable to two-way

communications such as email and telephone conversations.

3.3 Reed's Law

Postulated by David P. Reed this law is also known as “The Law of the Pack” which states that

the value of a network increases more than the two preceding laws during the formation of

groups, communities via the inter-connections among them (Evans, 2008).Reeds law in

comparison of network of 10 person, the difference in the utility of a network of 100 people who

would not talk to each other as they should under Metcalfe‘s law and within groups of persons is

equal to 2 raised to the 90th

(Evans, 2008). He states that Reeds law has considerably more

coverage as it reinforces a new layer of groups such as in social network sites which creates sub

groups and communities, is typical examples of this law. According to Ewald (2009), typical

examples of Reed‘s Law are social media and the communities formed there in. However a

drawback of the absence of human elements in computer networks is that it presumes unlimited

number of senders and receivers and complete interaction.

3.4 The Starfish Model of Social Media

This model is developed by Robert and is known as the Social media Starfish Model. This model

reflects that social medi consists of varied activities and that social media success depends on

how you combine traditional and social media mix combinations (Evans, 2008). Social media

marketing can take many forms, as shown in the generic Starfish Model figure 3, but for this

paper purposes we will confine our discussions to the most important applications of social

media such as blogs, Twitter, Social Network Sites (SNS) such as Facebook, LinkedIn, Media-

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Sharing-Sites such as YouTube and Flickr, Social Bookmarking and Voting Sites such as Digg

and Delicious.

According to Charlene and Li (2009), since, technologies may change with the passage of time

therefore the social media in principle concentrates more on relationships than technologies. In

this way, we are trying to establish the best combination of conventional and social media

promotion mix for small firms in terms of target market coverage and advertising spending. For

this reason we have elaborated the three laws of social media. Together these laws give an idea

of how consumer generated media (CGM) has become so popular in comparison with

conventional marketing practices. These laws are sometimes referred to as network value-

governance laws as they basically describe the utility of network from the perspective of those

connected to a focal source, to each other and so on (Evans, 2008).

3.5 Blogs

According to Rob Stokes (2008), the word ―blog‖ was first coined by Peter Merholz in (1999)

and very soon in the year (2004), it was chosen as the word of the year by the editors of

Merriam-Webster dictionary. The very first blog was created by Pyralabs in 1999 and was

subsequently acquired by Google in 2004 (Paul Beelen, 2006). According to Dan Zarrella

(2010), there are more than 346 million people who read blogs and more than 184 million people

are bloggers themselves and according to Rob Stokes (2008) almost 1.4 blogs are created every

second in the domain of blogosphere. Paul Beelen (2006) describes blogs as web pages which

can be easily updated, published by a single person or group of people. He further states that

normally blogs give reader the chance to write comments on the various posts resulting in

dialogues between readers and the writers. Magnold and Faulds (2008) argue that these

comments may take form of critique, praise or useful suggestions. Generally, blogs are created

free of cost while some blog supporting sites charge fee for displaying blogs on their sites. Blogs

can be accessed on a global basis. Technorati is the foremost blog search engine or a blog index

as it monitors 112.8 million blogs and 250 million tagged items of social media (Singh, 2010).

According to the report by Technorati for year 2008, almost 36 % of bloggers come from the age

rang of 25-34 years, 27% are aged 35-44 years, 13% are 18-24 years, and 8% are aged more than

55 years (Singh, 2010). These demographics reveal the fact that the new generation of consumers

is more active in the blogosphere.

According to www.constantconnect.com, a social media service provider firm in the US, the

advantages of blogs include easy management of articles and company related content, can serve

as archives for company newsletters and help increase the search results for a business. On the

other hand associated disadvantages are more time consuming, as well as advanced knowledge

of HTML is needed to really master the art of blogging to a business advantage (ibid).For small

firms it is advisable to create and regularly update their own blog adding regular posts and new

design and it should act as a focal point of the small firm‘s social marketing efforts (Zarrella,

2010).

3.6 Social Networking Sites (SNS)

According to John Browning (2010), social networking sites (SNS) have quickly inspired the

manner in which people communicate and connect with each other. These social networking

sites (SNS) by design or by default facilitate relationship building with the help of software as

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system (SaaS) technologies such as Facebook, MySpace, and LinkedIn (Li & Bernoff, 2008).

These networks are free of cost for their users but rely on money generated by selling user

demographic characteristics and other data to businesses (Stokes, 2008).

3.7 Facebook

Facebook has more than 400 million registered users and it was somewhere about December

(2008) and February (2009) that it surpassed MySpace as the world‘s most famous social

network site (Zarrella, 2009). According to “The News” most recently on March 17, 2010

Facebook overtook Google in number of visitors in the United States. Facebook was launched in

2004 and is relatively complex than Twitter and it is here where participants develop enduring

relationships with one other (Pearlman & Abram, 2010). Social networking sites (SNS) increased

usage has compelled consumers to share more personal information online which has created

many grapevines and privacy concerns (Browning, 2010). An interesting case in point happened

when Facebook launched Beacon service, a few years ago, which shared online purchase

activities of its users with the list of a user‘s Facebook friends. This was quickly taken back as

consumers did not want Facebook to jeopardize their privacy (Stokes, 2008). Facebook can be

used by business concerns, band, or a public figure as they can create their own Facebook page

which looks the same as a person profile for attracting and informing their customers. According

to www.constantconnect.com a social media service provider firm in the US, from the

perspective of small firms Facebook offers benefits in terns of large customer base where

majority of your business clients are already registered. It is free of cost and you can maintain a

personal and professional profiles separately. However, there are some limitations associated

with advertising on Facebook such as little authority to personalize your fan page and above all it

is a closed environment with only registered users can become your fans and above all there are

no email alerts to inform you when an activity related to your business takes place. The presence

on Facebook can create a fan base leading to growth for businesses no matter small or large

except for China where access to Twitter and Facebook is restricted (Pearlman & Abram, 2010).

3.8 LinkedIn

Founded in 2002 and launched in 2007, LinkedIn is basically meant for users to connect with

one another for business or professional purposes such as finding jobs and exploiting business

opportunities (Pearlman & Abram, 2010). Like Facebook, on LinkedIn marketing activity

revolve around groups and pages, though the terminology is different but their applications are

somewhat the same (Zarrella, 2010). We can say that LinkedIn is an online contact database for

professionals with more than 25 million registered users across 150 industries worldwide on a

scale of three connections levels. The basic connection is where the persons directly known by

users can be viewed and contacted instantly. Second level connections are users that users you

know and the final degree of connections are those which they know (Safko & Brake, 2009).

According to www.constantconnect.com a social media service provider firm in the US, from

perspective of small firms LinkedIn offers the opportunity to market your firm in a cluttered

arena with simple and easy to understand profiles coupled with professional assistance from the

site. On the other hand a disadvantage is that mostly job seekers are active than employed ones

and users see it as a professional network so marketing is sometimes neglected or seen with

doubt.

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3.9 Twitter

“Twitter is the gateway drug to social media.”-- Jim Storer, Sr, Director, Social Media Strategy,

Mzinga.

According to Bernie Borges (2009), Twitter is combination of microblogging and social

network. This is why it is also referred to as micro blogging (Evans, 2008). Twitter gives

opportunity to users to involve in real time sharing. A tweet is usually no more than 140

characters, which followers of the user can see (Pearlman & Abram, 2010). According to Dan

Zarrella (2009 in the tweetosphere or twitterville there are more than 346 million active

twitterers and as per Nielsen Online, Twitter experienced an unbelievable 1,382 % growth

between February 2008 and 2009 and still it increasing at an increasing rate (Singh, 2010).

Twitter can be used both by small and large companies and even employees within an

organization can use Twitter for personal purposes (Borges, 2009).

According to constantconnect.com a social media service provider firm in the US, from the

perspective of small firms Twitter is comparatively more open than Facebook. Twitter feeds are

public which gives greater exposure on search results. However, Twitter supports only text

messages and pictures and company videos should be shared through other links, there are a lot

of spammers and finally users are very vocal and might hurt your business cause if they

complain (ibid).

Recent examples of tweets usage occurred in the (2008) US presidential elections where the

nominee of Democratic Party Barrack Hossein Obama used Twiter as a publicity tool and most

recently during election campaigns in Iran for updating the world about latest news (Safko &

Brake, 2009).

3.10 YouTube

YouTube was founded in (2005) and with the increasing popularity of third generation (3G)

cellular phones, video sharing websites such as YouTube have become convenient tools for

individuals to embark on social media. According to Yen, (2008) almost 60% of online video

viewing takes place on YouTube and the number of viewers can be as many as 79 million during

an evening. According to Rob Stokes (ntent of your business channel (Bernie Borges, 2009). A

small business has four account options when it comes to creating its own YouTube channel

such as Director (producing own videos), Musician (music videos), Comedian (comedy videos)

and guru accounts are meant for anyone having expertise in a given field. Normally the most

suitable account for small businesses to create a market niche is guru (Bernie & Borges, 2009).

As an example of guru strategy Blendtec maintains a site on YouTube (willitblend.com) which

has so far attracted 8,074,267 views as on 7 April, 2010 for a single video where a guru blends

an iPhone to ashes within seconds showing the nature of materials used. This shows the power of

social media and the impact it can have on a brand image.

3.11 Flickr

According to Bud E. Smith (2009) in the 1980s and 1990s the Internet was limited only to text

such as emails, online service forums newsgroups were read on text readable computer only.

There is an old saying that “A picture is worth a thousand words” and the same is true in case of

Flickr, a photo-sharing site owned by Yahoo!, where consumers, professionals and business

owners upload their pictures for shairing within online groups and communities (Stokes, 2008).

The pictures are normally in JPEG of JEF format and the file size is kept small on purpose.

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Flickr is useful for photo sharing however there are other alternatives available which can be

used (Bud E. Smith, 2009).

3.12 Social Bookmarking

According to Rob Stokes (2008), bookmarking means storing a website for convenient access in

future with the help of an internet browser. Social bookmarking sites like www.delicious.com,

www.stumbleupon.com, www.reddit.com and www.digg.com, give user opportunity to save web

pages online and share them through the process of tagging. These websites rank web pages on

the basis of number of vistors they attract. For a small business it is good idea to get listed on

these sites as they are free of cost. This can help increase the visitors traffic to your website

(Warner, 2010).

3.13 Target Audience of the Research

The basic motive for carrying out research is to find answer to a problem or question in a

systematic manner. According to Saunders, (2003) research is, “something that people undertake

in order to find out things in a systematic way, thereby increasing their knowledge.” It is

therefore we conducted this paper in a systematic order to explore the applicability of social

media marketing in the context of small firms in Sweden. The results which will be inferred from

this study should help small micro firms in Sweden to know whether or not social media

marketing gives more benefits in comparison to conventional forms of marketing. If so, then the

question is whether or not the social media marketing opportunity is ripe and ready for small

firms or these micro businesses should adopt a wait and see approach till the time when the

consumers can really be influenced through social media marketing?

http://www.delicious.com/

http://www.stumbleupon.com/

http://www.reddit.com/

http://www.digg.com/

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4. Methodology

Obtaining information about the subject is crucial for any type of research. A good data is a pre-

requisite for conducting a good research. Researchers prefer to have data that has the minimum

amount of error in it; therefore, they pay special attention to obtaining data. There are two kinds

of data namely primary and secondary data (Wren et. al, 2002).

For this paper we conducted a number of interviews in two stages. In the preliminary pre-test

stage we conducted two face-to-face pilot interviews with Micro firms‘ managers to explore and

understand the social media marketing practices in Sweden. These interviews helped us in

refining our research questions as well to ship-shape our later stages of the paper. These two

pretest interviews were conducted in the last week of February 2010. In the second stage of this

paper we conducted seven more interviews with micro business managers to attain the specific

purpose of this paper. Out of these seven one was cast away as it did not meet the specific

standards we have set for this paper in terms of number of employees and annual turnover. The

dates, duration and location along with a description of interviewees is as under.

Xiaoli Du, Nordicpearl Jönköping 14:22-15:30 P.M. 2010-04-14

Mr. Patel, X-One Klädbutik Jönköping 11:00-11:5o A.M. 2010-04-20

Lars, Kingfisher Cuisine & Bar Mariestad 10:10-10:55 A.M. 2010-04-23

Peter Lundell, Puls Gym Skövde 10:00-11:09 A.M. 2010-04-24

Mikael Hjalmers, Treguld Smeder Skövde 09:00-09:45 A.M. 2010-04-26

Kirsten Lothigius, Impelco Trading Skövde 14:00-14:45 P.M. 2010-04-29

Most of the secondary data was collected in February, 2010. For this paper we utilized various

sources available both at the university such as e-Julia and invaluable data from Forrester

Research Inc. There are two different techniques for getting data which are discussed below.

4.1 Data Analysis

Greater care needs to be taken while collecting and analyzing data. Therefore Walker et. al

(2008) has come up with qualitative analysis model which stresses the analysis process of data in

six sequential steps as shown in the table 4 (see annexure 1) The Steps (1) & (2) involve eliciting

crucial information from the interviewees by reading and reading the interviews (Walker et al,

2008). It is over here that unnecessary information is removed and data are refined to satisfactory

extent. Then in the next step (3) summarize the central themes from interviews resulting in

further refinement of the information. Step (4) is relatively harder as it involves making

considerable meaning out of information refined in steps (1, 2 & 3) respectively. In the second

last step, which is step (5), standard and dispersed meanings are adapted by using McAlisters‘

(2001) principles. This step is more observations based whereas the earlier steps were interview

intensive. In the final step (6) the researcher uses his/her own experience and observations to

incorporate the meaning of obvious and hidden clues and information in the context of cultural,

historical and political influences (Walker et. al, 2008).

Similar model for data analysis has been proposed by Miles and Huberman (1994) (which we

have adopted for this undertaking) consisting of four steps as shown in the Table 4 (see annexure

1). In the initial Step (1) known as data reduction co-authors would review and record the data

collected via various means to achieve a neat and clean data to facilitate clarity (Miles &

Huberman, 1994). Data reduction is the next step in which the authors would further streamline

the data received from step 1. The third step is data display. As the name depicts it is concerned

with arranging data which has been refined from impurities to the next final step (4) known as

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drawing conclusions. In this step conclusions are drawn from data in an objective manner which

facilitates the reader in interpreting the output of the data analysis step as well as cross checking

the conclusions drawn from the process (Miles & Huberman, 1994).

5. Analysis and Discussion

The specific criteria for an interviewee is that he or she should be involved in the daily affairs of

business and must have some background knowledge of business administration or experience

equivalent to three years in the area of marketing. The post-test six interviews were conducted in

the month of April. The specific description of micro businesses interviewed is as under.

5.1 NordicPearl Jönköping (Interviewee: Xiaoli, 2010-04-14)

―NordicPearl‖ is a web based shop founded in the year 2009 by a Chinese entrepreneur Xiaoli

Nordenanker under the shadow of a Swedish based trading firm Oriental melody. Nordicpearl.se

offers pure silk products and Chinese jewellery with its suppliers based in China. Nordicpearl

has an unwavering focus and commitment to provide quality products at affordable prices.

Nordicpearl is also engaged in e-commerce and accepts matercard,visacard and paypal accounts

and sells to mainly in Scandinavian countries of Sweden, Denmark, Norway and Finland, EU

countries such as Iceland, Germany, Holland, Belgium, France, Switzerland and the United

Kingdom.

Nordicpearl is the brain child of Xiaoli Nordenanker who is a graduate from China and she has

been involved in carrying out the affairs of business ever since its inception in 2009. The team of

Nordicpearl is mainly consist of her Swedish husband and mother-in-law.

5.2 X-one Klädbutik Jönköping (Interviewee: Patel, 2010-04-20)

Botique Jasmine was founded some three decades ago and has two big retail stores in Rasllatt

and Osterangen Jönköping respectively. The owner of this business is Mr. Iqbal who is a

Swedish national. Their team consist of his two managers both of them are his sons in law, his

wife. X-one Boutique mainly deals in garments for ladies and gents, personal grooming products,

shoes, bags and other accessories for general use. Their suppliers are mainly from countries like

France and the United kingdom. Their motive is to maintain a steady growth and provide top

notch products and services to their customers. They are in the process of developing their own

e-commerce enabled website and look forward to expand their business to other regions of

Sweden. For this paper purposes we have interviewed Mr.Patel who is managing one of the big

stores and is also son in law to the owner. Mr. Patel by profession is a textile engineer and has

more than seven years of business experience in Sweden and abroad.

5.3 Kingfisher Indian Cuisine & Bar, Mariestad (Interviewee: Lars, 2010-04-23)

Kingfisher Mariestad is an Indian cuisine and bar situated in Mariestad. The restaurant offers

variety of Indian food and various drinks in its bar. Kingfisher offers quality food for its diverse

customer base ranging from working class and families on daily basis to tourists from abroad in

the summer season. Due to a niche market of Indian flavor to its customers, the restaurant

concentrates on word of mouth and location advantage for its business. The restaurant seldom

carries out promotional strategies. The restaurant has its customer base and it relies on their

customers around the year with a rise in sale during the summer season when there are plenty of

tourists in the city.

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5.4 Puls Gym, Skövde (Interviewee: Peter, 2010-04-23)

Puls Gym is fitness training centre with a modern approach to training. Peter is the owner of the

gym. He has no former marketing education but created a few websites in the past. Peter took

over the gym from the original owner and since then the number of customers has been

increasing thanks to the variety of marketing strategies used by him. Puls gym has its own

website where all relevant information is provided on regular basis. Peter believes in exploiting

social media marketing.

5.5 Treguld Smeder Skövde (Interviewee: Mikael, 2010-04-26)

Treguld smeder is the local goldsmith business. It is owned by Mikael Hjalmers. The company

has a website, which is aimed at showing information about the company and thus not being

used actively for marketing purposes by the owner of the business. The company has clearly

defined target customers and it reaches to its customers through conventional means of

marketing like advertisement in the local magazines, newspapers and such. The word of mouth

by its extremely loyal customers is the life blood of the business according to the owner and that

is why company does its best to retain its customers and for that purpose it even gives those

augmented services to keep them highly satisfied.

5.6 Impelco Trading Skövde (Interviewee: Kirsten, 2010-04-29)

Impelco Trading is a small firm managed and run by the owner. The company works with

printing names and other writing on clothing, pens, caps and other sales promotion novelties.

The company is run solely by the owner, Kirsten. She does direct marketing by calling and

emailing her potential customers. She thinks it is more appropriate for her because it is more

personal with the customer and brings out more results. The company has web page which is

solely for informative purposes and does not attract customers by its content.

As evident from the discussion in the literature review section that a small business is easy to

describe but difficult to define. Therefore European Commission for SMEs, (2005) defines a

micro firm is as a business which have fewer than 10 employees and an annual turnover not in

excess of (2) Million Euro. Since we have adopted this definition of European Commission

therefore all the companies interviewed were checked against the criteria of micro firms. In total

out of seven interviews six met the requirements. Whereas, one interview with AgriVind Skövde

was discarded as their number of employees were more than 10. All the companies along with

their important particulars are highlighted in the table 5 (annexure 1)

5.7 Conventional versus Social Media Marketing

In the first place the authors with the help of data display table 6 (annexure 1) have come up with

a snapshot of themes generated in a categorical manner to make it convenient for the reader as

under.

As evident from the literature review we know that marketing is one of the challenging tasks

confronting small businesses. The reason is that it plays a vital role in growth and survival of

micro businesses. According to Mike (2002) a proper marketing orientation is requisite for any

business and that orientation can be production, product, financial based and so on. Whereas,

Kotler and Keller (2009), stresses that a holistic marketing orientation in which “everything

matters” is needed to compete effectively in marketplace and mind space. In this relation when

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the interviewees were asked as to how would they describe their market orientation? Their

responses generated are presented as:

The theme generated from above discussion indicates that micro businesses are mostly inactive

in the domain of social media marketing for relationship purposes. The reason is that micro

businesses have limited personnel who are already over burdened by their tasks. Another reason

is that social media is in the rudimentary stages of development therefore the customers are also

largely absent so it is where micro business are lagging behind. However, young enthusiastic

entrepreneurs have stolen a lead by writing their own business blogs and maintaining their

facebook fan pages.

6. Conclusions

Micro businesses can be portrayed as using effectual reasoning instead of causal reasoning when

deciding on the marketing orientation for them. Through effectual reasoning micro businesses

come up with creative strategies through their own imagination, risk bearing and salesmanship

skills. From our paper and the study conducted by Erdtman and Wendt (2009) reveal that micro

businesses are mostly marketing weak organizations (MWO) and consider marketing more of a

luxury as they have sales orientation coupled with major relevance and minor role of marketing.

In relation to the purpose of our study which is to compare social media marketing with the

conventional forms of marketing practices in micro businesses, the conclusions we drew are have

been divided in three parts which correspond to three research questions as under.

6.1 Which of the two types of marketing approach is more effective in terms of target

market coverage and marketing expenditures?

Our study indicates that conventional approach to reach target segments is well suited for micro

businesses in Sweden. Majority of these businesses‘ customers are locally concentrated and they

can be reached and contacted easily through advertisements in local magazines, phone calls,

brochures and worth-of-mouth marketing. However, micro businesses in sample have shown a

tendency to carry out their marketing activities infrequently and in a haphazard manner which

reduces their chances of achieving their sales targets.

On the hand, majority of micro businesses customers are not catching up when it comes to using

social media marketing. Their absence in the virtual world reveals that micro businesses are

unable to reach their target segments through social media applications. The point of departure

here is that conventional approach to marketing is more effective and appropriate approach to

reach the target segments for the micro businesses in Sweden.

In terms of cost, social media marketing can be less costly than conventional forms of marketing

because it costs far less to create a company page on Facebook, upload a video on YouTube or

write a blog on free blogging sites. If the micro businesses have target segments present on these

social networking sites and they are dispersed over larger geographical areas, then using social

media marketing can be a very cost effective tool for cash-strapped micro businesses. In this

regard we can say that social media applications will be more useful once the network

externalities of social media are realized to the extent that majority of businesses and their

customers are active in the social media platform. Another alternative is use a blend of social

media (high volume, low expense) and conventional marketing (low volume, high expense)

practices for better results.

The benefits that micro firms can have from social media practices, as we noted during our

study, are as follows:

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If a micro business sets up its customer care service on the Internet, then, it would be far

more efficient in responding to customer complaints than a telephonic call center for

customers care. This would result in high turnover of satisfied customers and, thus, more

business for the company. Inwardly, the company can also lower its costs staff and other

complementary resources.

Normally, the customer care employee knows less firsthand than the actual problem a

product or service may incur during its use. When a company has a social networking site

for business and many customers are present, then, a problem can be solved during the

customers interacting with one another on the page. This is not only time saving for the

customer care officer but, also, the knowledge of the officer is also increased.

When a company constantly interacts with their customers via social media then the

company gets a view of its customers. It is beneficial and helpful in hiring future

employees for the company. It saves a lot of effort and money to hire an efficient and

like-minded individual for the company.

During interaction with the customers on social networking sites, many problems are

raised and many solutions are put forth by a diverse customer base. Therefore, a social

networking site can be a good tool for generating new ideas and saving a lot on R & D at

times.

On the other hand, conventional forms of marketing lack these benefits for the company and

still costs more than this approach. We noted during our study that micro businesses are not

absolutely happy with their marketing coverage and the expenditures involved therein,

therefore, they are in need of some ways which are effective in both coverage and

expenditure. We conclude that it would be better for them to use a blend of both conventional

and new marketing methods in tandem with one another for satisfactory results from their

marketing efforts.

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Annexure 1

Table 1: EUs Criteria for Defining SMEs

Enterprise Category Headcount Annual Turnover

Medium – sized Less than 250 Less than or equal to 50 Million Euro

Small – sized Less than 50 Less than or equal to 20 Million Euro

Micro Firm Less than 10 Less than or equal to 2 Million Euro

(Source: Adopted from European Commission industry guide, 2005)

Table 2: Traditional Media versus Social Media

Traditional Media Social Media

Fixed, unchangeable Instantly updateable

Commentary limited and not real time Unlimited real – time commentary

Limited, time delayed best seller lists Instant popularity gauge

Archives poorly accessible Archives accessible

Limited media mix All media can be mixed

Committee publishers Individual publishers

Finite Infinite

Sharing not encouraged Sharing and participation encouraged

Freedom Control Source: Rob Stokes, (2008)

Table 3: Objective of Social Media vs. Conventional Business Functions

Traditional

Business

Functions

Social Media

Functions or

Objectives of

Groundswell

Differences in the New Landscape

Research Listening Ongoing monitoring of yours customers

conversations with each other, instead of

occasional surveys and focus groups.

Marketing Talking Participating and stimulating two way

conversations your customers have with each

other, not just outbound communications.

Sales Energizing Making possible for your enthusiastic

customers to help sell each other.

Support Supporting Enabling your customers to support each other.

Development Embracing Helping your customers to work with each

other to come up with ideas to improve

products and services. Source: Rob Stokes, (2008)

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Table 4: The Qualitative Analytical Model

Level Step Processes

1. Description 1

2

Read and reread the transcripts of each interview while

referring to field notes taken during interview. Identify

relevant discourse from each participant‘s transcribed

interview.

Summarize identified relevant discourse from each

transcript to produce the core information of each

interview.

Present summary to participants

2. Analysis

between

participation

to generate

themes

3

4

Generate Common themes via Microanalysis

1. Broad extraction of core information via a

critical theory lens to include paraphrased bites

of RN buddy experience as well as their

relationship with students, facilitators and so on

2. From broad extraction, generation of theme

specific to RN buddy;

3. Summary of theme generated.

Points of tension generated from common themes.

3. Findings –

Cultural and

Cultural

Analysis

5

6

Label standard and divergent meanings using the

adaptation of McAllister‘s (2001) guidelines for

reflection.

Explore the explicit and implicit meanings looking for

connections to broader cultural, historical and political

influences.

Source: Walter et al, (2008)

Table 5: Description of Respondents along with Location, Head Count and Annual Turnover.

Company Name Respondent Head

Count

Annual Turnover

Nordic Pearl Jonkoping Xiaoli Du 3 – 5 Less than 1 Million Euro

Kingfisher Cuisine, Mariestad Lars 7 – 9 Less than 2 Million Euro

X – One Kladbutik Jonkoping Patel 5 – 6 2 Million SEK Approx.

Puls Gym, Skovde Peter Lundell 5 – 7 Less than 3 Million SEK

Treguld Smeder Skovde Mikael

Hjalmers

2 – 3 Less than 2 Million Euro

Impelco Trading Skovde Kirsten

Lothinius

2 – 4 1 – 2 Million SEK

AgriVind AB, Skovde Kesebol Kajsa 25 – 30 Undisclosed Source: Authors own creation

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Table 6: Data Display and theme generation

Nordic

Pearl

Kingfisher X – One

Kladbutik

Puls Gym Treguld

Smeder

Impelco

Trading

Theme Generated

Market

Orientation

Supplier Customers Suppliers

&

Customers

Customers Product/

Customers

Product Effectual

Reasoning

Product &

Augmented

Services

Desirable,

Flexible

Payment

Desirable,

Clean

Environment

Quality

Products,

return

Salutary,

Flexible

Timing

Luxury

Exchange

Desirable,

Flexible

Payment

Conforms to

theory

Role &

Relevance

of

Marketing

MWO MWO MWO MIO MWO MDO Major relevance

and Minor Role of

Marketing

Market

Research

Market,

Websites

Location of

Restaurants

Local

Newspaper

and

Weekly

Offers

Location

and WOM

Print

Media

Networking Random Approach

and Haphazard

Coverage

Price Economy Flexible

Menu

Economy Flexible Low Flexible Economy Pricing

and Confirms

theory

Promotion

Mix

Blog,

Sales

Promotion

WOM and

Discounts

WOM and

Target

Discounts

Website

WOM &

Networking

WOM &

Print

Media

WOM &

Print Media

WOM is essential

for success as it

serves as

independent

credibility filter

Radio &

TV for

Micro –

business

Not at the

Moment

Not for

perishable

items

Not

suitable

for Small

Business

Not

suitable for

us.

Not

suitable

for us.

Not suitable

for our

business.

Interaction is

important and

broadcast media is

too much

expensive for

geographically

concentrated

customers.

Social

Media

Usefulness

Still

young

media

Not so

convincing

Yet to

prove its

utility

Good but

not now.

Bubble

growth

and Weak

Content

Good

additional

media

Social Media is

still in

elementary/infancy

stage.

Satisfaction

with

Existing

Marketing

Not at all Not satisfied We must

do better

Satisfied Positive Improvement

Needed

A mixed feeling

but generally not

satisfied with

status quo.

Source: Authors own creation

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Annexure 2

Figure 1: Role and Relevance Model of Marketing Adopted from Simpson & Taylor, (2002)

Role of Marketing Major

(Internal)

Minor

Minor Major

Role of Marketing (External) Source: Adopted from Simpson & Taylor (2002)

Figure 2: Alternative Paths Model to Marketing

Role of Marketing Major

(Internal)

Minor

Minor Major

Role of Marketing (External)

Source: Adopted from Simpson & Taylor (2002)

MDO

Marketing Dominant

Organization

MLO

Marketing Led

Organization

MIO

Marketing

Independent

Organization

MWO

Marketing Weak

Organization

MDO

Marketing Dominant

Organization

MLO

Marketing Led

Organization

MIO

Marketing

Independent

Organization

MWO

Marketing Weak

Organization

‖A‖ A A

‖C ‖

‖B‖

‖BA

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Figure 3: Adaptation of Social Media Starfish Model

(Source: Adopted from Social Media Marketing , 2008

Broadcast

- Print

- Online

Integrated

Marketing Social

Media

Direct

Mail Online

Media

CONVERSION

(PURCHASE) - Events - Videos - Collaborative Tools - SMS - Email - Video Sharing - Audio (Podcast) - Photo Sharing - Micro blogs - Blogs - White Label Social Networks - Personal Social Networks

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Weber, L. (2007). Marketing to the Social Web, How Digital Customer Communities Build Your

Business. New Jersey: John Wiley & Sons, Inc.

Zarrella, D. (2010). The Social Media Marketin Book. In L. R. T. Ruma (Eds.) Available from

http://books.google.com/books?id=chd3yfExXMEC&printsec=frontcover&dq=Social+media+m

Percentage of enterprises by size class. (2009). Retrieved 8th February, 2010, from

http://www.ekonomifakta.se/sv/Fakta/Foretagande/Naringslivet/Naringslivets-struktur/

TV Ads Less Effective, Budgets Shifting Online. (2010). Retrieved February 28, 2010, from

http://www.marketingprofs.com/charts/2010/3397/tv-ads-less-effective-budgets-shifting-online

http://books.google.se/books?id=_48WQTc6PhsC&pg=PA347&dq=direct+marketing+in+small

http://books.google.com/books?id=chd3yfExXMEC&printsec=frontcover&dq=Social+media+m

http://www.ekonomifakta.se/sv/Fakta/Foretagande/Naringslivet/Naringslivets-struktur/

http://www.marketingprofs.com/charts/2010/3397/tv-ads-less-effective-budgets-shifting-online

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VOL 3, NO 1

THE EFFECTS OF PEER TEACHING IN ACADEMICS ACHIEVEMENT LEVEL OF

STUDENTS IN SUBJECT OF CHEMISTRY AT SCONDARY LEVEL IN PAKISTAN

Shafqat Hussain

Ph.D Scholar, Foundation University Islamabad, Pakistan.

Jameel Akhtar

Ph.D Scholar, Northern university Noshera Pakistan

Zahid Basher

Ph.D Scholar NUMULs University Islamabad Pakistan

Serwat Mobeen

Ph.D Scholar, Foundation University Islamabad, Pakistan.

Abstract

The study aimed at the effectiveness of new trend of peer group activities method of teaching of

chemistry at secondary level. The objective of study were to evaluate the impacts of method on

teaching learning process on academic achievements level on secondary schools students in

subject of chemistry. In this study, an achievement test (pre-test/ post-test) covering six chapters

were used as measuring instrument. Depending upon pre-test scores, 80 science students of

9th

class were divided into two equal groups (n=40) named as experimental group and control

group. The experimental group was taught with peer group activity based method and the

control group was taught by traditional lecture method. Both the groups were taught for a period

of six weeks (40 minutes period per day). The post-test was administered at the end of treatment.

The pre-test and post-test scores of the experimental and control groups served as data for this

study. The collected data was analyze & interpreted. The experimental groups showed better

performance than controlled group. Furthermore the experimental group performed significantly

better than control group in the domain of knowledge, application and comprehension abilities of

students. Hence the ultimate results of the research study indicated that peer group‘s activity-

based learning was more effective for teaching of chemistry as compared to traditional lecture

method of teaching of 9th

grade science students.

Key Words: Activity-based learning, Peer group instruction, lecture method, academic

achievement

Introduction The Student Peer Teaching Strategy is first and foremost student-centre and emphasizes active

teaching and learning approaches. Teachers and students both play active roles to induce hands-

on, heads-on and hearts-on learning in the students. Learning is an active process and there is no

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doubt that it can be initiated by the teacher. Eilks and Byers 2006 cited (Wilkins 2005) that

students centered approaches which include peer group method where meaning is developed

through consensus in a collaborative and cooperative way have been proved very successful in

science (Eilks and Byers 2006) Nind M, et al.(2004) found evidences in favor of peer group

interactive approaches and claimed that it can be effective and stressed that policy should not

deter teachers from adopting such approaches. Peer group activity method is working together to

accomplish shared goals. The individual seeks outcomes that are beneficial to themselves and to

all other group members. It is the instructional use of small groups so that students work together

to maximize their own and each other‘s learning. Timberlake stated that students manage to find

a way to work together regardless of the shape of the classroom or lecture hall. Staver 2007

Learning is also a social and cultural process. Individual students‘ interactions with their peers

are important to each learner‘s active construction process and the group process. The

construction of deep scientific knowledge results from actively practicing science in structured

learning environments.

According to Bruner (1989) in peer group activity method students are organized into

small groups after receiving the instructions from teacher. Then they work together in the groups

until all group members successfully understand and complete assignment. Mutual benefit is

involved in the group work and all members gain from each other's efforts. Boud et. al (2001)

stated that in peer teaching students learn from and with each other in ways which involve

sharing knowledge, experience and ideas between students. In this method the emphasis is on the

learning process along with emotional support that learners offer each other. Peer teaching

techniques help in utilizing all the resources available to teachers. Students can understand how a

student assimilates information. Peer teaching techniques improve the learning environment and

success of all students when implemented properly.

RESEARCH HYPOTHESES

1. There is no significant difference between the achivements of students taught by peer group

activities method and those tought by traditional of teaching ,lecture method of teaching.

RESEARCH METHODOLOGY

The purpose of this study was to examine the effect of peer group activity-based learning

on academic achievement of secondary school students in the subject of chemistry. This was

experimental study, in order to test relative effectiveness of independent variable (instructional

paradigm), the choice of most suitable design for this experiment was the basic step. Keeping in

view the various factors affecting the internal and external validity of experimental design, pre-

test post-test equivalent group design was considered a suitable research design for this

experiment. The population of study was science students of grade 9 class studying chemistry in

84 rural and urban high school for boys of district Abbottabad but only one school was selected

for this research study which having required strength at secondary level. The eighty science

students were taken sample in Govt: high school for boys No #3 Abbottabad. The researcher

selected following contents morality, concept of electrolytes and non-electrolytes, hard and soft

water, solubility and its determination, electrolysis, percentage by mass (of solute), method to

remove hardness of water, types of solution (unsaturated, saturated and supper saturated),

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density, effect of temperature on solubility of solute, measurement of a solution by using

percentage by volume method, differentiation between true solution, suspension and colloidal

solution selected from the text book of chemistry for 9th

class. The pre test and post test were

comprised on 100 objectives type‘s items of 100 marks. 40 multi choice items, 10 true and false

,10 completing types items,20 short answers items and 20 matching items. In each pre test and

post test 40 items related to knowledge ability, 30 comprehension ability, 22 application ability

and 8 skill development ability. Each items having one mark. The test was validated by pilot

testing as well as judgmental validation. For the reliability of the test, split-half method was used

and the reliability of the test was found to be 0.85.

RESULTS

The raw scores of the students of experimental and control groups were arranged and

then analyzed by using mean score, standard deviation and t-test as statistical tools. The analyzed

data have been interpreted in the following:

Table 1: Comparison of mean scores (knowledge, comprehension, application and skill

development) of experimental and control groups on pre-test

Groups Learning domain N Mean Score S D t

Experimental Knowledge

ability

40 14.04 1.31

0.27*

Control 40 15.90 5.03

Experimental Comprehension

ability

40 13.25 2.99

0.30*

Control 40 12.99 4.80

Experimental Application 40 11.21 3.17

0.09*

Control ability 40 11.33 4.83

Experimental Skill development

ability

40 3.50 1.66

0.17*

Control 40 3.38 1.63

Experimental Overall

achievement

40 43.42 4.68

0.29*

Control 40 43.32 4.71

Table 1 shows that there was no significant difference between mean scores of

experimental and control groups (p<0.05) in the learning domain of knowledge, comprehension,

knowledge application and skill development abilities as well as over all academic achievement

in the subject of chemistry on pre-test. Thus both the groups were at the same level of

achievement in the subject chemistry before treatment.

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Table 2: Comparison of mean scores of experimental and control groups on post-test

Groups Learning domain N Mean Score S D T

Experimental Knowledge

ability

40 21.28 2.88

3.02* Control 40 15.23 5.87

Experimental Comprehension

ability

40 24.31 5.55

5.23*

Control 40 15.22 6.00

Experimental Application 40 21.04 21.03

3.62*

Control ability 40 15.00 5.24

Experimental Skill development

ability

40 6.22 1.75

2.26*

Control 40 6.00 1.86

Experimental Overall

achievement

40 73.00 5.47

5.29*

Control 40 52.11 6.00

*p<0.05 Critical value of t at 0.05 = 1.96

Table 2 shows that there was a significant difference in mean scores for learning domain

of knowledge, comprehension, knowledge application and overall academic achievement

(p<0.05) of experimental and control groups in the subject of chemistry on post-test. However

there was no significant difference between mean scores of experimental and control groups for

skill development (P>0.05) on post-test.

The results of this study in term of test of hypotheses indicate that on post-test, mean score of

experimental group (73.00) was greater than the mean score of control group (52.11) and p< 0.05.

Thus the hypothesis ‗there is no significance difference between academic achievement of the

students in chemistry taught by a peer group activity based method and those taught by

traditional lecture method of teaching at secondary level‘ was rejected in the favour of

experimental group. Similarly, mean scores of experimental group in the domain of knowledge

ability, comprehension ability, application ability and skill development ability on post-test

(21.28, 24.31, 21.04 and 6.2respectively) were greater than mean scores of control group in these

domains (15.23, 15.22, 15.00 and 6.00 respectively) with p< 0.05. Hence the hypothesis ‗there is

no significant difference between achievement in cognitive learning domain in chemistry

(knowledge, comprehension, and knowledge application) of the students taught by peer group

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activity based method and those taught by traditional lecture method at secondary level‘ was

rejected.

DISCUSSION

The results of the present study for academic achievement and achievement in the domain of

knowledge, comprehension, and knowledge application support the findings by Shymansky,

Hedges and Woodworth (1990); Crouch and Mazur (2001); Harfield, Davies,Hede,Panko and

Kenley (2007).The experimental group shows better performance in learning domain

(knowledge ability, comprehension ability, application ability and skill development ability) than

control groups.

CONCLUSIONS

In light of statistical analysis and the finding of study, the flowing conclusions were drawn.

1. On the whole peer group activity method of learning is more effective as teaching

technique for chemistry as compared to traditional lecture teaching method.

2. The peer group activity based method of teaching improves different learning domains

such as knowledge ability, comprehension ability, application ability and skill

development ability.

3. In peer group activity based method of teaching it is easier to measure the achievement

of instructional objective.

RECOMMENDATIONS:

The researchers makes the following recommendations for improving the peer group teaching

process:

1. In order to curb rote learning, the peer group activity method may be used excessively

for different subjects at different level.

2. Being an effective instructional strategy, peer group activity based learning should be

included in the teacher training as integral part. Especially for science teachers.

3. In–service science teachers should be encouraged to use peer group activity based

learning and government may conduct the refresher courses, training, and workshops

about peer group activity based method.

4. The peer group activity based method of teaching improves different learning domains

(congnitive, affective and psychomotor) in this research; therefore it is recommended

that peer group activity method should be used frequently used in instructional process.

5. Peer group activities method used in primary, middle, secondary levels of public and

private sectors, schools.

6. Science laboratory should be fully equipped with apparatus so that activity based

teaching could be performed.

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References

Boud, D. and Feletti, G. (2001). The Challenges of Problem-based Learning, Kogan Page,

London.

Bruner, E. (1989). The process of education U.S.A: Havrvard University press.

Eilks and Byers. (2006). books.google.com.pk/books?isbn=1847559581

Harfield, T. at ,al. (2007). Activity-based teaching for UNITEC New Zealand Construction

students. Emirates Journal for Engineering Research, 12 (1), 57-63.

Nind M, et al (2004). A systematic review of pedagogical approaches with a particular focus on

peer group interactive approaches. In: Research Evidence in Education Library. London:

EPPI-Centre, Social Science Research Unit, Institute of Education, University of London.

Staver .(2007).International Academy of Education International Bureau of Education.

UNESCO.

Tee Hwa, Tan.(2009), Student peer teaching strategy, Malaysia. Bangkok: UNESCO Bangko (In

Search of Innovative ICT in Education Practices: Case Studies from the Asia-Pacific

Region) 16 pp.

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STATUS OF PAKISTANI HALAL MEAT EXPORT AND FORECASTING IT`S EXPORT REVENUE,

IMPLICATIONS AND OPPORTUNITIES

Rana Muhammad Ayyub (Corresponding Author)

Department of Economics and Business Management

University of Veterinary and Animal Sciences, Lahore, Punjab, Pakistan.

Muhammad Bilal

Department of Statistics and Computer Sciences

University of Veterinary and Animal Sciences, Lahore, Pakistan

Faculty of Life sciences Business Management


Abstract

Pakistan`s share in world meat trade is negligibly small and she is not Planning to get benefit of

it`s meat production potential. Enhancement of exports from Pakistan is highly essential for it`s

economic growth. Present study is an attempt to highlight this potential alongwith empirical

modeling and forecasting of meat export earnings to access it`s future implications upto the year

2020 and pointing out the future opportunities. The data used in this study was collected from

secondary source of Statistical Year Book 2006 to 2010 published by Federal Bureau of

Statistics. Auto regressive integrated Moving Average (ARIMA) model was applied on the

collected data. Various diagnostic checks were carried out for analysis of data which showed that

ARIMA (1,3,1) is an appropriate model for the time series data of meat export earnings from the

year 1997 to 2009. Further diagnostic checks like NPar test exhibited that upto the year 2020;

there will be a significant increase in meat export earnings. This study apprises the need of some

urgent measures in meat production and targeting the international Halal meat market.

Key Words: Halal Meat, ARIMA model, Meat export earnings, Pakistan, Halal meat trade,

Halal meat market potential.

1. Introduction

Currently Global Halal industry is valued over $ 3 Trillion. Total market of beef and

mutton in 2008 was $ 24.5 Billion. Out of total world meat trade 47% of world meat trade

comprises of beef products and 16% of mutton (Sheep and Goat). Out of this our share is

negligible and we are ranked 19. Our 97% of mutton export are restricted to ME (Middle

Eastern) countries (Jalil 2010). The demand of Halal meat and other foodstuffs is growing

internationally. This demand in Gulf countries alone exceeded to $ 12 Billion in 2005 (May

2006).

There is a great potential for Pakistani meat export in a no. of other countries (Table-3 ); as

Malaysia could import at least 60,000 Tons of meat from Pakistan if it chooses to do so(Bokhari

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2010). Pakistan is currently exploring this market but not with the intensity which is required.

There is continuous increasing trend in Livestock population in Pakistan (Table-1). Being an

Islamic country Pakistani meat is considered the Halal meat in general perception.

Pakistan is an Agriculture based country and has a rich Livestock source owing to

it`s geographical location and climate. Pakistan has the 2nd

largest buffalo population after India

in the world.(PBIT 2011) ―Livestock and meat products are important export commodities for a

number of developing countries‖. (Anonymous November, 2010). Regardless of the nature of

Economy, agriculture sector plays a significant role in economic development of developing

countries like Pakistan. ―It continues to play a central role in it`s economy. It is the second

largest sector, accounting for over 21 percent of GDP. However, Livestock is the single largest

contributor to overall agriculture i.e. 53.2 percent‖ (Anonymous 2009-10). Pakistani meat has a

unique taste that`s why it can be exported to many countries predominantly Arabian countries

but still there is a vast supply gap to be fulfilled there (Table-4). Currently new markets are being

explored like Malaysia, Iran, Turkey and some others (Table -5). This export has a continuous

increasing trend as there is around 56 % increase in meat export from Pakistan as compared to

the previous years. Pakistan is also exporting the live animals and earning around US$ 13.95

million from Live animal export (Anonymous 2009-10).

―World meat trade is forecasted to grow by 2.8 percent in 2010, to 26.1 million

tonnes, sustained by a brisk growth in pig meat, but also by gains in bovine and poultry meat‖.

―Increased purchases from Asian countries are expected to fuel much of the expected increase of

meat trade, more than compensating for a 15 percent reduction of imports by the Russian

Federation, which had emerged as the second largest meat importer in 2009, after China‖

(Anonymous November, 2010).

2. Research Methods

This study is based on time series data related to earning from Pakistani meat export (1997-

2009), which was collected from Latest Pakistan Statistical Year books 2006 to 2010. The data

thus was thoroughly edited and discrepancies were removed before it`s use to make forecasts for

the earnings from meat export of Pakistan. The data set include meat export values of three

different kinds including:

1. Meat, fresh, chilled or frozen.

2. Meat, dried salted or smoked either or not in air light containers.

3. Meat in Air tight containers n.s. and meat preparations whether or not in air tight

containers.

For convenience and clarity, these values were accumulated for calculating the total foreign

exchange earnings from meat export as a single commodity.

Forecasts can be obtained by various methods such to purely judgmental approval,

Structural econometric models, invariant time series models or in combination (Bessler and

Chamberlain 1989); (Olorunnipa 1989) and (Rosa 1990) . Univariate time series methods are

usually cheaper than causal models and may be used where casual models are inappropriate due

to pack of data or incomplete knowledge regarding the casual structure. From a class of

univariate time series models we have made a choice of auto regressive integrated moving

average (ARIMA) model for making meat export forecasts. ARIMA model are marginally

superior to conventional econometric forecasting models (Miller 1985) and (Albiac 1989).

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The acronym ARIMA stands for Auto Regressive Integrated Moving Average Model

showing a combination of auto regressive and moving averages models. Lags of the differenced

series appearing in the forecasting equation are called auto regressive terms. Lags of the forecast

errors are called moving averages and a time series which need to be differenced is said to be in

integrated version of stationary series. The autoregressive (AR) , Randoms were first introduced

by (Yule 1926) and were generalized by (Walker 1964). The moving average (MA) models were

first introduced by (Chatfield 1984); and later was provided the theoretical foundations to a

combined ARIMA process. The basis of ARIMA approach of (Box and Jenkins 1970) consisted

of three phases namely identification (specification), estimation, testing and application

(forecasting). This method has been used extensively in economic research (Zhang 1986) and

(Muhammad, Bashir. et al. 1992). ARIMA model explains the movement of a time series. Unlike

the regression model, here a set of explanatory past values and to weighted average of current

and lagged random distributions are used (Muhammad et et., 1992). According to (Box and

Jenkins 1970), the ARIMA model is denoted by ARIMA (p,d.q),, where ‗p‘ is the order of the

autoregressive process, ‗d‘ is the order of homogeneity i.e. the number of difference to make the

series stationary and ‗q‘ is the order of the moving average process. These are the mixture of AR

and MA process or models. The time series x t for

t = 0,1,2,.............. is said to be ARMA (p, q) if x t is stationary and

xt1xt12 xt2

....................p xtp wt1wt1

.......q wtq

The parameter p and q are called the auto regressive and moving average orders. If x t has non-

zero mean then ARMA (p, q) can be written as given bellow

xt1xt12 xt2

....................p xt p wt1wt1

.......q wtq

The ARMA models become AR if q=0 and if p=0 these become MA models. The ARMA models

can be written as bellow: B

xt B

wt

For the specification and estimation of model edited time series data were introduced in

computer by using the ―SPSS‖ package. The results thus obtained were put to various diagnostic

checks like Residual analysis, Normality tests and Goodness of fit. Forecasts for 10 years ahead

(i.e. upto 2020) were worked out.

Assumptions

To make the projections more precise and realistic, certain assumptions were made as under:

1. Absence of exogenous disturbances such as war, social upheavals and abnormal climatic

conditions.

2. The relative price structure and policies regarding meat and other meat products will

remain unchanged during the projected period.

3. The projections will take into account those measures which have already been decided

upon under the Government policy.

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4. Analysis Result

Stationarity Test

Pakistan

Level Co-efficient

P- Value

First Difference Co-efficient

P- Value

Second Difference Co-efficient

P- Value

Third Difference Co-efficient 4.130

P- Value 0.0343

From the above table it is concluded that meat export become stationary at third

difference, so ARIMA Model will be used at d=3. (It was checked by Eviews software Version

5)

Step 1. Model Specification: The model specification was automatically made by SPSS

package. Parameters p,d.q were determined and ARIMA (1,3,1) was considered as appropriate

model.

87654321

Lag Number

1.0

0.5

0.0

-0.5

-1.0

AC

F

Lower ConfidenceLimit

Upper Confidence Limit

Coefficient

Meat Export Earning

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87654321

Lag Number

1.0

0.5

0.0

-0.5

-1.0

Part

ial A

CF



Coefficient

Meat Export Earning

Step 2. Model Estimation: The brief output of the estimation is as under:

Final Estimates of Paramaters:

Parameter Estimates

Estimat

es

Std

Error t

Approx

Sig

Non-

Seasonal

Lags

AR1 -.854 .255 -3.341 .012

MA1 .998 43.494 .023 .982

Constant 54.570 30.017 1.818 .112

Residual Diagnostics

Number of Residuals 10

Number of Parameters 2

Residual df 7

Adjusted Residual Sum of

Squares

2972949.1

52

Residual Sum of Squares 6114009.4

79

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Residual Variance 262147.09

0

Model Std. Error 512.003

Log-Likelihood -77.243

Akaike's Information

Criterion (AIC) 160.486

Schwarz's Bayesian

Criterion (BIC) 161.394

The ARIMA Model is as follows:

1 54.70 0.854 0.998t t tY X Z

By applying this worked out model The futuristic Halal Meat forecasts are given in the following table

alongwith the Lower and upper limts:

Years Forecast Lower Limit Upper Limit

2010 7241.591 5779.222 8703.959

2011 10550.95 7918.691 13183.2

2012 13519 8641.233 18396.76

2013 17928.05 10514.91 25341.19

2014 22358 11404.2 33311.79

2015 28122.09 13068.21 43175.97

2016 34200.58 14004.66 54396.5

2017 41565 15452.36 67677.64

2018 49487.27 16336.15 82638.39

2019 58689.97 17537.33 99842.61

2020 68657.5 18279.39 119035.6

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Step 3. Diagnostic Checking: Different diagnostic checks were applied on the estimated model.

Time series plot of residuals of the estimated model did not show any trend, which was an

evidence of the fact that model was fitted properly. In order to find the fitness of model, two

normality tests i.e. normality test 1 and normality test 2 (NPAR Test) were carried out. In

normality test 1 normal scores of residuals when plotted vs residuals, gave almost a straight line

which was an indication of normality. In normality test 2, histogram of the residuals was

determined that showed the results which were very close to normality.

In addition plot of residuals vs fitted values depicted that patterns of any kind were

absent hence model was a good fit. The graph of the original and fitted values and forecasts of

meat export are given. It is apparent from the graph that the forecasts are acceptable, as observed

and fitted values overlap to a greater extent.

NPAR-Test

One-Sample Kolmogorov-Smirnov Test

Error for

data from

ARIMA,

MOD_3

CON

N 10

Normal

Parameters(a,b)

Mean -

98.377704

6

Std. Deviation 494.41202

710

Most Extreme

Differences

Absolute .204

Positive .204

Negative -.158

Kolmogorov-Smirnov Z .644

Asymp. Sig. (2-tailed) .801

a Test distribution is Normal.

b Calculated from data.

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The model ARIMA (1,3,1) was found appropriate for the data from 1997-2009. The 11

years ahead forecasts (up to 2020) and their 95% confidence intervals given. From the given

model meat export earnings can be calculated by putting the concerned values in this model.

It was seen from the results of this study that the earnings from meat export will

continuously increase in next coming ten years till 2020. In view of the above situation if solid

policies will not be adopted so there will be much less meat available for local consumers as

evident by soaring meat prices in local market.

4. Conclusion and Suggestions

Future forecasts exhibited that up to the year 2020, there will be a significant increase

in the earnings from meat export for Pakistan. These forecasts were based on past data which

were affected by the situations like trade policy, agricultural policy and international market. So

efficient and increased production and prudent Governmental policies regarding meat and live

animal export are the only solutions. Following steps should be helpful in this respect:

Pakistani industrialists must focus on Introducing their meat by developing Halal

brand.

Pakistan should also focus on the other new meat markets other than Arabian markets

like Malaysia, Iran and Europe etc.

Some urgent measures must be taken in implementing required quality standards like

ISO 9001-2000, ISO 14000 and HACCP etc.

Regarding meat production, it must be enhanced to a level where after fulfilling the

local demand, enough meat could be exported without affecting local meat supply.

Government should help and facilitate the entrepreneurs to explore these emerging

markets by organizing Trade shows etc.

The urgent measures must be adopted for introduction and development of meat breed

in Pakistan so that meat production per animal can be enhanced..

The animal farming must be modernized to get efficient meat production per animal.

The Government initiatives and projects must be implemented in true sense.

The fattening farming must be promoted.

The farmers must be educated for taking appropriate production from animals through

modern managemental and production techniques.

Liberal credit facility should be provided for the farming machinery and equipments.

Replacement of outdated machinery with new modernized machinery is a dire need

for production.

5. Opportunities for Pakistani Sector

As per above explained details it can be concluded that there is a big gap in world

meat trade to be fulfilled and Pakistan can play a vital role in this regards. If we just do a

comparison with other competitors so it can be noted that India with a similar climate is the

largest exporter of Buffalo meat in the world having exported a total of 425,000 metric tons

of boneless buffalo meat in 2005; it is worth mentioning that the total buffalo population of

India is estimated at 93 million, while Pakistan is ranked at 2nd

in Buffalo population. But our

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share in meat export is negligible. According to Food and Agriculture organization (FAO),

the total population of Cattle and Buffalo is estimated to increase to 54 million by 2015 while

production of meat from cattle and buffalo is estimated at 3.2 million tones in 2015, almost

doubling from the 2000 production figure of 1.7 million tones (May 2006).

There is a huge potential of meat export in many countries other than conventional

markets (See Table 7). As in 2003, the Europe for the first time became a net importer of

Bovine meat and it is expected to grow enormously in near future. As per one estimate there

is growing world market for meat which is valued at $ 81 Billion (May 2006). So by catering

the needs of this huge market Pakistani export earnings from this particular export

commodity can be increased manyfolds.

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References

(May 2006). Pre-Feasibility Study for Cattle Farming & Meat Processing Plant, ARCH VISION

Consulting Engineers, Environmentalist & Architects.

Albiac, J. (1989). "Casuality and price forecasting in the Pig sector." World Agri. Econ. Rural

Sociology Abst. 31:3165.

Anonymous (2009-10). Pakistan Economic Survey. G. o. P. Finance Division. Islamabad,

Economic Advisor`s Wing: 13-38.

Anonymous (November, 2010). FAO, Meat outlook.

Bessler, D. A. and P. J. Chamberlain (1989). "Composite forecasting with Dirichlet priors."

World Agri. Econ. Rural Sociology Abst 31:5537.

Bokhari, A. (2010). Finding a niche in Global Halal product market.

Box, G. E. P. and G. M. Jenkins (1970). Time series analysis: Forecasting and control. , Holdon-

dav, San Francisco.

Chatfield, C. (1984). The Analysis of Time series; an introduction, Chapman and Hall, London.

Jalil, H. (2010). Halal Meat Sector of Pakistan. C. o. b. A. I. a. Lahore. Lahore.

Miller, S. E. (1985). "Predicting time series turning points with ARIMA models." World Agri.

Econ. Rural Sociology Abst. 27:5936.

Muhammad, F., Bashir., et al. (1992). "Forecasting cotton production in Pakistan using ARIMA

model." The Pakistan Cotton 36(1): 35-41.

Olorunnipa, Z. (1989). "Akternative forecasting models for farm wheel tractor horsepower

purchases." World Agri. Econ. Rural Sociology Abst. 31:1237.

PBIT. (2011). "Sectors for investment." Retrieved 1-1-2011, 2011, from

http://pbit.gop.pk/Sectors/Livestock.aspx.

Rosa, F. (1990). "Single and combined forecasts." World Agri. Econ. Rural Sociology Abst.

32:52521.

Walker, A. M. (1964). "Asymptotic properties of least squares estimates of the parameters of the

spectrum of a stationary non-deterministic time series." J. Aust. Math. Soc.

Yule, G. U. (1926). "Why do we Sometimes get Nonsense-Correlations between Time-Series?--

A Study

in Sampling and the Nature of Time-Series." Journal of the Royal Statistical Society 89(1): 1-63.

Zhang, H. (1986). "Application of ARIMA time series Model in tree growing forecast (J)."

Scientia Silvae Sinicae.

http://pbit.gop.pk/Sectors/Livestock.aspx

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Annexure

TABLE -1

Livestock Population (Millions)

Source: GOP(2006); Ministry of Food, Agriculture & Livestock (Livestock Wing)

*Projected estimates

Table-2

WORLD MEAT PRODUCTION IN 2003

Source: Small & Medium Enterprise Development Authority (SMEDA)

Table-3

EXPORT POTENTIAL: MIDDLE EAST

SUPPLY AND DEMAND GAP IN METRIC TONS

Country Production Consumption GAP Saudi Arabia 25,630 75,630 50,000

Egypt 440,000 533,000 93,000

Bahrain 1440 4,600 3,220

Oman 4148 18,000 13,852

UAE 9500 43,185 33,685

(Source: United States Department of Agriculture -2004)

Species 2001-02 2002-03 2003-04 2004-05 2005-06* Average

Growth

Rate

Cattle 22.8 23.3 23.8 24.2 25.5 2.4%

Buffaloe 24.0 24.8 25.5 26.3 28.4 3.7%

Sheep 24.4 24.6 24.7 24.9 25.5 0.9%

Goats 50.9 52.8 54.7 55.6 61.9 3.9%

Poultry 306.9 314.3 315.58 372.0 386.5 5.2%

Meat Type Production (Million

Tons)

Beef 62

Mutton 12

Poultry 77

Pig 97

Total 247

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Table-4

EXPORT POTENTIAL: MIDDLE EAST- MEAT IMPORTS

TOTAL BEEF AND BEEF VARIETY MEAT IMPORTS (Metric Tons)

Country 2000 2001 2002 2003 Saudi Arabia 32,327 36,360 51,728 52,122

Egypt 195,841 130,692 140,240 113,915

UAE 50,722 31,103 37,263 30,765

Kuwait 57 19 71 144

All Others 68,930 70,571 65,246 93,595

Source: World Trade Atlas

Table-5

EXPORT POTENTIAL: SOUTH EAST ASIA (MAJOR IMPORTING

COUNTRIES) TOTAL BEEF IMPORTS

Country 2000 2001 2002 2003 Malaysia 86,649 85,561 92,475 99,460

Philipines 87,597 82,291 82,200 83,341

Indonesia 38,383 20,151 25,477 30,605

Singapore 16,718 15,895 20,637 21,856

All Others 6,403 4,272 5,427 9,459

Total 235,732 208,170 226,216 244,721

Source: World Trade Atlas

Table- 6

CURRENT IMPORT POTENTIAL FOR NON-TRADITIONAL MARKET BEEF

AND BEEF PRODUCTS

Country Current imports

(Metric Tons) Iran 30,000

Algeria 50,000

Syria 30,000

Indonesia 50,000

Thailand 30,000

Philippines 80,000

Russia 100,000

Ukraine 50,000

Kazakhstan 25,000

Kyrgyzstan 25,000

Tajikistan 25,000

Total 495,000

Source: All India Meat & Livestock Exporters Association (AIMLEA)

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Modeling Rice Production in Pakistan

Rana Muhammad Ayyub (Corresponding Author)

University of veterinary and Animal Sciences, Lahore, Punjab, Pakistan.

Muhammad Bilal


Abstract

A study of Production Rice in four provinces of Pakistan has been carried out in this

research in ordered to obtain a suitable forecast model for production of rice. Data for this

study has been obtained form ―fifty years of Pakistan in statistics and economic survey of

Pakistan, 2009. Rice has been an important commodity of the country. All the provinces

have there share in total production of the product across the country. In this paper

forecast model for production of Rice in different Provinces in Pakistan has been fitted.

Methodologies for fitting of the model has been used these include ARIMA. ARIMA

model has been fitted for each province. Diagnostic test has been carried out to see the

adequacy of fitted models. It has been found that the model accounts for more than 95%

of variation of the Rice production across country. Forecasted production has been

obtained for coming five years.

Keywords: Production of Rice, Area, Temperature and Rainfall, Provinces,

ARIMA Models, Forecast

1. Introduction

1.1 Agriculture

Agriculture has an important direct and indirect role in generating economic

growth. The importance of agriculture to the economy is seen in three ways: first, it

provides food to consumers and fibers for domestic industry; second, it is a source of

scarce foreign exchange earnings; and third, it provides a market for industrial goods.

Pakistan is basically an agricultural country and thus agriculture is the 'backbone' of the

economy and the mainstay of our national economic life. Agriculture accounting for 21.8

per cent of the country's gross domestic product (GDP) and keeping employed 44.7 per

cent of its labour force, is rated as the most vital sector in the country‘s economy. 67.5%

people are living in the rural areas of Pakistan and are directly involved in it.[1].

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There are two crops in Pakistan i.e. Rabi & Kharif

Table 1.1 : Crops in Pakistan

Crop Sowing season Harvesting season

Kharif April – June Oct – Dec

Rabi Oct – Dec April – May

Major crops of Pakistan are wheat, rice, maize, cotton and sugar cane. These major

crops contributed 7.7% last year against the set target of 4.5%. Minor crops are canola,

onions, mangoes and pulses which contributed 3.6% as there was no virus attack last

year. Fishery and Forestry contributes 16.6% and 8.8% respectively. Pakistan is rich in

fertile land yet the land is being wasted in different ways. 79.6% million hectors of land

is culturable where as only 20.43% million hectors is cultivated. The reason can be

described in two points.

1. A major area is owned by feudal. It is difficult to manage such a huge area so only

that part is cultivated which is easy to manage, the rest is left ignored.

2. The rise of industrialization has given threat to this sector. People are migrating to

cities and cities are expanding, thus new towns and colonies are constructed on

fertile lands.

The irrigation system of Pakistan needs improvement as about 67% of the land is

irrigated with canals.

1.2 Rice

Rice is the second most important food grain. It requires irrigation and is grown

as a Kharif crop. Rice is a grain belonging to the grass family. It is related to other grass

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plants such as wheat, oats and barley which produce grain for food and are known as

cereals.

1.3 Rice Growing Areas in Pakistan

Cultivation of rice is mainly confined to the low lying parts of the Punjab plain

and the flooded rivers and canal areas of Sindh.To a small extent it is also grown in the

sub mountain districts in the North and the canal irrigated areas. Rice cultivation in

N.W.F.P .Baluchistan and Azad Kashmir areas is not more than 1 % to 2 % of their total

areas.

1.3.1 Punjab

In Punjab, the division of Lahore and Gujranwala rank at the top. Best equalities

like Basmati, Parmal, Sukhdari, Irri-six etc. are grown in this part of Punjab. Besides

somu rice is also cultivated in Shakhupura, Sargodha, Faisalabad, Multan and

Bahawalpur divisions.

1.3.2 Sindh

In the province of Sindh, the districts of Sukkur division are most famouse for

good quality rice cultivation .Larkana district ranks at cultivated in Khairpur,Nawabshah

and Hyderabad districts.The main qualities of rice which are common in the province of

Sindh are kangni ,Beghi ,irri-8.

1.4 Rice production in Pakistan

Rice is an important food cash crop. Rice is also one of the main export items of

the country. It accounts for 5.9 percent of value added in agriculture and 1.3 percent in

GDP. Pakistan grows enough high quality rice to meet both domestic demand and for

exports. Area sown for rice is estimated at 2963 thousand hectares, 17.8 percent higher

than last year.

The production of the crop is estimated at 6952 thousand tons 24.9 percent

higher than last year. Higher production of rice crop is primarily based on over

achievements of area targets in Punjab and Sindh. In Punjab, area surpassed the target by

12.1 percent and as a result production overshot the target by 14.7 percent. Sindh

production surpassed the target by 22.2 percent solely on accounts of area, which

surpassed the target by 23.2 percent. In Punjab sugarcane area was shifted to rice crop, as

the growers were discouraged from the non-payment of their dues timely by the sugar

mills.

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\

Figure 1.1: Rice Production (000 Tons)

2. Methodology

2.1 Stationarity Test for Rice

The stationarity of the data has been carried out by using the Unit Root test or

Augumented Dicky fuller test[2] & [3] & [4] .

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Table 2.1 Stationarity of Rice

RICE

Punjab Sindh Khyber Balochistan

Level Co-efficient

P-value

First

difference

Co-efficient -6.898077 -6.151817

P-value 0.0001 0.0002

Second

difference

Co-efficient -4.785138 -4.730947

P-value 0.0046 0.011

From the above table it is concluded that production of Rice in Punjab, Khyber and Balochistan

are non-stationary so these series are adjusted after differencing. At 1st difference the production

of Rice in Punjab, Khyber and Balochistan become stationary so it is concluded that for ARIMA

model the value of d is to be taken as ―1‖, and production of Rice in Sindh become stationary at

the second differencing, so ARIMA model with d at ―2‖ will be used.

2.2 ACF and PACF for Production of Rice:

In this section ACF and PACF graph of Production of Rice has been carried for various

Provinces. For the value of order of MA, and AR models the data is plotted at different level of

differences according to the value of ―d‖ the integrated value.

2.2.1 ACF and PACF for Actual Production of Rice Punjab

For the data of production of Rice for Punjab the data is stationary at 2nd

difference so

the ―ACF‖ and ―PACF‖ of original data are plotted and from the plot it is observed that for this

the value of ―p‖ and ―q‖ are respectively ―1‖, ―2‖.

ACF and PACF for Production of Rice in Punjab

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16151413121110987654321

Lag Number

1.0

0.5

0.0

-0.5

-1.0

AC

F



Coefficient

prod_punjab

16151413121110987654321

Lag Number

1.0

0.5

0.0

-0.5

-1.0

Part

ial A

CF



Coefficient

prod_punjab

Figure 2.1: ACF for Production of Rice Figure 2.2: ACF for Production of Rice

2.2.2 ACF and PACF for Actual Production of Rice in Sindh

For the data of production of Rice for Sindh the data is stationary at 2nd

difference so the

―ACF‖ and ―PACF‖ of original data are plotted and from the plot it is observed that for this the

value of ―p‖ and ―q‖ are respectively ―1‖, ―1‖.

ACF and PACF for Production of Rice in Sindh

16151413121110987654321

Lag Number

1.0

0.5

0.0

-0.5

-1.0

AC

F



Coefficient

prod_sindh

16151413121110987654321

Lag Number

1.0

0.5

0.0

-0.5

-1.0

Par

tial

AC

F



Coefficient

prod_sindh

Figure 2.3: ACF for Production of Rice Figure 2.4: PACF for Production of Rice

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2.2.3 ACF and PACF for Actual Production of Rice in Khyber Pakhtoon

For the data of production of Rice for Khyber the data is stationary at 1st difference so the

―ACF‖ and ―PACF‖ of first differences are plotted and from the plot it is observed that for this


ACF and PACF for Production of Rice in Khyber Pakhtoonkhwa

16151413121110987654321

Lag Number

1.0

0.5

0.0

-0.5

-1.0

AC

F



Coefficient

prod_kp

16151413121110987654321

Lag Number

1.0

0.5

0.0

-0.5

-1.0

Part

ial A

CF



Coefficient

prod_kp


2.2.4 ACF and PACF for Actual Production of Rice in Balochistan

For the data of production of Rice for Balochistan the data is stationary at 1st difference

so the ―ACF‖ and ―PACF‖ of original data are plotted and from the plot it is observed that for this


ACF and PACF for Production of Rice in Balochistan

16151413121110987654321

Lag Number

1.0

0.5

0.0

-0.5

-1.0

AC

F



Coefficient

prod_balochi

16151413121110987654321

Lag Number

1.0

0.5

0.0

-0.5

-1.0

Part

ial A

CF



Coefficient

prod_balochi


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2.3 Auto-Regressive Integrated Moving Average (ARIMA) Model

The ARMA (p, q) model applied on the‗d‘ differences of tY is called Auto-Regressive Integrated

Moving Average (ARIMA) Model. It is denoted by ARIMA (p, d, and q). Where ―p‖ is the order

of AR process, ―q‖ is the order of MA process and ―d‖ is the order of differencing [5] .

The ARMA models are generalization of the simple AR model that uses three tools for modeling

series correlation in the disturbance.

The model can also be checked for adequacy by doing a chi-square test, known as the Box-Pierce

Q statistic, [6] & [7] on the autocorrelations of the residuals. The test statistic is:

2

1

(1)m

k

k

Q N d r

(1)

Which is approximately distributed as a chi-square variate with ―k-p-q‖ degree of freedom. In this

equation

N = length of the time series.

K = First k autocorrelation being checked.

M = Maximum no. of lags checked.

kr = Sample autocorrelation function of the kth residual term.

d = Degree of differencing to obtain a stationary series.

If the calculated value of Q is larger than the chi-square for k-p-q degree of freedom, the model

should have been considered inadequate. It is possible that two or more models have been judge

to be approximate, yet none of the models may be an exact fit for the data. In this case, the

principle of parsimony should prevail, and simpler model should have chosen.

2.4 ARMA Models

These are the mixture of AR and MA process or models[8]. The time series tx for

t = 0, 1, 2, .............. is said to be ARMA (p, q) if tx is stationary and

1 1 2 2 1 1.................... ....... (2)t t t p t p t t q t qx x x x w w w (2)

With

000 2 wqp andand

The parameter p and q are called the auto regressive and moving average orders. If tx has non-

zero mean then ARMA (p, q) can be written as given bellow

1 1 2 2 1 1.................... ....... (3)t t t p t p t t q t qx x x x w w w (3)

The ARMA models become AR if q=0 and if p=0 these become MA models. The ARMA models

can be written as bellow:

(4)t tB x B w (4)

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2.5 ARIMA Models

ARIMA stands for Auto-Regressive Integrated Moving Average. These models deal with non-

stationary time series, while ARMA (p, q), AR (p) and MA (q) models are used to deals with

second order stationary time series. By using different operation on non-stationary population the

population becomes stationary. The ARIMA (p,d,q) models assume that the thd difference

1 (5)dd

t ty B y (5)

is a stationary ARMA (p,q) process.

3. Analysis

3.1 Estimation of Model for Rice

In this section the model estimation along with the diagnostic tests has been

given for Rice for various provinces.

3.1.1 ARIMA Model for Rice In this section the ARIMA model for Rice has been fitted. The ARIMA model parameters

for various provinces have been given in Table 3.1 below:

Table 3.1

Parameters AR(1) AR(2) MA(1) MA(2) Area Temperature Rain Constant

Punjab -0.161 1.159 -0.940 1.415 -13.604 -0.143 2.800

Sindh -0.107 0.910 3.834 35.727 -.023 -3.263

Kyber 0.341 0.890 1.824 -0.414 -0.007 0.656

Balochistan -0.331 0.586 2.793 -10.375 -0.238 -2.769

Estimated ARIMA Model for Rice is

1 1

p qd d

yt j yt j j t j t

j j

Z Z

The estimated ARIMA Model for Production of Punjab is

, 1 , , , 1 22.800 0.161 1.415 13.604 0.143 1.159 0.940Rice pj t A pj T pj R pj t tY Y X X X Z Z

The Wald chi–square test is 30.26 with a p–value of 0.000, indicating that the overall model for Punjab is

significant and therefore it can be used to forecast the production of Rice in the province.

The estimated ARIMA Model for Production of Sindh is

, 1 , , , 13.263 0.107 3.834 35.727 0.023 0.910Rice Sd t A Sd T Sd R Sd tY Y X X X Z

The Wald chi–square test is 35.63 with a p–value of 0.000, indicating that the overall model for Sindh is

significant and therefore it can be used to forecast the production of Rice in the province.

The estimated ARIMA Model for Production of Khyber Pakhtoonkhwa is

, 1 , , , 10.656 0.341 1.824 0.414 0.007 0.890Rice Ky t A Ky T Sd R Sd tY Y X X X Z

The Wald chi–square test is 20.78 with a p–value of 0.000, indicating that the overall model for Khyber

Pakhtoonkhwa is significant and therefore it can be used to forecast the production of Rice in the province.

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The estimated ARIMA Model for Production of Balochistan is

, 1 , , , 12.769 0.331 2.793 10.375 0.238 0.586Rice Ba t A Ba T Ba R Ba tY Y X X X Z

The Wald chi–square test is 25.26 with a p–value of 0.000, indicating that the overall model for

Balochistan is significant and therefore it can be used to forecast the production of Rice in the province

3.2 Normality Test

The autocorrelation of the errors terms of the production of the Rice in different

provinces in Pakistan has also been tested. This test showed that errors are normally

distributed. The Kolmogrov Smirnov test has been carried out at the errors to test the

normality of the errors. The p-value of errors of Punjab is 0.21, for Sindh is 0.32, for

Khyber Pakhtoonkhaw is 0.34 and for Balochistan is 0.25 which shows that the errors

for fitted model are normal. From these diagnostic tests it can be concluded that the fitted

model is adequate for forecasting of Production of Rice in Punjab, Sindh, Khyber

Pakhtoonkhwa and Balochistan.

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References

[1]. Anonymous, Economic Surveys of Pakistan for the years, F. Division, Editor.

2009, Finance Division: Islamabad.

[2]. FULLER, W.A., ed. Introduction to Statistical Time Series. 1976, John Wiley,

New York.

[3]. CHATFIELD, C., ed. The Analysis of Time Series: An introduction. 3rd ed.

1984, Chapman and Hall, London.

[4]. WALKER, A.M., Asymptotic properties of least squares estimate of the

parameters of the spectrum of a stationary non-deterministic time series. J. Aust.

Math. Soc., 1964.

[5]. ANDERSON, T.W., ed. The Statistical Analysis of Time Series. 1971, John

Wiley, New York.

[6]. BOX, G.E.P. and G.M. JENKINS, eds. Time Series Analysis: Forecasting and

Control. 1970, Holden-Day, San Francisco.

[7]. BOX, G.E.P. and D.A. PIERCE, Distribution of residual autocorrelations in

auto-regressive integrated moving average time series models. J. Amer. Statist.

Assoc, 1970.

[8]. AKAIKE, H., ed. Time series analysis and control through parametric models,

Applied Time Series Analysis, D.F. Findley (ed.),. 1978, Academic Press, New

York.

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APPENDIX

Abbreviations

Abbreviations Variables

,R PjY

Production of Rice in Punjab

,R SdY

Production of Rice in Sindh

,R KpY

Production of Rice in Khyber Pakhtoon

,R BlY

Production of Rice in Balochistan

,A PjX

Area of Rice in Punjab

,A SdX

Area of Rice in Sindh

,A KpX

Area of Rice in Khyber Pakhtoon

,A BlX

Area of Rice in Balochistan

,T PjX

Temperature in Punjab

,T SdX

Temperature in Sindh

,T KpX

Temperature in Khyber Pakhtoon

,T BlX

Temperature in Balochistan

,R PjX

Rain in Punjab

,R SdX

Rain in Sindh

,R KpX

Rain in Khyber Pakhtoonkhwa

,R BlX

Rain in Balochistan

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Comparative Analysis of NBP & MCB Performance under

CAMELS Model

Minhoon Khan Laghari

Assistant Professor

Dept of Business Administration

Shah Abdul Latif University

Khairpur, Sindh Pakistan

Dr. Amant Ali A Jalbani

PhD Coordinator

SZABIST Karachi

Iram Rani

Assistant Professor

Dept of Business Administration

Shah Abdul Latif University

Khairpur, Sindh Pakistan

Abstract

This research investigates the performance of NBP& MCB under camel Model. Data

were collected from NBP and MCB bank by using various ratios. In terms of liquidity

position, a falling assets ratio or a rising loans to deposits ratio indicates problems for

banks. In this study, three ratios i.e., liquid asset to total assets, loans to deposits, and

yield on earning assets are used to gauge liquidity. As shown in Table #5, these two

ratios seem to indicate some sign of difficulty for NBP and MCB after 1997. Movement

in liquidity indicators since 1997 captures the painful adjustment process triggered by the

freezing of Foreign Currency Accounts [FCA]. Ratio of liquid asset to total assets has

gone down from 44.62% in 1997 to 40.4% in 2001 in the case of NBP and from 43.91%

in 1997 to 42.62% in 2001 for MCB. This was consciously brought about by the

monetary policy changes [both the Cash Reserve Requirement (CRR) and the Statuary

Liquidity Requirement (SLR) was reduced to manage the increased withdrawal of

deposits due to freezing of FCAs] by the SBP. These steps were reinforced by decline in

SBP‘s discount rate and T-bill yield, which helped banks manage Rupee withdrawals and

still meet the credit requirements of the private sector

Keywords: Comparative Analysis of NBP & MCB Performance under CAMELS Model

Introduction:

Performance indicators are statistics, ratios or other quantitative information, which

indicates whether these criteria are being observed in any particular case or not. These are

defined as a numerical value used to measure something, which is difficult to quantify

[Cave et al. 1988: 17]. Performance indicators provide a measurement for assessing the

quantitative or qualitative performance of an organization. The key performance

indicators, which are selected from the Annual Reports of NBP and MCB 1996-2005, for

evaluating performance of these two banks are accordance to CAMELS model. Both

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banks showed good performance in assets and equity during 1996-2005, as shown in the

Table 1. NBP with the large assets and equity base continued to hold No. 1 position. Its

assets are 122% and its equity is 141% above MCB in the year 2001. Due to an easing in

SBP‘s monetary stance credit expansion [advances] by both the banks accelerated

sharply reflecting double digit growth over the preceding three years. NBP has the large

advances portfolio. Its advances are 69% and MCB 31% of the total advances by these

two banks. On the other hand, investment portfolio of both banks recorded a decline for

the 5th

consecutive years with the exception of MCB, which recorded an increase in the

year 2001. Despite the decline, NBP continued to enjoy large investment portfolio in

comparison.

Large volume of non-performing loans [NPLs] is the most dominating factor affecting

the earning capacity of banks. NBP‘s NPLs portfolio showed a considerable rise because

of NPLs of former National Development Finance Corporation [NDFC], which has been

amalgamated with NBP, while MCB‘s NPLs showed a modest rise. MCB has the

smallest NPLs portfolio in comparison. Rising trend was observed in the deposits of both

the banks. NBP has managed to hold its 7% deposit growth for the past three years and

10% growth in 2001 and continued to enjoy large deposit base, although MCB recorded

the highest growth 13% in the year 2001 in comparison. Cost effective measures taken by

both the banks have helped in cutting down the overall expenditure, as both banks

recorded declines during the period 1996-2005. With respect to the size of expenditure,

NBP has a sizeable amount. Interest income earning from different sources of each bank

showed a declining trend. Although, income at NBP has fallen, it remains high between

the two banks. However, in 2001 MCB showed a considerable rise in interest income.

Due to downward trend in interest rate, interest expense in the case of both banks

continued to fall for the four consecutive years, with the exception of MCB which

recorded a rise in 1998. Net interest income is the major source of revenue growth.

Growth of revenue in both the banks was entirely on account of 37.5% rise in net interest

income in the case of MCB and 41% in the case of NBP in sharp contrast to preceding

years fall. Both banks showed an increase in provisioning to NPLs. NBP recorded high

growth [57.5%] during 1996-2005 while MCB‘s provision to NPLs was increased by

45.3% during the same period. Staff size over the past 5 years has been reduced by 16%

for NBP and 14% for MCB. Both banks recorded increase in pre-tax profit in 2000 and

2001 with the exception of year 2001, where NBP emerged as the highest pre-tax profit

earner, MCB‘s profit was high in comparison to NBP during 1996-2005.

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Financial Analysis under “CAMELS” for checking the impact of re-structuring on

NBP & MCB:

In this part, financial performance of both NBP and MCB will be analyzed by using

CAMELS framework which involves the analysis of following six groups of indicators.

o Capital Adequacy Ratios (NBP & MCB)

o Asset Quality Ratios (NBP & MCB)

o Management Soundness Ratios (NBP & MCB)

o Earnings and Profitability Ratios (NBP & MCB)

o Liquidity Ratios (NBP & MCB)

o Sensitivity to Market Risk Ratios (NBP & MCB)

1 Capital Adequacy Ratios (NBP & MCB):

Capital adequacy focuses on the total amount of bank capital, which is vital in reducing

the risk of insolvency and potential cost of banks failure. In other words, this determines

the robustness of financial institutions against shocks to their balance sheets. Three ratios

can be used as a measure of capital adequacy. The first ratio is the bank‘s capital to its

liability [CL] that shows the extent to which capital and reserves of a bank provide

coverage to liabilities [primarily to its depositors]. Although there is no benchmark, a

high CL ratio signals strong position of a bank. In the case of NBP CL ratio was

declining, indicating erosion of capital base, while in the MCB case, CL ratio shows

improvement/rising trend indicating MCB‘s strong position comparatively and at the

same time it reflects that MCB is moving in the right direction. Other measures of capital

adequacy are the capital ratio and capital to risk asset [CRA] ratio. A high capital ratio

and CRA ratio reflect strong position of a bank. Both these ratios in the case of NBP were

declining during 1996-2005, and in the case of MCB were rising comparatively. Despite

this rise in its equity, MCB stood second to NBP, which continued to enjoy the largest

equity base.

Insert Table 1 Here

2 Asset Quality Ratios (NBP & MCB):

The solvency risk of a financial institution often originates from the quality of its asset

portfolio. Asset quality is generally measured in relation to the level and severity of non-

performing assets, recoveries, the adequacy of provisions, distribution of assets, etc. In

this financial analysis six ratios are used to gauge the asset quality of both NBP and

MCB. The first ratio to measure asset quality is earning assets to total assets. A large

share of earning assets would lead to higher profitability at given level of expenses. Asset

quality as measured by earning assets to total assets ratio reveals declining trend

continuously for MCB and marginally for NBP as shown in Table No.2.

NPLs to gross advances ratio as represented in Table No..2, remains high for both the

banks reaching a high of 22.54% for NBP while it was the lowest at 16.22% for MCB. It

is important to note that this ratio has got down slightly from 21.48% to 19.1% for NBP

and from 17.37% to 13.67% for MCB during 1999 – 2000, shows a significant

improvement. However, in 2001 it started rising again for both the banks. Prior to those

banks were used to report only default or overdue portion of their NPLs instead of total

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outstanding amount of such loans. This adjustment has added to the volume of NPL said

both banks under review. Comparatively, of the two banks, this ratio is still the highest

for NBP and the lowest for MCB.

An increasing trend in this ratio signals deterioration in the quality of asset portfolio and

consequently, in banks cash flows, net income, and solvency. NBP had the larger share in

total NPLs in comparison which was much greater than its share in assets or deposits.

This was due to substantial loans provided by NBP on political ground, especially during

the early and mid-1990s that resulted in NPLs after a time lag.

The ratio of net NPLs to net advances, another indicator of asset quality, grew during the

period 1996-2005 for both banks; however, it was the lowest for MCB and highest for

NBP. The ratio of provisions to gross advances has dropped during 1997-2000 for both

NBP and MCB; however, both banks recorded an increase in this ratio during 2000-2001.

Again, the % of this ratio is high in the case of NBP in comparison. Marked improvement

is visible in recovery efforts during the period 1996-2005. This is remarkable in the case

of NBP in terms of reduction in the ratio of loan defaults to gross advances from 0.02%

to negative. The loan recovery drive of the military regime has led to the reduction in the

stock of defaulted loan. However, MCB does not show significant improvement in this

ratio, indicating that MCB needs to focus on recoveries, side by side with more

aggressive credit extension.

Insert Table 2 here

3 Management Soundness Ratios (NBP & MCB):

Management soundness is a crucial pre-requisite for the growth and success of the

banking institutions. However, it is difficult to judge management efficiency and

effectiveness on the basis of monetary indicators/financial accounts due to the qualitative

nature of management. Nevertheless, total expenditures to total income, operating

expense to total expenses, earning and operating expenses per employee and interest rate

spread are generally used to gauge management soundness. Management soundness

indicators/ratios are reported in Table No.3. A high expense to income [EI] ratio indicates

the operating inefficiency that could be due flaws in management. EI ratio for both NBP

and MCB was very high, almost touching 100% in the case of NBP. This is due to

provisioning against bad loans and to some extent Golden Hand Shake Scheme.

However, it started tempering down since 1998in both banks. Comparatively, in the case

of NBP this ratio is very high. The management inefficiency can also be traced to higher

operating expense to total expenditure ratio due to the extensive branch network of these

two banks. An across the board increase in administrative expenditures to total expenses

and salary & allowances etc. to total expenses is also visible in the Table No. 3. The

reason for this is mostly the high salaries, allowances and perks of bank‘s employees,

surprisingly, the worst performers in this regard is the MCB. NBP did have a good

administrative efficiency in comparison. Administrative expense to expense ratio is high

for MCB and low for NBP. Both banks have successfully reduced their cost of deposits,

while maintaining their deposit base. Extensive branch network has allowed them to tap

into a lucrative base of low cost and stable deposits. Cost of deposits ratio has dropped

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for both banks understudy. Despite the declining trend, cost of deposits ratio at NBP is

high in comparison. On the other hand, intermediation cost is low at NBP and high at

MCB. Interest rate spread can also be used as an important indicator of management

efficiency in relation to profitability of the banks. This is because higher spread may be

caused either by higher operating cost reflecting management inefficiency, or by banks‘

desire to earn more profit. A rising trend in the spread in both MCB and NBP indicates

growing inefficiency of banks. However, this rising trend is very nominal in the case of

NBP, which can be treated as stagnant.

Insert table 3 here

4 Earnings and Profitability Ratios (NBP & MCB):

To measure earning and profitability, the widely used indicators are ROA, ROE, ROD,

NIM, PTM, and revenue to expense ratio. As shown in Table No.4 both banks have

managed to improve their ROA, ROE, and ROD ratios in 2001. MCB‘s ROA, ROE and

ROD remain the highest and NBP‘s the lowest between the two. Despite an increase in

ROA and ROD, these ratios for NBP remained below 1%. These ratios showed

significant improvement for MCB. However, positive value of ROA, ROE, and ROD

indicates that these banks are earning profits. Rise in NIM and PTM can also be seen in

the table. NIM is high for MCB [6.6%] and low for NBP [4%]. The low NIM and PTM at

NBP explain its lower ROA, and ROE in comparison with MCB. High cost of fund, low

ratio of advances to deposits and the low fee based income to total income ratio have

nullified NBP administrative efficiency and better loan quality to such an extent that

ROD and PTM at NBP are the lowest between the banks under review, whereas NBP

both the ratio should have been the highest because of its much larger deposit base. An

increasing trend in ROA ratio indicates that banks are earning profit more on their assets,

thus giving way to increase in profitability. However, a declining trend of total income to

total assets for both NBP and MCB indicated that expenses increased proportionately.

Share of fee based income is only 12.6% in NBP and 11.4% in MCBs total income.

However, the share is on the increase. Both banks have recorded double digit growth in

their fee based income. Revenue to expense ratio remained strong for both banks during

1996-2005. NBP recorded the high growth [194.20%] a sharp turnaround from preceding

years decline. MCB also showing similar trend i.e., sharp increase in 2001, in contrast to

decline a year earlier.

Insert table 4 Here

5. Liquidity Ratios (NBP & MCB):

In terms of liquidity position, a falling assets ratio or a rising loans to deposits ratio

indicates problems for banks. In this study, three ratios i.e., liquid asset to total assets,

loans to deposits, and yield on earning assets are used to gauge liquidity. As shown in

Table No.5, these two ratios seem to indicate some sign of difficulty for NBP and MCB

after 1997. Movement in liquidity indicators since 1997 captures the painful adjustment

process triggered by the freezing of Foreign Currency Accounts [FCA]. Ratio of liquid

asset to total assets has gone down from 44.62% in 1997 to 40.4% in 2001 in the case of

NBP and from 43.91% in 1997 to 42.62% in 2001 for MCB. This was consciously

brought about by the monetary policy changes [both the Cash Reserve Requirement

(CRR) and the Statuary Liquidity Requirement (SLR) was reduced to manage the

increased withdrawal of deposits due to freezing of FCAs] by the SBP. These steps were

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reinforced by decline in SBP‘s discount rate and T-bill yield, which helped banks manage

Rupee withdrawals and still meet the credit requirements of the private sector.

Increase in loan to deposit ratio of both the banks under review during 1996-2005 is a

direct consequences of steps described above. The analysis further reveals that yield on

earning assets has also fallen in the case of both the banks; however, MCB has the better

yield on earning assets in comparison.

Insert table 5 here

6 Sensitivity to Market Risk Ratios (NBP & MCB):

In addition to liquidity problems, banks also faced other risks i.e., a large investment in

volatile assets would make banks more vulnerable to fluctuations in the prices of those

assets. Similarly, a concentration of advances in a few sectors would increase default

risks if these sectors do not perform well. Furthermore, interest rate and foreign exchange

risk tend to have significant impact on banks‘ assets and liabilities. However, in this

study two ratios [gap between RSA & RSL and their ratio] are used to measure

sensitivity to market risk. A higher RSL than RSA indicates that banks are risk sensitive

to changes in interest rates; an increase in interest rate may affect them negatively, and

vice versa.

Looking at Table No.5, the growing gap, or declining ratio during 1996-2005 showed

their exposure to rising interest rate. The negative gap has stretched from -57.35 billion to

-81.44 billion during 1996-2005 for NBP and from -10.30 billion to -19.41 billion for

MCB during the same period. Negative value indicates comparatively higher risk

sensitivity towards liability side than the assets side. It also reflects that an increase in

interest rate may affect banks negatively, while decline in interest rate may prove

beneficial. Higher sensitivity towards liabilities also reflected in less than 100 value of

ratio between RSA and RSL. Decline in this ratio in the case of both the banks indicates

the rise in their sensitivity.

Conclusions & Recommendations:

CONCLUSIONS:

I. Comparative study suggested that both NBP and MCB have performed better

during the period under review.

II. NBP has maintained its position as Pakistan‘s largest bank [under strong

government support] and despite some weak indicators like declining investment,

over staffing, large NPLs, political intervention, and high administrative expense,

NBP emerged as financially strong bank.

III. MCB after being privatized has made substantial improvement and also emerged

as a strong bank. It has maintained profitable growth along with proactive risk

management and expansion of product range for customers and has been rightly

declared ―the best bank of Pakistan‖ for 2001 among all local and foreign banks

by ―Euro money‖ a world renowned financial magazine.

IV. While both banks deposits grew, investment has fallen.

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V. Despite the shrinking spread, revenue growth has been impressive. Interest

income has also increased significantly.

VI. Despite efforts to curtail operating costs, significant growth in administrative

expenditure and staff cost was recorded by NBP and MCB.

VII. An increasing trend in ROA ratio indicates that banks (NBP & MCB) are earning

profit more on their assets, thus giving way to increase in profitability. However,

a declining trend of total income to total assets for both NBP and MCB indicated

that expenses increased proportionately.

VIII. Both banks have managed to improve their ROA, ROE, and ROD ratios in 2001.

MCB‘s ROA, ROE and ROD remain the highest and NBP‘s the lowest between

the two.

IX. Yield on earning assets has also fallen in the case of both the banks; however,

MCB has the better yield on earning assets in comparison.

X. EI ratio for both NBP and MCB was very high, almost touching 100% in the case

of NBP. This is due to provisioning against bad loans and to some extent Golden

Hand Shake Scheme.

XI. The management inefficiency can also be traced to higher operating expense to

total expenditure ratio due to the extensive branch network of these two banks.

XII. Although some financial ratios have improved, efforts are needed to bring them at

par with internationally accepted standard. The below par performance on return

on assets needs to improve on four counts, namely; reduction in NPLs to enhance

markup income, reduction in staff and administrative costs, reduction in cost of

deposits, improvement in fee based income from international trade related and

corporate finance activities.

Recommendations

I. Financial institutions have sturdily suggested apply CAMELS in factual means to

measure the soundness of institution. Otherwise real reforms are unexpected.

II. CAMELS is a best tool for bank supervision because it evaluates the risk inherent

in the bank operations either off-site & on-site.

III. NBP is suggested to take measures so that they desist from government

intervention for merit based environment. A high need of vigilance is required to

control the over staffing & other administrative expenses.

IV. A clear line of demarcation of responsibilities is available in the State Bank policy

in between board and management. It should be ensured.

V. In developing the credit administration areas, bank should ensure in

documentation, legal covenants, and contractual requirements, collateral.

VI. Before loan sanction first monitors the financial condition of borrower so that

recovery problem will not face the bank.

VII. Credit risk should monitored should taken through the exposure profile until

maturity in relation to potential market movement.

VIII. If the ROA, ROE & ROD is improved by reducing the NPL`s over employment

and non profitable business units then bank become strong in public entities.

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IX. MCB also need extra spirit of team work & commitment for performance

maintenance.

X. MCB deposits are well but investment should be increased by local or foreign

investor to strengthen the business.

XI. Income generated from revenues should proper utilize to clear the debts burden so

that sustainability can be assured.

XII. Closing down of unprofitable branches and curtailment of other administrative

expenses can increase the income.

XIII. ROA is well but if again there are a proper control on expenses then a moiré

chance of income rising.

XIV. ROA, ROE & ROD further improved if NPLs reduced increase in mark up

income from foreign trade and corporate finance activities.

Areas for Further Research:

Reforms/Restructuring is a continuous phenomenon. Therefore the banks/financial

institutes should keep it up with new emerging standards like BASEL II with CAD III for

making the financial institutions more competitive.

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References

Akhter, M, H (2002) X-Efficiency Analysis of Commercial Banks in Pakistan: A

Preliminary Investigation‖, The Pakistan Development Review Part II, (winter,

2002) pp. 567-580

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Altman, Edward I. ―Financial Ratios, Discriminant Analysis, and the Prediction of

Corporate Bankruptcy.‖ Journal of Finance, September 1968, 23(4), pp. 589-609

Altman, Edward I. ―Predicting Performance in the Savings and Loan Association

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Ansoff, I H (1984). Implanting Strategic Management. Prentice Hall International,

London.

Barth, James, Gerard Caprio Jr., and Ross Levine (2001). ―Banking Systems Around the

Globe: Do Regulation and Ownership Affect Performance and Stability?‖ In

Frederic Mishkin (eds.) Prudential Supervision: What Works and What Doesn‟t.

NBER Conference Report. University of Chicago.

Boehmer, Ekkehart, Robert C. Nash, and Jeffry M. Netter (2003). Bank Privatization in

Developing and Developed Countries: Cross-Sectional Evidence on the Impact of

Economic and Political Factors. Paper presented at World Bank Conference on

Bank Privatization, Nov. 20-21.

Bonaccorsi di Patti, Emilia and Daniel Hardy (2003). Bank Reform and Bank Efficiency

in Pakistan. Presented at World Bank Conference on Bank Privatization, Nov. 20-

21.

Burki, A A. and Niazi, G S K (2003) ―The Effects of Privatization, Competition and

Regulation on Banking Efficiency in Pakistan, 1991 – 2000‖.

Caprio, G, and Daniela K, (1999), Episodes of systematic and borderline financial

distress, Manuscript, The World Bank.

Clarke, R.G., Robert Cull and Mary Shirley (2003). Empirical Studies of Bank

Privatization: An Overview. Presented at World Bank Conference on Bank

Privatization, Nov. 20-21.

Cole, Rebel A. and Gunther, Jeffery W. ―Predicting Bank Failures: A Comparison of On-

and Off-Site Monitoring Systems.‖ Journal of Financial Services Research, April

1998, 13(2), pp. 103-17.

Cole, Rebel A.; Cornyn, Barbara G. and Gunther, Jeffery W. ―FIMS: A New Monitoring

System for Banking Institutions.‖ Federal Reserve Bulletin, January 1995, 8(1),

pp. 1-15.

Finance Division and Planning Commission, Interim Poverty Reduction Strategy Paper

(Islamabad, November 2001).

Gerschenkron, Alexander (1962). Economic Backwardness in Historical Perspective.

Cambridge: Harvard University Press.

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Gilbert, R. Alton; Meyer, Andrew P. and Vaughan, Mark D. ―Could a CAMELS

Downgrade Model Improve Off-Site Surveillance?‖ Federal Reserve Bank of St.

Louis Review, January/February 2002, 84(1), pp. 47-63.

Gilbert, R. Alton; Meyer, Andrew P. and Vaughan, Mark D. ―The Role of Supervisory

Screens and Econometric Models in Off-Site Surveillance.‖ Federal Reserve Bank

of St. Louis Review, November/December 1999, 81(6), pp. 2-27.

Goodhart C, Hartman P, Llewllyn D, Rojas-Suárez, L and Weisbrod, S (1998) Financial

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Reserve System, Research Papers in Banking and Financial Economics,

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Review, April 1999, 5(1), pp. 1-19.

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Annexure

Table:No.1

NBP 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005

Ratios

Capital Section

Total Capital to Total Assets 5.88% 8.36% 12.87%

Growth rate of Capital 43.85% 49.45% 6.75% 5.02% 3.11% 36.70% 15.24% 67.65% 60.75%

Growth rate of Assets 13.31% 4.66% 7.80% 6.06% 11.69% 4.27% 8.36% 17.97% 4.43%

Equity / Total Liabilities 2.64% 3.37% 4.89% 4.84% 4.79% 4.40% 5.85% 6.25% 9.12% 14.77%

Net Non-Performing Advances To

Capital (including surplus) 69.23% 66.67% 27.36% 80.03% 70.78% 104.17% 75.91% 43.79% 15.24% 4.24%


Core Capital 69.23% 95.07% 41.54% 124.95% 105.64% 152.53% 127.26% 66.61% 28.31% 8.72%

MCB 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005

Ratios

Capital Section

Total Capital to Total Assets 4.08% 5.62% 7.80%

Growth rate of Capital 34.00% 1.01% 5.55% 9.59% 23.14% 69.87% -5.04% 31.00% 60.16%

Growth rate of Assets 10.79% -0.25% 5.92% 10.17% 7.06% 25.71% 15.81% -4.83% 15.28%

Equity / Total Liabilities 2.71% 3.29% 3.34% 3.32% 3.31% 3.82% 5.24% 4.25% 5.95% 8.46%

Net Non-Performing Advances To 53.05% 65.92% 83.78% 163.63% 139.88% 104.28% 49.73% 37.71% 14.74% 2.48%

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Capital (including surplus)


Core Capital 53.05% 89.19% 111.95% 213.33% 174.48% 144.04% 92.15% 54.21% 23.32% 3.24%

Table: No. 2 Asset Quality

Assets Quality Ratio NBP 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005

NPLs to Advances 19.0% 19.0% 16.4% 21.5% 19.1% 22.5% 26.3% 21.0% 14.4% 11.3%

Net NPLs to Net Advances 5.7% 6.4% 3.8% 10.6% 8.6% 10.7% 12.9% 7.5% 3.2% 1.2%

Net NPLs to TA 1.8% 2.2% 1.3% 3.7% 3.2% 4.4% 4.2% 2.6% 1.3% 0.5%

Provisions to NPLs 74.2% 70.8% 80.0% 56.9% 60.4% 58.8% 58.4% 69.6% 80.5% 90.7%

Net NPLs to Total Capital 69.2% 66.7% 27.4% 80.0% 70.8% 104.2% 75.9% 43.8% 15.2% 4.2%

Recoveries to NPLs 0.0% 0.0% 16.0% 7.7% 8.3% 0.0% 0.0% 0.0% 0.0%

Earning Asset to Total Assets 71.2% 70.0% 65.7% 62.2% 69.4% 70.1% 78.9% 81.4% 77.8% 81.9%

Growth rate of Advances 23.0% 3.7% 11.9% 14.5% 21.4% -17.5% 14.7% 36.9% 21.8%

Provision to Weighted NPLs 85.1% 94.4%

Advances to Public Sector To Total

Assets 17.7% 17.7%

Assets Quality Ratio MCB

NPLs to Advances 9.4% 10.9% 11.6% 17.4% 13.7% 16.2% 14.1% 10.6% 6.1% 4.5%

Net NPLs to Net Advances 3.1% 4.9% 6.2% 12.4% 9.1% 9.4% 7.4% 4.3% 1.6% 0.3%

Net NPLs to TA 1.4% 2.1% 2.7% 5.3% 4.5% 3.8% 2.5% 1.5% 0.8% 0.2%

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Provisions to NPLs 68.9% 57.7% 49.6% 32.7% 37.1% 46.6% 51.6% 61.9% 75.7% 93.1%

Net NPLs to Total Capital 53.0% 65.9% 83.8% 163.6% 139.9% 104.3% 49.7% 37.7% 14.7% 2.5%

Recoveries to NPLs 0.0% 0.0% 5.6% 12.0% 10.6% 0.0% 0.0% 0.0% 0.0%

Earning Asset to Total Assets 79.9% 82.2% 81.1% 77.2% 83.0% 80.5% 87.0% 87.1% 85.3% 87.4%

Growth rate of Advances 6.6% 1.8% 2.9% 28.1% -11.3% 3.1% 23.2% 41.3% 31.3%

Provision to Weighted NPLs 79.4% 98.3%

Advances to Public Sector To Total Assets 13.0% 13.0%

Table: No.3 Management Soundness

Management NBP 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005

Total Expenses / Total Income 104.5% 97.1% 93.8% 98.5% 96.9% 91.6% 81.3% 66.3% 59.0% 55.7%

Admininstrative Expenses To Total

Expenses 23.2% 19.4% 19.0% 22.8% 24.5% 26.6% 34.8% 46.8% 51.5% 46.6%

Salaries & Allowances To Total

Expenses 0.0% 0.0% 0.0% 0.0% 15.2% 26.6% 17.4% 26.9% 33.0% 27.4%

Administrative Expenses Per Employee

0.522

0.574

0.749

0.624

0.646

0.810

Interm.Cost (Admin expense./Ave.

Dep&Borrow.) 2.8% 2.5% 2.2% 2.7% 2.5% 2.5% 2.5% 2.1% 2.0% 2.4%

Intermediation Cost (including

provision) 4.4% 3.7% 2.5% 3.8% 3.1% 3.2% 3.1% 2.8% 2.4% 2.8%

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Deposits per Employee

20.617

23.057

29.755

29.799

33.872

33.523

Profit per Employee

0.030

0.076

0.185

0.316

0.451

0.919

Cost per Employee

0.522

0.574

0.749

0.624

0.646

0.810

Assets per Employee

24.209

27.375

35.490

35.335

40.250

41.791

Net Interest Income+Fee Based Income

to Administrative Expenses 111.8% 143.9% 164.8% 158.9% 144.3% 176.8% 170.3% 192.9% 219.5% 252.2%

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Table: No. 3 Management Soundness

Management MCB 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005

Total Expenses / Total Income 98.3% 93.7% 95.2% 93.3% 92.2% 89.1% 82.7% 75.8% 69.5% 43.8%

Admininstrative Expenses To Total

Expenses 33.6% 33.0% 32.2% 42.3% 45.8% 42.8% 50.8% 58.4% 78.2% 63.6%

Salaries & Allowances To Total

Expenses 0.0% 0.0% 0.0% 0.0% 29.4% 42.8% 30.3% 35.7% 43.1% 45.5%

Administrative Expenses Per Employee

0.588

0.631 #DIV/0!

0.648

0.733

0.689

Interm.Cost (Admin expense./Ave.

Dep&Borrow.) 4.4% 4.7% 4.5% 5.3% 4.9% 4.6% 4.1% 2.9% 3.0% 2.6%

Intermediation Cost (including

provision) 5.5% 6.0% 4.7% 5.5% 5.7% 6.0% 4.5% 3.3% 3.2% 3.1%

Deposits per Employee

11.208

13.307 #DIV/0!

20.810

22.355

24.458

Profit per Employee

0.061

0.095 #DIV/0!

0.219

0.246

0.952

Cost per Employee

0.588

0.631 #DIV/0!

0.648

0.733

0.689

Assets per Employee #DIV/0!

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14.400 16.106 26.793 26.208 31.863

Net Interest Income+Fee Based Income

to Administrative Expenses 97.6% 127.9% 117.2% 102.7% 109.3% 141.3% 135.4% 128.7% 124.5% 269.7%

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Table: No. 4

Earnings and Profitability Section NBP 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005

Interest Income to Total Assets 9.1% 10.7% 10.0% 9.3% 8.2% 8.0% 6.4% 4.3% 4.1% 5.9%

Interest Expense to Total Assets 6.8% 7.9% 7.2% 6.2% 5.8% 4.8% 3.5% 1.5% 1.3% 1.8%

Net interest income to Total Assets 2.3% 2.7% 2.8% 3.1% 2.4% 3.2% 2.9% 2.8% 2.8% 4.1%

Non-interest income to Total Assets 1.2% 1.0% 0.9% 1.2% 1.1% 1.1% 1.2% 1.6% 1.6% 1.7%

Non-interest expense to Total Assets 2.5% 2.4% 2.7% 3.1% 2.1% 2.3% 2.2% 1.8% 1.7% 2.0%

Provision for loan losses to Total

Assets 5.1% 5.6% 5.2% 5.1% 5.1% 6.6% 6.0% 6.1% 5.7% 5.4%

Income before taxes to T. Assets -0.5% 0.3% 0.7% 0.2% 0.3% 0.8% 1.4% 2.0% 2.3% 3.4%

Provision Expense to Gross Income 41.2% 27.6% 6.2% 23.1% 13.1% 12.7% 12.0% 13.1% 7.7% 6.8%

Operating Expense to Total Income 38.2% 29.2% 27.4% 39.3% 27.2% 31.3% 34.9% 41.0% 36.5% 31.8%

Net Interest Income to Gross Income 66.4% 72.8% 75.8% 72.1% 68.6% 73.4% 70.5% 63.7% 63.5% 71.2%

Non-interest Income to Gross Income 33.6% 27.2% 24.2% 27.9% 31.4% 26.6% 29.5% 36.3% 36.5% 28.8%

Gains on Sale of Securities to Gross

Income 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 2.2% 10.4% 2.9% 4.2%

Trading & Foreing Exchange gain to

Gross Income 0.0% 0.0% 0.0% 0.0% 6.0% 4.7% 3.7% 3.6% 4.5% 3.7%

Operating Expense to Gross Income

(Cost Income Ratio) 72.0% 63.4% 75.4% 73.2% 58.4% 53.6% 52.0% 41.8% 39.4% 35.0%

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Admin Expense to Gross Income

(NII+Not Interest Income) 71.7% 58.8% 53.2% 55.2% 62.3% 51.5% 51.8% 41.5% 39.2% 34.2%

ROA before Tax -0.5% 0.3% 0.7% 0.2% 0.3% 0.8% 1.4% 2.0% 2.3% 3.4%

ROE Before Tax -17.9% 11.6% 16.9% 3.3% 6.2% 17.5% 29.2% 35.0% 32.4% 31.6%

ROA After Tax -0.3% 0.0% 0.2% 0.0% 0.1% 0.3% 0.5% 0.9% 1.2% 2.2%

ROE After Tax -11.3% 0.7% 4.2% 0.2% 2.8% 6.7% 10.9% 16.3% 16.8% 21.1%

NIM (based on earning assets) 3.2% 3.9% 4.1% 4.8% 3.7% 4.5% 3.9% 3.5% 3.5% 5.2%

Average Cost Of Deposits &

Borrowings 7.6% 9.1% 8.4% 7.1% 6.6% 5.5% 4.0% 1.7% 1.5% 2.2%

Avg. Return On Advances &

Investments 12.8% 15.1% 14.7% 14.5% 12.5% 11.4% 8.6% 5.4% 5.2% 7.4%

Average Spread 5.2% 6.0% 6.4% 7.4% 5.9% 5.9% 4.6% 3.7% 3.7% 5.3%

Basic Earnings(pre provision and tax)

to net loans 3.1% 3.8% 2.6% 3.1% 1.9% 3.0% 5.8% 7.2% 6.2% 7.9%

Operating Cost to Deposits 2.9% 2.7% 3.2% 3.6% 2.4% 2.6% 2.5% 2.1% 1.9% 2.5%

Return on Loans & Advances 0.0% 0.0% 0.0% 0.0% 11.0% 10.9% 9.9% 6.2% 5.7% 8.6%

cost of Deposits 0.0% 0.0% 0.0% 0.0% 6.5% 5.4% 4.0% 1.7% 1.5% 2.2%

Spread 0.0% 0.0% 0.0% 0.0% 4.5% 5.5% 5.9% 4.4% 4.2% 6.4%

Return of Total Advances 0.0% 0.0% 0.0% 0.0% 9.7% 9.6% 8.5% 5.2% 5.0% 7.7%

Return on Performing Loans 0.0% 0.0% 0.0% 12.2% 12.1% 11.2% 6.8% 6.0% 8.8%

Spread Between Return on Performing Loans 0.0% 0.0% 0.0% 2.5% 2.5% 2.7% 1.6% 1.0% 1.1%

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and Total Loans

Incidence of NPLs:

Effective Return on Gross Loans -3.9% -2.7% -0.6% -2.5% 8.6% 8.4% 7.3% 3.8% 4.2% 6.9%


Total Effective Incidence of NPLs 2.7% 0.6% 2.5% 3.6% 3.7% 3.9% 3.1% 1.8% 1.9%

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Earnings and Profitability SectionMCB

1996 1997 1998 1999 2000 2001 2002 2003 2004 2005

Interest Income to Total Assets 10.0% 11.9% 11.5% 10.2% 8.5% 9.4% 7.3% 4.1% 3.4% 6.4%

Interest Expense to Total Assets 6.8% 7.1% 7.4% 6.1% 4.3% 4.2% 2.9% 1.2% 0.8% 1.0%

Net interest income to Total Assets 3.2% 4.7% 4.1% 4.2% 4.1% 5.2% 4.4% 2.9% 2.6% 5.4%

Non-interest income to Total Assets 1.9% 1.8% 1.6% 1.5% 1.7% 1.2% 1.2% 1.8% 1.6% 1.9%

Non-interest expense to Total Assets 3.9% 4.6% 5.0% 4.6% 4.3% 4.1% 3.8% 3.0% 2.8% 2.4%

Provision for loan losses to Total

Assets 3.1% 3.0% 2.7% 2.6% 2.8% 3.5% 2.9% 2.7% 2.5% 2.8%

Income before taxes to T. Assets 0.2% 0.9% 0.6% 0.8% 0.8% 1.2% 1.5% 1.4% 1.5% 4.7%

Provision Expense to Gross Income 18.8% 17.5% 2.1% 3.7% 11.7% 19.0% 6.1% 6.5% 2.5% 5.6%

Operating Expense to Total Income 41.1% 41.6% 38.8% 41.4% 49.3% 49.8% 49.0% 56.1% 57.9% 33.3%

Net Interest Income to Gross Income 62.1% 72.2% 71.5% 73.8% 71.4% 81.2% 78.2% 62.1% 62.4% 73.4%

Non-interest Income to Gross Income 37.9% 27.8% 28.5% 26.2% 28.6% 18.8% 21.8% 37.9% 37.6% 26.6%

Gains on Sale of Securities to Gross

Income 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 3.2% 17.1% 7.0% 4.3%

Trading & Foreing Exchange gain to

Gross Income 0.0% 0.0% 0.0% 0.0% 6.3% 5.9% 4.2% 2.8% 4.4% 2.6%

Operating Expense to Gross Income

(Cost Income Ratio) 77.4% 69.3% 86.8% 82.4% 74.6% 63.1% 67.9% 63.3% 66.0% 32.2%

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Admin Expense to Gross Income

(NII+Not Interest Income) 77.4% 64.4% 70.2% 81.9% 73.9% 62.7% 63.4% 55.0% 64.3% 31.7%

ROA before Tax 0.2% 0.9% 0.6% 0.8% 0.8% 1.2% 1.5% 1.4% 1.5% 4.7%

ROE Before Tax 7.5% 29.5% 19.7% 24.4% 24.7% 33.7% 33.4% 31.7% 31.6% 68.8%

ROA After Tax 0.1% 0.2% 0.3% 0.4% 0.4% 0.6% 0.8% 0.9% 0.9% 3.2%

ROE After Tax 2.9% 5.7% 8.3% 11.5% 13.7% 17.8% 18.7% 19.6% 19.0% 47.1%

NIM (based on earning assets) 4.0% 5.8% 5.0% 5.3% 5.1% 6.4% 5.2% 3.4% 3.1% 6.2%

Average Cost Of Deposits &

Borrowings 7.6% 8.0% 8.3% 6.9% 5.0% 4.8% 3.3% 1.3% 0.9% 1.1%

Avg. Return On Advances &

Investments 12.5% 14.6% 14.1% 12.9% 10.6% 11.5% 8.7% 4.7% 4.0% 7.4%

Average Spread 4.9% 6.7% 5.7% 6.0% 5.6% 6.8% 5.4% 3.4% 3.1% 6.2%

Basic Earnings(pre provision and tax)

to net loans 2.6% 4.5% 1.7% 2.3% 2.8% 5.6% 4.8% 4.5% 3.2% 7.9%

Operating Cost to Deposits 4.7% 5.2% 6.0% 5.5% 5.3% 4.8% 4.4% 3.6% 3.4% 2.9%

Return on Loans & Advances 0.0% 0.0% 0.0% 0.0% 9.1% 11.1% 9.4% 5.2% 4.2% 7.6%

cost of Deposits 0.0% 0.0% 0.0% 0.0% 4.3% 4.2% 3.1% 1.1% 0.7% 0.2%

Spread 0.0% 0.0% 0.0% 0.0% 4.8% 6.8% 6.3% 4.1% 3.5% 7.4%

Return of Total Advances 0.0% 0.0% 0.0% 0.0% 8.6% 10.4% 8.7% 4.9% 4.0% 7.3%


Spread Between Return on Performing Loans 0.0% 0.0% 0.0% 1.6% 1.8% 1.6% 0.7% 0.3% 0.4%

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and Total Loans

Incidence of NPLs:

Effective Return on Gross Loans -2.0% -2.5% -0.3% -0.5% 7.2% 7.8% 7.9% 4.0% 3.7% 6.6%


Total Effective Incidence of NPLs 2.5% 0.3% 0.5% 2.9% 4.4% 2.4% 1.5% 0.6% 1.1%

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Table No .5

Liquidity & Sensitivity Section NBP 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005

Net Call Money to Total Liabilities 0.0% 0.0% 0.0% 0.0% 2.3% 1.8% 0.7% 0.0% 0.2% 1.1%

Loan and Advances to Total Deposits 36.4% 41.4% 40.1% 41.6% 44.3% 48.7% 38.7% 40.8% 47.4% 58.0%

Loans to Deposits Ratio: Net of Export

Refinance Borrowings 34.0% 39.1% 37.2% 38.5% 43.6% 48.2% 38.2% 40.3% 46.7% 57.1%

Growth rate of Deposits 8.0% 7.3% 7.8% 7.4% 10.5% 3.8% 9.0% 17.7% -0.5%

Equity Market Holdings to Fixed

Income Gov. Securities 0.0% 0.0% 0.0% 0.0% 2.0% 9.3% 5.0% 3.8% 4.5% 4.4%

Liquid assets to Total Assets 55.1% 46.2% 42.9% 43.3% 43.6% 40.3% 51.4% 51.9% 46.5% 37.1%

Liquid assets to Deposits 64.0% 56.2% 51.0% 51.5% 51.2% 47.9% 61.3% 61.6% 55.3% 46.3%

Liquidity & Sensitivity Section MCB

Net Call Money to Total Liabilities 0.0% 0.0% 0.0% 0.0% 2.9% 4.4% 1.0% 1.2% 2.9% 3.0%

Loan and Advances to Total Deposits 53.5% 51.7% 52.9% 51.7% 63.5% 49.6% 43.2% 46.0% 62.1% 78.6%

Loans to Deposits Ratio: Net of Export

Refinance Borrowings 50.1% 48.1% 49.1% 46.7% 60.7% 48.0% 41.8% 44.2% 60.1% 76.5%

Growth rate of Deposits 10.1% -0.5% 5.3% 4.3% 13.6% 18.2% 15.8% 4.5% 3.7%

Equity Market Holdings to Fixed

Income Gov. Securities 0.0% 0.0% 0.0% 0.0% 8.7% 7.3% 5.0% 4.6% 10.1% 12.8%

Liquid assets to Total Assets 41.8% 43.4% 42.6% 38.4% 35.8% 46.1% 57.6% 56.5% 37.2% 30.9%

Liquid assets to Deposits 50.1% 52.4% 51.6% 46.8% 46.0% 55.7% 74.1% 72.8% 43.6% 40.2%

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VOL 3, NO 1

The Impact of Political Events on Lahore Stock Exchange

During 2003-2009

Lubna Ali

Reseach Scholar, Hailey College of Commerce, University of the Punjab, Lahore.

Komal Daniel

Research Scholar,Hailey College of Commerce, University of the Punjab, Lahore.

Dr. Qais Aslam

Professor, University of Central Punjab, Lahore.

Manal Talat

Lecturer, Kinnaird College for Women, Lahore.

Zafar Ahmed


Abstract

The stock market is important gauge of the economy‘s health. It absorbs the changes in

the political environment. The political incidents political implications cause the stock

market index to go up or down. This study attempts to find the relationship between

political events and Lahore Stock Exchange (Pakistan) during 2003-2009. For this

rationale, we identified key events that had taken place since 2003 and gathered Lahore

stock index data for these events. On the whole we found no relationship between the

political events and stock market performance. The results also indicated that stock

market abruptly respond in unconstructive way to those events directly associated to

Government actions.

Key words: Political events, Stock Market performance, Lahore Stock Exchange

1. Introduction

Political stability means the permanence in the policies and regulations of the state .The

coming up government is going to track the policies and laws of the preceding

government so that a smooth running is seen in the state. It also means that the running

government is also accommodating the economy & public. On the other hand, there may

be such events that deteriorate the economy which in turn affect the public. If the

influence is negative, it results in political instability even when there is a stable

government.

The stock market is important gauge of the economy‘s health. It absorbs the changes in

the political environment. The political events have some meaningful effect on the

performance of stock markets.

Some global events affect the financial market in all over the world, there seems to be

uncertainty all around and abrupt changes occur. There's no doubt that world crises of the

magnitude of the September 11 attacks put significant stress on the global economy,

financial markets and international political stability. While past performance is no

guarantee for the future.

http://www.businessdictionary.com/definition/stress.html

http://www.investorwords.com/2178/global.html

http://www.investorwords.com/1652/economy.html

http://www.businessdictionary.com/definition/financial-markets.html

http://www.investorwords.com/2264/guarantee.html

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Jane Levine found that, On June 26, 1950, the day after North Korea invaded South

Korea, the index 500 fell by 5.38%. When the Korean War ended in July 1953, the index

was almost 30% above the level it was on the invasion.

The financial market is so much sensitive to the political concerns that not only the

governing party but also the opposition has influence on its performance in some way.

Lee Hyo-sik (2007), stated that the bank's evaluation of Korea's political stability

deteriorated in 2006 and the index fell to 0.42 from 0.55 a year ago, reflecting escalating

conflicts between present-government and opposition political parties

When there is unpredictability about the government, the investors and the traders are

incapable to make correct judgment as forecasting is not promising. When there is change

in government, the investors have some expectations with the new government, if such

expectations are not satisfied the investors lose their confidence that in return affect the

stock markets.

Jang Group economic session (2009) found that, it was thought that with arrival of new

government, index would increase from 15,000 to 22,000, but the white paper against

previous government - released by former Finance Minister Ishaq Dar - badly affected

the investment in the market

Pakistan has three stock exchanges. Lahore stock exchange was established in 1970, it is

25-index with 771 listed companies. Pakistan stock markets are considered to be the

riskiest markets in respect of political instability.

EARTH TIMES (2008), stated that Analysts are agreed in seeing political stability and

prospects of overall improvement in law and order in the country as two chief driving

factors for the index.

EARTH TIMES 27 Mar (2008) stated that Pakistan's market is protected from the current

global economic turmoil because it's a more local economy with about 6 per cent of the

market's capitalization from overseas.

So the global issues are quite less important as compared to the domestic issues. And

when we talk about domestic issues particularly related to the political implications (in

the past 10 years) such as catastrophes, domestic conflicts, change in the Government

policy. They are found quite influencing on the investor‘s study prior to the investment

decision in the financial markets resulting in the huge ups and downs in the stock market.

We have studied the impact of political events that happened in the last 10 years and their

effect on the performance of the Lahore Stock Exchange (LSE).

2. Literature review

2.1 Political stability and economy:

Political stability is a state of hope that the government will be the same tomorrow as it is

today and will not instigate any steps which will affect the economy, peace and

prosperity of nation. The role of political stability in the prosperity of any country in

broad-spectrum and efficient performance of stock market in particular, is extremely

imperative and it is supported by the literature.

Dormandy, (2008) found that Pakistan had a stable and fast growing economy with GDP

growth of 6.5% in 2006.

http://www.earthtimes.org/tag/economic.html

http://www.earthtimes.org/tag/economy.html

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Aktas and Oncu, (2006) provided that the news regarding favorable market modification

reduces capital flight.

Dr.Ghaleb, (2005) concluded that because of political stability and safety measures, the

Lebanese market grew 8.5% in 2008 and 9% in 2009. It persuades investors to come into

Lebanon and invest there. It boosts their confidence on the market.

2.2 Political instability and economy

Political instability is a state in which country faces political chaos, and in most cases ,

country gets weaker in terms of economic progress e.g. low foreign direct investment

(FDI), decreasing gross domestic product (GDP).

Brada et al. (2006) Found that the negative impact of political instability on foreign direct

investment (FDI) in transition economies of Central Europe.

Alesenia, (2009) explained that income inequality results in political instability which

leads to lower investments and resultantly a reduced growth rate.

Voth, (2001) found that the war weakened the German republic resultant in inflation in

1919-1923, which was a political happening. Uncertain inflation rate cause the

irregularity in stock prices and eventually in the stock market.

Voth, (2002) stated that not only the unconstructive impact of political precariousness is

related to drop in stock market but frequency of political events and overall volatility of

stock price is also play a vital role.

2.3 Political instability and stock market

Beaulieu et al. (2005) provided that hostile news regarding political event has more

impact on the precariousness of stock return than constructive political events.

Dar-Hsin Chen et al. (2005) found that investors consider political jeopardy as a dictating

feature for valuing asset which is equally imperative for judging the investment

opportunity.

Mei and Guo, (2002) Said that market precariousness, financial crisis, political instability

are sturdily related.

Dimitrios et al., (2000) provided that precarious political stipulations and general index

of Athens Stock Exchange are negatively related.

Beaulieu et al. (2005) analyzed the outcomes of the common stock return of Quebec

firms due to the 30th Oct, 1995 Quebec referendum and found that when financial

markets are unanticipated, the Quebec and Canadian‘s short run stock returns influenced

by political insecurity.

Sidra Malik et al. (2009) found that the trading level and stock return fluctuated as per

intensity of the incident either positively or negatively.

P Chidambaram, (2010) stated that Stock markets of any state would be influenced by the

political shakiness.

Olivia A. Jackson, (2008) found that investors were already alert of the instability of U.S

economy after 9/11 attack There are some socio-political upsets that were pointing out

the deteriorating conditions of the economy.

Demir, and Firat, (2007) studied that the volatility of the short-term capital flows greatly

depend on the socio-political instability.

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Zlin Ismail, and Herry Suhardjo, (2001) showed the reaction of efficient and inefficient

market to the information available after the socio-political events, and the one who can

foresee such situations will gain from the market.

Hans-Joachim Voth, (2001) analyzed that the time of Hitler was the most uncertain and

saw the fourth major price fall that ended up in, stock market crash in 1927.

Hans-Joachim Voth, (2002) found that the state of emergency in Reich caused share price

index dropped by more than 50%.

Hans-Joachim Voth, (2002) found that Rathenau‘s assassination in June 1923 was the

underlying aspect of stock price index declined by 14.4 %.( Germany).

Huseyin Aktas, and Semra Oncu, (2006) found that astonishing events had an effect on

the ability of market participants to reasonably assess consequences of events.

Demir. (2007) found that the immediate changes in stock prices and portfolio choice are

often provoked by inconsistent and major incidents.

Wang, (2003) found that Decisions concerning investment in stock are influenced by

uncertainty of particular laws and policies.

Lay-Huey Wang, (2003) concluded that lack of Public confidence on government and

domestic economy had severely contracted the Taiwan‘s stock trading.

Mohammad G. Robbani, and Sekhar Anantharaman, (2002) found that political events

with lasting outcomes were not overlooked by the stock market and the stock prices

counter such events perfectly.

3. Research Methodology:

The focus of our study is preliminary on stock market performance in relation to political

events; aimed at anticipating the effect of political precariousness on volatility of stock

markets‘ efficiency. Our methodological approach is time series analysis. This method

integrates time series data of independent as well as dependent variables. We gathered

annual time series of stock index of LSE and political events from year 2003-2010.

The index of the stock market is a statistical depiction of value of stock usually a

portfolio of stocks, which represent either section of an exchange or the whole stock

exchange. It is method of measuring the section of stock market. The Lahore Stock

Market index shows the changes in the stock prices. If stock index goes down it means it

is negatively affecting and if it goes up it shows positive effect on stock index level.

3.2 Data:

From the secondary data we accumulated major political events which influenced Lahore

Stock Market.

Dec. 24, 2003: Musharaf announces the date of his resignation from chief

of army staff.

May, 22, 2004 Pakistan readmits to Common Wealth.

Sep. 24, 2006: National Blackout.

Dec. 15, 2006: Supreme Court Blocks Hasba Bill.

Mar. 9, 2007: Suspension of Chief Justice.

Apr. 7, 2007: Lal Masjid Assault in Islamabad.

Apr. 27, 2007: Benazir Musharaf deal.

June 4, 2007: Govt. Cracks Down on TV News Channels.

http://pakistaniat.com/2006/12/15/supreme-court-hasba-bill-nwfp/

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July, 6, 2007: Assassins attempted to assassinate Musharaf.

July, 20, 2007: Supreme Court reinstates Chief Justice.

Sep, 10, 2007: Former Prime Minister Nawaz Sharif arrested at Islamabad

airport.

Oct. 2, 2007: Lt. General A.Kiyani appointed as army chief.

Nov. 3, 2007: Emergency Declared in Pakistan.

Aug. 3, 2009: Gojra riots.

Nov.20, 2009: Death of Ghulam Mustafa Jatoi.

4. Sample

During year 2003-2009, 40 political events have taken place. For gathering data we used

News Papers, (Dawn, The News, & Business recorder) and reports. For our purpose of

study we have taken a sample of 15 major events to observe their brunt on stock market

trading volume. These major events have been chosen randomly. Among these events

some affected the index negatively, but some others had no impact on the index level.

5. Findings

i. Musharaf announces his resignation from chief of army staff:

Pervaiz Musharaf was former president of Pakistan

who took over presidency on 12 Oct, 1999 from

Nawaz Sharif as chief of army staff (appointed on

Oct 6, 1998). He served the nation as president and

as a chief of army staff at the same time. On 24th

Dec 2003 Musharaf announced that he would

resign by the end of 2004. Index on 23rd

Dec was

at 2469.34 and it was at 2479.06 on 24th

of Dec. it

shows a steady increase in the level of index. But

following this political incident the index went

down by 19.92 points and reached 2459.14.

ii. Pakistan readmits to Common Wealth:

Common wealth is a universal organization

established to sanction world peace, individual

freedom, and representative democracy. Pakistan is

a member of Common Wealth of Nations right

from the first day of its independence. The

membership of Pakistan was suspended in 1999.

On 22nd

May 2004 Pakistan regained its

membership. This caused stock market to plunge

down. The index on 21st May was at 2997.44 and

after this happening, the index dropped on 24th

May

2469.34

2479.06

2459.14

244524502455246024652470247524802485

23rd Dec,2003

24th Dec,2003

26th Dec,2003

2997.44

2974.93

2962.88

2940

2950

2960

2970

2980

2990

3000

3010

21st May,2004

24th May,2004

25th May,2004

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and reached 2974.93 and continued to drop and reached 2962.88 on 25th

May resulting in

index level to fall by 34.56 points.

iii. National black out:

On September 24, 2006 there was a national black

out. This was a political event as there was

electricity breakdown all over Pakistan. It had a

detrimental impact on stock market. As the graph

shows index on 22nd

September was at 4380.31

and on 25th

September it was at 4322.62. The

index level shows a turn down of 57.69 points.

The rationale for this decline can be the holding of

stock market for that time period.

iv. Hasba bill rejection:

The Hasba bill was passed by the assembly of

Khayber Pakhtoon khwan. It was blocked by

Supreme Court on Dec 15, 2006. The graph point

toward the index level, dropped from 4380.37 to

4237.52 within three days because investors‘ lack

of confidence.

v. Suspension of Chief Justice

Chief justice Iftikhar Muhammad Chaudhry was

appointed as chief justice of Pakistan on May,

2005. And he was suspended by President

General Pervaiz Musharraf on March 9, 2007 for

the reasons of transgressing the judicial power,

corruption and misconduct. This political

precariousness pretentious the stock market as

index fell from 4611.63 to 4582.19. It was

because investors lost their confidence and

withdrew their investment resulting in index

level to fall by 29.44 points.

vi. Lal Masjid Assault in Islamabad:

The operation of Red mosque was between Islamic

militants and Government of Pakistan on April

7, 2007. This event did not have a profound

negative influence on stock market performance

as index continued to increase from

4370.76 to 4404.83.

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vii. Benazir Mushraf deal:

The agreement between the Musharaf and the

former prime minister Benazir Bhutto that

took place o April 27, 2007 and as a result

Benazir Bhutto had to come to Pakistan. It

was taken by the investors optimistically. The

Stock market index moved 10 points up. The

graph shows the increase in the market index.

viii. Pakistan Cracks Down on TV News Channels:

The government of Pakistan banned

transmission of TV news channel on 4th

June,

2007 on the grounds of violating the PEMRA

rules. The stock market did not respond to this

event negatively as index increased from

4708.67 to 4775.73

Assassins attempted to murder Musharaf:

On 6th

July, 2007 assassins attempted to

murder Musharraf, but luckily he was saved

as his plane had taken off. Prior to open fire

from rooftop Mushrraf‘s plane was far away

from the military airfield in Rawalpindi. The

index before this event on 5st July, 2007 was

at 4875.9 and on event happening day it

increased and arrived at 4879.79 on 6th

July

but after this event the index dropped and

reached 4874.25 on 9th

July. This event

negatively affected stock index and caused it to

decrease by 5.45 points.

ix. Supreme Court reinstates Chief Justice:

Chief justice Iftikhar Muhammad Chaudhry was

suspended by General Pervaiz Musharaf for the

reasons of contravening the judicial powers and

dishonesty. But on July 20th

, 2007 Supreme Court

reinstated Iftikhar Muhammad Chudahry as chief

4875.9

4879.79

4874.25

4870

4872

4874

4876

4878

4880

4882

5th July,2007 6th July,2007 9th July,2007

4589.19

4678.11

4773.73

44504500455046004650470047504800

19th July,2007

20th July,2007

23rd July,2007

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justice. This political confrontation affected the stock market positively as index raised

by 95.62 points.

x. Former Prime Minister Nawaz Sharif arrested at Islamabad airport:

On 10th Sep, 2007, former Prime Minister

Nawaz Sharif was arrested at Islamabad

airport after he tried to enter Pakistan. It

was a political incident but it did not affect

stock market significantly. The level of

index increased from 4380.61 to 4390.09 as

exhibited in the graph.

xi. Lt. General A.Kiyani

appointed as army chief:

President General Musharraf appointed

Lt. General A.Kiyani as army chief of

Pakistan on October 2, 2007. By doing

so, he fulfilled his promise which he

made in December 2003 to resign as

Army chief. Government of Pakistan also

ceased all cases of fraud against Benazir

Bhutto and allowed her to return to

Pakistan. This political event had

significant positive effect on stock

market and index level of LSE rose from

4821.02 to 4901.66.

xii. Emergency Declared in Pakistan:

A state of emergency was declared by Pervaiz Musharraf (Pakistan‘s president) on 3rd

November, 2007 and lasted until 15th

December, 2007. This was the major political event

that highly affected the LSE index level. The index on 2nd

November was at 4625.19

which fell on the event day and dropped to 4398.1 on 3rd

Nov, but after the incident index

again grew up to 4436.97 as shown in the graph.

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xiii. Gojra riots:

On 1st of August, 2009, Gojra riots

started as aggressive Islamists

attacked Pakistan's Christian

minority. This political event had

little effect on index level as shown

in the graph it goes down from

2317.81 to 2316.56 but next day

again went up to 2343.93.

xiv. Death of Ghulam Mustafa Jatoi:

Many other incidents have affected the

index widely, an example the death of

acting prime minister of Pakistan Ghulam

Mustafa Jatoi. Mr. Jatoi (14 August 1931 –

20 November 2009) was a Pakistani

politician and he served as the Acting

Prime Minister of the country for a period

of 3 months, from August 6, 1990 to

November 6, 1990. The index on 19th

Nov,

2009 was 2872.93 and on 20th

Nov, 2009

it was at 2893.4. The index showed a rise

of 20.47 points. But after this event it went

down to 2860.63 as shown in the graph. It affected Lahore Stock Exchange (LSE) index

negatively.

http://www.ask.com/wiki/2009_Gojra_riots?qsrc=3044

http://www.ask.com/wiki/Militant_Islam?qsrc=3044

http://www.ask.com/wiki/Christianity_in_Pakistan?qsrc=3044



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Below are the graphs showing the overall index position of LSE before and after the

occurrence of these political events.

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11. Conclusion If we go through the entire study of these political events and their impact on the index of

Lahore Stock Exchange, we come to the following conclusions.

1. Most of the political events in our study are not affecting the stock market

significantly, such as Musharraf announced his resignation, Pakistan readmitted

to Common Wealth, assassins attempted on Musharraf, gojra riots, death of

Gulam Mustaffa jatoi.

2. The readmission of Pakistan to Common Wealth has not affected the index of

Lahore stock exchange positively. This strengthens the finding of Earth Times

(2008) where it was stated that global issues are quite less important as compare

to the domestic issues for the stock markets.

3. Some of the political events have affected the stock market significantly. The

declaration of emergency in Pakistan has caused the index of LSE to fall by

188.22 points.

4. The appointment of Lt. General Ashfaq Pervaiz Kiyani as Chief of Army Staff

has let the index increase by 164.4 points.

5. The arrest of Mian Muhammad Nawaz Sharif has unexpectedly increased the

index by 89.73 points.

6. Restoration of Chief Justice of Pakistan, Iftikhar Muhammad Chudary, took the

market from 4589.19 to 4773.73 causing an increase of 184.54 ponits.

7. The rejection of Hasba Bill by the Supreme Court has caused the index of Lahore

Stock Exchange to decrease by 142.85 points.

In overall the behavior of the stock market is very unpredictable such as it went up when

a political leader was arrested and it went down when the membership of the country to

Common Wealth was restored.

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References

Alesina, A. (2009). impact of political risk.

Asteriou, D. (2002). The Role of Political Instability in Stock Market Development and

Economic Growth: The Case of Greece.

Beaulieu, C. E. (2005). Political uncertainty and stock market returns.

Chidambaram, F. M. New Delhi, July 20 2010 .

Co., S. N. (2004-2005). P S E Securities Limited.

Dar-Hsin Chen, F.-S. B.-D. (2005). The Impacts of Political Events on Foreign

Institutional Investors and Stock Returns: Emerging Market Evidence from Taiwan.

Demir, F. (2007). Volatility of short term capital flows and socio-political instability in

developing countries: A review.

Dimitrios Asteriou, C. S. (2002). The Role of Political Instability in Stock Market

Development and Economic Growth: The Case of Greece.

Dormandy, X. (2008). pakistan political stability.

Huseyin Aktas, a. S. (2006). The Stock Market Reaction to Extreme Events: The

Evidence from Turkey. 8.

Huseyin Aktas, S. O. (2006). The Stock Market Reaction to Extreme Events: The


Huseyin Aktas, S. O. (2006). The Stock Market Reaction to Extreme Events: The


Hyo-sik, L. (2007). Korea‘s Political Stability Worsens.

Jackson, O. A. (March 3, 2008). The Impact of the 9/11 Terrorist Attacks on the US

Economy. 27.

Jianping Mei, L. G. (2002). Political Uncertainty, Financial Crisis, and Market Volatility.

Josef C. Brada, A. M. (2004). The Effects of Transition and Political Instability on

Foreign Direct

Investment in ECE emerging Markets.

Levine, J. (n.d.). Global Crises and the Stock Market. investorguide .

Mahmassani, D. G. (2010). Lebanon investment and capital markets, Beirut stock

exchange.

Marie-Claude Beaulieu, J.-C. C. (2005). Political Uncertainty and Stock Market Returns:

Evidence from the 1995 Quebec Referendum.

Sidra Malik, S. H. (2009). Impact of Political Event on Trading volume and Stock

Returns: The Case of KSE.

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Suhardjo, I. I. (2001). The Impact of Domestic Political Events on an Emerging Stock

Market : The Case of Indonesia. 28.

Voth, H.-J. (2001). Inflation, political instability and stock market volatility interwar

Germany.

Voth, H.-J. (2002). Stock Price Volatility and Political Uncertainty: Evidence from the

Interwar Period.

Wang, L.-H. (2003). the impact of political risk for testing Taiwan's stock market.

International Journal of Risk Assessment and Management, 4, 348 - 364.

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RELATIONSHIP BETWEEN THE FAMILY BACKGROUND AND SCHOOL BEHAVIOR AT

PRIMARY SCHOOL LEVEL.

Fehmida

Lecturer IER Gomal University, Dera Ismail Khan, KPK, Pakistan.

Liaquat Hussain

Assistant Professor IER, Gomal University, Dera Ismail Khan, KPK, Pakistan.

Allah Noor Khan


Shehla Sheikh


Abstract

The problem under study was relationship between the family background and school

behavior. The study is important because it tells about the impact of family background

on the student behavior and in this way helps to modify the behavior towards the set path

by the society. Three research hypotheses were tested. First hypothesis was that there is

no relationship between the family background and the school behavior. Similarly the

other two hypotheses were separately for male and female students‘ family background

and teaching behavior. All the primary school students form the population of the study.

A sample of 200 students was taken from the 10 male (5 urban + 5 rural students) and 10

female (5 urban + 5 rural students) schools of district DIKhan on random basis. A likert

type scale and research questionnaire was used for data collection. Mean, standard

deviation and correlation statistic were used for data analysis. The result shows that there

was a strong relationship between the family background and the school behavior, where

as moderate correlation for separated group of females.

Keywords: RELATIONSHIP BETWEEN THE FAMILY BACKGROUND AND

SCHOOL BEHAVIOR AT PRIMARY SCHOOL LEVEL.

INTRODUCTION

The students in the school belong from different backgrounds. Some students belong

from the rural areas while other from the urban areas. Similarly some from the crowded

homes where as other from the broken homes. Students also differ in their socio

economic statuses. Some come from the rich families having every facility of life while

others don‘t avail such facilities. The behavior of the student in the schools is also the

factor of their home environment and family background. What they se in the home try to

implement it in the school also. Language is usually thought of as a way to express ideas

and feelings and to communicate messages (Leonard, 1981). Language affects the school

behavior and the attitude of the listeners. Similarly other aspects of culture such as

clothing, colors, socio economic status, religion, technology, Population and the care of

the parents all effect the school and classroom teaching behavior of the students.

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The present study uncovers some of the facts that whether there is any relationship

between the family background and student‘s behavior at the school.


The problem under study was ―Relationship between the family background and school

behavior at primary school level‖.


Following were the major objectives of the study

1. To know the family background of the student

2. To know the school behavior of the students

3. To find the relationship between the family background and teaching behavior

SIGNIFICANCE OF THE STUDY

The study was significant due to following reasons:

1. It tells s about the student classroom behavior which is an important factor in

maintaining the classroom discipline.

2. The student behavior can be modified according to the set path by the society.

HYPOTHESIS

Following null hypothesis were tested

1. H01: There is no relationship between the family background and the school

behavior of the students.


behavior of male students.


behavior of female students.

REVIEW OF THE RELATED LITERATURE

Family background and school behavior

In earlier times the family was a way of life. As a unit of production it had a strong claim

on its members and was closely linked to other institutions and to the community. The

modern family is less closely tied to other institutions. Relationship among family

members is not as clearly defined as they were century ago.

A family is a kin-based cooperative unit. Kinship is more inclusive than family because it

does not always refer to a functioning group. Instead it refers to a network of relatives

who may or may not have much to do with each other. Broadly speaking kinship is a

relationship that is close and lasting enough to create a sense of common origin. In theory

it can be base on long association and shared tradition (Broom. L, Selznich.P, Darroch.

D.B ,1981).

According to (Shahid.S.M, ) Islam is a way of life. Islam is not mere concerned with

religious ritual but it seek to regulate bhuman conduct and behavior in all fields of life

including educational institutions and all spheres of action. We being a muslim practice

in the school those values which we acquire from the home.

According to ( Shah,L.H, 2011) All the steps stated in the Erik Erikson theory of social

development states that the family background of the individual effects very much the

life and school behavior of the children.

Behavior Modification

Behavior modification is based on the behavior philosophy of B.F. Skinner, who assumes

that most behavior are learned, that learning is largely controlled by the environment.

Behavior that are rewarded or reinforced in some manner will occur again.

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According to ( Moore, 2001) The basic premise of behavior modification is that behavior

is changed by altering the consequences, outcomes or rewards which follow the behavior

( Presbie and Brown, 1976). In behavior modification model the reinforcement is used

systematically to change some aspects of student behavior at school.

METHODOLOGY

POPULATION

All the primary school students form the population of the study.

SAMPLE

A sample of 200 students was taken from the 10 male (5 urban + 5 rural students) and 10

female (5 urban + 5 rural students) schools of district DIKhan was taken on random basis.

INSTUMENTATION

Two instruments were used for this study as under:

1. The Likert type scale to know the student school behavior. This scale was

developed by the researcher himself and was validated by the experts from

different departments/institutes of the Gomal University, DIK, KPK, Pakistan.

2. The questionnaire to know the family background of the students. . This

questionnaire was also developed by the researcher himself and was validated by

the experts from different departments/institutes of the Gomal University, DIK,

KPK, Pakistan.

PROCEDURE

The likert type scale consisting of 20 items and the questionnaire consisting of 20

questions were distributed among the primary school students to know the student school

behavior and family background respectively. The likert type scale consists of 3 options

only keeping in view of the primary level. The questionnaire was also in urdu. The

questionnaire also was in Urdu version consisting of Yes/ No type of questions. The

student‘s responses were arranged in the form of table and the correlation statistic was

used for the analysis of data. DATA COLLECTION AND ANALYSIS

Table1: Showing the overall correlation of family background and school behavior


family background 20 4.25 .851 0.870

**

school behavior 20 3.75 .444

**. Correlation is significant at the 0.01 level (2-tailed).

Table2: Showing the correlation of Male family background and School behavior

*. Correlation is significant at the 0.01 level (2-tailed).


Male family

background

10 4.00 1.054

1.0*

Male school

behavior

10 3.50 .527

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Table3: Showing the correlation of Female family background and

school behavior

*. Correlation is significant at the 0.01 level (2-tailed).

FINDINGS

Following were the major findings of the study:

1. Overall mean score for the family background was 4.25 and that of school

behavior was 3.75.

2. Overall standard deviation for the family background score was 0.851 and that of

school behavior score was 0.444.

3. Overall correlation between the family background and the school behavior was

0.870.

4. In case of male students the mean score for the family background was 4 and that

of school behavior was 3.5.

5. In case of male students the standard deviation for the family background score

was 1.05 and that of school behavior score was 0.52.

6. In case of male students the correlation between the family background and the

school behavior was 1.0.

7. In case of female students the mean score for the family background was 4.5 and

that of school behavior was 4.2.

8. In case of female students the standard deviation for the family background score

was 0.527 and that of school behavior score was 0.422

9. In case of female students the correlation between the family background and the

school behavior was 0.5.

CONCLUSION

Following conclusions are hereby made in the light of the findings.

1. The overall correlation between the family background and the school behavior was

0.870 at 0.01 levels, which is a very high correlation. This means that the family

background and the school behavior are correlated with each other. There fore the

first null hypothesis that there is no correlation between the family background and

the school behavior is here by rejected. This means that family background has an

impact on the school behavior of the students at the primary level.

2. In case of male students the correlation between the family background and the

school behavior was 1.0 at 0.01 levels, which is a very high correlation. This means


Female family

background

10 4.50 .527

0.50*

Female school

behavior

10 4.20 .422

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that in case of male students the family background and the school behavior are

correlated with each other. There fore the second null hypothesis that there is no

correlation between the family background and the school behavior of male students

is here by rejected. This means that family background has an impact on the school

behavior of the male students at the primary level.

3. In case of female students the correlation between the family background and the

school behavior was 0.5 at 0.01 levels, which is a moderate correlation. This means

that in case of female students the family background and the school behavior are

correlated with each other. There fore the third null hypothesis that there is no

correlation between the family background and the school behavior of female

students is here by rejected. This means that family background has an impact on the

school behavior of the female students at the primary level.

RECOMMENDATIONS

Following recommendations are here by made in the light of the findings and

conclusions.

1. Family background and the school behavior are highly correlated. Best family

background having the good habits promote good behavior at the school.

2. The students belonging from the families where character building is practiced

from the very start of children provide a best nursery to the schools where these

characters are more polished if the students encounter the able teachers.

3. Students belonging from the literate families practice the socio effects at the

school with their peer groups.

4. There is also no much difference of the family backgrounds and school behavior

of the male and female students where as the rural and urban students were up to

some extent different in their behaviors at the school.

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References

Broom. L, Selznich.P, Darroch. D.B (1981). Sociology, Seventh edition.

Harper and Row Publishers, New York, pp-324

Shahid.S.M (2006). History and Philosophy of education. First edition. Majeed Book

Depot, Lahore, Pakistan. Pp-92.

Shah.L.H (2011). Human Development and learning. First edition. Nawaz Book

Centre. Rahim Bazar, DIKhan, KPK, Pakistan. Pp-37.

Moore. K.D (2001). Classroom Teaching Skills. 5th

edition. MC Graw Hill Company,

Singapur.

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Attitude of Gomal university teachers toward pre-step programme of H.E.C

Allah Noor Khan


Liaquat Hussain


Fehmida


Shehla Sheikh


Abstract

The problem under5 study was to find out the attitude of Gomal university teachers

towards pre-step programme of HEC. The problem was significant because it would tell

about the attitude of Gomal university teachers which is helpful for the implementation of

pre-step programme. The study would also helpful to the detailed description of pre-step

programme which is very beneficial for person concerned. Two research hypotheses were

tested. First was Gomal university teachers have negative attitude toward pre-step

programme, and the second hypothesis was there are no hurdles in implementation of

pre-step programme. The population of the study was all the teachers of the Gomal

University, DIKhan. A sample of 100 teachers was selected from 10 different

departments and institutes of Gomal University for the study. A likart type scale was used

for data collection. Percentage statistic was used for data analysis.

Keywords: Attitude , Gomal university , Teachers , Pre-step Programme , H.E.C

INTRODUCTION

The Pre-Service Teacher Education Program (Pre-STEP) is a USAID-funded pre-

service teacher training program serving six out of seven areas of Pakistan. Pre-STEP is

jointly implemented by AED, Michigan State University and EDC. The goal of Pre-STEP

is to improve the quality of basic education by increasing the effectiveness classroom

teaching, an area identified as a major concern for Pakistan's Ministry of Education.

EDC and Pre-step team collaborate with the Ministry of Education, the Higher

Education Commission, selected universities and the district-level colleges responsible

for the training and certification of pre-service teachers.

As a partner in Pre-STEP, EDC would be primarily responsible for strengthening

the capacity of teacher training colleges. In particular, EDC would help prepare colleges

to provide a two year diploma program, linked to the four year B.Ed. Improving. The

practicum experience for student teachers would be an important part of the Preparation.

EDC will use technology tools (video, audio and other multi-media content) to support

its capacity building work with the GCETs and, where appropriate, use them and

other tools and products of capacity development with Colleges to extend the reach and

strengthen the impact of Pre-STEP interventions over all.

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This research was focused to identify the attitude of Gomal University teachers

towards Pre-Step programme and to determine the possibilities of implementation of this

programme in Gomal University and its constituent and affiliated Colleges and

institutions.


The problem under study was to find out the ―Attitude of Gomal university teachers

toward pre-step programme of H.E.C‖

OBJECTIVE OF THE STUDY

1. To investigate the attitude of Gomal university teachers toward pre-step

programme.

2. To point out the possibilities of introducing this programme in Gomal university.

3. To identify the problem and hurdles in introducing this programme.

4. To provide proper suggestions for the hurdles and difficulties if founded any.

SIGNIFICANT OF THE STUDY

The study was significant due to the following,

1. It would tell about the attitude of Gomal university teachers which is helpful for

the implementation of pre-step programme.

2. The study would also helpful to the detailed description of pre-step programme

which is very beneficial for person concerned.

3. The finding of this study would helpful increasing positive attitude toward pre-

step programme.

HYPOTHESES

Ho1: Gomal university teachers have negative attitude toward pre-step programme.

Ho2: There are no hurdles in implementation of pre-step programme.

REVIEW OF THE RELATED LITERATURE

ATTITUDE

Attitude is the tendency to react specified toward objects, situation or value, usually

accompanied by feeling emotion. Attitude plays a significant role in the behavior, can

learn and invest his energy, time and finance. There are so many definitions of different

psychologist about attitude but some definitions are given below.

According to the Encyclopedia Britannica. (1960)"Attitude technically is predisposition

toward a certain type of reaction, loosely and popularly it has been used a catch all term

for the whole body of ones opinions, belief, sentiments and disposition. According to

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Johnson (1959) "We not only see with the eyes but with our assumption also.‖

According to Ebel (1960) "Attitude is generalizations whose validity is open to Winston".

According to C.V good Attitude means the reaction of a person towards object or

situation. It is the like and dislike of any one towards the person, political party, event,

custom etc

Characteristics of Attitude

Some characteristics of Attitude that have come to be commonly accepted.

Attitude is not in born, they are learned through experience.

Attitude have objective reference, one holds an attitude regarding some object,

person. Or issue.

Attitude differs in valence, having an attitude regarding an object signifies that

person concerned is either favorably or unfavorably disposed toward it. Stated

Otherwise, attitude is positive or negative.

They orient the organism to the attitude object and channel the energy at the

disposal of the organism.

Form operational point of view, attitude are manifested in the consistency of the

response made to specific object or situation (Mohsin, 1990)

Measurement of Attitude

Attitude concerns feeling about particular object, physical, types of people, particular a

person, social institution, government policies and other. Some statements relating to

attitude are as following.

The united Nation is a constructive force in the world today.

The trade Union has too much affected our economy.

All public schools should be fully integrated.

Attitude are distinguished from interest and value by the fact that they always concern

a particular "Target" or object .The most approach to the measurement of attitude is to

people in one manner or other. What these attitude are. For example objects are presented

with a list containing favorable and unfavorable statements toward the United Nation and

are asks to agree or disagree with each .such self report inventories are called attitude

scale.

Attitude Chang

The problem of attitude change belongs largely to the area of social influence

process, and most of the earlier researchers on attitude change have generally, used the

method of direct or indirect persuasive communication. For a communication to be

affective a producing change in behavior, it has to cover successfully six intermediate

stages, namely delivery of the communication attention to its comprehensive, its

acceptance, its retention, and finally, its influence and behavior. Failure at any one of the

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mediating steps would make the communication fruit less. McGrew explain his point by

the example of an advertising campaign. The advertisement will influence the buyer's

motivate if it succeeds.

History of Pre-step

Pre-service teacher education in Pakistan has a long history. As a part of a colony

of the British Empire its institutional structures were similar to those used in Britain.

Thus the first two Normal Schools were set up in Karachi and Lahore, the two largest

cities of Pakistan, in the middle of the nineteenth century to help prospective teachers

learn about pedagogy in addition to their other school subjects.

Shortly after Pakistan‘s independence in 1947 the first national conference on

education was organized, which recommended the following academic and professional

standards for teachers:

Grades taught Academic qualification Duration of training

1-5 (Primary) Matriculate / Secondary (10 years) 1 year

6-8 (Middle) Intermediate / Higher Secondary (12 years) 2 years

9-10 (Secondary) Bachelor‘s degrees (14 years) 2 years

11-12 (Higher Secondary) Master‘s degree (16 years) short training course

These prescriptions were not followed primarily because of the rapid increase in

demand for teachers in newly established schools and the shortage of academically

qualified and trained Teachers to work in them. This shortage was acutely felt in the

smaller provinces of Baluchistan and KPK where schools for girls in rural areas could not

be set up, or closed down because of teacher shortage.

METHODOLOGY

Population

All the teachers of Gomal University comprised the population of the study.

Sample

A sample of 100 teachers was selected from 10 different departments and institutes of

Gomal University for the study.

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Instrument

A likart type scale was developed by the researcher him self and was validated by experts

from I.E.R Gomal University and different other departments of the Gomal University

D.I.KHAN.

Procedure

After preparation of instrument photocopies of instrument were distributed among the

teachers and were filled up and recollected. After receiving response from the teachers

the data was arranged in the form of tables. Finding and conclusions were drawn in the

light of analysis and suggestions were made at the end. The percentage% was used for

analysis of data.

DATA COLLECTION AND ANALYSIS

Table 01: Per-step focuses on the improvement of Per-service teacher education in Pakistan.

Strongly

Agree

Agree Undecided Disagree Strongly

Disagree

36 12 0 2 0

72% 24% 0% 8 0%

The above table show that 72% teachers are Strongly Agree, 24% Agree, 0%Undecided,

4%DisAgree, and 0% are strongly disagree.

Table 02: Pre-step programme are source of providing experts to the nation.

Strongly

Agree


Disagree

18 2 8 2 0

36% 4% 16% 4% 0%



Table 03: Pre-step is a wastage of time and money.

Strongly

Agree


Disagree

10 11 14 11 4

20% 22% 28% 22% 8%

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Table 04: Per-step is an expensive programme.

Strongly

Agree


Disagree

17 12 8 8 5

34% 24% 16% 16% 10%

The above table show that 34% teachers are Strongly Agree, 24% Agree, 16%Undecided, 16%DisAgree,

and 10% are strongly disagree.

Table 05: Through pre-step programme classroom teaching will be improved.

Strongly

Agree


Disagree

23 17 4 4 2

46% 34% 16% 8% 4%%

The above table show that 46% teachers are Strongly Agree, 34% Agree, 8%Undecided, 8%DisAgree, and

4% are strongly disagree

Table 06: Pre-step programme may change the behavior of students through effective teaching.

Strongly

Agree


Disagree

19 22 7 1 1

38% 44% 14% 2% 2%



Table 07: Per-step may also create new financial incentive for teacher‟s education

Strongly

Agree


Disagree

14 13 17 5 1

28% 26% 34% 10% 2%

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Table 08: Per-step programme may improve the teaching skills.

Strongly

Agree


Disagree

25 14 3 3 5

50% 28% 6% 6% 10%


10% are strongly disagree.

Table 09: Per-step may help new teachers to improve teaching practical skills.

Strongly

Agree


Disagree

26 14 5 3 2

52% 28% 10% 6% 4%



Table 10: pre-step may help to develop a national policy framework for teacher education.

Strongly

Agree


Disagree

13 19 12 3 3

26% 38% 24% 6% 6%



Table 11: Per-step programme is a source of encouragement and motivation.

Strongly

Agree


Disagree

18 17 9 5 1

36% 34% 18% 10% 2%



Table 12: pre-step programme save energy and time.

Strongly

Agree


Disagree

17 13 13 6 1

34% 26% 26% 12% 2%



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Table 13: pre-step programme requires more qualified and trained teachers.

Strongly

Agree


Disagree

26 14 4 4 1

52% 28% 8% 8% 2%


2% are strongly disagree.

Table 14: pre-step programme is interesting way of teaching for the teachers.

Strongly

Agree


Disagree

25 17 4 3 1

50% 34% 8% 6% 2%

The above table show that 50%% teachers are strongly Agree, 34% Agree, 8%Undecided, 6%DisAgree,


Table 15: Through pre-step programme teachers may teach effectively.

Strongly

Agree


Disagree

19 22 4 2 3

38% 44% 8% 4% 6%

The above table show that 38%% teachers are Strongly Agree, 44%% Agree, 8%Undecided, 4%DisAgree,


Table 16: pre-step programme satisfy the teachers.

Strongly

Agree


Disagree

19 13 9 5 4

38% 26% 18% 10% 8%



Table 17: pre-step programme if implemented in Pakistan may achieve the objective.

Strongly

Agree


Disagree

18 20 10 2 0

36% 40% 20% 4% 0%



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Table 18: This programme satisfying the present needs of the students.

Strongly

Agree


Disagree

17 21 9 3 0

34% 42% 18% 6% 0%



Table 19: This programme may be helpful in satisfying the need of the teachers.

Strongly

Agree


Disagree

17 18 9 3 3

34% 36% 18% 6% 6%



Table 20: Pre-step programme increase creative thinking in students.

Strongly

Agree


Disagree

16 18 8 5 3

32% 36% 16% 10% 6%



Table 21: The duration of pre-step is extended over four years that may not be suitable for female

students.

Strongly

Agree


Disagree

29 12 12 5 2

58% 24% 24% 10% 4%



Table 22: One year B.E.D programme is preferable to B.E.D 4years because weightage of the degree

is the same.

Strongly

Agree


Disagree

21 11 8 8 2

42% 22% 16% 16% 4%

The above table show that42% teachers are strongly Agree, 22% Agree, 16%Undecided, 16%DisAgree,


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Table 23: Per-step 4years may be problematic as it is not announced by public service commission.

Strongly

Agree


Disagree

15 10 15 7 3

30% 20% 30% 14% 6%



Table 24: Pre-step 4years may be costly for the students.

Strongly

Agree


Disagree

22 15 5 8 0

44% 30% 10% 16% 0%



Table 25: Pre-step programme is liked by students.

Strongly

Agree


Disagree

27 12 5 3 3

54% 24% 10% 6% 6%



FINDINGS

Following were the finding of the study:-

1. 72% teachers strongly agree, 24% agree, 0% undecided, 4% Disagree and 0% are

strongly, disagree about pre-step focuses on the improvement of Pre-service

teacher education in Pakistan.

2. 36% teachers strongly agree, 44% agree, 16% undecided, 4% disagree and 0% are

strongly disagree that pre-step program is source of providing experts to the

nation.

3. 20 % teachers strongly agree, 22% agree, 28% undecided 22% disagree, and 8%

are strongly disagree that pre-step is wastage of time and money.

4. 34% teachers strongly agree, 24% agree, 16% undecided, 16% undecided, 16%

disagree and 10% are strongly disagree that pre-step is an expensive program.

5. 46% teachers strongly agree, 34% agree, 8% undecided, 8% disagree and 4% are

strongly disagree that through pre-step programme classroom teaching will be

improved.

6. 38% teachers strongly agree, 44% agree 14% undecided 2% disagree and 2% are

strongly disagree that pre-step programme may change the behavior of student

through effective teaching.

7. 28% teachers strongly agree, 26% agree 34% undecided 10% disagree and 2% are

strongly disagree that pre-step may also create new financial incentives for

teacher education.

8. 50% strongly agree, 28 agree, 6% undecided, 6% disagree and 10% are strongly

disagree that pre-step may improve that teaching skills.

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9. 52% strongly agree, 28% agree, 10% undecided, 6% disagree and 4% are strongly

disagree that and pre-step may help new teachers to improve teaching practical

skills.

10. 26% teachers strongly agree, 38% agree, 24% undecided ,6% disagree and 6% are

strongly disagree that pre-step may help to develop a national policy frame work

for teacher education.

11. 36% teachers strongly agree, 26% agree, 26% undecided, 12% disagree and 2%

are strongly disagree that pre-step program save energy and time.


are strongly disagree that pre-step program save energy and time.

13. 52% teachers strongly agree, 28% agree % undecided 8% disagree and 2% are

strongly disagree that pre-step requires more qualified and trained teachers.

14. 50% teachers strongly agree, 34% agree, 34% agree, 8% undecided 6% disagree

and 2% are strongly disagree that pre-step is interesting way of teaching for

teachers.

15. 38% teachers strongly agree 44% agree, 8% disagree and 6% are strongly

disagree, that through pre-step programme teachers may teach effectively

16. 38% strongly agree, 26% agree, 18% undecided 10% disagree and 8% are

strongly disagree that pre-step programme satisfy the teachers.

17. 36% teachers strongly agree, 405 agree 20 undecided, 4% disagree and 0%

strongly disagree that pre-step if implemented in Pakistan may achieve the

objectives.

18. 34% teachers strongly agree, 42% agree, 18% disagree and 0% strongly disagree

that this programme satisfying the present needs of the student.

19. 34% teachers strongly agree, 36% agree, 18% undecided 6% disagree and 6%

strongly disagree that this programme may be helpful in satisfying the needs of

the teachers.


strongly disagree that pre-step increase creative thinking in students.


strongly disagree that the duration of pre-step is extended over four years that

may not be suitable for female students.

22. 42% teachers strongly agree, 22% agree, 22% agree, 16% undecided, 16%

disagree and 4% strongly disagree that one year B.Ed programme is preferable to

B.Ed 4 Year because weight age of degree is the same.

23. 30% teachers strongly agree, 20% agree, 30% decided 14% disagree and 6%

strongly disagree pre-step 4 years may be problematic as it is not announced by

public service commission.

24. 44% teacher strongly agree, 30% agree, 10 undecided, 16% disagree and 0%

strongly disagree that pre-step 4 year may be costly for the student.

25. 54% teachers strongly agree, 24% agree 10% undecided 6% disagree and 6%

strongly disagree that pre-step is liked by student.

CONCLUSIONS

Following conclusions were hereby drawn from the finding of this research.

1. Majority of the teachers are in favor that pre-step focuses on the improvement of

pre-service teacher education.

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2. Most of the teachers are agree that pre-step is source of providing experts to the

nation.

3. After knowing the good side effect pre-step majority of teachers are strongly

agree that pre-step change the behavior of the student.

4. Majority of teachers disagree that pre-step is wastage of the time and money.

5. Most of the teachers strongly agree that pre-step is and expensive programme.

6. Most of the teachers agree that pre-step improve classroom teaching.

7. Most of teachers are strongly agree that pre-step create new financial incentives

for teacher education.

8. Majority of teachers strongly agree that pre-step improve teaching skills.

9. Majority of teachers strongly agree that pre-step help to develop a national policy

framework.

10. Most of teachers strongly agree that pre-step help new teachers to improve

teaching practical skills.

11. Majority of teachers strongly agree that pre-step save time and money.

12. Most of teachers strongly agree that pre-step requires more trained teachers.

13. Most of teachers strongly agree that pre-step is interesting way of teaching for

teachers.

14. Most of teachers agree that through pre-step teachers teach effectively.

15. Majority of teachers strongly agree that pre-step satisfy the teachers.

16. Majority of teachers agree that pre-step achieve the objectives

17. Most of teachers agree that pre-step satisfying the present needs of the student.

18. Most of teachers agree that pre-step helpful for the teachers.

19. Majority of teachers agree that pre-step programme increase creative thinking in

student

20. Majority of teachers strongly agree that duration of pre-step is not suitable for

female students.

21. Majority of teachers strongly agree that weight age of B.ED programmes is same.

22. Majority of teachers agree that pre-step 4 Year is problem for public service

commission to announce.

23. Most of teachers strongly agree that student liked the pre-step programme.

RECOMMENDATIONS

1. Pre-step should be introduced in all the education institution.

2. Qualified professional teachers may be appointed for this programme.

3. Seminars, conference and discussion should be arranged to give awareness to the

teachers.

4. Pre-step should be arraigned in teacher education program so the new teachers

should be known about pre-step.

5. Pre-step should be implemented very soon so that the universities of Pakistan

should become as pre foreign institutions.

6. Teachers should be convinced and informed about the advantages of pre-step.

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References

Mushin S.M (1990) Attitude concept. Formulates and change, New Delhi, vilely Easter

limited P-22.

Rosenberg Milton J. Tlovlan Carl. (1960), Attitude organization and change New York,

Ubial poolrooms press Inc p-4.

Ghorpadae B.M (1985) ―Essentials of psychology‖ New Delhi 3rd Edition P-385.

William C.B (1960) Encyclopedia Britannica Chicago, Benton Publisher P-75.

Encyclopedia of Education Britannica. (1960).

Ebel (1960). Attitudes. M.C Graw Hill publishing company.

.

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Risk factors of low back pain among rural & urban areas of Pakistan.

Dr.Muhammad Naveed Babur

BSPT(Pak),DPT(Pak)

Member,NCRC,Physical Therapy(HEC)

PRINCIPAL/Associate Professor

ISRA School of Rehabilitation sciences(ISRS)

ISRA University, Islamabad

Dr.Waqar Ahmed Awan

Senior Lecturer

Isra university,islamabad campus.

Abstract;

Objective: To find out the different risk factors for developing mechanical chronic LBP

in the rural and urban societies of Pakistan and to find out which one is the most prone-

society to develop chronic LBP

Study design: A cross sectional survey

Place and duration of study: At Multan, Faisalabad, and Rawalpindi from 5 April to

May 20, 2010.

Material and Methods: The information was collected through self-administered

questionnaire. The questionnaire was filled from the clients (age 30-50years) and was

classified into two groups rural and urban. The data was collected, scored, analyzed and

interpreted by SPSS. The total no of participants were n=100(urban.n=52, rural, n=48)

Result: The prevalence of mechanical chronic low back pain (MCLBP) in the urban and

rural was 39.3%, 31.3% respectively. The percentage of awareness about health in the

clients of urban and rural was 17.9%, 12.5% respectively. The percentage for cases

diagnosed in urban and rural was 12.3%, 10.4% respectively.

The percentage that others of their family members have MCLBP pain in urban and rural

was 17.9%, 29.2% respectively. The percentage of urban and rural clients, that they have

congenital abnormalities 1.8%, 0% respectively. The percentage of MCLBP due to

obesity in urban and rural societies was 10.7%, 4.2% respectively .the percentage of

MCLBP due to pregnancy in urban and rural societies was 0%.0% respectively. The

percentage of MCLBP in urban and rural societies, due to psychological disorders was

28.6%, 18.8 % respectively, to labor job was 35.7%, 41.7% respectively, due to repetitive

movements of bending, lifting and turning was 39.3%,70.8% respectively, due to

prolong sitting job was 50%, 41.7% respectively, due to vibration of the vehicles was

23.2%,20.8% respectively and due to irregular exercises was 21.4% ,16.7% respectively

and clients who do exercises regularly was 5.4%, 4.2% respectively.

Conclusion: The study showed high prevalence of MCLBP in urban then in rural region.

The study showed that MCLBP in the urban societies are mostly caused by obesity,

prolong sitting job ,psychological disorders and lack of exercises, and MCLBP in rural

societies are mostly caused by lack of health awareness ,heavy labor job and repetitive

movements of bending ,lifting, turning etc.

Key words: MCLBP, urban, rural, prevalence, risk factors.

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Introduction;

Although the literature is filled with information about the prevalence and incidence of

back pain in general, there is less information about mechanical chronic back pain

(MCLBP), partly because of a lack of agreement about definition. Chronic back pain is

sometimes defined as back pain that lasts for longer than 7-12 weeks.[1] Others define it

as pain that lasts beyond the expected period of healing, and acknowledge that chronic

pain may not have well-defined underlying pathological causes.[2] Others classify

frequently recurring back pain as chronic pain since it intermittently affects an individual

over a long period.[3] Low back pain (LBP) is the most prevalent musculoskeletal

condition and one the most common causes of disability in the developing nations.[4]

There is a general assumption that LBP prevalence in Asia is comparatively lower than in

developed countries. It is not the truth. [5]

The lifetime prevalence of LBP (at least one episode of LBP in a lifetime) in developed

countries is reported to be up to 85%.[6] .LBP results in significant levels of disability,

producing significant restrictions on usual activity and participation, such as an inability

to work. Furthermore, the economic, societal and public health effects of LBP appear to

be increasing and not constant or decreasing. It is an established fact that LBP incurs

billions of rupees in medical expenditures each year [7]. This economic burden is of

particular concern in poor nations such as Pakistan, where the already restricted health

care funds are directed toward epidemics such as HIV and AIDS and polios etc.

A review of research publications on LBP suggests that most research has been

conducted in the developed World,(America, European countries etc ) where little racial

heterogeneity exists [8]. Racial, economic and social homogeneity is not a feature of

Pakistan, a developing country. In Pakistan, it is quite the reverse one, It is logical,

therefore, to argue that genetic diversity, and differences in social structure and

economics between the developed and developing nations, may underlie reported

differences in the prevalence of LBP [9]. Other Pakistan -specific factors such as poverty,

lack of medical facilities, low standard of education , low literacy rate ,the prevalence of

HIV and AIDS epidemic, types of work tasks ,more working hours and lack of job-

security for workers as compared to the developed countries and poor nutrition may also

influence certainly LBP prevalence among Pakistani societies. [10]

Mechanical low back pain (LBP) exists in every culture and country (both in developed

and under-developing countries). Estimates by numerous investigators indicate that at

some point in their lives, 80% of all human beings experience LBP [11].Mechanical LBP

becomes more prevalent in countries with higher per capita income and where more

liberal policies and adequate funds provide for compensation (e.g., Germany, Sweden,

Belgium). The literature on the epidemiology of LBP is accumulating, but for the most

part, studies are restricted to high-income countries, therefore little is known about the

epidemiology of LBP in the rest of the world [12]. In developed countries such as the

United States of America (USA) and Australia, LBP prevalence ranges from 26.4 to

79.2%. [13]There appears to be a general assumption that LBP prevalence in Africa and

Asia is lower than that reported in the developed nations, While the research-based study

shows quite the reverse of that.[14].

A systematic review into the global prevalence of LBP by Walker in 2000, identified that

of the 56 included studies, only 8% were conducted in developing countries,(approx 4

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studies) and among these 4 studies only one study conducted in Asia [15],The lack of

information on the prevalence of LBP in developing countries is therefore a significant

shortcoming(it shows that Asian-workers , particularly workers of the developing

countries are not aware about back health and thus more prone to develop chronic

mechanical low back pain.) particularly as it is predicted that the greatest increases in

LBP prevalence in the next decade will be in developing nations [15]. Understanding

prevalence and causality of LBP in developing nations such as Pakistan may assist

understanding of global LBP causes and management , and will determine whether the

Factors( such as heavy labor works, vehicles vibration ,poor nutrition, lack of medical

facilities etc) differ in socio-cultural characters or not ?

LBP is common and prevalent disorder among office-workers and non-office workers

working in Japan [13-15]. Several studies have reported that the prevalence of back

disorders during a specific period of employment ranged from 26.4% and 55.3% [14, 15].

The significance of studying risk factors that influence work-related disorders and the

occurrence of LBP among the working population is thus emphasized [1, 2]. Some

studies report complicating information as that female gender [2, 6, 9, 11] or higher age

[9, 6] increase the risk of LBP, whereas other studies report no association between these

factors [6, 9].

Recent studies (on the prevalence of mechanical low back pain) have reported that

psychological factors such as job satisfaction [2, 3] and job strain, anxiety, depression [5,

2, 7] also may be risk factors for developing LBP in the candidates. However, evidence

for an association between psychological factors and LBP among workers has not been

studied in detail. The above-mentioned studies have found that demographic

characteristics, such as daily life conditions, job-related factors, and psychological factors

(as job stress and strain, job satisfaction, more working hours) may influence the

occurrence of mechanical LBP. These studies indicate the need to take into account

multiple work-related and life-associated factors that can be changed (i.e. variable-factors

of mechanical LBP) to help the workers and reduce the prevalence of LBP, including

daily life conditions (lifestyle and dietary habits, exercise), job related factors (work

activities and workplace environment, rest during work, availability of refreshment etc),

and psychological factors (such as job satisfaction etc).

There have been reported interactions between the above-mentioned factors. However,

many earlier studies did not adjust for potential confounding variables (such as sleep-

disorders, postural disorders, high BMI, lack of regular exercise etc). Therefore studies

evaluating the risk factors associated with LBP are full of loopholes. There is a lack of

well-designed studies on the prevalence and risk factors associated with LBP among

professional office –workers and non-professional workers particularly those working in

the periphery of the country (such as buner, swat, muzafarabad ,Multan etc), as they are

exposed to high workloads [13-7]. Therefore, we carried out this study on a nationally

representative sample of the clients including office-workers of both rural and urban

societies and non-office workers of both societies in Pakistan. The objectives of the study

were (1) to estimate the prevalence of self-reported rates of mechanical chronic LBP and

(2) to identify factors that could influence the occurrence of mechanical LBP among

office-workers and non-office workers in the urban and rural set-up of Pakistan.

Particular attention was paid to the physical environment (compounding variable) as a

potential cause of mechanical LBP. Attention was also paid to the links between LBP and

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psychological aspects of the work environment (job-satisfaction, job-stress etc) and to

several others intrinsic and extrinsic risk factors(poor nutrition, frequent bending and

turning etc) for developing chronic mechanical LBP.

Methods & materials; we conducted a cross-sectional survey using a mailed self-

administered questionnaire that investigated the prevalence of self-reported LBP and its

association with various risk factors among professional office-workers and non-office

workers in both distinct communities of Pakistan.(the rural and urban) Population-based

studies reporting the prevalence of chronic mechanical back pain, including people aged

30- 60 years and over with no gender ,religion and ethnic background differentiations

were included in the study while the rest were excluded .The methodological quality of

articles in relation to the question under study was assessed using a grid of inclusion and

exclusion criteria..Criteria were considered ‗fulfilled‘, ‗not fulfilled‘ or ‗not applicable‘.

Each paper was given a score that corresponded to the percentage of applicable criteria

that were considered fulfilled. When the information necessary to rate a criterion was not

available in a paper or another clearly specified reference, the criterion was rated ‗not

fulfilled‘. Only papers that were given an arbitrary score of 75% and more (‗good quality

studies‘) were used in the analyses and interpretation of results. The data was collected,

scored, analyzed and interpreted by SPSS.

The total no of participants were 100 (n=100, urban n=52, rural, n=48) the questionnaire

comprises of 15 questions about the different risk factor (such as obesity, spinal

abnormalities, lack of exercises, vibration and psychological disorders) for developing

MCLBP.

Results:

Result 1: The prevalence of mechanical chronic low back pain (MCLBP) in the urban

and rural societies was 39.3%, 31, 3% respectively.

Result 2: The percentage of awareness about the health in the clients of urban and rural

societies was 17.9%, 12.5% respectively.

Result3: The percentage for cases diagnosed in urban and rural societies were 12.3%,

10.4% respectively.

Result 4: The percentage, that others of their family members have MCLBP pain in

urban and rural societies were 17.9%, 29.2% respectively.

Result 5: The percentage of urban and rural societies clients, that they have congenital

abnormalities were 1.8%, 0% respectively.

Result 6: The percentage of MCLBP due to obesity in urban and rural societies, were

10.7%, 4.2% respectively.

Result 7: The percentage of MCLBP due to pregnancy in urban and rural societies, were

0%, 0% respectively.

Result 8: The percentage of MCLBP due to psychological disorders in urban and rural

societies, were 28.6%, 18.8% respectively.

Result 9: The percentage of MCLBP due to labor job in urban and rural societies were,

35.7%, 41/.7% respectively.

Result 10: The percentage of MCLBP due to repetitive movements of bending, lifting

and turning in urban and rural societies were, 39.3%, 70.8% respectively.

Result11: The percentage of MCLBP due to prolong sitting job in urban and rural

societies were, 50%, 41% respectively.

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MCLBP IN URBAN REGION

39.3, 21%

53.6, 29%

92.9, 50%

1

2

3

MCLBP IN RURAL REGION

31.3, 21%

68.8, 47%

48, 32%

1

2

3

Result 12: The percentage of MCLBP due to vibration of the vehicles in urban and rural

societies was, 23.2%, 41.7% respectively.

Result 13: The percentage of the clients who dose exercises in urban and rural societies

were

21.4%, 16.7 % respectively.

Result14: The percentages of the clients who do exercises regularly in urban and rural

societies were 5.4%, 4.2% respectively.

These above-mentioned results are shown below graphically.

Clarification notes for the above two pie graphs:

1=% of population having MCLBP

2=% of population having not MCLBP

3=% of population excluded in the study.

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DC, 18.8

DC, 10.4

, 18.8

GI, 70.8

PREG, 100

PD, 81.3

HLJ, 58.3

V V, 79.2

RM, 29.2

PE, 58.3

DE, 83.3

RE, 95.8OBES, 95.8CSA, 100

, 12.5

GI, 29.2

PREG, 0

PD, 18.8

HLJ, 41.7

V V, 20.8

RM, 70.8

PE, 41.7

DE, 16.7

RE, 4.2 OBES, 4.2CSA, 0

0

20

40

60

80

100

120

unknown

known

no

yes

DC, 28.6

DC, 12.5

, 23.2

GI, 75

PREG, 100

PD, 64.3

HLJ, 57.1

V V, 69.6

RM, 53.6

DE, 71.4

RE, 87.5

OBES, 82.1

CSA, 91.1

, 17.9 GI, 17.9

PREG, 0

PD, 28.6

HLJ, 35.7

V V, 23.2

RM, 39.3

DE, 21.4

RE, 5.4

OBES, 10.7

CSA, 1.8

0

20

40

60

80

100

120

unknown

known

no

yes

Graphical representation of the risk factors of MCLBP in rural region of Pakistan:

Graphical representation of the risk factors of MCLBP in urban region of Pakistan:

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Clarification notes for the above two multiple bar graphs:

1. HW= health awareness

2. DC=diagnostic causes of LBP

3. GI=genetics involved (it means LBP that run in family)

4. PREG=pregnancy

5. PD=psychological disorders

6. HLJ=heavy labor job

7. V V= vibrations of the vehicles

8. RM= repetitive movements

9. DE= doing exercises

10. RE=regularity in exercises

11. OBES=obesity

12. CSA=congenital spinal abnormality

Discussion:

In this cross-sectional study, the prevalence of self-reported chronic mechanical LBP was

high among urban population then in rural populations. This high prevalence was noted

regardless of occupation, ethnic, religious and gender back grounds. The questionnaires

results indicated that the prevalence of MCLBP was associated with daily life conditions,

job-related factors, repetitive movements such as bending or lifting, poor nutrition, lack

of exercises, sleep-disorders and psychological factors (job –stress).

These results are important as the study was conducted in a large sample of office and

non-office workers selected from specified cities and communities of Pakistan, with a

good response rate of 92%. Thus the results may thus be considered representative of

office –workers and none-office workers working in the rural and urban communities of

Pakistan. It was of particular interest that 95% of our sample was male, considering that

the proportion of male office workers and non-office -workers in both communities are

high. The 2-month prevalence of MCLBP were 39.3%% among urban and 31.3%

among rural regions. Comparing rural and urban societies: We found urban society were

more prone to produce and develop MCLBP.

We found higher % of these variables for urban society then the rural society, which

includes, types of occupation, lacked of awareness about health, increased height, spinal

abnormalities, family history of LBP, poor nutrition, poor posture, vibration of the

vehicles, kitchen-related risk factors, infrequent exercises and heavy labor and other daily

life conditions: We found a significant relation between prolong sitting habits and the

prevalence of LBP among office workers. Beija et al. reported that playing sports had a

protective effect against LBP [2, 4]. In our study, participants who participated in regular

physical activity (including sports) reported a lower prevalence of MCLBP. Available

literature about the association of MCLBP with regular sports/physical activity is open to

doubt. Further research is needed to prove their effectiveness of sports/physical activity

for preventing LBP among the working population.

In our study, there was a clear cut association between job-related factors (job-stress, job-

satisfaction etc) and developing MC LBP among workers both societies. Previous studies

dealing with professional workers also reported that job-related factors such as work

Activities, workplace conditions increased the risk of developing MCLBP [1, 6, 9].

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Our study reported that more frequent tasks involving materials handling, including

working with heavy loads, during the morning hours than in the afternoon causes

MCLBP and this fact was also reported in a previous study [14].

It has been suggested therefore that introducing a period of rest in the morning session

may have a positive influence on recovery from fatigue and reduction of symptoms such

as pain and stiffness, especially in the back, neck and upper limbs among workers [14, 6].

It would be of interest to study the timing and duration of the break period during

working hours an area of research which should be explored further.

Psychological factors related to work, such as high work stress and low job satisfaction,

have been linked with LBP in previous studies [2, 7]. Nevertheless, the relationship

between psychological factors and LBP among Office workers and non-office workers

has not been explored in detail. Our study confirmed a close association between

psychological factors such as job satisfaction, stress at work, financial constraints, health-

related problems, and worries about the future and the occurrence of MCLBP among

office workers and non-office workers in both communities of Pakistan.

In our study, higher rates of MCLBP were observed among the office workers and non-

office

Workers who reported a higher level of stress, in a previous study, workers exposed to

high stress at home and at work also suffered a significantly higher rate of LBP [4]. It

may be vital to examine the health status of office workers and non-office workers in

relation to their workplace conditions because it is reported that these conditions could

cause not only MCLBP but also complaints in the neck, shoulders, and arms [1, 8]. LBP

is known to be a major reason for the loss of work days and therefore decreased

productivity [12]. Along with this many others studies have confirmed that work-related

injuries, disorders, and diseases can be prevented by proper risk assessment and

employee training [4, 3]. A need is suggested for conducting a longitudinal study to

confirm the relationships observed in this study. Information on these relationships would

be useful for developing training programs to prevent MCLBP among office workers and

non-office workers in both communities of Pakistan.

Conclusion:

The study showed high prevalence of MCLBP in urban then in rural regions. The study

showed that MCLBP in the urban societies are mostly caused by obesity, prolong sitting

job, psychological disorders and lack of exercises and MCLBP in rural societies are

mostly caused by lack of health awareness, heavy labor job and jobs that required

repetitive movements of bending, lifting, turning etc.

This high prevalence was significantly associated with daily life conditions, job-related

factors, and psychological factors. These results suggest the importance of taking

comprehensive preventive measures. For reducing the prevalence of low back pain

among office workers(such as poor fitness, lack of exercises, poor posture and job related

stress) and non-office workers (heavy load ,repetitive movements poor fitness, poor

nutrition, poor working environment, lack of health awareness etc), it is generally

necessary to address a range of work-related and life –related MCLBP causative factors.

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References;

[1]. Japan Industrial Safety Health Association: General guidebook on industrial

health (in Japanese). Tokyo, Japan: Japan Industrial Safety and Health

Association; 2004.

[2]. Sheehan D, Al-Jarallah K, Moussa MA, Adham N: Prevalence of low back pain

among physical therapists in Kuwait. Med Princ Pract 2003, 12:224-230.

[3]. Burdorf A, Sorock G: Positive and negative evidence of risk factors for back

disorders. Scand J Work Environ Health 1997, 23:243-256.

[4]. Jin K, Sorock GS, Courtney TK: Prevalence of low back pain in three

occupational groups in Shanghai, People's Republic of China. J Safety Res 2004,

35:23-28.

[5]. Muto S, Muto T, Seo A, Yoshida T, Taoda K, Watanabe M: Prevalence of and

risk factors for low back pain among staffs in schools for physically and mentally

handicapped children. Ind Health 2006, 44:123-127.

[6]. Papageorgiou AC, Croft PR, Ferry S, Jayson MI, Silman AJ: Estimating the

prevalence of low back pain in the general population. Evidence from the South

Manchester Back Pain Survey, Spine 1995, 20:1889-1894.

[7]. Mehling WE, Krause N: Are difficulties perceiving and expressing emotions

associated with low-back pain

[8]. The relationship between lack of emotional awareness (alexithymia) and 12-

month prevalence of low-back pain in 1180 urban public transit operators. J

Psychosom Res 2005, 58:73-81.

[9]. Loney PL, Stratford PW: The prevalence of low back pain in adults: a

methodological review of the literature. Phys Ther 1999, 79:384-396.

[10]. Gilgil E, Kacar C, Butun B, Tuncer T, Urhan S, Yildirim C, Sunbuloglu

G, Arikan V, Tekeoglu I, Oksuz MC, Dundar U: Prevalence of low back pain in

a developing urban setting 2005, 30:1093-1098.

[11]. Omokhodion FO, Umar US, Ogunnowo BE: Prevalence of low back pain

among staff in a rural hospital in Nigeria. Occup Med (Lond) 2000, 50:107-110.

[12]. Cassidy JD, Carroll LJ, Cote P: The Saskatchewan health and back pain

survey. The prevalence of low back pain and related disability in Saskatchewan

adults. Spine 1998, 23:1860-1866.

[13]. Lee P, Helewa A, Goldsmith CH, Smythe HA, Stitt LW: Low back pain:

prevalence and risk factors in an industrial setting. J Rheumatol 2001, 28:346-

351.

[14]. Nagasu M: Prevalence and risk factors for work-related disorders in

school lunch workers, Japan. PhD thesis. Kagawa Nutrition University, Health

Sciences Department;2005 Kagawa

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A Study of factors effecting customer citizenship behavior

Abbas , Abbasi

( Faculty Member of Shahid Bahonar University of Kerman(Iran))

Department of Management, Economy and Management Faculty, University of Shahid

Bahonar Kerman, Kerman, Iran

Hasan , Safarnia

( Faculty Member of Shahid Bahonar University of Kerman(Iran))

Department of Management, Economy and Management Faculty, University of Shahid

Bahonar Kerman, Kerman, Iran

Mehdi, Baradaran

(Master of Business Management, Azad Islamic University, Qeshm Unit (Iran))

Department of Management, Azad Islamic University, Qeshm Unit, Qeshm, Iran

Rasoul.Abbasi (Corresponding author)

(Master of Business Management, Isfahan University (Iran))

Department of Management, Administrative Science and Economics Faculty, Isfahan

University, Hezar Jerib Street, Isfahan, Iran.

Abstract

Extra-role behaviors in organizations have recently drawn the ever-increasing attention of

researchers and managers regarding both their employees and their customers. While

relatively more attention has been paid to extra-role behaviors performed by employees,

this research tried to study the same behavior on the part of customers in some Iranian

banks in Shiraz province, I.R. Iran. The effective factors were recognized and studied

through historical approaches as well as literature review. Sampling was carried out in

simple classified random method. In order to collect data, we applied a closed

questionnaire while data analysis was performed through structural-equations model

using Amos. This research introduced loyalty and commitment as mediator variables for

customer-based corporate reputation and customer citizenship behavior. Citizenship

behavior is studied in the two aspects of helping-to-customers and helping-to-

organization. Results show that hypotheses related to customer-based corporate

reputation (CBR) and customer citizenship behavior (CCB) of helping-to-customers and

helping-to-organization are rejected; other hypotheses, however, confirmed with the

acceptable affect.

Key words: customer citizenship behavior, Extra-role behaviors, Iranian banks.

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1. Introduction

In the very competitive and ever-changing world of today, paying attention to customers‘

needs and trying to attract their attention are among the main concerns of managers

especially in service-based organizations. On the other hand, keeping the customers

satisfied and loyal gives the organization such significant advantages that will highlight

the importance of paying attention to customers. Organizations rise to fame by their

customers and the very reputation attracts more and more customers. Although the way

their reputation affects the customers‘ voluntary behavior is not clear enough, the

customers who maintain relations with reputable organizations tend to be more loyal and

committed (Sung and Yang 2008; Walsh et al. 2009). It is also possible that these

customers support highly reputable organizations via their voluntary extra-role behaviors

or it may be that they offer valuable feedbacks to the organization. Such customer

citizenship behaviors (CCBs) result in effective organizational performance (Bove et al.

2009; Gouthier and Schmid 2003; Groth 2005; Singh 0000) and provides them with

profit through their capital returns (Oliva and Sterman 2001).

The question is whether organizations should directly improve their customer citizenship

behaviors (CCB); if so, how is it related to other dependent variables regarding

customers' commitment and loyalty? Recent researches of service marketing mention the

importance of the mediating affects of such related variables as satisfaction and

commitment which are evaluated according to changes resulting from customer behavior

(Hennig-Thurau et al 2002; Walsh et al 2006; Wang et al,2003). Previous researches, too,

have stated that citizenship behavior helps productivity, efficiency and success of the

organization. Since citizenship behavior causes a more efficient application of the

institutions' resources, it allows employees and managers to allocate more of their time to

enhancement of employees‘ capabilities and productivity of the organization as their

duties (LeBlanc 1992). During the past decade several researches have been conducted in

the field of citizenship behavior in human resources studying the effect of employees

levels' variables including job satisfaction, confidence, organizational justice,

organizational commitment on managers' evaluation of their employees performance

(Morrison 2006); there is still a lack of sufficient research regarding the relationship

between the company's reputation and the customer's income. How customers' voluntary

behaviors affects the organizations' reputation is not clear yet. Although mediating effects

of commitment and loyalty between the company's reputation and the citizenship

behaviors have not been clarified through sufficient experimental studies, the issue of

how these variables interrelate to create various kinds of customer citizenship behaviors

(CCB) is by itself a considerable step towards a boroader understanding of voluntary and

optional behaviors of customers (Bartikowski and Walsh 2009). All this reflects the

importance of the company‘s reputation in relation to the key results of marketing

(Ambler 2000). The present research studies the direct and indirect mediating effects

between the company's reputation and the customer citizenship behaviors, i.e. loyalty and

commitment, and further examines the mediating variables of commitment and loyalty

between customer-based corporate reputation (CBR) and customer citizenship behaviors

(CCB).

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2. Conceptual framework

2.1. Customer citizenship behavior

Concentration on customer citizenship behavior recently exists in management and

marketing literature with an increasing rate (Aherne, Bhattacharya and Gruen 2005;

Bettencourt 1997; Groth 2005; Lengnick-Hall, Claycomb and Inks 2000). It is possible

that the customers get involved in a set of citizenship behaviors the way organizational

employees themselves are directly guided to a special organizational direction. Having

several productive companies studied, Bowen (1986, p. 371) argues that their customers

seldom get involved in the process of production. In service organizations, moreover,

both customers and employees are regarded as human resources. Customers often take

part in activities different way or under different circumstances from how employees may

do the same; it is therefore possible that customers replace employees in service-based

organizations (Halbesleben and Buckley, 2004). Previous studies suggest that service-

based organizations should, in some cases, consider customers at least as organizational

members or even as employees (Kelley, Donnelly and Skinner 1990). Based on these

descriptions, it can be claimed that service customers may display citizenship behavior

the same way as employees themselves do. Thus, we can apply findings of citizenship

behavior studies to the customers. In management literature customer citizenship

behavior is formally defined as ―the voluntary individual behavior which is not explicitly

or directly recognized by means of formal reward system and generally strengthens the

effective efficiency of the organization‖ (Organ 1988, p. 4). Similarly, customer

citizenship behavior is defined as ―the voluntary behavior which is not essential to

successful production or to introduction of services but totally useful to the whole service

organization‖ (Groth 2005, p. 11). Several terms can be used to explain customer

citizenship behavior among which the following are considerable: customer voluntary

behavior (Ford 1995) customer's voluntarily performance (Bailey, Gremler &

McCollough 2001; Bettencourt 1997), organizational citizen in customers' section

(Lengnick-Hall et al 2000), lateral product of production process (Gruen, Summers &

Acito 2000), and ―extra-role‖ behaviors of customer (Aherene et al 2005).

The literature regarding the term service suggests various aspects of customer citizenship

behavior. Groth (2005) has identified three aspects of customer citizenship behavior: 1)

Introducing feedbacks to the organization which means the presentation of applicant's

information to the organizations with an aim to help them improve their service-

providing process, 2) Helping other customers parallel to the philanthropy aspect in

organizational citizenship behavior, and 3) Giving commercial recommendations to

friends or family members (Groth, Mertens & Murphy 2004). In addition, Ford (1995)

suggests that customers who display citizenship behavior may show their commitment to

the service organization and report potential protective issues to the employees. Keh and

Teo (2001) have claimed that the customer's resistance against the failure of a service is

another aspect of customer citizenship behavior. They state the case as a customer's

tendency to accompany the services they encounter while these services are not executed

as expected. Such an attitude results in permanent customerization and does not publish

negative word-of-mouth marketing (advertisements). marketing literature slightly

suggests the main characteristics of customer citizenship behavior to be: voluntary

feedback, voluntary behavior, and helping the organization.

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Previous factors of citizenship behavior have been studied in very few empirical studies.

Bettencourt (1997) found out that customer satisfaction, customer commitment and

perceived support for customers have a positive relation with customer citizenship

behavior. Gruen, Summers, and Acito (2000) have shown a positive relation between

effective commitment and customer citizenship behavior. Aherene, Bhattacharya, and

Gruen (2005), too, have suggested links between customer- identification of the

organization and customer citizenship behavior. Finally, Groth (2005) has figured out

customer's socialization to be in relation with his/her satisfaction with customer

citizenship behavior.

2.2. Reputation arises from the customer-based company

Organization‘s reputation as a concept has attracted the attention of academicians in

different fields of management, economy, sociology and marketing (Brown, Dacin, Pratt,

and Whetten 2006). Generally, researchers have observed reputation of the company

from an economical viewpoint so that the company's reputation is conceived as

expectations of internal or external members of the organization, estimating specific

organizational characteristics (e.g. Weigelt and Camerer 1988) or it is created from

organizational theory which identifies the understanding of shareholders' groups reflected

from collective perceiving, including customers, employees and investors (Deephouse

2000; Fomburn and Shanley,1990; Olins 1990).

Based on organizational viewpoint, company's reputation is defined as a general

evaluation of whetther the organization is originally good or bad (Weiss, Anderson, and

Maclnnis 1999; Roberts and Dowling 2002). Rindova, Williamson, Petkova and Sever

(2005) have pinpointed prominent sources such as quality of data and factors of

production, rating in progress, organizational success, and dependence upon other

institutions as arrangements of organizational reputation (though some researches have

limited the generality of their model). Carmeli and Tishler (2005) have studied the roles

of production quality and customer satisfaction in predicting the company's reputation.

Previous researches demonstrate that the company's reputation has a positive effect on

financial performance (e.g. Fombrun 1996; Roberts and Dowling 1997, Podolny 1993).

Moreover, companies can benefit from a desirable organizational reputation through

various methods like: 1) delay in the capability of the competitor's motion in industry, 2)

increasing the value-added price for customers at least in certain markets, 3) attracting

more amounts and higher quality of investments from the stock market, 4) preserving the

spiritual value among the employees, 5) increasing the benefits related to reduction of the

contract's costs, supervising providers and reducing employees' wages, and 6) enhancing

the introduction of new products and supporting improvement strategies in critical times

(Benjamin & Podolny 1999; Carmeli & Tishler 2005; Fombrun & Shanley (1990;

Fombrun, 1996; Rindova et al. 2005; Roberts & Dowling 2002).

A good reputation has not already work as a cure-all medicine. In a recent study, Page

and Fearn (2005) have stated that although a bad reputation definitely makes the

competition of commercial brands a more difficult task, a good reputation does not

guarantee strong commercial brands. Researches also show that earning a strong

organizational reputation has a pitfall especially when organizations are faced with a

problem. Rhee and Haunschild (2006) have studied production companies in the USA

automobile industries in order to demonstrate the necessity of a good reputation. Their

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findings, specifically, reveal that companies with a good reputation will have, in cases of

mistake occurrence, more trouble than those with a weak reputation (a fact which is

probably due to the contradictive effect of satisfying the customers' high expectations)

(Herr 1989). A strong organizational reputation represents an organizational brand which,

in turn, reduces transactional costs and attracts incomes to the company (e.g., Caruana et

al. 2004; Einwiller et al. 2006; Rose and Thomsen 2004; Shapiro 1983).

Fombrun (1996) and Sung & Yung (2008) have recommended that customers of

organizations with a good reputation and privileged background are committed to offer

supportive behaviors; the company's reputation will consequently result in a reduction of

payments. Since higher-level customers attribute competence and quality to the

organization, they in fact support the organization in this way. In order to obtain more

profound knowledge about reputation based on customers' viewpoint, Walsh and Beatty

(2007, p. 129) have introduced the concept of customer-based corporate reputation

(CBR). This concept is defined according to the general valuation of the customer by the

company based on customer's contacts with goods, services, communicative activities,

interactions with the company and/or representatives and its members (including

employees, managers or other customers), or identified activities of the company. Their

customer-based corporate reputation (CBR) scale contains five aspects of background

(i.e. orientation of customer towards employer's quality, financial ability, quality of

services, quality of productions, and social responsibility) perceived by recent customers

of the company.

2.3. Customer commitment

Commitment is one of the main factors that take part in successful relations of marketing

owing to its capability in indirect guidance of voluntary behaviors as well as the results of

production which enhances the productivity potential and impacts of performance

(Morgan and Hunt 1994). Commitment is one of the main concepts in researches of

relations' marketing in social-exchanges theory (Dwyer, Schurr, and Oh 1987; Hennig-

Thurau, (Gwinner and Gremler 2002). Commitment is a long-term exchange of parties

for maintaining valuable permanent relations (Moorman, Zaltman, and Deshpande 1992;

Morgan and Hunt 1994). Berry and Parasuraman (1991) have stated that relations in the

field of service-marketing are built based on mutual commitment. The customer's

commitment is mainly defined as a tendency in partners' interactions for maintaining

permanent relations (Garbarino and Johnson 1999; Hennig-Thurau et al. 2002).

Commitment against service-based organizations reflects the customers' permanent

tendency to maintain their valuable relations (Moorman et al 1992). This tendency may

be a result of lateral advantages of long-term relations with service organizations such as

increase in confidence and mutual social relations (Gwinner et al 1998). In order to

maintain the customers' relations with service organizations, benefits of products and

self-sacrifice should be increased and choices should be extended in order to decrease

customers' resistance (Wieselquist et al 1999). Therefore, customer's organizational

citizenship behavior (OCB) may be a result of a self-service motivation of the customer,

that is, "I need these relations to continue". Consequently, it is useful for service

organizations in such direction. Moreover, Bettencourt's results (1997) show that

customer's commitment towards the company increases the possibility of positive word-

of-mouth marketing and active voice.

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2.4. Customer loyalty

Customer loyalty is a mixture of customer's attitudinal loyalty in terms of degree of

priority and perceived differences of customers in relation to service companies (Dick

and Basu 1994). This issue is derived from theories of confidence and commitment and

has more influence on customer behaviors compared to other forms of relations, as far as

loyalty can be developed (Lacobucci and Ostorm 1996). This is due to the fact that

commercial relations with high levels of customer loyalty are probably regarded as social

relations. In such social relations, individuals have a sense of responsibility for private

wealth of other individuals/companies (Clark et al 1987). They feel responsible for the

benefits of organizations when needed with the purpose of enhancing the institutions.

Therefore, while the customer is loyal to the service companies, it is also possible that

another service motivation be in progress at the same time. Based on feelings of

dependence and affection, the customer is exposed to this issue so much so that he has a

sense of unanimity towards service companies and wants to help them by representing

right behaviors at the right time. This issue provides evidences which support customer

loyalty and link with customer organizational citizenship behavior. Reynold and Arnold

(2000) have shown that customer loyalty to a seller in a retail sale environment is

accompanied directly with important outcomes of the store, such as word-of-mouth

marketing, sales share, and competitive resistance. Besides, Macintosh‘s findings reveal

that customers with strong inter-individual behaviors show higher levels of particulars

that include voluntary extra-role behaviors like identification, reinforcement, cooperation

and support.

The studied samples in researches carried out in France, 2009 were customers of banking

services, retail sale and fast-food restaurants after mediating roles of commitment and

loyalty of customer between the company's reputation and the customer citizenship

behaviors had been examined. Citizenship behaviors were considered in two dimensions

of helping other customers and helping the company. Results reveal that the company's

reputation is the most prominent factor with regard to commitment and loyalty of the

customer. Variables related to commitment and loyalty with regard to customer

citizenship behavior (CCB) in helping other customers were not supported. And

voluntary and extra-role behaviors have been considered useful just in relation with the

company (Bartikowski and Walsh 2009a).

In studies performed in Korea, 2008 the purpose was to examine the intensity of

customers' fair understanding of developing the received services or of the failure to

receive services. The studied sample was 609 MBA students and 68 purchasing

companies; the impact of the customers‘ fair understanding and its influence on customer

citizenship behavior, as well as the unusual behaviors of customers have been studied.

The effect of factors like distributive justice, procedure justice and mutual justice (along

with their positive or negative impacts) on customer citizenship behavior and on

customers‘ unusual behavior were studied and most hypotheses of the research were

confirmed (Yi and Gong, 2008 767).

In researches of Bove et al. (2008), the role of service workers in encouraging customer

organizational citizenship behavior has been studied. Research variables of commitment

to service workers, personal loyalty, credibility of service worker, and finally the

benevolence of service worker were all tested in relation with customer organizational

citizenship behavior; personal-loyalty variable was considered as a commitment mediator

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for service workers and organizational citizenship behavior. Results reveal that other

hypotheses are confirmed except for the effect of benevolence of service workers on

customer organizational citizenship behavior (Bove et al. 2008, p. 702).

A research in China, 2008 studied the company's reputation and customer behavioral

purposes, together with the role of confidence, identity, and commitment of customer.

The sample in this research was three Chinese service-based companies. Customer

confidence, customer identity, and customer commitment are regarded as mediators for

the company's reputation and the customers‘ purchasing behavioral purposes plus

satisfaction for paying the reward. Results show that company's reputation, with a

positive effect on customer's confidence, identity, and commitment, is placed as a

mediator between the structural relations (customer confidence and customer identity)

and the behavioral purposes (Keh and Xie 2008, p. 732). The present article , however,

aims to study a model edited and tested by Bartikowski and Walsh (2009); the primary

model together with hypotheses of the research are represented as figure 1:

Hypothesis 1. CBR has a positive impact on customer commitment.

Hypothesis 2. CBR has a positive impact on customer loyalty.

Hypothesis 3. CBR has a positive impact on ―helping other customers‖ dimension of

customer citizenship behaviors.

Hypothesis 4. CBR has a positive impact on ―helping the company‖ dimension of

customer citizenship behaviors.

Hypothesis 5. Customer commitment mediates the effect of CBR on the (a) ―helping

other customers‖ dimension and (b) ―helping the company‖ dimension of customer

citizenship behaviors.

Hypothesis 6. Customer loyalty intentions mediate the effect of CBR on (a) ―helping

other customers‖ dimension and (b)‖ helping the company‖ dimension of customer

citizenship behaviors.

3. Methodology

The statistical population of this research is permanent customers of Tejarat bank and

Keshavarzi bank branches in Shiraz province. As the population is statistically large,

access to all the above-mentioned customers was practically impossible. So, we have

used sampling and the time period of research is the first six months of the year 2010; the

sampling method of this research is classified sampling proportional to the volume;

samples are selected through simple randomization in each class. The sample volume is

considered from among unlimited population formula with error amount 196 (0.07) of

random sampling.

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196

07.0

)5/0(5/096/12

2

n

In order to determine sample volume in classes, Partial abundance of each class is taken

into consideration. Therefore, number of samples in each class has been determined with

regard to the portion of each class from the total population (applying Kokran formula)

and is shown in table 1 as the following: (Table 1)

Metrical data is firstly collected from a sample of 196 individuals of permanent

customers of banking services and then applied in testing the hypotheses. Respondents of

the recent questionnaire have been two groups of customers of bank services in Tejarat

and Keshavarzi banks. They have used Likert‘s fifth score scale (1 for the strong

disagreement to 5 for strong agreement). Five aspects of customer-based corporate

reputation (CBR) are adopted from Walsh and Beatty (2007) consisting of 14 items.

Measuring the remaining structures of each one includes three items. Items related to

commitment are adopted from Hennig-Thurau et al (2002), items related to customer

loyalty are obtained from Arnold and Reynolds (2003), and two aspects of customer

citizenship behaviors are derived from Groth (2005).

In order to determine the reliability of the selected tools, the questions' factorial analysis

based on variables were used with an aim to study and confirm its significance and

standard coefficient. The standard questionnaire of Bartikowski and Walsh (2009, p. 5) is

applied. Validity of the research has been identified through Cronbach's alpha coefficient

of 30 customers as random sample in the form of a case-study with classified sampling

method. Alpha coefficient is obtained 0.88 percent which is confirmed (related

explanation in table 2).

4. Data analysis and research findings

According to the general information obtained, the largest age-group is 25-30 yrs old

with 29.1 percent of all respondents while the smallest group is 15-20 yrs old with 1.5

percent of all respondents. Regarding the respondents' level of education, most are

finished school graduates (or below that) with 38.8 percent of all respondents. Regarding

the time period of working with the branch, the highest number is related to 1-4 years

with 34.7 percent of all respondents. Regarding the gender of respondents, 81.1 percent

are male and 18.9 percent female. Regarding their marital status, 69.9 percent are married

and 30.1 percent single. Further information is shown in table 3.

4.1. Testing of hypotheses

To examine the direct effect of Customer-based corporate reputation (CBR), the research

hypotheses are tested by structural equations modeling in Amos 18, regarding

commitment, loyalty and two aspects of customer citizenship behaviors (CCB) together

with the mediating effects of commitment and loyalty for Customer-based corporate

reputation (CBR) and two aspects of customer citizenship behavior (CCB). According to

the research structural model, its suitability indexes CMIN/DF is obtained 791/120

(which is a high number due to the large number of variables). The amount of CMIN/DF

equals 2/719. Since it is between 2 and 3, goodness of the model is acceptable. The

?)(

2

2

2/ e

qPZn

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remaining square mean roots (RMR) shows that goodness of fit index (GFI= 0.759) and

adjusted goodness of fit index (AGFI=0.709) are not between 0.9 and 1. Root mean

square of estimation error of squares (RMSEA=0.94) is higher than 0.05, PCLOSE

(being 0.000) is lower than 0.05, and the low limit is higher than 0.05. All these indicate

that the compiled model doesn‘t acquire an acceptable goodness in terms of this index.

4.2. Primary analysis and estimation of hypotheses

Factorial analysis proves the regression weight for problem-solving of error variables

without scale. Considering the factorial analysis according to the effect of all hypotheses,

hypothesis 1 shows the relation between Customer-based corporate reputation (CBR) and

commitment with a significant p-value and the amount of effect of its loading factor is a

standard coefficient of (β= 0.843, p< 0.001); hypothesis 2 shows the impact of Customer-

based corporate reputation (CBR) on loyalty with a significant p-value lower than 0.05

and a standard coefficient of (β=0.817, p< 0.001); Hypothesis 3 shows the effect of

Customer-based corporate reputation (CBR) on customer citizenship behavior (CCB) of

―helping the customers‖ with no significant p-value and a standard coefficient of (β= -

0.443); this hypothesis is hereby rejected. Hypothesis 4 is with no significant p-value and

a standard coefficient of β=0.332; this hypothesis is rejected too. Hypothesis 5A shows

the amount of impact of commitment on customer citizenship behavior (CCB) of

―helping the customers‖ with a significant p-value of 0.012 and a standard coefficient of

(β= 0.524, p< 0.05). Hypothesis 5B shows the amount of impact of commitment on

customer citizenship behavior (CCB) of ―helping the company‖ with no significant p-

value and is therefore rejected. Hypotheses 6A and 6B show the amount of impact of

loyalty on customer citizenship behavior (CCB) of ―helping the customers‖ and ―helping

the company‖, both with significant p-values and standard coefficients of (β= 0.637, p<

0.001) and (β= 0.346, p< 0.05) respectively. These hypotheses are confirmed as

explained in table 4.

4.3. Factorial analysis and primary estimation of research questions

Factorial analysis of questions is studied regarding standard and non-standard regression

volumes of research items. The standard coefficient of these items (β) is confirmed to be

higher than 0.4 with significant p-values lower than 0.05. Results show that all questions

of the questionnaire have significance amount of (p< 0.001). The amount of standard

coefficient (β) for all items is higher than 0.4. In this phase, the reliability of questions

used in this research is confirmed with a positive effect. Related data is shown in table 5.

4.4. Final analysis of research hypotheses

Estimating the factorial analysis of hypotheses based on modified model of this research,

some differences in research results are found (compared to its primary analysis) which is

due to the elimination of hypotheses with rejected significance. Results derived from our

significant hypotheses, p-value, and standard coefficient (β) show that hypothesis 1 is

confirmed, showing the impact of customer-based corporate reputation (CBR) on

commitment with a significant p-value and a standard coefficient of (β=0.844,p<0.001);

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hypothesis 2 is confirmed, showing the impact of customer-based corporate reputation

(CBR) on loyalty with a significant p-value and a standard coefficient of

(β=0.817,p<0.001); hypothesis 5A is confirmed, showing the effect of commitment on

customer citizenship behavior (CCB) of ―helping the customer‖ with a significant p-value

and a standard coefficient of (β=0.322,p<0.05); hypothesis 5B is confirmed, showing the

effect of commitment on customer citizenship behavior (CCB) of ―helping the company‖

with a significant p-value and a standard coefficient of (β=0.307, p<0.05); hypothesis 6A

is confirmed, showing the effect of loyalty on customer citizenship behavior (CCB) of

―helping the customers‖ with a significant p-value and a standard coefficient of

(β=0.484, p<0.001); hypothesis 6B is confirmed, showing the effect of loyalty on

customer citizenship behavior (CCB) of ―helping the company‖ with a significant p-value

and a standard coefficient of (β=0.471, p<0.001); hypotheses 3 and 4 are rejected due to

their insignificance. Explanation of the results is shown in table 6.

4.5. Final analysis of research questions

Few changes are obtained in the amount of impact of standard coefficient (β) of each

research items through factorial analysis of research questions. But all questions still have

significant p-values (p<0.001) and their amounts of standard coefficient are higher than

0.4. Final validity of all items is consequently confirmed. Explanation of factorial loads'

analysis is represented in table 7.

According to table 6, hypothesis 1 shows the direct effect of Customer-based corporate

reputation (CBR) on customer's commitment is confirmed; hypothesis 2 shows the effect

of Customer-based corporate reputation (CBR) on customers' loyalty is positively

confirmed. There is no significant relation in hypotheses 3 and 4, showing the effect of

Customer-based corporate reputation (CBR) on customers' citizenship behaviors, and are

therefore rejected. Hypothesis 5A shows the amount of effect of commitment on

customer citizenship behavior (CCB) of ―helping the customers‖ to be of positive impact.

Hypothesis 5B shows the effect of commitment with customer citizenship behavior

(CCB) of ―helping the company‖ with a significant effect; Thus, hypotheses 5A and 5B

are both confirmed. According to hypotheses 6A and 6B which show the effect of

customers' loyalty on customer citizenship behavior (CCB), loyalty has a significance

lower than 0.05 and a positive effect on customer citizenship behavior (CCB) of both

―helping the customers‖ and ― helping the company‖; these hypotheses are confirmed,

too. Related descriptions are illustrated in the figure 2.

5. Discussion and conclusion

This research studies factors affecting the citizenship behavior of customers of Tejarat

and Keshavarzi banks in Shiraz province. Based on tests performed on our hypotheses,

some of the hypotheses show a significant relation for customer-based corporate

reputation (CBR), commitment and loyalty variables with customer citizenship behavior

(CCB) of ―helping the customer‖ and customer citizenship behavior (CCB) of ―helping

the company‖ variables. Results also reveal that the strongest amount of impact belongs

to customer-based corporate reputation (CBR) and commitment variables (hypothesis 1);

the second strongest impact pertains to customer-based corporate reputation (CBR) and

loyalty variables (hypothesis 2); the background provided by the previous researches (e.g.

Bartikowski and Walsh 2009, p. 3) confirm our results. Other highest significances in our

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results can be ranked as follows: the variables of customers' loyalty and customer

citizenship behavior (CCB) of ―helping the customer‖ (hypothesis 6A), loyalty and

customer citizenship behavior (CCB) of ―helping the company‖ (hypothesis 6B),

commitment and customer citizenship behavior (CCB) of ―helping the customers‖

(hypothesis 5A), and commitment and customer citizenship behavior (CCB) of ―helping

the company‖ (hypothesis 5B). It should also be noted that the hypotheses related to the

effect of customer-based corporate reputation (CBR) on customer citizenship behavior

(CCB) of ―helping the customers‖ (hypothesis 3) and the effect of customer-based

corporate reputation (CBR) on customer citizenship behavior (CCB) of ―helping the

company‖ (hypothesis 4) are rejected.

Researchers can develop a customer-based corporate reputation (CBR) scale including

five main aspects as well as potential dimensions specific to a country through

explorative interviews. Several organizations in the USA and many countries of

European Union, for instance, apply variety management for achieving valuable human

resources for increasing production and creating a development culture (Harris et al

2003). Results of this research show that the reputation of a company has no direct or

positive effect on its helping other customers and the company; this is in contrast with the

results obtained from previous researches. Commitment has a good relation with

customer citizenship behavior (CCB) of helping other customers and the company.

Loyalty of customers has an acceptable relation with customers' cooperation in terms of

helping other customers and the company; this, by itself, shows that paying attention to

plans for developing the customers‘ commitment and loyalty will bring about more

effective results for reputation of the company on customers' precautionary behaviors

instead of philanthropic and helping-other- customers.

Findings further reveal that behaviors a good reputation stimulates the customer

citizenship behavior (CCB) and positively affects the commitment and loyalty. CCB-

CBR link is deceptive in a special form for those who have jobs. Customer's integration

is considered to be the most effective way to increase service production (Lovelock and

Young 1979; Gouthier and Schmid 2003). One of the useful methods for creating

commitment and loyalty in customers' consumption is to pay more attention to

sensational aspects for customers' commitment. It will result in repeated purchasing or

becoming a permanent customer for preferred services by focusing on customers' attitude

and ideas. This subject is similar in tendency to recommending the company to other

customers and that‘s the reason why such customers' loyalty can be considered as an

attitudinal structure. Strong relations of customer-based corporate reputation (CBR),

commitment, and loyalty of customers show equal dependence. As mentioned in the

literature of services marketing, it is essential to nurture customers' commitment to the

service organization with an aim to gain positive effects of marketing results (e.g.,

Hennig-Thurauet al., 2002).

An especially important result which can be presumed according to the rejection of the

direct impact of corporate reputation on customer citizenship behavior (CCB) to the other

customers as well as to the organization, is that organization‘s high reputation alone does

not cause a customer to show any citizenship behaviors; on the contrary, customers who

have become loyal and committed to an organization can be a more probable source of

such behaviors.

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6. Limitations of the research Some limitations exist in this study:

1- Since the statistical population of the research is permanent customers of Tejarat

and Keshavarzi banks, and they both are known as specialized banks, this

limitation exists that characteristic of their services is different and their

customers reveal various precautionary behaviors based on such characteristics.

2- The conceptual model is obtained from the current literature but it is not

supported by quantitative field work. A strategy which includes interviewing the

customers and the service managers may offer additional insights not specified in

the current literature so far.

3- As there is no access to the information about permanent customers of banks in

Shiraz province, the volume of the population has been regarded in this study as

unlimited. Thus, generalizing of the acquired results to the whole population may

face deficiencies.

4- Some permanent customers' reluctance to participate or lack of cooperation in

completing the questionnaires may make imbalances in data collection based on

the current fact.

5- Because of the time restriction in collecting the questionnaires, this limitation

exists that all data is not gathered by target customers during data collection.

This research is merely focused on the main and effective aspects of commitment and

loyalty as mediator variables in reputation-income relation. This study demonstrates

customer citizenship behaviors as two-dimensional structures, while other researches

recommend more dimensions of citizenship behavior.

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Annexure

Figure 1 - Conceptual Model

Bank rankings of

Tejarat & Keshavarzi

branches

Total number of

Tejarat branches

Total number of

Keshavarzi branches

Collected questionnaires

Tejarat Keshavarzi

excellent 3 1 5 5

1st grade 3 1 5 5

2nd

grade 11 1 18 5

3rd

grade 33 4 53 20

4th

grade 16 8 26 41

5th

grade 2 2 3 10

Total 68 17 196

Table 1 - The Method of Spreading the Questionnaires per Selected Branches

CBR

CCB: Helping

the company

COMMITMENT

LOYALTY

CCB: Helping other

customers

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Cronbach's alpha coefficient Number of questions Variables

0/79 1-14 CBR

0/75 15-17 Commitment

0/76 18-20 Loyalty

0/81 21-23 CCB-CU

0/74 24-26 CCB-CO

0/88 1-26 total

Table 2- Cronbach's Alpha Coefficients

Age

15-20 20-25 20-30 30-35 35-40 40-45 >45

Percentage 1/5 10/2 29/1 18/4 8/7 8/2 24/0

Aggregational

Percentage

1/5 11/7 40/8 59/2 67/9 76/0 100/0

Education Without

academic

education

Associate

degree

Bachelor Master Ph.D

Percentage 38/8 25/0 30/6 3/1 2/6

Aggregational

Percentage

38/8 63/8 94/4 98/4 100/0

connection

duration Less than

1 year

1-4 years 5-9 years More

than 10

years

Percentage

19/4 34/7 24/5 21/4

Aggregational

Percentage

19/4 54/1 78/6 100/0

Gender Male Female

Percentage 81/1 18/9

Aggregational

Percentage

81/1 100/0

marital status single married


Aggregational

Percentage

30/1 100/0

Type of

connection active inactive


Aggregational

Percentage

82/7 100/0

Table 3-General Information: Age Combination, Education, Connection Duration, Gender, Marital

Status, Type of Connection

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Result standard

coefficients

Non-standard

coefficients

p-value hypotheses

Confirmed .843 1.321 *** CBR - COMMITMENT H1

Confirmed .817 1.141 *** LOYALTY- CBR H2

Rejected -.345 -.443 .187 - CBR CCB-CU H3

Rejected .322 .388 .168 - CBR CCB-CO H4

Confirmed .524 .429 .012 COMMITMENT CCB-CU- H5a

Rejected .106 .081 .561 COMMITMENT CCB-CO- H5b

Confirmed .637 .586 *** CCB-CU-LOYALTY H6a

Confirmed .346 .298 .036 CCB-CO-LOYALTY H6b

Table 4 -The Summary of Hypotheses Estimation of Initial Model

standard

coefficients

Non-standard

coefficients

p-value Variables Questions

.668 .962 ***

CBR

q1

.606 .0201 *** q2

.642 .972 *** q3

.546 .865 *** q4

.428 .698 *** q5

.597 1.042 *** q6

.564 .966 *** q7

.571 .940 *** q8

.591 .972 *** q9

.670 1.107 *** q10

.610 .960 *** q11

.610 1.055 *** q12

.500 .912 *** q13

.640 1.000 *** q14

.601 .644 ***

COMMITMENT q15

.805 .898 *** q16

.694 1.000 *** q17

.657 .772 ***

LOYALTY q18

.716 .839 *** q19

.807 1.000 *** q20

.655 .958 ***

CCB-CU q21

.746 .916 *** q22

.697 1.000 *** q23

.669 .957 ***

CCB-CO

q24

.794 1.101 *** q25

.613 1.000 *** q26

Table 5-Regression Coefficients (Volume of Items) Questions of Each Item

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standard

coefficient

Non-standard

coefficient

p-value hypotheses

.844 1.320 *** CBR - COMMITMENT H1

.817 1.137 *** LOYALTY- CBR H2

.322 .263 .013 COMMITMENT CCB-

CU-

H5a

.307 .232 .021 COMMITMENT CCB-

CO-

H5b

.484 .444 *** CCB-CU-LOYALTY H6a

.471 .400 *** CCB-CO -LOYALTY H6b

Table 6-Summary of the Results of Modified Model

standard

coefficient

Non-standard

coefficient

p-value Variable Questions

.670 .960 ***

CBR

q1

.608 1.019 *** q2

.640 .964 *** q3

.547 .863 *** q4

.428 .696 *** q5

.597 1.039 *** q6

.563 .961 *** q7

.568 .931 *** q8

.587 .961 *** q9

.669 1.101 *** q10

.608 .953 *** q11

.608 1.048 *** q12

.500 .908 *** q13

.643 1.000 *** q14

.599 .640 ***

COMMITMENT q15

.805 .894 *** q16

.696 1.000 *** q17

.661 .776 ***

LOYALTY q18

.714 .836 *** q19

.808 1.000 *** q20

.665 .977 ***

CCB-CU q21

.751 .927 *** q22

.693 1.000 *** q23

.674 .973 ***

CCB-CO

q24

.786 1.100 *** q25

.607 1.000 *** q26

Table 7- Regression Coefficients (Volume of Items) Questions Related to Items

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Figure 2 - Final Model

CBR

CCB: Helping

the company

COMMITMENT

LOYALTY

CCB: Helping other

customers

.844

.817

.322

.307

.484

.471

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Media Influence on Marketing Communications

Ms.Ume-Amen

lecturer

CoMS

PAF-KIET

Abstract

The focus of the study was to conduct the research on ―Influence of Media on Marketing

Communications.‖ Based on the literature survey the predictor variables were identified.

These dimensions were Customer Attitude, Mass Media, Selective Exposure,

Involvement, and Mood. The questionnaire administrated for the study was based on 22

items in which 7 items were related to personal data, and the rest of the 15 were related to

identifying media influence among people. The sample size of the study was 120. Any

sample size above 30 tends to be normally distributed therefore; 120-sample size was

found to be appropriate.According to the respondents‘ opinions, the selective exposure

was high with a mean of (3.57). On the other extreme the respondents‘ opinion on

involvement was low (3.37). The standard deviation of respondents‘ opinions on

selective exposure and mood was the least (1.00), as compared to others dimensions. This

indicates that there is less polarization on the respondents‘ opinions on this ―Customer

Attitude‖ dimension. The Standard Deviation of respondents‘ opinion on involvement

was the highest (1.06), as compared to other dimensions. This indicates that there is a

high polarization of the respondents‘ opinions on this ―Customer Attitude‖ dimension.

The Skewness for all the determinants of Media influence on marketing communications

was negative. It was as low as (0.35) for involvement and as high as (0.63) for selective

exposure. The negative skew ness indicates that the respondents‘ opinions on the

respective determinants were below average. The correlations of attitude ranged between

0.90 for selective exposure and 0.64 for involvement. This indicates that comparatively a

higher degree of correlation was found between selective exposures and attitude as

compared to the other determinants. The correlations of the other determinants had

similar trend accept selective exposure that were found to be the highest with an ―r‖ of

.94. Four different hypotheses were developed. The results and interpretation of the

hypotheses are described below: a) The hypothesis relating to a relationship of the

determinant Media usage with dependent variable customer attitude was accepted. b)The

hypothesis relating to a relationship of the determinant Selective exposure with

dependent variable customer attitude was accepted. c) The hypothesis relating to a

relationship of the determinant Involvement with dependent variable customer attitude

was accepted. d) The hypothesis relating to a relationship of the determinant Mood with

dependent variable customer attitude was accepted.

Keywords: Media , Influence , Marketing Communications

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11.. IInnttrroodduuccttiioonn

Communication is a two way process and it requires a medium, a path, device or mode to

convey ones message. Though with perspective of marketing communication, the term

advertising has traditionally used to mass communication media. Advertising media have

traditionally been characterized as "measured" media, to refer to the availability of

quantitative information to assess the number of viewers or readers potentially exposed to

advertising messages. In addition, advertising has traditionally been conceptualized as

one-way communication from an advertiser to a recipient. Personal selling and direct

response marketing have more typically been characterized as interactive. Both the

practice of marketing management--the organizational domain in which advertising

decisions are generally made--and the technological environment, have made traditional

conceptions of advertising media open to discussion. Several scholars have argued that

the increasing availability of information, and the sophistication of the technology for

obtaining, processing, and analyzing this information, are blurring the boundaries of the

several elements of the marketing mix (Glazer 1989, Ray 1985).

22.. LLiitteerraattuurree SSuurrvveeyy

The discussion begins with the nature of media effects on marketing communications,

what are the managerial, theoretical and empirical approaches to understand media

effects.

The Nature of Media Effects on Marketing Communications

Media choice has become the most important component while looking at the changing

trends in our surroundings. The need and demand of the customers, advertisers are more

concern with the media choice. Mass communications historians tell us that the earliest

models of communication effects posited that communications were very powerful: the

early "bullet" or "hypodermic needle" models of mass communication (Katz and

Lazarsfeld 1955, p. 16).

Managerial Approaches to Understanding Media Effects:

The approach of advertisers has changed with the passage of time. Today it is being

accepted that individual media has its own unique effects on the customers. according to

the media planning model It has revealed commercial television, and printing

technologies to make narrow, segment specific magazines possible.

Marketing communications managers evolved rules of thumb to account for these

effects, e.g., print media are better to explain complex products, television is better

because it can show product demonstrations, etc. There was an evolving idea that there

are "qualitative" media factors, but generally these were--and are today--relegated to the

subjective judgment of media influences. Similarly, the advent of interactive technologies

such mobile telephones and the Internet has given rise to efforts to individualize

communications or, at the very least, customize marketing communications for very

small but especially relevant audiences for the marketer‘s messages (Stewart and Ward

1994).

Theoretical and Empirical Approaches to Understanding Media Effects

Marshall McLuhan is well known for his "Medium is the Message" statement, implying

that a medium communicates an image or generates effects independent of any single

message it contains. In fact, as the preceding discussion makes clear, media effects can

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only be understood in the context of consumer characteristics that influence the

effectiveness of marketing communications in particular media. While there are many

such consumer characteristics, five factors have received considerable attention in

empirical research and theory development (McLuhan and Fiore 1967):

1. Attitudes toward the medium;

2. Uses of the medium;

3. Selective Exposure of the medium

4. Involvement while using the medium;

5. Mood states affecting media usage;

Attitudes toward Media

The attitude of a consumer toward a specific medium can radically alter how that media

affects the consumer and any marketing communications it carries. In an early landmark

study, the Politz Research Organization compared the vehicle effects of McCall's with

that of Look and Life magazines (Politz Research, Inc. 1962).

The Role of Relationship and Trust. One particularly important attitude toward a medium is related to its perceived credibility

or trustworthiness (Shimp 1990). There is considerable consistent with the conclusion

that marketers‘ relationships with consumers plays an important role in how consumers

respond to marketing communications (Fontenot and Vlosky 1998, Hoffman and Novak

1996). Perhaps the most important element of a successful marketer consumer

relationship is the notion of trust. Research has shown that trust reduces transaction costs

(Ganesan 1994), lowers the risk of transacting (Mayer et al. 1995), increases future

interaction intentions (Doney and Cannon 1997), and brings more favorable pricing terms

(Pavlou and Ba 2000). Moreover, Keen (2000) posited that the very foundation of

electronic commerce rests on trust. While consumers may decide to interact with the

marketer in a variety of contexts, any collaboration will always be limited by the extent

of mutual trust among consumers and marketers. Thus, for media that are interactive, the

perceived trustworthiness of the medium is likely to play an especially important role in

determining it influence on consumers. Although trust has long been recognized as an

extremely important element of every interaction, traditional advertising media provide

the marketer with limited ability to raise the level of consumers' trust since one-way

communication is unlikely to produce trust (Mayer et al. 1996). Reciprocal interaction,

communication, and cooperation, however, facilitate trust building and commitment

(Anderson and Weitz 1989, Anderson and Narus 1990).

Trust is a subjective evaluation of another entity's characteristics based on limited

information (Beccera and Gupta 1999). In the context of marketing, limited information

about products' attributes and the intent of the marketer to provide a fair transaction can

give rise to the need for consumers either to trust the marketer, rely on third parties for

additional information, or take other actions to reduce risk. Consumers' trust towards a

marketer can be defined broadly as the subjective probability with which consumers

believe that the marketer will perform a particular interaction in a manner consistent with

their expectations. While it is generally agreed that trust has an economic value (Hill

1990) and can be a source of competitive advantage (Barney and Hansen 1994),

traditional advertising has not necessarily been focused on building trust, despite the fact

that trust has an important influence on the behavior of consumers (Schurr and Ozanne

1985). On the other hand, interactive media have the potential to promote consumers'

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trust towards the advertiser and product through reciprocal information exchange,

customer support and technical assistance, reciprocal communication, operational

linkages, and other specific adaptations by the marketer to the needs of the consumer

(Forrest and Mizerski 1996).

Uses of Mass Media

In a broader sense, media effects may be considered in the context of the stream of

research examining uses and gratifications individuals obtain from using mass media.

This paradigm holds that social and psychological needs generate expectations of the

mass media which lead to differential patterns of exposure, need gratification, and other

outcomes (Rubin 1986, Atkin 1985, Katz, Blumler and Gurevitch 1974). While this

research approach has been criticized on many grounds, the notion that people have uses

for and obtain gratifications from, exposure to marketing communications in different

media is appealing. There is also some empirical support for the notion. For example,

research has found that "social utility" motives influence the viewing of commercials on

television. O'Guinn and Faber (1991) suggest that uses and gratification approaches may

be most usefully applied to media such as special interest magazine readership ( O'Guinn

and Faber 1991).

Evidence for different uses and gratifications from mass media is seen in studies of

differential loyalty among consumers of media types and vehicles. In addition, there are

selective patterns of exposure or preferential attitudinal dispositions toward certain kinds

of media and vehicles within media that are not constant across all viewers (Gunter

1985). How people think and feel about various vehicles or the extent to which the

audience flows toward or across certain programs varies between demographic divisions

of the population. More significant, however, are findings that indicate differences in

viewing patterns or attitudinal preferences for programs associated with enduring

psychological characteristics of viewers (Gunter 1985).

The Role of Selective Exposure.

There is also strong evidence that people selectively attend to information based on its

relevance to them at a given point in time (Broadbent 1977, Greenwald and Leavitt 1984,

Krugman 1988, Pechmann and Stewart 1988, Tolley 1991). Research is rather clear on

the point that characteristics of consumers directly influence media effects. For example,

in her review of consumer processing of advertising, Thorson (1990) identifies such

individual difference factors as motivation (involvement), ability, prior learning, and

emotion, among others that influence how, and even whether, consumers process

advertising. The theoretical foundation for these effects is selective exposure: the

proposition that consumers tend to see and hear communications that are favorable,

congenial, or consistent with their predispositions and interests (Zillman and Bryant

1994).

Involvement

The concept of involvement has become a key construct in a number of theories of

attitude formation and change (see Greenwald and Leavitt 1984, Petty and Cacioppo

1986, Chaiken 1980, Chaiken, et al 1989). Involvement has generally been

conceptualized in terms of how consumers interact with a given medium or message.

Messages and media are conceived of as more or less involving for a particular

consumer, and such involvement is posited to influence the amount and type of

information processing in which a consumer engages. Involvement has also been one of

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the more frequently researched and controversial constructs within the disciplines of

social psychology, advertising, and communication (Zaichowsky 1985).

Mood

The term "mood" denotes specific subjective feeling states at the time of exposure to

marketing communication. A rather substantial body of research makes it quite clear that

mood influences an array of psychological processes - attention, information processing,

decision making, memory, attitude formation. Srull (1990), Isen (1989), and Gardner

(1985) provide reviews of much of this work and its implications for advertising and

consumer behavior. Conceptually related to "uses and gratifications" research, discussed

earlier, the concept of mood and the related construct of arousal, focus on affective,

rather than cognitive factors that link individuals with media. The essential idea is that

people use media to maintain or change feeling states (moods) or excitatory states

(arousal). Self-report data suggest that people use television to both increase and decrease

arousal (Condry 1989), and physiological studies have shown that television viewing can

alter blood pressure, heart rate, and other physiological states that presumably reflect

arousal states (Klebber 1985). There is certainly evidence that moods induced by

television programs interact with commercials embedded within these programs to

produce differential responses among viewers. For example, Kennedy (1971) found

viewers of suspense programs had poorer recall of a brand name in an embedded

commercial than viewers of a comedy. However, attitudes toward the advertised brand

were more positive among viewers of the suspense program than among viewers of a

comedy. Similar results for recall are reported by Soldow and Principe (1981). found that,

compared to commercials viewed in the context of a sad program, commercials viewed in

the context of a happy television program resulted in happier moods during viewing of

both the program and commercials, more positive cognitive responses about the

commercials, and higher evaluations of commercial effectiveness. They also found that

the mood induced by the program had a greater effect on commercials with a greater

emotional appeal than commercials with more informational appeals. These investigators

did not examine whether there was an interaction between the emotional tone of the

commercials and the programs in which they were embedded (Goldberg and Gorn 1987).

The potential interaction of the emotional tone of commercials and programs was

investigated by Kamins, Marks, and Skinner (1991). They find that a "sad" commercial

embedded within a "sad" program was rated by viewers as more likeable and produced

higher ratings of purchase intention than a humorous commercial embedded within a

"sad" program. Conversely, a humorous commercial embedded within a humorous

program performed better than a humorous commercial embedded within a "sad"

program. The authors interpret these results in terms of consistency theory, which

suggests that viewers seek to maintain a mood throughout a program (Kamins, Marks and

Skinner 1991).

Since commercials represent interruptions, Kamins, et al (1991) suggest that commercials

that are more consistent in emotional tone with the program will perform better than

those that are inconsistent in tone. In an earlier study, Krugman (1983) also examined the

relationship between responses to advertising and the programming context. While he did

not explicitly address the question of mood, his hypotheses reflect processes that would

seem to be conceptually related to the construct of mood: he tested the convention

wisdom that "commercials are particularly objectionable when they interrupt interesting

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programs." Thus, some reasoned, "the more interesting the program, the less effective the

commercial" (Soldow and Principe, 1981).

Krugman first distinguishes between viewer opinion, and impact on viewers, as separate

phenomena. Then, he examines the impact of advertising in 56 television programs that

were determined to vary in interest level. He finds a pattern that is just the reverse of the

conventional wisdom: commercials interrupting interesting programs are more effective.

This is consistent with Krugman's earlier hypothesis that involvement with advertising

tends to be consistent with interest in the editorial environment. While this study does not

make comparisons with other media, and the notion of interest relates as much to

message variables as it may relate to media effects, the finding is indicative of the

importance of the media viewing context as a mediator of advertising effects (Krugman

1983).

Finally, a major field experiment (Yuspeh 1977) examined the programming context as a

determinant of responses to television advertising. This time, the programming context

was manipulated by having viewers watch either situation comedies or action programs.

No explanatory concepts are offered to suggest what it is about the different

programming types that might account for different effects, but the implicit idea seems to

be that linkage between programming stimuli and advertising responses is attributable to

variations in mood, or excitatory states experienced while watching (Yuspeh 1977).

Individuals were asked to watch particular programs (experimentally manipulated so that

half watched three action programs and half watched three situation comedies).

Commercials for six products were embedded in the programs, and effects were

measured with multiple indicators, such as brand recall, attitudes and buying intention,

and commercial element playback. Interestingly, there were only slight differences

between the two types of programming contexts on commercial effectiveness (Yuspeh

1977).

However, there were significant differences among specific episodes with each program

type, across products and performance measures. It appears that different episodes of the

same program may have different effects on the performance of commercials appearing

in those programs. It is likely that such an effect is the outcome of a complex set of

interactions between program type, advertising message, and viewer characteristics,

especially programming-induced moods (Yuspeh 1977).

None of the studies that explore the relationship between programming context and

advertising response clarify whether the effects of prior moods differ from programming-

induced moods. Nor is it clear whether the types of mood effects that occur in a television

context occur in other media, although it is certain that other media are capable of

creating or changing moods (Gardner 1985, Isen 1989).


The primary focus of this study was to examine the relationship between Customer

attitude and media influence by use of mass media, selective exposure, involvement, and

mood. This study was built on the work of David W. Stewart, Paulos Pavlou and Scott

Ward by conceptualizing media influence on marketing communications that media has a

strong impact on marketing communication and also a very effective tool in forming the

attitude of the customer. The secondary focus of this study was to examine which level of

impact media does play in the attitude formation and how the mood involvement and

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selective exposure play important role in attitude formation as also presented in the study

of David W. Stewart, Paulos Pavlou and Scott Ward.

Hypothesis 1: Media usage influences customer attitude towards marketing

communications.

Hypothesis 2: Selective exposure influence customer attitude towards marketing

communications.

Hypothesis 3: Involvement influence customer attitude towards marketing

communications.

Hypothesis 4: Mood influence customer attitude towards marketing

communications.

Mood

Involvement

Selective

Exposure

Uses of

Mass

Media

Attitud

e

H1

H4

H3

H2

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3.1.0 MEASURING VARIABLES

The variables used to measure the Media influence of marketing communications in this

recently conducted research are Customer attitude, use of mass media, selective exposure,

involvement, and mood. Their descriptions have been mentioned below.

Customer Attitude

It is the one‘s interest and trustworthiness through which a person forms his or her

intention.

Use of mass media

It is the use of both the print media and the electronic media which is widely used for the

communication and to send the marketing messages in order to create the

awareness among the people.

Selective Exposure

People selectively attend to information based on its relevance to them at a given point in

time. The proposition that consumer tend to see and hear communications that are

favorable, congenial, or consistent with their predispositions and interests.

Involvement

Involvement has generally been conceptualized in terms of how consumers interact with

a given medium or message. Messages and media are conceived of as more or

less involving for a particular consumer.

Mood

The term "mood" denotes specific subjective feeling states at the time of exposure to a

marketing communication. A rather substantial body of research makes it quite

clear that mood influences an array of psychological processes - attention,

information processing, decision making.

33..22..00 MMeetthhooddoollooggyy

The methodology adopted for the subject study is briefly discussed below.

33..22..11 PPooppuullaattiioonn AAnndd SSaammppllee SSiizzee

The population for the subject study is the number of household in Karachi.

According to an estimate there are 0.9 million households in Karachi, excluding

non recognized colonies. If sample were to be drawn on simple random, the

approximate sample size comes out to 60. However to have a better

representation, about 120 samples were drawn. These were drawn non-

randomly from pre-selected areas.

33..22..22 DDaattaa CCoolllleeccttiioonn MMeetthhoodd

Based on the literature survey a theoretical framework and a closed-ended

questionnaire were developed and were pre-tested before being launched. They

were appropriately filled by the people belonging to different occupation,

education and income levels living in different regions and places of Karachi. The

instrument contained 22 questions of which 7 were related to personal data and

the rest were related to the subject study. The questionnaire comprised of a rating

scale numbering from 5 to 1.

33..22..33 SSaammppllee CChhaarraacctteerriissttiiccss

The respondents have a representation from all the demographic used for the

study purpose. Some of the demographics have higher representation while the

other had smaller. The characteristic of the respondents is enclosed in annexure

one.

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33..22..44 DDaattaa AAnnaallyyssiiss MMeetthhoodd

The data were mostly measured through the measure of central tendencies. The

developed hypotheses were tested through Simple Regression, Multiple-

Regression and Pearson correlation.

44..00..00 SSUURRVVEEYY FFIINNDDIINNGGSS

The survey findings were analyzed linearly, cross-sectionally in order to have a

better comprehension and understanding of the relationship between dependent

and independent variable, which are discussed below:

44..11..00 MMeeaassuurree OOff CCeennttrraall TTeennddeenncciieess

The respondents‘ opinions on the determinants of media influence on marketing

communications were obtained. The determinants were customer attitude, use of

mass media, selective exposure, involvement, and mood. The summarized results

related to measure of central tendencies and measures of dispersion are presented

below:

TABLE–1

MEASURE OF CENTRAL TENDENCIES

Attitude Mass Media S/Exposure Involvement Mood

Mean 3.53 3.52 3.57 3.37 3.47

Standard Error 0.09 0.09 0.09 0.10 0.09

Median 3.63 3.61 3.67 3.25 3.37

Mode 4.00 3.00 4.00 3.00 4.00

Standard Deviation

1.02 1.01 1.00 1.06 1.00

Sample Variance 1.05 1.03 1.00 1.12 1.00

Kurtosis 0.14 0.12 0.38 (0.26) 0.18

Skewness (0.53) (0.51) (0.63) (0.35) (0.46)

Range 4.00 4.00 4.00 4.00 4.00

Minimum 1.00 1.00 1.00 1.00 1.00

Maximum 5.00 5.00 5.00 5.00 5.00

Sum 423.00 422.56 428.33 404.75 416.95

Count 120.00 120.00 120.00 120.00 120.00

According to the respondents‘ opinions, the selective exposure was high with a

mean of (3.57). On the other extreme the respondents‘ opinion on involvement

was low (3.37).

The standard deviation of respondents‘ opinions on selective exposure and mood

was the least (1.00), as compared to others dimensions. This indicates that there is

less polarization on the respondents‘ opinions on this ―selective exposure and

mood‖ dimension. The Standard Deviation of respondents‘ opinion on

involvement was the highest (1.06), as compared to other dimensions. This

indicates that there is a high polarization of the respondents‘ opinions on this

―involvement‖ dimension.

The Skewness for all the determinants of Media influence on marketing

communications was negative. It was as low as (0.35) for involvement and as

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high as (0.63) for selective exposure. The negative skewness indicates that the

respondents‘ opinions on the respective determinants were below average.

4.2 PEARSON CORRELATION

The correlation of all the determinants of media influence on marketing

communications on one-to-one basis was worked out to find the relationships.

The summarized results are presented below:

TABLE–2

PEARSON CORELATION


Attitude 1.00

Mass Media 0.88 1.00

S/Exposure 0.90 0.94 1.00

Involvement 0.64 0.79 0.67 1.00

Mood 0.72 0.88 0.79 0.75 1.00

The correlations of attitude ranged between 0.90 for selective exposure and 0.64

for involvement. This indicates that comparatively a higher degree of correlation

was found between selective exposures and attitude as compared to the other

determinants.

The correlations of the other determinants had similar trend accept selective

exposure that were found to be the highest with an ―r‖ of .94.

33..33..00 HHYYPPOOTTHHEESSIISS TTEESSTTIINNGG

Four different hypotheses were developed. The results and interpretation of the

hypotheses are described below:

3.3.1 Multiple-Regression

The respondents‘ opinions media influence on marketing Communications were

based on determinants such as attitude, use of Mass media, selective exposure,

involvement, and mood.

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TABLE-3 : MULTI REGRESSION

Regression Statistics

Multiple R 0.91

R Square 0.82

Adjusted R Square 0.82

Standard Error 0.44

Observations 120.00

df SS MS F Significance F

Regression 4.00 102.71 25.68 133.65 0.00

Residual 115.00 22.09 0.19

Total 119.00 124.80

Coefficients

Standard

Error t Stat P-

value

Lower 95%

Upper 95%

Lower 95.0%

Upper 95.0%

Intercept 0.30 0.16 1.90

0.06

(0.01)

0.62

(0.01)

0.62


3.44

0.00

0.24

0.89

0.24

0.89

S/Exposure 0.53 0.12

4.36

0.00

0.29

0.77

0.29

0.77

Involvement (0.04) 0.07

(0.53)

0.60

(0.17)

0.10

(0.17)

0.10

Mood (0.15) 0.08 (1.79)

0.08

(0.32)

0.02

(0.32)

0.02

The r square is 0.82, which indicates that about 82% of the variations on the

dependant variable is explained by the predictor variables, which is significantly

high. The slope for selective exposure is highest. This means that comparatively

the selective exposure has stronger relationship with the dependant variable,

media influence on marketing communications. The coefficient of determinate for

selective exposure is 0.53. This also means that an increase of one rating (On the

scale of five to one) of the selective exposure will cause the media influence on

marketing communications behavior to increase by 0.53 rating.

3.3.2 HYPOTHESIS ONE

The determinants for the media influence on marketing communications were

customer attitude, use of mass media, selective exposure, involvement, and mood.

An analysis was carried out to measure the relationships of the independent

variables and dependent variable i.e. Customer attitude. The hypothesis developed

in this context is presented below:

H1O: Media usage do not influences customer attitude towards marketing

communications.

H1A: Media usage influences customer attitude towards marketing

communications.

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Statistical Representation

Statistical representation of the above hypothesis is presented below:

H1O: 1=0

H1A: 1≠ 0

The above hypothesis was tested through simple regressions and the summarized

result is presented below:

TTAABBLLEE-- 44

SIMPLE RREEGGRREESSSSIIOONN


Multiple R 0.88

R Square 0.78


Standard Error 0.49

Observations 120.00

ANOVA


Regression 1.00 96.90 96.90 409.83 0.00

Residual 118.00 27.90 0.24

Total 119.00 124.80

Coefficients

Standard

Error t Stat P-

value

Lower 95%

Upper 95%

Lower 95.0%

Upper 95.0%

Intercept 0.39 0.16

2.42

0.02

0.07

0.71

0.07

0.71


20.24

0.00

0.80

0.98

0.80

0.98


dependant variable is explained by the predictor variable mass media, which is

significantly high. The coefficient of determinant for mass media is 0.39. This

also means that an increase of one rating (On the scale of five to one) of mass

media will cause the media influence on marketing communications to increase

by 0.39 rating, which means that the relationship between predictors variable

mass media and media influence on marketing communications is strong.

There was positive relationship between mass media and media influence on

marketing communications as was suggested by the literature.

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3.3.3 HYPOTHESIS TWO

The relationship of the determinant selective exposure with dependent variable

Customer attitude was measured. The hypothesis developed in this context is

presented below:

H2O: Selective exposure do not influence customer attitude towards marketing

communications.

H2A: Selective exposure influence customer attitude towards marketing

communications.



H2O: 1=0

H2A: 1≠ 0



TABLE-5

SIMPLE REGRESSIONS


Multiple R 0.90

R Square 0.80


Standard Error 0.46

Observations 120.00

ANOVA


Regression 1.00 100.05 100.05 477.13 0.00

Residual 118.00 24.75 0.21

Total 119.00 124.80

Coefficients

Standard

Error t

Stat P-

value

Lower 95%

Upper 95%

Lower 95.0%

Upper 95.0%

Intercept 0.25 0.16 1.64

0.10

(0.05)

0.56

(0.05)

0.56

S/Exposure 0.92 0.04

21.84

0.00

0.83

1.00

0.83

1.00


dependant variable is explained by the predictor variable selective exposure,

which is significantly high. The coefficient of determinant for selective exposure

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is 0.92. This also means that an increase of one rating (On the scale of five to

one) of perceived social status will cause the compulsive buying behavior to

increase by 0.92 rating, which means that the relationship between predictors

variable selective exposure and customer is very strong.

There was relationship between selective exposure and customer attitude.

3.3.4 HYPOTHESIS THREE

The relationship of the determinant involvement with dependent variable

customer attitude was measured. The hypothesis developed in this context is

presented below:

H3O: Involvement do not influence customer attitude towards marketing

communications.

H3A: Involvement influence customer attitude towards marketing

communications.



H3O: 1=0

H3A: 1≠ 0



TABLE-6

SIMPLE REGRESSIONS


Multiple R 0.64

R Square 0.41


Standard Error 0.79

Observations 120.00

ANOVA


Regression 1.00 50.83 50.83 81.07 0.00

Residual 118.00 73.97 0.63

Total 119.00 124.80

Coefficients

Standard

Error t

Stat P-

value

Lower 95%

Upper 95%

Lower 95.0%

Upper 95.0%

Intercept 1.44 0.24 5.94

0.00

0.96

1.92

0.96

1.92

Involvement 0.62 0.07

9.00

0.00

0.48

0.75

0.48

0.75


dependant variable is explained by the predictor variable involvement, which is

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significantly low. The coefficient of determinant for materialism is 0.62. This

also means that an increase of one rating (On the scale of five to one) of

Involvement will cause the customer attitude to increase by 0.62 rating, which

means that the relationship between predictor variable involvement and customer

attitude is weak.

3.3.5 HYPOTHESIS FOUR

The relationship of the determinant mood with dependent variable customer

attitude was measured. The hypothesis developed in this context is presented

below:

H4O: Mood do not influence customer attitude towards marketing

communications.

H4A: Mood influence customer attitude towards marketing communications.



H4O: 1=0

H4A: 1≠ 0



TABLE-7

MULTIPLE REGRESSIONS


Multiple R 0.72

R Square 0.52


Standard Error 0.71

Observations 120.00

ANOVA


Regression 1.00 64.78 64.78 127.37 0.00

Residual 118.00 60.02 0.51

Total 119.00 124.80

Coefficients

Standard

Error t Stat P-

value

Lower 95%

Upper 95%

Lower 95.0%

Upper 95.0%

Intercept 0.96 0.24

4.07

0.00

0.49

1.43

0.49

1.43

Mood 0.74 0.07 11.29

0.00

0.61

0.87

0.61

0.87

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dependant variable is explained by the predictor variable mood, which is

significantly not high. The coefficient of determinant for mood is 0.74. This also

means that an increase of one rating (On the scale of five to one) of mood will

cause the customer attitude to increase by 0.74 rating, which means that the

relationship between predictor variable mood and customer attitude is low.

4.0.0 CROSS-SECTIONAL ANALYSIS

An attempt was made to do a cross-sectional analysis between personal data and

determinants of compulsive buying behavior which are discussed below:

4.1.0 MEDIA INFLUENCE ANALYSIS BY GENDER:

Respondents‘ opinion by Gender was obtained on determinants of customer

attitude to ascertain whether the opinions changes with Gender groups. The

summarized result is presented below:


male 3.49 3.48 3.51 3.29 3.42

female 3.66 3.70 3.80 3.73 3.71

3.00

3.20

3.40

3.60

3.80

4.00

Attitude Mass

Media

S/Exposure Involvement Mood

male

female

The respondent‘s opinion gender wise on selective exposure is as high as 3.80 for

females and as low as 3.51 for males. This indicates that females are more

exposed towards media. On the other hand males have the less selective exposure,

because females spend more time in the home and closely attach to media by

watching television and listening radio on the other hand males spend their most

of the time in the offices. Similar results are obtained on mass media that is

closely related to selective exposure which shows as high as 3.70 in females and

as low as 3.48 in males. This also represents that women by nature like to read

magazines and watch T.V.. In short, female gender show higher scores in every

dimension of media influence on marketing communications such as customer

attitude, mass media, selective exposure, involvement and mood than the male

gender.

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4.2.0 MEDIA INFLUENCE ANALYSIS BY AGE:

Respondents‘ opinion by age was obtained on the determinants of customer

attitude to ascertain whether the opinions change with age groups. The



Under 20 3.50 3.63 3.17 3.50 3.33

20 - 30 3.49 3.52 3.53 3.29 3.42

30 - 40 3.79 3.50 3.95 3.98 3.92

40 - 50 4.00 4.00 3.50 4.25 3.75

50 + - - - - -

-

1.00

2.00

3.00

4.00

5.00


Under 20

20 - 30

30 - 40

40 - 50

50 +

Respondent‘s opinion on involvement by age group is as high as 4.25 in age

group of 40-50 and second highest 3.98 in the 30-40 age group, while is as low as

3.29 in the age group of 20-30. The results are quite obvious if we compare 40-50

age group with age group of 30-40. because the age group of 40-50 stay at home

and more interactive with the media so their attitude is also very high as 4.00.

4.3.0 MEDIA INFLUENCE ANALYSIS BY MARITAL STATUS:

Respondents‘ opinion by marital status was obtained on the determinants of

customer attitude to ascertain whether the opinions changes with marital status.

The summarized result is presented below:


Single 3.50 3.50 3.52 3.29 3.42

Married 3.64 3.64 3.77 3.70 3.68

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3.00

3.20

3.40

3.60

3.80

4.00


Single

Married

Respondent‘s opinion on selective exposure is as high as 3.77 in married and as

low as 3.52 in single people. The score of attitude is as high as 3.64 in married

and as low as 3.50 in singles. Because singles are always energetic people and

they want to go outside and having different activities while married usually stay

at home and enjoy their family life.

4.4.0 MEDIA INFLUENCE ANALYSIS BY OCCUPATION:

Respondents‘ opinion by occupation was obtained on the determinants of

customer attitude to ascertain whether the opinions changes with occupations. The



Banker 3.44 3.10 3.30 2.97 3.15

Doctor 4.00 4.00 4.00 4.00 3.88

Accountant 3.23 3.63 3.38 3.22 3.27

Engineer 3.00 4.00 3.10 3.03 3.40

Businessman 3.14 3.93 3.14 3.11 3.00

Student 3.77 3.65 3.81 3.46 3.62

Other (specify) 3.62 3.25 3.72 3.73 3.69

-

1.00

2.00

3.00

4.00

5.00


Banker

Doctor

Accountant

Engineer

Businessman

Student

Other (specify)

Again the mass media represents the strongest determinant of customer attitude. No

matter what occupation people have, which is as high as 4.00 for doctors and

second highest is 3.93 for the businessman.

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4.5.0 MEDIA INFLUENCE ANALYSIS BY INCOME:

Respondents‘ opinion by income was obtained on the determinants of customer

attitude to ascertain whether the opinions changes with income levels. The


Attitude Mass Media

S/Exposure Involvement Mood

Under Rs 15,000 3.42 3.48 3.45 3.27 3.37

Rs. 15,000 - 25,000 3.63 3.57 3.67 3.19 3.45

Rs. 25,000 - 35,000 3.42 3.38 3.47 3.54 3.44

Rs. 35,000 - 45,000 3.82 4.07 3.90 3.82 4.03

Rs. 45,000 - 55,000 4.13 4.08 4.33 3.96 3.90

Rs. 55,000 + 3.42 2.33 3.50 4.25 3.92

-

1.00

2.00

3.00

4.00

5.00


Under Rs 15,000

Rs. 15,000 - 25,000

Rs. 25,000 - 35,000

Rs. 35,000 - 45,000

Rs. 45,000 - 55,000

Rs. 55,000 +

Respondents‘ opinion by Income is as high as 4.33 in above Rs.45,000- 55,000

income group and as low as 3.45 in income group of under 15,000 in selective

exposure. This shows that higher are the salaries and earning s of people, more

exposure they will have.

4.6.0 MEDIA INFLUENCE ANALYSIS BY LOCATION:

Respondents‘ opinion by location was obtained on the determinants of customer

attitude to ascertain whether the opinions changes with Location. The summarized



Clifton 3.38 3.56 2.96 2.88 2.83

D.H.A 3.58 3.81 3.68 3.31 3.56

P.E.C.H.S 3.23 3.70 3.36 3.08 3.24

Nazimabad 3.00 3.42 3.06 3.09 3.18

Gulshan 3.65 3.39 3.77 3.55 3.69

Others (specify) 3.76 3.48 3.79 3.59 3.64

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-

0.50

1.00

1.50

2.00

2.50

3.00

3.50

4.00


Clifton

D.H.A

P.E.C.H.S

Nazimabad

Gulshan

Others (specify)

Respondents‘ opinion by Location is as high as 3.79 and as low as 2.96 in selective

exposure. That indicates that people who live in posh area like Clifton have less tendency

towards selective exposure and those who live in other parts of Karachi, lets say, Malir

cantt, and Gulistan-johar, main Malir, Cantt station and others have more selective

exposure. Although the result is not as it was expected but if this is so then that means

that the people living in Clifton are not necessarily more selectively exposed towards

media, they are those have the same living style as it exists in Nazimabad, and Gulshan-

e-Iqbal. But those who are living in Malir cantt, and Gulistan-Johar have more tendencies

towards selective exposure. This may be because Karachi is developing and Malir cantt is

becoming an ideal place to live due to the security reasons so the business class is shifting

to Malir Cantt and that‘s why Malir Cantt showed high selective exposure in ―other‖

location.

4.7.0 MEDIA INFLUENCE ANALYSIS BY EDUCATION:

Respondents‘ opinion by Education was obtained on the determinants of customer

attitude to ascertain whether the opinions changes with Education. The



Under Matriculation - - - - -

Intermediate 3.50 3.50 3.17 3.50 3.33

Graduate 3.37 3.37 3.43 3.22 3.37

Post Graduate 3.77 3.77 3.77 3.46 3.56

Othre (specify) 3.79 3.79 3.91 4.00 3.90

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-

1.00

2.00

3.00

4.00

5.00


Under Matriculation

Intermediate

Graduate

Post Graduate

Othre (specify)

Respondents‘ opinion on involvement is as high as 4.00 in other specify and as

low as 3.22 in graduation. The second highest is the selective exposure as high as

3.91 in other (specify) and as low as 3.17 in intermediate.

55..00..00 RREECCOOMMMMEENNDDAATTIIOONNSS

The media has a great influence on marketing communications and as well to

form a attitude of the customer so if we use the mass media and can get the

marketing communications right in the mind of the customers we can get the best

reward in shape of the attitude formation of the people so it would be easy for the

marketer to sell our their products.

According to the respondents the selective exposure with an average of 3.56 is the

best determinant which influences more towards attitude formation and to get the

messages of the marketing communications, so those types of marketing

messages must be created which have more exposure for the people. The others

determinants followed by the selective exposure are mass media with an average

of 3.52, mood with an average of 3.47 and involvement have the average of 3.37.

Respondents‘ opinions on mass media have the second highest result which mean

that marketers must use the mass media campaign to form the attitude of the

customer while mood also play the role in attitude formation upto some extent so

the marketing communications should be communicated in relevance of the mood

but as the study shows the involvement has a low result as it was not expected but

it can be created by giving the good exposure of the marketing messages or

communications.

The respondents‘ rating also shows that female has more attitude formation in

term of media influence on marketing communications. As most of the ads being

produced are family oriented and females play important role in purchasing the

household products as they are more influenced by the media so marketing

communication can also be focused to this group and more attitude formation can

be made possible. As warid is producing the same messages (bushra ansari baton

ki committee) and surf excel (daag tu acha hota hai).

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RReeffeerreenncceess

Aaker, David A., and Philip K. Brown (1972), "Evaluating Vehicle Source Effects,"

Journal of Advertising Research, 12 (August), 11-16.

Ajzen, I. and J. T. Madden (1986), "Prediction of Goal-Directed: Attitudes, Intentions

and Perceived Behavioral," Journal of Experimental Social Psychology, 22, 453-474

Alba, Joseph, John Lynch, Barton Weitz, Chris Janiszewski, Richard Lutz, Alan Sawyer,

and Stacy Wood (1997), "Interactive Home Shopping: Consumer, Retailer, and

Manufacturer Incentives to Participate in Electronic Marketplaces," Journal of

Marketing, 61 (July), 38-53.

Audits and Surveys, Inc. (1986), A Study of Media Involvement, (New York: Audits and

Surveys)

Fontenot, Renee and Richard Vlosky. “Impacts of the Internet on Marketing and

Business Relationships.” Southwestern Marketing Conference. New Orleans, Louisiana.

March 12-15, 1997.

Glazer (1989), Ray (1985). “Media Effects: Advances in Theory and Research

(Routledge Communication Series) by Jennings Bryant and Mary Beth Oliver (Dec 18,

2008)

(Jennifer Yurchisin, from University of Arizona and Kim K.P Johnson from University of

Minnesota) Family and Consumer Science Research Journal (2004, p.291-313)

Katz, E., & Lazarsfeld, P. F. (1955). Personal influence: The part played by people in the

flow of mass communication. Glencoe, IL: Free Press.

Marshall McLuhan and Quentin Fiore (1967) The Medium is the Massage: An

Inventory of Effects (Penguin Modern Classics). Bantam books

Stewart, D.W. and S. Ward (1994), "Media Effects on Advertising," in J. Bryant and D.

Zillmann (Eds.), Media Effects: Advances in Theory and Research, Hillsdale, N. J.:

Lawrence Erlbaum Associates, Inc., pp. 315-363.

Shimp, Terence A.(1990). Promotion management and marketing communications. 2nd

edition. Dryden Press (Chicago)

http://www.addictions.co.uk/addiction.asp?id=shop ing_addiction.htm

http://www.addictionrecov.org/spendaddict.htm - 6k

.http://www.google.com

http://www.yahoo.com

.http:// www.ask.com

http://www.mindpub.com

http://www.addictionrecov.org/spendaddict.htm%20-%206

http://www.yahoo.com/

http://www.ask.com/

http://www.mindpub.com/

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(AANNNNEEXXUURREE--11))

SSAAMMPPLLEE CCHHAARRAACCTTEERRIISSTTIICCSS

11.. DDIISSTTRRIIBBUUTTIIOONN BBYY GGEENNDDEERR

TTAABBLLEE--11

Gender Percentage number Number

Male 80.83% 97

Female 19.17% 23

100.00% 120

22.. DDIISSTTRRIIBBUUTTIIOONN BBYY AAGGEE

TTAABBLLEE--22

Age Percentage Number

under 20 1.67% 2

20-30 86.67% 104

30-40 10.83% 13

40-50 .83% 1

50+ - -

100.00% 120

33.. DDIISSTTRRIIBBUUTTIIOONN BBYY MMAARRIITTAALL SSTTAATTUUSS

TTAABBLLEE--33

Marital Status Percentage Number

Single 80.00% 96

Married 20.00% 24

100.00% 120

44.. DDIISSTTRRIIBBUUTTIIOONN BBYY OOCCCCUUPPAATTIIOONN

Table-4

Occupation Percentage Numbers

Banker 14.17% 17

Doctor 1.67% 2

Accountant 12.50% 15

Engineer 8.33% 10

Businessman 5.83% 7

Student 35.00% 42

Other (Specify) 22.50% 27

100.00% 120

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5. DDIISSTTRRIIBBUUTTIIOONN BBYY IINNCCOOMMEE

TTAABBLLEE--55

Income Percentage Number

Under Rs. 15,000 55.00% 66

Rs. 15,000-25,000 21.67% 26

Rs. 25,000-35,000 10.00% 12

Rs. 35,000-45,000 5.83% 7

Rs. 45,000-55,000 5.00% 6

Rs. 55,000 + 2.50% 3

100.00% 120

66.. DDIISSTTRRIIBBUUTTIIOONN BBYY LLOOCCAATTIIOONN

TTAABBLLEE--66

Location Percentage Number

Clifton 6.67% 8

D.H.A 10.83% 13

P.E.C.H.S 12.50% 15

Nazimabad 13.33% 16

Gulshan-e-Iqbal 18.33% 22


100.00% 120

7. DDIISSTTRRIIBBUUTTIIOONN BBYY EEDDUUCCAATTIIOONN

TTAABBLLEE--77

Education Percentage Numbers

Under Matriculation 0% 0

Intermediate 1.67% 2

Graduate 60.83% 73

Post Graduate 26.67% 32


100.00% 120

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(AANNNNEEXXUURREE--22))

QUESTIONNAIRE personal Information

1) Gender: 5) Income:

1) Male 1) Under Rs. 15,000

2) Female 2) Rs. 15,000 – 25,000

3) Rs. 25,000 – 35,000

4) Rs. 35,000 – 45,000

2) Age: 5) Rs. 45,000 – 55,000

3) Under 20 6) Rs. 55,000 +

4) 20 - 30

5) 30 - 40

6) 40 - 50 6) Location:

7) 50 + 1) Clifton

2) D.H.A

3) P.E.C.H.S

3) Marital Status: 4) Nazimabad

1) Single 5) Gulshan-e-Iqbal

2) Married 6) Other (Specify) ________________

4) Occupation: 7) Education:

1) Banker 1) Under Matriculation

2) Doctor 2) Intermediate

3) Accountant 3) Graduate

4) Engineer 4) Post Graduate

5) Businessman 5) Other (Specify) _________________

6) Student

7) Other (Specify) ________________

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RATE THE FOLLOWING ON THE SCALE OF FIVE (5 Being higher part and 1 being lower part)

ATTITUDE TOWARDS MEDIUM

8 Rate your attitude towards Marketing communications 5 4 3 2 1

9 Rate your perception on the credibility of media on

marketing communications? 5 4 3 2 1

10 Rate your trustworthiness of media on marketing

communications? 5 4 3 2 1

11 Rate how relationship play important role for consumer

respond to marketing communications? 5 4 3 2 1

USE OF MASS MEDIA

12 Rate how social environment influence on marketing

communications? 5 4 3 2 1

13 Rate how market communications are used to fulfill the

physiological needs? 5 4 3 2 1

14 Rate how market communications used to generate the

expectation that leads to exposure and gratification? 5 4 3 2 1

15 Rate how good would you consider your knowledge about

market communications? 5 4 3 2 1

THE ROLE OF SELECTIVE EXPOSURE

16 Rate would you consider motivation has importance in

marketing communications? 5 4 3 2 1

17 Rate your perception that consumer ability influences on

media effects? 5 4 3 2 1

18 Rate how emotions influence on marketing

communications by using different media? 5 4 3 2 1

INVOLVEMENT

19 Rate how involvement with media is used to construct

attitude formation of consumer? 5 4 3 2 1

MOOD

20 Rate how media is used to maintain or change mood? 5 4 3 2 1

21 Rate how media influence on moods in order to create

attention? 5 4 3 2 1

22

Rate how media influence on moods in order to create

information processing and decision-making? 5 4 3 2 1

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CORPORATE CITIZENSHIP, IDENTITY AND IMAGE MANAGEMENT: A

FUNCTIONAL APPROACH IN PROMOTING CORPORATE

GOVERNANCE IN BANKS

Okorie Nelson

Department of Mass Communication,

Covenant University, Ota Ogun State.

Km 10 Idiroko road Ota, P.M.B 1023, Ota, Ogun State, Nigeria

Oyewole Oyedayo Sharon

Department of Accounting and Taxation,

Covenant University, Ota Ogun State.

Km 10 Idiroko road Ota, P.M.B 1023, Ota, Ogun State, Nigeria

Abstract

This research paper examines the conceptual framework of corporate governance in

Nigeria and seeks to understand current best practice. It also examines the importance of

corporate citizenship as a panacea for efficient implementation of validated international

corporate governance best practice in Nigeria. This paper identified corporate image and

identity management as a major purveyor to efficient functioning of corporate

governance. The paper suggests that there is a need to emphasize a functional approach

of identity and image management in promoting corporate citizenship in Nigerian banks

so that good corporate governance practices can be achieved

Keywords: Corporate Governance, Corporate Citizenship, Identity And Image

Management, Banks, Nigerian Society.

Introduction

The conceptual framework of corporate governance can be viewed from at least two

perspectives: a narrow one in which it is viewed as being concerned with the structures

within which a corporate entity or enterprise receives its basic orientation and direction

(Rwegasira, 2000); and a broad perspective in which it is regarded as being the heart of

both a market economy and a democratic society (Sullivan, 2000). The narrow view

perceives corporate governance in terms of issues relating to shareholder protection,

management control and the popular principal-agency problems of economic theory. In

other words, the narrow perspective of corporate governance stresses the need for

promoting public confidence and managing shareholder relationship with the

organization.

In Nigeria, the Securities and Exchange Commission (SEC) reported in a publication in

April 2003, which showed that corporate governance was at a rudimentary stage, as only

about 40% of quoted companies, including banks, had recognized codes of corporate

governance in place. Specifically for the financial sector, poor corporate governance was

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identified as one of the major factors in virtually all known instances of a financial

institution‘s distress in the country.

Presently, the massive and prevalent frauds, mandatory retirement of CEOs of banks, due

to corrupt practices and inefficient rubber-stamped board, have combined to signal the

absence of or failure of existing corporate governance structure. The Company and Allied

Matters Act (CAMA) enacted to regulate and balance the relationship among the board,

shareholders and the management including other stakeholders, failed woefully due to

inadequate enforcement capacity. This trend calls for the need of corporate citizenship in

promoting good ethical practices of bank executives and representatives in Nigeria.

Furthermore, there is a need for corporate image management to salvage the battered

image of banks in the eye of Nigerians in the society. This paper examine the role of

corporate citizenship, identity and image management in promoting corporate governance

among banks in Nigeria


The thesis of this paper is centered on image restoration theory, which is also referred to

as ―image repair theory‖ in recent literature, to imply that an image might be improved

but not completely restored – addresses the question of what a person or organization can

say when accused or suspected of wrongdoing(Benoit, 1997; Blaney & Benoit, 2001).

Image restoration theory stresses that accusations or suspicions have two components:

responsibility (blame) and offensiveness. An image is at risk only when an offensive act

has occurred and one is believed to be responsible for that act. Those accused or

suspected of wrongdoing have five general options, which are related to responsibility

and offensiveness. Denial argues that the accused is not responsible for the offensive act.

A second general option is to evade responsibility (partially reducing blame), with

strategies such as claiming the offensive act was an accident, that one was provoked into

performing the act, or that one lacked the ability or information necessary to prevent the

offensive act. A third group of strategies address the second component, attempting to

reduce offensiveness by minimizing the damage or attempting to justify the offensive

action (e.g., I stole to feed my starving family). Corrective action attempts to fix the

problem (or prevent it from happening again), addressing offensiveness. Finally,

mortification admits responsibility and asks for forgiveness. For this paper, the theory

explains the approaches an organization must take as a corporate citizen in managing

stakeholder relationship. It also expounds on the ethical behavior necessary in promoting

the corporate citizenship and governance

The Concept of Corporate Governance

Corporate governance is the system by which business corporations are directed and

controlled. The corporate governance structure specifies the distribution of rights and

responsibilities among different participants in the corporation, such as the board,

managers, shareholders and other stakeholders, and spells out the rules and procedures

for making decisions on corporate affairs. By doing this, it also provides the structure

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through which the company objectives are set, and the means of attaining those

objectives and monitoring performance.

Today, companies are required to comply with tenets of corporate governance as well as

good corporate citizenship by way of corporate social responsibility, non-payment of

bribes for contracts and sensitivity to the needs and interests of communities in their areas

of operation. Accordingly, the overall aim of corporate governance is that companies

adhere to their memoranda and articles of association and the web of legislation, rules

and regulations that order their operation. Thus, companies do not have untrammeled

powers to act and function in their quest for profit but should also pay heed to matters

such as fair labour practices, environmental pollution, global warming and sustainable

development. In other words, corporate governance is concerned with ways in which all

parties interested in the well-being of the firm (the stakeholders) attempt to ensure that

managers and other insiders take measures or adopt mechanisms that safeguard the

interests of the stakeholders. Such measures are necessitated by the separation of

ownership from management, an increasingly vital feature of the modern firm. A typical

firm is characterized by numerous owners having no management function, and managers

with no equity interest in the firm. Shareholders, or owners of equity, are generally large

in number, and an average shareholder controls a minute proportion of the shares of the

firm. This gives rise to the tendency for such a shareholder to take no interest in the

monitoring of managers, who, left to themselves, may pursue interests different from

those of the owners of equity.

However, corporate governance has wider implications and is critical to economic and

social well being, firstly in providing the incentives and performance measures to achieve

business success, and secondly in providing the accountability and transparency to ensure

the equitable distribution of the resulting wealth. The significance of corporate

governance for the stability and equity of society is captured in the broader definition of

the concept offered by Sir Adrian Cadbury (2002): "Corporate governance is concerned

with holding the balance between economic and social goals and between individual and

communal goals. The governance framework is there to encourage the efficient use of

resources and equally to require accountability for the stewardship of those resources.

The aim is to align as nearly as possible the interests of individuals, corporations and

society.

The Challenge of Corporate Governances in Nigerian Banks

The challenges and failure of corporate governance in Nigeria is rooted in the culture of

corruption and lack of institutional capacity to implement the codes of conduct governing

corporate governance. Quadri (2010) has reasoned that company executives enjoy an

atmosphere of lack of check and balances in the system to engage in gross misconducts

since investors are not included in the governing structure. Policy and procedures

required to ensure efficient internal controls are disregarded, and total lack of thorough

selection process (of CEO and board members – round pegs in square holes) remain a

challenge in Nigeria. Quadri further explained that lack of managerial training and

capacity development among Nigerian executives to manage business risks has resulted

in huge agency costs, and shareholders have had to shoulder several avoidable agency

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costs since the board of directors usually failed as a monitoring device to minimize

agency problems.

The recent collapse of The Nigerian Stock Exchange market is a pointer to a system

devoid of controls and accountability, which resulted in lack of shareholders‘ interest and

confidence in the operating environment. Some Nigerian companies relocated their

operations to more stable and vibrant neighboring countries like Ghana and South Africa.

Failure of corporate governance in Nigeria has also been traced to lack of effective

yardsticks to evaluate board and management processes and performance, since the board

sub-committees required to be fully independence, especially the audit

and remuneration committees, are compromised(Quadri, 2010).

The Need for Corporate Citizenship in Nigerian Banks

Corporate citizenship as a field of public relations refers to the organizational

commitment to ethical behavior in business strategy, operations and culture. Furthermore,

it has been on the periphery of corporate governance and board leadership, linked mainly

to corporate reputation. However, in today‘s globalized and interconnected world,

investors, creditors and other stakeholders have come to recognize that environmental,

social, and governance responsibilities of a company are integral to its performance and

long-term sustainability.

Corporate citizenship also refers to a term used to describe a company's role or

responsibilities towards society. For this reason, it is sometimes used interchangeably

with corporate social responsibility, and in fact many companies including Microsoft,

IBM and Novartis have used it in this way to describe their social initiatives (Matten,

Crane & Chapple,2003). In other words, corporate citizenship refers to how a company

conducts itself as a responsible member of society. It also refers to how a company

invests in the future of a country through charity, sponsorships, skills development, job

creation and its relationships with stakeholders. On a more subtle level, governance

comes into play and a good corporate citizen is one that ensures that it has proper risk and

compliance processes are in place.

Smith and Taylor (2006) has reasoned that corporate citizenship means doing business

not just to meet the needs of owners and stockholders, but to incorporate the interests of

all stakeholders in business operations including, employees, customers, the community

and the environment. A responsible corporate citizen is a business that operates in an

ethical manner and supports the interests and concerns of the community in which it

operates. The concept of corporate citizenship, also known as corporate social

responsibility, proposes that businesses have a responsibility to the community in which

they operate and to society in general. Typically, corporate citizenship includes several

areas of responsibility, such as economic, legal, ethical, philanthropic, and environmental

areas.

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

http://www.oldmutual.co.za/about-us/governance.aspx

http://www.ehow.com/business/

http://www.ehow.com/culture-and-society/

http://www.ehow.com/legal/

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Corporate Identity, Corporate Image and Corporate Citizenship

When building corporate citizenship in organizational management, one must note that

image is closely linked with the identity of a company. Corporate identity and corporate

image have to be strategically interpreted to emphasize the importance of corporate

citizenship in the field of public relations. Therefore, in order to avoid misinterpretations

we will use the following definitions in our dissertation to characterize these three

concepts.

Corporate image is all about the reputation of an organization, the way in which the

organization is being perceived by its publics (Oyedepo & Okorie, 2011). It is the mental

picture of an organization in the mind of the audiences (Balmer.J. Gray, E, 1999).

Corporate image will be created by all the intentional or unintentional actions of an

organization (Ind. N, 1992). An organization‘s image is a valuable asset and can be as

important as its financial performance (Argenti, 1994). A positive corporate image is

crucial in gaining sales or contracts, employees, and shareholders (Rossiter & Percy,

1987). The organization‘s perceived trustworthiness, competence, and attractiveness

especially influence such decisions (O'Keefe, 1990). Clearly it is better to throw in one's

lot with a trustworthy (or competent, or attractive) organization than with an

untrustworthy (or incompetent, or unattractive) one. A corporate image is at least partly

determined by the media (Argenti, 1994).

In the process of managing corporate image, the fundamental variables are: corporate

identity, corporate communication and feedback. Corporate identity is the reality of the

corporation—the unique, individual personality of the company that differentiates it from

other companies. Corporate communication is the aggregate of sources, messages, and

media by which the corporation conveys its uniqueness or brand to its various audiences.

Corporate image is in the eye of the beholder—the impression of the overall corporation

held by its several audiences. The objective in managing corporate image is to

communicate the company's identity to those audiences or constituencies that are

important to the firm, in such a way that they develop and maintain a favorable view of

the company. This process involves fashioning a positive identity, communicating this

identity to significant audiences, and obtaining feedback from the audiences to be sure

that the message is interpreted positively. An unsatisfactory image can be improved by

modifying corporate communication, re-shaping the corporate identity, or both.

In public relation management, image and identity has been conceived as primarily

determined and controlled by the organization and has been conceptualized largely in

terms of the strategic plan in handing organizational relationships with investors and

stakeholders (Smith & Taylor, 2006; Oyedepo & Okorie, 2011). Public relations studies

also have suggested that image is determined mostly by the organization and is presented

to employees in visual and verbal form (Ashforth & Mael, 1989; Chajet, 1988).

Corporate citizenship provides the link between corporate identity and corporate image. It

should be defined in the broadest possible sense, because companies communicate

identities in many different ways. Corporate citizenship can include almost anything the

company does, from the way telephones are answered to the involvement of company

employees in community affairs. Corporate citizenship is primarily determined in the

manner executives and employees communicate with their key publics Some of the

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principal sources of corporate communication include company and product names and

logos, formal statements (mission statements, credos, codes of ethics, annual reports,

advertising copy, and company slogans), and behavior during important events. These

events encompass scheduled events such as open houses and anniversary sales as well as

unscheduled events such as lawsuits or negative press coverage. In other words, it can be

said that corporate citizenship is the nexus that bring corporate communication, corporate

identity and image management together for the success of the organizational objective

The Functional approach in promoting Corporate Governance

The overall aim of corporate citizenship is to promote good corporate governance

practices, which instill in companies the essential vision, processes, and structures to

make decisions that ensure longer-term sustainability. Also, it emphasizes that companies

can be profitable as well as achieving environmental, social, and economic value for

society. In other words, good corporate governance is the nexus that holds together

responsible business practices, which ensures positive workplace management,

marketplace responsibility, environmental stewardship, community engagement, and

sustained financial performance.

Good corporate governance practices are essential built by maintaining a consistent

image among the several stakeholder groups. Although it is prudent to stress different

facets of the firm's identity to its various publics, the firm should avoid projecting an

inconsistent image, because the concerns and memberships of different stakeholder

groups often overlap. For instance, the financial community and the shareholders would

have many of the same financial and strategic concerns about the company. In fact, many

shareholders rely heavily on the advice of experts from financial institutions. Similarly,

both employees and the general public have an interest in the overall prestige of the firm

and the reputation of its products. A social action group's criticism, whether economically

effective or not, is bound to influence some customers and affect the company's public

reputation. A regulatory agency such as CAMA or SEC would focus narrowly on the

firm's safety record and policies, but the company's employees and their labor unions also

have a stake in these matters. A crucial way of maintaining a consistent image is to

always communicate the truth to your stakeholders or investors because it is better

primary shareholders are informed about the practices or activities of their organization

than to be informed by outsiders or external authorities. Secondly, the use of corporate

communication in maintaining the image of an organization must be optimized and not

negotiated. Furthermore, the delay to supply information to stakeholders could be

detrimental to the existence of a firm. Bank executives and employees must learn to

supply the required information on time to their key publics before they are informed by

external authorities, this approach would promote public confidence and trust among the

stakeholders or shareholders.

Corporate communication involve all form of media (television, radio, newspaper, press

release, news leaflet, annual reports, etc.) used in communicating the activities and

operations of the organization. As it relates to corporate citizenship, it also involves the

ethical behavior in which these form of media is used to communicate the activities and

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operations of the organization. In sum, the integrity of truth is primarily emphasized in

maintaining a positive image and good corporate governance practices

The importance of corporate identity is quite obvious for organizations that operate in a

good corporate governance practices. Identity management has several contributions to

totality of corporate citizenship: it symbolizes the organization, it provides visibility and

recognizability, it expresses its structure, and internally, it may enhance the extent to

which employees identify with the organization (Bromley, 2001; Dutton, Dukerich, &

Harquail, 1994; Kiriakidou & Millward, 2000; Olins, 1989). Corporate values first need

to be incorporated by employees before they can be expressed externally (Fombrun &

van Riel, 2004).

In organizational management, people work toward common goals and the results are

influenced by strategy, structure, culture, and technology. Organizational dimensions,

based on the various perspectives on organizations found in the literature, emphasize the

strategy of organizations (Johnson & Scholes, 1999; Mintzberg, Ahlstrand, & Lampel,

1998), organizational structure and principles of coordination among various functions

and tasks (Mintzberg, 1979; Hall, 1991; Hodge, Anthony, & Gales, 1996), and culture,

which includes how the shared values and beliefs of the organization's members are

described, how one is supposed to communicate and behave, how newcomers are

socialized, and how leaders influence others (Deal & Kennedy, 1982; Schein, 1992).

Good corporate governance practices emphasize employees of an organization to have

shared values and ethical beliefs that underpin corporate citizenship, so as such behaviors

can translate to the identity of the organization. In sum, the proper management of an

organization identity contributes significantly to the image and practices of corporate

governance

Conclusion

The central thesis of this paper reviewed the conceptual practice of corporate governance

and the need for corporate citizenships in banks, which was essential because of the

recent economic challenges and the financial scandals that characterize the Nigerian

banking industry. Against the backdrop of image restoration theory, which calls for

organizations to engage in corporate citizenship in managing stakeholder relationship as

well as promoting ethical strategies in projecting the corporate image of the organization,

the paper suggests that corporate citizenship is pivotal in promoting good corporate

governance practices in Nigerian banks. Furthermore, image and identity management

can only be properly managed and maintained when bank executives and employees have

shared values, beliefs and ethical behavior that underpin corporate citizenship

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References

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Benoit, W. L. (1995). Accounts, excuses, and apologies: A theory of image restoration

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Blaney, J. R., & Benoit, W. L. (2001). The Clinton scandals and the politics of image

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Fombrun, C. J., & Van Riel. C. B. M. (2004). Fame and fortune: How successful

companies build winning reputations. Upper Saddle River, NJ: Financial Times

Prentice Hall.

Hall, R. H. (1991). Organizations: Structures. processes and outcomes. Englewood

Cliffs, NJ: Prentice Hall.

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Prentice Hall.

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Mintzberg, H. (1979). The structuring of organizations. Englewood Cliffs, NJ: Prentice

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Mintzberg, H., Ahlstrand, B., & Lampel, J. (1998). A guided tour through the wilds of

strategic management. New York: Free Press.

O'Keefe, D. J. (1990). Persuasion: Theory and research. Newbury Park, CA: Sage.

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European Journal of Marketing, 35(3/4), 316-334.

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LIQUIDITY SQUEEZE AND THE REAL SECTOR OF THE NIGERIAN

ECONOMY: A THEORETICAL EXPOSITION

OJEKA, Stephen A.

(B.SC, M.SC ACCOUNTING) ACCOUNTING DEPARTMENT

COVENANT UNIVERSITY

NIGERIA

AJAYI Anijesushola Olusegun

ACCOUNTING DEPARTMENT

COVENANT UNIVERSITY

NIGERIA

Abstract

The global financial recession started in the United States before it snowballed into other

countries globally. This can be linked to the connection between financial market and

economies of the world. The crisis affected all the major economies especially the real

sector which serves as the backbone to the economy. This paper therefore considered the

effect of liquidity squeeze on the real sector of the Nigerian economy, to examine

strategies which the manufacturing industries can use to counter the effect of liquidity

squeeze in the real sector even as the global financial crisis bite harder on the liquidity of

the corporate bodies. The paper concludes that, for any country to thrive and make

maximum impact in this era of global recession, more attention must be given to liquidity

which has affected the real sector in Nigeria negatively and to restore confidence in the

sector, there is an urgent need for Nigerian government to wake up and rescue this ailing

economy. We therefore recommend that Nigerian government should pay critical

attention to the real sector by instituting legislations that will herald the flow of fund to

the sector and set up a Manufacturing Support Fund (MSUF) which would be a pool of

resources from the government at all levels.

Keywords: Real Sector, Liquidity, Global recession, Nigerian Government

1.0 INTRODUCTION

Liquidity plays an important role in the real sector therefore, due to the absence of cash

flow in the economy, managers and investors in the manufacturing sector need

information, techniques and solutions to forecast the major challenges which are likely to

affect the business going concern. The different sectors of the economy have to strive in

the midst of this recession in order to avoid sudden collapse in the nearest future. Chizea

(2001) posited that liquidity is essentially a measure of the money supply and liquidity

management is a determination of the quantum of liquidity that would be consistent with

optimal level of output and policies. He explained that liquidity of financial systems

sustains the lifeline of an economy.

A liquidity squeeze is triggered when an otherwise sound business finds itself temporarily

incapable of accessing the bridging finance it needs to expand its business or smooth its

cash flow payments. In this case, accessing additional credit lines and "trading through"

the crisis can allow the business to navigate its way through the problem and ensure its

continued solvency and viability. It is often difficult to know, in the midst of a crisis,

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whether distressed businesses are experiencing a prolonged and intractable credit crunch

caused by mistaken and unsustainable valuations and lending practices, or whether these

businesses are experiencing a temporary liquidity crisis which can be traded through and

survived.

Liquidity challenge started in subprime mortgage (USA) due to the fact that mortgaging

was taking place with lack of guaranteed collateral to pay back. This lead to the global

financial crisis that has also affected the banking sector because majority of the funds

used in mortgaging is provided by the banking sector. The real sector and the banking

sector go hand-in-hand because the banking sector is their major source of fund (loans)

but recently, the banking sector has also been facing crisis from the capital market as the

market price of shares has reduced because expatriates and investors move their money

invested originally that acts as source of funds to the banking sector back to their home

country to help the deteriorating conditions (Akinluyi, 2009). The real sector is now

confronted by yet a bigger challenge –acute credit squeeze caused by the recent clamp

down on five banks by the Central Bank of Nigeria (CBN) due to their mismanagement

of funds . All these challenges will tend to have a huge effect on the continuous existence

of the real sector of the Nigerian economy in the long-run.

However, the manufacturing sector has been facing numerous challenges before now but

with the global financial crisis, these problems are being compounded by the depreciating

naira in the foreign exchange market, rising interest rates, smuggling, counterfeit etc.

Globally, activities of the manufacturing sector reflect that unique role on the

contribution of growth in an economy through their production and availability of goods

and services as a medium to communicate and satisfy consumers/customers.

Manufacturing sector is considered to be one of the most important sectors of the

Nigerian economy. The purposes of running them are to see that it operates at a profit,

employment generation and to ensure that it pays its creditors and expenses at the

appropriate time. If these points are not covered effectively, it could mean that they have

to be closed down.

The objective of this paper therefore is to examine the effect of liquidity squeeze on the

real sector of the Nigerian economy, to examine how liquidity squeeze affects the

attainment of manufacturing industries‘ objectives and lastly to provide strategies which

the manufacturing industries can use to counter the effect of liquidity squeeze in the real

sector.

2.0 LITERATURE REVIEW

2.1 BRIEF HISTORY OF GLOBAL FINANCIAL CRISIS

The current liquidity squeeze was triggered by the global financial crisis that has its

origin in the U.S. subprime mortgage crisis of August 2007. The subprime mortgage

crisis had its origin in the program the directors of Fannie Mae initiated in the late 1990's

to pursue social welfare goals rather than maintain financial viability. Lenders were

strongly encouraged to reduce the requirements for mortgage below what had been found

to be the minimum adequate levels. Having pushed the lenders into the subprime

mortgage market Fannie Mae made the financially infeasible feasible by being willing to

buy such subprime mortgage and to grant default insurance on such mortgages. When

Fannie Mae effectively went bankrupt the lenders who had written such subprime

mortgages found that there was no longer a market for them and thus they were stuck

with them. Also those lenders who had obtained default insurance now find that

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insurance is useless if Fannie Mae cannot pay off on the defaulted mortgages. The

lenders should have been aware that there is a risk with any insurance company that it

might not be willing and able to pay off on claims. The supposed guarantee of Fannie

Mae obligations by the Federal Government removed any concern of businesses with the

risk of counter-party default. However, this crisis was caused specifically by housing and

credit markets mismatch, poor judgment by borrowers and/or the lenders, inability of

homeowners to make mortgage payments, speculation and overbuilding during the boom

period, risky mortgage products (financial innovations with concealed default risks), high

personal and corporate debt profiles and inactive/weak central bank policies. The

environment then led investors, firms and consumers to expect a bright future and

underestimate risk. Housing and other asset prices went up in U.S. as several risky

mortgages were approved and sold as being nearly riskless. Therefore, when housing

prices fell and subprime mortgages and securities based on them reduced in value, the

stage was set for a crisis. The crisis became contagious and quickly moved across assets,

markets and economies in view of global integration and connections among financial

institutions.

2.2 IMPLICATIONS FOR AFRICA

In the first few months of the financial crisis, there was the widely held view that the

impact on African countries would be minimal because of their slow integration into the

global economy. The financial crisis is hitting the Western nations the hardest; Africa

may yet enjoy increased trade for a while. In the long run, it can be expected that foreign

investment in Africa will reduce as the credit squeeze takes hold. Furthermore, foreign

aid, which is important for a number of African countries, is likely to diminish. Africa

should weather the first round effects of the financial crisis in developed markets because

of its weak integration into the global financial system, but export demand and access to

finance could be hit, especially in a prolonged downturn, Africa economically represents

a small share of global markets, with 1.3 percent of world stock market capitalisation, 0.2

percent of debt securities and 0.8 percent of bank assets, with less than ten percent of

Global Foreign direct investments (Ekweremadu, 2009).

All these elements might suggest that for most African countries, the direct turbulence in

the United States and Europe will have a limited impact on the domestic financial

markets. Due to the fragile nature of African economies and their level of dependence on

supportive investments and foreign aids, one will begin to doubt the ability of African

Nations to withstand and absorb the negative economic effects of the sudden global

financial crisis. Furthermore, African countries tend to have very small inter-bank

markets and several countries have restrictions on new financial products as well as

market entry, which should shield them from the direct effects of the global financial

crisis. Recent developments have, however, shown that the negative contagion effects of

the crisis are already evident in the Africa region. Given the diversity of African

countries, the crisis is certainly going to affect some countries much more than others. It

is also interesting to note that the crisis is affecting all categories of countries in the

region, those considered to have good economic policies and governance; those with poor

macroeconomic records; fragile States; small and large economies; oil- and non-oil

exporting countries (African Union Commission, 2009). An implication of this assertion

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is that the real effects of the crisis in the region are not simply due to the nature of

macroeconomic policies and governance in African countries. The impact of the crisis on

Africa comes from both direct and indirect channels. The direct effects have been felt

mostly through the financial sector. For example, stock market volatility has increased

since the onset of the crisis and wealth losses have been observed in the major stock

exchanges. So far, bank failures have been rare in the region, largely because most

African banks do not have any significant exposure to the sub-prime mortgage market

and asset-backed securities. They are, however, vulnerable to contagion effects arising

from the high rate of foreign ownership of banks in several countries in the region. To the

extent that foreign-owned banks reduce their support of local banks or sell their assets, it

will have serious negative consequences for the financial sector in Africa. The crisis has

also increased the cost of imported intermediate inputs, with consequences for

production, output and employment.

Moreover, since several countries in the region are import dependent, the depreciation of

currencies in the region has increased domestic prices of consumer goods and reduced

access to food by vulnerable groups. Exchange-rate depreciation has also increased

exchange-rate risks faced by domestic firms and increased the likelihood that they will

evade loans owed to domestic banks, which has consequently increased the vulnerability

of these banks. The financial crisis has also increased the risk premiums that African

countries have to pay in international capital markets which automatically led to several

countries in the region having difficulties obtaining funds from international capital

markets. For example, Kenya, Nigeria, Tanzania and Uganda have cancelled plans to

raise funds in these markets. The drying-up of this source of external finance has in turn

slowed down development in the region because the money raised would have been used

to finance infrastructure development and boost growth (African Union Commission,

2009).

The volume of exports by African countries has also declined because of the financial

crisis. The slowdown in economic growth in three key export markets; Europe, the

United States and China, has affected the demand for exports from Africa. Forecasts by

the World Trade Organization indicate that the volume of global trade is expected to

decline by 9% in 2009, which will have a negative effect on Africa‘s exports in 2009.The

declines in commodity prices and export volumes have led to a decrease in export

revenues in African countries. The reduction in expected export earnings has constrained

the ability of Governments to finance imported inputs necessary for production. It would

also limit the ability of Governments to cushion the negative effects of the crisis on the

economy.

2.3 OVERVIEW OF THE NIGERIAN REAL SECTOR BEFORE THE CRISIS

Players in the Nigerian industrial and manufacturing sector can be classified into four

groups, namely: multinational, national, regional and local. Apart from the multinational

operators, most of the other players have disappeared in the last two decades, due to

unpredictable government policies, lack of basic raw materials, most of which are

imported. Today, the Nigerian Industrial & Manufacturing sector accounts for less that

10% of Nigeria‘s GDP, with manufacturing capacity utilisation remaining below 35% for

the most part for the last decade (Bureau of Public Enterprises, 2009). The history of

industrial development and manufacturing in Nigeria is a classic illustration of how a

nation could neglect a vital sector through policy inconsistencies and distractions

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attributable to the discovery of oil. The near total neglect of agriculture has denied many

manufacturers and industries their primary source of raw materials. The absence of

locally sourced inputs has resulted in low industrialization.

Before independence, British industrial policy for the nation systematically discouraged

local crafts and manufacturers. At independence in 1960, the Nigerian economy was

largely agricultural and only 150 plants of medium and large scale size in the industrial

sector were available, evidently, modern manufacturing accounted for a mere 3.2.% of

our GDP at independence Ugwuonah & Omeje, (1998), with expatriate investors

dominating the business. After independence, the government of the first republic placed

immense premium on foreign investment and active partnership with foreign capital as a

major strategy for industrial growth and enhancing the productive performance of

manufacturing sector. But throughout the period, industrial establishments engaged in

manufacturing remained few and widely dependent on foreign inputs and technical

support (Ugwuonah et al, 1998). As against the pursuance of industrial development

through the attraction of foreign capital investment, emphasis was diverted to the creation

of a sound industrial base for the long term growth of the economy through government

direct investment in strategic industries such as agro-based industries, iron and steel and

vehicle assembly.

The crisis forced many industries out of production, while a lot more operated far below

their normal capacities. Retrenchment of industrial employees became rampant. The

manpower situation was compounded by the emergence of a high rate of graduate

unemployment. Despite all efforts at reviving the economy, available indicators show

that the Nigerian economy is still in serious recession, displaying unhealthy features like;

Slowdown in economic activity, low industrial capacity utilization average of 38% per

annum, an annual inflation rate of 80%, rising unemployment and lack of new

investments and heavy build-up of business inventory owing to flagging domestic

demand. The prospects of manufacturing in Nigeria are bright, given the nation‘s nascent

democracy, a market size of over 120 million people, rich mineral and other resources,

size of the West African market, as well as cheap and abundant labour. Developing

Nigeria‘s real sector requires the concerted efforts of government and the private sector

to create an environment that would encourage investments, primarily by Nigerians as a

firm basis for attracting and sustaining foreign investments in the sector. A fully

developed industrial sector would provide a firm basis for sustainable economic growth

and development. Compounded by the crisis, the following are the lingering challenges

being faced by the real sector.

2.4 IMPLICATIONS FOR NIGERIA

It could seem, on the surface, as though Nigeria is one of those countries that might be

fortunate enough to avoid the global meltdown. Nigeria is not as inter-dependent on the

global capital systems as other nations on the continent – and there is little that Nigeria

exports (with the exception of oil) to really throw it into a crisis. According to (Ibegbu,

2008), Bartholomew Ebong, M.D. and CEO of Union Bank of Nigeria Plc was adamant

that the world's global crisis was not Nigeria's. Ebong stated, when interviewed, that the

bank is stepping back to assess the situation, but is confident that Nigeria, and its trading

partners, likely won't get caught in the economic backlash. He posited further that, what

is aiding Nigeria further is that unlike other nations, it has no significant foreign

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ownership in the United States except its foreign reserve that is currently lodged in

United States and European Banks and stands at a fluctuating rate of $59B – therefore,

it's not directly connected to the U.S. economy, which was the first to spur the meltdown

The managers of the Nigerian economy could not contemplate the crisis having an impact

on the Nigeria given the consolidation exercise in the Banking sector (2005/2007) that

subsequently increased their capital base, enhancement of capacity of the Insurance

sector arising from the increase in equity capital, unprecedented boom in the capital

market and crude oil price that packed at $147/barrel (Ajakaiye & Fakiyesi, 2009). But

when it started becoming obvious that the crisis would affect Nigeria, the managers of the

economy and the government engaged in self denials claiming that the economy is

immune to the crisis. Since our global business is relatively low, you tend to believe

them. In complying with capital base increase under the consolidation exercise, banks

made several private placements and public offers to raise the required funds. With

projected performance level supporting these offers being regularly surpass, the capital

market reflected these in the price of shares. It became a competition amongst banks to

raise money from capital market with stockbrokers and analysts promising huge dividend

and unmatched price appreciation. Investors looking for quick profits were sucked in. the

increase capital base of the banks coupled with better technology and human capital

enable them to commence cross-border investments including affiliation, business co-

operation and other forms of working arrangement with international banks. This was

progressed further to include application for credit lines for their other business. This also

increased the liquidity available to the banks and capacity to contemplate bigger deals.

However , with the liquidity available to the banks following consolidation coupled with

their reluctance to lend the real sector of the economy, banks were virtually deploy their

huge pile of cash through any channel that appears to be credit worthy. Following the

hype surrounding the Nigerian capital market, hedge funds and private equity managers

from the western world invaded the market and took significant positions but when the

financial crisis began to unfold, this category of investors unwound their investments to

cover worse conditions in their home countries. The international correspondent banks

also withdrew the credit lines availed to the local banks which in turn made them call in

most of the loans they had extended to stock brokers who had significant positions in the

market. With the pressure to liquidate the facilities mounting, everybody wanted to sell at

the same time. The crisis has significantly weakened investors‘ confidence in Nigeria,

both in the capital and money markets. In view of the Bearish features of the capital

market 23% or N2.9 trillion in market capitalisation has already been lost since March,

2008 resulting in the CBN granting reprieve to banks that has large portfolio of margin

facilities to re-structure for longer periods (Ekweremadu, 2009).

The global crisis negatively impacted international commodity prices following the

demand in most economies across every sector. The crude oil price declined precipitously

from US$147 per barrel in July 2008 to $47 per barrel in January 2009 which in turn

resulted to a fall in revenue accruing to Nigeria as over 95% of revenue is obtained from

crude oil export, prompting the government to seek other sources of financing for the

2009 fiscal year, as it cannot rely on earnings from crude oil exports (Ajakaiye, et al.

2009). Given that the country is import dependent in all areas including food items and

the influx of cheaper products following from globalization and with falling revenue,

there commenced a sustained pressure on the Naira to Dollar exchange rate. Exchange

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rate depreciation usually comes with higher domestic prices. Even though the prices of

foreign goods remain unchanged, traders will have to charge higher prices as they require

more domestic currency to get the needed foreign exchange for their imports. Conversely,

exporters are favoured, as they will have more naira for their exports. The problem here

is that demand for such exports may be low due to the economic recession in the foreign

countries. In addition, production of such exports depends on some imported foreign

inputs and thus higher costs of production. It is not only due to exchange rate

depreciation that inflation may worsen, another factor is the financing of the fiscal

deficits arising from the declining government revenue. Normally, the global economic

crisis may make interest rates to rise in Nigeria considering the depreciating naira, fiscal

deficit and rising inflation. Banks still charge high interest rates despite the reduction of

the monetary policy rate by the central bank and the directive to reduce their lending

rates. Investors will want to have positive interest rate. So, as inflation rises deposit rate

has to rise. Lending rate has to be higher than the deposit rate (Ekweremadu, 2009).

It is of no doubt that Nigeria has been hard hit by the turbulence. Certain states of

Nigeria are presently relying on funds from off shore financiers to fund mega projects

such as road construction and power generation. With this crisis, it is possible that the

completion of some of these projects would be prolonged. Similarly, Nigeria relies on

several foreign grants and funding from developed countries to complement public

spending on education, health care delivery, and transportation, amongst others. The

crisis has caused a squeeze on grants to Nigeria as some of the Countries we rely on for

funding are the worst hit by the crisis. Also, grants from donor agencies such as the IMF,

World Bank and USAID could also be affected as they in turn rely heavily on the

contributions of the G7 states, which would reduce as the credit crunch persists (Detail

Commercial Solicitors, 2008).

Presently, the debt profile of Nigeria is gradually increasing, from US$17,349.69 billion

in 2006 (after repayment of the substantial debt owed by the country to the Paris Club) to

$22,229.88 billion in 2007 and $23,383.98 billion in 2008. The domestic debt share,

which is in the range of 79-84%, drives this increase (Ajakaiye et al, 2009). This might

rise further in 2010, as the government has promised to meet planned budgeting targets

through loans (external/domestic). Further, the growth of domestic debt will also lead to

an increase in inflation. The impact of the global economic crisis has made the level of

unemployment to rise in Nigeria while salaries of those that are able to remain in

employment have been reduced. In addition, the amount of money remitted home by

Nigerians working abroad to family members has reduced because of the hardship they

are facing abroad. Some of the Nigerians abroad may return home thereby increasing the

number of those in the unemployment market. The lower household income will increase

the rate of poverty and undesirable social vices like corruption, crime, prostitution, etc.

Already, about 54.4% of the Nigerian population is living below the international poverty

line (Ekweremadu, 2009).

2.5 IMPLICATIONS ON THE REAL SECTOR

As important as the manufacturing sector is to the growth of Nigeria economy, available

statistics unfortunately still show that the sector only contributes marginally to the

national GDP. The sector is bedeviled by serious difficulties in the operating environment

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which has led to its decline from nearly 13 percent in 1982 to mere 4 percent in 2008 of

national output (Nwaoguji, 2009). The agencies noted that during the third quarter of

2009, manufacturing activities increased relatively to the level recorded in the second

quarter of 2009 but decreased when compared with the corresponding period in 2008.

The sector recorded a decline in growth rate from 8.43 per cent in 2008 to 8.36 per cent

in 2009 (Owoseye, 2009). The real sector has little investment in infrastructure by the

government, especially the firms that source their raw material from abroad might suffer

greatly. Impacts and their extent would depend on the depth and duration of the crisis: the

liquidity squeeze which originated from the withdrawal of foreign portfolio investors

from Nigeria, the extent to which remittances will decline and, more importantly,

investors‘ confidence in the economy (Ajakaiye et al, 2009).

The impacts on inflation depend on the degree of changes of commodity prices and the

accompanying change in the terms of trade has affected the real sector. Owing to the

commodity price boom, inflation rates rose strongly. Officially, Nigeria started

experiencing a two-digit inflation rate from the third quarter of 2008. With falling

commodity prices, inflationary pressures should subside to some extent as well. A strong

and extended downward movement of the exchange rates will keep inflation levels high,

most especially since Nigeria is import dependent and has no more foreign earnings to

maintain this flair.

The average manufacturing capacity utilisation rate, estimated at 52.6% in 2008, fell by

3.1% and 0.2% below the level in the preceding half year and the corresponding period of

2007, respectively (Ajakaiye, et al. 2009). The decline in manufacturing production could

be attributed to poor facilities, especially electric power supply, which remained

irregular, and the poor road network. Other constraints to increased production include

unfair competition from imported finished products, which constrained the demand for

locally produced goods, high cost of production, poor state of infrastructural facilities,

high interest rates, multiple taxes, insecurity, etc.

The real sector, particularly, has been facing the aforementioned numerous problems

before now. However, with the global economic crisis, the sector‘s problems are being

compounded by depreciating Naira in the foreign exchange market, rising interest rates,

rising cost of diesel, etc. In addition, the real sector is import dependent and is therefore

currently finding it difficult to establish letters of credit due to the fall in the value of the

Naira, rising interest rates and low foreign exchange supply in the market. The global

recession also led to the closure of the industries, particularly for companies which

depend on importation to survive and had to spend more foreign currency. Operators in

the sector are jittery anticipating more hard times in terms of lower investment, lower

profits and possible factory closure and retrenchment of workers. This is more so, in view

of the slowing of global demand. Those of them that strive to export manufactured goods

would be negatively affected. Added to these challenges facing producers in the Nigeria

real sector is the difficulty in securing credit facilities for their operations from banks

(Ekweremadu, 2009).

According to Kunle Quadri, the new President and Chairman in Council of the Chartered

Institute of Taxation of Nigeria (CITN), ―The financial crisis is affecting Nigeria because

of its over-dependence on oil revenue and the neglect of the real and agricultural sectors

of the economy. The drop in oil prices at the world market has drastically affected the

revenue accruable to all tiers of government. This current low price of crude oil in the

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international market should spur the government to speed- up her industrialisation

process with trade and economic policy that is export led, focusing hard with emphasis

on infrastructures that will reduce the problems encountered in the manufacturing,

agriculture, tourism and other non oil sectors‖ (Adepetun, 2009; Richard & Olayiwola

2010). Dafinone (2009) opined that the increased unemployment in the manufacturing

sector provides insignificant employment within the country due to the fact that the

economic crisis has caused cramped the growth of manufacturing industries thereby

making them lay-off workers. These industries cannot continue their operations with the

same amount of workers during the recession because they cannot afford their salaries.

The people employed within the manufacturing sector pay personal income taxes, rates

and levies to the states and local governments. The loss of people employed in

manufacturing reduces the revenue profile of these tiers of government thus creating

dependence on the centre.

2.6 STRATEGIES TO COUNTER THE EFFECT OF LIQUIDITY SQUEEZE

IN NIGERIA

The debate in rich countries about the impact of the global financial crisis has largely

ignored its impact on developing countries. Nevertheless, instability in financial markets

around the world is already spilling over to the ‗real economy‘ in poorer countries. It is

vital that policymakers understand how this crisis may affect developing countries like

Nigeria and the implications for development policy. This research has examined the

channels of impact of the current financial crisis on Nigeria. The set of policy responses

can therefore be considered with regard to what is needed immediately and in the

medium to long term to minimize the loss of welfare owing to the crisis. Optimal policies

therefore should be perceived in terms of what is possible in the short run as a response to

the global financial crisis, and what should be the long-term objective, in order to avert

reoccurrence of current experiences while minimizing the impact of the current recession

in terms of welfare losses for the people of the country.

The following are some suggested strategies that can be used to counter the effects of the

global economic crisis in Nigeria:

1. Government need to play active roles in economic management for the development

and stability of the economy. The visible hand of the government must assist the

invisible hand of the market. It is now clear that if left unchecked, market forces,

with all their limitations and inadequacies, can lead to damaging outcomes. Relying

on the market cannot provide an effective agenda against poverty;

2. Stronger regulation and more professional supervision of the Nigeria financial

institutions and strict enforcement of existing financial rules, regulations and laws.

Noteworthy is the fact that failed regulatory policy in America contributed

immensely to the present crisis just as in the case of the East Asian crisis of 1997/98.

May be Nigeria should separate the banking and supervisory/regulatory functions of

the Central Bank of Nigeria. Another institution may be established to perform the

regulatory functions more effectively;

3. There is need to put in place a contingency plan for possible bail-out of any

distressed financial institution. This may take the form of injection of funds into such

ailing banks through government acquisition of shares, which would be bought back

when they recover. This approach can aid recovery from recession and ensure safety

of jobs, and savings;

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4. It is not justifiable to use public money to bail out the Nigeria capital market. By

nature, share prices are dynamic. Eventually, share prices will rise through the

operation of the market mechanism as the other sectors of the economy recover. As

people have more money, they will buy shares thereby leading to an increase in the

values of the shares. Clearly, the recovery of the Nigeria capital market largely

depends on developments in other sectors;

5. Even though we need to stimulate aggregate demand for goods and services by

public spending, such government expenditure must be very productive. A situation

of un-implementable budgets whereby funds meant for capital projects are returned

to the treasury at the end of the year will make it difficult to counter the adverse

effects of the global economic crisis in Nigeria. Hence, profligate, corrupt and

inefficient public spending should be discontinued or sanctioned more seriously;

6. The Central Bank of Nigeria sometime ago announced a number of expansionary

monetary policy measures: reduction of Monetary Policy Rate, slashing of liquidity

ratio, cutting down of cash reserve ratio, etc. These are in the right direction, but

they must be complemented with fiscal policy measures also aimed at boosting

aggregate demand and avoiding economic recession;

7. The current global economic crisis presents a golden opportunity to take decisive

steps to reduce the current precarious dependence of the economy on just one

product for revenue and foreign exchange earnings. In the periods of oil windfall, the

country had missed golden opportunities to diversify the economy and develop a

robust infrastructure base. Rather, oil revenues were largely squandered and

mismanaged by some corrupt officials. A diversified economy has some inbuilt

mechanism to withstand external shocks;

8. There is need for an aggressive non-oil revenue drive starting from this year to bring

all taxable adults who had been evading and avoiding tax into the tax net. It is only

non-oil revenue that can guarantee us sustainable development. Also, there is need to

strive for improved revenue through improvement in the efficiency in collection and

administration of existing taxes and;

9. Confidence must be built in the Nigeria banking subsector and industrial sector

which has shown some resilience towards the global financial/economic crisis. The

recent floating of bonds in the capital market by both the Federal Government and

Lagos State Government point to government‘s confidence in the market. Given the

high degree of capitalisation of the banks, their continued posting of huge profits,

and their strategic moves at the moment, they should be able to withstand shocks.

They should equally endeavor to boost confidence in the capital market by

enhancing the liquidity of that market (Ekweremadu, 2009).

3.0 CONCLUSION AND RECOMMENDATION

From the foregoing analysis, the study has revealed that the effects of liquidity squeeze

cannot be overlooked in any manufacturing industry. For any country to thrive and make

maximum impact in this era of global recession, more attention must be given to

liquidity. It has been revealed from the analysis that the real sector is the backbone of any

economy. The illiquidity in the real sector has led many companies into reducing their

staff strength, which have been witnessed most in Nigeria recently both in the real sector

and the financial sector. This has dropped the purchasing power of the general public and

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has paralysed the sector. To restore the confidence back and to sustain the sector, there is

an urgent need for Nigerian government to wake up and rescue this ailing economy. The

Central Bank of Nigeria will have a great role to play with relevant regulatory policies in

ensuring that the investors have access to fund at a relatively cheap rate for favorable

competition.

We therefore recommend that, Nigerian government should pay critical attention to the

real sector by instituting legislations that will herald the flow of fund to the sector.

1. There should be a reduction cost of capital (i.e. cost of borrowing) to at least 1

digit to encourage borrowing

2. Most importantly, the Central Bank of Nigeria should strengthen its oversight

functions over the deposit banks and other related institutions in ensuring capital

are channeled in a right direction.

3. A proposed Manufacturing Support Fund (MSUF) which would be a pool of

resources from the government at all levels, maybe a direct deduction from the

excess crude oil account, the central bank of Nigeria, or the private sector

especially the financial sector of the economy. The fund will be administered on

behalf of the government of Nigeria while beneficiaries will be expected to meet

the stipulated guidelines for such fund (Richard et al. 2010).

4. And the government should also on another ground endeavor to inject funds in

form of bail out as done in the banking sector towards the real sector as well.

5. The government should ensure the infrastructures needed are in place so as to

reduce cost of production.

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References

Adepetun, A. (2009). CITN Tasks Govt on Economy. Retrieved January 2, 2011, from

http://www.ngrguardiannews.com//

African Union Commission (2009). The global financial crisis: impact, responses and

way forward. Retrieved Feb 6, 2011, from http://www.financial_regcomm.com/

Ajakaiye, O. & Fakiyesi, T. (2009). Global Financial Crisis Discussion Series: Nigeria.

Retrieved Dec. 11, 2010, from http://www.odi.com/

Akinluyi L. (2009) ―Financial Meltdown: A dilemma for the Risk Manager?”

Unpublished work Retrieved Jan.10, 2011

Bureau of Public Enterprises, (2009). Industry and Manufacturing Background.

Retrieved Jan. 9, 2011, from http://www.bpeng.org/

Chizea, C. (2001). Liquidity Management. Journal of the Chattered Institute of Bankers

of Nigeria January-June, 2001. Pg. 31

Dafinone, D. (2009). Global Economic Recession: The Lessons of the Global Meltdown

for Nigeria. Retrieved January 2, 2011, from http://www.aiaenigeria.org/

Ekweremadu, I. (2009). The Global Economic Crisis: Implications for Africa. Retrieved

Dec.28 20, 2010, from http://www.primopdf.com/

Ibegbu, C. (2008). Global Financial Meltdown and its Effects to Nigerian Economy.

Retrieved Jan 11, 2011, from http://www.nigeriavillagesquare.com

National Bureau of Statistics, (2007). Foreign Trade Statistical News 2nd Quarter 2007.

ISSN 0734-3954 Retrieved Febr. 6, 2011, from http:// www.nigerianstat.gov.ng

Nwaoguji, C. (2009). Global meltdown: A threat to manufacturing sector, says D.G

LCCI. Retrieved January 2, 2011, from http://www.sunnewsonline/money.com/

Nwaoguji, C. (2009). Manufacturing sector remain distressed in 2008 –Borodo, MAN

President. Retrieved January 2, 2011, from

http://www.sunnewsonline/money.com/

Owoseye. A. (2009). Further Decline in Manufacturing Sector. Retrieved January 2,

2011, from http://234next.com/

Richard A. & Olayiwola S.A (2010) Global Financial Crisis and Industrial Sector

Performance in Nigeria

Ugwuonah, E. & Omeje, C. (1998). Higher Education and the Demands of Manpower

Development in the Nigerian Manufacturing Sector: An Empirical Study of Enugu

and Anambra States.

http://www.ngrguardiannews.com/

http://www.financial_regcomm.com/

http://www.bpeng.org/

http://www.primopdf.com/

http://www.nigeriavillagesquare.com/

http://www.nigerianstat.gov.ng/



http://234next.com/

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An Analysis of Preventive Health Care in Pakistan

Ahsan Ali Mangi

Civil Servant associated with Capital Development Authority, Islamabad (Pakistan)

Hafeez ur Rehman

Associate Professor/Chairman, Department of Economics

University of the Punjab, Lahore-54590 (Pakistan)

Imtiaz Ahmed

Officer in Economic Group presently working in Finance Division

Government of Pakistan, Islamabad (Pakistan)

Abstract

Preventive health care in Pakistan has always remained a lower priority. In Health Policy

2001 although the Government had put emphasis on preventive care yet a lot of gaps

exist in implementation. As a result the various indicators and targets set under

Millennium Development Goals (MDGs) have remained elusive. This study is an attempt

to examine in depth the major causes of government‘s bias towards curative care. It

throws light on the causes due to which the government has failed to implement the

National Health Policy 2001 properly. An effort has been made to highlight various

challenges facing the health system and preventive care in particular. Discussing the

various aspects of preventive health care in Pakistan, the significance of creating

awareness among masses and provision of safe drinking water has been emphasized.

Keywords: Analysis , Preventive Health Care , Pakistan

1. Introduction

The right to health is defined as the right to the highest attainable standard of health

encompasses medical care, access to safe drinking water, adequate sanitation, education,

health-related information and other underlying determinants of health.96

It includes

96

Committee on Economic, Social and Cultural Rights. The right to the highest attainable standard of

health: 11/08/2000. E/C.12/2000/4, CESCR General Comment 14. Twenty-second session Geneva, 25

April–12 May 2000 Agenda item http://www.unhchr.ch/tbs/doc.nsf/(symbol)/E.C.12.2000.4.En (accessed

nov 21, 2010).

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freedoms, such as the right to be free from discrimination and involuntary medical

treatment, and entitlements, such as the right to essential primary health care. Like other

human rights, the right to health has particular concern for disadvantaged people,

including those living in poverty. The right to health requires an effective, responsive,

integrated health system of good quality that is accessible to all. Provision of universal

health care is enshrined in the Constitution of Pakistan. Access to Health services is a

basic right of every citizen and is linked to poverty as catastrophic health expenditures

are shocks which can throw households into poverty especially in the absence of any

social security.97

Pakistan health sector has suffered from chronic lack of finances as the state‘s

priorities in public sector expenditures have never let more than 0.6 % of GDP to be

spent on health against the international prescription of at least 4% of the country‘s GDP.

Pakistan has improved its health indicators since its inception in 1947, however, the

improvement has been slow and erratic, resultantly Pakistan reels behind in health

outcomes within south Asia as well. The comparative analysis of various health

indicators reveals that Pakistan is relative behind in health outcomes among Asian

countries (see Table 1).

Table 1

Comparative Analysis of Health Indicators

At the time of independence, Pakistan inherited two parallel health care systems,

i.e. public and private. Initially the private sector in health care was very small which

consisted of the private practice of doctors in their communities. The bulk of health care

was existed in the public sector, which was organized in late 1960s and 1970s. The health

system was expanded gradually with a large network of health facility, workforce and

services across the country. Furthermore, regulatory bodies were established to regulate

and monitor various aspects of health care system.98

97

In Pakistan more than 75% of expenditures on health are out of pocket expenditures meaning thereby that

people pay from own pockets to get access to health services in private sector (For details see Pakistan

National Health Accounts 2005-06, FBS, GOP. 98

Pakistan Medical and Dental Council (PMDC) monitors and regulates medical education and practices.

College of Physicians & Surgeons Pakistan (CPSP) regulates the teaching hospitals and is concerned with

specialist and post-graduate medical education. National Institute of Health (NIH) is concerned with Public

Health and Immunization Program.

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Government of Pakistan has an obligation under the constitution to provide health

services to the citizens so that they are ensured ideal health to enjoy life.99

The domain of

preventive, curative, rehabilitative, promotive and proactive programmes, therefore,

mainly lies with the government. The Government over a period of time developed health

care system pertaining to above areas with primary, secondary and tertiary health systems

where tertiary health care provision is largely concentrated in urban areas through 968

hospitals while primary and preventive health care is provisioned through a network of

over 5345 Basic Health Units (BHUs) and 572 Rural Health Centres (RHCs)100

in

addition to other specialized preventive health care units spread over rural Pakistan.

Federal Government through Ministry of Health is involved with policy making,

coordination, technical support, research, capacity building and seeking foreign

assistance. Provincial and district governments are responsible for delivery and

management of healthcare facilities.

Private health sector became private corporate business in 1980s as international

health polices changed their focus from provisioning of universal health to disease

specific health provisioning. Private sector now plays a significant role in providing

curative health care services in the country. According to estimates the ratio of health

care services provided by the public sector and private sector is 20:80. Furthermore,

drugs and vaccines are imported, manufactured and/or packaged by private sector in

Pakistan. Government acts as registering authority of drugs as well as ensuring quality

through regulatory regime. There are over 47000 drugs registered by Government.101

Till

eighties medical education provisioning in the country was through public sector

institutions however later private sector was allowed to establish medical, nursing and

Para-medic education imparting setups which have mushroomed. Pakistan Medical and

Dental Council (PMDC) regulates these institutions to ensure quality and training

standards.

2. Financing of Health

Government of Pakistan received funds from international agencies for educational

awareness and promotive campaigns for public, students and stakeholders against

prevention of communicable diseases, right sanitation and safe drinking water practices.

Despite a nearly threefold increase in public sector expenditure since 2001, spending on

health remains abysmally low and has declined as a percentage of GDP. In fiscal year

2009-10, total public sector expenditures on health in Pakistan is 0.54 percent of GDP,

which is lowest among all other countries at a similar income level.

99

After the 18th

Amendment health is to be devolved to provinces exclusively.

100Pakistan Economic Survey 2009 101

After ‗Generic drugs act 1972‘ was deactivated doctors can prescribe drugs by their company names

which have not only increased the prices of drugs but flooding of market with same drug with numerous

names.

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Table 2 Health and Nutrition Expenditures (2000-01 to 2009-10) (Rs. billions)

Fiscal

Years

Public Sector Expenditure (Federal and

Provincial) Percentage

Change

Health

Expenditures

as % of GDP Total Health

Expenditures

Development

Expenditure

Current

Expenditure

2000-01 24.28 5.94 18.34 9.9 0.72

2001-02 25.41 6.69 18.72 4.7 0.59

2002-03 28.81 6.61 22.21 13.4 0.58

2003-04 32.81 8.50 24.31 13.8 0.57

2004-05 38.00 11.00 27.00 15.8 0.57

2005-06 40.00 16.00 24.00 5.3 0.51

2006-07 50.00 20.00 30.00 25 0.57

2007-08 60.00 27.22 32.67 20 0.57

2008-09 74.00 33.00 41.10 23 0.56

2009-10 79.00 38.00 41.00 7 0.54 Source: Planning and Development Division

Of total health expenditures in Pakistan, about 33% of health spending is funded

by the government. The breakdown of government expenditures on health is as follows;

Federal Government funding 41.5%, provincial government funding 34.6% and district

government / local bodies funding 23.9%. Interestingly, of total federal health

expenditures 69.9% are for civil part of the government and the rest 30.1% is disbursed

through military set up. Rest 67% of the total health expenditures are funded through

private sector out of which 97.5% is out of pocket health expenditures by households.

Like many other developing countries, Government of Pakistan has also

implemented numerous donor funded programs and projects in preventive health care to

improve the health status of the people. The overall share of donor agencies in health

sector is quite minimal.102

However, donor agencies had played a significant role on

preventive side by providing technical support and some funding for various

immunization and primary health programs in last decades. In spite of weak performance

in these programs their support has been substantial in child and mother health. Weak

coordination between the Government and multiple donors is cited as one of the reasons

for difficulties requiring strengthening of coordination between them. Other challenges in

donor coordination include aligning the donors behind the national health reform

strategy, establishing clear priorities for funding areas of responsibility and benchmarks

for each donor, and establishing a mechanism for sharing information. Moreover, various

vertical programs funded by the UN, its agencies and foreign donors are supply driven

which reduce their impact and effectiveness. The vertical programmes which are in

preventive health care are partly funded by donors and these funds are used on

monitoring and technical backstopping. Due to budget release constraints and high

establishment costs, out of released funds, 30-35 percent is spent as establishment

102

Only a small proportion of resources allocated to health sector originated from donors, i.e. around 1.9%

of overall public sector health expenditure.

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charges and actual amount utilized for the preventive health care activity is around 20

percent of the budgeted amount.

3. Preventive Health Care: Analysis of Health Policies

Prior to 1960, District Councils were responsible to provide medical facilities in rural

areas. They started few dispensaries wherein curative services were available. Due to

increase in population and keeping in view the needs of the people, the Government had

decided to participate in running the dispensaries since 1960. After independence health

planning began with inclusion of health sector in the second Five-Year Plan (1960-65)

which continued till eighth Five-Year Plan (1993-1998). In the due course Government

framed three national health policies, the first two polices framed in 1990 and 1997 took

disease control as central theme and thus initiating several disease control, immunization

and primary health program. But both policies were criticized to be based on bio-medical

model favoring more expansive curative health. Urban and tertiary health bias of these

policies were also criticized and Pakistan‘s progress on health indicators remained slow.

Government of Pakistan approved the third National Health Policy in 2001 which

provides an overall national vision for the Health Sector based on ―Health for All‖ and

makes health investments part of ‗Poverty alleviation‘.103

In spite of a good policy which

refocused on the concept of ‗Health for All‘ and aimed at provisioning of ‗preventive

health care‘ to the rural masses through revitalizing and strengthening ‗District Health

Structures‘, was not able to deliver on its aims. During the period 2001-2009 urban-rural

bias in health provisioning could not be removed because large rural population recurrent

expenditures remained concentrated in urban area. Similarly preference to ‗curative

health care‘ at the cost of ‗Preventive health care‘ continued. Furthermore, prevention

and safe behaviours, incorporation of health, hygiene and communicable diseases related

information in the curriculum of primary, secondary and higher secondary school is

considered to be essential, but unfortunately these health related informations could not

attract the attention of authorities in Pakistan.

Preventive health services include early diagnosis of disease, discovery and

identification of people at risk of development of specific problems, counselling, and

other necessary intervention to avert health problems. It starts from population control as

it is believed that no measure can be effective unless population growth is checked in line

with economic capacities of the country. Since independence, the population of the

country has increased six times, but there is no parallel increase in health infrastructure.

Furthermore, Malnutrition makes individuals susceptible to diseases. In Pakistan large

segment of population suffers from malnutrition and despite efforts and initiatives by

Government under various programs including MDGs, malnutrition in children remains

at 35% over many years. Similarly lack of iron and other essential nutrients remain

endemic in child bearing women and old, although nutrient supplement program for folic

acid, iron, calcium has been active since a longtime. While reduction of poverty through

103

Public health policy 2001 identified ten key areas of action: (a) Reducing widespread prevalence of

communicable diseases, (b) Addressing inadequacies in primary/secondary health care services, (c)

Removing professional/managerial deficiencies in DHS, (d) Promoting greater gender equity, (e) Bridging

basic nutrition gaps in the target population, (f) Correcting urban bias in health sector, (g) Introducing

required regulations in private health care, (h) Creating mass awareness in public health matters, (i)

Effecting improvement in the drug sector, and (j) Capacity building for health policy monitoring.

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economic development is the main way to healthy population but midway government

can target vulnerable groups through effective provisioning of nutrient supplements.

National Nutrition Program with primary objective is to improve the nutritional status of

the people of Pakistan in general, with special emphasis on certain sub-groups like

women of child bearing age, adolescence girls and children.

Focus on disease control has remained the corner stone of Pakistan‘s Health

policy. Universal immunization coverage of newborns for eight communicable diseases

under MDGs remains central target in Government‘s preventive health policies.104

Likewise provision of clean environment with safe drinking water and timely and safe

waste disposal is essential preventive measure for disease control. Safe disposal of liquid

and solid waste has become a big problem for country and water aquifers are being

contaminated by domestic, agricultural and industrial waste in the absence of coherent

policy of these issues. Less than 30% of population in Pakistan has access to clean

drinking water and more than 50% mortality amongst children is due to water and

sanitation problems. Analysis of burden of diseases for Pakistan shows more than 50%

diseases are communicated through water, air and physical contact which can be easily

prevented through cleaner environment. Thus, cleaner water supply and better waste

disposal can pay heavy dividends in favor of disease prevention.

The preventive health care in Pakistan is organized into a network of public

service delivery outlets of Health Houses (community health outlets run by and set up in

the homes of Lady Health Workers), a chain of first-level care facilities, and district and

sub district hospitals. Preventive and Primary health care is implemented through BHUs,

RHCs, Maternal and Child Health Centres (MCHCs) and Dispensaries. Primary health

care services are offered by BHUs and RHCs to their respective catchment area

communities. The BHUs having an operational scope comparable to 30% of the services

offered by RHCs. Despite this impressive network of first-level care facilities, their

utilization rate by the catchment area population is low with less than one, i.e. 0.6 patient

visit/person/year.105

4. Pakistan‟s MDG Initiatives in Preventive Health

Progress towards health targets committed by the country in 2000 for MDGs was also

slow and it seems that Pakistan will miss all three ‗Preventive Health‘ related targets in

2015.106

The proportion of children under two years who have been fully immunized

against six preventable diseases has increased by 1 percent between 2004-05 and 2008-

09. The provincial breakup during this period shows that immunization cover-age has

fallen in all the provinces except Punjab and highest decline being observed in

Balochistan, where the coverage has gone down by 19 percentage points, KP and Sind

104

Following programs are being run by government for immunization against diseases: Expanded Program

on Immunization: National Program for Family Planning & Primary Health Care (LHW Program) National

Maternal, Neonatal and Child Health (MNCH) Program National Program for Prevention and Control of

Hepatitis: National Tuberculosis Control Program National AIDS Control Program National Malaria

Control Program 105

Siddiqi et al (2010) 106

Reduce Child Mortality, Improvement of Maternal Health and Combat HIV/AIDS, Malaria and other

diseases.

http://202.83.164.26/wps/portal/Moh/!ut/p/c1/04_SB8K8xLLM9MSSzPy8xBz9CP0os3h_Nx9_SzcPIwMDs2BTAyMfN08TXyd_4xAXY_1wkA6zeAMcwNEAIh_q5hXg7O5sZGBhDjLB1dPP2MTQ19DA0ETfzyM_N1W_IDs7zdFRUREAvzd_qQ!!/dl2/d1/L2dJQSEvUUt3QS9ZQnB3LzZfT0ZMTzlGSDIwT1Y4MDAyVEo3RUZUSzIwNzA!/?WCM_GLOBAL_CONTEXT=/wps/wcm/connect/MohCL/ministry/home/sahomegeneral/sageneralright/national+malaria+control+programme



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have experienced the low decline in immunization coverage of 3 and 4 percentage points

respectively. MDG target of more than 90% coverage remains unlikely.

The situation of maternal mortality has improved during the last few years.

Maternal Mortality Ratio has declined substantially to 276 deaths per 100,000 live births

in 2006-07 from 400 in 2004-05. This decline has reversed the rising trend in this

indicator. However, in order to achieve the MDG target of 140 per 100,000 live births

will be challenging and requires allocation of more resources and effective efforts.

Table 3

MDG Indicators for Goals / Indicators

Definitions 1990-

91

2001-

02

2004-

05

2005-

06

2006-

07

2007-

08

2008-

09

MTDF

Targets

2009-

10

MDG

Targets 2015

Under-five

Mortality Rate

No. of Deaths of children

under five years of age per thousand live births

117 n/a n/a n/a n/a n/a n/a 77 52

Infant Mortality

Rate

No. of Deaths of children

under 1 year of age per thousand live births

102 77 77 76 75 n/a n/a 65 40

Proportion of

fully

immunized

children

12-23 months

Proportion of

Children of 12 to 2 months of age who are

fully vaccinated against

EPI target diseases (%)

75 53 77 71 76 73 78 90 >90

Proportion of

under 1 year

children immunized

against measles

Proportion of children 12

months of age and

received measles

Vaccine (%)

80 57 78 76 77 76 79 90 >90

Proportion of

children under

five who

suffered from diarrhea in the

last 30 days

Proportion of

children under

5 years suffering from diarrhea in past 30 days

(%)

26 12 14 12 11 10 10 16 <10

Lady Health

Workers‘

coverage of target

Population

Households

Covered by Lady Health Workers for their health

care services (%)

n/a 38 66 72 76 76 83 90 100

Sources: Pakistan Demographic and Health Survey 2006-07, Baseline set by Health Section, Planning Commission, and Pakistan Demographic Surveys 2006-07. Survey after 2006-07 has not been undertaken, PIHS 2001-02, PSLM 2004-05, 2005-06, 2006-07,

2007-08 and 2008-09, The LHW Programme, Ministry of Health (Whole series).

In Pakistan, the burden of AIDS/ HIV disease has not been very significant but

HIV epidemic is expanding particularly among Injecting Drug Users (IDUs). Since 1987,

over 4000 cases have been registered. In Pakistan malaria has been a major public health

problem for many years threatening millions of people due to the prevailing socio-

economic conditions. The proportion of population facing malaria risk using effective

malaria prevention and treatment measures is 25-30 percent against MDG target of 75%.

Tuberculosis still remains a major problem in Pakistan with a large proportion of

TB cases in the age group 15-49 year. Lack of adequacy immunization & health care

facilities and incomplete treatment of TB patients are the main causes of its prevalence.

Incidence of tuberculosis per 1000 person has to be reduced from 130 cases in 2009 to 45

in 2015.

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5. Problems/Challenges in Preventive Health Care

Due to Pakistan‘s Health policies pre disposition towards ‗Bio-medical model‘ favoring

curative health compared to ‗preventive care‘ resulted in major chunk of public spending

earmarked for curative and tertiary health.107

Resultantly expansive district health system

which essentially caters to ‗Prevention health‘ is dried of funds. Very low utilization of

public sector health institution (about 20% only), indicates low trust or accessibility

problems for communities. Administrative fragmentation mars the district level

preventive and primary health setup as vertical programs for immunization, community

outreach programs, population planning and reproductive programs are run exclusive of

each other under different administrative setups (Federal, Provincial, NGO, District etc.).

This has resulted in divided efforts, wastage of resources, weak administrative and

regulatory oversight, below standard service provisioning and lack of services to

communities.

The entire preventive and primary health system is short in medical ethics.

Pakistan‘s implementation of health policy suffers from deviations and gaps as in spite of

clear endeavor in the policy, implementation shows bias in expenditures and investments

towards tertiary curative care. Similarly there is clear bias in favor of urban compared to

rural areas in terms of health care investments. It can be observed that the health

indicators of Pakistan giving a dismal look when compared with the countries in the

region and show improvement with a tendency to regress as well.

Poor segments of the society are worst hit by the counter implementation of

health policies directed towards curative than preventive side. Lack of preventive care

resulted in perpetuation and prevalence of communicable diseases and lack of awareness,

costing poor segments of the society dearly. People are forced to pay over 70% of

expenditures on health from their own pockets.

Presently health care system in Pakistan is facing many problems like poor

governance, lack of equity and effectiveness. It can be observed that poor governance in

Pakistan has affected the performance of health sector badly. The provisions of health

services in the country are inequitable. Rural population which consists of 2/3 of the total

population has relatively less health facilities available because most of the health

services are located in urban areas. This indicates that majority of population gets

minimum budget. Furthermore, poor effectiveness is demonstrated by low health

statistics and failure to achieve MGD objectives is because of primitive and defunct

preventive health efforts in the country. Realizing the challenging issues in preventive

health care in terms of outreach quantity and quality, government has been looking for

initiatives to improve service delivery. But effective and universal provision of

preventive health care remains a big problem yet to be fully addressed. There is a dire

need of improving the general conditions of the population of the country. Major

challenges faced by Pakistan today in quality and universal preventive health care are

107

The study of Public Sector Development Programs (PSDP) 2010-11 Government of Punjab clearly

shows the disparity between the preventive and curative components of health budget. The ratio is 1:3.

Budget for preventive and primary health care is 1280.165 m whereas for tertiary care hospitals it is

5185.277 million (for ongoing program). For new program 25.00 million has been reserved for preventive

and primary health care where as 1313.195 million for tertiary care hospital. For details please see

Government of Punjab, Budget Documents 2010-11.

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identified as quantitative and qualitative challenges, structural and infrastructural

challenges, knowledge management and technological challenges (see Appendix A).

6. Conclusion and Suggestions

Pakistan health care system is run by the state and private sector but it is the

responsibility of the state to ensure an organized, structured and planned health care

system for its citizens. Federal Government through Ministry of Health is involved in

policy-making, coordination, technical support, research, capacity building and seeking

foreign assistance. Provincial and district governments are responsible for delivery and

management of health care facilities. The dispensation of health services by multiple set

ups creates administrative and coordination difficulties besides wastage of resources

resulting in less than satisfactory performance in health care.

Electronic and print media holds promise in propagating ‗Preventive health

agenda‘ of health, hygiene and abstention far and wide in the country. The services of

mass media have been under-utilized apart from some donor-driven initiatives in polio,

HIV, reproductive health. However, a comprehensive policy on mass awareness

campaign for preventive health care is still missing, which may utilize education,

corporate, non-government and media sector for mainstreaming preventive health

awareness and practices. Furthermore, effective efforts are needed to provide safe and

clean drinking water facilities to the people particularly living in rural areas. Provision of

clean environment can help in achieving MDGs targets. The major strategy for

improvement of preventive health in Pakistan may include universal coverage of whole

population for primary and preventive care through operationalization and full utilization

of district level installation spread all over Pakistan. Basic Health Units and Rural Health

Centres may be made main hubs of activities for targeted population and Tehsil and

District hospitals can be used for referral purpose in addition to curative health care. In

order to improve health outcomes, preventive health services need to be improved so that

many ailments can be avoided rather than cure. This calls for Pakistan‘s shift from

curative to preventive health care for better health outcomes.

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References

Akram, M. and F. J. Khan (2007), Health care services and government spending in

Pakistan. PIDE Working Paper, 32.

Federal Bureau of Statistics, National Health Accounts, 2005-06

Federal Bureau of Statistics, PSLM Report, 2009

Federal Bureau of Statistics, Survey of Private Medical Institutions, 2001

Government of KP, Annual Report 2008-09, PPHI

Government of Pakistan, Demand for grants and appropriation 2006-07.

Government of Pakistan, Social and living standards assessment survey (Round 1) 2004-

05. Federal Statistics Division.

Grosman, M. (1972), On the concept of health capital and the demand for health. Journal

of Political Economy, 80(2), 223-255.

Pakistan Economic Survey, Government of Pakistan, various issues.

Planning Commission, Government of Pakistan, 10th

five year plan 2010-15, Draft report

of main group on health sector (unpublished)

Siddiqi, Nishtar, Hafeez, Buehler, Bile and Sabih, ―Implementing the district health

system in the frameworkof primary health care in Pakistan: can evolving reforms enhance

the pace towards the Millennium development goals?‖ EMHJ vol 16 (2010).

Summers, L. H. (1992), Investing in all the people. World Bank Working Paper Series

No. 905. World Bank, Washington D.C.

UNDP, Pakistan Millennium Development Goals Progress Report, 2010

Weil, D. (2001), Accounting for the effects of health. Mimeo, Economics Departmnet,

Brown University.

WHO, ―Urbanization and health: health equity and vulnerable populations: Case studies

from Eastern Mediterranean region, 2010

WHO, World Health Report, 2010

World Bank (1993), Investing in health. World Development Report. Washington D.C.

World Health Organization (1999), Making a difference. Washington D.C.

World Health Organization (2001), World Development Indicators. Washington D.C.

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Appendix A

Quantitative Challenges

1. Determination of ‗essential services package‘ for all citizens served by the

particular BHU/RHC (all these persons must be registered with the BHU/RHC),

catering for all preventive health care and primary health facilities for the whole

family

2. Gaps in adequate staffing of the BHUs/ RHCs based on the service provided

under ―Essential Services Package‖

3. Non-Sustained availability of drugs and vaccinations and non-proper storage

facilities.

4. Under utilization of BHUs and RHCs by people due to lack of trust, ignorance

about available services and non-availability of staff.

Qualitative Challenges

1. Development of ‗Quality of Care (QOC)‘ standards for all services preventive and

primary provided at the setup, for improved performance and accountability.

2. Non-availability of an effective referral procedure, so that only needed persons/

patients are referred to THQH and/ or DHQH, so as to reduce burden at tertiary

hospitals.

3. Non-Framing of ‗ethical standards‘ for medical staff for effectiveness, efficiency

and accountability

4. Lack of professionalism and sense of responsibility in the BHU/RHC staff.

Structural Challenges

1. Lack of political will in government representatives to induce major policy shift

towards preventive and primary care concentrating on urban fringes and rural areas.

2. Lack of transparency resulting in nepotism, corruption and administrative lock

jam.

3. Governments non committal attitude towards sustained and increasing trends in

expenditures on preventive health care provisions in particular and health in general

4. Governments inability to shift focus and resources from urban and tertiary health

sector

5. Inability of Government to induce work ethics, sense of responsibility,

commitment and efficiency in health staff dispute increased pays and security of

service.

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6. Failure of government to induce sense of trust in people about their care and

wellbeing in public preventive setups resulting under utilization of resources (only

22% people go to public facilities as against over 65% to private health setups)108

Infrastructural Challenges

1. Inadequate placements of district level preventive structures, e.g. close to

graveyard, in the depression results in avoidance by community and health workers

both.

2. Rationalizing locations of district level setups so that there is even distribution of

people, who will compulsorily be registered with on preventive health setup at district

level.

3. Patchy availability of essential services, i.e. electricity, water supply and drainage

at different BHU/RHCs resulting in non-optimal use of medical equipment, whose

availability and usefulness need be ensured as well.

4. Contraction and maintenance of BHU/RHCs and accommodations of staff within

also remains a challenge due to financial constraints.

Knowledge Management and Technological Challenges

1. Existing health management system is segregated and data is not recorded in real

times, information of vertical programs coverage is recorded separately.

2. There is no record of people benefiting from primary health services therefore

individual records of citizens are not available.

3. Due to lack of central administration of Preventive health services at district level

data collection, recording and analysis is sub optimal.

4. Lack of appropriate data management makes public awareness campaigns for

targeted populations difficult.

5. Lack of resources and knowledge for adoption of appropriate, new and

economical technologies in the field of Preventive health care

108

USAID report on PHC initiatives in Pakistan 2009

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War of Independence 1857: Lessons for

Present Situation of South Asia

Dr. Muhammad Saleem Mazhar

Director of Centre for South Asian Studies, University of the Punjab, Lahore Pakistan

Mussarat Jabeen

Assistant Professor, Department of International Relations & Political Science,


Abstract

The war of independence 1857 was a desperate attempt by the Indian people to overthrow

the British subjugation, who occupied India by different tactics. This war was a reaction

against British racial arrogance. The aliened rule itself served to harden the line of

differences between the rulers and the people, which brought a widespread military

mutiny and large-scale civilian uprisings against the British in India. The war started at

Meerut on 9th

May 1857. The immediate reason was supply of greased cartridge by the

company for new rifles. The soldiers refused to use these rifles due to some reservations

and resultantly they were sentenced to imprisonment. Other soldiers based in Meerut

revolted against the rulers. The revolt spread to the larger parts of India and acquired a

broad popular base in people from all walks. The revolt created a panic in the British

camps and they suppressed the people forcefully. The history of war is deeply rooted into

colonization and conquest of India. The basic purpose of the paper is to analyze the

nature and character of the unity, which was dominant factor during the war. For drawing

some conclusions to the shared objectives of the South Asian region in the present

scenario, the study is to explore common ground for future development of South Asia.

Key Words: Independence, colonialism, slavery, unity, extremism, fanatic, economy.

King and British Rule.

The War of Independence 1857

The year of 1857 witnessed a widespread military mutiny and large-scale civilian

uprisings against the alien rule (British) in India. This revolt was a local reaction against

British rule, which was threatening Indian freedom with its formidable clutches of

slavery. To overthrow this subjugation, struggle had been begun long before March 1857

and it took one hundred years after the first colonial conquest of Bengal in 1757. The

history of war is deeply rooted into colonization and conquest of India with cultural and

religion oppression. About the interpretation of war, two competing narratives are found

between the historians up to this day. The colonial historian, who won the war, called it

‗Sepoy mutiny‘ while history claimed by the Indian, who were defeated, referred it as the

first war of Indian independence. However, this was a unique struggle in which both

feudal lords and common people fought together. Either this war was a forward looking

movement or a poorly organized struggle of freedom against the colonialism, all sections

of society including feudal lords, local rajas, nawabs or unorganized peasants of poor

land participated in it.

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This movement was probably a mixture of secular ingredients cutting across communal

affiliation, a religiously inspired Jihad, anti-colonial revolt and a civil war putting

resistance against colonialism. Not a single group was to deny surging sentiments against

the British rule. Each category had its own reason to join the rebellion as the people from

all walks of life participated in it. It brought together soldiers of different regions and

religions, who fought one of the most powerful empires of the world to near defeat with

limited resources and even poor military training. The other unique aspect of this war was

the convergence of various feudal lords, rajas, nawabs and chiefs of respective rule and

territories into one united force (Indian Mutiny...1998). All these people had a common

objective of ousting the British from their land who had consolidated their authority

through an export company known as English East India Company, which was

established in 1600. This company proved a driving force behind much of the occupation

of India. It changed its motive from trade to political dominion in the region. Since the

British conquest of Bengal in 1757 to its occupation of Delhi crown in 1857, it adopted

different tactics to occupy more and more territory. The state of Mysore and Maratha

confederacy presented the most formidable obstacle to colonial expansionism but

ultimately fell to the British.

The oppressive policies of occupation created turmoil among the subject people. The

civilian uprisings accompanied by the military mutiny deteriorated the situation when

soldiers in the company‘s army raised arms against their rulers. The war started at Meerut

on 9th

May 1857. The immediate reason was supply of greased cartridge by the company

for the new Lee Enfield rifles, which had to load manually before firing. It was rumored

among the soldiers that fat of cow and pig was used in these cartridges. Cow was sacred

for the Hindus and pig was forbidden in Islam. The soldiers, who refused to use these

rifles were sentenced to imprisonment and sent off to jails in fetters. The soldiers based in

Meerut revolted against this humiliation on the night of 10th

and 11th

May 1857. They

marched to Delhi and installed Bahadur Shah Zafar as the symbolic head of the revolt

(Ibid). The revolt spread to the larger parts of India and acquired a broad popular base in

both rural and urban areas; people from all walks of life joined the revolt to over throw

the company rule. The revolt created a panic in the British camps and fear was being felt

that the rule would collapse and would face a disastrous situation on hundredth

anniversary of the War of Plessey 1757. British troops applied different methods and

used all sources of might at their disposal to win back their control. They attempted to

suppress the fierce resistance and ultimately succeeded in their efforts. It was the summer

of 1858, when Governor General Canning declared that the war was over and Queen

Victoria took India under her crown and ended the company rule. She assured that the

Indians would be duly respected in future (Bose & Jalal, 1998: 92).

To narrate a short version of war is not simply the basic purpose of the paper but

objective is to analyze the nature and character of the unity, which was dominant factor

during the war.

Challenges to South Asia:

South Asia is consisted of seven countries, India, Pakistan, Bangladesh, Sri Lanka, Nepal,

Bhutan and Maldives. However, these nations are not tied into linguistic and religious

bonds and these factors are engulfing distance among the people and contributing to

division and diversification of the countries of South Asia, which covers one fifth of the

world‘s population.

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South Asia remains a hot bed of deep rooted mistrust and hostilities and it provides a

decimal picture in social, economic and political fields. It is also facing territorial

challenges and inter-state rivalries. The region is trapped in multiple issues ranging from

the quest of autonomy to terrorism and extremism, ethnicity to sectarian disputes. The

clashes on political interests, disputes on water-sharing of common rivers; refugee and

migration problems are equally threatening the stability of the region (Abbas, 2002: 75).

In many states, democracy and democratic institutions have failed in strengthening the

political culture and resolving the social issues of unemployment, social injustice and

poverty. While self-centered politics has also obstructed the path to social economic

development of the region. Transition to modernity is slow, which has led to ethnic

solidarities and identification with religious culture.

Poverty

Poverty is the major problem of the region. South Asia presents a poor picture of

economic resources. The per capita Gross National Product (GNP) of South Asia is $

450, which is lower than any other region of the world. About 40 percent of the world‘s

poor live in South Asia while the region contains 22 percent of the world population. It

produces 1.3 percent of the total income of the world. The adult literacy rate is 48 percent

which at present is the lowest in the world. It shares 46 percent of the world‘s total

illiterate population (Haq, 1997: 23). History shows that regional economic integration

can be successful only if the concerned countries establish a community for political

purpose. It is common phenomena in international relations that small neighbors often

suffer from a fear complex with regards to their larger neighbor especially if they have

unresolved disputes and complicated factors in their bilateral relations. This is true in the

case of South Asia. The current era is the age of globalization, where economy is a major

factor and the world has changed from national economies to a global economy. But this

economic globalization is characterized by a great division. The developed world is

getting richer at phenomenal pace, the inequalities between the rich and the poor have

been increasing. Two billion people earn less than two dollars per day, while one billion

are earning even less than one dollar per day. The main cause for this difference is the

barriers to immigration and agricultural imports erected by the richer countries and the

failure of the developing countries to attract investment (Bruce, 2000: 180).

South Asian people need to make efforts to overcome the problems in the way of

globalization so that maximum benefits would be reaped. There is also need to resolve

the regional disputes and re-structuring of the interstate relations. It would be in the

interest of South Asia to attract capital from rich-countries as this region has scarcity of

resources. Privatization is also favored by the international economic organizations and

more than a hundred countries have sold their assets to private investors (Ibid).

It is required to initiate such steps that facilitate the investors and make this process more

helpful and rapid for those countries, which are supporting South Asia for overcoming its

economic problems and to exit from cycle of poverty. Privatization or globalization is not

enough to eliminate the poverty. There is need to develop mutual trust in bilateral

relations, development of infrastructure and communication sources. It is also required to

reduce the military budget, so more money can be spent on social sector.

Ideologies

Ideology was a major factor in British India during movement of independence,

which led to the creation of two separate countries in 1947. After freedom from

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foreign rule, this element was no more required to characterize the bilateral

relations but biased behaviour remained as usual and narrow national ideologies

continued to inflict unity and brought great loss and multiplication of suffering

to South Asia. Prevailing mistrust and suspension resulted in military build up,

which is still continued. Though the ideologies of secularism and nationalism

have lost credibility but they paved way for the most ideologically committed

and organized cohesive forces. Hindutva is one example of such ideologies as its

tone is anti-Muslim and it is being used for political purposes. Hindutva ideology

of Rashtriya Swayamsevak Sangh (RSS) is widening the gap between religious

groups. The symbolic issue that came to the surface was the temple-mosque

controversy of Ayodia, which was site of 16th century mosque named after

Babur, the first Mughal emperor of India. Some extremists of Hindu groups

demanded that the Babri Masjid should be pulled down to build a Mandir to Ram

in its place. This demand was rooted in Hindu claim that Ram, the mythical

leader of Hinduism, was born on the place where the mosque was built (Bose and

Jalal, 1998: 226-28). Maoist movement in Nepal and Hindu nationalism are also

giving rise to its brand of politio-religious fundamentalism, which has been

exploited by the political entrepreneurs to gain political ends (Parikh, 1998: 49).

The ideology and use of religion in politics has created a very dangerous

situation for the region.

Ethnicity The ethnic diversity along with colonial heritage has brought political division and

resultantly politics of the region is marked by turmoil, turbulence and conflicts. The

emergence of ethnicity as a significance force in politics has intensified conflicts

involving various ethnic groups. It is the most drastic recent global development that has

contributed in increasing the number of small ethnic states. Their ability to maintain their

territorial boundaries, autonomy in policy making and to assure their own political and

economic development is still questionable. Most of them are facing external threats and

considerable tensions created by hostile internal forces. Such challenges bedevil deeply

stability of the region (Inbar & Sheffer, 1998: 18-20).

The end of the cold war and collapse of Soviet Union further strengthened the tide of

ethnicity. The assertiveness of ethnic groups remained and exercising their right of self

determination continued. As a result of new global conditions and international policies,

number of ethnic minorities is increasing, that are struggling for their right of separate

homelands. These groups tried to attain their goals through the employment of

secessionist elements, separatist ideologies and irredentist‘s strategies. The presence and

designs of such groups are affecting the system as well as the security of region,

especially when they launch their struggle for self-determination and enter into conflict

with other ethnic groups.

In South Asia, the fall of Soviet Union not only created a vacuum but also gave birth to

ethnic forces that have further increased regional instability and consequently

exacerbated international anarchy. In the Indian subcontinent, India itself entertains the

idea of regional hegemony and to an extent has achieved it. It is at the same time, main

actor to strengthen the ethnicity and the target of ethnic assaults. Despite its democratic

status, it is involved in a number of violent internal and external ethnic conflicts posing a

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political and economic threat to region. Sri Lanka, the Punjab and Kashmir disputes are

such examples (Ibid).

Tamil in Sri Lanka struggled to establish their own authority, which created dangerous

and uncomfortable threat to regional tranquility and stability. The claim for right of self-

determination without considering size and economic viability of a community is

dangerous. Such trends of ethnic groups may lead to disputes becoming international in

nature especially when the interests of any major power are at stake. Indian Prime

Minister, Rajiv Gandhi was a victim of ethnicity as he was killed by the Liberation Tigers

of Tamil Eelam (LTTE) on 21st May 1991. LTTE admitted its role in assassination

because they were not satisfied with the political solution proposed by India (Times of

India 2006, June 28).

Independence from colonial rule was claimed by the sub-continent as the triumph of

centralism, nationalism, rule of law, recognition of the right of religious communities and

democracy. But area is victim of regionalism, parochialism and factionalism. Ever since

1947, regional dissents against central authority of states have spilled across national

boundaries. Interstate relations are full of doubts due to unrest in Indian Punjab, dilemma

presented by Sindh, discomfort of Chakma Bhuddist in Bangladesh and rebel groups in

Assam. All have been demonstrating the extreme permeability of the borders defining

nation states in the South Asia in their respective ways.

Territorial Disputes South Asia is the hot bed of deep rooted mistrust and hostilities. Many of the problems of

the region are rooted in unresolved territorial disputes. Bilateral relations are defined by

antagonism and mistrust due to these regional conflicts on various territories. India-

Pakistan rivalry on Kashmir creates an ever- disputed situation with militant separatist

movements. The region experienced a paradigm shift in the strategic environment in May

1998, when both India and Pakistan overtly demonstrated the nuclear capabilities. Both

states had fought three wars in 1948, 1965, 1971 besides the recent one at Kargil in 1999

(Haider, 2001: 427). There was chance to go out of control and lead to a nuclear

catastrophe in South Asia. The situation drew the world power particularly the US

towards this problem. This makes South Asia an important strategic region in the world.

Southern Areas are also outstanding examples in this regard. Sri Lanka and India have

tussle over nationality of Tamilian. India and Bangladesh have clashes over illegal

migration from Chittagong Hills Tracts and other is demarcation of boundaries involving

fertile island and sharing the water of Ganges. Sri Lanka accused India, especially state

government of Tamil Nadu for supplying arms and providing training to Tamil terrorists

(Raj & Paul, 2003).

Terrorism Terrorism is the major threat to the stability of South Asian region. Terrorism is a

philosophy to obtain political objectives using violence against governments, institutions,

organizations, personalities and civilians. Currently terrorism is defined as political

motivated behaviour, while terrorist group is considered a group which has significant

sub-groups and conducts terrorism (Terrorism, 2002). In the wake of terrorist attacks of

September 11 on the US, American President Bush launched a military operation in

South Asia to eliminate the terrorist groups, who were assumed to Afghanistan-based.

President threatened of adverse consequences and South Asia was the target of

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retaliation. American operation increased problems for the region by generating security

threat to the stability and peace of the area.

The roots of terrorism are deep in South Asia. Terrorism and its political consequences

have direct and visible effects on interstate relation. Another important aspect of

terrorism in South Asia is destruction of infrastructure for regional development.

Elimination of terrorism from region is in the best interest of South Asia for poverty

alleviation.

It is hoped that slow transition towards democratic and political culture would led to end

extremism and terrorism. Identification with biased religious and ethnic groups is the

most potent threat to stability of the area as this enhances the terrorist activities. These

factors deepen the crisis in the region where societies are already fragmented along with

caste and community, linguistic and religion cultural differences. Many of the internal

security crisis that plague South Asian states have cross-border implications and are inter-

related with ramification for regional security.

Extremism

Extremism is not confined to any particular sect, state, religion and region. Threats of

extremism and terrorism have taken place in South Asia for a variety of reasons including

political and social perpetration of tyrannical groups with aggressive goals. Rebel

elements of socio-political environment of oppressive culture, social injustices and

ideological contradictions also contribute to these activities. Rigid religious beliefs,

foreign interference, social and economic factors like poverty, unequal job opportunities,

huge backwardness and unemployment have added in worsening the situation.

Extremism in South Asia is not a new phenomena, it is just changing its names

and forms. At times it adopts the shape of religious fanatic while on others it is

face of an ethnic separatist. In the last decades, this region has the higher annual

number of fatalities as a result of acts of terrorist violence. Extremist elements

have been destroying peace and harmony since independence. Mohandas

Karamchand Gandhi, known as Mahatma (great soul), was shot dead by a Hindu

fanatic named Nathu Ram. The Hindu zealots accused him of being soft towards

the Muslims whom they held responsible for division of India and hostile to his

own community supported them. According to their bel ief only way to stop

Gandhi from doing further loss was to eliminate him. But such brutal acts had

precisely the reverse effect to the desired results (Malhotra, 1989: 22).

Indian Prime Minister Indira Gandhi was also target of religious extremism.

She was killed by her Sikh guards due to her decision to attack the Golden

Temple, the holiest of the holy Sikh shrine. The Sikh community converted it

into a fortress and the head quarter of Sikh activities for an independent Sikh

homeland to be called Kalistan. An independent and impartial inquiry has

testified that Indira‘s decision was right and did not stem from enmity for the

Sikhs (Ibid, 19-20). But extremist and terrorists did not saw the things in just

manner. Ethnic ideologies and political conflicts are being consolidated and

worsening economic conditions is also its result. It poses a threat to internal

stability and inter-state relations (Sridhar, Kathri & Kueck, 2003: 403-04).

An economically strong and integrated South Asia will be less vulnerable to

extremism, unrest and interstate tensions and can provide more positive

environment for democracy. It would also provide an increasingly larger

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market to attract Foreign Direct Investment (FDI). Multinational

corporations have already been sifting their business and productive units in

South Asia (Haider, 2001:430). Such elements need to change their extreme

behaviour to strengthen regional internal order rather than pursuing external

goals at the expense of its internal stability as regional destabilizati on

generates terrorism and terrorist activities.

Democracy

Democracy is continuously getting roots in South Asia and it is challenge for

the region to promote democracy which will bring open mind norms in the

region and also help to eradicate problems deep rooted in South Asia. The

military domination of political power only grows further and comes at the

expense of democracy. After a few years of independence, Pakistan came

under dominance of military and civil bureaucracy. A democratic country is

always better that authoritarian in preventing the recurrence of regional

dissidence.

The Role of Superpowers

The role of superpowers is also a challenge for the region after British rule. The

involvement of Washington and Moscow has become a part of balance of power in the

sub-continent conflicts. Other is Indo-Pak-Chinese triangle, which behaved differently on

occasions. The position of the region would be very different if all the three actors

relinquish the competition for the support of at least one superpower or other to enhance

their strength in the regional conflicts, which was a common practice in the past. Such

attitude gave certain shape to their foreign policies as well as wars, fought by them. The

past showed that the superpowers have little success in limiting violent conflicts in the

region.

Iran-Pakistan India (IPI) pipeline has been called the ‗peace pipeline‘ and mother of all

Confidence Building Measures (CBMs) between India and Pakistan. All three countries

stand to benefit from this pipeline. Apart from getting energy supplies, Pakistan will be

able to facilitate the trade between Central and South Asian regions. However, the US is

opposing this pipeline due to its hostility with Iran and blocking this project by

pressurizing its strategic partner, India. The US is also threatening that the proposed

project would result in economic sanctions on India and Pakistan (Dawn 2005, October

15). This project is an important tool for on-going peace process between India and

Pakistan.

Militarization and proliferation The wide spread human deprivation is sharply contrast with large armies, modern

weapons and expanding military budget of India and Pakistan. Indeed both the countries

have the largest armies in the world. It is noticeable that this is the only region where

military expenditures are still high despite the end of the cold war. While military

budgets in the world are on decline since 1988. South Asian leadership should end the

cold-war in the region as the strategic importance of the region cannot be denied. The

military situation has been gradually moving away from the deterrence towards a mixture

of conventional and nuclear strategies since 1970. In this situation, credibility of the old

methods to control the conflict is doubtful as new category of nuclear weapons is also

involved in conflicts (New priorities in …2003: 47-48).

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Both nuclear powers have not signed Nuclear Non-Proliferation Treaty (NPT). Most of

the nuclear facilities are not opened to the safeguards of International Atomic Energy

Agency (IAEA). There is continuing hostility between the two states. Despite four wars,

there are still possible flash points on some disputed areas that can flare up into a nuclear

war. Such a war could destroy the whole area and could also spread in the other areas of

the Asia (Ibid: 53-54).

No doubt, South Asia is attracting the world attention toward its long lasting conflicts and

disputes. International community is feeling great threat of nuclear disaster in South Asia

and trying its best to harmonize the interstate relations. To end the nuclearization of

South Asia, each state is required to adopt tools of democracy, rule of law, independence

media, grass root activism, good-governance, and transparency to address the problem of

region. Their success will bolster stability throughout the region with peace and progress

that will have global consequences.

There is no doubt that present is the age of trade, technology and geo-economics. The

future battle-field will be drawn on these issues. In this technological driven world, a

country should move ahead on the strength of its knowledge and development not on the

basis of its size and military might. The future battle-field will be won by the power of

information technology.

Conclusion

War of independence represented the unity of different groups by shedding the communal

division for common cause of freedom. The war was democratic in its nature as it was an

uprising of masses. It assembled the people irrespective of religion, ethnic, cast and

regional division for winning the war to protect their country. Today war is against the

regional issues, which are affiliated by innumerable ailments. Different level of

development, colonial background, neo-commercial constraints, neo-colonialism,

poverty, terrorism and extremism are proving hurdles in the areas of political

development, nation building, public participation and distribution of economic sources.

To solve these issues, there is need to coordinate and cooperate for generating such

mechanism, which reduce tension and hostilities in mutual relations. Provision of basic

education and good health facilities should be on top priority with better standard of

living in this poor region of the world. With emerging global trends, the need of

economic integration and liberal economy has been increased today as ever before.

Economy is dictating change in geo-political status of the countries by importance of

their geo-economic interests. Integrated economics can create jobs, trust, harmony and

peace. Regional cooperation has proved to be an effective instrument of conflict

resolution and economic cooperation in the post cold-war era. At the same time many

states have moved from authoritarianism to democracy and the most have adopted

forward looking economic reforms aimed at restoring fiscal balance, improving the

private sector and attracting foreign capital.

India and Pakistan may have come a long way from their position of

confrontation but peace between them is still far off cry. Only spirit of sacrifice, courage

of conviction, a strong belief in ultimate victory of the peace and prosperity would tell if

there has been an enduring change in region towards resolving issues. It is hoped that in

time CBMs and people to people contact among respective countries will bring their own

reward and would increase economic and commercial change. The people would able to

work for regional identity with the acceptance of national identities like European Union.

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The policymakers of the sub-continent should take priority to the nuclear-

nonproliferation, strengthening stability to deter conflict, promotion to increased respect

for human rights, supporting wider democratization, developing more rapid economic,

averting demographic explosion and combating environmental degradation. Despite

several limitations, the SAARC is still important forum, which can bring respect to South

Asia. SAARC is a unique example of regional cooperation because it is non-western,

non-militaristic and non-ideological. Determination of the people of South Asia to work

together towards finding solution of their common problems in a spirit of friendship and

trust can create an order based on mutual respect. The main goal should be to accelerate

the process of economic and social development in area. Much can be achieved in social

economic and cultural area by eliminating tension and conflict among the South Asian

nations to enhance the speed of progress towards peace and prosperity. There is a need to

revive the spirit of 1857 to strengthen the regional actors for solving their disputes

without the involvement, dictation, mediation and pressure of extra regional hegemonic

powers. It is hoped that an institutional arrangement of unity among South Asians nations

would pave way for utilizing the enormous potential of human and natural resources of

the region and solution of the long-standing disputes.

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References

Abbas, Ahmad (2002). ―Impacts of 9/11 on smaller states of South Asia.‖ Strategic

Studies Islamabad, vol., 22, no. 3 autumn.

Bhanot, Monica (2007). ―Challenges to regional cooperation in South Asia, A new

perspective,‖ Online Journal of Peace and Conflict.

www.triinstitute.org/ojper/toc23.htm. Issue 2:3, August 16, 2007.

Bose, Sugata & Ayesha Jalal (1998). Modern South Asia: History, cultural and political

economy, Lahore: Sange-e-Meel Publications.

Bruce, Scott R. (2000, January-February). ―The great divide in the global village,‖

Foreign Affairs, vol., 80, no., 1.

Chairman‘s report on new priorities in South Asia: US policy toward India, Pakistan and

Afghanistan (2003). The Council on Foreign Relations and the Asia Society.

Haider, Zaglul (2001). ―Crisis of regional cooperation in South Asia.‖ Security Dialogue,

New Delhi: Sage Publication, vol., 32- 4.

Haq, Mahbubul (1997), Human Development in South Asia, Karachi: (Oxford University

Press.

Inbar, Efrahim & Gabriel Sheffer (1998). The national security of small states in a

changing world, (eds). London: Frank Cass Publishing.

Indian Mutiny, Encyclopedia Britannica Online. http://www.eb.com:180/cgi-

bin/g?DocF=micro/342/91.html Accessed 23 March 2000.

Malhotra, Inder (1989). Indira Gandhi: A personal and political biography, London:

Hodder & Stoughton.

Parikh, Sumeta (1998). Religion, reservation and riots: the polities of ethnic

violence in India, New Delhi: Oxford University Press.

Raj, Nayer Baldev and T. V. Paul (2003). India in the World Order: Searching for

Major-Power Status, Cambridge: Cambridge University Press.

Sridhar, K. Kathri and Gert W. Kueck (2003). Terrorism in South Asia: Impact and

development and democratic Process (eds). New Delhi: Regional Centre of Strategic

Studies.

U.S. Department of State, ―Terrorism for 2002.‖

http://www.usinfo.state_govt/nea/sasia/afghan/key/2002pot/htm Accessed 25/05/2005

http://www.triinstitute.org/ojper/toc23.htm.%20Issue%202:3

http://www.eb.com:180/cgi-bin/g?DocF=micro/342/91.html

http://www.eb.com:180/cgi-bin/g?DocF=micro/342/91.html

http://www.usinfo.state_govt/nea/sasia/afghan/key/2002pot/htm

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Health-related Quality of Life Assessment in Patients with

Hepatitis: A Case of Pakistan

Masood Sarwar Awan

Assistant Professor Department of Economics, University of Sargodha, Pakistan

Muhammad Waqas

Graduate Student Department of Economics, University of Sargodha, Pakistan

Muhammad Amir Aslam

Probation Officer, District Courts Sargodha. Punjab Home Department, Pakistan

Faisal Abbas

Junior Researcher Department of Economic and Technological Change,

Centre for Development Research (ZEF) University of Bonn, Germany

Abstract

The intention of this study is to dig out the demographic, medical, economic, and

psychological factors that affect the health related quality of life of the hepatitis B and C

patient in district Sargodha. 120 patients of hepatitis B and C virus are interviewed.

WHOQOL-BREF questionnaire is followed for the construction of health-related quality

of life (HRQOL) instrument. Age of the patient, disease severity, use of drug, pain,

depression, financial hindrance and threat of death negatively affect the HRQOL of the

hepatitis patient while, vaccination, income, education, sleep, opportunity of leisure and

better living condition affect HRQOL positively.

Key words: HRQOL, HBV, HCV, Pakistan.

1. Introduction

Many mortal diseases have become chronic, in spite of enhancement in medical

technology. During past years some researchers paid their concentrations towards health

related quality of life (HRQOL) of patients. HRQOL generally means the impact of

disease on social, psychosocial and physical life of the patient. The World Health

Organization (WHO) defines quality of life as;

―Individuals‘ perception of their position in life in the context of the culture and value

systems in which they live and in relation to their goals, expectations, standards and

concerns‖ (WHO, 1996).

It is a wide concept that incorporates persons' physical health, psychological position,

level of independence, social relationships, personal thinking and relationships to the

environment. This definition reproduces the vision that quality of life refers to a

subjective assessment, which is entrenched in a cultural, social and environmental

context. Quality of life cannot be associated merely with the requisites health condition,

life style, life satisfaction, mental condition or well-being. World health organization

quality of life (WHOQOL) instrument hubs upon patient‘s "apparent" quality of life, it is

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not projected to give a means of evaluating in any comprehensive fashion indications,

diseases or circumstances, nor disability as impartially arbitrator, but quite the apparent

effects of disease and health intercession on the persons quality of life.

No doubt patient‘s physical, emotional and social functioning is affected by disease.

Hepatitis is one of the fatal diseases, which spoils quality of life of the patient. Hepatitis

(inflammation of the liver) viruses like A, B, C, D and E are the responsible of this

disease. 102, 813 people died due to HBV and 53,769 died due to HCV across globe,

every year. In world‘s ranking Pakistan is at 53rd

and 63rd

number regarding HBV and

HCV, causing 2,340 deaths and 925 deaths respectively (World Life Expectancy, 2009).

The distribution on Hepatitis patients in Pakistan varies provincially and regionally.

Sargodha is the eighth largest district of Punjab, out of total population (10, 81,459),

0.8% people were diagnosed with hepatitis above the average of Punjab province which

stood at 0.7% (MICS 2007-08). Poor hygienic conditions, injecting drugs through

injections, insecure injection practices and blood transfusion, un-fair sexual relations,

poor drainage and sanitary systems, drinking water quality and food items etc are the

major origins of hepatitis.

Only about 1.1% people of Sargodha use boil water and 35.2% drinking water of the

district is affected with harmful bacteria. In Sargodha district around 44.4% of sewerage

is connected to open drain, while 37.9% is with open fields. Sargodha is among the few

districts of the province which has hepatitis disease level above the average of the Punjab

(MICS 2007-08). Figure 1 shows the diagnosed hepatitis patients at the district level in

the province of Punjab.

Various studies show that HRQOL is fragile in patients with chronic liver disease (CLD),

hepatitis C (HCV) and hepatitis B (HBV). Many studies that show a cheap HRQOL in

hematology, comparatively few studies inspect the causes that influence HRQOL.

Depression, itch, anxiety, muscle cramps, joint pain, memory problems, fatigue, financial

troubles, sexual functioning problems etc, are among the important factors that affect

patient‘s quality of life. At macro level, demographic, economic and psychosocial factors

also affect HRQOL. In this study WHOQOL-BREF questionnaire, along with some

modifications was used. The study aims to highlight the determinants of HRQOL in the

patients‘ of hepatitis B and C in district Sargodha. Moreover, study endeavors the

demographic, economic, medical, physical and psychosocial factors that affect the

HRQOL of hepatitis patient in district Sargodha.

The rest balance of paper is designed as: part two explains the HRQOL instrument, part

three investigates data sources and methodology of this study; part four presents and

interprets the empirical results. Finally, part five presents the conclusions and also

provides some policy implications.

2. Health-related quality of life instrument

HRQOL is a wide concept which represents that how the disease affect the patient‘s

physical, psychological, social and environmental health. Disease severity, age, disease

treatment etc affect patient‘s HRQOL. The purpose of the medicine is to cure the patient

from disease and its symptoms. Patient‘s well-being is an important aspect of health care

and assessment of HRQOL will help in focusing the different aspects of health care.

WHO developed WHOQOL-100 questionnaire for the assessment of patient‘s HRQOL.

Out of 236 questions, 100 questions were selected after conducting a pilot project. This

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questionnaire consists on six domains namely, physical, psychological, and level of

independence, environment, social relationships and spirituality. Then SF-36 was

developed because WHOQOL-100 requires lot of time. SF-36 is the short form of

WHOQOL-100 and consists on 36 questions. The main drawback of this questionnaire is

that it is failed to incorporate a sleep variable. Therefore, WHOQOL-BREF questionnaire

was developed. It is consist on 26 questions and four domains namely, physical,

psychological, social relationships and environment. Physical domain discovers that how

the bodily pain, medication, sleeps, energy and work are disturbing the life of patient.

Psychological domain explores that how positive or negative feelings, happiness,

person‘s expectation about themselves and his bodily look affect his mental health.

Disease will definitely affect the patient‘s economic condition. Social relationships

domain observes how patient‘s family, friends and relatives give support to him.

Environmental domain observes the feelings of a patient about his financial position, life

security, and place of living, leisure opportunity and learning of new skills (WHOQOL-

BREF, 2004).

3. Data Sources and Methodology

The study includes HBV and HCV patients because both types of hepatitis affect the

patient life more severely than other types. Also because HBV and HCV are relatively

common viruses found in patients of Sargodha District. HCV contaminate liver cells and

responsible for inflammation of liver and certain other diseases. 100 million people are

chronically infected with HCV virus (http://www.who.int). This virus comes in different

forms and is not easy to identify.

In this study, 120 patients of HBV and HCV were selected and interviewed from

Sargodha district. For this intention different private and public hospitals were visited.

WHOQOL-BREF questionnaire was used in this study for the development of HRQOL

instrument. To identify the impact of demographic, social, economic and medical

variables on HRQOL of hepatitis patients, data on age, disease severity, gender,

education, vaccination, income, region and drug addiction was collected. Multiple linear

regression analysis is performed to explore the factors that affect HRQOL of hepatitis

patients. In the first model, effect of demographics factors are investigated while in

second, third and fourth model; medical, economic, physical and psychosocial factors

contributions to HRQOL are examined.

4. Results

4.1 Descriptive Analysis

Out of 120 patients, 66 are male and 54 are females, in which 61 patients belonged to

urban and 59 are from rural areas, 55 patients are HBV while 65 are HCV infected. 76

years is the maximum age that has been interviewed, while minimum age is 14 years and

mean age is 36 years (see table 1).

Variable of disease severity is obtained by asking the time period of patient‘s disease. 8

years is the maximum disease period for hepatitis patients, while minimum is 0.3 year

and the mean is 2.52 years. 89 patients are vaccinated but 31 of them are not vaccinated.

Out of 120 patients 46 are smokers, while 74 patients never use any type of drug (see

table 2).

http://www.who.int/

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Maximum household income is 50,000 Pakistani rupees per month, while minimum is

2,500 Pakistani rupees per month and the mean income is 12,725 rupees (see table 3).

Out of 120 patients, 93.3% of the patients are caught by pain due to HBV and HCV.

94.4% feel depression and 49.2% patients feel problems and not satisfied to their sleep.

89.2% patients face financial hindrances and not have enough money to meet their needs.

76.7% patients are facing the threat of death due to HBV and HCV. Only 50.8% patients

have an opportunity of leisure, while 40% are not satisfied to their living conditions (see

table 4).

4.2 HRQOL Scores

Domains are scored through collective scaling. Each item has an equal share to the

domain score. Scaling is in the direction of the domain, determined by whether the

domain is positively or negatively framed. Some domains holds questions which need to

be reverse scored and some contains negatively structured constituent questions. HRQOL

instrument contains collective share of each domain.

Table 5 present the mean, maximum and minimum score HRQOL instrument and its four

domains. Patients with hepatitis get maximum score of physical health about 85.71,

whereas its mean value is 39.22. These illustrate that due to hepatitis B and C virus,

patient‘s physical health is very much destroyed. Mean score of psychological health is

somewhat demonstrate a better condition, which is 46.18, while its minimum score is

4.17 that show the patient, is suffering with severe psychological problems. Maximum

score of social relationships is 100, which shows that patient‘s social relationships are not

affected by disease. Mean score of social relationships is also better than physical and

psychological health scores. Environmental score explains that patient‘s opportunity of

leisure, information, and facilities to services is affected due to hepatitis. If we want to

contrast the affect of all four domains, it is very much apparent that hepatitis firstly

affects the physical life of the patient and secondly environmental factors. To investigate

the range of HRQOL instrument we convert the score of HRQOL instrument in 0-100

ranges. Zero means that patient is living with poorest quality of life along with disease, as

he moves towards 100 his quality of life improves. Our results illustrate that minimum

score of HRQOL instrument (10.53) meaning that the patient is living with poor quality

of life. Mean score also is not showing a good picture, which are only 46.66 (see table 5).

Urban patients are enjoying better HRQOL than the rural patients. In all domains and in

HRQOL instrument urban patients scores are high. Social relationship domain illustrate

that there is no discrepancy among the hepatitis patients of rural and urban areas.

Moreover, mean scores of the urban patients are also high as compared to rural patients

of hepatitis (see table 6).

The physical and psychological health of male patients is relatively better than females

(see for example; Table 7). Again social relationship domain shows the same maximum

score for both male and female. Mean scores of HRQOL domains and HRQOL

instrument highlight that male patients are in better condition as compared to female

patients.

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4.3 Multiple Regression Analysis Results

Table 8 explains the regression analysis results in which HRQOL is the dependant

variable whereas gender, age of the patient, region, disease severity, vaccination and use

of drugs are the independent variables. All the variables are significant. Positive sign of

male shows that male have better HRQOL then female, while negative sign of age of the

patient shows that HRQOL deteriorates with increase in patient‘s age. Positive sign of

region shows that people who are living in urban areas enjoy better HRQOL then people

live in rural areas.

Under medical variables disease severity is negatively significantly related to dependant

variable. Disease severity was obtained by measuring the age of hepatitis disease. When

we interpret this we say that increase in one year in the age of disease, will decrease

patient‘s HRQOL by 2.25 units. The patients who use drugs their HRQOL will decrease

as compared to the patient who does not use any type of drug (smoking etc).

Table 9 explains the impact of economic, physical and psychological variables on the

patients HRQOL. All the signs of the variables are according to expectation. Income is

positively significant with dependant variable. The patients having depression will affect

their HRQOL negatively. Negative sign of depression shows that a patient who faces

depression its HRQOL will decrease but a patient who is free from depression enjoy

better HRQOL. Better sleep, good living condition ands opportunity of leisure are

significantly positively related to patient‘s HRQOL. Negative sign of death threat shows

HRQOL decrease for a patient who faces threat of death as compared to that patient who

has no fear of death.

5. Conclusions

The rationale of this paper is to find out the determinants that affect HRQOL of hepatitis

B and C patients. The study used WHOQOL-BREF questionnaire and 120 patients of

hepatitis are interviewed in the public and private hospitals of the Sargodha district.

Multiple regression results shows that age of the patient, disease severity, use of drug,

pain, depression, financial hindrances and threat of death negatively affect HRQOL of the

hepatitis patient while; vaccination, income, education, sleep, opportunity of leisure and

better living condition affect HRQOL positively. The study gives several suggestions on

the basis of present analysis. With the advancement of medical technologies the treatment

also should focus on those aspects that increase patients HRQOL, like by giving the

opportunity of leisure to patients. Financial assistance from government will also help in

removing their financial hindrances. Government and concerning authorities should focus

on controlling drugs among the people. Death threat and depression may be control by

teaching the patients and by giving them cognitive behavioral therapy.

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References

Atiq, M., Gill, M.L., Khokhar, N. (2004) Quality of life assessment in Pakistani patients

with chronic liver disease. J Pak Med Assoc. 54: 113–115.

Bondini, S., Kallman, J., Dan, A., Younoszai, Z., Ramsey, L., Nader, F., Younossi, Z.M.

(2007) Health-related quality of life in patients with chronic hepatitis B. liver

international. 27: 1119-1125

Gallegos-Orozco, J.F., Fuentes, A.P., Gerardo, A. J., et al. (2003) Health-related quality

of life and depression in patients with chronic hepatitis C. Arch Med Res. 34:

124–129.

Gutteling, J.J., De Man, R.A., Van Der Plas, S.M., Schalm, S.W., Busschbach, J.J.,

Darlington, A.S. (2006) Determinants of quality of life in chronic liver patients.

Aliment Pharmacol Ther. 23:1629-1635.

Hauser, W., Holtmann, G., Grandt, D. (2004) Determinants of health-related quality of

life in patients with chronic liver diseases. Clin Gastroenterol Hepatol. 2: 157–

163.

http://www.who.int

http://www.worldlifeexpectancy.com

Lam, C.L.K. and Lauder, I.J. (2000) The impact of chronic diseases on the health-related

quality of life (HRQOL) of Chinese patients in primary care. Family Practice. 17:

159–166.

Awan, M.S., Waqas, M., Ali, M., Aslam, M.A. (2011) Status of Health related Quality of

life between HBV and HCV Patients of Pakistan. International Journal of

Business and Social Science. 2 (2): 213-220.

Awan, M.S, Waqas, M., Aslam, M.A., Sarwar, M. (2011) Measurement of SF-6D Utility

among Patients with Active Tuberculosis. Global Journal of Health Science.

3(1):203-208

Marchesini, G., Bianchi, G., Amodio, P., Salerno, F., Merli, M., Panella, C., Loguercio,

C., Apolone, G., Niero, M., Abbiati, R. (2001) Factors associated with poor

health-related quality of life of patients with cirrhosis. Gastroenterology.

120(1):170-8.

Multiple indicator cluster survey (2007-08), Pakistan.

Sobhonslidsuk, A., Silpakit, C., Kongsakon, R., Satitpornkul, P., Sripetch, C.,

Khanthavit, A. (2006) Factors influencing health-related quality of life in chronic

liver disease. World J Gastroenterol. 28;12(48):7786-91.

The World health organization quality of life-BREF (2004).

http://www.ncbi.nlm.nih.gov/pubmed?term=%22Dan%20A%22%5BAuthor%5D

http://www.ncbi.nlm.nih.gov/pubmed?term=%22Younoszai%20Z%22%5BAuthor%5D

http://www.ncbi.nlm.nih.gov/pubmed?term=%22Ramsey%20L%22%5BAuthor%5D

http://www.ncbi.nlm.nih.gov/pubmed?term=%22Nader%20F%22%5BAuthor%5D

http://www.ncbi.nlm.nih.gov/pubmed?term=%22Younossi%20ZM%22%5BAuthor%5D

http://www.who.int/

http://www.worldlifeexpectancy.com/

http://www.ncbi.nlm.nih.gov/pubmed?term=%22Marchesini%20G%22%5BAuthor%5D

http://www.ncbi.nlm.nih.gov/pubmed?term=%22Bianchi%20G%22%5BAuthor%5D

http://www.ncbi.nlm.nih.gov/pubmed?term=%22Amodio%20P%22%5BAuthor%5D

http://www.ncbi.nlm.nih.gov/pubmed?term=%22Salerno%20F%22%5BAuthor%5D

http://www.ncbi.nlm.nih.gov/pubmed?term=%22Merli%20M%22%5BAuthor%5D

http://www.ncbi.nlm.nih.gov/pubmed?term=%22Panella%20C%22%5BAuthor%5D

http://www.ncbi.nlm.nih.gov/pubmed?term=%22Loguercio%20C%22%5BAuthor%5D



http://www.ncbi.nlm.nih.gov/pubmed?term=%22Apolone%20G%22%5BAuthor%5D

http://www.ncbi.nlm.nih.gov/pubmed?term=%22Niero%20M%22%5BAuthor%5D

http://www.ncbi.nlm.nih.gov/pubmed?term=%22Abbiati%20R%22%5BAuthor%5D

javascript:AL_get(this,%20'jour',%20'Gastroenterology.');

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Appendix

Table 1: Descriptive of Demographic variables.

Demographic variables

N Gender Region Hepatitis Age of patients

120 Male Female Urban Rural B C Max. Min. Mean

66 54 61 59 55 65 76 14 36.09

Table 2: Descriptive of Medical variables.

Medical variables

N Disease severity Vaccination Type of Drug

120 Max. Min. Mean Yes No Smoking No

8 0.3 2.52 89 31 46 74

Table 3: Descriptive of Economic variables.

Economic variables

N Income of the house hold Financial hindrances

120 Max. Min. Mean Yes No

50000 2500 12725 107 13

Table 4: Descriptive of Physical and Psychosocial variables.

Physical and Psychosocial variables

N Percentage

Pain 120 93.3

Depression 120 94.4

Sleep 120 49.2

Death threat 120 76.7

Opportunity of leisure 120 50.8

Living condition 120 40

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Table 5: Descriptive of Health related quality of life scores.

Health related quality of life scores

Domains N Max. Min. Mean

Physical health 120 85.71 0.00 39.22

Psychological health 120 95.83 4.17 46.18

Social relationship 120 100 0.00 61.14

Environmental 120 87.50 3.13 40.10

HRQOL instrument 120 82.78 10.53 46.66

Table 6: Descriptive of Health related quality of life scores by region.

Health related quality of life scores by region

Rural Urban

Domains N Max. Min. Mean N Max. Min. Mean

Physical health 59 78.57 0.00 34.62 61 85.71 0.00 43.67

Psychological health 59 83.33 16.67 42.44 61 95.83 4.17 49.79

Social relationship 59 100.00 12.50 59.11 61 100.00 0.00 63.11

Environmental 59 62.50 3.13 32.89 61 87.50 6.25 47.07

HRQOL instrument 59 74.85 17.82 42.26 61 82.78 10.53 50.91

Table 7: Descriptive of Health related quality of life scores by sex.

Health related quality of life scores by sex

Male Female

Domains N Max. Min. Mean N Max. Min. Mean

Physical health 66 85.71 0.00 41.07 54 78.57 0.00 36.97

Psychological health 66 95.83 12.50 47.72 54 83.33 4.17 44.29

Social relationship 66 100.00 16.67 63.25 54 100.00 .00 58.56

Environmental 66 87.50 6.25 41.28 54 87.50 3.13 38.65

HRQOL instrument 66 82.78 10.53 48.33 54 82.40 14.25 44.62

Table 8: Multiple regression results.

Demographic variables Model

Constant 66.46**

Gender (Male=1, Female=0) 0.94

Age of the patient -0.68**

Region (Urban=1, Rural=0) 8.57**

R2

0.26

F-Statistics 10.56

SER 9.87

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Economic variables Model

Constant 47.72**

Income 0.001**

Financial hindrances (Yes=1, No=0) -9.52*

R2 0.20

F-Statistics 16.39

SER 13.33

Physical and Psychological variables Model

Constant 57.32**

Pain (Yes=1, No=0) -6.06

Depression (Yes=1, No=0) -11.41*

Sleep (Satisfied=1, Dissatisfied=0) 10.90**

Living condition (Satisfied=1,

Dissatisfied=0)

7.97**

Death threat (Yes=1, No=0) -11.19**

Opportunity of leisure (Yes=1, No=0) 11.36**

R2 0.66

F-Statistics 9.64

SER 9.28

**=99% significance level and *= 95% significance level

Medical variables Model

Constant 53.77**

Disease severity -2.25*

Vaccination (Yes=1, No=0) 1.58

Use of drug (Yes=1, No=0) -6.43*

R2 0.09

F-Statistics 10.21

SER 14.28

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Figure 1: District wise hepatitis patients diagnosed in Punjab province.

Source: MICS 2007-08

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Study of Market Efficiency: Facts from Pakistani Market

Abdul Hafeez Qureshi(Corresponding Author) MS (Finance Scholar)

Iqra University, Islamabad Campus

Dr.Babar Zaheer butt

Iqra University

Umbreen Sharif

MS Scholar

Iqra University

Muhammad Bilal

MS Scholar

Iqra University

Abstract

The main purpose of accounting numbers is to offer the monetary data and financial

information concerning the act of positive impact endeavor to organize and to help the

financiers, managers, and government authorities in formulating the useful decisions.

Furthermore, the objective of accounting research and investigation is to assess the utility

of accounting information and data to financiers and more users. In addition, the main

objective of capital market investigation and research is to observe the connection among

security returns and accounting numbers to scrutinize whether or not accounting

information transmit any data substance to security market, and if so it should be

confiscated in the security price. The conclusion of this study reveals that the security

market reacted with mixed signal on releasing liquidity, profitability and solvency

information as compare with Hadi (2006). The authors expect that the crux of this study

will explore new way handle to security market reaction

Keywords: Efficient market hypothesis, profitability, liquidity, solvency.

Introduction

The essential aim of financial exposure be to give financiers and creditors with functional

information with the intention of facilitate them review the quantity, timing, and timidly

of cash flows to assist them make national investment and credit decisions. In the earlier

period, a noteworthy amount of accounting research has appeared to assess the usefulness

of accounting facts to investors and others by explaining the relationship between the

discharge of accounting numbers and security return. The fundamental hypothesis of

prior studies is suggesting that the efficient markets are the capital markets.

According to Dixon and Holmes (1992) that operational efficiency is advanced and

hurdles to trading on capital markets are decreased when transaction expenditures will be

lowest. Security prices in an efficient market respond immediately unbiased to confiscate

new information in such a way that depart no chance to market partakers to constantly

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make irregular return. Preceding research in accounting and finance literature gives facts

sustaining efficient market hypothesis. The consequences of these studies entail that

accounting information is worth relevant to investors ' decision as they connected with

security returns. Conversely, strong evidence of irregularity in the stock market that

appears to oppose with the EMH.

The purpose of this paper is to analysis firm features of capital market efficiency and it

proposition on accounting numbers with some applications on security market in

Pakistan.

Outstanding of the paper is set as per schedule. Part 1 is observing the definition of

capital market efficiency hypothesis. Part 2 analyze the different forms of efficient

market hypotheses in Pakistan. Part 3 presents models. Part 4 explains the sample

selection and data collection. Part 5 presents research methods. Part 6 gives detail of the

experiential results and part 7 concludes the paper.

Efficient market hypothesis

A basic issue relating to the capital markets is their efficiency. Frimpong, (2008)

illustrate that there are three types of market efficiencies i.e., allocational, operational and

pricing/informational described in the financial markets literature.Muslumuv et al, (2004

examined that capital markets with high informational efficiency retain higher

operational and allocational efficiencies. According to (Ross, 1987) if it is not possible to

create economic returns by trading on the basis of information set which say that market

is efficient. Fama (1970) and samuelson (1965) researched that stock market outlays

ought to show complete sign of all available and relevant information under the EMH and

necessary to follow random walk procedure. As per (Frimpong, 2008) Successive stock

price changes are therefore independently and identically distributed.

Different forms of market efficiency

Fama, (1970) researched three types as weak, semi-strong and strong types of souk

competences based on information includes past returns and prices, the entire unrestricted

data and information, and every data whether private and public respectively.

Weak Form Market Efficiency

This type of competency occurs when prices of stock imitate data concerning the

historical share value chain only. There is another technique to shape this hypothesis

according to demand which is: shareholders who rely entirely on historical sequence of

stock values in choosing their collection cannot always break the similar financiers who

pay money for and hold unsystematic portfolio at the equal risk. Numerous studies

concentrate on the problem of whether stock price performance is a random walk or not.

Osborne & Robert (1959) instituted that stock price faction pursue a random walk. ―The

hypothesis of the random walk basically shapes that at a specified size, point in time, and

direction of the subsequently price modification is random with admiration to the

knowledge accessible at that point in time.‖ Another few researchers Morse & dyckman,

(1986) stated that stock price transformation is haphazard does not signify that stock

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price amends without any motives; there is a basis for such faction, this is an empirical

research for decade.

Semi-Strong Form of Market Efficiency

This type of competency occurs when the security prices imitate not by the data and

information that includes the historical time series of stock values and prices but this type

of information and data is normally publically available. It concludes that stock values

and prices are regulated quickly and in balanced approach to the entire public

proclamations in journals, annual reports, newspapers, and corporate forecasting. This

type of market efficiency is related to profession of accounting, because profession of

accounting is the major basis of public data and information, all the way through the

concern of financial reporting.

Strong-Form Market Efficiency

This type of market competency or efficiency imitates if the prices of stock replicate all

private and public data and information. This type is the broad case and testing efficient

market hypothesis in strong form is extremely intricate, since private data and

information is complicated to examine. Security Exchange Commission in United States

uses official document which encloses an official synopsis of insider trading, giving a

proof of trading connections by officers, executives and major stockholders by means of

public and private data and information.

Literature Review

Hypothetical perceptive shapes that prices in a proficient market are completely stand for

on behalf of available data and information converse the extensive awareness of what is

proposed by market competency. EMH is supported leading the supposition that equity

prices take up promptly to the invasion of newest information so current prices entirely

imitate total offered information.

Fama, (1965) instituted that announcement is universal and desires to be confirmed;

furthermore, it strain to put up mathematical formulations and models for market stability

which will be used for examining the market competency. Fama, (1970) stated that as a

flaxen competition model the EMH theory which points out that the financiers are

convinced concerning to the existing market price which entirely replicates every one of

existing information concerning to a security.

Another researcher Urrutia, (1995) examined the four American Latin developing stock

market through Random Walk Model. He utilized the monthly index information and

data for the countries Brazil, Mexico, Argentina, and Chile for the era December 1975 to

March 1991. The random walk model hypothesis is rejected by variance ratio test but

another test runs point out that there subsist weak form of efficiency concerning to these

markets. The cause following this state of affairs is that the conjugal financiers are not as

much as necessary capable to devise trading approaches that may allocate them to make

surplus returns.

For Mexico & Brazile, two researchers Reyes & Grieb, (1999) both investigation is for

the support of random walk. There are many other studies related to African market also

favors the random walk model based hypothesis for all the markets (Wydick &

Magnusson, (2000). Ariff et al, (1999) investigated the Asia-pacific region ten countries

to assess the cause of liberalization on market-efficiency. They concludes that several

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measures of market efficiency are unaffected by deregulation. These results for the

international conditions may be explained by the bigger assimilation of international

equity markets but the conjugal observable fact leftovers unknown.

Methods

Sample and data Collection

In the study the sample size was 23 banking firms of Pakistan. The respondents were

selected from different regions of Pakistan. These banking firms were selected for the

data collection due to certain reasons. Here we have easy access to financial data from

different years, easily targeted different financial data and ratios. The target respondents

were the reputed public and private banks of Pakistan.

Measurement The research models were formed in the light of Review of Capital Market Efficiency:

Some Evidence from Jordanian Market (Hadi, 2006).The models were structured in three

sections. First section included the profitability analysis of the firms. Second Model

included the liquidity measures of the firm. Third model included the insolvency of the

firms. There were total eight variables used in order to know the efficiency of the firms.

The dependent variable is annual returns of the banks while the independent variables are

dividends (DIVID) , Dividend payout(DIVPO) , return on average equity (ROAE),

return on average asset (ROAA), debt ratio (Debt ratio), interest coverage (Int Cov) , and

current ratio (CR).

Procedure

The financial data of the firms were collected through the digital library of the leincaster

university of United Kingdom. The banks that included were Median, NBP, NIB, MCB,

HBL, ABL, UBL, Askari bank, Habib metropolitan, Bank Al Habib, Faysal bank, The

bank of Punjab, Bank Alfalah , Samba bank, JS Bank, Bank of Khyber, My bank, Atlas

bank, Silk bank etc.The total time period that was consumed was three months (June to

August,2010).The data of eight years (2002-2008) were analyzed by descriptive,

correlations and regression analysis.

Five regression equations were used in this analysis. The purpose of this test is to

examine the market reaction to accounting numbers release. The dependent variable is

annual returns of the banks while the independent dividends (DIVID) , return of equity

(ROAE), return on asset (ROAA), debt ratio (Debt ratio), interest coverage (Int Cov) ,

and current ratio (CR).

Pooled regression method (PR) is used to solve the regression equations.

All analysis will be performed at pool 2002-2008.First, tests whether or not profit

information have any impact on returns:

R = ∝ + βDIVID +e M1

Where,

R = Annual returns.

DIVID = dividends per share.

e = error term.

∝β = intercept and slope coefficient of the regression equation.

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R = ∝β ROE +e M2

Where,

R = security returns.

ROE= return on equity.

e = error term.

∝ β = intercept and slope coefficient of the regression equation.

Second, examine whether liquidity information have any impacts on security returns:

R = ∝+ β ROA +e M3

Where,


ROA= return on asset.

e = error term.

∝ β = intercept and slope coefficient of the regression equation

R = ∝+ βCR +e M4

Where,


C.R. = current ratio.

e = error term.

∝β = intercept and slope coefficient of the regression equation.

Third, examine whether solvency information have any impacts on security returns:

R =∝ + βdebt ratio + βInt cov +e M5

Where,


Debt ratio = debt ratio.

Int cov = interest coverage.

e = error term.

∝β= intercept and slope coefficient of the regression equation.

Results & Discussions

Statistical Descriptions and Correlations

Table 1 present the statistical description for all the variables, the analysis is performed

by pooled all firms over all years for each variable. It were found that return and dividend

have the highest standard deviation due to the presence of extreme observation and this

can be confirmed from the maximum row in table 1.

Insert table 01 here.

The results in Table 2 reveal the correlation among all variables; it summarizes the values

of Pearson Coefficient of correlation and their significance. It is quite evident from the

results that Return is strongly positively correlated with ROAA as value of Pearson

Correlation Coefficient .544** and the relation is significant at 95% confidence level

(p<.05). The relationship between returns and dividends per share is also strongly

positive and significant as Pearson Correlation Coefficient is .419** and p value is than

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.05. But it is not strong one as Pearson Correlation Coefficient is less than .5 and closer to

0. Returns and Interest coverage is strongly and positively correlated, as the value of

Pearson Correlation Coefficient is .669**. Their relationship is significant as well

(p<.05). So, these three independent variables are positively and significantly correlated

with dependent variable. Other independent variables like debt ratio, ROAE and current

ratio are not strongly correlated. The results of this study are not only consistent with

previous studies they also show the market efficiency of capital market with main focus

on banking sector.

Insert Table 02 here.

Regression Results

The regression results for all the models are presented in tables 3,4 and 5.


For M1, Return on average equity is not good factor in return movements.ROAE

coefficient is statistically insignificant. The R2 equals to .000. This funding is in

consisted of previous research by Hadi (2005 & 2006)

For M2, dividends are significant predictor and can explain the variation in return. The t-

statistic is significant at .000 and R2 equals to .176 for M2.These results propose that

dividends can be used an estimate for future return. This result is consisted of previous

research by Hadi and Garrod (1998), Petit (1972), Abeyratana et al (1993), Charest

(1978) and Vickery and Foster (1978).

For M3, return on average assets is highly significant predictor and it is explaining the

variation in returns. The t-statistic is significant at .000 and R2 equals to .292 for M3.

In answering the first question, tests whether or not profit information have any impact

on returns? DIVID, ROAE, and ROAA have impact on returns.


For M4, Current Ratio is also not significant predictor and cannot explain the variation in

return. The t-statistic is insignificant at .42 levels and R2 equals .002 for M4. Previous

results suggest that current ratio can be used an estimate for future return. (Hadi, 2005 &

2006). In answering the second question, whether liquidity information has any impacts

on returns? Current ratio has not impact on returns in Pakistani scenario.


For M5, Int cov is significant predictor and can explain the variation in return. The

tstatistic is significant .001 level and R2 equals .447 for M5. Debt ratio coefficient is

negative which carry negative in information to the market. These results suggest that

Debt and Int cov can be used an estimate for future returns.

In answering the third question, whether solvency information have any impacts on

security returns? solvency information have impact on security returns.

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Conclusion This paper identified EMH and provided some detail on the types of EMH, as well as

identifying the empirical research that tested weak, semi-strong and strong forms of

market efficiency. Accounting market based research more often assumes that market is

efficient in semi-strong form, and the reason for this is that financial reports are

considered public information once they are released to the market. In this paper

empirical evidence has been provided from Pakistani market, and it shows the security

market reacted with mixed signal on releasing profitability, liquidly, and solvency

information.

The selection of the relevant pricing model is very critical in market-based research.

Brown and

Warner (1980) investigates how different methods performed when some abnormal

performance was present. They conclude that ―There is no evidence that more

complicated methodology conveys any benefit.‖(Brown and Warner, 1980). Also, they

argue that using more complicated models will make the researcher worse off.

Furthermore, the use of the market model or even simple models such as mean adjusted

return is better than more complicated models like control portfolio.

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References

Hamid et al, 2010. Testing the Weak form of Efficient Market Hypothesis: Empirical

Evidence from Asia-Pacific Markets. International Research Journal of Finance

and Economics, 58 : 121-133.

Brown, Stephen J., and Jerold B. Warner. 1980. Measuring Security Price Performance.

Journal of Financial Economics. V. 8. pp. 205:258.

Charest, Guy. 1978a. Split Information, Stock Returns and Market Efficiency I. Journal

of Financial Economics. Vol. 6. pp. 265-296.

Charest, Guy. 1978b. Dividend Information, Stock Returns and Market Efficiency II.

Journal of Financial Economics. Vol. 6. pp. 297-330.

Cross, F. 1973. The Behavior of Stock Prices on Friday and Monday. Financial Analysts

Journal. pp 67-69.

Fama, E. 1966. Filter Rules and Stock Market Trading. Journal of Business. pp. 226-241.

Fama, E. 1970. Efficient Capital Markets: A Review of Theory and Empirical Work.

Journal of Finance. pp. 383-417.

Fama, E. 1991. Efficient Capital Markets II. Journal of Finance. Vol. XLVI, No. 5 pp.

1575- 1617.

Hess, Alan C. and Peter A. Frost. 1982. Tests for Price Effects of New Issues of

Seasoned Securities. Journal of Finance. Vol. XXXVI No. 1 pp. 11-25.

Grieb, T. and Reyes, M.(1999) ―Random Walk Tests for Latin American Equity Indexes

and Individual Firms‖, Journal of Financial Research, 22, 4, pp. 371-383.

Groenewold, N. and Ariff, M.( 1999). ―The Effects of De-Regulation on Share Market

Efficiency in the Asia-Pacific‖, International Economic Journal, 12, 4, , pp. 23-

47.

Jensen, Michael C. and George A. Benington. 1970. Random Walks and Technical

Theories: Some Additional Evidence. Journal of Finance. pp. 469-481.

Morse, Dale. 1980. Asymmetrical Information in Securities Markets and Trading

Volume. Journal of Financial and Quantitative Analysis. pp. 1129-1148.

Evidence on Autocorrelation in Common Stock Return. Journal of Finance. Vol. XXXII

No. 1.pp. 41-55.

Sharpe, William. 1964. Capital Asset Prices: A Theory of Market Equilibrium under

Conditions of Risk. Journal of Finance. Vol. XIX no. 3 pp. 425-442.

Strong, Norman. 1992. Modelling Abnormal Returns: A Review Article. Journal of

Business Finance and Accounting. V.19 (4) pp. 533:553.

Watts, Ross L. and Jerold L. Zimmerman. 1986. Positive Accounting Theory. Prentice/

Hall international, Inc. pp. 1-111.

Wilson, Peter G. 1987. The Incremental Information Content of the Accrual and Funds

Components of Earnings after Controlling for Earnings. Accounting Review.

V.LXII. No.2 pp. 293-305.

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Annexure

Descriptive Statistics Table 01

N Minimum Maximum Mean Std. Deviation

Statistic Statistic Statistic Statistic Std. Error Statistic

Annual Returns 215 -10085.00 19405.00 2339.8542 266.15496 3902.59784

Return on Average Assets 215 -9.18 5.12 .5547 .13472 1.97535

Return on Average Equity 215 -99.87 3522.45 263.2394 26.43552 387.62086

Dividend per share 215 .00 11464.00 1560.0185 79.89664 1171.51468

Interest Coverage 215 -2.54 9.03 3.4852 .10603 1.55472

Debt Ratio 215 5.75 808.80 53.3675 3.60320 52.83330

Dividend Income 215 1.00 2887.00 423.8298 20.29944 297.64817

Current Ratio 215 1.01 109.00 2.6176 .69974 10.26016


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Table-2: Person correlation matrix for all variables, i.e, R, ROAA, ROAE, D, INT COV,

DR, and Current Ratio. (N=215)

Correlations

R ROAA ROAE D Int Cov Debt Ratio CR R Pearson Correlation Sig. (2-tailed) N 215

ROAA Pearson Correlation 0.543632 Sig. (2-tailed) 6.23E-18 N 215 215

ROAE Pearson Correlation 0.017957 0.21312

Sig. (2-tailed) 0.79349 0.001673 N 215 215 215 Debt Ratio Pearson Correlation 0.419278 0.073883 -0.14121 Sig. (2-tailed) 1.46E-10 0.280814 0.038566 N 215 215 215 215

Int Cov Pearson Correlation 0.668528 0.45757 0.099046 0.304024 Sig. (2-tailed) 3.28E-29 1.6E-12 0.147788 5.63E-06 N 215 215 215 215 215 Debt Ratio Pearson Correlation -0.05018 -0.17252 -0.04997 0.006022 -0.03064

Sig. (2-tailed) 0.464182 0.011279 0.466032 0.930041 0.655054 N 215 215 215 215 215 215

CR Pearson Correlation 0.055783 -0.14412 -0.03633 -0.01006 -0.07449 -0.019993433 Sig. (2-tailed) 0.415753 0.034687 0.596283 0.883349 0.276848 0.770683161

N 215 215 215 215 215 215 215


* Correlation is significant at the 0.05 level (2-tailed).

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Table 3: The Regression Results for M1 to M3 Profitability

Models Variables Coefficient T-Ratio Par Value F-Ratio P-Value

Adjusted R2

M1 ROAE 0.18 0.26 0.79 0.07 0.79 -0.004 M2 Dividends 1.40 6.74 0.00 45.43 0.00 0.17

M3 ROAA 1074.03 9.45 0.00 89.36 0.00 0.29

R = ∝ + β DIVID +e............................................M2

R = ∝ + β ROA +e..............................M3

R = ∝ + β ROE +e...............................................M1

Table 4: The Regression Results for M4 Liquidity

Models Variables Coefficient T-Ratio Par Value F-Ratio P-Value

Adjusted R2

M4 Current Ratio 21.22 0.82 0.42 0.67 0.42 -0.002

R = ∝ + β CR +e...................................................M4.

Table 5: The Regression Results for M6 Solvency

Models Variables Coefficient T-Ratio

Par Value F-Ratio P-Value

Adjusted R2

M5 Debt Ratio -3.71 -0.73 0.46 0.54 0.46 -0.002

Interest Coverage 1678.12 13.12 0.00 172.12 0.00 0.44

R = ∝ + β debt ratio + β Int cov +e......................M5

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Analysis of Mergers and Acquisition in Banking Sector of Pakistan

Abdul Hafeez Qureshi (Corresponding Author)

MS (Finance Scholar)


Umbreen Sharif

MS Scholar


Dr.Babar Zaheer Butt

Faculty Member


Muhammad Bilal

MS Scholar


Abstract

This study investigates the effects of mergers and acquisition on the financial

performance of Banks in Pakistan. The operating performance, capital adequacy and

solvency measures were compared for 3-years pre and post-merger from the financial

statements of the HMB (Habib Metropolitan bank) and NIB (National Investment Bank).

The results of the study showed that ROA and ROE of HMB did not indicate significant

improvement but on average it can be concluded that overall performance of the bank

improves as a result of M&A activity. Similarly, the results of the acquisition activity of

PICIC, PICIC Commercial Bank and National Investment Bank also indicates the same

results that ROA and ROE decreased but other financial performance indicators showed

significant improvement during post-merger period.

Keywords: Mergers and Acquisitions (M&As), Profitability, Capital Adequacy, Long

Term Solvency, Pakistan.

INTRODUCTION

Mergers and Acquisitions (M&A) are strategic decisions through which firms combine or

acquire assets. The basic idea in mergers and acquisitions and all other forms of corporate

restructuring is to create value and maximize the existing shareholders wealth. In past

few decades a wave of merger and acquisition has been arisen in the developing

countries. Pakistan is no difference in this case. Banking sector in Pakistan were facing

problems of weak health and low profitability due to various factors i.e. low productivity,

high intermediation cost (high cost deposits), huge expenditures on establishment, over

staffing, large number of loss making branches and mismanagement of funds etc. Owing

to this, banking sector in Pakistan was under great deal of pressure to maintain their

profitability.

Looking at the data of listed companies on Karachi stock exchange (KSE), it is obvious

that in 2001 and onwards the M&As have got momentum. Banking industry in Pakistan

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is currently witnessing a growing trend towards mergers and acquisitions (M&As). The

banking industry in Pakistan has been transformed from an indolent, government-

dominated sector into a much more active, competitive and profitable industry.

The study purpose is to examine the impact of mergers and acquisitions on the financial

performance of banking sector, by analyzing 3-year pre and 3-year post financial ratios of

National Investment Bank (NIB) and Habib Metropolitan Bank (HMB). National

Investment Bank acquired PICIC and PICIC Commercial Bank on 31 December 2007.

Habib Bank AG Zurich‘s Pakistan was merged into Metropolitan Bank Limited and

became Habib Metropolitan Bank (HMB) on 26 October 2006. The dominant rational

behind this activity is to improve financial performance, by achieving economies of scale,

economies of scope and synergy.

To analyze the impact of mergers and acquisitions on the financial performance of banks

three financial measures; profitability, capital adequacy and solvency are being used.

The objective of the study is to analyze the impact of merger and acquisition activity on

profitability of merged/acquirer firm.It is also important to examine the impact of merger

and acqisition activity on capital adequacy of merged/acquirer firm and to analyze the

effect of merger and acquisition activity on solvency of merged/acquirer firm.And there

is the question that do mergers and acquisiton of banking sector in Pakistan prove to be a

successful strategy?

The study is organized as follows; the section 2 reviews the existing literature on impact

of merger and acquisition on banking sector. Methodology is outlined in section 3.

Section 4 provides an explanation of empirical results and Section 5 concludes the

discussion.

LITERATURE REVIEW

The impact of various mergers and acquisitions has attracted a lot of attention in the last

two decades. Burki and Niazi (2003) investigated the impact of merger and acquisition on

performance of commercial banks over the period of 1991-2000, by using Data

Envelopment Analysis (DEA) to measure performance through cost efficiency. Their

analysis show that banking efficiency has varied overtime from highest efficiency in

1991 to lowest efficiency in 1996. The highest level of efficiency was achieved by

foreign banks followed by private banks while state owned banks achieved least cost

efficiency.

In literature there is a debate that whether or not increased merger and acquisition has

significant impact on efficiency. According to Christopoulos et al. (2002), banks involved

in merger and acquisition activity mostly showed increasing returns to scale, obtain cost

and efficiency gains. An analysis of merger in 67 banks of Italy found that larger firms,

who are less efficient, still tend to engage in merger activity with a view of making

efficiency. The study conducted by Cuesta and Oreia (2002) concludes that merged firms

will be more efficient than non merged firms.

Rizivi (2001) analyzed the productivity of banking sector in Pakistan for the period 1993-

1998 and decomposed the total factor of productivity into its constituent components.

The research show that domestic banks performed slightly better than foreign banks.

Qayyum and Ahmed (2006) estimated the technical and pure technical efficiency of 22

commercial banks of Pakistan for the period of 1991-2000 and found that the government

of Pakistan is successful in improving the efficiency of the domestic commercial banks

through the implementation of financial sector reforms. Akhter (2002) estimated the

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efficiency of 40 commercial banks in Pakistan for the year 1998 through DEA technique

and found that overall average efficiency of commercial banks in Pakistan is less than the

World Mean Efficiency after merger and acquisition.

In contrast, there have been several studies that point, merger and acquisition having

negative impact on efficiency. According to Berger and Mester (2001), merger and

acquisition activity in US banking sector has decreased the efficiency and productivity.

Wheelock and Wilson (1999) observed declining efficiency and productivity in US

banking sector due to merger and acquisition activity. The research conducted by

Khawaja and Din (2007), suggests that ongoing merger wave in the banking sector will

limits the option for the savers, with adverse impact for the interest spread.

According to Khawaja and Din (2007), Banking mergers increase concentration and may

increase efficiency as well. By affecting spreads, mergers carry the potential to speed up

or slow down the change in policy rates of deposit and lending. Woodbridge and

Williams (2003) argue that mergers are undertaken because they increase value, either by

the way of increase in efficiency or increase in bargaining power. Further the authors

suggest that the mergers that promote efficiency should be allowed and those that further

create monopoly power should be restricted. Prager and Hannan (1998) examine the price

effects of US bank mergers and find that deposit rates declined in the market where

merger took place.

According to Ahmed (2004), a number of bank mergers and acquisitions have been

occurring in 2000s. The objective of these activities was to promote financial stability

through economies of scale. The analysis showed that the banks exhibit high productivity

both in terms of investment and advances after merger and acquisition took place. The

results further refer that after 2000 there has been a persistent increase in total factor

productivity suggesting that deregulation framework has enabled these bank to reallocate

their resources efficiently.

Burki and Ahmed (2009), investigates the performance effects of bank governance

reforms in Pakistan. They found that the private banks demonstrate highest level of cost

efficiency, followed by foreign, and then state owned banks. Privatized and restructured

banks suffer from efficiency losses in starting years but improve performance once they

adjusted. Although small and weak banks are selected for merger and acquisition, but

when the ownership change they increase technical efficiency. The winners from the

reforms are privatized banks and banks selected for merger and acquisition who exploit

new profit making opportunities. The study conducted by Nakane and Weintraub (2003)

on the Brazilian bank privatization and productivity exhibited that privatization of state

owned banks has increased the productivity though merger and acquisition activity.

Kaur (2010) conducted a study that examines the cost efficiency of Indian commercial

banks after the merger took place. The findings of this paper suggest that to some extent

merger program has been successful in Indian banking sector. The government should

not promote merger between strong and distressed banks as a way to promote the interest

of the depositors of distressed banks, as it will have adverse effect upon the asset quality

of the stronger banks.

Although several studies have found that merger and acquisition have a significant effect

in bank performance in developing countries, but there is very little research regarding to

banking sector of Pakistan. The present paper is an attempt to fill the gap in the existing

literature regarding to Pakistani banking sector and tries to explore that how the activity

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of merger and acquisition effects the financial performance of banks in Pakistan.

Insert Figure 01 here. (Theoretical Framework)

Hypothesis

H0: The financial performance of banking sector does not improve significantly by

Merger and acquisition activity.

H1: The financial performance of banking sector improves significantly by Merger and

acquisition activity.

Methods

This section includes details about the population, sample and measuring instruments

being used in the research. Study was designed to examine the impact of merger and

acquisition on banking sector of Pakistan.

Sample

The study collected secondary data from banks involved in mergers and acquisions and

analyze the important issues and factors taking part in their decision to merge in another

bank and acquisition of other bank. The issues included in the study were profitability

ratios, capital adequacy ratios and solvency ratios. The sample size for this study was 4

banks. Each of the banks data was screened out properly to avoid any error, incomplete

or missing responses. With the purpose of uniformity and stationary of data, reliability

analysis was computed for every dimension included in the whole instrument. Four banks

were taken as sample in which Habib Metropolitan Bank is an example of merger and

National Investment Bank is an example of acquisition. Secondary data is used to

evaluate the financial performance of banks, taken from the website of respective banks

and Karachi Stock Exchange.

Measures

The data was used to get profitability ratios, capital adequacy ratios and solvency ratios

to analyze the post and pre merger and acquisition analysis of the targeted banks.

Procedure

The annual financial statements of the merged financial institutions were analyzed by

using the profitability, capital adequacy, and long-term solvency measures for pre- and

post-merger three years period. The combined value of the measures for the acquirer and

the acquiree banks were calculated for the three years pre-merger period and compared

with the post-merger three years value by using pared observations (student‘s ―t‖

distribution, taking _ = 0.05).

Profitability Measures

Profitability is the most important to the firm‘s total shareholders. Profit serves as

backbone against adverse conditions such as losses on loans, or losses caused by

unexpected changes in interest rates. Ratios that show returns represent the firm's ability

to measure the overall efficiency of the firm in generating returns for its shareholders.

Return on equity (ROE) and return on assets (ROA) are the most commonly applied

ratios used to assess financial performance.

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Capital Adequacy Measures

They relate to the firms overall use of financial leverage. Generally firms with high

financial leverage will experience more volatile earnings behavior. It indicates the extent

to which an institution‘s capital base covers the risks inherent in its operations. Capital

adequacy ratios are Shareholders equity to total assets and Shareholders equity to total

customer deposits.

Long Term Solvency Measure

Solvency refers to the ability of an enterprise to survive over a long period of time. It is

the same concept as liquidity except that it is for long term rather short term. Total

liabilities to total assets ratio has been used in this study.

Results and discussions

Profitability Ratios:

Table 1 indicates that ROA decreased by 0.1% in 2007, increases by 0.11% in 2008 and

again decreased by 0.55% in 2009 during post-merger period. Similarly ROE of HMB

decreased by 2.47% in 2007 increased by 0.15% in 2008 and again showed a decreasing

trend of 6.85% in 2009.

Post-merger ROA of NIB decreased by 0.61% & 3.9% in 2007-08 respectively but

increased by 4.16% in 2009. ROE for NIB first decreased by 4.5% and 17.89% in 2007

and 08 respectively and then increased by 21.29% in 2009.


Solvency Ratio:

Table 2 indicates that the liabilities of HMB decreased after merger although not very

much significantly but showing a decrease trend in solvency ratio. It decreases by 0.51%

and 0.4% in 2007 and 08 but again increased by 0.32% in 2009.

Table 2 indicates that solvency ratio of NIB decreases as a result of acquisition activity. It

decreases fro 79.29% in 2007 to 77.81% in 2008. But in 2009, there is again an increase

of 2.24% in solvency ratio of NIB.


Capital Adequacy Ratio:

Table 3 indicates that there is no significant change in Shareholders‘ equity to total assets

of HMB after merger but shareholders‘ equity to total customers‘ deposits increased in

post-merger period. Shareholders‘ equity to total assets ratio increased by 0.51% in 2007

and 0.39% in 2008 but decreased by 0.32% in 2009. Whereas, shareholders‘ equity to

total customers‘ deposits increased by 0.57%, 0.51% and 1.48% during 2007-09 in the

post-merger period.

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Table 3 indicates that Shareholders‘ equity to total assets and shareholders‘ equity to total

customers‘ deposits ratio increased in the post-merger period. Shareholders‘ equity to

total assets increased by 11.5% and 1.48% in 2007 & 08 but decreased by 2.24% in 2009.

Shareholders‘ equity to total customers‘ deposits increased by 7.79%, 16.02% and 6.27%

during 2007-09 in the post-merger period.


T-Statistical Analysis for Habib Ag Zurich Bank and Metropolitan Bank Limited

Table 4 indicates an insignificant improvement in ROA and ROE with p-values of 0.778

and 0.338 respectively at significance level of 0.05 during the post-merger period over

the pre-merger years with standard deviation of 0.502 and 6.45 respectively for Habib

Metropolitan Bank. The average of ROA and ROE are decreased by 0.093% and 4.65%

respectively. But values of Shareholder‘s equity to total assets and shareholders‘ equity to

total deposits are indicating the significant impact with p-values 0.059 and 0.01

respectively during the post-merger period over the pre-merger years with standard

deviation of 0.485 and 0.038 respectively. The average of shareholders‘ equity to total

assets increased by 2.25% and the value of shareholders‘ equity to total deposits

decreased by 1.1% at significance level of 0.05% during the post-merger years. Total

liabilities to total assets also showed significant improvement with p-value 0.059 at

significance level of 0.05. The average of total liabilities to total asset decreased by 1.1%

which is indicating a positive impact.


T-Statistical Analysis for Picic, Picic Commercial Bank and Nib

Table 5 indicates an insignificant improvement in ROA and ROE with p-values of 0.297

and 0.208 respectively at significance level of 0.05 during the post-merger period over

the pre-merger years with standard deviation of 2.41 and 11.14 respectively for NIB. The

average of ROA and ROE are decreased by 1.95% and11.81% respectively. But values of

Shareholder‘s equity to total assets and shareholders‘ equity to total deposits are

indicating the significant impact with p-values 0.009 and 0.084 respectively during the

post-merger period over the pre-merger years with standard deviation of 1.72 and 10.46

respectively. The average of shareholders‘ equity to total assets increased by 10.71% and

the value of shareholders‘ equity to total deposits increased by 19.5% at significance

level of 0.05% during the post-merger years. Total liabilities to total assets also showed

significant improvement with p-value 0.008 at significance level of 0.05. The average of

total liabilities to total asset decreased by 10.72% which is indicating a positive impact.


Conclusion:

The study was conducted to evaluate the impact of merger and acquisition activity on the

financial performance of the banks on the basis of the results of three indicators of

financial health i.e., Profitability, Long-term Solvency and Capital Adequacy ratios. The

results of the study showed that ROA and ROE of HMB did not indicate significant

improvement but on average it can be concluded that overall performance of the bank

improves as a result of M&A activity because 3 out of 5 ratios i.e., shareholders‘ equity

to total assets, shareholders‘ equity to total customers‘ deposits and total liabilities to total

assets, are indicating significant improvement to overall financial performance. Similarly,

the results of the acquisition activity of PICIC, PICIC Commercial Bank and National

Investment Bank also indicates the same results that ROA and ROE decreased but

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shareholders‘ equity to total assets, shareholders‘ equity to total customers‘ deposits and

total liabilities to total assets showed significant improvement during post-merger period.

On average financial performance of NIB and HMB improved as a result of M&A

activity, so it could be recommended as a useful financial strategy in order to improve

their financial performance by achieving economies of scale, competitiveness and

increased market share. However, decreasing trend of ROA and ROE could be the result

of management‘s inability in generating net income from total assets or total equity. So,

while acquiring/merging, organizations must keep in mind the effects on Human

Resource which is the most valuable asset of the organization.

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References:

Khawaja et al, (2007). "Determinants of Interest Spread in Pakistan." The Pakistan

Development Review 46:2, 129-43.

Jaffry et al,(2005). "Regulatory Changes and Productivity of the Banking Sector in the

Indian Sub-continent." The Pakistan Development Review 44:4,1021-047.

Khawaja et al, 2006. "Banking: Interest Spread, Inelastic Deposit Supply and Mergers."

The Pakistan Development Review 45:4,1055-070.

Ahmad & Shabbir,( 2004). "Impact of Deregulation on Productivity and Efficiency: An

Empirical Evidence from Comercial Banks Of Pakistan."

Burki et al,(2008).‖Corporate Governance Changes in Pakistan‘s Banking Sector: Is

There a Performance Effect?".

Din & Musleh Ud. "Banking: Interest Spread, Inelastic Deposit Supply and Mergers‖

Kaur et al(2010). "Impact of Mergers on the Cost Efficiency of Indian Commercial

Bank." Eurasian Journal of Business and Economics 27-50.

Obaid et al,(2010). "Post-merger Performance of Atlas Investment and Al-Faysal

Investment Bank Ltd. in Pakistan." International Research Journal of Finance

and Economics 60, 1450-2887.

Collins et al,(2001) 'Sectoral Differences in English Bank Asset Structures and the

Impact of Mergers, 1860-1913', Business History, 43: 4, 1 — 28

Méon et al,(2005)‖Can mergers in Europe help banks hedge against macroeconomic

risk?', Applied Financial Economics, 15: 5, 315 — 326

Akhigbe et al,(2004) 'Bank acquisitions of security firms: the early evidence',Applied

Financial Economics, 14: 7, 485 — 496

Berg, S.A., and M. Kim (1994) 'Oligopolistic interdependence and the structure of pro-

duction in banking: an empirical evaluation.' Journal of Money, Credit, and

Banking 26, 309-22

Berger, A.N., and L.J. Mester (1997) 'Inside the black box: what explains differences in

the efficiencies of financial institutions?' Journal of Banking and Finance 21, 895-

947

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Annexure

Figure 01: THEORETICAL FRAMEWORK:

Independent Variables:

Financial Performance

Profitability

Capital Adequacy

Solvency

Dependent Variable:

Mergers & Acquisitions

Table-1: Profitability Ratios (Return on Assets & Return on Equity)

Banks Habib Bank AG Zurich and

Metropolitan Bank Limited (HMB)

National Investment Bank And PICIC &

PICIC Commercial bank Limited

ROA % ROE % ROA % ROE %

Pre-

Merger

Post-

Merger

Pre-

Merger

Post-

Merger

Pre-

Merger

Post-

Merger

Pre-

Merger

Post-

Merger

1.29

2.04

1.84

1.74

1.85

1.30

20.21

30.55

25.46

22.94

23.09

16.24

0.97

0.43

0.30

-0.31

-4.20

0.36

9.35

3.72

2.76

-1.71

-19.59

1.70

Average 1.72 1.63 25.41 20.75 0.57 (1.39) 5.28 (6.54)

Mergers &

Acquisitions Financial

Performance

Profitabilit

y Capital

Adequacy

Solvency

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Table-2: Solvency Ratio (Total Liabilities to Total assets)





Total Liabilities to Total Assets Total Liabilities to Total Assets

Pre-Merger

Post-Merger

Pre-Merger

Post-Merger

93.72

92.97

92.69

92.18

91.79

92.11

91.77

86.85

90.69

79.29

77.81

80.05

Average

93.13

92.02

89.76

79.05

Table-3: Capital Adequacy Ratios (shareholders‘ equity to Total Assets and

Shareholders‘ equity to Total customers‘ deposits)





Shareholder‘s

Equity/T.Assets

Shareholder‘s

Equity/T. Deposits

Shareholder‘s

Equity/T.Assets

Shareholder‘s

Equity/T.Deposits

Pre-

Merger

Post-

Merge

r

Pre-

Merger

Post-

Merger

Pre-

Merger

Post-

Merger

Pre-

Merger

Post-

Merger

6.28

7.03

7.31

7.82

8.21

7.89

8.77

9.86

10.6

11.16

11.68

13.15

8.24

13.16

9.32

20.72

22.19

19.95

12.80

18.67

14.15

21.94

37.96

44.22

Average 6.87 7.98 9.75 12.00 10.24 20.95 15.21 34.71

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Table 4: t-statistical Analysis for HABIB AG Zurich Bank and Metropolitan Bank

Limited

Pre-Merger Post-Merger Paired t-test of HMB

Serial

No.

Ratios Pre-

Mean

Post-

Mean

Mean

Difference

Standard

Deviation

t-

value

p-

value

Result

01

02

03

04

05

Return on

assets

Return on

Equity

Shareholder

equity to

total

assets

Shareholder

equity to

total

customers

deposits

Total

liabilities

to total

assets

1.7233

25.406

7

6.8733

9.7433

93.126

7

1.63

20.756

7

7.9733

11.996

7

92.026

7

.09333

4.65000

-1.10000

-2.25333

1.10000

.50203

6.45157

.48497

.38371

.48497

.322

1.248

-3.929

-10.17

3.929

.778

.338

.059

.010

.059

Insignifica

nt

Insignifica

nt

Significant

Significant

Significant

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Table 5: t-statistical Analysis for PICIC, PICIC Commercial Bank and NIB

Pre-Merger Post-Merger Paired t-test of NIB

Serial

No.

Ratios Pre-

Mean

Post-

Mean

Mean

Difference

Standard

Deviation

t-

value

p-

value

Result

01

02

03

04

05

Return on

assets

Return on

Equity

Shareholder

equity to

total

assets

Shareholder

equity to

total

customers

deposits

Total

liabilities

to total

assets

.5667

5.2767

10.2400

15.2067

89.7700

-1.383

-6.533

20.9533

34.7067

79.0500

-1.95000

-11.81000

10.7133

19.5000

-10.72000

2.41572

11.14394

1.72651

10.46658

1.72139

1.398

1.836

-10.74

-3.227

10.786

.297

.208

.009

.084

.008

Insignificant

Insignificant

significant

significant

significant

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Relationship Between Population Changes And Poverty:

Evidence From Dera Ismail Khan Khyber Pakhtunkhwa(Pakistan)

Muhammad Nadeem

Instructor Regional Institute of Teachers Education D.I.Khan.

Shehla Sheikh

Lecturer Institute of Education & Research Gomal University D.I.Khan

Allah Noor Khan

Asstt.Prof. Institute of Education & Research Gomal University D.I.Khan

Fehmida Bibi

Lecturer Institute of Education & Research Gomal University D.I.Khan

Abstract

In this research paper, it is presumed that population dynamics and growth are of the major causes of distressing increasing poverty. We examined the scenario in Pakistan where population has been growing unbridled alarming based on evidence from D.I.Khan (KPK).We examined the hypotheses using Engel‘s law of expenditure that poor family devotes a major share of income to food consumption because keeping body and small together is the raisin deters of their lives. We estimated two models, Model One regressed food expenditure on per income. Model TWO shows the relationship between non food expenditure and per capita income was determined. Model 1 shows a negative and significant relationship between food consumption and per capita income. Implying expenditure devoted to food declines as income rises. Model 2 shows the opposite and significant relationship between non-food expenditure and per capita income. Both the models support Engel‘s law of expenditure that is an important determinant of economic status of a family. In Pakistan cultural and religious factors subsumed in belief of birth control practices are the most crucial determinants of population growth and many studies have supported the same that family planning has not been a successful in Pakistan.(Afzal 2009). The study recommends that population growth and dynamics are mainly responsible for poverty increase

Key words: Population, Poverty, Food items, Non food items, Engel‘s law,

1. Introduction

Since its founding Pakistan has exhibited a continuously high rate of population growth. When measured by population size it has moved from the thirteenth largest country in 1950 to the seventh largest country in 1996. Toady Pakistan exhibits the highest rate of growth among the world‘s largest countries, and according to some projections will become the third most populated country in the world by the year 2050 (United Nations 1998). Given the country‘s present resources, this magnitude of population growth has serious implication for the social and economic well-being of the people of Pakistan.

Population projection issued in 2000 reveals increase of population from 6.1 billion in 2000 to 7.9 billion in 2025 and 9.3 billion in 2050. The highest projection for 2025 is 8.4 billion and lowest is 7.5 billion. The average mortality rate will decline from 1990 level of 26 per 1000 to 22 per 1000 at the closure of the century and 17.6 per 1000 in 2025. The average of life expectancy is projected to rise from 65 years in 1990 to 349 million in

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2025 and 420 million in 2050. After that the growth would halt and be virtually zero. The UN expectations for less developed countries are to have steadily falling rates of growth rate in population from 1990, growth rate of 2% per year projected to be cut to half by 2025 (Microsoft Encarta 2009).

Population growth in Pakistan continued to rise since 1940s due to reduction in mortality rate and persistent high birth rate. The population of the country was nearly 33 million in 1947 and it registered sharp increase to about 16 million to date. It is an over five times increase since independence. Pakistan is at 6

th position in the world and 3

rd biggest

contributor to world population growth with a young age structure and the large number of people, who are in the reproductive year. Pakistan has the potential to increase its growth rate rapidly in the near future despite substantial fall in the fertility rate.

This high growth is responsible for the decline in social and economic progress of the country during the past decades. The country is the ranked with the low income states with per capita income of $ 460. Its literacy is about 39% out of which 50 percent are male and 24 percent female in 1996-97. Child health and other social services are not up to the mark. Only a few women have access to trained health worker during pregnancy and child birth. Family planning services are restricted to only the quarter of the population. Pakistan‘s fertility rate is 5.4 which are considerably higher than any other large Asian country poor progress in population planning programmer and in other social sectors has pushed Pakistan for behind many Asian countries on the basic health and education indicators. It is direly needed to improve population planning efforts and reduce the fertility rate for curtailing population pressure on country‘s physical and capital resources

(Ali and Zahid 1998).

The greatest challenge confronting the world to day is of pervasive poverty. The start of 21

st century witnessed one-fifth of humanity living much bellow the poverty line i-e $1 a

day. 2.7 billion People were maintaining their existence on less than $2 a day. This is more than half of the developing world. Figure 63% of poverty world wide is the rural one. More than 900 million people out of 1.2 billion live in rural areas, of which 90% belong to Asia and pacific (World Bank 2004).The rural poor faced more problematic situation in terms of personal consumption, education, health, drinking, water, transport, housing, sanitation etc than those faced by urban poor (IFAD-2002).

Pakistan is confronting major issues of poverty and income disparity among the various segments of society. Pakistan has scored high economic growth over the last three decades accompanied with increasing poverty level as in 1960s. It has recorded low economic growth while witnessing reduction in poverty level as 1970s. Similarly as in 1980s, period of high economic growth level led to decline in poverty, where as poverty level, were observed increasing in 1990s with the period of low economic growth. During 1980s, the growth rate declined from 61% to 4.2% during 1990s (Amjad 2004).

Poverty cannot be defined in clear terms. Some people put the blame on inadequate sources on the global level. Land, food and building materials are necessary for the survival and prosperity of the people. Uneven distributions of these sources are the major cause of poverty on the international and as well as regional level. It is due to this fact that some people have much more then they need to live, while many others don‘t have so much as to provide for their day‘s two meals.

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Some causes are basic such as suggested by the experts that the world has too many people, very few jobs and much less to feed on. These basic causes can not be uprooted with ease. Causes and effects of poverty are inseparable. In most of the cases the primary factors leading to poverty are (Microsoft Encarta 2009):

(1) Population explosion.

(2) Unequal distribution of resources.

(3) Difficulty in maintenance of high standard.

(4) Lack of education & dearth of employment opportunities

(5) Environmental degradation

(6) Certain economic and demographic trend.

Poverty is the outcome of the many factors of which the prominent is the lack of education. Education makes a person soundly and with ease. Uneducated person mostly remain unemployed, so mostly they suffer from poverty. Second cause is the feudalistic system which is more effective in the rural areas. The feudal have their own vested interest which urges policy makers keep the people poor and uneducated. The feudal suffer from superiority complex and want to maintain their dominance. Poverty of the general public and their lack of education help them.

Third cause of poverty is the high ratio of unemployment; Unemployment makes them poor the most of the educated and uneducated are poor due to unemployment, the greater ratio of unemployment greater would be the poverty. The greater would be the poverty. Our educational system lays stress on the general education and not technical skill, hence defective which leads to unemployment and indirectly to poverty. The people shirk manual labor and hard work, which is another cause of unemployment, leads to poverty.

In Pakistan, the main source of income depends on the agriculture; the government is not concentrating on industrial development. The industries are not being modernized and the new industries are not being set up. This lack of industries is the major cause of unemployment and hence the reason of poverty. The people are being deprived of the source of living and bound to remain on either meager allowance of the government: or on the charity of rich people. Due to lack of technical education and industrial development, even the skillful experts and technical hands have not proper facilities and opportunities to utilize and enhance their skills. Most of them are bound to perform menial job or to roam unemployed. This factor also increases poverty.

Poor law and order situation prevailing in our country is equally responsible for sharp increase in poverty. The people are hesitant to embark on the new enterprises and inverters are reluctant to invest their capital in the country. The foreigners shy away from the country which results in poverty. Most of the people face unemployment and hence poverty due to lack of investment.

Poverty is due to lack of education. Pakistan being poor country can not afford too many technical and professional colleges. There is dearth of school and colleges of international or even regional standard. The universities are very few and are mostly substandard. This paucity of sources of spreading education is spreading poverty in our country.

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1.1 Significance of Study

Studies done on poverty in developing countries including Pakistan have tended to be over-concerned in measuring and reporting the incidence and magnitude of poverty. With few exceptions, majority of these studies has not examined the major causes and workable remedy to alleviate poverty. Furthermore rapid and alarming population growth has retarded economic development in Pakistan because resources instead of being devoted to investment and output growth are devoured by the exploding population for consumption that has made the country desperately dependent on foreign finance whose negative impact on economic growth and development as well as political autonomy is self-evident (Afzal 2009).

We examine this relationship in D.I.Khan (KPK, Pakistan) and use Engel‘s law of expenditure that posits that poor families devote major expenditure on food. This law has been supported by numerous studies done on family budgets (Nicholson 1989). Therefore, empirical results based on the said law and the data obtained from families in D. I. Khan would provide an added measure of poverty and is expected to reveal a positive relationship between poverty and population growth which is the major premise of this study. Therefore this study has the following modest objectives:

1. To examinee the relationship between changes in population and poverty its in Khyber Pakhtunkhwa (Pakistan) based on evidence from D.I.Khan

2. Use Engel's law of expenditure to provide another measure of the incidence of Poverty.

Table 1

Year Population Growth Rural % Urban

1911 19.382 1.6 91.3 8.7

1921 21.109 0.9 90.3 9.7

1931 23.542 1.1 88.2 11.8

1951 33.74 1.8 82.2 17.8

1961 42.88 2.4 77.5 22.5

1972 65.309 3.7 74.6 25.4

1981 84.254 3.1 71.7 28.3

1992 115.54 2.6 79.60 35.79

2000 139.96 2.3 93.63 46.13

2004 152.53 101.5 52.41

Source: Afzal (2009b)

The table 1 shows that as on 2004, the total population of Pakistan was 15.25 corers, out of which 10.15 corers lived in rural areas and 5.24 corer in urban areas .During 2000-2004, the net addition of population in rural areas was 7.87 lac while in urban areas, it was 6.28 lac.

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Illiteracy and lack of education are common in poor countries governments of developing counties often can not afford to provide good public schools, especially in rural areas. With out education, most people can not find income generating work poor people also often forego schooling in order to concentrate on making a minimal living. In addition, developing countries tend to have few employment opportunities; especially for women as a result, people may see little reason to go to school.

Poor nutrition and physical health problems are due to little income or few resources as a result of poor nutrition and health problems. Infant mortality rate among the poor are higher than average, and life expectancies are lower than average. Infectious disease, mental illness and drug dependence show other effect of poverty. For instance, extended hunger and lack of employment may lead to depression, which may some times contribute to criminal behavior.


Nasim (1973) made an analysis of inequality prevalent in consumption of household and population for the year 1963-64, 1966-67 and 1971-72 on the basis of HIES data. The study proves that Gini-co-efficient of expenditure and income have marked an increase in the inequalities for the year 1971-72. Naseem‘s effort was the step in the right direction but there are many discrepancies in the estimation procedure which made change but trend of inequality in the country was that specific period. He estimated inequality at the country level but his data does not represent all the provinces properly. He ignored all other measure of inequality and dependent only on Gini co-efficient. Moreover the data of those years was inconsistent.

Mahmood (1978) concentrated on the methodological issues involved in the estimation of poverty and income inequities. Estimation of Gini-Co-efficient of income or expenditure for household or population is meaningless because the share in total income or expenditure of both arranged by per capita income could not be determined. His analysis was a direct correlation between household income and size of the household that has an inverse correlation between per capita income and size of household. He reached at conclusion that Gini-co-efficient judged on the standard of household would be higher than that estimated on the basis of population.

Kurck and Leewan (1985) examined the incidence of poverty and inequality in Pakistan during the 1970s by using decomposition techniques. The study used the theil co-efficient, the Gini co-efficient, the co-efficient of variation and standard deviation of logs of income for the measurement of income inequality. Further, the theil co-efficient was decomposed into various factors. The analysis showed that inequality had increased both in Urban and in rural areas in Pakistan during 1969-70 and 1979 and that according to all indicators, inequality had increased both in urban and in rural areas in Pakistan during 1969-70 and 1979 and that according to all indicators, inequality was higher in urban areas than in rural areas. They concluded that poverty decreased by about 50 percent not only the percentage of household below the poverty line decreased by 34 percent but also the average income of remaining poor also went up. Surprisingly, decline in poverty in this period was also accompanied with in income inequality. The study also observed that those remittances transmitted migrant worker to their household have a profound impact on income inequality because it was not spread evenly among household.

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Ahmed and Ludlow (1989) gave their own estimate of inequality for income and expenditure for household using co-efficient of variation. Logarithmic variance, Gini-Co-efficient, Atkinson indices and the Lorenz Curves for 1979 and 1984-85. The study pointed out that only a little change in income and inequality has occurred during 1979 and 1984-85. The estimate of co-efficient of variation revealed in the presence of very high income of rural areas of NWFP, Balochistan and Sindh provinces. The study observed after examination, Atkinson indices that there was sharp increase in its values in rural districts of Punjab over 1979 and 1984-85. These studies suggest a sharp difference between the districts. this pattern support the idea that whether played an important role in the determination of changes in inequality in the rain fed regions than in the irrigated heat land of the Punjab.

Ali et.al (1965) used the non-food consumption approach to determine the incidence of poverty, severity of poverty by using HIES data. It was observed that food consumption share is generally found to be increasing function of real income.

Similarly other researchers used different methodologies for setting poverty threshold, fixing poverty lines, national poverty line, relative, absolute poverty lines fixing poverty band to measure the magnitude of poverty only.

However, this study concentrates on the relationship between population and poverty. I have used primary date collected through a well designed questionnaire by taking the sample size of 800 households. The data is based on different variable to calculate the food and non-food expenditure and then finally developed the relation between population growth and poverty by using the Engle‘s law

2.1 Engel‘s Law

Every human being needs to take minimum amount of food even if he/she has to live below subsistence level. Food composition and intake by a person is also affected by many other factors such a household size, people preference and tastes, mainly due to difference in religion, seasons, location etc, however income plays major role in determining the type and quantity of consuming food commodities. Generally for poor persons expenditure on food requires a large share of income. For middle class and rich people more money is spend on personal services and other non-food items. Engle‘s law states that the proportion of total expenditure devoted to food declines as income rises suggesting that food is a necessity whose consumption rises less rapidly than does income. This hypothesis has come to be known as ―Engel‘s Law‖ .This has been supported by numerous studies not only within particular geographic area but also across countries and continents. Cross country evidence shows that individual on average in developing countries spend a large percentage of their income on food than do individual in the industrial economics.

Indeed Engel‘s law appear to be much a consistent empirical findings that some economists have suggested that the proportion of income spent on food might be useful indicator of poverty(Nicholson 1989).We therefore use Engel‘s law as an indicator of poverty. We can express it empirically as follows.

Let C be the total consumption or expenditure on food and non-food items, it is written as

C = C1 + C2 (1)

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Economic theory tells that consumption is a function of number of factors however disposable income appears to be the principal factor affecting consumption pattern of individuals and families. Food and non-food consumption function may be written assuming linear relationship between consumption and income; we concentrate on income, in order to apply Engel‘s law, beside non availability of accurate date. Another factors influencing consumption. Mathematically, we can write as

C1 = o+ 1y + µ1 (2)

C2 = o+ 1y + 2 (3)

Where C1 is food consumption and C2 is non-food consumption, Y is income, µ1 and 2

are error terms that satisfy the classical linear regression assumptions. The expected sign of the income coefficient is negative based on the assumption that as income increases the share of income devoted to food expenditure declines.

3. Results and Discussions

Based on the objectives of the study, we designed a Questionnaire given Primary data are colleted through a well designed questionnaire by taking sample of size 600 households. Different variables are used such as income per capita (Y) ,consumption on food items (C1),consumption on non-food items (C2).Using these variables ,we develop the relationship between population growth and poverty through Engel‘s law of expenditure.

Model 1 shows the relationship between food consumption and per capita income. In this model, co-efficient of income per month has negative sign which reveals that expenditure devoted to food declines as income rises.

3.1 Model –I C1=o+y+

C1=Expenditure on Food

Y= Income per month

ε = Error term

o, are the regression co-efficient

Variable Coefficients P-Value

(Constant) 1401.777 0.00

Income per month -0.363 0.00

C1 = 1401.777 - 0.363Y

(0.000) (0.000)

Note: figures in parentheses are P-values

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.Estimation results of model I show that the explanatory variable has the correct negative and is significant. This equation shows the marginal propensity to income per month is about -0.363, suggesting that expenditure devoted to food declines as income rises.

The intercept value of about 1401.777.It is often observed that intercept form may not make much economic sense. Therefore in practice, intercept term may not be very meaningful. Error term satisfies the classical regression assumptions.

Liner relationship in this situation is not exact because it is difficult or can not precisely determine the food expenditure. The values of food expenditure are reasonably assumed to include measurement of random error, therefore this model is called non-deterministic or probabilistic model. While P-value show that it is highly significant, means that food expenditure has great affect on income per month.

Model 2 tells the relationship between non-food expenditure and income per month. The results of model 2 show the opposite and significant relationship between non-food expenditure and per capita income.

3.2 Model-II C2 = β + β1Y +

Where

C2=Non Food Expenditure

Y= Income per month

= Error term

MODEL 2

C2 = β +β1 y +

Variable coefficients p-value

(Constant) 2934.993 0.014

Income per month 0.407 0.001

C2 = 2934.993 + 0.407y

(0.014) (0.001) figures in parentheses are P-values

We see that if income per month increases by 1 rupee, on average expenditure on non-food items goes up by about 0.41.If total income is zero, the average expenditure on non-food items would be about 2935 rupees. Such a mechanical interpretation of the intercept may not be meaningful. There is no exact linear relation ship, because there are so many factors which disturb the non-food expenditure, there fore it can not be measured accurately which causes random error. P-values shows that it is highly significant, which means that there is high impact of income per month on non-food expenditure

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4. Conclusion

Since independence, low mortality rate and consistently increasing birth rate have led to population growth in Pakistan. Now Pakistan is at 6

th position in the ranking of the most

populated countries of the world, while it is the 3rd

biggest youth contributor in the world. Most of people are in the reproductive years. (UNDP) (1991, 2000)

Number of factors is responsible for the population growth that geography, size, climate, and colonial heritage make its intensity vary from country to country in the developing world. The population growth rate is represented by the number of dependent children. Marriageable adults and their educational level, cultural and religious factors can not be ignored.

In this study we presumed that population growth and dynamics are mainly responsible for poverty increase; particularly, we have examined it in the Pakistan scenario where population growth is unbridled and poverty is plummeting alarmingly as is evident population pressure in Dera Ismail Khan (KPK).

Engel‘s law of expenditure is considered as a standard because it deals with the proportion of income spent on food which is a useful poverty indicator. According to this law expenditure on food declines with the rise in income.

Consumption is due to many factors of which disposable income is the principal one. There is linear relationship between consumption and income depending on food and non-food items. However our concentration is an income. Engel‘s law maintains that poor family consumes more income on the food items; there is always negative and significant relationship between consumption and per capita income. It implies that expenditure on food declines with income rise.

Significantly contrasting relationship between non-food expenditure and per capita income are pointed out through the empirical results of model two. It shows per capita income, educational level, number of married people and beliefs in birth control determine the population growth; other variables except income are negative sign. My study pin point the factor that income co-efficient is negative ,its means that there are several factors which affect the per capita income of an individual but income is the primary one, which according to Engel‘s law should spent on the food.

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References

Afzal, M (2009a), Population Growth and Economic Development in Pakistan, Open Demography journal, 2, 1-7.

Afzal (2009b) Population Dynamics and Poverty Scenario in Pakistan challenges ahead, paper submitted to journal of social science, Pakistan

Ahmad Ethisam and Stephan Ludlow (1984), poverty, inequality and Growth in Pakistan, The Pakistan Development Review, 28(4), 831-856.

Amjad, R, and M.Irfan (2004), Poverty in Rural Pakistan. Impact of Return Migration on Domestic Employment in Pak.

Ali, Salman Syed and s. Zahid (1998), Dynamics of Growth, Poverty and inequality in Pakistan, the Pakistan Development Review, 34(4), 837-858.

IFAD (2002), ―Statistical inference and decomposable poverty measures‖ Bulletin of Economic Research, 47 (4): 329 – 340.

Kruijk . Han de and Myrena Leeuwan (1985), Changes in Poverty and Income Inequality In Pakistan during the 1970s, The Pakistan Development Review, 24(3 ) 407-419

Microsoft Encarta program (2009).

Naseem, S. M (1973) Underdevelopment, Poverty and Inequality in Pakistan Islamabad:

Nicholson, Walter (1989) ; Microeconomic theory. Basic principles and extension, the Dryden press

Retrieved from http://www.creativechange.com/ dated April,2009...

Shaikh and Tallat Mehmood (1991), Food poverty and its Causes in Pakistan, the Pakistan Development Review, 30(4), 821-834Development Report.

United Nation Development Program (UNDP) (1998) Human Development Report.

http://www.creativechange.com/

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MAY 2011

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DOES LEARNING OF SCIENCE EDUCATION AT SCHOOL LEVEL

MATTERS?

Dr. Saeed-ul-Hasan Chishti

Assistant Professor

International Islamic University, Islamabad (Pakistan)

Shaheen Ashraf Tahirkheli

Research Associate, Faculty of Education

Allama Iqbal Open University, Islamabad (Pakistan)

Ijaz Mehmood

Lecturer (Education)

Islamia University, Bahawal Pur (Bahawa Nagar Campus)

Shahinshah Babar Khan

Pakistan Atomic Energy Commission Model College, Islamabad (Pakistan)

Abstract

In Pakistan, secondary level is the terminal stage for majority of the students. It is

considered that science education at secondary level is more important for students.

Parents think that there are more job opportunities for those students who have passed

matriculation with science group. The present study tries to find out the importance of

learning science education at secondary level. The sample for the study was the

secondary teachers who are teaching science subjects. A questionnaire was developed on

five point likert scale and each statement was checked by using chi-square. It is found

that science education is more appropriate for the present technological era. Science

education helps in understanding the relationship between common occurrences and rules

behind them.

Keywords: LEARNING , SCIENCE EDUCATION , SCHOOL LEVEL

Introduction

Science has changed the face of the world. The things which were unbelievable in the

past are occurring now. When science started its blooming, people were stunned about its

inventions, and even for a long time they deny the miracles of science. Science proved

its worth in a systemic way and provides answers with logics. Presently, Science brings

the whole world on the palm and can take a man from one corner of the world to the

other corner of the world. It is science that changed old beliefs of life which were

considered as pillars and people follow them blindly. Science differentiates between right

and wrong and provides such tools that are helping mankind in judging each and every

aspect of life and in making decisions on the acquired results.

With a single click, one can search anything from any corner of the world. Now a day,

from a high qualified person to a lay man, all depends on inventions of science with a

belief that these machines will help them in making right decisions. In Pakistan, at

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secondary level, two major streams named humanities group and science group are

offered and majority of the students want to join science group. All most all schools try to

draw some criteria for science group so that only those students may join science group

who have ability and aptitude to science subjects.

Parents also believe that learning of science education helps in understanding the real

life problems and provide solutions to these problems. In Pakistan, due to different

reasons, majority of the students left education after secondary level and join practical

fields to be an earning hand for family.

Trend towards science education is increasing day by day. Peoples believe that only

science education can secure the future of their young children. In Pakistan, it is also a

misconception that a science student even with low marks is better than a student of

humanities. Parents feel that there are more job opportunities for science students and

science education works as a key to open the window to jobs. Rehman and Choudhary

(1998, p. 296) believe that a career in science provides an opportunity of experiencing all

the excitement which is inherent in trying to extend the frontiers of knowledge.

Literature Review

European Commission (2007) defined Science as:

Science, in the broadest sense, refers to any system of knowledge which attempts

to model objective reality. In a more restricted sense, science refers to a system of

acquiring knowledge based on the scientific method, as well as to the organized

body of knowledge gained through such research. In the context of this report the

choice was made to use the word ―science‖ to refer more precisely to all of

physical sciences, life sciences, computer science and technology, and for the

purposes of this report includes mathematics – subjects that are commonly taught

at primary and secondary schools in most European countries. (p. 6)

One can see the miracles of science everywhere in the world. Science is providing

services in all fields of life. To what extent learning of science at school level is

important? Should all the students must learn science at school level? It is very important

question. Obviously, the answer will be ―no‖ because other subjects are important too.

The Association of Science Education (n. d) claims that

Science is unique among school subjects in that its curriculum aims to create

future scientists rather than the future citizen. This produces a foundation

curriculum whose coherence only becomes clear for those who stay the distance

and with it the value and meaning of the subject. (p. 7)

For a balance society, where doctors, engineers and scientists are at heart of the society,

social scientists have their own role in the society. National Educational policy (1992, p.

39) describes that science and technology are not ‗value neutral‘. In fact, science and

technology serve to bring about changes in institutions, and individuals life styles; they

generate strains for our values and belief systems.

In Pakistan, the participation rate at secondary level is 31 %, out of 31 %, only 30-40 %

complete this level education (National Education Policy 1998-2010), these figures show

that for majority of the students, this stage is the terminal stage. National Education

policy (2009) narrates that:

Secondary and higher secondary school system prepares young people for life. It

has two important roles in this respect-providing skills to the labour market, as

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many students leave formal schooling at this time and providing input to the

tertiary system, for those who go on to this level of leaning. (p. 37)

National Education policy (2009) criticizes the present educational system and

documented that the system does not provide an adequate base for both these functions.

At secondary level, students are offered two streams of subjects named science group and

humanities. For each group, there are some specific subjects which are taught, there is no

option for students to choose subject of their own choice.

National Education Policy (1998-2010, p. 42) states that the scheme of studies at the

Secondary School Certificate (SSC)/ Higher Secondary School Certificate (HSSC) level

will be replaced by a flexible system where a student would be free to choose any subject

from a comprehensive list of subjects required. Isani and Virk (2005, p.180) highlighted

that the problem with pre university education system in Pakistan is that it leads to very

early specialization from Grade 8 onward and segregates the students into Arts and

Science groups.

After passing Grade 8, students found themselves at a cross road. There are two options

for them, Humanities group or Science Group. Majority of the Parents have urged that

their child must join science group with thinking that there are more opportunities with

science. Some people believe that this is the technological era so only science is the key

to success. There are many technical positions which need basic knowledge of science

subjects. Rehman and Choudhary (1998, p.296) documented that it is necessary to

introduce demanding entrance examinations which test the intelligence, aptitude and

ability of the prospective candidates before admission into scientific fields is allowed.

Objectives of the Study

The objectives of the study were to find:

The reasons for opting science education at secondary level.

The importance of learning science at secondary level.

Research Questions

The present study addresses the following two questions.

Is Science Education more appropriate and for the needs of the present time?

Is Science Education more job oriented?

Is Science Education helps at work places?

Method

Sample

The sample for the study was 125 secondary teachers (50 % male and 50 % female) from

Bahawal Pur and Rawal Pindi Divisions, who are teaching science, subjects

(Mathematics, Physics, Chemistry and Biology) to secondary classes. The reason for

selecting these divisions was that two of the researchers were from Bahawal Pur Division

and two researchers were from Rawal Pindi Division. Convenient sample technique was

used for selecting sample for the study.

Instrument

A questionnaire consisting 10 items, was developed on five point likert scale (Strongly

Agree= SA, Agree= A, Uncertain= UNC, Disagree= DA, Strongly Disagree= SDA), for

knowing the opinion of science teachers about importance of science education at school

level. The researchers personally delivered the questionnaire to the sample teachers. Out

of 125 sample teachers, 98 questionnaires were returned. The response rate was 78 %.

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Chi-square technique was used for calculating the trend of the respondents towards

agreement or disagreement.

Results

Each statement of the questionnaire was checked by applying χ2

technique.

Sr # Statement SA A UNC DA SDA χ2

1 Science Education develops the

habits of logical thinking.

23 70 2 2 1 179.45

2 Science Education is more

appropriate in the present

technological era.

41 32 15 6 4 54.14

3 Science Education prepares

students for working in

challenging environments.

22 65 1 7 3 145.27

4 Science Education at secondary

level is helpful for further

learning.

19 55 5 12 7 85.88

5 Science Education prepares

students for seeing the

relationship between common

occurrences and underlying

reasons.

25 69 1 2 1 177.10

6 Science Education raises

students‘ understanding of

universal laws and patterns in

them.

25 37 19 12 5 30.78

7 Science Education produces

constructivism-inquiry approach

among the students.

27 49 4 15 3 74.45

8 Science Education produces

constructivism-inquiry approach

among the students.

12 62 16 6 2 120.57

9

Science Education answers to

problems systematically and

helps in decisions making.

5 74 8 10 1 191.08

10 Science Education offers more

job opportunities.

24 58 9 6 1 109.04

df=4 table value of χ2 = 9.488

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Discussion

The respondents of the study agreed that science education develops the habit of logical

thinking among the students. When students learn science, its laws and principles, they

want to see its application in the real life. For this, students think how these laws work?

The present age is known as technological age and for better survival in the present age it

is necessary one must have such skills which are need of the time. The respondents

confirm that science education is more appropriate in the present technological era, which

prepare the students for working in the challenging environment. Secondary level

education provides base foundation for the further learning. This is the stage that prepares

the students for higher level learning. The respondents verify that Science Education

prepares students for seeing the relationship between common occurrences and

underlying reasons and science education enable the students to learn the patterns of

different phenomenon. It is science education that inculcates the habit of inquiry among

the students and the helps them in understanding the real life problems and solving these

problems. The respondents agreed that learning of science education offers more job

opportunities.

Findings

Science education develops the habit of logical thinking among the students.

Science education is more suitable for the present era and prepares the students

for working in the challenging environment.

Science Education helps for seeing the relationship between common occurrences

and underlying reasons.

Science Education produces constructivism-inquiry approach among the students

and helps them in solving real life problems.

Learning of Science Education offers more job opportunities in different fields.

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References

The Association of Science Education (n.d). Science Education in Schools: Issues,

evidence and proposals. London: Economic and Social Research Council.

European Commission (2007). Science Education now: A renewed Pedagogy for the

future of Europe. Brussels: Directorate-General for Research.

Government of Pakistan (1992). National Educational policy (1992). Islamabad: Ministry

of Education.

Government of Pakistan (2009). National Education policy (2009). Islamabad: Ministry

of Education.

Rehman , A & Choudhary, I (1998). Scientific Education and Research. In Hoodbhoy, P

(Eds.)

Education and the State: Fifty Years of Pakistan. Karachi: Oxford University Press

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MAY 2011

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CORPORATE SOCIAL RESPONSIBILITY IN PAKISTAN

Shahid Jan

PhD Scholar, Qurtuba University of Science and IT, Peshawar

Qadar Bakhsh Baloch

Assistant Professor, Islamia College University, Peshawar

Abstract

Corporate Social Responsibility (CSR) has become a buzz word that fundamentally

represents a philosophy about the relationship of business and society over time. The

roots of the contemporary idea of corporate social responsibility can be traced back to the

charity principle and stewardship principle. The charity principle requires that ‗have

nots‘ shall be assisted by the ‗have‘ directly or indirectly by the churches and community

social groups. On the other hand, the stewardship principle asks businesses to act as

steward or caretakers of the society. The concept, today, encompasses a wide range of

CSR initiatives including moral and ethical concerns, good governance, socially

responsible investments and inventions, ensuring well being of the society including

environment, care and respect for human rights and affirmative action to law so as to

legitimize their work processes.

Keywords: Corporate Social Responsibility , Pakistan

Introduction

The underlying rational behind the concept of CSR is that, since the business rely on the

society to operate and could not exist or prosper in isolation therefore in recognition of

dependence the business is obliged for rendering mutual benefits to the community as

well. CSR is a value added decision making process of identifying and meeting the needs

and welfare based obligations of the internal and external (direct& indirect) stake holders.

This decision making process of the firm includes not only legal, or economic, social,

ethical, or environmental concerns but also socio-moral concerns of all the stakeholders

and the society on which they are inter dependent. In other words CSR is much more

holistic (but discretionary) perspective that enhances corporate success of the business.

Since the approach is discretionary or voluntary engagement, therefore its company‘s

choice to select the scope or areas of activities to be included in its CSR strategies and its

obligations towards its stake holders are mostly as follows:

Respecting, conforming and promoting Socio-Cultural norms,

and values

Preservation and protection of socio- geographic environment of

the society around which the business operates.

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Protracted and sustainable use of resources without disturbing the

natural –environmental ecology

Good governance and transparency in managerial practices

cements and maintains mutual trust and confidence amongst

managers, other stakeholders and general public.

Ethic driven business practices and cause-related marketing

Sharing government responsibility of people welfare with

community centered policies/ activities.

A glance over the performance of few of the companies operationally

endowed with the policies of CSR reveals that they have not only

improved their stakeholder relationship and investors confidence rather, it

has earned employees loyalties thereby improving internal coordination,

cutting operating costs, and improving compliance. Ensuing debate and

discussion in view one can say that the concept of CSR has acquired such

significance that today it is strategically driven, operationally designed and

tactically practiced in global business environment. The definition of CSR

has been changing with the changing socio- business operating

environment:

According to Bradshaw(1981) fundamental task of any corporate

management is to ensure that the firm holds ability and capacity to

satisfy customer‘s needs by maintaining continuous supply of

quality goods lowest possible cost. And this is only possible

through efficient and sustainable use of resources.

The business concept shall have an overall socially responsible

conduct and contribute positively towards the well being of the

society it traverses.

Incorporation and integration of socio-environmental concerns in

to their commercial undertakings with the aim of strengthening

better relationship with different stakeholders of the business

concern.109

According to Kilcullen & Kolstra (1999) CSR represents a state of

corporate behavior that is influenced by ethical and moral concerns

beyond affirmative action.

According to Lord Holme CSR is the behavioral response of any

business that also besides the attainment of its economic goals also

contribute towards improvement the quality of life at the

workplace, benefits local communities and the society in its totality

(Kazim, 2010).

109

. Definition by the European Commission

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Building upon the ensuing debate and discussion on the parameters of CSR the

research offers a new definition that encompasses all aspects referred so far:

The concept of CSR entails unilaterally and voluntarily adoption of socio-

environmental policies of good governance that accommodate socio-

moral and ethical concerns.

Ansoff Igor (1979) explored the role of strategic management of complex organizations

in turbulent environment. His strategic paradigm proposed that financial performance of

a firm is optimized when the aggressiveness and management responsiveness of the firm

both match the turbulence in the firm‘s environment (Ansoff 1979). He identified

different environment in which a firm operates in to five distinct turbulence level from

one extreme of total stability to the other rapidly changing. In other words Ansoff

describes a formula for strategic success that aligning of strategic behavior with the

firm‘s environment optimizes firm‘s profitability.

The work of Ansoff was further expanded by R Freeman (1984) in his ground breaking

work Strategic management: A stakeholder approach that established relationship

between the business and society. The Freeman theory stressess upon the ethics and

moral values in managing any organization and lists down a set of social responsibilities

for a business to succeed.

Freeman (2004) contends that managers to be clear about how they want to do business,

and the relationships with their stakeholders.

Freeman et al (2004) in ‗stakeholders theory: the corporate objective revisited‘ gives

following arguments in explaining primacy of creating and maximizing value for

stakeholders suggest:

Pro-stakeholder objective i.e. maximizing of profit.

Maximizing of profit shall deliver incentives for managers as well to reinforce

their behavior in future.

Limited number of objectives

Stakeholders shall have guaranteed legal and contractual arrangements to seek

protection in case of breach of trust or violation of instrument of cooperation.

Over the years there has been increasing interests amongst the businesses on the

concept of CSR on the ground that businesses are part of society and they have

obligations towards its welfare and wellbeing as they survive because of it

((Jones, 1980; Kok et. al, 2001)

Purpose of Research: Foregoing background in view there is a dire need to

undertake a research investigation to unearth CSR practices of the pharmaceutical

industry in Pakistan with a view to formulate a proper response that is fully socially

driven and leading to the ultimate well being of the society. The research also intends to

recommend Pakistan based pharmaceutical industry a socially driven response that would

certainly help to acquire competitive edge over its competitors.

Statement of the Research Problem

The research study aimed at exploring and describing the level of knowledge, degree of

attitude and practices with regards to corporate social responsibilities and ethics being

practiced by the pharmaceutical industry in Pakistan.

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Methodology

Two functional managers from each firm were administered with questionnaire. Hence

the totals of 48 strategic managers, conveniently sampled out of the 24 sampled firms

were the respondents for this questionnaire. Keeping in view of the more relevance of the

queries of the CSR questionnaire, these functional managers included Human Resource

Managers and the Marketing managers.

The Population & the Sample Frame

Questionnaire sought response on the following areas:

Does the organization vision and mission call for the firm‘s obligation for

adherence of the corporate social responsibility?

Is there any ethical code exists that ensures equality at work place, and

non-discrimination of stakeholders including medical representatives?

Does the organization business/ corporate policies meets obligations of

social responsibility?

Does the firm keep some portion of the budget reserve for the research of

neglected disease such as; TB, malaria etc.

Does the organization reports social responsibility related contributions

and achievements or otherwise?

Does the organization structure cater for the performance of its social

responsibility related component of its business strategy?

Frequency and effectiveness of the clinical trials conducted and their

relevance to the national/ international quality /& safety standards.

Effect of production and marketing activities over community‘s socio-

cultural environment and protection of natural environmental settings.

Findings

Nature of Respondent: Strategic managers

No of Respondents: 48

Response Received: 38

Response Rate: 79.1

2 x Strategic

Managers of

sampled firms

24 - 48

strategic

managers

Simple

random and

convenience

method

48 strategic managers were

served

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ORGANIZATIONAL MISSION: State of the organizations‘ vision and/ mission

statements that stress for the adherence of the principles of corporate social responsibility

or otherwise:

Observed N Expected N Residual

Yes 30 19.0 11.0

No 8 19.0 -11.0

Total 38

-20

-10

0

10

20

30

40

Observed

N

Expected

N

Residual

Yes

No

Total

Test Statistics

Chi-Square(a) 12.737

df 1

Asymp. Sig. .000

0 Cells (.0%) have expected frequencies less than 5. The minimum expected cell

frequency is 19.

Existence of Ethics/ Moral Code: Does any ethical/ moral code exist in your company

that ensures equality of employees at work place and calls for non-discriminatory work

place?


Yes 36 19.0 17.0

No 2 19.0 -17.0

Total 38

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36

2

19

19

17

-17

0%

50%

100%


No

Yes

Test Statistics


df 1

Asymp. Sig. .000

a 0 cells (.0%) have expected frequencies less than 5. The minimum expected cell

frequency is 19.

ORGANIZATIONAL BUSINESS POLICIES:

Do the organizational corporate planning / strategies cater for meeting the

obligations of corporate social responsibility?


Yes 30 19.0 11.0

No 8 19.0 -11.0

Total 38

Yes

Yes

Yes

No

No

No

-20 -10 0 10 20 30 40

Observed N

Expected N

Residual

No

Yes

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Test Statistics


df 1

Asymp. Sig. .000

0 cells (.0%) have expected frequencies less than 5. The minimum expected cell

frequency is 19.

Does the company have a code of conduct for the procedures of the medical

representatives visiting doctors?


Yes 37 19.0 18.0

No 1 19.0 -18.0

Total 38

Test Statistics


df 1

Asymp. Sig. .000


frequency is 19.

Does the organization report on its contributions/ adherence of corporate social

responsibility?


Yes 29 19.0 10.0

No 9 19.0 -10.0

Total 38

0

50

100

Yes No Total

Residual

Expected N

Observed N

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-20

0

20

40

Yes 29 19 10

No 9 19 -10

Total 38 0 0

Observ Expecte Residua

Test Statistics


df 1

Asymp. Sig. .001


frequency is 19.

Organization Structure

Does the organization have a corporate social responsibility structure?


Yes 17 19.0 -2.0

No 21 19.0 2.0

Total 38

17

21

38

19

19

0

-2

2

0

0%

50%

100%


Total

No

Yes

Test Statistics

Chi-Square(a) .421

df 1

Asymp. Sig. .516


frequency is 19.

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Is the corporate social responsibility structure in line with the organizations‟ vision

or mission statement?


Yes 13 19.0 -6.0

No 25 19.0 6.0

Total 38

-10

0

10

20

30

40


Yes

No

Total

Test Statistics

Chi-Square(a) 3.789

df 1

Asymp. Sig. .052


frequency is 19.

Is the structure well placed/ established and functioning?


Yes 13 19.0 -6.0

No 25 19.0 6.0

Total 38

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13 2538

1919

0

-66

0

-10 0 10 20 30 40

Observed N

Expected N

Residual

Total

No

Yes

Test Statistics

Chi-Square(a) 3.789

df 1

Asymp. Sig. .052


frequency is 19.

Does the structure provide inbuilt review system to ensure continuity of its

effectiveness?


Yes 21 19.0 2.0

No 17 19.0 -2.0

Total 38

21 19

2

17 19

-2

38

0 00

5

10

15

20

25

30

35

40


No

Yes

Total

Test Statistics

Chi-Square(a) .421

df 1

Asymp. Sig. .516

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frequency is 19.

Did your company contact/ coordinate organizations representing marginalized/

disadvantageous groups while establishing your company‟s corporate social

responsibility?


Yes 25 19.0 6.0

No 13 19.0 -6.0

Total 38

-10

0

10

20

30

40

Yes No Total

Observed N

Expected N

Residual

Test Statistics

Chi-Square(a) 3.789

df 1

Asymp. Sig. .052


frequency is 19.

Action plans and procedure:

Does the organization‟s annual action plan creating a corporate social responsibility

structure?


Yes 18 19.0 -1.0

No 20 19.0 1.0

Total 38

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18 19

-1

20 19

1

38

0 0

-5

0

5

10

15

20

25

30

35

40


Yes

No

Total

Test Statistics

Chi-Square(a) .105

df 1

Asymp. Sig. .746


frequency is 19.

Do the function departments of the company also set their CSR targets with

reference to strategic plan?


Yes 20 12.7 7.3

No 14 12.7 1.3

Don‘t Know 4 12.7 -8.7

Total 38

20

12.7

7.3

14

12.7

1.3

4

12.7

-8.7

-10

0

10

20

30

40

Yes No Don’t

Know

Residual

Expected N

Observed N

Test Statistics


df 2

Asymp. Sig. .006

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frequency is 12.7.

How does the department monitor their performance against these targets?


Quarterly review 12 12.7 -.7

Annual review 16 12.7 3.3

Don‘t Know 10 12.7 -2.7

Total 38

-5

0

5

10

15

20

Observed

N

Expected

N

Residual

Quarterly review

Annual review

Don’t Know

Test Statistics

Chi-Square(a) 1.474

df 2

Asymp. Sig. .479


frequency is 12.7.

Does organization assign specific office / responsibility to plan, implement, monitor

and report actions on corporate social responsibility steps?


Yes 26 19.0 7.0

No 12 19.0 -7.0

Total 38

0

50

100

Total

No

Yes

Total 38 0 0

No 12 19 -7

Yes 26 19 7

Obser Expec Resid

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Test Statistics

Chi-Square(a) 5.158

df 1

Asymp. Sig. .023


frequency is 19.

Is there a proper training system in place in organization to train the management

and employees on corporate social responsibility issues?


Yes 24 12.7 11.3

No 10 12.7 -2.7

Don‘t Know 4 12.7 -8.7

Total 38

-20 0 20 40 60

Yes

No

Don’t

Know

Observed N

Expected N

Residual

Test Statistics


df 2

Asymp. Sig. .000


frequency is 12.7.

Does your company comply with the quota legislation for the enrolment of disabled

peoples?


Yes 28 12.7 15.3

No 7 12.7 -5.7

Don‘t Know 3 12.7 -9.7

Total 38

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2812.7 15.3

7

12.7

-5.7

312.7

-9.7

-100%

-50%

0%

50%

100%


Yes No Don’t Know

Test Statistics


df 2

Asymp. Sig. .000


frequency is 12.7.

Does your company comply with the quota legislation for the enrolment of local

peoples?


Yes 30 12.7 17.3

No 6 12.7 -6.7

Don‘t Know 2 12.7 -10.7

Total 38

-20

-10

0

10

20

30

Observed

N

Expected

N

Residual

Yes

No

Don’t Know

Test Statistics


df 2

Asymp. Sig. .000


frequency is 12.7.

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Does your company comply with the quota legislation for the enrolment of female?


Yes 30 19.0 11.0

No 8 19.0 -11.0

Total 38

-20

-10

0

10

20

30

40


Yes

No

Total

Test Statistics


df 1

Asymp. Sig. .000


frequency is 19.

Does your company have proper monitoring and evaluation system to forestall any

violation or discrimination at work?


Yes 28 19.0 9.0

No 10 19.0 -9.0

Total 38

-20

0

20

40

Observed

N

Expected NResidual

Yes

No

Total

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Test Statistics

Chi-Square(a) 8.526

df 1

Asymp. Sig. .004


frequency is 19.

Does your company, while choosing suppliers and distributor, favours those who

comply with affirmative action in managing diversity/ disadvantageous groups?


Yes 31 19.0 12.0

No 7 19.0 -12.0

Total 38

0

50

100


Total

No

Yes

Test Statistics


df 1

Asymp. Sig. .000


frequency is 19.

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Clinical Trials of New Medicines

Do you keep public inform about the all successful and unsuccessful clinical trials of

your company products?


Yes 33 12.7 20.3

No 3 12.7 -9.7

Don‘t know 2 12.7 -10.7

Total 38

-20

-10

0

10

20

30

40

Observed

N

Expected

N

Residual

Yes

No

Don’t know

Test Statistics


df 2

Asymp. Sig. .000


frequency is 12.7.

Do the clinical trials of your company conform to the national/ international

standards laid down in this regard?


Yes 33 12.7 20.3

No 3 12.7 -9.7

Don‘t know 2 12.7 -10.7

Total 38

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-20

-10

0

10

20

30

40

Observed

N

Expected

N

Residual

Yes

No

Don’t know

Test Statistics


df 2

Asymp. Sig. .000


frequency is 12.7.

Does your company publish post trial or post marketing research publicly?


Yes 26 19.0 7.0

No 12 19.0 -7.0

Total 38

-50 0 50 100

Observed N

Expected N

Residual

Yes

No

Total

Test Statistics

Chi-Square(a) 5.158

df 1

Asymp. Sig. .023


frequency is 19.

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Do you prefer to test your medicine only in areas where these medicines have their

potential use?


Yes 21 19.0 2.0

No 17 19.0 -2.0

Total 38

21 19

2

17 19

-2

38

0 00

5

10

15

20

25

30

35

40


No

Yes

Total

Test Statistics

Chi-Square(a) .421

df 1

Asymp. Sig. .516


frequency is 19.

Is your firm member of Global Compact?


Yes 13 19.0 -6.0

No 25 19.0 6.0

Total 38

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13 2538

1919

0

-66

0

-10 0 10 20 30 40

Observed N

Expected N

Residual

Total

No

Yes

Test Statistics

Chi-Square(a) 3.789

df 1

Asymp. Sig. .052


frequency is 19.

Conclusion

Findings related to the strategic dimensions of the CSR practices are derived from the

responses obtained from the strategic managers of the pharmaceuticals firms operating in

NWFP. The sample was comprised of total of 24 firms which included nine

multinationals and 15 national/ local firms. In each firm two strategic managers were

asked to response the questionnaire; however 38 out of 48 strategic managers responded

to our questionnaire thus making it 79.1 % in total.

79% of the respondents claimed that their firms hold mission or vision which

takes care of some sort CSR in some form or the other. However, these firms

having positive response include 100 % multi nationals and only 40% national/

local firms. Therefore, it was found that CSR does not carry significant

importance amongst local firms in comparison to multinational pharmaceutical

firms.

94.7% pharmacuitical companies in NWFP hold ethical/ or moral code in their

standard operating procedures to ensure non-discriminatory practices and equality

of employees at work place. However, the 6.6% local firms accepted that their

strategic planning process do not give any added value to ensure equality at work

place.

The analyses of the management response and contents analyses of the firm‘s

annual reports (available) reflected that around 21% pharmaceuticals firms are the

signatories of United Nations Global Compact. And these all signatories are from

multinationals and none from local firms. The results of the analyses points

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towards mismatch between firms mission/vision and strategic orientation on the

paper and their practical approach. The state is alarming indicator towards state of

CSR in Pakistan.

79% of the respondents claimed that their firms organizational corporate planning

/ strategies cater for the adherence of CSR obligations in some form or the other.

However, the these firms having positive response include 100 % multi nationals

and only 40% national/ local firms. Therefore, it was found that CSR does not

carry significant importance amongst local firms in comparison to multinational

pharmaceutical firms.

The research finds mismatch between the strategic planning / policies orientation

and the organizational structure because:

79% of the respondents (none amongst the local firms) claim that their firms

organizational corporate planning / strategies cater for the adherence of CSR

obligations in some form or the other. 98% companies have a code of conduct

outlining procedures of their medical representatives visiting doctors for the

promotion of drugs. Only 76% organizations report on their CSR

contributions.

Whereas, only 44% organizations have a corporate social responsibility

structure to plan, coordinate, execute or report their CSR strategies. And 34%

firms claim that their CSR structure in line with their organizations‘ vision or

mission statements whereas 64% confess that don‘t have any proper CSR

structure that could help translate CSR strategic orientation. 44% of the firms

don‘t have any inbuilt review system to ensure continuity of their CSR related

practices. The worst state of CSR can be interpreted from the fact that over

34% firms do not have any liaison with the organizations representing

marginalized/ disadvantageous groups and 19% even opely defy complying

with the government quota legislations for the enrolment of disabled peoples.

The research while analysing the corrosponding procedures and plans of the

respondent pharmacueticals firms finds that:

53 % organization‘s annual action plan were missing any CSR structure and

only 47% have mention of any form of CSR activity(s) in their annual plans.

The situation was found further worsened as the reserch dug in to functional

level. It was found that only 52% function departments of the companies

(having CSR at strategic orientation) set their CSR targets with reference to

strategic plan and 26% departments even don‘t monitor their performance

against their assigned CSR related targets. Around 32% firms do not have any

specific office / responsible to plan, implement, monitor and report actions on

corporate social responsibility steps and over 26% organization even don‘t

have any proper training system in place to train the management and

employees on CSR related issues.

Only 79% firms comply with the quota legislation for the enrolment of local

peoples and females. Whereas, 19% of the firms openly defy complying with

the government quota legislations even for the enrolment of disabled peoples.

In contrast to their comliance, 81.5% companies claim that while choosing

suppliers and distributors of their products they favours only those who

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comply with affirmative action in managing diversity/ disadvantageous

groups. Over 26% companies even don‘t have any proper monitoring and

evaluation system to forestall any violation or discrimination at work.

The research, while conducting the audit of firms‘ standard operating

procedures followed during the clinical trials of new medicines, finds that:

86.8% respondents claim that their firms keep the public informed about the

all successful and unsuccessful clinical trials of their company‘s products.

Whereas, 8% perceive that their firms don‘t keep the public informed about

the results of their clinical trials and 5 % were having no knowledge about

such practices. The same pattern of response was found about the company‘s

compliance to the national/ international standards laid down for the clinical

trials.

Though over 8.6 % firms claimed that they keep the public informed about the

results of their clinical trial conducted but, only 68 % companies publish their

post trial or post marketing research publicly. And 38% do not.

55% companies prefer to test their medicines only in the areas where these

medicines have their potential use whereas, 45% firms have no such

consideration and test their medicine having no regards to any specific area or

their potential use.

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References

Ansoff (1979), Strategic Management, London, Macmillan

Bradshaw Thornton and DavidVogal, (1981), Corporations and their Critics: Issues and

answers to the problems of corporate social responsibility, New York, McGraw Hill

Book Company

Freeman, Wicks, and Parmar, (2004) Stakeholder Theory and ―The Corporate Objective

Revisited‖ Organization Science, Vol.15(3), pp. 364–369,

Freeman, R. E., R. Phillips (2002). Stakeholder theory: A libertarian defense. Business

Ethics Quarterly, Vol.12(3) 331–350.

Freeman, R. E., R. Phillips. 2002. Stakeholder theory: A libertarian defense. Business

Ethics Quarterly, Vol.12(3) 331–350.

Kazim Sherbano,(2010) ‘CSR: Missing the point in Pakistan, The Daily Mails, , online ed. July 3rd

Jones, T. M. (1980). Corporate Social Responsibility Revisited, Redefined, California

Management Review: 59-67.

Kilcullen M, Kolstra (1999) At least do no harm: sources on the changing role of

business ethics and corporate social responsibility, Serv Review, 27(2). P158

Kok, P., Wiele, T. V. D., McKenna, R. and Brown, A. (2001). A Corporate Social

Responsibility: Audit within a Quality Management Framework, Journal of Business

Ethics, 31, 4: 285-297.

Lord Holme and Richard Watts,(2007), "Making Good Business Sense" The World

Business Council for Sustainable Development. See at:

http://www.mallenbaker.net/csr/definition.php (12-2-2010)

http://www.mallenbaker.net/csr/definition.php

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An Empirical study on factors influences the employees towards organizational

commitment in a private sector organization in India

P. Na .KANCHANA (Corresponding Author)

M.A.MPHI..MBA.

JJ COLLEGE OF ENGGINEERING & TECHNOLOGY, TRICHY.

ASSISTANT PROFESSOR (SENIOR GRADE)

Dr. N. Panchanatham,

M.B.A., Ph.D. MICI (USA), SME R&D (ISRAEL) , M.Com., M.Sc.(Zoo),

M.Ed.,M.A.(Psy.)., M.Sc. (Yoga).

Prof & Head, Department of Business Administration, Annamalai University, \

Chidambaram.

Abstract

The purpose of this research article is to introduce organizational commitment and key

research on commitment related factors in private sector organization in India. The

author‘s conducted a literature search on organizational commitment and interviews with

103 employees. Job satisfaction, intention to stay, motivation, and organizational politics

are connected to commitment. In this study an attempt has been made to identify the

various factors that influence the employee‘s towards organizational commitment. Using

various statistical tools like Factor analysis, multiple regression and correlation some of

the relevant findings were derived that will be significant and relevant to the present

Indian scenario.

Key words: Organizational Commitment, Motivation, Organizational Politics, Job

satisfaction

Introduction Organizational commitment has received significant attention in studies of the workplace. This is due

to the general recognition that this variable can be the major determinant of organizational

performance (Angle, 1981; Riketta, 2002) and effectiveness (Laschinger, 2001; Miller, 1978). When

employees are dissatisfied at work, they are less committed and will look for other opportunities to

quit. If opportunities are unavailable, they may emotionally or mentally withdraw from the

organization. Thus, organizational commitment is an important attitude in assessing employees‘

intention to quit and the overall contribution of the employee to the organization. Many scholars have

defined organizational commitment, e.g., Kanter (1968), views organizational commitment as the

willingness of workers to devote energy and loyalty to an organization. According to Porter et al.

(1974) organizational commitment is the relative strength of an individual's identification with and

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involvement in a particular organization. The idea for investigation is based on the conceptualization

of Meyer and Allen‘s (1997) three types of organizational commitment model.

As the above figure shows, Meyer and Allen (1997) identified and represented three forms of

commitment: affective, continuance, and normative. Affective commitment is an individual‘s

emotional attachment with (i.e. identification with and involvement in), the organization. Continuance

commitment refers to the individual‘s recognition of the benefits of continued organizational

membership versus the perceived cost of leaving the organization. Finally, normative commitment

refers to the employee‘s feeling of obligation to stay in the organization. All three forms of

commitment affect not only employees‘ willingness to remain with an organization, but their work

related behavior as well.

Review of Literature

Ebru Gunlu, Mehmet Aksarayli et.al(2010) identified the effects of job satisfaction on

organizational commitment for managers in large-scale hotels in the Aegean region of

Turkey and, in addition, to examine whether there is a significant relationship between

the characteristics of the sample, organizational commitment, and job satisfaction. Two

structured questionnaires were administered to large-scale hotel managers in the tourism

industry. The survey instruments were adopted from the validated Minnesota Job

Satisfaction and Organizational Commitment Questionnaire of Meyer-Allen. The data

were analyzed using Statistical Package for Social Sciences version 13.0. The findings

indicate that extrinsic, intrinsic, and general job satisfaction have a significant effect on

normative commitment and affective commitment. In addition, the findings suggest that

the dimensions of job satisfaction do not have a significant effect on continuance

commitment among the managers of large-scale hotels. When the characteristics of the

sample are regarded, age, income level, and education have a significant relationship with

extrinsic job satisfaction whereas income level indirectly affects affective commitment.

Steve McKenna, (2005) in his research work examined using qualitative data from 20

managers in four small Singaporean businesses in the services sector this article explores

the issue of organizational commitment. The findings generally support those in the

positivistic literature on organizational commitment. It also argues, however, that

continuance commitment, largely seen as negative for organizations and performance,

can be both positive and negative in certain circumstances. The article further suggests

that owner/manager style in the businesses may have an important impact on manager

commitment and that the future growth and development of these businesses may be

stunted as a consequence of negative aspects of the entrepreneurial management style.

http://www.emeraldinsight.com/search.htm?ct=all&st1=Ebru+Gunlu&fd1=aut

http://www.emeraldinsight.com/search.htm?ct=all&st1=Mehmet+Aksarayli&fd1=aut

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Sheldene Simola, (2011), investigated the relationship between dimensions of

commitment to the profession of business, and ascribed importance of various

organisational characteristics to the first full-time job following graduation. Business

administration students (n=446) completed surveys on dimensions of their commitment

to the profession of business and the importance they ascribed to having certain

organizational characteristics in their first full-time job (n=132). Confirmatory factor

analysis of commitment scales, principal component analysis of organizational

characteristics, and canonical correlations were used. Affective occupational commitment

was differentially; positively associated with the importance ascribed to working in an

organization that offers opportunities for professional development. Normative

occupational commitment was differentially, positively associated with the importance

ascribed to working in a reputable organization that is devoted to diversity and social

responsibility. Riccardo Peccei, Antonio Giangreco et.al (2011) this study aims to

contribute to a better understanding of resistance to change (RTC) by examining the role

played by organisational commitment (OC) as a potential predictor and moderator in the

analysis of RTC. First, alternative models of OC were developed, first as a co-predictor

of RTC, and then as a moderator of the relationship between key established antecedents

of RTC and resistance itself. The main established antecedents of RTC examined

included employees' perceptions of the benefits of change (PBC), their involvement in

the change process (IIC), and their overall attitudes towards the change (ATC). The

alternative OC models were tested using data from a sample of over 300 middle

managers from an Italian public sector service provider company undergoing a radical

process of change. Results showed that OC, along with PBC and IIC, had a significant

negative direct and indirect effect on RTC. The indirect effect was mediated by employee

attitudes to the change. Contrary to expectations, however, commitment did not moderate

any of the antecedents-RTC relationships.

OBJECTIVES OF THE STUDY To identify the major factors that influence the employee‘s towards

organizational commitment in a private sector organization.

To know the relationship between organisational commitment and Values of

the organisation

To study the relationship among Pay, promotion and regulation of the

organisation

Methodology

The study is a descriptive one. Primary data was collected by the researcher with the help

of structured questionnaire administered to the middle and top level executives of a

Private sector organization in Chennai - Tamilnadu. The method adopted to get the data

was Interview Schedule. 103 employees from that organization constitute the sample

size. Fifteen questionnaires were distributed for the purpose of pre-testing the

questionnaire's contents. A complete questionnaire was developed based on the

comments collected during the pre-testing period. Type of sampling method used was

simple random sampling. Due to various reasons the company name is not being

disclosed in this study.

http://www.emeraldinsight.com/search.htm?ct=all&st1=Riccardo+Peccei&fd1=aut

http://www.emeraldinsight.com/search.htm?ct=all&st1=Antonio+Giangreco&fd1=aut

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The various factors that are taken to measure the organizational commitment are 1)

Job Satisfaction 2) Organizational Politics 3) Motivation 4) Role Clarity and 5)

Intention to stay

Hypotheses

1. There is relationship among the factors that influence employee‘s towards

organizational commitment

2. There exist relationship between Promotions and values of the organisation.

3. Pay, promotion and regulation of the organisation can predict the Employee

commitment towards the organisation


Insert Table-1 Here

An examination had been made from the reliability of the data to check whether random

error causing inconsistency and in turn lower reliability is at a manageable level or not,

by running reliability test. From table 1 it is clear that values of Coefficient alpha

(Cronbach‘s Alpha) have been obtained, the minimum value of Coefficient alpha

obtained was .818 .This shows data has satisfactory internal consistency reliability.

Statistical Tools Used Using Statistical Package for Social Sciences (SPSS) the following tools were

administered in this study 1) Factor Analysis 2)Correlation 3) Multiple Regression and

4)Reliability Test.

Factor Analysis

The individual statements on Organizational Commitment was examined using factor

analysis based on 20 individual statements and the reliability of the samples collected

was tested for internal consistency of the grouping of the items. Insert Table – 2 Here

KMO measure of sampling adequacy is an index to examine the appropriateness of factor

analysis. High values between 0.5 and 1.0 indicate factor analysis is appropriate. Values

below 0.5 imply that factor analysis may not be appropriate. From the above table it is

seen that Kaiser – Meyer – Olkin measure of sampling adequacy index is 0.710 and

hence the factor analysis is appropriate for the given data set. Bartlett‘s Test of Sphericity

is used to examine the hypothesis that the variables are uncorrelated. It is based on chi-

Square transformation of the determinant of correlation matrix. A large value of the test

statistic will favor the rejection of the null hypothesis. In turn this would indicate that

factor analysis is appropriate. Bartlett‘s test of Sphericity Chi-square statistics is 2795.966,

that shows the 20 statements are correlated and hence as inferred in KMO, factor analysis

is appropriate for the given data set.

Insert Table – 3 Here

Eigen Value represents the total variance explained by each factor. Percentage of the total

variance attributed to each factor. One of the popular methods used in Exploratory Factor

Analysis is Principal Component Analysis, Where the total variance in the data is

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considered to determine the minimum number of factors that will account for maximum

variance of data. Insert Table – 4 Here

Interpretation of factors is facilitated by identifying the statements that have large

loadings in the same factor. The factor can be interpreted in terms of the statement that

loads high on it.

The factors of a study on organisational commitment comprises of 20 individual

statements. Out of 20 variables, 5 individual variables contribute more towards

organisational commitment.

The variables are:

1. .Job Assignment

2. Promotion Related to performance

3. Enhancement of Knowledge and Decision making

4. My values and Organisation values are similar

5. Formal communications channel helps me to perform my job


The above model summary table shows R-Square for this model is .946. This

means that 94.6 percent of the variation in overall organisational commitment (dependent

variable) can be explained from the 26 independent variables. The table also shows the

adjusted R-square for the model as .927.

Any time another independent variable is added to a multiple regression model,

the R-square will increase (even if only slightly). Consequently, it becomes difficult to

determine which models do the best job of explaining variation in the same dependent

variable. The adjusted R-Square does just what its name implies. It adjusts the R-square

by the number of predictor variables in the model. This adjustment allows the easy

comparison of the explanatory power of models with different numbers of predictor‘s

variable. It also helps us to decide how many variables to include in our regression

model.


To determine if one or more of the independent variables are significant predictors of

overall organisational commitment, we examine the information provided in the

coefficient table. From the above twenty six independent statements 19 independent

statements are not statistically significant. The standardized coefficient beta column

reveals that fairly satisfy with present job has a beta coefficient .077, which is significant

(.005). Work seems like never end has a beta coefficient .059, which is not significant

(.184). Job rather unpleasant has a beta coefficient .057, which is significant (.007). Little

change to leave this organisation has a beta coefficient .252, which is significant (.050).

Choose this organisation to work for others have a beta coefficient .249, which is not

significant (.085). Not much to be gained from this organisation has a beta coefficient

.125, which is significant (.050). Difficult to agree with this organization's policies on

important matters relating to its employees has a beta coefficient .037, which is not

significant (.939). Care about the fate of the organisation has a beta coefficient .202,

which is significant (.030). Values have a beta coefficient .223 which is significant

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(.019). Motivation has a beta coefficient .552, which is significant (.000). Promotion in

this organisation is based on performance has a beta coefficient value .223, which is

significant (.000). So it is clear that there exist relationship between Promotions and

values of the organization.


The correlation between the variables promotions and regulations are highly

correlated .926 and was highly significant, Correlation between performance and

promotions are highly correlated .780 and highly significant, correlation between

performance and communications was .774 which was highly significant, correlation

between rewards and merit was .738 which was significant. All the factors of Pay,

promotion and regulation are positively correlated with Organisational Commitment.

Thus Pay, promotion and regulation of the organization can predict the Employee

commitment towards the organization

Conclusion

In the present scenario, identification of employee organizational commitment has

become a crucial element. In this study it found that most of the employees in private

manufacturing companies are influenced towards commitment due to the following

factors such as job assignment, Promotion Related to performance, Enhancement of

Knowledge and Decision making, Formal communications channel and my values and

Organisation values are similar. If organization is going to practice these factors,

organizational commitment is possible.

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REFERENCES

Allen, N.J., & Meyer, J.P. (1996). Affective, Continuance, and Normative commitment to

the organization: An examination of construct validity. Journal of Vocational Behavior,

49, 256-276.

Angle, H. L., & Perry, J. L. (1981). An empirical assessment of organization commitment

and organizational effectiveness. Administrative Science Quarterly, 26, 1-13.

Ebru Gunlu et.al, (2010), Job satisfaction and organizational commitment of hotel

managers in Turkey", International Journal of Contemporary Hospitality Management,

Vol. 22 Iss: 5, pp.693 – 717

Hall, D. (1977). Organizational identification as a function of career pattern and

organizational type.Administrative Science Quarterly, 17, 340-350.

Koch, J., & Steers, R. (1978). Job attachment, satisfaction, and turnover among public

sector employees. Journal of Vocational Behavior, 12, 119-128.

Luthans, F. (1998). Organisational Behaviour. Boston: Irwin McGraw-Hill.

Meyer, J.P., & Allen, N.J. (1991). A tree-component conceptualization of organizational

commitment.Human Resource Management Review, 1, 61-89.

Meyer, J. P., Allen, N. J., Smith, C. A. (1993). Commitment to organizations and

occupations: Extension and test of a three-component conceptualization. Journal of

Applied Psychology, 78 (4), 538-552.

Steve McKenna, (2005) "Organisational commitment in the small entrepreneurial

business in Singapore", Cross Cultural Management: An International Journal, Vol. 12

Iss: 2, pp.16 – 37

Sheldene Simola, (2011) "Relationship between occupational commitment and ascribed

importance of organisational characteristics", Education + Training, Vol. 53 Iss: 1, pp.67

– 81

Riccardo Peccei et.al (2011), The role of organisational commitment in the analysis of

resistance to change: Co-predictor and moderator effects", Personnel Review, Vol. 40 Iss:

2, pp.185 - 204

http://www.emeraldinsight.com/search.htm?ct=all&st1=Ebru+Gunlu&fd1=aut

http://www.emeraldinsight.com/search.htm?ct=all&st1=Riccardo+Peccei&fd1=aut

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Annexure


Table-1

Cronbach's Alpha N of Items

.818 28

Table – 2 KMO and Bartlett's Test

Kaiser-Meyer-Olkin Measure of Sampling Adequacy.

.710

Bartlett's Test of Sphericity Approx. Chi-Square 2795.966

Df 190

Sig. .000

Table -3 Total Variance Explained

Component Initial Eigenvalues Extraction Sums of Squared

Loadings

Rotation Sums of Squared

Loadings

Total % of

Variance

Cumulative

%

Total % of

Variance

Cumulative

%

Total % of

Variance

Cumulative

%

1 7.278 36.391 36.391 7.278 36.391 36.391 4.683 23.415 23.415

2 3.918 19.588 55.979 3.918 19.588 55.979 4.430 22.151 45.565

3 2.470 12.352 68.331 2.470 12.352 68.331 3.195 15.973 61.538

4 1.988 9.939 78.270 1.988 9.939 78.270 2.437 12.185 73.723

5 1.330 6.651 84.921 1.330 6.651 84.921 2.240 11.198 84.921

6 0.749 3.743 88.663

7 0.550 2.751 91.414

8 0.413 2.065 93.479

9 0.318 1.588 95.067

10 0.254 1.269 96.336

11 0.213 1.065 97.401

12 0.147 0.735 98.136

13 0.110 0.549 98.686

14 0.078 0.390 99.076

15 0.068 0.341 99.417

16 0.039 0.196 99.613

17 0.034 0.171 99.784

18 0.023 0.117 99.901

19 0.011 0.055 99.957

20 0.009 0.043 100.000


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Table – 4 Rotated Component Matrix (a)

Component

1 2 3 4 5

Fairly satisfied with my present job 0.191 0.734 0.082 -0.033 0.509

Enthusiastic about my work 0.113 0.216 0.079 0.218 0.806

Work seems like will never end 0.035 -0.156 0.553 0.595 0.050

Real enjoyment in my work 0.341 0.777 -0.066 -0.135 0.283

Job rather unpleasant 0.349 -0.073 0.049 -0.180 0.253

Little change in my present circumstances to leave

this Organisation -0.006 0.481 -0.313 0.751 0.142

Am very glad to Choose this Organisation to work for

others considering at the time I joined -0.027 0.562 0.418 -0.051 0.049

Not much to be gained by sticking with this

Organisation indefinitely 0.567 0.225 0.061 0.560 -0.312

Difficult to agree with this Organisation Policies on

related to Employee 0.289 0.370 0.521 0.160 0.087

Care about the fate of the Organisation -0.175 0.786 0.429 0.034 0.154

Any type of Job assigns keep work for this

Organisation 0.171 0.192 0.831 0.840 0.019

My values and Organisation values are similar 0.191 -0.093 0.917 -0.051 0.423

Proud to tell others part of the Organisation 0.860 0.024 0.191 0.019 0.325

Working for a different Organisation as long as the

work was similar -0.330 0.497 0.295 0.243 0.528

Unclear who has the formal authority to make

decision 0.742 0.228 0.547 0.152 -0.152

Put in great deal of effort to help this Organisation

successful 0.788 -0.170 0.200 0.474 0.027

Promotions are related to emp. performance 0.957 0.066 -0.120 0.070 0.104

Formal communications channel helps me to

perform my job 0.539 0.789 0.125 -0.083 0.635

knowledge and achievement evaluation participated

in decision role -0.026 0.889 -0.046 0.255 -0.038

Aware of the system for handling disconnect and feel

encouraged 0.817 0.261 0.331 0.108 -0.175


Rotation Method: Varimax with Kaiser Normalization.

a.Rotation converged in 9 iterations.

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Table – 5

Multiple Regression

Model R R Square Adjusted R Square Std. Error of the

Estimate

1 .973(a) .946 .927 .208

a Predictors: (Constant), Rules and policies around here concerning promotion and pay, favoritism rather than merit determines around here, Difficult to agree with this Organisation. Policies on related to Emp. Work seems like will never end, Left this Organisation., Just working hard was not enough to get ahead, Don’t speak up for fear of retaliation by others, Enthusiastic about my work, Any type of Job assign. keep work for this Organisation., Proud to tell others part of the Organisation., Working for a different Organisation. as long as the work was similar, Job rather unpleasant, knowledge and achievement evaluation participated in decision role, Not much to be gained by sticking with this Organisation. Indefinitely, Real enjoyment in my work, Fairly satisfied with my present job, Little change in my present circumstances to leave this Organisation Care about the fate of the Organisation, Choose this Organisation. to work for others at the time I joined, Aware of the system for handling disconnect and feel encouraged , Put in great deal of effort to help this Organisation. Successful, Promotions in this department generally go to top performance, Unclear who has the formal authority to make decision, My values and Organisation. values are similar, Influential group in this department that no one ever crosses, Rewards come only to those who work hard, Formal communications channel helps me to perform my job

Table - 6

Coefficients (a) Model Unstandardized

Coefficients

Standardized

Coefficients

t Sig.

B Std.

Error

Beta

1

(Constant) 0.040 0.140 0.288 0.774

Fairly satisfied with my present job 0.059 0.059 0.077 0.999 0.005

Enthusiastic about my work -0.104 0.047 -0.110 -2.206 0.030

Work seems like will never end 0.044 0.033 0.059 1.340 0.184

Real enjoyment in my work -0.061 0.071 -0.076 -0.860 0.393

Job rather unpleasant 0.152 0.088 0.168 1.717 0.007

Little change in my present circumstances

to leave this Organisation

0.210 0.107 0.252 1.967 0.050

Choose this Organisation to work for others

at the time I joined

0.170 0.098 0.249 1.746 0.050

Not much to be gained by sticking with this

Organisation indefinitely

0.086 0.043 0.125 1.991 0.050

Difficult to agree with this Organisation

Policies on related to Employee

0.022 0.286 0.037 0.077 0.939

Care about the fate of the Organization 0.139 0.063 0.202 2.214 0.030

Any type of Job assigns keep work for this

Organisation

-0.054 0.076 -0.097 -0.710 0.480

My values and Organisation values are

similar

0.139 0.026 0.223 5.349 0.019

Proud to tell others part of the Organisation 0.041 0.229 0.063 0.177 0.860

Working for a different Organisation as

long as the work was similar

-0.024 0.077 -0.040 -0.308 0.759

Unclear who has the formal authority to

make decision

-0.204 0.290 -0.292 -0.701 0.485

Put in great deal of effort to help this 0.356 0.149 0.552 2.393 0.000

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Organisation successful

Unstandardized

Coefficients

Standardized

Coefficients

t Sig.

B Std.

Error

Beta

Formal communications channel helps me

to perform my job

0.693 0.413 1.022 1.677 0.098

knowledge and achievement evaluation

participated in decision role

0.014 0.273 0.021 0.052 0.959

Aware of the system for handling

disconnect and feel encouraged

-0.533 0.447 -0.660 -1.192 0.237

favoritism rather than merit determines

around here

0.335 0.263 0.417 1.275 0.206

Influential group in this department that no

one ever crosses

-0.655 0.410 -0.835 -1.596 0.115

Left this Organisation, Just working hard

was not enough to get ahead

-0.062 0.048 -0.098 -1.280 0.205

Don‘t speak up for fear of retaliation by

others

0.052 0.034 0.078 1.537 0.129

Rewards come only to those who work hard 0.228 0.414 0.286 0.552 0.583

Promotions in this department generally

go to top performance

0.139 0.026 0.223 5.349 0.000

Rules and policies around here concerning

promotion and pay

0.061 0.239 0.109 0.253 0.801

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Table - 7 Correlations

favoritism rather than

merit determines around here

Influential group in this department that no one

ever crosses

Left this Organisation, Just working hard was not enough to get

ahead

Don’t speak up for fear of retaliation by

others

Rewards come only to

those who work hard

Promotions in this

department generally go

to top performance

Rules and policies around

here concerning

promotion and pay are specific

and well defined

Pay and promotion

policies are generally

communicated this

Organisation

favoritism rather than merit determines around here

Pearson Correlation 1

Sig. (2-tailed)

N 103

Influential group in this department that no one ever crosses

Pearson Correlation .718(**) 1


N 103 103

Left this Organisation, Just working hard was not enough to get ahead

Pearson Correlation .450(**) .548(**) 1

Sig. (2-tailed) .000 .000

N 103 103 103

Don’t speak up for fear of retaliation by others

Pearson Correlation .331(**) .264(**) .101 1

Sig. (2-tailed) .001 .007 .311

N 103 103 103 103

Rewards come only to those who work hard

Pearson Correlation .738(**) .508(**) .156 .630(**) 1

Sig. (2-tailed) .000 .000 .117 .000

N 103 103 103 103 103

Promotions in this department generally go to top performance

Pearson Correlation .089 .396(**) .257(**) .364(**) .445(**) 1

Sig. (2-tailed) .372 .000 .009 .000 .000

N 103 103 103 103 103 103

Rules and policies around here concerning promotion and pay are specific and well defined

Pearson Correlation .006 .532(**) .086 .349(**) .325(**) .780(**) 1

Sig. (2-tailed) .952 .000 .388 .000 .001 .000

N 103 103 103 103 103 103 103

Pay and promotion policies are generally communicated this Organisation

Pearson Correlation -.169 .331(**) .101 .250(*) .211(*) .774(**) .926(**) 1

Sig. (2-tailed) .088 .001 .308 .011 .033 .000 .000

N 103 103 103 103 103 103 103 103


* Correlation is significant at the 0.05 level (2-tailed)

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Globalization and Effects;

A study on the effects of globalization in the society

Farhad Nezhad Haj Ali Irani (Corresponding Author)

Public Management, PhD

Islamic Azad University, Bonab Branch, Iran

Mohammad Reza Noruzi

EMBA, PhD Student, Policy Making in Public Sector

Islamic Azad University, Bonab Branch, Iran

Young Researchers Club Member, Islamic Azad University, Bonab Branch, Iran

Abstract

Globalization is one of the important factors which every community and society deals with it.

In some countries it has effected good changes but in the other one may be have bad effects.

This paper aims to study some effects of globalization in different era.

Keyword: Globalization, Society, Management, Effects of Globalization

Introduction

For more than 20 years scholars from a variety of fields have been engaged in a vigorous

debate about a new social phenomenon: globalization (Belk, 1996; Featherstone, 1990, 1995;

Ger and Belk, 1996; Liebes and Katz, 1993; Robertson, 1992; Sklair, 2002; Waters, 1995; Matei, 2006, p.1).Human societies across the globe have established progressively closer

contacts over many centuries, but recently the pace has dramatically increased. Jet airplanes,

cheap telephone service, email, computers, huge oceangoing vessels, instant capital flows, all

these have made the world more interdependent than ever. The global social justice

movement, itself a product of globalization, proposes an alternative path, more responsive to

public needs and intense political disputes will continue over globalization's meaning and its

future direction (Global Policy Froum, 2011).

What is globalization?

Traditionally politics has been undertaken within national political systems. National

governments have been ultimately responsible for maintaining the security and economic

welfare of their citizens, as well as the protection of human rights and the environment within

their borders. With global ecological changes, an ever more integrated global economy, and

other global trends, political activity increasingly takes place at the global level

(Globalization, 2005).

According to Investor Word, (2005), globalization is the name for the process of increasing

and speeding up the connectivity and interdependence of the world's markets and businesses

and other institutions. This process has speeded up dramatically in the last two decades as

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technological advances make it easier for people to travel, communicate, and do business

internationally (investor word, 2005).

Two major recent driving forces in the globalization era

Two major recent driving forces are advances in telecommunications infrastructure and the

rise of the internet. In general, as economies become more connected to other economies, they

have increased opportunity but also increased competition. Thus, as globalization becomes a

more and more common feature of world economics, powerful pro-globalization and anti-

globalization lobbies have arisen (investor word, 2005).

The pro-globalization lobby argues that globalization brings about much increased

opportunities for almost everyone, and increased competition is a good thing since it makes

agents of production more efficient.

The anti-globalization group argues that certain groups of people who are deprived in terms of

resources are not currently capable of functioning within the increased competitive pressure

that will be brought about by allowing their economies to be more connected to the rest of the

world (investor word, 2005).

Globalization Effects

Industrial emergence of worldwide production markets and broader access to a range of

foreign products for consumers and companies particularly movement of material and goods

between and within national boundaries International trade in manufactured goods has

increased more than 100 times (from $95 billion to $12 trillion) since 1955(BBC NEWS,

2007). China's trade with Africa rose sevenfold during 2000–07 alone (Times Online, 2008;

Politzer, 2008). And these are some effects of globalization in the area of rapid changing.

Results and Conclusions

Over many centuries, human societies across the globe have established progressively closer

contacts. Recently, the pace of global integration has dramatically increased. Unprecedented

changes in communications, transportation, and computer technology have given the process

new impetus and made the world more interdependent than ever. Multinational corporations

manufacture products in many countries and sell to consumers around the world. Money,

technology and raw materials move ever more swiftly across national borders. Along with

products and finances, ideas and cultures circulate more freely. As a result, laws, economies,

and social movements are forming at the international level (Globalization, 2005).

Globalization typically refers to the process by which different economies and societies

become more closely integrated, and concurrent with increasing worldwide globalization,

there has been much research into its consequences (Nilson, 2010, p.1191). Also examining

the relationship between three dimensions of globalization and life expectancy, the most

robust finding is a positive relationship between economic globalization and life expectancy.

Multinational corporations manufacture products in many countries and sell to consumers

around the world. Money, technology and raw materials move ever more swiftly across

national borders. Along with products and finances, ideas and cultures circulate more freely.

As a result, laws, economies, and social movements are forming at the international level.

Many politicians, academics, and journalists treat these trends as both inevitable and (on the

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whole) welcome. But for billions of the world's people, business-driven globalization means

uprooting old ways of life and threatening livelihoods and cultures (Global Policy Forum,

2011).

Under globalization, politics can take place above the state through political integration

schemes such as the European Union and through intergovernmental organizations such as the

International Monetary Fund, the World Bank and the World Trade Organization. Political

activity can also transcend national borders through global movements and NGOs. Civil

society organizations act globally by forming alliances with organizations in other countries,

using global communications systems, and lobbying international organizations and other

actors directly, instead of working through their national governments (Globalization, 2005).

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References

BBC News, (2007), "Globalization shakes the world". BBC News. January 21, 2007.

Belk, R.W., 1996. Hyperreality and globalization: culture in the age of Ronald McDonald.

Journal of International Consumer Marketing 8 (3–4), 23–37.

Featherstone, M., 1990. Global Culture: Nationalism, Globalization, and Modernity. Sage

Publications, London.

Featherstone, M., 1995. Undoing Culture: Globalization, Postmodernism and Identity. Sage

Publications, London.

Ger, G., Belk, R.W., 1996. I‘d like to buy the world a coke: consumptions capes of the ‗‗less

affluent world‘‘. Journal of Consumer Policy 19, 271–304.

Global Policy Forum, (2011), available online at:

Globalization, 2005, globalization, available online at: www. Globalization/globalization.html

Globalization, 2005, globalization, available online at: www. Globalization/globalization-of-

politics.html

http://www.globalpolicy.org/globalization/defining-globalization.html

Investor word, (2005), Globalization, available online at:

http://www.investorwords.com/2182/globalization.html

Liebes, T., 2003. American Dreams, Hebrew Subtitles: Globalization from the Receiving End.

Hampton Press, Cresskill, NJ.

Liebes, T., Katz, E., 1993. The Export of Meaning: Cross-cultural Readings of Dallas, second

ed. Polity Press, Cambridge.

Matei, S.A. / (2006), Globalization and heterogenization: Cultural and civilizational

clustering in telecommunicative space (1989–1999) Telematics and Informatics 23 (2006)

316–331

Nilson, Theresse, (2010), Good for Living? On the Relationship between Globalization and

Life Expectancy, World Development Vol. 38, No. 9, pp. 1191–1203, 2010

Politzer, Malia, (2008) "China and Africa: Stronger Economic Ties Mean More Migration".

By Malia Politzer, Migration Information Source. August 2008.

Robertson, R., 1992. Globalization: Social Theory and Global Culture. Sage, London.

Sklair, L., 2002. Globalization: Capitalism and Its Alternatives, third ed. Oxford University

Press, Oxford, UK.

Times Online, (2008) "Africa, China's new frontier". Times Online. February 10, 2008.

Waters, M., 1995. Globalization. Routledge, London.

file:///I:\Globalization\globalization.html

http://www.globalpolicy.org/globalization/defining-globalization.html

http://www.investorwords.com/2182/globalization.html

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IMPACT OF MONETARY POLICY ON GROSS DOMESTIC PRODUCT (GDP)

IRFAN HAMEED

PhD. Student, Iqra University, Business administration dept, Karachi

UME-AMEN

Lecturer, PAF-KIET, College of management sciences, Karachi

ABSTRACT

This research article focuses on the impact of Monetary Policy on GDP. GDP no doubt is

affected by the Monetary Policy of the state. The research papers of various authors have been

studied in this regard to prove the Hypothesis and after in depth analysis by applying

Regression Analysis technique it has been observed that the relationship between the two

exists. The data of past 30 years of Pakistan has been used for driving the conclusion. The

study proved that the interest rate has minor relationship with GDP but the Growth in Money

Supply greatly affects the GDP of an economy, obviously various unknown factors also affects

the GDP. Growth in Money Supply has a huge impact on GDP. The Research study can further

be used for developmental projects for the Growth of Economy, Quality improvements,

Household production, the underground economy, Health and life expectancy, the

environment, Political immunity and ethnic justice.

KEY WORDS: MONETARY POLICY, GROSS DOMESTIC PRODUCT, INFLATION,

MONEY SUPPLY.

INTRODUCTION

Monetary policy can be defined as the process by which the government, central bank, or

monetary authority of a country controls (i) the supply of money, (ii) availability of money,

and (iii) cost of money or rate of interest, in order to attain a set of objectives oriented towards

the growth and stability of the economy. Monetary policy rests on the relationship between the

rates of interest in an economy, that is the price at which money can be borrowed, and the

total supply of money. Monetary policy uses a variety of tools to control one or both of these,

to influence outcomes like economic growth, inflation, exchange rates with other currencies

and unemployment.

OBJECTIVES OF MONETARY POLICY

Monetary policy in a country acts as a tool by which the government or central bank,

attain a set of objectives oriented towards the growth and stability of the economy. Ina case of

Pakistan, Monetary policy management and financial sector stability are two primary roles of

State Bank of Pakistan (SBP). Monetary policy and process of its formulation in Pakistan has

undergone changes with the evolving economic dynamics within the country and the

improved empirical and theoretical understanding of the monetary policy across the world.

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

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

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

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

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

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

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

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

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

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


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One of the important and crucial intermediate target variables of monetary Policy in Pakistan

is money supply. The SBP has been using M2 aggregate (i.e., currency + demand deposits +

time deposits) for policy purposes on the assumption that the demand for M2 function is stable

in Pakistan. Utilizing the estimated money demand function the target rate of growth of M2 is

set (Qayyum, 2002).

Monetary policy of Pakistan now for some years has been largely supportive of the dual

objective of promoting economic growth and price stability. It achieves this goal by targeting

monetary aggregates (broad money supply growth as an intermediate target and reserve

money as an operational target) in accordance with real GDP growth and inflation targets set

by the Government (Shamshad, 2006).

MONETARY POLICY MANAGEMENT IN PAKISTAN OVER THE YEARS

State Bank of Pakistan (SBP) shifted its reliance from an administered monetary

policy regime governed by ad hoc changes in reserve ratio‘s, directed credit and regulated

interest rate policies in mid 1990s to a liberal and market oriented monetary policy

management. (Shamshad, 2007).

Broad money supply growth has to be consistent with the targets of growth in real GDP and

inflation rate. However, if there are excessive demand pressures either because of high fiscal

deficit or because of the excessive foreign inflows money supply grows faster than the growth

in productive sectors and generates demand pressures which manifests itself in rise in inflation

rate. Despite all contests and debates, inflation is primarily a monetary phenomenon. To keep

it under control it is critical that macroeconomic imbalances are kept within the permissible

limits. Fiscal wastefulness in the past has resulted in Government‘s unlimited recourse to low

and fixed interest rate financing (State Bank of Pakistan, 2006).

Pakistan‘s inflation rate for 2009 financial year is expected to be 20 percent which is 40

percent higher than the last year‘s 12 percent. On the other hand, GDP growth rate of Pakistan

for 2009 and 2010 is projected to be 2.8 percent and 4.0 percent respectively (Asma, 2009).

Thus there is a need to change the ways monetary policy have been used to guide economy for

future.

The Central Bank designs Contractionary policy in order to constrain the growth of money

(i.e. increasing inflation) and credit in the economy. In the present international scenario, due

to hike in inflation internationally, like most of the countries have adopted contractionary

policy, Pakistan recently has also increased interest rate by 0.5 percent and set 10 percent

short-term interest rates. On the other hand Expansionary policy is used as a tool by the

central bank to broaden the monetary base and credit in the economy by reduction in interest

rates and increase in bond prices (Pakistan Defense Forum, 2008).

The State Bank of Pakistan has a main objective of achieving price stability and promotes

growth. In order to contain inflation within the targeted level set by the government, SBP used

money supply as an instrument target. The statistics reveals that Money supply growth

exceeded its target level for four consecutive years 2002-2005. Due to easy monetary policy

stance to support the growth process, however the expansionary monetary policy results in

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rapid inflation reaching double digit in 2005-2006. Inflation tax for the year 2005-2006 is

estimated at Rs. 61928 million or 0.98 percent of GDP.

GROWTH AND MONETARY PHENOMENON

Before 2005-2006 monetary policy was biased towards supporting growth because

inflation was at low level but with the rising inflation from 2005-2006 monetary actions are

towards the containment of inflation (State Bank of Pakistan, 2006).

High rates of inflation cause problems, not just for some individuals, but for aggregate

economic performance. Not only sustained high rates of inflation can adversely affect the real

economic growth in long run but also even moderate level of inflation damage the real

economic growth. However, the relationship between inflation and economic growth is non

linear. For each one percent point increase in inflation, in USA, annual growth rate has

reduced by 0.223% (Smyth, 1992). At low rates of inflation this relationship is negative but

insignificant; however higher rates of inflation have a significantly negative effect on growth.

Inflation not only decreases the growth rate but also induces the uncertainty in economy.

Keeping in view this hazardous nature of inflation, world‘s leading central banks have

developed the idea that price stability is the prime function of monetary policy (Blejer, 2000)

and more precisely central banks are aimed to keep the inflation rate low (Friend, 2000). Thus

maintaining price stability is the responsibility of every central bank and it is responsible for

achieving this. It is argued that sufficiently tight monetary policy for longer periods of time

can decrease even the extreme cases of inflation (Friedman, 1963).

Cause of inflation in Pakistan has been estimated by a number of researchers (Khan and

Qasim, 1996) and it has been established that monetary phenomenon are responsible for the

high levels of inflation in long run (Khan, 2006). With persistent high inflation in economy,

economic growth of the country suffers and there is no smooth running of the government

policies under these high inflation rates. In Pakistan, rise in inflation has been found as the

result of excess money supply growth (M2). The money supply growth initially affects the

real GDP and then hits the inflation in Pakistan. This may be due to the loose monetary policy

adopted by State Bank of Pakistan thus for reduction of inflation, tight monetary policy in

Pakistan must be implemented (Qayyum, 2006).

Monetary policy is only one element of overall macroeconomic policy, and can only affect the

production process through its impact on interest rates. Contractionary monetary policy raises

longer-term real interest rates. The nominal interest rate equals the real interest rate plus the

expected inflation rate. If contractionary monetary policy lowers expected inflation or leaves it

unchanged, then evidence that it increases the nominal interest rate implies that it must be

increasing the real interest rate also (Thorbecke and Zhang, 2008).

Hardouvelis and Barnhardt (1989), Frankel (2008) and others have shown that if monetary

policy actions are expected to increase real interest rates they will lower commodity prices

and if they are expected to lower inflation they will also lower commodity prices.

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The main cause of high interest rates is high inflation, through the expected inflation

Premium. Conversely, the best prospect for low interest rates is a stable environment of low

inflation. In this context, the relatively high interest rates that may be necessary to achieve a

desired disinflation represent ―short-term pain for long term gain.‖ SBP, therefore, has a

current focus on anti-inflation policy which will ensure steady growth in the long run

(Shamshad, 2007).

SCOPE OF STUDY

Present study will attempt to investigate how the changes in the monetary policy

effect, through inflation, the economic growth of Pakistan. Inflation is the most researched

topic in the modern era because it has very serious implications for growth and income

distribution. In case of Pakistan the excess money supply is the main factor responsible for

inflation. The topic here clearly emphasizes the monetary policy have a direct link with

inflation whether this policy is tight or loose because it had to effect in one way or another.

Other monetary phenomenon also impact the overall growth there fore this paper will also

determine whether, and how, GDP in Pakistan would respond to a change in money supply

(M2), the inflation rate, and interest rate in economy.

REVIEW OF LITERATURE

Before proceeding to review what other researchers have found about relationship of

GDP growth and Money supply, interest rate, and Inflation, we first attempt to explain the

importance of monetary policy in light of available literature.

Government policies, including monetary policy, affect the growth of domestic output to the

extent that they affect the quantity and productivity of capital and labor. Monetary policy is

only one element of overall macroeconomic policy, and can only affect the production process

through its impact on interest rates. There are two main channels of monetary policy. One is

through the effect that interest rate changes have on the exchange rate of a currency, and the

other is through the effect that interest rate changes have on demand. Therefore monetary

policy has an impact on economic activity and growth through the workings of foreign and

domestic markets for goods and services (Boweni, 2000)

Although monetary policy is the principal stabilization tool for most economies used by an

independent and credible central bank, still there are economists who see important

stabilization role for fiscal policy working alongside monetary policy. Even there are

economists who say, no matter how independent central bank is, the monetary policy may not

be sufficient for determining the price level and there is role for fiscal policy (Hanif and Arby,

2003).

The instrument of monetary policy ought to be the short term interest rate, that policy should

be focused on the control of inflation, and that inflation can be reduced by increasing short

term interest rates (Alvarez, 2001).

The investigations into the existence and nature of the link between inflation and economic

growth have experienced a long history. Originating in the Latin American context in the

1950s, the issue has generated an enduring debate between structuralists and monetarists. The

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structuralists believe that inflation is essential for economic growth whereas the monetarists

see inflation as detrimental to economic progress. There are two aspects to this debate: (a) the

nature of the relationship if one exists and (b) the direction of causality (Mallik, 2001).

Although economists now widely accept that inflation has a negative effect on economic

growth, researchers did not detect this affect in data from the 1950s and the 1960s (Min,

2005). A series of studies in the IMF Staff Papers around 1960 found no evidence of damage

from inflation (Wai, 1959; Bhatia, 1960; Dorrance, 1963, 1966). Therefore, a popular view in

the 1960s was that the effect of inflation on growth was not particularly important.

This view prevailed until the 1970s, when many countries, mainly in Latin Americans

experienced hyperinflation. Numerous empirical studies were devoted to finding the effects of

inflation in high-inflation countries. These studies repeatedly confirmed that inflation had a

significant negative effect on economic growth, at least at sufficiently high levels of inflation.

Therefore, today, the dominant view regarding the effects of inflation has changed

dramatically. It has been found that in developing countries as the inflation rate exceeds a

specified threshold, it affects the growth rate adversely (Min, 2005).

Monetary policy plays a key role in determining inflation rates. Various studies provide the

empirical evidence on the relationship between inflation and growth. (Lucas, 1973) held that

inflation in any economy induces uncertainty in economy and increased economic uncertainty

negatively affect the output growth. Inflation overall effects the growth of the country, the

financial sector development and the vulnerable poor segment of the population. There is clear

consensus that even moderate levels of inflation, damage real growth.

Kremer‘ et al. (2008) examined the impact of inflation on long-term economic growth for a

panel of 63 industrial and non-industrial countries. Their results revealed that inflation

obstructs growth if it exceeds thresholds of 2% for industrial and 12% for non-industrial

countries. However below these thresholds, effect of inflation on growth remained

significantly positive.

Bruno and Easterly (1998) demonstrated that a number of economies have experienced

sustained inflations of 20 percent to 30 percent without suffering any apparently major

adverse consequences. However, once the rate of inflation exceeds some critical level (which

Bruno and Easterly estimated to be about 40 percent), significant declines occur in the level of

real activity.

Barro (1995) very precisely examined the five-year average data of 100 countries over the

period of 1960-90. His result shows that an increase in average inflation by 10 percentage

points per year would slow the growth rate of the real per capita GDP by 0.2-0.3 percentage

points per year. He argued that although the adverse influence of inflation on growth appeared

small, the long-term effects on standards of living were actually substantial. Nevertheless,

some other empirical and theoretical studies argued that the inflation-growth relationship is

fragile. Maghyereh (2003) also reported that the effect of inflation rate on the economic

growth is strongly negative and statistically significant.

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Mundell (1965) and Tobin (1965) predict a positive relationship between the rate of inflation

and the rate of capital accumulation, which in turn, implies a positive relationship to the rate

of economic growth. They argue that since money and capital are substitutable, an increase in

the rate of inflation increases capital accumulation by shifting portfolio from money to capital,

and thereby, stimulating a higher rate of economic growth (Gregorio, 1996).

Ahmad and Mortaza (2005) evaluated the concept that moderate and stable inflation rates

promote the development process of a country, and hence economic growth. Using annual

data set on real GDP and CPI of Bangladesh for the period of 1980 to 2005, they demonstrate

statistically significant long-run negative relationship between inflation and economic growth

for the country as indicated by a statistically significant long-run negative relationship

between CPI and real GDP. Also as a threshold they suggested 6% of inflation above which

inflation adversely affects economic growth.

However, Johanson (1967) found no conclusive empirical evidence for either a positive or a

negative association between the two variables. Therefore, a popular view in the 1960s was

that the effect of inflation on growth was not particularly important. Also Fischer and

Modigliani (1978) suggest a negative and nonlinear relationship between the rate of inflation

and economic growth through the new growth theory mechanisms (Malla, 1997). They

mention that inflation restricts economic growth largely by reducing the efficiency of

investment rather than its level.

Fisher (1993) also found negative associations between inflation and growth for a large set of

countries.

Dewan and Hussein (2001) found in a sample of 41 middle-income developing countries

including Fiji, that inflation was negatively correlated to growth. While examining

relationship of inflation and growth in Fiji, Dewan (1999) found that changes in the difference

between actual GDP and potential GDP (output gap) had a bearing on Fiji‘s inflation outcome.

Faria and Carneiro (2001) investigated the relationship between inflation and economic

growth in the context of Brazil which has been experiencing persistent high inflation until

recent. Analyzing a bivariate time series model with annual data for the period between 1980

and 1995, they found that although there exist a negative relationship between inflation and

economic growth in the short-run, inflation does not affect economic growth in the long-run.

Mallik (2001) examine the relationship between inflation and GDP growth for four South

Asian countries i.e. Bangladesh, India, Pakistan and Sri Lanka. Their results provided the

evidence of a long-run positive relationship between GDP growth rate and inflation for all

four countries. They also concluded that moderate inflation is helpful to growth, but faster

economic growth feeds back into inflation. Thus, these countries are on a knife-edge.

Kuttner and Mosser (2002) indicated that monetary policy affects the economy through

several transmission mechanisms such as the interest rate channel, the exchange rate channel,

Tobin‘s q theory, the wealth effect, the monetarist channel, and the credit channels including

the bank lending channel and the balance-sheet channel. But mainly monetary policy plays its

role in controlling inflation through money supply and interest rate. Money Supply (M2)

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would affect real GDP positively because an increase in real quantity of money causes the

nominal interest rate to decline and real output to rise (Hsing, 2005). Taylor (1995)

emphasized the importance of the interest rate channel in this regard.

Hsing (2005) examined an annual sample during 1959-2001 to find possible relationships

between real GDP for Venezuela and selected macroeconomic variables. According to his

study more real M2, more government deficit spending, real depreciation, a higher expected

inflation rate, and higher world oil price would help raise real GDP in Venezuela.

Qayyum (2006) investigated the linkage between the excess money supply growth and

inflation in Pakistan. Also he examined that is inflation a monetary phenomenon? His results

from the correlation analysis indicated that there is a positive association between money

growth and inflation. The money supply growth at first-round affects real GDP growth and at

the second round it affects inflation in Pakistan. The important finding from the analysis is

that the excess money supply growth has been an important contributor to the rise in inflation

in Pakistan during the study period. This supports the monetarist proposition that inflation in

Pakistan is a monetary phenomenon.

Mohsin and Axel (2005) concluded an inverse relationship between inflation and real per

capita GDP of Pakistan. When inflation was 8 percent on average during 1978-1991, per

capita growth averaged 3 percent but when inflation rose to 11% during 1992 and 1997 real

per capita growth averaged only 1 percent and it further recovered as inflation fell to 5

percent. Further this study concludes that ―the direct inflation-growth nexus suggests a

threshold in the range of 4 to 9 percent, while the inflation-financial development nexus

suggests a lower threshold of 3–6 percent. Based on this, it is further recommended that SBP

adopts an inflation target of 5 percent.‖ Paul, Kearney and Chowdhury (1997) also reported a

negative relationship between economic growth and inflation for Pakistan.

Fry (1988) and Gleb (1989) find, from pooled cross-economy time series data, a consistently

positive and significant relationship between economic growth and the real rate of interest. In

order to separate the effects of inflation and real interest rates on growth, World Bank

conducted a study. This study provides evidence from a sample of twenty countries, for the

impact of the real interest rate and the inflation rate on the growth rate. The real interest rate

has a statistically significant and positive impact on growth. But when inflation is included,

the coefficient for the real interest rate is no longer statistically significant, while the negative

coefficient on the rate of inflation is. This suggests that the positive relation between real rate

of interest and growth was actually reflecting a negative relation between inflation and growth

in financially repressed regimes, where nominal interest rates are kept fixed (World Bank

1993).

Relationship between inflation, interest rate, and growth has been the consideration of

researchers since very long. An examination of this relationship in USA shows that the U.S.

inflation of the 1970s and 80s can be fully accounted for by the corresponding increase in M2

(or M1) growth rates, and the return to relatively low inflation rates in the 1990s can be

explained by the correspondingly low average rate of money supply growth in that decade.

Inflation in the 90s was about 3.5 percentage points lower than its average in the 70s and 80s,

and the growth rate of M2 was about 5 percentage points lower (Alvarez, 2001).

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The statistics reveal that money supply growth exceeded its target levels for four consecutive

years (2002-2005) due to easy monetary policy stance to support the growth process.

However, the expansionary monetary policy resulted in rapid inflation reaching double digit in

2005. Since inflation is a tax on money holdings. Inflation tax for the year 2005 is estimated at

Rs 61928 million or 0.98 percent of GDP. Before 2005 monetary policy was aimed at

supporting growth because inflation was at low level. With the rising inflation from 2005

monetary policy stance has now changed from supporting growth to containing of inflation

(State Bank of Pakistan, 2006).

All of the above discussion shows that there is a non linear relationship between inflation and

economic growth. However inflation does effect economic growth directly. Monetary Policy

variables such as Money Supply M2 and Interest rates along with inflation also effect the

economic growth in economy.

RESEARCH METHODS

This chapter has been divided into three parts. First one discusses the data sources and

nature of data in detail. Second one discusses the model to be applied to find out the results.

And third and last part states the hypothesis to be checked for this study.

DATA COLLECTION

In order to check impact of monetary policy on economic growth of Pakistan, through

inflation, comprehensive data has been gathered for the period 1980-2009. Main data source

in this regard has been the State Bank of Pakistan. Moreover official websites of ministry of

finance and federal statistics bureau has also been visited in this regard. Since data for the

period before 1980, for all the variables under study, is not available, we have considered

maximum number of years for which data for all required variables is available.

VARIABLES

Description for each variable under study is as under:

Gross Domestic Product (GDP)

In economics, GDP is defined as the value of all goods and services produced within

the geographic territory of an economy in a given interval, such as a year. A well known

formula for GDP has been stated as the total market value of all final goods and services

produced in a country in a given year, equal to total consumer, investment and government

spending, plus the value of exports, minus the value of imports.

GDP is the most commonly known measures of national income, output, and growth. GDP is

of two types. Nominal GDP is a measure of money spent. Real GDP corrects the gross

nominal GDP figure for inflation, making real GDP more useful for historical comparison.

Nominal GDP is sometimes called money GDP, and real GDP is sometimes called inflation-

corrected GDP or constant price GDP. For purpose of this study data for real GDP for the

period 1980-2008 has been considered.

http://www.investorglossary.com/gdp.htm

http://www.businessdictionary.com/definition/market.html

http://www.investorwords.com/2209/goods.html

http://www.investorwords.com/6664/service.html

http://www.investorwords.com/1055/consumer.html

http://www.investorwords.com/2599/investment.html

http://www.businessdictionary.com/definition/government.html

http://www.investorwords.com/5209/value.html

http://www.investorwords.com/1852/export.html

http://www.investorwords.com/2383/import.html

http://www.investorglossary.com/real-gdp.htm

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In Pakistan, high GDP growth has been observed over last five years only. After a period of

low growth throughout the 1990s, the annual growth figure for Pakistan has been hovering

around the 7 percent level since 2003-04. The current growth momentum of Pakistan's

economy is largely the result of greater financial and trade integration and the good

performance of the services and manufacturing sectors. Recent increase in GDP growth rate

has reduced income-poverty ratio in a significant manner and raised the average living

standards in Pakistan. However rising inequality in income and non-income group have led to

a weaker link between economic growth and poverty reduction in Pakistan. This provides us

the basis to check, by means of this study, the impact of other monetary variables as well on

GDP growth in economy collected for the period 1980-2009.

Money Supply (M2)

Money supply is the total amount of money available in an economy at a particular

point of time. The importance of an appropriate monetary aggregate can hardly be over

emphasized, particularly for those countries that attach their monetary policy to monetary

aggregates. The breakdown of stable relationship between monetary aggregates and

macroeconomic variables due to structural change in financial markets and emergence of new

financial instruments led to frequent changes in the definition of monetary aggregates. In

practice more than one monetary aggregate are usually defined in the hope that multiple

aggregates may collectively provide more information for the conduct of monetary policy and

developments in the economy.

Interest Rate

The term interest rate usually means any bank lending rate. However, the rates don‘t

always move rapidly because they are driven by different forces. Rates on longer-term loans

are driven by 3 months, 6 months, and 12 months treasury bills in Pakistan. On treasury notes,

like any loan, the interest rates are fixed. However, Treasury notes are auctioned to the highest

bidder. Depending on the demand at auction, the note could cost more or less than face value.

However, at the end of the note's term, the Government pays back full face value to the

bidder. In effect, bidders are loaning the bid amount to the Government. In return, they get the

interest rate and the full face value.

Inflation Rate

Stable inflation is recognized as an integral component of sound macroeconomic

policies. Inflation refers to the persistent rise in general price level. Inflation affects the

distribution of both income and wealth. Nominal incomes of some individuals tend to increase

with inflation, while those of others remain constant thus causing a change in the distribution

of income in favor of the former group. Complex and multidimensional problem of inflation

needs a systematic and scientific understanding, examination, investigation and analysis.

The excess money supply growth and inflation in Pakistan are positively associated with each

other. The money supply growth at first-round affects real GDP growth and at the second

round it affects inflation in Pakistan. The important finding is that the excess money supply

growth has been an important contributor to the rise in inflation (Qayyum, 2006). This

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


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provides the basis to examine the impact of monetary policy by controlling inflation on

economic growth.

Four different price indices are published in Pakistan: the consumer price index (CPI), the

wholesale price index (WPI), the sensitive price index (SPI) and the GDP deflator. In

Pakistan, the main focus is placed on the CPI as a measure of inflation as it is more

representative with a wider coverage of 375 items in 71 markets of 35 cities around the

country. Also it most closely represents the cost of living. So this study assumes annual CPI

for the period 1980 to 2009 as an indicator of inflation in economy.

HYPOTHESIS

On the basis of literature review, following hypothesis have been devised for the

purpose of this study:

H1: Interest rate has relationship with GDP.

H2: Growth in money supply has relationship with GDP.

RESULTS AND DISCUSSION

This chapter covers the estimation and analysis of data for the period 1980-2009 to

check out the impact of monetary policy through inflation on growth rate of Pakistan.

REGRESSION ANALYSIS

Model Summary (b)

Model R R

Square

Adjusted

R Square

Std. Error of

the Estimate

Durbin-

Watson

1 .900(a) 0.811 0.797 947743.736 0.342

Dependent Variable: Growth in GDP

Independent Variable: Interest Rate, Money Supply

From the results of the SPSS regression model, It has been observed that R was 0.900 that

indicates that the strength of relationship was strong, and the Coefficient of Determination

(R^2) was 0.811 which means that the 81.1 percent of the model was explained & the

remaining was explained by unknown factors. So we reject null hypothesis and the

relationship among the variables exists.

Durbin-Watson test value was 0.342 which was less than 2 which means that the relationship

among the observations does not exists

Coefficients (a)


Coefficients

Standardized

Coefficients

B Std. Error Beta t sig.

1 (Constant)

-11172412.15

3169327.

12 -3.525 0.002

COMPUTE ln_MS

= LN(moneysupply)

1556639.592

145579.6

55 0.907 10.69 0.000

COMPUTE ln_IR =

LN(interestrate) -3187208.635

1148787.

77 -0.235 -2.774 0.010

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Model: Growth GDP = -11172412 + 1556639.6 (money supply) – 3187209 (interest rate)

Interpretation:

Constant was -11172412 which means even when the Interest Rate was Zero still GDP

was -11172412, the B1 was 1556639.6 which indicate that with one unit increase in money

supply the GDP increased by 1556639.6 and vice versa, and the B2 was – 3187209 which

indicate that with one unit increase in money supply the GDP increased by – 3187209 and

vice versa.

Model Fit Summary

R R

Square

Adjusted

R Square

Std. Error of

the Estimate

Durbin-

Watson

0.55 0.307 0.227 442226.118 1.060

Furthermore to improve the model, Autocorrelation has been applied on the data and at Final

Iteration 10 the Durbin Watson was improved from 0.342 to 1.060.

CONCLUSION

Monetary policy for any country plays a key role in its overall economic growth. The

institutional framework for monetary policy in Pakistan is set out in the State Bank of Pakistan

Act of 1956 and its subsequent amendments. The Act specifies that the Central Board of

Directors of the State Bank of Pakistan (SBP) shall ―secure monetary stability and the

soundness of the financial system‖. Monetary policy of Pakistan now for some years has been

largely supportive of the dual objective of promoting economic growth and price stability. It

achieves this goal by targeting monetary aggregates (broad money supply growth as an

intermediate target and reserve money as an operational target) in accordance with real GDP

growth and inflation targets set by the Government (Shamshad, 2006). In this scenario,

present study is an attempt to discover how much money supply, interest rate and inflation

impact the overall growth of GDP in Pakistan.

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References

Alvarez (2001). Interest Rates & Inflation, Federal Reserve Bank of Minneapolis,

Research Department, Working Paper 609.

Asma (2009). GDP growth rate to increase to four percent by 2010, Asian Development

Bank Outlook 2009.

Barro (1995). Inflation & Economic Growth, NBER Working Paper.

Blejer (2000). Inflation Targeting in Practice: strategic & Operational Issues &

Application to Emerging Economies, International Monetary Fund.

Boweni (2000). Economic growth, inflation & monetary policy in South Africa, BIS

Review

Bruno & Easterly (1998). Inflation Crisis & Long-Run Growth, JME, 41, 3-26.

Dewan & Hussein (2001). Determinants of Economic Growth, Working Paper, Reserve

Bank of Fiji.

Faria & Carneiro (2001). Does High Inflation Affect Growth in the Long & Short run,

Journal of Applied Economics, 89-105.

Fischer & Modigliani (1978). Towards & Understanding of the Real Effects & Costs of

Inflation, Welt Archive, 810-833.

Frankel (2008). The Effect of Monetary Policy on Real Commodity Prices, Forthcoming

in Asset Prices & Monetary Policy, edited by John Y. Campbell. Chicago, University of

Chicago Press.

Friedman (1963). Inflation: Causes & Consequences, New York: Asia Publishing House.

Friend (2000). Maintaining Low Inflation: Rationale & reality, Inflation Targeting in

Practice: strategic & Operational Issues & Application to Emerging Economies,

International Monetary Fund.

Gleb (1989). Financial Policies, Growth & Efficiency. World Bank, PRE Working Paper.

Gregorio (1996). Inflation, Growth, & Central Banks: Theory & Evidence. World Bank

Policy Research Working Paper 1575.

Hanif & Arby (2003). Monetary & Fiscal Policy Coordination. MPRA.

Hsing (2005), Impact of Monetary Policy, Fiscal Policy, & Currency Depreciation on

Output: The Case of Venezuela, Briefing Notes in Economics.

Johanson (1967). Is Inflation a Retarding Factor in Economic Growth, Fiscal & Monetary

Problems in Developing States, Proceedings of the Third Rehoroth Conference, ed. by

David Krivine, 121-30.

Khan (2006). Inflation in Pakistan: Money or Wheat, IMF Working Paper.

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Kuttner & Mosser (2002). The Monetary Transmission Mechanism: Some Answers &

Further Questions, Federal Reserve Bank of New York, Economic Policy Review, 15-

26.

Lucas (1973). Some International Evidence on Output-Inflation Tradeoffs, American

Economic Review, 326-334.

Maghyereh (2003). External Debt & Economic Growth in Jordan: The Threshold Effect,

International Economics.

Malla (1997). Inflation & Economic Growth: Evidence from a Growth Equation, mimeo,

Department of Economics.

Mallik (2001). Inflation & Economic Growth: Evidence from Four South Asian

Countries, Asia Pacific Development Journal.

Min (2005). Inflation & Economic Growth: Threshold Effects & Transmission

Mechanisms, Workign Paper, University of Alberta.

Mohsin (2005). Inflation in Pakistan: Money or Wheat, Paper presented in SBP

conference.

Mundell (1965). Growth, Stability & Inflationary Finance, Journal of Political Economy,

97-109.

Paul, Kearney & Chowdhury (1997). Inflation & economic growth: a multi-country

empirical analysis, Applied Economics, 1287-1301.

Qayyum (2002). Monetary Conditions Index: A Composite Measure of Monetary Policy

in Pakistan, Pakistan Development Review, 551-566.

Qayyum (2006). Money, Inflation, & Growth in Pakistan, Pakistan Development Review,

203-212.

Shamshad (2007). Monetary Policy in Pakistan, Address at Federation of Pakistan

Chambers of Commerce & Industry.

Shamshad (2006). Perspectives on Pakistan‘s Monetary Policy Developments, Address as

Chief Guest at the Woodrow Wilson Centre, Washington D.C.

Smyth (1992). Inflation & the growth rate in the United State‘s Natural Output, Applied

Economics, 567-570.

State Bank of Pakistan (2006). Monetary Policy Statement, (Islamabad).

State Bank of Pakistan (2004). Monetary Policy Statement, (Islamabad).

Taylor (1995). The Monetary Transmission Mechanism: An Empirical Framework,

Journal of Economic Perspectives, 11-26.

Thorbecke & Zhang (2008). Monetary Policy Surprises & Interest Rates: Choosing

between the Inflation-Revelation & Excess Sensitivity Hypotheses, RIETI Discussion

Paper Series.

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Tobin (1965). Money & Economic Growth, Econometrica, 671-684.

Books References:

Fry (1988). Money, Interest, & Banking in Economic Development. Johns Hopkins

Press, Baltimore.

World Bank (1993). ―The East Asian Miracle‖, Oxford University Press, New York.

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Public Transport : An Inferior Good-A Case Study of Lahore

Maryam Wasif

Associate Professor of Economics, Lahore College for Women University

Ghias-ul-Haq

Head, Department of Management Studies, FAST-NU, Peshawar

Abstract

Public transport in Lahore is a microcosmic representative of the country at large. The focus

of the present study is the Franchised Bus System (FBS); a partnership between private and

public investors and regulatory authorities to weed out chaotic wagon culture and to introduce

Premium Bus Service to reduce congestion in the city. The aim of this study is to make a

comparison of Franchise buses and wagons and to find out for whom this service is meant.

The data analysis shows that the public transport is mostly chosen by low and lower middle

income groups to meet the daily transportation needs, verifying inverted-U passengers‘

demand for public transport. This is contrary to the claims made by FBS of providing

premium service and of inducing owners of private vehicles towards Franchise buses for day

to day business. It is found that household expenditure on transport is 15-20 percent. Further,

FBS appears to be a case of policy failure. Had the policy been implemented in letter and

spirit, the grant of exclusive rights to the bus companies would have put some obligation on

the bus operators to satisfy demand and to ensure a certain level of service quality. The

reversion to old system puts no service obligation on operators and signifies that public

transport has come down to zero level.

Keywords: Public Transport , Inferior Good, Case Study , Lahore

1. Introduction:

Transport is one of the basic needs of our economy. It ensures market access, thereby

enhancing productive efficiency through specialization. Generally in urban areas, it is a

critical link between productive and reproductive activities and provides access to education,

health and other facilities. On the other hand, the rapid rate of population growth and

dwindling state of public funds has led to neglect and steady deterioration of transport

infrastructure and public transport. The later is the cause as well as effect of increased

motorization (private as well as small public vehicles), stretching the already deteriorated

roads beyond limits. The Transport sector in Pakistan is typical in this sense. It has always

been assigned secondary importance and the maintenance of transport infrastructure has been

deferred over the years now. It presents a chaotic picture of disorder resulting in congestion,

pollution and accidental deaths.

The focus of present study is on Lahore city, metropolis of the most populated province of

Punjab. This is a microcosmic representative of the public transport of the country at large.

Until 1998, Wagons catered for most of the Urban-transport needs in Lahore. ‗About 5300

Wagons were operating on 48 routes of Lahore city that led to great congestion.110

. These

transport facilities were not sufficient for growing needs of the population.

Realizing the fact in 1999, Small and Medium Enterprise Authority (SMEDA, 1999), based

on the recommendations of the World Bank, and developed a vision that later on became an

110

Meakin, Richard. "The Lahore Public Transport Policy & Institutions Study." Final Report. 1998, pp3.

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integral part of ‗Prime Minister‘s Urban Transport Strategy‘. The core of the strategy was a

policy shift from Wagons to Franchise Bus Scheme.111

The Franchise Bus System was a partnership between the private investors and regulatory

authorities. The bus operators were promised exclusive route contracts through a

‗comprehensive bidding process‘ for a period of 7-10 years. This was implemented through

enforcement of Section 69-A (3) of Motor Vehicle Ordinance (MVO). It stated that when a

franchise was granted, ‗all existing stage carriage permits (on these routes) stand cancelled (in

the ratio of five wagons to each bus)‘. However in 2003, Wagon operators took legal actions

against S69-A being discriminatory. Subsequently S69-A was declared null and void by the

Supreme Court in December 2004. In June 2005, a new section 45-A provided that

Government of .Punjab would define certain ‗specific routes‘ based on periodic surveys and

would determine the numbers and specifications of buses to be used on routes. A network of

fifty three high demand routes was specified for buses while 37 secondary routes were

identified as suitable for Wagon operators. 112

Currently, to meet public demand, 783 buses and 1782113

wagons are plying on 90 routes in

Lahore that often overlap. Further, they are charging same fares for similar services from

passengers. While Franchise Bus System did promise premium service at premium fare,

presently the quality of service provided is quite low. The aim of the study is to make a

comparison of ‗Franchised‘ Buses and Wagons and to find out for whom this service is meant.


There are a number of studies dealing with Urban Transport in developing countries. The

studies reviewed here are specifically related to affordability and access of Public transport to

the poor.

Godard and Lvera (2000), emphasize that ‗Physical mobility of the people, within the urban

space and everywhere else, permitted by the transport system seems to be a factor of potential

richness and its deprivation a factor of Poverty‘. The study discusses the French Experience in

projects of developing cities with French funding. The study concludes that ‗French

Experience achieved in France does not give any direct solution of the problems of developing

cities. However the general lesson that can be learnt is that a transport policy with an objective

to fight against poverty should be able to integrate this objective in a more global policy that

improves the mobility conditions of the poor and gives them access to basic utilities World

Bank, (2002) clearly focused on poverty and accessibility. It emphasizes that urban transport

can contribute to poverty reduction both directly through improved accessibility, and

indirectly through positive effects on the economy of the cities.

It also stresses that urbanization and motorization go in tandem which results in traffic related

problems and increased transport costs for the poor. Moreover, pro-motorization policies and

neglect of public transport further intensifies the sufferings of the poor. Hence a four-prong

strategy is recommended, i.e., structural and Institutional reform, improving operational

efficiency of transport modes and a clear focus on reforms to help the poor.

111

SMEDA National Transport Strategy. Draft. Lahore: Government of Pakistan, 1999. 112

MVA Asia, Limited. "Lahore rapid Mass Transit System Feasibility Study." Final Report, Volume 1, Main

Report. 2006.

113 Statement regarding permit position in respect of urban transport in Lahore city. Information collected from

Regional Transport Authority (RTA).

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Gwilliam (2003), on the basis of some recent World Bank experience‘ highlights

implementation problems in the process of Bus Franchising. The paper classifies these

according to three root causes-lack of commitment to fully fledged reforms, protection of

vested interests and inadequate attention to detail.

Badami et al (2004) analyze access and mobility for the urban poor in India and show that

transport is consuming 18 percent income of the lowest income group, despite their making

half of their trips by walking.

Zhong-Ren Peng (2004), asserts that considering the average daily expenditure on bus travel

in Chinese cities, it comes out to be 40 percent of a poor person‘s earnings so rather than

spend this much, they prefer ‗Non-Motorized Transport‘ (NMT), i.e., walking and cycling.

But the use of NMT is being reduced due to rapid urbanization and urban sprawl.

Haider/Badami (2004), discuss the high fare of Franchise Bus Service in Greater Islamabad-

Rawalpindi Area (GIRA) that is affordable only for the top quintile income group.

Carruthers et al (2005) have developed an affordability index that can be used as a first

indicator of the affordability of fares in a particular city. The paper uses a sample of 27 cities.

The index is computed for a person on the basis of average income and for a person on the

bottom quintile of income distribution.

Baker et al (2005) discuss the demand for transport services of the poor, the factors affecting

this demand and the inter linkages between transport decisions and other vital decisions such

as where to live and work. The study addresses these goals by conducting a survey of five

thousand households in Mumbai. The goal of the project is to study their travel demand

behavior in the context of residence and work place locations. The study describes the salient

features about travel pattern in Mumbai, the importance of walking and public transport in the

mobility of the poor and the middle classes respectively and the tradeoff between housing

quality and commuting time.

3. Methodology and Data Analysis

Keeping in view the scope of the study, primary as well as secondary data was required. The

secondary data was collected from publications of both national and international agencies.

Primary data was collected through well-structured questionnaires from both male and female

commuters who use buses and wagons as modes of transportation. The questionnaires were

based on their level of satisfaction or inconveniences they face by using these two means of

transportation.

3.1 Sampling procedure:

A representative sample was essential to acquire the meaningful results, which could have

inference with respect to population and could be used to recommend effective policy

measures

3.1.1 Universe of the Study:

The study is confined to urban demarcation of the Lahore city Hence the universe is limited to

the urban area covering all directions (North, South, East and West) up to urban jurisdiction of

Lahore. Hence all the routes, (wagons and buses) and all the members of households (possible

passengers) of these wagons and buses were considered the elementary units for sampling

procedure of the study.

3.1.1.1 Selection of bus routes

The universe was stratified considering the destinations of the routes from two centrally

focused points i.e. Railway Station and General Bus Stand.

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(i) Railway Station (RS) is the central place from the old city as from this starting point,

buses and wagons are considered to run on every possible route, especially at the

time of incoming and outgoing rails

(ii) Most of the bus routes originate from General Bus Stand (GBS) to various directions

in the city.(It is located not far from the Railway Station)

Punjab Weekly Gazette114

provides a list of routes specified under Section 45-A of

Provincial Motor Vehicle Ordinance. According to it, 38 out of a total of 53 routes (72

percent) originate from RS or GBS. Presently, out of the total 53 routes, buses are plying

on 31 routes;115

however the ratio i.e.72 percent, regarding the starting point of buses

remains the same.

Consequently the selection of buses was made as under:

All the franchised bus companies operating in these routes were given

consideration under sampling procedure.

Buses selected randomly from all 31routes were part of the study sample.

The number of respondents was distributed equally among these routes.

Following is the sample size of buses and passengers for the sample routes.

Table 3.1: Franchised bus routes and their Origin and Destination

Sr.

#

Routes Bus companies Origin Destination # Of.

Passengers

1 1 New Khan R.A Bazar Saanda 48

2 3 New Khan Railway Station Islampura 40

3 4 New Khan General Bus

Stand

Wahga 54

4 5 Daewoo AC Railway Station Defence 90

5 8 Daewoo General Bus

Stand

Allama Iqbal

Airport

60

114

February 01, 2006 pp 523 115

Anjum, et.al. Study/Policy Planning of Intra City Routes of Four Major Cities in Punjab. University of

Engineering & Technology . Lahore, 2007.

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6 9 Chattha

Brothers

Railway Station Kahna Nau 77

7 12 Premier Railway Station Youhanna Abad 57

8 13 Premier General Bus

Stand

Allama Iqbal

Airport

50

9 19 Chattha

Brothers

Old Ravi Pul Chungi Amar Sidhu 72

10 20 Balouch Old Ravi Pul Bhaggrian 55

(i) Out of 31 routes, 10 were chosen at random that is one third of the total.

(ii) Out of the selected routes,70 percent routes originate either from RS or GBS towards

the four directions: two routes each towards South(routes 9,12), East(routes 5,8) and

West(routes 3,13) as most of the expansion of Lahore is taking place these

directions and one Northwards(route 4)

(iii) The remaining 3 routes (number 1, 19 and 20) were also selected randomly.116

(iv)As per formula (see section 3.2), 550 bus passengers were to be interviewed so

55 passengers were covered on each route. However to make allowance for the errors and

omissions and incomplete surveys, a far greater number of passengers was interviewed. Last

column of the above table shows the actual number of passengers surveyed on various

routes.

3.1.2.2. Selection of Wagon routes

According to S-45 MVO, 37 secondary routes were assigned to wagons. On most of these

routes, buses and wagons did not overlap and hence passengers had no choice regarding

selection of either mode of transport. However, on some routes there was a considerable

portion where wagon and bus routes overlapped. As those routes provided a

choice/comparison of buses to wagons, those were deemed more appropriate for survey. A

selection of routes posed further problems due to the fact that presently wagons are not

operating on many of the prescribed routes. It is also important to mention that many other

routes are occupied by illegal wagons. Considering these limitations, only a dozen routes were

left where wagons with valid permits were plying and four wagon routes were selected at

random from the routes with overlapped portion. As far as the respondents were concerned,

they were equally divided among these routes.

116

Designated by the Transport Department. They do not originate from RS or GBS

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Table 3.2: Wagon routes and their Origin and Destination

3.2Sample Size of the Passengers

Next important step in sampling is to determine the sample size of passengers Using the

unknown population and guessed variability of the elementary units (the passengers), in the

absence of the required information applying well known statistical formula recommended by

Casley and Kumar117

to have representative sampling with the variability leading to estimation

of maximum sample size. The formula was as under:

n=z2v

2/e

2

Where z = value of normal variate at 95% level (1.96)

v = guessed variability (50%) for maximum sample size

e = acceptable error margin = 3%

(1.96)2. (0.5)

2/ (0.03)

2 = 1067

Thus the sample size determined by applying the statistical formula was 1067. Consequently

to minimize the non sampling error, 1156 respondents were interviewed.

Table 3.3: Overview of Sample size

Bus Wagon

Total number of

routes

53 Total number of

routes

37

No.of passengers

interviewed

603 No. of passengers

interviewed

553

Male passengers

(percentage)

69 Male passengers

(percentage)

86

Female passengers

(percentage)

31 Female passengers

(percentage)

14

3.3 Passengers‟ Satisfaction Survey

After the determination of sample size, two separate questionnaires were developed for bus

and wagon passengers (see Annex-A). Realizing that the passengers are the most important

part and actual users of public transport, the study gives due consideration to their preferences.

The study also realizes that the basic purpose of this survey is to gather information about the

117

Casley, Dennis J. and Krishna Kumar. "The Collection, Analysis and Use of Monitoring and Evaluation

Data." (1988).

Sr. # Route Origin Destination Passengers

1 7 Rang Mahal Bakar Mandi 137

2 10 Railway station Pakki Thatti 127

3 27 Lohari Gate Walton Road 143

4 52 Shaukat Khannum

Hospital

Phattak 146

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satisfaction level of passengers for the transport they use preferably like reliability, safety,

seating capacity, occupancy etc. All important variables that indicate the contentment level of

the passengers (or otherwise) were included in the survey. Other variables included in the

questionnaires were

Personal profile of the passengers (age, sex, status, house-hold income, etc.)

Nature of the trip (origin, destination, walk-in, wait-in time, frequency and purpose of

trip)

Reasons for traveling by bus/wagon (cheaper mode, own mode not available, others

etc.)

Reasons for not preferring the alternative mode i.e. wagon for bus passengers and vice

-versa (poor service, high fare, slower mode etc.)

Passengers‘ suggestions for the improvement of the service in their use (e.g. its

quality, reliability, fare structure etc.).

Questionnaires were filled by enumerators especially trained for this purpose. To save time

and to ensure accuracy, the passengers were briefly explained the nature/purpose of research

and they were expected to provide simple limited response answers to the set of questions

which were noted down by the enumerators.

To make the samples true representatives of the actual situation, the survey was conducted at

different times of the day e.g. peak, off-peak; and in different days e.g. week days and week-

ends. In this way the opinion of all groups of passengers could be obtained

4 Data Analysis The data analysis throws light on the categories of passengers, their preferences and their

views about the fare structure and service quality of these two modes of public transport. The

results of the study are shown in Annex.-B (tables 1-16). It reveals that public transport was

mostly chosen by low and lower middle income groups: out of total passengers surveyed, 77

percent of wagon and 72 percent of bus passengers had household income between Rs.5000-

20000 per month (see Table 16). Data analysis also shows that mostly public transport was

used to meet daily transport needs so that 50 percent of wagon and 69 percent of bus

passengers were using these modes for education, work or job related journeys (see table 3).

Also 38 percent of wagon and 61 percent of bus passengers were using these modes on daily

basis (i.e. on six days a week: see table 8). Regarding passengers‘ preferences for these

modes, majority of these passengers surveyed were using these modes on daily basis, and had

many complaints against these modes of public transport. The most important complaints

regarding the bus service were its ‗service quality‘ and ‗reliability‘ On the other hand, most of

the wagon passengers were concerned about its ‗fare structure‘ and ‗service quality‘ and made

suggestions for its improvement (see table 13). Table 9 indicates, ‗bus‘ was a preferred mode

of public transit (viz a viz wagon) for only 71 percent of bus and 43 percent of wagon

passengers. The results also show (Table 10) that the most important reasons, the bus

passengers gave for not preferring wagons over buses was their ‗poor service‘ followed by the

fact that they were ‗overcrowded‘ compared to buses. On the other hand wagon passengers

did not prefer buses over wagons mostly due to their ‗late arrivals. In addition, fare structure

was considered to be on high side as 25 percent of wagon and 14 percent of bus passengers

suggested revision of fares (see Table 13). Furthermore, most of the female passengers

complained about the lower number of seats kept for females. On average only 3 females were

travelling on wagons and 13 on buses (see Table14).

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5 Is Public transport becoming an inferior good?

Above all, results of the study indicate that public transport has indeed become an inferior

good. (Table 16 as discussed above, is quite suggestive here). The same is also shown in

figure-1below. These clearly indicate that at lower levels of income, i.e. between household

income of Rs.5000-20000, the demand for both buses and wagons is fairly high; after

household income of Rs.25000‘ there is a very steep decline in it thereby verifying the

inverted-U passengers‟ demand for public transport. This is contrary to the claims made by

Franchised Bus Program of providing premium service at premium prices and to induce

owners of private vehicles towards Franchise Buses for day to day business. 118

Figure-1 : Level of Income (Rs.) and Distribution of Passengers

0

5

10

15

20

25

30

35

40

Pas

sen

gers

pe

rce

nta

ge

Demand for public transport

Bus(%)

Wagon(%)

Household Income per month

6 Affordability of Current Transport Users.

As indicated in passengers‘ satisfaction survey, 25 percent of wagon passengers and 14

percent of bus passengers are dissatisfied with the current fare structure (Table 13). It is

imperative here to explore this problem. Secondary data sources i.e., household surveys are

hereby used to assess what proportion of household income is spent on transport fares.

Although there is no general consensus yet most studies on the incidence of poverty in

Pakistan show an increase in poverty during 1990‘s ; e.g. Malik( 1992), Amjad and Kemal

(1997) and Ali and Tahir (1999) show an increase in poverty in early 1990‘s and according to

(Qureshi , 2001) this trend continued at the end of the decade. According to this study, in 98-

99, one-fourth of urban households were below poverty line. This means that with the rising

poverty level there has been a significant reduction in the purchasing power of poor

households. As most of the households rely on public transit for trips that require motorized

118

Haider and Badami make a distinction between transport needs of very poor and low income groups. Very

poor households live in informal housing, very close to their employment and do not depend on public transport

(pp 13). It appears the lowest income group in the present study falls in this category.

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transport, generally public transit is the only viable means of committing access to

employment, education, health and other urban services, In this section, the urban poor and

their mobility needs are discussed. The section relies on household survey conducted in year

2004-05 by the Bureau of Statistics119

to present the state of urban poverty in Pakistan.

Columns 2 and 4 of Table 17 below presents a breakdown for monthly urban household

income and expenditure in quintiles from the source discussed above. According to economic

survey 2007-08, (Table 7.1A),120

general price index for 2007-08 is equal to 155.74 compared

to the same for 2004-05 equal to 121.98 which gives adjustment factor equal to 1.28. Keeping

in view the above mentioned price changes; household consumption and income are adjusted

accordingly in columns 3 and 5.

Table 17

Adjusted Household Income and Consumption Expenditure

Quintiles Consumption Adjusted

Consumption

Income Adjusted Income

1 5621 7195 6203 7940

2 6752 8642 7239 9266

3 7994 10232 8549 10943

4 9830 12582 10462 13391

5 17043 21815 19233 24618

Average 12079 15461 13371 17115

Source:

1. House-hold survey (2004-05)

2.Economic survey (2007-08)

In order to find out the affordability of public transit, two sets of assumptions are used with

respect to the trips made by the households on public transport. National Transport Research

Cell (National Transport Reseach Centre) classifies three broad categories of urban travel: (i)

commuters (ii) students (iii) other trips. The study assumes 25 monthly work related return

trips by head of household and the same number of educational trips by one child in the

household by public transport. Then there are shopping trips, once a week and social visits

fortnightly by a family of five members121

that make 14 return trips per month. In all a

household makes 64 return trips per month. Thus total transport expenditure per household per

month at minimum prevailing bus/wagon fare of Rs. 10 comes out Rs. 1280 (64*2*10); it is

Rs.1408 at average wagon fare (Rs.11) and Rs. 1720 at average bus fare (Rs.14) in

Passengers‘ Satisfaction Survey. See table 19 and 20

Table 18: Number of House-hold Trips on Public Transport (per month)

Categories of Trips NTRC Assumptions Haider et al‟s Study‘s Assumptions

119

Household Integrated Economic Survey 2004-05 120

Pakistan Economic survey 2006-07. Islamabad: Government of Pakistan Finance Division Economic

Advisor's Wing, . Table 7.1

121

Average household size in Punjab is 6.5. (Household Integrated Economic Survey (HIES) 2004-05, pp3)

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Assumptions

Work Related 25 40 50

Educational 25 - -

Other‘s 14 - -

Total 64 40 50

Source:

1. NTRC

2. Haider et al


Table 19

Public Transport Fare

Minimum Fare Rs.10

Average Fare(Wagon) Rs.11*

Average Fare(Bus) Rs.14*

Source:

1. information collected from transport department

2. passengers‘ satisfaction survey

3. * On the basis of Km traveled.

Table 20

Total Household Transport Expenditure per Family per Month

Fare NTRC Haider Present study

Minimum Fare 1280 800 1000

Average Wagon

Fare

1408 880 1100

Average Bus

Fare

1792 1120 1400

Source:

1. NTRC

2. Haider et al


On the basis of these figures, Table21 (considering NTRC assumptions) works out household

transport expenditures (as percentage of household consumption expenditure) which is quite

high (15-20 percent) for the first two quintiles even at minimum fare charged. This means a

considerable portion of household expenditure is spent on transport.

Table 21: Transport Expenditure as Percentage of Total House-hold Consumption.

Quintiles Tm Taw Tab

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1 18 20 25

2 15 16 21

3 13 14 18

4 10 11 14

5 6 6 8

Average 8 9 12

Source: NTRC

1. Tm=transport expenditure at minimum(bus and wagon) fare

2. Taw=transport expenditure at average wagon fare

3. Tab= transport expenditure at average bus fare

Haider et al (2004) have computed transport affordability of different quintiles with different

assumptions. They only consider work related journeys. They assume two earners per urban

household that require work related commuting by public transport while other household

members do not incur transport expenditures. Their study assumes 20 return trips per earner

per month (see table 19). This study, however, finds out that (for work related journeys) most

of the passengers were making trips 6 days a week; hence 20 trips are changed into 25 trips

per month per person. (See Table 18 for comparison of three approaches). On the basis of

these assumptions made in this study, transport expenditure per household per month becomes

Rs.1000 (25*2*2*10) at minimum fare; Rs.1100 at average wagon fare and 1400 at average

bus fare.(See Table 20). Thus household transport expenditure as percentage of household

consumption expenditure of lowest quintile is 14 percent and 15 percent and 19 percent at

minimum and average fare levels discussed above. It is interesting to apply ‗Armstrong-

Wright maxim here‘. It states that situations, in which greater than 10 percent of households

spend greater than 15percent of household income on work related journeys, can be regarded

as discriminatory 122

‗It has often been interpreted as a reasonable rule for determining the

level of politically administered price. This maxim suggests that transport expenses have

become prohibitive for lower income households as the first quintile is spending almost

15percent on work-related journeys even at minimum fares.

7 Franchise Bus Scheme: A Policy Failure

As corollary to the above, the Franchised Bus Scheme appears to be a case of policy failure.

Had the policy implemented in letter and spirit, the grant of exclusive routes to the bus

companies would have put some responsibility on the bus operators to satisfy demand on the

route ensuring a certain level of service quality. The reversion to the old system that puts no

service obligations on operators and had already proved unworkable in the past signifies that

public transport has come down to zero level. There is same ‗disorderly‘ traffic, congestion

and chaos on the roads as was observed by Meakin in 1998 when the idea of Franchised Bus

System was floated by him. There is only a marginalized reduction in wagons as half of the

wagons are unregistered. The growth of bus industry has slowed down to 5 percent as the

investors‘ confidence has been affected by successful legal action (section 45-A of MVO) and

erosion of profits by escalation in fuel prices. 123

122

CITIES ON THE MOVE A World Bank Urban Transport Strategy Review. Study. Washington, D.C.: The

World Bank, 2002., pp 34.

123

Information collected from Transport Department

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Currently the public transport fails to cater to the needs of middle income group or the poor,

however the latter are compelled to use it nevertheless as they have no other option.

Purpose Bus Wagon

Educational Purpose 28 26

Work/Job Purpose 41 24

Market Purpose 14 18

Other Purpose 17 32

Table 4: Average Fare

Wagon Fare 11

Bus Fare 14

Time Bus Avg. Wagon Avg.

Walk Time 8 7

Wait Time 12 8

Table 6: Other Mode of Transport

Type of Transport Bus(%) Wagon(%)

Car 24 12

Motor Cycle 65 75

Other 11 13

[Tabel-3] Distribution of Passengers on the Basis of Purpose of Trip (Percent)

Table 5: Average Walk in and Wait in Time

Annexure-B

Sex Bus Wagon

Male 69 86

Female 31 14

Status Bus Wagon

Student 30 26

Government Servent 17 19

Business/Private 28 35

Household 7 4

Unemployed 5 8

Other 13 9

[Table-1] Distribution of Passengers on the Basis of Sex

(Percent)

Table-2 Distribution of Passengers on the Basis of Status

(Percent)

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Reason Bus Wagon

Cheaper 15 9

Used by another 39 22

Out of Order 12 5

Other 34 63

Days in a Week Bus Wagon

7 Days 2 4

6 Days 61 38

5 Days 4 4

4 Days 2 3

3 Days 2 3

2 Days 4 20

1 Days 8 15

Less than 1 17 13

*Return Trips

Preferred Mode Bus Wagon

Bus 71 43

Wagon 29 57

Reasons Bus Wagon

Poor Service 20 13

High Fare 9 10

Late Arrival 10 19

Unsafe 11 5

Attitude of Crew 10 4

Overcrowded 17 13

Slower Mode 8 13

No. is less 4 5

No other Choice 7 15

Others 5 3

Table 8: Distribution of Passengers on the Basis of Frequency of Trips*

(Percent)

Table 9: Distribution of Passengers on the Basis of their Preferred Mode of

Transport (Percent)

Table 10: Distribution of Passengers not Preferring the Alternate Mode

(Percent)

Table 7: Reason for Travelling (By Bus or Wagon)

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Accident Bus Wagon

Yes 21 14

No 79 86

Accident Bus Wagon

Major 19 18

Minor 81 82

Suggestions Bus Wagon

Service Quality 25 19

Service Reliable 22 14

Fare Structure 14 25

Safety 10 16

Crew Behavior 8 8

Seating Capacity 19 17

Any Other 2 1

Table 14: Average No. of Female Passengers

Female Passengers Average

Bus 13

Wagon 3

Table 15: Average No. of Vacant Seats

Vacant Seats in: Average

Bus 2

Wagon 2

Categories Bus Wagon

Below 5000 4 3

5000 to 10000 22 16

10001 to 15000 21 34

15001 to 20000 29 27

20001 to 25000 11 17

25001 to 30000 5 2

30001 to 35000 2 1

35001 to 40000 4 1

Above 40000 1 0

Table 16: Level of Income(Rs.) and distribution of

passengers (Percent)

Table 11: Accidents encountered by

Bus/Wagon passengers (Percent)

Table 12: Accident Major or Minor as

reported by Passengers (Percent)

Table 13: Suggestions by Passengers to improve

Bus/Wagon Service (Percent)

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References

Anjum, et.al. Study/Policy Planning of Intra City Routes of Four Major Cities in Punjab.

University of Engineering & Technology . Lahore, 2007.

Baker, Judy, et al. "Urban Poverty and Transport: The Case of Mumbai." World Bank Policy

Research Working Paper No. 3693. September, 2005.

Carruthers, Robin, Malise Dick and Anuja Saurkar. Affordability of Public Transport in

Developing Countries. Washington, D.C.: The World Bank Group, 2005.

CITIES ON THE MOVE A World Bank Urban Transport Strategy Review. Study.

Washington, D.C.: The World Bank, 2002.

Godard, Xavier and Lourdes DIAZ Olvera. "Poverty and Urban Transport: French experience

and developing cities ." Final report. September, 2000.

Haider, Murtaza and Madhav Badami. "How to balance equity and efficiency concerns in

public transit for the urban poor in Pakistan?" Woodrow Wilson International Center Forum

on Urban and Public Service Delivery for the Urban Poor. New Delhi, India, 2004.

(JICA), Japan International Cooperation Agency and Traffic Engineering and Transport

Planning Agency (TEPA). Comprehensive Study on Transportation System in Lahore: Final

Report. Lahore, 1991, pp13-32.

MVA Asia, Limited. "Lahore rapid Mass Transit System Feasibility Study." Final Report,

Volume 1, Main Report. 2006.

Meakin, Richard. "The Lahore Public Transport Policy & Institutions Study." Final Report.

1998.

SMEDA National Transport Strategy. Draft. Lahore: Government of Pakistan, 1999.

Casley, Dennis J. and Krishna Kumar. "The Collection, Analysis and Use of Monitoring and

Evaluation Data." (1988).

Pakistan Economic survey 2006-07. Islamabad: Government of Pakistan Finance Division

Economic Advisor's Wing, n.d.

Pakistan Economic survey 2007-08. Islamabad: Government of Pakistan Finance Division

Economic Advisor's Wing, p55

Punjab, Government of. "The Punjab Gazette." February 01, 2006. Annexure A

Qureshi, Sarfraz K. and G. M. Arif. "Profile of Poverty in Pakistan, 1998-99." Pakistan

Institute of Development Economics (2001)

National Transport Reseach Centre. "Effect of Increase in Bus Fares on Common Man's

Budget." 1978.

National Transport Research Centre. "Vehicle Operating Costs‖. 1984

National Transport Research Centre. "Vehicle Operating Costs." 1994

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The Effects of Job Satisfaction on Productivity: Orange Telecommunication Company

on Jordan: Case Study

Mohammad. T. Bataineh,

Assistant Professor, Business administration Department,

Jerash Private University, Jordan.

Abstract

Job satisfaction play important role on organizations to be successful so they must

continuously ensure the satisfaction of their employees, the aim of this study is to explore the

effect of job satisfaction on productivity through variables such as occupational level, job

experiences, job congruence and uses of skills, using sample of (163) managers in Orange

company, Results were supported by previous researches revealing that Occupational level,

Job Experience job congruence and uses of skills have significant positive influence on

productivity.

Keywords: Job Satisfaction, Productivity, Orange Telecommunication Company.

1. Introduction

Job satisfaction describes how content an individual is with his or her job. The happier

people are within their job, the more satisfied they are to be. Job satisfaction is not the same as

motivation or attitude, although it is clearly linked. Job design aims to enhance job satisfaction

and productivity; methods include job rotation, job enlargement, experience, uses of skills and

occupational level. Other influences on satisfaction include the management style and culture,

employee involvement, empowerment, job congruence and autonomous work position. Job

satisfaction is a very important attribute which is frequently measured by organizations.

Job satisfaction can also be seen within the broader context of the range of issues which

affect an individual's experience of work, or their quality of working life. Job satisfaction can

be understood in terms of its relationships with other key factors, such as general well-being,

stress at work, control at work, home-work interface, and working conditions.


It is important to note that the literature on the relationship between job satisfaction and

productivity was neither found conclusive nor consistent. However, studies dating back to

(Herzberg's,1957) have shown at least low correlation between high morale and high

productivity.

Job satisfaction has been defined as a pleasurable emotional state resulting from the

appraisal of one‘s job, an affective reaction to one‘s job, and an attitude towards one‘s job,

(Weiss ,2002) has argued that job satisfaction is an attitude but points out that researchers

should clearly distinguish the objects of cognitive evaluation that affect emotion, beliefs and

behaviors, Job satisfaction, as already defined as a worker's sense of achievement and success,

is perceived to lead organizational productivity as well as to personal well-being. Job

satisfaction is a topic of considerable interest to employers since it is likely to influence a

worker's, and hence the firm's, performance. Productivity and profitability are likely to be

higher if workers have a high level of job satisfaction. Job turnover is also likely to be higher

in firms that have a low level of job satisfaction, thereby resulting in higher training costs. It is

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also important for workers to be happy in their work, given the amount of time they have to

devote to it throughout their working lives.( Qadar,2009)

In order for an organization to be successful they must continuously ensure the

satisfaction of their employees. Job satisfaction is defined as "an individual's reaction to the

job experience, there are various components that are considered to be vital to job satisfaction.

These variables are important because they all influence the way a person feels about their

job. These components include the following: pay, promotion, benefits, supervisor, co-

workers, work conditions, communication, safety, productivity, and the work itself. Each of

these factors figures into an individual's job satisfaction differently. One might think that pay

is considered to be the most important component in job satisfaction, although this has not

been found to be true. Employees are more concerned with working in an environment they

enjoy (Berry, 1997).

We must go straight to the source when regarding job satisfaction. The employees are

the ones employers should turn to, Employees are the ones that give the necessary feedback in

order for employers to know if people are satisfied with their jobs. How should an employer

measure satisfaction without making the employee feel uncomfortable? It is not considered

tactful to confront an employee in person on how satisfied they are with their job. Thus,

employers measure job satisfaction based on surveys. Satisfaction surveys provide feedback to

the employer which could be beneficial to the company. There are many factors that need to

be resolved in order to provide a helpful survey. But how valid and reliable are these surveys?

One of the largest problems is how the surveys may be interpreted by the employees. The

company must evaluate the questionnaires with certain confounding factors in mind. The

surveys need to either be focused on the organization as a whole or just the components of the

job itself.

Job Satisfaction can be an important indicator of how employees feel about their jobs

and a predictor of work behaviors such as organizational citizenship, absenteeism, and

turnover. Further, job satisfaction can partially mediate the relationship of personality

variables and deviant work behaviors.(wegge,2007).

One common research finding is that job satisfaction is correlated with life satisfaction.

This correlation is reciprocal, meaning people who are satisfied with life tend to be satisfied

with their job and people who are satisfied with their job tend to be satisfied with life.

However, some research has found that job satisfaction is not significantly related to life

satisfaction when other variables such as nonworking satisfaction and core self-evaluations are

taken into account. (Rode,2004).

2-1. The following suggestions can help increasing job satisfaction:

1. Be Clear About Job Requirements: It‘s nearly impossible to do a good enough job at

your work if you don‘t know what the requirements are. Unfortunately, sometimes it‘s

difficult to know all of the requirements at a job when those in charge are poor

communicators. Some bosses and supervisors are vague with expectations, assign new tasks

with little advance notice, request new tasks without providing training, and inadvertently set

workers up to fail in other ways.

2. Find Rewards and Recognition: We all need to feel recognized and rewarded for

what we do. If your job doesn‘t have built-in opportunities for recognition, or if rewards are

infrequent, you may need to add rewards and recognition to your own life.

3. Maintain a Balanced Lifestyle: Keeping balance in your lifestyle is important; if it‘s

all work and no play, you may find your ability to work beginning to wane. In order to

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http://en.wikipedia.org/wiki/Turnover_(employment)

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maintain balance in your lifestyle, the first step is to take an overview of your current lifestyle

and see which areas are out of balance.

4. Think Positive: You can usually change your experience of your current

circumstances by changing your attitude about them. Developing an optimistic point of view

and changing negative self talk patterns can go a long way toward helping you see the glass

half-full, as well as actually making you more productive and less stressed.

5. Know Yourself and Work With Your Personality: Certain features of your

personality make some jobs a better fit for you than others. If you‘re in a job that‘s not well-

suited for your personality, you may be putting yourself under unnecessary stress every day

you go to work.

2-2. Means for Increasing Job Satisfaction: (John, 1976)

1. Challenging Work and Its' Relationship to Job Decision Making--Satisfaction comes

from the challenge of running work. This will depend on whether management delegates

enough responsibility and puts enough faith in its people to make those decisions.

2. Effective Field Planning and Management Support--The Superintendent and Foreman

must have enough foresight to make sure they get the equipment and materials they need to

keep the job running smoothly. Management must give support in updating schedule and

delivering the goods when needed.

3. Sharing Cost Information--If the Superintendent and Foremen are given cost

information on a regular basis, they may be helpful to management in achieving profitability.

4. Identification with the Building Physical Structure.

5. Developing Good Crew Relations--This includes relations between a single crew as

well as relations between the trade.

2-3. How to Motivate Staff and Increase Employee Productivity?

Good office management not only ensures that workplace productivity is maintained,

operations run smoothly, and employees work together as a team for the overall good of the

company. It also cultivates a respectful employer employee relationship and knows how to

motivate staff.

One motivational idea proven effective as a way to increase employee job satisfaction

and productivity is to empower employee job performance. This is accomplished by allowing

more worker independence and responsibility. Want to increase overall productivity and the

job performance rating of your work staff? Employees feel as though they were valued and

trusted members of the workforce, allowing them to take the initiative to get things done their

way, and then rewarded them for successes.

Properly implemented and when not abused, this type freedom creates a more

comfortable, congenial work environment. Workers are happier with their jobs; performance

is boosted, and everyone – including company bottom line numbers – benefits.

2-4. Models of job satisfaction:

1. Affect Theory:

Edwin A. Locke‘s Range of Affect Theory (1976) is arguably the most famous job

satisfaction model. The main premise of this theory is that satisfaction is determined by a

discrepancy between what one wants in a job and what one has in a job. Further, the theory

states that how much one values a given facet of work (e.g. the degree of autonomy in a

position) moderates how satisfied/dissatisfied one becomes when expectations are/aren‘t met.

When a person values a particular facet of a job, his satisfaction is more greatly impacted both

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positively (when expectations are met) and negatively (when expectations are not met),

compared to one who doesn‘t value that facet.

2. Dispositional Theory:

Another well-known job satisfaction theory is the Dispositional Theory Template:

Jackson April 2007. It is a very general theory that suggests that people have innate

dispositions that cause them to have tendencies toward a certain level of satisfaction,

regardless of one‘s job. This approach became a notable explanation of job satisfaction in light

of evidence that job satisfaction tends to be stable over time and across careers and jobs.

Research also indicates that identical twins have similar levels of job satisfaction.

3. Two-Factor Theory (Motivator-Hygiene Theory):

Frederick Herzberg‘s Two factor theory (also known as Motivator Hygiene Theory)

attempts to explain satisfaction and motivation in the workplace[5]

This theory states that

satisfaction and dissatisfaction are driven by different factors – motivation and hygiene

factors, respectively. An employee‘s motivation to work is continually related to job

satisfaction of a subordinate. Motivation can be seen as an inner force that drives individuals

to attain personal and organizational goals (Hoskinson, Porter, & Wrench, p. 133). Motivating

factors are those aspects of the job that make people want to perform, and provide people with

satisfaction, for example achievement in work, recognition, promotion opportunities. These

motivating factors are considered to be intrinsic to the job, or the work carried out.[5]

Hygiene

factors include aspects of the working environment such as pay, company policies,

supervisory practices, and other working conditions

2.5. Redefine the Employer Employee Relationship:

Administrative office management willing to redefine the relationship between superior

and subordinate are discovering something.

Supporting high performing employees who ―go out on a limb‖ to discover and

implement ways to make better use of time – not only increases productivity and employee

morale. But also helps unleash worker energy that proves contagious to other work staff.

2.6. Try the following: Encourage employees to take the initiative

Encourage employees to discover ways to make better use of time

Encourage employees to think for themselves, while still working together as a team

Reward successes

In the article written by (Petri, 2010) examines the role of job satisfaction in the

determination of establishment-level productivity. The matched data contain both information

on job satisfaction from the ECHP (European Community Household Panel) and information

on establishment productivity from longitudinal register data that can be linked to the ECHP.

The estimates for the effect of a one point increase in the establishment average level of

employee job satisfaction, on a scale 1-6, on productivity vary depending on the specification

of the model. The preferred estimate, based on the IV estimation that uses satisfaction with

housing conditions as an instrument for job satisfaction, shows that the effect on value added

per hours worked is ~20% in the manufacturing sector. The economic size of this effect is

modest, because the observations are bunched towards the higher end of the satisfaction scale

making it very difficult to increase the average level of job satisfaction in the establishment by

one point.

In the article written by (Emin,2007) reports the effects of job characteristics (physical

efforts and job grade), and working conditions (environmental conditions and hazards) in

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addition to experience and education level on task performance and contextual performance.

A total of 154 employees in 18 teams at a medium-sized metal company participated in this

study. Seven criteria for task performance and 16 for contextual performance were used for

measuring employee performance. The results showed that there were substantial relationships

between employee performance both job grade and environmental conditions. Poor workplace

conditions (physical efforts, environmental conditions, and hazards) result in decreasing

employee performance consisted of following organization rules, quality, cooperating with

coworkers to solve task problems, concentrating the tasks, creativity, and absenteeism.

One of the major concerns of manufacturing companies has focused on improving

worker productivity, which is one of the job satisfaction measures. Some of the common

features of these companies are heavy loadings, adverse environment, poor human–machine

system design, unpleasant working conditions, etc. Heavy loadings, workplace conditions

such as inclement weather, extreme heat/ cold, chemical smell, noise, poor lighting, vibration,

and dust have direct or indirect effects on employee job satisfaction. These conditions

decrease employee concentration towards tasks which lead to low employee satisfaction such

as low productivity, poor quality, physical and emotional stress, which cause high cost.

Effective applications of ergonomics in working conditions enhance employee job

satisfaction; provide worker safety, physical well-being, and job satisfaction. Many studies in

ergonomic area (Shikdar and Sawaqed, 2003; Yeow and Sen, 2006)

There is a substantial body of research from both sociology and economics that has

revealed the relationship between education, productivity, job satisfaction, and salary

(Groeneveld and Hartog, 2004; Voon and Miller, 2005). Education level required for a job in

the workforce is a persistent problem in all industrialized countries. It is expected that the

higher the level of education the more productive the employee, wherever he or she is

employed. (Posthuma‘s, 2000) finding, that education level is positively associated with

supervisor evaluations of job performance (r ¼ 0.24), supported this hypothesis. A major

effect of education is that overall productivity falls short. Education does not guarantee

increased productivity. Indeed, it seems likely that overeducated employees would be more

prone to morale problem, not to be rewarded with higher salary. Higher dissatisfaction

generates lower work effort, which reduces employee productivity.

Job satisfaction was evaluated on several levels: Profits, Job performance, Intrinsic work

values, and, Patient care issues. Profits referred not to personal financial gain, but to the

organization‘s profits. Many nurses responded feeling "devalued in their job" (Fletcher, 2001)

this paper examines job satisfaction in nursing and the health care field. Once the definition of

job satisfaction is determined, the paper examines how to improve one's personal satisfaction

in the nursing field by examining why someone chooses the nursing profession and why they

choose to stay. Productivity is then examined to determine how it affects job satisfaction, Job

Performance was not only applied to them, but attitudes and performance of coworkers on a

horizontal and vertical plane were also considered.

In the article written by (Smith, 2001) issues of productivity and nonproductively were

investigated. The purpose of this study was to consider "staff nurse views of their productivity

and nonproductively, and factors that increase or decrease their productivity, Smith used semi-

structured interviews to gather data about, and factors influencing productivity. Recruited

from six different nursing units, 30 staff nurses were used, in an attempt to accurately

represent nurses as a whole. The researchers found that productivity was based on two

categories; quantity, and quality of their work. A third category considered, was personal

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factors that "influence their quantity and quality of work, The findings of this research suggest

that nurses understand the factors pertinent to productivity and lack thereof. And given the

appropriate settings, including quality and quantity of patient care, can improve productivity

in the nursing field.

In the article written by (Shrader, et al, 2001) research was conducted with the purpose

of examining the relationship between work satisfaction, stress, age, cohesion, work schedule

and anticipated turnover. The study used a cross-sectional design in which 241 staff nurses

and five nurses managers from 12 nursing units completed a questionnaire, The basis of the

research was the following four questions: What is the relationship between job stress, group

cohesion, and stability of the schedule and anticipated turnover?, "Which factors are

predictive of anticipated turnover?, What factors predict anticipated turnover for nurses of

different age groups?, and, Is there a relationship between anticipated turnover and actual

turnover? Researchers found that nurses experience moderate levels of job stress, but cohesion

is above average for all nursing units, lower the cohesion, lower the work satisfaction, work

satisfaction, weekend overtime, job stress, and group cohesion were all predictors of the

anticipated turnover rate, This showed a positive correlation between anticipated turnover and

actual turnover,

3. Objectives of the Study

The aim of this study is to explore the effect of job satisfaction on productivity. More

specifically this research has four objectives:

To explore the effect of occupational level on productivity.

To study the effect of job experiences on productivity.

To understand the effect of job congruence on productivity.

To inspect the effect of uses of skills on productivity.

4. Data and Methodology

To examine the impact of occupational level, job experiences, job congruence, uses of

skills on organizational productivity, I selected Orange Telecommunication Company in

Jordan to be my case study in this research.

4.1 Data

Several data collection methods used in research. A questionnaire or sample survey and

case study approaches are the primary tools of data collection. That was divided into five

sections. Section 1 measured the respondents' demographic background. Sections 2 through 6

measured the respondents' views toward the impact of occupational level (6 items), in terms of

job experiences (6 items), job congruence (7 items), uses of skills (8 items), and sources of

productivity (7 items). Each item was measured in terms of a five point rating scale from 1

(strongly disagree) to 5 (strongly agree).

4.2 Methodology

The sample was drawn from three management levels within Orange

Telecommunication Company in Jordan, around (185) questionnaires were randomly

distributed to managers in these three levels. The returned suitable questionnaires were (163)

with (88%) response rate.

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5. Hypotheses

Based on the objectives of the study, the following hypotheses will be tested.

Hypothesis 1: occupational level will have a significant positive influence on the

productivity of the firm.

Hypothesis 2: job experiences will have a significant positive influence on productivity

of the firm

Hypothesis 3: job congruence will have a significant positive effect on the productivity

of the firm.

Hypothesis 4: uses of skills will have a significant positive effect on the productivity of

the firm.

6. Case and Data Analysis

Tables (1) through (5) present the descriptive statistics for the five study variables

(Occupational level, job experiences, job congruence, uses of skills and productivity.

More specifically, statement1 (1-6) represent the Occupational level independent variable;

statements (7-12) represent job experiences independent variable; statements (13-19)represent

the job congruence independent variable, statements (20-27) represent the uses of skills

independent variable, and statements (28-34) represent the productivity dependent variable.

6.1 Occupational level Variable

As shown in table (1) item # 1 had high mean scores (4.55): "Our organization is aware

of the importance of occupational level to enhance productivity" of Occupational level the

dimension, while item # 5: "you like to work as part of a team not independently" scored the

lowest mean (3.28).

Table (1) Occupational level Descriptive Statistics (n=163)

N

0.

Statement Mean Standard

Deviation

1

. Our organization is aware of the importance of

occupational level to enhance productivity.

4.55 0.65

2

. Our organization employs express more positive job

attitudes and feelings

3.89 0.87

3

. Our organization concern about motivator needs for

employees

4.02 1.09

4

. Our organization supported challenging and responsibility 3.45 0.92

.

5. you like to work as part of a team not independently 3.28 0.71

6

. You have rewards when you complete a project or

complete another month of hard work

3.32 0.57

Total mean 3.91

6.2 job experiences

The findings presented in table (2) as shown. Item #10: " Your satisfaction appears to

increase after a numbers of years of your experiences " of the job experiences dimension

scored the highest mean (4.26), while the item # 11: "You team up with a supportive friend

and agree to listen to them for more experience" came last and scored lower mean (3.05).

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Table (2) Job Experience Descriptive Statistics (n=163)

No. Statement Mean Standard

Deviation

7 New workers tend to be satisfied with their jobs in their

organization.

3.96 0.79

8 Your period involves the stimulation and challenge of

developing your experiences and abilities

3.14 1.12

9 You can usually change your experience of your current

circumstances by changing your attitude about them.

4.02 0.70

10 Your satisfaction appears to increase after a numbers of

years of your experiences

4.26 1.06

11 You team up with a supportive friend and agree to listen to

them for more experience

3.05 1.14

12 Our organization gives you new tasks with providing

training to increase experience.

3.54 0.56

Total mean 3.66

6.3. Job congruence:

Table (3) shows the results of the job congruence variable. Again, the means for all

items were either high or very high thus assuring the importance of job congruence on

productivity of the firm. Statement # 16 that says " Communication lines is more willing to

receive positive feedback and high job satisfaction from a subordinate" came first with high

mean (4.76), while statement # 14 that says" Emotions were found to be significantly related

to overall job satisfaction" came last with average mean (3.34).

Table (3) Job congruence Descriptive Statistics (n=163)


Deviation

13. Employees feel about their jobs and a predictor of work

behaviors

3.46 0.69

14. Emotions were found to be significantly related to overall

job satisfaction

3.34 0.88

15. Communication is an important influence on job

satisfaction in the workplace.

3.58 0.74

16. Communication lines is more willing to receive positive

feedback and high job satisfaction from a subordinate

4.76 0.46

17. I feel involved in decisions that affect our organizational

community

4.05 1.24

18. My manager cares about me as a person 3.94 0.59

19. My coworkers are committed to do their work as teamwork 4.66 0.85

Total mean 3.97

6.4. Uses of skills:



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Table (4) reflects the results of the fourth variable of the study. The results again

emphasize the importance of uses of skills on increasing productivity, Statement # 16 that says

" Communication lines is more willing to receive positive feedback and high job satisfaction

from a subordinate" came first with high mean (4.76), while statement # 14 that says"

Emotions were found to be significantly related to overall job satisfaction" came last with

average mean (3.34).

Table (4) Uses of skills Descriptive Statistics (n=163)


Deviation

20 My superior encourages my development and training 3.46 0.69

21. I have had opportunities at work to learn and grow 3.34 0.88

22. Organization allow me to exercise my skills or apply the

knowledge acquired during my college training

3.58 0.74

23. Top management supported worker to adopt our expertise. 4.76 0.46

24. Teamwork's help employee to increase their skills during

their work

4.05 1.24

25. Top management encourage job rotation to increase

employee skills

3.94 0.59

26. The level of opportunity within an organization directly affects improvement skills

4.66 0.85

27. Skills variety increases experienced responsibility for outcomes 3.97

6.5. Productivity variable:

As shown in table (5) the statistical means and standard deviations of the productivity

are shown, , Statement # 30 that says "Provide worker safety, physical well-being, and job

satisfaction increase productivity" came first with high mean (4.58), and there were three

items in high means which are #32,33,34, while statement # 28 that says" Top management

empower employee to increase job productivity" came last with average mean (3.65).The

standard deviation values were medium to low indicating close respondent attitudes towards

the study variables thus holding similar views about the variables.

Table (5) Sources of productivity Descriptive Statistics (n=163)


Deviation 28 Top management empower employee to increase job

productivity.

3.65 0.49

29. Management delegates enough responsibility and

puts enough faith in its people to make those decisions.

3.89 0.53

30. Provide worker safety, physical well-being, and job

satisfaction increase productivity

4.58 0.81

31. Overeducated employees would be more prone to morale

problem, not to be rewarded with higher salary

3.76 0.52

32. Top management allowing employee to take the initiative

to get things done their way

4.05 1.04

33. Top management rewarded employee for their successes. 4.12 0.76

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34. Employee know what the requirements are to do their job 4.14 1.01

6.6 Correlations among Variables

Table (6) presents the zero-order correlations and for all of the study variables. Occupational

levels, Job Experience, Job congruence, Uses of skills were significantly and positively

correlated (r < 0.562, p < .01) with Occupational level. Similarly, the Job Experience variable

was also correlated with (r = .674, p < .01). , Job congruence is also highly related to

productivity (r=0.825, p < .01) and, Uses of skills (r=0.627, p < .01).

Table (6) Descriptive Statistics and Correlations

productivity Occupational

level

Job

Experience

Job

congruence

Uses

of

skills

productivity Correlation 1.00

Sig 0.00

Occupational

level

Correlation 0.562** 1.00

Sig 0.00

Job

Experience

Correlation 0.674** 0.36** 1.00

Sig 0.00 0.00

Job

congruence

Correlation 0.825** 0.772** 0.475** 1.00

Sig 0.00 0.00 0.00

Uses of skills Correlation 0.627** 0.429** 0.658** 0.375** 1.00

Sig 0.00 0.00 0.00 Notes:

Scale: 5-point Likert-type scale.

*p < .10; ** p < .01; *** p < .001.

With regard to the specific hypotheses, we found:

Hypothesis 1, Occupational level have significant positive influence on productivity

was supported.

Hypotheses 2, Job Experience have significant positive influence on productivity were

also supported.

Hypothesis 3, Job congruence have significant positive influence on productivity was

supported.

Hypotheses 4, Uses of skills have significant positive influence on productivity was

supported.

7. Conclusion and Recommendations

According to data analysis I found that there were many results, the most important were;

1. The higher the occupational level or status levels of a job, the higher the job

satisfaction.

2. Job satisfaction appears to increase after a numbers of years of experience and to

improve steadily thereafter.

3. The relationship between job satisfaction and job congruence was positive influence

on productivity.

4. The study shows that people are happy if they have chances to use their skills at work.

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The following recommendations are suggested:

1. Concentrate on team up with a supportive friend and agree to listen to them for more

experience.

2. Take care more in emotional employee to increase more overall job satisfaction.

3. Encourage employee development and training by their managers for increasing job

satisfaction.



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References: Berry, Lilly M. (1997). Psychology at Work. San Francisco: McGraw Hill Companies Inc.

Elizabeth Scott, M.S.(2007) Job Satisfaction: Find Satisfaction At Your Current Job Enjoy

Your Job More—Or Know When It‘s Time For A Change, Medical Review Board.

Emin Kahya, (2007) The effects of job characteristics and working conditions on job

performance, International Journal of Industrial Ergonomics 37 , 515–523

Fletcher, C. E. (2001, June). Hospital RN‘s job satisfactions and dissatisfactions. Journal of

Nursing Administration, 31(6), 324-31.

Groeneveld, S., Hartog, J., (2004). Over education, wages and promotions

within the firm. Labor Economics 11, 701–714.

John D. Borcherding. (1974), Construction Productivity and Job Satisfaction. A.M. ASCE,

and Clarkson H. Oglesby, F. ASCE, Journal of the Construction Division. Herzberg, F., Mausner, B., Peterson, R. O., and Cap well, D. F. (1957). Job Attitudes: Review

of Research and Opinion. Pittsburgh: Psychological Service of Pittsburgh.

Mc Neese-Smith, D. (2001, February). Staff nurse views of their productivity and

nonproductively. Heath Care Management Review, 26(2), 7-19.

Petri Böckerman,(2010) The job satisfaction-productivity nexus: A study using matched

survey and register data, MPRA Paper.

Posthuma, R.A., 2000. The dimensionality of supervisor evaluations of job performance.

Journal of Business and Psychology 14 (3), 481–487.

Qadar Bakhsh (2009) Effects of Job Satisfaction On Employees Motivation & Turn over

Intentions, Journal of Managerial Sciences, Volume II, Number 1.

Rode, J. C.(2004). Job satisfaction and life satisfaction revisited: A longitudinal test of an

integrated model. Human Relations, Vol 57(9), 1205-1230.

Shader, K., Broome, M. E., Broome, C. D., West, M. E., & Nash, M.(2001, April). Factors

influencing satisfaction and anticipated turnover for nurses in an academic medical

center. Journal of Nursing Administration,31(4), 210-6.

Shikdar, A.A., Sawaqed, N.M., (2003). Worker productivity and occupational health and

safety issues in selected industries. Computers & Industrial Engineering 45 (4), 563–

572.

Voon, D., Miller, P.W., 2005. Under education and over education in the

Australian labor market. Economic Record 81 (255), s22–s33.

Wegge, J., Schmidt, K., Parkes, C., & van Dick, K. (2007). ‗Taking a sickle, Job satisfaction

and job involvement as interactive predictors of absenteeism in a public organization.

Journal of Occupational and Organizational Psychology, 80, 77-89

Weiss, H. M. (2002). Deconstructing job satisfaction: separating evaluations, beliefs and

affective experiences. Human Resource Management Review, 12, 173-194.

Yeow, P.H.P., Sen, R.N., (2006). Productivity and quality improvements, revenue increment,

and rejection cost reduction in the manual component insertion lines through the

application of ergonomics. International Journal of Industrial Ergonomics 36 (4),

367–377.

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http://www.istaffsolution.com/

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Determinants of Firm Growth:

An empirical examination of SMEs in Gujranwala, Gujrat

and Sialkot Districts.

Khizra Safadr Khan(Corresponding author)






Abstract

The objective of the present study is to investigate the importance of SMEs being

an important source of providing employment opportunities. Primary data collected

from a survey of 826 small industrial units is being utilized to empirically test t he

important determinants of firm growth. Binomial Logit is employed to find out the

role of firm-specific factors along with owner/manager characteristics,

organizational and commercial capabilities as important determinants of

employment generation. Different problems and obstacles encountered by SMEs in

generating employment activities are also been undertaken in the present analysis.

Firm age, education of owner, boss attitude, family business, networks, new

process, major improvements, market share, on job training and unique know how

are found to be significantly and positively increases the probability of firm growth.

Age of owner, foreign trade regulations, taxes, other regulations, political

instability, inflation and lacking of skilled labor adversely reduces the probability

of firm growth in terms of employment opportunities. Government should device

such policy measures that can help small units to grow and provide employment

opportunities.

Key Words: Firm growth, employment, Logit Model, Owner/manager,

Organizalional and Commercial capabilities.

1. Introduction

The importance of industrialization cannot be denied being a better mean to provide

employment opportunities, its contribution towards economic growth as compared to

traditional agricultural sector, and more foreign exchange earnings through exports of value

added products and optimal utilization of domestic resources by establishing forward and

backward linkages in the economy. In case of developing countries like Pakistan, motivation

behind each development policy is to provide employment opportunities to its accelerated

growth of population along with a considerable increase in their living standard but

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establishment of large scale industrialization requires resources in abundance, therefore

alternatively, emphasis should be laid on the establishment of small scale sector in order to

resolve all these problems notevi

.

Small and medium enterprises (SMEs) are considered to be an important source of

generating employment opportunities (Carree & Klomp, 1996). The experience of developed

nations showed that promoting SMEs sector is one of best way to boost up employment

activities and particularly a developing country like Pakistan can provide more employment

opportunities to its growing population by promoting SMEs sector.

Therefore, it is necessary to understand different determinants of firm growth in order to

device such policy options that can facilitate small unit‘s growth. The focus on the firm

growth has been intensified in the last two decades. Various disciplines investigated to find

out the determinants of firm growth include innovation, strategy, psychology, economics and

network theory. However, it is observed that information regarding firm growth is quite

inadequate (Davidsson & Wiklund, 2000, Wiklund et.al, 2007) because of the fragmented

nature of existing literature. As research from a psychological point of view asserts on the

entrepreneurial behavior (Begley & Boyd, 1987), investigation regarding firm‘s strategy

focuses on the association among business strategy, environment and growth (McDougall et.al

1992). Where as, research relating to economic conditions concentrate on the relation between

firm‘s growth and its size (Audretsch et.al, 2004). Thus, the existing literature presents more

diverse point of views, with a little attention on more integrated presentation of determinants

that explains the process of firm growth.

Therefore, special attention should be given to identify the major determinants of firm

growth in a more integrated manner. Consequently, in the present study, the determinants of

firm growth are classified into three dimensions including owner/manager characteristics,

firm‘s characteristics along with the major factors that restrict firm‘s growth.

The present study has tried to present a broad prospect regarding major determinants of

firm growth. A detailed data survey on firm growth is being employed for analytical purposes,

conducted by author in the districts of Gujranwala, Gujrat and Sialkot, presenting detailed

information concerning main factors that influence the firm growth. The study has provided

an opportunity to explore different determinants of firm growth in an inclusive manner. It has

tried to identify the most important factors considered responsible for firm growth by

employing a data set comprising of 826 small units.

The study is pioneer in its nature as no empirical study in Gujranwala, Gujrat and Sialkot

districts has so far been conducted to find out the major determinants of firm growth in terms

of employment generating activities in the SME belonging to Light Engineering Sector.


Rapid increase of the population in a developing country like Pakistan asks for the

provision of employment opportunities on the same rate in order to improve their living

standard along with a steady economic growth. SMEs are considered as a better mean for

providing employment opportunities as there are about 3.2 million economic establishments

In Pakistan, 99 percent of these are accorded as SMEs, and accommodate about 80 percent of

non-farm labor force note vii

. The role of small and medium enterprises (SMEs) as key source in

providing employment opportunities is now well established. The literature review regarding

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role of SMEs in employment generation can be categorized on the basis of the owner/manager

characteristics, firm‘s characteristics and growth barriers that restrict the firm growth.

2.1 Owner/Manager Characteristics

The growth and development of a small firm depends entirely on the motivation and

ambition of the owner of that unit. Among the prominent features of an entrepreneur that

effects the firm growth involves general background of the owner involving age and education

of the owner along with his growth motivation note viii

and management know howix

.

2.1.1 General Background

Growth ambition of the owner is influenced by his age factor and this effect is being

investigated by many studies. A significant negative relation between age of the owner and

growth ambition is indicated by different studies (Autere & Autio, 2000, Welter, 2001).

According to literature, the negative relationship can be the result of different factors like the

initial goal of growth perceived by the entrepreneur, or due to a higher motivation to develop

their businessx and compliance of younger entrepreneurs to experiment with their capabilities

in contrast to their older counterparts (Davidsson, 1991, Sapienza & Grimm, 1997, Welter,

2001). According to the literature, firm growth is positively influenced by high levels of

education (Sapienza & Grimm, 1997, Storey, 1994) note xi

. But different empirical studies yield

different results as Kolvereid (1992) showed that highly educated entrepreneurs are keen to

grow their businesses. A positive relationship between former level of education and firm

growth was found in ten out of seventeen empirical studies surveyed by Cooper et al. (1992)

note xii.

2.1.2 Growth motivation

In the literature relating to small businesses, the small business owner and the

entrepreneur are distinctly differentiated. According to Birch (1987) the small business

owners are considered as income substituters as they replace the paid-employment income

with business income note xiii

. While, entrepreneurs are considered to be more ambitious to

develop their businesses. A survey of small business start-ups was conducted in Ontario

concluded that nearly half of the new firm owners proposed that their main motive to run the

business is that it would simply generate sufficient income to sustain a certain lifestyle. (Orser

et al., 1996). The importance of personality traits of entrepreneurs is a key factor but they may

not essentially leads towards real firm growth. Personality traits effect the growth motivation

(Delmar, 1996) in a more promising manner. Therefore, it is concluded that both the

willingness and ability of owner along with growth motivation play an important role in

entrepreneurial ventures.

The most important characteristic of an entrepreneur to develop his business is

considered as risk taking propensity. An entrepreneur can be distinguished from simple

business owner as they look for new opportunities, deal with uncertainties in a more

promising manner note xiv

. Non risk aversive firms have greater probability to grow (Bager &

Schøtt, 2004. The literature suggests an ambiguous role of risk taking propensity towards

entrepreneurial activities (Palich & Bagby, 1995, Babb & Babb, 1992, Low & Macmillan,

1988, Kogan & Wallach, 1964, Litzinger, 1961). Gundry and Welsch (1997) realized that the

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commitment to growth is the main factor that differentiates "high" growth from "low" growth

businesses. The internal locus of the control is found to be an important characteristic of

successful owner-managers along with the belief of control over their fate (Brockhaus and

Horwitz, 1986, Caird, 1990, Chell et al., 1991. Perren (2000) found that the desire to be "one's

own boss" was a significant feature in motivating the entrepreneurs to develop their business.

Glancey (1998) showed that entrepreneurs initially stimulated by ‗being your own boss‘ are

more prone to low growth levels.

The literature suggests that some individuals may have started small businesses because

the pressure of unemployment forced them to do it. This factor makes distinction between

push and pull hypothesis as the individuals have opted to start a small business because they

were left with no other choice (the push hypothesis) and not because they were characterized

by entrepreneurial stance and aptitude (the pull hypothesis) (Zhenxi et al., 1999). Likewise, it

is argued that individuals who are engaged in a parallel paid-employment job have less time

and motivation to invest in the growth of their business. The reason behind this factor is that

some of these owner/mangers are complementing their job with some income from

independent business, so that they can sustain a certain lifestyle (Riding et al., 1998).

2.1.3 Management know-how

The characteristics of management know-how of an entrepreneur are considered as an

important factor in the process of firm growth. Management know-how is the possible

outcome of many factors like having an intergenerational heritage, or having experience of

paid-employment in a similar business, or by having previous management experience being

owner of some other business.

Literature suggests that individuals from families owning a business are more inclined to

start an entrepreneurial venture by developing knowledge of how to run a business. Empirical

evidence suggests that belonging to an entrepreneurial family, augments the probability of

survival (Cooper et al., 1994, Papadaki et al., 2000). However, the empirical results on the

impact of family background on the growth scenario of an entrepreneurial venture are

ambiguous. Empirical evidence suggests that industry specific know-how can have a positive

impact on the success of a business both in terms of growth and survival of the business

(Perren, 2000, Cooper et al., 1994, Bruderl et al., 1992, Bosworth and Jacobs, 1989, Hofer and

Charan, 1984). Firm‘s performance is found to be positively effected by prior entrepreneurial

experience note xv

. According to the literature, the related experience contributes positively in

enhancing self-confidence among entrepreneurs (Orser et al., 1998) and leads them to venture

success (Delmar and Shane 2006). Past experiences can help them in both in managing new

venture (Ripsas, 1998, Shepherd et al., 2000) and take advantage of an already established

network of customers, employees, investors and suppliers (Campbell, 1992) playing a crucial

role for the success of a new business.

According to the literature, contact with professional advisors like bankers, accountants,

business associates, customers and suppliers can help small business owners in gaining

knowledge and access to information networks leading to develop more formal joint venture

and alliances. Partnerships and alliances can help both in distributing spread risks and sharing

costs along with opening of new markets and development of new services, products and

processes. The importance of partnerships and coalition has been empirically stated by the

studies of firms with high growth performance (OECD, 2000, Barringer & Greening, 1998).

The impact of use of professional advice from different sources on firm‘s growth yielded

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mixed results. According to some studies, the guidance of professional advisors results in

greater success and better firm performance (O'Neil and Duker, 1986, Ciavarella et.al, 2004).

The presence of partners can benefit the firm growth by providing access to capital, functional

know-how and a wider array of management understanding (Eisenhardt and Schoonhoven

1990, Teach et al., 1986). The business ventures also provide psychological support in

decision making and other major problems faced by the firm (Perren, 2000).

2.2 Firm Characteristics

Individual competencies can be described as the knowledge, abilities or skills mandatory

to execute a particular job. Under firm characteristics, the study has employed different

determinants of firm growth like Individual firm‘s characteristics, its organizational/business

practices note xvi

, its technological capabilities and market structure determinants.

2.2.1 Individual Firm

The classical firm features can be referred as firm age and size. The Gibrat‘s law can be

considered as pioneer referring to the discussion on the relationship between firm age/size and

firm growth (Audretsch et al., 2004). The law focuses on the independence of growth and size

note xvii. According to this law the firm‘s growth is proportional to their size, and the growth of

all firms takes place at the same rate over an interval of time, despite of their initial size

within the same industry note xviii

. Researchers investigating firm growth by differentiating

firms with respect to their sizes proposed that Gibrat‘s law of size independence is only

convincing for firms above a specific size threshold (Bigsten & Gebreeyesus, 2007). A

negative relationship is found by an empirical study in US between firm growth, age and size,

as postulated by Jovanovic's model (Variyam et al., 1992, Evans, 1987). A negative effect of

size on firm growth is also indicated incorporating different countries and industries (Calvo,

2006, Bottazzi & Secchi, 2003, Goddard, Wilson & Blandon, 2002, Almus & Nerlinger, 2000,

McPherson, 1996, Dunne & Hughes, 1994).

2.2.2. Organizational/ Business Practice

According to Schumpeterian tradition, growth is positively associated with a company's

capacity to innovate (Nelson and Winter, 1978, 1982). Furthermore, in order to enjoy a steady

growth, firms are required to respond constantly according to the needs of their customers in

new and specific manners. The empirical evidence suggest that more innovative firms in

Canada, the US, and Europe experienced high growth (Baldwin 1994, 1995, OECD, 2000).

Innovativeness being an important component of entrepreneurial orientation note xix

refers to the

willingness of a firm to maintain creativeness and experimentation to introduce new

products/services, technological control, and R&D in developing new processes.

According to economic theory it is proposed that firms that cater to their local markets

are able to attain competitive advantages by quickly responding to customers and properly

utilizing networks and community support systems. Dynamic economic theories suggest

strategic flexibility and capacity to modify market focus effects growth positively, which may

require diversification in new products and new markets (Gorman, 1997). On the basis of

resource-based analysis, financial resources and human capital are the termed as most

important resources for the growth of small business (Wiklund et al., 2007). Secured financial

resources are considered as predominantly vital in supporting firm growth note xx

because it is

comparatively easy to convert them into other types of resources (Dollinger, 1999). A firm

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having sufficient resources is capable of doing experiments, increasing both innovativeness

and chances to pursue new opportunities of firm growth (Castrogiovianni, 1996, Zahra, 1991).

Financial resources of a firm depends mainly on the past financial performance of a

firm, as past profit can be reinvested into the business. Eventually, a firm not only depends on

external funding, but also utilizes its internal resources to finance business. The firms with

superior financial performance have the chance to grow according to the evolutionary theory

of ―Survival of the fittest‖ (Coad 2007).

2.2.3. Technological Capabilities

Technological capabilities can be defined as ―the firm‘s current ability and its future

potential to utilize firm-specific technology to resolve technical problems and to augment the

technical functioning of its production processes along with its finished products‖ .The

essential component of competition is differences in the technology adopted by different

firms; therefore it plays a major role in growth performance of small firms. It involves

diversification in their product mix, number of markets dealing with, presence of unique

know-how along with on job training capacity of the firm.

Literature suggests positive effect of diversification on growth process of firms by

helping them to deal with particular product line demand constraint and creating new growth

opportunities. Diversification into new products is considered not only as an important

medium of competition but also as a major engine to firm growth (Marris and Wood, 1971).

Firm growth was found to be constrained due to absence of product diversification providing

evidence to the argument that less diversified firms performed poorly in terms of growth as

compared to firms that were more diversified (Chen et.al, 1985).

Some researchers suggest that firm location is an important determinant of firm growth

because the local market bound firms (Davidsson ,1989, Storey ,1994). In spite of the support

provided to firm by local market, it not essential that the firm restrain its sales only to the local

market. By utilizing modern means of communication and networks, the firm can diversify its

geographic markets. Therefore, the diversification into different geographic markets like

national and international markets, will lead to a positive impact on firm‘s growth. A positive

correlation between firm growth and diversification into markets was found by Becchetti and

Trovato (2002). Literature concerning determinants of firm growth considers both human

capital and financial resources as most important factors effecting small business growth

(Wiklund et al., 2007). Human capital can be defined as a combination of knowledge,

experience and skills. On the firm level, the experience, skill and knowledge of the total

employees contribute more promisingly as compared to the entrepreneur alone (Chandler &

Hanks, 1994, Birley & Westhead, 1990). Human capital can be measured both in terms of

specific and generic terms. Generic human capital is defined in terms of different levels of

educational attainment by workers. Specific human capital can be measured by employing a

dummy variable indicating whether firm is offering on job training to its workers or not (Lee

et.al, 2005).

Small firms carry out a large number of technological innovations based on their unique

know how approach in an unbalanced manner among industrialized nations and also in newly

industrialized countries like Korea. They play an important role in the diffusion of technology

and their unique know-how is often based on the improvements of general technologies

developed by large firms.

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2.2.4. Market Structure

The major force behind a firm‘s growth is considered to be the market structure in which

it operates. The growth process of firm in influenced by the fact that whether the firm is

operating in competitive market conditions or not. An important aspect of an industry‘s

market structure is whether the firms are able to compete for their products in market or not.

The market structure comprises of market orientation of the firm, the ability to adapt its price

policy according to market changes and change in its market share over a period of time.

The efficiency with which a firm sells its products and services to the customers

determines its growth establishing market orientation an important determinant of firm

growth. Accordingly, market orientation results in improved satisfaction of customers and

stakeholders leading to the firm‘s growth (Hult, Snow & Kandemir, 2003, Narver & Slater,

1990). Empirical evidence suggests that market orientation is significantly associated to the

overall growth performance of a firm (Jaworski & Kohli, 1993).

Numerous empirical studies have established the significance of market demand for a

firm‘s innovative activities and its growth (Cohen, 1995, Kleinknecht, 1996). The demand of

the product of a firm determines its growth process. The binding expansion of the firm‘s main

product forces the firm to search new customers, diversify into new products and into new

geographic markets. The competitive advantage enjoyed by the firm in producing a certain

good or service results in the increase of the firm‘s market share (Porter, 1980).

The firm‘s ability to adapt its pricing policy according to competitive pressures is

positively associated with the growth of expected sales. Such capacity of firms to change their

market share in response to such pressures helps them to increase their market share

accordingly (Harabi, 2005).

2.3 Growth Barriers

Along with the above mentioned determinants facilitating firm‘s growth, there are also

factors that obstruct the potential growth of the firm named as growth barriers (Davidsson,

1989). Literature suggests that SMEs are mostly hindered by barriers relating to market‘s

entry and their growth in the early stages of their life span as compared to their large

counterparts. Frequently addressed restrictions for small businesses growth comprises of

institutional barriers, non-institutional barriers and financial barriers.

2.3.1 Institutional Barrriers

Institutional barriers are mainly associated with the firms‘ interaction with government,

comprising of taxation problems, legalization issues, and government support programmes

along with other barriers. Consistent results from both the theoretical and empirical data states

that certain institutions discriminate against the SMEs growth intentionally in the form of un-

favorable tax system, complicated rules and regulations and biased policies, thus hampering

firm‘s growth (Davidsson & Henreksson ,2002). The institution barriers employed in the

study to calculate their impact on firm‘s growth comprises of regulation on foreign trade,

level of taxes, other regulations, political instability, inflation and price Instability.

According to the theory, trade promotes productivity growth within industries, leading

weak firms to exit and allowing strong firms to flourish (Bolaky et.al 2006). But specialization

cannot be induced if factor movement is restricted due to strict rules and regulations. In such

economies, strict regulations inhibit free entry and exit of firms and restrict labor to move

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freely within sectors and firms. Countries with system of excessive regulations, business

respond to changes in growth opportunities through the expansion of existing firms, while in

countries with moderate regulations, business respond through the creation of new firms

(Fisman & Sarria-Allende, 2004). An unsuitable tax system and a range of biased official

policies correspond to a major factor effecting firm‘s growth (Barlett et.al, 2001). Bribery is

considered to be a consequent out come of over-taxation concerning to a particular sector,

providing incentives to the firms to influence the taxation authorities having negative impact

on foreign direct investment (Wei,1997).

Complex laws, policies and rules relating to companies can prove to be particularly

harsh to the growth of small firms. Grey economy is considered to be a consequent out come

of over-regulation relating to a particular company sector, providing incentives to the firms to

influence the regulatory authorities in their support, leading to the establishment of culture of

―unproductive entrepreneurship‖ (Baumol, 1990). The complexity of government regulations

and legislations, and the inheritance of the background of relations with regulatory authorities,

may support the culture of corruption and bribery. Some suggest that the cumulative effect of

rules and regulations is more problematic for small firm as compared to that of an individual

regulation (Harris, 2002). The collective impact of employment and other regulations is

severely hampering small firm‘s growth (Edwards et. al., 2003).

Political instability is considered as one of the major constraints having a negative

impact on the productivity of manufacturing sector featuring poor business environment

(Elhiraika et.al., 2006). At the aggregate level, a high level of risk factor is attached with the

presence of weak institutions that can in turn lead to political instability with a considerable

negative impact on overall economic growth and even a stronger adverse effect on individual

firm‘s performance (Fosu, 2003, Gyimah-Brempong, 2004).

Inflation is considered to be one of the important factors that cause the disturbance of

business planning – leading to an unfavorable consequence to the firm‘s capital investment. It

affects the firm‘s budget by disturbing their cost structure note xxi

. In the presence of high and

volatile inflation, the operation of the price mechanism is distorted leading to inefficient

allocation of resources.. If firms are unable to adjust this increase in costs properly, this will

eventually affect their profits leading to some firm‘s closure, or reduction in production and

consequent employment levels note xxii

.

2.3.2 Non-institutional barriers

Non-Institutional barriers are mainly associated with the firms‘ internal resources and

capacity utilizations, the scope of market dealing with, different issues relating to human

resource management and problems relating to diversify into new markets (Barlett et.al.

2001).

The importance of market demand for a firm‘s growth is evident from literature (Cohen,

1995, Kleinknecht, 1996). Lack of market demand hinders firm growth. Market demand of a

Firm‘s product determines its pace of growth. Lack of market demand implies shortage in its

production and its consequent impact on the reduction in employment level. Thus, it is

assumed that there exists a negative association between lack of market demand and firm

growth (Harabi, 2005).

In addition to lack of resources and capacity utilizations, a significant barrier to growth

is concerned with human resource management and the conditions relating to employ and

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dismissal of workers note xxiii

. A major factor inhibiting SME‘s growth is the entrepreneur‘s

inability to branch out the business functions to its managers (Storey 1994). This propensity

can be highlighted by shortage of skilled managers, along with their deficiency of business

expertise in the vicinity of promotion and business expansion (Bartlett et.al 2001). SMEs

mostly experience inadequate market information. They are also unable to adjust themselves

adequately to changing preferences and tastes of customers, leading to a decline in existing

market shares or fail along with inability to penetrate in new markets (Elhiraika et.al., 2006).

In addition, they face competition from improved quality and reasonably priced imports. In

the presence of all these factors, it can be stated that inability of firms to access new markets

can be considered as a major hindrance to firm‘s growth (Bartlett & Bukvic, 2001).

2.3.3 Financial Barriers

Financial barriers correspond to the lack of financial resources. Credit restriction, equity

capital and lack of external debt are considered to be the main hindrance to the growth of

SMEs (Becchetti & Trovato, 2002, Pissarides, 1998, Riding & Haines, 1998). According to

empirical evidence the financial institutions behave more conservatively while providing

loans to SMEs. SMEs are usually charged comparatively high interest rates along with high

collateral and loan guarantees (Stiglitz & Weiss, 1981).

3. Research Method

3.1 Sources of Data

In the present study, primary data collected through a detailed survey of Light

Engineering sector is being utilized for analytical purposes. The survey has been conducted

in the districts of Gujranwala, Gujrat and Sialkot from Feb, 2009 to Feb, 2010. The format of

the SMEs questionnaire covers broad aspects of firm growth involving different

characteristics of each unit along with its owner/manager along with a detailed profile of

factors that restrict small units to grow further. 826 units were investigated out of which 426

units were found to be experiencing firm growth in terms of employment expansion a total of

400 firms had experienced an employment contraction in the last two years till the survey

time.

3.2 Logit Model for Employment growth

To evaluate the probability of a firm experiencing growth in terms of employment

expansion, logistic regression analysis with maximum likelihood estimation is employed. In

the analysis dependent variable takes the value 1 when the firm is providing more

employment opportunities and 0 when the firm has experienced a reduction in its employed

labor force in the last two years. Explanatory variables in this analysis can be divided into

three main categories as characteristics of the owner/manager and the firm, along with

different factors that restrict a firm to grow in terms of employment growth.

Basic model can be written as

Employment=a0+a1X+e (3.1)

Where

Employment=1 (if firm is growing in terms of employment)

= 0 (if firm is non-growing in terms of employment)

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X= Owner/manager characteristics, firm‘s characteristics, and factors inhibiting firm‘s

growth.

The interpretation of the model in terms of probabilities can be explained as odds ratios.

Odd ratio greater than 1 indicates the increase the probability of experiencing growth while

less than one indicates the decrease in the probability of firm growth.


The classification of firms on the basis of providing employment opportunities is given

in the table (1). According to the survey statistics, 826 firms note xxiv

were surveyed. Out of

these 826 SMEs, 427 were found to be experiencing growth in terms of employing more

labor in the last two years till survey time. While, 400 firms have faced a negative tendency

in their growth in the same time period.

The results of the main firm growth equation 3.1 are being shown in Table (3). Among

the owner/manager‘s characteristics, the age and education of the owner are found to be

positively and overall significant at 99 percent confidence level. Age of the firm has a

positive impact on the firm growth in terms of its employment generation activities. A unit

change in the age of the firm increases the odds of growth in terms of employment by 2.009

units (the probability of growth in terms of employment generation over the probability of

not experiencing any improvements in firm growth). The characteristics of an owner being

his own boss is found to be significant at 99 percent confidence level as one unit increase in

the tendency of the attitude of the owner as boss increases the odds of firm growth by 2.215

units. Risk taking attitude and other interests of the owner are proved to be insignificant in

the present analysis.

Involvement in the family business increases the probability of firm growth as it is

proved to be significant at 95 percent confidence level. Previous experience of an owner in

the same field of engineering increases the probability of firm growth in terms of its

employment generating activities. A unit change in the previous experience of the owner

increases the odds of firm growth by 1.848 units (the probability of firm growth over the

probability of not experiencing any firm growth).

Working of firm through networks increases the probability of firm growth by 1.324

units. Involvement of firm in new process activities increases the probability of firm growth

as a unit change in involvement in new process activities increases the odds of involving in

employment growth activities by 2.071 units. Major improvements in the firm‘s process are

found to be significant at 90 percent confidence level. Variables of diversification and

number of markets dealing with are proved to be insignificant in the present analysis. An

increase in the market share by one unit increases the odds of experiencing firm growth by

1.046 units. The procession of unique know how increases the chances of a firm to grow in

the long run in terms of employment generation as this variable is proved to be significant at

90 percent confidence level.

As far as different obstacles restricting firm growth are concerned, foreign trade

regulations, tax system‘s complications, political instability, inflation and other factors are

proved to be significantly and negatively effecting firm growth in the present analysis. The

variable of access of a firm to skilled labor is found to be negatively effecting firm growth at

99 percent confidence level. Other determinants of firm growth like market competition,

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market demand and access to new markets are found to be insignificantly influencing the

firm growth.

5. Conclusion

Small and medium enterprises are considered as an important source of

providing employment opportunities. In order to explore the contribution of small

firms toward employment generation, primary data is being employed collected

from a survey of 826 small industrial units. Binomial Logit model is utilized to

find out the contribution of firm-specific factors along with owner/manager

characteristics, organizational and commercial capabilities as important

determinants of employment generation. Different problems and obstacles

encountered by SMEs in generating employment activities are also been

undertaken in the present analysis. Firm age, education of owner, boss attitude,

family business, networks, new process, major improvements, market share, on job

training and unique know how are found to be significantly and positively

increases the probability of firm growth. Age of owner, foreign trade regulations,

taxes, other regulations, political instability, inflation and lacking of skilled labor

adversely reduces the probability of firm growth in terms of employment

opportunities.

Government should provide support to small units so that they can provide

employment opportunities. Education of the owner is proved to be significantly

affecting the probability of firm growth. Such policy measures should be devised

that can help entrepreneurs in their educational training along with the provision of

technical and managerial facilities that can promote firms in terms of employment

growth. Government should support firms to overcome obstacles that restrict

firm‘s growth. Firm‘s growth in terms of employment can yield better outcome if

these small units are provided with basic infrastructural support in terms of

finance, technical and commercial support.

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Notes

____________________ Note 1

Government of Pakistan had estimated a required investment of Rs. 5.2 trillion in large scale sector to

provide employment opportunities to an addition of 16 million persons to the labor force while only Rs. 8 billion

are required in case of small/micro scale sector.(http://www.pakistan.gov.pk/ministries/planninganddevelopment

ministry/mtdf) Note 2

Economic census of Pakistan 2005. Note 3

It comprises of risk taking attitude, desire of independence, unemployment push and part time business

approach Note 4

Management know how involves family business, industry specific knowhow, previous ownership

experience, work through networks and partnerships. Note 5

The need for additional income can be considered as a major factor that pushes young owner/manager to

expand their business (Davidson 1991). Note 6

Education is most probably associated with information and skills, inspiration, self assurance, problem

solving aptitude, dedication and control. Note 7

A Bachelor degree holding entrepreneur was found to have a positive influence on growth and survival of

small firms (Cooper et al. (1994)). Note 8

Hay (1994) has termed income substitutors as ―life-stylers" because their goal is to achieve long-term

stability instead of growth, and they use business as an income generating activity adequate to sustain a certain

"life-style." Note 9

See for example (McCelland, 1961, Timmons et al., 1985, Chell et al., 1991, Morris and Sexton, 1996) Note 10

A positive relationship was found among entrepreneurs with general business management experience and

their growth ambition (Orser, Hogarth-Scott and Wright 1998). Note 11

See e.g. Boyatzis, 1982 Note 12

See e.g. Hart and Prais, 1956, Simon and Bonini, 1958, Hymer and Pashigan, 1962 Note 13

Studies yielding negative support to Gibrat‘s Law includes Becchetti & Trovato, 2002. Note 14

Entrepreneurial orientation is defined as a combination of innovation, proactiveness and risk taking on the

firm level (Miller, 1983). Note 15

Bamford, Dean & McDougall, 1997, Sexton & Bowman-Upton, 1991 Note 16

http://tutor2u.net/economics/content/topics/inflation/costs_of_inflation.htm Note 17

http://everything2.com/index.pl?node=The+effects+of+inflation&lastnode_id=1474863 Note 18

Bartlett, W. and V. Bukvic. 2001. ‗Barriers to SME Growth in Slovenia.‘ MOST 11:177-195. Note 19

Among these 826 small units, 529 were located in Gujranwala, 189 in Gujrat and 45 were found to be

working in Sialkot Districts.

http://www.pakistan.gov.pk/ministries/planninganddevelopment

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Annexure

Table 1: Classification of firms on the basis of Employment Growth.

Employment Growth Gujranwala Gujrat Sialkot Total

Increase 307 98 21 426

Decrease 285 91 24 400

Total 592 189 45 826

Table 2: Determinants of Firm growth

VARIABLES VARIABLES DISCRIPTION

DEPENDENT VARIABLE

EMPLGROWTH Growth in the employment in the last two years (1= increase or positive, 2=decrease or

negative)

INDEPENDENT VARIABLES

1.OWNER/MANAGER CHARACTERISTICS

1. GENERAL BACK GROUND

AGEOWNER Age of the owner in years

EDUOWNER Education of the owner (0= Illiterate, 5= upto secondary education, 10= upto matric or

college, university education)

1. GROWTH MOTIVATION

RISK Risk taking propensity of the owner (1= keen to take risks,0=otherwise)

BOSS Desire of independence (1= started business to be boss,0=otherwise)

UNEMPPUSH Unemployment Push (1= started business because of unemployment, 0= otherwise)

PARTTIMEB Part time business (1= currently employed elsewhere, 0=otherwise)

2. MANAGEMENT KNOW HOW

FAMILYB Family Business (1= the current business is your family business,0=otherwise)

INDKNOWHOW Industry specific knowhow (1= any experience of the same business, 0=otherwise)

PREWOWNER Previous ownership (1= owned some other business,0=otherwise)

NETWORKS Work through networks (1=yes, 0=no)

PARTNERSHIP (1= Business is in partnership, 0=otherwise)

2. FIRM LEVEL CHARACTERISTICS

1. INDIVIDUAL FIRM

SIZE No. of full time employees working

FIRMAGE No. of years since establishment

1. ORGANIZATIONAL/ BUSINESS PRACTICES

INNOVATION

NEWPRODUCT If the firm has introduced new product in the last two years (1=yes,0=no)

NEWPROCESS If the firm has introduced new process in the production during the last two years

(1=yes, 0=no)

MAJIMPROVEMENTS If the firm has introduced major improvements in the existing system in the last two

years (1=yes, 0=no)

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LOCALMSALES Percentage of sales to local markets

FINANCSOURCES Sources of financing (1=internal, 2=external, 3=both)

2. TECHNOLOGICAL CAPABILITIES

DIVERCIFICATION Diversified their product mix during last two years (1=yes, 0=no)

MARKETSNO No. of markets dealing with

ONJOBTRAIN On job Training (1=yes, 0=no)

UNIQUEKNOWHOW Presence of unique knowhow (1=yes,0=no)

3. MARKET STRUCTURE

MARORIENTATION Do the owner has market orientation (1=yes, 0=no)

MARKETSHARE

Share of the firm in the market during last two years (1=increased, 2=decreased,

3=constant)

PRICEADAPT Easily adapt market prices (1=yes, 0=no)

3.GROWTH BARIERS

1. NSTITUTIONAL BARRIERS

FOREIGNTRADE Business gets affected by regulations on foreign trade (1=yes, 0=no)

TAXES Business gets affected by level of taxes (1=yes, 0=no)

OTHERS Business gets affected by other regulations (1=yes, 0=no)

POLITICALINS Business gets affected by political instability (1=yes, 0=no)

INFLATION Business gets affected by inflation and price instability (1=yes, 0=no)

2. NON-INSTITUTIONAL BARRIERS

MARKETD Changes in market demand due to imports or other factors effect business (1=yes,

0=no)

LACKSKILL Constraint of skilled workers effect business (1=yes, 0=no)

ACCESSNEW Limitation to access new markets affects (1=yes, 0=no)

3. FINANCPROB Financial constraints hinders firm‘s growth (1=yes, 0=no)

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Table 3: Logistic Results Firm Growth

PREDICTORS COEFFICIENT Z-STATISTICS ODD RATIOS

Age of Firm 0.092*** 2.14 2.009

Age of owner -0.104*** -2.3 1.990

Education of owner 0.197*** 2.99 1.981

Risk 0.0179 0.12 0.982

Boss 0.1951*** 1.94 2.215

Other interest -0.469 -0.21 1.954

Family Business 0.2727** 1.79 1.313

Knowhow 0.0344 0.17 0.966

Previous Experience 0.1645* 1.62 1.848

Networks 0.2810** 1.9 1.324

Partnership 0.0325 0.19 1.033

New product 0.1060 0.58 0.899

New process 0.682** 2.45 2.071

Major improvement 0.253* 1.75 1.289

Diversification -0.0032 -0.02 0.997

Market share 0.447* 1.55 1.046

On job training 1.127*** 2.51 1.893

Unique knowhow 1.151** 1.85 1.167

No. of markets 0.0262 0.47 0.974

Foreign trade regulations -0.4307*** -2.74 1.538

Taxes -0.1131* -1.57 1.120

Others -0.3184*** -2.27 1.727

Political -0.926** -1.63 1.912

Inflation -0.759* -1.49 1.927

Competition 0.3381 1.09 0.713

Market demand 0.1935 0.83 1.214

Access new markets 0.0455 0.3 0.956

Lacked skilled labor -0.713*** -2.49 2.074

Constant -0.1705 -0.22 -

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The Determinants of Export Performance:

Evidence from small engineering units in Gujranwala, Gujrat and Sialkot Districts.

Khizra Safadr Khan(Corresponding author)






Abstract

The paper examine the role and importance of firm level characteristics, technological

capabilities, commercial capabilities and factors inhibiting export activities as determinants of

export performance in case of Light Engineering Units of Gujranwala, Gujrat and Sialkot

Districts. Empirical data from a survey of 1201 Light engineering units in Gujranwala, Gujrat

and Sailkot Districts is being employed for analytical purposes out of which 318 units were

found to be involved in export activities. Multinomial regression logistic model has been

utilized to find out the probability of being exporter. Instrumental variable approach is

employed to encompass the role of innovation in the probability of being exporter. The

estimated results of instrumental equation are than incorporated in the basic model to find out

the final estimation results. Results from the logit model represent that all the three measures

of innovation positively improves the probability of being exporter. LnRev/Month, product

mix, manufacturing status of the firm, trade marks, registered trade marks, size of the firm,

availability of information and cost competitiveness are found to be significantly and

positively contributing towards the probability of being exporter. The innovation processes

comprising of new product, new process and major improvements are found to be positive

with high odd ratios exhibiting their importance in the exports of light engineering sector.

Average wage (-ve) means higher the cost of labor less likely is the chance that firm will

export. Non-cooperation of Govt. agencies, financial problems, competition in foreign

markets and expensive foreign visits are negatively and significantly associated probability of

being exporter.

Key Words: Export, SME, Light Engineering Units, Logit, innovation, Gujranwala.

1. Introduction

The idea of international trade being the engine of the growth is very old; its inception

can be found back in the 18th

century's industrial revolution in England which later on spread

to the rest of the world in the 20th

century. However, during the second half of the 20th

century, the idea lost its popularity. The dominance of protectionist theories in the policy

making of many developing countries persuaded industrialization policies based on a very

limited degree of openness known as ―import substitution industrialization (ISI)‖ strategies,

which had their source back in the thinking of Prebisch (1950) Note1

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During the 1950s, 1960s and in early 1970s, a large number of development economists

embraced the protectionist view and begin to design planning models depending heavily on

import substitution strategy (Salvatore 2006).

The policy of industrialization through import substitution generally met with limited

success. But growth oriented strategies based on import substitution exhibited their own

limitations i.e., their implementation in many countries failed to address the major problems

like low income earnings, unemployment and poverty (UNIDO 1991). Therefore emphasis

was laid on sectoral restructuring and policy redesigning. In early 1980s, many countries

who earlier followed an ISI ---- began to liberalize trade and adopted EOI Note2

. In addition,

debt crises in 1982 also played an important role in reshaping the policy views.

Thus, the importance of industrialization cannot be denied being an improved strategy to

provide employment opportunities, its contribution towards economic growth as compared to

traditional agricultural sector, more foreign exchange earnings through exports of value

added products and optimal utilization of domestic resources by establishing forward and

backward linkages in the economy. In case of developing countries like Pakistan, motivation

behind each development policy is to provide employment opportunities to its accelerated

growth of population along with a considerable increase in their living standard but

establishment of large scale industrialization requires resources in abundance, therefore

alternatively, emphasis should be laid on the establishment of small scale sector in order to

resolve all these problems Note3

.

The extraordinary growth in Pakistan‘s Industry in the later part of 1950s and in 1960s

Note4 suggested that Pakistan might be one of the very few countries at that time which would

join the developed world. However, much of the growth that had been taken place in the first

two decades soon unraveled, with growing income and regional disparities, resulting in the

separation of East Pakistan.

In 1947, Pakistan inherited an undeveloped industrial base. Pakistan followed ISI

initially by default. Industrialization process in Pakistan was initiated with the development

of consumer goods (skill light).Very high rates of effective protection in the range of 100-200

percent or more were common in 1950 and 1960s in Pakistan, India, Argentina and Nigeria

leading to negative value addition (Dollar and Art 2001). 1970‘s witnessed the board

nationalization wave, while 1980‘s was a period of de-nationalization and cheap credit

availability for large enterprisesxxv

. In 1980s Pakistan also started EOI along with ISI. Overall

industrial and related policies in Pakistan have traditionally neglected or at best remained

impartial towards the development of small and medium enterprises. In spite of the

indifferent attitude of successive governments in Pakistan, the SME sector has made

significant gains over time. It grew at a rate in excess of 7.2 percent in capital formation

growth as against the large scale capital formation growth of -5.02 percent in the 1990‘s

(SMEDA 2004). A shift in the emphasis from large scale to small scale sector could be

considered as a consequence of poor policy experiences of heavy industrialization or due to

recognition of the inherent strength, vigor and potential scope of the SME sector in Pakistan.

1.2 Role of SMEs Worldwide

From a worldwide perspective, SMEs are recognized as engine of economic growth Note6

because of their dependence on indigenous skills and technology, innovativeness and

expansion of industrial linkages. SMEs are endogenously based enterprises as their linkages

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with the large multinational corporations lead to rapid growth and expansion of SMEs. They

also play a vital role in employment generation Note7

and poverty reduction Note8

. In addition

they contribute towards resource mobilization Note9

, revenue generation through export

earnings Note10

, increase in savings, and equitable distribution of income, promotion of

craftsmanship, egalitarian structure of society and development of an entrepreneurial culture.

SMEs are also instrumental in skill acquisition through a system of informal apprenticeship

and also provide training ground for upgrading and developing skills.

There are 20.5 million enterprises in the European Economic Area (EEA) and

Switzerland out of which 93 percent are SMEs, providing employment for 122 million

people (Competence development in SMEs. 2003, Observatory of European SMEs 2003/1

Eurorean Comission). SMEs are crucial to the UK‘s economy. Businesses with fewer than

250 employees account for 56% of the UK non-government jobs and 52% of turnover (Small

and Medium Enterprise (SME) Statistics for the UK, 1999 URN 00/92). In OECD SMEs

represent over 95% of enterprises in most countries and generate over half of private sector

employment (OECD: Economic Outlook, No. 65, June 2001). The International Finance

Corporation states that in much of the developing world the private economy is almost

entirely comprised of SMEs' and that ‗they are the only realistic employment opportunity for

millions of poor people throughout the world (Lukacs 2005).

The SMEs constitute more than 99 percent of businesses in Pakistan and all these

activities are handled by the private sector and most of these operate in the informal economy

Note11. There are about 3.2 million economic establishments In Pakistan, 99 percent of these

are accorded as SMEs, according to the definition of SMEs by SMEDA. Their contribution

towards value addition in manufacturing sector is 35 percent. SMEs contribute 30 percent to

GDP. Their share in manufactured exports is 25 percent. They contribute 99 percent towards

employment generation Note12

.

The main objective of this research is to investigate the reasons that how some Light

Engineering Units experience better export performance as compared to others. For this

purpose, the study has employed different factors like Firm level characteristics,

technological and commercial capabilities along with the factors that restrict the export

activities to examine the variations in export performance of under consideration units. The

inclusion of export inhibiting factors among the important determinants of export

performance is an important contribution of the study, as limited work has been done in this

respect to explore the relationship between different types of trade barriers and export

performance of small industrial units.


The increasing trend of globalization has extended the domain of market and

competition for an enterprise from domestic markets to the international markets. The role of

small and medium enterprises (SMEs) as prominent players in international markets is now

well recognized. The literature review can be categorized on the basis of the firm level

characteristics, technological and commercial capabilities along with the factors affecting the

export performance of firms.

2.1 Firm level characteristics

The study focuses mainly on the role of firm-specific factors associated with the export

performance. According to the literature, the firm specific factors are crucial both for

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building competitive advantages Note13

and recognizing economic rents Note14

. Literature Note15

suggests different reasons for firm‘s differential within industries (Rumelt, 1991) according

to their performance (Cool and Schendel, 1988), the adoption of technological and corporate

policies (Lefebvre et al., 1997), along with the utilization of different technical expertise

(Davies, 1979, Helfat, 1994, Baldwin and Rafiquzzaman, 1998). The firm-level determinants

of export performance have been investigated extensively (Chetty and Hamilton, 1993) and

encompasses a variety of different factors regarding the significance of firms‘ demographics

(Wagner, 1995) and the entrepreneurs organizational perception (Bijmolt and Zwart, 1994).

In the section, firm level characteristics like firm size, age, manufacturing status, trade unions

along with the revenue per month and average wages have been considered along with their

consequent impact on export behavior of firms.

Among the structural factors, the firm size is considered to be the most debated in the

literature. The conventional hypothesis that large firms have greater chances to compete

globally is found to be significant in different studies (Chandler, 1990, Ogbuehi and

Longfellow, 1994) but a number of empirical studies have established a negative or no

relationship between Firm size and exports (Calof, 1993). The difference in the results can be

attributed to the non-linearity of the relationship between two variables (Lefebvre et al.,

1998). As far as the relationship between age of a firm and its export potential is concerned,

it has been frequently investigated in the literature. Empirical results suggest conflicting

results regarding the relationship between firm age and exports. Established firms on the

basis of accumulated knowledge Note16

and strong capabilities have greater chances to

penetrate in the foreign market. On the other hand, mature firms can behave more rigidly

leading to competence traps Note17

, while younger firm‘s can act in a more practical,

aggressive and flexible manner (Lefebvre et.al, 2000).

Literature regarding manufacturing status of a firm suggests that more established firms

depend on domestic SMEs for the provision of components and subsystems used as inputs in

their products. It is therefore assumed that contractors will experience more direct exports as

compared to subcontractors (Lefebvre et.al, 2000). The present study is going to investigate

the impact of manufacturing status (contractor vs. subcontractor) on the export performance

of the firm under consideration.

According to the literature concerning with the role of trade unions in the promotion of

export activities suggest that all the SMEs are not associated with any type of trade union but

some have affiliation with different trade unions. Affiliation with trade unions affects the

firm‘s performance as strikes are found to have a negative impact on export performance

(Greenhalgh et al., 1994). The existence of trade unions is not related to the probability of

being exporter (Lefebvre, 2000). In case of Pakistan different types of trade unions are there,

but as far as experience of SMEs is concerned, two types of trade unions are considered to be

important. They can be classified as area wise trade union and product wise trade union.

A bidirectional causal relationship is found to exist between successful export business

and revenue it generates as it provides firms with more resources to invest in R&D and

innovation processes (Huang et.al 2008). Empirical evidence suggest that productivity was

found to be high among export-oriented SMEs as compared with non-exporting SMEs, as

measured by the total revenue per worker per SME and total profit per worker per SME

(Trung et.al 2008). As far as wage bill of a firm reflects the composition of skill of the

workforce, implying that the average wage is a skill composition adjusted wage rate

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(Bhavani. et.al, 2001). Skills (average wage) and the contribution of quality control

manpower in employment affected the exporting of Sri Lankan engineering and clothing

firms (Wignaraja 1998, 2007).

2.2 Technological Capabilities

Literature relating to innovation and learning processes in developing countries

highlights the importance of acquiring technological competence as a major determinant of

firm‘s export potential (Lall, 1992, Bell and Pavitt, 1993). Literature Note18

motivates the

utilization of imported technology affectively with the help of different firm-specific factors

concerned with building technological capabilities. It suggests that in order to utilize

imported technologies productively, firms have to invest in research, engineering and training

(Lefebvre et.al, 2000).

From the view point of theoretical perception acknowledged as ―firm‘s resource-based

view‖, firm-level determinants of export performance are examined with special emphasis on

firm‘s innovative capabilities, as the competition in export market is based heavily on

technological advancements, it is anticipated that technological capabilities would play an

important role in firm‘s potential to export (Lefebvre et.al.,2000).

Capabilities can be defined as firm‘s capacity to organize resources, where resources are

referred as stock of existing factors which is owned by a particular firm (Amit and

Schoemaker, 1993). As innovation depends on technological and critical capabilities in areas

of distribution and marketing (Burgelman et al., 1996), it also involves the commercial

dimension.

Technological capabilities can be defined as ―the firm‘s existing capacity and its future

probability to utilize firm-specific technology to resolve technical problems and develop the

technological functioning of its production process along with its finished products‖

(Nicholls-Nixon, 1995). Small exporters have capabilities to compete in foreign markets on

the basis of their technological capabilities (Kohn, 1997), but a negative relationship between

technology and exports has been observed (Sriram et al.,1989), while no significant

relationship was found between two variables (Reid ,1987), providing justification for further

research.

Amongst technological capabilities, expenditures on R&D enables firm not only to

innovate, but also facilitate them to incorporate external technological knowledge in an

improved manner (Lefebvre et.al.,2000). R&D is therefore considered as one of the major

factors affecting firm‘s export performance. Positive relationship between exports and R&D

in small firms has been established (Ong and Pearson,1984). Innovation is said to be most

motivating factor driving the exports Note19

.

The direction of causation runs from innovation to export (Krugman ,1979). Empirical

results from earlier studies didn‘t provide any reliable results while investigative the

relationship between innovation and export performances in case of small firms, because the

process of innovation in small firms seems to have imprecise boundaries i.e., a lot of factors

contribute to the process of innovation making it difficult to circumscribed (Nassimbeni,

2001). In case of small firms, specific R&D is mostly exogenous and represents the

modifications of existing products and processes. Therefore, the traditional measure to

evaluate innovative capacity of the firm as R&D expenditures may yield insignificant results.

However, different aspects technological innovation like product innovation, process

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innovation and major improvements in existing products (Nassimbeni, 2001) are taken into

consideration in the present study to analyze their impact on firm‘s export performance.

Investment strategy of a firm involving its different dimensions as investment in capacity

building, in replacing old equipment, for enhancing productivity, in improving quality of

output and investment in producing new product suggested by Nguyen et.al. (2007) has been

employed in the present study to find out the impact of the investment strategy adopted by a

firm on its probability of being an exporter.

Differences in exporter performance can be explained by the variation in degree of

difficulties faced by small firm in their international operations. Entrepreneurs while

initiating a new project may face different problems, for instance, they may face credit access

problems in the financial market. Market acceptance and lacking of skilled labor are also

considered as major problems faced by small firms while starting up new projects, forcing

them to leave the international markets (Alvarez, 2004).

Literature based on the determinants of firm growth considers both human capital and

financial resources as most important factors effecting small business growth (Wiklund et al.,

2007). On the firm level, the experience, skill and knowledge of the total employees

contribute more promisingly as compared to the entrepreneur alone (Chandler & Hanks,

1994, Birley & Westhead, 1990). Human capital can be measured both in terms of specific

and generic terms. Generic human capital is defined in terms of different levels of

educational attainment by workers. Specific human capital can be measured by employing a

dummy variable indicating whether firm is offering on job training to its workers or not (Lee

et.al ,2005).

Small firms carry out a large number of technological innovations based on their unique

know how approach in an unbalanced manner among industrialized nations (Pavitt et al.,

1987, Rothwell, 1988) and also in newly industrialized countries like Korea (Lee, 1995).

They play an important role in the diffusion of technology and their unique know-how is

often based on the improvements of general technologies developed by large firms.

Competitive advantage based on existence of a unique product is significantly related to

firm‘s performance (Julien et al., 1994).

2.3 Commercial Capabilities

Literature suggests that firm‘s market intelligence and marketing capabilities are

considered as basics for entrance and expansion in the process of internationalization. Small

new high technology firms have capability to overcome complications with technology than

with the market (Fontes and Coombs, 1997). As this study was based on a sample of

information technology sector, there are little chances of generalization of these results. The

present study focuses on the contributions of a wider range of commercial capabilities to

export performance, namely diversification, trademarks, use of export promotion bureau

trade fairs, personal visits and use of imported raw materials.

Exporting strategy of SMEs based on diversification of products and product lines have

proved to be successful in export growth (Denis and Depelteau, 1985). In the presence of

diversified products, the expertise and knowledge acquired in the fields of commercial and

competitiveness can be transferred from one sector to others, which are found to be

associated with export success (Cafferata and Mensi, 1995). Mandatory legal measures like

trademark protection is necessary to execute at early stages of firm export process. The

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presence of trademarks can serve as an asset for SMEs working in foreign markets (Lefebvre

et al., 2000).The study is going to analyze the impact of presence of trademarks on the firm‘s

export performance.

Imports of disembodied technology are found to affect firm‘s productivity in a

significantly positive manner (Hasan, 2002). Spending on imported raw materials and capital

goods influences firm‘s productivity considerably (Topalova, 2007). In developing countries,

the productivity enhancing affect of imported intermediaries has also been illustrated in the

context of Chile (Kasahara and Rodrigue, 2004). In the context of present study, which is

dealing with small enterprises, most of the firms are not involved directly in the import

activities but they do utilize imported raw material in their products. That‘s why a dummy

variable has been included in the study to analyze the impact of imported raw material on the

export performance of the firms under consideration.

2.4 Export Restricting Factors

Dynamism and willingness of SMEs to engage themselves in international activities is

obstructed by different factors like availability of information, non-cooperation of

Government agencies, and degree of competition in foreign markets, financial difficulties and

problem of cost competitiveness faced by small firms in international markets. These factors

are taken into consideration to analyze their impact on the probability of being exporter.

Firms entering in the export process have to face administrative and customs problems

in both importing and exporting countries (Kedia and Chhokar, 1986). In the consequence of

present wave of globalization, SMEs have to face foreign competition in the home market,

stimulating firms to explore international market along with domestic market (Etemad,

2005). Foreign competition is considered to be the highly rated problem, demonstrating that

this problem is enduring and generic nature (Katsikeas and Morgan, 1994).

In the process of internationalization, small firms face financial constraints and under-

capitalization (Buckley, 1997). Financial constraints correspond to the lack of financial

resources. Credit restriction, equity capital and lack of external debt are considered to be the

main hindrance to the growth of SMEs.

Small firms build their networks by associating with foreign companies in target

countries having complementary skills similar to their own firms. For this purpose, the

entrepreneur/manger has to go around and try to formulate a network through personal

contacts, visiting foreign markets and other clients (Coviello et.al, 1998).

3. Research Method

3.1 Sources of Data

In the present study, primary data collected through a detailed survey of Light

Engineering sector is being utilized for analytical purposes. The survey has been conducted

in the districts of Gujranwala, Gujrat and Sialkot from Feb, 2009 to Feb, 2010. The format of

the SMEs questionnaire, covering broad aspects of each unit‘s individual characteristics,

commercial and technological capabilities along with a detailed profile of factors that restrict

small units to enter the international market. 1201 units were investigated out of which 318

units were found to be involved in exporting activities.

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3.2 Logit Model for Export

To estimate the probabilities of being involved in export activities, logistic regression

analysis with maximum likelihood estimation is employed. In the analysis dependent variable

takes the value 1 when the household is not exporter and 0 when household is exporter.

Explanatory variables in this model can be divided into four categories as firm‘s

characteristics, technological capabilities, commercial capabilities and export restricting

factors.

Basic model can be written as

Export=a0+a1X+a2Innovation+e (3.1)

Where

Export=1 (if firm is exporter)

= 0 (if firm is non exporter)

X= firm‘s characteristics, technological capabilities, commercial capabilities and

factors inhibiting export activities.

The interpretation of the model in terms of probabilities can be explained as odds ratios.

Odd ratio greater than 1 indicates the increase the probability of being exporter while less

than one indicates the decrease in the probability of being exporter.

Where innovation can be measured in terms of innovation in new product, in new

process and major improvements in the existing product and e is expressed as error term

Out of the major determinants effecting firm‘s export performance, innovation has found

to have an endogenous relationship with exports. So, the direct estimation of the eq. 3.1

would lead to a biased estimate of causal impact of innovation on exports.

Two approaches can be employed to deal with this problem of endogenity. These

approaches are the instrumental variable approach and simultaneous equation technique.

While in the present study an instrumental variable approach has been employed. In order to

utilize the instrumental variable approach, the first step is to explore those variables that are

highly correlated with innovation but not with exports.

Following specification is used as instrumental variable technique.

Innovation=b1+b2Z+e (3.2)

Where innovation= 1 (If Firm innovates)

=0 (If Firm does not innovate)

Where Z is the instrumental variable and it comprises of Investment strategy adopted by

a firm, owner‘s perception in starting up new projects, on job training, presence of unique

know how, number of skilled workers in the firm and use of imported raw materials in the

final product.

The specification expressed as 3.2 is then utilized to find out the impact of instrumental

variables on the three components of innovation as

Product Innovation=b1+b2Z+e (3.2a)

Where Product innovation= 1 (If Firm innovates a new product)

=0 (If Firm does not innovate anew product)

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Process Innovation=b1+b2Z+e (3.2b)

Where process innovation= 1 (If Firm innovates a new process)

=0 (If Firm does not innovate a new process)

Major improvements =b1+b2Z+e (3.2c)

Where major improvements = 1 (If Firm undergoes some major improvements)

=0 (If Firm has not made some major improvements)

The fitted values of new product, new process and major improvements after the

estimation of the three innovation equations will be then incorporated in final export equation

of 3.1.


The results of the instrument equation 3.2a are being shown in Table (2). The investment

strategy is found to be positively and overall significant as all the six components of

investment strategy are found to be significant at 95 and 99 percent confidence level.

Investment in capacity building has a positive impact on the innovation of new product. A

unit change in the investment in capacity building increases the odds of innovation of new

product by 3.162 units (the probability of innovation in new product over the probability of

not experiencing any innovation in new product). Investment in replacing old equipment is

found to be significant at 95 percent confidence level as one unit increase in the investment in

replacing old equipment increases the odds of innovation in new product by 5.248 units. As

far as owner‘s perception regarding new product is concerned all the three components like

financial problems, market acceptance and financial problems are found to be significant and

exert positive influence on the probability of involving in innovation in new product. The

firms having unique know how, number of skilled workers and use of imported raw material

increase the probability of a firm involved in new product innovation activities. The variable

of on job training is found to be insignificant in the present analysis.

The results of the instrument equation 3.2b are being shown in Table (3). The investment

strategy is found to be positively and overall significant as all the six components of

investment strategy are found to be significant at 90, 95 and 99 percent confidence level.

Investment in capacity building has a positive impact on the innovation of new process. A

unit change in the investment in capacity building increases the odds of innovation of new

process by 2.085 units (the probability of innovation in new process over the probability of

not experiencing any innovation in new process). Investment in replacing old equipment is

found to be significant at 95 percent confidence level as one unit increase in the investment in

replacing old equipment increases the odds of innovation in new process by 0.857 units. As

far as owner‘s perception regarding new process is concerned two of the three components

like financial problems and lack of skilled workers are found to be significant and exert

positive influence on the probability of involving in innovation in new process activities. The

firms having number of skilled workers and use of imported raw material increase the

probability of a firm involved in new process innovation activities. The variable of on job

training and unique know how are found to be insignificant in the present analysis.

The results of the instrumental equation 3.2c are being shown in Table (4). The

investment strategy is found to be positively and overall significant as all the six components

of investment strategy are found to be significant at 95 and 99 percent confidence level.

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Investment in capacity building has a positive impact on major improvements in existing

equipment. A unit change in the investment in capacity building increases the odds of

improvements in existing equipment by 2.085 units (the probability of improvements in

existing equipment over the probability of not experiencing any improvements in existing

equipment). Investment in replacing old equipment is found to be significant at 95 percent

confidence level as one unit increase in the investment in replacing old equipment increases

the odds of improvements in existing equipment by 1.006 units. As far as owner‘s perception

regarding new product is concerned one of the three components as market acceptance is

found to have positive influence on the probability of being involved in improvements in

existing equipments while financial problems and lack of skilled workers are found to be

insignificant on the probability of experiencing any major improvements in existing

equipments.. The firms having number of skilled workers and use of imported raw material

and possession of unique know how increase the probability of a firm involved in major

improvements in existing equipments.

The estimated results of the basic export equation 3.1 are being show in the table

(5).Size of a firm is found to be significantly and positively influencing the probability of

being exporter at 95 percent significance level. A unit change in firm size increases the odds

of involving in export activities by 2.73 units (the probability of being exporter over the

probability of not being exporter). Variables like firm age and investment in the start of the

project are proved to be insignificant in the present analysis.

Manufacturing status of the firm being a contractor increase the probability of being an

exporter as a unit change in manufacturing status from sub-contractor to contractor increases

the odds of involving in export activities by 1.02 units. Wage per employee exerts a negative

influence on the probability of being exporter. An increase in the average wage by one unit in

decreases the odds of being an exporter by 1.066 units. All the three imputed components of

innovation like innovation in new product, process and major improvements in the existing

equipments are proved to be significant at 99 percent of confidence level and positively

increase the probability of being an exporter.

Association with the area trade union exerts a positive influence on the attitude of an

entrepreneur to be a exporter. While, association with product wise trade unions and product

mix are proved to be insignificant in the current scenario. The existence of trade marks and

registered trade marks positively increase the probability of being an exporter as a unit

increase in the acquisition of registered trade mark increases the odds of involving in export

activities by 3.837 units (the probability of being exporter over the probability of not being

exporter).

Exposure of a firm to the information regarding export markets increases the probability

of being a exporter by 1.894 units. While non co-operation on the side of Government

agencies, financial problems, competition from the foreign firms and expensive foreign visits

significantly reduces the probability of being an exporter. While a firm producing a product

which is compatible to foreign product in its cost competitiveness induces a firm to engage

itself in export activities as a unit increase in the cost competitiveness increases the odds of

involving in export activities by 12.96 units (the probability of being exporter over the

probability of not being exporter).

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5. Conclusion

The study has provided a comprehensive view of different factors that differentiate

exporters from non exports. These important factors were classified into four main categories

like Firm level characteristics, technological capabilities and commercial capabilities.

Another important dimension of the present study is that it has also focused those factors that

restrict firms to be involved in exporting activities.

According to the results, Initial investment of firm and its age are not found to be related

to export activities. The affiliation with trade unions as product wise and area wise appeared

to be insignificant implying no affect on export activities. LnRev/Month is significantly

positive implying to increase the probability of being exporter. While, average wage (-ve)

means higher the cost of labor less likely is the chance that firm will export.

Availability of information and cost competitiveness are found to be positively and

significantly associated probability of being exporter. Non-cooperation of Govt. agencies,

financial problems, competition in foreign markets and expensive foreign are negatively and

significantly associated probability of being exporter.

All the three measures of innovation are positively related to the probability of being

exporter. Product mix, manufacturing status, trade marks, registered trade marks and size of

the firm are also significant positively contributing to the probability of being exporter. The

innovation processes comprising of new product, new process and major improvements are

found to be positive with high odd ratios exhibiting their importance in the exports of light

engineering sector.

The estimated results imply some policy implications as it should formulate such

policies that can support small firms in their process of internationalization. It can help them

in with providing information regarding foreign markets, solving their financial problems,

making them more cost competitive as far as their products are concerned and by subsidizing

their visits to foreign markets. All these arrangements can positively help small units to

make themselves more productive in this present era of internationalization.

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Notes

________________________ Note

1 A periodic decline in the export price of raw materials and commodities produced by LDCs resulted in a

widely growing disparity between them and rich countries and in order to decrease that disparity the LDCs had to

protect their newly emerging manufacturing sector.

Note 21

Hong Kong, Korea and Singapore followed Export oriented Industrialization in early 1950s, while Korea

followed ISI with EOI (Salvatore 2006).

Note 31

Government of Pakistan had estimated a required investment of Rs. 5.2 trillion in large scale sector to

provide employment opportunities to an addition of 16 million persons to the labor force while only Rs. 8 billion

are required in case of small/micro scale

sector.(http://www.pakistan.gov.pk/ministries/planninganddevelopment-ministry/mtdf)

Note 41 In the year 1959-60, there were 2758 no. of establishments in Pakistan which was 37.79 percent more as compared to those of 1955-56 (2031 units), while in year

1964-65 total no. of establishments were 3212-- a 58.17 percent increase as compared to last decade of 1950s.(CMI, various issues)

Note 51

PFIS Punjab, 2005

Note 61

See Gebremariam et.al (2004), Beck et.al (2004,2005) and Tambunan (2008)

Note 71

See Birch (1979), Noriyuki et.al (1998) and Osmani (2004).

Note 81

See Mukras (2003), Antonio (2003) and Liu et.al (2008).

Note 91

By organizing money market through banking sector.

Note 101

See Reason et.al (2004), Karadeniz et.al (2007), Nazar et.al (2008).

Note 111

Refers to all economic activities that fall outside the formal economy regulated by state.

Note 121

Economic census of Pakistan 2005.

Note 13

1 Amit and Schoemaker, 1993

Note 14

1 Jacobson, 1988; Hansen and Wernerfelt, 1989.

Note 15

1 The mentioned studies also support the resource based view of the firm (Wernerfelt, 1984; Grant, 1991

and Peteraf, 1993) Note

16

1 Baldwin and Rafiquzzaman, 1998.

Note 17

1 Leonard-Barton, 1992.

Note 18

1 Pietrobelli, 1997; Ernst et al., 1998; Rasiah, 2004.

Note 19

1 Suggested by the international trade models developed by Vernon (1966) and Krugman (1979).

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Annexure:

Table 1: Determinants of Export Performance

DETERMINANTS MEASURE

1. FIRMS CHARACTERISTICS

Firm Size Number of full-time employees

Firm Age Number of years since the foundation of the firm

Manufacturing Status Subcontractor or contractor

Area-Wise Trade Unions 1 if the firm is affiliated with the trade union, 0 otherwise

Product-Wise Trade Unions 1 if the firm is affiliated with the trade union, 0 otherwise

Lnrev09/Month Log of firm‘s revenue in 2009

Wage/Emp09 Ratio of total wage to number of employees (Pakistan Rs.)

2. Technological Capabilities

1. Innovation

Newproduct 1 if firm introduces new product(s), 0 otherwise

Newprocess 1 if firm introduces new production process, 0 otherwise

Modiproduct 1 if firm makes major improvements of existing product(s) or changes

specification, 0 otherwise

2. Investment Strategy

Inv Capacity (Investment Strategy) 1 if firm invests in their capacity, 0 otherwise

Inv Replace (Investment Strategy) I if firm invests in replacing old equipment, 0 otherwise

Inv Productivity (Investment Strategy) I if firm invests in improving their productivity, 0 otherwise

Inv Quality (Investment Strategy) I if firm invests in improving their quality of output, 0 otherwise

Inv New (Investment Strategy) 1 if firm invests in producing new output, 0 otherwise

Inv Other (Investment Strategy) 1 if firm‘s investment is for other purposes, 0 otherwise

3. Owner’s Perception In Starting Up New Projects

Financial Problems 1 if firm‘s owner perceived the importance of lacking finance in

staring up new projects, 0 otherwise

Market Acceptance 1 if firm‘s owner perceived the Importance of lacked market

acceptance in staring up new projects, 0 otherwise

Lack Skilled Worker 1 if firm‘s owner perceived the importance of lacking skilled workers

in staring up new projects, 0 otherwise

4. On Job Training 1 if firm normally trains its existing workers or new workers, 0 otherwise

5. Presence Of Unique Know How

1=yes 0=otherwise

6. Skilled Workers Number of skill workers

3.Commercial Capabilities

Diversification (Product Mix) No of industrial sectors in which the firm operates

Trade Marks Presence=1 Absence=0

Registered Trade Marks Presence=1 Absence=0

Export Promotion Bureau Trade Fairs Yes=1, No=0

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Personal Visits And References Yes=1, No=0

Import Activities/ Use Of Imported

Raw Material

Yes=1, No=0

4.Factors Inhibiting Export Activities

Availability Of Information Yes=1, No=0

Non Cooperation Of Govt. Agencies Yes=1, No=0

Increased Completion In Foreign

Markets

Yes=1, No=0

Financial Problems Yes=1, No=0

Cost Competitiveness Yes=1, No=0

High Cost Of Visiting Foreign Markets Yes=1, No=0

Table 2: Logistic Results New Product


INVCAP 1.1506 1.80** 3.162

INVREP 2.133 2.28** 5.248

INVPRODY 1.918 2.19*** 8.25

INVQUA 1.15 1.99** 2.59

INVNEW 0.871 1.56** 2.09

INVOTHER 1.47 1.95*** 3.15

FINPROB -0.232 -1.89*** 1.068

MARACCEP 1.169 2.58*** 4.181

LACKSKIL 0.2922 1.91* 0.746

ONJOBT 0.2798 1.38 1.321

UKNOWHOW 1.598 1.88** 3.176

SKILLWORK 0.5166 2.35** 2.60

UIMPRM 0.3494 2.17*** 3.03

CONSTANT 40.93 1.76* --

Log likelihood=-534.72 Pseudo R2= 0.337

No. of observations=1201

LR Chi2 (13)=169.80

Prob.>chi2=0.000

*** indicates that coefficients are significant at 1 percent level



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Table 3: Logistic Results New Process


INVCAP 0.817 1.76** 2.085

INVREP 0.1536 1.90** 0.8576

INVPRODY 0.9249 1.70** 1.911

INVQUA 0.567 2.44*** 2.058

INVNEW 0.871 1.56* 1.91

INVOTHER 0.951 1.75* 1.909

FINPROB -0.595 -1.88** 2.06

MARACCEP 0.1952 1.49 0.822

LACKSKIL 1.953 1.76** 3.9099

ONJOBT 0.1398 0.77 0.8695

UKNOWHOW 0.352 2.22 1.965

SKILLWORK 0.4714 2.53*** 1.953

UIMPRM 0.375 2.33*** 2.963

CONSTANT -6.81 -1.45 --



LR Chi2 (13)=136.33

Prob.>chi2=0.000




Table 4: Logistic Results Major Improvements


INVCAP 0.1265 1.90*** 1.134

INVREP 0.0058 2.04** 1.006

INVPRODY 0.0273 2.22*** 1.027

INVQUA 0.078 1.94** 1.081

INVNEW 0.1908 2.13*** 2.019

INVOTHER 0.0409 2.34*** 1.041

FINPROB 0.0522 0.39 1.053

MARACCEP 0.180 1.94** 1.197

LACKSKIL 0.0805 0.66 0.922

ONJOBT 0.1599 0.92 1.852

UKNOWHOW 0.293 2.19*** 1.971

SKILLWORK 0.119 1.91** 1.129

UIMPRM 0.999 2.09* 3.01

CONSTANT 11.908 2.39** --

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LR Chi2 (13)=127.10

Prob.>chi2=0.000




Table 5: Logistic results Exports


SIZE 3.915 2.24** 2.73

AGE 0.0295 0.610 1.029

MSTAT 39.12 1.92* 1.02

INVSTART 0.00012 0.43 1.000

LnREV/MONTH 0.0011 2.13** 0.999

WAGE/EMP -0.0642 -2.20** 1.066

NPROD 0.5807 3.00*** 1.787

NPROCESS 0.635 0.001*** 1.887

MIMPPROD 0.528 2.68*** 0.589

ATUNION 1.029 3.84*** 2.8

PTUNION 0.965 0.57 2.62

PRODMIX 1.265 0.39 1.54

TRADMARK 0.922 4.15*** 6.83

RTRADMARK 1.344 5.60*** 3.837

INFORM 0.6389 3.46*** 1.894

NCGOVTAG -0.7708 -3.47*** 2.161

COMPFM -1.705 -6.40*** 5.505

PROBFIN -1.416 -5.31*** 4.120

COSTCOMP 2.562 1.53*** 12.96

EXPVFM -0.5258 -2.51*** 1.691

CONSTANT -9.83 -11.43*** --



LR Chi2 (20)=582.24

Prob.>chi2=0.000




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VOL 3, NO 1

Role of light Engineering Sector in Poverty Reduction amongst its

Employees.

A Case Study of Gujranwala, Gujrat and Sialkot Districts.

Khizra Safadr Khan






Abstract

Poverty is a multifaceted phenomenon relying on a number of different social, economic, social and demographic

aspects. An understanding to the true perspective of nature, intensity, and causes of poverty can be considered as a

prerequisite for effectual course of action to reduce poverty. The present study attempts to investigate the impact of

various socioeconomic and demographic determinants on the poverty status of employees of different light engineering

units, by employing primary data collected from 1201 SMEs working in Gujranwala, Gujrat and Sialkot Districts. To

estimate the probabilities of being poor, an econometric approach of logistic regression analysis with maximum likelihood

estimation has been employed. Household size, age of household head and persons per room in a household are

found to be positively associated with poverty. Education, female labor force participation, gender of the

household head, physical assets like owning the house, structure of the housing unit, availability of services

like electricity and sui gas and skill of the workers significantly reduces the chances of being poor. SMEs are also

found to have a negative impact on the probability of being poor, adding positively to the argument that SMEs is

this case are really contributing to enhance the living standard of its workers.

Keywords: Poverty, SMEs, Light Engineering sector, Gujranwala.

1. Introduction

Poverty is considered as denial of opportunities and a continuous state of deprivation about basic necessities of

life. Poverty and inequality are strongly interlinked, and recently there appears to be a gradual increase in inequality both

at international and national levels. According to United Nations Development Program, about 80 percent of the world‘s

population resides in countries with increasing income inequality. Moreover, the share of poorest 40 percent of the world‘s

population in global income is about 5 percent, while richest 20 percent account for 75 percent of world income.

The problem of mass poverty has been a major challenging factor against the pace of development in Pakistan

since her independence. The number of the destitute has increased with the passage of time, expressing the immensity of

this problem. Lack of food, shelter, health and educational facilities, unemployment, uncertainty, powerlessness,

unhygienic living conditions, lack of representation and freedom are considered to be the major determinants of poverty.

Majority of people in Pakistan, particularly in rural areas and also in so called urban areas, are characterized by most of the

factors responsible for poverty described above, representing the dismal situation of socioeconomic and demographic

indicators. According to the World Bank and the United Nations Development Program (UNDP) the poverty rate in

Pakistan ranges in between 25.7 percent and 28.3 percent in contrast to the government‘s estimates of 23.9 percent notexxvi

(World Bank, 2006). The failure of official planning and the market economy in lessening this problem emphasize the

implication of some new and effective policy measure. The protection of the rights of the vulnerable segment of the

society and participation of whole population are considered somewhat essential for long run economic development of

Pakistan.

The major aspect of economic development model of Pakistan has always been the maximization of output

growth, with little emphasis on the issues of widespread poverty, socioeconomic differentials, and inauspicious

demographic issues. In spite of high rates of economic growth along with steady improvement in major macroeconomic

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indicators, but it has failed to trickle down to the Pakistan‘s poor. Pakistan has experienced economic stagnation and

poverty in 1950s, increasing growth and poverty in the 1960s, stagnant growth along with declining poverty in the 1970s,

increasing growth and declining poverty in the 1980s and, declining growth with increasing poverty [MHCHD/UNDP

(1999)] Notexxvii

. The head count ratio of poor was found to be 30.6 percent in 1998‐99, with a high rise of 34.5 percent in

2000‐01, and a gradual decline up to 23.9 percent and 22.3 percent in 2004‐05 and 2005‐06 respectively Notexxviii

.

From a worldwide perspective, SMEs are recognized as engine of economic growth Notexxix

because of their

dependence on indigenous skills and technology, innovativeness and expansion of industrial linkages. SMEs are

endogenously based enterprises as their linkages with the large multinational corporations lead to rapid growth and

expansion of SMEs. They also play a vital role in employment generation Notexxx

and poverty reduction Note xxxi

. In addition

they contribute towards resource mobilization Note xxxii

, revenue generation through export earnings Note xxxiii

, increase in

savings, and equitable distribution of income, promotion of craftsmanship, egalitarian structure of society and

development of an entrepreneurial culture. SMEs are also instrumental in skill acquisition through a system of informal

apprenticeship and also provide training ground for upgrading and developing skills.

The SMEs constitute more than 99 percent of businesses in Pakistan and all these activities are handled by the

private sector and most of these --- operate in the informal economy Notexxxiv

. There are about 3.2 million economic

establishments In Pakistan, 99 percent of these are accorded as SMEs, according to the definition of SMEs by SMEDA.

Their contribution towards value addition in manufacturing sector is 35 percent. SMEs contribute 30 percent to GDP.

Their share in manufactured exports is 25 percent. They contribute 99 percent towards employment generation Note xxxv

.

With the development and overtime growth of SMEs and their role in foreign exchange earnings, employment

generation and income distribution is of paramount importance Notexxxvi

. According to a study conducted by Board of

investment (2007), there are about 2500 registered units of Light Engineering Sector along with a much larger number of

units operational in unorganized sector. Majority of these units are operating in the cities of Karachi, Lahore, Gujranwala,

Gujrat and Sialkot. The study is based on the SMEs (Light engineering Units) in Gujranwala, Gujrat and Sialkot districts

as they account for more than 70 percent of the total light engineering industry in Pakistan Note xxxvii

.

Do SMEs really contribute towards poverty reduction? This is the claim made by appro ximately all the

studies focusing on the role of SMEs along with their positive contribution towards GDP, export earnings and

employment generation. They do play an important role in poverty reduction through employment generation.

As in Pakistan 90 % of the very small establishments accounts for 80% of all non- agricultural sector

employment. (FBS).That‘s why it is taken as a fact that SMEs really contribute towards poverty reduction. No

empirical study has yet been undertaken to quantify the extant of poverty in the workers of SMEs to find out

the real contribution of SMEs toward poverty reduction. This study is pioneer in its nature as no empirical

study in these districts has so far been conducted to find out the determinants of poverty of the employees of a

particular sector (Light Engineering Sector).


Considerable work has been done on poverty in the case of Pakistan. The focus of most of the studies Notexxxviii

was to concentrate only counting population below the poverty line at provincial or national level, provincial level or to

find out the impact of different socio-economic variables on the poverty status of the discussed population. However, a

brief review of the work done on the poverty alleviation is discussed below.

Kemal (1995) evaluated different public strategies and policies conducted for poverty alleviation. According to

him, the important mechanisms to reduce poverty includes the introduction of new expertise and promotion of large and

small scale industries, reasonable taxation policy and the improvement in the income equality among poor households by

providing them more earning opportunities. Malik (1996) employed a micro level data set collected from a village of

Punjab village and considered different socio-economic and demographic variables along with factor of land holding in

order to demonstrate their impact on the living standard of rural masses and consequently to alleviate poverty in the rural

areas.

Amjad and Kemal (1997) examined different correlates of poverty by employing different macroeconomic

variables. They also observed the impact of the structural adjustment programs on poverty in case of Pakistan. According

to Malik et al. (2000) the redistribution of land can be considered as an effective policy measure to lessen poverty in rural

areas of Pakistan, as a decline in the concentration of land can augment agricultural growth rates and consequently can

help in alleviating poverty in the rural areas of Punjab.

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Azid et al. (2001) explained the impact of female labor force participation in the cottage industry of cloth

embroidery in poverty alleviation in rural areas of city Multan. According to them, the working hours of female employees

significantly reduces the probability of being poor.

Siddiqui (2001) analyzed the gender differential impact on poverty reduction. The author suggested that an

increase in the female economic involvement in the form of improved human capital formation can exert a positive impact

on the poverty reduction.

Chaudhry (2003) examined the nature, extent and severity of poverty in Bahawalpur district along with the

impact of different correlates and micro determinants of poverty on the probability of being poor. Author has employed

income regression and Logit regression models to identify the factors affecting rural poverty and concluded that increased

agricultural production, efficient economic infrastructure, promotion of non farm rural economic opportunities,

improvement in living standard, health and educational facilities are considered as the required policy measures to

alleviate the problem of poverty in rural areas of Punjab.

Chaudhry et al. (2005) investigated the correlates and poverty profile of the Cholistan in the Southern part of

Punjab and concluded that distribution of land on the basis of equality, development in livestock sector and improvement

in socio-economic and demographic characteristics are considered as important measures for reduction in poverty in

distant areas of Pakistan like Cholistan.

Arif (2006) evaluated the poverty reduction programs implemented at the national level in Pakistan in the form of

microfinance, provision of health facilities and disbursement of zakat Notexxxix

by employing data from Pakistan Socio-

economic survey (PSES) for the year of 2000/01. According to the author, zakat distribution program conducted by

government is unable to access all the eligible poor, leaving severe deficiencies in the Public Zakat program. Moreover,

microfinance programs unsuccessfully target the poorest households and health services have not arrived at the most

deprived areas of the Pakistan.

The present study is different in the nature in the sense that it has tried to focus different socio-economic and

demographic characteristics of employees of Light Engineering Sector of Gujranwala, Gujrat and Sialkot Districts. The

present study is going to investigate the estimation of poverty and the analysis of household characteristics with

respect to poverty status along with the determination of the incidence, depth and severity o f poverty in the

employees of light Engineering Sector. It is also aimed to find out the causes and determinants of poverty in the

employees of Light engineering sector. At the end it is intended to explore some policy implications relating to

alleviate poverty effectively.

3. Research Method

3.1 Concept of Poverty

The perseverance of poverty is associated with its multidimensional behavior being a complex, dynamic,

institutionally entrenched, and a location and gender specific phenomenon. The intensity and severity of poverty greatly

differ with respect to various segments of society, periods, localities, and countries. The manner in which poverty is being

discussed and analytically quantified by social scientists is quire ambiguous.

According to the World Bank (2000), ―poverty is pronounced deprivation in wellbeing‖. This definition

leads to two different inquiries as, what is meant by well being and against what benchmark, the extent of deprivation

can be measured. According to second approach, the command of people on a specific type of consumption good is

considered as well being as of food, shelter, health care or education. This approach is much broader and encompasses

important social determinants which are crucial for human development in addition to food and non-food items.

The broadest approach to well-being is the one expressed by Amartya Sen (1987); according to him

well-being is the result of potential to function in society. Thus, poverty is the outcome of lacking of key

capabilities by people, and so having insufficient education or income, or poor physical condition, or low self -

assurance, or low insecurity, or a sense of helplessness, or the absence of rights as liberty of speech.

The concept of poverty can not be easily expressed, though; it can be defined in terms of absolute poverty as lack

of resources in relation to needs and lack of resources in relation to the resources of others, i.e., relative poverty.

According to the poverty theorists, the concept of absolute poverty is more related to the problems of developing countries

as compared to the relative poverty. Thus, the present study has attempted to estimate and analyze absolute poverty in the

workers of Light Engineering sector of Gujranwala, Gujrat and Sialkot districts.

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After defining poverty, it will be helpful to identify a benchmark to differentiate poor from non poor.

For this purpose, an indicator of welfare as income or consumption per capita is defined. Income defined as consumption

plus change in net worth, is generally employed in developed countries as a measure of welfare, but it tends to be

critically understated in developing countries like Pakistan. Consumption is less inconspicuous and can be used to

measure permanent income to some extant.

The consumption per capita an be considered as most frequently utilizing measure of welfare,

In order to incorporate differentiation in need by age, and economies of scale in consumption, some analysts employ

consumption per adult equivalent scales. The Organization for Economic Co-operation and Development (OECD) scale

Notexl = (1 + 0.7 × (NA

Note xli - 1) + 0.5 ×NC

Notexlii) is widely used and also employed in this study.

3.2 Concept of Poverty Lines

A poverty line yields that level of income or expenditure, required by an individual to acquire a minimum basket

of goods and services, which could differentiate him or her from poor. Poverty line varies from country to country because

of differences in the level of income or expenditure. Households or individuals having a per capita income less than this

level are considered as poor, and households with a per capita income greater than this level are considered as non-poor.

Therefore, a poverty line is an income level separating poor from non-poor. Three methods are generally used to construct

poverty lines. These include cost of basic need approach Note xliii

, food energy intake method and subjective evaluation

criterion.

In Pakistan, a number of studies have been conducted during the last three decades in order to analyze the nature

and extent of poverty. Most of the studies Notexliv

are primarily based on data generated through different Household

Income and Expenditure Surveys (HIES), employing the calorie-intake approach to assess poverty. Whereas, a few recent

studies have utilized the basic-needs approach to assess the severity of poverty.

In the present study, the official poverty line has been utilized after inflating it for the period 2008-09. Planning

Commission of Pakistan has estimated the absolute poverty line of Rs. 673.54 per month per adult equivalent Note

xlv

, by

employing PIHS 1998-99 data. The Commission then adjusted the poverty line for the 2000/01 period by using Consumer

Price Index as Rs. 723.40 Note

xlvi

per month per adult equivalent and in 2004/05 it was estimated as Rs. 878.64 per month per

adult equivalent. Amjad et.al (2008) has employed same poverty line suggested by Planning Commission by using the CPI

for the period of 2007and the adjusted poverty line was calculated as Rs. 1023 per month per adult equivalent.

The present study has inflated the poverty line developed by Planning Commission, for the year 2008-09 and a

poverty line of Rs.1398.23 per month per adult equivalent has been utilized for distinguishing poor from non-poor.

3.3 Measurement o f Poverty

After selecting the data collection process, different indicators of poverty and an appropriate measure

to differentiate poor from non-poor, the next step is to explain the analytical techniques employed to find out

the probability of being poor among SME‘s employees in the pre sent study. Poverty profile is the most

appropriate manner in order to analyze the correlates of poverty, where household welfare across different

population groups is compared with respect to different characteristics.

T h e F G TN o t e xlvii

i n d i c e s b e i n g t h e m o s t c o m m o n l y e m p l o y e d p o v e r t y m e a s u r e s a r e

u s e d t o c a l c u l a t e a m o r e d e t a i l e d p o v e r t y p r o f i l e o f t h e e m p l o y e e s o f L i g h t E n g i n e e r i n g

S e c t o r i n G u j r a n w a l a , G u j r a t a n d S i a l k o t D i s t r i c t s . T h e m o s t f r e q u e n t l y u t i l i z e d F G T

p o v e r t y m e a s u r e s i n c l u d e t h e H e a d C o u n t I n d e x ( P 0 )N o t e xlviii

, P o v e r t y g a p i n d e x ( P 1 )N o t e xlix

a n d p o v e r t y s e v e r i t y i n d e x ( P 2 )N o t e l

to present a more detailed insight to different dimensions of poverty.

3.4 Scope of the research

The present study will not only help to find out the major determinants of pover ty among SMEs

employees but will also facilitate Government to formulate policies to readdress the issue of poverty in a

particular sector. It would be more appropriate to point on this stage that this study is the first one undertaken

to highlight the issue of poverty among the employees of a particular sector of SMEs in Gujranwala, Gujrat and

Sialkot districts.

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3.5 Sources of Data

In the present study, primary data collected through a detailed survey of the employees of Light Engineering

sector, is being utilized for analytical purposes. The survey has been conducted in the districts of Gujranwala, Gujrat and

Sialkot from Feb, 2009 to Feb, 2010. The format of the employee questionnaire, covering broad aspects of each

employee‘s socioeconomic and demographic, characteristics can provide a deep insight to the causes of poverty in the

employees of the Light Engineering sector located in Gujrat, Gujranwala and Sialkot Districts.

3.6 Sampling design

According to a survey conducted by author, the total number of employees working in 1201 units of Light

Engineering were found to be 13021, applying following formula for sample selection, a sample of 2401 was selected for

unknown population.

22 /)1)((* cppzss

Where

z=confidence level (95% or 1.96)

p=percentage picking a choice, expressed as decimal (0.5 used for sample size needed)

c=confidence interval, expressed as decimal

(e.g., .02 = ±2)

ss=2401

Correcting it for the known population of 13021

]}/)1[(1/{* POPssssSS

= 2401/1.1843

SS* = 2025

Finally a sample of 2025 employees was selected from a total of 13021 employees working in 1201 light

engineering units.

The sample of 2025 was further disaggregated by applying two stage stratified sampling technique. In the first

stage, the strata‘s are formed on the bases of three districts of Gujranwala, Gujrat and Sialkot, while in the second stage,

sample of SME‘s employees is selected on the basis of seven categories of light engineering firms which are electric fans,

electric motors, electric goods and parts, electrical machinery, washing machines, parts of washings machines and water

pumps.

At the confidence level of 95% and confidence interval of 2, following formula is being employed for

proportionate stratification for both stages.

nNNn hh *]/[

Where

hn = sample selected for strata h

hN = Total population of strata h

N= Total population

n= Total sample selected for all strata.

Out of the total 8919 employees working in the light engineering units Note li

of Gujranwala, 1387 workers Note

liiwere selected on the basis of proportionate stratification. Similarly a sample of 530

Noteliii employees was selected from a

total of 3406 workers engaged in different units of Gujrat and 108Note liv

were selected from 696 workers employed in Light

Engineering units of Sialkot District on the basis of same stratification formula. Thus, a sample of total 2025 employees is

selected from all the three districts.

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3.7 Logistic Regression Analysis

To estimate the probabilities of being poor, logistic regression analysis with maximum likelihood estimation is

employed. In the analysis dependent variable takes the value 1 when the household is not poor and 0 when household is

poor. The independent variables are classified into three categories, i.e. economic characteristics of household, social

characteristics of household and demographic characteristics of household. Economic characteristics of household

involves household employment Note lv

, household incomes in the form of per capita income, structure of household

consumption expenditures, household property and assets including agricultural income and physical assets. Social

characteristics of the household comprises of health Note lvi

, education encompassing gross primary school enrollment rate

and average educational codes per household, shelter including ownership of house, type of housing structure, availability

of electricity, nature of fuel used for cooking and persons per room. Demographic characteristics of household involve

dependency ratio (child and old age dependency ratio), female male ratio, age, gender and education of household head.

The logistic model is defined as :

log = + ………+ = ………. (1)

Here is the probability of being poor, while shows the odds ratio. = constant and are vector

of independent variables, are the logistic coefficients.

At times it is easier to interpret the model in terms of probabilities, i.e. odds ratios. A value of odd ratio greater

than 1 indicates the increase the probability of being poor while less than one indicates the decrease in the probability of

being poor.

Estimates of the relative odds (odd ratios) associated with a particular category of a covariate of interest can be

obtained as:

)/ = ……….. (2)

Where indicates the logistic cumulative distribution function

As equation (2) is non-linear and standard OLS technique cannot be applied, Maximum likelihood estimation has

been employed in order to calculate the coefficients for each independent variable.

3.7.1 Instrumental Variable Approach

Basic model employed for analytical purpose is

Poor=a0+a1X+a2Improvement in living standard +e…………….. (3)

Where

Poor =1 (if household falls below the poverty line)

= 0 (if household does not fall below poverty line)

X= Economic, social and demographic characteristics of households along with age and gender of household

head.

Improvement in living standard means that whether the said light engineering unit is contributing to improve the

living standard of its employees or not and e is the error term

Out of the above mentioned determinants, the improvement in living standard has an endogenous relationship

with poverty status. Direct estimation would lead to biased estimate of impact of light engineering sector on the poverty

status of its employees. Two approaches can be used to deal with this problem (instrumental variable approach and

simultaneous equation approach). While, in the present study IV approach has been applied.

This approach involves those variables that are highly correlated with improvement in living standard but as

compared to with poverty status. A binomial Logit model is employed to determine the impact of a set of explanatory

variables on improvement in living standard due to working in the Light Engineering Unit.

Imp Note

llvii

=b1+b2Z+e………………………….(4)

where Z = instrumental variable and it comprises of satisfaction with the job, income dependency on Light

Engineering Sector, no. of years in the present job, income differential of earlier and present job, improvement in level of

skill with the present job and change in consumption pattern Note lviii

.

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Impl =0 (if improvement in living standard is negative)

= 1 (if improvement in living standard is positive)

The fitted values of impl, after the estimation of equation (4) will be incorporated in poverty equation to find out

the probability of being poor.

The impact of a particular SME unit on the improvement in the living standard of a worker can be quantified by

considering different factors like satisfaction level, income dependency, working experience along with improvement in

skill and change in consumption pattern. The computed values of all these explanatory variables will then be incorporated

in the eq. (3) to get the impact of SMEs on poverty reduction.


The FGT indices are being employed to measure the nature, extent and severity of poverty in the

observed sample. The calculated results are being discussed in the table 4.

Table (4) shows contradictory evidences about the nature, extent and severity of poverty among the employees of

light engineering Sector in the three Districts if Gujranwala, Gujrat and Sialkot. According to Headcount Index,

Gujranwala is the most vulnerable to poverty as its 47.2% of employees are below poverty line, followed by Gujrat where

this ratio is 46% and it is 41% in Sialkot. Whereas, poverty Gap index and Poverty Severity Index represents synchronized

results where Gujrat is most vulnerable to poverty, followed by Gujranwala and Gujrat Districts.

As the present study is considerably based on the primary data set collected though a survey of Light Engineering

sector of Gujranwala, Gujrat and Sialkot districts. A maximum likelihood Logit regression model is being employed to

analyze the determinants affecting poverty status of the employees of light engineering sector.

The estimated results of instrumental equation (3) yields results presented in Table (5). According to

the results satisfaction with the present job has a positive impact on the improvement in the living standard. As

a unit change in an satisfaction level increases the odds of improvement in the living standard by 2.085 units (the

probability of improvement in living standard over the probability of not any improvement in living standard), holding all

other independent variables constant. Income dependency on the Light engineering unit has a significant and negative

impact on the improvement in living standard. An increase in the income dependency by one unit leads to decrease the

living standard by 0.85 units. Number of years in the present job implies a positive and significant impact on the living

standard of an employee working in the light engineering unit. Income differential between present and past job exerts a

positive influence on the living standard of an employee working in the Light Engineering Unit as 1 unit increase in the

income differential leads to enhance the odds of living standard by 2.058 units. Improvement in the level of skill of the

employee employs a significant and positive impact on improvement in the living standard of an employee working in a

Light engineering Unit in Gujranwala, Gujrat and Sialkot Districts.

The imputed values of impl (improvement in living standard) are then incorporated in the eq.(4) and the estimated

results regarding probability of being poor are obtained.

The estimated results suggest that the coefficients on AGEH, EDUH, SEXH, HSIZE, FMRW, EDUC, HOWN,

HSTR, PHYAS, PER/P, WAT, ELEC, CFUEL, GPENF, IMPL AND SKILL are found to be significant at 1 percent to 10

percent level.

Household size being the major demographic factor is significant at the 99 percent confidence level and exhibits a

positive influence on the probability of being poor. The estimated result is being supported by the literature Note lix

which

suggests that higher household size is positively associated with poverty augmenting factors. It is generally hypothesized

that more educated, healthy and adult individuals in a household adds positively to the income level of household and

reduces the chances of poverty, if members of household are not educated and adult, they increases the chances of poverty

.Therefore a large household size increases the chances of being poor.

Education and training are the most important investments in human capital. Education plays a vital role in

acceleration of economic growth which in turn reduces poverty. In the present study, the variable of average educational

codes is being constructed based on the sum of the points Note lx

of a given household divided by the household size of that

household. The estimated results suggest that EDUC has the significant inverse relationship with the probability of being

poor, implying that the higher education of household members are more likely to be associated with greater incomes and

thus, having lesser chances to fall below poverty line Note lxi

. It means that higher level of education in a household lowers

the probability of being poor. Similarly, gross primary school enrollment rate is an important indicator of educational

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attainment in a country like Pakistan and is significantly proved to lessen the poverty chances of a household if the number

of children registered in primary schools is high.

Significant association is being observed between probability of being poor and literate household heads. The

negative sign of EDUH indicates that in the presence of a literate household head diminishes the probability of being poor.

Female-male ratio of members of a household is considered as sex ratio is found to be insignificant in the present

context. On the other hand (FMRW) female-male ratio of workers is also considered in the present study to deal with the

issue of female participation rate in labor force. Estimated results represent a significant assertion of the significance of

female labor force participation in districts of Gujranwala, Gujrat and Sialkot. An increase in the ratio of FMRW results in

lowering the poverty probability.

Overall participation rate is found to be insignificant in the analytical process. The possession of physical assets

(like motor cycle, television, refrigerator, property etc.) is significantly and inversely related to the probability of being

poor. Ownership of a housing unit reduces the chances of a household to fall below the poverty line Note lxii

. The variable of

HOWN is found to be negatively associated with the probability of being poor. The type of housing structure in terms of

nature of material used, different housing services and utilities are considered as important determinants of poverty both in

rural and urban areas Note lxiii

. Variable of nature of housing structure is estimated as a significant variable in the analytical

process employing a negative impact on the probability of being poor if a household is living in a kacha (mud) house.

Access to basic amenities is considered as the major factor distinguishing poor from non-poor. That‘s why

variables like access to electricity and type of fuel used for cooking purposes are also included in the present profile of

poverty. Results suggest the access to electricity and Sui gas diminishes the chance of being poor as access to these basic

amenities helps in improving the living standard and thus the productivity of a household. Variables like age of household

head (AGEH) and persons per room (PER/R) are proved to be significant at 95 and 99 percent of confidence level

respectively, suggesting that an increase in both of these factors will intensify the chances of being poor. Differences in the

sources of drinking water give vital clues about the fact that poor have limited access to the safe drinking water. Deprived

access to drinking water supply and proper sanitation system consecutively increases the chances of worse health

condition of poor as compared to non-poor. The theory has been supported by the empirical results as the variable of WAT

is significant at 95 percent confidence level and it reduces the chances of being poor of a household if they have access to

piped and safe drinking water supply.

As the study is related to the employees of light engineering units of Gujranwala, Gujrat and Sialkot districts, the

level of skill is very important in determining their wage scale. The level of skill may be unskilled, semi-skilled and

skilled. Estimated results suggest a significant and negative impact of level of skill on the probability of being poor.

The impact of light Engineering sector on the poverty reduction can be captured by the variable of impl which is

calculated with the help of eq (3), and the imputed values are the incorporated in the basic Logit Model. Estimated value of

impl is found to be significant at 99 percent confidence level implying a negative impact on the probability of being poor.

According to the estimated results, a one unit change in the variable of improvement in living standard leads to change in

the odds of being poor (the probability of being poor over the probability of being non-poor) by 6.14 units, holding all

other independent variables constant. Thus, adding positively to the argument that SMEs are really contributing in

enhancing the living standard of its employees and eventually reducing poverty.

5. Conclusion

Poverty alleviation policies have been given due considerations to eradicate poverty at all levels in Pakistan along

with reasonable economic growth rate in different time periods. Poverty reduction strategy was launched by the

Government of Pakistan in 2001 in response to the rising trend in poverty during 1990s.Different policies and projects

undertaken by the Government regarding poverty alleviation resulted in declining the extent and severity of poverty in

some areas but not in all the regions of Pakistan. It may be due to lack of micro level policies as compared to the

application of macro level projects. Mega projects to eradicate poverty may result in some immediate and positive

outcomes but low level projects deals with the gross root poverty and result in long term changes in the poverty structure

of masses.

Development of SMEs can be considered as such a policy measure that deals with the poverty at its roots and

produces results that are long lasting in its nature. It not only provides employment opportunities to the poor people but

also make them productive component of the economy through informal training system, as SMEs contribute 30 percent to

GDP and their share in export earnings is about 25 percent.

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The present study can be considered as an attempt to understand the role of SMEs in poverty reduction. The data

consistently shows that poverty is considerably high in employees of Gujranwala as compared to the workers of Gujrat and

Sialkot Districts. In the present study, it is attempted to analyze the different factors affecting poverty status of the

employees of three Districts using Logit Model. The main findings of this empirical analysis are described as

Household size, age of household head and persons per room in a household are found to be strongly

associated with poverty and the presence of these variables increases the probability of being poor.

Education, female labor force participation, gender of the household, physical assets like owning the

house, structure of the housing unit, availability of services like electricity and sui gas and skill of the respondent are the

significant variables and are found to have negative impact on the probability of household‘s poverty.

According to the empirical results, contribution of SMEs towards poverty reduction as a dummy variable

(IMPLS) is significant at 1 percent level implying a negative impact on the probability of being poor. Thus, adding

positively to the argument that SMEs is this case is really contributing to enhance the living standard of its employees.

Emphasis should be given to the issues of increasing employment opportunities through establishment of small

and medium enterprises, health facilities, construction of physical economic infrastructure and implementing new labor

policies to improve the living standard of the above stated 80% of non agricultural labor force working in SMEs.

Government should focus on the development of training centers that could provide basic training to the

employees of the workforce of these small units. Financial assistance along with access to global markets can exert

positive impact on the development of these industrial units and thus on the poverty reduction.

Government should give attention to basic infrastructure, availability of facilities like electricity, Sui gas, safe

drinking water and good governance besides some other socio-economic and demographic variables to alleviate poverty.

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Annexure

Table 1: Sample Selection from the seven categories of Light Engineering Sector

Gujranwala Gujrat Sialkot Total

Categories Total Sample Total Sample Total Sample Total Sample

Electric Fans 2345 365 3141 489 9 1 5495 855

Electric goods

and parts 1681 261 258 40 448 70 2387 371

Electric Motors 852 133 0 0 44 7 896 140

Electrical

Machinery 17 3 0 0 34 5 51 8

Washing

Machines 3327 517 7 1 155 24 3489 543

Washing

machines and

parts 426 66 0 0 6 1 432 67

Water Pumps 271 42 0 0 0 0 271 42

Total 8919 1387 3406 530 696 108 13021 2025

Source: SME survey conducted by author (2009-10)

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Table 2: List of The Variables Used For Logistic Estimation of Poverty Determinants

Variables Variables Description

Dependent Variable

POV 0= if the household is poor, 1 =Non poor

Explanatory Variables

AGEH Age of Household Head (years)

EDUH Education of Household Head (0= Illiterate, 1= Literate)

SEXH Sex of Household Head (1=male, 2=female)

HSIZE Household Size

FMRM Female male ratio (Members)

FMRW Female male ratio (Workers)

PARR Participation Rate

EDUC Average Educational codes per household member

HOWN Ownership of Housing Unit (0=not own, 1=own)

HSTR Structure of Housing unit (0=Kacha,1=packa)

PHYAS Physical assets (0=no physical assets, 1=has physical assets)

MEDFC Access to medical facilities (0=no access, 1=has access)

PER/R Persons per room

WAT Drinking water facility (1=piped drinking water, 2=through hand pump

0=otherwise)

ELEC Access to electricity (0=no access,1=has access)

CFUEL Nature of fuel used for cooking (1=sui gas/wood, 0=otherwise)

GPENR Gross primary school enrollment rate

IMPLS Improvement in the living standard due to present job

SKILL Level of Skill of the respondent (1=unskilled, 2=semi skilled, 3= skilled)

Table 3: List of the Variables Used For Binomial Logistic Estimation of Improvement in Living

Standard due to present job.

Variables Variables Description

Dependent Variable

IMPL (0= improvement in living standard is negative,1= improvement in living standard

is positive)

Explanatory Variables

SATS Satisfaction with the present job (0=not satisfied,1=satisfied)

IDEP income dependency on Light Engineering Sector (percentage share)

YEARS No. of years in the present job

YDIFF Income differential of earlier and present job (Percentage Change)

IMPLS Improvement in level of skill with the present job (Yes=1,No= 0)

CONSP change in consumption pattern (Improvement=1,not improved=0)

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VOL 3, NO 1

Table 4: Poverty Indices Based on Calculated Poverty Line

Source: Calculated from the SME survey by author, 2010

Table 5: Results of the Instrument Variable Equation


SATS 0.817 1.76** 2.085

IDEP -0.1536 -1.90** 0.8576

YEARS 0.9249 1.70** 1.911

YDIFF 0.567 2.44*** 2.058

IMPLS 0.871 1.56* 1.91

CONSP 0.951 1.75* 1.909

CONSTANT -6.81 -1.45 --



LR Chi2 (6)=136.33

Prob.>chi2=0.000




District Headcount Index 100

0

NP

NP

Poverty Gap Index

N

i

i

z

G

NP

1

1

1

Poverty Severity

Index

N

i

i

z

G

NP

1

2

2

1

Households Population

Gujranwala 47.2% 55 % 0.136 0.046

Gujrat 46 % 52.8% 0.149 0.054

Sialkot 41% 50.9% 0.080 0.019

Total 46.5% 54.2% 0.136 0.047

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VOL 3, NO 1

Table 6: Estimated results of Logit model

*** Indicates that the coefficients are significant at the 1 percent level.

** Indicates that the coefficients are significant at the 5 percent level.

* Indicates that the coefficients are significant at the 10 percent level.

PREDICTORS COEFFICIENTS Z-STATISTICS ODD RATIOS

AGEH 0.0442** 2.51 0.9579

EDUH -0.1069* -1.78 0.8996

SEXH -1.0087* -1.87 0.3038

HSIZE 1.6451*** 8.83 0.2194

FMRM 0.1055 0.20 0.9457

FMRW -6.3554*** -6.22 468.553

PARR 31.21 0.08 9.73e+12

EDUC -0.88615*** -4.08 2.405

HOWN -1.478*** -4.64 4.825

HSTR -1.249*** -4.13 3.893

PHYAS -1.1908*** -3.92 3.493

MEDFC 0.0885 0.77 0.897

PER/R 1.03012*** 5.39 0.3201

WAT -0.6619*** -3.29 0.5149

ELEC -0.7336** -2.25 1.102

CFUEL -0.6738*** -3.04 0.5015

GPENR -0.0629*** -7.30 1.0632

IMPLS -1.830*** -5.90 6.144

SKILL -5.556*** -11.12 237.858

Constant -28.344 -0.08

Log Likelihood = -189.2570 Pseudo R2=0.3647

No. of observations =2025

LR chi2(19) =248.91

Prob. >Chi2 =0.000

E-Procurement in the Organizational Performance: Business case of Export based Textile industry

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