Volume 4, Issue 6 – December 2016 ISSN: 2054-7404

Volume 4, Issue 6 – December 2016

ISSN: 2054-7404

5

ArchivesofBusinessResearch(ABR) Vol.4,Issue6,December-2016

Copyright©SocietyforScienceandEducation,UnitedKingdom II

TABLEOFCONTENTS EDITORIALADVISORYBOARD

DISCLAIMER

III

Effects of Human Resources Training on Employee PerceivedPerformance: Comparison of Somalia-Turkiye TelekommunicationBussinessesBurhanAbdullahiHUSSEİNEbruAYKAN

01

DownstreamStockpilingofSteelInventoriesandArtificialDemand:TheCaseofSaudiArabiaDr.FadyeS.AlFayad

16

CapitalStructureandFirmPerformanceintheNigerianCementIndustryEL-Maude,JibreelGamboAbdul-RahmanAhmadAhmad,MohammedMusa

30

RevisitingtheFinancialYearinIndiaAsitRanjanMohantyAvipsaMohanty

45

Investigate Students’ Attitudes toward Computer Based Test (CBT) atChemistryCourseAmnahHassanDammas

58

Human Capital, HRM Practices and Organizational Performance inPakistaniConstructionOrganizations:TheMediatingRoleofInnovationHumaSarwarBilalKhanKashifNadeemJunaidAftab

72

Matter’sInfluenceChild’sOntheSpeechDevelopmentinKenyaMansonSichari

83

The Undergraduate College Education in USA: Schools with Best andWorstROIRajK.Kohli

92

Developing Sustainable Special Economic Zones in Botswana: AConceptualDiscussionEdwardE.MaranduDonatusAmanze

101

Copyright©SocietyforScienceandEducation,UnitedKingdom iii


Experimental Investigation of the Relationship between KnowledgeManagementandOrganizationalInnovationandCreativityintheDistrict5ofTehranMunicipalityMahsaTavakoli

112

Impact of Financial Liberalization and Governance on the FinancialDevelopmentinDevelopingCountriesAnilaIjazAlvinaSabahIdrees

122

An Integrative Framework Capturing Kyai Charismatic Leadership AndMaduraSocietyWelfareLevelInEastJava-Indonesia.KuswandiUjiantoAmiartutikKusmaningtyas

145

”The Leather Industry Development in Tanggulangin in Facing AseanEconomic Community (AEC) 2015 with Quantitative Strategic PlanningMatrix(QSPM)”Drs.BambangPurwokoAhmadGamal,SE,MMDedyKunhadi,ST,MM.

153

ManagementProblemsofTurkishBusinessesinAfghanistan:TheCaseofKabulandMazarisharifJamshidKhurshidEbruAykan

163

AcademicPublicationandIssuesoftheDay:U.S.IncomeTaxParadigmRobertW.ServiceJamesP.Reburn

178

The Rhetorics of Labour Contracting As a Managerial Tool among OilMultinationalCorporations(MNCs)InNigeriaHakeemAdeniyiAjonbadi,Ph.D

209

The Impact of Management Objectivity in Jordanian ShareholdingCompaniesonAuditPlanningandEvidencesCollectionProfessorWalidZakariaSiamAliArafatMansour

227

Analysis on the Influence of Inflation, Ship’s Call, And Unloading CosttowardsGeneralCargoInter-InsularShipsinSurabayaPortRosadiroCahyono

249

The Linkage between Psychological Capital and Public ServiceMotivation:EvidencefromTaiwanChyi-LuJang

260

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Customer Retention Management Strategies Adopted By the FreightTransportServiceSectorinGhana.AReviewPaperonRelatedLiteratureIsaacOfori-OkyereRenasAyebonoAtanga

267

Managing Lean Principles applicability and implementation in theminingindustryinGhana.AReviewPaperonRelatedLiterature.IsaacOfori-OkyereRenasAyebonoAtangaBernardAdjeteyOkine

282

An investigation on the role of Visual Merchandising Displays in thepromotionoftraditionalapparels.AnevidencefromretailingtheAsanteKenteapparelinGhana.IsaacOfori-OkyereSafoK.Ankama

300

EvidenceofMonthlyAnomaliesinPakistanStockExchangeMusarratShamshir,PhDMirzaJawwadBaig,PhDKhalidMustafa,PhD

312

FinancialStabilityReport:LessonsfromtheCentralBanksFilaliAdibFatineFiranoZakaria

325

OrganizationalClimateandOilCompanies.MultidimensionalStudywithWorkersfromtheDrillingDepartmentinTabasco,MexicoCarlosdeJesúsGonzálezLópezMaríaDelCarmenSandovalCaraveoEdithGeorginaSurdezPérez

340

Key Determinants of Success to Achieve Sustainable CompetitiveAdvantage(SCA)FatemehRezaeeMostafaJafari

351

RemunerationandManagementBehavior:AReviewSarahYuliarini

376

Exposure to Entrepreneurial Activities and the Development ofEntrepreneurialCultureChristabelDivineBrownson

384

Impact of PerceivedDiscrimination andResultant Stress on InnovativeWorkBehaviorModeratedBySpiritualityamongFemaleEmoployeesinPrivateBanksofRawalpindiSamreenFatimaMalik

389

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Balancing Conflicting Supply Chain Stakeholder Interests: The BigProcurementPractioner’sDilemmaJacksonNdoloEuniceNjagi

400

Presenting an Innovative Approach Combining FA andANPMethods toIdentifyandPrioritizeWaterPollutantsinPetroleumandPetrochemicalIndustriesAbolfazlRohaniAbbasKeramatiJafarRazmi

405

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EDITORIALADVISORYBOARD

Prof.StephenPollardCaliforniaStateUniversity

UnitedStates

Dr.VahidhosseinKhiabaniNorthDakotaStateUniversity

UnitedStates

Dr.ValentinaDellaCorteUniversityofNaples

Italy

Prof.ColinC.WilliamsUniversityofSheffield

UnitedKingdom

Dr.StephenArthurLemayMississippiStateUniversityUnitedStateUniversity

Prof.EddieJohnFisher

UniverzitatPalackeho,OlomoucUniversidaddeOriente,SantiagodeCuba

UnitedKingdom

Dr.BrunaEcchiaUniversityofNaples

Italy

Copyright©SocietyforScienceandEducation,UnitedKingdom vii


DISCLAIMERAllthecontributionsarepublishedingoodfaithandintentionstopromoteandencourageresearchactivitiesaroundtheglobe.Thecontributionsarepropertyoftheirrespectiveauthors/ownersandArchivesofBusinessResearch(ABR)isnotresponsibleforanycontentthathurtssomeone’s

viewsorfeelingsetc.

ArchivesofBusinessResearch–Vol.4,No.6PublicationDate:December.25,2016DOI:10.14738/abr.46.2331.

Hussein,B.A.&Aykan,E.(2016).EffectsofHumanResourcesTrainingonEmployeePerceivedPerformance:ComparisonofSomalia-TurkiyeTelekommunicationBusinesses.ArchivesofBusinessResearch,4(6),01-15.

Copyright©SocietyforScienceandEducation,UnitedKingdom 1

EffectsofHumanResourcesTrainingonEmployeePerceivedPerformance:ComparisonofSomalia-Turkiye

TelekommunicationBussinesses

BurhanAbdullahiHUSSEİNErciyesUniversity,Kayseri/Turkey

EbruAYKAN

ErciyesUniversity,Kayseri/Turkey,AppliedSciencesCollegeHumanResourceManagementDepartment

Abstract

Thepresentstudywasconductedtoinvestigatetheeffectsofhumanresourcestraining on employee perceived performance in telecommunication businessand to compare such relations in two businesses operating in Somali andTurkey. The research was conducted on 240 participants employed in atelecommunication organization operating Galkio province of Somali (GolisTelekom)andatelecommunicationorganizationoperatinginKayseriprovinceof Turkey (Türk Telekom). Current findings revealed that there weresignificant relationships between human resources training and perceivedperformance of employees and human resources training had significantimpacts on perceived performance of employees. It was also observed thataverage training level and performance of Türk Telekom employees werehigher than the employees of Golis Telekom and the differences in theirtraininglevelsandperformanceswerefoundtobesignificant.Key Words: Human Resources Training, Perceived Performance of Employees,HumanResourcesManagement,Training,Performance,Employee

INTRODUCTION

Largecompaniesalwaystargetworldwidesuccessandcompetitiveadvantage.Toreachsuchtargets,theyshouldfindandstaffqualityhumanresourcesandhavethemeffectivelyworkedfor the organization. They should also keep a close eye on them to keep employees in theirorganization, to create a sense of commitment anddevotion in them. In so doing,managersshould pay a special attention to all the core functions of human resourcesmanagement astheyplayinterdependentrolesinorganizational,socialandeconomicaspects.Allfunctionsofhuman resourcesmanagement play a significant role in reaching organizational targets andsustainingtheorganizationinmarkets.Organizationstodayare incontinuouseconomic, technological,social,demographicandlegalchanges.Compliancewithandmanagementofthesechangesconstitutesthebasesforsurvivalof organizations and their success in international competition. On the other hand,incompliance with these changes and incapacity in positive response to such changes mayresultinextinctionoftheorganization.Especiallywiththeendoftechnology-orientederaandtransitionto“information”agehavealteredthesignificancelevelsofproductiontoolsusedbytheorganizations.Confrontingwiththisnewagerequiresbringingdifferentproductiontoolsforward. Among these newproduction tools, human resources representing humane side ofthe organization are themost significant one. Change and competition have brought human


URL:http://dx.doi.org/10.14738/abr.46.2331. 2

resource, once in the bottom, today into the upper most level of organizational pyramid.Human resources provide great contributions to create organization vision and improveorganization efficiency and productivity. In current century and information society, humanresourcesandtheknowledgetheyhavehasastrategicimportanceforthecompetitivepoweroftheorganizations.Intellectualworkersarethemostimportantandthegreatestvalue-addeditemofinformationsocietyandtheyaretheproviderofcompetitiveadvantageintodayandinthe future. To be on the course of success along the global competition environment,organizations have to improve their human capital and their organizational supports.Manpower is the most important production power improving the success of modernorganizationsand it isalsoamong thebasic itemsdesignating thepowerofanorganization.Therefore, employee training and development are quite significant issues in success ofoperations. Employee training and development is also a significant issue for effectivemanagement of changes. Improvement of knowledge, skills, talent and operational level ofhuman resources provide significant contributions to efficiency and performance of humanresources.Thereforeinthisstudy,significanceoftrainingeffortsinimprovingindividualandorganizational performance was pointed out. From this point of view, initially humanresources management, training and development were focused on and then the effects ofhumanresourcestrainingonperceivedperformanceofemployeesweretriedtobeelucidated.

CONCEPTUALFRAMEWORKHumanResourceManagementandFunctionsHumanresourcesmanagement(HRM)isever-growingandtransitionalconcept.Therefore,itisquitehardtofindastandarddefinition.Therearen’tanycommonterminologiesespeciallyintransitionalsciences(Mathisetal.1997:25).HRMisinterestedinhuman-relateddimensionofanorganization.It isasupportunitfortheperformance of organizational functions. The role of human resources management is toprovide supports on human resources management to the individuals directly involved inproduction of goods and services or to the line personnel (Gök 2006: 21). Within thisframework in this study,HRM isdefinedas everykindof functionandpractice for effectivemanagement of human resources in an organizational or environmental ambient as to bebeneficial for organization, individual and environment and bewithin the legal frameworks(Sadullahetal.2013:3).TheabundanceofdefinitionsisderivedfromthesignificanceattributedtoHRM.Regardlessofhowrobusttheotherpecuniarysources,ifthehumanresourcesarenotsufficientlyeffective,thepossibilityofsuccessofanorganizationwilldecreasethatmuch.Itisimpossibletoreachproductivityandqualitytargetswithunsatisfiedlaborforcewithlowachievementmotivation.Therefore, HRM has basic objectives of improving the productivity and basic quality ofprofessional life. From this aspect, human resources management tries to provide positivecontributionsbothtoproductivityandoccupationallifethroughusingvariouscriteriatogetherwithlaborforce(Tortopetal.2007:16).Inorganizations,executivesareresponsibleforimplementationofHRMfunctions.Executivesare the organs responsible for establishing policies and targets of organizations and fordesignating the strategies to realize these policies and targets. The success of organizationdependsontheemphasisputbyexecutivesonrelevantactivities.ThefunctionsofHRMcanbeassessed under the headings of: human resources planning; selection, training anddevelopment of human resources; career planning; wage management; occupational healthandsafety(Ünsalanetal.2008:59).



HR managers make plans to supply the organization with sufficient number and desiredquality employees in required time through considering the current potential, developmentprocessandobjectivesoftheorganization(Aykaç1999:93).Humanresourcesplanning(HRP)isbasedonsystematicanalysisofcurrentresourcesoftheorganizationandcommonlyusedtoestimatefutureHRneeds.ItalsotargetsefficientuseofHRandcomplianceofestimateswiththeHRsupplyoftheorganization(Özgenetal.2001:73).Personnel procurement is an activity performed to search for personnel candidates withrequiredknowledge,skills,talentsandmotivationtomeetpersonneldeficitofanorganizationdesignatedbyHRPandtoemploythemintheorganization(Ünsalanetal.2008:88).Personnelselection includes a series of processes composed of decision-making activities to select thepersonnel from the candidate group created through candidate search and finding efforts(Çavdar et al. 2010: 85). Traditional selection process includes; introducing job profile,applicationform,tests,,interviews,referencesearch,recruitmentdecision,healthinspections,offeringandplacement(Geylanetal.2013:61).Careerplanning includes theprocessesof: assessmentof individual’s ownknowledge, skills,interests,valuejudgements,strengthsandweaknesses;definitionofinner-outerorganizationalcareeropportunities; identificationofshort-medium-longtermtargets;preparationofcareerplans; implementation of these plans. It is a problem solving and decision making processaimingthemostpropercorrelationbetweenthevaluesandneedsoftheemployeesandtheirprofessionalexperiencesandopportunities(Çetinandothers:2014:126).Wage and salarymanagement is one themost important functions ofHRM.A efficientHRMrequires a satisfactory monetary reward management because wage and salary or rewardmanagementaredirectlyrelatedtootherfunctionsofHRM.Foranefficientimplementationofactivityandpracticesofwagemanagement,asensitivepaymentprogramandpoliciesshouldbe created. On the other hand, a reduction in job satisfaction andmore frequent personnelrecruitment are observed in organizations without a wage policy. There is a relationshipbetween performance improvement and wage increase and such a relation is the primaryfactorbindingthepersonnel to the jobandtheorganization.Whentherelationshipbetweenproductivity and wages were assessed, labor force productivity can clearly be seen as animportantfactor.(Parasız2004:4).HRM functions are developedwith identification, recruitment, placement and orientation ofindividuals with desired qualifications and sufficient payment to them. Such functions alsorequireoccupationalhealthandsafety forpreservationandsustainabilityofphysicalpower,sufficiencyandskillsofthepersonnelasitwasinthefirstdayofjob.Occupationalhealthandsafety is a systematic and scientificwork for the prevention fromhealth hazards of varioussourcesduringtheperformanceofjobsinorganizations(Yüksel2004:235).HRassessmentisanotherbasicsubjectofHRM.Taskperformanceoflaborforceemployedinan organization is a quite significant issue in reaching specific targets. Thus, performanceassessmentisamongtheimportantfunctionsofHRM.However,thisissueisquitedifficultaswell as being significant. Such difficulty is originated from subjectivity (varying from oneindividual to another) of performance assessment (Fındıkçı 2001: 297). In other words,performanceassessmentisapracticeassessingsuccess,attitude,behaviorandpersonalityofemployees of an organization based on some objective criteria (Yılmazer 2013: 108). Thepersonnel is subjected to performance assessment through knowledge, skills and talentshe/she has while recruiting and again subjected to performance assessment for on-job



performance after recruitment. In thisway, current status, development and rewards of thepersonnelaredeterminedwiththisperformanceassessment(Ünsalanetal.2008:124).HumanResourcesTrainingThere is a continuous need for development efforts to better benefit from the employees.Employee development is achieved through preparation of training programs to improveprofessionalskills,assessmentofprofessionalsuccessesandprovidingconsultancywhenevernecessary. Rapid developments in technology, mechanization and automation increased thesignificance of training even more (Yüksel 2004: 198). The need for professional trainingespecially in 21st century increased together with increasing educational levels of people,changes in expectationsandneedsof eachnewgeneration,developments in communicationopportunities, advanced technology utilization to meet ever-increasing needs, transition toautomationandexcessiveexpertise.Today,organizationswellcomprehendedthesignificanceofdevelopingorimprovingsuccessoftheirpersonnel.Inanycase,trainingisnotatargettobereached,butonlyatooltorealizetheobjectivesoftheorganizations(Bingöl1990:147).Training is theprimaryHRpracticeused to increase competitivepowerof theorganization.Withouttraininganddevelopment,itisimpossibletoupdateknowledge,competency,skillandexperiencesofemployeesandimprovetheirperformanceastoinfluencetheirorganizationaloutcomes (Uyargil et al. 2010: 162). There are various definitions for training concept.Trainingisdefinedasaneffortdesignedbytheorganizationtoeasethecomprehensionofjob-relatedcompetenciesbytheemployees(Çetinetal.2014:81).Trainingisalsoexpressedasaseriesofplannedactivitiesabletoprovidecertaindevelopmentsinhumanbehaviorstowardto pre-determined objectives (Sadullah et al. 2013: 165). In another definition, training isexpressedasaprocessforchanginganddevelopingbehavior,knowledge,skillandmotivationofemployees(Yılmazer2013:132).Increasing organizational performance through positive changes in human behaviors and inthiswayeasethecomplianceoftheorganizationwithchangeanddevelopmentsareamongthemostimportantobjectivesoftrainingworks(Çetinetal.2014:83).ThebenefitsofHRtrainingcanbegatheredunder twogroups (Bayraktaroğlu2006:78;Ertürk 2011:124:Ayan2013:155;Bingöl2014:283):Withregardtoorganization;toincreaseproductivityand/orincreaseproductivityconsciousness;toincreaseknowledge,skillandtalentsofemployees;todevelopemployee-employer relations; toprovide adaption and full implementationof organizationalpolicies; to reduce production, management and personnel costs; to reduce personnelresistance to changes; to improve decision-making and problem-solving capability of theorganization; to strengthen inter-organizational communication; and to reducemaintenancecostsofmachineryandtools.Withregardtopersonnel;toimproveself-confidenceandsenseof achievement; to increase communication skills and leadershipknowledge; to increase jobsatisfaction;torealizeindividualobjectivesandtosatisfypersonalrequirements;toeliminatethe fearof takingnew responsibilities; to increase the senseof belonging; toprovide careerdevelopment and increase performance. From this point forth, with training function oforganizations, it is possible to improve performance, update skills and knowledge ofemployees,solveorganizationalproblems,andhelpincareerdevelopmentandorientationofnewcomers(Tortopetal.2007:185).PerceivedPerformanceTheprimarytargetoforganizationingeneralistoachievehighperformance,topreserveanddeveloptheircompetitivepower.Whilesomeorganizationsacceptprofitability,marketshareor quality as the performance criteria, some others accept cost, consumer orientation or



productivity as theperformance criteria. Performance is a conceptdefining theoutcomesofindividuals or groups working in an organization to reach the desired targets (Uysal et al.2013:837).Itisanindicatortowhatextendtheindividualsorgroupsreachedthetargetsandstandardsalongwiththedesiredobjectives.Theperformancemaydecreaseorincreasewithpersonality, values, attitudes and abilities of the individuals (Uysal et al. 2013: 837).Performance may also express the execution level of a task under certain conditions, thebehavioral pattern of an employee or the outcomes of personnel in a certain time period(Bingöl 2014: 367). Lexical meaning of performance is accomplishment of a task by anindividual,efficientfinalizationofataskassignedtoanindividual.Inafunctionalpointofview,performance is the levelor ratioof accomplishmentof a taskwithin the specified standardsbetweentheindividualandthetask(Ertürk2011:167).The common point in several definitions of employee performance is the emergence ofperformance as a result of the relationship established between individual expectation andorganizational objective. Performance is a qualitative and quantitative measure of theefficiencyexhibitedbyanemployee,agrouporanorganizationinreachingthetargets.Foranemployeetoreachqualitativeandquantitativeobjectivesthereshouldbesomepsychologicalconditions related to organizational climate. Besides monetary opportunities like wage andcareerdevelopment, anorganizationalenvironment shouldalsobeprovided to realize theseobjectives(Tutaretal.2010:202).Anemployeeshouldhaveastrongmoraleandmotivationtoexhibittheperformanceexpectedfrom him. To do this, a well wage and opportunities should be supplied to the employee,supportsshouldbeprovidedforhispromotionandanattention,affinityandsincerityshouldbepresentedbytheotheremployees.Therelevantdesireandefforttorealizetheobjectiveistotallydependonperceptionofcurrentopportunitiesandwageandrewardsprovidedbytheorganization(Uygur2007:75).Organizations use different performance assessment methods. Mostly objective, subjective,qualitativeandquantitativemethodsareemployedtogether forperformanceassessment.Tomeasurequalitativeandquantitativeperformance, themeasurementorassessmentmadebytheexecutivesbyasking“towhatextendtheorganizationissuccessfulwithregardtovariousperformance criteria” through comparisons with the other businesses in the sector isexpressedasperceivedperformance(Aksoyluetal.2013:1008).Business outcomes are sometimes used to measure direct performance. In cases whereobjective measurement of individual business outcomes is impossible or quite difficult,perceived performance is used as an alternative measure of performance (Mustapha et al.2013:22).In general, there are twodimensionsofperformance concept.These are “taskperformance”and “contextualperformance” (Onay2011:590).Taskperformance isdefinedas theactionspresented by the employees within the frame of business responsibilities providingtechnologicalsupports tobasicactivitiesof theorganizationorprovidingsource,materialorservice to these basic activities (Ünlü et al. 2011: 184). Contextual performance includesvarious activities like knowledge of employee about organizational rules and procedures,obeying themeven theyarecontrary toownopinions,helping toothers in theorganization,provide contributions to organizational objectives and presenting an extra effort for thecompletion of the business (Onay 2011: 590). In other words, contextual performance inbroader perspective, besides central activities of the organization, points out the activitiesenriching organizational, social and psychological ambient of business atmosphere (Ünlü



others2011:185).Inshort,whiletaskperformanceincludesthebusiness-relatedbehaviorsofthe individual, contextual performance mostly includes voluntary activities apart from theactivitiesspecifiedinbusinessdefinition.

LITERATUREREVIEWCurrent literaturesrevealedthattheglobalcompetition inrecentyearshighly influencedtheorganizationsandtheonesinvestedonemployeetraininghadcompetitiveadvantageovertheothers. It was pointed out in many studies that training influenced the performance ofemployees.AccordingtoAydınlıandHalis(2004),trainingplaysasignificantroleinefficientparticipation of employees in all organizational activities and creates well relationshipsbetween employees and employers. With training, employees perform their businesssuccessfully,increasetheirself-confidenceandcreatethebasesfortheircareerdevelopment.According to Garcia (2005), training has positive effects on business performance. Trainingalsoplaysasignificantrole in improving theproductivityofemployees. Itwasalsoreportedthat besides direct impacts on performance of employees, training also influenced theperformance of organization through the performance of employees. According to Truit(2011), employee training increases entrepreneurship and creativity of labor force, providesupport in prevention of wear of human resources because of difficulties experienced incompliancewithtechnologicalchangesandvariationsinagesandattitudesoftheemployees.Training also improves the performance of employees through jab satisfaction during theknowledge,skillandattitudedevelopmentprocesses.AccordingtoKaptangil(2012),continuousdevelopmentandsustainabilityoftrainingactivitiesand an efficient organizational structure are necessary for compliance of organizationswithchangingenvironmentalconditionsandsurviveundertheseconditions.Shahen et al (2013) indicated the most important effects of training on performance ofemployeesandorganizationas;increasedproductqualityandquantity,improvedprofitratios,sustainedbusinessstability,minimizedrisks,decreasedorganizationexpensesandproductioncosts,improvedbusinessmanagement,compliancewithnationalandinternationalstandards.Elnagaand Imran (2013) ina studypointedout that sufficiency levelsof employeesmaybeimproved with training programs. Then, it was stated that trainings not only improve theperformanceandthusthesuccessofemployees,butalso improvetheirknowledge levels, letthem gain experience for their future businesses and allow them more regular jobperformance.Falolaetal.(2014)indicatedthatefficientprofessionaltrainingprogramspositivelyinfluencedthedevelopmentofemployeesandbasedontheleveloftrainingprogram,improvedindividualand organizational efforts to reach desired targets and increased the performance ofemployees. Similarlyaccording toBayraktaroğluandCickusic (2014), in caseofwell-trainedemployees,themanagementcanassignthemfulltrustandresponsibilitytoreachthesuccess.Welltrainedemployeesalsousebusinessresourcesmoreefficientlyandproductively.Rightatthispoint,constitutingthebasisofthisstudy,apartfromtargetedobjectives,effectsoftraining programs provided to employees are closely related to what extend education,developmentandlearningconceptswererealized(AydınlıandHalis,2004:8).



METHODOLOGYSampleThe research sample was composed of the employees of Golis Telekom operating incommunication sector of Somali and Türk Telekom operating in the same sector of Turkey.GolisTelekom(Galkio)has300employees.TürkTelekom(Kayseri)hasabout400employees.Therefore,300questionnairesweredistributedtoGolisTelekomandTürkTelekom.Then,112respondswerereceivedfromGolisTelekomand5ofthemwereexcludedforvariousreasons;152 responds were received from Türk Telekom and 19 of them were excluded for somemistakes. So, from both organizations, 240 questionnaire forms (Golis-107, Türk-133)wereassessed.DataGatheringMethodQuestionnairemethodwas used to gather data. The questionnaire formswere composed ofthree sections. The first section was composed of statements toward to demographiccharacteristics of respondents, second section was composed of statements toward to “HRtrainingreceivedbytheemployees”,andthirdsectionwascomposedofthestatementstowardto“businessperformancecomposedofperceivedtaskandcontextualperformance”.Trainingscale was created by using the previous literature (Rahaib et al, 2011; Laing et al., 2009;AppiahandBenedicta,2010;NassaziandAidah,2013)andincluded22statements.Tomeasurebusinessperformance(composedofperceivedtaskandcontextualperformance),thescaledevelopedbyGoodmanandSvyantek(1999)andincluding22statementswasused.While 9 statements of the scale were indicating task performance, 13 statements indicatedcontextualperformance.Respond toeach statementwas received in5-point likert format inwhich“Stronglydisagree(1),Disagree(2),Undecided(3),Agree(4)andstronglyagree(5)”.CronbachAlphavaluesindicatingreliabilityofthescalesareprovidedinTable1.

Table1.CronbachAlpha(α)Coefficientsforreliabilityofthescales Golis Telekom Türk Telekom

HR Training 0.948 0.923

Perceived Task Performance 0.900 0.858

Perceived Contextual

Performance 0.891 0.700

ResearchModelandHypothesesThemodeldevelopedinaccordancewiththeresearchobjectiveandpossiblerelationshipsare

presentedinFigure1.

Figure1.ResearchModel

Employee Human Training

TotalEmployeePerformance

Task Performance

Conceptual Performance



Thebasichypothesisof thisstudywas“HRtraining levelpositively influencedtheperceivedperformance of employees”. Correspondingly, the following hypotheseswere created in thisstudy:H1a:HR training level has apositive effect onperceived taskperformanceofGolisTelekomemployees.H1b:HR training levelhas apositive effect onperceived taskperformanceofTürkTelekomemployees.H2a: HR training level has a positive effect on perceived contextual performance of GolisTelekomemployees.H2b: HR training level has a positive effect on perceived contextual performance of TürkTelekomemployees.H3: There are differences between HR training levels of Golis Telekom and Türk Telekomorganizations.H4: There are differences between perceived task performance of Golis Telekom and TürkTelekomemployees.H5: There are differences between perceived contextual performance of Golis Telekom andTürkTelekomemployees.

RESULTSDemographicCharacteristics

Table2.DemographicCharacteristics,FrequencyandPercentagesGolis Telekom Türk Telekom

Gender Number Percentage Number Percentage Male 101 94.4 122 91.7 Female 6 5.6 11 8.3 Total 107 100 133 100

Age

Between 18-27 years 30 28 16 12 Between 28-37 years 54 50.5 89 66.9 Between 38-47 years 18 16.8 19 14.3 Between 48-57 years 5 4.7 9 6.8 Total 107 100 133 100

Education

Primary school 2 1.9 - - Secondary school 3 2.8 16 12 High school 27 25.2 56 42.1 Undergraduate 63 58.9 54 41 Graduate 12 11.2 7 5.3 Total 107 100 133 100 As itwas seen fromTable 2, 94.4%of Golis Telekom employeesweremale and 5.6%werefemale; 91.7% of Türk Telekom employees were male and 8.3% were female. Majority ofemployeeswerebetween28-37yearsofage.Whileabout73%ofGolisTelecomrespondentsweremarriedand27%weresingle,78.2%ofTürkTelekomemployeesweremarriedand27%



were single. Of Golis Telekom employees, 25.2% had high school, 58.9% undergraduateeducation. Of Türk Telekom employees, 42.1% had high school and 41% undergraduateeducation.MeanValuesofResearchVariables

Table3:MeanandStandardDeviationsforDependentandIndependentVariablesofGolisTelekomEmployees

N X̅ SS Min. Max. HR Training 107 3.3037 0.85327 1.23 5 Perceived Task Performance 107 4.0062 0.78654 0.78 5 Perceived Contextual Performance 107 3.8382 0.76857 1.31 5 ItwasseeninTable3thatarithmeticmeanof“HRtraininglevel”ofresearchparticipantswasatmedium level (X- =3.30); arithmeticmean for “perceived task performance”was (X- =4.00),arithmeticmeanfor“perceivedcontextualperformance”was(X9 =3.83).

Tablo4.MeanandStandardDeviationsforDependentandIndependentVariablesofTürkTelekomEmployees

N X̅ SS Min. Max. HR Training 133 3.7874 0.58144 2 5 Perceived Task Performance 133 4.1671 0.51131 2.11 5 Perceived Contextual Performance 133 3.9977 0.40383 2.15 4.77 ItwasseeninTable4thatarithmeticmeanfor“HRtraininglevel”ofresearchparticipantswas(X# =3.78);arithmeticmeanfor“perceivedtaskperformance”was(X# =4.16),arithmeticmeanfor“perceivedcontextualperformance”was(X' =3.99).Whentwoorganizationswerecompared,itwas observed that HR training, perceived task performance and perceived contextualperformance levels of Türk Telekom employees were higher than that of Golis Telekomemployees.HypothesisTestingWhether or not there are relationships between the independent variable HR training anddependent variables task performance and contextual performance, if so the strength anddirectionofrelationshipwereanalyzedwithcorrelationandregressionanalysis.CorrelationAnalysisCorrelation coefficients indicating the relationships between the variables and direction ofrelationshipsareprovidedinTable5.

Table5.CorrelationMatrixforGolisTelekomEmployees

1 2 3 1. HR Training 1 2. Task Performance ,368**

.017 1

3. Contextual Performance ,236** .001

,814** .000 1

**p<0.01level(2-tailed),*p<0.05level(2-tailed).AsitwasseeninTable5forGolisTelekomemployees,pearsoncorrelationanalysisrevealedsignificantpositiveandweakcorrelationsofHRtraininglevelwithperceivedtaskperformance(p<0.01;r=0.368)andcontextualperformance(p<0.01;r=0.236).



Table6.CorrelationMatrixforTürkTelekomEmployees 1 2 3 1. HR Training 1 2. Task Performance ,329**

.001 1

3. Contextual Performance ,379** .000

,763** .000 1

**p<0.01level(2-tailed),*p<0.05level(2-tailed).AsitwasseeninTable6forTürkTelekomemployees,pearsoncorrelationanalysisrevealedsignificantpositiveandweakcorrelationsofHRtraininglevelwithperceivedtaskperformance(p<0.01;r=0.329)andcontextualperformance(p<0.01;r=0.379).RegressionAnalysisRegressionanalysiswasperformedtodeterminethelevelofrelationshipsamongthevariablesidentifiedwith the correlation analysis. Regression results for Golis Telekom employees areprovidedinTable6.

Table7.EffectsofHRtrainingLevelonTask,ContextualPerformanceofGolisTelekomEmployees

Dependent Variable

Independent Variable (HR Training)

Dependent Variable


Task Performance B t P Contextual

Performance B t P 0.368 4.05 0.00

0.236 2.48 0.01 R2 0.136 R2 0.056

Adjusted R2 0.127 Adjusted R2 0.047 F 16.471 F 6.186

p<0.00,p<0.01As it can be seen fromTable 7, the regressionmodels createdwere found to be significant.Regression analysis revealed that HR training level positively affected perceived taskperformanceofGolisTelekomemployees (β=0,368;P<0.001).ThevariableHR training levelwas able to explain 12.7% of total variation in perceived task performance of employees(R2=0,136; ΔR2 =0,127; F=16.471; P<0.001). Based on this result, the hypothesis H1a “HRtraininglevelhasapositiveeffectonperceivedtaskperformanceofGolisTelekomemployees”was supported. Similarly, the HR training level positively influenced perceived contextualperformanceofGolisTelekomemployees(β=0,236;P<0.001).HRtraininglevelofemployeeswasable toexplain4.7%of thevariation inperceivedcontextualperformanceofemployees(R2=0,056; ΔR2=0,047; F=6.186;P<0.001). Alongwith these results, the hypothesisH2awasalsosupported.The results of simple linear regression analysis performed to determine the effects of HRtraining level on task, contextual and total performance of Türk Telekom employees areprovidedinTable7.



Table8.EffectsofHRtrainingLevelonTask,ContextualPerformanceofTürkTelekomEmployees

Dependent Variable


Dependent Variable


Task Performance B t P Contextual

Performance B t P 0.329 3.99 0.00

0.379 4.69 0.00 R2 0.108 R2 0.144

Adjusted R2 0.102 Adjusted R2 0.137 F 15.942 F 22.030

p<0.00The regression models created were found to be significant (Table 8). Regression analysisrevealedthatHRtraininglevelpositivelyaffectedperceivedtaskperformanceofTürkTelekomemployees (β=0,329; P<0.001). The variableHR training levelwas able to explain 10.2% oftotalvariationinperceivedtaskperformanceofemployees(R2=0,108;ΔR2=0,102;F=15.942;P<0.001).Basedonthisresult, thehypothesisH1b“HRtraining levelhasapositiveeffectonperceivedtaskperformanceofTürkTelekomemployees”wassupported.Also,theHRtraininglevel positively influenced perceived contextual performance of Türk Telekom employees(β=0,379;P<0.00).HRtraininglevelofemployeeswasabletoexplain13.7%ofthevariationinperceived contextual performance of employees (R2=0,144; ΔR2=0,137; F=22.030; P<0.00).Alongwiththeseresults,thehypothesisH2bwasalsosupported.DifferenceAnalysesA t-testwasperformed toput forth thedifferences inHR training levels,perceived taskandcontextualperformanceandtotalperformanceofGolisTelekomandTürkTelekomemployees.Resultsoft-testaresummarizedinTable9.TheaverageforHRtraininglevelofGolisTelekomemployeeswas(X: =3.30)andaverageforHRtraininglevelofTürkTelekomemployeeswas(X( =3.78).Thedifferenceingroupaverageswerefound to be significant (p=0.00<0.05). Based on this finding, the hypothesis H3 (There aredifferencesbetweenHRtraininglevelsofGolisTelekomandTürkTelekomorganizations)wassupported.Inotherwords,theHRtraininglevelofTürkTelekomemployeeswassignificantlyhigherthantheHRtraininglevelofGolisTelekomemployees.Table9.TheDifferencesinHRTrainingLevels,PerceivedTaskandContextualPerformanceof

GolisandTürkTelekomEmployees.Dimensions Organization N X̅ SS t P

Training Levels

Golis Telekom(Somali) 107 3.3037 0.85327 -

5.206 .00* Türk

Telekom(Turkey) 133 3.7874 0.58144 -5.003

Perceived Task Performance


1.910 Türk

Telekom(Turkey) 133 4.1671 0.51131 -1.827

.01**

Perceived Contextual Performance


2.065 Türk

Telekom(Turkey) 133 3.9977 0.40383 -1.941

.00*

Significantat*p<0.00,**p<0.01



ThedifferenceinperceivedtaskperformanceofGolisTelekomandTürkTelekomemployeeswere found tobe significant (P=0.011<0.05).Theaverage forperceived taskperformanceofGolis Telekom employees was (X1 =4.00) and the average for perceived task performance ofTürk Telekom employees was (X1 =4.16). Thus, the hypothesis H4 (There are differencesbetween perceived task performance of Golis Telekom and Türk Telekom employees) wassupported(p=0.000<0.05).TheaverageforperceivedcontextualperformanceofGolisTelekomemployeeswas(X2 =3.83)and the average for perceived contextual performance of Türk Telekom employees was(X# =3.99).Thet-testrevealedthatthedifferenceinperceivedcontextualperformanceofGolisand Türk Telekom employees was found to be significant (p=0.000<0.05). Based on thisfinding, thehypothesisH5(TherearedifferencesbetweenperceivedcontextualperformanceofGolisTelekomandTürkTelekomemployees)wassupported.

CONCLUSIONANDRECOMMENDATIONSTheeffectsofhumanresourcestraininglevelsonperceivedperformanceoftheemployeesoftelecommunication organizations operating in Somali (Golis Telekom) and Turkey (TürkTelekom)were investigated in this study. A total of 240 employees participated and 107 ofthemwerefromGolisTelekomand133werefromTürkTelekom.Since communication sector is a labor-intensive sector, labor force is among the mostsignificantassetsof theorganizations.Togetherwith theconceptofglobalization,numberofpeople involved in communication activitiesworldwidewill rapidly increase and the sectorwillrapidlygrow.Humanresourcesarethemostsignificantinputinfluencingthisgrowthanddevelopment. Organizations tend to provide trainings to their employees and keep them intheir organizations along with their objectives to survive under increased competitiveconditions. The primary objective of this study was to investigate the effects of humanresources training on perceived performance of employees and to put forthwhether or notsuchtrainingdiffersfromonecountrytoanother.Thet-testsrevealedtheaverageforHRtraininglevelofGolisTelekomemployeesas(X: =3.30)andHRtraininglevelofTürkTelekomemployeesas(X9 =3.78).Thedifferencebetweengroupaverageswerefoundtobesignificant(p=0.000<.00). Itmeans,averagetraininglevelofTürkTelekom employees was higher than the training level of Golis Telekom employees. If theeducational level has positive impacts on employee performance, it is expected thatperformance of Türk Telekom employees should be higher than the performance of GolisTelekomemployees.TheaverageforperceivedtaskperformanceofGolisTelekomemployeeswas (X' =4.00) and average for perceived task performance of Türk Telekom employeeswas(X# =4.16).Thedifferencewasfoundtobesignificant,inotherwordsTürkTelekomemployeeshadhigherlevelperceivedtaskperformancethantheGolisTelekomemployees.Asimilarcasewasalsoobservedforperceivedcontextualperformance.Theaverageforperceivedcontextualperformance of Golis Telekom employees was (X5 =3.83) and the average for perceivedcontextualperformanceofTürkTelekomemployeeswas(X7 =3.99)andsuchadifferencewasalsofoundtobesignificant.PearsoncorrelationanalysisrevealedsignificantpositivebutweakcorrelationofHRtraininglevelofGolisTelekomemployeeswiththeirperceivedtaskperformance(p<0.01;r=0.368)andcontextualperformance(p<0.01;r=0.236).Similarly,itwasobservedthattherewassignificantpositive but weak correlations of HR training levels of Türk Telekom employees with theirperceivedtaskperformance(p<0.01;r=0.329)andcontextualperformance(p<0.01;r=0.379).



In other words, there were positive correlations between training levels and performancelevelsofemployeesinbothcountries.Theseoutcomesaresupportedbyprevioustheoreticaland practical studies. Thusly, Bartel (1994), Knoke and Kalleberg (1994), Huselid (1995),Thomas (1997) and Armstrong (2010) reported significant correlations between humanresourcestrainingandemployeeperformance.Followingregressionanalysisrevealedthat training levelspositively influencedperformancelevels.Accordingtoregressionanalysis,itwasobservedthatHRtraininglevelofGolisTelekomemployees positively influenced their perceived task performance (β=0.368; p<0.001) andcontextual performance (β=0.236; p<0.001). Similarly, HR training level of Türk Telekomemployees positively influenced their perceived task performance (β=0.329; p<0.001) andcontextual performance (β=0.379; p<0.00). Then, the proposed hypotheses of the researchwere accepted. Such findings comply with the results of previous studies carried out indifferentcountries.TrainingshadpositiveeffectsonemployeeperformanceintransportationorganizationsofTanzania(Jageroetal.,2012),BankingorganizationsofNigeria(Falolaetal.,2014),telecommunicationorganizationsofPakistan(Sultanaetal.,2012),publicorganizationsof Zimbabwe (Dabale et al., 2014), pharmacy organizations of Pakistan (Hafeez and Akbar,2015), commercial organizations of Bosnia-Herzegovina (Bayraktaroğlu andCickusic, 2014),healthorganizationsofKenya(OnyangoandWanyoike,2014)andsugarfactory(Otukoetal.,2013), small businesses of Malesia (Raghavan and Mahmood, 2015), various businesses ofTurkey(Kaptangil,2012)andlodgingorganizationsofSpain(Ubeda-Garciaetal.,2013).As it was supported by the previous literature, the training provided to employees of anorganizationimprovedtheirperceivedperformance.SuchafindingwasprovedforbothTürkTelekomandGolisTelekom.Thepositiveimpactsoftrainingonperformancewillbepointedoutmore in the upcoming years. Organizations are ever-developing today and they need tohaveflexibleapproachestocomplywithever-changingenvironmentalandexternalconditions.Rightatthispoint,humanresourcestrainingemerges.Organizationspre-determinetheneedsfor every kind of knowledge, experience, behavior, attitude, decisionmaking andhabits anddesign their training activities accordingly. The knowledge gained through these trainingactivitieswillthenreflectasimprovedperformancefortheorganization.Innovation capabilitywillbe theprimary condition for sustainable competitiveadvantageoforganizations. To create a difference, managements should exhibit more proactivemanagement.Toreachsuccessinthismanagementstyle,theyshouldwellkeepupwithever-changing environmental conditions and be also to guess new conditions ahead. In so doing,employeetrainingcomesinthefirstplace.Training activities should continuously be developed, sustainability should be provided andefficient organizational structure should be created for compliance of the organizationwithchangingconditionsandtosurviveincompetitivemarkets.However,trainingactivitiesalongwith the needs of the organization can reach the success onlywith the encouragement andsustainabilityofthesetrainingactivities.EspeciallyinSomali,justbecauseoflong-lastingcivilwar,companieswerenotablepaysufficientattentiontohumanresources.GolisTelekomhasaprivate and Türk Telekom has a semi-public semi-private status. Such a case brings TürkTelekomemployeesintomoreadvantageous(withregardtotraining,salary,securityandetc.issues)position.PrivatestatusofGolisTelekomandspecialconditionsofthecountryresultedin insufficientattention tohumanresources.Therefore, itwasrecommendedthataseparatetraining section should be established in Golis Telekom, trainings and salaries should beincreased and a budget should be allocated to social security and similar activities of theemployees.



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AlFayad,F.S.(2016).DownstreamStockpilingofSteelInventoriesandArtificialDemand:TheCaseofSaudiArabia.ArchivesofBusinessResearch,4(6),16-29.


DownstreamStockpilingofSteelInventoriesandArtificialDemand:TheCaseofSaudiArabia

Dr.FadyeS.AlFayad

ManagementandInformationTechnologyDepartmentJubailIndustrialCollege,SaudiArabia

[email protected]

AbstractThisresearchstudyhasanalyzedhowdownstreamstockpilingwithinthesteelindustry and its supply channel actually disrupts the efficiency of the supplychain. The premise upon which this study has been approached is one thatstatesthatsuchdownstreamstockpilingtendstocreateartificialdemandbothupstreaminthesupplychainandinthemarketplace.Thissubjectisexaminedwithin the context of the Saudi Arabia steel industry and how this type ofphenomenon resulted in steel shortages within the Saudi steel market. Thestudy’s data found that the Saudi steel market is expected to expand at acompound annual growth rate (CAGR) of some 11.7% over the next severalyears. Furthermore, Saudi Arabia has experienced a number of periods ofshortagesinthesupplyofsteelproducts.Thesesteelshortageswereshowntohave resulted in spikes in the price of the commodity for supply chainparticipantsandconsumers.ThedataandinformationinthisstudyallsupportthenotionthatacertainamountofvolatilitywithinSaudiArabiawithrespecttothesteelindustryandthesupplychainexists.TheKingdomhasattemptedtocompensate for supply chain hoarding and stockpiling by increasing itsdomesticoutputwhich canbeutilized to smoothout supply shortageswithinthe supply chain. The study found that the actual result of this rationale indeveloping buffers is that it quickly transitions into stockpiling. This in turnresults in further negative outcomes such as bullwhip effects up anddownstream in the supply channel. The information that has been studiedrevealed that this point at which buffer inventories cross over into what isreferredtoashoardingterritorycanbefoundthroughaspecificformula.ThisformulawasshowntobetheEOQcalculationortheeconomicorderquantity.Thiscalculationutilizesrealdemand times in thesupplychainalongwithre-ordering costs divided by the product carrying cost to arrive at an accuratefigure.Inpractice,iftheEOQfindsthattheannualtotalsteelexpenseexceedstheannualcarryingcostsfortheinventorythenthereisexcessiveinventoryorstockpilinginthesupplychain.ThestudyhasalsofoundthattheSaudiArabiasupply chain requires a more efficient way to organize the product flowthrough theentiresteel supplychain.Thismoreefficientmethodologywouldbeasupplychainthat isorganizedthroughthe fast-moving,slow-movingandnon-moving methodology. This methodology ensures that slow-moving steelproducts like crude steel, flats and galvanized steel are assigned to the slow-movingcategoryandinventorytheseitemsatmuchlowerlevels.

INTRODUCTIONANDOVERVIEW

Thisresearchreportexamineshowdownstreamstockpilingwithin thesteel industrysupplychannel disrupts the overall supply chain. The premise that this study is approached witharguesthatsuchdownstreamstockpilingtendstocreateartificialdemandinthemarketplace.



This topic and chief premise is examined within the context of Saudi Arabia and how thisphenomenon resulted in what amounts to steel shortages within the Saudi market. SomereportshaveindicatedthattheSaudisteelmarketisexpectedtoexpandatacompoundannualgrowthrate(CAGR)ofsome11.7%overthenextseveralyearsthrough2017at least(Saudi,2015).Consequently,demandintheSaudiArabianmarketforsteelalreadyexistsinsufficientformtosupportthehealthgrowthofthesteelindustry.The premise that this report adopts then which is that downstream stockpiling of steelinventoriescreatesartificialdemand,wouldonlyaggravatethesteelindustry.Thestockpilingof such inventories occurswithin the context of the supply chain for steel in its commodityform.Steelincommodityformtypicallyincludessteelingots,flatsheets,andtubularproductsaswell as finishedsteelandalso scrapsteel (deCarvahlo&Sekiguchi,2015).Thesevarioussteelproductsaresubsequentlyre-usedwithinotherindustriessuchasconstruction,productmanufacturingandsoforth.Asstockpilingtakesplaceindownstreamsupplychainnodes,theendconsumerserroneouslybelievethat thereareshortagesofsteel.Theresulting increaseddemandforcessteelpricestoincreaseallthewaybackupthesupplychaintothemarketsoforigin.TheGlobalSteelIndustryThesteelindustryonagloballevelisoneofthemostcriticalcommoditiesandrawmaterialsmarket in theworld. Theprice of steel, just aswith any item, is ultimately governedby thefundamental factorsofsupplyanddemandinthemarketplace.Artificialmanipulationwithinthecontextofthesetwofactorsmayalterthepriceofsteelresultinginspikesandvolatilitybutthesetwocorefactorsstilldeterminethecharacterofthesteelmarket.Inthisregard,demandover thepriorseveralyearshasbeenestimated tohave increasedbysome3-4%becauseofincreased infrastructurebuildout throughoutmanyAsiamarketsandprimarilywithinChina(Chen,Yin&Ma,2014).Ofcourse,oncethereisdemandinothermarkets,thisinturnutilizesincreasedamountsofsuppliesthatareavailableinthemarketplace.Theresultisthatdespitesufficient productivity of steel products, those markets that have greater demand may bewillingtopaymoreforthesupplyofsteelproducts.Suppliers will naturally gravitate to the highest paying marketplace regardless of existingsupply chain relationships. The result, unless steel producing markets are able to pick upproduction,isdecreasinglevelsofsteelwhichitselfplacesupwardpressureonthepriceofthecommodity. Equilibrium is reachedwithin the steel industrywhen steel producers perfectlymatchproductionwithsteeldemandbytheimportingmarketssuchasSaudiArabia.However,therearenoperfectmarketsandthenatureof theglobalsupplychain forsteelensuresthatnumerous variables exist which interfere with the efficiency of the market even whenproductionmeetsdemand.TheSteelIndustryinSaudiArabiaThedemand for steelwithin SaudiArabia is drivenprimarily by its construction andpublicservices infrastructure projects. Saudi Arabia relies on an economy that is driven by itspetroleum industry but the steel industry is the physical expression of this economicframeworkbecauseconstructioniswhatthecountrydoeswithitspetroleumrevenues.RecentestimateshaveplacedtheKingdom’soverallsteelconsumptionatanapproximate16milliontons annually ofwhich someninemillion areproduceddomestically but even this domesticproduction relies on the importation of raw materials (Saudi, 2015). Large, publicinfrastructure projects targeted over the next few years ensures that steel imports willcontinuetobeextremely important fortheKingdom.Theresult is thattheanticipatedCAGRforsteelconsumptionisexpectedtomirrorthisconsumption.SomeanalystsplacethisCAGR



estimationintherangeof19.5%butfluctuationinthesupplyofsteelproductscanaffectthefinalestimate(Saudi,2015).Onesegmentwithintheoverallsteelindustrythatisbelievedtomirrorthisanticipatedgrowthisthesegmentforlongsteelproducts.Thesearelongsteelproductssuchasrebarsupplies,steelbarsforconstruction,variouswireproductsandrodsforbothtransportationandconstruction.ThesteelindustryinSaudiArabiacontinues todiversifyover time.Over thepastdecadeor so theSaudigovernmenthasbeeninvestingaconsiderableamountofresourcesintoitsdomesticproductionofsteelsupplies.Ithas fostered this domestic production by providing funding and economic assistance todomesticfirmsthathavetheexpertiseinsteelsmeltingandprocessingcapabilities:Oneoftheproposedplants isaplatemill...themillwillhaveacapacityof1.5milliont/yandwillhouseadirect reduced iron facility...Thesecondproject isa coldmill...Theproduct slatewillinclude150,000t/yofcoldrolledproductsandautomotivesheets,350,000t/yofhot-dipgalvanisedsteelsheetsand350,000t/yoftinplateproduct.(Baxter,2014,p.9)Clearly, existing steel production facilities combined with these proposed steel productionfacilitiesareaimedatinjectingsomeindependenceintoSaudiArabia’ssteeldependenceontheinternational markets. Furthermore, this passage works to illustrate the diversity of steelproducts that the Kingdom has to accommodate within the steel supply chain bothdomesticallyandinternationallyaswell.The shift to domestic productionmaynot haveprovided SaudiArabiawith immediate steelindependencebutitiscertainlyonthatpath.Still,consideringtheKingdom’spositiongloballyasamajorsteelcommoditiesimporter,completeindependenceinthesteelindustryisunlikely.ThefigurebelowliststhelargeststeelimportingmarketsgloballywhichworkstoplaceSaudiArabiawithinthecontextoftheglobalsteelmarket:

Figure1:ListofTopSteelImporters

(World,2014,p.25)

Asthefiguredemonstrates,SaudiArabiaisthe5thlargestimporterofrawandfinishedsteelimportsglobally.Thislevelofsteelimportationwithinthecountryconfirmsthefactthatitisexperiencingasubstantialamountofeconomicgrowthandactivity.



SteelShortagesinSaudiArabiaSaudiArabiahasexperiencedanumberofperiodsofsteelsupplyshortagesoverthepast5-10yearsorso.Thesetypesofsteelshortagesworktocreatespikesinthepriceofthecommodityforconsumerssuchasconstructionfirmsandproductmanufacturersthatdependonfinishedsteel inshort, longorroll form.Theresearchreveals that in2008steelpricesspikeddue tosupply issuesbut these increasesexperiencedamarketcorrectionbefore2009andby2012long steel supplies into the Kingdom dropped by 10% year-on-year (Durmus, 2013).Consequently, thedataandinformationallpointtoadegreeofvolatilitywithinSaudiArabiawithrespecttosteelinitsvariousforms.TheKingdomhasattemptedtocompensateforthisvolatility in one form or another. The rationale behind this domestic production is that anyincreaseindomesticoutputcanbeutilizedtosmoothoutsupplyshortagesontheopenmarketforunfinishedandfinishedsteelcommodities.Domesticsteelproduction itselfamountstoan infrastructurecommitmentonthepartof theSaudigovernmentandalsocontributestodemand.Thus,therehasevenbeenacomprehensiveeffortsupportedbytheSaudigovernmenttoimproveitsdomesticproductionofsteelsupplies.In fact, thedata availabledemonstrates that SaudiArabia actually increased its overall steelproductionsome15%toabout6.29millionmetric tonsduring2014(Regional,2015).SincetheKingdom’sdomesticsteelproductionimprovedbysome15%from2013to2014,itssteelimporters were able to accommodate international fluctuations in availability. Thesefluctuations arise from supply chain and distribution factors relating to demand in othermarketssuchasChinawhichhasbeendemandingevergreaterpercentagesofsteelsupplies.TheKingdomhas,infact,managedtoimproveitsdomesticsteelproductionbyanother5.4%during2015thusfarasevidencedinthetablebelow:

Table1:RegionalDomesticSteelProductionfor2015 Percentage change

Iran 15,442

Qatar 2,236

Saudi Arabia 5,471

UAE 2,878

Algeria 417

Egypt 6,754

Libya 712

Morocco 558 (Regional,2015)

IranandEgyptare theonlyother twoMiddleEasternmarkets thatmanaged toout-produceSaudi Arabia’s domestic production levels of steel. Given Egypt’s ongoing political andeconomic issues, it isnotunexpected that SaudiArabia is likely to surpassEgypt’sdomesticsteelproductioninthenearfuture.Hoarding,StockpilingandShortagesThe steelmarket in Saudi Arabia is subject to a number of different supply chain reactionswhichaffecttheavailabilityandthusthepriceofthecommodity.WhileSaudiArabiahasdonemuchtoimproveitsdomesticproductionofsteelitremainsanetimporterofthecommodity.Therefore, many of the supply chain participants both internationally and domestically areprone tohoardingandstockpilingsteelproductswhichsimply refers toholdingontoexcessinventories in the anticipation that future supplies may be difficult to come by(Cho & Lee,2013).Initially,thismightseemtomakereasonablebusinesssensebuttheeffectofthistypeof



hoarding and stockpiling activity is to create downstream effects that interfere with theefficiencyof theentire supply chain.All supply chainparticipantsdependupon theaccuratecalculationofaneconomicorderquantityorEOQ.TheEOQisacalculationwhichis foundedupontheideathatthedemandforacommodityispredictable,thecommoditylead-timewithinthe supply chain is known and that there is little variation along the supply chain (Chen,Cardenas-Barron & Teng, 2014). Developing an accurate EOQ model forms the nucleus ofefficientsupplychainmanagement.InthoseinstanceswhereanaccurateorreliableEOQisnotfullydeveloped,therearenegativeconsequenceswithinthesupplychain.Thesenegativeconsequencesresultinthetendencyforsupplychainparticipantstoundertakestrategiessuchashoardingorstockpiling inventorieswhich goes on to result in even more unpredictability in the supply chain. One suchunpredictableeventthatresultsfromthesereactionsisthebullwhipeffectinwhichlargeanddramaticswingsinthesuppliesofsteelwhipupanddownthesupplychainmakingitalmostimpossible to accurately forecast future demand and to efficiently meet current demand(Mehdi & Farahani, 2014).While there is always a degree of uncertaintywithin the supplychain, the recognition that hoarding and stockpiling of a commodity is a negative must beunderstoodbyallsupplychainparticipants.AnaccurateandreliableEOQisonethataccountsforproperlead-timesandthatisbasedonactualmarketdemandratherthansupplierparanoiaregarding future inventory availability. In essence, many of the steel industry supply chainparticipants for Saudi Arabia have developed EOQs that have built in inventory reserves orbuffers:

Figure2:EOQCalculationIdentifyingHoarding/Stockpiling

EOQ=

EOQRationale

TheunderlyingrationalebehindthistypeofEOQcalculationbytheKingdom’ssteelsuppliersandothersupplychainparticipantsisunderstandabletoapoint.Developing a buffer supply of steel does allow these participants to smooth out productshortages in the supply chain. However, the actual result of this rationale is independent



supply chainparticipants all developingbuffer inventories in anuncoordinatedmanner thatresults in bullwhip effects up and downstream in the supply channel. The development ofbuffer inventories isaneffortbysupplychainparticipants to injectcertaintyback intowhatsomeparticipantsbelievetobeanuncertainmarket.Thisproblemwiththistypeofapproachis that uncertainty itself is difficult to quantify accurately. The result is that developingaccurateEOQmodelsthathavebuiltindownstreambufferinventoriesusuallyresultsinunduehoarding and stockpilingwhich actually contributes to artificial demandbackup the supplychain(Chen,Cardenas-Barron&Teng,2014).Thereareanalyticalmethodsthatcanbeappliedto buffer inventories accurately but these all function on the assumption that the givencommoditymarketisfunctioningrationally.Commodities are subject to a number of different externalmarket influences that can affecthowproductismovedupanddownthesupplychain.Hence,supplychainparticipantshavetobe aware of not only how product is being moved, the cost of this movement and properforecastingtechniquesbut theyalsomustbeawareofwhat inventoriesarebeingcarriedupanddownthesupplychain.Thepracticeofhoardinginventoriesisinherentlyirrationalinitsapproach regardless of the statistical analysis applied to develop the underlying forecastingmodels that might be used to justify such activity. Hoarding usually occurs then in thefollowingconceptualmanner:

Figure3:HoardingRationaleforBufferInventories

(Croson,Donohue,Katok&Sterman,2013)

Buffer inventoriesareusuallycalculatedby factoring themaximumacceptableproduct lead-timeandthecommodity’snormallead-timeswithinthesupplychannelwithdemand.Onthesurface, such buffer inventories or hoarding can positively impact customer service qualitybecauseavailabilityisimprovedatthefinalsupplychainlink.However, eventually this hoardingworks its way back up the supply chain and thesewidefluctuations in supplywillwhipbackdownstreamresulting inprice volatility.This iswheredeveloping an accurate EOQ model that accounts both for forecast demand and marketuncertaintyiscriticaltotheefficiencyofthesupplychainforsteelproducts.AnaccurateEOQmodel that accomplishes these outcomes allows supply chain participants tominimize theirsteel product orders, buffer inventories and hence reduces their overall inventory carryingexpenses(Widyadana&Cardenas-Barron,2011).Consequently,amorepredictableEOQmodelforsteelwithintheKingdomthatallowsforabufferinventorywhileresistinghoardingmightresemblethefollowing:



Table2:EOQforSaudiArabia’sSteelSupplyChain

Steel Products Types of Steel

Commodities

Dema

nd

Annually

Re-Ordering Expense

Carrying Expense by steel unit/year

EOQ for Steel

Overall # of units Ordered

Overall # of units ordered

annually

1. Blanks

3,60,200 12,220 2 66,272.17 30,200 5.43

2. Coils

48,200 6,220 2 17,251.09 4,200 2.78

3. Bars

1,44,200 1,720 36 3,687.82 12,200 39.05

4. Crude Steel

96,200 1,720 36 3,011.09 8,200 31.88

5. Flats

2,40,200 1,720 36 4,760.95 20,200 50.41

6. Galvanized

30,200 1,720 2 7,141.43 2,520 4.20

7. Longs

42,200 1,720 2 8,449.85 3,520 4.97

8. Plates

21,620 4,720 2 10,075.71 1,820 2.14

9. Slabs 9,620 6,220 2 7,714.92 820 1.24

10. Strips 3,60,2

00 6,220 2 47,244.05 30,200 7.62 *Pro-formaEstimates

ThisdataintheprevioustablerepresentanEOQmodelthataccountsforanestimatedoverallinventorythatisorderedannuallybytheKingdom’ssupplychainparticipants.ThisEOQfigureis factored in relation to other data such as reordering costs, demand and regular orderquantities.Theresult is that the levelofoverallvariationwithin thesupplychainregarding inventoriesanddemand forecasted is identified.This in turnresults in therecognition thatdownstreamhoarding is taking place and that this stockpiling undermines upstream efficiency. A morerationalapproachtodevelopingpracticalbufferinventorieswithintheKingdom’ssteelsupplychannelandremoveupstreamuncertaintyisshowninthetablebelow:



Table3:StableBufferInventoriesinSteel

Steel Produc

t Types of Steel Commodities

Maximum Steel Lead Times

Normal Steel Lead Times

Forecast Demand

Buffer Inventories

1. Blanks 0.90 .30 3,60,200 37,440

2. Coils 0.90 .30 48,200 4,992

3. Bars 0.90 .30 1,44,200 14,976

4. Crude Steel 0.90 .30 96,200 9,984

5. Flats 0.90 .30 2,40,200 24,960

6. Galvanized 0.90 .30 30,200 3,120

7. Longs 0.90 .30 42,200 4,368

8. Plates 0.90 .30 21,620 2,246.4

9. Slabs 0.90 .30 9,620 998.4

10. Strips 0.90 .30 3,60,200 37,440 *Pro-formaEstimates

Thedataintheprevioustableillustratesmorepredictableandrationalebufferinventoriesforsteel within the supply chain by product. Lead-times for each primary steel product iscalculatedutilizingbothannualestimatesaswellas90dayand60incrementsduetoshipping,transportationandlogisticalfactorswithinthesupplychain.Thistypeofformulaensuresthateachsupplychainparticipant ispermittedtobuildabuffer inventorybut inawaythatdoesnotresultinbullwhipeffectsupstreaminthesupplychain.

DISCUSSIONANDANALYSISTheobservationissuchthatdownstreamstockpilingisaninefficientuseofcapitalwithinthesupplychain.Hoardingandstockpilingare reflectionsofa lackof capital justificationwithininventorymanagement in the supply chain. Essentially, steel inventories in the downstreamsupply chain and, indeed, all along the supply chain, must be arrived at rationally. This isaccomplishedasameasureofcommoditysalesinwhichinventoriesreflecttheratioofoverallsteel salesasameasureof theaverage steel inventoriesat allpointsalong the supply chain(Lev, 2013). Hence, inventory practices within the steel supply chainmust be governed byfinancial policies as well. These are policies in which calculations such as steel productturnover is measured in all meaningful accounting periods in the financial calendar. Thisfinancial imperative in determining efficient steel downstream steel inventory levels isdisplayedbelow:



Table4:VelocityofSteelProductTurnoverRatios

Year Net Steel Sales Average Steel Inventory Levels Predicted Ratio Product Velocity

Shown in # of Days

2015 12,40,05,144 8,42,09,471 1.46: 1 250

2016 16,06,44,669 8,92,28,407 1.80: 1 204

2017 11,74,40,581 14,52,26,925 0.80: 1 456

2018 55,54,74,571 18,98,24,481 2.92: 1 125

2019 79,11,78,220 17,40,71,614 4.5: 1 81

*Pro-formaEstimatesThis analysis of lead-times with more rational buffer inventory forecasting techniquesdemonstratesthatsomeinventorybuild-upisacceptable.ThetrendestimatesfortheKingdomindicatethatsteelimportsarealmostcertaintocontinueto grow over the next five years. This expected steel import growth will occur despite theincreasetheKingdom’sdomesticsteelproductionwhichaccountsforaslightdeclineinoverallimports but does not radically alter the growth trend (See Appendix 1). Primarily, bufferinventorylevelswithinthesteelsupplychainshouldnotinterferewithmarket-drivenpricinginthesteelcommoditiesindustry.Whateverlevelsthatthedownstreambufferinventoriesaresetat, theseshouldalwaysbesuchthatexcess inventoriescouldbeconvertedintocustomersaleswithinarelativelybriefperiodoftime.CalculatingDownstreamInventoriesPartofthesteelforecastingprocessistoaccountnotjustforend-demandinthemarketplacebutalsotoaccountforbufferinventorycarryinglevels.Oneapproachtoachievethis levelofinventory sophisticationwithout resulting in irrational hoarding and stockpiling is to utilizeregression as a form of forecasting tool. The concept of regressing data implies a degree ofdependenceofonefactorupontherelativeindependenceofanotherfactorwhichistypicallydemonstratedthroughtheXandYvariables(Lev,2013).Thisanalyticalprocessofregressingforecastdemand,realdemandandinventoriesispresentedbelow:

Figure4:AnalyticsinRegressingforDemand

Accordingly, the result of this particular regression of inventories and demand ensures thatsupplychainparticipantswouldbesupportedingraduallyincreasingbufferinventories.Thistypeofapproachtomarketuncertainlyisdemonstratedinthefollowingtable:



Table5:DownstreamBufferInventoryBuild-up

Inventory Years Buffer Inventories Shown as Rs & Y

X

X=x-2219

X2

XY

& (Rs)

2015 9,17,88,514 -2 4 -18,35,77,228

2016 8,66,68,32 -1 1 -8,66,68,32

2017 22,37,85,552 2 2 2

2018 17,58,61,213 1 1 17,58,61,213

2019 17,22,82,214 2 4 34,45,64,228

Product Totals(Σ)

73,23,85,591

2

12

25,21,79,913

*Pro-formaEstimates

Where the following regression is applied to the predicted inventory levels and forecastedsteeldemandintheSaudimarketplace:

Figure5:RegressingInventoriesandDemand

Accordingtotheregressionanalysis,thereisareliablepointinthedatainwhichsteelbufferinventoriesareallowedtoincreaseasareflectionofuncertainty.Yet,thisisaccomplishedovera more manageable period of time which is not reflective of a knee-jerk reaction in themarketplace to uncertainty. This approach removes the threat of upstream bullwhip effectsduetodownstreamstockpilingbasedonindependentparanoiaregardinginventorylevels.

CONCLUSIONSANDOBSERVATIONS

This report examined the question ofwhether downstream stockpiling or hoarding of steelinventorieswithinthesupplychainnegativelyaffectedupstreaminventories.Specifically,thequestion is whether or not such downstream hoarding creates artificial demand in themarketplacewithrespecttotheSaudiArabianmarket.Thereportidentifiedthesteelindustryand the supply chain that supports it as consisting of steel products including rolls, sheets,blanks, ingots, longsandshortsandsoon.TheSaudiArabianmarkethasbeen increasing itsimportsofsteelproducts formanyyears inordertosupport the infrastructurebuildoutandconstructionindustryinthemarketthathasbeenexpandingrapidlyoverthepastdecadeorso. The research demonstrated how the Saudi government has been responding to thisdownstream stockpiling and the artificial upstream demand that it creates. The Saudi



government has been fostering the growth of the Kingdom’s own domestic steel producingindustryforanumberofyears.WiththeKingdom’scurrentdomesticsteelproductionwhichprovides over half of its steel needs at current demand and the planned establishment ofseveralnewsteelplants thatwilladdover2millionmetric tonsofannualproduction to themarket,SaudiArabiawillbolsteritsdomesticproductionevenfurther.TheKingdom should be able to eventually remove the incentive that downstream suppliershavetohoardsteelproductsdespite the lackofa truestimulustodoso.Hence, the findingsindicate that what the Kingdom’s steel industry really needs is a more efficient means tomanageitssteelindustrysupplychannel.Oneeffectivemeansofdeterminingthemostefficientapproachtomanagingasupplychainisthefast-moving,slow-movingandnon-movingorFSNprocess.TheFSNprocessallowsthesupplychainparticipanttostructurethesupplychaininawaythatreflectstheindividualdemandforeachproductitemratherthanfortheproductclassitself. Hence, the FSN approach assigns priority to those steel products that have greaterdemandand thereforemove faster compared to those steelproducts thathave lessdemandandthereforemoveslowerandthesetwodivisionsinturnaredifferentiatedfromthosesteelproducts that manifest little or no movement (Vrat, 2014). It is essential to be able todifferentiate steel products based on this characteristic of movement because steel is acommodity that does fluctuate based on productivity, supply chain factors and downstreamhoardingandso forth.Thisapproachto thesteelsupplychainservicingSaudiArabiacanbeformulatedinthefollowingmanner:

Table6:Fast/Slow/Non-MovingSteelProductsFast-Moving Slow-Moving Non-Moving

Coils Plates Crude

Bars Slabs

Flats Strips

Longs Blanks

Galvanized

Thetableaboveidentifiesthosefaster-movingsteelproductswhicharesome50%ofthesteelproductsthatdominatetheSaudisteelsupplychain.Thecrudesteelproductstendtobenon-moversintheSaudimarketplacebecausetheyrequirespecialprocessingbeforetheycanevenbeintegratedintotheproduction,manufacturingorconstructionindustries.ThedatademonstratedthatSaudiArabiahasexperiencedperiodsofpricevolatilityinthesteelmarket.Theseperiodsareareflectionofsupplieranddistributoruncertaintymorethananyactualproductshortageintheinternationalmarketplace.Forinstance,in2008pricesofsteeldidspikebuttherewasnotanactualshortageofsteelproductsbutinsteadthiswasduemoreto the logistical capacity of suppliers tomove steel products to othermarkets versus SaudiArabia.Once thesupplychannelbegan toadapt to this logistical feature in thesupplychain,steelpricesdroppedbetween2009and2012by10%annually.Simplyput, itwaseasier forsupplierstomovesteelproductsintoothermarketswhohadthesamedemandlevelbutwhoalsowerelogisticallyeasiertoshipintosuchasChinawithitsvastnetworkofbulkshipmentports and intermodal waterways. Hence, the immediate knee-jerk reaction on the part ofsupplierswithinSaudiArabia’ssteel industrywastobegintostockpilereservesoncesupply



accessrecovered.Whilesomebufferinventoryisusefuland,indeed,preferred,thereisapointatwhichabufferinventoryshiftsintotheareaofproducthoarding.The data and analysis revealed that this point at which buffer inventories cross over intohoardingterritorycanbefoundthroughaspecificformula.ThisformulawasshowntobetheEOQ calculation which utilizes real demand times re-ordering costs divided by the productcarryingcost.Atanyrate,iftheannualtotalsteelexpenseexceedstheannualcarryingcostsfortheinventorythenthereisexcessiveinventoryorstockpiling.Thismaynotoccuryeararoundbuttherewouldbepointsthroughouttheyearatwhichmoresteelproductsareorderedthanare distributed which is indicative of hoarding. Therefore, an improved EOQ process thateliminates the opportunity for independent supply chain operators to hoard and stockpileinventorywouldbequiteuseful.Thiswouldacttofreeupsupplychainoperatorcapitalthatcould be redirected towards improving operational efficiency.An improvedEOQ frameworkwouldallowsupplychainoperatorstomaintainsomebufferinventoryforsteelproductsbutthesewouldbelimitedinscale.Efficiencycouldbefurtherimprovedwithinthesupplychainbyfocusingonthosesteelproductsthattendtomovefasterversusthosethatareslowmoving.Additionally, there shouldbe amore efficientway to organize theproduct flow through theentiresupplychain.Thismoreefficientmethodologywouldbeasupplychainthatisorganizedthrough the FSNmethod.With steel products such as crude steel, flats and galvanized steelmoving in fewer quantities than other steel products but having a higher carrying cost, itmakessense toassignthesesteelproducts to theslow-movingcategoryand inventory theseitemsatmuchlowerlevels.However,theregressionofthedataindicatedthatsuchproductsasflats were forecasted to increase due to the expansion of infrastructure projects in theKingdom and thus it would be transferred to the fast-moving category within the FSNframework.Thepointisthatthenumberofdaysininventoryforeachindividualsteelproductshould be reduced to the shortest period that is possible without completely removing allbufferinventories.Bufferinventoriesprovidethecapacityforsteelsuppliersanddistributorstofluctuateproductmovementinresponsetobothsupplyanddemandwhetherthissupplyordemandisartificialincharacterornot.However,excessiveinventoriesplaceanimmensefinancialburdenonthesupplychainoperatorsand,ultimately,createartificialdemandintheupstreamsupplychainthateventuallyresultsinincreasinginventoriesallalongthesupplychain.Thisisbecausethisartificialdemandisnotcreatedbytheendconsumerswhowouldotherwiseremovethesteelproductsfromthesupplychainatpurchase.Essentially,excessivestockpilingandhoardingofinventorycreatesakindofiterativeorderingprocessthatkeepsaddingevenmoreproductstothe inventoriesof suppliers in thedownstreamsupplychain.BydevelopingamoreaccurateEOQcalculationbasedonrealmarket figuresandutilizingtheFSNapproachtosupplychaindesign, theSaudiArabiansteelmarketwouldbecomemuchmorereflectiveofactualmarketconditions.ReferencesBaxter,K.(2014).Sabic's$4.2bnsteelplantsputonhold.

MEED:MiddleEastEconomicDigest,58(29),9.DOI(AccessionNumber):97237982-ISSN0047-7238

Cárdenas-Barrón,L.E.,Treviño-Garza,G.,&Wee,H.M.(2012).

Asimpleandbetteralgorithmtosolvethevendormanagedinventorycontrolsystemofmulti-productmulti-constrainteconomicorderquantitymodel.ExpertSystemswithApplications,39(3),3888-3895.DOI:10.1016/j.eswa.2011.09.057

Chen,S.C.,Cárdenas-Barrón,L.E.,&Teng,J.T.(2014).



Retailer’seconomicorderquantitywhenthesupplieroffersconditionallypermissibledelayinpaymentslinktoorderquantity.InternationalJournalofProductionEconomics,155,284-291.doi:10.1016/j.ijpe.2013.05.032

Chen,W.,Yin,X.,&Ma,D.(2014).Abottom-upanalysisofChina’sironandsteelindustrialenergyconsumptionandCO2emissions.AppliedEnergy,136,1174-1183.doi:10.1016/j.apenergy.2014.06.002

Cho,D.W.,&Lee,Y.H.(2013).Seasonalsupplychainandthebullwhipeffect.InternationalJournalofIndustrialEngineering,20(1/2),188-210.DOI(AccessionNumber):86970668-ISSN1943-670X.

Croson,R.,Donohue,K.,Katok,E.,&Sterman,J.(2014).Orderstabilityinsupplychains:coordinationriskandtheroleofcoordinationstock.ProductionandOperationsManagement,23(2),176-196.DOI:10.1111/j.1937-5956.2012.01422.x

DeCarvalho,A.,&Sekiguchi,N.(2015).Thestructureofsteelexports.OECDScience,TechnologyandIndustryWorkingPapers,07(01),pp.1-39.DOI10.1787/5jrxfmstf0xt-en

Durmus,S.(2013).Steelsuccessstrategies:SaudiArabiademandgrowingwithoilprices,Sabicsays.MetalBulletinDaily,(350),184.DOI(AccessionNumber):85850242-ISSN2057-2379.

Lev,B.(2013).EconomicOrderQuantityModelExtensions.EncyclopediaofOperationsResearchandManagementScience,464-466.DOI10.1007/978-1-4419-1153-7_269

Najafi,M.,&Farahani,R.Z.(2014).Newforecastinginsightsonthebullwhipeffectinasupplychain.IMAJournalofManagementMathematics,25(3),259-286.DOI(AccessionNumber):96731579-ISSN1471-678X.

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APPENDICESAppendix1:SteelInventoryTrends

0

5

10

15

20

25

2015 2016 2017 2018 2019 2020


El-Maude,J.G.,Ahmad,A.R.&Ahmad,M.M.(2016).CapitalStructureandFirmPerfomanceintheNigerianCementIndustry.ArchivesofBusinessResearch,4(6),30-44.


CapitalStructureandFirmPerformanceintheNigerianCementIndustry

EL-Maude,JibreelGambo

DepartmentofAccountancy,MAUTECHYola

Abdul-RahmanAhmadSchoolofPostgraduateStudies

DepartmentofAccounting,BayeroUniversityKano

Ahmad,MohammedMusaSchoolofPreliminaryStudies

SuleLamidoUniversity,KafinHausa,JigawaState

AbstractThestudyexaminestheimpactofcapitalstructureonfinancialperformanceoffirmsinNigeriancementindustry.Thepopulationofthestudy7companies,asample of 4 listed companies were selected. The research design is ex-postfactor using twomodels to analyse the impacts of long term and short termdebtsonReturnonAssets (ROA)andReturnonEquity(ROE).Thestudyusesbalanced panel data of 20 observations from the 4 listed companies for theperiods ranging from 2010-2014. Descriptive statistics, correlation andregression are used as tools of analysis. The study reveals that, there isstatistically significant effectbetween longand short term liabilityonReturnon Assets (ROA) and Return on Equity (ROE). The study however, concludedthattheperformanceofcompaniesinthecementindustryisnotoptimizedasaresultoftheirinabilitytoutilizeddebtsintheircapitalstructures.Finally,thepaper recommends that, cement companies shouldencourage theuseof longterm debt in there capital structure since it has positive impact on theirfinancialperformance.

Key Words: Capital Structure, Ownership Structure, Firm Performance & CementIndustry.

INTRODUCTION

One of the most central position theories in firm financing policy is the theory of capitalstructure.Thecapitalstructureofafirmisthecombinationofdebtcontainingpreferencestockandequity;thisisreferredtoasthefirms’longtermfinancingmix,WatsonandHead(2007).Capitalstructuredecisionisabasicforanybusinessestablishmentbecauseoftheneedtogetthemostoutof return to thenumerousstakeholdersandalsobecauseof the fact that suchdecisionhasexcessiveimpressiononthefirms’abilitytocompeteincompetitiveatmosphere.One critical issue challengingmanagers today is how to decide on themixture of debt andequity to achieve optimal capital structure that would lessen the firm’s cost of capital andincreasesreturntoownersofthebusiness.Though,firmsgenerallyhaveachoiceastohowtomixdebtandequity,managersattempttoestablishaparticularmixturethatwillgetthemostoutofperformanceandthefirm’smarketvalue.Suchkindofmixtureofdebtandequitywilllessenthefirm’scostofcapitalandhenceincreasesthefirm’sreturnsandmarketvalueisthe



ideal capital structure. Unfortunately, financial managers lack clear cut policy that can givethemaguidewhentakingdecisioninpiecingtogetheroptimalcapitalstructure.ThenotionofcontemporarytheoryofcapitalstructureisthepathwaybreakingcontributionofModiglianiandMiller (1958) in theperfectcapitalmarketpostulation.Modiglianiandmiller(1958)postulate thatunderconditionofnobankruptcycostand frictionlesscapitalmarketswithouttaxesfirm’svalueisindependentofitscapitalstructure.Alternatively,otherschoolofthoughtholdsthat financingchoicerevealsanattemptbycorporatemanagerstobalancetaxguard of higher debt beside potential huge cost of financial distress arising from underinvestment (Awunyo, 2012). In addition much debt can destroy firm’s value by causingfinancialdistressandunderinvestmentthentoolittledebtscanalsoleadstooverinvestmentand negatively affect returns particularly in large and mature firms (Barclays and Smith,2005).The choice of capital structure and its subsequent risk experience is very vital ineconomicperformanceofeverycompany.Hence,thechoiceofdebtorequityultimatelyresultsin the growth value of investment made by numerous sets of investors particularly equityinvestors(WatsonandHead,2007).Thisisessentialbecauseofthefactthatequityinvestorshavegreaterexpectationof returnson their investment in the formofhigherdividendsandcapital gain (Sulaiman, 2001). Any result different to this expectation will make holders ofequity shares sale off their shareholdingwhich can lead to the fall in the share price of thecompany.Thefallinsharepriceisanindicatortopotentialinvestorsofthepoorperformanceofthecompanyandtherebydiscouragingpotentialinvestorsfrominvestingmutuallyinequitystockanddebt.The expansion in Nigeria’s economy over the years has been followed by an acceleratedgrowth in the country’s cement industry. While the economy has risen since the country’sreturn todemocracy in1999,with servicesnowaccounting for themodalproportionof theeconomypostGDPrebasing,thecementindustryhasrecordedincreaseinproductioncapacity,fromc.3.28MTin1999toc.28.95MTin2013(Neneng,2014).Overtime,theNigeriancementindustryhasundergonedifferentstagesofstructuralevolution;fromcompletedependenceonimportedcementtocater for theeverrisingdemandforcement in thedomesticmarket, theindustry has evolved to a more vibrant, multibillion-dollar, self-sufficient cement industry,with an expanding capacity more than sufficient to cater for domestic needs and supportgovernment’s goal to diversify the nation’s revenue sources, improve foreign earnings andmake Nigeria a net exporter of excess cement in the medium-to long-term. The structuralevolution of the industry has created improved employment prospects, eliminated theexportationofjobsmeantforNigerianstoothercementproducingnationshithertorenownedasexportersofmassivequantitiesofcementintoNigeria,savedcostsassociatedwithcementimportation andhelpedNigeria tobeginunwindingdependenceon cement imports tomeetlocaldemand.Gradually,Nigeriahasbegunearningincomefromexportationofexcesscementproducedlocally.However,theindustryisbedeviledwithnumerousproblemsofhowtofundthedollarcostofthe variousmodernizationwhich urgently needs to be carried out, erratic power supply ascompaniesareforcedtoinvestanincreasedamountofresourcesinself-generationofpowertokeep theplant runningandownership structureasgovernment formerlyownedmajorityofthesharesinmostofthecementcompaniesinNigeriaduetotheindigenizationpolicyof1972.There is evidence to show that the companies that have the government has majorityshareholders have consistently under performed. However, the recent development ofprivatizationof public enterprises is resulting in ownership changesof themajorproducingcompanies(Awen,2004).



Manytheorieshavebeenadvancedtoelucidateoncapitalstructureoffirms.Though,thereislackofconsensusinthemidstofresearchersoffinancialmanagementwithrespecttooptimalcapitalstructure.Suchdiscrepancies invarioustheoriesarebeingpropoundedtoupdateall-importantdecisionandtofurthermakecapitalstructureessential.Asaresult,capitalstructuredecisionisveryvital,particularlyinrelationtoperformanceofafirmintermsofprofitabilityandvalueof theequity(Awunyo,2012).InNigeria,numberofstudieshasbeenconductedtoexamine the determinants of capital structure and profitability. However, only few of themwerespecificallydirectedtowardlistedcementcompaniesinNigeria.Consequent upon this, the paper seeks to examine the impact of capital structure on firm’sfinancialperformanceintheNigeriancementindustry.However,thisstudyconsidersReturnonEquity, longtermdebt,shorttermdebtandfirmsizeforthedecisionandanalysisofdataforaperiodof5years,spanningfrom2010to2014.

LITERATUREREVIEWThis section reviews the concepts of capital structure, firm performance and ownershipstructureasdefinedbyvariousscholarsinthefield.Also,thesectionreviewspreviousstudiescarriedout in the fieldof capital structure and firmperformanceaswell as thebrief on thecementindustry.TheConceptofCapitalStructureMany Scholars in the field of finance have advanced quite a number of definitions as to theconcept of capital structure.Nirajini andPriya (2013)define capital structure as theway inwhich an organization is financed a combination of long term capital (ordinary shares andreserves, preference shares, debentures, bank loans, convertible loan stock and so on) andshort term liabilitiessuchasabankoverdraftand tradecreditors.According toBrockington(1990), described capital structure of a firm as the components of its sources of financing,broadlycategorizedasequityanddebtfinance.Also,BrealeyandMyers(2003)definecapitalstructureasthemixofdifferentsecurities.Besides,Konchhar,(1997)ascitedinSaidu(2014)viewedfirmscapitalstructureisdescribedasthemixorcombinationofitsfinancialresourcesavailable for carrying on the business and is a major determinant on how the businessoperates.Accordinghimfinancialcapitalisanuncertainbutcriticalresourceforallfirmsasaresult;suppliersofthefinancearetoexertcontroloverfirms.Fromtheabovedefinitions,itcouldbededucedthatdebtandequityformthebasisoffinancingbusinessactivities.Asdebtholdersexertminimumcontrolover the company, anddonot inanycasedeterminehowthebusinessactivitiesshouldberun.Theyareonsideofthefixedrateofreturnandprotectedbycontractualtermsofobligations.Thistermdeterminewhatreturntheyareentitlingtoandwhenisitdueforpayment.Equityholders,ontheotherwayround,are the residual suitorsof all thebusiness’ returnsafter resolving for interestondebt.Theyhowever, form the most risk bearers, having greater control virtually overall activities,decisioninclusive.TheConceptofFinancialPerformanceThere are little consensus about the best mechanism to apply for evaluating performance.Some researchers usemarketmeasures such as Tobin Q (Awunyo-Victor and Bandu, 2012;GroppandHeider,2009),othersuseaccountingmeasuressuchasROA,ROE,(Muritala,2012;Oladeji andOlokoyo, 2014; Saidu, 2014; and Salawu, 2009) andmany others use both. Thethreewaysrepresentthedifferentperspectiveofhowtoevaluatefirmfinancialperformanceand theoretical implication (Hillman and Keim, 2001). As such using any of the two



performancemeasures is boundbypeculiar bias (MacGuire, Scheneeweis andHill, 1986) ascitedinSaidu,(2014).However,accountingmeasurecapturesthehistoricalaspectofthefirmperformance, whereas market measures are forward looking and focus on the marketperformance. Besides market based measures are generally relevant accounting basedmeasurescommonlyusedbyresearchers(i.eReturnonequity,returnoncapitalemployedandreturnonassets).Thiscouldbeasaresultofithistoricalantecedentmeasurestomanagers.CapitalStructureandFirmperformanceAgencycosttheoryisbasedontheideathattheinterestsofthecompany’smanagersanditsshareholdersarenotperfectlyassociated.IntheirseminalpaperJensenandMeckling(1976)ascitedinMargaritisandPsillaki(2009),layemphasisontheimportanceoftheagencycostsof equity arising from the separation of ownership and control of firmswherebymanagerstendtomaximizetheirownutilityratherthanthevalueofthefirm.Agencycostscanalsobepresentfromconflictsbetweendebtandequityinvestors.Theseconflictsascendwhenthereisa risk of defaulting. This risk of defaulting may formwhat Myers (1977) referred to as an“underinvestment”or“debtoverhang”problem.Insuchcase,debtmayhaveanegativeeffecton the value of the firm. On the other hand, there may be cases where managers haveenticements to take excessive risks aspart of risk shifting investment strategies (see JensenandMeckling,1976).ThisleadsustoJensen’s(1986)“freecashflowtheory”whereasstatedbyJensen(1986:p.323)“theproblemishowtomotivatemanagerstodisgorgethecashratherthaninvestingitbelowthecostofcapitalorwastingitonorganizationalinefficiencies.”Thushighdebt ratiosmaybeused as a disciplinarydevice to reducemanagerial cash flowwastethroughthethreatofliquidation(GrossmanandHart,1982)orthroughpressuretogeneratecash flows to service debt (Jensen, 1986). In these circumstances, debtwill have a positiveeffectonthevalueofthefirm.Butfirmperformancemightalsodistresscapitalstructurechoice(seeBergerandBonaccorsidiPatti,2006).Thisreversecausalityeffect is inessencea featureof theories linkingagencycosts (Jensen andMeckling, 1976; Myers, 1977; Harris and Raviv, 1990), corporate controlissues (Harris and Raviv 1988), and in particular, lop-sided information (Myers andMajluf,1984;Myers,1984)andtaxation(DeAngeloandMasulis,1980;Bradleyetal.,1984)withthevalueof the firm. . Graham (1999)posits that taxationsdo in fact affect corporate financingdecisionsbutthemagnitudeofsuchaneffectismostlynotlarge.Mackie-Mason(1990)asstatedby Joshua(2008)concludesthatchanges-in themarginal taxrateforanyfirmshouldaffectitschoicesbetweenequityanddebtOwnershipstructureandcapitalstructureThelinkbetweenownershipstructureandcapitalstructureisanessentialoneasitsupportstherelationshipbetweencorporategovernanceandfirmperformance.Externalblockholdershavesolidincentivestoreducemanagerialopportunism(ShleiferandVishny,1986)andtheymaywish to usedebt as a governancemechanism to controlmanagement’s consumptionofperquisites (Grossman and Hart, 1982). If external block holders monitor managementeffectively,managersmaynotbeabletoadjustdebttotheirowninterestsasfreelyasifsuchinvestorsdidnotexist(Brailsfordetal.,2002).Inthatcasefirmswithenormousexteriorblockholdings are expected to have higher debt ratios at least up to the point where the risk ofbankruptcymaypromptthemto lowerdebt.Familyfirmsmayalsousehigherdebt levelstotheextentthattheyareperceivedtobelessriskybydebtholders(Andersonetal.,2003).FriendandLang(1988)hadapositiverelationshipbetweenenormousexternalownershipanddebt. The same authors also find a negative relation between leverage and interior share



ownershipsamewiththeviewthatmanagerialblockholdersselectlowerdebttoprotecttheirnon-diversifiablehumancapitalandwealthinvestedinthefirm.Brailsfordetal.(2002)studiesalsoshowapositiverelationbetweenexternalblockholdersanddebt.Howevertheyfindthattherelationshipbetweenmanagerialshareownershipandleverageisnon-linear.Bylowlevelsof managerial ownership, agency conflicts compel the use of more debt but as managersbecomeengrainedathighlevelsofmanagerialownershiptheytrytofindawaytoreducetheirrisks and they use less debt. Anderson and Reeb (2003b) find that insider ownership bymanagersorfamilieshasnoeffectonleveragewhileKingandSantor(2008)showsthatbothfamilyandfinanciallycontrolledfirmscarrymoredebtintheircapitalstructure.TheNigerianCementIndustryThecementindustryinNigeriahasexperiencedimmensegrowthoverthepastfewyears.Witha population of over 140million people and a growth rate of approximately 3%yearly, thedemandforandconsumptionofcementisexpectedtoincrease.Governmenthoweverremainsthe largest consumerof cement in thecountrywithanestimated50%of total consumption.The frequency of roads and bridge reconstruction as well as rehabilitation of socialinfrastructureemphasisesgovernment’scontinuedpatronageoftheindustrybutalsowidensthedemand-supplygabwhichcurrentlyexist.TheNigeriancementindustryhasthepotentialtocontributetothelargereconomyinseveralways.First,byvirtueofitsnature,theindustryisalabourintensiveandisthereforeamajoremployeroflabourbothskilledandunskilled.Theindustryalsohasasignificantcontributiontothecountry’sGrossDomesticProduct(GDP)andisasourceofforeigndirectinvestment.Thoughtheconstruction,renovationandrehabilitationofmajorroads,bridges,networksandpublicinfrastructure,thecementindustryplaysamajorroleinoveralleconomicdevelopmentandenhancementofsocialwelfare.The Nigerian cement industry was one of the earliest import-substitution industries in thecountry. The history of the cement production inNigeria dates back to 1957. Initially threecement plants were commissioned by the northern, eastern and mid-western regionalgovernment.Subsequently,othercompaniessuchasAshakacement,BENUEcementcompany(BCC),westAfricanPortlandCement Company (WAPCO) andCement Company ofNorthernNigerian (CCNN)were established. Today, there is several cement plants located in variousparts of the country. Someof thenotable companies include:WestAfricanPortlandCementCompany Plc (WAPCO), Ashaka Cement Plc, Benue Cement Company Plc (BCC), CementCompanyofNorthernNigeria(CCNN),DangoteIndustriesLimited,NigerianCementCompanyLimited, Edo Cement Company Limited, and Calabar Cement Company Limited. One of themajor characteristicsof the cement industry inNigeria is theproblemofdemandvs. supplyinequality. Since inception, available supply has not been able to meet the ever growingdemandforcement.Evenin1980’s,duringtheeconomicrecessionwhichwitnessedadeclinein the demand for cement, these supply gabswere still verymuch evident (DLM Research,2014).The cement industry is crucial to the provision of adequate and affordable houses for thevariousstrataoftheNigeriansociety.Itisthereforenecessarytoevaluate/assessitswell-beingin the faceof currenthappenings in theeconomy; like increasedcompetition from importedbrands,privatization, theperennial 'marginalization'of themanufacturing sectorby lenders,inflationandallsorts(Benjamin,2004).



EmpiricalReviewofRelatedLiteratureCapital structures are studied by quite number researchers within and across the world.Evidenceshowsthatfindingswereobtainedfromthestudiesasregardtocapitalstructureandfinancialperformanceoffirms,industryaswellastheeconomyaswhole.EarlieramongthestudiesreviewedaretheworkofMargatitisandPsillaki(2009),wheretheyused quartile regression methods and found out that the nature of relationship betweenleverageratiosandfirmperformanceispositiveandsignificant.Theirresearchusedlongtermandshorttermleveragestoproxyleverageratiosandfirmcharacteristicsascontrolvariables.Also,AdeyemiandAbor(2011)examinedtherelationshipbetweencapitalstructureandfirmsvalue. Their study used chi-square to measure longitudinal data. Their findings revealsignificantpositiverelationshipbetweenthechoiceofcapitalstructureandmarketvalue.Besides, Awunyo and Badu (2012), study listed banks to examined the impact of capitalstructures on performance of banks. The study employs both market and accountingperformance measure and leverage ratios, firm size, age and board size are regress. Theirfindingshowsthatlistedbanksarehighlygearedandnegativelyrelatedtobankperformance.Thismay be attributed to the researchers over dependence on short termdebt due to highleveloflendingrateandlowlevelofbondmarketactivities.Similarly,AntwiandZhao(2012)usedcross-sectionaldataon34quotedfirmsinGhanaandtheirresultshowsthatcomponentofcapitalstructure(i.e.,equitycapital) is important to the firmvalue.Longtermdebtas thekeydeterminantoffirmsvalue,isdiscoveredtohavemoreimpactthanequitycapital.Babalola(2012)assessedthe impactofcapitalstructureonfirmperformanceusing10firmsover the period of 10 spanning from 2001-2009. He measures performance in a quadraticfunction,wherebyperformanceformsthenon-linearfunctionofcapitalstructure,asproxybyleverage ratio.The finding supports tradeoff theory inanotherdimension. Inanother studyconducted by Ganiyu and Babalola (2012), where performance is measured by return onAssets and corporate governance variables to find their effect on capital structure and theresultindicatethatcorporategovernancehasimpactoncompany’sfinancialdecision.Muritala (2012), in his effort to analyse capital structure on firms’ performance in Nigeria,usedunitroottestandfoundthatallvariablesusedwerenon-stationaryatalllevel.Thestudyproposesthatnegativerelationshipexistbetweencapitalstructureandfirmperformance.Dataanalysedusingpanelleastsquareconfirmthatassetturnover,age,tangibilityandfirmsizearepositivelyrelatedtofirm’sfinancialperformance.InSriLankaLeon(2013)andNirajiniandPriya(2013)studytheeffectofcapitalstructureoffirmsperformance.Theformerexaminedthelistedmanufacturingfirms,whilethelaterstudytradingcompanieslistedatthestockexchange.Bothstudiesused5yearsdatafromfinancialreportsandaccountsoftheselectedcompaniesintherespectiveindustries.LeonemploysROEandROAtomeasureperformance,whileNirajiniandPriyausedGrossprofit,netprofit,ROCE,ROEandROAasperformancemeasures.Bothresultsindicatesignificantrelationshipbetweenperformanceandleverage.The result of empirical literature on the relationship between capital structure and firmperformanceare conflicting, as suchnecessitate further researchdespite those conducted inNigeria and across, as little need to be done to improve the researches to suit theNigeriancontextgiventhedifferencesintechnologicaladvancement,levelofeconomicgrowth,politics,laws, leadership style and level of awareness. Hence, this study covers the period spanning2010-2014.



TheoreticalFrameworkMany scholarshave advancednumerous explanationswhich serve as theoretical backingontheconceptoncapitalstructure.Forthepurposeofthisresearch,thepapertendstolookatthemostcommonlyusedtheoriesoncapitalstructure.Besidesthistheoriesarenotexhaustive.Modigiliani-MillerTheoryThe Modigliani-Miller theorem (of Franco Modigliani, Merton Miller) forms the basis forcontemporary thinking on capital structure in 1958. The basic theorem states that, under acertainmarketpriceprocess(theclassicalrandomwalk),intheabsenceoftaxes,bankruptcycosts,andasymmetricinformation,andinanefficientmarket,thevalueofafirmisunaffectedbyhowthatfirmisfinanced(Myers,2001).Itdoesnotmatterifthefirm'scapitalisraisedbyissuingstockorsellingdebt. Itdoesnotmatterwhatthefirm'sdividendpolicy is.Therefore,the Modigliani-Miller theorem is mostly referred to as the capital structure irrelevanceprinciple.Thetheoremwasoriginallyprovenundertheassumptionofnotaxes.AccordingtoFrankandGoyal,(2008),itismadeupoftwopropositionswhichcanalsobeextendedtoasituationwithtaxes. Consider two firmswhich are identical except for their financial structures. The first(FirmU)isunleveredthatis, it isfinancedbyequityonly.Theother(FirmL)is levered:it isfinanced partly by equity, and partly by debt. TheModigliani-Miller theorem states that thevalueofthetwofirmsisthesame.Trade-offTheoryKim (1978) studies showed that the choice of capital structure matters in influencingperformance.Thetrade-off theoryreferstothe ideathatacompanychooseshowmuchdebtfinance andhowmuch equity finance tousebybalancing the costs andbenefits (MargaritisandPsillaki,2009).Trade-offtheorygiveschancefortheexistenceofbankruptcycost.Itstatesthatthereisanadvantagetofinancingwithdebt(namely,thetaxbenefit)andthatthereisacost of financing with debt (the bankruptcy costs and the financial distress costs of debt)(KrausandLitzenberger,1973).Miller(1977)arguesthatthesecostsdoexistindeed,buttheyseeminexplicablysmallrelative to taxsavingsas theyaresupposedlybalanced.However, toMyers(1984), themarginalbenefit further increasesasdebtdeclines,andasdebt increases,whilethemarginalcostincreases,sothatafirmthatisoptimizingitsoverallvaluewillfocusonthistrade-offwhenchoosinghowmuchdebtandequitytouseforfinancing.Empirically,thistheory may explain differences in D/E ratios between industries, but it doesn't explaindifferenceswithin the same industry (Margaritis andPsillaki, 2009). As such it usageunderthis study becomes imperative as the paper focus on trend analysis of cement industryfinancialperformance.PeckingOrderTheoryIn the theory of firm's capital structure and financing decisions, the pecking orderwas firstproposedbyDonaldsonin1961anditwasimprovedbyMyersandMajluf(1984).Itstatesthatcompaniesplace inorderofpreference theirsourcesof financing(frominternal financing toequity)accordingtothenormofleasteffort,orofleastresistance,preferringtoraiseequityasthelastalternativemeansfinancingdecision.Therefore,internalfundsareusedfirst,andwhenthatisexhausted,debtisissued,andwhenitisnotfunctionaltoissueanymoredebt,equityisissued(Myers,2001).Pecking Order theory attempts to capture the costs of lopsided information. It states thatcompanies place in order their sources of financing from what it has at hand, when thatbecomesexhausted,thenproceedtodebtissue,whenthisseemworknolonger,finallyequity



becomesthelastoption.Thisisinaccordancewiththelawofleasteffort,orofleastresistance.This theory preserves that firms abide by the chain of command of financing sources andprefer internal financing when accessible, and debt is preferred over equity if externalfinancingisnecessary.Asaresult,theformofdebtafirmdecideonactasasignofitsneedforexteriorfinance.ThepeckingordertheoryisdispersedbyMyers(1984),whenhearguesthatequity is a less preferredmeans to raise capital becausewhenmanagers issue new equity,investors have confidence that managers think that the firm is overestimated and as suchmanagers are captivating thebenefit of this over-estimation.Thus, investors tend toplace alowerpricetothenewequityissuance.AgencyTheoryThis is a theory about the relationshipbetween theprincipal (owner/shareholders) and theagentoftheprincipal(employees/managers).Thisrecommendsthatthefirmcanberegardedasalinkofcontractsbetweenresourceholders.Anagencyrelationshipascendswheneveroneor more individual, called principals, hire one or more other individuals, called agents, toperformsomeserviceand thendelegatedecision-makingauthority to theagents (MargaritisandPsillaki,2009).TheagencytheoryperceptionwasoriginallyadvancedbyBerleandMeans(1932), who argued that due to a continuous dilution of equity ownership of largecorporations,ownershipandcontrolbecomemoreseparated.Thissituationgivesprofessionalmanagersanopportunitytopursuetheirinterestinsteadofthatofshareholders(Jensen,1986)as cited in Salawu (2009). In theory, shareholders are known to be the only owners of acompany,andthejobofitsdirectorsispurelytosafeguardandensureshareholders’interestsaremaximized.Theissuehereisthattheinterestoftheprincipalandtheagentareneverpreciselythesame,hencetheagent,whoisthedecision-makingpart,triesalwaystopursuehisowninterestsinplace of those of the principal. The main problem faced by shareholders is to ensure thatmanagers will return excess cash flow to them (e.g. through dividend payouts), instead ofhavingitinvestedinunprofitableprojects(JensenandMeckling,1976).Muritala(2012),assertthat,iftheprincipalwantstomakesurethattheagentactsinhisinterestshemustundertakesome Agency costs (e.g. the cost ofmonitoringmanagers). As such themore the principalswant to control the conduct ofmanagerdecisions thehigher their agency costswill be. Yet,modern research has revealed that capital structure can somewhat copewith the principal-agentproblemwithoutsubstantiallyincreasingagencycosts,butsimplybytradingoffequityfordebt(PinegarandWilbricht,1989;Muritala,2012).LubatkinandChatterjee, (1994), argue that firms candisciplinemanagers to runbusinessesmore efficientlyby increasing their debt to equity ratio.Debt creation ensures contractuallythatmanagerswillreturnexcesscashflowtoinvestorsinsteadofinvestingitinprojectswithnegativeNPVs(OnaolapoandKajola,2010).Thisiscausedbyhighdegreesofcontroldemandhigh interest expenses,which forcemanagers to focus only on those activities necessary toensure that the financial obligations of the firm are met. Hence, by having less cash flowavailable,managersofhighlyleveragedfirmsseetheirabilityofusingthefirm’sresourcesfordiscretionary-andoftenuseless-spending,dramaticallyreduced.The theory underpinning this research work is the trade-off theory. The theory is profitmotivatedtheory.Tradeofftheoryexplainsthattaxshielddebthaseffectonfirmprofitabilityandshowsthatfirmcangetoptimumcapitalstructure.Thetheoryfurthershowsthat,theformofdebtcapitalcouldequallyhaveeffectonfirm’sperformance.



ResearchMethodologyTheresearchdesignemployedinthisstudyisexpostfactoresearchdesign.Four(4)outoftheseven(7)companies inNigeriancement industrywereselectedassampleof thestudy.DatawerecollectedfromAnnualReportsandAccountsofthesampledcompaniesfromtheNigerianStockExchangefortheperiodoffive(5)yearsi.e.010–2014.ThedatawereanalysedusingSTATA software version 12.00 where summary of descriptive statistics, correlation andmultiple regressions resultswere obtained and analysed to determine the impact of capitalstructureon firm financialperformance in the listedNigerian cement companies.This studyusestwovariables;dependentandexplanatoryvariables.Thedependentvariableisthemostusual accounting performance ratio; ROE is themeasure of ratio of earnings before interestandtaxtoordinaryshareholderscapital(AnwuyoandBadu,2013;Muritala,2012andOladeji&Olokoyo,2014).Itexplainshowwellmanagementisabletomanagetheequityinvestedbyshareholders(Saidu,2014).Explanatory variables include both the independent and control variables adopted for thestudy. Independentvariableforthestudyis leverageordebtcommonlyusedintheresearchwork.Itisrepresentedbydebttototalassetsratio,dividedintotwo;Longtermdebttototalasset;andShorttermdebttototalassetratiosasusedby(Margatitis&Psillaki,2009;Anwuyo&Badu,2013;Muritala,2012;Antwi,Mills&Zhao;andOladeji&Olokoyo,2014).Itistheratiooftotaldebttothenetassetsofthecompanies.Firmsizeisthemostcommonlyinvestigatedcontrolvariablesuggestedtoaffectfirmperformance(Garko,2012).Itismeasuredasthelogoftotalassetsasusedby(Garko,2012Muritla,2012andAnwuyoandBadu2013).Inabidtoexaminetheimpactofcapitalstructureonfirm’sperformance,wespecifyamodelinlinewith the traditional theory of capital structure. Themodel is designed to accommodateordinary least square (OLS) regression. As such, we adopt the capital structure model thatstatesthatfirms’performancedependsoncapitalstructureandsomecontrolvariablesthatistwoindependentvariableandonecontrolvariable.Thus,following(Muritala,2012;Ogebeetal,2013;OladejiandOlokoyo,2014andSaidu,2014);Performance=f(leverage,size)+ԑiROAit=β0+β1LTD/TAit+β2STD/TAit+β3SIZE+ԑitROEit=β0+β1LTD/TAit+β2STD/TAit+β3SIZE+ԑitTheabovemodelshowsthatthefirm'sperformancereliesoncapitalstructureandsizeofthefirm.Where:ROE=ReturnonassetSize=Firmsizeorsizeofthefirm Leverage=totaldebt/totalasset LTD/TA=longtermdebttototalassets STD/TA=shorttermdebttototalassets SIZE=Logofthetotalassetsԑt=theerrorterm

RESULTSANDDISCUSSIONSThis section presents, analyse, interprets and discuss the result obtained from the datageneratedfromannualreportandaccountsofthesampledcementcompaniesfortheperiodofthe study. The data was analysed using descriptive statistics, correlation matrix of thedependent and explanatory variables and regression analysis. The descriptive statistics



explainsthevariousstatisticssuchasmean,standarddeviationandlongtermdebtstructureofthe cement companies and Correlation matrix was employ to examine the relationshipbetweentheexplanatoryvariablewhileregressioncoefficientswiththepurposeoftestingtherelationshipbetweenvariablesofthestudy.Table1providessuchstatistics.

Table1:DescriptiveStatisticsoftheVariables Variable | Obs Mean Std. Dev. Min Max -------------+-------------------------------------------------------- roa | 20 .0124255 .0057012 .0049652 .0199005 roe | 20 .2211664 .1277463 .0598853 .5040225 tlta | 20 .3850627 .1365481 .1562515 .6325405 ltlta | 20 .169889 .0857874 .069694 .419614 stlta | 20 .2150385 .1143803 .019451 .490122 -------------+-------------------------------------------------------- size | 20 8.731998 .9228414 7.449094 10.19811 Source: Generated by the Researchers from the Annual Reports and Accounts of the sampled companies using Stata (Version 12) Table1revealsthattheReturnonAssets(ROA)ofthecompaniesinthecementindustryoverthefiveyearperiodrangedfrom0.50%toamaximumof1.99%andwithaveragevaluesofthedependent of 1.24% and the standard deviation is 0.0057012 indicating lack of substantialvariation. Other variables which are independent in the table also indicate some level ofvariability. On the overall Total Liability to Total Assets (TLTA) has the highest standarddeviationwithabout.1365481andReturnonAssets(ROA)hastheloweststandarddeviationaccountforonly.0057012.Theseindicatethatthelongtermdebtandshorttermdebtoccupy17%and22%ofthetotalassets.In order to examine the level of relationship between the dependent and independentvariables,correlationmatrixisused.VarianceInflationFactor(VIF)testiscarriedoutalsotofind outwhether or notmulti-collinearity exists as a result of the relationship between thevariables. The correlation matrix in Table 2 provides some insights into which of theindependentvariablesarerelatedtotheReturnonAssets(ROA)(i.e.,thedependentvariable).

Table2:CorrelationMatrixoftheVariables | roa roe tlta ltlta stlta size -------------+------------------------------------------------------ roa | 1.0000 roe | 0.0917 1.0000 tlta | 0.5025 0.0578 1.0000 ltlta | 0.3050 0.1713 0.5515 1.0000 stlta | 0.3706 -0.0593 0.7800 -0.0918 1.0000 size | 0.3439 0.3316 0.2218 -0.1641 0.3859 1.0000 Source: Generated by the Researcher from the Annual Reports and Accounts of the sampled companies using Stata (Version 12) Fromtheabovetable,thevaluesareondiagonalall1.0000whichindicatethateachvariableisperfectly correlated with itself. All the independent variables are positively correlated withReturn on Assets (ROA). The positivity nature of the correlations implies that as the rateReturnonEquity(ROE)withacorrelationcoefficientvalueof0.0917,TotalLiabilitytoTotalAssets (TLTA) with a correlation coefficient value of 0.5025, Long Term Liability to TotalAssets(LTLTA)withacorrelationcoefficientvalueof0.3050andShortTermLiabilitytoTotalAssets(STLTA)withacorrelationcoefficientvalueof0.3706aswellassizewithacorrelationcoefficientvalueof0.3439increases,theReturnonAssets(ROA)ofthecompaniesunderstudyalso increases which means that the relationship is not strong (i.e., weak). However, thehighest correlation coefficient from the table is 78% which indicates that there is no



multicolinearitybetweenthevariable.AsBrooks(2000),citedinCathode(2002)opinedthatmulticolinearityispresentonlyifthecorrelationcoefficientis80%orabove.

Table3.1:RegressionResult------------------------------------------------------- roa | Coef. Std. Err. t P>|t| -------------+----------------------------------------- tlta | -.251646 2.19375 -0.11 0.320 ltlta | .2770543 2.195138 0.13 0.011 stlta | .2660098 2.192033 0.12 0.018 size | .0018866 .0015705 1.20 0.048 _cons | -.0114198 .0135 -0.85 0.411 ------------------------------------------------------- Prob > F = 0.0109 R-squared = 0.3257 Adj R-squared = 0.1459

Source: Generated by the Researcher from the Annual Reports and Accounts of the sampled companies using Stata (Version 12) Table3.1presentstheregressionresultsofthe1stmodelequationofthedependentvariable(ROA) and independents aswell as explanatory variables (total liability to total assets, longtermliabilitytototalassets,shorttermliabilitytototalassetsandsize).Thecoefficientof“R-squared”shows32.57%whichindicatethatthevariablesusedinthemodelaccountsforabout32.57%variationonROAas thedependentvariable,whereas the remainingof thevariationaccounts for the outcome of other variables which were not considered by this model.However, the whole probability is positively significant at 10%. As such, the 1st modelequationcanbeinscribedas:ROA=-.0114198+.2770543β1+.2660098β2+.0018866β3+εInassessingthe1stmodeloftheregressionequation,theresultsshowsthat,therelationshipbetweenROAandispositiveandsignificant,thiscanbejustifiedwiththe“t”valueof0.13andP>|t|0.011.Similarlytheresultof thecoefficient0.2770543ispositive,whichmeansthatanincrease in LTLTAwill lead to increase in financial performance of cement companies. Thisinfersthat,LTLTAhasapositiverelationshipwithROA.SoalsotherelationshipbetweenROAandSTLTAispositivebutnotsignificant,whichiscanbejustifiedwithpositive“t”valueof0.12andP>|t|0.018whichalsohasapositivecoefficientof0.2660098,thisimpliesthat,STLTAhasapositiveandstatisticallysignificantrelationshipwithROA.Meaningthatbothlongandshorttermliabilitytototalassetsalsoincreasedfinancialperformanceofthecementcompanies.TheresultisconsistentwithsomeempiricalfindingssuchasMagatitis&Pssillaki(2009);Suleiman(2013)andGoyal(2013).ThefindingalsoconflictwiththatofSaidu(2014)whomaintainedthatcapitalstructureinfinancialperformanceoffirms’pensionindustryhasanegativeimpactontheirperformances.Finally,theresultofsizeindicatepositivewithasignificantrelationshipat5%levelofsignificanceonfinancialperformanceofthesampledcementcompanieswithacoefficientvalueof0.0018866 andP>|t|0.048,which indicate that thesizeof thecompanyhassomethingdowithitfinancialperformanceasusedbyGarko(2012).

Table3.2:RegressionResult------------------------------------------------------- roe | Coef. Std. Err. t P>|t| -------------+----------------------------------------- tlta | -.09314 .79852 -1.01 0.031 ltlta | .46114 .8313 1.01 0.028 stlta | .8143 .75799 1.00 0.033 size | .07759 .037083 2.09 0.054 _cons | -.45193 .31876 -1.42 0.177 ------------------------------------------------------- Prob > F = 0.0017 R-squared = 0.2512 Adj R-squared = 0.1725

Source: Generated by the Researcher from the Annual Reports and Accounts of the sampled companies using Stata (Version 12)



Table3.2presentstheregressionresultsofthe2ndmodelequationofthedependentvariable(ROE) and independents aswell as explanatory variables (long term liability to total assets,short term liability to total assets and size). The coefficient of “R-squared” shows 25.12%which indicate that the variablesused in themodel accounts for about25.12%variationonROE as the dependent variable, whereas the remaining of the variation accounts for theoutcome of other variables which were not considered by this model. It is also positivelysignificant at 10%. As such, the 2nd model equation can be inscribed as: ROE = -.45193 +.46114β1+.8143β2+.077597β3+εInevaluatingthe2ndmodeloftheregressionequation,showsthat,therelationshipbetweenROE and is positive and significant, this can be justifiedwith the “t” value of 1.01 andP>|t|0.028. Similarly the result of the coefficient 0.46114 is positive, which also means that anincreaseinLTLTAresulttoincreaseinfinancialperformanceofcementcompanies.Thisinfersthat, LTLTAhasapositive relationshipwithROE. Soalso the relationshipbetweenROEandSTLTAispositiveandstatisticallysignificant,justifiablewithpositive“t”valueof1.00andP>|t|0.033which also has a positive coefficient of 0.8143, which also implies that, STLTA has apositive and statistically significant at 3% level of significancewithROE.Meaning that bothlongandshorttermliabilitytototalassetsalsoincreasedfinancialperformanceofthecementcompanies. The result is consistent with Modigliani and Miller (1958) capital structureirrelevancytheory,whichhowevergoesagainstagencytheorythatdebt isnegatively impactonperformance.That is tosay leverageaffects firmperformancepositively.The findingsarecontrarytoempiricalfindingsofSaidu(2014);Awuyo-Victor&Badu(2012);Suleiman(2013)andinlinewithSafar,Assif&Arshad(2013).Lastly, the result of size as a control variable point out to be positive with a significantrelationship at 5% level of significance on financial performance of the sampled cementcompanieswithacoefficientvalueof0.077597andP>|t|0.054,whichindicatethatthebiggerthesizeofthecompanythehigherthefinancialperformance.However,usingboththetwomodelsresulttosignificantimpactatsignificancelevelof10%forexplanatoryvariablesonthedependentvariables(i.e.,ROA&ROE)butbasedonthefindingsROE ismore preferable than ROA. As such the study adopts ROE as ameasure of financialperformanceofcementcompanies.

CONCLUSIONSANDRECOMMENDATIONSThe paper examines the impact of capital structure on firm’s financial performance in theNigeriancementindustry.Fromtheresultofthefindingsofthestudy,itcanbeinferredthatfinancialperformanceincreasescapitalstructuresasthus;

1. There isstatisticallysignificantrelationshipbetween longtermliabilityandreturnonassets.

2. There is significant causal relationship between short term liability and return onassets.

3. ThereisstatisticallysignificantcausalrelationshipbetweenreturnonequityandlongtermliabilityintheNigeriancementindustry.

4. Thereisalsostatisticallysignificantrelationshipbetweenlongtermliabilityandreturnonequity.

Basedonthefindingsthepaperrecommendsthatcementcompaniesshouldencouragetheuseof long term debt in there capital structure since it has positive impact on their financialperformance andmanagers in the cement industry should ensure both long and short term



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Mohanty,A.R.&Mohanty,A.(2016).RevisitingtheFinancialYearinIndia.ArchivesofBusinessResearch,4(6),45-57.


RevisitingtheFinancialYearinIndia

AsitRanjanMohantyXavierUniversityandChairProfessorofCentreofFiscalPolicyandTaxation

AvipsaMohanty

CentreofFiscalPolicyandTaxation,XavierUniversity,Bhubaneswar

AbstractThe Ministry of Finance, Government of India, has recently constituted anexpertcommitteeto look intothe feasibilityofchangingtheFinancialYear inIndia.Thishasrekindledthedebatewhichisnowahundredandfiftyyearsold.AFinancialYearisaperiodof12monthsusedforestimatingandanalyzingthegovernment’sfinancialaccounts.ThepresentfinancialyearinIndiarunsfromthe1stApriltothe31stMarchofthefollowingyear.Itwasadoptedin1867onthegroundsofaligningitwiththeBritishpractice.TheFinancialYearhasbeensubject todebate for so longconsidering the fact that itwasadoptedwithouttaking into consideration local/ Indian customs. The current debatenecessitates a re-evaluation of the Financial Year in India. This study hasattemptedtoanalyze the issueofchanging financialyear in Indiaconsideringtheinternationalpractices.AfterevaluatingthecurrentdynamicsofIndia,thisstudysuggestsforastatusquo.

Keywords:FinancialYear,Budget,Monsoon,India.JELClassification:H61,Q58,O53.

BACKGROUND

The“BudgetSystem”inIndiacanbetracedbacktothesecondhalfofthe19thcentury.ItwasintroducedinIndiabyJamesWilson,firstFinanceMemberoftheCounciloftheBritishCrown.JamesWilson gave the first budget speech on the 18th February 1860. The Budget Systemnecessitatedthatfinancialestimatesofeachyearbeprepared,presentedandapprovedbytheLegislativeCouncil.ThedesignoftheschemewasspelledoutintheFinancialResolutionof7thApril1860.TheBudgetSysteminIndiaistherefore,almost156yearsold.The Mutiny of 1858 had entailed great financial catastrophe. The expenditures of theGovernmentof Indiaoutweighed the revenues,1853onwards.Deficits accumulatedand raninto several million pound sterlings. The chronic debt situation was a consequence of theabnormalmilitaryexpendituremadeduringthemutiny.Thedisequilibriumfailedtoeaseoff.TheGovernmentofIndiaresortedtoborrowing.Consequently,thepublicdebtandtheinterestpayments tobemadeonthesame,mounted.BetweenApril1857andApril1860, thepublicdebtofIndiaincreasedbyamassive£39million.Therampantincreaseindebtnecessitatedanimmediateretrenchmentofthemilitaryexpenditureattheearliest.Themutiny swept away those systems and institutionswhichhad outlived their usefulness.ThenewgovernmentundertheaegisoftheBritishCrownfacedtheproblemofreconstructionof financial system. As the political nature of the Crown overpowered the commercialpreoccupationsof theEast IndiaCompany, thedefects in theoldsystemof financesurfaced.The budgeting of income and expenditure was imprudent and the accounts ran into massconfusionandconsequenttothemutinytheentiresystemoffinancialadministrationbecame



deranged.Thereafter, financialadministrationwasoverhauled.Anewsystemofbudgetswasenforced; the relationship with the Home(who is home govt) government saw significantchangesandchangesinthesystemoftaxationwereintroduced.The Crown took over the responsibility of the debts and liabilities of the Company vide theGovernmentofIndiaAct1858.TheSecretaryofStatewasentrustedwiththeresponsibilityofsupervisingtheexpenditureofrevenuesof thegovernment.Hisapprovalwasmandatoryforthe purpose of grants and appropriation of funds. It was mandated that the revenue andexpenditureofBritishIndiawastobepresentedintheParliamentonanannualbasis.To ensure transparency and prudence, an auditor of Indian finances was appointed forindependentscrutinyofthefinances.HewasgiventheauthoritytocallupontheSecretaryofStateforproducingpapersrelatedtoIndianfinances.HecouldalsoexaminetheGovernmentofficersintheUnitedKingdominrelationtoIndianaccounts.Accordingly,theSecretaryoftheStatewas legally bound to present the statement of position of Indian finances in both thehouses, annually. The act entailed the annual IndianBudget debate. But the Parliamentwasrarelycalledupontoapprovetheproposedexpenditureratheritwasmerelyinformedaboutthe accounts of the previous year and current year’s revised estimates. Nevertheless, thisannualdebatekepttheParliamentapprisedoftheIndianaffairs.Meanwhile,theSecretaryofState,SirCharlesWood,havingrealizedthegravityofthefinancialsituation,sentoutHon.JamesWilsonasFinanceMembertoIndia.Afinancierofgreatrepute,WilsonsooncomprehendedthattheGovernmenthadborrowedwithoutrestraintandthewayoutwasthroughthedrasticretrenchmentandincreasedtaxation.OnlythreemonthsafterhisarrivalinIndia,JamesWilsonpresentedhisfirstandonlybudgeton18thFebruary1860.Thisbudgetdetailedthe financialsituationof thecountryand listedmeasurestobringaboutfinancialequilibrium.ThefirstBudgetexpressedthefaithWilsonhadon the resources of the nation and the ability of the people to develop them to address theurgency in the finances. The document contained multiple taxation proposals. The twoprincipalmeasuresintroducedbyhimwere:ataxonincomesaboveRs.200andalicensedutyon trades and professions. He also put forth significant measures to reduce militaryexpenditure.Subsequently,IncomeTaxesActwasenforcedamidgreatapprehensionwhilethelicensedutyontradesandprofessionwaskeptinabeyance.Wilson was a fine architect of finances. He wasn’t satisfied with the halfmeasures. HisintentionsofthoroughfinancialreorganizationofIndiaweresuccinct.HediedonlyaftereightmonthsofhisarrivalinIndialeavingbehindhisunfinishedtasksatthehandsofhissuccessorSamuelLaing.JamesWilsoniscreditedwiththeestablishmentoftheBudgetSysteminIndia.TheBudgetisan annual financial statement concerning estimates of revenues and expenditures for theforthcomingyear.Thebudgetdocumenthighlightsthefinancialpolicyofthegovernment.TheBudgethasbeenpresentedbeforetheParliamenteveryyearsince1860.ItisfromtheannualnatureofthebudgetsthattheconceptoftheFinancialYear(budgetyear)emerges.Afinancialyear is a period of 12months used for estimating and analyzing the government’s financialaccounts.The study is designed as follows.Section 2 of the present study elaborates on the variousfinancial years followed by the countries across the world. Section 3 concerns the various



issues and debates concerning financial year in India today. Section 4 details the author’ssuggestions.Andfinally,Section5concludeswithpolicysuggestions.

INTERNATIONALSCENARIOThefinancialyearcommenceson1stJanuaryforMalaysia,Denmark,China,Austria,Belgium,Brazil and Sri Lanka. It commences on the 1st of April for Japan, U.K., Canada, India andIndonesia and Iraq. In the U.S.A the financial year begins on the 1st of October. Clearly,differentcountrieshavedifferent financialyears.Wehaveattempted to findout thereasonsforselectingdifferentfinancialyearsbydifferentcountries.UnitedStatesofAmericaInUnitedStatestherewaswidediversityinadoptionofthefinancialyear.Manygovernmentalorganizationsemployed the calendaryear. Somestates likeAlabamaandMarylandused the1stOctober–30thSeptembertermasfinancialyear.OtherstateslikeWashingtonadopted1stApril–31stMarchasthefinancialyear.Butmostofthegovernments-state,localandfederalfollowedthe1stJuly–30thJunefinancialyears.The documented dates suggest that between 1789 and 1842, the federal government’sfinancialyearwasthesameasthecalendaryear.Thereafterfrom1844,30thJunewasselectedas the financial year ending. The rationale behind the change-overwas twofold. Firstly, themainstayofthelocalandstategovernmentrevenueswaspropertytaxrevenue.Andpropertytaxwascollectedinfallwhenthefarmerssoldtheircrops.ItwouldbeinconvenientforafiscalyeartobeginearlyinJanuaryandwaittillninemonthsforthemainsourceofrevenuesforthecurrentyear.Ontheotherhand,fundswouldbecollectedearlyintheoperatingyearifaJuly-June financial yearwasadopted.This reason is considered tobemoreor lessobsoletenow.TheotherreasonisthatthelegislaturesusuallyconvenedinJanuary.Andwithsixmonthsinhand before the financial year began, they could debate and decide on the budget to beadopted.Followingacalendaryearbudgetwouldnothavepermittedthisconvenience.LaterbytheCongressionalBudgetandImpoundmentControlActof1974,thebudgetyearwaschanged to 1st October – 31st September from the year 1976. Thiswas done to allow theCongressmoretimetodecideandarriveonabudget.Eversince,thefederalgovernmenthasfollowedthe1stOctober–31stSeptemberfinancialyear.Thestategovernmentsmighthaveafinancialyeardifferentfromthatfollowedbythefederalgovernment.GreatBritainThe earliest known financial year adopted by the Great Britain ended on the 29th ofSeptember, corresponding to the Michealmas quarter-day. Thereafter from 1752 till about1800, the financialyear inGreatBritainendedonthe10thofOctober.Thefinancialyear for1800-01 ended on the 5th of January which corresponded to the usual accounting day incommercebackthen. Itwasin1832thatthebudgetwaspresentedfortheyearto5thApril,1833.Theannualsupplygrantswerevotedfortheyearending31stMarch.Butthefinancialaccounts continued to adhere to the 5th January norm until 1854. Thereafter, the PublicRevenueandConsolidatedFundChargesActof1852mandatedthattheFinanceAccountsbemadeuptothe31stofMarchthereon.Thechangeinfinancialyearthatwaseffectedin1832wasattributedtothefactthat,undertheprevious arrangement, it was impossible to have the Parliament in session until after thefinancial year had begun. Post-autumn, it was almost impossible to convene a fresh season



beforetheChristmasholidays.Whathappenedthereforewasthattheexpendituresweremadebeforesupplieswerevotedin.Thusthechangewasapt.AustraliaAustraliancoloniesusedthecalendaryearastheirfinancialyearinthe19thcentury.ThiswasseeminglybecausethecalendaryearwasbeingusedasthefinancialyearinGreatBritainbackthen.EvenafterGreatBritainchangedthefinancialyearendingto31stMarchin1832,certainAustralianstatescontinuedtoadheretothecalendaryear.Thechangefromthecalendaryeartoafinancialyearendingon31stMarchwaspioneeredbyVictoriain1870.Thereafter,SouthAustralia,Queensland,WesternAustralia,NewSouthWalesandTasmaniafollowedsuit.The change was consequent to a consensus of the states, on the fact that, it was greatlyinconvenient to get the Parliament together in themonths of November or December. Thisinvariably resulted in the delay of having the allocations sanctioned. In consequence, thepayments wanted at the commencement of the year were delayed until later. It wasacknowledgedthat,hadtheParliamentbeeninsessionjustbeforetheendofthefinancialyear,the inconvenient delays could have been circumvented. The festivity around the ChristmastimemadetheParliamentsessionsthen,unsuitable.Mostofthepeopledesiredtoheadtotheirhomesteads instead of attending to their parliamentary duties. It was also, suggested thatworkinginthewintermonthswasfarmorefittingthanthehotmonthsofsummer.ChangingthefinancialyearfromthecalendaryeartotheJune30thalsomadesensebecauseindustrialworkinthecountrywasmostlydonebetweenthemonthsofSeptembertoMarch.Theseconsiderationsof climateandconvenience resulted inAustraliaadopting the financialyearendingonthe30thofJune.Eversince,theAustralianfinancialyearhasspannedoverthe1stofJulytothe30thofJune.IranIran’sfinancialyearfollowstheSolarHijriCalendar.Itusuallybeginsonthe21stofMarchandconcludesonthe20thofMarchofthefollowingyear.21stofMarchcorrespondstothe1stdayof Farvardin. It is the firstmonth of the SolarHijri Calendar and the first day of the springseason.Thus,localcustomsandtraditionsguidethechoiceforthefinancialyear.AfghanistanThe present financial year in Afghanistan starts from 21st December and ends on 20thDecemberofthefollowingyear.ItcorrespondstotheAfghancalendar.Priortothisitusedtobeginonthe21stofMarchandcloseonthe20thofMarchofthefollowingyear.Presumably,thechoiceoffinancialyearinAfghanistanisgovernedbylocaltraditionsandcustoms.Across-countryanalysisshowsthatgovernmentsacrosstheglobehavenouniformfinancialyearassuch.Thusa“globalstandard”ofanykinddoesnotexist.Governmentshaveinvariablychosenadatebestsuitedtotheirconvenience.

THECURRENTISSUESANDDEBATESININDIAThefirstknownfinancialyearpracticedinIndiacommencedfrom1stMaytill30thApril.Thiswas synchronizedwith the end of the harvest season in the country, 14thApril. Thereafter,FosterandWhiffin(1865)hadrecommendedthatthefinancialyearbechangedtocommencefromthe1stofJanuary.AlthoughtheSecretaryofStatedeliberatedontherecommendationin1866, subsequently it was decided that 1st April was a better suited date for thecommencementofthefinancialyear.ThiseffortwasaimedataligningtheIndianfinancialyear



withthatoftheBritishgovernment.Thefinancialaccountsandestimateswereroutinelysentacross to England for review. The alignment of 1867 was expected to simplify matters ofadministration.Thereafter,numeroussuggestionshavebeenmadeforchangingtheIndianFinancial.Thefirstsuggestions for the change came in as early as 1870. In 1984, the L.K. Jha Committee hadrecommendedthattheFinancialYearbecommencedfrom1stJanuary, i.e.thecalendaryear.Butthegovernmenthasmaintainedstatusquoonthematter.FinancialYearinIndiacontinuesto span from the 1st of April to the 31st of March. In recent times, the debate has beenrekindled by the appointment of a committee by the Ministry of Finance to examine thefeasibilityofthechangeinfinancialyear.Dr.ShankarAcharya,formerChiefEconomicAdvisorhasbeenentrustedwiththechairmanshipofthiscommittee.TheneedforanewfinancialyearinIndiaThe present financial year, 1st April – 31st March, was adopted without taking intoconsideration local or Indian factors. Thereafter, it has been always argued that thepresentsetting leadsto formationofbudgetswithoutanyknowledgeof the ‘South-West’and ‘North-East’monsoons that play an instrumental role in defining the socio-economic nature of thenation. Furthermore, the present financial year is also argued to be inconvenient from thepoint of view of national culture and traditions, optimumutilization ofworking season andconvenience of administrators and legislators. Various expert committees that were set upovertheyearshavevoicedtheirconsensusregardingthechangeoftheIndianFinancialYear.EventsleadingtothesettingupoftheL.K.JhaCommitteeThe suggestions for change in financial year had come soon after it was adopted in 1867.Thereafter,theWelbyCommissionin1900andin1908,ontheinstructionoftheMaharajaofDarbhangathematterhadbeenreconsidered.Further,in1914,theChamberlainCommission,formallyknownastheRoyalCommissiononIndianFinanceandCurrencyhadrecommendedthat the financial year is made to commence either on the 1st of January or the 1st ofNovember. The Commission held that the existing financial year setting was highlyinconvenientbecausetheestimatesofthebudgetwerepreparedwithoutanyknowledgeofthemonsoons.In1954,theCongressSessionatKalyanihadproposedthatthefinancialyearbeginfrom1st July. In their20th report, theEstimatesCommitteehadproposed that the financialyearcommencefrom1stOctober.Lastly,theAdministrativeReformsCommission(1966)hadrecommended various alternative dates with separate considerations for each. Butgovernmentmaintainedstatusquoconsideringthatthedisadvantageswhichwouldariseoutofthechangewouldoutweightheadvantages.TheNational Development Council rekindled the debate in 1981. Subsequently, the FinanceMinister in hisBudget Speechof 1984decided to set up anExpert Committee to revisit thematterofchangingthefinancialyear.Consequently, the L.K. Jha Committee was constituted on the 1st of May, 1984. The mainconsiderations concerning bringing about a change in the financial year revolved aroundinformationaboutensuingmonsoonsforproperestimationofreceiptsandexpenditures,theoptimal utilization of the working season, suitability from the point of view of nationalaccounts and convenience of the Members of Parliament/State Legislatures, in matters ofpresenting and passing the Budget or touring of the constituencies. Other considerationsinclude the taxation systems, crop periods and desirability of achieving uniformity inaccounting years followed by other organizations like the financial institutions, thecooperatives,etc.



BasicschemesuggestedbytheL.K.JhaCommitteeOntheoutsetitwasagreedthatthefinancialyearmustcorrespondtotheGregoriancalendarinsteadoftheHinducalendar.Itwouldsimplifymattersbecausetheformerwasusedbyboth,the government as well as the business community. Further, the financial year was tocommence from the beginning of either quarter. That narrows down the alternatives to 1stJanuary,1stApril,1stJulyand1stOctober.Mostofthecountriesacrosstheworldaswellasthe organizationswithin the domestic economy followed either of these alternatives. Lastly,therewasconsensusonthefactthatthecentreandstateshouldimplementthesamefinancialyear.ThedeliberationsintheJhacommitteereportarediscussedbelow.ConsiderationsoftheMonsoonsTheJhaCommitteeReportheldthatagriculturebeingthemainstayoftheIndianeconomyhadmademonsoonsinevitablyimportanttotheframingofthebudget.Andintheexistingfinancialyearsetup,thebudgetwaspreparedwithoutproperknowledgeofthemonsoons.The Budget Circular issued to the Ministries/Departments by the Ministry of Finance inSeptembermarks thebeginningof theBudgetprocess.Theseministries thereafter,put forththeir estimates of receipts and expenditures after having engaged in several pre-budgetdiscussions, assessment of revenues etc. The final estimates are arrived at by the end ofJanuary. This implies that the estimates are calculated without proper knowledge of theMonsoonbehavior.Now,IndianBudget,inevitably,hastoaccountforthequalityofmonsoonswhenestimatingthereceiptsandexpenditure for thecomingyear.TheBudget isnot justanaccount of estimates receipts and expenditure flow for the coming financial year. It alsoportraysthegovernment’sstanceonthepoliciesforallocationofscarceresources.Thismeantthat the impact of a badmonsoonon the budget is not just on the account of a drop in therevenues. An ensuing droughtmight entail additional expenditure on drought relief, highersubsidiesetc.Consideringthatthebudget is instrumental ineffectivelyaddressingthesocio-economic needs of the nation, the report argues that the present financial year hinders thegovernment’sresponsivenesstoit.Thus,thecommitteeurgedrightlythatthefinancialyearbecommencedatatimewhenthemonsoonsfortheyearhavebeencorrectlyassessed.Thereportsuggests thatcalendaryearturnsout tobe favorable in thiscontext.Theexistingfinancial year setupputs thegovernment ina spotwhere fiscal allocationsaredecidedandinvestmentplansarechartedintheignoranceofthemonsoonrains.Butincasethefinancialyear commenced on the 1st of January, the budgetary process could bemade to start fromOctober.InOctober,theperformanceofthemonsoonswouldhavebeenbyandlargeassessed.ConsiderationsoftheUtilizationofWorkingSeasonTheworking season in India begins post South-Westmonsoons. The South-WestMonsoonsspan over July to September invariably. The working season thus begins in October andextends up to the next 8 to 9months till the onset of the next South-West Monsoons. Thereportassertedthatsluggishadministrationleadstounder-utilizationoftheworkingseason.The allocations made in the budget take time to reach the executive agencies. The worksprogrammes get held up in many areas, for as much as the first three months. Thus, theeffectiveworkingseason isreducedtoaboutsixmonths.Threemonthsare lost to theSouthWestMonsoonsandanother three to thebudgetaryprocess.Thesuggestionhere is tobeginthefinancialyearatatimesuchthatitcoincideswiththeSouth-westmonsoons.Alternatively,resolvingthelaginthebudgetaryallocationprocesscouldalsoresolvetheissue.



ConsiderationsoftheNationalAccountsAlthough theNationalAccounts are published for the financial year, they are based ondatawhich are compiled on the basis of either of the financial year, the agricultural year or thecalendar year. Itwas believed that having a single accounting period for the datawould beadvantageous.Cropperiodsaredifferentfordifferentcrops.Thecropstatisticscorrespondtothe agricultural yearwhich comprises of the rabi and kharif crop harvests. The cooperativeyear is linkedtotheagriculturalyearstretchingacross July– June.Theagriculturalstatisticspertain to the agricultural year and not the present financial year setting. The CentralStatisticalOffice(CSO)adjuststheagricultureproductionestimatesinthefourquartersofthefinancialyearonproratabasistothatofthetotalproductioninthefinancialyear.Thisensuresconsistencybetweenthequarterlyandannual,GDPestimates.Although,itmaybedifficulttocompletelyeliminatethevariationsarisingfromdifferenceindatacollectionperiods,thesefailtoposeanysignificant limitationtothequalityorconsistencyofdata.Thedatapertainingtonon-agriculturalstatistics,particularlytheindustrialstatisticsmostlyfollowthefinancialyear.Inviewofthedifficultiesinsynchronizingtheagriculturalstatisticswiththefinancialyear,thereportsuggeststhatacalendaryearwouldeasethearrangement.ItwouldalsobeinlinewiththeUnitedNationsstatisticalreportingpractice.ConsiderationsofLegislator’sConvenienceThe legislators have the responsibility of touring their constituencies. The report perceivedthat theexisting financialyear left the legislatorswith the inconvenient rainyseason for thepurposeoftouringtheirconstituencies.Thusthesuitabilityofthenewfinancialyearfromthispointofviewwastobereviewed.ConsiderationsofTaxLawsTheimpactofthechangeinfinancialyearwouldbemostfeltoverthetransitionalperiod,thereport assessed. But it waswidely acknowledged by the UnionMinistry of Finance and theStateGovernmentsthatthechangesnecessitatedinthetaxlaws,duringthetransitionalperiod,wouldnotbeextreme.Thuswithreasonableadjustments,thechange-overinthefinancialyearcouldbeconvenientlyimplementedirrespectiveofthechoiceofthedate.Afterdeliberationsonthevariouslistedmatters,theStatesacrossthenationwerecalleduponby the Jha Committee to put forth their views. The view point of the states was of utmostimportancebecausethefinancialyearwastobesameforboththegovernments,centralandstate.TheresponsereceivedaftercomprehensivediscussionsheldamongsttheChiefMinistersand Finance Ministers of various states and the Chairman and Member –Secretary of thecommittee,clearlypointedouttowardsanuncontestedeagernessforachange.Asignificantnumberofstates favored theadoptionof thecalendaryear.Therationale for itwasthattherewouldbesignificantadvantages fromthepointofviewof the impactthatthemonsoons had on the economy. Some states also pointed out that a January-Decemberfinancialyearwouldleadtofragmentationoftheworkingseason.Butthecommitteecontestedthat the issue could be resolved by introducing reforms in administrative and financialprocedures.



Thefollowingtablesummarizestheviewsofthestates,registeredbackthen.

ALTERNATIVEDATES 1STPREFERENCE 2nd

PREFERENCE RATIONALE

1stJanuary

Gujarat,HimachalPradesh,Maharashtra,Jammu&

Kashmir,Karnataka,Manipur,Haryana,Rajasthan,Uttar

Pradesh

AndhraPradesh,

Bihar,Orissa,Sikkim,Tamil

Nadu

Clearideaaboutthemonsoons.Withproperadministrativereforms,interruptioninthe

executionofworksprogrammecouldbeminimized.

1stJuly

Haryana,MadhyaPradesh,Meghalaya,Punjab,Andhra

Pradesh,Bihar,Orissa,Nagaland,Tripura

Kerala

Happenedtobetheagriculturalyear,cooperativeyear.

Minimizestheinterruptionintheexecutionoftheworks

programme.

1stOctober MadhyaPradesh

Clearideaaboutthemonsoonsisavailablebythistime.

StatusQuo Sikkim,Kerala,Assam,TamilNadu

NotthatApril-Mayhadanysignificantadvantage.Apprehensionsabout

dislocationpossibleonaccountofadjustmentinprocedures,tax

lawsetc.Source:L.K.JhaCommitteeReport.

Keeping in view several advantages arising from the change-over, the committeerecommended that the financial year be synced with the calendar year. The government,however, decided tomaintain status quo on the financial year. The governmentmaintainedthattherewouldemergeonlymarginaladvantagesfromthechange-over.Further,thechangewould disrupt the data collection procedure which might take a long time to return tonormalcy. Lastly, the government argued that a changeover would entail extensiveamendments to taxation laws and systems and other administrative machinery would getdivertedtotheproblemsoftransition.ThePresentScenarioThirty one years have passed since the recommendations of the L.K. Jha committee wererejectedbythegovernment.Thekeeninterestthatthegovernmenthasshowninthematterofthechange-overrecently, calls fora return to theconsiderationsgoverning thechoiceof thefinancialyearintheIndiancontext.Recently,NitiAayoghasissuedareportontheneedforchangingIndia’sFinancialYear.IthasreiteratedthesuggestionsoftheJhaCommitteeReport.Thedetailsofthereportarediscussedbelow.OntheMonsoonsThe report believes that although the contribution of agriculture to the Gross DomesticProduct has witnessed a secular decline, it continues to play a significant role through its



forward and backward linkages in the economy. And therefore, monsoons continue to beinstrumentaltotheestimationofreceiptsandexpendituresofthegovernment.The problem with the existing financial year is that by the time the fresh allocations aresanctioned, the impactof thepreviousSouth-WestMonsoon isalreadyoverandby the timeallocations reach the executing authorities, the next South-Westmonsoon is about to begin.Thusthepolicymeasuresinthebudgetaremore‘reactive’innaturethan‘proactive’.54%of Indianagriculture is still rain-fed.Themoisture retainedby the soil on accountof ahealthy monsoon greatly enhances the production of crops. Further, a good monsooncontributes to various sources of water like reservoirs, ground water, wells, ponds etc. Anerraticmonsoongenerallyhitsagriculturesectorbythewayofreducedcropoutputs.Moreover,almost40%oftheentireruralhouseholdsinthecountrydependonagriculturefortheir livelihoods. Thus, the Agriculture sector accounts for considerable work forceemploymentinthecountry.Agriculturehassignificantlinkageswiththeheadlineinflationaswell.Giventhemultifoldsignificanceofagriculture,itisthefocusofallpoliticalattention.The monsoons in India are highly unpredictable. Even with the best of technologicaladvancements that have happened in the recent times, one can only hope to get anapproximationatbest.Thus, theyagreewith the Jhacommitteereport inchangingover toaJanuary-DecemberFinancialyearforthesakeofbetterinformationonthemonsoonbehavior,givenitscrucialnature.OntheWorkingSeasonIthadbeenarguedearlierthattheJanuary-Decemberfinancialyearwillleadtofragmentationof the working season. The report states that slowdown in the developmental and otheractivitiesonaccountoftime-laginbudgetaryprocesshavebeenreducedtogreatextent.TheMonsoondoeshalttheconstructionworksforcertainduration.Butitwillcontinuetodothatirrespectiveofthechoiceoffinancialyear.Theproceduralimprovementsimplementedbythegovernmentinrecenttimes,haveaddressedtheissueofsub-optimalutilizationoftheworkingseason.And therefore, the calendar yearposesno serioushindrance to the considerationofoptimalutilizationofworkingseason.OnNationalAccountStatisticsThereportelaboratesthatthereisnoreasontodoubtthatthechangeinthefinancialyeartoany other time would be disruptive of the order of collection of national statistics. Theoverarchingconcernistobeabletocapturethetwoharvests,rabiandkharifcrops,overtheyear. And that continues to be feasible in case a change in financial yearwas effected. ThematterwasagreeduponbytheCentralStatisticalOffice(CSO).Further,theCSOcontinuestobeinfavorofimplementingacalendaryearforthepurposeofcollectionandcompilationofdataasitisinlinewiththeUNStatisticalOfficepractice.OnConsiderationsofInternationalPracticesAcross-countryanalysisshowsthatgovernmentsacrosstheglobehavenouniformfinancialyearassuch.Thusa“globalstandard”ofanykinddoesnotexist.Governmentshaveinvariablychosen a date suited to their convenience. But what does exist in common is the fact thatalmostallthegovernmentschoosethebeginningofaquarterasthestartdateoftheirfinancialyear.Andthereappearstobeapreferenceinoptingforthecalendaryearasthefinancialyear.



Most of the Asian countries barring Japan, Thailand, Pakistan and India have adopted thecalendaryearas their financial year. InSouth-Asia Indonesia,Philippines,Malaysia,Vietnametc.haveadoptedittoo.Furthermore, inmost of the countries the Tax year coincideswith the calendar year. Thus,manybusinessesbasedoutofEuropeandAmerica,followthecalendaryearfortheirfinancialaccountingpurposes.Itisreasonablethereforetoassumethatthecalendaryearisthemostwidelyacceptedchoiceforfinancialyear,forthegovernmentsandthebusinessesalike.OnLegislator’sConvenienceWiththeimprovementintheoverallinfrastructureandconnectivityinthecountryinthelastfew decades, the constituencies are accessible to theMPs and legislators all throughout theyear now. Thus, the consideration of the Legislator’s Convenience can be delinked from thequestion of the financial year. Similarly, weather related inconvenience to the legislators intermsofpresentingandpassingthebudgethavealsobeensidestepped.Having said that, neither does the present financial year doesn’t bring any particularinconveniencetothelegislatorsnorwillanewfinancialyearcauseanyparticulardiscomforttothem.OnConsiderationsofNational/LocalTraditionsInviewof the rich cultural and traditionaldiversity in India, a varietyof alternativeswouldemerge for the financial year. It could be either linked to the “New Year” of the HinduCalendar.Butincontextofmoderntimes,aconsiderablenumberofcitizenassociateNewYearwiththe1stofJanuary.Alternatively, the new financial tear could be linked to the “harvest festivals”. The optionscould be Onam or Pongal/Makar Sankranti. Lastly, it could be linked to the Diwali as thefestival is celebrated across the nation, alike. Given the various possibilities, it is difficult tochooseone.ItiswiserathernottoengageintheHinducalendarforthefinancialyear.Choosingthecalendaryearasthefinancialyear,faresbetterinthiscontextaswellbecauseitisreflectiveofthemodernpracticesoftheyouthofthenation.The Niti Aayog’s report on the need for changing India’s financial year revisits all theconsiderationsmadebytheL.K.JhaCommitteereportandadvocatesitsviews.Itsuggeststhatthegovernmentshouldswitchthefinancialyeartothecalendaryear.

AUTHOR’SSUGGESTIONSWediffer significantly from the stanceof theNitiAayog’s report.Wesuppose that thegainsbelievedtobematerializingfromthechange-overofthefinancialyeararefarfetched.Overthemanyyears,sincetheJhacommittee’srecommendations,numerouschangeshaveunfolded.TechnologyhaswitnessedrampantadoptioninIndia, inthecities,aswellasthehinterlands.Anoutcomeof technologicalprogress,we indeedhaveagreaterclarityof themonsoonsandtheir behavior, if not an exact estimate. Rainfall situation is routinelymonitored by a widenetworkof observatories. Themonitoring is doneover spatial and temporal scales over thecountry.Theambiguitiesassociatedwithadroughtorfloodlikesituationhavebeenmitigated



by the early warning indicators though scientific measures. The reactive and relief centricapproach towards droughts and floods has been done away with. The focus of thegovernments,stateandcentral,isontheintegratedmanagementemphasizingonprevention,mitigationandpreparedness,whichhasresultedinminimizinglossoflivesandlivelihoodsonaccount of a drought or flood. At present, redesigning of strategy for agriculture to reducedrought vulnerability and increasing farm income through higher investment in irrigation,access to institutional credit, provision of quality inputs like seeds, fertilisers andpesticideshavebeenputinplace.Some of the States in India have started preparing a separate Agriculture Budget to care ofAgriculturesectorinacomprehensivemanner..Thefiscalstresstothegovernmentindealingwithdroughtswasbecausereliefmeasuresweregivenprecedenceoverthemitigationmeasures.Thisinturn,putenormousstrainonthestatebudget dismissing developmental plans. But the states in present times have moved on tobecome comprehensively prepared for untoward situations like drought. The State DisasterResponse Fund, supplemented by the National Disaster Response Fund in case of acuteemergencies, isanon-lapsable fundprovisionedtomeet immediatereliefexpenditure to thevictims of drought, cyclone, flood and various other contingencies. Drought resilience isstrengthened furtherbyprovisioningofadditionaldaysofworkunderMNREGA todroughtaffected households, diesel subsidy scheme for farmers in affected areas, enhancement ofceiling on subsidy, interventions for saving perennial horticulture crops, implementation ofadditional fodder development programme, flexible allocation under Rashtriya Krishi VikasYojanaandothercentrallysponsoredschemesandframingofacropcontingencyplan. Additionally, introducing participatory democracy, laying out location specific cropcontingency plans and focusing on long term drought proofing programmes e.g. watersheddevelopment, water harvesting etc. has gone a long way in addressing the woes of theunpredictable,insufficientmonsoons.Further,variousschemes likePradhanMantriKrishiSinchayeeYojana(PMKSY),KrishonnatiYojna aimat extending irrigation coverage and improving crophusbandry ensure that ruralincomesare safeguardedand ruraldevelopment is strengthened.Lastly, thePradhanMantriFasal Bima Yojana scheme has been introduced to make crop insurance easily available tofarmers.Thus, the crucial role that themonsoons used to play in the framing of and in deciding theimpactofthebudgetseemstobeblownupintoday’stimes.Thegovernmenthasexhaustivelyattempted to blunt the exposure of agriculture sector output to the erratic monsoons. Theimpactofabadmonsoonisalmostalwaystakenintoaccountandfactoredinwhileallocatingfundwhileframingthebudget.Thegovernments,stateandcentral,arenolongerinalimbo.Theyhavedynamicresearchandanalysisteams.Factoringinofchangingcircumstancesisfastandresponsive.Thefocusisoncompletionofon-goingmajor,mediumandminorirrigationprojectsalong-withinstallationofMegaLift, ShallowandDeepBoreWellsandMicro Irrigation facilities tooptimizewateruseefficiency.Stepshavebeentaken forcropdiversification fromcereals topulsesandmillets, revitalisingthe extension system for transfer of advanced technology, strengthening ofmarket linkagesthroughfinancing,storageandtransportation,riskmitigationandvalueaddition.



Thus, inviewof thepresentsetting, theroleofmonsoons indeciding the financialyear isatbestpassive,ifnotredundant.In context of considerations of the utilization of working season, significant changes havebecome common place. The State governments have introduced the Integrated FinancialManagement System (IFMS)with the intentionof automating and computerizing thebudgetexecution and account operations. Under IFMS, the major initiatives taken by StateGovernments includeElectronic Payment System, e-GovernmentReceiptAccounting System,State Public Procurement Portal, Integrated Human Resource Management system and fewothers.Thesesystemsensurereal time transfers.The IFMS isentirelywebbased facilitatingstate wide financial transactions and efficient monitoring. The previously required manualchecksofreceiptsandtheirexpenditureshavebeendoneawaywith.NowthetreasuryandtheFinanceDepartmenthaveaclearpictureofthetotalbudgetexpenditureonadailybasis.Thisensuresseamlessdataflowacrossthesystem,sothattheimplementingauthoritiesmakewell-informeddecisions.Furthermore, the centralized electronic payment channels ensure that the funds reach theimplementingauthoritiesinrealtime.Thus,thetime-lagthatplaguedthesystemandcausedworks programmes to get delayed in the first few months of the financial year have beensuccessfully circumvented.However, the slowdown in the constructionworks on account ofmonsoonscannotbeavoided.The collection of national statistics as on date doesn’t show any signs of inconvenience.Although, it isnotalignedwiththeUNStatisticalofficepractice, theexistingpracticedoesn’twarrantanyimmediateredesign.Likewise,theconsiderationofthefinancialyearnotbeinginsyncwiththelocalorIndiancustomscanbeignored.OwingtothediversityoftheculturesandtraditionsinIndia,itisbestnottoengageinchoosingoneofthemanypossiblealternatives.With the great strides of development that transport and communication have taken in therecent past, the convenience of the legislators in touring their constituencies is no longer aconcern. Fair weather roads and telecommunication connectivity ensures that they havedesirableaccesstotheirconstituenciesall-roundtheyear.Besides, India ison the thresholdof changingover toamulti-yearbudget framework.Manystates are examining the feasibility of implementing amedium term fiscal strategy. In thesechanging times, theconsiderations thatatonepointplayedadecisiverole in thechoiceofafinancialyearinIndiaarelosingrelevance.

CONCLUSIONThedetaileddiscussionabovepointsoutthattheneedforchangingthecurrentfinancialyearis avoidable. The responsiveness of the Government is adequate as the uncertain nature ofmonsoonsareanticipatedandfactoredinwhileformulatingbudgets.Theimportanceofmonsoonsinagricultureandtherebythelivesofseveralpeopleemployedin agriculture is undeniable. But modest understanding of the monsoon behavior hasconsiderablyimprovedtheinvestmentplanningandbudgetaryallocationprocedures.Overtheyears, the quality of planning has considerably improved and states are abreast withadvancements in technology, thereby bringing about tremendous transformation in thedevelopmentoftheruralpopulace.



A change in financial year entails engaging in making amendments to taxation laws andsystemsandfinancialproceduresconcerningauthorizationofexpenditure.Inconsequence,theadministrative machinery would have to be diverted towards these problems of transition.Instead, it would be more judicious to redirect these administrative systems towards thesuccessfulimplementationoftheGoodsandServicesTax(GST.Successfulimplementationwillraisethetaxefficiencyofbothnationalandsub-nationalgovernments.TheimplementationofGSTcallsforthestandardizationofsystemsandproceduresacrossthecountry.Thisincludesthe tax payer registration system, tax reforms, tax reporting periods, taxpayer identificationnumbers,crossbordertrade informationsystemsandITsystems.Theoverhaulof theentiremachinery would require massive training efforts, at the central and the state level. So, adiversionofadministrativemachinerytothiseffortwouldbefavorable,giventhepotentialoftheGSTtobringinmanyeconomicbenefits.Furthermore,thegovernment ismullingoverswitchingtoamulti-yearbudget frameworkinthe near future. Themulti-year budget is unique because it allows long term interlinking ofcurrent year budgetswith future years’ expenditure requirements. Thus, itwould provide aplatformwherebyperennialfiscalproblemscouldberesolvedbymatchingthegovernment’sexpenditurecommitmentstotheresourcesavailable.Itwillimprovelong-rangeandstrategicplanning. Introducing the medium term approach to budget formulation would helpprioritizingexpenditurecommitmentsinlinewiththefiscalstrategies. This wouldimprove resource allocation.Moving away from the annual budgetswouldnecessarily blunttheimpactofachoiceofaparticularfinancialyear.Consideringtherecentdevelopmentsintheeconomy,webelievethattheneedforachangeinthefinancialyearofIndiaisescapable.Thus,maintainingstatusquoinsteadofengaginginthecumbersometaskofchangingthefinancialyearappearsreasonable.Bibliography

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Dammas,A.H.(2016).InvestigateStudents’AttitudestowardsComputerBasedTest(CBT)atChemistryCourse.ArchivesofBusinessResearch,4(6),58-71.


InvestigateStudents’AttitudestowardComputerBasedTest(CBT)atChemistryCourse

AmnahHassanDammas

DepartmentofEducationManagementandDeveloping-FemalesMinistryofEducation-Jeddah-SaudiaArabia

Abstract

Computer Based Assessment (CBT) is being a highly widespread method toassessstudents’fulfillmentattheuniversitylevel.Thisstudyseekstoexaminethe attitude of the students towards computer-based test (CBT) at the KAU -Saudi Arabia Jeddah. Quantitative approach using survey questionnaire wasadoptedtocarryoutthecurrentstudyusingconvenience-samplingtechnique.Thesampleconsistsof (60)undergraduatestudentswhohad taken theexamon CBT were selected from college of science - chemistry department toexamine their perceptions towards CBT.To achieve this aim, the researchersexamine the possibility of using student feedback in the effectiveness of thismethod in assessment. The findings show that: the majority of respondentshave positive attitude towards CBT, (83.7 %) of students said they werecompetentwith theuseof computerdue to theirpriorexperience.Regardingtestadministration, they reported that thereare someerrors in the chemicalequations, formulas, construction in the exam sections, and inadequate time.Nevertheless, they achieved the exam successfully and reached satisfactionthrough CBT features such as direct scoring, validity, and transparency ingrading. The bottom line, CBT experiencewill become favorable for studentsandthenwillearnitseffectivenessinthecontextofassessmentsmethods.KEYWORDS: Computer Based Test (CBT), Chemistry course, UndergraduateStudents,computerexperience.

INTRODUCTION

Overthepastfourdecades,therehasbeengradualevolutionincomputer-basedtesting(CBT)asaviablealternativetopaper-and-penciltesting(PPT).However,thetransformationtoCBTisneithersimplenorcheap.Studentassessmentisaquitefundamentalfactorineverylearningparadigm.Teachers' evaluate students and learning outcomes to direct and encourage themaccordingtotheirfulfillment(1).Itismostlyknownthatexaminationsdeterminestheextenttowhich educational goals have been accomplished aswell as the extent towhich educationalinstitutionshaveservedtheneedsofsociety(2).Examinationsarenotonlylimitedtomeasureeducational needs or societal objectives but also incorporate in a way of coping with theeducationalsystem(3).AccordingtoRehmani(2003)examinationsplayanimportantroleindeterminingwhatgoesonintheclassroomintermsofwhat,andhowteachersteachandstudentslearnandcanhaveeffect on both teaching and learning’ (4) . Several examination modes utilized in highereducation institutions to assess academic progress, for instance, paper-pencil-basedexaminations,assignments,presentations.Sim,Holifield,&Brown(2004)identifiedmorethanfifty different techniques used within higher education for assessment purposes; the mostcommonlyusedareexaminations(5).



TherapidadvancementofInformationandCommunicationTechnologies(ICT)inteachingandlearninghas shifted theparadigm (6) frompaper-pencil-based to computer-based systemofexaminations which are usually termed as Computer Assisted Testing, ComputerizedAssessment, Computer Based Testing (CBT), Computer Aided Assessment (CAA), ComputerBasedAssessment(CBA),OnlineAssessment,E-AssessmentandWeb-Basedassessment[(7);(8)].Computer–basedtests(CBT)aretheformofassessmentinwhichthecomputerisanintegralpartofquestionpapers’delivery,responsestorage,markingofresponseorreportingofresultsfromatestorexercise(9).ConoleandWarburton(2005)definedCBTas‘theuseofcomputersforassessingstudents’learning’(10).Itisrequiredtothink,re-consider,andmodifyorchangethetraditionaltestmanners.ElectronicassessmenttoolshadreducedtheloadofteachersandfacilitateexamsexecutionpurposefullybecauseofinclusionofICTsineducation.CBTscanbeapplied to promote further efficient learning by examining students' knowledge andunderstandinginmanyfieldssuchaschemistrycourses.Students' prior experience in computer and communication skills is essential matters inCBTs.CBT are a method that may does not suit the learning styles of many students. Theprimaryfactorindeterminingwhetheranassessmentprogramisbeneficialornotdependsonwhether the assessment tasks are relevant to the purposes and learning outcomes for thecourse,notforgettingtheattitudesandskillsthataretobeexamined.Forthis,wewilltryinthisstudytoinvestigatestudents'perceptionsandtheirattitudestowardsthiskindofexams,and to identify the technical and scientific issues that they face. Computer and relatedtechnologies provides a powerful tools to encounter the challenges of designing andimplementing assessments modes that go beyond the conventional practices and facilitateaccessingawidelysourcesofinformation,cognitiveskillsandknowledge.Computer based assessment technique is becoming more and more widespread in HEIs.AccordingtoConoleandWarburton(2005):“CBTsarewrittentotestspecificlevelsofabilitytheyhave thepotential todelivermoreaccurateandreliable results than traditionalexams”(10). Traditionalmethods of assessment are being changed by automated assessment in allovertheworldprogressivelybutitisnotclearsofartouptowhatextentthesechangeswillbefruitfultotheacademiciansandadministratorsofHEIs,inadditiontothat,institutionsacrosstheglobearemigratingtowardtheuseof(CBT)toteststudents’knowledge(11).Therefore, it was significantly important to perceive university students’ perceptionstowards Computer-Based examinations. It was noticed through literature that little interestwaspaidtounderstandstudents’thoughtsaboutCBTsintermsoftheirattitudesintermsoftheir role in assessing the responsesof students takingCBT in chemistry course.Authorsofthis research, thus, analyzed students’ attitude in different dimensions, i.e., gender, age,academic level, academicperformance, andprior experience in computer, computer anxiety,andconstraintsontheutilizingofCBT.ThepresentstudyaimstoidentifytheattitudesofthoselevelstudentstowardsCBTandanalyzetheirperceptionsintermsoftheabovedimensions.Thepaperisorganizedasfollows.InSection(2),abriefliteraturereviewthatsummarizesthestudies of those authors who experimented or surveyed CBT in different courses at HEIs.Section (3), a reviewof theoreticalbackgroundofCBT ispresented. Section (4)explains theimportanceofthestudy.StudyproblemispresentedinSection(5).InSection(6),Purposeofthestudyisdetermined.InSection(7),Studyquestionswereaddressed.Section(8),explainsthe researchmethodology. In section (9), data analysis anddiscussionof results are shown.



Finally,conclusion,studylimitations,andfuturestudieswereincludedinSection(10),section(11),andsection(12)respectively.

PREVIOUSSTUDIES(Powers&O’Neill,2006),assessedthedegreeofcontributionofCBTtoperformanceamonganumber of students of mathematics by using a questionnaire survey. It was found that noseriouseffect(12).Karadeniz(2009)studiedtheimpactofCBTandPPTandmobile-basedtestonstudents’performance.Agroupof38studentswasexperimented for3weeks.Significantdifferenceswerefoundbetweenthescoresachievedbythestudentsinsecondweek,butnotinfirstweek.ItwasperceivedbytheauthorsthatstudentshadpositiveattitudetowardsCBTandassessmentduetoeaseofuse,comprehensiveand instant feedback.Moreover,most favoredtheCBTandtheleastfavoredwerethePPTs(13).TheNationalUniversityofSingaporeintroducedcomputer-basedtesting(CBT)in2004.Lim,etal (2006)examinedmedical students’ attitudeaboutCBTVSPBT testing.Throughanonlinesurvey213(53.5%)final-yearstudentsweretestedoutofwhich91(79.8%)preferredCBT,11(9.6%)preferredPPTformatand12(10.5%)wereun-sure.Authorsfurtherexplainedthat42indicated that 42 liked CBT because of good quality of images and independent of assignedseatingpositions;22likedbecausetheycouldproceedattheirownpace;onestatedthatCBTexaminationswasfun;4enjoyedtheconvenienceofCBTand6cited“equality”asthereasontheypreferredCBToverPPTThe major factors leading to difficulties in CBT applications under two titles, as factorsresulting from “users” and “technologyused”.He states that theuser’s gender, the ability toprocess information, the ability to use a computer, and the level of anxiety could have aninfluenceonanapplication(14).Manyresearchershavealreadydonestudiesinvestigatingtherelationshipbetweencomputerusageabilityandachievementtests.Yurdabakan(2012)(15)identifiessomeofthesestudies[(16);(17);(18)]stressingthatcomputerusageabilityisanimportantpredictorofrespondentachievement;therefore,thosepoorstudentsatcomputersmayshowlowachievementinCBT.However, they added that with the increase in computer technologies and accessopportunities,suchproblemsmightdecrease.In someof the studies investigating thedifferencebetweenassessmentmethods in termsofgender, race and age, such as (19), no significant difference was found in achievements,whereas insomeotherstudies (20) littlesignificantdifferencewasobserved. In their recentstudy,TerzisandEconomides(2011)describethetrendsofmaleandfemalestudentstowardsCBT(21).Yurdabakan(2011)reportedthatasaresult,theyhighlightedbothgendershavingpositive views on CBTs, if they are based on games; they are open and course-related (15).Additionally, they state that the attitudes ofmales and females towardsCBTs are under theinfluenceofsocialenvironment;theboysfocusontheusefulnesswhilethegirlsstresstheeaseofuse.Study of (Williams ,2007) he examined attitudes of pre – hospital undergraduate studentsundertakingawebbasedexaminationasanadjuncttothetraditionalpaperbasedexaminationmodeusingquestionnairesurveyamong(94)students,thestudyfoundstudents'satisfactionandperformanceishigh(22).(Ozdenetal.2004), inhis study "students'perceptionofon lineassessment".Questionnaireand interview among (46) students were utilized. The findings indicated that students'



perceived as an effective testing mode (23). Using content analysis, (Johnson et al .2004),examined the relationship between assessmentmode and students' perception. The resultsshowsthatcomputerbasedquestionsseemstobeharderthanifitweretobeinpaperbasedquestions(24) .(Russelletal.2003)thepurposeofthestudyis" investigatedreasonsbehindlowperformance inCBT" .Byusinga survey,he concluded that the lowperformance canbeattributedtoinabilitytopractice/reviewoldexams/questions(25).(McVay, 2002) "Examined disparity in students' performance between CBT and PPT testingmodes". By Using compares performance of the same students using the two modes as aresearchmethod, the findings of this study indicated that disparity exists (26). A studywasconducted by (Millsap, 2000) to investigate likely disparity between the two testingmodesamong(585)militaryrecruits.Contentanalysismethodwasused.Itwasfoundthatthetestingmethoddidnotaffecttheresults(27).

STUDYBACKGROUNDBecause of growing number of teachers and students who use computer technologies inclassroomstosupportorexecutetheinstructions,itisexpectedthattheschoolsandHEIswillshiftthetechnologyuseinassessmentalso.Computer-basedtests(CBT)containassessmentsthatarecarriedoutusing thecomputer,eitherovercomputerprogramoroveraweb-basedsystem.Already,manyassessmentshavebeenswitchedintoacomputerizedformat,includingsummative, large scale, and daily formative assessments (28).Increased student motivate,enhancedreliability indatagathering,andquickreportingofresultsaresomeof theevidentadvantagestoCBTs[(29);(30)].Information and Communication Technologies (ICTs) have been advanced rapidly andwidespread, utilized for different purposes, and used intensively in schools and highereducationinstitutions(HEIs)inseveralsideslikestudents'assessmentande-learningaswell.CBTsystemsarecarriedoutbyusing the toolsof ICTsand itsapplications.ACBTsystem isseenasaverysignificantinstrumenttoassessstudents'knowledgeatparticularstageandtoassist learners in identifying the gapbetween requested criteria and the actual standard forthem.Studies have also found that students enjoy taking CBTs and are motivated by the use oftechnology [ (31); (32)]. Accessibility features can be conveniently embedded into CBTs,allowing for supportsandaccommodations suchasglossaries, color contrast, text-to-speech,spell check, highlighting, and Closed-captioning (18) .The quick reporting of results isparticularlyusefultoeducatorsastheyareabletoaccessandusetheseresultstomaketimelychangesininstructionifnecessary[(18);(33);(30)].CBTscaneasilyadministerexamtiming,andensuringthatallstudentsaregiventhesameamountoftimetoaccomplishtheexam.CBTscan also permit students to have access to the same support tools, including calculators,dictionaries,andonlylettheuseofthosetoolswhenitissuitable(31).Inaddition, thebenefitsofCBTensureeasieradministration;bringdownprinting costsandpaperless distribution, increased exam security, fast feedback, and integrated supportinstruments(34).Withallofthesebenefits,itiseasytoseewhymanyHEIsandhighschoolsare employing the use of technology for assessments. As CBT launched to be utilized forsummative assessment, investigating students' attitudes towards CBTs became significant.Fromstudents’perspectiveoftheCBT,therehavebeenanumberofmixedresponses.Previousliteraturespresentedthatmore individualsexpectedproblemswith thecomputersupportedassessmentthanreallyhadthem(35).



Despite few students being confident about CBT before completing the assessment, morestudents stated a preference for CBT thereafter, previous study conducted indicated apreference for CBT over PPT (36).Some studies reported the main disadvantage as beingincreased anxiety amongst those unfamiliar with use of computer[ (35); (36)] and as suchstudentsagreedthattheyare"technophobic".The major challenges to test examinees through computers demand a proper softwaredesigning.Toconfirmthisrequest,students’attitudesandperceptionsontheadvantagesanddisadvantagesofacomputerizedtestaresignificant,astheuser,perceptionsandhisopinionsare critical in the approval, application, and advancement in computerized tests. Moreover,while recognizing the system level usefulness that associated with CBT it is significant togenerally,differentfieldsareworthytoinvestigateinthisarea,includingproblemsconcerningthefactorsthatmayaffectperformanceandstudentperceptionsregardingtheCBTs.These evolutions in computers and ICTs have affected several fields including educationalassessmentandexaminationsandsignificantlyreshapedthemannerofassessmentandexamsmode. This has led to the development of (CBTs), and/or computerized adaptive testapplications, besides those traditional paper-pencil tests (PPTs).In many academic fields,educationalmeasurement has beenmoving towards the utilizing of CBTs, which defined asexams or assessments that are Managed by computer in either stand-alone or dedicatednetworkorbyothertechnologydeviceslinkedtotheinternetorWorldWideWeb(www)mostofthemusingmultiple-choicequestions(37).There are two main types of assessments systems: Paper Based Test (PBT) and ComputerBasedTest(CBT)(1).DuetothepopularityofICTs,manyschoolsandinstitutionsreplacingthetraditionalpaperandpenassessmentforlearners.StudentspreferCBTinsteadofPBTastheythinkthatCBTwouldbeinteractive,exciting,accurate,secure,credible,andsmooth(38).Also,several competitive advantages that CBT has such as less cost, more security, and highaccuracy.Furthermore,itminimizestherequiredeffortstoaccomplishtasks,andtimefortestpreparation,marking,scheduling,recordingandanalyzingtheresults[(1);(39)].At present, in the Saudi universities the most applied evaluation of students’ knowledge istraditionalmethodthatisacombinationofessayandpracticaltests.Nevertheless,inthepastfewyears,thenumberofstudentsincreasedsignificantly,thetraditionalexaminationmethodconsumes a long time for evaluation and assessment. An automated testing system is thesolutionofexaminationforlargeclassestoaddresstheseproblemsandotherissues.Asnowcomputer-basedtestsarelaunchedtobeappliedespeciallyatprimaryandsecondaryeducationlevel,forsuchreasonslike:theirexamresultsarescoredimmediatelyandreportedindetail, theirapplicationsareeffectiveandreliable, flexible, theyreduce thecosts for long-term,maketheintegrationofaudio-visualmaterialsispossible,andenabletheratertoeasilyadjustthestudentresponsetimecomparedtotraditionalPPT(40).Therefore, the actuality that students’ perception of CBT for chemistry courses is underinvestigation subject. This study describes results in this fieldwith a view to expand betterpractice,guidelines,andmodelsofapplicationandvaluationofaspecifickindofexammode,namely CBT for undergraduate chemistry courses. Examine the relationship betweenassessmentmethodandthebehaviorofthestudentsbeingassessed.



Finally,CBTisbeingamajorpartofe-learningandassessmentsystemsinHEIsandschoolsalike.Therefore, it is very important to investigate the factors that affect the students’ attitudetowardusingCBTinordertoimplementCBTsystemssuccessfully.Theaimofthisresearchistoexaminethefactorsthatinfluencethestudents’attitudetowardusingCBTsysteminSaudi.

IMPORTANCEOFTHESTUDYComputerBasedtest(CBT)isbeingaverypopularmethodtoevaluatestudents’performanceattheuniversitylevel.Eventhoughmodeeffectsofdifferentformatsofassessmentshavebeenconducted fordecades, it is important to continue the lineof research.As the availability oftechnologyinclassroomsincreases,andasteachersandstudentsbecomemoretechnologicallywit,itisfundamentalthattheyunderstandhowtransformingfrompaper-basedtocomputer-based tests may have an impact on student perceptions and their performance. This is ofparticularimportancewhenteachershavethecapacitytoproducetheirowncomputer-basedtextsofassessmentsthatareusedbetweenstudentsandclassroomsandareappliedtomakeinstructionaldecisions.ThisstudyalsoevaluatestheresponsesofstudentstakingCBT.Theseissuesandotherswortha consideration such as students' attitudes towards computerized testing may promote orimpedethe testingprocess.Therefore, it isessential forus tobeawareof theaccompanyingaffective impactsofCBTs,which isstillnotunderstoodyet.Theattitudesthatstudentshave,areanimportantfactorinwhetherCBTprogramsbecomeanefficientpartofthecurriculumofschools and HEIS alike. Awareness of what attitudes students' hold can help educators incurriculumdesigninginevaluatingtheroleofcomputersandpriorexperienceinCBTs,andinthefuturelocaldevelopmentofacurriculumthatincorporatesthecomputersusage.This study also contribute to the existing knowledge about the relative contributions ofprevious computer– relatedexperienceoncomputerized testingperformance ,aswell asonexamineesattitudesandacceptancetheuseofcomputersintesting.Furthermore,astudysuchas thiswill hopefully assist in the evaluationofCBTs, inorder tominimize factors thatmayinhibit optimal achievement performance. If CBT is well accepted by students, and withconstantlyimprovementsbeingmadeinthedesignofsoftware, itmaybecomeanobtainablemodeofassessmentinourschoolsanduniversitiesbetter.

STUDYPROBLEMInvestigating students' perceptions and attitudes towards CBTs is not an easy matter.Accordingtotheirpersonalabilitiesscientificortechnical,sotherearemanydifferentviewson this issue. Some of the examinees through computerized tests notified that it is moredifficult for them to navigate back to rework problems. Others are reluctant to thecomputerized testing method simply because they are accustomed to take notes, writingcomments,andcirclingquestionand/oranswers for later review(41).Otherssaid that theyreadmoreeasilyandquicklyonpaperthanonacomputerscreen.Whilethecomputercrashesareraretohappen,butit isexpectedtooccurthroughtheexamtime,thiscanvoidtheeffortsofexaminees[(18);(33)].Students’ attitudes about performance grades, exam appropriateness, validity control, andcomputeranxietyaregenerallythepointsofconcern.Sometesttakershaveageneralanxietyabout the computer itself, while others are more worried about whether their level ofcomputerexperience



(42).Alltheseconflictingattitudesserveasthereasonablegroundsforthisstudy.Useof themouse, screenvisibility, screen size, screen resolution, font size,display rate, andScrolling are some technical issues in CBT that affect students’ response to the designedchemistryquestionsaccordingto(Jimohetal.2012),alsopresentationgraphicsandtheUserinterfacelayouthasbeenknowntoaffectexamineesastheymayhavedifficultywithparticularaspectsofit,ortheymayobjecttospecificelementofadaptiveexamdelivery(43).Therefore,itisanticipatedthatprovidingcertaininformationaboutstudents'perceptionsaboutCBTsinundergraduatechemistrycoursemightenablethestakeholderstomakeimprovementsofthecurrentuseofCBTsystem.Theseissuesandothersarecapturedinthesurveyquestionnairetoolofthecurrentstudy.

PURPOSEOFTHESTUDYThemainobjectiveofthisstudyisto"investigatestudents'perceptiontowardsCBTfortestingUndergraduatechemistrycoursesinSaudiArabia".ItalsosupportsexploringthefactorssuitsCBTinSaudiHEIs.Inaddition,herearesomemoreobjectivesrelatedtothestatementofthisresearch.

1. IdentifyingtheoverallconstraintsontheutilizingofCBTforthechemistrycourses?2. Explainingthefactorsthatinfluencestudents’attitudestoassessmentmethod?3. Examining the relationship between prior computer experience and performance in

CBT?

STUDYQUESTIONSTo address the problems specified in this study, three sub questions were addressed asfollows:

1. QUESTION ONE (Q1): What are the overall limitations on the utilizing of CBT forchemistryCourses?

2. QUESTIONTWO(Q2):Whatarethefactorsthataffectstudents’attitudestoassessmentMethod?

3. QUESTIONTHREE (Q3):What is the relationshipbetweenprior computerexperienceandPerformanceinCBT?

METHODOLOGY

Manyprevious studieswere reviewed, it is obvious that quantitative approachusing surveyQuestionnaire ismost suitable process of examining students’ perception about CBT [ (22);(44)(23)].Accordingly,theresearcherswillusethesamemethodologyforthecurrentsearchusingaquestionnairedevelopedforthispurpose.Afive-pointLikert-typescaleofagreementrunning from ( 1= Strongly Disagree, 2= Disagree, 3= Uncertain, 4= Agree and 5= StronglyAgree ) were adopted. Before the questionnaire was conducted, it was pretested on tenstudents in order to measure the construct validity of the perception measurement.Furthermore, the questionnaire was validated through a number of specialists in this field,therecommentswereconsideredinthefinalversion.StudfyPopulationThetargetpopulationforthecurrentstudyincludesallundergraduatestudents inchemistrydepartmentatKingAbdul-AzizUniversity(KAU)-collegeofScience,JeddahCity.



StudySampleInthesamplingtechnique,thestudyisbasedonaconveniencesampleof(60)undergraduatestudentswhotaughtchemistryscienceinKAU,fromMay–October2016.(60)QuestionnairesweredistributedrandomlyintheuniversitymaincampusinJeddahcity,(54)questionnaireswerecollected;fiveofthosewerediscardedbecausetheywereincomplete.(49)foundusablefor this study. The Tables (1), (2), (3), (4) and (5), show the distribution of demographiccharacteristicsofthesample.

Table(1):Respondents'profileaccordingtotheirSexRespondent Sex Frequency Percentage (%) Male 31 63.3 Female 18 36.7 Total 49 100 % Table(1)indicatedthatoutof(49)respondents,(31)weremalewithpercent(63.3%)while(19)werefemalewithpercent(36.7%).

Table(2):Respondents'Respondents'profileaccordingtotheirAgeRespondent's Age Frequency Percentage (%) Less than 19 years 7 14.286 19 – 21 years 18 36.735 22- 24 years 16 32.653 25 – 27 years 8 16.326 Total 49 100 % Table (2):The sample shows that: (7) studentwithpercent (14.286%)were less than (19)years,(18)studentswithpercent(36.735%)agedbetween(19-21)years,(16)studentswithpercent(32.653%)agedbetween(22-26)years,while(8)studentswithpercent(16.326%)agedbetween(25–27)years.Also,illustratesthattherespondentsishighlycontrolledbytheagegroupsof(19–21)yearsand(22-24)yearsaswell.Thesefiguresshowthatanagegroupofrespondentsfromtheaverageagegroupofstudents.ThisindicatesthatthemarkgainedintheCBTisaccurate,andstudents'cognitivecapacityhasimproved.

Table(3):Respondents'profileaccordingtotheiracademicperformanceAcademic Performance Frequency Percentage ( % ) Excellent 9 18.367 Very Good 25 51.020 Good 13 26.531 No response 02 4.082 Total 49 100 The sample study appears that (9) students with percent (18.367 %) were academicallyexcellent, (25) of them with percentage (51.020 %) were very good academically, (13)students with percentage (26.531%) were academically good, while (2) students withpercentage (4.082%) did not reply. The table also presents that a significant percentage ofrespondentsareperformingeitherverygoodorgoodacademically.LoworhightrendintheresultsobtainedbysomestudentsinaCBTcanbeattributedtoexternalfactorsorexamineehimself.Ingeneral,asresultsshowthemajorityofrespondentshavehighattitudetowardstheadoptionofCBT.

Table(4):Respondents'levelofpriorexperienceandfamiliarityincomputer

Respondents Scales

in computer experience Male Female Together Frequency Percentage Frequency Percentage Frequency Percentage



High 15 48.387 9 0.5000 24 48.980 Average 11 35.484 6 33.333 17 34.694

Low 5 16.129 3 16.667 08 16.326 Total 31 18 100% 49 100% Thestudysample indicatedthat(24)studentswithpercentage(48.98%)together(maleandfemale)Respondedthattheyownhighcomputerexperience.(17)Studentwithpercentage(34.694%)said that their computer experience is average, while only (8 ) students with percentage (16.326%)admittedalowexperienceincomputer.Findingsalsoillustratedintheabovetablethatthemajorityofthemhaveahighexperienceinthecomputer.ByconsideringtheefficacyofthepriorexperienceincomputerontheperformanceofstudentsoutoftheirCBT,systemintheuniversityisinsignificant;assuch,studentswithoutanyproblemswillachievetaskseasily.

Table(5):Respondents'profileaccordingtotheiracademiclevelLevel of Study Frequency Percentage ( % ) 1st.year 4 8.163 2nd.year 16 32.653 3rd.year 18 36.735 4th.year 11 22.449 Total 49 100 % Thetableshowsthatmajorityofrespondentshavespent twoacademicsemestersat least intheuniversity.(4)studentswithpercentage(8.163%)areinthe1st.year,(16)studentswithpercentage(32.653%)areinthe2nd.year,(18)studentswithpercentage(36.753%)areintheir3rd.year,while(11)studentswithpercentage(22.449%)arein4th.year.Thisshowsthosestudents'responsestoquestionswillconsideredwellawarehavingspentmorethanoneacademic semester in theuniversity, this also indicates that theyhave taken theCBTexamsmanytimes.Overwhelmingpercentageoftherespondentsfallwithinthelevelof2nd.Yearand3rd.year,whichmeanstheyacceptedtohavetheCBTintheiracademiccoursesingeneral.

DATAANALYSISANDDISCUSSIONOFRESULTSStudyQuestionsAnalysisthe1st.studyquestion(q1)WhataretheoveralllimitationsontheutilizingofCBTforchemistrycourses?TheaimofthefirstquestionisidentifythemostcommonconstraintsthatassociatedwithCBTforchemistrycourses.Toanswerthequestion,respondentswereaskedabouttheconstraintsthatfacedthemwhentheyusetheCBTforchemistrycourseexamining.Table(6)showsthefindingsinfrequencies&percentages.



Table(6):LimitationsontheusageCBTinchemistrycourses.Constraint Frequency Percentage ( % ) System Security 5 10.204 Software access 4 8.163 Answers Submitting 13 26.531 Log in Problem 5 10.204 Answers Editing 7 14.286 Do not have any of above problems. 15 30.612 Total 49 100% Table (6), indicates that (30.612%) of students do not have any of above listed issues.(26.531%) of them said they had problems in their answers Submitting. (14.286%) facedproblems in their answers editing. (10.204%) encountered difficulties in system security,followedby(8.163%)hadissueswithloggingontotheirportal.THE2nd.STUDYQUESTION(Q2)Whatarethefactorsthatinfluencestudents’attitudestoassessmentmode?Rankingstudents’attitudes towards theCBT test tounderstand theprime issuesconcerningCBTistheaimofthisquestion.Toanswertheabovequestion,respondentswereaskedwithseveral scales on the administration of computerized test. A five-point Likert-type scale ofagreement running from (1= StronglyDisagree, 2=Disagree, 3=Uncertain, 4=Agree and5=StronglyAgree)wereadoptedasshowninTable(7).

Table(7):Respondents'attitudestowardCBT

Item 1 2 3 4 5 Tota

l Mean CBT was very efficient 4 17 20 78 29 148 3.02 CBT provides me a positive experience 5 12 22 90 27 156 3.18

The CBT causes me a concern 3 24 47 33 32 139 2.83 CBT exam was conducted in a helpful environment for 2 9 7 50 130 198 4.04 Examinees. CBT is better than PPT 10 27 44 9 21 111 2.26 I prefer CBT compared with PPT 11 31 40 18 24 124 2.53 I believe that CBT ensured justice and equity. 13 18 27 30 41 129 2.63 I prefer receiving my exams results automatically utilizing 3 15 14 61 83 174 3.55 the CBT system Resultsintheabovetableshowsthatfromtherespondents’perspective,themostwidespreadstatuswiththeCBTmanagementisthesuccessitmadeintheitem"CBTexamwasconductedinahelpful environment forexaminees"withmeanof (4.04), followedby the item"IpreferreceivingmyexamsresultsautomaticallyutilizingtheCBTsystem"hasbeenspecifiedtobethefollowing utmost important item with Mean (3.55), this means that CBT has attracted themajorityofexaminees’awarenessandseenasapositiveattitude.Asspecifiedbyexaminees,theyadmittedintheitem"CBTprovidesmeapositiveexperience"with mean (3.18).The item "CBT was very efficient" came after with its mean of (3.02).Respondentsdidnotagreeontheitem"CBTisbetterthanPPT"asithastheminimummeanof(2.26).THE3rd.STUDYQUESTION(Q3)WhatistherelationshipbetweenpriorcomputerexperienceandperformanceinCBT?



Toanswertheabovequestion,respondentswereaskediftheyfeelpriorcomputerexperiencehaseffectontheirtestscore.Theresponsewasonafive-pointLikertScale.Theresponsesarepresentedbelowintable(8).Table(8):Respondents’opinionontheimpactofpriorcomputerexperienceonperformance.

My previous 1 2 3 4 5 Total Mean S.D experience in n % n % n % n % n % computer influence s

5

10.204

6 12.245 7 14.286

23 46.938 8

16.327 49(100) 3.199

1.249

on my performance From the above Table above (46.938 %) of students agree that " previous experience incomputerinfluencestheirperformance(testscore)",(16.327%)ofrespondentwerestronglyagree, (14.286%) of respondentswere uncertain, (12.245%) disagreed and only (10.204%)stronglydisagreedwiththisstatement.

CONCLUSIONFromthisstudy,ithasbeenobservedthatstudents'ingeneralarebecomingmoreinterestedintheusenewmethodofassessment,whichistheCBT.Therefore,CBTshouldbeinitiatedinalllevelsofeducationalassessmentinHEIsandschoolsalike.Theresult likewiseshowthat thehelpfulenvironmentprovidedbythesystemandreceivingresultsautomaticallyusingtheCBTsystemisanadvantageofthenewsystem.ItisconcludedthatthereisanurgentneedforbasictrainingontheuseofcomputerbeforeexposuretoCBTmode of assessment to enhance the students' attitude towards computer-based exams, andremovetheconcernstheyhaverelatingtotheirfinalgrades.Regardingthequestionsofchemistryexam,thefindingsofthisstudyrevealedthat,inadequatetesttimeandmistakenquestionswereamongmajorreasonofstudents’failurewithCBTmodeofassessmentduetothenatureofundergraduatechemistrycourses.Itisrecommendedthatthe exam questions should be free of errors and students have enough time to answer theexamination.

STUDYLIMITATIONSThreelimitationshavebeenspecifiedforthisstudy.[1]LackofArabstudiesinthisarea;[2]AllstudentswerealreadyfamiliarwiththePPTformat;theCBTformatwasnewforallmostallstudentsparticularlyinscientificcoursessuchaschemistry.Givingstudentsadequatetraining(demo exam) will push them for more confident, eliminate computer anxiety, and enhanceperformance and attitudes towards the CBT aswell; and [3] the time and sample size. Thisstudy was carried out through summer semester 2016; therefore, the results cannot begeneralized.

FUTURESTUDIESTheresultsofthecurrentstudyaddtotheliteraturebasisconcerningattitudestowardsCBT.Accordingly, it isnecessary to investigate theuseofcomputer-basedclassroomassessments,whichislackingintheexistingliterature.integratedadministrationandtimingeasilytranslatetoaCBTconstruction,asdoesfeedback,analysis,andautomategradingthroughCBT,Duetothe attraction of this choice, it is significant to extend the research on assessment methodimpactofCBTinalleducationalfieldsanddiscusshowvariationinexamformatscaninfluenceonperformanceandenhancetheattitudestowardsCBTbetweenexaminees.



Further studies are also needed regarding practice with CBT. Most of the existing studiescompareassessmentsgivenonCBTandonCBTwithrestrictedattempts.Basedonstudents'ability and the use of technology in their classrooms, this might have been one of the fewopportunities to use a computer for an assessment. A study that allows practice in the CBTformat over time would give some idea about how practice may or may not change thedifferenceinresultsbasedonformat.Along with this direction, future studies that focusing on rising computer and keyboardingskillswouldbeworthy.Finally,additionalresearchisneededwithawiderdomainofstudents'ages,gender,theirlevelsofstudy,andgradelevel.Expandingresearchinsuchvariableswouldallowforfurtherin-depthresearchesinthistrend.References

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Sarwar,H.,Khan,B.,Nnadeem,K.&Aftab,J.(2016).HumanCapital,HRMPracticesandOrganizationalPerformanceinPakistaniConstructionOrganizations:theMediatingRoleofInnovation.ArchivesofBusinessResearch,4(6),72-82.


HumanCapital,HRMPracticesandOrganizationalPerformanceinPakistaniConstructionOrganizations:TheMediatingRoleof

Innovation

HumaSarwarCOMSATSInstituteofInformationTechnology,Islamabad,Pakistan

BilalKhan

COMSATSInstituteofInformationTechnology,Islamabad,Pakistan

KashifNadeemNationalUniversityofModernLanguages,Islamabad,Pakistan

JunaidAftab

COMSATSInstituteofInformationTechnology,Islamabad,Pakistan

AbstractHumancapitalandhumanresourcemanagementpracticesplayavitalrole insuccessofanyorganization.Whenemployeesfeelsatisfywithhumanresourcepolicies of anorganization they give their best to increase the organizationalperformance. Construction industry provides job opportunities to largenumber of people in all over the world.In Pakistan, construction industry ismaking progress with rapid rate. To investigate the importance of humanresources inorganizationalperformance,aresearchwascarriedout tochecktheinfluenceofhumancapitalandhumanresourcemanagementpracticesonorganizational performance with the mediating role of innovation inconstruction industry of Pakistan. The data for this studywas collected fromthe 315 employees from construction companies of Pakistan throughstructured questionnaires using simple random sampling. Data analysistechniquelikestructuralequationmodelingwasappliedusingSPSSAMOS.Thefindings indicated that human capital and human resource managementpractices are positively associated with organizational performance. Also,innovationmediates the relationshipbetween independent variables (humancapital & HRM practices) and organizational performance in constructionindustryofPakistan.

Keywords:Human resourcemanagement,Organizational performance, Innovation,Constructionindustry

INTRODUCTION

In this dynamic and competitive environment, organizations are in need of investing andsupportingtheirhumancapital toremainandsustain incompetitiveadvantage.Now-a-days,organizations are facing aggressive and productive environment. The success of theseorganizationsisheavilydependingontheircapacityandabilitytoadapttheirstructuresableto face the competition and maintain positive relations with their surroundings. This isespecially for the construction organizations where worker’s cost and productivity are themainelementsofgrossprofit.



Buller andMcEvoy (2012) stated that in these days human capital is considered as criticalsuccessfactorsforeveryorganizations’developmentandforrunningsmoothbusiness.HRMisrelatedtothemanagingorganization’sworkersincludestraininganddevelopment,planning,performancemeasurement career development, staffing, compensation and benefits, leavingthe organizations. So,HRM in construction organizations is a complex andmanifold activitythatconcernswiththeapplicationofideas.However,itssignificanceintheconstructionenvironmentisstillundefined.Ontheonehand,many literaturesand studies have identified HRM as amajor factor towards organizationalperformance (Barczak& Wilemon, 1992; Tampoe& Thurloway, 1993). Investmentin HRMimproves the quality of human capital, results the high productivity that in turn highprofitability.ThisstudyaimstoevaluatetheroleofHRMinconstructionorganizationsintheeconomy of Pakistan with the linkage of innovation. The role of human capital onorganizationalperformanceisnotclear.Thus, theeffortsofthestudyareusedto investigatethe impact of human capital of organizational performance with the mediating effect ofinnovation.

OBJECTIVES

1. ToinvestigatetheassociationbetweenHRMpracticesandorganizationalperformance.2. Toidentifythedimensionsofhumancapitalandtheirmagnitudeontheorganizational

performance.3. ToanalyzethemediatingimpactofinnovationonhumancapitalandHRMpracticesto

organizationalperformance.

LITERATUREREVIEWHRMpracticesandorganizationalperformanceIn the competitive and knowledge based economy,HRpracticesaresupposed to be themostimportant resource. Now-a-days, it has become more crucial for organizational success(Moyeen&Huq, 2001; Werther& Davis, 1996).In today’s competitive world, success of theorganizations depends on the techniques management are utilizing thecapabilities,competenciesandskillsoftheirhumanresources(Absar&Mahmood,2011).TheimpactofHRMpracticesonfirmlevelhasbecomeimportantelement.Manystudieshaveanalyzed and expressed a significant association between firm’s performance and HRMpracticeslike factors included in theHRMpractices andperformanceof firms as turnoverofemployees, productivity, quality in sales, earning profits, market value and return oninvestment.(Lau&May,1998;Harel&Tzafrir,1999;Youndtetal.,1996;Khatri,2000).Beeretal.(1984) suggested that thereare somevariables likeemployees’ commitment, competence,cost effectiveness and congruence and cost effectiveness which performed their roles asintermediaryvariables.Thenewdevelopmentofhighinnovation,communication,technologyand information have proposedmany construction organizations to effectively look for newthoughts, ideas for products or services, doing experiments for innovation, and bringingcreativesolutionsforthepurposeofbringingthebettermentintheperformanceorqualityofproducts,services,systems,andtechnologywhichareknownasorganizationalinnovation.HumancapitalattributesandorganizationalperformanceResearchers from different contexts found the significance of human capital for desiredperformance and outcomes like development, job creation, innovation, andeconomicdevelopment (Frese, 2000;Autio, 2005).Human capital attributes, suchas skills ofworkers, training, trust, knowledge, education and have long been taken as critical successfactorsinorganizationalperformance(Florinetal.,2003).Aparticularareaforanalysis,getting



growingattentionnow-a-daysbymanypractitionersandanalysts,istheimportanceofhumancapitalanditsimpactonorganizationalperformance(Moyeen&Huq,2001).IshikawaandRyan(2002) suggested that it is the human capital that can enhance the firm performance.Moreover, academics and researchers observed that attributes of human capital play largerroleinthefirmperformancebyimplementingsomespecificactivitieswhicharerequiredfortheknowledgecreationintheworkingenvironment(Honig,2001;Bosmaetal.,2004).Humancapital,innovationandperformanceToday, competitive environment is getting dynamic, stiff and tougher by local and globalcompetition, limited organizational resources and due to the technological change.So it isnecessary for the organizations to adopt innovative ideas to be in competitive advantage(Holmqvist, 2004). Previous literatures include a limited number of studies examined therelationship between the human capital and performance but not explains the value ofinnovation(Camisón&Villar-López,2014).Innovationisconsideredasamajorfactorforeconomicgrowthindevelopingcountries(Lee&Kang,2007;Robsonetal.,2009;Crespi&Zuniga,2011).Itbecomescriticaltounderstandroleof innovation at the firm level.Many Studies highlighted the importance of human capitalamongother factorsasadriving force for innovation incontextofperformance(Dakhli&DeClercq,2004).Theauthorofthisstudywantstoputsomeeffortsondeterminingtheneedofhumancapital for introducing innovations intheorganizationsbecause ithasbeenobservedthatithelpedincreatingnewknowledge.(Smithetal.,2005).Hence, human capital when adopting the innovative ideas, products and processes is nowbecomingthemainfactorfororganizationalperformanceandproductivity.HypothesesH1:HRMpracticesarepositivelyrelatedtotheorganizationalperformance.H2:Humancapitalispositivelyassociatedwithorganizationalperformance.H3:InnovationmediatestherelationshipofHRMpracticesandorganizationalperformance.H4:InnovationmediatestherelationshipofHumancapitalandorganizationalperformance.

METHODOLOGYThe studywas conducted to explore the relationship among HRM practices, human capital,innovationandorganizationalperformance.Apre-structuredquestionnairewasusedtocollect



datatoanalyzetheassociationamongthesevariables.Thedatacollectedforthisresearchwasbasedonindividuallevel.Concerningthesurvey,aquestionnairewasdevelopedwiththeaimofmeasuringHRMpractices,Humancapital, innovationandorganizationalperformance.It isobservedthatforthedatacollection,surveyisconsideredaneasierapproach(Yu&Egri,2005).Thenumberofquestionnairesdistributedamongtheemployeesofconstructionindustrywere470 of Pakistan using a simple random sampling technique. Out of 470 employees, 315completed questionnaires were returned. For the analysis of data Software like SPSS usingAMOSwasused.

POPULATIONThepopulation forpresent study is the employeesof construction industryofPakistan.Thesampletechniqueforthisstudyissimplerandomsamplingtechnique.ScaleFor human capital, the questionnaire items have three dimensions: training, trust andeducation. These items of the human capitalwere taken fromprevious literature on humancapital (Delaney&Huselid, 1996).HRMpractices consistedof 8 Items adopted fromHuselid(1995), the endogenous construct or dependent variable”organizational performance”consistedof5items.TheseitemsofdependentvariablewereadoptedfromSchulerandJackson(2005). The questionnaire items of “innovation” consisted of 10 items derived from Lin(2001).5 point likert scale has been used for this study to obtain the responses fromparticipantsinallscales.1(StronglyDisagree)to5(StronglyAgree).DescriptiveStatisticsTable 1 shows the gender, age, education distribution of the current study.The total of 315questionnaires wasreceived out of which 200 were males and 115 were females. Thepercentageofmalesof total respondentswas63.5percentwhile the femalepercentagewasonly36.5percent.According to the agedistribution, the respondents ranging from20 to30were75(23.8%),from31to40respondentswere135(42.9%),from41to50theywere70(22.2%)andfrom51to60thetotalrespondentswere35(11.1%).The respondents having education of bachelor were 25 and its percentage was 7.9%. Themasterdegreeholderrespondentswere50.8%whichisthegreaternumberofthisstudy.Therespondents participated in the answering questionnaires having MS/M Phil degrees were38.1%.InthelasttherespondentswhohadPhDdegreeswere10anditspercentagewas3.2oftotalrespondents.

Table1:DemographicInformation(N=315)Variables Frequency Percentage%GenderMale 200 63.5Female 115 36.5EducationLevelBachelors 25 7.9Masters 160 50.8MS/MPHIL 120 38.1PhD 10 3.2AgeGroup 21-30 75 23.8



31-40 135 42.941-50 70 22.251-60 35 11.1

ReliabilityFortestingthereliabilityofquestionnaireforthisstudyCronbach’salphatestwasutilized.Thevalueofcronbach’salpha isgreater than .07which isconsideredas theacceptablevalue forinternalconsistency.

Table2:Cronbach'sAlphaVariables Items Cronbach’sαHRMPractices 8 0.843HumanCapital 5 0.720Innovation 10 0.732OrganizationalPerformance 5 0.854

The cronbach‘s alpha of human capital, HRM practices, innovation and organizationalperformanceis0.720,0.843,0.732and0.854respectively,showedgoodscalereliability.CorrelationsThemeansandstandarddeviationsandcorrelationsofindependent,dependentandmediatingvariables are presented in Table 3. Human capital has significant positive correlation withorganizationalperformance(r=0.693,p<0.01),HRMpractices(r=0.784,p<0.01).Innovationalsohassignificantpositiverelationshipwithorganizationalperformance(r=0.743,p<0.01)which also justifies claim of the study andprovides confidence for testing Hypothesis. It isworth mentioning that the HRM practices and innovation are highly correlated withorganizational performance, whereas Human capital was although positively correlated buthavingweakrelationshipthanHRMpracticesandinnovation.

Table3:CorrelationsVariables Mean STD ORG HRM HC INNOrgPerformance 3.68 0.94 1.000 HRMPractices 3.59 0.65 .784** 1.000 HumanCapital 3.93 0.67 .693* .775** 1.000 Innovation 3.47 0.73 .743** .676** .710** 1.000ORG=organizationalperformance,HRM=HRMpractices,HC=humancapital,INN=innovation

**.Correlationissignificantatthe0.01level(2-tailed).ConfirmatoryFactorAnalysis(CFA)The main aim of current study is to investigate the findings of previousresearchers andsupport our hypothesis. In order to analyze the given hypothesis, CFA and then hypothesistestinghasbeenconducted(Hairetal.,2014).Theinitialvalueofthese28ItemsthroughCFAindicated a poor fit model because these values of factor loading were beyond therecommendedlevels.

Table4:ModelFitnessRatioofCFA CMIN CMIN/DF GFI NFI CFI RMSEA

ModelA 1.782 .732 .764 .768 .068



In the analysis, themodification indices showedways to improve the fit. After deleting theitems and modification indices the CFA expressed that a model is good fit. The values ofCMIN/DF,NFI,IFI,TLI,CFIandRMSEAalsoimprovedthatshowedistable5.

Table5:OverallMeasurementModelFitIndices Initial FinalCMIN/DF 1.782 2.032CMIN 789.04 149.582IFI .779 .928GFI .732 .918CFINFI

.768

.764.932.932

RMSEA .068 .048Theχ2valueis2.032whichareconsideredasthereasonablevalueformodelfitandbelowthecutoffvalueof5.0.RMSEA’svalueintheabovetableshowsthatitis0.048whichisbelowfrom0.05.Furthermore,CFAalsopresentedthatthemodel isgoodfitted.Findingsconfirmedthatthemodelisgoodwiththestandardsofthestatisticallyfitnessofmodel.StructuralequationmodelingFigure2representsthathypothesisweretestedthroughSEM.Fromtheanalysisofthedata,itwas found that HRM practices (β= 0.618, p <0.01) was positively related to organizationalperformance. So results expressed that there is significant positive linkage among theperformance of the organizations and practices of HRM. Thus, H1 was supported. Humancapital(β=0.214,p<0.01)wasalsopositivelyassociatedwithorganizationalperformance.So,thecurrentstudysupportsthehypothesis2.Next,theauthoranalyzedtheroleofinnovationasamediatingeffectwiththerestofvariableswhichareunderstudyinthisresearch.InthisstudybootstrappingtechniquewasusedfortestingthemediatingimpactofinnovationontheHRMpractices,humancapitalandontheperformanceoforganizationandtheresultsalsoindicatedthat innovation mediates the connection among the performance of the organization andpracticesofHRM.HRMpracticeseffectorganizationalperformancesignificantlybothdirectly(β=0.61,p<0.01)andindirectly(β=0.49,p<0.01)and(β=0.38,p<0.01).Itpredictedthepartial mediation of innovationwith HRM practices and organizational performance. In thefinal hypothesis 4,we predicted that innovation (themediating variable) partiallymediatedtheassociationbetweenhumancapitalandorganizationalperformance.Humancapitaleffectsorganizationalperformancesignificantlybothdirectly(β=.21,p-value<0.01)andindirectly(β= .13, p-value < 0.01) and (β= 0.38, p < 0.01)., So it is proved that H3 is also accepted andpartialmediation is foundbetweenthese twovariables.Hence,currentstudysupports thesehypothesis and partial mediation of innovation was found between the independent anddependentvariables.



Table6:DecisionofHypothesesHypothesis Independent

VariableMediatingVariable

DependentVariable

RegressionCoefficient

Decision

H1 HRMPractices

- OrganizationalPerformance

0.618 Accepted

H2 HumanCapital

- OrganizationalPerformance

0.214 Accepted

H3 HRMPractices

Innovation OrganizationalPerformance

0.6180.497

Accepted

H4 HumanCapital

Innovation OrganizationalPerformance

0.2140.138

Accepted

DISCUSSION

Intoday’sdynamicenvironment,humancapitalandHRMpracticesbothareveryvitalforthesuccessofeveryorganization.Humancapitalhastheabilitytobringinnovationandrenewalofstrategies in the organization. The skills, knowledge and competencies possessed by theemployeeshelptheorganizationsincreatinginnovativegoodsandservicesduetowhichthecompleteproductivityandperformanceoftheorganizationisenhanced.The findings of this research present that there is positive relationship between the humancapital and Organizational performance. There has also been found positive and significantrelationshipbetweentheHRMpracticesandperformance.These findings are in agreement with the other researcher results like (Youndtet al., 1996;Carmeli&Tishler,2004;Hsu,2008;Colombo&Grilli,2009;Marimuthuetal.,2009;Choudhury,2010).Theresultsofthisresearchisalsoconsistentwitharesearchinwhichthefindingswerefound that having the capability of human capital the organization is able to createentrepreneurshipbehaviorandimprovetheorganizationalperformance(Barney,2001).The findings of this research also similarwith the results of another research, inwhich theauthorspresentedthatwithhumancapitaltheemployeescanobtaintheskillsofentrepreneurlike expertise in managing resources strategically, develop creativity and agility (Alvarez &Barney,2002).Theseresultsarealsoinconsistentwithanotherresearchinwhichthefindings



are that there is positive relationship between human capital indicators and organizationalperformance(Seleim,Ashour&Bontis,2007;Maditinosetal.,2011).

CONCLUSIONThemainaimofthisstudywastoinvestigatetherelationshipbetweenthehumancapital,HRMpracticesandorganizationalperformanceandalsotoanalyzethemediatingroleofinnovationin their relationship in the construction industry in Pakistan. Both human capital and HRMpracticesarethesuccessfactorsforbringingincrementintheperformanceoftheorganization.The findings of the research presented that human capital, HRM practices, innovation andorganizational performances are positively connected with each other. The organizationalperformance can be enhanced with creating an environment in the organization in whichhuman capital of employees is improved and HRM practices are well implemented inconstruction organizations in Pakistan. The proposed structuralmodel expressed that therewill be improvement in the performance of the overall organization by implementing goodtraining programs, effective performance appraisal system and with effective and efficientcompensationsystemandwithhumancapital.Thequestionnairessent to theemployeesof theconstructionsectororganizationswere470outofwhich300questionnaireswerereturned.Themediumofsendingquestionnaireswereemails.Theemailsaddressesweretakenfromthemanagementafterintroducingthepurposeof the study and the importance of the research for the construction organizations. Theresponserateofthestudywas63percentwhichisconsideredasreasonable.The construction organizations need to be effective and efficient in implementation ofdeveloping human capital and applying best policies of HRM practices in order to gainmaximumbenefitsandincreasetheperformanceoftheorganization.

RECOMMENDATIONSThe main contributions of this study to the construction organizations are that themanagement should critically think about HRM practices and they should develop theiremployees by transferring the skills of entrepreneurship, knowledge and competencies inordertomakethemcreativeandinnovative.Thesecreativeandinnovativeideaswillimprovetheperformanceoftheorganizationsandultimatelytheorganizationswillgainhighersuccessrates.Thereweremanydifficultiesandobstaclesduetothepreviousworkdoneonthistopicandthehesitanceoftheemployeesintheseconstructionorganizationstofillthequestionnaires.Therewasalsolackofresearchcultureintheacademics.

1. Thefirstlimitationofthestudywasthatthesampleusedinthisresearchwastoosmall,it is suggested that in the future there should be large sample size taken to conductresearchonthistopic.

2. Anotherlimitationisthatthenumberoffemalesworkinginconstructionorganizationsis also so short due towhich it becomes very hard to generalize the findings of thisresearch.

3. ThethirdlimitationisthatthefactorstakeninHRMpracticesareonlythree,therefore,thefutureresearchshouldbebasedonsomenewvariablestooinordertobroadertheconcept.



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Sichari,M.(2016).Matter’sInfluenceChild’sontheSpeechDevelopmentinKenya.ArchivesofBusinessResearch,4(6),83-91.


Matter’sInfluenceChild’sOntheSpeechDevelopmentinKenya

MansonSichariRongoUniversity

Abstract

Mothershavekeyrolesintheirchildren’sspeechdevelopment.Siblingachildtrue love isanessentialstep inspeechdevelopment.Simplytalkingtoachildand getting a conversation going bymeans of emotional expression, gesturesand sounds equally importantwhile doing this, it is necessarily to follow thechild’s lead signs, expressions, gestures, emotions, praising and appreciatingwhat the child’smanages todoandhelpinghimorher to focusonhisorherattention, thus sharing the child’s experiences. Mothers therefore, play a bigroleinhelpingtheirchildrentolearnrules,limitsvaluesandmoreimportantlydeveloptheirspeechinanaturalmanner.

Keywords:speech,child,mother,vocalization,languagedevelopment,expression

SPEECHDEVELOPMENT

Languageandcommunicationskillsarecriticaltoachild’sdevelopment.Goodcommunicationmakes thembetter able to engage in socialization and to learn from their environment andfromformalclassroominstruction.Whenwetalkaboutcommunicationwearetalkingaboutboth speeches which are the verbal means of communication and language which is usingsharedrulestoputwordstogethertoexpressthoughtsandfeelingsaswellastounderstandthemeaningof languagethroughbothspokenandwrittencommunication.Sinceparentsarechild’sfirstteacher,knowledgeoflanguagedevelopmentinchildrenimprovestheirabilitytointeract with their child to stimulate and guide them in their ability to understand andcommunicatewiththeirenvironment.Frombirthon,childrenareprogramedtodevelopspeechandlanguage.Thefirstfiveyearsaremost critical but language development continues throughout early childhood and on intoadolescence.During the first fiveyears stimulationof languagedevelopment is importantasthebrain isbothdevelopingnewnerve cells aswell asmultiple connectionsbetweennervecells to serve the function of language both expressive and receptive. Lack of stimulationduring this time could result in a child making slower progress or end up with poorcommunicationskills.Later,weprovidesometips forparentsonhowtohelpwith languagedevelopmentbutthebasicsuggestionsaretospendlotsoftimetalking,singingandreadingtoyourchild.Inearlystagesoflanguagedevelopment,thebrainisprogrammedtoattendtospeechsoundsand begin tomimic them. Early on babies like tomake sounds up on their own. Later theyattempttorepeatsounds/wordsthattheyareexposedtofromtheirenvironments.Children usually say their first words between nine and 18 months old. The first commonwords are either “mama” or “dada”.What’s kind of interesting is nomatter what languagechildrenareraisedin,thefirstwordsusuallyreferenceeithermotherorfarther.Bytheageof18monthsachildusuallyhasavocabularyof50to150words.



Bytwotheycanprobablyuseover300wordsandunderstandabout1,000words.Byabout18monthschildrenbegintoputacouplewordstogethertoformasentencesometimesreferredtoas“telegraphicspeech”suchas“mommyball”or“mommythrowball”.Aroundthreeyearsofage,childrenbegintouselanguageforallkindsofthings.Theyarenotonlytryingtogetthingsbyaskingtheyaretalkingaboutpastexperienceandevenbeginningtouse It to pretend.Bypreschool (4½) they are beginning to understand anduse the rules oflanguagetoexpresspossessionofsomething,connectthoughtsandqualify.Therelanguageisbecomingmorelikethatofadults.In elementary school children continue to expand their use of oral language but are alsolearningtoreadandwrite.Aschildrenprogressthroughmiddleschoolandhighschool theycontinue toexpand theirvocabularyand refining their grammatical skills andwrite inmorecomplexitiesaswellascontinuetopdevelopreadingcomprehensionskills.The tablebelowdescribes specific skill development for each stageof development throughage8.Belowthedevelopmenttimelineyouwillfindinformationonhowyoucanstimulateandencourage language development as well as information on how to recognize laggingdevelopmentandwhattodoaboutit.

ATTACHMENTANDATTUNEMENT.Achild’sjourneyoflanguagebeforebirth,asbabiesinthewombhearclearlyenoughthelastfewmonthsofpregnancytodistinguishtheirmother’svoice.Fromthesixmonthsofgestationbabiesbecomesensitive to theparticularqualitiesof theirmother’svoiceand therhythmofnativelanguage.AstudyfromGermanyrecordedandanalyzedthecriesof60healthybabiesatthreetofivedaysofage,recruitedhalfandhalffromFrench–speakingandGermany-speakingfamilies.Analysisrevealscleardifferencesintheshapeandtoneofthebabies’crymelodies.Asthe baby and the mother mutually seek communication, through the process describe theTrevarthan as ‘intersubjectivity’, the beginnings of the attachment behavior are laid down.Bowlby’s influential that attachment is a biological instinct involving the development of astrongnurturingbondbetweenmotherandbabyformedduringearly infancy.Hecontendedthatthewayinwhichinteractiontakesplaceshapesthenatureoftheattachmentandthattheinternalizationof these early interactionsprovides aprototype for later relationships.Otherhaveconsideredthepossibilityofotherattachmentsfiguresinachildlifeandemphasizedthedynamicnatureofattachmentsecurity.Areviewof theclinicalapplicationsofattachmenttheorydescribesthemajorbiobehavioralshifts that normally occur during the first two years. In the first twomonths the baby haslimitedabilitytodiscriminatebetweencaregiversthoughrecolonizesthemothers’smellandsound.Ashiftbetweentwoandthreemonthsoccurswith theemergenceof increasedsocialinteractionincludingmoreeyecontact,socialsmilingandresponsivecooling.Gradually,duringtheperiod2-7months,thebabybecomesmoreabletodiscriminatebetweencaregiversand,while intensely motivated to engage with them, generally doesn’t have strong preferencesbetweenknowncareersandunknownothers.Afurthershiftoccursaround7-9monthswiththeemergenceofseparation.Betweenexploringandseekingcomfortandsecurity.A furthershift occurs as 18-20 months with the emergence of pretend play language as symbolicrepresentation. From thenuntil the ageof three, children increasinglyhavepreferences andtheirowngoals thatcanconflictwiththoseofothersrequiringcompromiseandnegotiation.The reciprocal process of turn taking is necessary conditionof communicationdevelopmentand, in particular language. Sterm describes parent-child communication as a synchronous‘dance’ comprising periods of attunement (e.g. Eye contact, smiles) followed by periods of



disruption(e.g.turningaway,withdrawal).The‘comingbacktogether’followingperiodswhicharenotfocusedorattuned,issignificantforthedevelopmentofsecureattachmentrelationship(Karmiloff,2001)Murray and Cooper’s research review suggests that when a mother’s capacity of attunereduced and periods of disruption increase, for example, and can occur during postnataldepression,thisislinkedwitharangeofadversesocialandemotionaloutcomes.

CONTINGENCYANDCOMMUNICATIONYoung children naturally reach out for interaction through babbling, facial expressions, andgestures. Adults respond with the same kind of vocalizing and gesture back, frequentlyrepeatingandextendingthebaby’scommunicationthroughcommentingonthebabies’actionsand vocalizations. This back-and-forth process, or ‘serve and return’ interaction, betweenchildren significant adults in their lives serves to shape the architectureof thedevelopmentbrainofababy. It isknownascontingency.Contingency is theextendtowhichthe intendedrecipient is fully sensitive and responsive towards receiving a form of communication fromanother person. In a baby-mother communication thismeans the extend towhich they areengagedinreciprocalactivity.ResearchindicatestheimportanceofcontingencyNCTresearchoverview.Parent-childcommunicationisimportantfrombirthresearch.Dry Cathy Hammer, policy and community’s manage, National Literacy Trust. Research 15NTC’s research overview series provides an evidence base to guide the practice ofNTC andother transition to parenthood workers on topics of relevance during pregnancy, birth,parenthoodandthecareofbabiesandtoddlersaged0-2years.Workersmustdecidehowtoapply the evidence in their practice but they can feel confident that the research overviewprovides an up-to date, balanced and reliable summary and interpretation of the relevantresearchliterature.

EVIDENCEFROMDETAILEDOBSERVATIONALSTUDIES.Observationalandexperimentalresearchwithmothersandbabieshasshowntheimportanceofmutualengagementandresponsiveness.Forexample, inanAmericanstudyof62mother-child dyads in which the families were white, the mother had completed high school andchildrenweredevelopingnormally,Donovanetalobservedandanalyzedtheirbehaviorandinteraction at intervals, from six to 24 months. A number of tests and observations werecarried out: the mother’s ‘sensory sensitivity’ (responsiveness to signals of emotion) wasassessed.Themother’sandthechild’sbehaviorandtheiremotionalresponses toeachotherwereobservedduringfree-playsessionsand,at12months,thechild’sattachmentstatuswereassessedusing standardized strange situationprocedure. This procedure involves observingthe child’s behavior in a controlled setting while a/ sequence of planned and timed eventsoccur involving themother leaving her baby in a roomwith an unknown person, and thenreturning after the separation. The findings showed that early maternal behavior waspredictive of latermaternal behavior. Sensory sensitivity topositivebaby expressions at sixmonthspredictedthemother’sbehaviorat24months,andsensorysensitivitytobothpositiveandnegativeexpressionswereassociatedwiththelateremotionalresponsesofthemothertoherbaby.Thenatureofthebaby’sattachmentpredictedhisorhertemperamentandbehaviorasatoddler,andinteractionwiththemotherat24months(Ainsworth,1976).Thisstudybothinformsourunderstandingofearlymaternalresponsivenessanddemonstratestheimportanceofthequalityofthemother-babyrelationshipinshapinglatertoddlerbehavior.Otherstudieshave shownhowhigh levels of contingent responseby adults to a child (consistentpositiveresponses to the child’s action), helps babies gain an understanding of the rules ofconversation and a sense of self during the first year of life. Games such as ‘peek-a-boo’



promotethelearningof ‘myturn,yourturn,’12bytheageof12monthsbabiesaretypicallyabletoengagewithadultsintermsofshowingthemobjectives(Trevarthan,1980)Investmentinengagementhasbeenfoundtohaveapositiveoutcomesforchildren’slanguage.Join-attentionbetweenchildandparentat14-15monthswasfoundtoCarpenteretall’sstudyof24mother-childdyads, frommiddleclassAmerican families, toresult inquicker languageacquisition. Also, time spent in amother-child joint attentionwhen the childwas under 18monthswasfoundtopredictsubsequentvocabularygrowth.Parentswhofrequentlyproducecontingentrepliestotheirbaby’searlyverbalizationshavechildrenwhoselanguagestructuredevelopsmorequickly.Thusitisevidentthatbyrespondingtotheirbaby’slead,anddoingsoin a positive and generally consistent way, mother promote their child’s language skills,(Zeanah,2011)

THEDEVEOPLMENTOFCOMMUNICATIONANDLANGUAGEAchild’s languagedevelopmentisverymuchanactiveandinteractiveprocess,ratherthanapassive one, this has been demonstrated by the theories and research evidence discussedalready relating to attachment and attunement, communication and contingency. Go Nickcolleaguessuggestthatthebraincanbethoughtofasa‘socialbrain’,onewhichisdevelopedthrough social interaction, particularly the relationship between mother and child in “howbabies think”, they present a synopsis of findings indicating that from birth babies candiscriminate human faces and voices from other sensory stimuli and prefer them to otherstimuli. Within a few days of birth babies are discriminating familiar people, such as theirmother, fromothers.Thesekindsof abilities, andhavingopportunities todevelop them, areconsidered as importantpart of babies’ neurological development, referred to sometimes as‘buildingbabies’brainsRecognizing.

PROBLEMSOFCHILDREN’SSPEECHDEVELOPMENTThefollowingcouldhelpthemotherindiagnosingchildren’sspeechdevelopmentalchallenges

• Lackforpooreyecontactandlackofattentionandfocus.• Listentohowtheypronouncewords.Aretheyhardtounderstand?• Cantheyunderstandsimpledirections?• Are they having trouble with basic social skills? Does your child not seem to be

interestedinhavingyoureadtothem?• Dotheyrepeatwhatyousayorsaythesamethingoverandover.• Dotheylackempathyforthefeelingsofothers?• Dotheyavoidconversations?• Aretheyonlyinterestedintalkingorreadingaboutonesubject?• Isyourpreschoolernotengaginginfantasyplay?Dotheylacksenseofhumor?

Gerhardt makes a strong case for the influence of social and emotional interaction. Shecontendsthat‘beinglovinglyheldisthegreatestspurdevelopment,moresoeventhanbreast-feeding’.Asthebabydevelops,parentsadaptstheirrhythm,temposandintensitytothebaby’slevel,withtheparent’sactivitygivesmeaningandsignificancetothebaby’sactivitythroughareciprocal process of comment, evaluation and reflection back. Thus, the child develops itssense of self. Children begin to acquire language as they construct representations of thesounds theyhear.These representationsgraduallyacquire the characteristicsof theirnativelanguage. By threemonths cooling usually starts and a babywho vocalizes, and then gets aresponse, will increase the vocalization showing attunement and response to the mother’svoice.Afewmonths later,babbling(repeatingthesoundoverandover)beginstoemerge inbabies’behavior,particularlywhentheyarealone(Murray,1997)



Children generally use gesture to communicate before they use words, typically starting toprocedurethefirstgestures,such,as,reaching,clappingandwaving‘bye’betweennineand12monthsofage.Thegesturestheyproducearepredictiveoftheearlystagesofspokenlanguagedevelopment.Themore the childgestures, theearlier theyare likely touse language.By12monthsbabiesaretypicallyabletobabblestringsofsoundsandfirstwords,suchas ‘ma-ma,‘da-da’, emerge. Actions, such as gazing and pointing, are starting to become atched andreferenced to the actions of those around them and children typically move on to point toobjects,toengagewithadults,followingtheirleadandinitiatingsharedattention.Aschildrenstarttolinktwowordtogether,gesturecontinuestoprecedeandtopredictpositivelanguageoutcomes. Interestingly, early gesture has been found to selectively predict later languagelearning. Rowe and Golden-Meadow’s longitudinal observational study of 52 childreninteracting with their caregivers at home found that the number of different meaningsconveyed in gesture at 18months (such, as point at dog, flapping arms to represent flying,shaking thehead for ‘no’)was a strong, positivepredictor of scores on thePeabodyPictureVocabularyTestat42months. Inaddition, thenumberofgestureplusspeechcombinations,particularlythoseconveyingsentences like ideas,producedat18monthspredictedsentencecomplexityat42months(Bowlby,1988)Aslanguagedevelopsyoungchildrenmapwordsontoexistingconcepts.Thisenablesthemtoorganizelanguageandknowledgeaboutfamiliarobjectsandevents.Throughlexicallyrichandnaturallyoccurringconversations,children’slanguageskillsdevelop.Increasingly,thebodyofevidenceshowsthatlanguageismosteffectivelylearnedwhenmotherstuneintotheirbabiesin a responsive and sensitivemanner. In all languages,motherutilize a styleof speechwithbabies known as infants-directed speech, ormothers (‘baby talk’) characterized by a higherpitchedintonation,shortenedorsimplifiedvocabulary,shortenedsentencesandexaggeratedvocalizationsor expressions.Asbabies’ communicative abilitiesdevelop, the complexity andamount of their mothers’ speech increases, so extending the child’s communication(Thompson,2000)During the early months of language development, before 19 months of age, more rapidlanguagedevelopmenthasbeenobserved in childrenwhere themother follows, rather thanattempts to redirect the focus of the child’s attention.Building on studies carried out in the1980s and 1990s, more recent longitudinal studies have provided further evidence of thisMarkus,forexample,followed21babiesandtheirparentsandfoundthatlanguageatage18months,andimprovedscoresinstandardizedlanguageassessmentsat21and24months,wasrelatedtoobservedearlierdifferencesinthefrequency,responsivenessanddurationofinfant-mothersjointattentionepisodes.

THEEMERGINGPICTUREItisbecomingincreasinglyclearthatthemorebabiesexperiencesharedtalkandactivity,themoreeffectivetheybecomeascommunicators.Thishasbeenunderstoodbypractitionerswhoworkwithparentsandyoungchildrenforsometimeandnowresearchisabletodemonstratethis,allowingtheprocesstobeunderstoodandtheimpactofdifferentkindsofinteractiontobe quantified. A large scale American study of 275 families of children aged 2-48 monthsrecorded continuous periods of languagewhichwere then coded for analysis. The analysespresentedmakeastrongcase for the importance ofmother-childconversational turns thatchildrenhadwithadultmotherswasrobustlyandpositivelyassociatedwithscoresonthepreschool language scale indicating healthy language development.(stern,1985). Motherswith children of all ages can enhance their children’s language by talking aboutinteresting events daily and encouraging children to do the same. An elaborativestyle(including varying intonation, information about causes and effects, people’s



motivationsdescriptionsofobjectsandactions)isimportantforlanguagedevelopmentandforenhancingchildren’sunderstandingofemotionandmind.Boththeamountandtypeoftalkareimportant.Inparticular,reminiscingabouteventsisaparticularlyeffectivewayofhelpingyoungchildrenunderstand,anduse,words.Thisinvolvesacontextthatispersonallymeaningful,elaborationbythemother,theuseofquestionsandexplanations.Fourparticularaspectsofaneffectivereminiscingstylethatcanbeemployedbythemotherinclude;

• Who–questions(who,what,where,)• Associations(linkingtheeventtothechild’spriorknowledge)• Follow-ins(encouragingaspectsoftheconversationhatthechildisinterestedin)• Evaluation(praise)

Aboutalebi et al (2014) carried out a study in Iran to evaluate the effect of a formalintervention to encourage conscious use of this approach. The intervention, designed formothers of pre-school children, involved40mothers and their children aged44-64months.Theprocedureinvolvedfourstages:children’slanguagepretestsusingtheWechslerpreschooland primary scale of intelligence –revised, maternal training using a video describing theelaborative conversational style and eventmemory pretests for children, mother-child playinvolving a camping activity and subsequent event memory assessments following delayintervalsofonedayandthreeweeks.Comparedwithacontrolgroupofuntrainedmothers,thetrained mothers used more who-questions and positive evaluations but there were nodifferencesinfollow-ins.Mothers can further contribute to their children’s speech development in the followingadditionalways:Earlyyears

• Verballyrespondingtothebaby’svocalizations• Talking to the baby around six months used shared attention and sign language

(gesture). Point and name things that they see. Uses exaggerated voice when youdescribethings.Usefeelingwords.

• Singingtothechildfromchildhooduntilyettheyaskyoutostop.• Haveolderchildrenmakeupsongs.• Usesongstocommunicatethingsliketimetogotobed,timetocleanupetc.• Makingofsongsthataresillyorthatcommunicateaffirmationsrelatedtotheirpositive

qualities.Oldertoddlerandpreschooler

• Initiatingconversationswiththechildrelatedtorecentevents,whattheyaredoing.• Making up stories along with the child. Each contributes. This not only stimulates

languagebutthinking,creatingandasenseofhumor.• Graduallyincreasingthecomplexityofgrammarandvocabularyusedtocommunicate.• Providing childrenwithexpanded informationaboutevents, things they seeandhow

theyfee.• Reading interactively to engage their participation. Asking question, using dramatic

inflections, letting them guess what will happen next, pointing to pictures anddescribingthem,askingchildrenduetodothesame.



SchoolAgeandBeyond• Keepingtheconversationgoing.• Havingfamilymeetings.• Havingdinnertogetheratthetableandencouragingconversations.Youcanuse“thorns

&roses”byeachfamilymembersharingonethingthatwentwrongandonethingthatwentwellduringtheday.

• AfterseeingamovieorTVshowtalkaboutwhathappened?• Encouragereading.Whentheyfinishabookgettheirthoughtsandfeelings.

Chattingwithchildren.Chattingwithchildren isagreatway togive them lotsofexamplesofhowweusewords toshareideasandgetinformation.Thewordsmothersandotheradultsspeaktochildrenmakeup the language “input” that children need to learn new words and ideas. The more inputmothers give children, the more opportunities children have to learn how to expressthemselvesandunderstandwhatothersaresaying.Research shows that more the words the mother speaks to children, the larger children’svocabulary. When mothers promote back-and-forth conversations with children, childrenshowgreatercomplexityintheirspeech.Mothersshouldtalkthroughorcommentonroutines(e.g. when washing hands, “we are washing hands. We are making lots of bubbles”). Theyshouldcommentonchildren’sactionsorobjectsandevents.(e.g.“Billyisdrawingwitharedcrayon”). They should also respond to infants’ nonverbal communicationwithwords (e.g. “Isee you reaching for the blocks. Would you like to play with the blocks?”). Additionally,mothers should ask questions and pause for answers, provide the answers for preverbalchildrenandexpandonchildren’swords(e.g.“Iheardyousay,‘cheese’.Wouldyouliketoeatmorecheese?”)(Mampe,2009)CommentingonactionsandeventsCommentingonactionsoreventsforchildrenisagreatwaytogivechildrenexamplesofhowto use speech in everyday routines and activities. Commenting involves themother talkingaboutwhatsheisdoing,seeing,orthinkingaboutinthepresenceofthechild.Themothermayalso describe what children are doing or seeing. This kind of talk provides children withexamplesofthekindoflanguagethattheyusedineverydayactivities.Commentingonactionsoreventsmayalsohelpthechildrenlearnandunderstandwhichwordsgowithwhichactions.Researchers’ shows that themore themothers speak to children, the better language skillschildrendevelop.Mothersshouldthereforegivedetaileddescriptionsofwhatyouorthechildis seeingordoing, commentondaily routines likehandwashing, eating, ordiaper changingandmodellanguageforchildrenbycommentingonobjectsorevents.Varyingtheuseofspeech.Talking to children is one of the most important ways of adults can help them learn tocommunicateanddevelopstronglanguageskills,bytalkingwiththem,adultsprovidechildrenwithlanguage“input”thatchildrencanthenuseasmodelsforhowtotalk.Themoretypesoflanguageinputthatchildrenreceive,themoretheirlanguageskillscandevelopandgrowovertime.Whenadults“mix itup”byusing lotsofdifferenttypesofwordsandgrammar intheirspeechtochildren,childrenbenefitbylearningtousemorecomplexandvariedlanguage.Researchshowsthatrepeatedandvariedexposuretounfamiliarwords,alongwithmeaningfulcontexts.(E.g.pictures,verbalexplanations)helpschildrenlearnnewwords.Duringplaytimeormealtimes, themothermay introducenewvocabularybyusingrareoruncommonwords



(e.g. “I have a big appetite. I am eating a lot of food today!”). She can also give verbalexplanationsfortheunfamiliarwords.LabelingLabeling anobject or activity is onewayof helping children learn thenamesof objects andactionsintheirworld.Whenchildrenhearadultsuselabelforobjectsoractions,theyhaveanopportunitytolearnabouthowwordsareusedandmaybemorelikelytousethesamewordswhentryingtocommunicatewithothers.Motherscanhelpchildrenlearnthenamesofobjectsor activities by focusing ononeobject or activity at a time.Research showswhen amotherlabels or comments on an object uponwhich a child is focused, or focused together on oneobject,andthemothersaysthenameoftheobject,childrenaremorelikelytolearnthewordforthatobject(Stern,1985)TuningInChildrenarealwayscuriousabouttheworldaroundthem.Motherscanmakethemostofthisnaturalcuriositybyengagingchildreninconversationsabouttheobjectsoractivitiesthathavecapturedtheirattention.Bytuninginandtalkingtochildrenaboutwhateverisholdingtheirattention, mothers have an opportunity to support children’s speech and languagedevelopmentbyrespondingtotheirinterests.Research shows that children whosemothers talk about what the child is focused on havemore advanced vocabularies than children whose mothers try to redirect their attention.Noticeonwhatthechildisfocusedandaskopen-endedquestionslike“what…?”,“why….?”And“How…?” then pause for a response. Provide the answers for preverbal children. Provideinformationabout theobjectoractivity thechild is focusedonbycommentingordescribingtheobjectoractivity.ReadingwiththechildSharingpicturestorybookswithchildren isonewaytohelp themlearnnewwords.Someofthese bookswill become favorites that childrenwill ask for again and again.Re-reading thesamebookmultipletimeshelpschildrentolearnnewwords.Whenamotherreadsastorytoachildforthefirsttime,childrenarefacedwithmanytasksthatmaymakepayingattentiontonewwordsdifficult.Theyneedtofocusontheplot,setting,charactersandsoforth.Thesecondtimeachildhearsastorytheyaremorefamiliarwithatandcanbegintopredictwhatwasgoingtohappen.Afterhearingastorymanytimes,childrencanpaylessattentiontotheotherpartsofthestoryandcanfocustheirattentionontheotherdetails,likelearningnewwords.Research shows that themore often adults read to children, the better children’s languageskills.Oneencounterwithanewwordisnotenoughtosupportlearning;childrenoftenneedtohearwordsmanytimesbeforelearningthem.Recognizingproblemsinchildren’sspeechdevelopment.The following could help the mother in diagnosing children’s speech developmentalchallenges:

• Lookforpooreyecontactandlackofattentionandfocus• Listentohowtheypronounce.Aretheyhardtounderstand?• Cantheyunderstandsimpledirections?• Aretheyhavingtroublewithbasicsocialskills?• Doesyourchildnotseemtobeinterestedinhavingyoureadtothem?



• Dotheyrepeatwhatyousayorsaythesamethingoverandover?• Dotheylackempathyforthefeelingsofothers?• Dotheyavoidconversations?• Aretheyonlyinterestedintalkingorreadingaboutonesubject?• Isyourpreschoolernotengaginginfantasyplay?Dotheylackasenseofhumor?

CONCLUSION

Evidenceisnowestablishedandgrowingeveryyeartoshowthatmotherswhoareattunedtotheir baby promote their attachment and communications skills. The home learningenvironment, and in particular the communication environment, for babies and toddlersduring the first 24 months influences their language acquisition and their performances atschool entry. This in turn is later associated with their educational attainment. Thecommunicationenvironment is influencedwithby thesocial-economiccontextof the family,with children in more disadvantaged families having fewer opportunities for languagedevelopment.Researchshowsthatwhatparentsdowiththeirchildrenbeforetheyarethreeyearsoldplays an importantpart in theirdevelopment, havingmoreof an effect, even thansocial background, on child’s readiness for school. It is important that practitioners andparentsareawareoftheimpactofparent-childcommunicationandinparticulartheinfluenceofthehomelearningandcommunicationenvironmentintheearlyyears.ReferencesKarmiloffK,Karmiloff-SmithA(2001)pathwaystolanguage:fromfetustoadolescentNewYorkHavardUniversityPress;

MampeB,FriedericiAD,ChristopherA,etal.(2009)Newborns’crymelodyisshapedbytheirnativelagunage.CurrentBiology,19(23):1994-7.

TrevarthanC.(1980)thefoundationsofintersubjectivity:thedevelopmentofinterpersonalandcooperativeunderstandingininfants.In:OslonDR,editor.Thesocialfoundationsoflanguageandthought:essaysinhonourofJ.S.Bruner.NewYork:W.WNorton.

BowlbyJ.A(1988)securebase.NewYork:BasicBooks

AinsworthMD,BleharMC,WatersEetal(1978)PatternsOfattachment:aPsychologicalstudyofthestrangesituation.Hillsdale,NJ:LawrenceErlbaum;1978.

ThompsonRA(2000).Thelegacyofearlyattachments.ChildDev;71(1):145-52.

ZeanahCH,BerlinLJ,BorisNW(2011).PractitionerReview:Clinicalapplicationsofattachmenttheoryandresearchforinfantsandyoungchildren.JChildPsycholPsychiatry,52(8):819-33.

SternDN(1985).Theinterpersonalworldoftheinfant:aviewfrompsychoanalysisanddevelopmentalpsychology.NewYork:BasicBooks.

MurrayL,CooperPJ(1997).Postpartumdepressionandchilddevelopment.PsycholMed1997;27(2):253-60.

Aboutalebietal(2014).Talkingtoababy.NY:CooperPublishers.


Kohli,R.K.(2016).TheUndergraduateCollegeEducationinUSA:SchoolswithBestandWorstROI.ArchivesofBusinessResearch,4(6),92-100.


TheUndergraduateCollegeEducationinUSA:SchoolswithBestandWorstROI

RajK.Kohli

ProfessorofFinanceJuddLeightonSchoolofBusinessandEconomics

IndianaUniversitySouthBend

AbstractThisstudyexaminedtheROI, total4-yeareducationcost,graduationrateandaverageloanamountforundergraduateeducationacrossschoolsinUSA. Theresults indicate that students from Southwest region of USA enjoyed highestmean ROI (6.69%) along with highest median ROI (6.50%) with minimumstandard deviation of 2.03% among all five regional analyzed over 20-yeasrperiod.YaleUniversityreportsthehighestgraduationrateof98percentinthenation.GeorgiaInstituteofTechnology(In-state)enjoyedhighestROIof12.30percentover20-yearsperiodofstudy.Keywords:CollegeROICostGraduationUndergraduate

BREIFLITERATUREREVIEW

Thecostofanundergraduatecollegeeducationhasbeenrisingeachyear.ThebasiceconomicquestionisthetimerequiredtopaybackeducationaldebtafterenteringtheworkforceinUSA.Allie Bidwell (February 2015) writes “It's a strange paradox. At a time when Americansoverwhelmingly say it's important to receivea collegeeducation, their faith in theeconomicvalueoftheinvestmentisslipping,newresearchshows.Asurveyofmorethan2,000adults–900 ofwhomwere college graduates – released Tuesday by education technology companyGreenwoodHall, showsmore thanhalf of graduates say those leaving collegewith a degreenowwill see a lower return on their education investment than those 10 to 15 years ago.Simplyput,whilethecostofcollegecontinuestoriseandtheeconomyisslowlycomingoutoftheGreatRecession,today'sgraduatesmightnotgetasmuchbangfortheirbuck.”Students may have piled a huge education debt loan upon graduation. 70% of graduatingseniorswillenter theworkforcewithanaveragestudent loandebtof$29,400(CarrieSealy-Morris2016).Hence,thequestionofROIoncollegeeducationisveryimportantforgraduates.ROI for a college degree is different than ROI of an investment/project due to opportunitycosts;likestudents’time,workingpossibilities,andlostentertainments.Inaddition,studentsalsohavetostudycontinuouslyandgothroughstressandpressureofregularassignmentsandexams.Thus,ROIoncollegeeducationmaybedifferentthanbusiness’sROI.Carrie Sealy-Morris (2016)writes “There are a lot of factors to take into consideration. Youinvestalotmorethanjustmoneyintoacollegeeducation–youinvesttime,work,andstress.Thatmakes college fundamentally different frommany other investments. ROI could be assimple as what income people make vs. what they paid for college and what they owe instudent debt, but that is still too simple. Income isn’t necessarily ameasure of success, andstudent loan debt could just mean you took out more loans than you needed, not that theschool was too expensive. While some short sighted people just want to know how much



money they canmake straightoutof school, otherswant a certain level of long-termcareersatisfaction.Neitheriswrong.”Studies like PayScale’s help would-be students (and their parents) make more informedchoices.AsAmericansstarttorealizehowmuchabadchoicecanhurtthem,theywilldemandmore transparency. Somecollegesareproviding it,proddedby the federalgovernment.Forexample,theUniversityofTexasrecentlylaunchedawebsiteshowinghowmuchitsgraduatesearnandoweafterfiveyears.(TheEconomist:HigherEducation-6).In the past, college education used to lead to better, brighter, and financially lucrativeprofessionalcareers.However,inthepresenttimes,undergraduateeducationmaynotactasaticket tobetter careersbutmayalso result in significanteducational loansupongraduation.AccordingtotheFederalReserveBankofNewYork,44percentofrecentcollegegraduatesareunderemployed -- working in jobs that don't require their degree -- as of 2012 (PayScaleCollegeROIReport:BestValueColleges:www.payscale.com/college-roi)In spite of numerous articles printed in magazines, academic journals lack the analyticalresearchonthistopic.Therefore,thisstudyisaninitialsteptoanalyzeROIandotherfactorsrelevanttostudents’educationalgoalsfromanacademicpoint.

DATAANDMETHODOLOGYThe data is collected from information collected by Payscale.com's list of ROI rankings.Payscale.com website provides useful information on ROI and other factors important tocollegegraduates. PayScale.comadministers the largestreal-timesalarysurvey intheworldwithmorethan150,000newsurveyrecordsaddedeverymonth.Thedatabaseofmorethan54 million total salary profiles is updated nightly to reflect the most detailed, up-to-datecompensation informationavailable.Payscale.comdata collection is strongly correlatedwiththesizeofthepoolbeingconsidered,representingthediversityofthegeneralworkforce.Bothin-Stateandout-of-Stateeducationalinstitutionsareincludedinthisstudy.Thefollowingfourvariables(factors)areanalyzedinthisstudy:

1. Total4-YearCost(PrincipalAmountInvested):Fullcostincludingtuition&fees,room&boardandbooks&fora2014graduate.Actualnetcostmayvarybasedonastudent’sacademic success and family income. Source: IPEDS. This variable is analyzedseparatelyandisalsousedincomputingROI.

2. 20 Years ROI (Gain in Dollars over 20 Years Period after graduation): Differencebetween20yearsMedianPayforabachelor’sgradand24yearMedianpayforahighschool grademinus total 4-year cost. This variable is not analyzed separately but isusedincomputingROI.

3. GraduationRate:Percentoffull-time,first-timedegreeseekingundergraduatestudentswhobegantheirstudiesatthegivenschoolandgraduatewithin6years.Source:IPEDS

4. AverageLoanAmount:Receivedby full-time, first timedegreeseekingundergraduatestudents for the2012-2013schoolyear,multipliedtorepresentamountover4years.IncludesallTitleIVloansandallinstitutionallyandprivately-sponsoredstudentloans.Source:IPEDS

5. AnnualizedReturnonInvestment(ROI)FormulaAnnualPercentageYield(APY)=(principal+gain/principal)(1/years)–1



Forexample:LookatIndianaUniversityBloomington(in-Stateeducation)20-YearNetROI=$303,000(Gainover20-yearsperiod)Total4-YearCost=$90,000(Principal)APY=($393,000/90,000)(1/20)–1=4.36660.05–1=1.076483–1=7.65%Thus,ROIforIndianUniversityBloomington(in-State)graduateis7.65%overaperiodof20-yearsaftergraduationandenteringtheworkforce.Thedataiscollectedfor1,278educationalinstitutionsacrossUSA.However,incompletedatafor64schoolswasdroppedtherebyreducingdatasetto1,214schools.Thedataisalsofurtherdividedinthefivecategoriesasfollows:

a. MidwestRegionb. SoutheastRegionc. NortheastRegiond. SouthwestRegione. WestRegion

RESULTS

AllschoolsinUSATheresultsoftheanalysisacrossallschoolsinUSAareshowninTable1whichshowsthatthemeanannualROIforundergraduateeducationinUSAis5.39percentoverthelasttwenty-yearperiodwithastandarddeviationof2.64percent. Themedianannual incomeover thesameperiodisfoundtobe5.50percent.ThegraduatesfromGeorgiaInstituteofTechnology(In-State)earnedthehighestannualROIof12.30percentperyearfor20years,whileJacksonStateUniversity,Mississippi(Out-of-State)graduatesearnedanaverageROIof -10.30%. Comparisonof total4-year costof educationrevealsthatstudentsatUniversityofChicago(Private)spentatotalof$245,000whilethetotalof cost education ($46,500) at Elizabeth City State University of North Carolina was thecheapestamongallschoolsinUSA.Yale produced highest graduation rate of 98 percent for the undergraduate students, whilestudentsatBakerCollegeFlintMIweregraduatingatthelowestrateof11percentduringthestudy period. The students at Clemson University (Out-of-State) took the highest loan of$51,600 during their undergraduate educational life. On the other side, students at ColgateUniversity(Private)wereabletograduatewithaminimumaverageloanof$9,600only.SchoolsinMidwestRegionTable2 (PanelA) shows the results for schools inMidwestRegion. Data for319 schools isusedandincompletedataof13schoolsisexcludedinthisgroup.The findingsof thisstudy indicate that themeanannualROI forundergraduateeducation inMidwestregionis5.19percentoverthelasttwenty-yearperiodwithastandarddeviationof2.51percent.BoththesepercentagesarebelowthenationalaverageindicatingthatmeanROIis lower than national average with a tighter probability distribution. The median annualincomeis5.35percentwhichisslightlysmallerthanthenationalaverage.The graduates from South Dakota School of Mines and Technology (In-State) earned thehighestannualROIof11.94percentperyearfor20years,whileAshlandUniversity(Private)ofOhio’s graduates earned an averageROI of -3.30%. In this groupof schools, students at



UniversityofChicago(Private)hadtospend4-yeareducationcostof$245,000(whichisalsothehighestinUSA),whereasstudentsatMissouriSouthernStateUniversityfacedthecheapest4-yeareducationalexpenseof$58,900.Thehighestgraduationrateof95percentwasreportedbyUniversityofNotreDame(Private),while students at Baker College Flint MI were graduating at the lowest rate of 11 percentduring the studyperiod (which is also lowest inUSA). The studentsatKetteringUniversity(Private)ofMichiganhadtotakethehighesteducationalloanof$45,600.But,thestudentsatDruryUniversity(Private)ofMissouritookthelowestloanof$16,160duringtheireducationallife.SchoolsinSoutheastRegionThisstudy’sresultsforschoolsinSoutheastregionarereportedinTable2(PanelB).Datafor323schoolsisusedandincompletedataof18schoolsisexcluded.The results shown in this project suggest that the mean annual ROI for undergraduateeducationinSoutheastregionis4.98percentoverthelasttwenty-yearperiodwithastandarddeviation of 3.02 percent. While mean ROI is lower than national average, the standarddeviationishighernationalnorms.Thus,accordingtofindingsofthisstudy,meanROIofthisgroupis lowerthannationalaveragewithmuchwiderdistributionindicatingrelativelypoorperformanceof thegroup. Themedianannual income is5.19percentwhich is smaller thannationalaverage.ThegraduatesfromGeorgiaInstituteofTechnology(In-State)earnedthehighestannualROIof12.30percent(whichisalsothehighest innation)peryearfor20years,whileJacksonStateUniversity,Mississippi (Out-of-State) graduates earnedan averageROIof -10.16% (which isalsothelowestacrossUSA).Inthisgroupofschools,studentsatGeorgetownUniversity-WashingtonDC(Private)endeduppaying $236,700 (highest) for their 4-years education as compare to the lowest educationalexpensesofonly$46,500atElizabethCityStateUniversity(In-State)whichisalsothesmallesteducationalcostinnation.StudentsatDukeUniversityenjoyedthehighestgraduationrateof94percent,whilestudentsatWestVirginiaStateUniversity(bothIn-StateandOut-of-State)hadtosettlewiththelowestgraduationrateof19percent.StudentsatClemsonUniversity(bothIn-StateandOut-of-State)took highest loan of $51,600 (which is also the highest for nation). In contrast, SouthernUniversity andA&MCollege (both In-State andOut-of-State)wereable to graduatewith theminimumeducationalloanofmere$12,760.SchoolsinNortheastRegionTable2(PanelC)showstheresultsofthisprojectforschoolsinNortheastregion.Datafor299schools is analyzed in this groupwhereas incomplete data of 19 schools is excluded in thisproject.Mean annual ROI for undergraduate education in this region is 5.20 percent over the lasttwenty-yearperiodwithastandarddeviationof2.19percent.SimilartoMidwestregion,boththesepercentagesarebelownationalaverageindicatingthatmeanROIislowerthannationalaverage with a tighter probability distribution. The median annual income is 5.31percentlower than thenationalnorms. MassachusettsMaritimeAcademy(In-State)graduateswere



able to earn the highest annual ROI of 11.52 percent for 20-years period, while CentenaryCollege(Private)ofNewJerseygraduatesearnedminimumROIof-2.07%.Inthisgroupofschools,studentsatColumbiaUniversity(Private)paid$241,600(highest)fortheir4-yearseducationascomparetothelowesteducationalexpensesof$77,30000atRhodeIslandCollege (in-State). YaleUniversity graduates enjoyed a graduation rateof 98percent(highest inthenation),whilestudentsofLongIslandUniversityBrooklyn(private)facedthelowestgraduationrateof30percentonly. UniversityofNewHaven(private) students tookthehighestloanof$49,200,whileColgateUniversity(private)graduateswereabletograduatewithminimumeducationalloanofmere$9,760(whichisalsolowestinUSA).SchoolsinSouthwestRegionTable2-PanelD shows thatdata for323 schools is analyzed in this groupwhile incompletedataof18schoolsisexcludedMeanannualROIforundergraduateeducationinthisregionis6.69percentmuchhigherthannationalaveragewithastandarddeviationof2.03percentmuchlowerthannationalaverage.Infact,thisgrouphasthehighestmeanROIandloweststandard.Themedianannualincomeis6.50percentwhichisalsohighestamongallregions.Thus,theresultsreportedinthisanalysisindicate thatgraduatesofSouthwestregionenjoyedhighest returnwith least riskamongallfiveregionsstudied.NewMexico InstituteofMiningandTechnology (In-State)graduates receivedhighestROIof11.87percentwhile the lowestROIofonly0.25%belongedtothegraduatesofOralRobertsUniversity of Oklahoma. Southern Methodist University (Private) students faced highesteducational cost of $229,300 whereas students at Northeastern University (In-State) ofOklahomawereabletograduatewithaminimumcostof$53,300.Highestgraduationrateof91%isenjoyedbyRiceUniversitystudentswhilegraduatesatTexasSouthernUniversityhadtosettlewiththelowestgraduationrateof16percent.Comparison of average loan for graduation shows a tie betweenBaylorUniversity (private)and Texas Southern University (In-State) for loan of $50,400. In contrast, students atUniversityofTexas–PanAmerican(IN-State)graduatedwithaminimumloanof$15,320.SchoolsinWestRegionThisstudy’sresultsforschoolsinWestregionarereportedinTable2(PanelE).Datafor178schoolsisusedandincompletedataof11schoolsisexcluded.TheresultsshowninTablesuggestthatmeanannualROIforundergraduateeducationinWestregion is 6.09 percent over the last twenty-year period with a standard deviation of 2.79percent.WhilemeanROIishigherthannationalaverage,thestandarddeviationisalsohigherthannationalnorms.Thus,accordingtofindingsofthisstudy,meanROIofthisgroupishigherthannationalaveragewithmuchwiderdistribution.MedianROIforthegroupis6.08%whichisalsohigherthannationalaverage.Acloserlookattable2alsoindicatesthatcollegesinWestregionaresecondtocollegesinSouthwestasperROIranking.GraduatesofBrighamYoungUniversityearnedhighestROIof12.28percentwhileAdamsStateCollege (Out-of-State) graduates earned minimum ROI of -6.96 percent. The maximumeducationalcostof$238,100belongedtograduatesofOccidentalCollege,whereasstudentsatUniversity of Alaska (Fairbanks campus) were able to graduate with a minimum cost of$66,300.



Highest graduation rate of 96% is reported at StanfordUniversitywhile students at AdamsState College (both In-State and Out-of-State) received the lowest graduation rate of 23percent. Maximum educational loan of $45,600 was taken by graduates of DominicanUniversityofCaliforniawhereasgraduatesatCaliforniaStateUniversity-LosAngeles(bothIn-StateandOut-of-State)wereabletograduatewithaminimumloanof$16,420.

CONCLUSIONTheresultsofthisstudyindicatethatstudentsfromSouthwestregionofUSAenjoyedhighestmeanROI(6.69%)alongwithhighestmedianROI(6.50%)withminimumstandarddeviationof2.03%amongall fiveregionalanalyzedover20-yeasrperiod. Colleges inWestregionaresecondtocollegesinSouthwestasperROIranking. StudentsofcollegesinNortheastregionhad to pay the highest educational cost ($152,577) over the period of study but they alsoenjoyedthehighestgraduationrateof63.22%amongfiveregions.YaleUniversityreportsthehighestgraduationrateof98percentinthenation.GeorgiaInstituteofTechnology(In-state)enjoyedhighestROIof12.30percentover20-yearsperiodofstudy.

TableI:UndergraduateCollegeDegree'sReturnonInvestmentacrossSchoolsinUSA

Mean Standard Deviation Median

Annual ROI 5.39% 2.64% 5.50% Total 4 Year Cost $130,233 $47,642 $121,900 Graduation Rate 56.71% 17.06% 55.00% Average Loan Amount $27,878 $5,642 $27,400 For the Group Name of School Value Maximum Annual ROI Georgia Institute of Technology(In-State) 12.30% Minimum Annual ROI Jackson State University (JSU)(Out-of-State)-MS -10.16% Maximum Total 4 Year Cost University of Chicago(Private) $245,000 Minimum Total 4 Year Cost Elizabeth City State University (ECSU)(In-State)-NC $46,500 Maximum Graduation Rate Yale University(Private) 98.00% Minimum Graduation Rate Baker College - Flint, MI(Private) 11.00% Maximum Average Loan Amount Clemson University(Out-of-State) $51,600 Minimum Average Loan Amount Colgate University(Private)-NY $9,680 Total Number of Schools 1214* * Data for additional 64 schools was incomplete and hence dropped from the analysis

TableII(PanelA):UndergraduateCollegeDegree'sReturnonInvestmentAcrossSchoolsin

Midwest


Annual ROI 5.19% 2.51% 5.35% Total 4 Year Cost $124,471 $42,734 $120,200 Graduation Rate 54.97% 15.82% 54.00% Average Loan Amount $27,916 $4,833 $27,440

For the Group Name of School Value Maximum Annual ROI South Dakota School of Mines & Technology(In-State) 11.94% Minimum Annual ROI Ashland University(Private)-OH -3.30% Maximum Total 4 Year Cost University of Chicago(Private) $245,000 Minimum Total 4 Year Cost Missouri Southern State University (MSSU)(In-State) $58,900 Maximum Graduation Rate University of Notre Dame(Private) 95.00%



Minimum Graduation Rate Baker College - Flint, MI(Private) 11.00% Maximum Average Loan Amount Kettering University(Private)-MI $45,600 Minimum Average Loan Amount Drury University(Private)-MO $16,160 Total Number of Schools 319* * Data for additional 13 schools was incomplete and hence dropped from the analysis

TableII(PanelB):UndergraduateCollegeDegree'sReturnonInvestmentAcrossSchoolsin

Southeast



For the Group Name of School Value Maximum Annual ROI Georgia Institute of Technology(In-State) 12.30% Minimum Annual ROI Jackson State University (JSU)(Out-of-State) -10.16% Maximum Total 4 Year Cost Georgetown University - Washington D.C.(Private) $236,700 Minimum Total 4 Year Cost Elizabeth City State University (ECSU)(In-State) $46,500 Maximum Graduation Rate Duke University(Private) 94.00% Minimum Graduation Rate West Virginia State University(Both: In-State and Out-State) 19.00% Maximum Average Loan Amount Clemson University(Both: In-State and Out-State) $51,600

Minimum Average Loan Amount Southern University and A&M College(Both: In-State & Out-State)-LA $12,760

Total Number of Schools 323* * Data for additional 18 schools was incomplete and hence dropped from the analysis

TableII(PanelC):UndergraduateCollegeDegree'sReturnonInvestmentAcrossSchoolsinNortheast

Mean S.D. Median


For the Group Name of School Value Maximum Annual ROI Massachusetts Maritime Academy(In-State) 11.52% Minimum Annual ROI Centenary College(Private)-New Jersey -2.07% Maximum Total 4 Year Cost Columbia University(Private) $241,600 Minimum Total 4 Year Cost Rhode Island College(In-State) $77,300 Maximum Graduation Rate Yale University(Private) 98.00% Minimum Graduation Rate Long Island University - Brooklyn(Private) 30.00% Maximum Average Loan Amount University of New Haven(Private)-CT $49,200 Minimum Average Loan Amount Colgate University(Private)-NY $9,680 Total Number of Schools 299* * Data for additional 19 schools was incomplete and hence dropped from the analysis



TableII(PanelD):UndergraduateCollegeDegree'sReturnonInvestmentAcrossSchoolsinSouthwest



For the Group Name of School Value Maximum Annual ROI New Mexico Institute of Mining and Technology (In-State) 11.87% Minimum Annual ROI Oral Roberts University (ORU)(Private)-OK 0.25% Maximum Total 4 Year Cost Southern Methodist University (SMU)(Private) $229,300 Minimum Total 4 Year Cost Northeastern State University(In-State)-OK $53,300 Maximum Graduation Rate Rice University(Private) 91.00% Minimum Graduation Rate Texas Southern University (Out-of-State) 16.00% Maximum Average Loan Amount Tie- Baylor University(Private) $50,400

Tie- Texas Southern University(In-State)

Minimum Average Loan Amount University of Texas - Pan American (UTPA)(In-State) $15,320 Total Number of Schools 95* * Data for additional 3 schools was incomplete and hence dropped from the analysis TableII(PanelE):UndergraduateCollegeDegree'sReturnonInvestmentAcrossSchoolsinWest

Mean S.D. Median Annual ROI 6.09% 2.79% 6.08% Total 4 Year Cost $137,053 $50,182 $128,750 Graduation Rate 55.67% 18.29% 53.00% Average Loan Amount $24,862 $4,645 $23,680

For the Group Name of School Value Maximum Annual ROI Brigham Young University (BYU)(Private) 12.28% Minimum Annual ROI Adams State College(Out-of-State) -6.96% Maximum Total 4 Year Cost Occidental College(Private) $238,100 Minimum Total 4 Year Cost University of Alaska - Fairbanks Campus(In-State) $66,300 Maximum Graduation Rate Stanford University(Private) 96.00% Minimum Graduation Rate Adams State College(Both: In-State and Out-State) 23.00% Maximum Average Loan Amount Dominican University of California(Private) $45,600 Minimum Average Loan Amount California State University-Los Angeles(Both: In-State &Out-State) $16,240 Total Number of Schools 178* * Data for additional 11 schools was incomplete and hence dropped from the analysis References

1. AllieBidwell,USANews,“CollegeGradsQuestionHowMuchaDegreeisWorth:Morethanhalfofcollegegraduatessaynewgradswillseealowerreturnontheireducationalinvestment,”February10,2015.

2. BestReturnonInvestment“The50CollegeswiththeBestReturnonInvestmentin2016,www.bestcolleges.com/features/best-roi-colleges/



3. CarrieSealey-Morris,“What'stheROIofacollegedegree?|ValueColleges,”www.valuecolleges.com/whats-the-roi-of-a-college-degree/,2016ValueColleges.

4. ChrisKahn,“WhatIsTheROIOfYourCollegeDegree?Whichjobsanddegreeshelpyoutopayoffyourstudentloansfastest?FindtheROIforyourcollegedegree,”Bankrate.com,www.bankrate.com/finance/college-finance/roi-college-degree.aspx

5. PayScaleCollegeROIReport:BestValueColleges:www.payscale.com/college-roi)

6. Payscle.com

7. TheEconomist:Highereducation,“IsCollegeworthit?Toomanydegreesareawasteofmoney.Thereturnonhighereducationwouldbemuchbetterifcollegewerecheaper,”Apr5th2014,CHICAGO

8. TroyOnink,“UnlessYou'reAverage,CollegeROIandBestValueRankingsAremisleading,”ForbesContributor,July31,2015


Marandu,E.E.&Amanze,D.(2016).DevelopingSustainableSpecialEconomicZonesinBotswana:AConceptualDiscussion.ArchivesofBusinessResearch,4(6),101-111.


DevelopingSustainableSpecialEconomicZonesinBotswana:AConceptualDiscussion

EdwardE.MaranduUniversityofBotswana

FacultyofBusiness,MarketingDepartment

DonatusAmanzeUniversityofBotswana

FacultyofBusiness,MarketingDepartment

INTRODUCTIONThe objective of this paper is to explore the concept of Special Economic Zones (SEZ) andsuggestsustainabledevelopmentstrategy forBotswana.Thisobjective isachievedthroughafive stageanalysisof the literature. First, abriefdescriptionof the concept ismade. Second,arguments in favour of externally oriented development strategies for Botswana arepresented. Third, a description of the Botswana SEZs policy is attempted. Fourth, twotheoreticalframeworks,namely,Rostow’smodernizationtheoryandtheinternationalproductlifecycle(IPLC)aredescribed.FinallyonthebasisoftheaboveandrelatedliteraturelessonsorimplicationsforappropriateSEZsinBotswanaarepresented.

WHATARESEZS?The term special economic zone (SEZ) is commonly used as a generic term to refer to aspeciallydemarcatedareawithinanationthatoffersuniqueincentivestoattractforeignandlocal direct investment. Special refers to the relaxation of economic laws and immigrationpolicies applicablenationwide soas tobenefit firmsestablishedwithin thearea chosenasaSEZ.SEZAuthoritiesactas'governments'andrulingauthoritieswithinthedesignatedzones.TherearedifferenttypesofSEZs,forexample,ExportProcessingZones(EPZ),FreeEnterpriseZones,FreeTradeZones,FreePorts,ScienceandTechnologyPark.SEZscompaniesaretreatedasoperatingfromoutsidethecountryandtheirgoodstreatedasimports.

SPECIALECONOMICZONESINBOTSWANAThe Special Economic Zones policy adopted by the Government of Botswana (Republic ofBotswanaMinistryofTrade and Industry, 2010) is designed to attractworld classdomesticand foreign investors by offering them developed infrastructure, state of the art technologyandeconomic incentives.TheSEZswouldbecharacterisedbyeconomicandother laws thataremorefreemarketorientedthanthatoftypicalBotswananationallaws.SEZsareexpectedto provide tax and other incentives for boosting exports from Botswana. SpecificallyBotswana’sSEZpolicyseekstoestablishanauthoritythatwould:

• Establish a one stop, full service business environment catering to the needs ofbusinesseslocatedwithintheSEZ

• Provide a hassle free business environment offering investors a competitive edge inworldmarkets

• IdentifylocationsforestablishingSEZs• Ensurebasicinfrastructureisinplace• DevelopnationalandinternationalprogrammespromotingSEZs



• CoordinateSEZinvestments• ProvideSEZincentivepackagesconsistentwithBotswana’sdomesticandinternational

tradeobligations.• LicenceSEZinvestors.• DiversifytheeconomicandexportbaseofBotswanabeyondtheminingsector.

The government has decided to create eight specialized sectors called “hubs,” which arecurrently at different stages of development (Figure 1). These are the Agricultural Hub, theBotswanaInnovationHub,theMineralsHub,theEducationHub,theHealthHub,theTransportHubandtheFinancialServicesHub.TheaimoftheAgriculturalHubistotransformarableandanimalproductiontobecomeaprofitablecommercialsector.TheBotswanaInnovationHub’s(BIH) broad objective is aimed at attracting technology-driven, knowledge intensivebusinesses. The Minerals Hub is charged with the responsibility of transforming Botswanafromaleadingroughdiamondproducertoaworldcentrefordownstreamdiamondactivities.TheobjectivefortheEducationHubistodevelopBotswanaintoaregionalcentreofexcellencefor exporting educational services. The Health Hub was established with a view to makeBotswanaacentreofexcellenceinhealthcareserviceprovision.ThepurposeoftheTransportHub is to strengthen Botswana’s transportation connectivity both internally and externally.Theobjectiveof theFinancial ServicesHub is to facilitateother sectors in termsofbanking,investmentservicesandinsuranceservices.

Figure1:BotswanaSEZSelectedAreas



IMPORTANCEOFEXPORTORIENTEDDEVELOPMENTTherearethreegoodreasonswhyitisvitalforBotswanatopracticeoutwardlookingexportorienteddevelopmentstrategy:(1)itisanopeneconomy(2)theneedtodiversifytheexportbaseand(3)thelimitedlocalmarket.BotswanaisanOpenEconomy:InBotswanaexternaltradeisanimportantcomponentoftheeconomy. The importance of external trade in an economy is measured by the degree of“openness”whichisthemagnitudeoftrade(exportsplusimports)inrelationtotheGDP.Thisratiowas72%in2015inBotswana(TradingEconomics,2016).TheratioforIndiais13%;itismuchlowerthanthatofBotswana.ThatoftheUSAis25%. ThesefiguressuggestthatIndiaand theUSAarerelativelyclosedeconomies in thesense that theyarerelativelyself-reliant.OntheotherendBotswanaisanopeneconomyinthesensethatsheishighlydependentonforeigntrade.TheimplicationoftheopennessratioisthattheeconomyofBotswanaissensitivetoeconomicconditionsintheoutsideworld.Hencechangesinthepricesorvolumesofexportsorimportsarelikelytohavesubstantialeffectontheperformanceofthewholeeconomy.The2008globalfinancialcrisisatteststothis.Botswanacannotaffordtoignorewhatishappeningintherestoftheworld.NeedtoDiversifytheExportBase:Botswana’ssuccessstoryisbasedonexportsandthebaseisunbalanced: it isdominatedbydiamondswhichaccounts formore thanabout80percentofexports.Therecentglobalfinancialcrisishasrevealedthatthiscommodityishighlyvulnerableto external shocks. It goeswithout saying that there is need to diversify the export base inordertoreducetheriskofover-relianceononecommodity.LimitedLocalMarket:Thedomesticeconomyistoosmalltothriveonitsown(Khama,2010).Botswanahasa relatively smallpopulation,estimatedat1.8million in2009.This imposesasevere limit to growth because of a limited local market. This constraint means that theenvisageddiversificationmustbemainlyexternallyoriented. Indeedtheexternallyorienteddiversification strategy has been found by many small emergent economies such as SouthKorea,HongKong,SingaporeandTaiwantobeaneffectivemeansofachievingrapideconomicgrowth.The search for ways to diversify the export sector in order to promote sustainabledevelopmentisamajorpolicyissueinBotswanatoday.Inordertodiversifytheexportbase,atleast three broad policy options can be considered in the context of Botswana (Marandu,2006).Import Substitution Industrialisation: The first is import substitution strategy; that is, thedomesticproductionofthatwhichwouldhavebeenimported.Theadvantageofthisstrategyis that it is less risky, for the businessperson plans for an assured domestic market. Theproblemwith import substitution is that the choice of industriesmust be consistentwith acountry'scomparativeadvantage.Export-led Manufacturing Industrialization: The second method for diversifying is throughexport expansion rather than import substitution. Proponents of this strategy argue thatexport expansion is an outward looking strategy and holds better prospects for long-termgrowth than inward looking import substitution strategy, partly because it discouragesmisallocation of resources. Outward-looking theorists claim that an inward-looking countrywill stagnateand lose thedynamicbenefitsof trade(Goff,2003).Ontheotherhand inward-



lookingtheoristssuggestthatacountryisdoomedtoprovidinglow-growthprimaryproductsfordevelopedcountriesifitremainsfullyopentotrade.Theyarguethatthereisnoassurancethatanexport-ledstrategywillperformwellintheshort-termbecauseofmarketandsupplyconstraints. Furthermore, they argue that, even the outward looking export orientatedcountries such as Japan and Chile undertook a certain degree of inward-looking policiesprotection(Essays....,2006).The debate between export-led and import substitution strategies has not been settled oneway or the other. It is possible for a developing country to mix policies. For example,maintaining an outward-looking policy on trade in primary products but an inward-lookingone for secondary products as it tries to nurture infant industries. Others argue that thesecountriesinfactpursuedmixturesofpoliciestargetedatspecificindustries.Moreover,itisbecomingincreasinglyevidentthatthechoiceofaninwardoroutwardlookingstrategydependsonconditionsofthecountryinquestion. Forinstance,largecountrieswithlargemarketsmaytry,withsomesuccess,aninwardlookingstrategy.Ontheotherhandsmallcountries with limited markets are more likely to succeed if they follow outward lookingdevelopment strategies. The success of outward looking strategies by the small NewlyIndustrialising Countries of Korea, Hong Kong, Singapore and Taiwan are examples, whichsupportthislineofreasoning.Export of Services: Tourism is currently Botswana's most rapidly growing sector andcontributes 15.9% of its gross domestic product (GDP). The government's tourism policyemphasises the promotion of environmentally sensitive, low-volume, high-cost tourism. Adiversification strategy couldbedeveloped toaccelerateand takeadvantageof thisgrowingservicesector.Thevariousstrategiesarenotmutuallyexclusiveandcanbepursedsimultaneously. Atanyonepointintimethecountrymayemphasiseoneortheother.Thisstudyismainlyconcernedwiththeexportstrategy.Inordertodiversifytheexportsbasebyusingconsciousstrategies,policymakersneed tounderstand theobstacles to exports inBotswana. This studyaimsatmakingacontributiontowardthatendbyfocusingonobstaclestoexportsbymanufacturingfirms.

SPECIALECONOMICZONESANDTHEORYThe aim of this section is to present theoretical models which can assist policy maker inevaluating the suitability of the various SEZs in a local context. In accomplishing this, weconducted a scan of the literature, to identify a suitable theoretical framework forunderstanding modernization of nations. The literature scan identified two theories: TheRostow Model of Development and the International Product Life Cycle Theory. The twotheoriesfacilitateunderstandingofappropriateSEZsinaspecificsituation.TheStagesofDevelopmentModelTheStagesofDevelopmentModelwas created in1960 (Rostow,1960).Themodel suggeststhat developed countries have tended to pass through five linear stages (Figure 2) to reachtheircurrentdegreeofeconomicdevelopment.Theseare:

1. Traditional society. This earliest stage is characterized by heavy dependence on“primary sector” activities. Production is characterized by being subsistence, labourintensive, limited technology, lowproductivity in agriculture or hunting or gathering.



Theoutputsareconsumedbytheproducers,verylittleofwhichissavedortradedandtheonlytradethatexists isbartertradeof itemsneededforsubsistence,notdoneforprofit. Other than the land for food production there is limited exploitation of rawmaterialsandsothedevelopmentofotherindustriesisalsorestricted.

Figure2:StagesofEconomicDevelopment

2. Pre-conditions fortake-off. Inthesecondstageagriculturebecomesmoremechanised

resulting inmore output for trading. Savings and investment grow although they arestill a small percentageofnational income.Other industries start to emerge althoughonewill take dominance (this is usually textiles) and resources start to be exploited.The sources of the finance are normally from external demand for raw materials,overseas aid, foreign direct investment or remittance income from migrant workerslivingoverseas.

3. Take-off. In the third stage manufacturing industry assumes greater importance,although thenumber of industries still remains small. Political and social institutionsstart to be transformed to help maintain a steady rate of growth. Savings andinvestment grow, perhaps to 15% of national income. External finance may still berequired.Agricultureassumeslesserimportanceinrelativetermsalthoughthemajorityofpeoplemayremainemployed in the farmingsector.There isoftenadualeconomyapparent with rising productivity and wealth in manufacturing and other industriescontrastedwithstubbornlylowproductivityandrealincomesinruralagriculture.

4. Drivetomaturity.Inthefourthphasegrowthbecomesself-sustainingastheeconomymovesawayfrombeingdependentonprimaryfactorinputsforgrowthtowardsmakingbetteruseof innovation tobringabout increases in realper capita incomes. Industrybecomes more diverse resulting in goods being produced at home instead of beingimported.Newimportrequirementsandnewexportcommoditiesdevelop,resultinginan economy which forms a part of the international market. The most advancedtechnologyavailableisusedbyalleconomicactivitiesandbetween10and20percentofnational incomeis invested.Growthspreadstodifferentpartsofthecountryasthestateoftechnologyimproves.

5. Ageofmassconsumption.Inthefinalstageasoutputlevelsgrow,itenablesincreasedconsumerexpenditure.Duringthisphaseemphasisisgiventoconsumerdurablesandservices that allow the majority of a country’s population to attain a relatively highstandardofliving.Theinitiallyexploitative“primary”industriesmoveelsewhereasthe



remainingindustriesshiftproductiontodurableconsumergoodsandservices.Thereisashifttowards“tertiarysector”activity.Oneofthemainshiftsthatoccurasacountrymoves through the five stages is within the industry sector as activity shifts fromprimary, secondary and tertiary sectors; and the changes that happen here getreflectedintheemploymentsector(Table1).

Table1:TheStagesModelandChangesinIndustryandEmployment

ImplicationsoftheStagesTheoryforInvestmentIn general, the goods, services and investment needed by a country in an earlier stage ofeconomicdevelopment aredifferent from the goods and services required in later stages asfollows.Peopleinlessdevelopedcountriesplacemoreemphasisonutility(basicproduct)andplace relatively little value on aesthetic (beauty, extras) asmuch as do people in themoredeveloped nations. A less developed countrymay need to import industrial machinery andequipment toexploit itsrawmaterialsandtoproduceagriculturalproducts,aswellasbasicconstruction equipment to develop a transportation system. It may need managementconsulting,accountingsystems,andtraininganddevelopmentservices.When the countrybecomes fairlywell industrialized,producing capital and consumergoodssuch asmachinery, automobiles, and refrigerators, itmay needmore specialized and heavycapitalequipmentnotyetmanufacturedthere.Forexample,acountryproducingautomobilesmayneedmoremodernequipment,suchaswheelalignmentindicators.Inthefifthstage,acountryreachescompleteindustrialization.Eventhoughacountrymaybetotally industrialized, a demand for goods from another country still exists, because highlyindustrializedcountriestendtospecializeintheproductionofcertaingoods.Forexample,U.S.enterprises are highly skilled in producing communications and sophisticated computertechnologies,andJapaneseenterprisesarehighlyskilledinproducingprocesstechnologies.InternationalProductLifeCycle(IPLC)Another theory helpful in understanding appropriate policies for SEZ is the InternationalProductLifeCycle (Vernon,1966; Igal,1981). It isusefulasanexplanationofwhoproduceswhat and why. It is simple and persuasive. Briefly the Life Cycle Theory assumes that ingeneral, trade in manufactured goods typically follows a cycle with four main phases:Introduction,Growth,MaturityandDecline(Figure3).



Introduction:Theintroductionstageismarkedbyinnovation,production,andsalesinsamecountry.Duringtheearlystagesofthecycleaproductisfirstproducedinthecountrywhichhasdiscoveredit.Thenewproductisforuseinthelocalmarketandforexport.Inthisearlystage of the cycle, comparative advantage rests with the innovating country because of"technologicalgap"betweentheinnovatingcountryVis-a'-Vistheothersplacestheinnovatingcountryinamonopolyposition.Intheinitialphaseofthecycle,usually,manufacturingoccursin a developed country, such as the US, where the innovator is motivated by a potentiallyprofitablemarket.Growth: In phase two, growth of demand in the importing nations may provide sufficientvolumetojustifylocalmanufacture.Asproductionbeginsabroad,theexportsoftheinitiatingnationgrowlessrapidlybecauseotherproducingcountriestakeashareofthemarketintheirowncountryandotherexportmarkets.Inthesecondphaseofthecycle,usuallymanufacturingoccursinotheradvancedcountries,sayinEurope.Maturity:The third stageoccursas theproductmatures.Amatureproductusesanalreadyestablishedtechnologyandalowerskilledlaborcontent.Inthissituation,thelessdevelopedcountriesmaybeabletoundersellthemoreadvancedcountriesbyapplyingtheircheapless-skilled labor to the technologyalreadydesigned toproduct.Thus the lessdevelopednationsmaybecomeattractiveproductionpointsandbeginexportingtheproducttomoreadvancedcountries. Examples of products which are in this latter stage are textiles and electroniccomponents.Decline: The Decline stage is characterized by concentration of production in emergingeconomies.Theinnovatingcountrybecomesanetimporteroftheproductitinnovatedinthefirst place. This means that comparative advantage shifts from one nation to another as aproductmatures.

Figure3:PLCofDifferentCountriesforaSpecificProduct

POLICYLESSONSANDSUGGESTIONSThe theoretical literature reviewed leads to the following implications for advising policymakers interested in creating sustainable SEZs in Botswana. Botswana has the potential toderivebenefitsfromspecialeconomiczones.Thecountryisinneedofdiversificationanditisin the early stage of industrialization. To diversify, the country needs to attract privateinvestment.SEZscansupportdiversificationinthecountryiftheyareimplementedeffectivelybyovercoming infrastructure constraints and taking advantageof economiesof scalewithinSADC and SACU trade preferences. Thus, there is a good argument in support of SEZs as a



policy instrument for diversification, but not an unconditional support. There are certainpreconditionsforsuccessfulimplementationofazoneprogrammeinthecountry:-AttractExportOrientedFirmsBotswanashouldstrivetoattractintotheSEZfirmsthatexportthebulkoftheiroutputtobeexported to foreignmarkets, as opposed to import substitution SEZ that sell a bulk of theiroutput to the local economy. The domestic market is too small for sustained growth. Thispolicy is consistent with the SEZs that were part of an export oriented strategy that hascharacterizedmanyAsianeconomiessinceWorldWarII.InfactJapanwasthefirsttodevelopsuchastrategyintheregion.To attract investors the following incentives should be considered for offering to foreigninvestors. Labour:The ability touse theBatswanavast pool of low cost unemployed labourmaybepromotedasapowerfulincentivetolocateintheproposedSEZs.Inadditionthefirmsshould be given the liberty to hire and fire labour, which is different from the prevailinglifetimepermanentandpensionablesystemorcollectivebargaining.Land:TheSEZsshouldbephysically developed as planned entities with infrastructures and access to a container dryport complex so that parts and rawmaterial could easily be brought in for processing andshipped to foreign markets. Since Botswana is a landlocked country, accessibility to portinfrastructuresofneighbouring countrieswith such facilities shouldbeadominant factor intheplanningofsustainableSEZsstrategy.Taxincentives:Customdutiesshouldnotbeleviedonimportedmaterialsandpartsaslongastheyareforre-export.WhichExportOrientedIndustriestoAttract?Inorderforthezonestobesustainable, thezoneprogrammesmustbebasedonBotswana’scomparative advantages. With this in mind we can speculate on three industries that thecountrymaybeadvisedtopromoteundertheSEZmodelbecausethenationhascomparativeadvantageinthem:i. The first is land-intensive natural-resource-based sectors (mining) and agriculture

(leather industries) in the short term. Their potential is in increasing beneficiationthroughprocessingactivitiesthatareonestageormoredownstreamfromproduction.Themanufacturing or processing, activities that are envisaged should be focused onsectorsinwhichBotswanahascomparativeadvantageininputs.Focusingzonesaroundthese sectors increases the likelihood of local economy capturing the spillovers fromforeign direct investment by creating zone linkages with the local economy throughintegrating local rawmaterialsand intermediate inputs. In factoneof thereasons forfailure of several African zones has been identified as tendency to become enclaveeconomies,withoutdevelopmentofbackwardandforwardlinkageindustrieswiththelocaleconomy(CentreforEducationandDocumentation,2009).

ii. The second which the country has comparative advantage is the development ofBotswanaasanimportanttouristicdestinationfordomestic,regionalandinternationaltourism. In pursuing this, onemust bear inmind that Botswana suffers from severaldisadvantagesinregardtoairconnectionswithEuropeandothersourcemarkets.

iii. The third is transforming Botswana into a transportation hub for transit cargo andpassengers by enhancing connectivity with neighboring Zambia, Namibia, Zimbabwe,AngolaandSouthAfrica.Thestrategyshouldaimatdevelopingefficientcross-borderroad and rail transport linkages. The plan may involve long-term removal of roaddamagingtrucksfromneighboringcountriesbyoperatingregionalrailwaysystemthatcarries goods to a dry port on the Botswana border. Thiswill reduce the number of



foreigntrucksthatcausedamageandaccidentsontheroadsandincreasetheamountofmoneycollectedastransportchargesbyBotswana.

TakeintoaccounttheStageofEconomicDevelopment.Goods and servicesneededby a country varyby stage of economicdevelopment; hence thekindofSEZpromotedbyBotswanaandthelevelofincentivesusedmustbeappropriateforthelevel.WithregardtotypeofSEZ,sincethestagesmodelassumesnationsgothroughthestagessequentially,thisimpliesthatthetypeofinvestmentstobepromotedinBotswanashouldbethosethatwillpropelthenationintothenextstage.Botswanahasnotyetreachedthetake-offstage.Industrializationhasnotyettakenacentrestageintheeconomywhichisstilldominatedby natural resources, mainly minerals. Infrastructure shortcomings continue to represent asignificantobstacletoimprovementinproductivityinBotswana.HoweverthecheaplabourinthecountryaswellasthegenerousincentivesprovidesopportunityforindustrialFDItoflowintothecountrythatwouldhelpdiversifytheeconomyfromnaturalresourcebasedeconomytoamoreindustrializedone.Withregardtothelevelofincentives,taxconcessionstoinvestorsshouldbe considerablymoregenerousduring the lower stages comparedwith thoseduringhigherstagesofdevelopment.Takeintoaccounttheproducts’stageintheInternationalProductLifeCycle.InplanningSEZsitisimportanttotakecognizantoftwoaspectsinrelationtothegeneralstageofthelifecycleoftheproductsorservicestobepromoted.First,thestageofaproductonthelifecycleisnormallydifferentindifferentexportmarkets.Thatis,aproductthatisnewinoneexport market may be out-of-date in another market. There is saying in which says:"Yesterday's product in the USA is today's product in the UK and tomorrow's product inAfrica".Second,thePLCtheoryassumesbyimplicationthatproductsinthelaterstageofthecycle utilize inputs which are relatively abundant in developing countries. This may bemisleading.Adistinctionmustbemadebetweenlabourintensivematureproductsandcapitalintensivematureproducts.Itistheformertypeofproductswhicharemoreconsistentwiththecomparativeadvantageofdevelopingcountries.The theory therefore suggests that the zones inBotswana should focus on labour intensive,matureindustriessuchastextiles,leathergoodsandbuildingmaterials.Thisrecommendationis consistent with the observation that “comparative advantage shifts from one nation toanotherasaproductmatures”. Indeed this iswhat ishappening currently inChina.LabourcostsinChinahaverisenfasterthanconsumerinflationforyears,andarecurrentlynearlyfourtimesthoseinBangladesh,Laos,CambodiaandMyanmar(Magnier,2016).Chinaisnowlosinglow-endmanufacturingtolowerlabourespeciallytextileandclothingmanufacturing.AvoidtheRacetotheBottomIn competing for FDI Botswana should avoid the so-called “race to the bottom” syndromewherebySEZ costs, in termsof the various concessions granted to investors, outweigh theirbenefits.Nobodywinsaracetothebottom.Thegovernmentshouldperiodicallymakeacost-benefitanalysisofSEZsinvestment. Itshouldbenotedthatthegovernmentis likelytomakesubstantialinvestmentininfrastructureandprovideavarietyoftaxconcessionstothefirmsinthezones.OnemustcomparethesecostswithachievementofthepurposesforwhichtheSEZswerefoundedsuchasearningrevenuesandforeignexchangeandcreatingemployment.Doesthe contribution of the SEZs to the country justify the investments? Or could the resourceshavebeenutilizedbetterintheeconomy?HostnationsengaginginpromotingFDIthroughaggressivefinancialconcessionsbelievethatinvestorsarehighlyeconomic-sensitive.Theyoffermoreofthesameascompetitors.Botswana



should consider promoting FDI through differentiation by focusing on it being a peaceful,stabledemocracyonthecontinent.Thiscanbeapowerful incentiveespecially inthisperiodwhenterrorismthreatensglobaldevelopment.SEZsareaTransitoryPolicyInstrumentThe theoriesof “StageofEconomicDevelopment” and the “InternationalProductLifeCycle”imply thatSEZsareeffectiveonlyas transitorypolicy instrumentsduring the firstphasesofindustrialization and implementation of export-led growth strategies. SEZs are attractive toinvestors because of the existence of policy failures in the host country; as liberalizationcontinuesinvestorswillseenoneedforstayingintheSEZs.Ascountriesachievehigherlevelsofeconomicdevelopmentandincome,therelativesignificanceofEPZineconomictermscanbeexpectedtodecline.Thus, Botswana’s export-led growth strategies cannot rely solely on SEZs to achieve higherlevelsofeconomicgrowthinthelong-term.Thecountryshouldacknowledgethetransitionalaspect of SEZs, andmanagewisely the opportunities theymay bring to upgrade labour andmanagerialskills,acquiresuperiortechnologyandaccessforeignmarkets.Inotherwords,SEZshouldbeapartofamoreextensivepackageofpolicesaimedatimprovingtheinternationalcompetitiveness (Jenkins, Esquivel, & Felipe, 1998). For example, establishing an exportprocessing zone in aneconomy thathas already reformed itsmacroeconomicpolicies isnotrecommendedontwogrounds:(1)LowFDIflowsmaybeduetoinadequatelegalorregulatoryframework or economic incentives in other areas of the economy (for instance: privatepropertyorlabourlaws)and(2)SEZsaredistortionaryeconomicpolicyinstrumentsandwillre-introduceanelementofdiscretionintothepolicyenvironment.SuccessfullyincorporatingSEZsintothenationaleconomywillrequireperiodicrevisionsoftheSEZlawstoaccommodatechanging national economic conditions. On the other hand, domestic reforms should beformulatedsothateventuallythesameincentivesandbenefitsapplytoallfirms.TheRoleofGovernmentThewholediscussioninthispapersuggestsorimpliesthatSEZsareeffectiveincountrieswithstrong state involvement. The commitment at the highest level of government tocomprehensiveexport-drivengrowthpoliciesisapreconditionforsuccessoftheSEZspolicyinBotswana. The policy requires commitment of funds to amassive development programme.Whenthegovernmentdoesnothavethemoneyitcanlookoutforpotentialprivatepartnerswhoarewillingtoinvestinthatarea;thusawin-winsituationforboth.ReferencesCentreforEducationandDocumentation.(2009,July1).CentreforEducationandDocumentation.RetrievedOctober10,2016,fromTheImpactofSpecialEconomicZonesonSmallFarmersinIndia:http://base.d-p-h.info/en/fiches/dph/fiche-dph-7976.html

Essays....(2006).istherearoleforprotectionindevelopingcountries?Ifso,shoulditbebytariffsorsubsidies?RetrievedJanuary26,2006,fromhttp://www.mapeters.fsnet.co.uk/Essays/ec503c.htrn.

Goff,P.(2003).Developmentstrategies.DevelopmentEconomicsWebGuide,30(1).

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Jenkins,M.,Esquivel,G.,&Felipe,L.B.(1998).ExportProcessingZonesinCentralAmericaDiscussionPaperNo.646.HavardInstituteforInternationalDevelopment.

Khama,S.I.(2010).StateoftheNationAddressbyHisExcellencyLt.Gen.SeretseKhamaIanKhama,PresidentoftheRepublicofBotswana,totheSecondSessionoftheTenthParliament-"DeliveringPeopleCentredDevelopment".Gaborone:GovernmentofBotswana.



Magnier,M.(2016,July7).WallStreetJournal.RetrievedSeptember18,2016,fromBusiness:http://www.wsj.com/articles/how-china-is-changing-its-manufacturing-strategy-1465351382

Marandu,E.E.(2006).PerceivedObstaclestoExportingbyManufacturingFirmsInBotswana.BIACJournal,3(2),24-47.

RepublicofBotswanaMinistryofTradeandIndustry.(2010).SpecialEconomicZonesPolicyforBotswana:Industrialization,DiversificationandExportDevelopmentforGlobalCompetitiveness.Gaborone:GovernnmentPublisher.

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Tavakoli,M.(2016).ExperimentalInvestigationoftheRelationshipbetweenKnwledgeManagementandOrganizationalInnovationandCreativityintheDistrict5ofTehranMunicipality.ArchivesofBusinessResearch,4(6),112-121.


ExperimentalInvestigationoftheRelationshipbetweenKnowledgeManagementandOrganizationalInnovationand

CreativityintheDistrict5ofTehranMunicipality

MahsaTavakoliMScattheDepartmentofEducationalManagement

FacultyofHumanScience,IslamicAzadUniversity,SariBranch,Iran

AbstractIn the present research, effort is made to study the relationship betweenknowledgemanagementandorganizationalinnovationandcreativitydistrict5inthemunicipalityofTehran.Thisresearchhasbeenimplementedasasurveyandthedataandinformationiscollectedusingaquestionnaire.Thestatisticalcommunity, includingalldistrict5municipal staffs.Amongdifferentdeputiesoforganization,usingthemethodofmultistageclustersamplingproportionalto size, 90 individuals were chosen as samples.The findings of the presentinvestigation have shown that, there is a significant relationship between allthecomponentsofknowledgemanagementandorganizational innovation.Aswell as the findingsof regressionanalysis shows that theeffectofknowledgemanagement independent variable on the organizational innovation issignificantandcanbe fittedto2.7%of thedependentvariablechangesof theforegoing explication. The beta coefficient suggests that the pure effect ofknowledgemanagementvariableonorganizationalinnovationis(219.0)andisfittedforinfluencingpositivealso.Thismeansthattheincreaseintherateofknowledge management results in the increase of organizational innovationandviceversa.

Keywords: Knowledge management, Knowledge production, Knowledge transfer,Organizationalinnovation,District5ofTehranmunicipality.

INTRODUCTIONANDEXPRESSIONOFTHEPROBLEM

Knowledgeisavaluablesourcethatwillempowerorganizationstoinnovateandcompete.Thisknowledge could be among the staff to be aware of their part. Also having a managementprocess actually creates a system in the organization in which the knowledge work issystematic, and in order to turn knowledge into capital goods, organizations need to try tocreateabalancebetweenmanagementactivities.Theprocessofknowledgemanagementcanresult in the creation, dissemination, and the use of knowledge in the organization. In fact,knowledgemanagement,initsultimategoal,seekstoincreasethesmartnessandraisetheIQandintelligenceoftheorganization.IntheknowledgeOrganizations,knowledgecansimplybetransferredtothestaff.Whenstaffaccess to organizational knowledge, they know their environment and make it meaningful.Theycanfindnewandbettermethodsintheirexpertise,makeitmeaningful,andrunitupintheimplicationtoenhancetheefficiencyoftheorganizationtoo.Therefore,accordingtotheabovedescription,itcanbeinferredthatknowledgemanagementmeans: "process, creation, diffusion of knowledge and applying it in order to achieveorganizational goals".We live in an erawhere knowledge is power, and knowledge capitals



operateasapowertool.Thetaskofknowledgemanagementistomanageknowledgecapitalsoftheorganizationwhichmustundergoaprocesstoreachitsgoals.Maninhisevolutionaryhistoryandsocialevolutionhasmanagedtoproduceanduseknowledgetocreatechangesinthesociety.Knowledge management in the new era caused tremendous developments in establishingmanagementtopics.Knowledgemanagementseekstocapturetheknowledge,wisdom,andthevalue added experience of the staff and also implementation, recovery, andmaintenance ofknowledge as the properties of organization. As Peter Drucker said, "the secret oforganizations'successinthe21stcenturyisknowledgemanagement."Therefore,managementoftheorganizationsshouldadoptasuperiorknowledgetomakemorereasonabledecisionsontheimportantissuesandimproveknowledge-basedfunctions.Hence,knowledgemanagementis more important than the knowledge itself which looks for to know how to transformindividualandorganizationalinformationandknowledgetotheknowledgeandskillsofteamandindividualinorganizations.(Glasar,2003:214).Althoughmanyorganizationsalreadyhaveinvested in the field of the development of knowledge in the different levels and have beensuccessful,manyorganizationshavefailed.Knowledgemanagementisoneoftherelativelynewtopicsinthefieldofmanagementscience.This new management practices quickly welcomed by the management specialists, andextensiveeffortismadetoexploitthepotentialknowledgeofindividualsintheorganizationalproductivity.Knowledgemanagementactuallyisthewaythatbasedonit,wecanaccesstothehiddenfindingsof individuals''knowledgewhichinmanycaseshaveasignificantvalue.Thismanagement approach tries to encourage the spirit of participation and integration in theorganizations,andwidelyputforwardcollectivethinkingandsharingideas.Managersalsoaretryingtousetechniquesofinformationandknowledgeextractionoutofpeople,andthensaveandpublishittofindawaywhichmayhelpthemintheorganizationalproductivity.Themost important factorsunderlying thestructureof theknowledge-basedorganization isthe structure, culture, and information technology. The success of an organization in theimplementationofastrategy,includingknowledgemanagement,uptoalargepoint,dependson the organizational culture underpinning and support it gives to that strategy. Efforts oforganizations to become a knowledge-based organization will be successful if thecharacteristics of the required culture for the implementation of knowledgemanagement inthe organization are present. Information technology plays an important role in theimplementation of knowledge management. Perhaps one of the most important effectivefactorsistheexpansionofproperinfrastructureofinformationtechnologyandorganizationalstructure.LargecompaniessuchasMicrosoft(themosthigh-valuecompany in1998)aretheownerofnothing valuable but knowledge and information. Their economic play is to maintain theirscientific and technical property policy and expand their realm of knowledge and expertise.Professionals discover new knowledge, invent new products and new processes, managemanufacturing processes, maintain complex machines and equipment very well, and evenapplynewtoolsandprocesseswhicharetheresultofknowledgeadvancement.Thecreationofhumancapitalduetotheirnatureisasocialprocess,notindividual's.Expertiseandtechnicalskills of humans grows only when a generation transfers what he's learned to the nextgenerationsoastonotspendhistimeonrediscoveringwhathasbeendiscoveredbefore,butto spend his time and force to advance the existing knowledge and gain new expertise andtechnicalskills.BasedontheresearchconductedbyNonakaandTakeuchi,knowledgecreation



and knowledge management of Organizations has always been neglected in managementresearchandparticularlyingovernmentagencies(Gandhi2004:81).First,tomakeinnovationhappenintheOrganization,itisnecessaryforthemanagerstohavethe necessary knowledge regarding the internal and external factors that affect theorganization. Second, the knowledge must flow freely across the organization. The betterknowledge is flowed and published; the possibility of innovation is higher, because moreindividuals in different positions and levels of the organization are exposed to the newknowledge which interacts with their existing knowledge. Therefore, the present paper istryingtostudytheinfluenceofknowledgemanagementcomponentsanditsrelationshipwithorganizationalinnovationofdistrict5ofTehranmunicipality.

RESEARCHLITERATUREEmpiricalresearchliteratureRezai et al. (1393) conducted a study titled "factors affecting the implementation of theknowledgemanagement system in the health center of arsanjan town". The findings of thisresearch suggest that, generally, organizational culture, organizational structure, and thecapabilities of information technology are effective factors in the implementation of theknowledge management system in the health center of arsanjan. Also according to theprovided model, information technology has a role in mediating the relationship betweenorganizationalstructureandculturewithknowledgemanagement.GFImodelgoodnessof fitindexinthisresearchequalsto907.0whichindicatesgoodnessoffitindex.Boondao(2013)inastudyentitled"factorsaffectingknowledgemanagementoforganizationsin Thailand» showed that individual factors such as gender, age, status and education leveldoesnotimpactontheimplementationofeffectiveknowledgemanagementprograms.Aswellas theresultsofhisresearchsuggests thatorganizational factorssuchas infrastructuresandorganizational measurements are effective on the implementation of effective knowledgemanagementprograms.Lopezetal(2009)haveinvestigatedtheroleofinformationtechnologyandtheorganizationalstructure in the implementation of knowledge management. The results of their researchshowed that capabilities of information technology have direct and indirect effects on theprocessofknowledgemanagement.Inaddition,theresultsofLopezetalresearchshowedthattheorganizationalstructurehasasignificantimpactonknowledgemanagement.Johnson (2008) with the aim of evaluating the innovation as a component of knowledgemanagement,studiedeveryindicesofknowledgemanagementdistinctlyaccordingtocomingupwithnewideas, innovation,performance,discoveryofacompetitiveadvantage,andotherorganizational objectives, and showed that each of the knowledge management indicesseparatelyleadstohighereffectivenessoftheorganization.

- LevyandHazzan(2007)alsoconsiderknowledgemanagementasapracticalaspectoforganizational culture and stated how cultural changes are founded by theorganizational agility, and have expressed that this change in culture requiresknowledge management initiative. They also discussed the applying of theempowermentsofknowledgemanagement fromtheperspectiveof theagile softwareengineering and stated how to increase agility through data mining and knowledgemanagement.



- AlAlawi(2005)inastudystatedthattheimplementationofknowledgemanagementisnotsuccessfulinmostorganizations,sincetheseorganizationshavenotspreadenoughinformation technology and issues related to human, cultural, and organizationaldevelopment, which is essential for the successful implementation of knowledgemanagement,hasbeenignored.

THEORETICALLITERATURE

KnowledgemanagementAs the issue of knowledge management for the first time in 1994 Annual Report Swedishcompany, a leading financial service called Skandia began. The report contains a series offinancialanalysiswhichwastryingtoquantifythevalueofthecompany'sintellectualcapital.This company achieved a quantified aspect which was on spotlight since old times: TheIntellectualcapitalplaysaroleinfinancingsustainableincomesatleastasmuchasthesizeofthetraditionalfinancialcapital.Skandiaprovedamatterwhichmanagershadspeculationandsuspicionaboutforyears:knowledgeisavaluableassetlikeotherassetsneedsmanagement,development,andutilization.(Rading2004:1.(Butdiscussingtheknowledgeasavitalfactorinmaintainingcompetitiveadvantage firms isnotanewthing.AlfredMarshall formorethanacenturyinabookcalledprinciplesofmicroeconomicsstated"knowledgeisourmostpowerfulengineofproduction"(Marshall,1999:65).AftertheSecondWorldWar,severalscientistsalsoemphasized on the importance of the role of knowledge in economics .Since knowledgemanagementhasbeenstudiedaccordingtodifferentapproaches,aswellas,manydefinitionshave been stated, a definition could not be found that a global agreement about it exist.Davenportbelieves"knowledgemanagement isaneffort for thediscoveryof latentassets inthemindsofpeopleandtheconversionofthishiddentreasuretotheOrganization'sassetssothatawiderangeofindividualswhoareinvolvedintheOrganization'sdecisionmakingscanaccess to the wealth and use it (Davenport, 1998:16). Another author defines knowledgemanagement:knowledgemanagementattemptstomakestaffs'knowledge(humancapital)toa common organization (the structural intellectual capital) (Gandhi 2004:69). According toSchein,knowledgemanagement isaprocess is thatmakes itpossible for theorganization toemploy thenewknowledgeasvalidation,distribution,andapplicationand thus therangeoforganizational characteristics with enabling the company to improve the performance of"smarter"(Schein2001:5).TypesofknowledgeThe entire knowledge sources are likened to an iceberg which its visible part is explicitknowledge. This part of knowledge can be easily accessed to, identified, and shared. Thehiddenpartofthemountainiswhatisreferredtobytheterm"tacitknowledge".ThisepisodeisareminderoffamouswordsofMichaelPolanyi(1966),whichsaid:"Weknowmorethanwecan state" (Polannyi1966: 211). Explicit knowledge is the knowledge that can be coded.Examples of this type of knowledge are books, articles, lectures, organizational and othersimilardocumentationcompiledmethods.Incontrast,tacitknowledgeistheknowledgethatisnot easily to be coded. This knowledge, usuallywithin human beings, is the practice of theorganization,andeventhecultureofthecommunitiesandorganizationsimplied.NonakaandKonno (1998) believe that tacit knowledge is highly personal and abstract and hardlyexpressible.That'swhytheyfocusedonthedisseminationproblemoftacitknowledgeandalsobelievethatexperienceisoneofthemainsourcesofknowledgecreation(NonakaandKonno1998: 211). Although tacit knowledge management is far more difficult than explicitknowledge, itsvalue ina competitiveadvantage in theorganization ismore.Foranefficientknowledgemanagement,thecaptureofbothtacitandexplicitknowledgeisessential.Therealchallenge of knowledge management is to have the ability to discern and capture the tacitknowledgesoastoberetrievedwheneveritisneeded.Mostoftheorganizationsonlyfocuson



explicit knowledgemanagementwhich is easy to gain and comprise only 20 percent of thetotal knowledge of the Organization and they use tacit knowledge haphazardly. Convertingtacitknowledgetoexplicitknowledgeisdifficult,butnotimpossible(Gandhi2004:375).KnowledgemanagementbenefitsMeasurement of capital benefits associatedwith knowledge is one of themost difficult andchallenging modern business topics based on converted knowledge. Quantifying theknowledge is impossible, and it is not so simple tomeasure thedirect results of knowledgemanagement. Benefits of applying knowledge management activities, from technical tostrategic level,will affect on the level of culture and productivity of the entire organization.Someofthebenefitsinclude:

- Improvement of the competitive responses: empowering organizations to buildresponsiveness to changes in the market and accelerating time-to-market managerproducts.

- Reductionofcostsandavoidwastingintellectualcapital:thecaptureoftacitknowledgeallows the organization to apply that knowledge to maintain the processes for thefutureapplication,andremovescostsofretrainingstaffandtheprofessionals.

- Meet needs for global action: Actions which are geographically dispersed needparticularchallenges in theculturalandknowledgemanagement fields.Organizationsthathaveeffectiveknowledgemanagementcanendthespiritof"themandus",andturnwhatever that are into "we" and enable the efficient utilization of the dispersedresourcesmaximized.

- Job effectiveness: To implement knowledge management infrastructures, destroystraditional constraints, increasedknowledge sharingamong staffs, and thus improvestheeffectiveness.

- Organization effectiveness: tools, templates, and the best applications of knowledgemanagement that is associated with the culture of knowledge sharing culture. Acollaboration environment is shaped and the effectiveness of the organization isincreased.

- Determiningstrategicdirection:usingknowledgeculture,improvesthecreativityandinnovationconsequently,impactsonthestrategicdirection(Sivan2000:354).

OrganizationalinnovationandcreativityInnovation ismeant to fulfill a creative thinking, andorganizational innovation is thekey tosuccess in therepetitive fieldoforganization.Whenthe topiccomesto theword innovation,our attention unintentionally is paid to product innovation and sometimes the productionprocess, and even in some cases, there is no discussion about service innovation. Butinnovationintheprocess,marketing,andalsomanagementisnecessary.Whenyoutalkaboutthe importance of innovation and mechanism, we should note that only it is in a "world"competitiveenvironmentthatwecantalkabouttheseconcepts.Importance of organizational innovation in today's situation is very much to win and thesurvivalofcompaniesinvolvedinthecompetition;becausetheinnovationservesasadecisiveelementforcompaniesinthissituations(saeedietal.,2010).Innovationisaneworupgradedthingthatisinanorganizationinordertocreateaddedvalueeitherdirectlyfororganizationor indirectly for customers. On this basis, innovation can have different aspects, includingbeingfittedtobetheinnovationas"theprocessofcreatinganewtechnology","improvementprocessandupgradingtheexistingtechnology",and"theprocessofconvertingopportunitiesintopractical operation".Basically, from theperspectiveofmanagement, it is a process thatstarts with an idea and ends in a commercial release of improved procedures and new



techniqueintheproductionofaproductornewservice(fakourandAnsari,2009).Innovationin the provision of the product, including the production of new goods and products,introducing them to themarket, and themost importantbacking ishavingpristineandnewbearing ideaswhichcanproducenewproductprocesses,andbeusedinmoreefficiencyandeffectiveness of the organization. One of the procedures for this work is providing thenecessarysituationstoencourageindividualsandorganizationstoofferanideaofinnovationwhichcanpropel theorganizationorcompany to theorganizational innovation.Staffs' ideasandtalentsarethemaincapitalinorganizationsthatactoutinthisway(saeedietal).

RESEARCHHYPOTHESISThemainhypothesisThereisarelationshipbetweenknowledgemanagementandorganizationalinnovation.Thesubsidiaryhypotheses

1. Thereisarelationshipbetweenknowledgecreationandorganizationalinnovation.2. Thereisarelationshipbetweenknowledgestorageandorganizationalinnovation.3. Thereisarelationshipbetweenknowledgedistributionandorganizationalinnovation.4. Thereisrelationshipbetweenapplyingtheknowledgeandorganizationalinnovation.5. Knowledgemanagementhasapositiveimpactonorganizationalinnovation.

ResearchmethodologyThis research has been implemented in the form of a survey and since the results of thisresearchcanbeusedpractically,itisconsideredaspracticalpartofappliedresearch.Thedataof thisresearchhavebeencollectedataspecifiedperiodof time; therefore,according to thetimeofcollectingthedata,itisatypeofcross-sectionalresearch.Data and present research information are collected using a questionnaire. The statisticalcommunity,includingalldistrict5municipalstaffs.Amongdifferentdeputiesoforganization,using the method of multistage cluster sampling proportional to size, 90 individuals werechosenassamples.ValidityandreliabilityofthedatacollectiontoolsToobtaintestvalidity inthis investigation, thefacevalidity isused. Inthisway,weusedthetips and comments from some experts, and then reviewed the questionnaire questions andresolveduncertainties.Toassessthevalidity,cronbach'salphatestisusedwhichitsresultsarepresentedinthefollowingtable.

Table1:Cronbach'salphacoefficientsofresearchmainvariable Variable

Number of Questions

value of cronbach's alpha test

Knowledge Management

Knowledge Creation

8 0.78

0.88

Knowledge Storage

9 0.72

Knowledge Transferring

8 0.89

Knowledge Applying

5 0.77

Innovation

7 0.86



ResearchfindingsanalysisForthestatisticalanalysisofquestionresponsesvariousmethodscanbeused,theuseofwhichissubjecttotheconditionsandaresearchermusthaveithismindinrelationtohisresearch.DescriptivedataFirst, the collected data with the planned and prepared frequency distribution table ispresented in short, and eventually they are interpreted using the other parameters ofdescriptive statistics (central parameters, mean, median, mode, variance, and standarddeviation). In the following table, rating variables is based onmean and variance. It can beconcludedthatthemoremeanis,thebettervariablestatusis.Thus,meanrankingisbasedonthevalue,on theotherhand,variance indicates thedistributionof thereplies.Generally, thesmaller variance is, the lower distributions of responses are. And therefore, that variable islocatedinbetterstatus.Thefollowingtableisageneraldescriptivedataillustration:

Table2:DescriptiverankingofmeasuredvariablesStandard Variation

Variance (Descendant)

Mode Median Median (Ascendant)

Frequency Measured Variables

Ranking ng

0/7291 0/53169 4 4 4/075 90 Knowledge Creation

1

0/7697 0/59259 4 4 3/975 90 Knowledge Storage

2

0/7921 0/62756 3 3 3/8 90 Innovation 3

0/8292 0/68768 4 4 3/7917 90 Knowledge Transferring

4

0/8432 0/71111 4 4 3/75 90 Knowledge Applying

5

As it is shown, the results of both ranking are the same, in other words hypotheses withsignificanthighermean,havelowervariance.AnalyticdataHypothesis 1: There is a relationship between knowledge creation and organizationalinnovation.Pearsoncorrelationtestbetweenknowledgecreationandorganizationalinnovation

Table3:CorrelationtestbetweenknowledgecreationandorganizationalinnovationVariable Pearson correlation coefficient P-value

Knowledge Creation and Organizational Innovation

214/0

0.000

The above table represents the coefficient of correlation between knowledge creation andorganizationalinnovation.DuetothecorrelationcoefficientandalsoP-value,itcanbestatedthat the relationship between knowledge creation and organizational innovation is positiveandmeaningful.Hypothesis 2: There is a relationship between knowledge storage and organizationalinnovation.Pearsoncorrelationtestbetweenknowledgestorageandorganizationalinnovation



Table4:Correlationtestbetweenknowledgestorageandorganizationalinnovation

Variable Pearson correlation coefficient P-value

Knowledge Storage and Organizational Innovation

365/0

0.000

The above table represents the coefficient of correlation between knowledge storage andorganizationalinnovation.DuetothecorrelationcoefficientandalsoP-value,itcanbestatedthattherelationshipbetweenknowledgestorageandorganizationalinnovationispositiveandmeaningful.Hypothesis 3: There is a relationship between distribution of knowledge and organizationalinnovation.Pearsoncorrelationtestbetweenthedistributionofknowledgeandorganizationalinnovation

Table5:CorrelationtestbetweenknowledgedistributionandorganizationalinnovationVariable Pearson correlation coefficient P-value

Knowledge Distribution and Organizational Innovation

243/0

0.000

Theabovetablerepresentsthecoefficientofcorrelationbetweenknowledgedistributionandorganizationalinnovation.DuetothecorrelationcoefficientandalsoP-value,itcanbestatedthattherelationshipbetweenknowledgedistributionandorganizationalinnovationispositiveandmeaningful.Hypothesis 4: There is a relationship between applying knowledge and organizationalinnovation.Pearsoncorrelationtestbetweenapplyingtheknowledgeandorganizationalinnovation

Table6:correlationtestbetweenapplyingknowledgeandorganizationalinnovationVariable Pearson correlation coefficient P-value

Knowledge Applying and Organizational Innovation

286/0

0.000

The above table represents the coefficient of correlation between applying knowledge andorganizationalinnovation.DuetothecorrelationcoefficientandalsoP-value,itcanbestatedthat the relationship between applying knowledge and organizational innovation is positiveandmeaningful.Hypothesis5:Knowledgemanagementhasapositiveimpactonorganizationalinnovation.Regressionanalysisofknowledgemanagementfororganizationalinnovation

Table7:RegressionanalysisofknowledgemanagementfororganizationalinnovationKnowledge

management for

organizational innovation

Correlation coefficient

(R)

R- Squared

β coefficient (Constant) B

P-value

0.219 0.027

0.219 9.451 0.886

0.000



Table6showsthatknowledgemanagementindependentvariablehasameaningfulimpactonthe organizational innovation and can specify 2.7% of the changes of the aforementioneddependentvariable.Theβcoefficientsuggeststhatthepureeffectofknowledgemanagementvariableonorganizational innovationequals to (219.0), and is fitted forpositive influencingalso. Therefore, the hypothesis of the existence of the relationship between knowledgemanagement and organizational innovation can be confirmed. Of course, it should be notedthat the type influencing is positive. Thismeans that the increase in the rate of knowledgemanagementleadstotheincreaseoforganizationalinnovationandviceversa.

DISCUSSIONANDCONCLUSIONSThemostimportantgoalofapplyingknowledgemanagementatavarietyofinstitutionsistherapid adaptation to the surrounding environment changes in order to enhance theeffectiveness and more profitability. As a result, knowledge management indicates to theprocess of how to create, publish and applying the knowledge in the organization. In otherwords,theultimategoalofknowledgemanagementincludesknowledgesharingamongstaffstoenhancetheaddedvalueofexistingknowledgeinorganizations. One of the objectives ofknowledgemanagement is creating communication among individuals who know it so thatgradually the individual knowledge turns into organizational knowledge. Another goal ofKnowledgemanagementisthegrowthandpromotionofknowledgeamongstaffs.Inordertodo that, it is necessary to learn information technology and understand its underlyinginfluencesinthisprocess.Infact,theultimategoalofknowledgemanagementisincreasingIQororganizationintelligence.Considering that, the present research studies the relationship between the components ofknowledgemanagementandorganizationalinnovation,andbasedonstudiesconductedinthisfield and using the comments of experts of this field of study in defining the researchmainvariables,requiredindiceswereidentified.Accordingtothehypotheses,aquestionnairewasdesigned to examine the attitude of respondents and then using the results of thequestionnaireanalysis,thisrelationshipwasinvestigated.According to the findings of the present investigation, all hypotheses offered are approved.Organization in order to create knowledge, they must consider the tacit knowledge ofindividuals as a rich and hidden source of new knowledge and a base for organizationalknowledgecreation.But tacitknowledgecannotbesharedortransferredeasily toothersor.Becauseitismainlyacquiredthroughexperienceandcannoteasilybeexpressedwithwords.So,sharingtacitknowledgeamongmanyindividualswithdifferentattitudesandmotivationisan important step in the realizationofknowledgecreation.Also settingupa comprehensivesystem of knowledgemanagement and creating a personal portal (CKMS) and setting up avirtual forum(FORUM)and think tank (ThinkTank) for theexchangeof experiencesamongstaffswithallocatedknowledgecodeinordertomaintainimmaterialandmaterialrightsandencouraging staffs to this and the establishment and continuing the proposed system canincrease knowledge management in organizations and more also leads to organizationalinnovationandcreativity.Knowledge in theknowledgeorganizations canbe simply transferredandgiven toall staffs.When staffs access to the organizational knowledge, they can know their environment andmake itmeaningful.Theycangetnewandbetterways for thingson therun,work together,make up the absence of knowledge, increase their efficiency, persuade customers, andultimately gain power of effective competition. Organizations that take actions throughresearch and development, or more informal learning processes in order to produce new



knowledge outperform organizations which are knowledge based. Knowledge managementdeals with issues such as organizational adaptation, survival, and having strength inencounteringtogrowingenvironmentalchanges.Infact,knowledgemanagementtriestobeasynergistic combination of information processing, information technology and humancreativeabilities.Sincethefindingsofthisstudyconfirmtherelationshipbetweenthecomponentsofknowledgemanagement and innovation, to achieve innovation, organization managers are offered tostrengthenbehaviorsandknowledgemanagementproceduresinanorganization.ResourcesAlAlawiAI.(2005)thePracticeandChallengesofKnowledgeManagementinFinancialSectorsinBahrain,AsianJournalofInformationSystems;4(1):101-107.

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Ijaz,A.&Idrees,A.S.(2016).ImpactofFinancialLiberalizationandGovernanceontheFinancialDevelopmentinDevelopingCountries.ArchivesofBusinessResearch,4(6),122-144.


ImpactofFinancialLiberalizationandGovernanceontheFinancialDevelopmentinDevelopingCountries

AnilaIjazMSGraduate

AlvinaSabahIdrees

Lecturer,DepartmentofEconomicsGCUniversityLahore,Pakistan

Abstract

The study examines the impact of financial liberalization and governance onthefinancialdevelopmentindevelopingcountries.Thestudytakesthesampleof48developingcountriesandtimeperiodfrom2000to2014.Thestudyusesthedomesticcredittoprivatesector(percentageofGDP)asproxyoffinancialdevelopmentandformeasurementof financial liberalizationChin-Itoindexisused. The study finds that financial liberalization alone does not have asignificant effect on financial development however when financialliberalization is endogenized with governance then this impact becomespositiveandsignificant.Goodgovernanceenhancesthepositiveandsignificantimpact of financial liberalization. Therefore, financial development of thedevelopingcountriescanbeenhancedby the financial liberalization followedbygoodgovernance.KeyWords: financial liberalization,FinancialDevelopment, JELClassification:O16,F30

INTRODUCTION

The major contribution in the economic development of the society is of financial sectordevelopment and for financial sector development financial liberalization play amajor role.Thesetofinstrumentslikeinstitutionsandmarketsandalsoincludinglegalandadministrativestructureallowthetransactionstobemadethroughcreditextension.Allthesemakefinancialsector. The process of enhancement in quality, quantity and effectiveness of services offinancialintermediariesisfinancialdevelopment.Thisprocedureinvolvesthecommunicationof institutions and activities and is related to growth of the economy. In emerging anddeveloping economies financial sector development is taken as an approach of growth ofprivatesectortoreducepovertyandtoencourageeconomicgrowth.Financialdevelopmentistheneedofeverycountryinthepresenteraasitisenginetogrowthandprosperityoftheeconomy.Developmentoffinancialsectortakesplaceviareformsinthefinancial policies and structural frameworkwhich is followed by the financial liberalization.But sometimes financial liberalization cannot give fruitful results if institutions are notproperlyadministered.So,goodgovernancealsohasamajor role in thedevelopmentof thefinancial sector and implementation of policies. Research in the area of financial sectorliberalizationand financialdevelopmentalongwith the influenceofgovernmentpolicieshasbeen conducted internationally. Usually, individual country cases have been discussed bytaking time series data; however, limited research has been embarked considering thedevelopingeconomiesasagroup.Itisevidentfromtheliteraturethatdevelopmentoffinancial



sectorplaysakeyroleinthegrowthanddevelopmentoftheeconomyanditcanbeachievedviafinancialliberalization.Duetotheentryoftheforeignparticipantsinthelocalmarketsincreasecompetitionandmakethat market to abide by the international market rules and regulations. This makes thefinancial sectormore standardized. If an economywill be financially open for internationalparticipants of financial sector it will attractmore inflow and outflow of capital which willstrengthen the financial sector, due to this the local financialmarkets participants getmorechancestoaccesstheinternationalmarketsandbeingtheinternationalparticipantstheycangetbenefitsfromtheothermarkets.Thiswillleadtothefinancialdevelopmentoftheeconomyby strengthening the financial institutions and by attracting more inflow of foreign directinvestment.Thisfinancialdevelopmentwillinturnleadstowardstheeconomicdevelopment,makingtheeconomymoreprosperous.Therearemanyevidencessignifyingtheimportanceoffinancial sector development for economic development. Financial development viaaggregationofcapitalandtechnologicalevolutionbyescalationofsavingrates,circulationandaggregation of savings, optimizing capital allocation and encouraging foreign capital inflowspromotetheeconomicgrowth.Countrieswhichhavewelldevelopedfinancialsystemsbenefitfrom constant period of growth and many studies support and confirm this fact. Financialdevelopment is considered as the driver for growth. Financial development also calls forformulation of financial policies and regulatory structure. Lack of suitable and satisfactorypoliciesof financial sector can impactdreadfully.Developmentof financial sectorhas strongimpactondevelopmentofeconomy,bothwhenitiswellbehavedandfunctionsimproperly.Sometimes, financial openness alone cannot produce highly attractive positive result and inthat case role of governance gets vital importance. Better governance policies and theirimplementation also help to develop and strengthen the financial sector. The policymakershaveanumberofchoices;canimpactinterestrate,canchooseaboutoperationorcessationoffinancial institutions and also for financial intermediaries they can develop regulatory andadministrativestructure.It’suptothediscretionofpolicy-makerswhichfinancialsystemtheyallow to growand flourish. It is also important to realize that government actions are oftencomplementary to, rather than a substitution for, the market. This does not mean that thegovernmentwilltakeoverthemarket.Instead,thegovernmentcantakenecessaryactionsorsteps tomakemarketsmore efficient. This is the essence of regulation and good governingpolicies help the financial sector of the economy to develop bymaking policies rather thanmakingthemarketboundtotherulesandregulations.According to theWorld Bank (2013), states’ role in financewill differ by the confidence incountry’s political system’s capability to encourage the public good. It is difficult andcomplicatedtodeterminetheproperroleofstatesinthefinancebutisimportantasitisstatedas“onesizedoesnotfitallwhenitcomestopolicyintervention.”Morescopeofgovernment’srole in directing financial development can be seen in developing countries. However, ifinstitutionalframeworkislesseffectivethentherewillbelessdevelopment,asaresultofthisrisksofinappropriateinterventionswillenhance.Innovationsinthefinancialsystemchangesthe role of government naturally, as some innovations create the need of new governmentinterventions while some preclude the need of particular policies. Due to this complexityfinancial sector experts have different opinions regarding the pros and cons of stateinterference.This research deals with the role of financial liberalization and governance in the financialdevelopmentofthedevelopingcountries.Thisstudyanalyseswhetherfinancialliberalization



hasanyimpactonfinancialdevelopment;andalsoanalyseshowthisliberalizationimpactsthedevelopmentoffinancialsectorintheabsenceorpresenceofthegovernance.

LITERATUREREVIEWHellmann & Murdock (1995) analyzed the role of governance and financial institutions infinancial development by the establishment of policies and procedures and by creation ofreputationalcapital.According to thestudycomplete liberalization fordevelopingcountry isnot the appropriate recommended policy. Rather the country should invest more of theirresourcesinbuildingreputationalcapitalandgovernancemechanism.Thestudysuggeststheframework for attaining incentives from thepolicies of the government anddevelopmentofthe reputational capital. Reinhart & Tokatlidis (2000) examined the impact of financialliberalizationandfinancialreformsonthefinancialdevelopmentoftheAfricancountries.ThefindingsofthestudysuggeststhatoverallAfricancountriescannotgainfromliberalizationascompared to other developing countries andmiddle income countrieswhichmay be due tolackof institutionalreformsandfinancialmarketperfections.As thegaindoesnotappear intheshorttermbutinthelongtermitwillgivebenefitstotheAfrica.Wyplosz (2001) analyzed the impact of financial liberalization on financial sector especiallyfocusing on exchange markets currency crises than bank crises and analyzes that eitherfinancial liberalization is hazardous or beneficial. The study takes the sample size of 27developing and developed countries and employed autoregressive model of the exchangemarketpressureindexwithlagsofthefinancialrestrictionvariables.Thestudyalsoanalyzesthat financial liberalization on one side beneficial for the development but if not managedproperlycanleadtocrises.Thestudyconcludesthatthedevelopingcountriescangainmorefrom liberalization than developed countries. Similarly, Arestis, Demetriades, Fattouh &Mouratidis (2002) examined the effect of financial policies on the financial development ofdevelopingcountries.TheJohansen’scointegrationtechniqueandErrorCorrectionModelwasapplied. In some countries it impacts positively while in others it impacts negatively. Thisvariation appears due to the differences in institutional frameworks. Overall findings of thestudy suggest that the impact of financial policies including financial liberalization isambiguousanddependsoninstitutionalandgoverninginstitutions.Thereisaneedofinstitutionalandregulatorygovernancereformsbeforetheimplementationof financial liberalization (Crotty and Lee, 2005). The study took a sample of 17 emergingeconomiesandsampleperiodrangingfrom1973to2004.Regulatorygovernanceistakenasdependentandfinancial liberalization,degreeofeconomicdevelopmentandlevelofpoliticalrisk are taken as independent variable in the study. The study takes “agency independence,accountabilitytogovernment,legislatureandpublictransparencyandintegrity”aselementsofqualityofgovernance.Chin & Ito (2006) examine that which factor is necessary for financial development, eitherfinancial liberalization or legal and institutional development. This study analyzes the linkbetween financial development, financial liberalization and legal and institutionaldevelopment.Thisstudytakesthepaneldataof108countrieswhichincludeslessdevelopedeconomies and emerging economies and time period ranges from 1980 to 2000. The studyfinds development of general legal and institutional system is important than the financerelatedlegaldevelopment.Studyalsofindsthattoreapthemaximumbenefitfromopenness,trade openness should be preceded by financial liberalization. The study also finds that fordevelopmentofequitymarkets,bankingsystemofthecountryshouldbewelldeveloped.



Kose,Prasad,Rogoff&Wei(2006)provideawaytomeasuretheindirectbenefitsoffinancialglobalization. The study says that the indirect effects of financial globalization on financialsectordevelopment,institutions,governanceandmacroeconomicstabilityaremoreimportantthananydirectbenefitswhichareachievedviacapitalaggregationorportfoliodiversification.Quantity-based measures of integration are used. Dependent variable is growth whichindicatestheaveragerealpercapitaGDPgrowthwhileindependentvariablesincludefinancialopenness, initial income, human capital, investment rate and population growth. The studyfinds that financialglobalizationcanplayan important role increatinganumberofbenefitswhichincreaseslong-rungrowthandwelfareindevelopingcountries.Completeopeningofthecapitalaccountwithoutsufficientessentialsupportingconditions,policiesandgovernancecanhindertheattainmentofbenefitsandexposeacountrytoabruptstopsofcapitalflows.Ang & McKibbin (2007) investigate the impacts of financial liberalization on financialdevelopmentwhichleadstowardstheeconomicdevelopmentinMalaysia.Thepaperusestimeseriesdataandconductco-integrationandvariouscausalitytestsfortheestimationpurpose.Thispaperusesfourtrivariatevectorautoregressive(VAR)models.Eachmodel includespercapitarealGDP,financialdepthandsaving,investment,realinterestrateortradeopennessasconditioningvariables.ThepaperuseunitrootsbyusingAugmentedDickey-Fuller(ADF)test.The result of the study is concludedas the financial liberalization cannot increase economicgrowth without a well-behaving and efficient financial system which responds to changingenvironment.Greenidge & Moore (2007) the study finds the nexus between financial liberalization andfinancialdevelopment in threecountriesofCaribbeanregion thatareBarbados, JamaicaandTrinidad and Tobago. The study takes financial development as dependent variable andfinancial liberalization, real per capita income, real deposit rate and the number of bankbranches as independent variables. Due to the small sample size the study applies dynamicordinaryleastsquare(DOLS)techniquefortheanalysis.Thestudyusesdifferentmeasuresforfinancialdevelopmentandthenappliesprinciplecomponentanalysistogetsingleindicatorofit.Owingtopaceof implementationof liberalizationpolicies, thestudyendswith interestinganddifferentresultsregardingtheimpactoffinancialliberalizationonfinancialdevelopmentinthethreecountries.Overallfindingsofthestudysupportthefactthatfinancialliberalizationimpactsfinancialdevelopmentpositively.Naceur,Ghazouani&Omran(2008)analyze the impactof stockmarket liberalizationon thefinancialdevelopmentandontheeconomicdevelopmentofMENAcountries.Thestudytakesthesampleof11MENAcountriesfortheperiodof1979-2005.Thestudytakepaneldataanduses GMM technique for estimation. The paper takes economic development as dependentvariablewhichismeasuredaspercapitagrowthofrealGDPwhilestockmarketliberalizationalong with macroeconomic reforms is taken as independent variable. “Trade openness,inflation, government consumption to GDP ratio and the black market premium” areconsidered as macroeconomic reforms. The study analyzes that impact of stock marketliberalizationon financialandeconomicdevelopment inshort term isnegativewhile in longterm it is positive and liberalization should be started first for domestic economy then itshouldbeopenedforforeignmarkets.Baltagi, Demetriades & Law (2009) analyze whether trade and financial openness eitherindividuallyorcollectivelycanleadstowardfinancialdevelopmentwithglobalpace.ThestudyusesDynamicPanelGMMEstimationbyfixedeffects.Thestudytakesfinancialdevelopmentasdependent variable while lagged dependent variable, per capita income, trade openness,financial openness as independent variables. Financial development is proxied by private



creditandstockmarketcapitalization.Thefindingsofthestudyexpressthatrelativelyclosedeconomies can get benefit most from opening up their trade and/or capital accounts forinternationalmarkets. Khalaf& Sanhita (2009) examines the effect of financial activities i.e.financial repression and financial liberalization on financial development of Iraq. The studyused the “Autoregressive Distributed Lag (ARDL) model”. The paper found that neitherfinancial repression nor financial openness could impact positively on the financialdevelopment of Iraq.Thepaper analyzed that for positive impact on financial developmentbetter institutional reforms, better political environment and macroeconomic variablesstabilityshouldbemaintainedinIraq,thiswillhelpinpositiveimpactoffinancialliberalizationonfinancialdevelopment.AccordingtoMishkin(2009), financialglobalizationcanbehelpful for financialdevelopmentand economic growth and for eradication of poverty in emerging market countries.Liberalizationreducesthepowerofgovernmentandentrenchedprivatespecialinterestsandstrengthentheinstitutionalreformstomakethefinancialsystemstrongandworkbetter.Butiffinancial globalization is not managed properly can cause financial crises which leads toeconomichardship.Thepapercomparesthedifferentagesofglobalizationsuchasthefirstageof globalization (1870-1914) which ends up with “great reversal” and the second stage ofglobalization(1960-Present)andanalyzedthatintheseagesglobalizershavegained.Karikari(2010)investigatedfactorsthatdeterminefinancialdevelopmentinSSAcountriesbyfocusingon the role of governance and financial liberalization. According to the results, financialliberalization itself does not improve financial development in SSA. Improved financialliberalization actually resulted in lower financial development but on the other hand, theimpact of governance on financial development has improved over time which leads tofinancialdevelopmentCooray(2011)studiedtheimpactofgovernmentsizeandqualityonsizeandefficiencyofthefinancialsector,bytakingasamplesizeof71economies.Itwasfoundthatgovernmentsectorsizeandqualitybothareimportantforfinancialsectorefficiencyhowevergovernmentqualityismoreimportantthanthesizeofthegovernmentsectorforfinancialsectordevelopment.Thestudyanalyzesthatgoodgovernanceisapreconditionoffinancialdevelopment.Ahmed(2013)analyzed the role of financial liberalization in enhancing financial deepening and financialdevelopment leading to economic growth in Sub-SaharanAfrican countries (SSA).The papertakes panel data of 21 Sub-Saharan African countries over the period of 1981–2009 andappliestheGMMestimator.Thestudyfoundthat financial liberalizationimpactpositivelyonfinancialdeepeningandresourcemobilizationinSSAregion.

THEORETICALBACKGROUNDThe financialoppressionwhichdominated in thedevelopingand transformingeconomies in1970s and 1980s showed an amalgamation of the state-driven development, patriotism,politics and bribery. The financial system was employed as tool of government wheregovernmentsgaveloanatlesserinterestrates,usedtoolsofmonitorypolicyandgovernment-assuredforeignloanstoconfirmfundingforpublicfirmsandfortheirownandleftweregivento the sectors they prefer. For apportionment of funds importance of State banks wasnecessitated. Bank administrators started concentrated to fulfill the complex necessities offundsallocatedinspiteoffollowingprudentialregulations.LowerInterestratesweregiventodepositorstomaintainthelowcostsofloans.Sometimesthiswasconsideredasanimportanttooltoenhancethequalityofdistributionofincome.Thusoppressedfinancewasconsideredas systemof inherent tax and subsidy;with the help of this, states transmit resources fromcreditor to those state favored debtors. Lower interest rates create high demand for loans



whichmade it mandatory for government to distribute the funds. Measures for controllingcapital were necessitated not only to protect national savings but also to control capitalsweeping due to lower interest rate andmacroeconomic instability, and to get high returnsfrominflationtax.Capitalcontrolswereactuallyaformoftaximposedonpayerswhoarenotwillingtopaytaxandboostbarberry.The term financial liberalization covers anumberofmeasures, such as the autonomyof theCentralBank from thegovernment;means full libertyof capital tomove intoandoutof theeconomy.Freedomoffinanceallowsthefullconvertibilityofthecurrencyandleadstoendofgovernment-imposed differential interest rates; and the removal of restrictions of banks’ownershipleadingtode-nationalization,full freedomforforeignownershipandsoon.Thesemeasures not necessarily need to be implied in their optimal such as The NarasimhamCommittee in India did not requires for a entire denationalization of banks; the committeerecommendedthatthegovernment,theIndianprivatesectorandtheforeignerseachshouldshareone-thirdequityinthecurrently-nationalizedbanks.Everyeconomydesirestodevelopfinanciallyandeconomicallytoparticipateintheraceofthegrowth and development that’s why financial development is the need of every country.Developmentoffinancialsectoralsoincludes/entailsformulationofboomingfinancialpoliciesand regulatory structure. Lack of adequate financial sector policies could have catastrophicfallout. Financial development has serious impacts on economic development--bothwhen itfunctions well or malfunctions. Bearing in mind the financial-economic development nexusalongwiththerealizationof financialrepression’scost increasedresponsivenessfortheneedoffinancialliberalization.EconomicthinktanksandworldfinancialbodiessuchasWorldBankand IMF recommend for policies of financial liberalization. Financial liberalization meansrelaxationinfinancialindustry’sregulations.Financialliberalizationappearswhenrestrictionsof financial markets and financial institutions are eradicated or when financial innovationssuch as subprime mortgage loans are imported to the financial markets. There is rapidlygrowing literatureshowingandsupporting the fact that financial liberalization increases thefinancialdevelopment,imposedisciplinesonmacroeconomicpolicies,breedcompetencegainsfordomesticfirmsbydivulgingthemtocompetitionfromforeignentrant,andsetfreeforcesthat result in better government and corporate governance(Kose et al., 2006).According toIsard (2005) in the last fewdecadesagreater change in theglobal financial systemappearsduetomovementofprivatecapital fromindustrialcountriestodevelopingcountries.DuetothisflowofcapitalacrossborderthegrowthofworldGDPhasbeenincreasedtoomucheitherwemeasureitingrossornetterms.ThisflowofcapitalhasbeenoutpacedfasterthantheGDPofdevelopingcountries.Suchasincreaseindomesticfinancialactivities,internationalfinancialactivitiesalsoincreasedwhichleadstowardstheeconomicgrowthinlongrunbutalongwiththiseconomiesarealsovulnerabletofinancialcrisisandrisksassociatedwiththeincreasingfinancialobligations.Thereductionorremovaloftherestrictionsonfinancialactivitiesallowstheinvestortochoosemoreeffectivedestinationforhisinvestment.Thisefficientreallocationof funds will take place to most productive opportunities, which will leads to productivegrowth of financial and economic systems which in turn will benefits the whole society(Gehringer,2014).Financial liberalization allows concentration of the capital market, which is an obligatoryprovision for economic progress as cited by Shaw. Shaw said that financial oppression hasmany unconstructive results. In comparison to this financial liberalization has constructiveimpactongrowth,thankingtomostfavorabledistributionoffundswithasavingpricewhichshows its scarceness and the union of the domestic financial structure. Besides this also



reduces unemployment, propose a superior financial credit and the opening the way foroverseascapital.Financialliberalization,governanceandfinancialdevelopmentarelinkedwitheachotherandinfluence each other either positively or negatively depending upon circumstances.Governancemeansthetraditionsandinstitutionsbywhichauthorityinacountryisexercised.Thewaytoexercisethepowerthroughacountry’spolitical,economicandsocialinstitutionstomanage a country’s affairs at all levels is known as governance. It consists of processes,mechanismsandinstitutions,bywhichcitizenscoherenttheirinterests,exerttheirlegalrightsandreconciletheirdifferences.Basicgovernanceindicatorsare:governmenteffectiveness,ruleof law, political instability and violence, voice and accountability and regulatory burden.Whereas,goodgovernancealongwithotherfundamentalaspectsisparticipatory,accountableandtransparent.It isalsoefficientandunbiasedanditencouragestheruleof law.Thesearethe institutionswhichmake the financial sectordeveloped,prosperousand strong.Thewellfunctioningormalfunctioningoftheseinstitutionshaveastrongimpactonthefinancialsectorand its development which in turn impact on the development of the economy. Theseinstitutions are actually the governing bodies and departments which make rules, laws,implementtheserulesandlawsinanyspecificsectors.Financial institutions itself arepartofgovernancewhichregulate the financial sectorsby itsrulesandregulationandplayitsroleinthestrengtheningofthefinancialsector.Ifinstitutionswillbestrongandpowerfultoimplementthepoliciesandproceduresthentheseinstitutionsand governing bodies can control the financial sector, its development and become helpful,participativeandcontrollingauthoritiesineconomies’economicsituations.Astrongfinancialsystem allows diversification of risk and effective capital distribution. According to thisapproach,financialliberalizationimpactsgrowth/developmentthroughindirectchannelsandthese benefits can be detected in long periods. So, benefits of financial liberalization can bemore compelling in economies with more robust institutions and good macroeconomicpolicies. Conventional wisdom based upon theory of market efficiency that free capitalmovement enhances the global distribution of savings and help resources to move in theirmost fruitfuluses;henceescalating economic growthespeciallywithin countrieshaving lowcapital and fewer saving,but actual studiesdidnot found this.Thedefenderof the financialliberalization says that to reap the benefits of financial liberalization, some preconditionsshould be developed which includes developed and well regulated financial system, goodgovernance,soundmacroeconomicpoliciesetcbutthereisnoclearempiricalsupportforthisargument.Kose(2006)supports theopinionthat financial integrationactsasvehicle formanybenefitsincluding financial market development, institutional development, better governance andmacroeconomicdiscipline. It isnecessarytohaveawelldeveloped,wellsupervised financialsector,goodmacroeconomicpolicieswhichpreventcapitalflowsfrommakingacountrymoresusceptible to abrupt stops or reversal flows. Better macroeconomic outcomes of financialintegration can be achieved when certain threshold condition should meet. Thesepreconditions are trade integration, sound macroeconomic policies i.e monetary and fiscal,depth and sophistication of financial markets, quality of financial sector regulations,supervision,transparencyandgoodgovernanceetc.Financialsystemisveryimportantfordevelopmentoftheeconomy.Researchersbelievethatabsence of developed financial system hamper the economic development. Policy makersshouldformulatethepolicieswhichpromoteandreinforcethesubsistenceofwellfunctioning



financial system.Onone side financial liberalization is important andbeneficial for financialdevelopment;ontheothersideduetopoormanagementand lackofgoodgovernance itcanhave reverse effects. According to Eichengreen (2003) due towidespread prevalence of theinformationasymmetriesinthefinancialsystemthenfinancialliberalizationwillnotimprovethewelfareof theeconomy. Inenvironmentof financial fragility, financial liberalizationmaynotbeauniversalremedyandtoavoidseveredrawbacks,vigilantapproachesarerequiredFinancialliberalizationandglobalizationenhancethefinancialintermediary’sstabilitywhichcangetfundsabroadanddiversifytheirrisksandgetsavedfromlocalshocks.Globalizationoffinancial markets offers more competition and alternatives of finance for local firms whichallow them to flourish well. Due to this reason financial system become developed andcontributestodevelopmentoftheeconomy.Forfinancialsectordevelopment,formulationoffinancial policies and administrative framework is necessary. Moreover development offinancial sector involves the formulation of better financial policies and best administrativestructure.Devastatingresultscanappearduetolackofsatisfactoryfinancialpolicies.Evenawellbehavedorerroneousfinancialsystemhasseriousimpactsoneconomicdevelopmentoftheeconomy.Themainlimitingfactorofthestudyisthatittakesonly48developingcountriesasthedataofunderconsiderationvariables’ofalldevelopingcountriesisnotavailable.

DATAANDMETHODOLOGYThe main purpose of the study is to analyze the impact of financial liberalization on thefinancial development of any economy in the absence or presence of the governance. Thisstudy uses domestic credit to private sector percentage of GDP for financial development.Domesticcredittoprivatesectorisdefinedasfinancialresourcesgiventoprivatesectorthatareintheformofloans,tradecredits,otheraccountsreceivableandpurchasesofnon-equitysecurities that create a claim for repayment. The Chinn-Ito index (2006) is used tomeasurement financial liberalization. This index is based on binary dummy variableswhichindicatethetabulationofrestrictiononfinancialactivitiesacrossborderwhichareReportedinthe IMF’s Annual Report on Exchange Arrangements and Exchange Restrictions (AREAER).Governance is measured as average of six World Governance Indicators which includegovernmenteffectiveness,regulatoryquality,politicalstabilityandabsenceofviolence,ruleoflawandvoiceandaccountability.Thecontrolvariablesincludelegalorigin,Inflationandrealinterestrate.Thelegaloriginofthecountrymeanstheoriginsofthecountry’slaw;meansonwhichoriginlegalsystemofthecountrybased.Therearefivecategoriesoflegalorigini.e.civillaw,commonlaw,Muslimlaw,customarylawandmixedlaw.Thestudyusestwosystems;civillawandmixedlaw.Since,thesampleofdevelopingcountriesselectedforthecurrentresearchisusingthesetwocategoriesoflegalorigin.InflationismeasuredbytheannualgrowthrateoftheGDPdeflator.Realinterestrateisthelendinginterestratewhichisadjustedforinflation.The terms and conditions regarding lending rates vary from country to country; however,limitingtheircomparability.Thestudyusesthedataofreal interestrateretrievedfromdatabankofWorldBank.This study uses the unbalanced panel data from secondary sources for the developingcountriescoveringthetimeperiodfrom2000-2013and48countries.The data for financial development is taken from Global Financial Development andWorldBankwhilethedataforthefinancialliberalizationiscollectedfromtheChinn-ItoIndex(2013).Thedata for governancehasbeen collected from theWorldGovernance Indicators.Data forinflation and interest rate is collected from theWorldDevelopment Indicators. Thedata for



originoflegalsystemiscollectedfromthedatacompiledbytheUniversityofOttawa’sWorldLegal System Research Group retrieved from (http://www.juriglobe.ca/eng/sys-juri/class-poli/droit-civil.php).TheModelThe study measures the impact of financial liberalization and governance on the financialdevelopment of the economyboth individually and collectively. The study first analyzes theindividual impact of financial liberalization on financial development without taking intoaccount governance; then study finds this impact in thepresence of governance. The studytakesthefollowingfunctionalforms.

FD=f(FL,GOV,INF,INT,andLGO)………..(1)FL=f(GOV)………..(2)

According to functional form (1) financial development is the function of financialliberalization,governance,inflation,interestrateandlegalorigin.Accordingtothisfunctionalform governance is directly influencing the financial development. While second functionalformstates that financial liberalization itself is the functionofgovernancewhichmeans thatgovernance isnotonlydirectly influencing the financial liberalizationbuton theotherhandindirectlyinfluencingthefinancialdevelopmentoftheeconomyviafinancialliberalization.The study first tests only the first functional form in which governance is taken as theindependentvariabletoseetheimpactofgovernancedirectlyonthefinancialdevelopmentofthe economy in the presence of financial liberalization. The equation is estimated throughregressionanalysis.Thestudyfirstregresstheequationwithoutgovernancethenstudytakesthe governance as separate independent variable on the right hand side of the equation.Governanceistakenasseparateindependentvariableinthestudytofinditsdirectimpactonfinancialdevelopment.Lastly,studyincorporatesthesecondfunctionalform(2)bycapturingthe endogeneity of financial liberalization whereby governance acting as an instrumentalvariable. The econometric techniques employed by the present study are explained in thefollowingsub-sections.Thestudyusesthedummyvariablestomeasurethelegalorigin.Legaloriginsarecategorizedintodifferentcategoriesbutinthisstudyonlytwocategoriesoflegaloriginareusedthatarecivilandmixedlegaloriginaccordingtothedatasetused.Thestudytakesthecivillawasthebenchmarkandassignsthevalueof1toitand0otherwise.EstimationTechniquesIf regressors are not correlated with error term then the pooled OLS estimator is clearlyconsistent.Foragiven individualoneexpectconsiderablecorrelation inover time.Thismayleadtooverstatementof theestimatorprecision.Dependingupontheheteroscedasticityandcorrelationstructureassumedfortheerrorsandthepanelstructureeitheritisshortorlong,manycorrectionsarepossible.PoolOLS regression leads toan inconsistentestimator, if theindividualeffectiscorrelatedwiththeregression.AnimportantassumptionoftheOLSregressionmodelisthatalltheerrortermsshouldhavethe same variance. When this assumption is violated then there appears the problem ofheteroscedasticity. Due to heteroscedasticity, unbiasness and consistency properties of OLSestimatorsarenotdisturbedbuttheseestimatorsdoesnolongerremainbest,linear,unbiasedestimators.TheBreusch-PaganTest(1979)isusedtotesttheheteroscedasticity.



Thefixedeffectsmodelallowsforunobservedindividualheterogeneitythatcanbecorrelatedwithregressors.Theestimatedparametersarepanel-specificinterceptsandthereforepermitthe conditional mean of the dependent variable to fluctuate across panels. The linear fixedeffects estimator is consistent, even if the regressors are correlated with the fixed effects.Unlike the pooled OLS, the within estimator is an estimator whichmake use of the specialfeatureofpaneldata.ThemodifiedWaldtestisusedtotestthegroupwisehetroscedasticityinfixed effect regression model. Its null hypothesis is constant variance for all crosssections/individuals.TheWooldridgeTest(2002)isusedtoidentifythepresenceorabsenceofautocorrelationinpaneldata.PCSEs account for heteroscedasticity and cross-sectional correlation. This estimator iscommonlyusedwhileworkingwith time-series cross-sectional (TSCS)data. Panel correctedstandard errors account for the contemporaneous correlation across the units andheteroscedasticity’sdeviationsfromthesphericalerrorsandallowfortheimprovedandbetterresults from linear models estimated from TSCS data. The PCSE covariance shows somesimilaritywiththeheteroscedsticityconsistent(HC)estimatorsbuttheestimatorsotherthanthe PCSE do not explicitly incorporate the known TSCS structure of the data. This leads toimportantdifferencesinimplementation.Insomesingleequationmodelssingledependentvariableisinfluencedbysingleindependentvariable, that’s why cause and effect relationship move from independent to dependentvariables.Suchaunidirectionalrelationshipisnotalwaysmeaningfulinmanyothersituationswhere not only dependent variable is influenced by independent variables rather someindependent variables are also determined by the dependent variables. Such a two wayrelationshipiscalledsimultaneousequationmodel.Insimultaneousequationstocalculatetheparametersofoneequation,onehas to take intoaccount the informationprovidedbyotherequations.Whensome regressorsare correlatedwitherror termmeans, theyare termedasendogenous. The process of correcting this problem of endogenity involves search for suchinstrumentswhicharecorrelatedwiththeendogenousregressorsbutnotcorrelatedwiththeerrorterm.Forthispurpose,thetwo-stageleastsquares(2sls)canbeapplied.Thisinstrumentshouldfulfillbothconditionsthatitshouldbeuncorrelatedwitherrortermbutcorrelatedwiththeendogenousvariable.EstimationofSingleequationModel(WithandWithoutGovernance)InModel1financialdevelopmentisregresseduponfinancialliberalization,withouttakingintoaccountthegovernanceindicator.Followingistheequationwithouttheimpactofgovernance.Model1:FDit=α1i+α2FLit+α3INFit+α4INTit+α5LGOit+ε1it……………(3).In Model 2 financial developments is regressed upon financial liberalization in presence ofgovernance.Hereinmodel2ofthestudy,governanceistakenasanindependentvariable;tostudyitseffectonthefinancialdevelopment.Model2:FDit=β1i+β2FLit+β3GOVit+β4INFit+β5INTit+β6LGO1it+ε2it………….(4)WhereFD is the financial developmentmeasuredbydomestic credit toprivate sector, FL isfinancial liberalization measured through Chinn-Ito index, GOV is the governance, INF isinflation,INTisinterestrateandLGOisthedummyvariable.Thesubscriptiandtreferstothecross-sectionsandtimeperiod.



EstimationofModelusingTwo-StageLeastSquare(2SLS)Following is the equations for the 2SLS model of the study where governance is used asendogenousvariableeffectingfinancialliberalization.TheModel3isgivenasbelow:FLit=α10+β11Govit+ε1it…………….(5)FDit=α20+β21FLit+β22INFit+β23INTit+β24LGO1it+ε2it……………(6)Substituteeq(5)intoeq(6)FDit=α20+β21(α10+β11Govit+ε1it)+β22INFit+β23INTit+β24LGO1it+ε2it………...(7)Bycombiningerrortermsβ21ε1it+ε2it=μitModel3:FDit=α20+β21α10+β21β11Govit+β22INFit+β23INTit+β24LGO1it+μit….(8)WhereFD is the financial developmentmeasuredbydomestic credit toprivate sector, FL isfinancial liberalization measured through Chinn-Ito index, GOV is the governance, INF isinflation,INTisinterestrateandLGOisthedummyvariable.Thesubscriptiandtreferstothecross-sectionsandtimeperiod.Some of the regressors, being endogenous in nature, are likely to be correlated with thedisturbanceorerrortermthenthesimultaneityproblemarises.Therefore,simultaneitytestisessential. For thispurpose,DurbinWu-HausmanSpecificationTest as specifiedbyHausmanand Taylor (1981) is used. This is the test to check the consistency of an estimator whencomparedtoaconsistentalternativebutlessefficientestimator.Table 1 shows the results of model 1 illustrating the impact of financial liberalization onfinancial development,while controlling for thevariables suchas inflation ,interest rate andlegal origin, by using the Pooled OLS, Fixed effects and Panel corrected standard errortechniquesrespectively.TheresultsofthetableshowsthatfirstofallpooledOLSisappliedonthepaneldataof48countries.Thesummarystatisticsof thispooledregression indicate thenegativeimpactoffinancialliberalizationonthefinancialdevelopment.Tocheckthenatureofthe data that either it is homoscedastic or hetroscedastic Breusch–Pagan (1979)heteroscedasticity test is applied. The result of the test shows the high value of chi-squarewhich shows the presence of heteroscedasticity in the data; hence the null hypothesis ofconstantvarianceisrejected.Duetothepresenceofheteroscedasticity,thestudyhastomovetowardsthenexttechniqueofpaneldatathatisfixedeffects.Theresultsofthefixedeffectsalsoindicatethenegativeimpactof financial liberalization on financial development. For diagnostic purposes study applyheteroscedasticity test and autocorrelation test to conform the presence or absence ofheteroscedasticity and autocorrelation in the data. For groupwise heteroscedasticity studyapplyModifiedWaldtestandforautocorrelationWooldridge(2002)testisapplied.Theresultstatistics of theWald test indicate the presence of the heteroscedasticity in the panel data,leadingtowardsrejectionofnullhypothesisofconstantvariance.TheresultoftheWooldridge(2002) autocorrelation test leads to rejectionofnull hypothesis that is “no autocorrelation”,which means that autocorrelation is present in the model. After the detection of theheteroscedasticity and autocorrelation in panel data, the study moves further towards thepanelcorrectedstandarderror(PCSE)techniquetoresolvetheseproblemsofautocorrelationandheteroscedasticity.



Table1:RelationshipofFinancialLiberalizationandFinancialDevelopment(Model1) Variable

Estimation Technique Pool OLS Fixed Effect PCSE

FL -0.817 (0.23)

2.396* (0.06)

0.357 (0.48)

INT -0.949*** (0.00)

-0.376*** (0.00)

-0.268*** (0.00)

INF -0.543*** (0.00)

-0.224*** (0.001)

-0.252*** (0.00)

LGO 3.702* (0.08)

5.524*** (0.00)

Intercept 39.563*** (0.00)

32.168*** (0.00)

24.368*** (0.00)

Diagnostics Breusch-Pagan Test (Heteroscedasticity is present)

Wald Test (Heteroscedasticity is present) Wooldridge Test (Autocorrelation is present)

No Heteroscedasticity No Autocorrelation

Note:***indicatesthatcoefficientsarestatisticallysignificantat1%levelofconfidence**indicatesthatcoefficientsarestatisticallysignificantat5%levelofconfidence*indicatesthatcoefficientsarestatisticallysignificantat10%levelofconfidence

ThirdcolumnofTable1indicatestheresultsofthePanelCorrectedStandardErrortechnique.Thesummarystatisticsofthistechniqueindicatethatmostofthevariablesforthemodel1arestatistically significant but the variable of financial liberalization is statistically insignificant.Theresultsof this technique indicate thatcoefficientof financial liberalization is statisticallyinsignificantbutshows thepositive impacton financialdevelopment.As thestatisticsshowsthat one unit increase in financial liberalization causes 0.357 units increase in the financialdevelopment and vice versa. The relationship of financial liberalization and financialdevelopmentisambiguous.Althoughmuchliteraturesupportsthepositiveimpactoffinancialliberalization on financial development and growth but there is alsomuch literaturewhichcontradictthisopinionofpositiveimpact.Asmanystudiesspillinkoverthedirectrelationoffinancial liberalizationandfinancialdevelopmentsuchas,Fry(1995) ,Klein&Olivie(1998),Arestis et al.,(2002), Ranciere et al.,(2006), Ozdemir & Erbil (2008), Baltagi et al.(2009)supportthepositiveimpact.Inapaperresearcherarguesthatfinancialliberalizationleadstoimprovementinthefinancialsectorgrowthwhichinturnincreasethegrowthoftheeconomy.Fry (1995) and Arestis et al.,(2002) support the fact that in financial repression financialfragility increaseswhich isaheavytaxonthedevelopmentof financialmarketandeconomygrowth, as cited by the Ahmed (2013). Klein & Olivie (1998) examines that financialliberalizationhasapositive impacton financial sectordeepeninganddevelopment.Bumann(2013) support the positive anddirect relation of financial liberalization on the growth anddevelopmentofthefinancialsectorandeconomy.Koseetal.(2010)alsofindsthepositiveandfavorableimpactoffinancialliberalizationwhichisconditionaluponmacroeconomicpolicies.All these studies are in favor of positive relation of financial liberalization and financialdevelopment. The results of the current study also show the positive impact of financialliberalization and financial development; however this impact is highly insignificant. This



insignificancemaybeoccurredduetofinancialfragility,informationasymmetry,reductionofrelationship lendingetc.all thesecanbethereasonsof insignificantnatureof therelationoffinancial liberalization and financial development in developing countries. The coefficient ofreal interest rate is statistically significantand indicates thenegative relationshipof interestrate and financial development. As result shows that one unit increase in the interest ratecauses 0.268unit decrease in the financial development and vice versa. This relationship ofreal interest rateand financialdevelopment isalsoambiguousasmany theoriessupport thepositive impact of interest rate on financial development while much other literaturecontradictthisandalludethenegativeimpactofinterestrate.DeGregorio&Guidotti(1993)claim that very low interest rate leads to financialdisintermediationanddue to this growthreduces. While on the other hand, very high interest rate does not improve efficiency ofinvestmentratheritmovesthewaytolackofcredibilityofeconomicpoliciesorvariousformsof country riskscause lower investmentaswell as concentration inhighly riskyprojects.AsUdoh&Ogbuagu(2012)referredtheworkofWarmanandThirwall(1994)whocriticizetheinterestrateliberalizationhypothesisandsupportthefactthatinterestratenegativelyimpactstheinvestmentsandinturnthefinancialsectordevelopment.Theyarguethatopportunitycostofconsumptionincreasesbytheincreaseininterestrateafterinterestrateliberalization,dueto thishouseholdwill substitute somepartof their consumption to savingsandsavingswillincrease.Ontheotherhandwealthofthehouseholdsincreaseduetoincreaseinsavings,thisleads tomoreconsumptionpattern.Thisambiguoussubstitutioneffectwillproducecountereffectandfinallyleadingtooverallnegativeimpactonsavings.Thisnegativeimpactofinterestratewilleventually impact the financialdevelopment.Gupta(1984)alsoargues thenegativerelation of interest rate, savings and development. Nonfinancial corporations enter thefinancial sector to earn high returns by financial speculative activities and lenders feelcompelled to finance them for such speculative activities because of fear of loss of marketshare (Minsky, 1986). These speculations increase the risk and due to this financialdevelopment impedes.Arestis&Demetriades(1997)alsosupport theopinionthatcountriessuchasLatinAmericafacedthedevastatinganddestabilizingeffectsoffinancialliberalizationas financial liberalization unleashed the demand for credit by households by interest ratefluctuations. This high real interest rate did not improve the savings and investment; it justincreases foreign savings which are external debts, leading the countries to vulnerablesituation. Singh (1997) is also one of the proponents who argue the negative relation ofinterest rate and savings and financial development and claims that rapid growth of stockmarketswarnsaboutthepossiblespeculativepressurethatmaybegenerated.Theresultsindicatesthatcoefficientofinflationisstatisticallysignificantandindicatesthattherelationshipofinflationandfinancialdevelopmentisinverseinnature.Assummarystatisticsdepicts that one unit increase in inflation causes 0.252 units decrease in the financialdevelopment and vice versa. As inflation is linkedwith savings as it is the base of financialintermediaries.Rousseau&Wachtel (2002) support the fact thathigh inflation rate reducesthe financial development. Boyd et al. (2000) also examined the relation of inflation andfinancialmarketactivitiesthatinflationrateimpactsadverselyoncreditmarketactivitiesandhave negative effects on the financial sector performance. Boyd et al. (2000) provide theevidence that inflationhassignificant importantnegative impactondevelopmentofbankingsectorandequitymarket activity.According toKarikari (2010) inflation is expected tohavenegativeimpactonfinancialdevelopment.Thecoefficientoflegalorigin/dummy,i.e.civillawisstatisticallysignificantandindicatesthatcivil law is working better than the mixed law. The result indicates that civil law is 5.524times/unitsmoreefficientandbetterthanthemixedlaw.Thecoefficientoftheinterceptisalso



statistically significant and indicates the positive association with the dependent variablefinancial development. The intercept represents the other variables which can affect thefinancial development. The results indicates that one unit change in intercept value causes24.368 units change in financial development and that change is directly related with thenature of change in intercept. This means that other variables directly affect the financialdevelopment.Ifinterceptincreasesbyoneunitthenfinancialdevelopmentwillalsoincreasesby24.368unitsandviceversa.Asgovernanceplaysasignificantroleinthefinancialsectordevelopmentasprovedbymanystudies. So in this study also analyzed the impact of governance on financial development.Model 2 depicts the relationship of financial liberalization and governance with financialdevelopment. In this model governance is also taken as independent variable along withfinancial liberalization. The variables used in the model 2 are examined, analyzed and theresultsarediscussedbelowintable2.Table 2 gives the glimpse of summary statistics of results of model 2 which illustrates theimpactof financial liberalizationandgovernanceon financialdevelopment,whilecontrollingforthevariablessuchasinflation,interestrateandlegalorigin,byusingthePooledOLS,FixedeffectsandPanelcorrectedstandarderrortechniquesrespectively.Table2:RelationshipofFinancialLiberalization,GovernanceandFinancialDevelopment(Model

2) Variable

Estimation Technique Pool OLS Fixed effect PCSE

FL -1.925*** (0.002)

2.343* (0.08)

0.514 (0.23)

GOV 26.492*** (0.00)

10.332*** (0.002)

14.074*** (0.00)

INT -0.817*** (0.00)

-0.259*** (0.004)

-0.251*** (0.00)

INF -0.318*** (0.003)

-0.155** (0.02)

-0.197*** (0.00)

LGO 7.46*** (0.00)

3.982** (0.03)

Intercept 51.070*** (0.00)

36.976*** (0.00)

35.305*** (0.00)

Diagnostics Breusch-Pagan Test (Heteroscedasticity is present)

Wald Test (Heteroscedasticity is present) Wooldridge Test (Autocorrelation is present)

No Heteroscedasticity No Autocorrelation

Note***indicatesthatcoefficientsarestatisticallysignificantat1%levelofconfidence**indicatesthatcoefficientsarestatisticallysignificantat5%levelofconfidence*indicatesthatcoefficientsarestatisticallysignificantat10%levelofconfidence

ThesummarystatisticsofthispoolOLSregressionsignifythatallvariablesofthisregressionare statistically significant and indicate the inverse relation of financial liberalization and



financialdevelopment.TocheckeitherdataishomoscedasticorheteroscedasticstudyappliesBreusch–Pagan/Cook-Weisbergheteroscedasticitytest.Theresultofthetestshowsthelargevalueofchi-squarewhichsignalsthepresenceofheteroscedasticityinthedata;hencethenullhypothesis of constant variancemeans homoscedasticity is rejected. Due to heteroscedasticnatureofdata,thestudystepsforwardtowardsthenexttechniqueofpaneldatathatisfixedeffects.Theresultsofthefixedeffectsalsopointoutthenegativeimpactoffinancialliberalizationonfinancial development. For diagnostic purposes study applies heteroscedasticity test toconformthenatureofthedataeitheritishomoscedasticorhetroskedasticandautocorrelationtest to check autocorrelation in the data. To test group-wise heteroscedasticity study applyModifiedWaldtestandtotestautocorrelationWooldridge(2002)testisappliedbythestudy.The summarystatisticsof theWald test signify thepresenceof theheteroscedasticity in thepanel data, leading towards rejection of null hypothesis of constant variance,means data isheteroscedasticnothomoscedastic.Theresultof theWooldridge (2002)autocorrelation testleads to rejection of null hypothesis that is “no autocorrelation” means autocorrelation ispresentinthemodel.Afterfindingoftheheteroscedasticityandautocorrelationinpaneldata,thestudyproceedstowardsthenexttechniquethatispanelcorrectedstandarderror(PCSE),towipeouttheseproblemsofautocorrelationandheteroscedasticityfromthedata.Thirdcolumnoftable2showstheresultsofthePanelCorrectedStandardErrortechnique.Theresultsofthistechniqueindicatethatallvariablesforthemodel2arestatisticallysignificant.The summary statistics of this technique shows that coefficient of financial liberalization isstatistically insignificantbutrevealsthedirectandpositiverelationof financial liberalizationand financial development. As the result depicts that one unit increase in financialliberalizationcauses0.5141.925unitsincreaseinthefinancialdevelopmentandviceversa.Asthe relation of financial liberalization and financial development is ambiguous, financialliberalization can impact positively and negatively also. Both these negative and positiveaspectsofthisrelationaresupportedbythestudies.ManystudiessuchasFry(1995),Klein&Olivie(1998),Arestisetal.,(2002),Ranciereetal.,(2006),Ozdemir&Erbil(2008)supportingthepositive relationof financial liberalization.Ahmed(2012)andBumannetal. (2013)alsoadvocate the work of others regarding the positive impact of financial liberalization onfinancialdevelopment.Theresultsofthisstudyarealsoinlinewiththestudiessupportingtheinverserelationoffinancialliberalizationandfinancialdevelopment.Governanceplaysavitalroleinthedevelopmentofthefinancialsectorsasinsomeeconomiesfinancialliberalizationalonecannotbenefittheeconomypositively.Eithergovernanceiswellfunctioning or it is malfunctioning impacts strongly on the financial sector and itsdevelopment.Many studies support the fact that governance plays an important role in thedevelopment. According to Bashar and Khan (2007) developing countries cannot reap thebenefits of financial liberalization until and unless preconditions of basic infrastructure andgoodgovernancearefulfilled.Karikari(2010)supportstheroleofgovernanceandstatesthatfinancial liberalization can impact positively on financial development and for this goodgovernance structure and institutional development is required. Ahmed (2012) argues thatinstitutionaldevelopmentandproperfunctioninginstitutionsofgovernancearepreconditionsfor getting the positive benefits of financial liberalization. The results of this study are alsoinline with the studies supporting the positive role of governance on the financialdevelopment.Theresultsindicatethatcoefficientofgovernanceisstatisticallysignificantandindicates the direct relationship of governance and financial development. As result depictsthat one unit increase in the governance causes 14.074 unit increase in the financial



development and vice versa. As the results depict that governance not only itself enhancefinancial development but also leads the financial liberalization to improved financialdevelopment.The coefficient of real interest rate shows that it is statistically significant and shows theinverse relationship of interest rate and financial development. As the summary statisticsdepicts that when interest rate increases by one unit causes 0.251 units decrease in thefinancialdevelopmentandviceversa.Theambiguousrelationofrealinterestrate,savingsandfinancialdevelopmentiseminent.Someresearcherssupportthepositiverelationwhilemanyothers are in favor of inverse relation of them. Hellman et al., (2000) argues that due tofinancial liberalization franchise value of banks fall down which leads towards financialdisturbanceandmakethemtofacehighriskforhighprofitearningpurposesunderpressureof low interest rate margin. Due to this pressure of interest rates, banks go for gamblingstrategiesandpaymoreattentiontoprofitthanrisks.Thisisdisastrousforthefinancialsector.The summary statistics of the inflation shows that coefficient of inflation is statisticallysignificantandsignifythattherelationshipofinflationandfinancialdevelopmentisinverseinnature.Assummarystatisticsdepicts thatwhen inflation increasesbyoneunitcauses0.197unitsdecreaseinthefinancialdevelopmentandviceversa.Manystudiessupportthisinverserelation of financial development and inflation. The same inverse relation of inflation isadvocatedbytheBoyd,Levine&Smith(2001).The statistically significant coefficientofdummyvariable indicates theefficiencyof civil lawover the mixed system. As the results indicate that civil law is performing better than themixedlaw,civillawis3.982times/unitsmoreefficientthanmixedlaw.Theresultofinterceptshows that the coefficient of the intercept is also statistically significant and indicates thepositiveassociationwiththefinancialdevelopment.Theresultsindicatesthatwheninterceptchangesbyoneunit causes35.305unitschangeinfinancialdevelopmentandthatchangeisdirectly related with the nature of change in intercept. This means that if independentvariables are kept zero then one unit increase in variables other than the independentvariableswillcausefinancialdevelopmenttoincreaseby35.305unitsandviceversa.Themodel3 illustrates therelationshipof financial liberalizationand financialdevelopment,wheregovernanceistakenasinstrumentoffinancialliberalization.Thismodelisanalyzedbyusing2SLSorinstrumentalvariabletechniquewheregovernanceisbeingendogenizedinplaceoffinancialliberalization.Variablesofthismodel3areanalyzed,examinedandresultsofthisanalysisarediscussedbelow.Table 3 illuminate the results ofmodel 3 depicting the impact of financial liberalization onfinancial development,while controlling for thevariables suchas inflation, interest rate andlegalorigin,byusing2SLStechniquewheregovernanceistakenasinstrumentalvariable.Hereinthismodelgovernanceisnottakenasindependentvariableastakeninmodel2,ratheritistakenasaninstrumentoffinancialliberalization.Thesummarystatisticsofthistechniqueare shown in the table 5.3. As the result shows that all the variable of this model arestatisticallysignificant.Thecoefficientof financial liberalizationdepicts thedirectrelationoffinancial liberalization and financial development means there is positive relation betweenboth of these variables. By the increase or decrease of financial liberalization, financialdevelopmentalsorespectivelyincreasesordecreases.



Table3:RelationshipofFinancialLiberalizationandFinancialDevelopment,using2SLS/IVTechnique(Model3):GovernanceasendogenousvariableVariable Coefficients FL 69.757**

(0.02) INT -3.465***

(0.005) INF -1.632**

(0.02) LGO -35.125*

(0.07) Intercept 74.956***

(0.00) Diagnostics Durbin Wu-Hausman Test

(Variables are endogenous) Note:***indicatesthatcoefficientsarestatisticallysignificantat1%levelofconfidence,

**indicatesthatcoefficientsarestatisticallysignificantat5%levelofconfidence,*indicatesthatcoefficientsarestatisticallysignificantat10%levelofconfidence

Hereinthismodelgovernanceisnottakenasindependentvariableastakeninmodel2,ratheritistakenasaninstrumentoffinancialliberalization.Thesummarystatisticsofthistechniqueare shown in the table 5.3. As the result shows that all the variable of this model arestatisticallysignificant.Thecoefficientof financial liberalizationdepicts thedirectrelationoffinancial liberalization and financial development means there is positive relation betweenboth of these variables. By the increase or decrease of financial liberalization, financialdevelopmentalsorespectivelyincreasesordecreases.Theresultsdepictthatfinancialdevelopmentincreasesbyagreatervaluewhengovernanceisendogenized in themodel. If governance is used as instrument of financial liberalization, itimpact positively on the financial development. This change in the relation appears due togovernanceandinstitutionaldevelopmentasitisalreadyprovidedbymanystudiesthatduetogoodgovernancefinancialdevelopmentincreases.Sogovernanceplaysavitalroleinfinancialdevelopment either directly or indirectly. As Bashar and Khan (2007) and Karikari (2010)support the positive impact of governance on financial liberalization and financialdevelopment.Bytheincreaseofoneunitoffinancialliberalization,financialdevelopmentalsoincreases by the 69.757 units and by one unit decrease in financial liberalization, financialdevelopmentalsodecreasesbythe69.757units.Theresultssuggestthatduetogovernanceandinstitutionaldevelopment,relationoffinancialliberalization and financial development has been changed and financial liberalization isimpacting positively on financial development. The results of real interest rate depict thatinterest rate is negatively associated with the financial development, as when interest rateincrease financial development decreases and vice versa. According to result statistics ofinterest rate, byoneunit increase in interest rate financial developmentdecreasesby3.465unitsandviceversa.Udoh&Ogbuagu(2012)andDeGregorioandGuidotti(1993),WarmanandThirwall(1994)andHellmanetal. (2001)support theopinionsthatreal interestrate isinversely related with financial development. Similarly results of inflation also show thatfinancialdevelopmentdecreasesbythe1.632unitswithoneunitincreaseintheinflationandviceversa.Boydetal.(2000)andKarikari(2010)are infavorof inverserelationof inflation



and financial development. These studies support the negative relation of inflation andfinancialdevelopment.Thestudyusestwosystemsofthelegalorigin;civilandmixedsystemsaccordingtothenatureof the data. The results of legal origin indicate that civil law is less efficient than themixedsystem.The results depict that civil law is 35.125 times less efficient than themixedorigin.Thisresultisinaccordancewiththetheorieswhichsuggestthatmixedlawismostefficienttoacceptchangesinlaw,regulationandchangesinpolicies.Mixedsystemismoreadaptivetothechangethanthecivillaw(Karikari,2010).Interceptisalsostatisticallysignificantandsignifydirectrelationwithfinancialdevelopment.Thecoefficientofinterceptindicatesthatifdependentvariablesarekeptzerothenbyoneunitchangeinintercept,financialdevelopmentwillchangeby74.956unitsinthesamedirectionasintercept changes. If intercept increases, financial development will also move in the samedirection and will increase but if intercept decreases, financial development will alsodecreases. To test either variables are endogenized or not, Durbin,Wu-Hausmann test alsonamedasHausmannspecificationtestisappliedonit.Theresultofthetestshowsthatvalueofchi-squareissignificantwhichleadstorejectionofnullhypothesisofexogenousvariables.Thisindicatesthatvariablesareendogenous.Totestthepresenceofheteroscedasticityinthedata,after2SLShasbeenapplied,severaltestsareapplied.In2SLSafterapplyingHausmannspecification test variablesappear tobeendogenous , thestudyapplymanytestsforheteroscedasticityinpresenceofinstrumentalvariables,asthedataappearstobeheteroscedasticinnaturewhenpoolOLSandFixedeffectswereapplied.Totesteither data is still heteroscedastic or not study appliesmany tests for it such as Pagan-Hallgeneral test statistic, Pagan-Hall test w/assumed normality, Breusch-Pagan/Godfrey/Cook-Weisbergetc.TheteststatisticsofPagan-Hallgeneraltestindicatesthatvalueofchi-squareis7.729 and its p-value is 0.102which appear statistically insignificant. This insignificance ofchi-squareleadstoacceptanceofnullhypothesisthat is“disturbanceishomoscedastic”.Thismeansnowdataishomoscedastic,thereisnoheteroscedasticityinthedata.

Table4:Heteroscedasticitytestsinpresenceofinstrumentalvariable(IV) IV heteroscedasticity tests using levels of IVs only

Null Hypothesis (H0) Disturbance is homoscedastic

Tests Statistics Notations P-value

Pagan-Hall general test statistic 7.729 χ2(4) 0.102

Pagan-Hall test w/assumed normality 2.717 χ2(4) 0.606

White/Koenker nR2 test statistic 7.453 χ2(4) 0.113

Breusch-Pagan/Godfrey/Cook-Weisberg 3.407 χ2(4) 0.492

Source:Author’sowncalculation

CONCLUSIONSThisempiricalstudyfindstheimpactoffinancialliberalizationandgovernanceonthefinancialdevelopment of the developing countries by utilizing panel data of forty eight developingcountries for timeperiodranging from2000to2013with limitationofdataavailability.Thestudy analyzed this impact by using three different models in the study. The Model 1



specification finds the impact of financial liberalization on the financial development whilecontrollingforinflation,realinterestrateandlegalorigin.SpecificationofModel2relatesalsogovernance with financial development and finds the impact of financial liberalization andgovernanceonthefinancialdevelopmentwhilecontrollingforthecontrolvariables.AccordingtoModel 3 specifications, the study instrumented the governance in themodel for financialliberalization.Thestudyendogenizesthegovernanceinplaceofthefinancialliberalizationandfinds the impactof instrumental variableon the financial development,where inflation, realinterestrateandthelegaloriginarethecontrolvariables.The empirical study first imply pooled OLS technique both on model 1 and model 2 butaccording todiagnostics due to thepresenceof theheteroscedasticity in thedata, the studymoves further for fixed effects technique for both models. Here again the WaldheteroscedasticitytestandWooldridge(2002)autocorrelationtestwereappliedbythestudy.Thestudyfoundthepresenceofheteroscedasticityandautocorrelationinbothmodels.Thenthestudyusedthepanel-corrected-errortechnique(PCSE)forboththemodelstocorrecttheproblems of heteroscedasticity and autocorrelation. The results of the PCSE techniqueconformsthatmostofthevariablesofbothmodelsarestatisticallysignificantupto10%levelof confidence. The statistics of the model 1 indicates the direct relation of financialliberalization and financial development. The relation of financial liberalization anddevelopmentisambiguousbecausesometheoriessuggestthepositiverelationwhilesomeareproponent to it and suggest the inverse relation.This impact is althoughpositivebuthighlyinsignificant. According to theories this ambiguous relation of financial liberalization anddevelopmentmaybeduetootherfactorssuchasinstitutionalquality,policyreformsthatcanbe called as governance. Financial liberalization can be helpful in sustained financialdevelopment if well-behaving institutions of governance are working. As many empiricalstudies support the view of presence of governance for reaping the positive benefits fromfinancialliberalizationthat’swhythisstudyusesthegovernancevariableinthesecondmodel.The study finds that the governance impact positively on the financial development andrelationof financial liberalizationandfinancialdevelopmentisalsopositivebut insignificant.This insignificant relationmaybedue to the reasonof increased risk of speculative attacks,capital flight and instability of banking industry after the financial markets get liberalized.These canbe the reasonsof insignificant relationof the financial liberalizationand financialdevelopment.Togetthoroughinsightoftheroleofgovernance,thestudyinthethirdmodelinstrumentedthegovernanceinplaceoffinancialliberalization,toseehowgovernanceimpactthe development if it is used as instrument of financial liberalization. The statistics of thirdmodelrevealthatgovernanceimpactspositivelytofinancialliberalizationwhichinturnimpactthe financial development positively. The relation of financial liberalization and financialdevelopment appear direct, when governance was instrumented against financialliberalization.This leadstoconcludethatgoodgovernancedirectsthefinancial liberalizationtofinancialdevelopmentofthecountry.Sothestudyconcludesthatduetogoodgovernanceand improved institutional quality, financial liberalization brings fruitful outcomes for thedevelopment of economy and its financial sector. So to reap the fruitful results fromliberalization, economies should implement good governing policies and improvedinstitutionalqualityshouldbeencouragedandmaintained.Basedon theempirical results, the studyconcludes that financial liberalizationalonecannotgivetheexpectedpositiveresultsastheinstitutionsalsomatter.That’swhyinstitutionsshouldbe developed properly and also should be managed accordingly. Means there should be apropersystemofcheckandbalancefortheseinstitutionssothattheycanperformbetterandalsoshouldbeelastictochangesandreformsinthepoliciesandinstitutions.



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Kuswandi,Ujianto,&Kusmaningtyas,A.(2016).AnintegrativeFrameworkCapturingKyaiCharsimaticLeadershipandMaduraSocietyWelfareLevelinEastJava–Inonesia.ArchivesofBusinessResearch,4(6),145-152.


AnIntegrativeFrameworkCapturingKyaiCharismaticLeadershipAndMaduraSocietyWelfareLevelInEastJava-

Indonesia.

KuswandiEconomicDepartmentMahardhikaUniversity

Ujianto

EconomicDepartment17Agustus1945University

AmiartutikKusmaningtyasEconomicDepartment17Agustus1945University

Abstract

Objectives - The models used in the empirical study of leadership kyai inMaduraethnic in linewiththemoremodernenvironmentchanges.Reflectingthe environmental change this paper aims to propose a framework forleadershipofcharismatickyaiinMaduraethnic-basedimpactonthewelfareofstimulus-organism-response(S-O-R)wide.The design / methodology / approach - This paper offers a conceptualframework that integrates the components of the leadership of religiousscholarsinethnicMaduresekharismatic.Findings-Thisframeworkisusefulforacademicsandregions.Thisframeworkcanhelpsteeracademics tovariousexisting literaturecharismatic leadershipand help researchers development empirical studies that describe ethnicleadershipkyaiinMadurese.Fortheprofessional,thisframeworkcanbeusedasguidanceinbuildingasuccessfulregion.Research/Limitations/implications-Thispaperdoesnotexamineempiricallytheproposedframework.However,thispaperprovidessuggestionsforfutureresearch, including reviewing the empirical structural relationships in thisframework.

Keyword:Leadership,charismatic,kyai,andSOR,Papertype:Conceptualpaper

INTRODUCTION

In factMaduranatural resources isquiteapotential for capital inefforts to improvesocietyquality of life, especially in terms of economic aspects. But the reality of the Maduresecommunity itself can only enjoy a small part (20-35%) of the toil and labor in an effort toincrease revenuebyempoweringnatural resourceswhichpotential sohighamongsuchsaltprocessing, tobacco, agriculture, fisheries, mining, farming and natural attractions. Maduranaturalisquitelikelyandrich,buttobesaidtherich,Madureseisinappropriatebecausethemajorityofinhabitantsareinlowmediumeconomiclevel.Anditcanbeprovedthattheethnicof Madura are spread throughout Indonesia, the number of tribal population is around 3millioninhabitantsspreadtoseveralareasinIndonesia(BPS,2015).Madurese iswell known for speaking style like outspoken andhasproperties that loud andirritable, and high self-esteem and this is a very fundamental thing in the Madurese



community.Thevaluesoftheself-esteemiswhenitisincontactwiththeego,women,religion,landandwater.Theprimarybasisofself-esteemisashame(todus).EthnicMadurahasalwaysstressedon"tambanatodusmate",whichcouldmeanthatthecureofshameisdead.Examplesof various areas where ethnic Madurese always collide with other ethnic groups in thearchipelago,thesmallsamplewhenethnicMadureseclashwithethnicDayaksinSampittown,Balikpapan, Surabaya and other cities. If it is associated with the 21st century, the cure ofshame actually is having, mastering and capable of mastering science, behavior, capable ofcompetent with character and has a particular expertise and be able to act and solve theproblemonitsownwhenfacingproblems,especiallyeconomic(problemsolving).ProfessorDeliarNoorsaidthattheEthnicMaduraisabastionofIslamIndonesiabecausetheprovision of religiousness of theMadurese and the roots of a very strong understanding ofIslam, thoughsometimesstill seendoing the ritualof ‘PethikLaut’ (the Javanese language isfloatanoffering)andMaduraalsoknownasMadinahporch.Inadditiontothepeculiaritiesofthe Madurese described above on the other hand is known as savers, discipline, and self-consciousdevelopment.Tohajj,Maduresethoughpoorcertainlyandalwayssetasidealittleoftheir income for savings in order to perform the task of pilgrimage as a responsibility inrunningthefifthpillarofIslam.Facing the reality of theMadurese today, to be able to increase income per capita and theglobalworldasitwasrollingtodaywillimpactintotheworldofmaterialismandpragmatism,tofaceitallsoasnottogetstuckonthemoralityofforeignerswhichcontrarytocustomsandlocalmorality in this caseMadurese ethnic, especiallywith existing infrastructure currentlyused, existence of a bridge Madura to Surabaya and vice versa will facilitate social changewhich so strong the influence,here thatneededa leader figurewho is able to influenceandinvite the community of Madura to participate in improving the welfare. Here researchersraisedtheissueontheinfluenceofCharismaticKyaiLeadershipthroughculturethathaveanimpact on the economy. It required figure of Kyai in order to fortify themselves so that theMaduresearenotasleeptobeaffectedbyforeigncultureeventhoughitisnoteasy.ThesecondviewofresearchersisdisputedbyKuntowijoyostatingthatthestronginfluenceofKyaiorclericsinMadurasocietyduetoecologicalfactorsandsocialsystem.NaturalresourcesownedbyethnicMadureseforeconomicimprovementinadditiontocultivatedfieldsthathaveahighpotentialsuchassaltprocessing,agriculture,farmtourism,ecologyfactorofmooruntilnow still dominant, and these will be developed that have a promising perspective inimprovingtheeconomicvalueofthemooralone.AndweknowwiththeGreenRevolutionandtheBlueRevolutioninagriculture,ithasnotbeenabletochangethesystemofsocial,politicalandculturalofMadurese.SeeinggeographicalconditionofMaduraIslandfromtheeconomicside is expecting from the natural resources of the sprawling barrenmoor land and wateravailability isvery limited.Nationally, in theeconomyofMadurese, incomepercapita isstill8.4million/yearwhileinaverageoutsideMadura,EastJavadistrict, itsincomepercapitais26million/year(CBS,2011).MoorecosystemhasbecomeonewiththeMadurese,makingitdifficult to separate the effects on social organization and society symbol system. Pattern ofmoor ecosystem is optimized on processing land with potatoes, corn, beans and cattle isdevelopedwhichintendedtoshowthepatternofsettlement,improvingthewelfareandatthesametimevillageorganization.RelatedwithMaduracommunitythathasitsownpeculiaritiesand religious communities, religiousness symbolsareoftenusedand impose their choiceonKyaifigure.ThetoplayerofsocialstratificationoccupiedbytheKyai,theyareseennotonlyasa religious leader but also as a society and in general, Kyai deemed to have control oflegitimacyandcharismaticauthoritythattheeffectofleadershipreadilyagreedandstrangely



moredifficulttoaccepttheopinionsofotherswhohaveknowledge,insight,scientificintegrity.Kyai leadership competencies are an important effect on several fronts.At the same time inaddition to master religiosity, Kyai also master in social activities and even politics. KyaiLeadership understood correctly about the character of the Madurese besides its highreligiosity in applying the pillars of Islam. Madurese striking character is self-esteem. In areview of studies on Kyai leadership in Madura society does not yet exist in the literaturereview,researcherstriedtodigthroughtheframeworkofKyaicharismaticLeadershiponthecultureofsociety,publicwelfareofMadurainEastJava.

LITERATUREAccordingtoDhofier(1984)KyaidegreeofMaduresecommunityhasaspecialcharacteristicthatisadegreegivenbythecommunitytosomeonewhobecameheadoftheboardingschoolandhasareligiousknowledgeofIslam.Kyaidegreeisshapedanddeterminedbysociety,anditisnotadegreethatiscreatedsolelybythereligiousscholars.Thedegreeisasocialdegreethatdeterminestheprestigeofapersoninsociety.InstudiesofTowen-Bouswsma(1988)andJordan(1985) itcanbeconcludedthatthere isastrongindicationofthegovernment'sfailuretointegratepoliticalandeconomicsystemwhichisnationalinnatureintheMadurasociety’slife.Thisfailureiscausedbytheinabilitytosolveproblems,lessthinkingbasedonanalysis(accurate)andconceptual,notabletoabletobalancethe achievement of objectives and priorities. A politician (not compromise) and diplomats(representingtheteam)doesnotworkwithothers(superiorsandsubordinates).Charismaticleader,accordingtoIvanCeviche,etal.(2007),wasabletorealizetheatmosphereofmotivationonthebasisofcommitmentandemotionalidentityonthevision,philosophyandtheir style inside the subordinates’smind. Conger andKanungo (1987) in Yukl (2001; 291)states charismatic leadership theory is based on the assumption that charisma is a relatedphenomenon (attributional). According to this theory, attribution of followers fromcharismaticqualitiesforaleader,jointlydeterminedby:(a)behavior;(b)theleaderskillsand;(c)aspectsofthesituation.Explanationofattributionisabletopredictwhatiscausingothersshow certain behavior. Charismatic leader capable of playing an important role in creatingindividualchangeswithqualitiesofaherowhohascharisma.The indicators (Yukl, 2005) includes exciting vision, strong and expressive communication,personalriskstakingandmakingsacrificesthemselves,deliveringhighexpectations,showingtheassuranceoffollowers,buildingidentificationwiththeorganization/groupandprovidingauthority to followers.Charismatic leadersaregenerallyborn fromreligiousgroups thatgethigh religious education, have high morality, and tremendous appeal. (Bastiah, 2013).Leadership,accordingtoLocke(1991)suggestedthatleadershipistheprocessofpersuadingother people to do something to achieve a common goal. Hersey and Blanchard (1982)suggestedthatleadershipisapatternofbehaviorthatisdisplayedwhentryingtoinfluencethebehaviorofothers.Elementsofacharismaticsituations,amongothers:(a)theexistenceofacrisis,(b)requiresachange;(c)chancestoconveyideologicalpurposes;(d)theavailabilityofdramatic symbols; (e) theopportunity to explain the roleof followers inhandling the crisis.Thecharacteristicsandbehaviorofcharismaticleaderssuchas:(a)outstandingconfident;(b)has a vision, and is able to express the vision explicitly; (c) behavior outside the rules /unconventional; (d) have great communication skills and (e) are willing to sacrificesthemselves,takepersonalrisks.RealityinthefieldshowedcharismaticleadershiphasroleintheMaduracommunitythatthefollowersgreatlyrespectandappreciatehisleadershipastheimpactofexcessreligiouscompetence,loyalandfaithfultotheirkyai/leader,lovedtheleader,



hopeonhighperformanceaswellastheprinciplesoffollowerscompliancetowardthe‘kyai’orleaders.

FRAMEWORKOFRESPONSEORGANISMSTIMULUS(SOR)INLEADERSHIPFrameworkofS-O-Rinpsychologyenvironmental/ethnicity(MehrabianandRussell,1974),iswidely adopted to investigate the influence of traditional ethnic (Baker et al., 2002; Bitner,1992;)tothepublicresponse.Inaddition,someexamplesoftheresearchwillbepresentedtosupports the integrationof thecomponentsofKyai leadershipmodels for theMaduraethnicwelfare.Figure1showsmodel component integrationwithin the frameworkof theSORandoffersasetofvariablesforeachcomponentthatissynthesizedfromseveralempiricalstudiesonKyaileadership.Thefollowingisadiscussionofeachcomponentwithintheframework.

Figure1:FrameworkofSORinKyaiLeadership

StimulusStimulus is aboost in theenvironmentofMaduraethnic communities that couldpotentiallyaffect cognitiveprocesses/awarenessandaffective/emotional society. Stimulus studied inempiricalresearchvariesbythetypeofMaduraethnicenvironment(forexample,traditionalsociety,andculture).Inaddition,theresearchers(Bakeretal.,2002;Bitner,1992;TurleyandMiliman, 2000) synthesize the literature on the effect of the traditional environment on thecommunity response to produce several different structured factors which, however, alsoinclude the same stimulus variable. Environmental and social factors influence Kyai as acharismaticleader.Surroundingenvironmental factors(ambient) includenon-structuralelementsofsociety(forexample,education,andaccesstoinformation).Variablesstudieddifferbasedonsurroundingenvironmentalcues.Forexample,compatibilitywithothercues(BoneandEllen,1999;Fioreetal.,2000;);Modern(WardandDavies,2003);Most of the research on the influence of environment and charismatic leadership on theapproach responses employing experimental methods, which only considers one variablestimulusalone(BelliziandHite,1992).Therearesomeexceptionstothistrend.Forexample,Bakeretal. (1992)analyzed theeffectofacombinationofcues insurroundingenvironmentandsocialcues(numberandhospitality).Someofthepersonaltraitsthatgottheattentionofresearchersare: culturalvalues (Overbyet al., 2004;Tseet al., 1988);decision-making style(SharmaandStafford,2000;Wesleyetal.,2006);leadershipopinions(Flynnetal.,1996;anddemographiccharacteristicsexaminedincluded:age(YalchandSpangenberg,1990;);thelevel



of education, ethnicity (Herche and Balasubramanian, 1994); and gender (Yalch andSpangenberg,1993).OrganismOrganismincludestheprocessesofintercessionbetweenstimulusandresponseofconsumers.CulturalvariablethatconsistingofStraightforward,Open,Self-esteem,Harshinnature,Thrift,Discipline reflect intercessionmechanism in the organism. Each component of the organismwill be discussed separately from this research, but it must be remembered that thesecomponentsareinterrelated.ResponseResponse is the end result of internal processes in the organism,which is expressed as thebehavioror intentionsthatrelatedwith influenceornot influencetheMadurasocietyasPercapita, LifestyleQualityof life / ageandEducation (Bitner,1992).The interpretationof thisresponse is in accordance with the behavioral component of model that focuses on theselectionoftheattitudetodevelop.Holbrook(1986) if it isassociatedwiththeconsumptionmodelemphasizesthatthevalueistheresultoftheexperienceofconsumption,includingtheuseofpost-purchaseproduct,whichindicatesthatthevaluecanbeunderstoodastheresultofpost-response. Perception of values influence the selection, evaluation, purchase, use, andultimatelycustomersatisfaction/community.Inaddition,theperceptionofthevaluederivedfromoneofferofexperiencegivenbyafigureorKyaiasaleadercanaffecttheoutcomeoftheleadership.Forexample,thevalueusedasreferenceisMaduraethnicthatpleasantlyaffecttheperception of the leadership of Kyai, which in turn affects the mindset and lifestyle of thepeopleofMadura.

DISCUSSIONKyaiisthesocialstatusofapersonwhichinitselfisattachedtoavarietyofroles.OneoftheserolesheldbyKyaiistheroleofaleaderamongstthepeople,becauseofhispositionisoutsidegovernmentofficialstructures,theKyaicanbecategorizedasinformalleader.WhenKyaiserveas the leader, authority, role and trust in the leadership would received no doubt thoughmastery technically still needs to be improved, but strategy in the leadership of sciencesconcerningwith the technical thingswill be devolved to his assistant according to its area,realizedincollaborationindecision-making.LeadershipofKyaimoreoverrecognizedextendsnot only in ‘pesantren’ (school of Koranic studies for children and young people) and ‘silat’(traditional self-defense arts) college as the area of leadership but also to the surroundingsociety. Criteria of Kyai besides mastering religion-based science, has followers / students,relationshipwithparentswhoboardtheirson/daughter,societyenvironmentandatthesametime could be used for political purposes considering its thousands of followers throughoutIndonesia. Leadership of Kyai according to Gross, Masson and Mc Eachen in their writingExplorationsinRoleAnalysisdefinestheroleasasetofexpectationsimposedonindividualswhooccupyaparticularsocialposition.Theseexpectationsareabalancetosocialnormsandthereforeitcanbesaidthattherolesaredeterminedbythenormsinsociety.Role according to Levinson covers three things; (1) The role includes norms connected topersoninsociety;(2)theroleisaconceptofwhatcanbedonebyindividualsinthecommunityasanorganization;(3)Therolecanalsoberegardedasindividualbehaviorthatareimportanttothesocialstructureofsociety.Fromsomeviewsabouttheroleabove, itcanbeconcludedthattheroleofKyaiinMadurainadditiontotheindividual,themasteryofreligious,descentearlier, authority, has the social status in society which is no less important since what ispresentedisalwaysreceivepositiveresponsethatissometimesoffensivetothewomen’srightgenderelementsuchasmarriagethatdoesnotfollowthelawsofmarriage,aslongastheyare



alreadypasttheageof17-18yearsakhilbaliqage,thentheyarealreadylegaltomarried.Sothe roleofKyai in influence,mobilize the community in termsof thevaluesof religiousandimprove household incomes in optimizing the potential of the area that is said to have notexploredmaximumwillbematerializedwhether in fisheries,agriculture, land-use fields,saltfarmersandfinallythatbeingperformedbythepresentgovernmentismainlycattleranch.Especially inthecurrenteraofreform,thevaluesofdecentralizationandregionalautonomyoriented to government's approach to the community through participatory governmentpolicy, accommodative to thepublic so that the regionalpolicy is expected to impacton theimprovementofpeople'swelfare.ItreallyneedscharismaticleadershipastheroleoftheKyai.InMaduraitself,thetendencyofdecentralizationrealizationandregionalautonomyareevenmore increases the burden and cost of living so that the impression of leadership ingovernment is less trusted by the public especially their many public officials involved incorruption.CultureofMaduresesocietythatbecomeitsspecialcharacteristicsincludeastraightforward,open / outspoken, choleric, hard in nature, and thrift and discipline. Kyaiwere able to takeadvantageoftheirhigherqualityandmakeitmeaningfulineverydaylife,whichinturnisabletobeindependent in life,especially in improvingthequalityof life intermsofeconomicandsocial life. Social interactions of Madurese according to Geertz (1981) is elements of socialculturethatwasbornfromthingsthatpresumedtoexistinsociallifesothataccordingtotheauthors there is a significant relationshipbetweenMadurese characterwithKyai leadershipthatcharismatic.AndalsodescribedbytheresearchersthattherewasalsoafactorofheredityfromparentsoranyfamilyrelationshipwhichisstrengthenedwiththeprevioussuchasGlaserandMoyuihan(1981)whichstatedthattheessentialelementsofprimordialsuchasgenealogy(heredityandkinshipties),thesystemoftrust/religionandlanguage.Theleaderisapersonwhohastheabilityandauthoritytodirectandempowerthepotentialofthehumanincommunitythatbeingledinordertorealizetheobjectivesaspiredtogether.HoyandMiskel (2001),powerandauthority is said tobe theability tomakeothersdowhat theleaderwants, as alsodefinedbyWeber (1974) that thepossibility that an actorwho is in acertain position in a social relationship can win what being desired although by against it.Basedontheaboveopiniontherearethreethingsthatbecomethemaindiscussionconcerningthefigureofleaders,amongothers;(a)leadership;(b)powerand(c)authority?Meanwhile, the researcher revealed that the leadership of Kyai who is charismatic andunderstandthecultureoftheMaduresethathasitsownpeculiaritieswhichhaveneverbeenrevealedbypreviousresearchersasHoyandMiskelbesidesaleaderwhoonlyhavethepowerand authority aswell as the leadership, the leadership of Kyai is supported the ability of avisionarybasedreligiousandwillingtosacrifice forpeoplewho ledalthoughtakenfromtheassetsownedbyareligious-basedleadersandtheirheredityfactorwhichbecamethetrustofpublicearliersohischarismagainedfromtheiroffspring.

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Purwoko,B.,Gamal,A.&Kunhadi,D.(2016).TheLeatherIndustryDevelopmentinTanggulangininFacingAseanEconomicCommunity(AEC)2015withQuantitativeStrategicPlanningMatrix(QSPM).ArchivesofBusinessResearch,4(6),153-162.


”TheLeatherIndustryDevelopmentinTanggulangininFacingAseanEconomicCommunity(AEC)2015withQuantitative

StrategicPlanningMatrix(QSPM)”

Drs.BambangPurwokoLecturerfromUniversityofWR.Supratman

AhmadGamal,SE,MM

LecturerfromUniversityofWR.Supratman

DedyKunhadi,ST,MM.LecturerfromUniversityofWR.Supratman

Abstract

In facing the Asean Economic Community (AEC) 2015, the challenge that isbeing faced by Indonesian citizens of using the ASEAN market, thecompetitiveness is still relatively low compared other ASEANs, especiallySingapore, Malaysia, and Thailand. The problem that was faced by grandentrepreneurs which incorporated in INTAKO cooperative in facingcompetitivenessarequalifiedproducts,SNIcertificatedandprimaryservices.Then leather crafts industry in Tanggulangin, Sidoarjo needs a developmentstrategysothatleathercraftsindustryinTanggulangincouldnotceasetoexistandispreparedtofacethecompetitiveness.Thepurposeofthisresearchistoknow the leather crafts industry’s development work model whichincorporated in INTAKO cooperative in facing ASEANmarket especially MEA2015’s enforcement. This development strategy is capable to compete withother/similarproductsfromASEANnations.Wewishthatthechoosingofthisstrategy model is capable to elevate quality products using skilled humanresources, fueled raw material supplies, supporting modernized media andtools,productinnovation,primaryserviceandintegratedpromotion.Thedataanalysis method that is being used was SWOT Matrix and QSPM Matrix(QuantitativeStrategicPlanningMatrix).TheresultcouldbeconcludedthattheSWOTanalysistoevaluatedofInternalFactorandExternalFactorbyusingIFImatrixandEFEmatrixand formulated intoSPACEmatrix that thepositionofthe companywas cuurently in anaggressiveposition.Meanwhile theprioritybeing produced by QSPM Matrix is the biggest priority that is marketpenetration (first strategy). The result from QSPM Matrix calculation was astrategywith the highestweight as to 6,558. Data analysismethod usedwasMatrix QSPM (Quantitative Strategic Planning Matrix). Discussion, it can beconcludedthattheSWOTanalysistoevaluateinternalandexternalfactorsbyusingmatrixEFIandEFEandformulatedintothematrixspacethatthepositionof the company is currently inanaggressiveposition.Basedon the resultsofmatrix calculationsQSPMelectedwith thehighestweight strategywasa firststrategy(allinmarketpenetrationstrategy).

Keywords:QuantitativeStrategicPlanningMatrix(QSPM).



INTRODUCTIONTanggulanginisoneofthedistrictsinSidoarjothatsomeoftheciviliansareworkinginasmallleather crafts industry. Varieties of needs in leather materials are produced in this place,starting fromslippers, shoes,bags,wallets, suitcases, and jackets, andother thingsbasedonleathermaterials.Thisleathercraftsindustryactuallystartedfrom1939,andatthattimesomeoftheTanggulangin’sbagscraftsmenstartedwithbagsandsuitcases.TheAEC2015enforcementhadmadethegovernmentprioritized9industrysectortodevelopinordertofillASEANmarkets,someofthemare;agro-basedindustries(CPO,cocoa,rubbers),fish-processed product industries, TPT industries, shoes and leathers industries, furnitureindustries,foodandbeverageindustries,andbasicmetal,iron,andsteelindustries.Thequalityproduct’sstandardwillsubscribetoASEAN’squalitystandard.Upuntilnow,UMKMproductsthathavechancesinASEANmarket,wasobstacledbythatqualitystandard.The problems faced by Small and Medium Industry facing MEA end of 2015 includingavailability of various industrial rawmaterials are still many imports, for his own cowhiderequired of approximately 5,000,000 (five million) pieces, but new domestic production of2,000,000 (twomillion) pieces. The results of the research that has been done in INTAKO,wheremost SMEsdonot have SNI certification.Moreover, for the scale of SoutheastAsia isveryunfortunate.SoconcernedshalldirectthatSMEproductscertifiedSNI.AnotherobstacleisnotabletomeetdemandforthenumberofbuyersofproductssoastoreducethecredibilityofSMEs.LackoffacilitiestoINTAKO,soitwouldbedifficultforbuyerswhodonotknowforsurethat will impact buyers saturation or less comfortably. This can impact the buyer will belookingforsomewhereelsebesidesINTAKO.Whilethelastfactoristhequalityofservice.LackofuniformitybothclothingandtheservicewouldbebadimagesforSMEs.Themoreservicesreceived does not match the buyer hopes the buyer will move on to another place that iswelcomingandcomfortable.

LITERATUREREVIEWAccording toFred(2010:5), strategicmanagementcouldbedefinedasartandknowledge informulating, implementing, and evaluating functional-traffic decisions that enabled anorganization to reach its purpose. Strategic management focused on an effort to integratemanagement, markets, financial/accounting, product/operation, research and development,andinformationcomputertoreachorganizationalsuccess.StrategyformulatingtechniquesaccordingtoDavid(2011:76)areintegratedtothreestepsofdecision-makingframework.Thetoolspresentedinthisframeworkappliestoeverysizeandkinds of organization and could help, identify, evaluate, and choose strategies. Steps ofdecision-making framework could be seen in Strategy Formulation Analytical Frameworkbelow.

Picture1:Strategy-FormulationAnalyticalFrameworkStage 1 : The Input Stage

External Factor Evaluation (EFE) Matriks

Competitive Profile Matriks (CPM)

Internal Factor Evaluation (IFE) Matriks

Stage 2 : The Matching Stage SWOT Matriks

SPACE Matriks

BCG Matriks IE Matriks Grand Strategy Matriks

Stage 3 : The Decision Stage QSPM Matriks

Source:David(2011:177)



Picture 1 shows the decision making steps framework in formulation strategy. A basicinformationsummarywasformedinthefirststeptoformulateastrategy.Ininputstagethereare 3 matrix that is External Factor Evaluation (EFE), Internal Factor Evaluation (IFE)danCompetitive Profile Matriks (CPM). Information from the third matrix becomes thefoundation of matrix arrangement and decision-making by determining the correspondingweighandrating.Formulating strategy techniques could be integrated into three steps of decision-makingframework:

a. Inputstage,containsbasicinformationthat’sneededtoformulateastrategy.b. Matching stage, focused on rational alternative strategy making by noticing primary

externalandinternalfactors.c. Decision stage, involving only one technique, planning matrix, quantitative strategy

(QSPM)SWOTAnalysisSWOTanalysisisawaytoanalyzecompetitivepositionofacompany.SWOTanalysisisusingSWOT matrix to audit or rate an organization within its environment. In analytic strategyformulation,SWOTanalysisisthefirststepinMatchingStage.InarrangingSWOTmatrix,thedecision-maker focused on the main problems which therefore helps them to formulatestrategyplanning.Matching the primary external and internal factors is the hardest part in developing SWOTmatrixanditneedsagreatassessment.

1. SOstrategyutilizethecompany’sinternalforcetoattractprofitsfromexternalchances.Originally,anorganizationwillrunWOstrategy,STstrategy,orWTstrategyinodertoperformSOstrategy. Ifanorganization isbeing facedbyagreat threat, thenawaytoavoiditistoconcentrateonchances.

2. WOstrategyistofixinternalweaknessesintakingprofitsfromexternalchances.Asanexampleofinternalweaknessthatbecomesanobstacle:theremaybeahighchanceofdemandinelectronicstocontrolthefuelinjectiontimeandamountintoamachinecar(chances),butasparepartproducercouldnothavetheneededtechnologytoproducethe tool (weakness). One of WO strategy is to acquire this technology through jointventurewithothercompanieswhohavecompetencyinthisaspect.Otheralternativeistorecruitandtrainpeopletohavetechnicalcapabilitiesthatareneeded.

3. STstrategyusespowertoavoidorreducetheimpactofexternalthreats.Thisdoesn’tmean that a strong organization have to always face direct threats in externalenvironment.Example,whenTexasInstrumentsusesanideallawinstitution(strength)tohavecompensationandroyaltyasmuchas700$fromthetotalofnineJapaneseandKoreancompaniesthatviolatesmemorychipandsemi-conductorpatent(threat).Thisissurelyabigthreattoeveryindustriespossible.

4. WT strategy is a defensive tactic to reduce internal weakness and to avoid externalthreats.Anorganizationwithinternalweaknessandexternalthreatsareinadangerousposition and they may have to work to survive, doing merger, contraction, self-acclaimingbroke,orchoosingliquidation.

Systematicpicture fromSWOTMatrix isshowedbelow.ASWOTmatrixconsistsof9cells.4main cells, 4 strategy cells, and an empty cell (top left). The 4 cell strategy developed aftercomplementingthemaincellfactor.



Thereare8stepstomakeSWOTmatrix:1. Makeacompany’smainexternalchancelist.2. Makeacompany’smainexternalthreatslist.3. Makeacompany’smaininternalstrengthlist.4. Makeacompany’smaininternalweaknesslist.5. Matchinternalstrengthwithexternalchance,andnotetheresultinSOstrategycell.6. Matchinternalweaknesswithexternalchance,andnotetheresultinWOstrategycell.7. Matchtheinternalstrengthwithexternalthreats,andnotetheresultinSTstrategycell.8. Matchtheinternalweaknesswithexternalthreats,andnotetheresult inWTstrategy

cell.QSPMMatrixQSPM Matrix is a matrix used in the decision stage. This QSPM matrix shows the bestalternativestrategytobeimplementedinthecompany.Inthismatrix,thecompanytestssomethe best alternative strategy that could be found on the previous stage. The purpose of thisQSPMmatrixistodeterminewhichthebeststrategytobeimplementedis.In the decisionmaking stage, the organization needs to arrange the priority list. QSPM is atechnique objectively could settle the prioritized alternative strategy. QSPM is used tominimize strategy amount by determining relative attract from every strategies. QSPM hasadvantages and limitations (Nurfita, 2011). Some of QSPM advantages are 1) the strategyseriescouldbeobserved inorderly,2)boost thestrategyplanner toput inrelevant internalandexternalfactorsintothedecisionprocess,3)developingQSPMminimizethechancesthatmainfactorsaremissedorexcessivelygivenweigh,4)QSPMcouldbeadaptedtobeusedbyprofitandnonprofitorientedcompaniessoitcouldbeappliedtoanykindsoforganization,5)thesmalldecisionsincreasetheprobabilitythattheend’sstrategicdecisionisthebestfortheorganization.LimitationsfromQSPMare1)QSPMalwaysneedsintuitiveandassumptionbasedassessment,2)discussionbetweenstrategyplanner,manager,andcoworkerintheprocessofformulatingstrategyisaconstructivethingandfixingthequalityofstrategydecision,3)QSPMcouldonlywork by precondition information and matching analysis is to be based on. The steps inarrangingQSPMare:(Iskandarini,2004)

1. Makingexternal(chance/threat)factorlistandinternalfactor(strength/weakness)listintheleftcolumnofQSPM.

2. Givingweightforeveryexternalandinternalfactor.3. Analysingthematchingmatrixfromsteptwobyidentifyingthealternativestrategythat

istobeimplemented.4. Givingalternativescorewiththespanof:

a. Score1=withoutattractiveness.b. Score2=Lowattractiveness.c. Score3=Mediumattractiveness.d. Score4=Highattractiveness.

5. Timing theweight and alternative score in each internal and external factor in everystrategy.

6. Addupeveryalternativescore.

RESEARCHMETHODThisresearchisacontinuousresearchfrom2015that isdoneinsomeleathercraft industry(mostly bags and suitcases) in Tanggulangin, Sidoarjo. Primary data was obtained frominterviewsandquestionnaire fromrespondent,observation in field toknowthecompetitive,



externalandinternalfactors.Secondarydatawasobtainedfromliteraturestudyandinternalbagsandsuitcasesindustry.The criteriawill be examined respondentswhohaveknowledge andhave experienceof theobjectunderstudy.Respondentswereselectedtorepresentacompanythat isconsideredtohavedeepunderstandingofthecompetitiveconditionsandtheconditionofthecompanyasawhole, suchasadministrators, entrepreneurswhoaremembersof theCooperative INTAKO,DepartmentofIndustryandTradeSidoarjo,EastJavaProvinceandKadinEastJavaProvince.

1. Qualitativedata,basedondescriptiveinformationasrelatedtothesubmittedproblems.2. Quantitativedata,basedonnumbersasrelatedtothesubmittedproblems.

Basedonthesource:

1. Primarydatawasobtaineddirectly fromthemainsource in thecompanies jointwithINTAKO cooperation as to spoken or written from respondent, including interviews,questionnaire,andobservation.

2. Secondarydatawasobtainedfromsomepartiesinrelatedtothisstudy.Dataaccumulationmethod

1. Questionnaire,thedistributiontostakeholdersandintervieweesastoweightgivingandreviewinginternalandexternalfactors.

2. Interview,astostakeholdersandexpertswhoknewthepotentialfromINTAKO’sjoinedcompaniesusingguideinterviewthathasbeenpreparedbeforehand.

3. Observation,onfieldtoseeentrepreneursinINTAKO’sjoinedcompanies.4. Documentation,learningdocumentsthatarerelatedtothestudy.

AnalysisdatamethodAnalysis datamethod is used to simplify every accumulated data, systematically presented,then process and interpret the meaning of the data. This is to provide answers from theproblem of this study. The problem in this study is using SWOT analysis to devise thedevelopmentstrategywithQSPMmethod.Descriptive qualitative analysis is an arranging, numbering, classifying, coding, categorizing,andinterpretingqualitativeandquantitativeinformationwithouttheinvolvementofnumbers.

DISCUSSIONRespondents in this study are from 53 respondents there are 45 respondents to fulfill thecriteria.8respondentsdoesnotwith6goingoutoftownand3resigned.SWOTAnalysisIsonewaytoanalyzethecompetitivepositionofacompany?SWOTanalysisusingatechniqueoratoolcalledaSWOTMatrixtoauditorassessanorganizationanditsenvironment.Intheanalytical framework for strategy formulation, SWOT analysis is the first step in PhaseMatching. In preparing the SWOTmatrix, decision-makers put the focus on themain issues,whichthenhelpsthemtoformulatethestrategy.



Table3SWOTMatrix Strength (S) Weakness (W)

1. A lot of qualified manpower

1. Slow development of products.

2. Cooperation compiles leather production.

2. Less maximal in serving the costumers.

3. Raw materials supplier is still fulfilled.

3. Independent promotion is not maximal.

4. Sopshiticated

production machine. 4. Products aren’t SNI-

certificated yet. 5. Getting promotion

support from leather industry exhibiton.

5. Low quality product

6. Products with affordable price.

Opportunities (O) S-O Strategy W-O Strategy 1. Government’s policy in

enhancing industry sector for AEC.

Educated manpower is enough to compete (S1, O2)

Promotion should be enhanced (W3, O2, O3)

2. Leather crafts industry is still considered as the best industry.

Doing intensive promotion (S5, O2, O3)

Product development needs to be enhanced (W1, O1)

3. Vacation enhancement to Tanggulangin

Product with competitive prices (S6, O6)

Product needs to be certificated (W4, O4)

4. Raw materials and product buying are reachable

5. Leather crafts products are having potential as market leader

Threats (T) S-T Strategy W-T Strategy 1. Products from ASEAN would add the competiton

Manpower needs training (S1, T5)

Product development should be intensified (W1, T4)

2. Products from other countries with much affordable prices

Affordable and qualified products (S6, T2)

All products needs to be SNI certificated (W4, W5, T1, T4)

3. Society chooses import products because of the quality.

Increasing promotion with social media (W3, T1)

4. Same kinds of products from ASEAN

5. Enhancement of foreign manpower’s wage.

QSPMMatrixAnalysisAfterdevelopinganumberof strategic alternatives, the company shouldbe able to evaluateand then choose the best strategy palingcocok with the company's internal conditions andexternalenvironment.Thereare6stepstomakeQSPMmatrix(David,2002):

1. Arrangingthesamelistasswot2. Givingweight



3. Thesameasifiandefe4. Arrangingalternativestrategythatistobeevaluated5. Attractivenessscore6. Countingtotalalternativescore.Addingweightwithasvalueoneachinternal/external

factorsineverystrategy7. Countingthetotalofas

Table3.TotalAlternativeScore(TAS)

No Factor Strategy 1 Strategy 2 Strategy 3 Strength Weight AS TAS AS TAS AS TAS 1 Leather crafts industry in Sidoarjo have

qualified labor. 0,111 4 0,444 4 0,444 3 0,333

2 Having cooperation to compile leather crafts production

0,118 2 0,236 3 0,354 3 0,354

3 Raw materials from supplier is still reachable 0,119 3 0,357 3 0,357 4 0,476

4 Having sophisticated production machine from merchant ministry

0,112 3 0,336 4 0,448 4 0,448

5 Getting promotion support from Of place and leather crafts product exhibition

0,116 3 0,348 3 0,348 3 0,348

6 Marketed products have affordable price 0,108 3 0,324 4 0,432 3 0,324 Weakness 1 Acceleration in developing products is still

slow 0,048 3 0,144 3 0,144 4 0,192

2 Less maximal service to costumer 0,058 4 0,232 3 0,174 3 0,174 3 Promotion independently without the

assistance of relevant authorities is still less than the maximum

0,054 4 0,216 4 0,216 4 0,216

4 Handicraft products waas not yet ISO certified.

0,048 4 0,192 3 0,144 4 0,192

5 Low product quality. 0,053 4 0,212 4 0,212 4 0,212 6 Limitations of venture capital 0,056 3 0,168 3 0,168 3 0,168 Opportunities 1 Leather industry has a huge potential market

in which the population of the largest in the ASEAN Indonesia .

0,119 3 0,357 3 0,357 3 0,357

2 Leather products has the potential to become the market leader especially in East Java during the Asean Economic Community (AEC) menginggat the support of the Provincial Government promotion. East Java regency. Sidoarjo.

0,124 4 0,496 3 0,372 3 0,372

3 Government policies in terms of increasing the industrial sector to face the Asean Economic Community (AEC).

0,127 3 0,381 2 0,254 2 0,254

4 Leather industry in waas until today is still regarded as the best craft center in East Java.

0,126 3 0,378 2 0,252 3 0,378



5 With the ASEAN free trade or AEC, is affecting an increase in tourist visits to Tanggulangin

0,127 3 0,381 3 0,381 2 0,254

6 Purchase of raw materials and the addition of production equipment from abroad can be purchased easily.

0,116 4 0,464 3 0,348 3 0,348

Threats 1 The products of ASEAN will flood the market

in Indonesia entry into force of the Asean Economic Community.

0,049 3 0,147 3 0,147 3 0,147

2 Products from other countries cheaper prices with a wide variety and quality of products

0,058 4 0,232 3 0,174 3 0,174

3 Indonesian residents often prefer to buy foreign products as the life style and the assumption that foreign products of better quality.

0,054 3 0,162 4 0,216 3 0,162

4 The emergence of similar products originating from ASEAN countries.

0,049 3 0,147 3 0,147 4 0,196

5 The increase in labor costs is likely caused by a number of skilled workers seeking work in Indonesia.

0,051 4 0,204 3 0,153 3 0,153

Total 6,558 6,242 6,232 QSPMabovecalculationresultsbasedon the input from internalmatrixexternalweights, aswellasthestrategyalaternatifmatchingstage.So,aftercollectingdatathencanbesomeoftheresultsforcomparisonwiththestrategyofinternalfactorsandexternalfactors,amongothers,thestrategyof6.558,6.242andstrategiesoftwoofthethreestrategiesof6.232.BasedontheresultsofmatrixcalculationsQSPMchosenstrategywiththestrategyofthehighestweightof6.558. (Marketpenetrationstrategy).Marketpenetration,which is trying to increasemarketshareforexistingproductsonthemarketthroughamorevigorousmarketingefforts.Market penetration strategy to be successful, then the craft industry entrepreneursTanggulangainSidoarjoregencyleatherindustryshouldbesupportedby,amongothers:

1. Support the Government in the development of infrastructure businesses boostproductivityandencouragethegrowthofthebusiness,willhavenosignificanceforthecommunity, iftheirproductscannotbemarketedor, iftheycanbesold,butataverylowprice.Therefore,itisanimportantcomponentineffortstoincreasethequalityandquantity of productsTanggulangain leather industry is theproduction andmarketinginfrastructure.Throughtheirmarketing infrastructure fromtheproductionsite to themarket, will reduce the marketing chain and ultimately increase revenuesTanggulangainleatherindustry.

2. Network development handicraft industry leather industry Tanggulangain Sidoarjo.Through the development of business jariangan be expanded with a wide range ofnetworkpatterns, for example in the formof subcontracting network. Thepattern ofsuch networks already formed but in realiatasnya still not optimal. The pattern ofbusiness networks through subcontracting can be used as an alternative for theexistence of the craft industry leather industry Tanggulangain Sidoarjo. But



unfortunatelymanysmallindustriesthatjustdonothaveanetworkofsubcontractingand linkages with large companies that are vulnerable existence. So have theopportunity tobeaproduct thathasacompetitiveadvantageandcancompete in theglobalmarket.

3. Banking provides capital credit facilities. Through the ease of obtaining loans for

entrepreneursTanggulangainleatherindustry,isexpectedtobecapitaluntuykproductdevelopment.Thus thebank is expected tono longer justhunting for companies thathavebeenestablished,but alsoapioneer todevelop thepotential of theeconomybygrowing the leather industry employers Tanggulangain Sidoarjo district throughsupportoftheeaseofobtainingcapitalforbusinessdevelopment.

4. Leather industry Tanggulangain Sidoarjo Regency wile employees is an important

factorforanybusinessaswellasinthesmallbusinesssector.Thesuccessofsmall-scaleindustries that can compete with similar products and are able to penetrate globalmarkets or face of imported products in the domestic market is determined by theabilityofactorsinthesmallindustrytodevelopproductssothattheirbusinesscanstillexist. Makia development of small and medium enterprises, governments need toimprovetrainingfortheleatherindustryTanggulangainSidoarjodistrictbothintermsofentrepreneurship,administrationandknowledgeandskillsinbusinessdevelopment.Improving the quality of human resources is done through various ways such aseducation and training, seminars and workshops, internships in the workplace andbusinesscooperation.

CONCLUSION

Based on the results of data processing and analysis in the previous chapter, it can beconcludedasfollows:

a. SWOTanalysis to evaluate internal and external factors byusingmatrixEFI andEFEand formulated into thematrix space that position the company at this time are in apositionAggressive

b. PriorityproducedbyQSPMmatrixisthegreatestpriorityisthemarketpenetration(thestrategy). The results of matrix calculations QSPM chosen strategy with the highestweightof6.558.

RECOMMENDATION

Suggestionscanbesubmittedinthisstudyare:

1. To develop its business Tanggulangain leather industry employers Sidoarjo districtneeds to be improved internally which includes improving services, increasing thenumber of production, ISO certified products, accelerate product development, andincreasepromotion.

2. Employers Tanggulangain Sidoarjo regency leather industry need to start to do thepromotionbyusingflyers,brochures, leaflets,pamphlets,orotherpromotionalmedia,sothatmorepotentialcustomersknowoftheexistenceTanggulangainleatherindustry.



BibliographyDavid,2011,StrategicManagement,Edisike10,SalembaEmpat,Jakarta.

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Iskandarini,2004,AnalisisPemecahanmasalahdanPengambilanKeputusan,FakultasPertanianUniversitasSumateraUtamaMedan.

Rangkuty,Freddy.1997.AnalisisSWOTTeknikMembedahKasusBisnis,CetakanKedua,PenerbitPT.GramediaPustaka,Jakarta.


Khurshid,J.&Aykan,E.(2016).ManagementproblemsofTurkishBusinessesinAfghanistan:TheCaseofKabulandMazarisharif.ArchivesofBusinessResearch,4(6),163-177.


ManagementProblemsofTurkishBusinessesinAfghanistan:TheCaseofKabulandMazarisharif

JamshidKhurshid

ErciyesUniversity,Kayseri/Turkey

EbruAykanErciyesUniversity,Kayseri/Turkey,AppliedSciencesCollege

HumanResourceManagementDepartment

AbstractEconomic,political, socialand technological changesworldwidehavereachedtomassivesizes.Togetherwithmasscommunication,marketshaveexpandedanddimensionsofcompetitionhaveincreasedaccordingly.Thepresentstudywas conducted to identify management problems experienced by Turkishbusinesses operating in Afghanistan. Besides, basic problems of TurkishbusinessesinAfghanistaninflictedfromspecialconditionsofAfghanistanwerealso identified as another objective of the present study.Within the scope ofthese objectives, general characteristics of Turkish businesses operating inKabulandMazariShariftownsofAfghanistanweredeterminedandbasicandmanagement problems experienced by these businesses were investigated.According the research results, basic problems of Turkish businesses weregathered under 4 factors, namely as financial problems; security andinfrastructureproblems;economic,legalandtechnicalproblems;bureaucraticproblems.ThemanagementproblemsofexecutivesofTurkishbusinesseswerealso gathered under 4 groups as of problems related to planning function;problems related to controlling function; problems related to directingfunctionandproblemsrelatedtocoordinatingfunctionofmanagement.Key Words: Afghanistan, Turkish Businesses, Management Problems, BasicProblems,InternationalBusiness

INTRODUCTION

Rapidchangesanddevelopmentsthroughouttheworldorientedbusinessesandorganizationstomakeinternationalandglobalproductions.Businessesnowarespendinggreateffortstobesuccessful, to keep up with new competitive environment, to have low-cost and qualityproduction, todetermineconsumerpreferencesontimeandtogainashare innewmarkets.The organizations left behind relevant developments or not able to take place in globalizedmarkets are not able to compete and survive. Therefore, management functions should bewell-performedtoimprovebusinesssize,todistributeresponsibilities,tofollowtechnologicaldevelopments, complex activities and developments in control and organizationalmanagement processes, to achieve anticipated profit and to have successful transitions tofutureperiodsandtohaveessentialregulationsofbusinessadministration.Thewarenvironmentexperiencedsince1978hassignificantlydestroyedthesocio-economicstructureofAfghanistan.Themajorcitiesand townswithgreatemploymentproblemswerealso destroyed in this war environment. There was a quite weak infrastructure and therewasn’tacentralgovernmenttoseteconomicpolicies.Abankingsystemwasnotalsoavailable.



Existing commercial activities were going on beyond the national or internationalorganizations.FollowingtheannihilationofTalibanon7October2001bytheUSandUKforces(Büyükbaş, 2006, 120), UN organized a meeting in Bonn with the participation of Afghanpolitical leaders. With the Bonn Treaty signed in this meeting, a new government wasestablishedandthedoorsofthecountrywereopenedtotheworld.In this sense, following the annihilation of Taliban regime, Afghanistan adapted freemarketeconomyandtooksignificantstepsincreationofaregularbudgetofthecountry,preparationof National Development Draft for rebuilding and improvement strategies, preparation ofNationalDevelopmentBudget,developingnewreformsandprogramsinfinancialmanagementsystemtoregulatetherecognition,reportandinspectionofallfinancialoperations.Therefore,Afghanistanattractedtheattentionsofworldnationsandorganizationsfromseveralcountriesinitiated investments indifferent industries inAfghanistan.Turkishorganizationsareamongtheseworldorganizations.Turkishorganizationshaveconcentratedtheir investments inAfghanmarketsince2001andTurkishinvestmentsmostlyfocusedonconstructionindustry.Despitethestepstakentodrawinvestments to the country during the last two years, nation-wide security problems,bureaucraticbarriers,briberyandlegalstructurehavedisquietedinvestors.Movingfromthispoint and so on, the objective of the present study was set as to identify the managementproblems of Turkish organizations investing in different industries of Afghanistan and toidentifytheirbasicproblemsoriginatedfrominnerandouterenvironments.

LITERATUREREVIEWManagementandManagementFunctionsManagement is a business activity with others to reach a certain target (Ertürk, 2000, 6).Accordingtoanotherdefinition,itistoperformorganizationalactivities,toproducegoodsandservices or merchandising them by using physical, financial, and human and informationresources of the organization (Genç, 2010, 17). In general, management is defined as acontinuousprocessinwhichtwoormorepeoplecometogethertorealizeandsustainatargetand in which planning, organization, directing, coordination and controlling processes areefficientlyimplementedandoperated(Öztekin,2010,18).Movingfromtheabovedefinitions,managementcanbrieflybedefinedasfollows:

1. Managementisaprocess.2. Managementisfocusedonobjective-orientedactivities.3. Management is planning for proper decision-making on time and to reach desired

outcomes.4. Managementisanefficientuseofresources.5. Management is an objective-oriented coordination activity for the individuals of the

organization.ManagementfunctionsarehandledbythefirstmanagementscientistHenriFayolasplanning,organizing,directing,coordinationandcontrolling.Successofeverybusiness is totallydependentonefficientplanning.Sincespecificobjectivesconstitute the bases of management, the identification of these objectives and the ways toreachtheseobjectivescanonlybedeterminedthroughanefficientplanning(Albayrak,2005,277).



Organizingisamanagementfunctionanditisamongthemostsignificantones.Itisprimarilyrelatedtophysicalactivitieslikeproductionofgoodsandservices,divisionofthebusinessintodepartments and individual-society relations. It encompasses the activities required to formthe relevant structure for the realization of an objective (Buluç, 1996, 514). The structurecreated through planning and organizing processes should be activated along with theobjectivesofthebusiness.Thisisdonewiththeaidofdirectingfunction.Directinggoesonastheorganizationalactivityisgoingon.Directingisalsocalledascommandorexecutionandtheobjective of directing function is to provide efficient performance of the tasks assigned toemployees(Tutar,2010,223).Coordinatingisafunctionassociatingvariouspartsofbusinesswitheachother.Itisasignificantdutyofexecutivessincecoordinationallowsthecombinationof efforts, time scheduling, sequencing of complementary activities to reach a commonobjective(Bahar,2011,190).Controlling is the last and continuous function of management.Completion of managementprocess is only possible with a successful control. With this function, whether or not thedesired objectives were achieved or to what extend these objectives were achieved isdetermined. Controlling is a task performed whether or not the business activities wereperformed in accordancewith accepted plans, given instructions and set principles (Mucuk,2013,171).InternationalBusinessInternational businesses, among the most significant organizations in today’s economicsystem, can be defined in different ways. For instance, international business is defined ascorporations making production or commerce in one or more branch of activity not onlywithin the nation but also in foreign countries (Ünsar, 2007, 696). According to anotherdefinition, international business is defined as an organization performing productionfunctions and producing and marketing in different countries to provide additionalprofitabilityoftheinvestment(Tağraf,2002,38).International business activities can be divided into two categories. These are internationaltradeandinternationalinvestment(Aydın,2007,3).Whenanorganizationdealswithimportand export of goods and services, an international business then is realized. Whenanorganization transfers its funds to a foreign country to carry out business activities, theninternational investment is realized. International investments can be implemented indifferent fashions suchas an investment throughabranch totallyownedby itself, as a JointVenture with a local organization, a license business, franchising activity or as a turn-keyproject(Koparal,2012,4).ManagementFunctionsandProblemsofInternationalBusinessesImplementationofbasicmanagementfunctionsininternationalorganizationsispossiblewithahandlingofmanagementfunctions inageneralperspective.Planning,organizing,directing,coordination and controlling functions are provided through handling domestic and foreignactivitiesinageneralperspective(Özalp,1986,310).Planning in International Businesses: Planning plays significant roles in every stage ofinternational businesses (production, licensing, foreign production and etc.). Either beingnational or international, planning function is the key item for the success of management(Özalp, 1998, 112). Assessment of international opportunities and threats is the primaryprocesses for internationalbusinesses torealizeefficientplanningactivities (Atik,2007,52).Planning is a process in which activities required to achieve organizational objectives areidentified.Thisprocessalsoincludesinformationgatheringactivitiesofthebusinesses(Türker



and Örerler, 2004, 83). With this function, information gathered about the strategies anddecisionsdesignatingtheobjectivesandpoliciesoftheorganizations.Planninginbusinessesisdirecting organizational activities of the businesses to defined and recognized objectives(TürkerandÖrerler,2004,83).Planningininternationalbusinessesisthesameasplanninginnationalbusinesses.However,there may be some differences and complexities since foreign cultures, laws, taxes, lifestandards, businessmethods, relations to statemay be quite different from one country toanother(Mace,1986,160).The plans made in international businesses should be comprehensive and flexibleand takevarious factors into consideration. Planning should be performed by the executives of theparent company. There shouldn’t be conflicts between the general plans and reginal plans.Localplansareusedforthesuccessofgeneralplans(Ünal,2008,37).Whilepreparinginvestmentplans,internationalbusinessesusuallyinvestsincountriesrichinraw material sources and in countries where labor costs are low and environmentallegislationsareflexible.Besides,internationalbusinessescarryouttheiractivitiesindifferentcountries through global networks. These businesses also plan their productions across theworld(Atik,2007,54).OrganizinginInternationalBusinesses:Organizingisprimarilyrelatedtophysicalactivitieslikeproduction of goods and services, separating the business into departments and individual-community relations and covers the activities to form a structure required to achieve acommonobjectiverequiringacommoneffort(Buluç,1996,514).Internationalbusinessestendtodifferentorganizationsforbettercompetitionininternationalmarkets.Organizingmaycreateseriousproblemsandconflictseveninparentcountry.Thesizeofsuchconflictsmayextendininternationalbusinesses.Internationalbusinesseshaveaplannedapproachwhile forming theirorganizationsrangingfromthemanagementofexecutivesofparentcompanytomanagementofbranches.Authorityand responsibilities are identified from the board of management and general directors tolowerorders. Inoperationoforganization, initiallydecision-makingprocess is implemented,thendecisionsareappliedandfinallycontrolofactivitiesisperformed(Özalp,1986,136).The factors effecting organizational structure of international businesses can be ordered as(Özalp,1998,137-140);growthratesofbusinesses,philosophyofexecutives,objectivesofthebusiness, relative significance of national and international activities, authority andresponsibilityofthebusinessandtheregionswherethebusinessisoperated.A business intended to operate in international markets initially has to carry out someinvestigations. In this way, the business may be able to well-comprehend the internationalopportunities. International operations usually have various factors and ambiguous future.Therefore, a well organization is required for profitable international operations and tominimizetherisksinhand(Özalp,1986,139).Abusinessoperationinmorethanonenationalmarketneedstochangeitsorganizationalstructurenottoexperienceorganizationalproblems.International businesses deal with activities widespread over different geographies withdifferentcultures,stuff,economicandpoliticalenvironments.Suchconflictsarenotseeninabusiness operating in a singlemarket. The organization formed for a business operating in



nationalmarketsmaynotbesufficientorsuitablefor internationalbusinesses(Cuddy,1986,434).Anexportbranchmaybeaninitialsteptoimproveorganizationalstructureofaninternationalbusiness when they started to exporting. Following an export branch, an internationaldepartment may be opened. International businesses usually implement a functionalorganization, geography-based organization and product-based organization (Özalp, 1998,169).Directing in International Businesses: Executives of businesses dealing with internationaloperations are facedwith cultures of a foreign country or a foreign region. Therefore, theyshould try to understand the cultures of the countries in which they are operating, shouldcomprehendthedifferencesandsimilaritiesbetweentheculturesandbesensitivetoculturaldifferences(Atik,2007,60).International businesses carry out their activities with executives from different nationalcultures.Despite theirdifferent cultures, theyhave the sameperspectiveabout thebusinessandbusinessrelations.Executivesofinternationalbusinessestakesimilarstepslikeinvestingin promising markets and places, disposing of low-yield actives and acting rationally whilecreatingbusinesspolicies.Managementof largeandefficientcompaniestodaymaypresentacosmopolitenature. In this sense, cosmopolite sidesof executivesdominate. In internationalbusinesses,executivesfromvariousdifferentpartsoftheworldaregatheredunderthesameroof.Theseexecutivesalsoparticipateinmanagementsundertheroofofsamecompanyandhaveavoiceindecisions(Tutar,2000,171).Arealityhasbeenarisenwhichcannotbeignoredbyinternationalbusinessesandcountries.Together with internationalization, international differences have become dominant ininternational businesses. Management of cultural differences constitutes a key stone inreaching business objectives inmultiple and dynamic competitive environment experiencedwithinternationalization.Theinternationalizationmovementscarrybusinessesfromnationaltointernationaldimensioninonehand,requirethemanagementofindividualsfromdifferentculturesontheotherhand.Rapidadaptationtochanges,attractiontodifferentculturesandacommon value-system play significant roles in reachingmanagerial success in internationalbusinesses (Atik, 2007,61). All these key issues can be implemented by executives with aninternationalperspectiveandthroughdevelopinglocalbehaviorsbytakingthechangesineachnationalmarketintoconsideration(Ehtiyar,2003,67).CoordinationinInternationalBusinesses:Coordinationistheleadingfactorprovidingintegrityand survival of the organization. It is an objective-oriented cooperation system andmechanism. It is to provide time scheduling, sequencing, interlocking and integration ofactivities. Through coordination, the executives synchronize business activities and theindividualsperformingtheseactivitiesandkeepgroupeffortsalongwithacommonobjective(Örgev,2008,136).Diversity of activities, the distance between the business units and different environmentalfactors influence the coordination function in international businesses. Business plans andpoliciesarepreparedbytheexecutivesofinternalbusinesses.Executivesarealsoresponsibleforcoordinatedperformanceofthisplanandpolicies.Coordinationofactivitiesisaquitehardtaskininternationalbusinesseswithquitemuchgeographicaldistancefromeachother(Dinç,2008,70).



Since internationalactivitiesaregenerallyconsideredasextended typeofnationalactivities,thefactorsaffectingthequantityandqualityoftheproblemsexperiencedincoordinationcanbeorderedasfollows(Dinç,2008,71):

1. Activityareasofmulti-nationalbusinesses2. Formalrelationsbetweenheadofficeandbranches3. Methodsappliedinselectionofbranchmanagers4. Relativeimportanceofnationalandinternationalactivities5. Politicalandeconomicconditionsofthecountrieswherebranchesarelocated6. Extendofresponsibilitiestransferredtobranchmanagers.

ControllinginInternationalBusinesses:Controllingisaquitecomplexprocessininternationalbusinessessincetheyarelocatedwithinmorethanonecultural,economic,politicalandlegalenvironment. The geographical distance between parent and subsidiary company, languageburden, cultural differences and different perspectives may create insufficiencies ininformation required for controlling purposes. International businesses use variousmonitoringmethodstocontroltheirsubsidiaryorganizations.Frequentmeetingsandvisitsofparentcompanyexecutives,subsidiaryorganizationandregionaldirectorsandassignmentofmother country citizen executivesmay be counted among the direct controls (Dereli, 2005,66).Internationalbusinessesgenerallyapplytwocontrolmethodsasofdirectandindirectcontrol.Theprimarycharacteristicsofdirectcontrolsusedbyinternationalbusinessescanbeorderedasfollows(Atik,2007,64):

• Face-to-faceandregularmeetingstokeepuptheactivities,• Visittoexecutivesofsubsidiaryorganizationstolearntheexistingproblemsfromthem,• Payingspecialattentiontoqualificationsofemployeestobeemployedinabroadtoturn

directcontrolintoautocontrol,• Arranging organization structure as to act along with the directions of central

administration.Inindirectcontrolsontheotherhand,monthlyactivityreportsandeverykindofinformationsent to central organization are used to control the activities of partner organizations (Atik,2007,64).Whileperformingcontrollingactivitiesininternationalbusinesses,controlfactorslikequalitycontrol, costandbudgetcontrol, feedbackandreportingsystemsshouldbecreated.Besides,qualifiedstuffshouldbeemployedandcontrolactivitiesshouldbesustainedin internationallevel.

RESEARCHMETHODOLOGYObjectiveandSignificanceofResearchTheresearchobjectivewastoidentifymanagementproblemsofTurkishbusinessesoperatinginAfghanistan.Newandrapidchangesworldwidedirect thecompanies to internationalandglobal productions. Businesses are trying to adapt themselves to new competitiveenvironment, tomake low-costbutqualityproductions, to identifyconsumerpreferencesontimeandtogetasharefromthesenewmarkets.Theonesleftoutofthesedevelopmentsornotable to globalize lose their changes of competition and survival. Considering from thisperspective, management functions should be implemented in the best fashion to improvebusinesssize,distributeresponsibilities,keepupwithtechnologicaldevelopments,overcomethe complexities in activities, follow closely the development in control and organizational



managementprocesses,gaintheanticipatedprofit,havesuccessfultransitiontofutureperiodsand to make the regulations designated by business administration. Therefore, the basicobjective of the present study was set as to identify management problems of Turkishbusinesses investing inAfghanistan and to identify basic problems inflicting from inner andouterenvironments.Inlinewiththeseobjectives,managementproblemsofTurkishbusinessesoperatinginKabuland Mazari Sharif provinces of Afghanistan and the other problems inflicting from outerenvironments were investigated. With this study, it is expected that the outcomes of thepresentcasestudywouldprovidesignificantcontributionstobothmanagementliteratureandmanagersinAfghanistan.Economic conditions of Afghanistan were deteriorated with invasion of USSR in 1979 andsubsequentcivilwar.Withaquiteweakinfrastructure, therewasn’tacentralgovernmenttoestablish economic policies and even there wasn’t a banking system. Current commercialactivitieswerebeingimplementedexclusiveofnationalorinternationalorganizations.FollowingtheannihilationofTalibanbyUSandUKforceson7October2001(Büyükbaş,2006,120), UN held ameeting in Bonn at the end of November with the participation of Afghanpoliticalleaders.Attheendofthismeeting,Bonntreatywiththefollowingarticleswassigned:A new government will be established; public resources will be used economically andefficiently along with the policies and targets set in development plans and programs(Freeblance,2015,3);aregularbudgetwillbeprepared;aNationalDevelopmentDraftwillbeprepared for rebuilding and improvement strategies; new reformswill bemade in financialmanagement system to regulate the preparation of a National Development Budget, torecognize,reportandinspectallthefinancialoperations(Deik,2011,2-3).WiththeBonnTreatysignedin2001,doorsofthecountrywereopenedtoworldandacentralgovernment was established. In this way, Afghanistan attracted the attentions of worldcountries and several countries initiated investments in different industries of Afghanistan.Turkishorganizationsarealsoamongthesebusinesses.ThepresentresearchissignificantinthatTurkishbusinessesinvestingindifferentindustriesofAfghanistanwouldhaveachance tosee theirmanagementproblemsand theywouldalsoseethebasicproblemsinflictingfrominternalandexternalenvironments.CloseandintensiverelationshipsbetweenAfghanistanandTurkeyarealso foundtobesignificant forthisstudy.The present study is also significant in that current outcomeswould bring light into futureactivities of business owners, entrepreneurs, managers, in general business world, inAfghanistan.ResearchUniverseExecutives of Turkish businesses operating in Afghanistan constituted the universe of thepresent research. According to information supplied fromAISA and Turkish Embassy, thereare around180Turkish companies operating inAfghanistan.However in present study, thecapital city Kabul andMazari Sharif provinces with developed industry and where Turkishbusinesses are intensely populated were selected. There are about 160 Turkish businessesoperating in these two provinces.Within the scope of the present research, questionnaireswereappliedto73ofthemwithface-to-faceinterviews.Also,questionnairesweresentto80businessesthroughe-mails,butonly18respondswerereceived.So,of153questionnairessenttoTurkishbusinesses,91respondswerefoundtobeassessable.Allofthese91questionnairesweresubjectedtoassessments.



DataGatheringandAnalysisMethodsTheresearchdatawasgathered throughquestionnaires.Thequestionnaireswereapplied tocompany executives. Questionnaire forms were composed of three main sections. The firstsectionquestionsthedemographiccharacteristicsofexecutives.Thesecondsectionquestionsthegeneralcharacteristicsofthebusinesses.Thethirdsectioniscomposedoftwoparts.Thefirst part is composed of 22 statements (gathered from the studies of Aisa (2013), Barak(2011),ZenginandCanbolat (2009)) to identify thebasicproblemsofTurkishbusinesses inAfghanistan. The second part is composed of 27 statements to identify the managementproblems of the businesses. The statements aboutmanagement problems of the businesseswere gathered from the scale developed and used by Kağızman (2008). The participantagreements with the statements were assessed through 5-point likert scale. In this scale:1=Strongly Disagree, 2=Disagree, 3=Undecided, 4=Agree, 5=Strongly Agree. Reliabilitycoefficient of the scale formanagement problemswas identified as CronbachAlpha= 0.828;reliability coefficient of the scale for basic problems was identified as Cronbach Alpha=0.815.Thequestionnaireswereappliedeitherwith face-to-face interviewsor throughe-mail.Businessexecutives/authoritywerealsocalledande-mailedtoincreaserespondrates.Of153questionnaires sent to Turkish businesses, 91 responds were received and assessed.Questionnairerespondratewascalculatedas56.87%.ResearchFindingsResultsofFactorAnalysisaboutBasicProblemsofTurkishBusinessesinAfghanistanThescaleusedtoidentifybasicproblemsofTurkishbusinessesinAfghanistanwascomposedof22statements.Asa resultof factoranalysis,double-headed10statementswithquite lowvariance (0.40) were omitted from the analysis. Then, the basic problems of Turkishbusinesseswere gathered under 4 factors (12 statements).The total explained variancewasidentified as 0.694. These factors were named as financial problems; security andinfrastructureproblems;economic, legalandtechnicalproblems;bureaucraticproblems.Thefactor analysis results about the basic problems of Turkish businesses in Afghanistan areprovidedinTable1.

Table1:FactorAnalysisforBasicProblemsofTurkishBusinessesinAfghanistanFactors Variance

Percentage Cronbach

Alpha Factor Loads

Factor 1: Financial problems 30.243 0.798 Lack of state incentives 0.832 Lack of financial resources 0.795 Insufficient equity of businesses 0.779 Factor 2: Security and infrastructure problems 16.24 0.706 Qualified labor problems, lack of qualified stuff 0.834 Lack of intermediate goods, material sub-industry, undeveloped sub-industry and resultant increased costs

0.764

Security problems 0.679 Factor 3: Economic, legal and technical problems 16.236 0.655 Lack of maintenance-repair services, lack of technical service infrastructure 0.800 Collection problems and problems in collection of credited receivable 0.738 Complex legal regulations, structural problems, legal insufficiencies 0.684 Factor 4:Bureaucratic problems 14.701 0.782 Lack of attention on embassy stuff, non-appropriation of entrepreneurs 0.906 Difficulties in passport registration and visas and different implementations

0.844

Corruptions and bribery in public sector, unofficial pressures exerted by official institutions.

0.721

69.354 α2=0.805 KMO=0.776ExplainedVariance:69.354;p>0.00,Note:Subjectedto7iterations.Sig=0.00



Considering the basic problems of Turkish businesses in Afghanistan, it was observed thatexecutivesconsidersecurityproblems, lackofsub-goodsandmaterial industry,undevelopedsub-industry and resultant increased costs as serious problems. Besides, lack of financialresources,lackofstateincentives,qualifiedlaborproblems,complexlegislationsandresultantlegal insufficiencies also negatively influence business activities. On the other hand,corruptions and bribery in public sector, unofficial pressures of official institutions andcollectionproblemsarealsoconsideredasquitesignificantproblemsbyseveralexecutives.Results of Factor Analysis about Management Problems of Turkish Businesses inAfghanistanThescaleusedtoidentifymanagementproblemswascomposedof27statements.Fourfactorswere identified in the first factor analysis, but double-headed ones were omitted. Then, 4factors were identified from 14 statements in the subsequent analysis. These factors werenamed as problems related to planning function; problems related to controlling function;problems related to directing function; problems related to coordinating function ofmanagement. Reliability of the scale used to measure management problems and factoranalysisresultsareprovidedinTable2.

Table2:FactorAnalysisforManagementProblemsofTurkishBusinessesinAfghanistanFactors Variance

Percentage Cronbach

Alpha Factor Loads

Factor 1: Problems related to planning function 30.152 0.799 A detailed planning is not performed during the establishment (investment) phase of the business

0.792

Management is not carried out by professional executives 0.769 In planning, scientific principles are not applied to determine the best choice among the alternatives

0.700

A planning is not performed through pre-determination of what, why, when, where, who will perform an activity with which resource and cost

0.697

Alternative plansare not developed while making the planning 0.656 Factor 2: Problems related to controlling function 14.747 0.781 An efficient communication system able to transfer actual outcomes to relevant unit fully and ontime is not available

0.840

An efficient recoding systems able to determine the actual outcomes properly and ontime is not available

0.818

Business activities are not regularly followed up 0.632 The standards used in controlling activities are not sufficiently developed 0.623 Factor 3:Problems related to directing function 10.568 0.722 Misunderstandings arise because of unclear and uncertain order and directions

0.812

Orders are not kept up 0.719 Oral and written orders do not comply with each other 0.685 Factor 4: Problems related to coordination 9.039 0.661 A coordination through direct meetings among individuals responsible for business activities is not available

0.855

Activities to be realized are not performed in a sequential and complementary fashion

0.817

64.506 α2=0.792 KMO=0.751ExplainedVariance:64.506;p>0.00,Note:Subjectedto7iterations.

Factors loads for variables corresponding to each factor are provided in Table 2.In table,number of variables representing each factorwas ordered in a descending order. CronbachAlpha coefficients of 4 factors varied between 0.66<α<0.799. These values indicated thereliabilityofthescaleusedinfactoranalysis(Nunnaly,1978,245).



CharacteristicsofExecutivesandDifferenceTestsonPerceivedManagementProblemsAccording to t-test and ANOVA test, a significant differencewas not identified in perceivedmanagement problems by executives based on their genders and ages, but significantdifferences were observed based on their educational levels and positions in theirorganizations(Table3and4).

Table3:ANOVAtableforPerceivedManagementProblemsofExecutivesbasedontheirEducationalLevel

Management Functions Level of Education Mean Standard

Deviation F Sig

Planning

Primary School 3.667 0.305

3.908 0.011 High School 2.633 0.517 Undergraduate 2.498 0.727 Graduate 2.025 0.970

Controlling


2.514 0.064 High School 2.312 0.622 Undergraduate 2.573 0.730

Graduate 1.937 0.563

Directing


2.922 0.038 High School 2.027 0.658 Undergraduate 2.240 0.633

Graduate 1.750 0.427

Coordination


1.120 0.345 High School 2.583 0.557 Undergraduate 2.860 0.863 Graduate 3.062 1.208

An ANOVA test was performed to see if there is a difference in management functions ofexecutivesbasedontheireducational level.Whiletherewasasignificantdifferencebetweeneducational levels of executives and planning and directing functions, there were not anysignificant differences between educational levels of executives and controlling andcoordination functions. Analysis results revealed that primary school graduated executivesplacedlessemphasisonplanninganddirectingfunctionsandtheexecutivewithgraduateleveleducationplacedmoreemphasisonthesefunctions.An ANOVA test was performed to see if there is a significant difference in managementfunctions based on position of executives (Table 4). There were significant differences inmanagement functions of executives at different positions. Business owners placed lessemphasisonplanningfunction.Table4:ANOVAtableforExecutiveEmphasisPlacedonPerceivedManagementProblemsbased

ontheirPositionsManagement

Functions Position of Executive Mean Standard Deviation F Sig

Planning

Business Owner 2.933 0.847

4.312 0.003 General Director 2.561 0.731 Vice Director 2.276 0.519 International Branch Director 2.400 Other 2.185 0.608

Controlling Business Owner 2.590 0.921 0.719 0.581 General Director 2.560 0.646



Vice Director 2.596 0.875 International Branch Director 2.000 Other 2.322 0.475

Directing



Coordination



CONCLUSIONANDRECOMMENDATIONS

Ever-changing environmental conditions and increasing competition greatly influence theactivities of businesses. Businesses operating in a global market should implementmanagementfunctionsinthebestfashiontoreachpre-determinedtargets,tosurviveinthesemarkets,toimproveefficiencyandproductivity,tokeepupwithinternalandexternalmarketoperationsandtohavesuccessfultransitionintofutureperiods.Inthissense,theobjectiveofthe present researchwas set as to determinemanagement problems of Turkish businessesoperatingandinvestinginAfghanistan.Besides,basicproblemsinflictedfromspecialinternalandexternalconstraintsofAfghanistanwerealsoidentified.The Turkish businesses in Afghanistan usually invested in construction, furniture andaccessories,education,restaurant,contract-trade,logistics,electricityandheatingdevices.Basically two subjectmatterswere focused on in this study. The first one is to identify themanagementproblemsofTurkishbusinesses investing indifferent industriesofAfghanistanand the second one is to put forth the basic problems inflicting from internal and externalenvironments.Analyseswereperformedto identifytheseproblemsandsignificantoutcomeswereachievedaboutcurrentproblems.A factor analysis was performed to group the basic problems of Turkish businesses inAfghanistan.Accordingtoanalysis,basicproblemsofTurkishbusinessesweregatheredunderfourgroupsasoffinancialproblems;securityandinfrastructureproblems;economic,legalandtechnicalproblems;bureaucraticproblems.Consideringthefactorloads,itwasobservedthat“financial problems” was seen as the most significant problem by Turkish businesses inAfghanistan.Current findings comply with the results of Nastoh (2015) investigating BASELimplementations and their effects in banking operations. Itwas indicated in that study thatpoliticalinstabilityandmanagementchangescreatednation-widefinancialproblems.“Securityandinfrastructureproblems”wasanotherfactor.Thevariableofthefactorwiththegreatest value was qualified labor problem and lack of qualified stuff. Therefore, investororganizations exhibited a polycentric approach and brought executives from their parentcountry.Toovercomethisproblem,AfghanEmbassyissuesvisaseasilyanddonotpresentanyburdens inbringing foreignworkers toAfghanistan.Also,Afghan governmentwarrants thattheywillprovidecostadvantageandincreasesecuritysomuchastheyemployAfghanworkers(Boğaziçi,2007,27).However,lackoftrainedlaborisstillaprimaryproblem.



“Economic,legalandtechnicalproblems”arethethirdfactorperceivedbyTurkishbusinesses.Thevariables contributed to this factorweremainly arisen from legal loopholes and lackoftechnicalstructure.Current findingson this factor complywith the resultsofWasil (2015) investigatingAfghaneconomyandeconomicintegrations.Itwasindicatedinthatresearchthatbesidesinsufficientsecurity, infrastructure was destroyed seriously throughout out long-lasting war years andtherefore foreign investors were not attracted in investing in Afghanistan and variouseconomicproblemswereexperiencedinthecountry.“Bureaucraticproblems”wereconsideredastheforthbasicproblemofTurkishbusinessesinAfghanistan. Bureaucratic burdens or the difficulties experienced in bureaucracy wereperceivedasaproblem.WithregardtobasicproblemsofTurkishbusinessesinAfghanistan,securityproblems,lackofsub-goods and material industry, undeveloped sub-industry and resultant increased costswereconsideredasseriousproblems.Besidetheseproblems, insufficientfinancialresources,lack of state incentives, qualified labor problems, complex legislations and resultant legalinsufficiencies also negatively influence the activities of businesses. On the other hand,corruptions and bribery in public sector, unofficial pressures of official institutions andcollectionproblemsarealsoconsideredasquitesignificantproblemsbyseveralexecutives.A factor analysis was performed to group management problems of Turkish businesses inAfghanistan.Asaresultoftheanalysis,4factorswereidentifiedandtheywereabletoexplain64.506% of total variance. These factors were named as the problems related to planning,directing,controllingandcoordinationfunctions.Withregardtofactor loads, itwasobservedthat“theproblemsrelatedtoplanningfunction”formedanotherfactor.Planningisaprocess.Thisprocessisknownasinformationgatheringprocess of management and starts with a task, that is to say, a mission statement.Organizationalmissionindicatestheexistencereasonsoftheorganizationanddesignatesthegoods and services to be produced, customers and organizational values (Can, 2005, 87).Planning is the identification of what will be performed when, where, why and by whom.Consideringtheplanningproblemsofthebusinesses,itwasobservedthatbusinessesdidnotmake plans sufficiently during the investment phase, did not develop alternative plansthroughout the process constituting the bases for their activities and did not use scientificprincipleswhilefindingoutthebestchoiceamongthealternativeplans.“The problems related to controlling function” was perceived as the second factor by theexecutives.Controllingisconsideredasoneofthestrategicwayofsolvingcurrentproblemorpreventing them before they emerge (Taşkın, 2013, 294).Unavailability of an efficientcommunication system able to transfer actual outcomes to relevant unit fully and ontime,inefficiencyofrecodingsystemsable todeterminetheactualoutcomesproperlyandontime,irregular follow up of business activities and insufficient standards used in controllingactivitieswere identified as theproblems related to controlling functionof businesses. Suchproblems may directly or indirectly influence the efficient operation and success of thebusiness.“The problems related to directing function” was considered as the third factor by theexecutives of Turkish businesses in Afghanistan. Directing designates continuous decision-



makingthroughspecificorgeneralordersordirectives(Efil,2010,155).Thedirectingfunctiontargets the issues like successful achievement of objectives,motivation of employees, awellleadershipofthemanager,efficientcommunicationsystemswithintheorganization,assigningrational task and authorities to employees based on their experience and capabilities. Theproblems related to directing function were identified as incompliance between oral andwrittenorders,unviabilityofmutualinformation,dataandideaexchangebetweenthetaskstobedoneandthestufftodothesetasks,non-followupoforders.“The problems related to coordination function” was identified as the factor. Coordinationmainly is a function of senior executives. The coordination problems were mainly resultedfrom deficiencies in combining, time scheduling and sequencing of activities andcomplementingeachother(Taşkın,2013,270).Therewasacomplianceproblembetweenthebusinessandtheemployees.The t-test and ANOVA results revealed that gender and age of executives did not havesignificant effects on perceived management problems, but their educational levels andpositionsinorganizationhadsignificanteffectsonperceivedmanagementproblems.An ANOVA test was performed to see if there is a significant difference in managementfunctions of executives based on their educational levels. Test results revealed significantdifferencesbetweeneducational level andplanninganddirecting functions,but insignificantdifferences were observed between educational level and controlling and coordinatingfunctions.While primary school-graduatedmanagers placed less emphasis on planning anddirecting functions, the executives with graduate level education placed more emphasis onthesetwofunctions.AnANOVAtestwasalsoperformedtocheckifthereisasignificantdifferenceinmanagementfunctionsofexecutivesbasedontheirpositionwithintheorganization.Thereweresignificantdifferencesinplanningfunctionofexecutivesbasedontheirposition.Businessownersplacedlessemphasisonplanningfunctions.Astoconclude,itcanbestatedthattheproblemsrelatedtomanagementfunctionsofTurkishbusinessesinAfghanistanwereinfluencedbycloseorfurtherenvironmentofthebusinesses.FinancialproblemsofAfghanistan,securityand infrastructureproblems,economic, legalandtechnicalproblems,bureaucraticproblems,lackofstateincentives,insufficientsub-goodsandmaterialindustry,undevelopedsub-industry,lackofqualifiedlabor,corruptionandbriberyinpublic sector, unofficial pressure of official institutions, insufficiency of organizations inmotivating their executives all influenced the performance of Turkish businesses andmadedifficult to focus on their own business and to propose solutions for current problems. Toovercometheseproblems,centralcoordinationorganizationshouldbewellmanaged,securityand infrastructure problems should be eliminated, corruptions and bribery in public sectorand unofficial pressures of official institutions should be prevented, sub-industry should bedeveloped,stateincentivesandcreditsshouldbesupplied.Besides,furtherresearchshouldbecarriedoutonbusinessadministrationandmanagementfunctions.Alongwiththeseconclusions,followingrecommendationsweredevelopedabouttheproblemsofTurkishbusinessesoperatinginAfghanistan:

• TheexecutivesofTurkishbusinesses inAfghanistan should improve their knowledgeand experience on planning, program development and controlling issues and allactivitiesshouldbeperformedalongwithaplan.



• Internal and external environmental constraints like infrastructure, raw material,energy, qualified labor and technology should be taken into consideration andorganizationalstructureshouldbeformed.

• Along with the objectives, corporation, communication and coordination among theemployeesshouldbedeveloped.

• Activities, outcomes and implementation reports should be subjected to internal andexternalauditsandatoolimprovingefficiencyandproductivityshouldbeused.

• Regular surveys should be carried out within the organization to identify potentialsources of management problems of Turkish businesses in Afghanistan andimprovementsshouldbemadebasedonsurveyresults.

Only a situation assessment was performed in this study. In further studies, the effects ofproblems indicated in present study may be investigated and detailed investigations abouteach one of management functions can be carried out for Turkish businesses investing inAfghanistan.The present outcomes may have significant contributions to management literature. Therewerenot any studies on this issue carriedout inTurkey andAfghanistan.Therefore, such acaseincreasedthesignificanceofpresentsituationassessment.Itshouldbekeptinmindthatthereisaneedforfurtherstudiestogeneralizethecurrentoutcomes.Itwasthoughtthattheinformationgatheredthroughfocusingonthisissuewillbequitebeneficialforexecutivesandotherresearchers.References

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AcademicPublicationandIssuesoftheDay:U.S.IncomeTaxParadigm

RobertW.Service

SamfordUniversity,USA

JamesP.ReburnSamfordUniversity,USA

Abstract

As academic researchers and American citizens during a most tempestuousPresidential election we have often been struck by the misinformation andmisunderstandingofmanyoftheissuesoftheday.Itseemsthattheelectorateworld-widearerationallyignorantandlazyandweintheacademydolittletochangethatoreventorepresentahealthierparadigm.Perhapsitisbecause“ittakesalotoftimetotrackdown,organize,andanalyzethedatatoanswerevenonesmallquestionwell(p.2)....[And,moreover,]Whenpeopledon’tpaythetrue cost of something [or cannot understand the real costs], they tend toconsumeitinefficiently(p.15)....[Finally,]ifyouaskthewrongquestion,youarealmostguaranteedtogetthewronganswer(p.49).”ThesearethewordsoffamedFreaknomicsauthorsLevittandDubnerintheirlatestwork,ThinklikeaFreak: How to Think Smarter about Almost Everything, (2014). In that workLevitt and Dubner challenge all of us, especially those of us that claim to befacilitatingothers towardamoreeffective life-timeofworkandcontribution,to think more clearly toward developing real solutions for pressing issues.Thosequotesleadustothequestionofhowdoesa“Freak”think?Theythinklikeagenuinelycuriouskidnoticingnewfactsandviewswithfewassumptionsand expectations without overthinking: open to the obvious and the totallyunexpected and everything in-between! With these thoughts in mind, theoverallgoalofthisresearchistoproduceanacademicandpracticalexemplarstartingpointforU.S.TaxCodeenhancementsthatcouldpossiblybeappliedtoworld-wide tax policies (Areddy, 2015; Service and Loudon, 2013 and 2015;and Service, Loudon and Kariuki, 2014). Moreover, while developing our“straw-man” proposal we are demonstrating a “scholastic inquiry” beingapplied to developing a usefully suggested solutions for a contemporary andveryimportantissues.WestartwithunderlyingassumptionsthatU.S.FederalIncome Tax (FIT) as any governmental policy 1)must be understandable, 2)require no paid intermediaries, and 3) facilitate “automatic” evaluation ofimpactsfornewgovernmentalspendingandfinancingproposals.Thisresearchshouldpresentadeepanalysisof thehow,who,whyandwhat foraddressingcontemporaryconundrums.

INTRODUCTION

Asyoureadthisresearchrealizethatwearebuildingonyearsofresearchintohumannature,accounting,markets,politics,taxlaw,managing,leading,innovatingandthinkingtoderiveatasuggestionabouthowtomodifyoneofthemostcomplexsystemsinhistory.Wedonottakeresearch lightlyandhaveusedeverysingleangleorpieceofuseful informationtocometoaworkableAmericanFITthatwillstandthetestoftime;suggestionsthatcouldbeamodelforworld-wide incometaxreform. Moreover,wewould like thereaders tounderstandthat the



firstauthor,unlikethesecondauthor,isnotanaccountant.Wefeelthiscombinationofviewsgives this paper a more comprehensive application for “if only the insiders are consideredcompetenttomakecriticalcommentsaboutthesubject,thenthecriticismsarelikelytolimitedto relatively technical issues, some of the broader aspects of criticism being, no doubt,significantlyneglected(Penrose,2016:p.1).”Bearwithusasthehowandwhyofgoingoversomany different sources from such varied disciplines eventually results in relatively simplesuggestions:oftenthemostdifficultsolutionsaretoosimpletosee.We start thismanuscriptwith a challenging abrupt statement that the U.S. FIT systems aremassive political frauds embedded with years of failed manipulations that have causednegatively productive transfers of wealth, wasted human intellect, misguided financialdecisions, reduced economic growth andmore. The convolutedhuge amount of code inU.S.income tax laws make it impossible to evaluate impacts of changes insuring that the FITremains a tool for extraordinarily destructive voter manipulations and influence pedaling.Politiciansthatdonotunderstandthiseitherlacktheintellectorhonestynecessarytoserveinour complex society. Herewe forward the notion that FIT’s deeply systematic detrimentalimpactscanonlybechangedbyadmittingthedepthoftheproblems,reassessment,reanalysis,repurposingandtotallyreplacingFITsystems.WehavearrivedatourcurrentlyuntenableFIToutofincrementalrationalignorance,inpartbecauseitwastotheadvantageofourpoliticalleadersandthosethatprofitingfromFITtransfers;andbecausewepreferlettingothersthinkforus.RemaininginthatquagmireistotallyachoiceandonewefeelAmericancanillaffordtocontinue.The2016Americannationalelectionsaremakingcitizensacutelyawareoftheneedtounderstandwhatpoliticalproposalswillcost.Asthinkingpeopleknow,freecollegetuition,coveringpreexistinghealthconditions,upgradinginfrastructure,minimumwageincreasesandaddingregulationsaswellastaxcodechangesindeductions,categoriesofincomeandsoon,allhavecosts.Further,everyoneshouldrealizetheywillshareinanycostswhetherdirectlyorindirectly,regardlessofthespinofpoliticianswhowanttomakeusbelievesomeoneelsewillpay. For example, as simple as it sounds, the minimum wage earners will pay the highestproportionalcosts for increases inminimumwage inthe formof lost jobsandhigherprices.Anincreaseintheminimumwageonlybenefitsthosewageearnerswhoareabletokeeptheirjobsanddon’thavetospendtheirincreasesimplyonhigherpricesforcurrentnecessities!Thismanuscript submits that we start more often using the reality of academia publish orperishtoaddressmajorissuesofthedayinordertodevelopinnovativesolutionswhichcanbefurtherevaluatedaspointsofreference(AngristandPischke,2009;andServiceandLoudon’scall, 2015). Recently famed international rock star, Bono, said America has big ideas, thatAmerican is a big idea, and that the world needs big ideas from America. We challengeAmericanUniversityeducatorstoputsomeofitsbrainpowertowardaddressingmajorissuesofourtime;andiftaxesandtaxationarenotcriticalissuesinthetimeofworldwiderunawaydebits and deficits, there are no major issues. “Everybody is in favor of tax reform, andcertainly at least corporate tax reform, but it never happens (Seib, p. B6: 2016).” And, inforginganewFITsystem,“Almosteverythinghastogorightandamillionthingscangowrong(“YearsofTurmoilForgedTaxPlan,”2016:p.A2).ResearchQuestionsThe following research questions will be answered under a foundation of the relevantliteratureandTaxCode:Howtoevaluatecurrentresearchandclarifythinkingtowardausefulandnecessaryobjective?HowcanwemoreclearlydefinetheU.S.TaxCode’scurrentusesandobjective and underlying assumptions? What do the U.S. Federal Income Tax (FIT) Codeobjectivesneedtobeandwhataretheunderlyingassociatedassumptions?Whatwouldatax



codethatmeetsidentifiedobjectivesunderthecorrectassumptionsentail?HowthisnewFITallowsclarityinevaluationofnewproposalsandtheircosts?ObjectivesofaFederalIncomeTaxSystemWestartbybackinguptotheenlightenthinkerandfatherofmoderneconomicsandthemostsuccessfuleconomicsystem inhistory,AdamSmith, inorder toclarifyguidingprinciples fortaxation (Ashton,1969;Butler,2007;LeightonandLopez,2013;andSmith,1779). Smith’saxioms on taxes include 1) ability to pay, 2) certainty, 3) convenience, and 4) efficiency(Creedy,2009andSmith,1776).Thesefundamentalassumptionsandobjectiveshavechangedlittleovertime.InthecurrentU.S.TaxCode,onlytheabilitytopaycanbefound(Butler,2007).Thisneedstoberectified.AnyderivedapproachmuststresssimplificationandmeetingallofSmith’sprinciplesasabareminimumbase. A reviewof themoreacademic literature, findsmuch complexity in the taxation arena related to formulation for equity, efficiency, stability,sufficiency and social and economic justice. Leaving one to conclude that taxation must besimplified tobeunderstandableandunderstoodby those thatmust calculateandpay taxes;and all who need to evaluate governmental proposals for spending or revenue. It iswidelyunderstoodbyanyonestudying the topic that the complexity in federal income taxation is apoliticalploythathasgonemadlyawry,toputitinstraightforwardnormalspeak(themurkymessofTaxCodeandmoreismadecrudelyclearinSorkin,2009).Citizensinanopenandfreesocietymustbeinchargeandcontinuallyfighttowardtheneedsofthepopulationasawholenottheneedtopanderandbuyvotestoinsurereelection(ServiceandLoudon,2013).Thereissimplyonly one explanation fornot changing the existing systemas it plays out inpractice.Thatpurposehas tobe toconfuse the taxpayersso that the “confuser”canprofit (votesanddollars)fromthemess.We started to get into the researchonmodern ‘complexity,’ and chaos theories, equilibriummodels, role of confidence, bartering, symptoms versus causes, political corruption andcronyism,constrainedversusopensystems,goldsstandards,andmore. But,wedidnot inalarge part because of the probabilistic versus deterministic nature of our current FIT. TheabsolutenessandsimplicityofourproposedFITmakesmostof thesementioned issueofnoconcern.LetusgobackfromthisbriefasidewhichwasaddedtoletyouknowweconsideredallwecouldfindrelatedtoourchiefaimofrevampingFIT.Butfirst,recallthatintheorythereisnodifferenceinpracticeandtheory,butinpracticethereis.Into thismix of the extant literature related to taxes, wewill add innovation thoughts andguidelines as well as demonstrate strategic innovation through our solid tax proposals. Aguidingprinciplewillbeapointof strategy thatneeds tobe thenorm. That is tostartwithwhatyouwantandneedtoaccomplishstatedasobjectivesnotingunderlyingassumptions.Donotstartwithwhatyouhaveforifwhatyouhaveisthebestitwillraisetothesurface(Kane,etal,2015;andServiceandMcEwen,2015).Yes,statusquoneedsthesameevaluativecriteriaasotheralternatives:neithermorenorless.As academic professors, researchers, consultants and writers, the current authors have thedepthofexperienceandeducationtolookatthecomplextermsofeconomicsandthestatisticsfootingsrelatedtoelasticity,substitution, indifference,utility,socialwelfare,socialworkfare,optimal,fundamental,choice,demandcurves,incentives,behavioralpsychology,expenditures,collections,destabilization,deductions,write-offs,alternativeminimums,activityinducements,sur-taxes, productivity, avoidance behaviors, weighted alternatives, marginal and effectiverates, burden shifting, supply-side, moderator and mediator effects, mitigated, sensitivity,offsets,KeynesianMacroeconomics theory,delay incentives,phase-outs, caps,hidden-costor



benefits,significancecontemporary,idiosyncrasiesof...,aggregatedemand,supplyside,fiscalstimuli, consumptionspending, transferspending,multipleeffects, lumpsum, fixed,variable,automatic,buffer,countercyclicalandcyclical,stealthtax,leanorrobust,efficiency,simplicity,locational, secure, insecure, transparency, trustanddistrust,grossandnet,pre-tax,after tax,treatment, fostering, encouraging, social engineering,, supportable, securitization,devaluations,derivatives....Enough!Getthepicture?Thisobscenelylonglistoftools,terms,theories and approaches is almost unlimited.Whenwe try tomeet all social and economiccriteria imaginablewithFIT,wesimplymeetnodeterminablecriteria(Walters,2013). And,when statistics are involved remember, “Regression analysis and correlation, so beloved byfinancequantsandeconomists,areineffectivefornavigatingtherisksahead(Richards,2014:p.4).”A new FIT must move away from the complications caused by the combination andpermutationofmillionsofwordsofTaxCodecoupledwitheconomic,socialandpsychologicalconsiderations in tax policy development and tax impact calculations. All of these aspectstakentogethershowthatitisbasicallyimpossibletodeterminetheramificationsoftaxation;neitherdeterminationofimpactoncollectionsorbehaviorispossiblewithoutsimplifyingthecode.Inademocracytheimpactontaxes(rates,collectionsanddeficits)ofproposedchangesneedtobeeasilyassessablebynormalvoters,notjustbyhighlytrainedeconomicspecialists.Thereareeconomicandsocialdangers inanunintelligibleFIT.Those issuesresult in lostormisplaced opportunity costs and can result in a discontented electorate which can lead todistorted elections as seen in the 2016 U.S. Presidential election. The following principleshould be understood when formulating a new FIT: “Stronger, broadly shared economicgrowthwoulddrainsomeoftheangerfrommanyissuesdividingvoterstoday(Ip,2016:A2).”Togettothepointthattaxingimplicationsoramountscanbedeterminedfornewordifferentgovernmental programs, we first meet Adam Smith’s criteria and then meet the followingguidelinesforFITbeitindividualorbusinesstaxation.Realreasonsandassumptions,areastartingpointItseemsblatantlyobvious,butapparentlyisnot,thatcollectingthefundsnecessarytofinancegovernmentshouldbe“The”soleoverridingFITpurpose.Attemptstomodifybehaviororsolvesocial ills through FIT have not only failed, but very often have the opposite of the desiredeffect. Yet, we keep trying, insanely adding more complexity. The most often destructiveoutcomesareduetounintendedconsequencesadded intoagiantconvolutedFIT. Whenweattempttogobeyondprocuringthefundsnecessarytorunthegovernmentataleveldecidedby the electorate, the issues revolve around who defines what is needed and how theincentives and disincentives will work when implemented into the Tax Code? Whenassumptions of taxation go beyond revenue collection into behavioral modification and areaddedtothethousandsuponthousandsofexistingFITrulesandpolicies;itisnowonderthatmuddled consequenceswhich cannotbedeterminedwithanydegreeof accuracywill occur.The followingobjectives shouldbebehindaFIT systemwith “The” assumptionof collectingfunds while being simplistically understandable by FIT payers. The objectives of andassumptionsbehindFITneedtobecome:

1. De-politicizingcodetoensurethatvotesandfavoritismcannotbebought.2. Addingabsolutecertaintytopayingandcollectingtaxes.3. Simplifying compliance; the only variable criteria being the income or ‘revenue’

reported.4. EliminatingmostoftheIRS.Keepingonlyenoughstafftoprocesscollections.Haveno

IRSdecisionsonanythingbeyond,“didtheyreporttheirincome/revenuecorrectly?”



5. BeingunderstandablebyanyonewhohasaU.S.elementaryeducation.6. Beingtruthfulinallaspectsofwhogetstaxedandhow:weallpaywhenonepaysand

makingbelieveotherwiseisdishonestatbest.7. RemovingallFITconsiderationsfromfinancialchoices:individualororganizational.8. Eliminatingtheneedforhiredintermediariestocalculateandchangetaxobligation.9. Puttingtaxlobbyistoutofbusiness.10. 10AbolishingtheguiltyuntilproveninnocenceassumptionsbehindcurrentTaxCode

andIRSoperations.11. Endingattemptsatsocialengineering.12. Endingusingtaxesforsocialjustice.13. Endingunintendedconsequencesofchanges.14. Equalizingeverytaxpayerbyremovingstatusesandcategories.15. Eliminatingalldeductions.16. Makingpersonalincometaxthemostunderstandableanddesirableintheworld.17. MakingorganizationalFITglobally themostcompetitive:encouragesallcompaniesto

cometoAmericannotleaveit.18. Equalizingabsolutelyalltaxpaymentsonallsegmentsofincome.19. Differentiate only by income for individuals and gross revenue/receipts for

organizations.Remember,evencleanairisnowherenearfree.Shiftingcoststoothers,forexample“therich,”or “Wall Street” burdens an economy largely by removing monies from more productivemarketuses.Thisshiftingcostseveryoneinasocietyincludingthepoorestamongusthroughreducedeconomicgrowandhigherprices.Everyperson inAmericawithanysocialsecurity,retirement income,welfare benefits, investments and a job or not, should realize that theirfuturepayoutsandcurrent salaries “all” (evenprofessorsatprivateUniversities)are tied toWallStreetandtheeconomicwellbeingofoursociety.Reducecorporateprofitabilityandyoureduceyourpayoutsnowandinthefuture.Insum,multipliereffectscanonlybecalculatedbysubtractingout resultsof alternativeusesmonieswouldhavehad if theynotbeen removedfromaneconomyinadditiontothecostsofredistributingprocuredfundsviatheFIT.

LITERATUREANDUSEFULNESSThemorecomplexthesystemthemoreinterdependenciesthatexistsandthemoredifficultitistocalculateimpactstocitizensandgovernment.WeseeclearlythattheAmericanincometaxsystemhasgonewaybeyondthecollectionofmonies for financinggovernment.Thecurrentfederalincometax(FIT)codeattemptstodelivereconomicandsocial“justice”andstimulatetheeconomybyencouragingordiscouragingfinanciallyrelatedbehavior.WheninrealityFITis awell packaged complex bundle of tax “benefits” tomake voters believe they are gettingsomething for nothing: a fool the citizens approach at best. These aims are chieflymet byprovidingdifferentcategorizesofincomesandfilingstatuses,shiftingburdensto“others,”and“providing”exclusionsanddeductions.Wecitenosourceshere since resultingdifficultiesofthecurrentFITareliterallyundisputable.Aswewilldemonstrateaswegoalong,anylaudableaims of the current FIT have been totally undermined by facts and convoluted unintendedconsequences.Incometaxcanbeused for legitimateexpenses forservicesorgoodsnecessary torunningagovernment, such as the military, tax collectors, infrastructure and perhaps even the arts.Taxes can also be used for all forms of transfer payments (Creedy, 2009). One form is“workfare” in the formofearned incomecreditsdesigned to incentandhopefullyencouragelowerincomeworkerstoworkratherthanattempttoliveoffmoredirectwelfarepayments.



America’s largest transfer payment system, Social Security, is a standalone system that issomewhatofanactuarialsystemthattakesinmoneywhilepeopleworksothatitcanbepaidbackto themlater in lifeorwhentheybecomeno longerable towork.Unfortunately,SocialSecurity ismore of a Ponzi schememadeworst by excess funds being used in running thegovernment and then being replaced by debt IOUs. For purposes of simplification SocialSecurityasaspecifictopicisnotbeingincludedinthisresearch;andtheearnedincomecreditwelfaresystemwillbegivenonlyslightmentionwithnodetailedsolutionsproposed.Asfarasthedifferingcategoriesandtypesofincomeanddeduction,onedoesnothavetolookhard to see someof the ramifications of a tax policy designed tomanipulate behavior. Thehousing crisis and banking crisis of the past few years shows clearly that unintendedconsequencesarealwayshardatwork todisrupt thebest laidplansofmonkeysandcrooks(maybethisshouldbepoliticians?).Supportingthesesuppositions,SmileyandKeehn(1995)provideagreatoverviewoftheoriginal intentof incometaxandhowthathasgonecrazyatbest. The attempt to take a large portion of wealth from the superrich led to the need toaddresstaxavoidanceandtheneedtomovebeyondthetop2%tobroadenthetaxbase.TheseattemptstotrickthetaxpayersbeganthefolliesofcomplexityinourFITsystems.Listokin(2012)inhismacroeconomicanalysisoftheeffectsofourcurrentincometaxsystemdoesanexcellentjob,thoughapparentlyunknowntohim,ofdemonstratingthecomplexityofthe interactions of an overblown code in a 50 page onslaught of economic mumbo speak.ListokincoversmuchoftheimpactofgovernmentsattempttostimulatetheeconomyviataxmanipulationandthedestabilizingaswellasstabilizingaspectsofFITpolicy.Nopointismorewell placed for use here than the discussion of deductions as “tax expenditures. . . Costingapproximately $1 trillion per year (p. 89). [These comments alone tell us how far we havecomewhenwedeterminethatallowingpeopletokeepmoreof themoneytheyhaveearnedcoststhegovernmentjustasdoesanyotherexpenditure.]Evenasthefederalgovernmenthasattemptedtostabilizetheeconomywithfiscalstimulus,manyof its longstandingtaxpolicieshavehadpreciselytheoppositeeffect(p.47)....[Perhapsthisisduetothefactthat]Legionsoftaxprovisionshavebeencarefullyparsed(p.48). . . .WhilenopapercouldcanvastheentireTaxCode....Inmanycases,theTaxCode’sidiosyncrasieshaveastronglydestabilizingeffectontheeconomy(p.49). . . . Approximately$1trillion. . . is“spent”annuallythroughtheTaxCodetoencourageactivitiessuchashomeownership,retirementsavings,andcharitablegiving(50).. . .Taxexpendituresaccountforapproximately7%ofGDP.Thisfigureisofcomparablemagnitudetotheindividualincometax,whichcollectsapproximately8%ofGDP(p.84-85)....Theimpactofataxcutortaxexpenditurecanreverberatethroughtheeconomy(p.51).Allofthisissomewhatpurposefullytakenoutofcontext,butthepointthecurrentauthorsaretryingtomakeisthatwithanoverlycomplexFITsystemtheimpactof“tweaking”TaxCodetoleadtoagivenbehaviorisfoolishnessexemplified.Short,intermediateandlongtermeffectsbetheybenefitsorharmsimplycannotbedetermined:“differentprovisionshavedifferenteffects(p. 63).” These citations point to the artificiality of the Tax Code related to encouragingindividual and business spending: income level determines spending be it on a home,charitablegivingornewequipment—if“they”keepmore“they”willspendmore.Acountriesandglobaleconomicgrowthisthebest,andarguablytheonlysustainable,toolforlifting economies and expanding opportunities (Banerjee and Duflo, 2011and Colino, et al,2014).Economicallyusefulinnovationsexpandeconomiesandimproveproductivity;nothingelsedoes! Those innovationsareallpaidforwithdollarsthatare leftoverafterbasicneedsaremeet;reducetheleftovers,andyouhampergrowthandinnovationtosomedegreeatsome



point. And, as America continues to lead the world in creating billionaires, the income andwealthgapswillwiden:isthisagoodthingorbad?Relatedly,oneproblembeingtoutedintheAmericanpressisthegrowinggapbetweentherichandpoor inAmerica: significantly thegapbetween the top1%andpoorestamongus is thefocus.Theapparentattemptistomakepeoplethinkthattherichgetricherattheexpenseofthepoor;nothingcouldbe further fromreality.Tothispointweseeaverymisleadingstory(nothingnewhere)aboutthisgapfrompoliticiansandthepressalike,for“agrowingbodyofevidencesuggeststheeconomicexpansionsincethe2007-2009financialcrisishasenrichedamuch larger swathof theuppermiddleclass, and thatadeeper incomedivide isdevelopingbetweenthe topquarterorsoof thepopulationandeveryoneelse.”Uppermiddleclasswasdefinedasearningbetween$100-350,000forafamilyofthree,atleastdoubletheU.S.medianandabout five times thepoverty level. Muchof the shift in themiddle classwas causedbypeoplemoving into theseupper income levelsnotmovingdown. “ThePewResearchCenterlastmonth found203metropolitan areas have seen theirmiddle class shrink, but in 172ofthosecities, theshrinkagewas inpartduetothegrowthinwealthier families. In160ofthecities, the share of lower income families grew as well” (Zumbrun, 2016a: A2; also seeZumbrun,2016b;Mitchell,2016;andRidley,2016formoreproofofdishonestrhetoricabouteconomicsandtaxation).Moreaboutthisgaplater.IntroductoryComments-taxlawsareatthecoreofeconomicshiftsWestartthisresearchwithawarningthatshouldbesuppliedwithallacademiaarticles.Newsflash,wearebiased,yes,it’strue.Allhumansarebiasedandwearehumanregardlessofwhatsomeofourstudentsmightsay.Weseesocialengineeringinallaspectsoflifefromtheoncenebulously funFacebook to thenowpossiblemostculture leading tool in theworld.Weseenewsmedia that isno longernewsbutviewskeepingus inour ‘rational ignorance’ (ServiceandLoudon,2015).Sowhat?AsGardnerrightlyproclaimed,“CompetitionisattheheartofAmerican’seconomicsuccess....there are already plenty of ways to promote job growth without robbing taxpayers. . . .Increasingly, major companies determine where to maintain, expand or relocate facilitiesbased on how much money they can take from taxpayers’ pockets in the process (p. A17:2016).”Onlythroughtotalrevampingofcorporateincometaxescanwetakethesechancesforso-called taxpayer theft out of the hands of lawyers and accountant. As many Americansrightlyproclaim, inmanyways themoral compassofAmericahaswanedof late.And,whenyouthinkaboutthecomplexityandunfairnessembeddedinourFIT,thereislittlewonderthatmanyfudgeifnotdownrightcheatontheir incometaxes,businessandpersonal.WeneedtotakethoseopportunitiesoutofFITandthenbevigilantaboutenforcementandruleoflaw.Infreeandopencountriesinorderthattheelectorateunderstandstrade-offsofgovernmentaltaxing and spending, all concerned citizens should demand a straight-forward approach totaxingandspending.Doingotherwisesuggestscitizenswanttocontinuetoelectleaderswhocanuseanincomprehensiblycomplextaxcodeascoverforcunninglymiss-identifytaxingandspending priority links. A valid system that is useful and allows an electorate to decide onspending priorities must present alternatives in an honest and understandable fashion. Allgovernment spending removesmonies fromaneconomyandputs it intogovernmentwhichcan forever usemoremoney.Whenoneprogramor person gets something it is taken fromanother,governmentsdonotcreatewealththeytakeit.Governmentslikepeoplehavelimitedresources. American Federal Income Tax systems, for individuals and organizations, by any



reasonably objective standards of understandability and truth are unmitigated purposefullydeceptivedisasters:anyotherbadadjectivesbelonghereaswell(ServiceandLoudon,2013).A system that is honest and simple would feature a simple non-varying graduated tax onindividualtotalincome:basicallywhatiscalledadjustedgrosstoday,butwithnochangesatallto incomebecauseof sourceor anythingperiod. Thenew systemshouldbedesigned toberevenue neutral with no differences or considerations for categories of income, statuses,dependents,deductionsordeviationsinanyformorfashion.Arevenueneutraltaxonrevenuefororganizationswithnothingattachedordifferentforanyentitycouldmeetanyhonestytest.The individualgraduatedtaxcanbeputona$2calculatoreven ifwewantedtomake1,000brackets: suggested estimated rates start at .5% and go to 33.5%. In a system like thiseveryonewouldpaytheexactsamepercentageoneachportionoftheirincomewithabsolutelynodifferencesforanyreasonsatall.And,a1%‘business’revenuetaxwouldbeaboutrevenueneutralforcorporateincometaxescollectedtodayandwouldnotvaryforanyreasons.Continuing on that same stream of thought, in all free national elections, individual andcorporateincometaxreformproposalsarepartofanyseriouscandidates’proclaimedstances.However, current proposals for revising national income taxes, as epitomized in America’s2016campaigns,offernotangiblereform.Recommendedchangesforlimitingthenumberofbrackets,changingincomeclassifications,changingratesoncertainearnersanddifferingtypesofincome,andchanging,addingordeletingdeductionsallbunk.Allthesechangesmerelyaddfurther complexity to the current unintelligible income tax codes. Across the globe, asexemplified in America, income taxes are solely “fool-the-electorate” approaches that usesmoke andmirrors to hide the truth thus preventing payers from understanding costs andbenefits (a few clear examples are shown in both Alexander references). Unintended orotherwise, toxic taxcodehassocietallydegradingramifications, inpart,becauseof themanyandvariedinteractionsbetweenlargelyunpredictablehumanisticbehaviorsandthecomplexsystem. Those tax codes disregard virtually all moral hazards and hide actual taxing andspendinglinks.Suchscamsas“freecollegetuition”needtobeidentifiedaswhattheyare.Inthis case it is not free, it is tax payer funded college tuition and the cost to each tax payingentityneedstobeclearlyanddirectlyidentifiedsothetaxpayerscandecidewhattheywanttopayforthroughtaxes.Truthandunderstandabilityintaxationandspendingarethesolutions.To reemphasizeone simplepoint;whenapolitician tells you theyare going simplifyFITbyreducingthenumberofbrackets,theyareeithernottoobrightortakingyouforafool:laughthemoutofoffice!ThecurrentFIT’scontrivedcomplexitymanifestsintoharmfuldeception.Evenindicatorsandbehavioralmodifiersaretheobjectoftaxpolicyandthusnolongerhavetheintendedimpactwhen coupled with the unpredictable variability of human emotions and resulting actions.Changeable substitution effects override discouraging or encouraging actions attemptedthrough tax policies in a manner that is way beyond cosmically convoluted. Each FITmodification is layered into an inconceivably complicated system causing fabrications thatmirrorignoranceandwishfulthinking.Investments are key to economic growth and when we attempt to control investment bycentral planning or taxation, failure results. In GDP investments have multiple and lastingeffects whereas government spending and consumption spending are recycling at best(HeilbronerandThurow,1998). Likewise,theuncertaintyandriskofcentralmarketcontrolvia tax interventions are imperfectly inefficient with even signals being impossible todetermine. Lack of stability and certainty are the demise of investments and consequentialeconomicgrowth(Hewett,2016): currentFIT isamainretardant. Only investments lead to



productive innovations. Failure to innovate keeps economies stagnant and causesorganizational and individual failures. Political leaders who are unwilling to explain therealitiesoftaxesandtaxationandtheimpactonsociety,keepcitizensinadangerouszoneofmisunderstandingthatsimplycannotworkoverthelongtermAre taxes, deficits and debt beyond repair?Maybe. With the key being,will voting citizenscontinuetoallowourelectedleaderstomisleadusfirstandforemostthoughamirrorofliescalledfederalincometax?TheU.S.economyhasararefataldisease;andwearearguingovertelling the truth or lies, simple understandability or deceptive complexity? FIT changeoutcomescannotbepredictedwithevenasmidgenofachanceofworkingas intendeduntilFITisunderstandabletothevoters.Don’tbelievethisrantingtirade?ReadtheFITcode!In economic terms, problems with FIT are structural to the core with consistently cyclicalproblems that are intended and unintended, predictable and unpredictable. U.S. FIT, in nouncertainterms,revolvesaroundembeddedobfuscationsdesignin,andfurtherpromotedbyperiodicunpredictablyuselesspoliticallymotivatedcontradictoryandconfusingadjustments.IftherearenotenoughadjectivesheretodefinethedepthofthecomplexdeceptionofFIT,addyourown,foryoucannotoverstatethisabsurditywithanyamountofridiculousverbosity.Relatedly, in addition to individual income tax, corporate inversions and proposals for newcorporatetaxsystemsandrulesinAmericaandtheEUremainattheforefrontofthenewsandpolitics.And,everythingjustsaidaboutindividualFITappliesatleastdoublytocorporateFIT.Yet,againnorealreformisbeingforwardedinthecorporatetaxarena.InaresentWallStreetJournaleditorial,weseethepoliticsandabsurdityofthecurrenttaxsystemandhowitcanbemanipulated. “Treasury is also planning to empower Internal Revenue Service auditors todeclareinstrumentaspartdebtandpartequity,addingmorecomplexityandfeartoanalreadycomplicatedprocess.Totopitoff,therulescomewithnewrecord-keepingrequirements. . . .Mr.LewandtheentireObamaAdministrationseemtobedoingtheirbesttopunishasmuchoftheeconomyaspossibleastheyheadfortheexits(“TreasuryInversionScythe,”2016:A12).”All concerned citizens need to take these possibilities away; our system allows thesespeculations.Inthesecasesallthatisbeingconsideredishowtotrickconsumersintothinkingthetaxersarebleeding the greedy organizations; not that they are raising costs of goods and services toconsumers.Anearly2016scamwasbeingofferedtotaxeachbarrelofoil$10,butlettheoilcompanies pay for it. Really, are the electorate that uninformed and ignorant? Sure, the oilcompaniescan just takethisoutof theirprofitperbarrel just like theydowhentheirpricesriseforallotherreasons.Yearinandyearout,bigoilhasmarginsof7to9%almostregardlessof the cost of oil per barrel. Thesemargins would hold if you subtract out all oil companyemployeeswhomakemore thanCongressmembers (wechallenge thereader tounderstandcorporatecosts,profitsandrelatedprices).These accurate proclamations reveal that those that “can” vote must stop enabling thesemassivelycomplexfraudscalledincometaxes.NothingrelatedtoincometaxcodeinAmericaisforthegoodofthetaxpayer;thosepurposefullycomplexcodesareoverwhelminglydesignedtoconfuseandhidethefactthattheyaredesignedsimplytobuyvotesandenrichpoliticianswhoarepurchasedbyspecialinterests.Thenegativityandharmcausedbythecomplexityanduntruthofthe“makesafool-of-usall”incometaxsysteminAmericacannotbeoverstatednomatterhowhardanyonetries.Yes,as



notedabove,truthandunderstandabilityaretheonlysolutions.Furthermore,simplificationtoaverysignificantlevelisrequiredforunderstandability.Willanyonelisten,doesanyonecare;willenoughofusworktounderstandtheimplications;willacriticalmassofusdemandchange?Itistobedoubted,butwehadbetterwake-upifwevaluetheAmericandreamofabetterlifeforthosethatwillworkforit.Wehaveagreatincometaxplanandtherearemanyothersthatcoulddothejob!It isabundantlycleartoanyonethatwilltakethetimetoanalyzeAmericanFITthatallofitscurrentproposalsmanifestthemselvestowarddirectingbehaviorandguidingasocietyfurtherintodependencyaswellasallowingpoliticianstobuyvotesandlobbyisttomakethemselvesandtheirpoliticalcoconspiratorsrich.ActionsalwaysspeaklouderthanwordsandregardlessofwhatthestatedpurposesofFITinAmericanhavebeen,oneissimplylefttosay:theresultsspeak so loudly that one cannothear the stated andevenoften laudatorypurposes. If youdoubt any of this start by checking out the net worth of anyone who has remained in theAmericanCongress foranyperiodof timeandask ifothersgetasrichas theydoonsimilarsalaries?Thencheckonhowmuchisspentbyorganizationalandpersonallobbyisttogetso-called tax breaks: see which U.S. counties are the richest. Rich companies and individualsknowhowmuchtheirmoneywillbuyandpoorpeopleknowhowtovaluetheirvotes:noneofthesepeoplearefools.Years of findings and theorizing related to the study of complex systems shows clearly thatunderstandingthepartsofavastandcomplexsystemdoesnotassureunderstandingofhowthesystemswillnormallyreact.Thisisbecausethemostcomplicatedpartofunderstandanysystemisgrasping themany interactionswithothersystems. In thecurrent topicof federalincometaxinAmericaweseemillionsofindividuallyeasytounderstandcodesandguidelinesinteractingwithbasiceconomictheory,andthewayhumanactionsrespondtothosetaxcodesand the many instructions that guide users (Miller, et al, 2015; Senge, 1990; and VonBertalanffy,1968).RealImpactofItemizedDeductionsandPersonalExemptionsWecouldwriteabookonthis,butitisclearthatpeopledonotgettheimpacttheythinktheydorelatedtoitemizeddeductionnordoesitseemappropriatetojacktaxesupsothatonecanwriteoffadeductionbecausetheyexist.Thisapproachremindsusofthestupidityofbuyingaproduct that is valued at $90 for $19.95, plus you get one free. Yet, you continuously seemerchantsusingpaidadvertisingtopushtheirwaresandgivingyouthatone“absolutelyfree.”Askonlyforyourfreeone!Howcanathoughtfulpersonbuythat?Justlikewebuythefakeofgettingadeductionsofanaverage12centsforspendingadollar(averageeffectiverateonAGIislessthan12%).Whenafamilyfilesareturnanditemizesdeduction,mostdonotrealizethattheywouldgeta$12,600deductioniftheydidnotitemizedeductions,andwhenyoucouplethisfactwiththeeffectiverateweseeonaveragetaxpayerssavealittlelessthan12centsforeachdollarspentsayonhomeinterest.WhenyouseeacurrentjointreturnwithanAGIof$75,000ayearandthatitemized$25,000theygetanetbenefitof14%ofthe$25,000andtheywouldhavegotten$12,600 benefit if they had zero deduction. So they saved less than $1,750 by spending$25,000;notagreatreasontodumpmoneyintointerestassomanysay,“IboughtahomesoIcouldgetadeduction:”nottoobright.And,ifwewanttoencouragehomeownershipwehavetoaskwhy?Hasthatformofsocialengineeringworkedasexpected?Moreover,onarelateddeduction,ifwerealizedthecostofhavingachildversuswhatyousaveontaxes,economicallynoonewouldhavechildren!



TheRevenueGoalandUnderstandabilityInlightoftheneedtousetaxesonlytogeneraterevenue,theworthymutualassumptionsofanynewFIT canbedescribed througha simple analogy. In the1500sMartinLuther rightlyproclaimedthattheBibleshouldbeina languagenormalpeoplecouldreadandunderstand.And, further,he justlydeclared that the code theBibleprofessed shouldnot requireahiredintermediary to interpret and plead the case to the code giver that an individual wascomplying.AmericanFITperfectly“fits”theprofileoftheBiblebeforeMartinLuthernailedhisprofessionstothedoorofthepowersthatwerebenefittinginkeepingthemassesignorantandatthemercyofthoseprofitingthroughselfishlypurposefulcomplexities(BroomandService,2014).AGeneralGuide:TowardanAnswerFewamonguswould fail toadmit that the trial anderrorexperimentationsallowedby freemarketsare themostefficientandeffectiveway for thebestdeliveryof costeffectivegoodsand services ever devised (Allison, (2013). The only real problem with this free marketselectionisthatitrewardsthosethataremosteffectiveandefficientandpunishesnon-valueadding entities. Other systems work well to reward non-value adding individuals andorganizations.Extrapolatingthesethoughts,weneedtomakemoreopentaxationthat isunderstandable;aFIT that does not cloud innovative product experimentations at a minimal of cost with nocomplicating connections relating to cost shifting or benefit associations (taxing-deductions/incentives). That cannotbedonewhen the system is simplynot understandableandnotanhonestrepresentationofcostsandbenefits.LetusapplythistoFIT.Asimplegraduatedtaxdesignedtobenearrevenueneutralcouldcollectthesameastoday’scomplexmessfromalltaxpayers.Actually, itcouldbeagoodideatoaddaslightincreaseintax ratesorder to raiseadditional revenueandwork towarddebtanddeficit reductions (doNOTincreaseformorespending).Regardless,withnewtaxcodestheaverageperson’staxbillcanbesettoremainessentiallyasithasbeenoverthelastfew(wewouldsuggestfiveyearsonaverage).ThisnewwayofdeterminingFITcouldbedonebycalculatingaveragesusingpasteffectivetaxratesperAGIforindividualswithnoconsiderationsforcategories,deductionsordeviationsinanyformorfashion;andataxonrevenuefororganizationswithnothingattachedordifferentforanyentitycouldbecomethestandard.AnoteheretokeepinmindthatsinceAGIandtaxdataareperreturnversusperSSN,lowerincome individuals will actually receive a tax break because of the lower rates we areproposingperSSN.AsasimpleexamplethinkofajointreturnwithanAGIofsome$75,000(asomewhat upper end middle income). In that case, the family would be paying today onaverage8%ofthe$75,000whereunderourproposaltheywouldbepayingvariablerates:i.e.ifonemade$25Kandtheothermade$50K,wewouldhaveratesof3.2%and8%respective(See Figure 1 and note our recommendations will make it more equal to today’s total taxburden. The recommendations given in Figure 1will provide a tax reduction for families atlowerlevelsofincome,andasincomeincreases,thetaxburdenwillbelesseffectedwithupperlevels actually paying a bitmore tax: this scenario is politically themost popular—whetherrightorwrong.And,lastly,becauseofthetaxingbySSN,morefamilieswillseetheadvantageofmorepeopleinthefamilyworking.Forthoseenamoredwiththe“rich”payingtheirfairshare,thefactisthatitemizeddeductionshelp the upper income tax payers the most should be a huge consideration: "House



Republicanspointtodatashowingthatupper-incometaxpayersbenefitmuchmorepercapitafrom tax breaks than lower earners, so reducing breaks across the boardwouldmaintain aprogressivesystem(McKinnon,2012:p.A2)." Againnotethatbenefitsof jointreturnsbeingreplacedbyperSSNreturnsareskewedtowardlowerincomeindividuals.Inotherwords,ourproposalwillbesignificantlybetterforthelowerincomegroupsandmarginallyhigherfortheupperincomegroups. However,topincomegroupsputthemostmoneyandtimeintotaxes;manywouldgladlypayabitmoretoeliminatetheneedtoconsidertheimpactoftaxesontheirdecisionsandtopayzerofortaxadviceandcalculations.Acloseexaminationundercommonsenseandeconomicprincipleswill showthat theupperincome increases inFITcanbemadeup forbyeaseofcompliancewithzerocost fora thirdparty and freedom to consider all investments and various expenseswithout anymitigatingconvolutedtaxconsiderations.Moreover,ourindividualFITsystemsuggestionsmakeitequalforalltaxpayerswithnopenaltyorrewardforbeingmarriedorsingle;andwillreducethetaxburdensformediumlevelearnersandincrease itabit forthoseat theverytop, the ‘1%ers.’Savings on “paid” tax advice, record keeping, filing time and impact of taxes in financialdecisions,whenaddedtotheintellect,talentandtimeofthosecurrentlyinvolvedinessentialtransferringandshiftingincomeversusbuildingvalueovertime,wouldhavealastingeffectonincreasedstandardsofliving.Forindeed,innovationsintheendaretheonlythingthattrulyliftsallboats inaneconomy(Baumohl,2005andMcCloskey,2016;and(ZanderandZander,2000). Only excess monies kept can be invested in productivity, product and serviceenhancements.Peopleeatandlivefirstbeforeinvesting.TheindividualtaxwouldbeinatablewhereeveryonewithanyincomesimplyenteredtheirAGI(againreshapedslightlytomakethenewAGIallincomeandgainsperiod)andthenthetaxis looked-up:noneed touseanyother criteria than total income. This graduated taxofferszero complexity since it all will be in a table or in $2 calculator regardless the number ofbrackets.Inasystemlikethiseveryonewouldpaytheexactsamepercentageoneachportionoftheirincomewithabsolutelynodifferencesforanyreasonsatall.For corporations, a “revenue” income tax would be only have to be about right at 1% ofrevenue for every single organization that files a return today. Orwe could,we say should,extend this and put in an all organizations tax of less than 1% of revenue.We ask, are thecomplexitiesanddecisionsof taxexemption forcertainorganizations truthfulandworth thecostofdifferentiation?Donotallorganizationsbenefitfromourfederalgovernmentspendingfor the military, social services, roads, national parks and so on? This is simply not aseparationofchurchandstateissue,butamatteroffairnessandpayingone’ssharethatissoloudlyapplaudedinthepress.With this levelofsimplicityandunderstandabilitypeoplecouldvoteonwhetherornot theywant to pay for something. For example ifwewant tomake college education paid by thegovernment (falsely labeled “free” by a 2016 American presidential candidate) it could bedetermined that that would cost all taxpayers say 2% (or whatever it ends up being) andmaybeanother .1%fororganizations(notethatpercentageshereareonlyexampleswithnojustification). Then people could vote to add that 2% equivalency to the organizational andindividual FITproportionally as theywished. In this case voters (as funders) could evaluateclearlythatifaprogramaddeda.1%taxtoorganizationstheywouldbepaying.1%moreforgoodsandservicesand/orthedirectpartaddedtoindividualFIT. Thesecostswouldmirrortruecostandnothidewhopayswhatandhowasisdonetoday.And,ifweeverthinkweneedto do some social engineering just think how time and againwe have seen the unintendedconsequencesoftryingtoshiftandhidetruecosts.And,thatencompassingtruism,‘thatwhen



we spend anything anywhere, there is a trade-off that came from somewhere and can’t bespentelsewhere.’ Apurefactthatcreepsintoalltaxesandspending:neverbefooledorfoolyourselfbybelievinganythingelseinthisarea!Letusnowproceedtodosomelogicdevelopmentbeforewetotallydefineataxsystemthatwould stimulate growth beyond belief and could make clear the costs and trade-offs of allcurrentandproposednationalgovernmentalprograms.

BACKGROUNDCEOsworldwidereportthattheyareincreasinglydisturbedbytaxcostsandtheheavyburdenof tax compliance. Corporate inversions, which are growing at an alarming rate, showcorporationsareracingtogettoabettertaxingclimate.Alongthosesamelineswewitnesstheproblemswith the complexity of individual income taxes and the abundance of unintendedconsequences playing out because of attempts to manipulate behavior of individuals andorganizations.Encouraginghomeownershipthroughtaxescertainlyhadconsequences!Weshowabetterwayforwardhereanddoitwhile1)directingbetterthinking,2)identifyingnormalbiases,3)showinghowtobetterresearchanissueand4)showingfallaciesofattemptstomanipulatebehaviorthroughincometaxation.Onethingiscertain,peoplerespondtoincentives,but(abigtime“but”)peoplemostlyresponddifferentlythanweexpectthemtoo.Whatisrewardedgetsattention,butpeoplelearnhowtogamesystemsandresultssimplyneverremainaspredicted.Yes,theresultsofthoseattemptstodirectbehaviorhavetobepredicted.Theconsequencesofeventhebestlaidplanstosteerbehaviorareatbestprobabilisticandnotdeterministic;andevenwhenataxincentiveworkstotallyaspredicted,outcomesdonotremainstableovertime.Newsflash,peoplelearn,adapt,adjustandmanipulatetotheiradvantage—wehavealwaysdonethiswithourownFITs.And,in thecurrentFITwhenyouattempt toencourageordiscouragesomeeconomicaction,youhaveamultiplicativeeffectwith thousandsofcombinationsandpermutations: impossible topredict.Gettingtothe“Real”Issues,NotSimplyPresentingComplaintsAlltoooftenwesolvesymptomsnotunderlyingissuesespeciallywhenaddingtoouralreadyoverlycomplexFIT.Atsomepointwehaveseenclearlythatallsystemsneedtoberedonenotpatched.Wealwaysneedtoidentifytherealproblemsandeliminateexcusesforinaction.Actandchange,forwhenwedoanythingtochangesomethingwecanseewhatmightworkornotand thenwe can adjust accordingly. Whenandhowarewe going todebunk these excuses,clarify our thinking, be more innovative and improve majorly convoluted and outdatedsystemssuchastaxesandtaxation?Startbyaddressingtheprimequestionsforanyproposedrule,regulation,law,policy,action,change,additionordeletion(innovation)relatedtothekeyissuesofthedayforyouandyourorganization.Andthen,admityouhaveconfirmationbiasesandpreferredalternatives.Thenrealizethatifyougetthequestionswrong,youdomoreharmthangoodin-partbecauseyoustop looking for the real issues.Address the correctquestionsand then theanswersmatter.HereisourlistofoverridingquestionsthatneedaddressingandansweringregardlessofwhatyouaretryingtoaccomplishorsolvemodifiedtowardFITinparticular:



1. Whoaretheconstituentsandhowdoesthechangeaffecteachone?2. Will this make it easier to establish or expand business, hire more people, improve

profits,makemorecustomers,improvefinances,andsoon?3. Doesthismakeiteasiertofollowthenewordifferentpolicy/law/rule?And,harderto

cheatonthenewpolicy/law/rule?4. Will thismake the newor differentmore truthful and easier to understand; includes

abilitytodetermineimpactofotheritemsonthenewordifferent?5. Whatarethelikelyandunlikelyunintendedconsequences?6. Whatarealternativemotivationstobehavedifferentlythananticipated?7. How will this reduce the national/more local, personal or organizational deficit and

debt?8. How will this help move people and organizations to independence; or create

opportunities?9. Willthisproducemorestabilitylocally,regionally,countrywideorworldwide(Hubbard

andKane,2013showwhatrealeconomicbalanceentails)? 10. Willthechangemakeindividualsororganizationsmoreinnovative?11. Willthishelpindividuals,companies,organizationsorgovernmentsreachmoreoftheir

potential?12. Whatistherisk/rewardrelationship?13. Willitprovidesuperiorvalueandberarewithfewornosubstitutesavailable?14. Howfearedisthechosenalternative?15. Howdeeplyembeddedisthecurrentwayofdoing“it”?16. Willthesolutionbuildorreplacerelationships?17. Howeasyisittobackoutofthesolution?DoyouhaveaplanB,C,etc.?18. Istheinformationyouarefollowingsolidormadeup?19. Wereallidentifiedchoicesconsideredoratleastaddressed?20. Willmoretime/resourcesallowformoreorbetterinformationorwastetime?21. Areweaddressingtheissueinthesimplestmanner,butnotoverlysimpletothepoint

thatitismeaningless?DoacostbenefitanalysisforallproposedFITchanges.“Thegoalwassimply:tocreateacost-benefitanalysisforeachpolicyandtorankthembytheirlikelyeffectiveness.Foreverydollarspent, howmuch good would be done in the world (Ridley, 2014)?” Continuously rethinkabout tradeoff costs. ‘It’ canbemonetaryunits, time, attention, focus or anythingof value.Whenmoney is takenoutofaneconomyfor taxes there isa trade-offandontheotherside,whentaxreceiptsarereducedthereisacosttogovernmentoftenasborrowingcosts.CorbettandFikkert’s(2012)WhenHelpingHurts,showsclearlythatenoughmoneyhasbeenspentinmany parts of the world to affect peoples’ lives, but desired change has not followed: taxmoneyisnotanymoreeffectivethancharityfundsinequalizingincomeovertime.Thesamerulesthatapplytoprofitmakingbusinessesshouldapplytotheso-callednon-profitsandallformsoftaxationforeffectivenessisallthatmattersintheend.Ifyouinnovatetaxesorotheritems,andifitisnoteffective,youhavejustwastedresources.Doyouseehowthesequestionsshouldbeapplied todevelopinganewFITsystem? At thispoint we should be thinking more clearly, using more of our innate and learned creativeabilitiestomoreeffectivelychangethroughinnovation.Nextletusbrieflygooversomeofthemorenormalbiasesweallhaveinorderthatweclarifyour questions and our resulting answers in the most objective way possible. Remember,human’sexhibitbehavior that showswearemostoften confidentwhenwehave little tono



knowledge: ignorancemore often breeds confidence than doe’s knowledge. And, those thatthinktheyareleastbiasesaregenerallythemostbiases:knowandadmityournormalbiases.Fairness?UnderstandingThinkingBiasesasaBaseHereweareinaquandarytryingtodiscussatopicthateveryonebringsupwhendiscussingincome tax worldwide and in America especially so close behind such a contentiouslycontested close national election. That is the issue of fairness. Fairness is a term that isrelative. But,weallbelieveinourheartsweknowwhatfairnessentails. However,thatisatbestanillusion.Humansaresimplyincapableoflookingatissuesthataffectusandthosewecareaboutfromatotallyobjectiveview.Humansseetheirperceptionsasrealities,astheoldsayinggoes, ‘wedonotdescribe theworldwesee,wesee theworldwedescribe.’Reality isunknowablebyhumanswithatermlike‘fairness.’Asstatedhereandelsewhere,ourproposalswilloffer taxratesthatareabit lowerat lowerincomelevelsandhigherathigherlevelsofincome.AquickreviewofourTablesshowsexactpercentagesofeffectiveratesperAGIforaverageincomesof$50and$200Kwithdifferencesstartingtoedgeupward$500Kandthelargestincreasesoccurringforthosewithincomesover$10 million (from 20% to 32%). One point key here, is that the double taxation angle fordividendsandcapitalgainsmeanslessunderourrecommendedbusinesstaxchangetoanallorganizationsrevenuetaxpercentageoflessthan1%.NotethattheabilitytoshiftincomeaffordedbytaxingeachSSNseparately,gives‘breaks’forthosethat filed jointtaxstatementscurrently. Withthe largest ‘taxbreak’beingforthoseatthelowestlevelsofincome.Forthosewithincomesabove$500Kamuchsmallerbenefitcanbegainedbydecidinghow todivide incomes. With these ‘fairness’ thoughts inmind, letusbriefly review howwe can clear our thinking and thus understand what a degree of moreobjective‘fairness’mightrequire.As noted earlier, we all have cognitive biases that frame our thinking preferences (mentalpredispositions). We feel that understanding these normal biases is a good base to betterunderstanding the illusiveness of ‘fairness.’ Our FIT proposal continues and expands theprogressivenessofincometaxesasjustdetailed.Inallcasesthebiasesofcitizensandpoliticalleadersalike,pertaintodeterminingwhat‘fairness’entailswithtaxandtaxation.Partofthisisbecause we cannot or do not consider the implications of taxes at the same level that weconsiderotherearningsandexpensesthatweorourcompaniesencounter.Moreover,wehavean even harder time seeing the average or overall impact of FIT without considering ourspecificcircumstancesandresultingtaxes.Startbyadmittingthatthinkingbiasesarefactsandtheyarenotnecessarilygoodorbad, fairorunfair, they justare;butweallhavethem. Ourbiasesinfluenceallourconsiderationsforarguments,formthebaseforallframesofreferenceand mental models, and all too often these cognitive biases are unknown to predisposedhumans(orat leastnotconsideredovertly).These lensonhumanthoughtguideallviewsofothersandcultures,judgmentsandactionsassistingwehumansindeterminingandjustifyingourplaceintheworld.Whenunconsideredornotknowntous,ourcognitivebiaseskeepusinour incompleteknownandunknownunaware ignorance (Bate andChild, 1987; andServiceand Carson, 2010b). These intellectual partialities, guided interpretations, or mathematicalweaknesses can keep us from defining anything accurately. And, of course incomplete orwrong definitions stop us from innovating and creating appropriately new and differentproducts, organizations, selves, or approaches (Isaacson, 2007 and 2014). We favor whatpositively affects us individually—change and seek the greater overall good and it will



advantage you through benefiting the society where you must make a living through ahopefullyhappylifeofcontribution.Chopra andMlodinow (2011), Dobelli (2013), Dorner (1993), Drucker (1980,1985a and b),Grudem and Asmus (2013),Guilford (1986), Landsburg (1993) and Sternberg (2003) allprovidebeginningstodefiningsupersetsofcognitivebiasesoutlinedwithinthismanuscript.Self-justificationcombinedwithconfirmationandattributionbiasesruleourlives;recallanewthatcorrelationisnotcausation.Akeyhumantalentisassessingalotofinformationinsuchawaythatourpriorconclusionscanbereaffirmed.Our ‘justifying’conformationalattributionsleadthesuccessfulamongustothe‘howIdidit’arrogance.Mostofusacceptthesefirst-andsecond-hand stories asmodels to follow (see Gladwell, 2008, for the real story of success).However, all stories or accounts (this manuscript is no exception) are accounts of someselectedfactsdesignedtostresssomepreferredpoints:storiesexistonaspectrumofdegreesoffactualityandcompleteness.“Successaccounts”aremadeinthelightofthenarrativefallacy,20-20 hindsight, superficial knowledge, liking prejudices, self-actualization, fulfillment andexpertisebiases,withplentyofroomforattributingsuccess tonaturalbrilliance(Idid it)orlucky ignorance (you did it). Under and over confidence and superficial knowledge arehallmarksof these typesofsuccessstories.PoliticaladsalongwithwhatyoureadaboutFITandFITsuggestedchanges,arestories.And,allofthismanuscriptsaboutfairness,addressingthe proper questions, understanding and controlling personal biases and thinking clearlyappliesa110%toFITrelatedstories,your,theirsorours!A close review of the “economist” basedwork of Levitt and Dubner’s Freakonomicsworks,Gladwell’swell-researchedbooks(alldates)onthinkingandsuccess,humannaturebooksbyHallandBrooks,orSternberg’sworkonsuccess intelligence,allwill result (moreoften thannot), in a conclusion that after-the-fact descriptions of how individuals became billionaires,professional athletes or otherwise rich and famous,mean little or nothing to the rest of us(ServiceandWhite,2012).Inourexperience,thesestoriesareforthemostpartharmful.Avoidtheseandotherexpertbiasesbyrememberingthatalltoooftenexpertsknowlittleoutsideoftheirexpertiseandfavorwhattheyknow:askswhatdoestheadvicegiverhavetogain?OureconomistfriendslookedattheU.S2016presidentialelectionswithglassesoftheunrealisticassumptions of economic theory, our behaviorist friends looked at it through their Ph.D.professors’ eyes, our psychologist friends—you get the picture. Professors and those withPh.D’s are not normal and have their thinking clouded by many years of deep study inextraordinarily small areas of theoretical knowledge. These thoughts when combinedwithnormalbiases,makeussureofwhyweallseeFITsodifferently:knowyourbiaseswell.FITfailuresandsuccessesaresimplynottotallyunbiasedlydescribable.Shiftinggearsabit,notethatinnovation,doingsomethingnewordifferent,istheonlywaytoliftallintoimprovedliveswithgreaterproductivityinordertobuildaframeworkforabetterworld (Drucker, Freidman; Gladwell; and Peters all dates). “Innovation is often the act oftakingsomethingthatworkedoverthereandusingitoverhere(Handley,2014:p.135).”FITinnovation requires openminded clear thinking which understands and uses our biases asmerelyourperceptions,especiallyaboutatermaselusivelyabstractas‘fairness.’Otherbiasesgivea falsesenseof theprobabilityof success,which isoftendue topurportedcommonwisdom,closeathandbiases,and/ortheillusionofcontroloverrandomevents.Anoverabundance of choice leads us to fall back on favored solutions, which guide us tomisunderstandingrealprobabilities.Mostreadingthisarticlehavenearlyunlimitedchoice;afact that does not fit billions of others. Coincidences are extremely rare and what helped



“them”mayormaynothelp“you.”Recognizewishfulthinking,for“shouldbe”isseldomequalto“is”(BroomandService,2014;andServiceandCarson,2010a).We live in aworldwhereunboundedmathematical ignorance is accepted and this doesnotbode well for FIT change alternatives. We see statistics misused more often than not(Kerlinger,1986).Inalmosteverycasewherestatisticsareusedtopresentacaseforapoliticalsituationorad,weseethatacasecanbemadeforbothsidesofanissue.Mathematicaltrendsshows thatall things tend to return to theaverageover time; there isnobalancingeffect toindependent events; exponential growth is confounding and hard to understand; falsecomparison figure/numberbiasesare therule;andsmallnumbersorsingleexamplesmightnot indicatemuchofanythinguseful. Thiscouldgoon,butthepoint isa lackofclaritywithinadequatemathskillsarealltoooftenanexcusetodefiningthewrongissue,ordefiningtherightissuewrongly.Our overly informed, media-genic-connected world clouds our thinking with too muchinformation about outliers among us, those non-standard individuals thatmake spectacularheadlinesbutdonotcapturethemajority.Atbest,itcreatesafeelingofknowingwheninfactignoranceaboundsaboutanymajorissue:noone(thatiscorrect),noonehasahandleontheentiretyoftheU.S.FITcode.And,fairnessofourFITcodesimplycannotbeassessedundertheexistingsmokydeceptionsofthemillionsofcomplexlyconfusingwords.We,whoaresupposedexpertsinourfields,knowhowlittleweknowaboutwhatweknowthemostabout.Academicresearchinmanagement,leadership,strategyandeveneconomicsisnotvery productive and is like seeing through a glass door (Mintzberg, 2004 and 2009; andSternberg, 1996)! Much of whatwe thinkwe know iswrong and all is based (and alwaysincomplete) toward each individual’s slant on reality.We select the facts we want and usethemasweseefittoproveourselvescorrect(CorbinandStrauss,2008).Thecurrentauthorsmustadmit,weknowonlyonefactforsure:wemightbewrong.ButonFIT...Humans prefer answers that suit us best:with FIT this is unusually destructive, because itscomplexity insures that we cannot with any degree of certainty determine what suits us!Humanshavean illusion thatwearegood forecastersandweselect thealternativewith theleastconditionsorcircumstancesthatfitourpreconceivedbiasednotions;exemplifiedinFIT’smisplaced social engineering. Groupthink, distorted views of history, perceived associations,preferringstatusquo,preferringthenewovertheold,beginner’sluckandassociationbiasesareamongmanyotherthinkingerrorsaboundinginsocietyandfurthercloudingFITchanges.Even thevaulted “experience”variable seems todamage judgmentasoftenas it improve its(Rumsfeld, 2013). Everyone reinterprets what happened retrospectively (Blair, 2010; Bush,2010;Obama,2004and2006;andReagan,1990-oftheseonlyBlairadmitspossiblemistakes),resultsofrecentFITchangesmodelthisrearviewmirroranalogy.History, culture,psychology, sociology, economicsandhumannature say thatpeoplealwaysrespondtotheincentives(Landsburg,1993);andseldomifevertotheintentionsbehindtheincentives.FITchangefabricatorshavenotyetlearnedthis.Mostofususe-false-logicanchors,assumingthatifithasworkedinthepastitwillsucceedagain.Neverforgetthatexpectationsmayormaynotberealistic.Peoplebelieve theirownsoul-searching,andmostofususe(orhear)nonsensicalblathertodisguiseignorance.When looking for and defining real issues, do not overlook the simple or the complexknowledge just because it is complex or simple. Few of us accept anything that does not



correspondstoourbeliefsandself-imageaswefilterouteverythingelse:ourindividualviewsof fairnessnaturallydistort thinking. Humans likecreatingdichotomies,simplifyingtoblackandwhitethosethingsthatarenearlyalwaysgray.Chooseyourcomparison‘others’carefully,realizingwe love primacy and recent developments. Then, all have that “notmy idea” bias.Booksmartsdon’t transfer to street smartseasily, andwealsoknow theopposite isno lesstrue.Thinkaboutwhatyoureadorlearnandask‘howcanIusethisorthatinsightortheory.’Avoidunfoundedfearorregret,procrastination,junkenvy,managingthe“you”product.Watchcherry picking (always going with the easiest solutions); avoid the illusions of unfoundedknowledge, skills and abilities, and excuses of bad luck. Circumvent over or under thinkingissues andanswers (Gladwell, 2005; andHall, 2011). Grasp thatwemay see a single causebehind any complex issue; but generally there is no easy “one size fits all” response.Conspicuous,significant,mainandprominent(possiblyrelevantornot)informationoractionshavemoreinfluenceonus.And,ofcourseifwearenotsureofthestakes,weneedtostartbythinkingtheyarehigh.Almosttoomuchtoconsider,buttrynonethelessif‘fairness’beyondindividualperceptionsisthegoal.Amongourfavorite‘truisms’are‘understandingbeatscategorization,’and‘allgeneralizationsarewrong,includingthisone’(Rumsfeld,2013).Yes,wealllietoourselvesmorethananybodyelse,especiallyaboutfairness(thinkabouthowyouchangeyourmindwhensomethingeffects‘you.’ Brooks, 2011-study of human consciousness). Changing one’s default settings canchangebehavior.Bythinkingtolearnwelearntothink,sothinkbutact,usingallneworoldinsightsandsloganswithwisdom(Service,2006).Betterandclearerthinkingleadstobetterresults in life and innovations thatmove a society forward (Albrecht, 2003; andBroomandService,2014).Asnotedpreviously,ourcurrentFIThasledcitizenstothefalseassessmentofwhat is in it forme and how that is fair: very short term and narrow views permeate FITrecommendations.Use the tools and guidelines we have presented for thinking clearly, utilizingmore of yourinnate abilities, and improvingyour learned competencies inorder to effect change throughinnovation. Clear up your thinking about fairness as much as possible when you areconsidering ‘your’ income tax burden versus that of fellow citizens. To a degreewe can allagreethatthoseattheupperendofincomesdogetmorebenefitsfrominfrastructure,militaryprotection and the judicial systems in America and so perhaps should pay a bit morepercentagewisethanthoseat lower levels. Regardless, thereareNO(zero)magicbulletsorpills, no single or even simple secret answers to fairness, equality and just rewards (Aczel.1999;Tyson,2007;andVonBertalanffy,1968). Onlybalancedhardworkanddisciplinearebehind your becoming an effective leader for innovation: a leader who can fit the leaders,followers,andenvironmentsfacingtheminordertostandoutasaneffectiveleaderwhohashonor and lasting respect (Abernathy and Utterback, 1988 and Service and Arnott, 2006).Becomeaproponent leaderwhocan lookat issuesaspersonalasFITandmakea relativelyunbiased,fairifyouwould,proposalsonrevampingamesscalledincometax.Underthequestions,andfairandunfairbiasesidentifiedabove,letusnowlookmoredirectly,openlyandclearlyatU.S.FIT.

INCOMETAXManyworrythatrecenteventsinGreeceandotherEuropeanCountriesmayforetelltheU.S.’sfuture (Richards, 2014—provocative ‘practical’ non-academic book; Lahart, 2015; andStephens, 2015). The United States Government's deficits and debt appear, to a growingnumber, tobeunsustainable inpartbecause therearenoplans to reduce thedebt. Keep in



mind that totally eliminating annual budget deficits does nothing to reduce the debt.Additionally,notethatin2015interestonthedebtwasaboutfivetimesthecostofHomeLandSecurityor27%oftheDefenseBudgetgrowing(see“irs1040Form,”2015:p.101;andKatz,2016). Defensespendingisslatedtoshrinksignificantly,yettheinterestontheaccumulateddebtcontinuestogrow.AnnualdeficitsofhalfatrilliondollarsloomforAmericaasfarastheeyecansee.And,mostestimatesbytheCBOindicatethatwithinabout10yearsallof thediscretionaryspendingatthefederallevelwillhavetobefundedbyborrowing.Yes,wewillhavetoborrowthecostofnational defense, education, home land security andmore. None of this mentions the $100trilliondollarsofunfundedfederalliabilities(seeandstudyannualCBOreports—thebestnon-partisananalysisyoucanfind).ThisunfundedamountneedstobecontemplatedinlightofthefactthatorganizationssuchasourUniversitysimplyarenotallowedunderlawtonotfundatasignificantleveltheirownpensionplans.FundingourgreatlyreducedpensionscurrentlycostourUniversity16-20%ofitsbudgetwithrevenueandexpensesbeingapproximatelyequalatabout $150millionmost years.Many organizations are having to put 10-20% of their totalbudgetintoaretirementsystem.Inotherwords,thefederalgovernmentdoesnotdowhatitdemands other organizations are compelled by law to do. Some of the numbers andsuppositions included in this paragraph can be under some slight level of dispute. But, allreputablesourcespointtothenumbersandsuppositionshere.Ifyoudoubtthislaststatementdoyourownresearchoracceptwhatwesay.CompoundingthesenumbersanddifficultiesisaneducationalgapinAmericaasjustdescribedwhere few seem to care to understand governmental finances at a level necessary for self-governance(Shinn,2011pointstopractical"understanding"gapsintheMBA).Alongthelinesofmindingthiscriticalgap,FriedmanandMandelbaum(2011)devotemuchoftheirbookonsolving the major issues of globalization and hyper-competition to changing the currenteducational system inAmerica. Theystressagainandagain thatwecannotcontinuewithasystembasedon lecturesandmemorization. Friedman (alldatesandbeyond)harpson thefact that we must shift our higher education systems to require innovative thinking andcreativity if America is to remain competitive. As they say: "[We] have a new structuralchallenge in the labor market that can only be addressed by more education and moreinnovation (p. 74)." They say current employers are "looking for workers who can thinkcritically,whocantacklenon-routinecomplextasks,andwhocanworkcollaboratively....theyalsonowexpectalltheworkerstheyhiretothinkforthemselves(81)."Thistypeofthinkingrequiresa"completelyopenmind....andthentheabilitytolearnconstantlyandchallengethestatus quo (p. 84)." For as they rightly point out, "The best predictor of the future is notnecessarilyjusthowsomeonehasperformedinthepast....It'salsohowmuchthepersonhasadapted,created,andinnovated(p.87)." Wechallengestudents(andprofessors)tobegintochallenge themselves to open their minds. Get into thinking innovatively, "We want everyemployee to be present in the room. . . Now you have to have people who can think andinteract and collaborate (Friedman and Mandelbaum, 2011:p. 93)." Require the focusedengagedpresenceofallinyourclassroomsorbusinesses(Broom,etal,2014;andServiceandGuess,2015).And,doityourselfrelatedtoFITifyoucareaboutthefutureofAmerica.Specifically, Sharma (2016) shows that democracies work, but always through continuouschange. Distinguishedeconomistandhistorian,DeirdreMcCloskey(2016) identifies thekeyseparator for wealth and prosperity of nations as ideas and the moral vision that work,innovation,happiness,prosperity,equalitydignity, libertyandprudententerpriseweretobevalued.TheworksofAdamSmithandBenjaminFranklinwereoftencitedbyMcCloskeyasold



exemplarsofthenewvalueoftakingasesteemedworkimprovementandinnovation.Further,the idea that leavingmarkets free to do their work in empowering people to improvewasachievable and desirablewasmade exceedingly clear.McCloskeymakes it crystal clear thatmostgovernmentinstitutionsmakeuspoorer.OurtaxproposalherewouldbodewellfortheU.S.economyunderMcCloskey’spronouncements.ItissowaypasttimetoinnovateintheareaofU.S.federalincometax.Usingtheareaofgovernmentalfinanceasanexampleofinteractivelearning,inordertomindthegap,wemustshiftourattentiontoteachinggovernmentalfinancetopicssothatuniversitygraduatescomprehendwheretheU.S.standswithdeficitsanddebt.U.S.deficitsanddebtareinthetrillionsofdollars. And,trillionsarenotnumberswecaneasilygrasp. Let'sbeginourre-education by shifting to self-directed understanding and responsibility (Hunger andWheelen,2011;Service,2006and2009aandb;ServiceandLoudon,2015;andService,Reburnand Loudon, 2012). If we are to innovate andmake government inlays and outputs moreunderstandablewemustlooktochangeourFITtobereflectiveofactuality,notawaytohidecostandexpensestobuyvotes.Individualincometaxandrelatedspending,revenueanddebtFederal revenues come from: individual income taxes, social insurance (calledpayroll taxes)taxes,corporateincometaxes,excisetaxes,estateandgifttaxes,earningsoftheFed,customsdutiesandmiscellaneousfeesandfines.Borrowingisdebtandnotconsideredrevenue,sothatis a topic to be addressed later. Historically, over the past 40 years, on average individualincometaxmakesup45%ofthetotalfederalrevenueandrepresent8%oftheGrossDomesticProduct (GDP). The next largest revenue generator is social insurance, mainly for SocialSecurityandMedicareinsurancewhichmakesup34%ofthetotalrevenueand6%oftheGDP.Corporate income taxes have contributed roughly 10 percent of the total revenues andrepresent2%ofGDP. Thesenumberswere taken from"TheBudgetandEconomicOutlook:FiscalYears2012to2022"areportfromCongressoftheUnitedStatesCongressionalBudgetOffice (CBO-report January2012:p.81). CBOhistoricalnumbersaregenerallyaccurateandbasedondatamostwouldconsiderhighlyreliable.However,itisimportanttounderstandthatCBOprojectionsmustuseassumptionsandtheyhaveproventobewrongoftenbyfactorsof10.Aswithanyprojectionstheaccuracydecreasesovertime:thinkaboutweatherforecasts!Additionally, page 101 of the 2015 1040 income tax instructions booklet supports the CBOnumbersandalsoprovidespiechartsforincome(revenue)andoutlays(expenses-payments).Studythesepiechartpagesofthe1040instructionsbookleteveryyear.To insure taxes collected are roughly equal to today’s collects, and to understand basiseconomic taxation data, also see “Income Tax Collections Data (2016)” that show personalincome taxcollected in2015was$1,504.8 trillionandorganizational income taxescollectedwere .3438 trillion from a GDP of $18,558 trillion (“GDP Statistics Data,” 2016). Now lookFigure1todevelopanunderstandingofincometaxesandwhopaysthem.



Figure1:IndividualIncomeTaxnumbersAGI # 1,000K

AGI Amt. in Millions $ & /% of whole

#returns K & /%

Average $s in AGI brackets

New %s For Bracket on AGI

New % AGI on Average Income

New top of bracket cumulative on AGI

Old %=@ AGI

%= @ taxable income

Tz

%= @AIG no EIC

All 8,374,218/100% 145.4M/100% 12.5% 18.9% $1<5K 27,520/<.03% 10,693/7.4% $2,574 .5% .5% .5% .17% 9.8% $5< 10K

94,271/1.1% 12,387/8.5% $7,621 .5% .5% .5% .45% 10%

$10-15K

161,448/1.9% 12,926/8.9% $12,490 3.5% 1.1% 1.5% 1.1% 7.8%

$15-20K

206,970/2.5% 11,880/8.2% $17,422 3.75% 1.8% 2.1% 1.8% 8%

$20-30K

475,649/5.7% 19,199/13% $24,775 8% 3.2% 4.04% 3.2% 8.5%

$30-40K

505,069/6% 14,520/9.9% $34,784 10.5% 4.9% 5.66% 4.9% 9.6%

$40-50K

491,714/5.9% 10,984/7.6% 44.766 11% 6.2% 6.73% 6.2% 10.7%

$50-75K

1,165,812/13.9% 18,949/13.4% 61,524 13.5% 8% 9% 8% 12.4%

$75-100K

1,031,611/12.3% Total of 49.3%

11,926/8.2% Total of 87%

86,501 14% 9.7% 10.25% 9.3% 13.5%

$100-200K

1,977,406/23.6% Total of 72.9%

14,756/10.2% Total of 97.3%

134,007 20% 12.7% 15% 12.7% 17%

$200-250K

376,744//4.5% 1,697/1.2% 222,006 30% 16.6% 18% 16.9% 21.6%

$250-500K

704,188/8.4% 2,104/1.5% 334,690 31% 21.4% 24.6% 21.1% 26.1%

$500-1M

403,585/4.8% 598/.41% 674,891 31.5% 26.4% 28% 24.2% 28.75%

$1-1.5Mill

163,096/1.9% 135/.1% 1,208,119 32% 28.7% 29.4% 24.8% 28.97%

$1.5-2M

96,284/1.2% 56/.04% 1,793,571 32.5% 29.6% 30.1% 25% 29.11%

$2-5M 236,076/2.8% 79.4//.05% 2,973,249 33% 31% 31.9% 24.9% 28.77% $5-10M

130,764/1.6% 19.2/.01% 6,810,625 33.5% 32.3% 32.7% 24% 27.72%

>$10M 321,636/3.8% 11.4/.01% 28,213,684 34% 33.5% 20.4% 23.84% . Demandimpartialityandtruthbycollectingthesameeffectiverateswithoutthecomplexityofthe current “intentionally deceptive” FIT. Can you see that the continuous drumbeat of the“rich”notpayingtheirfairshareisashamatbestwhenonereviewstheactualIRScollectionsdata? Another important fact is thatonaverage itemizeddeductionsbegan topayoffwhenincomes exceed $150,000 though marginally as shown above. Again, seek the truth foryourself versus accepting the propaganda: some call it rhetoric? Solutions need to revolvearound a real understanding and facts not around "info-mercial-news" directed mis-understandingsoftengivenbythemis-leadersamongus!Wemustbegintodemandtruthandworktounderstandandifweareunwillingtodosothenwewilldeservethemesswebuildforourselves,ourkidsandgrandkids.Givenwhatwehavepresentedto thispointany logicalpersonwouldaskwhyhavewekepttheseantiquatedFITsystems?Itissimple,promisesdocreatevotesevenwhenthepromisesarenot basedon facts, nor are theykept after the election.And,with the convolutedFIT inAmericayoucanseewhypoliticiansandevenexpertswhomakealivingonthemess,keepthe



voters in the dark: demand better to get better! And, yes, starting and continuinggovernmental dependencies does pay off in votes. But, ask yourself, if it servesmanywell.Learningtolearnwithfactsyouhavesoughtandverifiedyourselfleadstopersonal"wisdom"developmentand iskey toademocracyworking(Arbinger Institute,2000).Weneedpeoplethat can figure out how to think so that they candevelop their own thoughts not let otherscreate them.We need systems that can be understood by an ordinary voting citizen not asystemdesignedtobetotallyunderstoodbywellunder10peopleintheworld.Eventhetaxpolicyexpertsdonotunderstanditall—wehaveexpertsforvariousportionsofourincometaxlawsandpolicies.Remember,whenanyonepromisesyousomething,besureyouunderstandwhatitwillcost.Maskingcostsseemstoworkbecausewearesimplytoolazytofigureitoutfor ourselves. Nothing is free to everyone; there are trade-offs; someone else always pays;somethingisreducedwhensomethingelseisincreased;thereareconsequencestoallactions;and lastlyweareneverquitesurewhat"collective"consequencesandcostswillbeover thelongterm.WhenarecentU.S.presidentialcandidatewastouting“tuitionfreecollege,”wewonderedwhynotmakeallpubliceducationattheKthrough12levelsfree?Becauseifthispubliceducationwastrulyfree,wewouldsavemostofthepropertytaxinAmericathatiscollectedprimarilytopayforeducationforthemasses.Thinkabouttheabsurdityof“free.” Ifyouthinksomethingshouldbefree,whydon’tyoumakeyourvocationfreetostartthe‘free’ballrolling?Isittimetochangethesystem?Weuse awhat,what,whymodel ofmanaging. We tell people tomanageby saying:This iswhatyoudid,thisiswhatyoushouldhavedoneandhereiswhy.Isaacson(2007)andService(2009) point to the need to think through relations and relationships using the power ofthoughtexperimentstopretesttheeffectivenessofourmanagementmodels. Inthosewordsthink through:What-we look for categories or lists to confirm our feeling and avoid facinguncomfortable facts; What-we should seek base knowledge and facts to grow ourunderstanding;Why-Americawillcontinuetodeclinefiscally,andotherwiseuntilmostvotersseektounderstandbeforetheydecideandvote—fortheriseandthefallofallgreatempireshad a fiscal decline and dependence at its core (Kennedy, 1987). Develop deep smarts bylearningtothinkandreassessbeliefs.Lifeafterallisaboutchange,changelessprinciplesandchoices.Thechoiceisours--dependency,closedmindedness,anddeclineor....Figureitout!LetusputthoseprinciplesplusvalidresearchandclearthinkingtoworkwithaFITproposal.CurrentU.S.debtanddeficitsareoncatastrophictrajectoriesandunlessthosechangenothingelsewill reallymatter. Alsonote that the federal incometaxrate for thebottom20%of taxpayers averaged just over -5%when you consider earned income tax credits. Yes, that is anegativenumber. Aquick lookat the1040booklet for2015will showthata familyof fourmaking$25,000withstandarddeductionswillgetanetpaymentofover$5,000fromincometax:includethisincalculatingincomegapsforthe‘clear’story.Yestheypaidsome$2,000SSrelated taxes, but that is a retirement program.Maybe thismakes up for the inverted statesystem of taxation in some states? Regardless, this indicates a possible tipping point withcritical mass of negative net-contributors in close at hand. Next, it seems obvious thatunderstandability and ability to handle for one's self personal income tax are required for"good"self-governanceespeciallyinhowthegovernmentgetsmostofitsrevenue.ServiceandCarson (2010 a, and b), in another somewhat unrelated area, show that when wemisunderstandwesolvethewrongproblemsandmostoftendomoreharmthangood.Attributiontheoryandrelatedattributionerrorspoint toourcurrentpoliticalclimatewherepropagandarunsamuck.PropagandaasdefinedbyHitlerinMienKampfiswhereyouaretold



apartial truthtoevokeanemotionalresponse,andthenhammeredwiththerepeatedstory.OurcurrentFITsystemsarepropagandaatthecore:understandthis. ThebottomlineisourFITissomisleadingthatithastobepureindoctrination. And,yes,wesimplymustfocusonsolving issues not arguing about fault. We repeat Churchill's call: "If we open a quarrelbetweenpastandpresent,weshallfindthatwehavelostthefuture."The“best”solutionforanyissuesisthesimplestpossibleandthederivedanswermusthavethreethings:1)truth;2)ownership;and3)understandability.Ideallyandevenpossibly,everytaxpayer shoulddevelopaonepageplan thatwould increase revenues froman income taxsystemwithout increasing rates, add truth and ownership into income taxes, and be totallyunderstandable. Any future changes cannot continue to build on the convolutedmisconceptionscausedbythesmokeandmirrorsapproachofourcurrentsystemwhereevenunintendedconsequencescannotbeestimated.Infactonly2-5%ofthepopulationwouldnotlike these changes. They are the ones that buy votes or are the paid interpreters. The vastintellectual capital represented within all of these “income shifting tax experts” should beredeployedtocreatingvalueandmarketingnottransferringvalueatahugecosttoindividualsandsociety.Eliminatingtheneedforpaidintermediaries(taxlawyersandaccountantsaswellaslobbyist)woulduptheeconomyofAmerica.Wefeelthattheimprovementwouldbeatleastaone-timegainof2-8%.Considerthecostofcalculatingtaxes,theadvantageofnewandsmartpeopleinvolvedininnovationnotshifting,andthebetterstrategicdecisionspossiblebecauseFITconsiderationsareremovedasavariable. DoyourowncalculationshereandrememberthathistoricallyGDPgrowthinAmericasince1776hasbeenabitover3.5%andsince2000ithasbeenabout2%. WithhistoricgrowthAmericanhasacurrentGDPof$19trillion; if thatwerereplacedwith2%,thecurrentGDPwouldbeunderonetrillion.Howdowegetgrowthupandrunningatmaximumefficiency?Untilwemaketotalanddrasticchangeswewilljustkeepdiggingadeeperholeofunintendedconsequencesand falsehopes. Wecannotkeeppatching theoldsystem. Behavioralchangeandsocialengineeringviataxcodehasbasicallyneverworkedasintended;andevenwhenithas worked it did not work for long. So why do we think it will it work in the future?Unintendedconsequencesresultinourconvolutedmessandtoomanyputtingtheirmoneyinthewrongplacesorusingitinthewrongways(Conard,2012).Economicprinciplesandanyformoffairness(orthebuzzwords“social justice”)requiresanunderstandingthatgrowinganeconomycanhelpmanyoverallandredistributionhasnosuchgeneralconsequence. Additionally,rightstosharesofanyeconomycanbeclaimedbymanyapproaches. Theapproachofallocationordistributionhas tohavesomerules;askyourself,whowouldwriteandenforcethoserules?Inafreemarketsystemsharesoftheeconomyaredecidedby“contribution.” Simplythinkaboutwhethercontributionshouldbethemetricforeconomicdistributionornot;andifnotwhatshouldbethemeasureandwhoshouldsetthoserules(Stanford,2011)?GetourFITtovaluecontributionnottrickery.AllsystemsmustcometoanendatsomepointComputerexperts,scientist,engineersandbusinessmindsalikeagreethatallhumansystemsovertimebecomesoconvolutedthattheyhadtoberewritten.Thinkaboutoneofourlongerliveddescriptive systems, theChristianBible. Forasnotedabove, itwas in theearly1500sthatMartin Luther saidweneeded to do a few things for the Church at the time convincedeveryonethatiftheywantedtocommunicatetoGodtheywouldneedanintermediaryandtheChurch was glad to provide that service for a fee. We saw King James establishing acommission to rewrite the Bible and several other versions have been produced since the



famedKingJames’version.Moreover,atonetimeyoucouldbuyindulgencies(andwherearethosewhenweneed them?). The ignorantmasseswerekept to feel thiswayby those thatprofited from the ignorance; an issues that many feel is still occurring in Islam as we seebasicallynobooksbeingtranslatedintoArabicinanyoftheLeagueofArabnationsinthepast30years—closingofminds(researchthisforyourself)? Nowwehaveanincometaxsystemthatisnotinthelanguageofthepeoplewhereperhapsnooneunderstandsitallorevenmostofitandwe’vebeenconditionedtopayotherstoreadandinterpretourtaxlawsforus.And,ifweneedtocommunicatewiththegovernmentwemusthireanintermediarytoexplainittousandthem.Yes,asnoted,in1600KingJamesdecidedtheBiblehadbecometooconvolutedandheassigned54"experts" todecidewhat tokeepandexcludeandhowtorewrite inorder tocapturethebestmeaningsfromtheoldversionsinmodernlanguage(Nicholson,2004:God'sSecretaries).LetusnowdothatwiththetaxcodewhichmakestheChristianBibleseemlikeachildren’sbookincomplexitycomparisons.Doyouget our almost ridiculous, yet spot-onanalogy? The current authors’ are among themosteducatedamongus,intax,mathandstatisticsbutthecurrentFITistoocomplexforus.Shouldallofus remain ignorantandwait forpoliticians to tellushowtovote tokeepus inignorance and should we tolerate news people telling us what they want us to hear andbelieve?U.S.IncomeTaxes-proposedreformsareasininelyshamefulscams:replaceitlikethis!StateddirectlyallcurrentmajorpoliticalpartyFITproposedreformsareatbestshamsandatworst themost despicable of lies. Let us come upwith a novel idea since as Berg correctlydeclares “Novel ideas are the lifeblood of successful innovation (2016: p. 433).” Berg’sresearchandthisarticleareaboutunderstandingthatweareallbiased,andthatweallneedtoworkveryhard to lookat ideas in lightof theconsumerwewish toengage. In this case thecustomers are all tax paying U.S. citizens. To get to a better point we must understanddivergent and convergent thinking and how they can be innovatively aligned (Service andReburn,2014).PWC’srecentCEOreportshowsthetopconcernof79%ofCEO’sisoverregulation.Likewise,theWSJarticleofMay3,“EndingAmerica’sSlow-GrowthTailspin”rightlyproclaims“[T]heU.S.economyissimplyoverrunbyanout-of-controlandincreasinglypoliticizedregulatorystate...Partiesargueovertaxrate,butwhat’sreallyneededisdeeptaxreform,cleaningouttheinsanecomplexityandcronyism.”TheU.S.federalincometaxsystem(FIT)isthemostdisruptiveofallregulations,costingsignificantlytoascertain.And,theuntoldlongtermeffectscausedbythemirageofconsideringtaxesinpersonalandorganizationalstrategicchoicesisimmense. Yet,politicianandthemediaremainmiredinthecomplextweakingofourunintelligiblemillionsofwordsFIT.TheProposalforFITReplacementSummarizing our findings and conclusions we see that collecting revenue to financegovernmentshouldbe“The”soleFITpurposeofFITaccomplishedthrough:1-de-politicizingcodewithcertainty-endbuyingvotesandfavoritism;2-easingcompliance-almosteliminatingthe IRS; 3-being understandable and truthful; 4-removing FIT considerations from financialchoices; 5-eliminating hired intermediaries and tax lobbyist; 6-stoping guilty until proveninnocenceassumptions;7-endingunintendedconsequencesofsocialengineering;8-equalizingbyremovingstatusesandcategories;9-eliminatingdeceptivedeductions;and10-makingFITgloballymostcompetitive:differentiateonlybyincome/revenue.



Businesses: Replace business FIT with an all organizations 1% of revenue (same rate forforeignprofitsbroughtbacktoU.S.)incorporatingallnon-profitsaswell.IRSdatashowsthatyear in and year out business taxes are under 1% of receipts. Ifwe include non-profits asindicatedhere,theratecouldbelessthan1%.IndividualFIT: Tax theAGI(adjustedto“real” total income)withnodeduction,nodifferentkindsof incomeorsoon. EachSSnumberfilesareturn.CalculatebracketratestoequalthecurrenteffectiveratescalculatedasapercentofAGIoftaxessincerepealofthe“Bush”taxcuts.Bracketsandassociatedpercentagesoffernocomplexityordecisionsatall.Fiftybracketswithpercentageforeach$10Kfor$10,000to$500K(ratesofabout.5%to30%)wouldworkandcanbeputintoa$2calculatorandonaFIT.govcite.Everyonewouldpayequalpercentagesonthe same portions of their income. Earned income credit needs to be a separate system sopeople will not confuse welfare intended to encourage work with FIT. Figure 1 shows oursuggestedbracketsandcompletelydefinestheindividualsystem:nootherrulesorguides.LookatFigure1andspecificallythe“NewBracket%onAGI[wemarkedthisas‘Key%s’])youcansee thateveryonepays .5%or$25dollarson the first$5,000 theymake—yes, someonethat makes only $5,000 pays the same as the person that makes $10 million on that first$5,000. Everyone needs to have a stake in paying for government, not just getting paid bygovernment.Averagepaymentsforotherincomeswillremainaboutastheyaretodaywiththeexceptionofthosethatmakeabove$1.5million.Forthosewithincomesofthismillionandahalfdollarup,abitmorewillbecollected.Themosteffectedgroupwouldbethosethatearnmore than $10 million and since their effective rate never exceeds 1/3 of total AGI (not aburdensomepercentage);andFITallows(doesnotrequireordirect)theextremelyfortunateamongustoworryonlyaboutimprovingincomenotavoidingoremphasizinganything.Aswementionedbefore,manypeopleworriedaboutwhatwewoulddowiththeaccountants,clerks, lawyersandsoonwhomake their living recording,manipulating, and filing taxes, aswellasdeterminingtheimpactofstrategicandpersonalchoices.Regardlessofwhetherornotthese non-value adding FIT activities cost the economic significantly or not, the resourcescouldgeneratemorevaluebyaddressinginnovation,costcontrols,qualitycontrols,marketing,improvingmanagementandsoon(seeBurnsandStalker,1961:aclassicstudyofmanaginginnovation;alsoseeHBR’s10MustReadsonInnovation,2013).

CONCLUSIONRuminate, if youwould,onwhereweareat thispoint inourmanuscriptand thedisastrouspoliticalmessthatFITplaysinkeepingcitizenschargedwithelectingtheirleadersinthedark.Giventhatoverridingconcern,donot letwhatwehave failedtocoverhere,orourability toarticulateourpoints,deteryouorallowyourself tobeputoffbywhatyouperceive tobeapoliticalagenda.Additionally,donotacceptwhatweshowasthefinaltruth.Lookupthefactsforyourselfandverify the informationwehavepresented. That isbasicallyhowwestartedthiseffort.Wehaveconfidenceinournumbersandyoubethejudgeaboutourotherdirectedstatements.Ifwehavebeentoooff-puttingorseemedtoodemandingthatyouacceptourviews,getoverit!Challengeyourself togatheryourowndata,verifyourdataanddevelopyourownplains fortheFITmess.DoyoureallythinkanyviewshouldNOTincludeasaminimumfourthings:1)Truth-taxationcannotworkwhenitisusedtodeceivepeopleastowhopayswhat.Wesimplydonothavethatinourexistingincometaxsystemtoanylevelatallandevenifwedidonlyone in a million at most could tell you the truth of it. Remember no one pays for part of



anythingforyou.Itiscostshifting.Inreality,employersdoNOTpaypartofSocialSecurityforyouor payHealth Insurancebenefits for you. Theypay those things insteadof paying you.Knowandunderstandthisdifference. Corporationspaynotaxestheysimplycollectthemastheyselltheirgoodsandservices—hastobeortheycouldnotstayinbusiness.Governmental“cost shifting” to the private sector is paid for by us all and is a dishonest way of indirecttaxation (Cascio, 2013: p 493 starts an interesting discussion on this topic). 2) Ownership-whenalargenumberofpeoplepayzeroandinfactgetmoneyfromasystem(20%getmoneyback)theyhavenostakeintheprocessandwillsimplyvotethemselvesmoreshares. 3)Donotdobehavioralmodificationthroughtaxationforitdoesnotworkasintended.Perhapsifitwereforonlyafewthingsitcouldwork;orperhapsifpeopledidn’tgamesystems;orperhapsif there were not unintended consequences (Ridley, 2016 a very recent of example-not asanticipated);oryouaddtheendlesslistsof"perhaps."4)Understandability-ifmostallofthosewho cast votes and govern in this great American republic cannot understand it then theycannotvoteappropriately.Letusendwithsomecurrentlyusefullessonswecouldgleanfromthe2016summerOlympics.First, it clarifies howmuch better the world could be if more of us could realize our bornabilities and talents to a greater extent: bemore of what we are capable of becoming. Thetrifecta of our born gifts, desire andwork can come together to solvemost of our personalproblemsandthoseoftheworld.Second,weworryaboutbullingfromotherswhenwemostlybullyourselveswithdepression,addictions,wishfulthinkingandjustplaininaction.Lastly,thethings that take zero talent--being on time, work ethic, attitude, caring, dependability,truthfulness, trustworthiness, . . . . Andmore—balancedwith even limited natural gifts canovercomemostthingsformostofusordinarypeople!And,thatlessonfromDonaldTrump’sU.S.presidentialcampaign;whatgotyoutowhereyouare,willnotgetyoutowhereyoureallywant or need to be. Yes, change is a must simply for things to remain the same, yet aloneimprove. Consider all of these lessons related to readdressing any current problems,opportunitiesor threats—FIT fits theproblemand threatamazinglywell for revampingandreplacing FIT provides an enormous opportunity for learning and human economicadvancement(Lazear,2015).In an important work on Public Trust (2002) DiPiazza and Eccles add credence to our FITproposalbystatingthatthegoalmustbeensuringthe letterandspiritoftransparencyinallwedoaswedevelopacultureofaccountabilityandparticipationofallpeople that isabovereproachinallreportingsystems.Getonwithitandjustdoitorstopcomplaining!References

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Ajonbadi,H.A.(2016).TheRhetoricsofLabourContractingasaManagerialToolamongOilMultinationalCorporations(MNCs)inNigeria.ArchivesofBusinessResearch,4(6),209-226.


TheRhetoricsofLabourContractingAsaManagerialToolamongOilMultinationalCorporations(MNCs)InNigeria

HakeemAdeniyiAjonbadi,Ph.DKwaraStateUniversity,Malete

CollegeofHumanities,ManagementandSocialSciencesSchoolofBusinessandGovernance

DepartmentofBusinessandEntrepreneurship

AbstractThis paper attempts to investigate how labour contracting is employed as amanagerial tool by the oil multinational corporations (MNCs) in Nigeria. Inrecent years, there have been agitations by trade unions who have fiercelyresistedtheproliferationofcontractworkersintheoil industry.Violationsoftrade union rights arewidespread in Nigeria and include the intimidation ofworkers;refusalbyemployerstorecognisetradeunions;andthedismissalofworkers’ representatives for trade union activities. At the same time, therehave been concerted efforts on the part of the management of the oilmultinationalsand thegovernment toarrest the situation.However, tilldate,fewstudieshavecategoricallyexaminedhowlabourcontractingcouldbeusedasamanagerialinstrumentaspurportedlyclaimedbytheaffectedworkersandthetradeunions.Thisresearchreportwasdesignedtoexploretheexperiencesof the contractworkers, especiallywhen juxtaposedwith their colleagues onpermanent employment.Using a qualitative researchmethod, and employingsurvey and interview, the findings show strong resentment on the part ofcontract workers who lamented poor motivation, job dissatisfaction, poorcareerprospect,almostnon-existingtraining,andpoorworkingrelationswiththeircolleaguesontheotherdivideoftheemploymentladder.Keywords: Contract staff, Employment relations, Flexibility, Labour contracting,Multinationalcorporations.

INTRODUCTIONANDBACKGROUND

ThereappearstohavebeenanincreaseinthemarginalroleplayedbytheNigerianoilworkerswithinthepetroleumsector(Mordi,2008).Thetrajectorysuggeststhatmanyoftheworkershave been placed on short contracts by themultinational corporations (MNCs),while fewernumbershavepermanentemploymentstatus(Ajonbadi,2015).Thisissuehasledtotensionsintheindustrialrelationshipsbetweenandwithinlabourcontractors,theircontractedstaff,oilsector trade unions, the communities, the government and the multinational firms. Thissituation was unchecked due to deficient vigorous labour regulations and the absence ofeffective implementation structures, as well as other wider issues relating to the Nigerianpolity(Fajana,2011).Theseissueshavebeenechoedamongexecutiveandlegislativearmsofthegovernment inNigeria,andpointedout in theNigerianLocalContentBill,which isabillenactedtoaffectandinfluenceallworkactivitiesamongMNCsineverysector,particularlyintheoilandgasindustry.Thebill,whichreceivedpresidentialpermissiononthe22ndofApril2010,addressescontractualissues.However,withrespecttoemploymentissues,itstatesthatNigeriansbegivenprimaryconsiderationforwageemploymentandtraininginanyprojectbyanyoperatororprojectpromoterintheindustry,amongotherissues.



The ultimate aim of the Nigerian Local Content Act is to increase the number of Nigeriansworking in the oil and gas sector and ensure job security in contrast to what has beenprevalentfordecadeswherethemajorityofNigeriansworkinginthesectoraresubjectedtoprecarious contract work (Okougbo, 2010). Labour organisations in the country haveconsistentlyobjectedtothispsychologicalcontractandthelimitedrecruitmentofindigenousNigerianworkers;thelimitedleadershiprolesgiventoNigerianworkersintheoilcompaniesoperatingintheNigerianoilsector;andthegeneralexpansionofthesecondarylabourmarketthrough the increasing use of labour contractors and temporary workers in almost allmultinationalcompaniesoperatinginNigeria(PENGASSAN,2011).Theproblemsassociatedwith the lackofdirect involvementandpermanent employmentoflocals in the Nigerian oil and gas sector has attracted a hostile response from communitiessurroundingthemultinationalcompaniesoperatingintheNigerDeltaregionofNigeriawheremost of the oil exploration in Nigeria takes place (Okafor, 2007). Sometimes, Nigerian oilworkers, together with communities surrounding the oil firms, have sought to use strikeaction, revert to the courts, vandalise oil facilities, and sometimes take foreign expatriateshostage. For example, between October and November 2006, nine expatriate oil workers –includingfiveBritishmen–weretakenhostage(Okougbo,2010).InNovember2010,NigerianoilworkersshutdownExxonMobilinNigeriaoverthesackingof84Nigeriancontractworkers(PENGASSAN,2011).This study explores how the Nigerian oil MNCs use labour contracting as a strategicmanagement tool. It attempts, in particular, to critically examine the nature of labourcontracting, including how and why it is used and the implications for multinationalcorporations/companies (MNCs) using such in managing the Nigerian oil workers. Usingempiricalandanalyticallenses,thestudyaimstounderstandthenatureoflabourcontractingand its effects on the employment relationship; and this is because in the last two decades,anxietiesintheindustrialrelationsstructuresintheNigerianoilandgasindustryhaveevolvedinauniqueway.

LITERATUREREVIEWEmploymentRelationsandtheIssueofControlThe contest for control of workplace processes has always been a central theme withinemployment relations. For instance, the employer has control over the production process,whileworkers also endeavour to control their labour process. However, from a contractuallegalperspective,workerssurrendercontroloftheirlabourpowertotheemployerassoonasthe employment contract commences (Benjamin, 2013). Control in an employmentrelationshipmaygenerallybedefinedasthepowertodirect,determine,orconstrainapersonor group (Garcia, 2014). Employers have often used a variety of arguments to protect theirprivileges,rightsandpursuitsforgreatercontroloverlabourprocesses.Theseargumentscanbebrokendownintothreecategories.Thefirsthastodowiththeneedtoguaranteestabilityand firm performance; the second concerns profitmaximisation and costminimisation; thethird relates to the issue of discipline and ability to respond quickly to market volatility(TorringtonandHall,2011;Hattons,2014;andILO,2016).Theexerciseofcontrolovertheworkersisameansofobtainingthedesiredworkbehaviourfromothers.Inidentifyingtheessentialsofasystemofcontrol,Edwards(1979:17-18)arguesthat theyconsistofdevices ‘bywhichemployersdirectwork tasks; theprocedureswherebythey supervise andevaluateperformance inproduction; and theapparatusofdisciplineandreward’.Thereareproblems,boththeoreticallyandpractically,whenoneattemptstospecify



whatcontrolis,howcontrolisacquired,andhowitismaintained.ForWeil(2014),inorderforemployerstoexercisecontrol,thereisanessentialneedforhierarchicalchainofcommand.Intheirdefinitionofcontrol,CascioandAguinis(2010)arguethatcontrolcanbereferredtoordefinedasasituationbywhichanemployerwillhaveabsolutepowertoprovideall thatthebusiness needs and hire and fire at will as he is capable of determining and more or lesscontrollingthewayoflifeoftheemployee.Noemployerhassuchabsolutecontrol.Itisimportanttonotethatthenatureofemploymentrelationshiphasbeendescribedasoneinwhichtheowneroflaboursubmitsormusttradeboththeirphysicalandintellectualabilitiestotheownerofcapitalofproduction. Frominceptionoftherelationshipandthroughouttheexistence of the relationship, the employee is subordinate (Piecherit, 2009). The employee,withinthis“indeterminate”andasymmetricalemploymentcontract(Mordi,2008),submitstheabilitytoworkforsomeremunerationfromtheemployer. Itbecomesmoreobviousthattherelationshipiscertainlynotthatofequals,asperceivedbythelegalmind.Thesingleemployeecannot match the single employer, which is a “bundle of economic resources” (Hayter andEbusui,2013:84).Consequently,inordertomatchtheemployer,theemployeesmustorganisethemselves into a group. The coming together of the employees when bargaining with theemployerhelpsbridgetheinitialwidegulfbetweentheemployerandtheemployee.Generally, the ideas above resonatewithKleinknecht (2014),who argues thatwhenever anemployee accepts an employment contract he has inadvertently agreed to comply with theinstructions, rulesand regulations thatguide thedischargeof such responsibilities; and thatthe employer, on theotherhand,will be obliged to only give instructions that are generallyacceptabletothesociety.Whatappearstobeclearisthattheextenttowhichcontrolcanbeexerciseddependsupon thepossessionofpower (Piecherit,2009).However, identifying thelocationorwhohaspowerand, indeed,controlwithinamanagementsetting isnotasimpleexercise.Traditionally, once a worker enters the employment relationship and agrees to offer theirlabourpowertotheemployer,basedonthetermsspecifiedintheemploymentcontract,suchaworkercomesunderthecontrolandpoweroftheemployer.Thisformofpower,forGalbraith(1986:216), is called ‘compensatory power’, which for him is a source of control for theemployer who wins submission from the worker by the offer of an ‘affirmative reward’.However, this legalauthority tocontrol theemploymentrelationship,which is restedon theemployer via the contract of employment, does not necessarily translate into operationalcontrolovertheemploymentrelations.Managementstillseekstotransformthelabourpoweritpurchasesintoproductivelabour,whichproducesgoodsandservices(LeeandEun,2016).Itis in the attempt to translate this legal authority or legal contractual agreement intooperationalcontrolthatconflictoccurs.StrategicInternalFinancialControlandtheParadigmShifttowardsFlexibilityOnewaythatmultinationalcompaniesexertinfluenceandcontrolthestructureoftheinternallabourmarket in thesubsidiaries (i.e.whichemployeegets into thecoreorperipheryof theworkforce, and whether a particular group of labour should be homogenised via moreindividualistic contracts) is by controlling the financial expenses of a firm or by raisingfinancialprofitmargins.Thereisnowincreasingevidencetosuggestthatcompanies,whethermulti-business companies, acquisitive financial conglomerates or multinational companies(irrespectiveofwhethertheyarediversified,divisionalisedordecentralised),areincreasinglymoving towards strategic financial control systems (Serrano,2014and ILO,2016). Director(2012),Rubiano,(2013)andMaurizio, (2016)spellsoutseveral featuresofsuch large firms.These include the fact that such firms focus more on short term financial gains. They are



willingtoactquicklytoexitfromabusinessthattheyarenotprofitingfromandarequicktoreplacemanagers, apply fiercer pressure through themonitoring process and becomemoreeffectivewhengivenacclaimedrecognitionforgoodperformance.The stress for low-costproductionandmoreeffort, productivity andprofithaveoften comewithanabdicationof‘socialresponsibility’,accordingtoMintzberg(1979:424).Increasingly,managers of subsidiary firms caught in the web of corporate economic profiteering haveadoptedflexiblepolicies,whichgivemoreroomfortheuseofatypicalcontractworker.Okeand Idiagbon-Oke (2007) andPapola (2013) argue that this should not be a surprise – unitmanagers in pursuit of meeting targets are likely to use any approach that is consideredcheaper and more capable of ensuring the cooperation and compliance of workers. Suchexperiments in the 1980s included an extensive use of temporal, numerical and financialflexibility(Atkinson,1984).Oneimmediateimplicationofthisistheincreasinguseof“contractforservice”ratherthanthetraditional“contractofservice”.Theimportanceofthesecategoriesin theemployment lawhasgreatsignificance for the individualworkerandemployeeunderthelegalemploymentcontract(Selwyn,1998).TheDynamicsofLabourContractingandFlexibilityConceptinSocialRelationsofContractWorkersTheconceptofflexibilityisusedbyfirmstoreacteitherintheshortorlongtermtocertaintyand uncertainty. Employers increasingly use flexibility as a control device and strategy forsustaining managerial prerogative, control of workers and their working conditions,remuneration and employment (Mordi, 2007; Kleinknecht, 2014; and Ajonbadi, 2015).Atkinson’s(1984)thesisoftheflexiblefirmissimilartothesegmentedlabour-markettheory,which suggested that the flexible firm is an in-firmdividedworkforce: a primaryworkforcewhoseworkersarestableandskilled,havingaccesstosecureemploymentandprospectsforcareerprogression;while,ontheotherhand,theworkerswithinthesecondarysegmenthaveless career mobility and job security as they are in and out of contracts due to limitedcontractual employment such as short-term contracts or part-time contracts. Suchworkersare often poorly paid, and supposedly meant to be semi- or non-skilled workers, but areusually skilled (Battisti andVallanto, 2016). The choice ofwho is recruited into this core isinfluenced by a number of factors – skills, job experience, education; and what Pollert(1987:16)calls‘themanagerialstrategicchoicefactor’.There is growingevidence to suggest that thedivisionsanddistributionofworkers into theprimechoiceareasoftheinternallabourmarketusingtheflexiblearrangementissometimesdone on an ad-hoc and discriminatorymanner. Theodore and Peck (2013) insist that whatmatters to employers is the relatively easy disposability of the workers, which makes theworkers more vulnerable. The situation is worse in developing economies, particularly inNigeria,where theunemployment rate is at an alarming stageof doubledigits – 23% (NBS,2015).Disposabilityreferstotheabilityoftheemployertoalterorsackworkersinabusinessat a particular time (numerical flexibility) or the ability to remove and throw awayoccupationalandskillboundarieswhicharelongusedandprotectedbytheworkersasitsuitstheemployer.In controlling the labour and production processes, especially the use of labour inputs, oilMNCsmanagers inNigeria fragmentworkers in the internal labourmarket intoprimaryandsecondarylabourmarkets,orwhatisreferredtointhesefirmsasthe“coreandservicing”sub-sectors.Bycore,theymeanthefull-time,permanentstaffofthefirms.Thisdivisionisreflectedinthetermsofthecontract,conditionsoftheserviceandtheopportunitiesavailabletothose



workinginthesameworkenvironmentwhoareexposedtothesamekindsofrisk.Toachievethese divisions, multinational employers utilise a number of strategies. These strategiesinclude the intensive use of part-time, fixed-term and short-term employment contracts(Ajonbadi,2015).Thesetemporaryjobsareobtainedthroughtheextensiveandintentionaluseof contracting out, outsourcing orwhatNigerians call ‘casualisation’. Casualisation depicts ajobsubjecttoaustereemploymentconditions.Itisgenericallyusedheretorefertobothcasualandcontractworkers,sincetheyhavemoreorlessthesameconditionsofservice,exceptthatcasualworkersarepaidonadailyorweeklybasis,whilecontractworkersarepaidmonthlyandonafixed-ratebasis.

PRACTICALMETHODSThe research reported here is part of a wider study designed to examine the dynamics oflabour contracting among oilMNCs inNigeria. A case study approachwas used in order toallowobservationstobeevaluatedincontext(Creswell,2013).Theresearchisbasedonanin-depth case study of three organisationswho aremajor players in the oil sector. Datawerecollectedbytwomethods:aseriesofsemi-structuredinterviewsandasurveyofcontractstaff.Some internal company records and documents (such as contract between the user firms -MNCsandthelabourcontractors; letterofemployment;provisionofoffshorelabourservicedocuments; annual certification of compliance for international consultants, contractors,agentsandrepresentativesforeigncorruptpracticesAct;manycommuniquesbetweenMNCsmanagement and trade unions; notices of protests by trade unions; guidelines on labouradministration;amongothers)wereaccessed.Threeseparatefieldworkswereundertaken.12unionofficialsbothfromtheNigeriaUnionofPetroleumandtheNaturalGasWorkers(NUPENG)andPetroleumandNaturalGasSeniorStaffAssociationofNigeria(PENGASSAN)wereengagedinsemi-structuredinterviewsindifferentlocations.38contractstaffand14contractorsacrossallthreeorganisationswereinterviewed.A total of 64 participantswere interviewedwith varying degrees of responses as evidentlypresented in the findings. The interview questions were designed to gain an insight intoindividualexperiencesofbeingcontractworkersandtheeffectsofsuchontheirproductivityandlifeoutsidework.Theinterviewswereaudiorecordedwiththepermissionofparticipantsand subsequently transcribed. The data were analysed using thematic content analysis andcategorisationtechniquesusingthenVivosoftwarepackage.To validate the outcomes of the research after data have been collected through interviewmethod, 220 questionnaires were distributed to the contract staff and 147 were returned,representingapproximately67%.Noquestionnairewasgiventothecontractorsastheirsweremainlyinterviews.

RESULTS,FINDINGSANDANALYSESTypes,NatureandScopeofLabourContractingTherearetwobroadtypesofcontractorsintheNigerianoilsector:a)thosewithacontractofserviceandb)thosewithacontractforservice.Whenacontractorisdirectlyrecruitedunderthecontractofservice, it isusuallydonebytheMNCscommunicatingdirectly inwritingandstipulatingthatthemultinationalfirmagreestoemploythelabourcontractorasanemployee;whiletheotherpersonagreestoservetheemployerasanemployee.According toShell (Nigeria) in2008, ‘Shell-run companies in the countryawarded contractsworthmorethan$900milliontoNigeriancompanies.Thisrepresentedmorethan90%oftheoverall number of contracts. It also amounts to 36% of total value. The Shell PetroleumDevelopment Company (SPDC) and the Shell Nigeria Exploration and Production Company



(SNEPCO) employ around 6,000 direct staff and contractors. More than 90% of them areNigerian’(Shell.com.ng).WhatShellfailedtostateisthenumberofcontractorsemployedandthenumberofemployeesoncontract.Acontractofservicecanbeintheformofaletterofappointment/employment.Theemployercannot change the termsand conditionsof employmentunless theemployeeagrees to it. Inotherwords, the labour contractor employed under the contract of service enjoys the sameprivilegesasapermanent,full-timeworker.Infact,anytermsandconditionsofemploymentina contract of service that are less favourable than the relevant provision under theEmploymentAct(2004)areillegal,nullandvoid.TheprovisionintheActwilltakeprecedenceoveraparticularcontractualtermthatislessfavourable.Underacontractofservice,theMNCemployermustproviderelevantstatutorybenefitssuchasannualleaveandsickleaveforitsengagedemployees.Acontract forserviceontheotherhand, isanagreementwherebythe labourcontractorhasbeen engaged as an independent contractor, such as a self-employed person or a vendorengagedforafeetocarryoutanassignmentoraprojectforthecompany.Undersuchaworkarrangement,thereisnoemployer-employeerelationship,andthecontractorisnotcoveredbytheEmploymentAct.However, theLocalContentBill (2010) inNigeriaemphasises theneedforNigeriancontractorstobeawardedmorecontracts;imposingseverepenaltiesonfailuretocomply.ItisimportanttonotethatsometimesintheoilandgassectorinNigeria;itisdifficultto distinguish a contract of service from a contract for service. Some of the factors to beconsideredindifferentiatingthetwomayinclude:whohascontroloverrecruitment,dismissalandwhatemployeesarepaid?Whodeterminestheproductionprocess,timingandmethodofproduction? Who is responsible for the provision of work, or who owns the factors ofproduction or who provides the tools, equipment, the work place and materials? Does thepersoncarryonbusinessonhisownaccountorcarryonthebusinessfortheemployer?Whobearstheprofitand/orloss?In controlling its labour and production processes, especially the use of labour inputs,multinationaloilcompaniesinvestigatedtendtofragmenttheirworkersintheinternallabourmarket into primary and secondary or what is referred to in these firms as the “core andservicing”sectors.Bycore,theymeanthefulltime,permanentstaffofthefirms.Thisdivisionisreflectedinthetermsofthecontract,conditionsofserviceandtheopportunitiesavailabletothoseworkinginthesameworkenvironmentandexposedtothesamekindofrisk.Toachievethese divisions, multinational employers utilise a number of strategies. These strategiesincludetheintensiveuseofpart-time,fixed-termandshort-termemploymentcontracts.Thesetemporary jobs are obtained through the extensive and intentional use of contracting out,outsourcingorwhatNigerianscall‘casualisation’.Casualisationdepictsajobsubjecttoaustereemploymentconditions.Itisgenericallyusedheretorefertobothcasualandcontractworkerssince theyhavemore or less the same conditions of service, except that casualworkers arepaid daily or weekly, while contract workers are paid monthly and on a fixed rated basis.Casualisation has been perpetuated by the intensive recruitment of labour contractors. TheavailabledataoncasualisationintheNigerianoilandgasindustryisquiteinformative(Seethetablebelow).



Table1:Casual/ContractworkersintheNigerianOilandGasSectorCompany No.ofWorkers

onPermanentJobNo.ofCasual/

ContractWorkers%ofWorkers

onCausal/Contract

Total

AfricanPetroleumPlc 300 376 55.6 676Chevron 450 3000 87.0 3450ComexNig.Ltd 52 150 74.3 202ConsolidationOil 300 600 66.7 900DevtagDrillingCo.Ltd 96 300 75.8 396ElfOil 42 132 75.9 174ElfPetroleum 199 550 73.4 749LighthousePetroleum 58 105 64.4 163MobilOil NIL 492 100.0 492MobilProducing 492 2200 81.7 2692NationalOil 51 178 77.7 229Nidogas 15 150 90.9 165NigerianAgipOilCo. 211 1500 87.7 1711NNPC 9000 3000 25.0 12000RemmOilService 120 350 74.5 470SchlumbergerGroup 250 1000 80.0 1250Shell PetroleumDevelopment

520 8000 93.9 8520

Smithnigeria 25 80 76.2 105TidexNig.Ltd 65 120 64.9 185TotalNigeriaLtd 136 534 79.7 670TransPecanSedcoForex 50 150 75.0 200

Source:NUPENG,2003AstudyofforeignmultinationalcompaniesintheNigerianoilandgassectorin2001pointedoutthattheoilsectorisbuiltonasecondaryworkforce.Forinstance,Mobilhad492workerswho were employed on open-ended contracts, while it had 2,200 casual workers in 2001,(Eppeh,2001).ThesamesituationisreplicatedinChevronwhere450workerswereemployedin the coreof the firmand3000as contractworkers; also theSchlumbergerGrouphas250workersinthecoreoftheworkforceand1,000workersintheperiphery.Shellhad93.9%ofheremployeesoncontractwith8,000peopleonsuch ‘precariousemployment’andonly520have full time job.TheNigerianNationalPetroleumCorporation(NNPC)which isrunby thefederalgovernmentwiththetaxpayers’moneyistheonlyonethathiresmoreworkersonfulltimeemploymentthanthoseoncontract.ThisabovetablerepresentstheatypicalemploymentpatternprevalentintheoilindustrybytheMNCs.LabourandservicecontractsaretermsusedbythemanagementofMNCstodescribecontractlabour.Managementsometimesreferstoitas“Bodyshop”or“Directhire”,whileothersrefertocontractlabourasserviceproviders(Ajonbadi,2015).Onceemployed,thecontractstaffinsome companies is made to sign the Yellow Dog contract. The yellow dog contract is acompulsiveundertakingnottojointheunionwhilstinemployment.Thesenomenclaturesarebeingusedtodescribecontract labourto inject internalcontradictions(Adenugba,2004andOkougbo,2010).JobSatisfactionandEmployeeMotivationOneofthemajorchallengesfacinglinemanagementandtheHRfunctionisthemotivationofemployees.PilbeamandCorbridge,(2010)suggestacriticallinkbetweenjobsatisfactionandmotivationononehand,andproductivityandprofitabilityontheother.Inordertounderstandhow labour contracting is employed as a control/managerialmechanism in the oil sector inNigeria,oneofthequestionsposedtocontractstaffwasonjobsatisfactionandtheir levelofmotivation.Amajorthemethatemergedonthissubjectrevealedthatemployeesoncontract



generally did not express overt opinions and suggested that their jobs exist to satisfy theirbasicphysicalandsocialneeds.Aparticipantinoneoftheorganisationsinvestigatedwiththe‘MeetandGreet’Unitclaimedthat:‘I amonlymotivated towork as it is the onlyway to feedmy family andpaymy children’sschool fees. The conditions surroundingmywork are depressing and de-motivating butmychoicesarelimited’

Figure1:Reasonsforcontractjobs

Whenemployeesoncontractwereconfrontedwiththequestionofwhytheyacceptcontractjobs,52%claimedtheirattractioncamefromthepossibilityofgettingconvertedtopermanentemployment;23%claimedthat thepay isbetter thanpermanent jobs inmostothersectors;and19%saiditisbetterthannojobatall.4%saidtheyneedthejobsontemporarybasis;andanother2%claimedignoranceofthenatureofthecontractatthebeginning.Whilemajorityoftherespondentsofthissurveyassertedthattheirmotivationcomesfromthehope that theywillbeconverted topermanentstaffoneday;evidencesabound thatonrareoccasionswillsuchconversionhappens,anditisusuallyatthediscretionoftheuser-firm(theMNCs).Thiswasconfirmedbymostof thecontractorsduring the interview,and itwaswellsummarisedbyoneofthecontractorswhoassertedthat:‘Itdoeshappenthatahighlyvaluedemployeeoncontractisrequestedbythethirdparty(userfirm) and necessary arrangements will be completed in terms of paper work to have suchcontractworkersconvertedtopermanentemployment’.When these views are placed in context, it can be argued that contract workers in theorganisationsdonotviewsatisfactionandmotivationasanimportantpartoftheirworklife.Areason for thiswithin thenational context as identifiedbyOkafor (2007) is thehigh rateofunemploymentwhichleadspeopletojobsinwhichtheydonotfeelmotivatedbutengagedintosatisfytheireconomicneeds.Employees were also asked about the level of influence they exercised over their jobs andtasks.Inparticular,contractemployeesexpressedstrongopinionsabouthavingtodefertolessqualified and experienced colleagues on open-ended contracts simply because theywere onfixed-termandcasualcontracts.Oneemployeefromthelogisticunitofclaimedthat:

52%

23%

19%

4% 2%Possibilityofbeingstaffed

Beierpaymentcomparedtoothersectors

Beierthanbeingjobless

Theneedforapartjmejob

Ignoranceofthenatureofthecontract



“Decisions about themaintenance of machines and replacement of parts are takenwithoutreferencetotheoperatorsoftheequipment”.Indoingthis,themanagementdeprivesemployeesofavoiceandrestrictstheirinputintotheproduction andwork processwhile seriously compromising occupational health and safety.This is similar to the findings of Battisti and Vallanto (2013), which found a link betweenflexibility andemployees’ perceptionsof jobquality.By reducing employees’ involvement intheirwork,managementunwittinglyreducetheirlevelsofmotivationandmoraleleadingtoafurtherdropinproductivitywhichdefeatsthebusinesscaseforflexibility.Compensation policiesmaymotivate and satisfy employees through incentive plans ormayharmmotivation and satisfaction through insufficient raises or salary freezes (Adam-Smith,2009). The motivation and satisfaction of employees could act as feedback on theorganisation’s quality of work life, and possibly improve the human resource department’sday-to-dayemployeerelationsactivities(LeeandEun,2016andILO,2016).

Figure2:Jobsatisfaction

About67%oftheemployeesconfirmedtheirdissatisfactionwiththeirwork,withabout29%expressing satisfaction, whereas the remaining 4% were indifferent. Marchington andWilkinson (2006) point to a link between flexibility and declining motivation and moraleamongcontractworkers.The2006attitudesurveybythePENGASSANunionintheNigerianoilandgasindustryrevealahighlevelofjobdissatisfactionamongcontractworkers,with69%ofworkers surveyed expressingdissatisfactionwith theirwork (PENGASSAN, 2006). This isconsistentwiththefindingsofthisresearchandthecriticalanalysisofliteratures.It would seem logical to assume that job satisfaction should be a major determinant of anemployee’s‘organisationalcitizenshipbehaviour’(Reicheetal,2009:48).Satisfiedemployeeswouldseemmore likely to talkpositivelyabout theorganisation,helpothersandgobeyondthenormalexpectationsoftheirjobs.AnothercontractstaffmemberintheInformationTechnologyUnitsaid:

‘IusedtogivemybestwhenIjoinedthisorganisationfiveyearsagoasacontractstaff,hopingmyconditionofservicewillimprove,oratleastmatchthoseofmycolleaguesonpermanentemployment.Thishasnothappened,asthemarginsbetweenuswidenandmyspiritisdampenedbecauseitisacaseofmonkeydeywork,baboondeychop.Imean,wethecontractstaffdothework,whilepermanentstaffenjoystherewards’.

67%

29%

4%

0

Dissajsfied

Sajsfied

Indifferent



Basically, job satisfaction is influenced by the conceptions of fair outcomes, treatment, andprocedures(MartinandFellenz,2010).Thus,ifanemployeedoesnotfeelhis/hersupervisorisfair in the treatment being meted out to him/her, or the organisation’s procedures areperceived tobeunfair, orpaypolicies areunfair, then, job satisfactionwill likely suffer.Butwhen an organisation’s processes and outcomes are perceived to be fair, trust will likelydevelop,andthiswillinturnleadtoemployee’scommitment(BuddandSpencer,2014).CareerMobilityandProspectInrecentyears,careerplanninganddevelopmenthavegainedmoregroundthaneverasmoreproactivecareer-relatedeffortshavebeenintensified.Thus,someorganisationsprovidecareereducation, information, and counselling (Borghans andGolsteyn, 2006).However, it is oftenemphasised that the primary responsibility for career planning and development restswiththeindividualemployees.Theplanningprocesswillenableemployeestoidentifycareergoalsand the paths to them; then, through developmental activities, the workers seek ways toimprovethemselvesandfurthertheircareer.Individualeffortsincludegoodjobperformance,favourableexposure,leveraging,andthebuildingofalliances.Anotherkeycharacteristicof ‘core’ jobsamong theMNCs inNigeria is the fact that thoseonpermanent employment enjoy career mobility. Career mobility refers to workers beingrewarded for performance through its internal labour-market mechanisms to move from alower position to a higher one (Marginson, 2015). This issue segregates, differentiates andsegments those workers in permanent employment and those on contract. For instance, aprojectengineerwithoneoftheorganisationsstudiedpointedoutthat:

‘Sincewecontractworkersarerecruitedintothecompanythroughcontractors,wearenotentitledtopromotion.’

Therespondents lamentedthe lackofmotivationintheabsenceofcareermobility,asastaffmemberintheoperationsdepartmentclaimed:

‘IreallywishIcouldgetanotherjob,evenif it is inthepublicsectorthatpayspoorly,becauseatleastIwillknowthatIamadvancinginmycareerandIwillgetpromotedeveryyearandwillultimatelyhavesomethingtolookforwardtoforretirement’.

Slow growth and restructuring through downsizing have eliminated many careeropportunitiesforotherwisegood,hardworkingemployees(Rubiano,2013).Simplyput,manypeoplehave found their career stalled throughno faultof theirs.Asmostof theoilMNCs inNigeria have scaled back their levels of middle management and staff through the use ofcontract staffing arrangements, finding career advancement opportunities outside the firmentailsconsiderablecompetitionfromothers.Oneofthecontractorsconfirmedthechallengesthatcomewithcareermobilitytothecontractstaffwhilegaugingthemwiththepermanentstaff:

‘It is a pitiable situationbecause I know that someof the permanent staffwhom theuserfirmsarespendingmoneyonhavereachedtheircareerplateaubeyondwhichtheyarenotcapableofadvancingevenwith trainingbut theystillgetmoreopportunitieswhencomparedwithcontractstaffwhoarestillfullofideasandenergies’.



Barrientos(2011:86)arguethatcontractworkersareplaguedbythefactthat‘mobilityacrosstheboundaryofthesesectorsisrestricted,andhigherpayingjobsaretiedtopromotionalorcareerladders,whilelowerpaidjobsofferfewopportunitiesforverticalmovement’.TrainingandDevelopmentandAcquisitionofSkillsCompetent employees do not remain competent forever. Skills deteriorate and can becomeobsolete (Salas et al, 2012). This is why organisations spend millions per year on formaltraining.Employeeswithself-efficacyhavestrongexpectationsabouttheirabilitiestoperformsuccessfully in new situations. They are usually confident and expected to be successful(Neuman,2014).Thus,trainingisameanstopositivelyaffectself-efficacybecauseemployeesmaybemorewillingtoundertakejobtasksandexertahighlevelofeffort.

Figure3:Natureoftraining

It appears safe to state that training and development are key requirements to retaining ahighlyskilledandtalentedworkforce.Inthecasestudyorganisations,respondentswereaskedhowregularlytheyreceivetraining,thenatureofthetrainingandduration,andwhobearsthefinancial implications (the contractors or the third party –MNCs). From the survey reports,61%oftherespondentsclaimedtheyareonlyexposedtoone-twodayworkshopsusuallyrunin-house.Another29%claimedalltheyhavehadwastheinductionatthestartofthework.Itis important to mention that, on reviewing the questionnaires, majority of those in thiscategory were those who have spent less than a year with the organisations. Interestingly,about2%claimedtohavehadoneortwooverseastrainingcoursesattheexpenseoftheuserfirm.However,onreview,itwasobservedthatallofthoseinthiscategoryhavebeenworkingascontractstaffforovereightyears.Theremaining8%claimedtohaveonlyhadoneweekoftraining.AnotherrespondentfromtheInformationUnitclaimedthat:

‘I always find it plausible to comprehend when I see the management sending ourcolleagues onpermanent contract to trainingand leavingus out, yet they expect thesameperformance.Itiscrazy,butwhatcanyoudootherthantrainyourself.IamnowdoingmyMBA(atmyownexpense)justtoremaincompetitiveandrelevant;whereas,Ihavemymateontheothersideofcontractwhoisbeingsponsoredbymanagement’.

Thiscreatesagroupofemployeeswithonlybasicskillstocarryoutthesimpletasksrequiredin their job roles. From one of the interviews with a contractor, it was revealed that thecompanysaw:

61%

29%

2%8%

Workshops

Induction

Oveseastraining

Oneweektraining



‘Itasadrainonresourcestosendperipheralemployeesontrainingcourseswhenyouare not sure you will retain him/her. If care is not taken, you will be training suchperson(s)foryourcompetitors’.

The above resonates with one of the findings from Mordi (2007), who suggests thatmultinational organisations create a segmentedworkforcewithin theworkplace. Peripheralemployees end up using existing skills to improve the competitive advantage of theorganisation while gaining little new knowledge in the process. As the attitude survey byPENGASSAN (2006) shows, employees on contract rated training has the second mostimportantdisadvantageincomparisontotheircorecolleagues.Acontractor thatworks for twoof threeorganisations investigatedsupportedtheclaimthattheuser-firmislargelyresponsibleforthetrainingofcontractstaff:

‘Iknowforsurethatmyclients(theuser-firms),focusestrainingconceptonindividualemployees as they believe that all employees, regardless of salary grade, position ornatureofcontract,canbenefitfromqualitytraining.Theyhavefourphasesoftraining,depending on the employees’ department. The first includes an extensive orientationprogrammefornewemployeesandon-the-jobtrainingforthosewhohavetransferredto a new job. The second phase is departmental training. Hourly and managementemployees receive specialised courses that are intended to increase departmentalproductivity.Thethirdphaseisplantorfacilitiestraining.Safetytrainingandcoursesforpersonalorprofessionaldevelopmentareincludedinthiscategory.Thefinalphaseis corporate and outside training and development. It includes training anddevelopment efforts made by corporate offices, private consultants, and universities.These are courses that are more general and developmental in nature, forming thebackboneofemployees’effortsatcontinuouslearning’.

Inreactiontohowthemanagersof theorganisationsstudiedarere-evaluatingskills intheirNigerian subsidiaries, the NUPENG national secretary called on the Nigerian government torevoke the contracts with multinational companies that refused to use Nigerian fitters andweldersinexecutingtheirjobs.TheunionsingledoutIndian,FilipinoandChineseweldersandfitters that were increasingly becoming recipients of outsourced jobs in the oil andconstruction industries in Nigeria (NUPENG, 2010). Some have argued that it would be amistaketothinkthatcoreworkersarenecessarilythemosthighlyskilledworkersorthemostrelevantlyskilledworkerstoafirm’sneeds.Atkinsonetal.(1984:59)arguedthat‘withsomeexceptions,employersarebecomingpragmaticandopportunistic,takingadvantageofcurrentweakunionsandhighlevelofunemployment’.Again,looselegalandlabourpoliciesinNigeriaarecontributing to thecurrentchallengesas itmakes iteasier foremployers tochoosewhotheywanttoplaceinthecoreorperipheralsegment(Okougbo,2010).TheodoreandPeck (2013)andSerrano (2014)argue thatemployerswillnormallyembracethelogicofflexibility,asitaffordsthemtheabilitytorenameorredefinecoreandperipheralskills. Itisnowcommonplacethatskillissociallyconstructedassemi-orunskilled,andmaynot be rewarded by the advantages of an internal labour market, such as pay, promotionprospects and other non-wage benefits. For Pollert (1987), this dilemma is a conceptualproblemthatweakensthenotionofacoresegment.Shearguesthatthecharacteristicsofthecore segment are not always as fixed as commentators of the dual labour-market theoriesproffer.



WorkingRelationsamongColleaguesThe network of interpersonal relationships in the workplace, resulting from the use offlexibility isonedimension thathasnotbeenaddressed inearlier studiesand literatures. Inordertounderstandhowemployeesperceivetheirrelationshipsintheworkplace,theywereaskedwhat the relationship between them and their colleagues on permanent employmentwas. This question revealed inherent tensions in their relationship. The contract employeeswhorespondedhadtheperceptionofbeingtreatedassecondclasscitizensbymembersofthecoreworkforce.Astrikingresponse in this regardcame fromanemployee fromtheLogisticUnit:

‘They(permanentstaff)seeusastheirerrandboys,eventhoughinmostcaseswearemorequalifiedthanthem;theydelegatetediousandmeaninglesstasksthatordinarilyarenotpartofourjobrole’.

Another contract staffmember furiously responded to one ofmy questions on theworkingrelationshipandsaid:

‘Listen,Iamnotadropout,Ihavetwomasters:oneisMBA(OperationsManagement)andtheotherisMSc.inChemicalEngineering.Iam,however,treatedlikeastewardorabeggar.MycontracttermsstipulatethatIdoall theworkasanormalworkerherebut I am seen as a mere ‘body part’. This is only happening because the Nigeriangovernmenthasallowedit.Thiscausesalotofhumanandworkdiscontent.Someofmycolleagues have taken this badly………sometime we have even fought physically andbeatenpermanentworkerswhohavemistreatedus’.

Thiscreatesproblems,especiallywhenworkgroupsarestructuredaroundteamscomprisingcoreandperipheralstaff,andpresentsaseriousmanagerialchallengeatline,middleandtopmanagement levels. Teambuildingutilises high-interaction group activities to increase trustand openness among team members. The activities considered in team building typicallyinclude goal setting, the development of interpersonal relations among teammembers, roleanalysis toclarifyeachmember’s roleandresponsibilities,and teamprocessanalysis (Allen,2006).

Figure4:Workingrelations

When respondents were confronted on the cordiality of their relationship with permanentemployees; 81% of them agree that they do not have good relationship, as hostility andanimosity seems to characterise the work environment within teams. Only 11% attest tohavinggoodrelationships,with8%statingthattheycannotbebothered.

81%

11%8%

0

Badrelajonship

Goodrelajonship

Indifferent



Okafor(2007)suggeststhataninternallysegmentedworkforceistotheemployer’sadvantagegiventheindustrialandnaturalcontext.ThefearamongemployersintheNigerianoilindustryis the instability thatmay be caused by collective action of employees united in purpose topushforbetteremploymenttermsandconditions.Forexample, itwasrevealedinthisstudythat only core employees are allowed tobe representedbyunions.Aperipheral employee’scontract,acopyofwhichIreviewed,explicitlyprecludesthemfromtakingpart inanyunionactivity.This isalsoacore issuethathasbeencampaignedagainstbyboththeNUPENGandthe PENGASSAN. As a result of union pressure, contract staff are now allowed to join ‘staffassociations’,whichhavenorealbargainingpowerwhenitcomestotermsandconditionsofemployment. Kleinknecht (2014) and Serrano (2014) found out that flexibility within thelabour process poses serious implications for collective bargaining. Segmentation producesvulnerable groups of workerswho suffer inferior terms and conditions of employment andhavenovoiceormediumtoinfluencemanagement.ThefactthatthemanagementoftheMNCshaveovertlymadeobviousthedichotomybetweenthetenurestaffandthecontractstaffhaveincreasedmounting tensionbetween the twogroupsofworkers.Oneof thecontract staff intheInformationTechnologydepartmentmentionedthat:

‘Itisnotuncommontofindoutthatthereiscoldwarwithinourrankandfile.Weknowtheydon’t likeus,andwealsodon’treally likethem,especiallysomeofthemthatseethisplaceastheirbirth-right.ItissadbecauseIbelievethereshouldn’tbe“themandus”whenweareallsupposedtobeworkingforthesamegoal’.

AnotherparticipantintheSecurityUnitclaimedthat:

‘Youknowfightinginanorganisationpremisesisconsideredtobeagrossmisconductact,butIwillbehonestwithyou,IhavebeensofrustratedbysomeofthemthatIfeellikepunchingthem.That’swhywhenIhaveasocialfunction,Idon’tinvitethem,Ionlyinvitemyfellowcontractstaff,theyaretheonesIcantrustanddiscussfreelywith’.

There is a consensusamongworkers,unionofficials and scholars that thepursuitof a largesecondaryworkforceviaprecariousemploymentcontractsforreasonsofprofitorcontrolhascomewithacost(Kallerberg,2011).Non-cordialrelationsatworkhavebeenanissuethathascomewiththehighuseofinsecureworkers(Hastings,2012).Clearly,amajorareaofconcernin organisational development is the dysfunctional conflict that exists between groups.Intergroup development seeks to change the attitudes, stereotypes, and perceptions thatgroupshaveofeachother(Jackson,2002).There is a need for management to know that since contract staff can sometimes helpemployerstobenchmarkandimprovetheirpractices,they(contractstaff)areperceivedasapotential threat by the permanent staff. This is in linewith the survey conducted in theUSwhere33%of full-timeemployeesperceive the temporary staff as a threat to theirown jobsecurity(ProcterandAckroyd,2006).Inattemptingtoconvincepermanentworkersthattheyarevaluedandnotabouttobereplacedbycontractworkers,theorganisationmustnotcreatea perception that contract workers are second class organisational citizens. Thus, theorganisationshouldtreatthecontractworkersthesamewayittreatspermanentworkers.

DISCUSSIONOil and gas unions have stepped up efforts to advocate the enforcement of laws on labourcontracting. They have also become more aggressive in organising contract workers. Sincemanycontractworkersintheoilandgasindustryworkalongsideunioncolleagues,increased



hostilityandtensionwerefoundinthecourseofthisstudy.Thetwounions-theNUPENGandthe PENGASSAN, claimed to have begun monitoring their employment terms (NUPENGbulletin, 2012). According to the law, if 50% or more of non-union employees ask to joinNUPENGorPENGASSAN,theunionscanthensetupacommitteetobeginnegotiationswiththeemployer (Ariweriokuma, 2009).This study found that this has not really happened as theprocessoftengetsboggeddowninlegaldetails.TheMNCsoftenshiftbargainingresponsibilityfromonesub-contractortoanother,delaynegotiations,trytopitunionsagainstoneanother,orevenresorttophysicalattacks(Agomo,2012).However,unionsareincreasinglywillingto“gotothemat”ontheissueoffreedomofassociationforcontractworkers.Untilthecauseofworkers’rightsisfoughtamongandforabroaderaudience,oilworkersinNigeriawillcontinuetofindthemselvesisolatedintheirattemptstocounterthedegradationof work. Observations that are commonly made are attributed to the following instances:whereemployerscannotseecontractemployeesasco-pilotsinthequestfortheattainmentoforganisational objectives; where employers do not believe that what it wants and whatcontract employees want are identical and harmonisable; where employers see contractemployeesonlyasthecostofproductionwhichmustbeeliminatedwhereverpossible;whereemployersallowcontractemployees(“rankandfile”)toseefear,distrust,suspicion,insecurityand the love of secrecy as a norm in the organisation;where employers are afraid of losingtheir prerogative if it gets contract employees involved in the solution to organisationalchallenges;whereemployersfeelinsecureifcontractemployeeshaveexcellentknowledgeoftheorganisationissues,andcouldofferexceptionalsolutions;whereemployersnaïvelybelievethattherearecertainfactsabouttheorganisationthatthecontractemployeesdonotneedtoknow; andwhere employersdonot factor contract employee’s concerns as anorganisationconcern(Fajana,2011andILO,2016).Ontheotherhand,theemployeesneedtochangetheirmentalityandorientationabouttheiremployerbeing responsible for the challenges confronting theNigerianeconomy.TheMNCsshould be appreciated as investorswith clear objectives tomaximise profit. They should beencouraged and appreciated as job creators, and it should be understood that they cannotsolvealloftheeconomicproblemsofthecountry(MordiandMmieh,2009andAjayi,2011).The contract employees must understand that their contract terms and conditions areunequivocal inmost cases and it should be clearly spelt outwhat theirworking terms andconditions are; all ofwhich they should accept. Thus, an attempt to change the rules in themiddleofthegamewillnotbeintheinterestofanyone.Theyshould,therefore,stopclaimingmarginalisationanddiscrimination,whentheyareawareofthetermsfromtheonset.

CONCLUSIONAs corporateuseof labour contractingbusinessmodel increases, itspotential todeepen thedividebetweenworkersandcommunitiesbecomesmorecorrosive.Oilunionswillnodoubtcontinuetheiraggressiveefforts tostop labourcontractingthroughcollectiveaction.But themostcomplexchallengefortheseunionsistoturnthebattleagainstlabourcontractingintoamovementforredeemingtheoriginalpromiseofmeetingmembers’expectations.Howtheoilunions go about this remains to be seen, but it is clear that their efforts to counter labourcontractingaredirectlytiedtotheirlong-termcapacitytobringsocialchangeinthecountry.Successwill largelybemeasuredby theoilunions’ability toensure thatnewoil sector jobshavebettercareermobility,traininganddevelopment,jobsatisfactionandimprovedworkingrelationship among colleagues. The rule of law should be advanced, not only by promotinglabour law enforcement, but also by helping communities hold government leadersaccountable,byusingtheirbroadpoliticalstrengthtobridgetheeconomicgapbetweenthose



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Siam,W.Z.,&Mansour,A.A.(2016).TheImpactofManagementObjectivityinJordanianShareholdingCompaniesonAuditPlanningandEvidencesCollection.ArchivesofBusinessResearch,4(6),227-248.


TheImpactofManagementObjectivityinJordanianShareholdingCompaniesonAuditPlanningandEvidences

Collection

ProfessorWalidZakariaSiamProfessorofAccounting

TheHashemiteUniversity,Jordan

AliArafatMansourMasterofAccountingandFinanceTheHashemiteUniversity,Jordan

Abstract

ThisstudyaimstoidentifytheimpactofmanagementobjectivityinJordanianshareholding companies on audit planning and evidences collection from theviewpointofJordaniansauditors,andwhethertherearestatisticalsignificancedifferencesofthoseeffectsduetotheexperienceoftheJordanianauditors.Toachieve the objectives of this study, the researchers have designed aquestionnairetocollectdataofthestudy,wherethestudypopulationconsistedof (327) auditors practicing the auditing profession in Jordan as at thebeginning of year 2016 (According to Statistics of Jordan Association ofCertifiedPublicAccountants(JACPA)in1/1/2016).Thestudysample’ssizehasreached (115) auditors which representing 35% of the study population.Resultsofthestudyinclude:Thereisahighimpactformanagementobjectivityin Jordanian shareholding companies on audit planning and the evidencescollection fromtheperspectiveof Jordaniansauditors, the lackofstatisticallysignificantdifferences formanagementobjectivity’s impactonauditplanningandevidencescollectiondue to theexperienceof the Jordanianauditors.Theresearchers presented many recommendations, including: to send morerequests to use external experts, to pay more attention to contribute to theimplementationof therequiredprofessional serviceseffectively,especially inthecaseofdoubtorsignsofnon-managementobjectivityofthecompanyinthesubject of the audit, to strengthen the keenness of the auditor to increasecontrolactionsonevidenceauditandexaminethesequenceofimplementationandtheadoptionofevidence that iscollectedwhenthere isdoubtorsignsoflackofobjectivityinthemanagementoftheauditedcompany.

Key words: management objectivity, Jordanian shareholding companies, auditplanning,evidencescollection.

INTRODUCTION

Not surprisingly, Nations knowledge level and their progress and success are measuredaccording to the spread of the culture of planning in all of life aspects, whether cultural,economic,scientific,socialorpolitical.Thebestproofofthisisthatwefindcountriesthathavebecomeattheforefrontoftheworld’sindustriallyandeconomicallyinashortperiodoftimeaftertheireconomiesdestroyedcompletelybywars,povertyandtheproblemsofpopulationgrowth, and that through the spread of planning among societies, which became at theforefront of the globalnations industrially andeconomically, for exampleFarEast countries



from Japan and South Korea, passing through Malaysia and the end of China. And to findcountriesthathavemaintainedpolitical,scientificandmilitaryprogressduetothecultureofplanning and subsequent spending isnot limited to scientific researchbasedon theneed tosurviveintheforefrontoftheworldinall fieldsof life, forexampletheUnitedStates,UnitedKingdom, France and Germany and to find very small countries that hardly appear on theworldmaphasbecometheforefrontofglobalstatesinthemediabecauseofaplanningculturebasedonadvancedscientificstudies.And to confirm the importance of planning in the career of the auditor, the InternationalAuditing Standards Committee developed special planning standard setting out the mainpoints of the audit planning in order to understand the client’s business for audit purposeswhetherfrompreviousexperienceorknowledgeoftheavailablesources.The Committee also stressed the concept of materiality and the impact of deletions anddistortions in the financial statementsoneconomicdecisionand the importanceofknowingtheconceptofauditriskandtheuseofitduringtheplanningprocess.There is no doubt that there is a correlation between risk assessment and audit planning,suggesting that auditors adjust their decisions about the audit evidences based on themanagementobjectivityandcreditability.If the primary purpose of auditing the financial statements to give a neutral professionalopinion about the fairness of the financial statements, the auditor is required to follow anumberofprocedureswhichareasetofstepsdetermined inadvance in theplanningstage,and theorganizers are committed in theauditingprofession to apply accepted internationalstandardsandrecognizedatthelocalandinternationallevel.TheAmericanInstituteofCertifiedPublicAccountants(AICPA)hasenjoined(Thefirstsectionoffieldsections)theneedforadequateplanningfortheauditprocess.Theimposeof(SarbinsOxlyandParticularlysection(404)thereoftoemphasizetheneedtoassessandreportonthecredibility of the client and management objectivity, resulting in increased informationavailabletoauditorsintheplanningoftheauditprocessanddecision-making.Thebasisofmanagementobjectivityandintegrityoftheimportanceoftheworkoftheauditor,this study aims to identify the impact of the management objectivity in the Jordanianshareholding companies on the audit planning and evidences collection needed to completetheauditrequirementsfromtheviewpointofJordanianauditors.

IMPORTANCEOFTHESTUDYANDITSOBJECTIVESThestudygainsimportancefromasetofpoints;itcanbesummarizedasfollows:

ü That theplanning for theauditprocessand thecollectionofappropriateevidences isoneoftheimportantstagesthatmustbeperformedbytheauditorandgiveitnecessaryattentionbeforestartingtheauditprocessasitwillhelpinpredictingthepotentialandimportantproblemsbeforeadmissionorreadmissionoftheauditstage,andthisiswhatachievesefficiencyintheprocessofauditcarriedout.

ü Theplanninghasabig important inenablingtheauditortocollecttheauditobjectiveevidences, and what is revealed by the results to the auditor before accepting orreadmission the audit of the accounts of the client process and determine the feesarising from the acceptance of auditing and the degree of risk that the audit processcouldface.



ü The objectivity of the company’s management in the Audit subject has a significantimpact on the auditor’s plan for the audit process and gathering sufficient auditevidences that isnecessary for theauditprocess,whichrequireshighlighting them inthefieldofscientificstudies.

ü Thisstudyisoneofthefewstudies(ifnotthefirst)thatconnectsbetweentheobjectiveimpactofthecompany'smanagementoftheauditedplanoftheauditprocessandthecollection of audit evidences from the perspective of Jordanians auditors, and theimpactoncompetitionbetweenJordanianauditorssectoratthelocallevelandregionallevels, which should be kept in the mind of those who support it, success in thecompetition must be based on the submission of outstanding universal quality ofservices and the ability to keep pacewith developments and to keep upwith futureaspirations, which requires efficient planning of the audit process and ensure thecollectionofaneffectiveauditevidences.

Hencetheimportanceofthisstudy,theresearchersseekthroughwhichtoidentifytheimpactofmanagementobjectivityinJordanianshareholdingcompaniesonauditplanningandcollectauditevidencesnecessaryfromtheviewpointofJordaniansauditors.Itcanaddresstheobjectivesofthesubstudybasedonthefollowingpoints:

1. Identify the objective effect of the management in the Jordanian shareholdingcompaniestoplantheauditprocessfromtheviewpointofJordanianauditors.

2. ExplaintheimpactofthemanagementobjectivityinJordanianshareholdingcompaniesonevidencescollectionfromtheperspectiveofJordanianauditors.

3. Clarify whether there are statistical significant differences (at the 0.05 significancelevel) for the impact of management objectivity in the Jordanian shareholdingcompaniesonauditplanningfromtheviewpointofJordanianauditorsattributedtotheexperienceoftheJordanianauditors.

4. Examinewhether there are statistical significant differences (at the 0.05 significancelevel) for the impact of management objectivity in the Jordanian shareholdingcompanies on evidences collection from the perspective of Jordanian auditorsattributedtotheexperienceofJordanianauditors.

THEPROBLEMOFTHESTUDY

Since themain objective of the audit of financial statements by the auditor is to express anartisticneutralopinionaboutthefairnessofthefinancialstatements,theauditorisrequiredtofollowmanyoftheproceduressuchasplanningtheauditandcollectionofauditevidenceandestablishaworkprogram,andthroughthedataavailable inthecompanyforauditpurposesandthecooperationfromthecompany'smanagementanditsemployeestoobtainaconvincingevidence to reach a neutral technical opinion. However, the lack of objective company'smanagementanditsdesiretoinfluencethecourseoftheauditprocessmayprevent(ordelay)theauditor'smissionasrequired,sotheauditorseekstoensuretheobjectivitymanagementbeforeplacingtheactionplananddeterminewhatthenatureoftheauditevidencecollectedmorefinal.FromheretheresearcherscansaythatthemainproblemofthisstudyistoshowtheimpactofmanagementobjectivityinJordanianshareholdingcompaniesonauditplanningandcollectionthenecessaryevidencesfromtheviewpointofJordaniansauditors.Thestudyproblemcanbeformedthroughthefollowingsub-questions:

1. WhatistheimpactofmanagementobjectivityinJordanianshareholdingcompaniesonauditplanningfromtheviewpointofJordaniansauditors?



2. WhatistheimpactofmanagementobjectivityinJordanianshareholdingcompaniesonevidencescollectionfromtheperspectiveofJordaniansauditors?

3. Are there statistically significant differences (at the 0.05 significance level) for theimpact of management objectivity in Jordanian shareholding companies on auditplanningfromtheviewpointofJordaniansauditorsattributedtotheexperienceoftheJordanianauditors?

4. Are there statistically significant differences (at the 0.05 significance level) for theimpact ofmanagement objectivity in Jordanian shareholding companies on evidencescollectionfromtheperspectiveofJordanianauditorsattributedtotheexperienceoftheJordanianauditors?

THEORETICALFRAMEWORK

Theexpansioninthescopeofcompanies,growingineconomicprocesses,multipleaccountingtreatments and themultiplicity of legal requirements and the requirements of internationalaccounting standards led to a high difficulties and complexities in thework of accountants,which necessitated those accountants to have highly qualified skills and variety skills, andthosedifficulties and complicationsmaybea causeof someerrors in accountingoperationsandfinancialstatementsandreportspreparedbytheaccountant.Soitwasnecessaryforthoseoperationsandthefinancialstatementsandreportstobeauditedby an independent external auditor to satisfy the needs of users of these lists and reportsaccessandtoassureanacceptableandreasonablelevelofquality.Alsomanyresearchersrefer(Arenset.al.,2014,AL-Thuneibat.2012)totheexistenceofmanyofthefactorsthatledtoincreaseddemandforauditfromaneconomicpointofview,including:the desire to reduce the risk of information, reducing the cost of capital and to assist inPreventingerrorsandmaterialmisrepresentationsoccurrenceasmuchaspossible.Planning for the audit process and its phases: In order to accomplish any task effectively;advance and good planning for this mission is required and the audit process of the tasksrequire necessarily to perform good planning process through the development of anexaminedandcomprehensiveauditstrategytothescopeofexaminationandevidence,andthetranslation of this strategy in the form of a program that includes steps and proceduresnecessary to implement the audit function to ensure efficient implementation and ultra -professionalcare.Iftheplanninggeneralconceptmeanstotranslatethegoalsintoexecutableprogramofwork;the planning process for the auditmeans “to develop a strategy for the audit work plan inordertoreducetheriskofthisworktoalowlevelisacceptable"(Alshohna,2015,135).(Al-Thuneibat.2012)indicatesthattheplanningfortheauditprocessisoneoftheimportantthingsintheauditprocess,whichisoneoftheinternationalauditingstandardsissuedbytheAmerican Institute of Certified Public Accountants, and emphasizes that themost importantthingsthatwillhelptheplanningoftheauditprocesstoachieveinclude:auditors’judgmentonthesizeofsufficientandsuitableevidencewhichcanbeobtainedintheauditstage,directingtheauditoroftheresourcesavailabletocarryouttheauditprocessproperlysoastoachieveefficiencyandeffectivenessthroughrationalizationauditcosts,clarifythenecessarythingsandresponsibilities before starting the audit process so as to minimize the chances ofdisagreements occur between the audit office and those in charge of the company in thesubjectofaudit.



Theplanningprocessaffectedbyavarietyoffactors,including:thesizeoftheauditedentity,thecomplexityoftheoperationsoftheauditedentity,theformerauditor'sexperience,thesizeofthenecessaryauditevidenceandmanagementobjectivityandhowtoprovidethenecessaryfacilitiesfortheauditortocarryouttheaudit.Andtheplanningprocesstogothroughtheprocessofcheckingmultiplestages,theresearchercansummarizeitasfollows:

ü Firststage: todothe initialplanningprocedures:Theseproceduresdesignedtoassisttheauditorinidentifyingtargetsandrisksthatmayaffectthepreparationoftheauditplanandworktobereducedtoaminimum,theinitialproceduresforplanningincludethe following: Admission or readmission of audit and preliminary assessment of theaudit task, understanding the client's needs to provide auditing and conditions ofservicefeesandpreparingtheengagementletter,thedevelopmentofbusinessstrategyandtheappointmentoftheauditteam.

ü Secondstage:getareasonabledegreeofknowledgeandunderstandingofthenatureofthe customer's business: This phase aims to identify the nature of the customer'seconomiccircumstancessurroundingthecompany’sauditposition,andknowthebasiccharacteristicsand judge theoverall levelofmanagementefficiencyandobjectivityofactivity,andunderstandtheaccountingsystemandinternalcontrolsystemapplied inthecompany.Anauditorcanachievethisstagethroughfieldvisitstothecompanybyconductinginterviewswithofficialemployeesofthecompanyandtheemployeesoftheaudittogettheinformationdirectly,andaccesstodocumentsandminutesofmeetingsand the statutes and articles of incorporation and other documents to obtaininformationindirectly.

ü Thirdstage:todeterminetheinitiallevels(relativeimportance)ofthematerialityandassessingauditrisk:ISANo.(320)(issuedbytheAmericanInstituteofCertifiedPublicAccountants)definedmateriality (relative importance)as theamountofomissionsordistortions in the accounting information or financial statements, which can lead tochangingtheappropriatedecisionforusersofthisinformationordataorinfluencetheresultdueto omissionormisrepresentation. And itrefers tothesamestandardthattheinformationisofrelativeimportanceifdeletionorfalsepresentationmayaffecttheeconomic decisions of the users of this information, and the relative importancedepends on the item or estimated error in special circumstances due to deletionsubmittedwrongly.

At this stage, the auditor determines the materiality level by quantity and quality, and toestimatetheauditriskanditsimpactontheacceptanceofthetaskofcheckingwhetherornottoaccept,and ifacceptedwhat its impacton theresultsof theauditor’s report. Thismeansdetermining the amount of allowable error in the financial statements where auditor whoallowsitspresenceevenwhenissuinganunqualifiedauditopinion.Todeterminetheamountofallowableerrorinthefinancialstatements,theauditormusttakeintoaccount:theamount(quantity)andnature(quality)misinformationthatmayfindinthefinancialstatements(suchasprescribinganinappropriatepolicyofaccountingfollowedbythecompanysoastomisleadusers of financial statements), the extent of material misstatement represents the relativeimportanceofthefinancialtransactionsandaccountbalancesanddisclosures.

ü Fourthstage:thedesignoftheauditplanandthedetailedprogramoftheaudit:Auditplanconcludesprogramwhichwillbefollowedbytheauditorinauditingthebooksandrecords and the content of the data, and the steps to be taken towards theimplementation of the audit process, and the time to finish each stage of the auditprocessandthepersonresponsibleforimplementationrepresent.



Indesigningtheauditprogram,it is incumbentontheauditortotakeintoaccountthescopeand limits of the test, and determine the level of the tests in the light of the results ofexaminationevaluationoftheinternalcontrolsystemandidentifydesirablegoalstoachieveineachstepof theauditprogramobjectives,and toensure that themaximumamountofauditevidence collected so that the audit program can be flexible and realistic and updated ifcircumstancesrequiredso.Audit evidences and its adequacy and relevancy: The auditor should obtain sufficient andappropriateauditevidencetoreduceauditrisktoaminimumlevelofriskacceptedandtogetareasonableassurancethatenablestheauditortoexpressatechnicianneutralopinion.ISA No. (500) defined audit evidence as "all information used by the auditor to reachconclusions that builds upon his opinion in the audit process, and include the informationcontainedintheaccountingrecordsunderlyingthefinancialstatementsandinformationfromothersources,suchasapprovalsandtheresultsof inquiriesandreportsoffinancialanalystsanddatacomparisonandothers".The researchers believe that the audit evidence must be characterized by two essentialfeatureswhichareappropriatenessandsufficiency.Appropriateness featurecanbeachievedintheauditevidenceifithasthefollowing:Evidenceislinkedtoauditpurpose,confidenceintheevidencewhichaffectsthenatureandsourceofobtainingevidence.According to the literature (Arens, et. al., 2014; Alshohna, 2015) that there are somefundamentals that lead to increase confidence in the audit evidence, and thus increase thereliabilityof,suchas:

• Independenceofthepartywhoprovidedtheevidencerelatedtotheaudit.• Theeffectivenessoftheinternalcontrolsysteminthecompanythatsubjectofaudit.• Obtain audit evidence directly through actual observation or examination or re -

calculationperformedbytheauditorpersonally.• Obtainauditevidenceattheappropriatetime;Accesstoevidenceinthehistoryofnot

commensuratewiththedateoftheinspectionguidelosesitsrelevance.• Qualifications of provider of the information and its accuracy and reliability of the

informationitprovides.• Thedegreeofobjectiveevidenceandnotitscomponentsrelyonjudgmentandpersonal

judgment.Theadequacyoftheauditevidencesarerelatedtothequantityofevidencesrequiredbytheauditorcollectedtoperformtheaudit,dependingonexperienceandprofessionaljudgmentinthisarea. Andtheadequacyoftheauditevidencesaffectedbyarangeofelements,including(Qaysar.2014;AL-Thuneibat.2012):

ü The relative importance of the element, where commensurate quantity of auditevidences directly positivly with the relative importance of the element, a higherrelativeimportanceofthesubjectofanauditwillincreasethequantitynecessaryauditevidencesprovided.

ü The degree of risk posed to the element, where the quantity of audit evidencescommensuratewiththedegreeofrisk,thehigherprobabilityofdesireditemforauditexposed for fraudandembezzlement thehigher the auditorwill seek to collectmoreauditevidence.

ü Thecostofobtainingevidence,which isexpectedthat thequantityofauditevidencesnegativly relatedwith the cost of obtaining evidence, because the auditor performs a



benefitandcostanalysisofevidence,andhehastostrikeabalancebetweenthedesiredbenefitononehandandthecostfactorontheother.

ü The efficiency of the internal control system, with proportional quantity of auditevidencesnegativlyrelatedwiththedegreeofefficiencyoftheinternalcontrolsystem,proper and accurate internal control is an indicator of organized accounting systemsandbooks,whichwill reflect on the quantity of audit evidencesn and the quantity oftestingandthesizeofthesamplethatischosenbytheauditor.

Theresearchersbelievethatthemultiplicityofsourcestoobtainauditevidencesisthesourceofstrengthandconfidenceandsecurityoftheauditortochecktheintegrityofthedata,whichisauditedinordertoreachanimpartialprofessionalopinionaboutthesafetyofthefinancialstatementsdatatothecompanythesubjectofauditandtheyreflecttherealityofthecompanypositionhonestlyandfairly.Managementobjectivityanditsimportanceintheauditprocess:Thetermobjective(synonymtransparency) one of the commonly used terms in the present, on the economic, social,cultural, political and educational level, objectively seen as linking actions to words, andtransparency inthe languagemeansthinthingthatdoesnotdarkenwhatbehind itandseesthrough it and it’s the opposite of opacity and secrecy, and perhaps the use of this termidiomaticallynotmuchdifferentfromthelinguisticmeaning.And objectivity (or transparency) is one of the most important principles of corporategovernance,as it isthefirstweapontofightcorruptionandembezzlementandmanipulationandfraud.Theabsenceofobjectivity(transparency)opensthefloodgatestoholdcorruptdealsandsuspicioustransactionsbutwithobjectivityitisdifficulttoabusepowerinfavorofcertainworkingclassillegallyandsecretly.According to some researchers (Houri, 2013) that the objective (or transparency) ofmanagementofanyofthecompaniescanbringmanyadvantages,including,butnotlimitedto:

1. Improve the image of the management and the company's image both locally andinternationallyinthefieldofreformandreducingcorruption.

2. Spread the good values in the company and calling for reform and the fight againstcorruption.

3. Developacultureofemployeesof thecompany in the fieldof reformandpublish theprinciplesandvaluescalling forthecreationofanenvironment free fromall formsofcorruptionandabuseofpower.

4. Seek to activate all laws and regulations that are supportive of objectivity andindependenceinthecompany.

5. Identifytheregulatoryandlegislativebases inthecompanyinthefieldofreformandthefightagainstcorruption.

6. Detection of corruption in the company, diagnosis, study and research on the causesandsuggestwaysofremedyingitandreducethespread.

Managementobjectivityandtheneedfornon-interferenceintheworkoftheauditorwerenotincludedinthemodernconcepts,(MautzandSharaf)(1961)notedthatTheauditorshouldbecompletelyindependentinallstagesoftheauditprocess,inthesensetobeneutralandhonestinhisworkandobjectiveandimpartialduringtheimplementationoftheauditprocess,andtoensurethatitshouldenjoyfullindependenceinthepreparationoftheauditprogramwithoutthe intervention of themanagement ( the client 'smanagement) of any amendment to thisprogram, and to enjoy full independence in the field of inspectionwithout exposure to any



pressure or interference by the management (the client 's management) in the process ofselectingtheareasandactivitiesandelementsthataresubjecttothescreeningprocess.Previousstudiesandthedistinguishesbetweenthecurrentstudyandthepreviousstudies:Andthrougharesearchtheresearchershaveperformedforthepreviousliteratures,theyhavefoundascarcenessofstudiesthathave linkedtheobjectiveofmanagementandplanningfortheauditprocessandthecollectionofevidence,buttheresearcherswillpresentmorestudiesclosertothesubjectofthisstudy,andthesestudies:

• Study(Alshttarat,2016)entitled:impactofelectroniccommerceonauditplanninganddocumentation mechanism in Jordanian audit firms: field study, the study aimed toidentify the impact of electronic commerce on the planningmechanism for the auditprocessanddocumentationintheJordanianauditfirms,andproceduresperformedbytheexternal auditor fororganizing,planninganddocumentationof theauditprocess.To achieve the objectives of the study, the researcher designed a questionnaire anddistributed a sample on Jordanians auditors practicing for the auditing profession in2014.Theresearcherfoundanumberofresults, including:theauditor’sreviewoftheworkPlan for theauditprocess in thecaseof the client that is subjectof theaudit ispracticing electronic business activities, and his eagerness to collect the largestevidencetoensuretheintegrityofthefinancialpositionoftheclientsubjectofaudit,inaddition to having the impact of e - commerce operations on documenting auditproceduresperformedbytheauditormechanism.

• Study (Kerdouri, 2015) entitled: the role of the analytical review in improving theperformanceoftheauditprocessinlightoftheuseofinformationtechnology:thecaseofacompositerefiningsalt foratermofBiskrastudy, thestudyaimedto identifytherole of analytical review based on traditional quantitative and advanced to improveauditorperformanceinstylescircumstanceswheretheneedtomakeuseofinformationtechnologyintheAlgerianeconomicenterpriseemerged.Thestudyservedtohighlightthe contribution of artificial neural networks to improve the analytical review. ToachievetheobjectivesoftheresearchafieldstudywasconductedonsaltBiskrastatecompoundfortheperiod(2010-2013)usingavarietyofanalyticalreviewmethodsofmodeling as a model financial ratios for the discovery of fundamental errors, and atypicalregressionandtimeseriesasmethodscomparedtothemodelofartificialneuralnetworks in sales forecasting. The study concluded that analytical review methodscontribute to the task of givingwarnings about the existence ofmanipulation in thefinancialstatementsandthediscoveryoffundamentalerrors,andtherearesignificantdifferences on the artificial neural networks method is superior to conventionalstatisticalmethodsinpredictiveabilityandaccuracyofclassification.

• Study (Mohamad, 2013) entitled: Auditors' responsibility and their role in theassessmentofmanagement fraudrisk in the lightof internationalauditingstandards:analytical study, thestudyaimed to indicate the roleandresponsibilityofauditors inSyria to assess the management fraud risk in the light of international auditingstandards,andtoachievethegoalofthisstudyaResearcherconductedanalyticalstudyof the working papers of the company KPMG For some of its client to find out themanagementfraudriskassessmentandtheircompatibilitywithinternationalauditingstandards, in order to disseminate the results to the Syrian audit environmentprocedures , the researcher designed questionnaire was distributed to a sample ofauditorsaccreditedtotheSyrianSecuritiesCommissionofaccountsandanalysisoftheresults using a combination of statistical methods. The researcher found a set ofconclusions , including: that the auditors in Syria are playing an important role in



assessing therisksofmanagement fraudatall stagesof theauditprocess,auditors inSyria are responsible for assessing management fraud risk at all stages of the auditprocess, risk assessment is considered one the most important stages of the auditprocess regarding the evaluation of management fraud risk, and the analyticalprocedures are considered one of most effective ways to evaluate the managementfraud risk assessment. In light of the findings, the researcher presented a set ofrecommendations, including:theneedtofocusontheproceduresthat isnotexpectedby the clientmanagement and that themanagementhasnot assigned the auditors toperform them, and the need to pay more attention to analytical procedures and toidentifyandassessmanagementfraudrisk.

• Study (Robert and Dosch, 2013) entitled: Exploring the Principles for increasingIntegrityandObjectivityinExternalAudits,thestudyaimedtoshowtheprinciplesthatwill increase the objectivity and integrity of the external audit in the United States,wherethestudywascarriedouton(56)auditor.Theresultsofthestudyshowedthatpeoplewhoarequalifiedtomanagedataandrecordshasanimportantroleintheauditprocess, because the objectivity and integrity of the information is very important toachievethequalityoftheauditprocessoutputs.

• Study (AnbarandMohammad,2012)entitled:effectsofmanagementdecisions in theresponsibilityoftheauditor:AppliedResearchinasampleconsistsofcompaniesundercontrol auditcourtofficeandtheprivatesectorofauditing, thestudyaimedtoshowthe importance management representations, which represent a proof evidence thatauditorsobserverandseekhardtogetthemtocometoconclusionsbuildsonthebasisoftheprofessionalopinionaboutthefairnessandintegrityofthefinancialstatementsthatrepresenttheissuesandfiguresmanagementclaimasfair,soresearcherssoughttohighlight the importanceof representationsmanagementandusedasevidence in theIraqienvironment,aswellastoshowtheimpactofusingofmanagementdecisionsanddisclosures in the credibility of the financial reporting andenhance confidence in thereports. They found several results (theoretical and practical),most notably that theauditor is directly responsible for everything that they contain in the managementrepresentationsofdata,aswellasitisresponsibleforthelackofrestrictionofopinionorapologizingforitisbeingmadeintheeventoffailuretoobtainsuchadeclaration.Inlight of the already reached results, the researchers made a number ofrecommendations,mostnotablytheneedforaccountingandAuditingStandardsBoardoftheRepublicofIraqtointensifyitseffortstoissuetheauditguide(Iraqi)basedonitscontent to the ISA "average" number (580) and in line with the environment localregulators.

• Study (AL-Azemi, 2012) entitled: the impact of external auditor to improve thecredibility of accounting information in the Kuwaiti Zakat House, the study aimed toidentify the impact of the external auditor to improve the credibility of accountinginformation in the Kuwaiti Zakat House. The researcher found the presence of theimpact of the external auditor (through capability of professional auditors,independence and objectivity, impartiality and transparency and abiding the rules ofprofessional conduct) to improve the credibility of accounting information from theviewpoint of financial managers and heads of accounting departments and internalauditorsworkingintheKuwaitiZakatHouse.Ftresearcherattheendofhisstudiesanumber of recommendations , including paying the external auditor 's professionalcompetencenecessaryimportancetheyaffectinimprovingthecredibilityofaccountinginformation, toemphasize the independenceof theexternal auditorandobjectivity isclear and its impact in improving the credibility of accounting information, work tomake sure the integrity of the external auditor and transparency and taking intoaccounttheadherenceandcommitmenttherulesofprofessionalconduct.



• Study(Radwan,2012)entitled:theimpactoftheinternalauditonriskmanagementinthe lightof internationalauditingstandards, thestudyaimedto identifythe impactofinternal audit at BankingManagement risks at Commercial Banks In Gaza AccordingInternationalAuditStandards.ToachieveObjectivesof thestudyaquestionnairewasDesign Composed Of a four sections, distributed On Internal Auditors at BanksCommercial in Gaza. one the most important Results of the study that there was aPositive indication between Applying Standards Features (independence, objectivityandprofessionalcapability)andperformancecriteriaof(managementaudits,planningand resources management, institutional control and information identification) byInternalAuditstaffsatCommercialBanksIntheGazaStripandbetweenBankingRiskManagement and the extent ofAwareness of the applicationmechanisms.Among themost important recommendations made by the researcher is that authorizedmanagement should pay attention at Commercial banks in the Gaza Strip regardingactivelyInternalauditandthatwillhelpThedevelopmentofinternalauditandprovidePotentialNecessaryTostrengthen Itsplace Inside thebank, theneed to focusprivatelegislations in Internal audit profession on independence of such sections andqualificationsofemployees.

• Study (Kizirian, et. al. , 2005) entitled:The impactOfManagement Integrity onAuditPlanning and Evidence, the study aimed to identify the impact of the managementintegrityontheauditplanningprocessandcollectionofevidence,reliedonworksheetsdata for60clientsof thebig fourclients (BigFour ) in theUnitedStatesofAmerica.This study examined the impact of the auditor assessment of the integrity of themanagement’s evaluation of the auditor 's judgment on material misstatement andplanning the audit process and the results of the audit, the study assumed that theintegrity of the management associated with the preliminary risk assessment andpersuasion, timing and extent of planned procedures in the audit, the study alsoassumedthattheintegrityofthemanagementassessmentisaffectthecredibilityoftheevidence that is obtained from the management away from the influence of riskassessment and, finally , the study is expected that the integrity of managementassessment is linked to thediscoveryofmaterialmisstatement. thestudypointedoutthatwhenyouaddintegrityofmanagementtothedigitalequivalentofMokandWrightusedtheyears(1993and1999),themathematicalequationwillsupportthetheoryofresearchers, but turned out that all theories will fade but two theories when theresearchers added a variable indicators for the errors of previous years, the studycontinued to search for the impact of the integrity of the management over thepersuasivenessofauditevidencethatwasfarfromtheinfluenceofriskassessment,itisworthmentioningthatafter thecontrol inpreviousyearserrors Ithasbeen foundaninverse relationship between the auditor’s assessment of the integrity of themanagementandthepotentialforerrordetection.

• Study(Beaulieu,2001)entitled:TheEffectsofJudgmentsofNewClients'IntegrityUponRiskJudgments,auditevidence,andfees,thestudyaimedtoidentifytheimpactoftheauditor'sjudgmentontheobjectivityandimpartialityofnewclientsontherisksofhisdecisions, professional judgment, evidence and audit fees. The researcher foundthrough the application of his study on 63 auditors (partners in auditing firms) theimportance of objectivity and creditability of the clientwhen planning for importantnewauditengagementbecause theyaffect theaudit riskandconsideredaconfidencesource,andthattheauditormayincreasethescopeofhisorherworkanditsfeesifthejudgment on the integrity of the client is less than it should be. The researcher alsoconfirmed the existence of an inverse relationship between the judgment on the



objectivityandimpartialityofnewclientsandthesizeoftheauditevidenceandauditfees.

Andperhapswhatdistinguishes thecurrent study fromthepreviousstudies, is the focusonthe impact of themanagement objectivity on the twomain dimensions of the audit process(planning the audit and collection of audit evidences) to complete the audit processrequirements efficiently and accurately. Also, what it distinguishes the current study fromprevious studies that itwasmade on the population of Jordanians auditors as never beforesuchastudyconducted(withinlimitsofresearchersknowledge)tothispopulation,includingnature of the environmental characteristics differ (in some respects) than environments inpreviousstudiesandinadditiontoahighcompetitionofthissectoronthelocalandregionallevel.

THESTUDYMODELANDITSVARIABLESTheresearchersdesignedstudymodelwhichshowstherelationshipbetweenthevariablesasfollows:

Figure(1):Modelofstudy

Independent Variable Dependent Variables

RESEARCHHYPOTHESISTo achieve the objectives of this study and to answer its questions, and based on the findings of previous studies, the hypotheses of the study are formulated as follows:

ü H01: Management objectivity in Jordanian shareholding companies does not affect on the planning of the audit process from the viewpoint of Jordanian auditors.

ü H02: Management objectivity in the Jordanian shareholding companies does not affect on the collection of audit evidences from the perspective of Jordanian auditors.

ü H03: No statistically significant differences (at the 0.05 significance level) to impact of management objectivity in Jordanian shareholding companies on audit planning from the viewpoint of Jordanian auditors attributed to the experience of Jordanian auditors.

ü H04: No statistically significant differences (at the 0.05 significance level) to impact of management objectivity in Jordanian shareholding companies on evidences collection from the perspective of Jordanian auditors attributed to the experience of Jordanian auditors.

THESTUDYPOPULATION

ThestudypopulationconsistedofauditorspracticingtheauditingprofessioninJordanwhichare(327)certifiedauditorsuntilthebeginningofyear2016(AccordingtoStatisticsofJordanAssociationofCertifiedPublicAccountants(JACPA)in1/1/2016).It has been selected sample deliberate of auditors working in the branches and offices of major international audit firms (Big Four), And a random sample of auditors working in auditing offices in the Capital city (Amman) and study sample size (115 ) auditors , representing 35% of the study population. A questionnaires were distributed and collected by hand, as the number of distributedquestionnaireswas(115)questionnaireonly(108)recoveredand(5)wereexcludedforthe

Management objectivity

Audit planning

Evidences collection



incompleteness,andthenumberofquestionnairesapprovedforthepurposesofanalysisandresearch was (103) questionnaire, representing approximately (90%) of the questionnairesweredistributed.

DATACOLLECTIONMETHODSAfterreferringtomanyoftheresearchesandstudiespublishedinthe journalsandscientificperiodecals relevant to the subject of research and also the researchers have designed aspecificquestionnairetothisstudybasedonthetheoretical frameworkandpreviousstudieshavebeendistributedonthepopulationofthestudyandwasreceivedbyhand. The questionnaire sections and the questions related tomeasure each variable of the studyvariablescanbesummarizedinthefollowingtable(Table(1)):

Table(1):SectionsoftheQuestionnaireandquestionsthatmeasurethestudyvariables

SectionsofQuestionnaireVariable

Questionsthatmeasure thevariable

section(I)

Age 1Educationallevel 2Scientificspecialization 3Jobtitle 4Yearsofexperienceinfieldofaudit 5Number of training courses attended by therespondentsinfieldofaudit 6

ProfessionalCertificatesobtained 7

Section(II)Impact of management objectivity in Jordanianshareholding companies on audit planning from theviewpointofJordanianauditors

(8-21)

Section(III)Impact of management objectivity in Jordanianshareholding companies on evidences collection fromtheperspectiveofJordanianauditors

(22-34)

It isworthmentioning that secondand third sections fromthequestionnairesectionswereformed in away thatwould inmeasurement also, Likert scale fiveGrades used (verymuchagree,muchagree,averageagree,littleagree,verylittleagree)andweregivengrades(5,4,3,2,1)respectively. Totestthereliabilityoftheresultsofthequestionnaireandthelinkbetweenthequestionsitpresented to a group of colleagues and universities professors in the accounting andmanagementqualitydepartmentsandsomespecialistsinthefieldofinternalauditandqualitycontroldepartments in Jordanianuniversities inorder toarbitrationandgive theiropinionsaboutthegoodnessofformulationandinterdependenceofitsclauses,inadditiontotheuseofcredibilityanalysis(reliability)ReliabilityanalysistocalculateAlphaCronbachCoefficientandthevaluewasequivalentto88.1%almost,andwhereitismorethanacceptableratio(60%)(Sekaran and Bougie, 2015), It means the possibility of adopting the results of thequestionnaireandconfidencetoitscredibilityinachievingtheobjectivesofthestudy.

DATAANALYSISMETHODSToachievetheobjectivesof thisstudyandtotest ithypotheses,allof thedatathatobtainedhave beenprocessedusing the Statistical Package for Social Sciences (SPSS), Andnumerous



tests conducted related to the census descriptive by finding some ratios and frequencies,means, standarddeviations, to identify the respondents characteristics of individuals on thequestionnaire questions, and the objectivity of the management influence in Jordanianshareholdingcompaniestoplantheauditprocessandtogatherthenecessaryauditevidences. Also(T-test)wasusedasatestForonesampletotestbothhypothesisfirstandsecondstudyby comparing the average for both, since the realized degree of availability for thecharacteristicwhenisthecalculatedaverageishigherthantheassumedaverage(thevalueofcutpoint)provided that thevalueof (t) statistically significantat theconfidence levelof theuser(SekaranandBougie,2015). Also(onewayANOVA)wasusedtotestthehypothesisofthethirdandfourthstudy,relatedtotestthelackofastatisticallysignificantdifference(atthe0.05significantlevel)totheimpactofmanagementobjectivityinJordanianshareholdingcompaniestoplantheauditprocessandthecollection of audit evidence from the perspective of Jordanian auditors attributed to theexperienceofJordanianauditors.

THECHARACTERISTICSOFTHERESPONDENTSTOTHEQUESTIONNAIRE:From analyzing the answers to the first section of the questionnaire analysis (Table 2) thatIndividualsrespondentsonquestionsofthequestionnaireareappropriateacademicqualified,andall of themat leastBachelorDegree.Alsowhat reinforces confidence in the results thathavebeenobtainedthatapproximately87%ofrespondentswithexperienceofnotlessthan5yearsworkinginthefieldofauditing?ItisalsonoticeablethatthereisdiversityintheJobTitle(DirectorGeneralof theOfficeof audit, SeniorAuditor, auditor, auditor assistant) andmanylevels existed and that shows the developments in the planning process and collectingevidence and the impact on management objectivity in Jordanian public shareholdingcompanies. Itsnotablethatthediversityoftherespondentsmajorsbetweentheaccountingandbusinessadministration, finance and banking and due to the differences in positions and job titles,althoughthelargestpercentageareaspecialtyaccounting(90.3%)oftherespondents. It’salsonotablethatthepercentagesof(66%)oftherespondentsarenotundertheageof35years,andthis is in linewith longyearsofexperience in the fieldofauditing.Andalsowhatreinforcing confidence in the results thathavebeenobtained that (70%)of the respondentshold professional certification promote and affirm their knowledge of the profession in thefield of auditing and confirming that (91.3%) of the respondents who participated in thetrainingcoursesmorethantwocoursesinfieldofauditing. Fromalloftheaboveit’sclearthatnecessaryknowledgeoftherespondentswasavailableforthe importance of management objectivity in Jordanian shareholding companies and theirimpact on planning and gathering audit evidence and their ability to understand thequestionnairequestionsandanswerthem.Table(2)



DemographicCharacteristicsofRespondentsonQuestionnaireNo. Variable Alternatives of Answers Frequenciec Percentage

1. Age

Less than 25 years 14 13.6% 25 to less than 35 years 21 20.4% 35 to less than 45 years 45 43.7%

45 years and above 23 22.3% Total 103 100%

2. Education Level

Bachelor 76 73.8% Master 21 20.4%

Doctorate 6 5.8% Total 103 100%

3.

Scientific Specialization

Accounting 93 90.3% Business Administration 4 3.9%

Finance and Banking 6 5.8% Total 103 100%

4. Job Title

Director General of the Office of audit 20 19.4% Senior Auditor 31 30.1%

Auditor 39 37.9% Auditor Assistant 13 12.6%

Total 103 100%

5. Years of

Experience in field of audit

Less than 5 years 13 12.6% 5 to less than 10 years 25 24.3%

10 to less than 15 years 43 41.7% 15 years and above 22 21.4%

Total 103 100%

6. Number of training

courses attended by the respondents in field of

audit

Two or less 9 8.7% 3 - 5 28 27.2% 6 - 8 34 33%

9 and more 32 31.1% Total 103 100%

7. Professional Certificates

CPA 15 14.6% JCPA 39 37.9% CMA 10 9.7% CIA 8 7.8%

Total 72 70%

ResearchhypothesistestingFortestinghypothesesofthestudy,theresearchersextractedmeansandstandarddeviationsfortheanswersofindividuals,andthatforeachparagraphoftheresolutioninaccordancewiththefieldwhichparagraphbelongs,alsoindividualsanswershavebeendividedaccordingtotheaveragecalculationintothefollowingcategoriesinlinewiththeLikertscalequintetwhichwasbuiltuponaquestionnairestudybasedonthefollowingequation: Rangecategory=(Maximum-minimum)/NumberofCategories=(5-1)/3=1.33 Where:ThelevelofimportanceisHigh:Ifthemean(3.67orabove).ThelevelofimportanceisAverage:Ifthemean(3.66-2.34).ThelevelofimportanceisLow:Ifthemean(2.33orless).Thefollowingisanexplanationoftheresultsforeachhypothesisofthestudyhypothesis.Testingofthefirsthypothesis:H01: Management objectivity in Jordanian shareholding companies does not affect on theplanningoftheauditprocessfromtheviewpointofJordanianauditors.



Table (3) shows means, standard deviations, and the level of importance and rank of theparagraphs relating to the impact of management objectivity in Jordanian shareholdingcompaniesonauditplanningfromtheviewpointofJordanianauditors.

Table(3):Means,standarddeviations,andthelevelofimportanceandrankofParagraphsrelatingtothemanagementobjectivityinfluenceinJordanianshareholdingcompaniestoaudit

planning

Paragraph Mean standard deviation

Significance level Rank

Depending on your experience in the field of audit your confidence in the subject of management objectivity in Jordanian shareholding companies affect your planning to the

audit process through: 8. Take the decision to accept the task of checking

or re-admitted. 4.01 0.98 High 3

9. Broaden understanding of the auditor of the nature of the client's business.

4.10 0.80 High 1

10. Determine the extent of the efficiency of audit firm to implement the required professional

services appropriately.

3.80 0.95 High 7

11. Identify the need for the use of an external expert to contribute to the implementation of the required professional services effectively.

3.30 0.97 Average 14

12. Identify the resources needed by the Audit Office to be able to complete the work on time.

3.75 0.95 High 9

13. Clarification of corporate accounting policies followed.

3.96 0.91 High 4

14. Determine whether the audit function should be subject to additional preventive measures.

3.60 1.01 Average 12

15. Determine whether there was a conflict of interest in the case to accept the task of

checking or re-admitted.

3.67 0.99 High 11

16. Test for the presence or absence of risk to the independence of the auditor.

3.95 0.97 High 5

17. Study the possibility of discovering the inherent risks the client.

3.79 1.02 High 8

18. Study the possibility of the discovery of regulatory risk at the client.

3.57 1.05 Average 13

19. Clarify control procedures used in the company the subject of audit.

3.73 1.01 High 10

20. Identify strengths and weaknesses in the internal control system in the company subject

of scrutiny.

4.02 0.88 High 2

21. Increased regulatory auditor procedures during the audit process.

3.83 0.97 High 6

Mean of all paragraphs relating to measure the impact of management objectivity in Jordanian

shareholding companies on audit planning

3.79

0.64

High

Basedonthefindingscontainedintheabovetableshowsthefollowing:

• Indicatesthemeanheightoftheparagraphwitharank(1)of(4.10)andparagraphrank(2)of(4.02)onthegreatimpactofmanagementobjectivitytobroadenunderstandingoftheauditorofthenatureofclientactivity,inadditiontothekeennessoftheauditorto identify strengths and weaknesses in the internal control system in the companysubject toauditandshowsthestandarddeviationofparagraphs(0.80)and(0.88)on



the existence of an agreement and harmony among respondents about these twoparagraphsindividuals.

• Meanreferstoparagraphofrank(14)whichis(3.30)showsalackofanexternalexpertto contribute to the implementation of the required professional services effectively,and perhaps the reason that the independence of the auditor and maintaining theconfidentialityofcompanydataintotheauditmaynotallowusingsuchtheseexperts.

In general, the mean of total paragraphs relating to measure the impact of managementobjectivity in Jordanian shareholding companies on audit planning from the viewpoint ofJordanian auditorshas reached (3.79), indicating a highdegreeof influence. This is because(fromtheperspectiveoftheresearchers)totheeffectofthemanagementontheconductoftheauditandtheplanningprocessintheeventof lackofaccesstoobjectiveandtrytoinfluencetheworkoftheauditorandtheprovidingdataneededtocarryout itsmissioninanoptimalway. And it shows the standard deviation of (0.64) on the existence of an agreement andharmonyamongrespondentsaboutparagraphsofthisdimensioningeneral. Totestthishypothesis(T-test)wasusedforonesampleusingthereferencevaluerepresentstheaveragescoreLikertscaleandthe(3),areshowninTableNo.(4)Theresultsoftestingthishypothesis.

Table(4):Theresultoftestthefirsthypothesisusingt-testforonesample

The dimension Mean Standard Deviation

Value (t) Calculated

Value (t) Tabulated

Degrees of

freedom

The level of significance

The result of testing

the hypothesis

Impact of management objectivity on audit

planning 3.79 0.64 20.42 1.98 102 0.000 Reject

BasedonthefindingscontainedintheabovetableshowsthatthevalueoftCalculated(20.42)higherthanTabulatedvalue,andsignificancelevel(α)lessthan(0.05),whichmeansrejectingthenull hypothesis andacceptanceof alternativehypothesis thatmanagementobjectivity inJordanian shareholding companies has impact on audit planning from the viewpoint ofJordanianauditors.

TESTINGOFTHESECONDHYPOTHESIS:H02: Management objectivity in Jordanian shareholding companies does not affect on thecollectionofauditevidencesfromtheperspectiveofJordanianauditors. Table (5) shows means, standard deviations, and the level of importance and rank of theparagraphs relating to the impact of management objectivity in Jordanian shareholdingcompaniesonevidencescollectionfromtheperspectiveofJordanianauditors.



Table(5):Means,standarddeviations,andthelevelofimportanceandrankParagraphsrelatingtothemanagementobjectivityinfluenceinJordanianshareholdingcompaniestogatheraudit

evidences

Paragraph Mean Standard Deviation

Significance level Rank

Depending on your experience in field of audit, your confidence in the subject of management objectivity in Jordanian shareholding companies affect audit evidences collection through:

22. Make sure not to hide any of the necessary audit evidence.

4.19 0.84 High 1

23. Increase the size of the necessary audit evidence. 3.95 0.84 High 7 24. Reassurance to the adequacy of the audit evidence to

implement the required task. 4.00 0.85 High 5

25. Ensure the appropriateness of the audit evidence is collected.

4.05 0.89 High 4

26. Obtain audit evidence about a certain quality. 3.96 0.81 High 6 27. Obtain audit evidence at the time to the work of the

auditor. 3.93 0.74 High 8

28. Obtain audit evidence convincing reliable and reassuring them.

3.92

0.87 High 9

29. Obtain audit evidence of high credibility. 4.12 0.85 High 2 30. Expand the scope of the audit evidence is collected. 3.86 0.88 High 11 31. Ensuring that confirmations and evidence collected

match data obtained 4.07 0.88 High 3

32. The study of the sequence of the implementation and adoption of evidence is collected.

3.76 0.98 High 12

33. Clarify control procedures used in the company on the audit evidences.

3.87 0.92 High 10

34. Increased regulatory auditor procedures on necessary audit evidences.

3.75 0.96 High 13

Mean of all paragraphs relating to measure the impact of management objectivity in Jordanian shareholding

companies on evidences collection

3.96

0.59

High

Basedonthefindingscontainedintheabovetableshowsthefollowing:

• Thehighmeanofparagraphrank(1)of(4.19)andparagraphrank(2)of(4.12)Indicatethe significant impact of themanagement objectivity to increase the keenness of theauditortomakesurenottohideanyofthenecessaryauditevidence,inadditiontothekeennessof the auditor toobtain audit evidenceof high credibility, and the standarddeviationofparagraphsshows(0.84)and(0.85)ontheexistenceofanagreementandharmonyamongrespondentsaboutthoseparagraphs.

• Meanreferstoparagraphofrank(13)whichis(3.75)showsthefailureoftheauditorincrease regulatory actions on the audit evidence, and perhaps the reason that theregulatorysufficientmeasuresundertakenbyauditoranddoesnotneedtoanyincreasewhateverthemanagementobjectivitydegreeinthecompanyaudited.

In general, the mean of all paragraphs relating to measure the impact of the managementobjectivity in JordanianshareholdingcompaniestoevidencescollectionfromtheperspectiveofJordaniansauditorshasreached(3.96),indicatingahighdegreeofinfluence.Thisisbecause(fromtheperspectiveoftheresearchers)totheprofessionalskepticismwhichisgeneratedthelackofmanagementobjectivityaffectthecollectionofauditevidenceandthecarefulselectionofacertainqualityevidenceandconcernfortheappropriatenessandadequacyandtheextentofpersuading it toreachtheappropriategovernanceandcarryout itsmission inanoptimalway.Andthestandarddeviationof(0.59)showstheexistenceofanagreementandharmonyamongrespondentsaboutparagraphsofthisdimensioningeneral.



Totestthishypothesis(T-test)wasusedforonesampleusingthereferencevaluerepresentstheaveragescoreLikertscale(3),TableNo.(6)Showstheresultsoftestingthishypothesis.

Table(6):Theresultofthesecondhypothesisusingt-testforonesample

The dimension Mean Standard Deviation

Value(t) Calculated

Value(t) Tabulated

Degrees of freedom


The result of testing the hypothesis

Impact of management objectivity on

evidences collection

3.96 0.59 24.66 1.98 102 0.000 Reject

Basedonthefindingscontainedintheabovetableshowsthatthevalueoftcalculated(24.66)is higher than tabulated value, and significance level (α) less than (0.05), which meansrejecting the null hypothesis and acceptance of alternative hypothesis, which means thatmanagement objectivity in Jordanian shareholding companies has impact on evidencescollectionfromtheperspectiveofJordanianauditors.

TESTINGOFTHETHIRDHYPOTHESISH03: No statistically significant differences (at the 0.05 signicance level) to impact ofmanagement objectivity in Jordanian shareholding companies on audit planning from theviewpointofJordaniansauditorsattributedtotheexperienceoftheJordanianauditors.For the purpose of testing the third hypothesis, (one-way ANOVA),was used and Table (7)showsthethirdhypothesistestresults.

Table(7):Theresultoftestingthethirdhypothesisusing"OnewayANOVA" Sum of

squares Degree of freedom

Average squares

Value F Calculated


Between groups 0.629 3 0.210 .502 .982 In groups 41.343 99 0.418

Total 41.972 102 BasedonthefindingscontainedintheabovetableshowsthatthevalueofFcalculated(.502)isnotstatisticallysignificantat(0.05),indicatingalackofsignificantstatisticallydifferencesforimpact of management objectivity in Jordanian shareholding companies on audit planningfromtheviewpointofJordanianauditorsattributedtotheexperienceofJordanianauditors.Theresearchersexplainthisresultthattheplanningfortheauditprocessisgoingaccordingtospecific steps and agreed upon between the Jordanian auditors regardless of their years ofexperience, as the auditor is not able to practice the audit profession only after havingscientificknowledgeandadequatetrainingtocarryoutthetaskofauditing.

TESTINGOFTHEFOURTHHYPOTHESISH04: No statistically significant differences (at the 0.05 significance level) to impact ofmanagementobjectivityinJordanianshareholdingcompaniesonevidencescollectionfromtheperspectiveofJordaniansauditorsattributedtotheexperienceofJordanianauditors.Forthepurposes of testing the hypothesis, (one-way ANOVA) was used and Table (8) shows thehypothesisfourthresults.



Table(8):Theresultoftestingthefourthhypothesisusing"OnewayANOVA" Sum of

squares Degree of freedom

Average squares

Value F Calculated


Between groups 0.481 3 0.160 .439 .726 In groups 36.154 99 0.356

Total 36.635 102 BasedonthefindingscontainedintheabovetableshowsthatthevalueofFCalculated(.439)isnotstatisticallysignificantat(0.05),indicatingalackofstatisticallysignificantdifferencestothe impact of management objectivity in Jordanian shareholding companies on evidencescollectionfromtheperspectiveofJordaniansauditorsattributedtotheexperienceofJordanianauditors.Andresearchersexplainthisresultthatthecollectionofauditevidencesisanessentialtaskoftheauditorkeen todoand isgoingaccording todefinedandagreedstepsbetweenauditorsregardless of their years of practical experience, as the auditor cannot complete the auditprocess in the absence of evidence and clues and approvals to express their professionalopinionConfidenceandcontentment.

RESULTSInlightofthedataanalysisandhypothesistesting,theresultsasfollows:

1. AuditorsalwaysmakesuretoreviewandevaluatemanagementobjectivityinJordanianshareholdingcompaniesbeforestartingtheauditprocess

2. The management objectivity affects on the audit planning in Jordanian shareholdingcompaniesfromtheperspectiveofJordaniansauditors.

3. Themanagementobjectivityaffectsonevidencescollection in JordanianshareholdingcompaniesfromtheperspectiveofJordaniansauditors.

4. No significant statistically differences were found for the impact of managementobjectivityinJordanianshareholdingcompaniesonauditplanningfromtheviewpointofJordaniansauditorsattributedtotheexperianceofJordanianauditors.

5. No significant statistically differences were found for the impact of managementobjectivity in Jordanian shareholding companies on evidences collection from theviewpointofJordaniansauditorsattributedtotheexperianceofJordanianauditors.

RECOMMENDATIONSANDSUGGESTIONS

Inlightoftheresultsthathavebeenreached,theresearcherscanrecommendthefollowing:1. The auditors should focus on and assess the management objectivity in Jordanian

shareholding companies before starting theirmission of verifiability, and take it intoaccountwhenplanningtheauditprocessandgatherauditevidences.

2. Givetheuseofexternalexpertsmoreattentiontocontributetotheimplementationoftherequiredprofessionalserviceseffectively,especiallyinthecaseofdoubtorsignsoflackofmanagementobjectivityintheauditedcompany.

3. Auditors should increase regulatory control actions on audit evidence and study thesequenceofimplementationandtheadoptionofevidencethatiscollectedwhenthereisdoubtorsignsoflackofmanagementobjectivityintheauditedcompany.

4. FurtherstudiesontheimpactofthemanagementobjectivityinJordanianshareholdingcompaniesatdifferentstagesoftheauditprocess.



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Cahyono,R.(2016).AnalysisontheInfluenceofInflation,ShipsCall,andUnloadingCosttowardsGeneralCargoInter-InsularShipsinSurabayaPort.ArchivesofBusinessResearch,4(6),249-259.


AnalysisontheInfluenceofInflation,Ship’sCall,AndUnloadingCosttowardsGeneralCargoInter-InsularShipsinSurabayaPort

RosadiroCahyonoDepartmentofManagement,

STIEPancasetia,Banjarmasin,Indonesia

AbstractIndonesiaisanarchipelagonationsincestatisticshowsthatIndonesiaconsistsof more than 13,000 islands, it is natural for inter-insular ships to play adominant role in connecting one island to another supported by other localships. In comparison, the inter-insular ships docking and unloading inSurabaya’s port, aswell as the Ship’s call andDWT Ship’s call, outweighs thelocal ships. In 2002-2006, inter-insular ships’ unloaded 8,791 units of28,739,718tons;7,820unitsof31,021,731tons;8,277unitsof25,496,489tons;9,595unitsof22,793,415tons;and9,345unitsof23,250,003tons.Ontheotherhand, in the same period of time, local ships only unloaded 1,204 units of158,877 tons; 901 units of 157,663 tons; 1,023 units of 126,111 tons, 1,124unitsof403,826tons;919unitsof176,550tons.Thisresearchwantstoanalyzethe number of inter-insular ships, based on several internal and externalvariables: Unit Ship’s Call (X1), DWT Ship’s Call (X2), Inflation (X3), andUnloading Cost (X4). The research was done in Surabaya, Indonesian portduring2014-2015.Keywords:Influenceofinflation,shipscall,unloadingcost

INTRODUCTION

Inreality,theinter-islandorinter-insularseatradesareservedbyinter-insularships,suchasLinerships,Tramperships,andSpecialcruiseships.Theseships,eitherbearingnational’sorinternational’sflags,becametheconnectorfromoneislandtoanothertofacilitatetheflowofpassengersandgoodsaswellasensure thesufficient supplyofgoods incertain territoryorisland(Sasono,2014).Insufficientsupplyofgoodswoulddisruptthebalancebetweentheflowofgoodsandflowofmoney,resultinginpriceincreaseshouldtheflowofgoodsislowerthantheflowofmoney.Hence,theinflationrateatthatparticularareawouldbeincreased(Prof.Dr.HermanBudiSasono).SincestatisticshowsthatIndonesiaconsistsofmorethan13,000islands,itisnaturalforinter-insularshipstoplayadominantroleinconnectingoneislandtoanothersupportedbyotherlocalships.Incomparison,theinter-insularshipsdockingandunloadinginSurabaya’sport,aswell as the Ship’s call and DWT Ship’s call, outweighs the local ships. In 2002-2006, inter-insularships’unloaded8,791unitsof28,739,718tons;7,820unitsof31,021,731tons;8,277unitsof25,496,489tons;9,595unitsof22,793,415tons;and9,345unitsof23,250,003tons.Ontheotherhand,inthesameperiodoftime,localshipsonlyunloaded1,204unitsof158,877tons;901unitsof157,663tons;1,023unitsof126,111tons,1,124unitsof403,826tons;919units of 176,550 tons (Sasono, 2014). The number of inter-insular ships isfluctuating(Merkuryev et al., 1998), based on several internal and external variables: UnitShip’sCall(X1),DWTShip’sCall(X2),Inflation(X3),andUnloadingCost(X4).



ProblemStatementAccordingtothebackground,theproblemscanbeformulatedasfollows:

1. IsUnitShip’sCallinfluentialtoaloadofGeneralCargointer-insularshipsdockingattheharborofTanjungPerakSurabaya?

2. IsDWTShip’sCall influential toa loadofGeneralCargo inter-insularshipsdockingattheharborofTanjungPerakSurabaya?

3. Is inflation influential to a load of General Cargo inter-insular ships docking at theharborofTanjungPerakSurabaya?

4. IsunloadingfeeinfluentialtoaloadofGeneralCargointer-insularshipsdockingattheharborofTanjungPerakSurabaya?

5. Are Unit Ship’s Call, DWT Ship’s Call, inflation, and unloading fees simultaneouslyinfluential to a load of General Cargo inter-insular ships docking at the harbor ofTanjungPerakSurabaya?

THEORETICALREVIEW

TradingTheoryThe grand theoryof trading is theTheoryof Exchanging (Young-Ybarra&Wiersema, 1999)stated that “Exchanging or trading emerges due to the fact that one or more parties seeadditionalbenefitscomingfromsuchactivity.Theadditionalbenefitsserveasthemotivesforpeople to do trading. The benefits are called the gains from trade. In short, the motive ofconductingtradingisthepossibilityofgettinggainsfromtrade.According toShore,etal. (Shore,Tetrick,Lynch,&Barksdale,2006): “Theclassical theoryofinternationaltradewaseminentlysuccessfulinonearea:itestablishedconvincinglythegainsfrom international specialization and trade. These are attributed to the existence of acomparativeadvantage,whichprovides theopportunity foracountry to import thosegoodsforwhichitsautarkycostsarerelativelyhighinexchangeforexportsofgoodsitcanproducerelativelycheaplyinautarky.Thecountrythuseconomiesintheuseofitsresources,obtainingfor a given amount thereof a larger total income than if it attempted to produce everythingitself.”Inter-islandtradingismerelyatermforthetradingactivitybetweeninhabitantsofaterritorywith the inhabitants of another territory (McArthur & Osland, 2013). Thus, the reasons fortradingandhowitisconductedbecomeessentialinexplainingtheemergenceofinter-islandorinter-insulartrading.Ship’sCallUnitandDWTship’sCallInter-insularShipShip’s arrival or Ship’s call is the number of ships entering and docking to a port for thepurposeofunloadingpassengersorgoodsinacertainperiod,suchasShip’sCallperday,Ship’sCallpermonth,orShip’sCallperyear.EachShip’sarrivalorShip’scallwouldbecounted inunits.Sincethenumberofshipsenteringwouldbethesamewiththenumberofshipsexiting,thedata inHarborMasterorPortAdministrationwouldbeonlyon theShip’s call.Theonlyexceptiontothisiswhenunexpectedthingsoccurred,suchasaburned-downorsinkingship,which usually happened due to technical errors of the stevedore in arranging the ship’sdockingpositions.Thedockingshipsconsistof:

1. SeaLiner:ashipwhichsailsbetweencountriescarryingtheexport-importcommoditiesorentercountry'scommodities.

2. Inter-insularShip:ashipwhichsailsbetweenislandsintheregionofacertaincountry,suchasthedomesticsailingrouteofSurabaya-MaumereorSurabaya-Samarinda.



3. SpecialShip:ashipwhichisdedicatedtosolelytransport industrialrawmaterials forits company owner, such as the ship of PT Bogasari which is dedicated to transportgrains ofwheat, the ship of PT Indocementwhich is dedicated to transport dry bulkconcrete, or the ship of PT Pertaminawith a sole purpose of transporting Pertaminafuels–rawandLPG.

4. LocalShip:aninter-islandship,suchasfishingortradingship,whichisusuallymadeofwood.Itisusually30-60meterslongandabout5meterswidewithabout6-10crews.

AccordingtoJanssonetal.(Jansson&Shneerson,1978):“DeadWeightTonnageisacarryingcapacity that proven in long-ton units (2240 lbs. = 1016 kg). Deadweight tonnage = loadeddisplacementtonnage.Loadeddisplacement,istheship’sweightitself(lightship)addedwiththecargo(goodsorpassengers),fuel,water,stores,dunnage,etc.Ship’sweightwithallofthecargowillpresstheshipintothewateruntilitreachesthemaximumdraftallowed.DeadWeighttonnage(DWT),accordingtocargosafetyconstructioncertificatethatpublishedby international convention for the safety of life at sea (Smith, 1974), What is meant byDeadweightofship(metricton)ortonmetricisweightofship’sbodyitself(lightship),plusallofthecargowhethergoodsorpassengers,plussolarfuel,dieseloil,andotheroilthatcarriedin,pluswatersfordrinkandbathforalloftheship’screwsandpassengers, logisticmaterialsuchas rice,meat, vegetable, etc. thatusuallyused to cookandeat.Dunnageand theotherscalledasloadeddisplacement,sotheshipwithallofthecargowillpresstheship’sbodyuntilreachingtheallowedmaximumpoint.Iftheshipwithallofthecargossuppresstheshipmorethattheallowedpointorabovethe insurance linethen ifsomeaccidentoccurredonthesea(theshipissink),duetooverload,thenitwillbehardtogetreimbursementtomarinecargoinsurance(Lane,1964).InflationAccording to Jansson (Jansson & Shneerson, 1978) (1998:43): inflation is “to increase thegeneralprice insomesituationor somesituationwhere thevalueofmoney isdecreased. Inlinewiththatnotion,therearesomeauthorswhomentionedinflationasaprocessoreventofthe increaseof the generalprice anddeflation as theopposite, inwhich limited as apart ofprocessofeventofthedecreaseofthegeneralprice”.Related to the value ofmoney theory, inflation occurs due to the increase of the amount ofmoney in circulation which is not followed by the increase of goods amount circulation orgoods stock. This decreases the value of money. To determine the value of money, it isnecessary to observe the velocity factor of money and demand for money. Control or fightagainstinflationbecomestheresponsibilityofBankofIndonesiaasthecentralbankaswellasseveralrelatedgovernment’sdepartments:departmentoffinance,labor,socialandindustryorcommerce.BankofIndonesiaasafinancialinstitutionhasaresponsibilitytokeepthestabilityofthevalueand the price of the national currency. The value of the national currency, the rupiah, isinverselyrelatedtothepriceofgoodsandservicesingeneral.Whenthegeneralpriceofgoodsandservices increases, itmeansthat thevalueofrupiahdecreases.Ontheotherhand, if thegeneralpriceofgoodsandservicesdecreases,itmeansthatthevalueofrupiahincreases.Thepriceofthenationalcurrencyorrupiahiscloselyrelatedtothepriceofforeigncurrencies.Tocontroltheinflation,BankofIndonesiaissuesseveralmonetaryinstruments,suchastheOpenMarket Operation, Cash Ratio or Reserve Requirement, Credit/ Loan Policy, Interest RatePolicy,Refinancing,andForeignExchangeRatePolicy.



Otherdepartmentsalsoissuepoliciesrelatedtoinflationcontrol,suchasDepartmentofLaborwithitsWagesPolicy,SocialDepartmentwithitsRedistributionofNationalIncome,andalsothe Department of Industrial and Commercial with its Price Policy and Rationing Policy.Therefore,thegovernmentoftenissuespoliciesinapackagewhichisajointdecreebyseveralministersorrelateddepartments.Thereareseveralmethodstocategorizeinflationdependsonthepurpose.Firstitistheweighoftheinflation,whichiscategorizedasfollows:

A. Lightinflation(under10%/year)B. Mediuminflation(between10%–30%/year)C. Heavyinflation(between30%-100%/year)D. Hyperinflation(morethan100%/year)

Next,itisthecategorizationofinflationbasedontheinitialcause:

A. Demandinflation:aninflationhappenedbecausepeople’sdemandformanythingsaretoostrong,forexample,demandforbasiccommoditiesbecausepeoplefeelsanxioustostabilityofnationalpoliticsandsafety

B. Cash inflation: an inflationhappeneddue to the increaseofproduction costs, suchaslaborcosts,theincreaseincivilservants'salariesorfuelcostincrease.

C. Domestic inflation: an inflation happened from the country itself, for example, StateBudgetdeficitsfinancedbyprintingnewmoney.

D. Importedinflation:aninflationthatcomesfromtheoutercountry.UnloadingActivityTheactivityofunloadingimportgoodsandinter-insulargoodsfromtheshipusingcraneandship’sslingtothenearestlandthatusuallycalledport,thenfromtheport,usingLori,forkliftorstroller by put it inside and arranged in a nearby warehouse that chosen by dockadministrator,whileloadingactivityistheopposite.The goods that disassembled from inside ship are given by the navigator to the UnloadingOfficer.Allgoods thathavebeenunloaded fromtheshipwouldbeunder the inspectionandresponsibilityofUnloadingSectiononthebehalfoftheNavigator(McArthur&Osland,2013).Operationandwarehousefunctionsareexplainedas:“warehousesorcontaineryardforstockofunloadedgoods(ex-import/inter-island)andgoods(for theexportpurpose)”(McArthur&Osland,2013).Whenthedistanceofthewarehouseisabitfarfromtheship(>_130m),thenitcan use trucks or stroller to go to the appointed warehouse, but it will have extra cost oroverbridge.Cargodoringlongdistanceiscargodoringjobwhichthedistancebetweenshipandwarehousearemorethan130m(Jansson&Shneerson,1978).When thewarehouses inLine1are full, thenunloadingactivity canbedonebyusing ship’scraneandsling,whichwilldirectlyunloadthegoods intothenearbytrucks.Loadingactivitywouldcommenceundertheoppositeprocedure.Directunloadingactivitywith the truck (truck/ losing/ loadingorbarge loosing/ loading) isunloadingactivitydirectlyfromtheshipontotrucksinthehullandcontinuewithcarrieditoutfromthenet(ex.tackle)alsotoarrangeitinthetruckortheopposite(Jansson&Shneerson,1978).



Thereare4kindsofunloadingactivity:A. Stevedoringactivityisaprocesswherethecargoisbeingtakenoutfromtheshiptothe

cadewithusingheavyunloadingtoolsandforexportcargowhichliftedfromthecadeintotheship

B. Cargodoringactivityisprocessofcarryinthecargothatalreadyonthecadeintoport’swarehouse to stored or stockpiled and, for export goods, it will carry out from thewarehouseandtaketocadetobereadyforloadedintoship

C. Deliverydoring activity, a shipment cargo from harbor’s warehouse to take out fromportenvironmentinordertostore

D. Receivedringactivity,acarriagebackprocessfromthefactory/company/industrytosendbackintoport’swarehouse

Cargounloadingactivitycanbedistinguishedinto2conditions:

A. Foist is a conditionwhere the importer will handle all of the cost from stevedoring,cargodoring and, deliverydoring. Foist condition: for big and heavy cargo will needmechanicaltoolstoloadgoodsfromship’sdeck

B. Linearisaconditionwheretheimporteronlyhandlessomecostlikestevedoringand,deiverydoring.Linearcondition, for lightcargo,won’tneedmechanical tools, so thesegoodswillgetstevedoringcost

GeneralCargoThegoodsthatloadedtointer-insularshipintheTanjungPerakSurabayaportsuchas,coals,limestone, asphalt, building materials, steel, heavy machinery, aluminum, householdappliances, fuel, stuff sacks like cloves, sugar, salt, green beans and other items such asplywood,wood logs, andmore, cookingoil, palmoil, lubricatingoil andothers.Other goodsthatnotconnectedfromaboveexamplewillconsiderasgeneralcargoorotherwhichusuallytaken the form of a cardboard box which contains milk cans, toothpaste, toothbrushes,detergent,pastries,syrup,candy,shirts,pants,gloves,etc.

CONCEPTUALFRAMEWORKANDRESEARCHHYPOTHESISConceptualFrameworkTogiveanoverallpictureofthediscussedplanninginthisstudy,thuscanbedescribedwiththepictureinfigure1:

Figure1.ConceptualFramework

StudyHypothesesAccordingtotheposedproblemandexistedtheory,thenitcanbetakensuchashypotheses:

1. Unitship’scall influencedto inter-insularshipgeneralcargo loadwhichpassTanjungPerakSurabaya’port



2. DWTship’scallinfluencedtointer-insularshipgeneralcargoloadwhichpassTanjungPerakSurabaya’port

3. Inflationinfluencedto inter-insularshipgeneralcargoloadwhichpassTanjungPerakSurabaya’port

4. Unload tariff influenced to inter-insular ship general cargo load which pass TanjungPerakSurabaya’port

5. Unit ship’s call, DWT ship’s call, Inflation, Unload cost, simultaneously influenced byinter-insularshipgeneralcargoloadwhichpassTanjungPerakSurabaya’port

RESEARCHMETHOD

ResearchConceptThisresearchdesign ismadetoknow(thereasonandresult)or influenceofUnitship’scall,DWTship’scall,Inflation,Unloadcosttogeneralcargoloadofinter-insularshipontheTanjungPerakSurabaya’port,thusthisresearchisincludedinexplanatoryresearchwhicharesearchto looking for and explain causal relation between variable through hypothesis test (Zan,1999).PopulationandsampleThepopulationisagroupthatobservedintheresearchorgeneralizationzonethatconsistsofobject/subjectthathascertainqualityandcharacteristicthathavesetbytheresearchertobeobserved and be concluded. The same thing had also said byMerkuryev (Merkuryev et al.,1998)Populationis“…acompletesetofobservation…”AboutsampleMerkuryevstatedthatsampleisasub-groupwhichrepresenttheobservedpopulationPopulation in this research areDPCAPBMI, Port administration, Indonesia’s bankbranch inSurabaya and, Surabaya city government. The taken data sample is time series data, fromJanuary2002untilDecember2006ResearchvariableVariableidentificationVariable is a symbol or number which include the value (Zaheer & Venkatraman, 1995).Another explanation of variable is object of research or what becomes attention point of aresearch(SuharsiniArikunto,1995:96)Variable from the researchwhichwill analyze is consist from independent variable (X) anddependentvariable(Y).Thatvariablecanbeexplained,suchas:

1. Independentvariable, includeunitship’scall(X1),DWTship’scall(X2), Inflation(X3)and,Unloadtariff(X4).

2. Thedependentvariable,includevolumefrominter-insularshipgeneralcargoload(Y).DefinitionofoperationalandvariablemeasurementVariablesinthisresearch,defineoperationallyinto:Unitship’scall(X1)Unitship’scalliscurrentofthearrivaloftheship(ship’scall)thatentertoport’swater,seenfrom unit ship which includes in scale that uses in variable of unit ship’s call (ratio withmeasurementunit)



DWTship’scall(X2)Deadweight Tonnage is shipped carrying capacity declared in long-tong (2240 lbs-1016 kg)unit.DeadweightTonnage=loadeddisplacementtonnage.Loadeddisplacementtonnageistheweight of ship itself (light ship),with the cargo (goods and passengers), fuel, water, stores,dunnage, etc. Ship’s weight with all of the cargo will press the ship into the water until itreachesthemaximumdraftthatallowedintonunitmeasurement.Inflation(X3)Increasing theamountofmoney incirculationwhilenotbalancedwithan increaseofgoodscirculation or goods stock will make the value of money drop. Scale that uses in inflationvariableisratiowithapercent(%)measurementunit.Unloadingtariff(X4)Chargedtariffsinloadingorunloadingimportorexportcargoorinter-insularcargofromtheshipwith using ship’s crane and sling to nearest land beside the ship that usually called byport,thenmovedandorganizedtonearestwarehousethathavechosenbyportadministratorwithusingLori,forkliftorstroller,whileloadingactivityistheopposite.Unloading tariffs are combination of 3 kinds of tariffs: (1) Stevedoring activity is a processwherethecargoisbeingtakenoutfromtheshiptothecasewithusingheavyunloadingtoolsand for export cargowhich lifted from the cade into the ship. (2) Cargodoring activity is aprocess of carry in the cargo that already on the cade into port’s warehouse to stored orstockpiledand, forexportgoods, itwillcarryoutfromthewarehouseandtaketocadetobeready for loaded into the ship. (3) Deliverydoring activity, a shipment cargo from harbor’swarehousetotakeoutfromtheportenvironmentinordertostoreandReceivedoringactivity,a carriage back process from the factory/ company/ industry to send back into port’swarehouse.So,unloadingtariffsmathematicallycanbewrittensuchas:Unloadingtariffs(X1.4)=STV+CD+R&DScalethatusesinunloadingvariableisratiowithrupiahmeasurementunit.LoadvolumeofGeneralCargointer-insularship(Y)Load volume of General Cargo inter-insular ship is a number of General cargo goodswhichloadedby inter-insular theship.Thescalewhichuses in loadvolumeofgeneralcargo inter-insularshipisrationwithtonmeasurement.TypesandDatasourceTypes of datawhich use in this research are Qualitative and quantitative data. Quantitativedata is anarrangedofnumbersandsourced fromAPBMIannual report in2002-2006,Portadministration Surabaya annual report in 2002-2006, Indonesia’s bank branch in Surabayaannualreportin2002-2006,alsowiththeOfficeofIndustryandCommerceSurabaya’sannualreport in 2002-2006.While qualitative data is datawhich do not contain of the number orgainedinformationfromcompanyprospectus.DataanalyzetechniqueThe analysis in a research with using SPSS program version 11.5. Data processing method(Smith,1974)thatuseisaquantitativeanalysiswhichisananalysisofthearrangednumbersofdata,thenmadeinto“analysis”withusingstatisticformula.



-. MultipleregressionanalysisY=a+b1X1+b2-X2+b3-X3+b4-X4+(?)eWhere:Y=Loadofgeneralcargoa=Constantab1=Variableregressioncoefficientsofunitship’scall(X1)b2=VariableregressioncoefficientsofDWTship’scall(X2)b3=VariableregressioncoefficientsofInflation(X3)b4=Variableregressioncoefficientsofunloadingtariffs(X4)X1=Unitship’scallX2=DWTship’scallX3=InflationX4=unloadingcoste=anerrorfactorcausesbyanothervariableoutsideofthemodel

- F–TestThis F-test do know if unit ship’s call (X1), DWT ship’s call (X2), Inflation (X3),unloading tariffs (X4) independent variable, simultaneouslyhave significant influencetodependentvariable(Y)ofgeneralcargointer-insularship’sloadvolume.

- T–Test

T-test is test for independent partial influence significance variable of unit ship’s call(X1),DWTship’scall(X2),Inflation(X3),andunloadingcost(X4)todependentvariable(Y)ofgeneralcargointer-insularship’sloadvolume.

RESEARCHRESULTANDDISCUSSION

Inordertoknowunitship’scall(X1),DWTship’scall(X2),Inflation(X3),unloadingcost(X4)influencevariabletogeneralcargointer-insularship’sloadvolumeinTanjungPerak’sportin2002-2006thenitcanusemultipleregressionanalysis.Analysis result that receive from SPSS (version 11.5) program calculation, obtained theregressionequation:Y=-752952+361,105X1+0,020X2+2765,239X3+24,854X4Coefficient regression of Unit ship’s call (X1) in the amount of 361,105 that show positivedirection,where,ifUnitship’scallincrease1unitthenwillincreaseGeneralcargoloadvolumein the amount of 361,15 tons. Thiswill happen if Unit ship’s call increase then ship arrivalcurrentwhichenterstheTanjungPerakportincrease,thenship’sseafreightdecreaseandinthe end cargo’s currentwhichwill load to Tanjung Perak portwill also increase, especiallyGeneralcargoloadvolumewillincreasetoo.Coefficient regression of DWT ship’s call (X2) in the amount of 0,020 that show positivedirection,whenifDWTship’scallincrease1ton,itwillincreaseGeneralcargoloadvolumeasmuchas0,020tons.Coefficient regression of inflation (X3) in the amount of 2765,239 which show positivedirection,when if inflation increases 1% then itwill increase General cargo load volume asmuchas2765,239tons.



Coefficient regression of unloading cost (X4) in the amount of 24,854 which show positivedirection,whenif inflationincreaseRp.1,-thenitwill increaseGeneralcargoloadvolumeasmuch as 24,854ton. Itmeans the increase of unloading costwill have a direct effect on theincrease of unloading labors income. This will make them work even harder, then theproductivityofunloadinglaborswillalsoincreaseand,intheend,unloadingvolumewillalsoincrease.According tohypothesis influence testof independentvariablesofunitship’scall (X1),DWTship’scall(X2),Inflation(X3),unloadingtariffs(X4)togeneralcargoloadvolume(Y)partiallyinT-test,itresults:

- T calculation of unit ship’s call (X1) score = 4,517, therefore T calculation (4,517) >Table(2,004),resultedrejectedHoandacceptedHi.ThisshowthatUnitship’scall(X1)partiallyhavesignificanteffecttogeneralcargoloadvolume(Y)oftheinter-insularshipin Tanjung Perak Surabaya port. If ship’s call unit increase then sea transportationserviceofferwillalsoincreaseandseafreight’scostdecrease,thenthedemandforseatransportation service will increase. This will make inter-insular ship’s load volumeincrease.

- TcalculationofDWTship’scall(X2)score=1,285,therefore,<Ttable(2,004),resultedacceptedHoandrejectedHi.Partiallydon’thavesignificanteffectongeneralcargoloadvolume(Y)oftheinter-insularshipinTanjungPerakSurabayaport.Thisiscausedbygeneralcargowhichcanloadwithanykindsoftheshipanddon’tneedanyspecialship.BecauseofthatDWTship’sallfluctuationdon’tgiveanyeffectonGeneralcargointer-insular ship load volume, but it is differentwith cargo such as cow, horse,wood log,cars,coalsthatonlycanloadwiththespecialshipandspecialunloadingservice.

- T calculation of inflation (X3) score = 1,629, therefore, < Ttable (2,004), resultedacceptedHoandrejectedHi.Partiallydon’thavesignificanteffectongeneralcargoloadvolume(Y)oftheinter-insularshipinTanjungPerakSurabayaport.Thisiscausedbyport labor’sunloadingcost thatalreadysetbyAPBMIwithPortadministration,GPEI,GINI,INSAoneverybeginningoftheyear,sotheunloadingcosthasalreadygivenandwon’t affected by inflation, therefore inflation won’t influence general cargo inter-insularshipvolume.

- Tcalculationofunloadingcost(X4)score=16,823,thereforeTcalculation(16,823)>Ttable(2,004),resultedrejectedHoandacceptedHi.ThisshowthatUnitship’scall(X1)partiallyhavesignificanteffecttogeneralcargoloadvolume(Y)oftheinter-insularshipinTanjungPerakSurabayaport. Ifunloading labors income increased.Thiswillmakethemwork even harder, then the productivity of unloading laborswill also increase;therefore,theopposite.

AccordingtoF-testresult(simultaneoustest)tomultiple linearregressionequations(canbeseenintable2),obtainedFcalculationintheamountof132,534.IfcompareitwithFtablescore(with 4 free regression degree and 55 free residual degrees) in the amount of 2,540 thenFcalculation(132,534)>Ftable(2,540).Theconclusionis,H0rejectedandH1accepted,whichmeantheregressionequationthatsignificantlyformedorsimultaneouslyunitship’scall(X1),DWT ship’s call (X2), Inflation (X3), unloading cost (X4) have significant effect toward ofgeneralcargointer-insularship’sloadvolume(Y)inTanjungPerakSurabayaport.Multiple correlation coefficients (R) score as big as 0,952. With this it can be explain ifindependentvariableofunitship’scall(X1),DWTship’scall(X2),Inflation(X3),unloadingcost(X4) simultaneously toward of g have strong connection and have the same direction withgeneralcargointer-insularship’sloadvolume(Y)inTanjungPerakSurabayaport.



According to the calculation results from determination coefficient, it results determinationcoefficient (R2) score: 90,6%, This show if variation from general cargo inter-insular ship’sloadvolumewhichcanexplainbyindependentvariableofunitship’scall(X1),DWTship’scall(X2),Inflation(X3),unloadingcost(X4).Whiletheremaining:100%-90,6%=9,4%explainbyothervariablethatnotobserveinthisresearch.

RESEARCHLIMITATIONResearcheronlyobserveunit ship’s call (X1),DWTship’s call (X2), Inflation (X3), unloadingcost(X4)variableinaffectgeneralcargointer-insularship’sloadvolume(Y)inTanjungPerakSurabayaport.Alongwiththeresearchlimitation,researcherdoesn’tobserveothervariablesthatmay affect towards inter-insular ship’s load volume (Y), such as diesel oil, the price ofdieseloilandfueloilprices, transport farestrucks(freightOrganda),changes inthevalueofthedollartowardstherupiah,nationalpoliticalstability,etc.

CONCLUSION&SUGGESTIONConclusionAccording to analysis result and this research discussion, in conclusion: there are 4independentvariablesanddependentvariable.Inotherwords,independentvariableconcludeunit ship’s call (X1),DWTship’s call (X2), Inflation (X3),unloading cost (X4) simultaneouslyhave a strong connection and same direction with general cargo inter-insular ship’s loadvolume(Y)inTanjungPerakSurabayaport.Ifunitship’scall(X1),increase,andthengeneralcargoloadvolume(Y)alsoincrease.IfDWTship’scall(X2), increase,andthengeneralcargoload volume (Y) also increase. If inflation rate (X3) increase, then the selling price of goodswhichsenttoouterislandwillalsoincrease,thenmerchantfromSurabayawillincreasetheirgoods out of island shipment and, especially general cargo to outer island shipment willincrease therefore cargo inter-insular ship’s load volumewill increase too. If unloading cost(X4)beinganincrease,itwillaffecttogeneralcargoloadvolume(Y)tobeincreased.Suggestion

1. Domestic/inter-islandfreight lanesservedbynationalshipsandforeign-flaggedships,such as Liner ship or Tramper ship, with significant ratio, the same as inter-insularship’s call in Tanjung Perak Surabaya port simultaneously 2002-2006: 7.986 units ofdomestic ships,805unitsof foreignships,7.466unitsofdomestic ships,354unitsofforeign ships,7.956unitsofdomestic ships,321unitsof foreign ships,9.369unitsofdomestic ships,226unitsof foreignships,9.139unitsofdomestic ships,206unitsofforeignships.Lookatthefactsthatininternationalfreightlanes,Indonesia’sshipsarestill difficult to compete with foreign ships, then Indonesia government, minister ofTransportation limit theamountof foreign ships that canoperate indomestic/ inter-islandfreightlanes.

2. Inthecontextregionalautonomy,itsuggeststhateachregionalgovernmentstodeveloptheirport,eitherphysically:sealanesandportbasindredging,pierconstruction,Line1warehouse,procurementofmechanicaltools(landcrane,seacrane,forklift,top-loader,etc.) inorder to smootherunloadingactivityaswellasadministrationcorrectionandportmanagement,minimal inportadministratorofficeandportmasterareadequate,and to make inter-island ships become certain to enter a port that the pioneeringharbor status, as long as facilities and infrastructure, minimum there are alreadytechnicalandadministrative.

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Jang,C.L.(2016).TheLinkagebetweenPsychologicalCapitalandPublicServiceMotivation:EvidencefromTaiwan.ArchivesofBusinessResearch,4(6),260-266.


TheLinkagebetweenPsychologicalCapitalandPublicServiceMotivation:EvidencefromTaiwan

Chyi-LuJang

DepartmentofPoliticalEconomy,NationalSunYat-SenUniversity,Taiwan

Abstract

Researchonpositiveorganizationalbehaviorshasdemonstratedthepotentialof psychological capital as a predictor of various workplace outcomes. Toexamine the relationship between Positive Psychological Capital (PsyCap)(Luthans,Youssef,&Avolio,2007a)andPublicServiceMotivation(PSM)(Perry&Wise, 1990), this studyuses a questionnaire to survey 311public servantsemployed by 5 local governments in Taiwan. Regression analysis resultsindicatethatpsychologicalcapitalispositivelyrelatedtoalldimensionsofPSM.Similarly, our findings also reveal that individuals with high psychologicalcapital reporthigher levelsofPSM thando their lowPsyCap counterparts. Insummary, positive psychological capital can function as a strong predictor ofpublicservicemotivation.Keywords:PsychologicalCapital,PublicServiceMotivation,Taiwan

INTRODUCTION

Researchers in the fieldofpsychologyhavegiven toomuchattention to thenegative sideofpersonal psychology and too little attention to the positive, healthy side.With this inmind,Seligman (1998) called for more investigations into what came to be known as “positivepsychology.”Thisnewwaveofresearchfocusedontheexaminationofpositiveorganizationalbehavior, i.e.,“thestudyandapplicationofpositivelyorientedhumanresourcestrengthsandpsychological capacities that can be measured, developed, and effectively managed forperformanceimprovement”(Luthans,2002b,p.59)(seealsoNelson&Cooper,2007;Turner,Barling,&Zaharatos,2002;Wright,2003).Accordingly,researchershaveempiricallyexaminedtheroleoffourspecificpsychologicalcapacities(hope,resilience,optimism,andefficacy)andtheiraggregateintheformofamultidimensionalconstructknownas“psychologicalcapital”or“PsyCap” to determine its impact on performance in the workplace (e.g., Avey, Luthans, &Jensen, 2009; Avey, Luthans, & Youssef, 2010; Luthans et al., 2007a; Wright, 2003).Psychologicalcapital(PsyCap)hasbeendefinedas“anindividual’spositivepsychologicalstateofdevelopmentandischaracterizedby:(1)havingconfidence(self-efficacy)totakeonandputin the necessary effort to succeed at challenging tasks; (2) making a positive attribution(optimism)aboutsucceedingnowandinthefuture;(3)perseveringtowardgoalsand,whennecessary, redirecting paths to goals (hope) in order to succeed; and (4) when beset byproblemsandadversity,sustainingandbouncingbackandevenbeyond(resilience)toattainsuccess”(Luthansetal.,2007a,p.3).Public Service Motivation (PSM) refers to the factors that motivate individuals to seek andcontinueemployment inthepublicsector.Amongthefactorsthatmotivateemployeesinthepublicsectorareadeeperdesiretomakeadifference, theopportunitytohavean impactonpublic affairs, a sense of integrity and responsibility, and a reliance on intrinsic rewards asopposed to a salary or monetary compensation (Brewer, Selden, & Facer, 2000; Crewson,



1997).Publicservicemotivationcanthereforebedefinedasanindividual’spredispositiontorespondtomotivesgroundedprimarilyoruniquelyinpublicinstitutions(Perry&Wise,1990).PSM comprises motives such as compassion, self-sacrifice, attraction to policy making, andcommitmenttothepublic interest/civicduty(Perry,1996,1997;Perry&Wise,1990).PerryandWise(1990)arguedthatpeoplewhoarehighlymotivatedtoengageinpublicservicearemorelikelythanotherstochoosegovernmentjobs,toperformbetterintheworkplace,andtorespondmoretonon-utilitarianincentivesonceingovernment.ResearchonpositiveorganizationalbehaviorshasdemonstratedthepotentialofPsyCapasapredictor of various levels ofworkmotivation andperformance. PSM is also expected to beinfluenced by psychological capital. Yet the relationship between psychological capital andpublicservicemotivationhasneverbeeninvestigated(and,specifically,notintheTaiwanesecontext). Thus, the intentionof this study is to explore the effect of psychological capital onpublic service motivation among 311 public servants employed by 5 local governments inTaiwan.

THEORYANDHYPOTHESESAccording to Luthans et al. (2007a), PsyCap consists of hope, self-efficacy, optimism, andresilience,thecombinationofwhichrepresentsasecond-order,corefactor.Thiscombinationis better at predicting workplace outcomes than any of the four individual factors whichcompriseit.Therefore,wecandiscussthecomponentsofpsychologicalcapitalandtheir linkwithpublicservicemotivationasfollows.Hope: The first component of positive psychological capital is hope, which is operationallydefinedasthewillpower(or“agency”)and“waypower”(or“pathways”)tosetandaccomplishgoals (Snyder, Irving, & Anderson, 1991). In the psychological capital framework, hopeincludesthewherewithaltodevisemethods,meansandalternativestoaccomplishobjectivesandgoals,evenunderinstitutionalconstraintsoradverseconditions(Snyder,2000;Snyderetal.,1991;Curry,Snyder,Cook,Ruby,&Rehm,1997).Inotherwords,hopeconstitutesthewillto succeed and the ability to develop various pathways or strategies toward goalaccomplishment. Thus, we expect that despite the public sector’s characteristically tightbudgets and rigid regulations, hopeful individualswill still tend to seek and continuepublicemployment.Self-efficacy: The concept of self-efficacy is perhaps the most well-known and widelyresearched concept in the psychological capital framework. Self-efficacy was introduced bysocialpsychologistAlbertBandura(1997)andcanbedefinedasone’sbeliefinone’spersonalabilitytoaccomplishagiventask.StajkovicandLuthans(1998)goontodefineself-efficacyas“theemployee’sconvictionorconfidenceabouthisorherabilitiestomobilizethemotivation,cognitiveresources,orcoursesofactionneededtosuccessfullyexecuteaspecifictaskwithinagivencontext”(p.66).Self-efficacyisderivedfromfourprocesses:(a)pastmasteryofatask,(b) vicarious learning via observation of a respected other, (c) social persuasion from asignificantother,and(d)physiologicaland/orpsychologicalarousal.Insummary,peoplewithahighlevelofself-efficacybelievethattheycanbesuccessful,andtheyactpositivelyonthatbelief.Self-efficacyisalsoexpectedtobeassociatedwithpublicservicemotivation,especiallythepersonalneedforpowerandself-importance.Optimism:Thethirdcomponentofpositivepsychologicalcapitalisoptimism.Optimismreferstoone’spersonalassurancethatactivitiesorcircumstanceswillresult inapositiveoutcome.According toattribution theory, optimists tend to considernegativeevents as external (“notmy fault”), unstable (occurring only at this time), and specific (this single event), while



pessimistsinterpretthesameeventsasinternal,stable,andglobal(Peterson,2000;Seligman,1998). Optimists also continue to work hard and actively cope with any obstacles to theirpursuitof thedesiredoutcome(Carver&Scheier,1981;Kluemper,Little,DeGroot,2009). Insum, optimists tend tomaintain positive expectations about the results (Avey,Wernsing, &Luthans,2008).Therefore,optimismisexpectedtobepositivelyrelatedtotheattainmentofconditions that serve the public interest or the common good, which is a specific motivegroundedprimarilyoruniquelyinpublicinstitutionsResilience: The fourth component of positive psychological capital is resilience, which isdefined as “the positive psychological capacity to rebound, to ‘bounce back’ from adversity,uncertainty, conflict, failure or even positive change, progress and increased responsibility”(Luthans,2002a,p.702).Resilientpeoplearetenaciousandwillcontinuetomoveforwardinthe face of seemingly impossible obstacles and odds. Thus, they are expected to exhibit astrongerpropensity towardself-sacrificeandcommitment tocivicduty—andpossiblypolicymakingandcompassionaswell—thandothosewithlowerlevelsofresilience.Based on this emerging theoretical foundation for PsyCap, the following hypothesis wasformed.Hypothesis1:PsychologicalCapitalispositivelyrelatedtoPublicServiceMotivation.Hypothesis2:TheeffectofPsychologicalCapitalonPublicServiceMotivationwillbedifferentforpublicemployeeswhohavedifferentlevelsofPsyCap.

METHODParticipantsA questionnaire survey was completed by 500 public servants employed by five localgovernments(ChiayiCity,ChiayiCounty,TainanCity,KaohsiungCity,andPingtungCounty)insouthernTaiwan.Therewere311validsurveysreturned,yieldingaresponserateof62.2%.Ofthe respondents,59.5%weremale. In termsof age,47.3%of respondentswere39yearsorunder, 33.1%were between40 and54 years old, and the remaining 19.6%were age 55 orover.Themajorityoftherespondents(79.5%)heldcollegedegrees,with10%havingobtainedmastersordoctoraldegrees.MeasuresThe Psychological Capital Questionnaire (PCQ) developed by Luthans, Avolio, Avey, andNorman(2007b)wasusedtomeasurePsychologicalCapital.Examplesoftheitemsinclude:“Ifeelconfidentanalyzinga long-termproblemto findasolution;” “If I should findmyself inajamatwork,Icouldthinkofmanywaystogetoutofit;”“WhenIhaveasetbackatwork,Ihavetroublerecoveringfromitandmovingon;”and“Whenthingsareuncertainformeatwork,Iusuallyexpectthebest.”ThereliabilityofthePsychologicalCapitalmeasurewasα=.885.Items in the questionnaire used tomeasure the PSM constructs were adaptedmainly fromPerry(1996).Sampleitemsinclude:“Politicsisadirtyword(reversed);”“Thegiveandtakeofpublic policymaking does not appeal tome (reversed);” “I consider public servicemy civicduty;”“ItisdifficultformetocontainmyfeelingswhenIseepeopleindistress;”and“Servingcitizens would give me a good feeling even if no one paid me.” The reliability of the PSMmeasurewasα=.828.All items in the questionnaire were rated on 5-point Likert-type scales anchored by 1 =“strongly disagree” and 5 = “strongly agree.” To ensure equivalence of themeasures in the



ChineseandtheEnglishversions,allthescalesusedinthisstudyweretranslatedintoChinese,and then back-translated by a colleague of the author from the Department of ForeignLanguagesandLiteratureatNationalSunYat-SenUniversity.ResultsRegression analysis was applied to test the effect of psychological capital on public servicemotivation, while controlling for demographic variables such as tenure, age, education, andgender. In his examination of the antecedents of PSM, Perry (1997) suggested that thesedemographic controls may be highly associated with PSM. Descriptive statistics for thepsychologicalcapitalandPSMmeasuresandintercorrelationsareshowninTable1.Overall,thefindingsfullysupportedbothhypotheses.TheresultsoftheregressionmodelsforPSM,allofwhichweresignificantatp<.001,arepresentedinTable2.PsyCapwaspositivelyrelatedtoalldimensionsofPSM:attractiontopolicymaking,commitmenttopublicinterests,compassion, and self-sacrifice. This finding supports the first hypothesis that psychologicalcapitalispositivelyrelatedtopublicservicemotivation.The statistical results of regression models for the effect of PsyCap on PSM were alsocontingentondemographiccontrols.Ingeneral,tenure,age,education,andgenderdoexertamoderatingeffectontherelationshipbetweenPsyCapandPSM.Forexample,giventheeffectofPsyCaponPSM,malesweremorelikelythanfemalestohavehigherlevelsofpolicymakingparticipationand self-sacrifice, though their levelsof compassionwere comparatively lower.Similarly,high-andmedium-rankingofficersweremorelikelytohavehigherlevelsofPSMforself-sacrifice,commitmenttopublicinterests,andthepursuitofdecision-makingpowerthanthose of their lower-ranking counterparts. In comparison with younger public employees,public servants over the age of 40weremore likely to have higher levels of PSM in publicinterest,compassion,andself-sacrifice.

Table1.DescriptiveStatisticsandCorrelationsforVariablesVariable M SD 1 2 3 4 5 6 7 8 9 10

1.Hope 3.33 1.38 1

2.Efficacy 3.12 1.27 .55** 1

3.Optimism 3.47 1.02 .33** .30** 1

4.Resilience 2.76 .99 .33** .29* .43** 1

5.PsyCap 3.17 1.02 .62** .60** .53** .52** 1

6.Policymaking 2.80 1.35 .48** .55** .36** .40** .57** 1

7.PublicInterest 3.32 .85 .21* .35** .08 .03 .25* .39** 1

8.Compassion 3.49 .84 .21* .27* .06 .04 .20* .25** .23* 1

9.Self-sacrifice 3.01 .93 .19* .19* .03 .02 .17* .30* .21* .24* 1

10.PSM 3.16 .83 .42** .50** .23* .22* .46** .60** .52** .47** .49** 1

Notes:PsyCap=CorePositivePsychologicalCapitalconsistingofHope,Self-Efficacy,Optimism,andResilience.

PSM=TotalPublicServiceMotivationconsistingofattractiontoPolicymaking,commitmenttoPublicInterest,Compassion,andSelf-sacrifice.

Numbersonthediagonalarecorrelationcoefficients.*p<.05,**p<.01(two-tailed)



Table2.RegressionModelsfortheEffectofPsyCaponPSM

Predictor Variables

Public Service Motivation Attraction to Policymaking

Commitment to Public Interests

Compassion Self-sacrifice

β t β t β t β t PsyCap .925*** 20.911 .305*** 5.963 .318*** 6.461 .326*** 6.201

Control Variables

(dummies)

Tenure1 -.123 -.883 .346* -2.149 .010 .067 .452** 2.730

Tenure2 .668*** 6.095 .231 1.823 .155 1.270 .585*** 4.488

Age1 -.086 -.763 .282* 2.160 .587*** -4.672 -.062 -.465

Age2 -.101 -.875 .098 .732 .411** 3.182 .483** 3.503

Education Level1 .335* 2.257 .213 1.239 .690*** 4.180 .605** -3.429

Education Level2 .155 1.615 .218 1.960 .519*** 4.850 .809*** -7.082

Gender .305** 2.916 .179 1.474 -.759*** 6.515 .594*** 4.768

N

311

311

311

311

𝑹𝟐 .417 .178 .209 .253

F 168.661 22.977 26.073 31.279

Significance p < .001 p < .001 p < .001 p < .001

Notes:Codingofdummyvariables:Tenure1=1forhigh-rankingofficers,0otherwise;Tenure2=1formedium-rankingofficers,0otherwise;Age1=1for55yearsorolder,0otherwise;Age2

=1for40-54yearsold,0otherwise;Educationlevel1=1formaster’sdegreeorhigher,0otherwise;Educationlevel2=1forbachelordegree,0otherwise;Gender1formale,0for

female.*p<.05,**p<.01,***p<.001.TodeterminewhethertheeffectofPsyCaponPSMwillbedifferentforpublicemployeeswithdifferent levels of PsyCap, this study divided respondents into two groups based on theirscores on the total scale of PsyCap. Respondentswhose scores on the total scale of PsyCapwerehigherthanthemeanscoreofallrespondents(M=3.17)wereplacedinthehighPsyCapgroup(n=173),whereasrespondentswhosescoresonthetotalscaleofPsyCapwerelowerthan themeanof all respondentswere classifiedasbelonging to the lowPsyCapgroup (n=138).Table3presentstheresultsofregressionanalysisoftheeffectofPsyCapsub-constructsonPSMinboththehighandlowPsyCapgroups.Table3showsclearlythatthatR2valueswere.398 and .206 for the high-PsyCap and low-PsyCap groups, respectively. This implies thatpsychologicalcapitalinfluenced39.8%ofthevarianceinPSMinthehigh-PsyCapgroup,whileinfluencingonly20.6%ofthevarianceinPSMinthelow-PsyCapgroup.Thisfindingsupportsthesecondhypothesis,sinceindividualswithhighpsychologicalcapitalreportedhigherlevelsofPSMthandidtheirlowPsyCapcounterparts.

Table3.RegressionResultsforHighandLowPsyCapGroups

Predictor Variables

Public Service Motivation PSM

(High PsyCap >3.17) PSM

(Low PsyCap <=3.17) β t β t

Hope .705*** 11.580 -.083** -2.886



Self-Efficacy .064 1.052 .021 .320 Optimism .187*** 3.944 .137** 3.110 Resilience -.531*** -9.389 .317*** 6.367

N

173

138

𝑹𝟐 .398 .206 F 97.033 34.023

Significance p < .001 p < .001 Notes:*p<.05,**p<.01,***p<.001.

CONCLUSION

Theresultssuggestthatpsychologicalcapitaliscloselyrelatedtothefourdimensionsofpublicservice motivation. As expected, positive psychological capital can function as a strongpredictorofpublicservicemotivation,and individualswithhighpsychologicalcapital reporthigher levelsofpublic servicemotivation thando their lowPsyCapcounterparts.This studyenriches the present literature in severalways. First, this is the first study inwhich a closeassociation isshownbetweenPositivePsychologicalCapitalandPublicServiceMotivation inthe Taiwanese context. The applicability of the Psychological Capital Questionnaire (PCQ)(Luthans et al., 2007b) survey in the analysis of PSM in the Taiwanese settingwas verified.Second, in addition to such demographic antecedents as tenure, age, education, and gender(Perry, 1997), psychological capital was found to have a significant impact on PSM. ThisimpliesthatpublicemployeeswhodifferinPsyCaptraitstendtohavedifferentPSMs.Italsoimpliesthatbyseriouslycultivatingpositivepsychologicalstatesandorganizationalbehaviors,public organizationswill enhance their employees’motivation to deliver high-quality publicservice.Onelimitationinthisstudyisthatthedatawereobtainedusingself-reportmeasures.The resultsmay, therefore, be biased by such things as commonmethod variance or socialdesirability.Itwouldbeappropriatetocomplementthesemeasurementswithothersobtainedbydifferentmethods.ReferencesAvey,J.B.,Luthans,F.,&Jensen,S.(2009).Psychologicalcapital:Apositiveresourceforcombatingstressandturnover.HumanResourceManagement,48,677-693.

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Ofori-kyere,I.&Atanga,R.A.(2016).CustomerRetentionmanagementstrategiesAdoptedbytheFreightTransportServiceSectorinGhana.AReviewPaperonRelatedLiterature.ArchivesofBusinessResearch,4(6),267-281.


CustomerRetentionManagementStrategiesadoptedbytheFreightTransportServicesectorinGhana.AReviewPaperon

RelatedLiterature

IsaacOfori-OkyereSchoolofBusiness,TakoradiTechicalUniversity

Box256,Takoradi,[email protected]

RenasAyebonoAtanga

SchoolofBusiness,TakoradiTechicalUniversityBox256,Takoradi,Ghana.

Abstract

Achievingcustomerretentionin freighttransportsectorprovidessurvival forthefirms.Thevariedeconomicbenefitsassociatedwiththeadoptioncustomerretentionmanagementcannotbeover-emphasisedasitcanleadtotheoverallprofitabilityoffirms.Thispaperreviewaddressboththeoreticalandempiricalliterature on Customer Retention Management Strategies adopted by theFreight Transport Service sector in Ghana. This paper seeks to explorevariables, whichmay be considered in any Customer RetentionManagementStrategy and Customer Retention by drawing together strands from variousliterature on: strategies and analytical approaches for managing customerdefections in the freight transport industry in Ghana; customer defectiongroups,andthereasonsfortheirdefections,andthesignificantroleplayedbyLifetimevalueofthecustomer(LTVC)theorytofreighttransportbusinessesinGhana; models which can be adopted to manage customer defections in thefreighttransportindustryinGhana;andtheactualswitchingbarriersthatcanbeadoptedbytheplayersinthefreighttransportindustryinGhanatopromotecustomerretention.

Keywords: Customer retentionmanagement strategies, Switching barriers, FreightTransport,Ghana

INTRODUCTION

Over the years, customer services have been considered important factor in customerretention management strategies. Potter-Brotman (1994), believes that the role service inevery economy plays is more critical and crucial than ever, - a trend which will continue.Specifically, transport serves as physical linkage between clients and suppliers, therebyfacilitating flowofmaterials andother resources. It canbemaintained further thatwith theintroductionof thirdparty logistics (abbreviated3PL,orTPLrefers toaproviderofa firm’soutsourcedlogisticsservices)providersandevenfourthpartylogistics(abbreviatedas4PLs–referstointegration,assemblageandmanagementofallresources,capabilitiesandtechnologyofafirm’sSupplyChainsanditsrangeofproviders),majorityofcarrierservicefirmsprovidemore than just physical transport links. Such carrier service firms provide functions whichinclude value addition services which range from inventory control and warehousemanagement (Naim, Potter, Mason, and Bateman, 2006). In transport business, while 3PL



application refers to any service contract that involves storing or shipping logistics, a 4PLproviderisregardedasasupplychainintegrator.Itisestablishedinliteraturethatlogisticssystemadoptedbyindustrialfirmsisbasicallylinkedwith freight transport systems at all stages of procurement, production and distribution ofgoodstothefinalconsumer.Byfreighttransport,CrainicandDejax(1990)meanthatall thesupplychainactivitiesandfunctionsaresaidtobeperformedbyoneorseveralcarriers,usingoneorseveralmodesoftransportation,tomovefreightofvariedcommodities,frommultipleclients(cities),betweenseverallocations.Humansareallthetimeinvolvedinthedevelopmentof various applications in the areasofdistribution systemsplanningand facility location forindustrialproductionortransport firms,aswellasthemedium-termservicenetworkdesignandthetacticalplanningofoperationforfreighttransportfirms(CrainicandDejax,1990).Theroleplayedbytheroadhaulagesectoriskeytoanynationaleconomywithusersboastingofhugespendingbudget.Expertsgroupthefreighttransportindustryintotwocorehauliers—own account and hire and reward. Own account operators include manufacturers ordistributors who can boast of their own fleet of transports available to serve their ownstandards and requirements. The services of hire and reward hauliers are offered to thirdparties.Expertsbelievethatthehireandrewardhauliersectorisexperiencinganincreasinggrowth,asgrowingnumbersofstakeholderssuchasmanufacturers,distributorsandretailerssuggest that the functionofphysicaldistributionofgoodsshouldbeperformedby transportfirms(ibid).In Ghana, it can be submitted clearly that the vastmajority of freight service functions areperformedbyroadhauliers,largelybecauseofitscheapnessandflexibilityanditisanticipatedthatthisisunlikelytochangeintheforeseeablefuturesincelessattentionispaidbythestatetowardsothermodesoftransportlikeair,railandsea.Thatistosaythatthefreighttransportservicesectorischaracterisedwithfiercecompetitionwhichhasbeen,andwillremainsevereas the entrybarriers continue to be low.Defending this position,Duffy (1985) stresses thatcertaincustomerswhopurchasefreighttransportservices,alsooperateinhighlycompetitivemarkets, hence the onus lies on freight transport firms to pay increasing attention toimprovingtheservicesrenderedtothecustomers.Thatis,theindustryhasbeencharacterisedwith featuresof excess capacity, lowbarriers to entry andhigh levels of competitive rivalryamongplayerswhoarealwaysconfrontedwiththeenormityof thetask inmeetingtheeverincreasingdemandsofpowerfulcustomers.CrainicandDejax(1990)areoftheviewthatitisalways anticipated that customers in the freight transport industry are becoming moreaggressiveintheirquestsinseekingoutanddefectingtocompetingsupplierswhocouldmeettheir demands whereas, other competitors who were unable or unwilling to do so aredeselected by customers. This stands to reason that as the freight transport market isbecoming increasingly competitive, players are advised constantly to adjust to and tomeetcustomers’needsandrequirementsprofitablywhileofferingflexible,reliable,highqualityandlowcostservices.Thecurrentreviewersofthispaperperceivedthatthefreighttransportsectorisconsideredasvitalelementofalleconomiesacrosstheglobesincetransportationanddistributionofgoodshave significant effect on the performance of basically all the sectors of economies.Functionally, the freight transport sector serves as the backbone of production, trade, andconsumption activities thereby ensuring effective movement of raw materials and finishedproductsattherighttime(Crainic,2000),advancementofglobalisation,increasesconnectivity



ofmarketsandbusinesses,andfinallysimplifyingmovementoffreightsandpeople(Vetevood,2008).The discussion so far suggests that the function performed by freight transport is key toensuring a smooth, cost- and timely fulfillment of customers’ requirements.Hence this viewbrings to the fore, the sole purpose of every business, which according to Peter Drucker(1973),is“tocreatethepersonalitycalledcustomer”.ThispositionisalsosupportedbyOfori-Okyere(2014) inhisbook“CustomerCommunications,Theories, frameworksandconcepts”,whichmadeitclearthatmanagersoftoday’sbusinessesintheirquestsofattracting,acquiring,andmaintaining today’s customer for a lifetime business transaction, should pay particularattentiontotheneedsandrequirementsofthecustomerwhicharebecomingeverincreasingindemands.Apositionheldbyauthoritiesisthatinorderforbusinessestosurviveintoday’scompetitivemarketplace, managers must allocate more funding in their implementation of customerretention management programmes when their market share is experiencing increasinggrowth,andfinancecustomeracquisitioneffortswhentheirmarketshareisfalling(Fruchterand Zhang, 2004). Lee, Lee, Feick(2001), sharing similar perspective posit that as marketgrowth declines or as markets remain highly competitive, players in such competitiveenvironments usually adopt strategies in maintaining their market share through payingattention to retain existing customers. Business organisations achieve this by continuallyseekingnewwaysofacquiring,retaining,andincreasingtheirmarketingactivitiesduetothefactthatthereisrisingcosttobeincurredwhenitcomestolosingcustomers(Petzer,2005).Choi and Chu (2001), stress that businesses that are capable of attracting, satisfying, andretainingcustomersaresaidtosurvivethantheoneswhichdocontrary. It isadvocated inamore benign manner that customer retention management strategy is considered as morereliablesourceofsuperiorperformance(ReichheldandSasser,1990),whichinthiswaycanbeadoptedasamarketingprogrammebyfreighttransportfirmsinGhana.The authors of this review paper perceive that customer retention management strategiescomprise series of marketing programmes (approaches) to be adopted by each freighttransport service provider in Ghana to prevent customers from defecting to alternativecompetingservicefirms.Inthemain,itcanbeunderstoodthatsuccessfulcustomerretentionmanagementstrategyasacoremarketingstrategycommenceswiththeorganisationmakingitsfirstcontactwiththecustomerandalsospansthroughouttheentirerelationshipchain.Thedemandforfreighttransportservicesisalmostentirelyderivedandthefateoftheindustryasa whole is closely related to the state of the economy, since any reduction in consumerdemand,whichcausesoutputbymanufacturerstofall,leadsinexorablytoreducedemandfortransportandviceversa(Whyte,1993).Thecurrentauthorsmaintainthatdespitealotofempiricalstudiesdoneinthebroadareasoftransport and logistics, customer retention management and their related subjects there islittle known literature with specific examination done on customer retention managementstrategies in the Freight Transport service sector specifically in Ghana. Whyte (1993),researched on "The Freight Transport Market: Buyer-Seller Relationships and SelectionCriteria,and found thatbuyersarebothdemandingandactive in themarketwith theresultthatover the lastdecade, theyhave replaced supplierswhoseperformancewas regardedasinadequate.Stank,andGoldsby(2000),researchedon“aframeworkfortransportationdecisionmaking in an integrated supply chain” and concluded that “managers must motivate theircompaniestoviewthetotalcostandtotalvalueprovidedbycarriers,anddesistfrombuyingtransportation solely based upon lowest transactional cost.” Mason, Lalwani, and Boughton



(2007), investigated on “Combining vertical and horizontal collaboration for transportoptimisation", Supply Chain Management” in the UK and the European environment withspecificreferencetoroadfreighttransportindustry:theauthorsrecommendedsimilarstudyto be conducted in other industrial settings for alternative transport modes and othergeographical region. Naim, Potter, Mason, and Bateman (2006), aimed to develop “aframework that rationalises transport flexibility into different types,” and identified twelvedefinitions and key components of transport flexibility.” Holter, Grant, Ritchie and Shaw(2008), studied "A framework for purchasing transport services in small and medium sizeenterprises in the UK environment and indicated that “a framework using several tools forpurchasing transport services and improving transport performance has emerged from theresearch.” Sanchez-Rodrigues, Potter, and Naim (2010), studied “the impact of logisticsuncertaintyonsustainabletransportoperations” intheUKenvironment,andfoundthat“themain drivers that influence the sustainability of transport operations are delays, variabledemand/poorinformation,deliveryconstraintsandinsufficientsupplychainintegration.”Inarelateddevelopmentwhichis intheareaofcustomerretentionmanagement,ButtleandAhmad (2002), dealt with “Customer retention management: a reflection of theory andpracticeforUKfirmsandrecommendsthat“boththeoreticiansandmanagersshouldconsiderbusinesscontextindevelopingandimplementingcustomerretentionstrategies.”Petzer(2005)studied “Customer RetentionManagement for the Hotel Industry in Gauteng and concludedthat servicebusinesses such ashotels retain customersbymaking sure they are compatiblewitheachother,bykeepingtrackof,andmanagingcustomerdefections,byaddressingservicefailurewith recovery strategies, and by keeping long-term value-creating relationshipswiththeir customers. Ang and Buttle (2006), did a quantitative study on customer retentionmanagement processes in the Australiamarket and concluded that “excellence in customerretention is significantly associated with documented complaints-handling processes.”Anani(2013),studied“customerretentionstrategiesintheairlineindustryinGhanaandconcludedthatairlinescanonlysurvive in today’scompetitivebutvolatilebusinessenvironmentwhenthey pay particular attention to the effective implementation and monitoring of fourstrategies(Relationship Marketing (RM), Airline Service Quality (ASQ), Airline SwitchingBarriers (ASB)andServiceRecovery (SR) ) toensure their continueduseandapplication toguaranteecustomerretentionandoverallprofitabilityofairlines.Martey(2014),investigatedinto “theRelationshipbetweenCustomerRetention andCustomerLoyalty in theRestaurantIndustryinGhana”,andfoundthatallthefourconstructsofcustomerretention;namelyprice,service quality, customer satisfaction, and brand image had significant correlation withcustomerloyalty.Coherentlywithabovediscussions,itcanbesubmittedclearlythatdespitetheextantbodyofresearchdoneonbothtransportandcustomerretentionmanagementasseparatetopics,theattempt ofmerging the two business concepts hence an examination of customer retentionmanagement strategies in Freight Transport Service Industry in Ghana is said to be under-researched. That is merging the two topical issues in research, it is worthmentioning thatpanoply of extant studies have reviewed literature on customer retention management inotherindustrysuchastheHotel(Petzer,2005),telecommunicationsGustafsson,Johnson,andRoos, (2005), airline(Anani,2013), Restaurant (Martey, 2014), but little is known in FreightTransportservicesectorandeveninGhana.It is safe to submit that extant studies have failed to establish in specifics, what constitutespecific models vis-à-vis strategies (approaches and programmes) to be used in managingcustomer defections; and factors that constitute switching barriers to promote customer



retention in the freight industry in Ghana. Existing literature on customer defection, andretentionmanagementstrategieslackspecificityhenceadetailedexplanationneedstobedoneintoit.Itisinthisregardthatthegeneralobjectiveofthepresentpaperistoofferareviewtocontributetothetopic:anexaminationoncustomerretentionmanagementstrategiesfromtheperspectiveoffreighttransportbusinessesinGhana.Foritsfocus,thereviewseekstoachievethefollowingasspecificobjectives:(1)To identifystrategiesandanalyticalapproaches formanagingcustomerdefections in thefreight transport industry in Ghana. (2). To determine customer defection groups, and thereasonsfortheirdefections,andthesignificantroleplayedbyLifetimevalueofthecustomer(LTVC)theorytofreighttransportbusinessesinGhana.(3).todescribeindetail,modelswhichcanbeadoptedtomanagecustomerdefectionsinthefreighttransportindustryinGhana.(4).toexplorefactorsthatconstituteswitchingbarriersthatcanbeadoptedbytheplayersinthefreighttransportindustryinGhanatopromotecustomerretention.

LITERATUREThetheoreticalconsiderationsinthisreviewcoveranalyticalapproachesthatareusefulintheidentificationofcorereasonsthataccountforcustomerdefections;customerdefectiongroups,and the reasons for theirdefections, and the significant roleplayedby life timevalueof thecustomer(LVC)theory;andthedescriptionofprovenmodelswhichcanbeadoptedtomanagecustomerdefection;andtheexplorationoffactorsthatconstituteswitchingbarriers.StrategiesandanalyticalapproachesformanagingcustomerdefectionsManagement of customer defections has been emphasised in extant researches (e.g. Ahmad,2002; Dove and Robinson, 2002; Pearson and Gessner, 1999). It is suggested that businessorganisations have to make extra effort in instituting, monitoring processes and controldevicesthatarecapableofalertingmanagersofcustomerdefections.Inthecaseofthefreighttransportindustry,thiswillenableplayerstoreducecustomerdefectionsbyinstitutinginstantfollowupactionsorresponsesthatarecapableofidentifyingandeliminatingcustomerswhoareconsideredunprofitable.ReicheldandSasser (1990),maintain thatbusinessorganisationsshouldprovideadefectionanalysis. This is accomplished by motivating service personnel to ask definite, relatedquestionsaboutwhyparticularoragroupofcustomershavedefected.Thisistosuggestthatbusinessorganisationsneedtobesensitiveontheissueofdefectionrates(ColgateETal.1996).Topmanagement commitment isneeded in the freight transport industrywhen there is theneedforallocatingresourcestohandlecausesassociatedwithdefection.Itcanbesummedupthatatactfullydesignedandaccomplishedstudyaboutcustomerswhohad defected over a period can provide effective information to be used to identify corereasons that account for customer defections, investigate attitudes of employees towardservicequality,developabetterunderstandingofthecustomer'sprocessforterminatingthebusiness relationship (so that appropriate intervention and recovery actions can be taken),anddiscoverwhetherornot there is an identifiableprofile for customerswhohaddefectedandwhichmay be used for the early discovery of customers at risk (Corner, 1996). Payne(2000a),suggestsfouranalyticalapproachesformanagingcustomerdefections:

• Purposely trainedmarketing researchers should be recruited to undertake a tacticalanalysisofthecorereasonsthatunderpinwhycustomersdefectinbusinesses.Inthisway, thebusiness can identifypoorlydeliveredbusinesspractices thatneed strategicimprovement andmodification. These efforts are capable of resulting to recover the



customer and to salvage thepoor relationship (Reicheld, 1996), existingbetween theparties,inthiscasearethefreighttransportfirmsandtheircustomers.

• Thebusinessshouldundertakecriticalmarketingresearchtoidentifytheaspectsoftheservicebeendeliveredthatarekeyorcrucialwhenitcomestoretainingacustomerforthepurposesofvaluedrelationships.

• Thebusinessshouldbenchmarkitsperformanceoncriticalcustomerserviceactivitiesagainstwhatisdonesuccessfullyinthecompetition.

• The business should carefully and tactfully analyse customer complaints received.Zineldin (2006), on the subject of customer retention stresses that firms that adoptcustomerretentionstrategiesandprogrammesmust firstofallberesponsive to theircustomers’ needs and concerns throughputting inplace an effectiveprogramme thataddressescustomers’concernsthroughagoodcomplaintmanagementsystem.

Customerdefectiongroups,reasonsfortheirdefections,andtheroleoflifetimevalueofcustomer(LTVC)Customerdefection isexplainedasacriticalsituationwherecustomers leaveandabandonaserviceproviderandopt foranother (Garland,2002).Similarly, customerdefectionratehadbeenexplainedtobethedegreetowhichcustomersterminatetherelationshiptheyhavehadwithbusinessesoveraperiod(Pageetal.,1996).Reichheld(1996),reportingontheeffectofdefectionsstressesthatanincreaseinthedefectionratecanleadtodecreaseincashinflowtoanaffectedorganisation. It issuggested thatreduction incustomerdefectionrate is likely tolead to increase in profits substantiallymore than growth inmarket share, improved profitmargins,orfactorsassociatedwithcompetitiveadvantage(Colgateetal.,1996).Alotofserviceorganisations sometimes fail to pay particular attention to customer defections, that is,customerswhochangeserviceprovidersforcompetingones.Authoritieswithempiricalstudiesoncustomerdefection(e.g.Desouza,1992;Matin-Consuegra,Molina and Esteban,2007; Seawright, DeTienne, Bernhisel andHoopes Larson,2008) list thefollowingascustomerdefectiongroups:Therearecustomerswhoswitchtocompetitors justbecauseof lowerprices;customerswhoswitchtocompetitors justbecausetheyareofferingbetterproductsorservices;customerswholeavebecauseofinadequateproductsorservicesofferedbyanexistingprovider;customerswhoarelostbecausetheyarenomoreinbusiness(in the case of B2B); customers who switch to products and services provided by othercompanies found outside the industry; and lastly, customerswho leave due to internal andexternalpoliticalconsiderations.Ahmad (2002), suggested to managers of firms to make extra efforts regarding institutingcontrolmechanismsthatarecapableinkeepingtrackofcustomerdefections.Similarly,DoveandRobinson(2002),advocatefortheexistenceofdevelopmentofsystemscapableofalertingorganisationswhentheircustomersthreatentodefectsothatthesituationcanbeaverted.Giventhecustomergroupswhoengageindefection,Anani(2013),postulatesthatthereareanumber of reasons that account for customers defecting to competing companies and theirbrandsasfollows:

• For product reasons: This refers to customers who want to experience better andquality product offered by a particular competitor and willing to perceive thecompetitor’sproductasbeingsuperior.

• Marketing reasons: There are customers who leave the entire market thereby beingconsideredaslosttotheorganisationanditscompetitors.



• Technological reasons:Thereare customerswhomaydefectbecauseof technologicaldiscoveriesseemedtobelackinginthefirmtheyhavedealingswithbutexistinanotherandperceivedtobecapableofsatisfyingtheirneedsorwants.

• Price reasons: There are customerswhomay likely defect to competitors because oflower prices and would defect as soon as they can obtain better prices elsewhere(Martin-Consuerigraetal,2007).

• Service reasons: There are customers who may likely defect due to poor servicesofferedbytheexistingprovider(Seawrightetal,2008).

Byidentifyingreasonswhycustomersmaydefect,itcanbesaidthatorganisationsmaybeinthe best position to adopt strategies to combat customer defections in order to attain highlevelsofcustomerretentionbysatisfyingtheirneedsorwantsthroughgoodcustomerservicedelivery (Mostert, De Meyer and Van Rensburg, 2009). It is instructive to note that in anattempttocomprehendthecompleteinfluencedefectionshaveonbusinesses,managersmustidentifytheLTVofeachsinglecustomeroftheirs.LTVisapredictionofthenetprofitattributedtotheentirefuturerelationshipwithacustomer(LovelockandWirtz,2007).Anumberofempiricalstudiesonthesubject“valueofacustomer”(e.g.ClaycombandMartin,2001;TrubikandSmith,2000;KurtzandClow,1998),reportthatthevalueofacustomerwillalsoincreaseovertimeduetotheunderlyingreasons:Thereisthecaseofincreasinginitialcostsalwaysincurredinattractingandacquiringanewcustomer; Customers are likely to utilise servicesmore recurrently over time; Service firmsbecomemoreefficientindeliveringservicesovertime;Existingcustomersreferorrecommendotherstothebusiness;Existingcustomersmaygeneratepositiveword-of-mouthadvertising,which is supposed tobeamong themostpowerful and impartial sourcesof influence in themarketplace;Businessescanslowlyincreasetheirpricesbecauseoftheapparentqualityanddependableservicetheyprovide.Best (2005), contends strongly that the marketing costs a business may incur to ensurecustomer satisfaction is small in comparison to the benefits the business will derive fromcustomerpurchasesandthecostsavingsofcustomersnotdefecting.Petzer(2005),maintainsthatalthoughitisnotrealisticallyachievable,businessorganisationsmuststriveatleastaimatcreatingazero-defectionculture.ModelsthatcanbeadoptedtomanagecustomerdefectionsandtopromoteretentionIn managing customer defections, certain models play key role. Sampathkumaran (1994),suggestedafive-stepanalyticalprocesscalled'customermigrationanalyses'asawaytohelpbusiness organisations to stay on top of competition, and prevent, customer defection. Theauthor contends that 'customer migration analysis' should be practised as a continuous,dynamic process that will enable marketers to monitor customer performance againstbenchmarks, predict and prevent customer defection, foster loyalty, and realise a return oninvestment.Thesteps inthecustomermigrationanalysisaccordingto(Sarnpathkumaran,1994), includethefollowing:

• Managersshouldspotmigrationgroupsbasedontheirexpenditure.Dividecustomersinto groups: those that have increased spending, those that have reduced spending,those thathavesustainedspending, those thathavestoppedspending,and those thathaveresumedspending.



• Managersshouldcreateprofilesofthegroupswiththeuseofavailableinformationsuchas the number and nature of transactions, demographic characteristics of customers,andsurveyresults.

• Managersshouldendeavour toascertainpreviousandpotential returnon investment(ROI)ofeachofthemigrationgroups.Compareinformationonpromotionefforts(thebudget assigned to acquire and retain customers) directed at these groups to assessROI.

• Managersshouldestablish futureresourceallocation.Make themostof the returnonfutureinvestmentbystrikingabalancebetweenacquiring,advancement,andretainingefforts.Taketheextentofthecustomerbase,thepossibleprospectpopulation,thestageintheproductlifecycleandcompetitionintoaccountwhenallocatingresources.

• TheyshouldmonitorthemigrationgroupsandevaluatetheROIcontinuously.• Colgateetal.(1996),proposedafour-stepprocessthatbusinessesmustfollowinorder

toreducedefectionratesandcapturequalityandmoreprofitabledefectors:• Managersmustascertainwhatconstitutedefectionrate.• Managers must determine the cost associated with the actual defection rate. This is

doneby: (a)calculating thevalueofanaveragecustomeroverhisorher lifetime; (b)approximatingthecurrentvalueofsuchcustomersatthecurrentrateofdefection;and(c) calculating the increase in profit that could be realised if the defection rate isreduced.Thisindicatesthecostofthedefectionrate.

• Managersshouldidentifyamixofenticementsthatwillpersuadecustomerstoremainloyaltothebusiness.

• Managementshouldchannelresourcestoareasofbusinessthatwillenticecustomerstostay.

• Pageetal.(1996),suggestasix-stepanalyticalprocessfortheassessmentoftheimpactofcustomerdefectiononbusinessorganisations,whichinclude:

• Managers drawing up profiles on contributions of each individual customer. Acontributionprofileisreferredtoasacustomer'scontributiontoincomeinrelationtothenumberofpurchasesmadethroughoutthedurationofthecustomer'srelationshipwiththebusiness.

• Managers determining the rate atwhich customers defect and how it fluctuates overtime.

• Managersestablishingtheanticipatedfinancialvalueofeverynewcustomeroverhisorherlifetime,andseehowthisfluctuatesovertheexpectedcustomerlifetime.

• Managersascertainingtheoverallcustomerbaseofthebusinessorganisation.• Managers determining the eventual contribution of the customer base and how it

fluctuateswhenprojectionsarealtered.• Managers deciding onmarketing mix strategies needed to create a balance between

acquiringandretainingcustomers.FactorsthatconstituteactualswitchingbarriersAswitchingbarriercanbedefinedasanyfactorthatmakesitdifficultorcostlyforcustomerstochangeserviceproviders(Jones,MothersbaughandBeatty,2002).Followingthisdefinition,Anani (2013), assumes that the term switching barrier or switching cost can be usedinterchangeablythoughsomeauthoritiestrytodifferentiatethetwoconceptsbasedonwhatthey aim to achieve. Ranaweera and Prabhu (2003), perceive the concept as constraintsintentionally created by service providers to essentially prevent all acts of switching on thepartof customers. From this viewpoint,GronhaugandGilly (1991), argue that adissatisfiedcustomer may remain loyal because of a business high switching costs instituted. It is



suggested that the costs of switching to competitors tend to be higher for services thantangiblegoods(GremlerandBrown,1996).Inclassifyingswitchingbarriers,authoritiesonthesubject(e.g.Jonesetal.,2002;andVazquez-Carrasco andFoxall, 2006), have attempted their categorisationunder the following factors:Switching cost, and Interpersonal relationships. Cross-selling (Daniell, 2000) and up-selling(Ofori-Okyere,2014)havebeenidentifiedasalsoimportantfactorsthatneedtobetakenintoconsiderationwhenplanningagainstcustomerswitching.SwitchingcostThis paper reviewhas identified factors aswell as approaches from the academic literaturewhichmayhavemanagerial importancewhen itcomestoassigningreasonsthataccount forcustomerdefectionsinthefreighttransportindustryinGhana.Notably,apanoplyofpublishedstudieshaveempirically testedswitchingcostsasamaindeterminantofcustomer loyalty inconsumermarkets (Gremler, 1995), aswell as business-to-business service context.Most ofthesestudiesreportonthevariousprovenstrategiesthatbusinessorganisationscanadopttominimise customer defections (Reicheld and Sasser, 1990; Colgate et al.1996; Corner, 1996;Pearson and Gessner, 1999; Ahmad, 2002; Dove and Robinson, 2002), with the generalobjectivetoachievecustomerretentionfortheirbusinesses.Switchingcostisconsideredasthebuyer’sperceivedcosts(bothmonetaryandnon-monetary)involved in switching from the existing to a new supplier (Heide and Weiss, 1995). Theseincludethecostofchangingservicesintermsoftime,monetaryandpsychologicalexpenditure(DickandBasu,1994).Porter(1998),definesswitchingcostasthecostthatacustomerincurswhenchangingfromoneserviceprovidertoanother.Itisalsodescribedastheperceptionofthemagnitudeofanadditionalcosttobeincurredtoterminatearelationshipandsecuringanalternativeone(PattersonandSmith,2003).However, multiple conceptualisations exist for switching cost and these are reflected indiversityofformsincludingpsychological,physical,andeconomic(Jackson,1985);continuitycosts, learning costs, and sunk costs (Guiltinan, 1989). Burnhan, Frels andMahajan (2003),provideamoredetailedandcomprehensivebutsuccinctcategorisationofswitchingcosts toincludeprocedural,financialandrelationalcosts.Inspiteofthesemultipleconceptualisationsand classifications, switching cost can broadly be grouped as economical and psychological.Forexample, theeconomicriskcost identifiedwithin theproceduraldimensionof switchingcostreferstothepsychologicalcostsduetoperceivedriskfromtheuncertaintyoftryingnewproducts or service. The psychological switching cost such as uncertainty related or loss inrelational investments and social bonds or other procedural costs (relating to time, search,evaluationandsetup)havebeenfoundtohavemajorimpactonswitchingbarrier(Jonesetal.,2002).Eventhesunkcostwhichisprimarilyeconomicinnaturebecomespsychologicallysignificantinassessing theperceived switching cost (Jonesetal, 2002).Thesepsychological costs spantheentireswitchingprocessandbeyond,makingswitchingcostmorethanjustaone-timecost(Wan-Ling, 2006). This is because customers may consider even the post switchingbehaviouralandcognitivedissonancecostswhenswitchingandcanthereforebeconsideredaspartof switchingcost (Klemperer,1995). Inpractice, switchingcost is consideredconsumerspecific and its nature varies depending upon the industry and the product or servicecharacteristics(Gummesson,2006).



InterpersonalrelationshipInterpersonal relationship established between customers and service providers is deemedimperativeasitgoesalongwaytobenefitthetwopartiesmutuallyandatthesametimeserveas a switching barrier that helps to keep customers to a particular business. For superiorcustomer service to experience a success, firms must boast of well trained, motivated andsatisfiedemployees’base.WongandSohal(2003),positedthatgoodrelationshipthroughgoodcustomerservicecanimprovesatisfaction,andhelpkeepcustomersstayloyaltoacompany.Customer service is defined as a system of activities that encompass customer supportsystems, complaint processing, speed of complaint processing, ease of activities complainedabout and friendliness when reporting complaints (Kim, Kliger and Vale, 2004), reliabledelivery,fast/just-in-timedelivery,installationofcomputerisedreordersystems,provisionoffastaccuratequotes,detectionofreductionrightfirsttime,etc.(Ofori-Okyere,2014).Customerservice can produce customer behaviours that can indicatewhether a customerwill remainwith an organisation or defect from it (Zeithaml, Berry, andParasuraman, 1996). In amorespecificrelationwiththeairlineindustryinGhana,Anani(2013),maintainthatthehighlevelof competition that pertains in the travel industry has necessitated the implementation ofexcellent customer service techniques to satisfy and retain customers.An efficient customerservice is likely toenhancecustomerretentionand toreduceswitchingbetweenandamongserviceproviders.Thereforesuperiorcustomerserviceincludesallhelpandassistancefreighttransportservicefirmscanprovidetoclientsdirectlyorindirectlypriorto,duringand/orafterreceiving the service to provide exciting customer experience. If well leveraged, it has thepotentialinservingasaswitchingbarrierandatthesametimeofferacompetitiveadvantageto all the players in the freight transport industry and also enable them attract and retaincustomers.Anani(2013),furtheraddsthatrelationshipmarketing,servicequality,andservicerecoveryarecustomerretentionstrategies.Cross-sellingCross-sellingisexplainedasaswitchingbarrierapproachstrategicallyadoptedforthepurposeofincreasingrevenuesbysellingneworadditionalproductsandservices,whereas,up-sellingalso refers to the purposes of increasing revenues by selling upgraded, more expensiveproducts or services to a customer segment which in other words referred to as upgrades(Ofori-Okyere,2014),whichaimofretainingthem.Thetwostrategiesaresaidtohavepositiveimpactsonafirm’sreturnoninvestmentandoverallprofitability,becauselossofmarketshareanddiminishingopportunitiestoengageincross-sellingandup-sellingasamarketingstrategyweighsheavilyonafirm’sprofitabilityandcontinuedexistence.

CONCLUSIONThemaineffectof creating switchingbarriers is toensure customer retention (Lee,LeeandFeick, 2001). It can be inferred from the reviewed literature that switching barriers entailinterpersonal relationships, switching costs, attractiveness of alternatives) regarding thepropensitytostaywithserviceproviders(Jonesetal.2000,PattersonandSmith2003).Inasmuchascustomersatisfactionand loyaltyareviewedas importantcomponentsof customerretention management strategy, Bendapudi and Berry (1997), stress that these twocomponentsarenottheonlystrategiestobeconsideredforcustomerretentionmanagementstrategybutbarriers tocustomerdefectionsuchas thedevelopmentof strong interpersonalrelationships or the institution of switching costs may also represent additional customerretention strategies. In this vein, Jones et al, (2000), also added that a well trained,professional,andsatisfiedemployees’basecanalsoprovidepositiveswitchingbarriers.



Insum,itcanbeconcludedreasonablythattherearecertaineffectivestrategiesthatbusinesslike freight transport firms need to adopt to prevent customer defection and to achieveretention.Theyareasfollows:First, Reicheld and Sasser (1990), state that a service firms probably cannot eradicate alldefections,buttheycanandshouldminimisedefections.Ifabusinessdecidestoembarkonazero-defection approach, it should be prepared to recognise customerswho leave, and theninvestigate and act on the information these customers provide. The rationale for gettinginformationaboutthosecustomerswholeaveistofindoutfromthemwhytheyaredoingso.Customerswho leavecanprovidean informationabout thebusiness that isnotvisible toallthe employees inside it. Themain objective is to use defections as earlywarning signals inordertolearnfromdefectorsaboutthebusiness,andusethisinformationtoimproveontheirperformance.Muchemphasisesneedtobelaidonthefactthatsatisfyingcustomersisnolongerenoughtofurtherlong-termcustomerloyaltyorbonding.FreighttransportservicefirmsinGhananeedtomodifytheirphilosophyregardingcustomercentricitybyfocusingonthosecustomerswhomayswitchinsteadofrelyingonattractingnewcustomerstotaketheplaceofexistingones.Factors such as escalating competition, industry maturity, and strain caused by recessionsexperienced in themarketplaceare just someof thereasonswhynewcustomersaresimplymore difficult to find (Comer, 1996). Reicheld (1996) offer a more practical proposal thatindicate that customers who reallocate some of their purchases to other businesses, andcustomerswhobuyextrabutwhosepurchasesrepresentalesssignificantshareoftheirtotalexpenditureshouldbetakenintoaccountwhendealingwithcustomerdefections.Thecurrentresearchers maintain that apart from boasting of well trained, and motivated staff, it isimportant for freight transport service firms to ensure that all employees’ satisfaction beconsidered and catered for if customer retention as marketing programme needs to beachieved.In addition, result oriented switching barriers have to be deliberately created by freighttransportservicefirmsasamarketingstrategytomakeitdifficultandcostlyforcustomerstoswitchtocompetitors’tochoosetheirserviceofferings,sincethishasacoreobjectivetowardsretainingthecustomers,especiallythekeyaccounts.Otherstudieshaveconfirmedthepositiveeffectoferectingswitchingbarriersforthepurposesofcontrollingcustomerretention(BansalandTaylor,2002;Jonesetal.,2000;Leeetal,2001;RanaweeraandPrabhu,2003).In specifics, it can be stated that when switching barriers are high in the industry, freighttransport service firms will be more likely to retain even those customers who are lesssatisfied. Conversely, White, and Yanamandram (2004), contend that a firm with a highswitching barriers and poor service quality is likely to generate negative attitudes, anddamagingwordofmouthcommunications.

RECOMMENDATIONItisrecommendedalsothatthefreighttransportservicefirmsinGhanacanbenchmarkwhatisevidencedinmanyotherservicefirmswithinherentnaturalswitchingcosts(e.g.itisalotofwork for customers to change their primary banking account, especially whenmany directdebits, credits, and other related banking services are tied to that account, plus manycustomersarereluctanttolearnabouttheproductsandprocessesofanewprovider-Lee,andCunningham,2001;Lam,Shankar,Erramilli,andMurthy,2004;Bell,Auh,andSmalley,2005).Practically,also,switchingcostscanbecreatedbyfreighttransportservicefirmsinGhanabyintroducing and implementing contractual penalties for switching, such as the transfer fees



leviedbysomebrokeragefirmsformovingsharesandbondstoanotherfinancial institution.However,WhiteandYanamandram(2004)cautionthatfirmsneedtobecautioussothattheyarenotperceivedasholdingtheircustomershostage.The current reviewers also support the viewofAnani (2013)which stress that relationshipmarketing, service quality, and service recovery constitute customer retentionmanagementstrategieswhichifadoptedbythefreighttransportfirmscangoalongwaytoimprovetheirservicesrenderedtothecustomershenceachievingcustomerretention.

RECOMMENDATIONThere is need to convert this review paper to an empirical study by gathering data fromrespondents on the field hence coming out with findings that will be more capable ofsuggestingseveralpromisingdirectionsforfutureresearch.

ACKNOWLEDGEMENTTheauthorsdulyexpresstheirsincerethankstoallthevariousauthorswhoseworkhavebeencitedinthisreviewpaper.References

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Ofori-Okyere,I.,Atanga,R.A.&Okine,B.A.(2016).ManagingLeanPrinciplesApplicabilityandImplementatinointheMiningIndustryinGhana.AReviewPaperonRelatedLiterature.ArchivesofBusinessResearch,4(6),282-299.


ManagingLeanPrinciplesApplicabilityandImplementationintheMiningIndustryinGhana.AReviewPaperonRelated

Literature.

IsaacOfori-OkyereSchoolofBusiness,TakoradiTechnicalUniversity,Box256,Takoradi,Ghana.

[email protected]

RenasAyebonoAtangaSchoolofBusiness,TakoradiTechnicalUniversity,Box256,Takoradi,Ghana.

BernardAdjeteyOkine

BlueFeederEngineeringLimited,BoxYK1434,Kanda-Accra,Ghana.

AbstractLean manufacturing or lean production, often simply "lean", is a systematicmethodfortheeliminationofwaste("Muda")withinamanufacturingsystem.The concept lean also compriseswaste created through overburden ("Muri")andtheonescreatedthroughunevennessinworkloads("Mura").Thishasledto this paper review on managing Lean Principles applicability andimplementation in the mining industry in Ghana. This paper reviewed boththeoreticalandempiricalliteratureonleanapplicabilityintheminingindustryin Ghana. The paper seeks to explore variables, whichmay be considered inlean applicability and implementation in the mining industry on: principlesthatareidentifiedwiththeleanstrategiesapplication;assessthevarioustoolsthat are adopted for lean implementation; determine how the leanmanagement strategies are applied in themining industry; explore themainbenefits derived by the players in the mining industry for adopting leanstrategies;andfinally, identifythechallengesthatconfrontminingcompaniesin their quest of adopting lean strategies. It is concluded that leanness as amanagement principle can successfully be applied to any sector of theeconomy.Baseon suchpremise (postulation), it isworthnoting that there isevidenceofgreatadvancesregardingleannessasamanagementpracticeintheminingindustryacrosstheglobe.

Keywords:Leanapplicability,leanprinciples,leantools,andminingindustry,Ghana.

INTRODUCTION

Inthepastdecade,studieshavebeenconducted into leanprinciples,whichareapplicabletotheminingsector(e.g.Castillo,AlarcónandGonzalez,2014).Expertsareoftheviewthatthesestudies effectively adopt specific lean tools (principles) at a basic level as well ascomprehensively, showing that this methodology is provided in the mining industry (e.g.Dunstan, Lavin and Sanford, 2006; Hattingh and Keys, 2010; Klippel, Petter and Antunes,2008a;ShuklaandTrivedi,2012;Wijaya,KumarandKumar,2009;Yinglingetal.,2000).Theadvancement of mining has become significant a step previous to mining exploitation thatoffers a key contribution in the industry, signifying an enormous percentage of total costs(Castilloetal,2014).



Confronted with daunting challenges such as fluctuating demand, cyclical pricing andconsistentlyexperiencingreductionintheprofitabilitywithintheminingsector,operatinganeffectiveandefficientbusinessbecomescrucialtoanyminingoperationthroughouttheglobe.Thatis,inspiteofitsinherentcomplexitiesandcomplications,firmsintheminingsectorhavebeenincorporatingleanprinciplesintotheirownoperations(GlobalMiningMagazineApr29,2014),justtoaimatderivingthepotentialbenefitsthatcomewithit.Extant studies have established the inherent differences that exist between the entiremanufacturing sector and the mining industry. However, it needs to be noted that thevariancesarenotprecludingtheapplicationofleannessintheminingsector.Notably,itisheldthat lean principles’ application cannot be attributed wholly to manufacturing industry(Dunstan et al., 2006). Notwithstanding, researchers maintain that there is a well-matchedexistencebetweentheminingsectorandlean,whichinthiscase,managementofanyminingfirmcanderivebenefitsthatcomeswiththeapplicationofconceptsuchasapplicationofvalue,valuechain,flow,pullandperfection(Yinglingetal.,2000).The application of leanness in the mining sector, aside all other benefits, can directly layemphases on waste application (Wijaya et al. 2009). MacDufile and Helper (1997), definewasteas“anythingthathindersthesmoothflowofproductioningeneral.Itneedstobestatedthatthepositiveexamplesthatarelinkedwiththeuseofleanprinciplesintheminingindustry,also have their attendant unique limitations, which present great challenges as well. Inspecifics, there are cultural aspects firmly embedded in themining sector, whichmake theapplicationof leannessasamanagementstrategyhencefacingdifficulty(FreireandAlarcón,2002).Itisreportedthatdespitegreatbenefitstobederivedfromtheadoptionofleanmanagementstrategies in performance improvement, other empirical studies’ findings report on failuresassociatedwiththeleanprinciplesapplicationtomeantheinherentconfusionregardingwhatandhowtoadopttoolsinaspecificenvironment(Tiwari,TurnerandSackett,2007).Similarly,itismaintainedthat,incorrectapplicationandimplementationofleanprinciplescanresultininefficienciesofaminingfirm’sresourceswhichcanalsoleadtoreducedemployeeconfidencein in theadoptionof leanstrategies (MarvelandStandridge,2009),hence increase inwaste,costs and production time of mining companies. In addition, the incorrect selection of leanstrategies,may likely causedisruptions in the veryprocesses itmeant to improve.Applyingandensuringsustenance in leanprinciples issaidnottobeeasytask.Somemanagers intheminingindustrystrugglewiththeconceptandseveralofthemhaveexperiencedfailureintheirattempt toapply it in theirbusinessoperations.Difficultiesandobstaclesassociatedwith itsapplication emanate from a teeming number of sources and only the determination ofmanagers allows them to be overcome and reap the rewards of successful Leanimplementations(Frickle,2010).Itisinthisdirectionthatthecurrentauthorsbelievethatitiscrucial to have in place systematic method necessary and capable for implementingappropriateleanstrategiesbasedonidentifyingwastesinproductionprocessesasevidencedintheminingsector.The evidence is clear that, scores of opportunities are available for mining firms to derivebenefit from the adoption of lean best practice, however, it is worth stating thatimplementationwill always not yield immediate results. The key problem under discussionandthesignificantresearchquestionsthatneedtobeansweredusingthispaperrevieware:Givingthesebackgrounds,whyshouldtheminingindustryinGhanaadoptleanprinciplesintotheirbusinessprocesses?Howcan the industryapply this effectivelygivenall theattendantpotentialchallengesthatseektoconfrontitsapplication?



Thereisaplethoraofempiricalstudiesconductedonleanmanagementindifferentindustriesandenvironmentsaroundtheglobe.Bhasin(2011), identifiedspecificallythemeaningoftheterm, “a genuine Lean organisation” through the application of a comprehensive Lean auditfocused at manufacturing firms in the UK and found out that Lean requires a considerablecommitment andwhile successful implementation facilitates the improvement of numerousindices,theauditacquaintsanorganisationofthemultifacetedrequirementsforLean.Karim,and Arif-Uz-Zaman (2013), developed an effective methodology for implementing leanmanufacturing strategies and a leanness evaluation metric using continuous performancemeasurement (CPM) in Australia. The findings indicated that continuous performancemeasurementmatrices in termsof efficiencyandeffectiveness areproved tobeappropriatemethodsforcontinuousevaluationofleanperformance.BhamuandSangwan(2014),inIndiafocused on the revision of LM literature and report these divergent definitions, scopes,objectives,andtools/techniques/methodologies.TheauthorsfoundoutthatthereareplethoraofLMdefinitionswithdivergentobjectivesandscope.Theoryverification throughempiricalandexploratory studieshasbeen the focusof research inLM.Bateman,HinesandDavidson(2014), presented an in-depth study on the application of leanwithin the British Royal AirForce.ThestudyfoundoutthatthefiveleanfundamentalprinciplesapplyinTornadobuttheyneed to consider specificallywithin thepublic service contextparticularly thepullprinciple.Singh,JaiprakashandMehta(2014),developedastatisticallyreliableandvalidmodelofleanmanufacturing (LM) implementation drivers for the Indian ceramic industry through anempiricalstudy.Theauthorsidentified12driversfortheLMimplementationinIndianceramicindustry. Lucato, Calarge, Loureiro Junior and Calado (2014), explored the implementationperformanceofleanprinciplesinBrazil.Theresultsobtainedinthesurveydemonstratedthattheperformanceofleaninitiativeimplementationisnotuniformamongthecompanieslocatedin theresearchedarea.Outcomesalsoshowedthat thedegreeof implementationof the leanpracticesbymultinationalcompanieswashigher than that for thenational firms.Ljungblom(2014), researchedonthepracticeofethics inSwedishhealthcareorganizationsusingLeanManagement. The findings indicated that ethics is not a consideration when hospitals areimplementing Lean Management. Castillo et al. (2014), explored how to bridge the gapbetween the theoretical use of lean production and its practical, effective application in aChilean mining project, and analyzed the impact of the implementation of leanconstruction/production methodologies in underground mining development projects. Themain findings suggest that the incorporation of lean methodologies is an option, whichcompanies should consider, given the current and future challenges in themining business.Nadeau,MorencyandNsangou,Jr.(2015),didacontextualizationofleanmanufacturingintheminingsectorinCanadawithfocusonforeseeablechallengestooccupationalhealthandsafety,and summed up that recent applications of lean mining focus on the economic aspects ofsustainabledevelopment.Ithasbecomeevidentlyclearfromtheforegoingdiscussionsthattheconceptofleanstrategiesasevidenceinorganisationshasincreasingpopularityduetoitsheavilydocumentationintheacademic literature, and in addition to extant body of studieswith findings published up todate,theyalltendtofocusontheAmerican,Canadian,British,GermanandSwedish,Japanesse,SouthAfricanmarkets suchas the financial institutions, education, the fashion, sportingandother related fields. That is to say, unfortunately, today, there is evidence of distinct lack ofempirical research conducted regarding lean applicability in themining industry in Ghana(despitethefactthatthecountryisbeenperceivedasapotentialmarketforminingproducts),and therefore experiencing a feedback loop for continuous performance. Hence, thejustification of the current research topic. Also, in the present review, an attempt had beenmade by the researchers to identify the extent at which extant literature had attempted to



determine the degree of application of leanness in the mining industry by adoptingcomprehensiveapproachestofurthertheinvestigationontheissuesregardingthedevelopingof a structured methodology of implementing and applying suitable lean strategies in themining industry in Ghana for the purposes of evaluating the continuous performanceimprovement.The general objective of this current reviewpaperwould be to contribute to and extend toexisting knowledge in the area of lean principles applicability in the mining industry. Thereviewaddressesthefollowingspecificobjectives:(i).toidentifyprinciplesthatareassociatedwiththeleanstrategiesandtheirapplicationintheminingindustry;(ii).Toassessthevarioustoolsthatareadoptedfortheleanprinciplesimplementation;(iii).TodeterminethetypesofwasteevidencedintheminingindustryinGhana;(IV).Toexplorethemainbenefitsderivedbytheplayersintheminingindustryforadoptingleanstrategies;andfinally,(v).Toidentifythechallengesthatconfrontminingcompaniesintheirquestofadoptingleanstrategies.

LITERATUREREVIEWThissectionpresentsadetailedliteraturereviewonprinciplesthatareidentifiedwiththeleanstrategies’application;assessthevarioustoolsthatareadoptedfortheleanimplementation;determinehowtheleanmanagementstrategiesareappliedintheminingindustry;explorethemainbenefitsderivedbytheplayers intheminingindustryforadopting leanstrategies;andfinally,identifythechallengesthatconfrontminingcompaniesintheirquestofadoptingleanstrategies.Thesectioncontinueswiththediscussionoftheconceptualframework,andfinallycomesoutwithconclusionstothewholereviewpaper.‘TheoreticalConsiderationsDefinitionsofLeanHopp and Spearman (2004), attempted to provide a definition for lean to encapsulate theproductionofgoodsorservicesthattakesintoaccountminimisationofbufferingcoststhatarelinkedwithactivitiessuchasexcessleadtimes,inventories,orcapacity.Inexistingstudies(e.g.RotherandShook,1999;AbdulmalekaandRajgopal,2007), leanproductionhasbeendefinedto include identificationofall typesofwaste found in thevaluestreamofsupplychainsandimplementationoftoolsthatareessentialandcrucialwhenitcomestoeliminatingwasteforthepurposeofminimisingleadtimes.PrinciplesofLeanManagementAuthorities likeWomack, Jones and Ross (1990), andWomack and Jones (1996), identifiedthreecoreprinciplesastheyarerelatedtoleanstrategyapplication.

1. Identifyingvalue;2. Eliminatingwaste;and3. Thegeneratingsmoothflow

These principles have been expanded by the same authorities into five more principles(WomackandJones,2003):

1. Identifyingcustomerdefinedvalue.2. Optimisationofvaluestream.3. Convertingtheflowofvaluesmoothlythroughthecontrolandeliminationofwastes.4. Activating demand pull through synchronising customer demand and flow of

information.5. Perfectingallprocessesregardingproductsandservices.



1. Identifyingcustomerandspecificvalue:Thefoundationofthisprincipleispurposelyfor identifying an exact value of the end customer in the formof specifying themostsignificant features of the market offering. This is because the customers of theorganisation create value for it in terms of making their needs known, pricing, andtiming forproducts or services (KarimandArif-Uz-Zaman,2013)."The complexityofthisprinciple is that theremightbeslightlycontradictoryperceptionsofvaluewithindifferentmarketsegments.

2. Identifyingandmappingthevaluestream:TheValueStreamencompassesactivitiesthat span across every part of an organisationwhich involves the jointly delivery ofproducts or services to the target customer. Value streammapping also involves thetacticalorganisationofallend-to-endprocessesthataffectthedeliveryofvaluetothetargetcustomer.Withvaluestreammapping,allactivitiesthatareconsideredasnon-valueadditionactivitiesshouldbeidentified,modifiedremovedfromtheentireprocess(Andi,Wijaya,KumarandKumar,2009).Theinformationgatheredonthecustomerandvaluetransformationareenoughtocreatethevaluestreamfortheproductdemandedbythesaidcustomer(KarimandArif-Uz-Zaman,2013)."

3. Createflowthroughwasteelimination:Createflowisconsideredasavalueadditionstep that focuses on designing of processes and an establishment of capabilities thatenable continuous movement throughout the process by dealing with interruption,detour or waiting through eliminating waste that is, for identifying product flow forproduction.

4. Pull:Pullmeansmeetingconsumer’sratesofdemandratherthanthefirmembarkingonoverproduction. It is suggested thatno activity shouldbe embarkedonunless theoutcome of it requires downstream operation. In other words, this is where theorganisation’scustomerspullordemandproductsfromproducersthroughorderingforthem.

5. Pursue perfection: This is considered as the finalwhen it comes to integrating andperfecting the system so that the first four principles can be effectively and moreefficiently implemented.Theseare theprinciples thatseektoguidetheeliminationofnon-value-adding elements (waste) as continuous improvement process, and thesimplification of all manufacturing and support processes. It is a constant strive forimprovingthevaluespecification,challengethestepsinvolveinvaluestreammappingandincreasethespeedconnectedwiththeflowthathiddenwastecanbeidentifiedandeliminated.

ThefiveprincipleswerelateronincreasedbyLiker(2004)to14:

1. Baseontheorganisation’sdecisionsforalong-termphilosophy,evenattheexpenseofshort-termfinancialgoals.

2. Creation of continuous process flow that is significant when it comes to bringingproblemstothefore.

3. Usageofpullsystemstodealwithoverproduction.4. Levellingouttheworkload.5. Building a culture for the organisation that has to dowith putting a stop to fixing of

problemsbutratherpractisingthephilosophyofgettingqualityrightfirsttime.6. Embarking on standardised tasks which provides a foundation for continuous

improvementandempowermentforemployees.7. Usageofvisualcontroltohelpdetecthiddenproblems.8. Usage of only dependable, thoroughly and carefully tested technology that stands to

servepeopleintheorganisationandprocessesputinplace.



9. Organisationsshouldgrowleaderswhowillstrivetounderstandallworkactivities,putthephilosophyintopracticeandtoteachothers.

10. Developingextraordinary individuals, teamsandgroupswhofollowthephilosophyofthecompany.

11. Managersshouldrespecttheextensionoftheirorganisation’snetworkofstakeholderssuchassuppliersandpartnersbychallengingthemandhelpingthemtoimprove.

12. Managers should adopt the strategy of “go and see for yourself” (i.e. an attempt ofthoroughlyunderstandingthesituationatstake).

13. Decisionsmustbetakenslowlythroughconsensus,withalloptionsexhausted.14. Managers must endeavour to grow their organisations into a learning inclined one

throughpersistentreflectionandcontinuousimprovement.Ljungblom(2014),maintainsstronglythatregardlessofwhetherafirmisusingeitherthefiveorfourteenprinciples,LeanManagementshouldbetreatedandseenasaphilosophy,andnotjustasetof toolsandmethodsorprocedures (techniques)asassertedbyearlierauthorities(e.g. Ballé and Régnier, 2007; Hines, Holweg, and Rich, 2004; Waring and Bishop, 2010;WomackandJones,2003).TypesofWasteEvidencedIntheMiningIndustryThe starting point in applying the principle of lean is by understanding the value based oncustomer needs. In the mining industry, especially base metal, product and customer haveunique characteristics (Andi et al., 2009). Products from the mining industry are standardproductthatinherentlyhaswelldefinedspecificationsandrequirements.Qualityandpriceareestablished by global market and there is no product differentiation between firms.Transaction occurs in stock market without direct contact between mining industry as aproductproviderandbuyer.Thus“direct”customers(companieswhobuytheproduct)donotplay a role that seemed so important in the mining business. However, in a broader view,miningindustryhasindirectcustomerswhoarepassivelyoractivelycontributeintheroleofbusiness,theyarestakeholder(society,government,media,etc).Theirmajorinterestisnotonqualityoftheproductbutqualitybehindtheproduct,suchasenvironment,humanwell-being,and economicprosperity of society. Theseneeds are the current valueofmining sector andtheyhavebeenarticulated in the2009visionof InternationalCouncilonMiningandMetals(ICMM); “respected mining and metals industry that is widely recognised as essential forsocietyandasakeycontributortosustainabledevelopment”(ICCM,2009).Second step in lean thinking is definingwaste and its countermeasure. 7 + 1waste in theminingindustryisdescribedasfollows:

1. Wait:Muck-pilewashordustremovalwaitingperiodblastingisamajorcauseofwastecreation throughwaiting inmining. All activities have to be stop during this period.Engineering approaches to reduce waiting time, such as better exhaust fans or ductsystems,needtobeinvestigated.Anotherwasteassociatedwithwaitingisidletimeofmobileequipment,utilisationinundergroundminingislow.Thislowutilisationisduetotradeoffbetweenutilisationofminingface,utilisationofworkforceandutilisationofmobileequipment,whereattemptistomaximisetheutilisationofminingface.Costandbenefitstudyshouldbeconductedtodeterminetheoptimumutilisation.

2. Over Production: Unlike automotive industry where ability of market to absorbproductisfluctuating,miningindustryhasadvantagethatmarketisstableanditcanbesaid that market can always absorb in spite of volume of the product. Thus, overproductionisnotanissueintheminingindustry.



3. Repair/rework: Inmining, risk involvingwork to repairor to rework ishighdue topossible and likely accident and cost related. Dynamic and unstable environmentintroduce constantly possibility for rework and repair that can not be avoided.However, imperfect work can be reduce by standardised procedure and method toassurethequalityofwork.

4. Motion: Inmining, this type ofwaste is related on how thework is done. Currently,training for thenewoperatordealswithmentoring system,which is done informallyandnon-structure.Asaresult,nonstandardisedmethodisobtained,sincevarianceofmethod between experience operators is present and trainee may perceive in thedifferentway.Certificationsystemissofarnotapplicable.Anothertrialforeliminatingexcess motion is by automation. As a requirement load is shifting from physical tocognitive,trainingshouldbedesignedtocovernotonlyskillandrulebasedlearningbutalsoknowledgebased.

5. Processing (over): Most visible form of over processing waste is the dimension oftunnel, it is common to observe that dimension of tunnel is exceeding requireddimension.Causesarenotsolelyduetotheunstablerockbutalsoduetooverworkinfacing work. So far as scaling rock is a non standard work which is very muchdepending on the skill, knowledge and experience of the operator. An inexperiencedoperator may end up by keeping scaling of the rock, and never done, because theterminationoftheworkisbasedonthesubjectivejudgmentoftheoperator.

6. Inventory: This type of waste is the most difficult to combat in mining. Very muchhighercostofdowntimecomparestocostofinventory,makeitacommonbelievethatinventoryisapositive.It iscontrasttovalueof leanthatinventoryisrootofevil.Oneway to tackle inventory problem is by improving reliability of equipment. It is a bigchallenge because majority of failure is random failure due to hostile environment.DesignoutMaintenanceisoneofthemethodsthatcanbeutilised.

7. Transportation: In mining issues regarding this type of waste deals with choice ofmode of transport, equipment sizing, pick up location, form of material to betransported.

8. Human Talent: This type ofwaste dealwith under utilisation of human resource intermsofworkinghourandmostimportantintermsofcapacityandcapability.

It is based on the belief that the human factor plays 70% when it comes to improvementpotentialasevidencedintheminingindustry.Itisadvisedthatattentionshouldbepaidtothistypeofwaste.LeanToolsIn their quest of implementing leanness as a management principles in the mining sector,managersarerequired tonote that, theprinciplesand the toolsareoperatingphilosophyasthey originated from the automotive industry, and that they are characterised with exactvalues,needsandfeatures(Andietal.,2009).Theleantoolsarehighlightedbelow:5SInJapaneselanguage,theoriginalfive5SreferstoSeiri,Seiton,Seiso,Seiketsu,andShitsuke.InEnglish,theymeantoSort,Setinorder,Shine,StandardiseandSustain(BichenoandHolweg,2009).Sort:All logisticsor items found in theareawhereworkactivitiesgoonare sortedorderly.First, thesorting isdoneto identify theneededactivitiesandthosethatarenotneeded.Theones found not to be needed hence createwaste need to to be discarded immediately. It is



advisedthatwhenmanagersareindoubt,theymaydecidetouseredcolourfortaggingitems.Atagwithredcolouralwayshasalabellingcomprisingadateonitandtheitemisleftunusedtillthedateisdiscarded.Insorting, the itemsaregroupedaccording to their frequencyofuse.Periodically,managersmustdosorting,possiblyonceamonth,andshouldbearegularactivityandnottobetreatedasare-launchoftheentiretool,5S.Also,anorganisationshouldavoidgoingtothetop.Afewpersonallogisticsoritemsshouldbekeptintheworkplace(BichenoandHolweg,2009).Theoutcomesofsortingactivitycanbeusedforthepurposesofvisualcommunicationtobetakingbefore and after photographs andhave theyplacedon5Sboard for the entireworkforce toappreciateandhaveafullglareoftheimprovements(Carreira,2004).Set inorder:Asa5Stool,itexplainshoweachitemsortedcanbefoundintheworkarea.Inusing set inorder, it is advised that each itemsortedmustbe shelved inplaces thatwill bevisiblytoeachandeveryworker.Therearetwowaystomakesurethatallworkersattheworkarea can seewhere each item is located, and these include colourmatchingof eachof themwiththeirarea(labelling)andtheusageofshadowboards.Thereisalwaysrepetitionofthistechniquewheneverthereischangeinanyproduct,part,ortool(BichenoandHolweg,2009).Shine:Thisexplains that theworkareamustalwaysbekeptphysically tidyandbedoneonregularbasis.Theworkersshouldbetaskedwiththescanningoftheworkareaforanythingthatisconsideredoutofplaceandtrytocorrectitimmediately.Asimplewayofembarkingonthistaskistakingfiveminutestodorepetitiveclean-upexercisedaily.Managersareadvisedtoembarkon theseroutine tasks throughstandardisation for thepurposesofachievingbestofresults.Allequipmentusedforthecleaningandtidyingupmustbeappropriatelylocatedandpropermaintenancemust bedone. “Cleaning is checking’means that these are integrated.Workersneed not just clean up the work area, they check for any abnormality and its root causes”(BichenoandHolweg,2009).Standardise:Itisadvisedthatstandardsaretobedevelopedwhenusingthefirst3Ssmakingsure that theentireworkforce isdoingwhatmanagement requiresof them. “Standardworkaims at creating processes and procedures that are repeatable, reliable, and capable”. Astandardregardedas“best”istheonethatisregardedbyanentireworkforceasalsogoodandreliable that theywouldnotwant todo theprocedureanyotherway (BichenoandHolweg,2009).Settingthesestandardsrequirepropermaintainanceandimprovementforthepurposeofsuccessfulimplementingofthe5S.Sustain: All workers are advised to make the first four Ss a habit, and must thereforecontinuouslyendeavortoensuretheirutilisationandimprovement.Regularauditsshouldbecarriedouttomaketheentire5Sasprinciplesmaintainedandsustained.Just-in-time(JIT)Just-in-Timeisaleantechniquethatlaysemphasisonthecontinuousprocesswhenitcomestowaste elimination and productivity improvement within the work area. Ohno (1988),perceivedthatforJust-in-timetoworkeffectively,eachbusinessprocessofthefirmshouldbegiving right parts needed at the right time and in the right amount or quantity needed toproduceanorderfromacustomertoensurethehighestquality.Just-in-timeasanimportantlean concept was adopted by TPS which allowed the automobile company to eliminate allformsofwasterangingfromwork-in-processinventory, flaws(defects),andpoordeliveryof



parts(Nahmias,1997).Consideredasacriticaltool,JITisusedforthemanagementofbusinessactivitieswhich include distribution and purchasing, and are categorised into three: just-in-timeproduction,just-in-timedistributionandjust-in-timepurchasing.ThemaingoalforJIT’susage is to “produce and transport just what is needed, just when it is needed, in just theamount needed,within the shortest possible lead time” (Drew,McCullum and Roggenhofer,2004), and this canbe related to the concept of having rawmaterials delivered, at the timeneededandmanufacturedproductsalsosuppliedatthetimeneeded”(Lai,2009).KaizenKaizenisconsideredasoneofthemostrecognisedwordsintheJapaneseLanguage.Individingthe words into two parts, “Kai” means continuous and “zen” is translated as improvement.Kaizenhingesontheassumptionthatnobusinessprocesscanbeseenasperfecthencemoreforimprovementalways.Hence,theremustbe“continuousimprovement,insmallincrements,atalllevels[ofthecompany],forever”.Kaizenisregardedascriticalfortheimplementationofscores of lean techniques hence continuous improvement aftermath. Most of kaizen eventsaddress internal processes of a firm, and are also applicable in anypart of the supply chain(Trent,2008)process.Kanban“Kanbanisconsideredasaclassicsignallingdevice(mechanism)forproductionpullsystems”(Bicheno and Holweg, 2009). There are two types of kanbans; that is single and dual cardkanban.Themostpopularoneamongthe twowhich isused in leanmanagementsystems isthe“singlecard”kanban.Asinglecardkanban(alsoknownasapullsignal) isusedbetweenpairsofworkstations.Aproductkanban,consideredasakindofsinglecardkanban,operatesaswhenever a product vis-à-vis a container is taken out, it is replacedwith another. In theabsenceofapulloutthatmeansauthorisationhasnotbeengivenandthereforeproductionhasputonhold(BichenoandHolweg2009).Itwas theToyotaCompany established theDual card kanban todealwith theusageof twomainkanbancardsthat is, theproductionkanbancard(alsoknownassupplierprocess)andtheconveyancekanbancard(alsoknownascustomerprocess).Atthisstage,supplierprocessis defined as the various processes a supplier goes through in an attempt to have partsreplenished,whilethecustomerprocessdealswithalltheprocessesthatinvolvesconvertingrawmaterialstofinishedproducts(intheformofassembly)(syquequality2005).AKanbanisnottangiblecard. Itcanbedesignedinanelectronicsquareplastickanbancardorakanbancontainer.Akanbansquarealsoknownaskabanrectangleisalwayspaintedonthefloorofthefactoryanditservesasasignalwhenitcomestoreplenishinganemptycontainer.ImprovementCyclesAsleanmanagementtool,improvementcyclesprovidetheframeworktoensureacontinuousprocess for improvement. It needs to be stressed that having an approach which isstandardisedandisaimedatcontinuousimprovementisalwaysregardedasagreatvalueforallfirms.ImprovementCyclesaredividedintotwovariationsnamely;PDCAandIDEAPlanDoCheckAct(PDCA)PDCA is recognised as extensively used improvement cycle around the globe. As a type ofimprovement cycle, PDCA requires the organisation to embark on massive planning. TheplanningaspectofadoptingPDCAdealswithcreatingahypothesiswiththeendcustomersandputtingtheirrequirements inmind,hencetheorganisationcustomer focus. It isadvisedthatthe organisation must adopt continuous communication and dialogue in developing a



hypothesisthatpredictsanexpectedresult.BichenoandHolweg(2009)isoftheviewthatatimeplanneedstobedeveloped.Afterplanning,thenextactivitycomesdoing.Doinginactualsensemeansimplementationofimprovementplanatthisstage.Thelastactivityreferstocheckingandasthenamesuggests,managersmustcheckiftheactivitydonewasaspredicted/orplanned(BichenoandHolweg,2009). Once the checking activity is complete, the organisation can then put the results ofchecking intowork. All the necessary changes ormodifications aremade givingway to thecreationofstandards.Asthecyclebeginsonceagain,theendresultstandardsarecontinuouslyimprovedupon.Alargedeviationgivesanindicationthatsomethingwentwrong(BichenoandHolweg,2009)fromthebeginning.InvestigateDesignExecuteAdjust(IDEA)AuthoritiesontheadoptionofleantoolsregardIDEAsimilartoPDCA.ItisusedbytheToyotaCompanyforinnovationanddesign(BichenoandHolweg,2009)purposes.Acompanybeginsthiscycleby investigatinganythingthatcalls for investigationsuchasan identifiedproblem,customers’concern,dataandtherest.Afterinvestigating,managementpresentsthefindings.Newsolutionsare then implementedandsubsequentlygivingadjustment toprepare for thenextcycleandbringitclosetothefirm’srequirements(BichenoandHolweg,2009).ValueStreamMappingAsregardedasleantool,managersadoptValueStreamMappingtoaimatvisualimprovementthatdealswiththecreationofmapstoshowthe“CurrentState,FutureState,IdealState,andActionPlan”ofacompany.Itisadvisedthattheentireprocessinvolvingmappingmustleadtoan action otherwise it will be considered as not adding to value, hence waste. The coreobjective of adopting value streammapping ismake the identification of various non valueaddedactivitiesafterwhichmanagementputsprocessesinplacetoeliminatethem.BenefitsDerivedFromtheImplementationandApplicabilityofLeanasaManagementStrategyIt has become a norm formostmanufacturing firms to continually strive in their quests ofincreasing productivity and output regarding their operations for the main purposes ofsatisfying their customers (Tinoco, 2004), who are considered as the most importantpersonalities to their businesses (Ofori-Okyere, 2014), by serving them right product, rightquality,rightquantity,andtherightpriceinshortestpossibleoftime.An aspect of leanmanufacturing ismainly for reviewingbusiness operations for productionoperational components, processes or materials that add cost rather than value (Tapping,2002).Toachieveefficiency,itisadvisedthateachstepinvolvingtheprocessinmanufacturingshouldbemonitoredasawayfordeterminingifitaddsvaluetotheproductorcreateswaste.If a non-value added element is detected, that part of the process could be outsourced to asubcontractor in order for the company to focus on the staff in achieving value-addedoperationsinitscorebusiness.Leanmanufacturingisalwaysadoptedbyvalueorientedfirmsforthepurposesofidentifyingandeliminatingwastesassociatedwithprocessesofproduction.Companiesareadvisedtousetheseresultstohelpmaptheirfuturestateandtoensuresuccessfulimplementationofleaninmanufacturingprocesses(Tinoco,2004).Theleanproductionimplementationhasgreaterandwiderscopewhenitcomestoenhancingproductivity, customer satisfaction and achieving profits (Apleberger, Jonsson and Ahman,



2007)bothshortandlongterm.Thegoalofadoptingleanmanagementorintheminingsectorseeks to the elimination of activities in the work area that are considered as non-valueadditions which include waiting, repair or rework, motion, over-processing, inventory,transportation (Dunstanetal.,2006),and that is, reducingcosts (Wijaya,etal.,2009,Sanda,Johansson,andJohansson,2011;Sanda,2012;Liu,2013)orextractingorefaster(Wei-JianandQian,2010).WomackandJones(2003),perceivedleanmanagementasaimingatacontinuousimprovementofanorganisation’svaluecreationcapabilitybyengagingallemployees.Adoptingthisphilosophythroughoutafirmissupposedtobepositivelycorrelatedwithhigherefficiency(DahlgaardandDahlgaard-Park,2006).Leanmanufacturingisregardedasastrategyin business operations used in achieving the shortest possible cycle timewhen it comes towasteelimination(Liker,1997).Other benefits derived from adopting lean manufacturing usually promises of lower costs,higherquality,andshorterleadtimes(Liker,1997).Leanasamanufacturingtermisappliedtoachieve lesshumaneffortby the firms, lessmanufacturingspace, less investment in tools,less inventory inprogress,and lessengineeringhours todevelopanewproduct in less time(Paranitharan, Begam, Abuthakeer and Subha, 2011), while giving customers what theydemandinahighlyeconomicalmanner.The concept of Lean has been praised for empowering employees (Hasle, 2014), and it laysemphasizesonwastereductionandonmaximisingorfullyutilisingactivitiesthatcontributetoadding value from the perspective of the customer (Ohno, 1988; Womack et al., 1990). Inpractice,thetermwastespecificallyimplies,anyactivitythatabsorbsresourcesandcreatesnovalue(ChauhanandSingh,2012)totheorganisation’soperations.Leannessinmanufacturingis consideredaconcept thatseeks tounify thevariouspractices involve in thepromotionofleanasamanagementphilosophy(Womacketal.,1990)LMapplicabilityprovidesmanufacturerswithcompetitiveedgebyachievingreductionincostandimproveproductivityandquality.Manyauthoritieshavedocumentedquantitativebenefitsderived from adopting lean implementation such as improving production lead time,processing time,cycle time, setup time, inventory,defectsandscrap,andoverallequipmenteffectiveness.OnthequalitativebenefitsderivedbycompaniesforadoptingLM,theyaresaidtoincludeimprovedemployeemorale,effectivecommunication,jobsatisfaction,standardizedhousekeeping,teamdecisionmaking,etc.(BhamuandSangwan,2014).Leanasamanagementconcept isadopted for thepurposesofoptimisingusageofresourcesavailablewhenthereistheneedtominimisewaste(AnandandKodali,2009),andthecreationof high quality goods and services at a lowest possible cost with maximum customerresponsiveness (Kumar, Singh,Qadri, Kumar andHaleem, 2013). It is instructive and fair toposit that, initiatives that emanate from business improvement programmes involving theadoption of lean strategies which include minimised shutdowns, increased production andincreasedchancesofreachingannualtargets.In general, lean manufacturing philosophy requires respect from management towards thepeople(theworkers),aimsatcontinuousimprovement,along-termview,alevelofpatience,afocusonprocessandabilitytounderstandwheretheindividual is inhisorherdevelopment(Ahmad,2013).Lastly,undertheleanconcept,allnon-valueaddingactivitiesareregardedaswastegeneratorsthatdivertresourcesfromthevalueaddingactivitiesoftheorganisation.



ChallengesAssociatedWiththeAdoptionofLeanManagementorLeanManufacturingDespite the potential benefits derived from the application of leanness as a managementprincipleinbusinessprocessesofminingfirms,thechallengesbedevilingitsadoptiondeserveseriousconsideration.Sometheoristsbothintheacademiaandindustryhaveshownagreaterinterest regarding potential challenges associated with the adoption of lean strategies asmanagerial tool. The success of any particular strategy inmanagement is always said to bedependentuponorganisationalcharacteristics,whichimpliesthatallfirmscannotimplementorapplyasimilarsetofstrategiesintheirparticularcase(ShahandWard,2003).Leanprinciplesarenotjustadaptingthetoolbuthowtochangetheculture,‘atruecultureofcontinuous improvement’. In contrast to innovation approach which emphasize on a quickimprovement/change,leanprincipleisacontinuousimprovementapproachwhichemphasizeon a small but constantly improves. In implementing lean thinking in the mining sector,managersshouldunderstandthatleannessinmanufacturingisanoperatingphilosophyinitsoriginal context (automotive industry) that had particular values, needs and characteristics.Mining operations are characterized as dynamic, uncertain, volatile and risky workenvironment.The application of unsuitable lean technique for a given situation can sometimes lead toincrease inwaste,costandproductiontime inamanufacturingcompany likemining.Duetoinappropriateimplementationofleanstrategies,theremaybechangesthatarelikelytocreatedisruptions in the process it is meant to improve continuously. It is in this wise that theapplicationof lean concept in themining firmsbecomes crucial and critical formanagers tohave inplace systematicmethodcapableof implementingappropriatelya strategybasedontheidentificationofwastesasevidenceinmanufacturingprocesses.In themain, it can be stressed that there are important barriers in other words known aschallengesconfrontingorganizationsintheirquestsof implementingleanstrategies.Someofthesechallengesare: cultureof theorganisation,poor flexibility, employees resistingchangeandinnovation,etc.(Achanga,Shehab,Roy,andNelder,2005;Nordin,DerosandWahab,2010;Zhou, 2012), highworkforce turnover (Andi et al., 2009),which is advised thatmuch effortshould be emphasized on training for new workers recruited by the mining company. Theapplicability of leanphilosophy in themining sector seemed complicated, given the issue ofuncertaintiesandvariabilitycharacterisingactivitiesinmining(Nadeauetal.,2015).In addition to the challenges, specificmention can bemade to lack of clear customer focus(Hines et al., 2004;Radnor andWalley, 2008;Radnor et al., 2012), that is, in the context ofmining industry it is challenging for the term customer to be clearly defined within theoperational context of the mining firms. The mining industry like any other industry issometimessaddledwith toomanyproceduresandtargetsconsideredmajorbarrier(RadnorandWalley,2008;WaringandBishop,2010).Thereisclearevidenceoflackofunderstandingregardingtheleansystemthinkingandprocessflow(BalléandRégnier,2007;Dahlgaardetal.,2011;Emiliani,1998;RadnorandWalley,2008;Radnoretal.,2012;WaringandBishop,2010),onthepartofmanagersofleanthinkingandtheirsubordinates.There isalso lackofawareness regardingstrategicdirection (Hinesetal.,2004;RadnorandWalley, 2008; Waring and Bishop, 2010) for the organisation’s quests of applying leanphilosophy.Anotherbarrier confronting the implementation and applicability of Lean in theminingindustryisthefirm’sinabilitytoreconstructthemassiveimpactofhistoricaltop-downchange approaches into Lean’s bottom-up improvement methodology (Emiliani, 1998;Hayward,2012)ortofindacombinationofthetwo(AnhedeandLord,2009).



The implementation and applicability of the Lean concept in themining industry requiresdevelopment of leaders who can function effectively as motivators, coaches and be able togrowanddeveloppersonsand teams (AnhedeandLord,2009;Poksinskaet al., 2013)as intransformational leadership (Ljungblom, 2012; Poksinska et al., 2013), a distinct and highqualityofleadershipisnecessarytogetthroughthechange(Joostenetal.,2009;Kimsey,2010;Poksinska et al., 2013; Waring and Bishop, 2010). Studies reveal how Lean managers haschanged the focus of managerial work – from managing operations to managing people(Poksinskaetal.,2013).Managersmust always endeavour to understand the process involving the applicability andimplementationof lean and theneeded respect giving to thepeople along theway (Kimsey,2010). Nonetheless,managerswho regard Lean asmore than a set of tools and techniquesmakes it a barrier in terms of its understanding. Also, attempting to develop a culture thatinitiatestheinvolvementofeveryoneintheorganisationiscriticaltotheimplementationandapplicabilityoftheLeanphilosophy–thedauntingtaskiseveryoneneedstobetrained(BalléandRégnier,2007;Dahlgaardetal.,2011;Emiliani,1998;Hinesetal.,2004;RadnorWalley,2008; Radnor et al., 2012; Waring and Bishop, 2010; Womack and Jones, 2003). All thesebarriersneedtobemitigatedforleanmanufacturingsuccessfuladoptionanddiffusioninthemining sector. Identifying accurate drivers is capable of helping in taking effective leandecisionsduringleanimplementationplanningprocess.

ConceptualFramework

Basedonthetheoriesfrom(Womacketal.1990;WomackandJones,1996;WomackandJones,

2003;Bicheno&Holweg,2009).

Figure1,abovepresentsadetailedillustrationregardingconceptualframeworkofthisrelatedliterature review. Improper and ineffective application or implementation of lean strategiescanleadtoinefficienciesinaminingfirm’sresourceshenceincreasingwasteindiverseforms,costandproductiontime.However, itcanbeholdasafirmtruththatproperapplicabilityofthe lean strategies (involving the principles), and effective selection of right lean tools aresignificant in eliminating all forms of wastes that occasioned in business operations of anyorganization hence achieving value by the organization and to providing value that isassociated with the products and services offered to stakeholder groups. The existence ofwastes in organisations bring to the fore visible challenges that contribute to confront

LEAN APPLICABILITY IN THE MINING SECTOR

Value / Benefits

Eliminating wastes

Foundamental Lean Principles

Application of Lean Tools

Challenges /Barriers



manufacturingorganisationsintheirquestsofapplyingorimplementingleanstrategies.Soitcanbemaintainedthattotaleliminationofwastesasevidencedinanorganisation’sbusinessoperationsisaproofthatthemanagementhavebeenabletodealwithchallengesthatconfrontthemintheirquestsofsuccessfullyapplyingLeanstrategies.

CONCLUSIONIthasbeenpostulated that leannessasmanagementprinciple cansuccessfullybeapplied toanysectoroftheeconomy.Baseonsuchpropositionorpremise(postulation),itisworthyofmentionthatthereisevidenceofgreatadvancesregardingleannessasamanagementpracticein the mining industry around the globe. Panoply of empirical studies have reported thesignificantroleplayedbyapplicabilityofleanthinkinginthebusinessoperationsoftheminingcompanies (e.g. Karlsson and Ahlstrom, 1996; Humphreys, 2001; Collard, Noort, and Seal,2007;Klippel,Petter,andAntunesJr.,2008a;Andietal.,2009;Castilloetal.,2014;Nadeauetal., 2015). For thepurpose of this literature search, it has been established that during leanimplementation, emphasises should be laid on customer value. Also, equally important andworthnoting is that (Bicheno&Holweg,2009), Leannes in themining sector is “behaviour-driven”;thatismanagersensuringitsimplementationandsustenancemustbeabreastwithitscontinuousprocessandshouldbedrivenatmakingitso.Inordertoexpandtheunderstandingof lean applicability or implementation in the mining industry; this literature search hasdeveloped a lean applicability framework and has evaluated the impact of it in miningexploitation projects undertaken by the players in the industry. Adapting leanmanagementphilosophy in themining sector is just a beginning. Although the concept promises gains inproductivity, its implementation in themining sector is complicated, given theuncertaintiesandvariabilitycharacterisingminingactivities.

ACKNOWLEDGEMENTThecurrentresearchersdulyacknowledgeandextendtheirsinceregratitudetoallthescoresofauthoritieswhoseexistingworkswereobtainedandcitedinthisworkofreview.References

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Ofori-Okyere,I.,&Kweku,S.A.(2016).AnInvestigationontheRoleofVisualMerchandisingDisplaysinthePromotionofTraditionalApparels.AnEvidencefromRetailingtheAsanteKenteApparelinGhana.ArchivesofBusinessResearch,4(6),300-311.


AninvestigationontheroleofVisualMerchandisingDisplaysinthepromotionoftraditionalfabrics.Anevidencefromretailing

theAsanteKentefabricsinGhana.

IsaacOfori-OkyereDepartmentofMarketingandStrategy

TakoradiTechnicalUniversity.

SafoAnkamaKwekuDepartmentofTextiles

TakoradiTechnicalUniversity

AbstractThe fierce competition and the similarity of competing merchandisecharacterisedmodernfashionindustryimpelfabricsretailerstoutilisevariousvisual merchandising displays (VMDs) to improve the desirability of theirproducts and to achieve differentiation of their offerings from competition.ThishasledtothisstudyinvestigatingontheroleplayedbythevariousVMDsinthepromotionofAsanteKentefabrics. Reviewedliteraturecomprised:theKente apparel, various VMDs adopted by retailers to promote products, andbenefits derived by apparel retailers from adopting VMDs. An explorativeresearchandqualitativedataweregatheredbymeansofprojectedimagesandfocus groupsdiscussions anddirect observations. Thedatawere analysedbymeans of thematic analysis. Findings indicated that respondents haveknowledge on certainVMDsboth exterior and in-store,whereas, otherVMDswereconsiderednotappropriateintheirlineofbusiness.Thisistosaythatalltherespondentscontactedonthefieldagreedtocertainpositionsestablishedby extant theories regarding the adoption of VMDs and the role they play inpromotingapparelsinretailshops

KeyWords:Kentefabricsandapparels,VisualMerchandisingDisplays,Ghana.

INTRODUCTION

Kentecloth,knownasnwentomaintheAkanlanguage,isatypeofsilkandcottonfabricmadeof interwoven cloth strips. 'Kente' is a derivative from theAkanword for basket, kɛntɛn orkenten (Kwekudee, 2012) and is native to the Akan ethnic group of Southern Ghana.Specifically, Asante "KENTE", a brilliantly colourful fabric, is entirely hand-woven in theAshanti Kingdom, in the Kwabre areas of the Ashanti Region (e.g. Bonwire, Adanwomase,SakoraWonoo,andNtonso).Itisusuallyidentifiedbyitsdazzling,multi-colouredpatternsofbright colours, geometric shapes and bold designs (Ofori-Ansa, 2009). Fashion greats andtraditional textile publicists maintain that the brilliant colours and intricate designs alwaysassociatedwithKentehaveunquestionablymade this fabric thebestknownofallGhanaian,andperhapsevenallWestAfricantextilesbecauseitiswoveninlargequantities,exportedtomore places, and incorporated into greater variety of forms than any other African fabric.Traditional apparel theorists (e.g. Asamoah –Yaw, 1992) stress that the Asante Kenterepresents thecreative, thoughtfulordesigner’swovencloth’.Whatmakes itmorebeautifulandmost preferred form of traditional apparel is that every design incorporated in Asante



Kentehasastorywithaphilosophicalmeaning,givingeachclothitsowndistinction.AvinsandQuick (1998) add that theKente apparel has also captured the attention of visitors since atleast 1817 hencemaking it a traditional fabric synonymouswith exquisites attributes suchsplendorandostentation,extravagantpriceandincrediblesizeandweight.Functionally,theclothiswovenaccordingtogender.Awoman’sKenteisworninthreepieces,onepieceiswrappedaroundthelowerbodyinatubularformaslongskirtandhelddownatthewaistwith a scarf. Alternatively, thepiece of cloth for thewomen is sewn into an anklelengthskirtheldatthewaistwithstringofclothorelasticband.ThesecondpieceisalsosewnintofashionableKaba(blouse).BothmaleandfemaleKentemaybearsimilarfeaturessuchasmotifs, arrangement and colours yet they have distinct characteristics (Badoe, 2005).Conversely, themale’s Kente cloth is worn by draping it loosely around the body from theshoulders down with the ends held over the left shoulder (NB: over the right shoulder isculturallyinappropriate)inthemanneroftheRomantoga(Bowdich,1966ascitedinBadoe,2005).InGhana,itsusagecannotbeoverstated.ThecolourfulKenteclothiswornbyguestsinallfunctionsandceremonies(e.g.statefunctions-independencedayceremonies,oathswearingof public officers, graduation and matriculation ceremonies of students, Church services,weddings and engagements, beauty contests, etc.). In recent times, fashion stylists in theirquests of popularising the apparel andmaking it affordable to all have produced scores ofassorted ornaments fromKente (e.g. shirts, shorts, hats, luggage or carrier bags, graduationstoles,mufflers,flyingties,bangles,headgears,Kentecasuals,etc.).This study proceeds from a consumer response-centred approach to investigates visualmerchandising displays (VMDs) used by retailers to promote theKente cloth.Modern retailfashion business is characterisedwith fierce competition and the similarity ofmerchandiseimpelplayersinthefashionindustrytoutilisevariousvisualmerchandisingdisplays(VMDs)to improve the desirability of products. Findings in retail market research indicate thatretailersacrosstheglobefaceachallengewhenitcomescreatingcompetitiveadvantagesandto achieve differentiation for their brands (Shu-Luan, n.d.). In the specific case of apparelretailers,theirmajortaskstranscendbeyondimprovingqualityoftheirproducts,toadoptingastrategyofshapingawell-designedstoreatmosphericsforthepurposesofattractingpatronstotheirbusinessspace.Specifically, retailers like the ones found in the apparel industry strategically design theirshopstoattractbuyersintotheirshops,assistingthemtoselecttheproductstheyneedandtoinspirethemtomakeplanned,unplannedandspontaneouspurchasesandultimatelyprovidethem with an enjoyable shopping experience (Levi and Weitz, 2009). The type ofenvironmental stimuli theVMDsadoptedbyapparel retailers create couldhaveaneffectonconsumers’ perceptions, that is “... a practicewhere a visitor to the shop observes, selects,organisesandreactstoenvironmentalstimuliinasignificantway...”(DuPlessisandRousseau,2003).Thus it isheld that successfulVMDs create favourable effect on consumers’ emotion;hence they sometimes purchase products unconsciously depending on their current mood(HeferandCant,2013).In practice, it can bemaintained that retailers sometimes have at their disposal the “usual”elementsofbrandidentity:name,symbol,packaging,andadvertising.Extantliteratureexplainthatretailerscanadditionallydrawonthosedimensionsthathavebeenidentifiedinstudiesofstore image(DaviesandWard,2002–drawingontheworkof, forexample,BloemeranddeRuyter,1998;Grewal,Krishnan,Baker&Borin,1998;Lindquist,1974;Martineau,1958;PorterandClaycomb,1997).Merchandise(assortment;quality;brandmix;andprice);store(location;environment - internalandexternal; atmosphere;andname/fascia);Service (personnel; and



levelsandquality)andPromotion(advertising/publicrelations;andin-store).Theseelementsmean“design”arebroughttotheforeand,inparticular,itisvisualdesignthatisemphasised(Kent,2003).Thesignificanceofthevisualisalsoreflectedintheattentionalwayspaidtothephysicalityofretailprovisionandcanbeseenintheextensiveliteraturesthathavedevelopedaroundparticular issues, forexample,of “retail location”; “retailatmosphere”; “servicescape”and“merchandiseselectionanddisplay”.Despitethevariousrolesplayedintheapparelretailindustry,VMDsasstrategicpromotionaltoolisreferredtoasaneglectedfieldinfashionmarketingresearch(Buttle,1988),whichthis‘neglect’ of the retail front is considered as the face of Kente apparel brands promoted byretailers in Ghana. Sharing similar opinion, Lea-Greenwood (1998) stresses that as apromotional strategy adopted by retailers in the apparel industry, VMDs have not receivedmuch attention in the academic literature. Bastow-Shoop et al., (1991) posit that as apromotionalstrategy,VMDsisratedassecondonlytoeffectivecustomerrelationsbyretailers.Thecurrentauthorsperceivethatthisneglectthoughnotregardedastotal,doesnotsuggestthat this area of fashion is unworthy of academic research. Kim (2003) argues that it mayindicatethatsinceVMDscompriseperceptionsandaspectsofcreativity, it isperceivedasanareadifficult to test, researchersmaybechallengedwhen itcomestopresentingmeaningfulanalysesforit.AnotableexceptionhasbeenwithintheGhana’sfashionbasedliterature,wherea limited number of texts have been devoted to the subject. These though are primarilypractitioner-based,highlightingagainadeficiencyofattentionfromretailacademics.It is the light of the abovementioned developments that the current researchers used thisstudytorepresentasmallsteptowardsaddressingthislack.ItinvestigatestheroleplayedbyVMDs in thepromotionofAsanteKente apparels inGhana. The study sought to answer thefollowingresearchquestions:(1).HowcanVMDsadoptedbyKentefabricretailerstopromotetheir products be determined? (2). what benefits do Kente apparel retailers derive fromadoptingVMastheirpromotionalstrategiesinGhana?

LITERATUREWhatisVisualMerchandising(VM)?VM has over the years received diverse definitions from different authorities with manyagreeingonthebasickeytermslikedisplay,presentationofproductstocustomers.EbsterandGaraus(2011)seevisualmerchandisingas“theartandscienceofpresentingproductsinthemostvisuallyappealingway”,emphasizingonthecommunicationwiththecustomersthroughimagesandpresentations.DiamondandDiamond(2003)alsodefineVMasthepresentationofastoreanditsmerchandiseinwaysthataimtoattracttheattentionofpotentialcustomersandmotivatethemtomakepurchases.ThesedefinitionshavebeenextendedbyBastow-Shoop,Zetocha,andPassewitz (1991)whomaintainthatVMDsiseverythingthecustomersees,bothexteriorandinterior,thatcreatesapositiveimageofabusinessandresultsinattention,interest,desireandactiononthepartofthecustomer.Visualmerchandisingisthereforeconcernedwithbothhowtheproductand/orbrandarevisuallycommunicated to thecustomerandalsowhether thismessage isdecoded“appropriately” (Wanninayake and Randiwela, 2007). Though Wanninayake and Randiwelahas contributed towards thedefinitionof the conceptVMDsbut they focusedon the visualsaspectsoftheconceptbyoverlookingtheroleothersensoryorganslikehearing,smelling,etc.play inpresenting themerchandise to the customer. Judging from the abovedefinitions, thecurrentresearchersalsoseeVMasthephysicalpresentationofproductsandservicesandthedesignofaplaceofbusiness for thepurposeof increasingsales.This isbecauseaneffective



andmoreefficientVMDs isoften referred toas the silent salespersoncommunicating to thecustomerswithitspurposeofattractingthemtothemerchandiseforcloserexaminationthatleadstosales.VisualMerchandisingDisplays/ElementsThedesignofaretailenvironmentisrelatedtothestoreatmospherecreation(Law,Wong,andYip,2012).Kotler(1974)definedstoreatmosphereasthequalityofthesurroundingspace.Itis an important issue for inducing the desired affective response of consumers and aims toenhance purchase probability. In today’s keen competitive environment store image andatmosphere are recognizedby retailers as important factors influencing customers’ decisionmakingprocesses (HartmanandSpiro, 1995).More specifically, atmospherics is an effort todesignbuyingenvironmenttoproducespecificemotionaleffectsinthebuyerthatenhancehispurchase probability (Kotler, 1973). These atmospherics also called “good” interior designwithin a store can maintain customer interest, encourage customers to lower theirpsychologicaldefensesandmakeapurchaseby(WaltersandWhite,1987;Bitner,1992;Omar1990andDaviesandWard,2002).Theimpactofapleasantstoreatmosphereisalsopositivelyrelatedtocustomersatisfaction(Spies,Hesse,andLoesch,1997).Atmosphericstimuliwhichplease the actual and emotional needs of consumers enhance the degree of consumerparticipation in a store, leading to favourable purchasing behaviours (Wright,Newman, andDennis,2006).Mills, Paul, and Moorman (1995) suggest that “visual merchandising ranges fromwindows/exterior displays to interior displays including form displays and floormerchandising along with promotion signage. “The presentation of a store/brand and itsmerchandisetothecustomerismadepossiblethroughtheteamworkofthestore’sadvertising,display,specialevents, fashioncoordination,andmerchandisingdepartments inordertosellthegoodsandservicesofferedbythestore/company.Farese, Kimbel, and Woloszyk, 2003) further divided the elements of VMDs into four tocomprise of storefront (signs,marquee, entrances andwindowdisplays), store layout, storeinterior(fixtures),andStoredisplay.OntheviewofLaw,etal.(2012),theworkofFareseetalwassummed to includestoreexteriorand interioras the twomajorareascovered inVisualMerchandisingwithavarietyofcomponents(colourcombination,productplacement,lightingarrangement,layoutandhighlightdesign,mannequinandpropsselection,fixturesandfittingsselection)areinvolvedincreatingafavourableshoppingatmosphere.Babin,Hardesty,andSuter, (2003), followingsuit found that thecombinationof coloursandlighting plays a critical role in influencing the purchase intention of consumers and storepatronage.Intangiblestoreelements,suchassprayedfragrance,canstimulateone’saffectivestate and help boost mental imagination (Fiore, Yah, and Yoh, 2000). Chebat, Chebat, andVaillant(2001)foundthatappropriatemusiccanaffectthecognitiveactivityofconsumers.Apositive imagery also helps in associating a better cognitive experience between consumersandproducts,andintensifyingpurchaseintentions(Mandler,1982;MacinnisandPrice,1987;Meyers-LevyandTybout,1989).They are known as visual merchandising practices to comprise of focused merchandising,intelligent store design and layout, product displays, packaging, and signage. This becauseretailerscanuseittohelpcustomersfindtherightproducts(Baker,Grewal,andLevy,1992).(Mills, ET al.1995). It comprises of window/exterior displays to interior displays includingform displays and floor/wall merchandising as well as promotion signage Kotler (1974)explainedstoreatmosphereasthequalityofthesurroundingspace.Itisanimportantissueforinducing the desired affective response of consumers and aims to enhance purchase



probability. Based on Kolter’s thought, Donovan and Rossiter (1982) extended the conceptwith physical in-store variables (layout, architecture etc.) and the influence of social factors(typeandbehaviourofpeople).Anumberof the internal storeaspects identifiedabove, e.g.merchandise, atmosphere and in-store promotion, are reminiscent of Omar’s (1999)classificationofinteriordisplaytypes:merchandise,point-of-saleandarchitectural.BenefitstobederivedbyretailersfromadoptingVMastheirpromotionaltoolInrecentyears,therehasbeenagrowingrecognitionthatstoreinteriorsandexteriorscanbedesignedtocreatespecificfeelingsinshoppersthatcanhaveanimportantcuingorreinforcingeffect on purchase (Kotler, 1973-1974). Atmospheric stimuli which please the actual andemotionalneedsofconsumersenhancethedegreeofconsumerparticipationinastore,leadingto favourablepurchasingbehaviours(Wrightetal.,2006).Thepresentationofa firmand itsmerchandiseandattractpotentialcustomersandfacilitatepurchasing(DiamondandDiamond,2003). Stores with attractive displays or attractive de´cor might reduce psychosocial riskrelated to purchasing (Mitchell, 2001). The impact of a pleasant store atmosphere is alsopositively related to customer satisfaction (Spies et al., 1997). Wright et al.,( 2006) alsoconsiderstheatmosphericstimuliofVMDsasabletopleasingtheactualandemotionalneedsofconsumersenhance thedegreeofconsumerparticipation inastore, leading to favourablepurchasingbehaviours.As tactics it is used by retailers to attract customers to the stores. Itwill stimulate them tochoosethemost likedstore,spendmoretimeinit,andexaminetheproductsandeventuallyresultinginapurchase(Gajanayake,Gajanayake,andSurangi,2011).Visualmerchandisingisused to create a positive shopping experience – and that makes customers want to return(Farese ET al.2003). Besides, visual merchandising is also a powerful marketing tool as anexternal motivator in the consumer’s impulse buying behaviour. Indeed, impulse buying issignificantforsalesrevenue;infactitrepresentsasubstantialvolumeofgoodssoldeveryyear(Bellenger,Robertson,andHirschman,1978;Clover,1950;CobbandHoyer,1986;KollatandWillet,1967). Visualmerchandisingenhances theattractivenessofastoreand itsperceivedimage from the viewpoint of customers. A positive mood serves as a contextual cue forevaluating the perceived quality, image of a product and store, and purchase intention(Bakamitsos, 2000). The impact of a pleasant store atmosphere is also positively related tocustomer satisfaction (Spies et al., 1997). Atmospheric stimuli which please the actual andemotionalneedsofconsumersenhancethedegreeofconsumerparticipationinastore,leadingtofavourablepurchasingbehaviours(Wrightetal.,2006).

METHODThestudyadoptedexploratorydesigntoscrutiniseinsightsintogeneralnatureoftheresearchproblemashasbeenindicatedbyTustin,LigthelpandMartins(2005).ThiswastofindouttheextenttowhichtherespondentsagreeordisagreeregardingthefactthatvariousVMDsplayakey role in the promotion (retailing) of the Asante Kente in Ghana. Due to the exploratorynatureofthestudy,non-probabilitysamplingmethodwasusedtogetthesamplesgroupedinaprocess that does not give all the individuals in the population an equal chance of beingselected (Tustin et al, 2005). In this case, subjects were selected on the basis of theiraccessibility and through purposive approach the purpose (personal judgment) of all theresearchers(ZikmundandBabin,2010)On the field, it was observed that all the weavers or producers/ retailers have formedassociations. Example in Adawomase Township, Adawomase Kente Weavers Association(AKWA) and Adawomase Royal Kente Weavers Association (ARKWSA) exist as Kente



producers/retailersassociation.Somembersandleadershipofsuchassociationsassistedtheresearchers(intheformofsnowballing/referralservices)whentheyneededtopurposivelysample participants for the FGDs. As a traditional occupation, the Kente trade compriseindividualswhoperformvaried roles before the finishedproduct gets into the hands of thefinal consumer.Onepersoncanbeseenasadesigner (in-chargeofmotifs,arrangementandthe choice of colours), aweaver, a producer and the same time a retailer. The researchers’requesttoundertakethisstudyinvolvedseekingtonegotiateaccesstoarangeofparticipantsbasedonthepurposiveandconvenientsamplingofdesigners,weavers,producers/retailers.Inordertoselectsuchasampletheresearchersrequiredaccesstothelistofmembersforallthe Kente associations located in each of the towns. This request made by the researchersdeterminedpreciselyhowtheyrequiredthesampletobeselected.Hence, the criteria used to purposively sampling of participants to participate in this studyincluded:

• Kenteapparelproducers/retailerswhohavetheirbusinesslocatedinBonwire,(intheEjisuJuabenDistrict),Adawomase,SakoraWonoo,andNtonsotownships(alsoallintheKwabreEastDistrict).

• End users of Kente apparel who buy the products from the retailers in Bonwire,Adawomase,SakoraWonoo,andNtonsotownships.

• IndividualswiththetimeandthewillingnesstoparticipateinthestudyparticularlyintheFocusGroups(Discussionsandinterviews).

• Both retailers andanenduserwithpriorknowledgeon theadoptionofVMDs in theretailingofapparels.

Data was collected by the use of FGDs, which according to Zikmund and Babin (2010) areconsidered as unstructured, free flowing interview with a small group of people, usuallybetween six and ten participants. This was supported with illustrations, which were open-endedquestionsthataskedparticipantsquestionsrelatingtothetopicunderstudy(Hodder,1994),whichinthiscasereferredtothevariousVMDsadoptedbytheKentefabricretailersinBonwire,Adawomase,SakoraWonoo,andNtonsotownshipsinthepromotionoftheproduct.Thesesatellite townswereselected for this study,because it isbelieved that theyconstitutethe towns in the Ashanti Kingdom, precisely in the Ejisu Juaben District and Kwabre EastDistrict where the Kente cloth (apparel) is predominantly noted for its hand-woven naturehence the promotion of the Kente trade by the people. In all, forty (40) participants (tenparticipants in each focus group) were used to collect data. That is, ten (10) participantsselectedfromeachtownwerecontactedandinvitedtoparticipateinthestudywhichtheyallexpressedwillingnessandacceptancetoparticipateafterresearchersexplainedtheessenceofthe study to them. All these respondents were selected because they remain the rightindividualswith the right responses to provide to carry out this study (Holme and Solvang,1997).Ineachtown,twoformsofdatawerecomparedwithoneanothertogainthemostpreferreddatapossiblefromeachparticipant.ThefocusgroupswerebasedontheadoptionoftheVMDsadopted by the Kente retailers to promote the products to their customers. Photographs ofapparel retail shops were projected to the participants in the focus groups. With theresearchersactingasthemoderators,seriesofquestionsderivedfromtheresearchobjectiveswere posed to the participants. The structure of the questions for the focus groupswere asfollows:

1. WhatVMDsareadoptedbyretailerstopromotetheirKentefabrics?2. WhatbenefitsdoKentefabricretailersfoundinthistownderivefromadoptingVMDs

astheirpromotionalstrategies?



All discussions and interviews were put on tape and lasted for two hours. The interviewcontent was transcribed from the Akan language (Asante Twi) to English. The first twointerviewswereadoptedasablueprinttoestablishthecodes,conceptsandinter-relationshipsforopencoding.ThethirdfocusgroupinterviewfoundthatparticipantswithpriorknowledgeinVMDstendtoacceptthesubjectunderdiscussion.Thus,attentionwaspaidtoparticipantswithorwithoutastrongknowledgesenseinVMDs.Thematicanalysiswasusedtoanalysedataforthisstudyduetothecontextualnature.Tesch,(1990) explain thematic analysis as an activity in qualitative research which involves athoroughsearchthroughqualitativedatatoidentifyanyrecurringpatterns.Forthepurposeofthisstudy,thesepatternswerethensortedintothemesandcategories.Itisthusaprocessthatprovidesorganisationanddescriptionofqualitativedataindetail(BraunandClarke,2006).

RESULTSAt this stage, the conclusion of the questions posed to participants during the FGDs wereexamined in twomain themes and their underlying categories as outlined by Tesch’s 1990model(thematicanalysis).Theme1:VMDsadoptedbyKenteapparelretailerstopromotetheirproducts.Samples of the various VMDs were projected to the participants. The purpose for theprojectionswastofindouttheextenttowhichparticipantswereawareabouttheexistenceofeach display element and the roles they play in the promotion of Kente products by theretailers.Twocategoriesemergedfromthistheme.First category: The participants displayed their knowledge about what constitute interiordisplay.Participants have knowledge on certain interior VMDswhich included colours and lighting,sprayed fragrance, intelligent store designs and layouts, product displays, packaging, andsignage.ThefollowingquotationweretakenfromtheFGDs:

• Ihaveheardofsprayedfragrance.• Ihavecomeacrossdifferentlightingsbeenusedbystoresinthebigcitiesandmovies.• Ihaveseendifferenttypesofproductdisplaysinshopsinthebigcities.

Secondary category: Participants agreed to the fact that they have knowledge on exteriordisplays.The exterior displays participants expressed knowledge on include storewindows, signage,marqueesandawnings.Thefollowingquotationsweretakenfromthediscussionsthatensuedbetweenthemandthemoderators.Storewindowsareusedforsalespromotions, image-building,seasonalchanges,newarrivalsandhighdemanditems.Afreshandexcitingfacecanbeconstantlypresentedusingastorewindow.Signageprovidesinformationonproductrelatedfeatures/benefits/prices.



Itneeds tobenotedhowever, that factorssuchasspace,availabilityofVMDsandcost tobeincurredtoobtainthemfromthemarketalwaysdeterretailersfromaccessingthem.Theme2:BenefitsofVMDstoKentefabricretailersinGhanaAfter themoderatorsof theFGDsprojectingvarious imagesonVMDs toparticipants, variedassertionsweremadeconcerningthebenefitsretailerswouldderive fromadoptingVMDs intheirstores.………due to the competitive nature of the Kente fabric business found in the four towns,attention of retailers should be paid to well-designed store interiors and exteriors for thepurposes of creating specific feelings in shoppers that can have an important cuing orreinforcingeffectonpurchase.Thefollowingthreecategoriesemergedfromthetheme:FirstCategory:TheparticipantsagreedthattheVMDsarecapableofattractingcustomerstoaKentefabricstore.TheFGDs found that the strategicVMDs in anapparel storeattractpotential customersandfacilitatepurchasing.However,thereareotherfactorslikebrandingintheformofrecognisedstorename,symbol,packaging, and advertising, attractive de´cor, quality products, pricing, promotion, location,customerserviceorsupportthatalsoaffectthefinaldecisiontobetakenbycustomer.Pleasant store atmosphere is capable of impacting positively on the satisfaction of Kenteapparelshoppers.ThisillustratespracticallythatVMDsinfluencebuyingbehavioursofKenteshoppers.Quotationsthatweretakenfromthedatatoexemplifyfindingsinclude:

• Gooddisplaysattractsmetoastore.• IcandoimpulsebuyingbasedongoodVMDsinastore.• Dramaticandexperientialdisplayscanleadmebuythefabricfinally.

SecondCategory:VMDscreateapositiveshoppingexperienceTheparticipantsduringtheFGDsagreedthatVMDsprovidepositiveshoppingexperienceforKente fabric shoppers. However, store owners or retailers have roles to play to ensure aconduciveshoppingenvironmentthatprovidesuchexperience.Thesequotationsvalidatethiscategory:

• Ithinkitcaninspireme,getattractedtomostlikedKentestore.• Icanspendsometimesinitforawhile.• IcanexaminedifferentkindsofKentefabricbeforemakingafinalpurchase.

ThirdCategory:VMDsproducespecificemotionaleffectsandcreatepositivemoodthatservesasacontextualcueforevaluatingtheperceivedqualityoftheapparelAlthough VMDs are capable of attracting customers to a Kente fabric store, and providepositive shopping experiences for the shoppers, retailers should take into consideration thepositivemoodagoodshoppingatmosphereprovidessinceithelpsinevaluatingtheperceived



quality of the apparels, the image (both products and store), and purchase intentions. ThefollowingquotationsweretakenfromtheFGDstovalidatethiscategory:

• Apleasantstoreatmospheregivesmepsychologicalsatisfaction.• GoodVMDsenhancethedegreeofmyparticipationinastore.• TosaywowandpayforitdependsongoodVMDsvisible.

DISCUSSIONSANDCONCLUSIONS

VDMsadoptedbyretailersinthepromotionoftheKentefabricThrough discussions and interviews making up of the FGDs, it was revealed that theparticipants had knowledge on few VMDs which include: Their knowledge on exteriorpresentation include signage, banners, marquees, and awnings. Direct observation revealednon-adoptionofawnings,windowdisplaysasexteriorVMDsforalltheKenteshopslocatedinallthefourtownsvisited.In-store visual merchandising displays adopted by the retailers included shelves, music,fixturesandfittingsselection,productsdisplay.Thisissaidtobecongruentwiththepositionsof authorities (e.g. Baker, Grewal, and Levy, 1992; Farese, Kimbel, andWoloszyk, 2003) asestablishedinliterature.ThefollowingVMDswerefoundnottobeadoptedbyretailersintheirquests of promoting the Kente fabric: Store’s advertising, packaging, lighting arrangement,sprayedfragrance,visualeffects,specialevents,in-storepromotion,point-of-sale,andin-storepromotion signage, and store layout. This is to say that responses from the field wereincongruent with the positions of extant theories (e.g. Fiore et al., 2000; Law, et al., 2012).Respondents explained further that theKente fabric is enjoying automatic promotion in themarketplaceduetoitsnatureofbeingconsideredasafabricofroyaltyandregaliaBenefitsderivedbyretailersinvisuallymerchandisingtheKenteapparelDuring the FGDs, it was revealed that effective VMDs attract customers to visit the stores,providespositive shoppingexperiencesandcan lead to impulsebuying.VMDscanstimulatecustomers,getthemattractedtomostlikedKentestorebyspendingsometimesinthereforawhilebyexaminingdifferentkindsofKentefabricbeforemakingafinalpurchase.Apleasantin-storeatmosphericsprovideshopperspsychologicalsatisfactionandenhancethedegreeoftheirparticipationinthestores.Theseresponsesfromthefieldaresaidtobeagreeingwiththepositions of existing theories (e.g Bellenger, Robertson, andHirschman, 1978; Clover, 1950;Cobb and Hoyer, 1986; Kollat and Willet, 1967; Farese et al., 2003; Wright et al., 2006;Gajanayake,Gajanayake,andSurangi,2011).TheseareareflectiononthekeyroleplayedbytheadoptionofVMDsinthepromotionoftheKentefabricintheAshantiKingdom.Thestudyconcludes thatKenteapparelretailers found inbothEjisu JuabenandtheKwabreDistricts have knowledge on and adopt few VMDs in their business with majority of themconsidered as not appropriate in their line of business. They also agreed that they derivebenefits for adopting VMDs in the promotion of their products. This is to say that all therespondentscontactedonthe fieldagreedtocertainpositionsestablishedbyextant theoriesregardingtheadoptionofVMDsandtheroletheyplayinpromotingapparelsinretailshops.

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Shamshir,M.,Baig,M.J.&Mustafa,K.(2016).EvidenceofMonthlyAnomaliesinPakistanStockExchange.ArchivesofBusinessResearch,4(6),312-324.


EvidenceofMonthlyAnomaliesinPakistanStockExchange

MusarratShamshir,PhDAssociateProfessor,HamdardInstituteofEducationandSocialSciences

HamdardUniversity,Karachi,Pakistan

MirzaJawwadBaig,PhDAssistantProfessor,InstituteofSpaceandPlanetaryAstrophysics

UniversityofKarachi,Pakistan

KhalidMustafa,PhDProfessor,DepartmentofEconomicsUniversityofKarachi,Pakistan

Abstract

The study is an extended effort to investigate themonthly anomalies acrossPakistani stock market, on four stock indices of Pakistan stock exchange byusingthedatafrompreviouslyknownasKarachistockexchangefortheperiodfromJanuary01,2009toAugust31,2014.Thestudyisauniqueattemptofitskindtoincludeall fourindicesforexploringturn-of-the-monthandmonth-of-the-yeareffectswithspecialconsiderationoftax-loss-sellinghypothesisforthemonthof July for conventional January effect. Evidencesof turn-of-the-montheffectwerefoundinindicesexceptforKSE-30andKMI-30index.ThestudyalsofoundsignificantJanuaryreturnsevidentinallfourindices;howevertheeffectcannot be contributed to tax-loss-selling hypothesis. Optimistic attitudestowards the year ahead and liquidity preference seem to be relatedwith theheavy buying. July effect is found to exist in the market which may becontributedtotax-loss-sellinghypothesis.Although,KSE-30andKMI-30indiceswere found to demonstrate atypical results as compared to the rest of theindices, yet it is concluded that stock market of Pakistan is not devoid ofmonthlyanomalies.

Keywords: Pakistan stock exchange; Karachi stock exchange; Monthly anomalies;Tax-loss-selling;month-of-theyear;turn-of-themonth.

INTRODUCTION

Theefficientmarkethypothesis (EMH)reflects thequicknessof absorptionandreflectionofnew information in the asset prices. It presumes the investor has an access to all availableinformationandpricesrapidlyreflecttheimpactofallpublicinformation.Newinformationinthemarketisassumedtobeunpredictableandunsystematic;accordinglypricemovementsarealso irregular and random in an efficient market such that it assumes an equal chance ofreturnstoinvestors.Itimpliesthatpricefluctuationsdonotexhibitanytrendandpatternandpastpricescannotbetakenasaninstrumenttopredictthefuturepricesandreturns.Thepricemovementsinsuchacaseissaidtofollowanunpredictableandunsystematicpatterncalleda‘randomwalk’.Thesaidbehaviorshowsevidencesofindifferent-returnsonstocksirrespectiveofsizeofthefirmandthetradingtime,thatis,returnsareassumedtobehomogenousacrosshours,days,weeks,monthsandyears.However,formorethantwodecadesinvariousfinancialmarkets of theworld evidences of systematic patterns have been found. Such patternsmay



resulthigherorlowerstockreturnsdependingon,certaindays,weeksandmonths.Anomaliesmay occur even in the markets with low volatility and high liquidity and present seriousthreatstoclassicalassetpricingmodels.Thetraditionalassetpricingmodelisinepttoexplainthisobserved fact.Sincedecades theresearchersarerelentlessly inquiring the factorswhichcancapacitatesuchsystematicpattern.Amongsuchpatternsmostrecurrentandwidelyknowninclude;sizeeffects;reflectinghigherreturns associated with small sized firms as compared to the large ones (Rozeff & Kinney,1976;Banz,1981;Keim,1983;Roll,1983);theseasonalorcalendareffectsincludingweek-of-the-month (WOM) effect (Ariel, 1987; Lakonishok& Smidt, 1988),month-of-the-year (MOY)effect (Rozeff&Kinney,1976), turn-of-the-month(TOM)effect (Cadsby&Ratner,1992), theday-of-the-week (DOW) effect (Cross, 1973; French, 1980), and Islamic calendar effects(Mustafa,2008).Theseeffectshavebeentestedinternationallyanddiversifiedresultscanbefoundinvariousmarketsdependinguponvariousinstitutionaldifferencesbetweendevelopedandenergentmarkets.The presence of such systematic patterns in the stock market explain the violation of anddivergence fromefficientmarkethypothesisat least inweak-formmarketefficiencybecauseassetpricesmovementsarenomorerandombutmaybepredictedonseasonalandcalendarvariations.Thesedifferences in returnsmaybe faraboveorbelow than thenormalandcanaffect investor in deciding their investment strategy, portfolio selection and portfoliomanagement(Anwar&Mulyadi,2012).Technicalanalystsmaydevelopstrategiesonthebasissuch predictable patterns to attract investor. This persuades the investors to follow suchtradingstrategieswhichallowthemtomakeabnormalprofitsinthemarkets(Yalcin&Yucel,2006).Forexample,investorsmaybewillingtobuystocksononespecificdayormonthandsellsonanotherbaseduponcertaintrendinthemarketonthesespecificperiodsinordertotakethebenefitoftheseeffects.However,thematerializationofthesetrendsisquestionable,asfortheseanomaliesmayariseonlyforaveryshortperiodanddisappearstrangelyandthestrategicactionwastakenbeforecouldendupindisasterinstead.Moreover,thereappearanceofsuchpatternsislesslikelytoberepeatedinthesameformleavingtheinvestorinvacillatingrisk-returnmanagement. Explicably a normal investor does not feel safe and encouraged toinvest in the market with the presence of such phenomena. Therefore, uncovering thesepatterns in returns might benefit risk management and portfolio optimization of valuedinvestors in themarkets (Engle, 1993) ononehand andmay contribute in strengtheningofprevious observed facts or producing contemporary empirical patterns of calendardependencies.Month-of-the-year effect is associatedwith higher returns in any onemonth than any othermonthsduringayear. (Rozeff&Kinney,1976) foundseasonalpattern inanequalweightedindex of New York Stock Exchange and found average monthly return on January areconsiderably higher (over one-third returns occurred in January alone) than during othermonths (Januaryeffect). January returns foundhigheras compared to remainingmonths inU.S. various other sharemarkets (Rozeff & Kinney, 1976; Keim, 1983; Lakonishok& Smidt,1984; Jaffe&Westerfield,1985a;1985b).Furthermore,Keim(1983),Aggarwaletal. (1990)found higher January returns in small firms then the large firms thus establishing thephenomenon to small firms. However, Patel (2008) concluded that both developed andemergingstockmarketsdonotexhibitasizeeffectorareversesizeeffectandaccordingtothestudyconductedbyhimonIndianstockmarkethefurtherestablishedthatsizegainsarenotevidenttobeinfluencedbyJanuarymonthreturns.



AnothernotionoftheJanuaryeffectappearedastax-loss-selling(TLS)effectassociatedwithadecreaseinstockpricescorollarytoamajorsell-offofstocksduringthemonthofDecember;astrategy may be for counterbalancing the tax-loss on accrued capital gains, followed by anincrease in buying during January. Although January effect has found to be diminishing inrecent years, due to well-developed tax protection options become available with time,especially in seasoned capital markets. On the other hand, Haug & Hirschey (2006) foundpersistence Januaryeffect inU.S. small stock returnsdespiteof theTaxReformActof1986.Moreover, the anomaly ispersistently evident in emerging capitalmarkets as thesemarketsarefoundrelativelylessdevelopedandlessefficientthantheirdevelopedcounterparts.Roll (1983) concluded that the higher volatility of small-cap firms pay them to observesignificant short-term capital losses that can make investors to sell before the end ofDecember.Thissellingpressuremightleadtoreductiononpricesofsmall-capstocksinthetaxmonth, escorting a bounce back next month as a result of repurchase to replenish theinvestments.According to Lakonishok & Smidt (1988), turn-of-the-month (TOM) period is the durationbetween the last trading day of the previousmonth and first three trading days of the newmonth.Turn-of-the-montheffect isassociatedwith the temporarily increase instockreturnsTOMperiodascomparedtotherest-of-the-month(ROM)period.Increaseofcashflowusuallyobservedbetween the last twoof theprecedingand first threedaysof thenewmonth.Thatincreased liquidity may be connected to release of pension funds, interest payments andwages.Ariel(1987)examinedDowJonesandprovidedtheevidencethatdaysaroundtheturn-of-themonth exhibit high rates of return. Cadsby&Ratner, (1992) found turn-of-the-montheffectevidentinEuropean,Canadian,USandemergingmarkets.Hensel&Ziemba(1996)foundTOMeffectsforS&P500,inastudycarriedoutfordailyreturnsbetween1928-1993.Several studieshavebeen conducted to investigate the calendar anomaliesonKarachi stockexchange (KSE). However, most of the studies were conducted on KSE-100 index leaving amajorgap inthe formofvery littleempiricalworkdoneonremaining indicesbelongtoKSEsuch as KSE-30 index, all-share index and KMI-30 index. Amongst these; KSE-30 wasintroducedasabenchmarktodeterminetheperformanceofstockmarket,KMI-30consistedoffirms which strictly meet the Sharia criteria, and all-share index takes all firms intoconsideration.The selection criterion of listed companies in all four indices is based upon differentmethodologies; KSE-100 index and in all-share index both; the chronology is based uponmarketcapitalization,butincaseofformertop100companiesareselected,whileinlater;allfirmsare included in index.Ontheotherhandselectionof firms inKSE-30and inKMI-30 isbased upon free-floatmethodology and in KMI-30 index strictly Sharia compliant firms areincluded. Free float methodology may ensure the true liquidity of the shares in the stockmarket; therefore, is lessexpected tobehandledbymanipulatorsandhedgersandcouldbemorereliablefromtheinvestors’pointofview.Hence, it is essential for the researchers to probe into calendar anomalies on all indices ofPakistani stockmarket, including traditional January effect in addition to turn-of-the-monthandmonth-of-the-yeareffect.Shamshir&Mustafa(2014a)examinedDOWeffectsonPakistanistockmarketandfoundDOWeffectsinKSE-100andall-shareindex.ThestudyfurthernotedthecontributionoffreefloatingmethodologyforfindingnoevidencesofDOWeffectsinKSE-30andKMI-30index.



Thispaper isanextension to thepreviousworkbyusand is focused to investigatemonthlyanomaliesincludingturn-of-the-month,month-of-the-yeareffectandtax-loss-sellingeffectonKarachistockexchange.The taxmonth is June inPakistan; therefore itwillbe interesting tofind July effect for the conventional Januaryeffect andhigher returnsof July, if found, couldpresentaplausibleexplanationofTLSeffectinPakistanistockmarket.The rationale of investigating tax-loss-selling effect in Pakistan is for two reasons; one, theeffect has not been tested thoroughly before on Pakistani stock market provides; a majormotivationbehindtheexploration.Two,thediscussiononthisintriguingphenomenonwouldcontinue to remain a major interest of financial researcher and trade analyst to find thepossibleexplanationsofitsexistenceandnon-existenceevenifceasestoappearwithtime.Wagedistributionperiodmaybeoneofthedeterminingfactorofrevisingportfoliodecsions.Investorswithmonthlywage distribution are expected to re-address their portfolios at thetime of receiving wages. In Pakistan, wage distribution period is beween the last of theprevious and firstweekof the susequentmonth. It is imparative therefore todetermine theTOM effects for Pakistani markets as investor is more likely to make investment decsionsbetweenTOMperiods.InthisparticularstudyTOMperiodconstituteonelasttradingdayofthepreviousmonthplusfirstthreetradingdays.Therest-of-the-month(ROM)periodisdefinedastheremainingdays(Lakonishok&Smidt,1988).The study can be a major contribute in the finance literature and can benefit both; theinvestorswhenchoosinganyindexamongthefourincludedinthestudyoracombinationofindicesforadiversifiedportfolioandriskmanagement,andatthesametimefortradeanalyst,whileadoptingappropriatetradingstrategies,ifcalendaranomaliesareidentifiedinanyoftheindices.

LITERATUREREVIEWThephenomenonof stockmarketanomaliesproducesagreatdealof inconsistentevidencesandconflictingopinionsbyresearchersandacademicians.Black(1993)consideredmostoftheanomaliesasaresultofdatamining.Inhisopiniontheseanomaliesvanishesassoonastheydiscoveredandpublished.InthewordsofSamuelson(1989),“But of thousands of published and unpublished statistical testing of various forms of theefficientmarkethypothesis,afewdozenrepresentingaminusculepercentagehaveisolated10ptmilarly, Dimson&Marsh (1998) presented evidenceswhere anomaly disappears or getsreversed,onceitgetspublicized.Furthermore,Roll&Ross(1994)wrote,“Over the past decade, I have attempted to exploit many of the seemingly most promisinginefficiencies by actually trading significant amount of money… Many of these effects aresurprisinglystronginthereportedempiricalwork,butIhaveneveryetfoundonethatworkedinpractice”.On the contrary greater number of well-known literature provides evidences of persistentmarketanomaliesthatremainedpersistentoverthedecadesfromdevelopedanddevelopingworld markets. Empirical evidence also suggested that even in the presence of anomalies



investor is incapabletooutperformforexcessgainsduetothehightransactionandliquiditycost.Amongtheearlyresearches,Rozeff&Kinney(1976)foundevidenceofmonthlyanomaliesonthe New York Stock Exchange. Keim (1983) found distinct January premiums and did notrefutethenegativerelationbetweenabnormalreturnsandsizeof thefirm.Hefurthernotedthatmorethan50%oftheexcesspremiumsinthemonthofJanuarycameonthefirsttradingdayof themonth.Brownetal. (1983) foundexcessreturnsassociatedtosizeevident inoneperiodanddisappearedwiththetime,suggestedthattheevidenceofseasonalanomaliescouldbeoneofthefactorsofestimationmethodologies.Reinganum(1983)furtherstatedthatsmallfirmsleastlikelytofollowtheTLSbehavioralthoughfoundtoexhibitexcessreturnsinJanuaryandrelated the JanuaryTLShypothesis to large firms. Contrary to that,Gultekin&Gultekin(1983) suggested irrelevancy of size with the-turn-of-the-year anomalies in US, UK andAustralianmarkets.Lakonishok&Smidt(1984)conductedlongtermstudyspreadsoverto90yearsand foundpersistent long-termturn-of-the-month, turn-of-the-yearandotherseasonaleffects.Ariel(1987)foundthemeandistributionofreturnshigherinthefirsthalfofthemonththaninthesecondhalf.Aggarwaletal.(1990)alsodocumentedtheseasonaleffectsinTokyostockmarket.Cadsby & Ratner (1992) presented the evidences of seasonal anomalies in European,Australian, and Canadian markets. Similar results were found in Japanese and Hong Kongmarkets.Roll(1993)arguedthatJanuaryanomalyinsmallsizedfirmsisassociatedwithTLSand explained that small-cap firms aremore likely to at risk. Chang, Eric & Pinegar (1986)documentedJanuaryeffectintheUSmarketforlong-termbonds.Thesameeffectfoundtobenegatively related with bond rating and positively related with firms associated with lowquality bonds. The study further supports the January effect consistent with TLS. Jaffe &Westerfield(1989)conductedastudytoinvestigatetheseasonalpatternsinthestockmarketsofAustralia,UK,JapanandCanada.Thestudyconfirmsadistinctiveseasonalpatternforeachcountrywithstronger‘lastdayofthemonth’effect.Brauer&Chang(1990)identifiedtheTLSas a possible explanation for January effect. They noted the returns to exhibit negative andpositive relations to themean returns of the preceding year and the standard deviations oftheirprecedingyearreturns,respectivelyreflectingTLSeffectintheJanuary.Arsad&Coutts(1997)supportedthepresenceofweekend,JanuaryandholidayeffectsonIndustrialOrdinarySharesIndexwhenstudiedforthespanof60years.Thestudyfoundanomaliesstillconcludedthatthemarketmaybeincapabletobeexploitedforabnormalreturnsowingtotheilliquidityandtwosidetransactioncostofimplementingtradingstrategies.Recent literature produces mixed results regarding the existence of annual anomalies andexcessreturnsinthemarket.Coutts et al. (2000) investigated Athens stock market using ten years data set on banking,leasing and insurance sectors and found presence of weekend and January effects whichgraduallystrengthenedovertime.Hefurthernotedthatabnormalprofitsthusrenderedafteradjustingtransactioncostdonotaffecttheprofitablestrategiesofinvestor,thereforeofferingtheinvestoranefficientmarketsituation.Al-Khazali(2001)auditedpreviousstudiesfrom1926to1993forseasonaleffectsinhigh-yieldbond and confirmed the January effect and endorsed the appropriateness of statisticalproceduresadoptedinpreviousstudies.



Sullivanetal.(2001)conductedastudythatwasfocusedtoexploretheeffectsofdataminingon the occurrence of various anomalies; the possibility identified by Lakonishok & Smidt(1988).Theyusedthecenturydataofdailyreturnsandadoptedthebootstraptechniquethatcan separatelymeasures the distortions in deducting inferences stimulated by datamining.Theyconcludedthatevensignificantcalendareffectswhenareevaluatedforcertainrulessetby investors and academicians seems to lose their significance to outperform themarket toexploitabnormalreturns.Consistent with the work of Black (1993), and Dimson & Marsh (1998); Marquering et al.(2006) advocated that anomalies if occur out of data snooping they are more likely to getdisappeared after they get documented leaving the real anomalies continue to persist. Theyassumedthatoncetheanomaliesgetreportedandpublishedbyresearchersandacademicians,theygetdilutedandceasedtoexist.Theprospectsandpossibilitiesofstrategiesemployedforexploiting abnormal profits thus die down gradually. The authors examined frequentlyoccurring anomalies and found that very few anomalies still exist and many of themdisappeared after the published awareness about them. Moreover, the study found theconnectionbehindthetimingofdisappearanceandreappearanceofcertainanomalieswiththetimingofrespectivepublicationsaboutsuchanomalies. Asteriou& Kavetsos (2006) tested eight transition economies from 1991-2003 for seasonaleffects. The study found significant January effect in Hungary, Poland and Romania, with aprominentevidenceofTLShypothesisinHungaryandRomania.Similarly,Starksetal.(2006)supportedtheassociationofTLShypothesiswithJanuaryeffectformunicipalbondmarket. Thestudyfurther indicatedastrongtaxsellingbehavior forthefundstradedwiththebrokeragefirms.Moller & Zilca (2008) investigated January effect across size deciles based on marketcapitalization on themonthly data fromNYSE, AMEX andNASDAQ from1927 to 2004. ThestudyfoundshorttermJanuaryeffectacrossdecileswithsignificanthigherreturnsinthefirstpartofJanuaryandmeanreversioninthesecondpartofJanuary.Moosa(2007)examinedKuwaitstockmarketandfoundmonthlyanomalyinJune,onaccountofaccumulatingstocksinthemonthofJune,beforegoingtosummervacations,thuscreatingJuneeffect.TheresultsareconsistentwiththesummerholidayeffectpreviouslyfoundbyAl-SaadandMoosa(2005)asJulyanomaly.He&He (2011) related January effectswith size before theTaxReformAct of 1986, onUSstockmarket.HefoundtheshiftofJanuaryeffecttoNovembereffectafterthetaxreforms.TheNovembereffectwasobservedinbothlargeandsmall-capfirmsandthereforenotrelatedtosize. Whilst,Haug&Hirschey(2006)foundJanuaryeffectpersistentinsmallfirmsintheUSstockmarket.Agnani & Aray (2011) examined January effect across high and low volatility regimesdistinguishedbyMarkovswitchingmodel.Theresultsrevealedsubstantiallylargermagnitudeof January effect in high volatility regime, although the number of significant coefficients islargerinlowvolatilityregime.ThestudyfurtherrevealedsignificantJanuaryeffectforallsizeportfoliosandhenceconcludedtheabsenceofanycorrelationofJanuaryeffectwithportfoliosize.TheresultsofthestudyalsosupportthediminishingJanuaryeffectwithtimeforallsizes.



Depenchuk et al. (2010) examined the Ukrainian stock and bond markets to find monthlyanomalies.ThestudyfoundnoevidenceofJanuaryandweekendeffectsbutstrongTOMeffectfoundtohaveexistedinUkrainianstockmarket.Shamshir&Mustafa (2014b) suggested the investigation ofmarket anomalies usingweeklyandmonthlystockreturns.Friday & Hoang (2015) tested Vietnam Stock Exchange and support January effect for theentireperiod,whileheconcludedtheseeffectsarenotexplainedbyTLS.

DATAANDMETHODOLOGYThestudyisdeterminingmonth-of-the-yearanomalyfocusingTLShypothesisandturn-of-the-month anomaly on Pakistani stock exchange by using the data from previously known asKarachistockexchange(KSE)fortheperiodfromJanuary01,2009toAugust31,2014. ThestudyisusingthedailyclosingpricesofthefourindicesoperatingintheKSEmarket;KSE-100,KSE-30,KSEall-shareandKMI-30indices.Toproceedwiththeinvestigationofrandomwalkwefirstcalculatethereturnseriesofalltheindicesinthestockexchange.Tofocusonreturnsratherthanonpricesisduetotworeasons.First, since the financial markets are considered to be the close to perfect competitiontherefore the size of investment does not influence prices. Secondly, the returns are moreattractivefromtheperspectiveofinvestorandatthesametimemoreappropriatetofulfilltheapproachstatisticalanalysisthanprices.VolatilityishighlypersistentinKSE-100indexandleastpersistentinKSE-30index;twomosttradedindicesofPakistanistockmarket(Shamshir&Mustafa,2014a).Thenull hypothesis of equalmonthly returns is used to examinemonthly anomaly andTLSeffect. For examining of month-of-the-year and turn-of-the-month effect stock returns firstdescriptivestatisticswillbeexaminedtoobservetheMOY,TOMandROMperiodmeanreturnsandthewaystandarddeviationisrelatedtomeanreturns.Thedummyvariableapproachinregressionisbeingusedherewhereeachindividualdummyvariableaccounts for theexcess return for theparticularmonth for investigatingMOYeffect(Equation1)andTLSeffect.Similarly,incaseofexaminingTOMeffect(Equation2)thedummyvariable accounts for the excess return for the TOM period with null hypothesis of zerodifference in returns between TOM and ROM period (Lakonishok & Smidt, 1988; Cadsby &Ratner,1992). 𝑅! = 𝛾!!"

!!! 𝐷!" + 𝜀! Equation1𝑅! = 𝛼!𝐷!"#$ + 𝛼!𝐷!"#$ + 𝜀! Equation2Where𝑡 = 1,2,…𝑇 𝑅! = Stockreturnonanindexattimet.𝐷!": Dummyvariablecorrespondingto12months𝐷!"#$: DummyvariablecorrespondingtoTOMdays𝐷!"#$:DummyvariablecorrespondingtoROMdays𝜀!Randomdisturbanceterm𝜀!~𝑁(0,1)



ANALYSISANDRESULTSDescriptiveStatisticsofMonthlyReturnsTable 1, below reflects the descriptive statistics ofmonthly returns. Results indicatemostlypositivemeanreturnsinallmonthswithhighestduringMarchandJuly.Thevalueofstandarddeviationishighest(0.1387)incaseofKMI-30indexinthemonthofFebruary.Negativemeanreturnsareevident for themonthofMaywhilepositivehighercanbeseenforthemonthofJuly. Low and mostly negative returns in May indicate large selling and higher and mostlypositivereturnsinJulysignifylargebuyinginJuly.ThehigherreturnsinJulymaybeattributedto the same reasonas in January effectwherehigher returns in Januarymaybe ascribed tomorebuyingfollowingasell-offoccurredduringthemonthofDecembertocompensatethetaxlosses.

Table1:DescriptiveStatisticsofMonthlyReturns

KSE-100 Index KSE-30 Index KSE-All share

Index KMI-30 Index

Mean SD Mean SD Mean SD Mean SD

Jan -0.0004 0.0150 0.0006 0.0181 -0.0004 0.0141 0.0020 0.0163

Feb 0.0010 0.0117 0.0014 0.0142 0.0008 0.0111 0.0012 0.1387

Mar 0.0034 0.0140 0.0031 0.0158 0.0032 0.0132 0.0041 0.0144

Apr 0.0016 0.0133 0.0011 0.0153 0.0015 0.0130 0.0016 0.0144

May -0.0003 0.0111 -0.0004 0.0501 -0.0004 0.0536 0.0002 0.0108

Jun 0.0008 0.0103 0.0001 0.0125 0.0007 0.0101 0.0005 0.0101

Jul 0.0028 0.0088 0.0033 0.0101 0.0026 0.0082 0.0033 0.0086

Aug 0.0001 0.0126 0.0000 0.0141 0.0000 0.0122 0.0005 0.0826

Sep 0.0021 0.0110 0.0013 0.0125 0.0020 0.0105 0.0018 0.0113

Oct 0.0010 0.0109 0.0003 0.0124 0.0008 0.0103 0.0012 0.0120

Nov 0.0015 0.0092 0.0011 0.0106 0.0017 0.0089 0.0017 0.0096

Dec 0.0015 0.0078 0.0010 0.0089 0.0015 0.0075 0.0013 0.0079

OLSResultsfortheMonth-of-the-yearAnalysisTable 2, below in showing regression results reveals the significant January effect in themarket,whichcanbeattributedyear-endcashflowsarisingfromdebtcontractsredemption.Another plausible explanation is the investors’ optimism and confidence on the market fornew-yearinvestmentresolution.ItistobenotedthatJanuaryseasonalisnotcreditedtoTLShypothesis, owing to June as tax month in Pakistan. Table 2, also indicates June negativereturns and July positive returns in all four indices.Moreover, significant July effect is veryobviousinKMI-30indeximplicatingTLSrelatedJulyeffect.

Table2:OLSResultsfortheMonth-of-the-yearAnalysis KSE-100 Index KSE-30 Index

Coeff. Std. t-stat Prob. Coeff. Std. t-stat Prob.

Jan 0.6982 0.1542 4.5269 0.0000 0.8067 0.1486 5.4302 0.0000



Feb -0.0311 0.2290 -0.1357 0.8924 -0.0328 0.2192 -0.1498 0.8813

Mar -0.1074 0.1668 -0.6440 0.5214 -0.0411 0.1747 -0.2356 0.8144

Apr -0.0651 0.1878 -0.3465 0.7298 -0.1221 0.1945 -0.6282 0.5316

May 0.1324 0.1977 0.6698 0.5049 0.0281 0.0505 0.5568 0.5792

Jun -0.1984 0.2181 -0.9096 0.3657 -0.1952 0.2105 -0.9273 0.3564

Jul 0.2586 0.2559 1.0104 0.3152 0.3407 0.2533 1.3448 0.1823

Aug 0.0453 0.1767 0.2565 0.7982 0.0084 0.1857 0.0454 0.9639

Sep -0.0218 0.2021 -0.1079 0.9143 -0.0450 0.2126 -0.2116 0.8330

Oct 0.1865 0.2113 0.8826 0.3800 0.0887 0.2226 0.3986 0.6912

Nov 0.2210 0.2697 0.8197 0.4147 0.2573 0.2626 0.9798 0.3300

Dec -0.0158 0.3054 -0.0519 0.9588 -0.0818 0.3038 -0.2692 0.7884

Table2:OLSResultsfortheMonth-of-the-yearAnalysis(Contd.)

KSE-All share Index KMI-30 Index

Coeff. Std. t-stat Prob. Coeff. Std. t-stat Prob.

Jan 0.6753 0.1572 4.2945 0.0000 0.7243 0.1449 4.9995 0.0000

Feb 0.0024 0.2285 0.0107 0.9915 0.0279 0.0189 1.4727 0.1447

Mar -0.1255 0.1680 -0.7471 0.4571 -0.0878 0.1579 -0.5558 0.5798

Apr -0.0912 0.1824 -0.5000 0.6184 -0.1271 0.1772 -0.7177 0.4750

May -0.0051 0.0393 -0.1295 0.8973 0.1661 0.2181 0.7615 0.4485

Jun -0.1845 0.2164 -0.8526 0.3963 -0.2449 0.2321 -1.0552 0.2944

Jul 0.2611 0.2663 0.9805 0.3297 0.5852 0.2683 2.1812 0.0320

Aug 0.0352 0.1752 0.2011 0.8411 0.0217 0.0321 0.6776 0.4999

Sep -0.0135 0.2040 -0.0660 0.9476 0.0904 0.2067 0.4376 0.6628

Oct 0.1847 0.2133 0.8658 0.3891 0.2117 0.1960 1.0801 0.2833

Nov 0.2364 0.2677 0.8830 0.3798 0.2433 0.2529 0.9621 0.3388

Dec 0.0425 0.3029 0.1402 0.8889 -0.1788 0.3033 -0.5896 0.5571

Table3:DescriptiveStatisticsofTOMandROMperiodReturnsonKSEIndices

Mean

Std.

Dev.

KSE-100

Index

TOM 0.0032 0.0100

ROM 0.0006 0.0100

KSE-30 TOM 0.0042 0.0200



Index ROM 0.0263 0.5100

KSE-All

Share

Index

TOM 0.0026 0.0100

ROM 0.0007 0.0200

KMI-30

Index

TOM 0.0035 0.0100

ROM 0.0009 0.0500

Table3, exhibits thedescriptive statistics ofTOMdays; one last tradingdayof thepreviousmonthplus three first tradingdays of thenextmonth andROMdays; the-rest-of-the-monthdays.Table3,alsodepictspositivemeanreturnsinbothTOMandROMperiodinKSEindiceshowever,significantlyhighermeanreturnsinTOMperiodthantherestofthedays,exceptforKSE-30 index.These findingareconsistentwith theresultsofLakoniskokandSmidt (1988).ForKSE-30,TOMeffectseemstobeabsentwithhighmeanreturnvalueandhighriskduringROMdays.

Table4:OLSResultsforTurn-of-the-monthAnalysis Coeff. Std. T-stats. Prob.

KSE-

100

Index

TOM 0.0031 0.0007 4.5934 0.0000

ROM 0.0007 0.0003 1.9960 0.0461

KSE-

30

Index

TOM 0.0042 0.0277 0.1518 0.8794

ROM 0.0263 0.0136 1.9388 0.0527

KSE-

All

share

index

TOM 0.0026 0.0010 2.4508 0.0144

ROM 0.0007 0.0005 1.4641 0.1434

KMI-

30

Index

TOM 0.0035 0.0026 1.3457 0.1786

ROM 0.0009 0.0013 0.6873 0.4920

Table 4, illustrates the OLS results with TOM and ROM as dummy variables in the model.Results reveal significant TOM effect in the stock market. TOM effects are found to besignificantat5%orlowerlevelinKSE-100,andKSE-allshare.However,incaseofKSE-30andKMI-30indicesnoTOMeffectsarefoundduringthestudyperiod.Theabsenceofturn-of-the-monthcanbecontributedtothefreefloatingmethodologyofsharesemployedinKSE-30andKMI-30 indices. Shamshir and Mustafa (2014a) also concluded that absence of day-of-the-weekanomalyforKSE-30andKMI-30indexisassociatedwiththefreefloatingmethodologyofsharesintheseindices.



SUMMARYANDCONCLUSIONThispaperisfocusedtoinvestigatemonthlyanomaliesincludingturn-of-the-month,month-of-the-year effect and tax-loss-selling effect on Pakistan stock exchange, by using the data ofpreviously knownKarachi stock exchange. The taxmonth is June in Pakistan; therefore, thestudywasmoreinterestedinfindingJulyeffectforconventionalJanuaryeffectassociatedwithTLS.The dummy variable approach in regression was applied where each individual dummyvariableaccounts for theexcess return for theparticularmonth for investigatingMOYeffectandTLSeffect.Similarly,forexaminingTOMeffect,thedummyvariableaccountsfortheexcessreturnfortheTOMperiodwithnullhypothesisofzerodifferenceinreturnsbetweenTOMandROMperiod.ThestudyfoundsignificantJanuaryreturnsevidentinallfourindices;howevertheupsurgeinreturns cannot be credited to TLS hypothesis but may be attributed to psychology of theinvestor;The optimism and confidence linked with new-year resolution. Moreover, buying elevationalso explains the liquidity preference approach of investors reflected in investmentmanagementstrategiesfortheyeartoproceed.NegativeJunereturnsandpositiveJulyreturnsexplainstheJulyeffectsynonymictotraditionalJanuary effect reflecting conventional TLS strategies of investor, concluding the presence ofsuchaneffectinPakistanstockexchange.Similarly, TOM effects are found with the significant t-statistics, concluding higher returnsassociatedwithgreatercashflowinTOMdefinedperiods.However,TOMeffectcouldnotbefoundKSE-30andKMI-30index.Although,KSE-30andKMI-30indiceswerefoundtodemonstrateatypicalresultsascomparedto the rest of the indices, yet it is concluded that stockmarket of Pakistan is not devoid ofmonthlyanomalies.References

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FinancialStabilityReport:LessonsfromtheCentralBanks

FilaliAdibFatineUniversityMohammedV

Facultyoflaw,economicandsocialsciencesofSouissi

FiranoZakariaUniversityMohammedVRabat

Facultyoflaw,economicandsocialsciencesofRabat-Agdal

AbstractThe economic and social costs of the financial crises are very high led thecentralbankstoregisterfinancialstability,inadditiontothepricestability,inthemiddleoftheirconcerns.Nevertheless, theobjectivesofthecentralbanksas regards financial stability are less clear and specific that in themonetaryfield.Thisdifficultyrelated to theabstractcharacterandmultidimensionalofthe concept of financial stability makes difficult to quantify an objective, tocheck the realization of it and complicates the communication strategy to beadopted on the matter. In spite of these difficulties, the central banksreinforced their communications as regards financial stability by thepublicationofFinancialStabilityReport(FSR).Thelatterdescribethevariousrisksoverallweighingonthestabilityof the financialsystemand formulateajudgment on its impact strength and its capacity to reabsorb the variouspotential shocks. The RSF aim reinforcing the transparency on the variouscomponents of the financial system and at supporting the emergence of aframeworkofco-operationbetweenthevariousspeakers.Vis-a-Visthestakesof financialstability,themajorityofthecentralbankswidenedtheirmissionswith the maintenance of financial stability. In the same way, they recordedsignificationadvancesintheinstallationoftheframeworkoffinancialstability(institutional,lawful,andoperational).Withinthisframework,thispapertriesto describe the practices of the central banks as regards development of theFSR and formula of the recommendations aiming at proposing an exhaustiveanalysis of the FSR. Initially, it presents the objectives sought through thiscommunication strategy and examines, without going into the details, thestructureadoptedinthedevelopmentoftheRSF.Keywords: Financial stability, systemic risk,macro stress test, financial soundnessindicators.JELclassification:E44,D42

INTRODUCTION

Well before the international financial crisis of 2007-2008, several central banks wereinterested in financial stability in answer to the increase in the banking crises and theirsecurities on the good being of the economic agents. This increased interest materializedprimarily through thepublicationof the financial stabilityReport, recalling theevolutionsofthefinancialsystemsandsystemicrisks.Duringthisperiod,theanalysisofthefinancialsystemwasregardedasoneofthefundamentalmissionsoftheCentralbanksinbondprimarilywiththeir roles of monetary authorities and supervisors of the money markets, the bankinginstitutionsandthepaymentsystems.



The lessondrawn fromthe recent crisisgavemoredash to thispracticebecauseof thenewroleofthecentralbankasregardsfinancialstability.Fromnowon,themonetaryauthoritiesmustcontribute,accordingtovariousmethods,tothepreventionofthesystemicrisksandthemaintenanceofthegoodperformanceofthefinancialsystem.Forthispurpose,thenewmacro-prudential instrumentswereplacedat theirdisposal toguaranteethe impactstrengthof thefinancialsystemandtoreduceitsprocyclicality.The FRS make it possible to follow and analyze the risks and the possible transmissionchannels of the shocks affecting the financial system, in order to guard itself against thesystemiccrises.Thedifferenceintheotherreport(onthebankingsupervisionandthesystemsofpayment,etc.),thelatteranalyzethesystemicrisks,toidentifytheareasofvulnerabilityandto as a whole evaluate the degree of impact strength of the financial system (a macro-prudentialmonitoring).TheexaminationoftheCentralbanksexperimentsasregardsdevelopmentoftheFSRrevealsthatuntilnownoconsensuswasestablishedwithregardtothestructureofthesereportsandevenlessforthetoolsandtheindicatorstobeused.Thedifficultyinsittingthebest-practicesonthematteristheprincipalconsequenceofthedifficultyofdeterminingwithprecisiontheconceptoffinancialstabilityandofthestructuresverydifferentfromthefinancialsystems.Thispaper, structured in fivesections,aims todescribe thepracticesof thecentralbanksasregards development of the financial stability report. First of all, it presents the factorsinfluencing the decision to publish a FSR and the objectives sought through thiscommunication strategy. Then, it examines the structure commonly adopted in thedevelopmentoftheFSR.Thereafter, itpresentstheindicatorsusedinthesereports.Lastly,alast point was devoted to the examination of the place of the stresses tests and themacrostresses testing in these reports, like new tools for evaluation of the risks of financialinstability.

WHOPUBLISHESTHEFSR?Theevaluationoffinancialstabilityimpliesthemonitoringcontinuesandtheriskanalysisandofthevulnerabilitiespotentialsweighingonthefinancialsystem.Thisevaluationfacilitatestheformulationofajudgmentonthedegreeofimpactstrengthofthefinancialsystemwhichcanbecommunicatedwiththegeneralpublicinordertoallowabetterevaluationoftheriskandanefficientmanagementofeconomicanticipations.Amongtheapproachesofcommunicationat the disposal of the central banks, the publication of the Reports of Financial stabilityoccupiesanimportantplace.Several central banks started to publish FSR in the objective to limit the phenomena offinancialinstabilitybyinformingtheGovernment,theinstitutionsfinancialandnot-financial,the markets and the general public on the principal risks and vulnerabilities. Although thecurrent crisis stimulated the publication of these reports, the number of countries havingalreadypublishedaFSRremainslimited.ThefirstattemptatpublicationofRSFwasthatoftheBankofEnglandin1997,afterthefallofseveral banks (Bank of the Credit and International business (BCCI) in 1991 andBarings in1995).Then,severalScandinaviancountrieshavingliveddifficultiessimilartotheleveloftheirbanking sectors (Finland (1991-1994), Norway (1987-1993) and Sweden (1990-1993))borrowedthesameway.



This attempt at publication of the FSR was reinforced after the advent of the internationalfinancial crisis because primarily of attribution at the central banks of a new mission offinancialstabilitycenteredmainlyonthemacro-prudentialregulation.Accordingtothestudyof Cihak and Al. (2012), on a total of 177 countries, 84 countries published RSF in 2011comparedto60in2006.ThisincreaseconfirmsthefactthatthepublicationoftheRSFisoftenstimulatedbytheadventofthefinancialcrisesandbanking.Indeed,thecountrieshavinglivedbankingcriseswereprecursoryinthedevelopmentoftheFSRinordertobeguardedagainstfuturecrises(forexampleAsianandothercountriesandoftheLatinAmerica).In the sameway, the analysis of the relationbetween thedecision topublish aRSF and theadventofthebankingcrisesshowsthatthecountrieshavinglivedcrisesweremostactiveasregards publication of these reports. Thus, on 102 countrieswhich lived a crisis,more than50%alreadytheirRSFcommunicated.Ontheotherhand,onthe75countrieswhichwerenottouchedbyabankingcrisis42%onlypublishedtheirreports.

Tableau1:relationbetweenpublicationoftheFSRandcrisesbanking

The countries which: Not crisis Crisis TotalDo not publish 43 50 93

Publish 32 52 84 Total 75 102 177

Calculation author, source MFI database and sites of the central banks Inadditiontothebankingexperimentsofcrises,otherfactorsinparticularrelatedtothelevelof development of the countries condition the decision of publication of the FSR. Thus andaccording to the analysis of the country constituting our sample, it arises that among thecountrieshavingpublishedaFSRmore than44%aredevelopednations,19%areemergentcountriesand31%ofthecountriesareinthedeveloping.Ontheotherhand,thesampleofthecountries which did not choose the publication of the RSF yet is mainly composed of theeconomiesunderdevelopmentandwithweakdevelopment(Figures1).

Figure1.FSRandlevelofdevelopment

On the same register, on 39 developed nations more than 94% already their FSRcommunicated.Asfortheemergentcountries,60%publishedtheirFSR.Ontheotherhand,theanalysis of the developing countries and those with weak development indicate that themajorityofthemdidnotpublishreportsoffinancialstabilityyet(seetablehereafter).



Tableau2:FSRpublicationaccordingtothelevelofdevelopmentofthecountries

Publication Developed nations

Emergent countries

Country sees development

of it

Country with low-income

Total

Do not publish 2 11 40 40 93

Publish 37 16 26 5 84 Total 39 27 66 45 177

Inaddition,thepublicationoftheRSFisalsoexplainedbythesizeofthefinancialsystem.Thecountrieshavingdeveloped financial systems arebrought toproduceFSR than thosewhosefinancialsystemislessdominating.Indeed,forthecountrieshavingalreadypublishedFSRthecredittoGDPratioiscloseto100%.Ontheotherhand,thecountrieswhichdidnotpublishaRSFyethaveanaverageratiofromapproximately48%(table3).

Tableau3:FSRpublicationaccordingtotheleveloffinancialdevelopmentGroup country Number Average Credit to GDP in %Do not publish 67 48

At theregional level, thepublicationof theRSF is largelywidespreadonthe levelofEurope,Asia and theLatinAmerica.Themajorityof the countriesof these areas communicatedFSRwellbeforetheinternationalfinancialcrisis.ItisnotthatafterthefallofLehmanBrothersthattheUnitedStatesandmorethan20othercountriespublishedtheirFSR.AfricaandtheMiddle-EastremainlateasregardspublicationoftheFSR.Indeed,tothe leveloftheareaonlysomecountriesalreadypublishedtheirFSR.ItisaboutJordan(2010),Bahrain(2007),Qatar(2009)andrecentlyOman(2013)andMorocco(2015). WithregardtotheAfricancontinent,SouthAfrica(2004),Ghana(2005),Kenya(2004),Uganda(2009)andtheCentralBankoftheStatesof West Africa (BCEAO, 2006) overall communicated their RSF before the advent of theinternationalfinancialcrisis.

[0,0](0,1]

1:publishing FSR; 0: not publishingCalculate by author, data IMF and Central Bank

Countries publishing FSR untill 2013Publication of FSR around the World



WHYPUBLISHAFSR?ThepublicationoftheFSR,accordingtoSvensson(2003),aimsatinformingthepublicandtheeconomicactorsonhealthofthefinancialsystemandconstitutesaninstrumentofearlyalarmfortheagentsconcernedandtheregulatoryagenciesfinancialwhenproblemsareprofiledatthehorizon.Ingeneral,threeaimsarehadbythepublicationoftheFSR.Itmakesitpossibletocontribute to the total stability of the financial system, reinforces the responsibility, thecredibility and the transparencyof the central banks and supports the cooperationbetweenthevariousauthoritiesimpliedinthemaintenanceoffinancialstability.Tocontributetothetotalstabilityofthefinancialsystem.Theregularanalysisofthefinancialmarketevolutionandtheidentificationoftheriskssupporttheearlydetectionofthepotentialthreats and thus the adoption of precautionarymeasures (macro-prudential) and corrective(managementofthecrises)suitable.Also,byinformingthepubliconthestateofthefinancialsystem, the publication of the FSR thus facilitates decision making in terms of macro-prudential policies and management of the crises and contributes, consequently, with thestabilityof the financial system.Thisobjective is transcribedclearly inoneof theFSRof theCentralBankofAustria(2001)“CentralBankdecidedtoregularlypublishareportonfinancialstabilityinordertoinformalltheactorsofthefinancialmarketsandthegeneralpublicontheproblemswhichcouldoccurintheeventofdistress”.To reinforce the transparency, the credibility and the financial responsibilities of theregulatory agencies. As regards financial stability, the responsibility for the authorities inchargeofthismissioniscloselyrelatedtotheircapacitytoexplainandjustifytheutilizationofmacro prudential (preventive and corrective) firms through an attentive examination of theareasofriskandtransmissionchannelsoftheshocks.Thus,thetransparencyontheevolutionsofthefinancialsystemandtheestablishedjudgment,isessentialinordertoguaranteeabettercomprehension and transmission of the decisions of the macro-prudential policies andconsequently to sit occasion credibility as regardsmaintenance of financial stability (Lastra(2001)).To strengthen the cooperationbetween the various authorities on thequestions of financialstability.AccordingtotheNationalBankofBelgium(2002),theFSRaimsstimulatingnotonlythedebateontherisksandthevulnerabilities,butalso,atcontributingtothereinforcementofthe cooperation between the authorities in charge of financial stability. This cooperationdevelops as well on the national plan as international and regional. Indeed, at the nationallevel,thepublicationoftheFSRmakesitpossibletoinformtheunitoftheregulatoryagenciesonthesituationofthefinancialsystemandtherelevanceofthedecisionstobediscussedandimplementatresultingfromthemeetingsfromthenationalcommittees(managementboardofthecrises,systemiccommitteerisks). Inthesameway, thedevelopmentof theRSFsupportsthe international cooperation through the identification of the risks on the level of eachcountry. This analysismakes it possible the other countries to evaluate their cross-borderexhibitions and to limit the contagion and the probability of supervening of internationalfinancialcrisis.Inadditiontothesethreeobjectives,theFSRalsocontributestoreinforcethemicro-prudentialmonitoring and the control of the monetary policy. Although this report have a systemicorientation, the analysiswhich it provides is capable to identify the areas of vulnerabilitieslikely to be examined by the supervision authorities in order to limit the probability ofsuperveningofthesystemiccrises.Inthesameway,theanalyzescarriedoutontheleveloftheFSR in particular make it possible to look further into the comprehension of the economicconditionsandfinancial,importantdimensionindecisionmakingasregardsmonetarypolicy.



HOWTOSTRUCTUREAFSR?Although the structure of the FSR varies from one country to another, it remains generallymadeupoftwogreatparts.Thefirst,constitutingthehardcoreofthereport,isinterestedinthe examination of the risks and the vulnerabilities of the financial system and in theevaluationofitsdegreeofimpactstrengthtotheshocks.Itisarticulatedaroundseveralaxes.First of all, the national and international macroeconomic and financial environment isanalyzed.Then,thisparttreatsdomesticmarketevolutionsfinancial,infrastructuresofmarketandfinancialandnot-financialinstitutions.Moreover,itpresentsanevaluationofthedegreeofimpactstrengthofthefinancialsystemandinparticularofthebankingsectorvis-a-visthemacroeconomic and financial shocks most plausible. The second part of FSR, as for it, isprimarilymadeupof itemsandspecial issuestreatingoftherelatedquestionswithfinancialstabilityandofprivateinterestforthemonetaryauthorities(BIS,ComityI.Fisher(2005)).InthemajorityoftheFSR,thefirstpartaccountsforapproximately2/3ofthetotalcontents.CertaincountrieslikeFrancereserveonlythe1/3tohim,whereasothersdevotethetotalityofthereporttohim,asitisthecaseforNorway.ThefirstpartoftheFSRisstructuredinordertodescribetheprocessofevaluationoffinancialstability. Several indicators are usedwithin this framework in order to identify the areas ofvulnerability. These last can rise from unfavorable macroeconomic conditions, a particulareconomicsectororexogenousshockscomingfromtheforeignfinancialmarkets.Theycanalsoemanatefromanimbalanceofthefinancialmarketsorbrittlenessofthefinancialinstitutions.The analysis of the macroeconomic conditions makes it possible to identify the negotiableinstrumentsofaneconomiccontractiononthestabilityofthefinancialsystem.Inthisrespect,aneconomicrecessionorasectorialimbalancecaninvolveariseofthedefectsoftheeconomicagentsandaffectconsequentlythesolvencyof the financial institutionsandtheassetsvalue.Also,theforeignorinternationalexpositionscanalsohavesignificantnegotiableinstrumentson financial stabilitybecauseof thepotential interconnectionsbetween thevarious financialmarketsandoftheincreasinglyimportantintegrationoftheeconomies.Inthesameway,theexistenceof financial institutionsandnot-financialoperating inseveralcountriescontributestoamplifytheimportanceofthecross-borderrisks.The risks emanating of the financial sector can come from the idiosyncratic or systemicproblems relative to financial expositions, difficult conditions on the capitalmarket or theweaknesses in the infrastructure of the markets. Thus, the default of a systemic financialinstitutionoralargedebtorcancauseastopofthetransactionsonthemarketsandresultinastrong financial instability. Also, the existence of instability phenomena, in particular thefinancialbubbles,canincreasetheprobabilityofmaterializationofsystemicrisk.Inaddition,otherriskscanresultfromtheinfrastructureofmarketandinparticularfromthepaymentandsettlementsystems.Thus, the first part of the FSR aims at the examination of three axes: firstmilkedwith theanalysisofthesourcesofinternationalvulnerabilities,secondisintendedfortheexaminationof the endogenousmacroeconomic conditions,while the last is capable to evaluate the risksemanatingofthefinancialsystem.Central Frequen Contents of the report/ratio: starts from each section (in %)



bank cy

Central Bank

EuropeanAnnual

- Outline of the risks

weighing on

financial stability

(5%)

- Macro-financial

Environment (27%)

- Financial system of the Euro

area (38%)

- Specific Area

(24%)

Bank of England

Semi-annual

- Outline (10%)

- Risk credit (24%)

- Risks related to

the internatio

nal financial system (11%)

- Impact strength of the British financial system (6%)

- Solidity of the

infrastructures of the financial market

- Items (40%)

Riksbank Semi-annual

- Foreword

+ Summari

zed (15%)

Evaluation of stability

- Financial market

and price of the real

estate (11%)

Them borrowers

of the Swedish

banks (15%)

- Development of the

banks (11%)

The financial

infrastructures (14%)

Items (34%)

Bank of Spain

Semi-annual

- Introduction (16%)

- Chapter I: Banking

risks (35%)

- Chapter II:

Profitability (14%)

- Chapter III:

Solvency (12%)

- Items and glossary (22%)

Banque de

FranceSemi-annual

- Summary

(3%)

- Economic environment

And International

Financier (15%)

- Financial

sector (20%)

- Items (55%)

Bundesbank Annual - Outline

(5%)

- Macroecono

mic Prospects and risk

factors (9%)

- Internatio

nal Financial system (25%)

- Financial Intermedia

ries in Germany

(25%)

- Regulation framework

and infrastructures of the financial market (13%)

- Appendix (6%)

Bank of Canada

Semi-annual

- Outline + Raised Problems

(20%)

- Macro-financial

Environment (8%)

- Tendencies of the financial system (13%)

- Reports/ratios (15%)

- Policies and

development of the

infrastructures (15%)

- Summary of the

research tasks

Bank of China

Semi-annual

- Summary

(7%)

- Regional and world Context (30%)

- Cost savings

domesticate (25%)

- Financial sector and monetarist

(20%)

- Prospects, risks and

uncertainties (16%)

Federal fund Annual - Outline

(7%)

- Developmen

t of the banking balance-sheets (28%).

- Tendenci

es of profitability and the banking

risks (21%)

- Internation

al Operations

of the American

trade banks (0.5%)

- Recent Developm

ents (0.5%)

- Appendice

s (43%)

Bank of Japan Annual -

Summary

- Developmen

t of the profits and

the Balance-sheet of the

Japanese Banks (5%)

- Progress in order

to eliminate the risks (14%)

- Evaluation of the risk related to the wallet

of the assets (7%)

- Profitabilit

y (9%)

- Stakes for the future (4%)

Central Bank of Turkey

Semi-annual

- Outline (3%)

- International

expansion (7%)

- Cost savings

domesticate (19%)

- Risk and developme

nt of the banking system (22%)

Financial infrastructure (11%)

- Particular Subjects (17%)

Central Bank of

Semi-annual

- Summary

- External Environmen

- External Financing

- Local Financial

- Users of the

- Banking system

- Financial Regulation and infrastructure (27%)



Chile (3%) t and financial

risks (9%)

: flow of capital

and foreign

debt (5%)

market (5%)

appropriations (17%)

(14%)

Central Bank of South Africa

Semi-annual

- Outline (3%)

- Macro Developmen

t financial international

(22%)

- Prudential

macro Analysis

domesticates (38%)

- Financial Infrastruct

ure and regulation

(16%)

Source:developednations(Bankforinternationalsettlement(BIS,2006))andemergentcountries(sitesofthecentralbanks)

On the organizational level, the majority of the FSR are structured in order to analyze thewholeofthesesourcesofvulnerabilitybyadoptingadefiniteplaneitherinsectorialtermorintermofrisk.TheRSFofthesectorialtype,analyzeinaseparatewayeachsectorandmarketinorder to determine the various risks and the possible interactions being able to induce asystemicrisk.Ontheotherhand,theFSRstructuredintermsofriskaredelayedonthemostimportantrisksanddescribetheirlevelandtheirimpactintheeventofmaterialization.Thestructureof the financial stability report isheterogeneousbecauseof specificitiesof theeconomiesandthefinancialsystemsofeachcountry.Somearefocusedmoreonthebankingsystem,asitisthecaseoftheBankofSpain,BankofFranceandRiksbankinparticularbecauseofthe importanceofthebankingsysteminthefinancingoftheeconomy.Ontheotherhand,othercentralbanksalsointegratetheothertypesoffinancialinstitutionssuchastheBankofEngland, the ECB, Bundesbank and the Central Bank of Singapore. With regard to otherdimensions to be analyzed on the level of the report/ratio of financial stability(macroeconomicconditions,marketsof capitaland infrastructures), thewholeof thecentralbanksintegratetheminaregularway.OnthebasisofthisanalysisofthestructuresoftheFSRofthecentralbanks,itisrecommendedto adopt a sectorial approach. The reportwill have to thus contain an analysis of themaincomponents of the financial system, the risksmost projecting and possibly of the principaltransmissionchannelsofshocks.Thus,thefinancialstabilityreportcouldbestructuredinthefollowingway:

1. Highlight:itsummarizesthewholeoftheresultsandanalyzestranscribedinthereportandmakesitpossibletogiveacomprehensiveviewontherisksweighingonfinancialstability.Followingtheexampleothercentralbanks,thischapterwillhavetocomprisea graph in cobweb (riskmap) describing the evolution of the economic and financialvulnerabilitiesweighingonthefinancialsystem.

2. Chapter I “macro-financial Environment”: this chapter describes the evolution of theeconomicconditionsandfinancialdevelopednationsandemergent. It isaquestionoffollowing the principal economies, in particular Europe and the USA, through theprincipal macroeconomic aggregates (growth, inflation, unemployment, etc…), toanalyze macroeconomic and financial imbalances with the international level and todescribethevariouspoliciesofthecentrallargebanksbeingabletoaffectnationalandinternational financial stability. This chapter also analyzes in a detailed way theevolutionofthedomesticmacroeconomicconditionsthroughthefollow-upofthekeymacroeconomic aggregates, of which in particular the economic growth,unemployment, the external vulnerabilities, public finances especially on budgetarysoutenabilityandtheevolutionofthepublicdeficit.

3. Chapter II “real Sector”: this chapter analyzes the economic conditions and financialfirms and households through a rigorous follow-up their inheritances. This chapterapproaches the sectors headlights of the economy in particular the real sector.With



regard to the households, this chapter should allow a follow-up of the indicators ofconsumption, income, saving andappropriations.Being the firms, an analysis of theirsituationseconomicandfinancialshouldbecarriedoutonthebasisofseveralindicatorof which in particular manufacturing output, the contribution of the sectors in thegrowth,theutilizationratioofthecapacitiestoproduceandevolutionofclearcreationsof firms. Also, several other balance sheet indicators are to be analyzed in order todeterminetheevolutionofthefinancialconditionsofthefirms,itacts;returnonassets(ROA),returnonequity(ROE),leverageratio,coverageratio,workingcapitalratioandevolutionoftheappropriationsbytypology.

4. Chapter 3 “Financial institutions, capital markets and financial infrastructure”: it isdelayed on the analysis of the financial system by treating the financial conditions(structure, development and efficiency) of each component of the financial system(banks,specializedfinancialinstitutions,reinsuranceandinsurancecompanies,pensionfundsandfinallyfinancecompanies)andtheprincipalrisks(creditrisk,riskofmarket,riskliquidity,riskprofitabilityandrisksolvency)heavyonthislast.Thefirstpartwillhave to relate to the banking system and the other finance companies through thefollow-upof apanoplyof indicatorsofwhich inparticular the structureof the assetsandbanking liabilitiesanddecompositionof theaccountof theproductsandcharges.Withregardtotheotherfinancialinstitutions,exceptfieldofsupervisionofthecentralbanks(pensionfundandreinsurance,insurancecompanies),theanalysisisfoundedonthefollow-upofthecharges,theincomes,thepremiumaccountsissuedbycategoryofinsuranceandoftheliabilitiesandassets.Thesecondpart,constitutingthecoreofthereport/ratio, is interested in the principal risks weighing on financial stability. Thischapter analyzes also the market evolution stock-brokers, bond-holders and ofexchangethroughseveralindicatorsofwhichinparticularthoserelatingtotheoutputs,theprocurementprocessesandofsale, tovolumesof thetransactionsandvolatilities.HaveregardtotheimportanceofthefinancialinfrastructureinthemaintenanceofthesolidityandtheefficiencyoftheMoroccanfinancialsystem,alastsectionofthischaptershouldbedevotedtotheexhibitionoftheevolutionsintermoflegislationandtermoftechnologyofthefinancialplatformrelatingtothesystemsofpayment,ofpaymentandnetting.Forthisreason,variousindicatorscanbeusedlike:thenumberoftransactionsday laborers, thenumberofelectroniccharts incirculation, thenumberofsystemsofpaymentE-trade,etc.

5. Chapter 4 “Stress-test of the banking system”: this chapter evaluates the degree ofsolidity of banking system on the basis of micro and macro stress tests. After theidentificationofthevulnerabilitiesorrisksweighingonfinancialstability,thestressestests banking and the macro stress tests will allow to formulate a judgment on thedegreeofimpactstrengthofthefinancialsystem.

6. Appendices: thispart isdevoted tospecificquestionshaving forobjective to facilitatethecomprehensionofanalyzescarriedoutintheheartofthereport.TheCentralbanksuse this part in heterogeneousways; there are of them thosewhich present the lastevolutions financial regulation. Other Central banks devote this part to the items ofresearch,preparedbyeconomistsoftheBankorexternalauthors,onquestionsrelatedtofinancialstability.

The structure suggested analyzes the whole of the components of the financial system andmakesitpossibletoformulateatotaljudgmentonthesituationoffinancialsystem.However,ithastoevolve/moveaccordingtotheeconomicconditionsandfinancial.Also,theBankwillbeabletobefocusedinaforthcomingstageonparticularcomponentsorspecificrisks.



In addition, the financial stability report of a central bankmust imperatively respect somebasicprinciples.Firstofall, itmustmake itpossibletothereadertodeterminethesystemicrisks throughaclearanalysisandanarticulationof thevariouspartsof thereport.Also, thestructureoftheFSRmustbestandardizedinordertofacilitatetothefinalreaderthefollow-upof the situationof the financial systemand the judgmentsof themonetary authorities.Withregardtotheothercharacteristicsof thereport toknowing its frequencyand itsavailability,followingtheexamplemajorityofthecentralbanks, itwouldbeconvenienttoadoptasemi-annual publication and to be committed on a time-table of diffusion in order to allowing abetter regularity in the publication of the FSR. The central bank should devote a distinctheading on its official site for the communications as regards financial stability in order toavoid any overlappingwith its othermissions. The publication should relate to at the sametime the FSR and the data used, except for those in confidentialmatter (like the individualdata).

WHICHINDICATORSTOUSE?The indicators used within the framework of the RSF result from the macroeconomic andmicro-prudential analysis and aim at covering dimensions having milked with financialstability.Indeed,themacroeconomicindicators,usedinthereportonthemonetarypolicy,areincluded in the FSR in order to identify the areas of vulnerability and to describe the risksweighing on the stability of the financial system. In the same way, the micro-prudentialindicators,employees inthereportsofsupervision,areoften includedintheFSRinordertoevaluatethesystemicandno-individualaspects.Since theNineties,where firstmissions FSAP (Financial SystemAssessment Program)wereinitiated, the IMFproposed, inanswer for thepurposesof thebanking crisesof theEightiesand Nineties, of the indicators of financial solidity (Financial Soundness Indicators, FSI)capabletoapproachthefinancialrisksandbankingweighingonfinancialstability.Initially,theIMF recommended to follow basic indicators (Core Indicators) including/understanding thestatisticsonquality,thesolvencyandtheperformanceoftheinstitutionsofdepositsandinthesecond time, to widen the device of follow-up to other advanced indicators (encouragedindicators) including specific data on the institutions of deposits, the households, not –financialfirms,thenonbankingmarketsandfinancialinstitutions.On the same register, the ECB proposed in 2005 an alternative approach based on macro-prudentialindicators(MacroPrudentialIndicators,MPI)inordertoevaluatefinancialstabilityas awhole. Compared to the indicators of the IMF, the indicators proposed by the ECB aremore numerous and make it possible to follow several components of the financial andeconomic system (Mörttinen and Al (2006)). Nevertheless, put besides some marginaldifferences,thetwoapproachesuseoverallthesameindicatorsofrisk.Except the Euro area which uses its own macro-prudential indicators, the majority of thecountriesusethestandardapproachoftheIMF.Indeed,thecentralbankspublishintheRSFon average 53% of “Core” FSI gathering the indicators of solvency, of quality of the assets,profitability,liquidityandmarket.Althoughtheindicatorsofsolvency,qualityoftheassetsandprofitabilitypracticallyappearinalltheRSF,thoserelatingtotheliquidityandthemarketriskarenotfrequentlyused.Withregardtotheadvancedindicators,theFSRemploybetween37%and 40%. Being the indicators treating of the nonbanking financial institutions the FSR usebetween14%and20%oftheindicatorsproposedbytheIMF(HaanandAl(2006)).Simultaneouslywith the indicators of financial solidity, other specific indicators are used todescribe the tensions on the markets of capital. The objective is to extract the relative



information with the risk contained in the financial assets, in particular the shares, theobligationsand theoptions.Among these indicatorsappears: thevolatilityof theshares, thedistancetothedefault,probabilityofdefault,theyieldofsovereignbonds,theCDSpremium,indicatorsofimplicitvolatilityderivedfromtheoptionsandotherderivativeproducts.In the same way, the central banks use other information, in quantitative and qualitativematter,resultingfromthecreditratingagencies,earlywarningsystemsoroftheopinionpollsonthefinancialsystemanditsinfrastructure.Indeed,manyFSRbringbackthelastratingsofthe financial institutions issued byMoody' S, S&P and Fitchwhile insisting on the systemicsecuritiesofthisnotation.Thesenotesmakeitpossibletohaveanevaluationindependentofthe financial health of the institutions. In the same way, certain FSR restore the results ofopinionpolls inrelationtothe financialsystem, inparticulartheopinionof theactorsof thefinancialmarketontheextentoftheriskstowhichtheyareexposedandtheinvestigationintotheevolutionsofthebankcredit.InthelightofBenchmark,itarisesthatthecentralbanksuseoveralltheindicatorsproposedby the IMF and enrich them by other indicators suitable for inform about importantdimensionsasregardsstabilityofthefinancialsystem.Theindicatorsofrisk,developeduntilnowby thecentralbanks,areoverallon linewith thepracticesof thecentralbanksand theIMF.However,itistobestressedthattherelevanceoftheFSRdoesnotdependsolelyonthequantityof indicatorsused,but ratherof thequalityof theanalysiswhich the lattermake itpossibletooffer.Inthisrespect,theexampleoftheBankofEnglandisinteresting.Indeed,thereport/ratioofBoEiscomposedofapanoplyofeconomicindicatorsandfinancialcoveringthewholeofthecomponentsofthefinancialsystemandeconomic.Inadditiontotheindicatorsoffinancial solidity suggested by the IMF, other indicators the complementary such as CDsovereignsandbanking,therawmaterialcosts,thecurveoftherates,thespreadsofinterestrate,implicitvolatilitiesofthefinancialassetsandthesovereignnotationsareused.

WHICHISTHEPLACEOFTHEMACROSTRESSTESTSINTHEFSR?The testsof resilience (stress tests)becameessential analytical tools in theanalysisand theevaluation of financial stability. They are used to measure the impact of an extreme andplausibleshockonaninstitutionorthefinancialsystemasawhole.Thesetoolswereusedforthefirsttimebytheauthoritiesofsupervisiononthelevelofthereports/ratiosonthefinancecompaniesinordertoevaluatetheindividualrisksofthebankinginstitutionsandtoformulateajudgmentontherobustnessofeachinstitution.AsfromtheNinetiesandinfirstprogramsF.S.A.P,anewapproachofstresstestwasadopted,theyarethemacroeconomicstresstestsorthemacrostressestests.Thelattermakeitpossibleto quantify the relation between the macroeconomic conditions and the evolution of theperformance, the solvency and the liquidity of the individual institutions and the bankingsystem and financier as a whole (macro-financial linkages). They thus make it possible toprovideacomprehensiveframeworkofdiscussiononthemacroeconomicrisksincurredbythefinancialsystemandtomeasuretheimpactofit,intheeventofmaterialization,onitsimpactstrength.Twoapproachesofmacrostress testareusedat the level themFSR inorder toquantify theimpactofthemacroeconomicconditionsonfinancialequilibrium.Thefirstapproachconsistsinidentifyingtheplausibleshocksandextremeswhichcanaffectthefinancialsystemandaskthe financial institutions to lead them on the basis of their own internalmodel (Bottom-upapproach). The second approach is based on an internal design of themacro stresses tests:withinthisframework,theCentralbanksusetheirowntoolstoevaluatetherobustnessofthe



financial system as for the macroeconomic shocks (approach Top-down). In the facts, andalthoughthecentralbanksoftenchoosetoadoptanapproachTop-downwiththedetrimentoftheBottom-upapproachasteppingoftheresultsofbothapproachesisnecessarytoarriveatrelevantconclusions.TheexerciseofmacrostresstestwithintheframeworkoftheapproachSignal-downproceedsin 5 stages: determination of the initial shocks, the simulation of the macroeconomicconditionsby takingaccountof the shocks, identificationof thebankingwallet to stress, themodeling of the relation between fundamental macroeconomic and financial ones and theformulationofajudgmentasforthesolidityofthebankingsectorAfterdoestheidentificationofthescenariostobeusedintheexerciseofthemacrostresstest,itisnecessarytodeterminethebankingbooktostress,actofthebankingbookorthemarketbook?Thischoiceisjustifiedbythestructureofthebalance-sheetofthebankingsystemandits sources ofmargin.Have regard to the role of the banking system in the financing of theeconomy and the preponderance of the wallet of credit, the credit risk collected all theattentionofthecentralbanksandthemacrostressestestsofcreditwereused(Figure4).

ThemacrostressestestsofcreditarethusretainedontheleveloftheRSFofthemajorityofthe Central banks in order to describe the relation between the evolutions of themacroeconomic framework and the variables banking and financial. Themodels of systemicrisk of credit are varied and the specifications retainedby theCentral banksdependon thecharacteristics of each country, of the level of development of the banking system and thenatureoftheavailabledata(seeTableau3).Tableau3:devicesofmacrostresstestofcreditofthecentralbankscommunicatedonthelevel

oftheRSFExperiments

RSF Endogenous variables Model Methodology of simulation of the scenarii Variables of interest

Chile Ratio of provisions, growth rate of the GDP, interest rate and debt

Time series (VECM) Model VECM Solvency ratio

Slovenia NPL, interest rate, GDP and foreign exchange rate Time series (VECM) Model VECM Solvency ratio

Czech New NonPowerful Loan (NPL), GDP, inflation and interest rate

Model of Merton macroeconomic model Rate of defect

AustriaRate of industrial defect, oil price, income available,

rate of inflation, export, industrial production and interest rate

(Regressionlogistics) Model VAR Distribution of the hoped

and unhoped-for Losses

Belgium Rate of defect of the firms, output gap, interest rate (Logistic Regression)

Macroeconomic model NIGEM

Rate of defect of the firms

93% 87%

60%

27%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Macro stress test de crédit Stress test de taux Stress test de liquidité Risque de contagion

Figure 4 : Device of macro stress test in the Reports/ratios of Financial stability



Germany Logistic transformation of the rate of the provisions, GDP, interest rate and growth of the appropriations Data of panel Macroeconomic model Provisions

ECB Frequency of the hoped defects, GDP, inflation, assets price, foreign exchange rate and interest rate Satellite model Model GVAR with several

Convention countriesFrequencies of the

defects hoped

France Probability of change of notation, variables macroeconomic

(Logistic Regression) Model Mascot Solvency ratio

*ThistablewaselaborateonthebasisofFSRoftheCentralbanksTheresultsofthesemodelsaswellastheassumptionsretainedfortheexerciseofmacrostresstest are often communicated in the financial stability report. However, the practice of theCentral banks shows clearly that the information communicated on the level of the partsdedicatedtothemacrostresstestisvariedandoftendependsonspecificitiesofeachcountryandthedegreeoftransparencywished.Table4representstheinformationcommunicatedbyseveralCentralbankswithintheframeworkofthemacrostresstestofcredit.

Tableau4:PracticesofmacrostressofcreditatsomeCentralbanksCentral banks Scenarios Stressed risk factor Percentage allocated in the FSR Variables of interest

Central Bank of Japan

Two scenarios: basic and an extreme scenario using a

model VAR

Growth rate of the GDP, the market index TOPIX, interest

rate of long run 12% Credit costs, Ratio Tier 1

Central Bank of England

Two scenarios: basic and an extreme scenario using a

model BVAR

Growth rate of the GDP, price index of the real assets,

unemployment rate, interest rate of short and long terms

- Banking profit and solvency ratio

Bundesbank Two scenarios: basic and an extreme scenario

Growth rate of the GDP, interest rate of short and long terms and

the curve of the rates 8%

Net interest margin, other incomes banking, ROA

and ratio Tier 1

Czech Central Bank

Two scenarios: basic and an extreme scenario (the

extreme scenario is divided into three scenarios

alternate) by using the forecasting models of the

Bank

Growth rate of the GDP, unemployment rate, foreign

exchange rate and interest rate at one year

7% Amounts receivable in

suffering and the solvency ratio

Central Bank of Brazil An extreme scenario Growth rate of the GDP, interest

rate and foreign exchange rate 2% Amounts receivable in


Central Bank of India

A basic scenario and three scenarios unfavorable (weak, average and extreme) based

on a historical approach

Growth rate of the GDP, Interest rate of short term, rate

of inflation, ratio of exports with the GDP and rate of

inflation

3% Amounts receivable in


Central Bank of Hungary

Two scenarios: basic and an extreme scenario

Growth rate of the GDP, real Foreign exchange rates, Spread

CD, Unemployment rates, Assets prices

7% Losses on amounts

receivable and solvency ratio

Central Bank of Sweden

Two scenarios: basic and an extreme scenario resulting from the scenarios used by

the European Banking Authority (EBA)

Growth rate of the GDP and interest rate 4% Profit and solvency ratio

*ThistablewaselaborateonthebasisofFSRoftheCentralbanksoftheyears2010,2011and2012

The international experiment shows thus that the losses on amounts receivable and thesolvencyratiosareoftenused,asvariableofanswer, toevaluate thestabilityof thebankingsystem,followingtheadventofmacroeconomicshocks.Moreover,thepartallocatedwiththemacrostressestestsintheRSFisbetween2and12%oftheaforesaidreports/ratios,withouttakingaccountofframedandtheappendiceswhichcontaininthemajorityofthecasesoftheitems of research and the notes detailing the systemic models of risks used within theframeworkofthemacrostresstest.



Asregardscommunication,theresultsofthemacrostressestestscanbepaidinanaggregateor granular way. The countries choosing more transparency choose to give information bybank or segment of banks (Latvia, Brazil, Spain and theUnited States). These central banksconsider that the diffusion of sensitive information is certainly suitable for induce financialinstability, nevertheless, it can on the contrary encourage the establishments with more agreatest caution and push the central bank to improve its decision making and thus toreinforceitsindependenceanditscredibility.CurrentlythemajorityoftheBankshaveadeviceofstresstestandmacrostresstestalignedontheinternationalstandards.Indeed,thesystemicmodelsofrisksofcreditandprofitabilitywillmakeitpossibletoensurearathersatisfactorycommunicationasregardsmacrostresstest.Inthesameway,withthe levelof themicrostressteststhecentralbankshavea frameworkofstresstestofliquidityandratheradvancedinterestratethusmakingitpossibletoformulateajudgmentonthedegreeofsensitivityoftheMoroccanbanksanevolutionofinterestratesorachangeinthebehaviorsofthedepositors.

CONCLUSIONThewideningofthemissionsofthecentralbankstothemaintenanceofstabilityrequiresaneffectivecommunicationstrategymakingitpossibletoanchoranticipationsoftheagentsandtosensitize themas for therisks incurredby the financial system.Thisstrategywillhave toinform and reassure the public as for the areas of vulnerabilities and with the macro-prudentialpoliciestoimplement,inordertolimitthesystemicrisks.TheFSRistheprincipalchannelofcommunicationasregardsfinancialstability.Itsproductionas its structureare conditionedby several elements,namely, thematurityof the frameworkanalytical, the structure of the financial system and the international level of integration atfinancialmarket and economic system.Thepractices of the central bankson thematter areheterogeneousand it seemsdifficult toreachaconsensus fromthem.Certainveryadvancedreport are interested in the unit of the components of the financial system and economicwhereas others are limited to some components of the financial system, in particular, thebankingsystem.Theanalysiscarriedoutinthisworkshowsthatthemajorityofthecountriesarticulatetheirreport around five great parts: (I) macro-financial environment, (II) the real sector, (III)financialintermediaries,marketsofcapitalandinfrastructures,(iv)thestressestestandmacrostress test and (v) items and documents of research. The first three parts are intended todescribe and identify the economic and financial vulnerabilities incurred by the financialsystem.The fourthpartevaluates the impactstrengthof the financial system in theeventofmaterialization of the possible hazards. Lastly, the last part, of general order, is intended toproduceandsharesomereflectionsonproblemsrelatedtofinancialstability.Asregards indicators tobecommunicatedon the levelof theFSR, thecentralbankcouldbelimitedtotheindicatorssuggestedbytheIMFandsomeindicatorsresultingfromthemarketsofcapital.Most important is touse indicatorsallowingtogiveanoverallassessmentofeachcomponentofthefinancialsystemandtofacilitatetheevaluationofthetransverserisks.Withregardtothestressestestsandmacrostresstests,thebankscancommunicatetheresultsonthe banking system in an aggregate way in order to reassure the public as for the impactstrengthofthefinancialsystem.



References1. Irving Fisher Committee, (2005), “Data Requirements for Analyzing the Stability and

VulnerabilityofMatureFinancialSystem”,BIS.2. JimWilkinson,KennethSpong,andJonChristensson,2010“FinancialStabilityReports

How Useful During a Financial Crisis?” Economic Review (Federal Reserve Bank ofKansasCity).

3. Jon Christensson, Kenneth Spong, and Jim Wilkinsonon, December 2010. “What CanFinancial Stability Reports Tell Us about Macro prudential Supervision?” ResearchWorkingPaperNo15.(FederalReserveBankofKansasCity).

4. Houben,A.,J.KakesandG.Schinasi,2004,TowardsaFrameworkforFinancialStability,OccasionalStudyNo.2(1),(NederlandscheBank).

5. Lastra, Rosa Maria “How much accountability for central banks and supervisors?”CentralBanking(2001),Vol.12(2).

6. MartinČihák,June2006.“HowDoCentralBanksWriteonFinancialStability?”,WorkingPaperNo.163,(IMF).

7. MartinČihák,SòniaMuñoz,ShakiraTehSharifuddin,andKalinTintchev,January2012.“Financial Stability Reports: What Are They Good For? (IMF), Working Paper No 1,(IMF).

1. Financialstabilityreport,2012(SwissNationalBank).2. Financialstabilityreportintheworld(GFSR,2012(theIMF)).3. Financialstabilityreport(ECB,2011).4. FinancialstabilityReview,2012(CentralBankofLuxembourg).5. Financialstabilityreport,June2012,(BankofEngland).6. Financialstabilityreport,2012,(Riksbank,BanksNationalofSweden).7. Financialstabilityreport,(NederlandscheBank,BanksNationaloftheNetherlands).8. Financialstabilityreport,November2012(NationalBankofSpain).9. Financialstabilityreport,2012,(NorgesBank,BanksNationalofNorway).10. Sander Oosterloo, Jakob de Haan, Richard Jong-A-Pin, (2006), “Financial stability

reviews:Afirstempiricalanalysis”,JournalofFinancialStability.


Lpez,C.D.J.G.,Caraveo,M.D.C.S.&Perez,E.G.S.(2016).OrganizationalClimateandOilCmpanies.MultidimensionalStudywithWorkersfromtheDrillingDepartmentinTabasco,Mexic.ArchivesofBusinessResearch,4(6),340-350.


OrganizationalClimateandOilCompanies.MultidimensionalStudywithWorkersfromtheDrillingDepartmentinTabasco,

Mexico

CarlosdeJesúsGonzálezLópezUniversidadJuárezAutónomadeTabasco(México)

MaríaDelCarmenSandovalCaraveo

UniversidadJuárezAutónomadeTabasco(México)

EdithGeorginaSurdezPérezUniversidadJuárezAutónomadeTabasco(México)

Abstract

Theorganizationalclimateistheperceptionofworkersinacompanyabouttheprocesses of the organization and the relationships among itsmembers. Theaimofthisstudywastoconductastudyoforganizationalclimatetoemployeesworking in an oil company located in Tabasco, Mexico. The research isdescriptive and correlational. The design is non-experimental with aquantitative approach. A questionnaire with a Likert scale and reliability of0.838 in the Cronbach Alpha coefficient was used. The dimensions oforganizational climatewereautonomy, cohesion, support,workpressureandinnovation.TheANOVAanalysisofvariancereportedastatisticallysignificantdifferencebetweencohesionandemploymentstatus;autonomyandworkarea.ThePearsoncorrelationindicatedaweakcorrelationbetweenthecategoryofworker and the dimension of autonomy. In conclusion, the results indicate afavorabletrendtowardorganizationalclimate.

Keywords:Organizationalclimate,cohesion,workpressure,oilworkers,drilling.

INTRODUCTION

At present, the diversity of organizations that exist inMexico need to face new and greaterchallengesinordertobecompetitiveinthefieldtobedeveloped;giventhisreality,thehumancapitalofeachorganizationbecomesafundamentalpillarfortheachievementofitsobjectives.Everyorganizationhasaworkenvironmentthatisperceivedandexperiencedbythemembersthereof,andconsidersthefeelandreactofeachindividual.Thisenvironmentsomehowaffectstheperformanceofemployees in theorganization; the relationshipbetween theworkerandhisenvironmentcanprovidesatisfactoryresults,orconversely,cancauseproblemsnotonlyintheperformanceof hiswork, but alsopersonally. In this sense,Werther,Davis andGuzmán(2014)arguethat thedeteriorationof theworkenvironmentcausesstaff to loseenthusiasmfortheirwork,andthisisreflectednotonlyinhigherlevelsofabsenteeismandturnoverrates,butalsointheslowness,reluctanceandindifferencethatcharacterizethescleroticinstitutions;thestaffstarttopsychologicallydriftapartfromtheirworkanddedicatetomeettheminimumrequired.



Inthisregard,Chiavenato(2011)indicatesthattheorganizationalclimateiscloselyrelatedtothemotivationofitsmembers;whenitishigh,theorganizationalclimateincreasesandresultsin

CORRESPONDINGAUTHORsatisfying relationships, encouragement, interest, collaboration, etc., on the contrary, whenmotivation is lowamong themembers,eitherdue to frustrationorbarriers tosatisfyneeds,the organizational climate tends to decrease and is characterized by depression states,indifference,apathy,dissatisfaction,andsoon.Theauthoraddsthatinextremecases,itoccursduetostatesofaggressionanddissatisfactionthatarecommoninthefrontalclasheswiththeorganizationsuchasstrikesordemonstrations.Theproblemsofpeoplehavebeenthemostdifficulttoresolve,andalsothosethatabsorbthemost time to administrators. In order to address these problems, it is recommended thatadministrators understand the perceptions of employees regarding different aspects of theorganization.Besides,theymustknowasmuchastheycanaboutthefactorsthatsignificantlyinfluencethebehaviorofpeopleintheirorganization.Oneofthesefactorsistheorganizationalclimate,thatis,thepsychologicalatmosphereofalldepartmentsinanorganization(Furnham,2001).Werther and Davis (2008) associate the organizational climate with quality of life at workwhen they say that thisquality is achieved "by improving thework environment, creating afavorable working environment to the company, and at the same time conducive tosustainable,healthyandcomprehensivedevelopmentoftheproductivelifeoftheworkers"(p.427).Similarly,DavisandNewstrom(2003)mentionthatthetermqualityoflifeatworkreferstothefavorableorunfavorablenatureof theworkingenvironment in itsentiretyforpeople,and also that companies recognize their responsibility to create jobs and excellentworkingconditionsforindividualsandfortheeconomicwelfareoftheorganization.The quality of the work environment is determined by the way the staff judge their ownactivity in the organization, although humans produce variable resultswhen they decide toprovide services. Studies on the subject over the past two decades reveal two importantaspects: 1) in order to increase productivity, it is essential to improve the quality of theworking environment and 2) most people think that they enjoy a high-level workingenvironment when they contribute to the success of the company in any significant way(Wether,DavisandGuzmán2014).Inthisway,"bothleadersofthecompanyandprofessionalsinhumancapitalmanagementmustunitetocreateanorganizationalclimateinwhichpeoplearetreatedassuchandasexpertsresponsiblefortheirposts"(Wether,etal.2014,p.309).Whentalkingaboutorganizationalclimate,Brunet(2011)pointsoutthat inthesetimes, it isvery important for organizations to identify,meet and consider the elements governing theworkingenvironmentofitsmembersintheirworkareaandthroughouttheorganization.Healsomentionsthatatthepresenttime,itisnecessarytounderstandthefactorsthatinfluencetheperformanceofindividualsatwork.Organizational climate studies are relevant for organizations, since managers need to haveaccurateandtimelyinformationinordertodevelopstrategiesthatallowthemtoinvolveandengageemployeesfromtheirorganizationintheenhancementoforganizationalprocesses,aswellasintheirindividualproductivity,whichresultsintheincreaseofthecompetitivenessofthecompany.



The purpose of this research was to determine the perception of organizational climate ofemployees working in the drilling department in a company dedicated to the exploration,distributionandcommercializationofcrudeandrefinedoilinTabasco,Mexico.Itwascreatedinresponsetotheproblemofstaffabsenteeismthatthecompanyisfacinginthisarea.Iftheseabsencesarenot coveredon time, there isa risk that theactivities couldbesuspended,andthus a decrease in oil production and important economic losses. Given this situation, it isnecessarytodeterminetheexistenceofafavorableorunfavorableorganizationalclimatefortheactivitiesofthisorganization.ItisimportanttonotethatnohistoryofpreviousstudiesoforganizationalclimateinMexicanoilcompanieswasfoundintheliteratureconsulted,sothisresearchcanbeconsideredapioneerinthistypeofinstitution.

THEORGANIZATIONALCLIMATEOriginoftheconstructTheconceptoforganizationalclimateisrootedinthethirties.ItemergedwiththeHawthornestudies at Western Electric and the current of human relationships that capitalizes thediscovery of the socio-emotional dimension of the organization, relates it to the notion ofleadershipandassociatesitwiththeorganizationconceivedasstructure(Fernández,2004).Inthis vein, Lewin (1951); Lewin, Lippit andWhite (1939, quoted by Salgado, Remeseiro andIglesias,1996)pointoutthatthedevelopmentoftheconceptofsocialclimateanditsresearchbeganintheearlythirtieswiththeresearchconductedbyLewinandhisassociates;it istheLewin’swork(1935,1939,1951)whichservesasastimulusforthedevelopmentofinterestinthe social context, his experimental laboratory work with Lippit and White on groupleadership styles, introduces the term ‘climate’ as a link between the person and theenvironment, the group will behave differently depending on the behaviors of the leaders,creatingthusdifferentclimates(Silva,1992).On theotherhand,MújicadeGonzález (2007) indicates that the termorganizationalclimatewas raised from the sixties with the emergence of organizational behavior, organizationaldevelopmentandthetheoryofsystemsappliedtothestudyoftheorganizations,andaddsthatthe analysis of the organizational climate consists of a set of factors expressed in terms ofcomponents,dimensions,categoriesandvariablesthatenableitsstudy,accordingtoresearchpurposes.Brunet (2011) states that the concept of organizational climate is recent and was firstintroduced in industrial/organizational psychology by Gellerman in 1960, and that thetheoreticaloriginsarenotalwaysclear in theresearch;healsomentions that theconceptofclimateismadeupoftwoschoolsofthought,Gestalt’sschoolandthefunctionalistschool;thefirst one takes the position through which individuals understand the world around thembasedonperceivedandinferredcriteria,andthatthesebehaveaccordingtohowtheyseetheworld, so that theperception of theworking environment or the environment itself iswhatinfluences thebehaviorofanemployee.The functionalistschoolstates that the thinkingandbehaviorofanindividualdependontheenvironmentaroundthem,andindividualdifferencesplayanimportantroleintheindividual'sadaptationtohisenvironment,sothatanemployeeinteractswithhisenvironmentandparticipatesinthedeterminationofthisclimate.ConceptTheorganizationalclimatehasbeenconceptualizedbydifferentauthors,suchasAlves(2000)whodefinesitastheresultoftheperceptionthatworkershaveaboutanobjectiverealitythatistheorganization;whatworkersliveandfeelforaparticularorganization.Furnham(2001)claims that the organizational climate can be considered a descriptor of organizational



attributes,expressedintermsthatcharacterize individualexperienceswiththeorganization.ForSandoval(2004,p.84),theorganizationalclimate"istheworkenvironmentperceivedbymembersof theorganizationand includes a structure, a styleof leadership, communication,motivation and rewards, which all directly influence the behavior and performance ofindividuals.”Downey,Hellriegel,PhelpsandSlocum(1974)statethattheorganizationalclimateisasetofattributes that can be perceived by the individual about a particular organization or theircomponents,andmaybeinducedbythewaytheorganizationand/oritscomponentsdealwithitsmembersandtheirenvironment.Chiavenato (2011) expresses that the organizational climate is the internal environmentamong themembersof theorganizationand that it is closely related to theirmotivation,healso adds that it refers to themotivational properties of the organizational environment, aswellastheaspectsoftheorganizationthatleadtostimulationofdifferenttypesofmotivationsintheirmembers,andtheorganizationalclimateisfavorablewhenitbootsmoraleandmeetsthe personal needs of the members; and it is unfavorable when it frustrates those needs.MújicadeGónzalez(2007)perceivestheorganizationalclimateasasetofsharedperceptionsthat people gain about the reality of work in the organization, where social components(policies,rules,regulations,roleplaying,operationofgroupsandstructurals)combine.Thedefinitionsoforganizationalclimaterefertothewayhowpeopleperceivethesurroundingenvironment of the organizations in which they interact (Castillo, Lengua and Pérez, 2011;Segredo and Díaz, 2011; Mújica de González, 2007; Watkin and Hubbard, 2003; Sandoval,2004;Alves,2000;Brunet,2011;Downey,etal1974)theseperceptionsarerelatedtoexternaland internal factors that are found within the personal and institutional dimensions of thecompany, which are considered within the strategic importance for the organizations,perceived as a fortress in quality processes and continuous improvement (Segredo, et al.2011).Martín(2000)arguesthattheworkingenvironmentinorganizationsisafacilitator,aswellasaresultofnumerousinteractionsandorganizationalprocessesincludingplanningwithallitsinstrumentsandcomponents, considering thehumanelement, communication,participation,trust and respect. In this regard, Alves (2000, p. 124) states that "A high level ofcommunication,mutualrespect,feelingsofbelonging,friendlyatmosphere,mutualacceptanceand encouragement, alongwith a general feeling of satisfaction are someof the factors thatleadstraighttoafavorableclimate,properproductivityandgoodperformance."Theorganizational climatehasbeenassociated invarious studieswithvariables suchas jobsatisfaction (Downey et al 1974. Salgado et al 1996; Robles, et al 2005; Chiang, Salazar andNúñez, 2007; Chiang, Salazar, Huerta and Núñez, 2008) leadership (Alves, 2000; GonzalezParra, 2008; Contreras, et al 2009) the culture of the organization (MéndezHernández andVargas, 2013, González et al, 2008) with the quality of service and quality of life at work(Bernal,PedrazaandSánchez,2015;Casas,Repullo,LorenzoandCañas,2002).Studieshavereportedthatorganizationalclimateisavariablethatrelatestoothervariablesinteractinginthecontextoftheorganization.

METHODOLOGYTypeanddesignoftheresearchTheresearchwasdescriptiveandcorrelational,duetothefactthattheaimofthisstudywasnottomodifythestudyvariables,butonlyseektodeterminetheperceptionofworkersinthe



oilcompanyregardingtheirworkenvironment,aswellasestablishtherelationshipbetweenthe dimensions of organizational climate with sociodemographic variables. The ANOVAanalysis of variancewas used in order to determine the existence of statistically significantdifferencesbetweentheorganizationalclimateandthevariablesofemploymentstatus,workarea,maritalstatus,age,categoryatworkandseniorityintheircurrentcategory.Thedesignistransversalwithquantitativeapproach.Thisstudyisnotexperimentalbecausethe research was conducted in the natural context where workers perform their workinghours,thatis,theywerenotexposedtodifferentconditionsthanthoseinwhichtheyperformtheirwork.PopulationandsampleThe population ismade up of 198workers; a simple random samplingmethodwith a 95%confidence and5%error level (Walpole,Myers,Myers andYe, 2007)wasused.The sampleconsistedof131subjects,thoughitwasonlypossibletoapplytheinstrumentto120workersduetosomerestrictionsontheaccesstothedrillingdepartment.Inrespectofgender,alltheworkersaremen;withregardtomaritalstatus,105aremarriedand15aresingle;intermsofage,12arereportedtobeundertheageof30;43arebetween31and40;43arebetween41and50;and22areolder than50yearsold.Regarding theworkarea towhich theybelong,89of themmentioned tobe inoperationand31 inmaintenance.Concerning thecategory theyhold in thecompany, the results showed thatoneof them isatechnicaldrillinginspector,12aredrillers,14aredrillingassistants(onsupervisionandotheractivities),16aredrillingassistants (onmaneuvers inheights),32aredrillingassistants (onmaneuverson the floor), 7 areoperatorsof auxiliaryequipment,9 areassistantsondrillingworks, 4 are in charge of technical maintenance "A", 4 are in charge of mechanicalmaintenance,5areinchargeofelectricalmaintenance,3areinchargeofweldingmaintenance,3areassistants inmechanicalmaintenance,5areassistants inelectricalmaintenance,and5areassistantsinweldingmaintenance.Regardingthetimetheyhaveworkedinthiscategory,27indicatedthatbetweenoneandthreeyears,52betweenthreeandsixyears,17betweensixandnineyears,11betweennineand12yearsand13over12yearsold.In relation to the situation regarding their employment contract, 33 said they are stableworkers, 46 said they are in promotion to a higher level post and 41 said they are in atransitionalpost.Concerningthetimetheyhaveworkedindrilling,2workerssaidtheyhaveworkedforlessthanayear,23between1and5years,47between5and10years,23between10and15yearsand25over15years.ResearchinstrumentToconductthisstudy,anadaptationofthequestionnaireoforganizationalclimatebyChiang,etal. (2008)wasmade.Thefirstpartof the instrumentwas inrelationtosociodemographicvariables; five of them were included in relation to the organization: work area, category(post),timeworkinginthatcategory,employmentstatus(stable,inpromotionortransitional)andseniority; twosociodemographicvariablesregardingthe individualwereadded:ageandmaritalstatus.The second part of the questionnaire measured the organizational climate through 5dimensions(Table1).ItwasstructuredinaLikertscalewithfiveresponseoptionswhere1=stronglydisagree,2=disagree,3=neitheragreenordisagree,4=agree,5=stronglyagree.In



this way, to agree and strongly agree represent a favorable climate; in the case of workpressure,tostronglydisagreeanddisagreeindicatetheabsenceofthisdimension.

Table1.SpecificationsofthedimensionsoftheorganizationalclimateDimension OperationaldefinitionAutonomy Theperceptionoftheworkerabouttheself-determinationandresponsibility

requiredindecision-makingconcerningworkprocedures,goalsandpriorities.Cohesion Theperceptionofrelationsamongtheworkersintheorganization,theexistence

ofafriendlyatmosphereoftrustandproportionofmaterialassistanceintheperformanceoftasks.

Support Theperceptionofthemembersonbackingandtoleranceinbehaviorintheinstitution,thisincludeslearningfrommistakesmadebytheemployee,withoutanyfearofretaliationfromtheirsuperiorsorco-workers.

Workpressure

Feelingsoftensionperceivedbyworkerscausedbyoverwork.

Innovation Theperceptionofthecouragetotakerisks,becreativeandtakeonnewareasofworkinwhichhehaslittleornoexperience.

Source:Chiangetal.(2008).ThereliabilityoftheinstrumentwasmeasuredthroughthecalculationoftheCronbachAlphaCoefficient,which reported a value of .838,which in general terms is considered acceptable(Hernándezetal.2006).DatacollectionandanalysisThequestionnaireswerehandedouttoworkersinsealedenvelopesintheplaceofdeparturetowardthedrillingequipment,providingabriefexplanationandemphasizingtheanonymityofthosewhorespondedtothesurvey,inordertoprovideconfidenceandgetaccuracyintheanswers.

RESULTSTheorganizationalclimatewasanalyzedinordertoestablishthewayhowemployeesperceiveit.Forthetotalaverageoftheresponses,asumofeachoftherepliestothequestionnaireitemswasmade. The scores obtained on the scale were examined, in the first place, through thedistributionof frequencies inwhichthere isanormaldistributionwithaminimumrecordedvalueof23andamaximumvalueof99,akurtosisof2.018,anaverageof71andastandarddeviation of 11.18 over a general scale of 20-100 points corresponding to the sum of allresponsesforeachquestioninthequestionnaire.QuartilesofthedistributionwereidentifiedandcategoriespresentedinTable2wereobtained.

Table2.Levelsofacceptanceoforganizationalclimate,rangeofvalues(20-100)Organizationalclimate Percentile Range %

Perceptionofunfavorableorganizationalclimate 25 Values≤63 25.8Perceptionofmoderatelyfavorable

organizationalclimate50 64–72 25.8

Perceptionoffavorableorganizationalclimate 75 73–78 26.7Perceptionofhighlyfavorableorganizational

climate100 Values≥79 21.7

Source:Ownelaboration.



Only thepopulation registeredbelow thepercentile25 (25.8%)as indicated inTable2wasconsidered,inordertoestablishamoreaccuratecriterionforthepopulationthatisbelievedtoperceiveanunfavorableorganizationalclimate.The result of the descriptive statistics is presented in the Table 3 by dimensions oforganizationalclimate.

Table3.StatisticaldescriptionsofthedimensionsoftheorganizationalclimateDimensions N Minimum Maximum Average Standard

deviationAutonomy 120 4 20 14.61 3.344Cohesion 120 4 20 15.73 3.193Support 120 4 20 15.01 4.174

Workpressure 120 4 20 11.88 3.435Innovation 120 4 20 13.86 3.520

ValidN(bylist) 120 Source:Ownelaboration.

Itisnotedthatthedimensionofcohesionhasthehighestaverage(15.73),whichindicatesthatindividuals in this organization not only help and respect each other, but also support eachother on work activities, and also there is a spirit of teamwork. In the same way, thedimensions of support (15.01) and autonomy (14.61) indicate a favorable organizationalclimate;accordingtotheresponsesto itemsrelatedtothesefactors, theemployeesfeel theycancountonthehelpoftheirbosswhentheyneedit,andalsofeelmotivatedandsupportedbyhim;theyfeeltheycandecideontheorganizationandtheworkingmethodsaswell,andalsofeelfreetoproposefurtheractivitiesrelatedtotheworktheydo.Itcanbeinferredfromthedimensionof innovation (13.86) that theorganizational climate ismoderately favorable, thequestions in thisareawereaimedatasking them theextent towhich theirbossencouragesthemtodeveloptheirownideasandimprovethewaysofdoingtheactivities.Inaddition,noworkpressurewasfoundinthesubjectsofstudy.Forthepurposeofdeterminingtheexistenceofstatisticallysignificantdifferencesbetweenthedimensions of organizational climate in relation to sociodemographic variables, the ANOVAanalysisofvariancewasusedinordertoanalyzeage,maritalstatus,workarea,categoryinthepost,seniorityinthecategory,employmentstatus(temporaryandstable)andseniorityinthedrillingdepartment.Theresultsaregivenbelow.Table4showstheexistenceofastatisticallysignificantdifferenceinthedimensionofcohesionregardingtheemploymentstatusofworkersinwhich,accordingtotheresultsoftheaverages,thosewhoarepromotedtoahigherlevelpostperceivetheorganizationalclimatetobemorefavorable,whereasthoseinthestablepostperceiveittobelessfavorable.Table4.Comparisonofthepopulationaveragesofthedimensionsoftheorganizationalclimate

inrelationtotheemploymentstatusofworkers

Dimension EmploymentStatus N Average Standarddeviation F Sig.

AutonomyStablepost 33 15.48 3.465

1.727 0.182Promotion 46 14.46 3.111



Transitional 41 14.07 3.438Total 120 14.61 3.344

Cohesion

Stablepost 33 14.61 3.691

3.32 .040*Promotion 46 16.43 2.934Transitional 41 15.85 2.851

Total 120 15.73 3.193

Support


1.849 0.162Promotion 46 15.91 3.626Transitional 41 14.61 4.277

Total 120 15.01 4.174

Workpressure



Total 120 11.88 3.435

Innovation



Total 120 13.86 3.52Note:*p≤.05Source:Ownelaboration

Theexistenceofastatisticallysignificantdifference in thedimensionofautonomyregardingthe work area was determined; the average shows that maintenance workers perceive theorganizationalclimatetobemorefavorable,whereasoperationalworkersperceiveittobelessfavorable(Table5).Table5.Comparisonofthepopulationaveragesofthedimensionsoftheorganizationalclimate

inrelationtotheworkarea

Dimension Workárea N Average Standarddeviation

F Sig.

AutonomyOperation 89 14.20 3.351

5.263 .024*Maintenance 31 15.77 3.084Total 120 14.61 3.344

CohesionOperation 89 15.93 3.014

1.345 .248Maintenance 31 15.16 3.652Total 120 15.73 3.193

SupportOperation 89 14.93 4.374

.113 .738Maintenance 31 15.23 3.594Total 120 15.01 4.174

WorkpressureOperation 89 11.83 3.597

.078 .781Maintenance 31 12.03 2.972



Total 120 11.88 3.435

InnovationOperation 89 13.97 3.342

.322 .571Maintenance 31 13.55 4.032Total 120 13.86 3.520

Note:*p≤.05Source:Ownelaboration.The ANOVA analysis of variance reported no existence of statistically significant differencesbetween the organizational climate and themarital status of workers, age, and category ofworker,seniorityintheircurrentcategory,andseniorityinthedrillingarea.No correlations between age and the dimensions of the organizational climate were foundwhenperforming the analysis of correlation of the dimensions of the organizational climatewiththeworker'sage,jobcategory,andseniorityinthecategory(Table6).However,aweakpositivecorrelationbetweenthecategoryoftheworkerandthetimetheyhaveworkedinthejobcategorywiththedimensionofautonomywasidentified,whichmeansthatthehigherthejob category and the permanence in the category, themore sense of autonomy theworkersshow to perform their tasks. No correlations between these demographic variables and theotherdimensionsoftheorganizationalclimatewerefound.Table6.Correlationofthedimensionsoftheorganizationalclimatewithworkers’age,category,

andseniorityinthecategory

Age

Category

Seniority

(category)

Autonomy

Cohesion

Support

Work

pressure

Innovation

Age 1 .214* .358** .131 -.075 -.041 -.057 -.027Category 1 -.053 .200* -.071 -.057 .091 -.074

Seniority(category) 1 .180* -.035 -.153 .026 -.078Autonomy 1 .132 .066 .190* .204*Cohesion 1 .521** .061 .503**Support 1 -.030 .668**

Workpressure 1 .183*Innovation 1

*.Thecorrelationissignificantinlevel0,05.**.Thecorrelationissignificantinlevel0,01.

Source:Ownelaboration.

CONCLUSIONOrganizational climate studies provide information about the perceptions of individuals inrelationtotheinteractionsamongtheirmembersandtheorganizationalprocesses.Theresultsobtained in this research indicate a favorable organizational climate in the dimensions ofcohesion,supportfrommanagerstowardworkers,autonomyandworkpressure;moderatelyfavorable for the dimension of innovation; the results did not report a very favorableorganizationalclimateintheoilcompanyinvolvedinthepresentinvestigation,duetothefactthatnoneoftheanswerswerefoundtobeintheitemnumber5,whichrepresentstheabsenceofavery favorableworkingenvironment in thecompany. It is thusrecommendedthatcloseattentionshouldbepaidtothemaintenanceandenhancementoftheorganizationalclimate.



The ANOVA analysis of variance reported no existence of statistically significant differencesbetweentheorganizationalclimateandthemaritalstatus,age,categoryofworker,seniorityintheir current category, and seniority in the drilling area. Therefore, these variables do notinfluencetheperceptionofworkersabouttheorganizationalclimate.Ontheotherhand,astatisticallysignificantdifferenceintheworkareatowhichtheybelongand thedimensionofautonomywas found, theaverage indicated thatmaintenanceworkersperceive the organizational climate to be more favorable, whereas operational workersperceive it tobe less favorable.This resultactsasamodel for futurequalitative research toidentify the causes of this result. Also, a statistically significant difference between theemployment status and the dimension of cohesion was found, in which those who arepromotedtoahigherlevelpostperceivemoremutualsupport,respectandspiritofteamwork;it is inferred that this is a logical result, since they are promoted to a higher post, but stillremainsopentofutureresearchintheorganization.ThePearsoncorrelationanalysisreportedonlyaweakpositivecorrelationbetweenthecategoryofworkerandtheseniority inthe jobcategorywith thedimensionof autonomy; this correlation cannotbe consideredas relevantdespitethefactthatitwasfound,sincethenumbersdonotindicateacorrelationassuch.Itwasnotpossible tomakeacomparisonbetweentheresultsobtained in thepresentstudyandotherstudies,duetothefactthat, inthesearchforpublications inscientific journals,noanalysisoforganizationalclimateinMexicanoilcompanieswasfound;onlystudiestoobtainacademic degrees in countries such as Ecuador andCostaRicawere found. This research isexpected to open up the possibility of conducting further research on this subject in oilcompanies,byvirtueofthe importanceoftheorganizationsof this field intheeconomicandsocialdevelopmentofMexico.References

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Rezaee,F.&Jafari,M.(2016).KeyDeterminantsofSuccesstoAchieveSustainableCompetitiveAdvantage(SCA).ArchivesofBusinessResearch,4(6),351-375.


KeyDeterminantsofSuccesstoAchieveSustainableCompetitiveAdvantage(SCA)

FatemehRezaee

Masterstudent,DepartmentofIndustrialEngineering,IranUniversityofScienceandTechnology,Tehran,Iran

MostafaJafari

Associateprofessors,DepartmentofIndustrialEngineering,IranUniversityofScienceandTechnology,Tehran,Iran

Abstract

The purpose of this study is to detect the relationship among sustainablecompetitive advantage (SCA) and key factors affecting it, such as knowledgebased view (KBV), resource based view (RBV), dynamic capability (DC) andcore competencies (CC). A quantitativemethodology is adopted to develop amodel, and hypotheses are stated to examine the proposed relationshipbetween the components of banking industry. A highly structuredquestionnaire isdevelopedanddistributedamongasampleof150managers,specialistsandconsultantsofbank.Witharesponserateof81.3percent,122questionnaires are returned; the number of valid and usable questionnaireswas 101. The content validity and Cronbach's alpha was used to determinevalidity and reliability of questionnaire, respectively. Structural equationmodelingisusedtotestthestatedhypothesesanditsmodel.ApositiverelationisfoundamongKBV,RBV,DC,CCandSCAofMellatBank.

Keywords: competitive advantage, dynamic capability, resource based view,knowledgebasedview

INTRODUCTION

Sustainablecompetitiveadvantagehasalwaysbeeninterestingissueinstrategicmanagementandbusinessesaffairs.AccordingtoPorter(1985),cheaplaborsandnaturalresourcesarenotgoodeconomyrequirements.Acompetitiveadvantage is theabilityobtained fromresourcesandattributesthathelpsafirmtoshowbetterperformanceinsimilarindustryormarketthanothercompetitors(ChristensenandFahey1984,Kay1994,Porter1980citedbyChacarbaghiandLynch1999).AccordingtoBarreny(1991),RBVisoneofthemostsuperiorapproachestoattain high levels of competitive advantage, leading to better performance through uniquevalueswhicharecreatingastrategythatanyothercurrentorpotentialcompetitorisunabletoimitateor imply it simultaneously; theusedstrategycannotbeduplicated for longperiodoftime.Itissuggestedthatresourceswhicharetangibleassets,intangibleassetsandcapabilities,havethepotentialtoprovidefirmswithasustainablecompetitiveadvantage(Barney,1991).One of the main issues for managers to focus on is the restructuring organizationalmanagement toeffectivelypromote theorganizationalknowledge.Theprosargue that sinceknowledgebasedresourcesareusuallydifficulttoimitateandsociallycomplex,heterogeneousknowledge bases and capabilities among firms are the major determinants of sustainedcompetitive advantage and superior corporate performance. As it seems, knowledge basedview is a subset of source-based view, but in this challenging and changing time the sourcebasedviewisconsideredasnecessaryandvitalthatrequirestobeanalyzedinasinglewide



area.Definingdynamiccapabilitiesview,theexplanationofbothviewsmightbemoretangible,because in new theories, dynamic capabilities view is considered as complementary ofknowledge-basedandsource-basedview.DynamiccapabilitieswerefirstputforwardbyTeeceetal.(1997)toexplainthesourcesandmethods of creation and captured by firms operating in rapid technological changingenvironments. Teece (2007) argued if the capabilities were tangible, they would be bestapplied. Dynamiccapabilitiesanalyzecompetitiveadvantageandperformance inhighspeedand dynamically changing markets (Easterby and Smithetal, 2009). A competency is thecapability to apply or use a set of related knowledge, skills, and abilities required tosuccessfully perform tasks in a work setting as well as potential measurement criteria forassessingcompetencyattainment.However, in a further step the organization achieve different functional characteristicswithcombination of abilities and during activities, so that certain distinctions appear betweenorganizationtoshowcompetencyofenterprises;whenthiscompetencyleadtoperformanceofenterprise beyond the industry average, values offered to customers be higher than thecustomer’s cost, and suggestions of organization be more attractive than competitors fromviewpointofcustomers,theorganizationswillachievecompetitionadvantages.Todominatedynamic capabilities in organization, the concepts, elements and its sub-branches should berecognized and applied; the important one of them are source-based and knowledge-basedview,bothofwhichtargetedorganizationresources,andwithdeepapproachtrytochangeittoorganizationalmerit.Finally,concentratingacquiredmeritsandapplyingtheminaccurateway,asustainablecompetitionadvantagecanbecreated fororganization.Figure1 indicatesthisprocess.

Fig.1.AcquisitionstepsofSustainableCompetitiveAdvantage

LITERATUREREVIEWANDHYPOTHESES

Inrecentcompetitiveeconomyera,themanagerialdebateonstrategicmanagementappearstoreachacrucialstage.Theindustrialorganizationviewpointisappliedtotheeconomictheoryregardingtheexternalmodelofindustriesandbuildsasetofeconomictheoriesthatdescribe,explainandattempttopredictthenatureofafirmintermsofitsexistence,behavior,structureand its relationship with the market. In strategic management the traditional model ofindustrialorganizationiscriticizedbytheupholdersofthetheoriesthatregardtheresourcesandcompetenciesofafirmasitsprincipalsourcesofcompetitiveadvantage.Oneofthemostrecent and controversial studies pertaining to corporate strategy is known as the resource-basedview(RBV).TheRBVasabasisforthecompetitiveadvantageofafirmliesprimarilyintheapplicationofabundleofvaluableandtangibleorintangibleresourcesatthefirmdisposal.TheRBVshowstheaccumulationofvaluable,rare,inimitableandnosubstitutableresourcesisthe basis of enterprise competitiveness and economic rent (Barney, 1986; Dierickx & Cool,



1989;Peteraf, 1993).Generally,RBVarguesvaluable, rare, inimitable, andnon-substitutable(VRIN) resources are sources of competitive advantage (Barney, 1991). Valuable resourcesmust enable an organization to engage a value creating strategy by either reduce its ownweaknessesorsuperiorityover itscompetitors(VillalongaandAmit,2006).Newbert (2007)indicates that VRIN resources are related to capability and the capability is related tocompetenceandthecompetenceisrelatedtocompetitiveadvantage.RBVshouldfocusontheability of the organization to sustain a combination of resources that competitors cannotpossessorbuiltup inahomologicalway.Anyorganization should indepthanalyzeways toavoidimitationoftheirresourcesinordertoreachcapability.Finally,fiveresourcebasedviewdimensions including tangible assets, intangible assets, executive capability, human resourcecapability,andmanagementcapabilitywereevaluatedinthisstudy.Oneof themost importantorganizational resources isknowledge.Drucker (1993)predictedthat competitive advantage in the future would be determined by knowledge resources, orwhat is known as knowledge workers. Consequently, both scholars and practitioners haveincreasinglypaidgreatattentiontoanorganization’sabilitytoidentify,capture,create,shareoraccumulateknowledge(Jang,Hong,Bock,&Kim,2002;Kogut&Zander,1996;Michailova&Husted,2003;Nonaka&Takeuchi,1995).Manyresearcherspointedoutthatknowledgewouldreplace equipment, capital, materials and labor to become the most important element inproduction. However, there is no agreement among researchers about the definition ofknowledge. Davenport et al. (1998) defined knowledge as "information combined withexperience, context, interpretation and reflection that is ready to apply in decisions andactions.”Marakas (1999)agreed thatknowledge isanorganizedcombinationof ideas, rules,procedures,andinformation.Zeleny(2005)arguesknowledgeencompasseshumanfeedbackand collaborative learning. Knowledge can fall into different aspects depending on theorganizational context or its under-area under; for example, technical knowledge, customerrelatedknowledge,andproductrelatedknowledgeormanagerialknowledge(Barchan,1998;Rowley, 2005; Tanriverdi, 2005, Massey et al., 2002; Collinson, 1999, Akroush 2010).Particularly in organizations the knowledge management method is very important.Knowledgemanagement is thusaprocessof facilitatingknowledgerelatedactivities,suchascreation,capture,transformation,anduseofknowledge.Knowledgemanagementstrategyhasbeen argued to contribute to the generation of various organizational capabilities such asinnovation which is vital to create an organization’s capabilities and competences. Threeknowledgebasedviewdimensions including:empoweringemployees,promotingconfidence,andcodingrulesfocuswereevaluatedinthisstudy.Considering the existingdescriptive andempirical literature, it is argued that organizationalresources,orinotherwords,organizationalKBVandRBVleadtotheimprovementofdynamiccapabilityoforganization.Thereforeitishypothesizedthat:Hypothesis 1. There is a positive relationship between the organizational resources and itscapability.H1a.ThehighertheleveloforganizationalKBV,thehigherthelevelofOrganizationalDC.H1b.ThehighertheleveloforganizationalRBV,thehigherthelevelofOrganizationalDC.The strategic challenge for managers in high speed markets is to maintain sustainablecompetitive advantage for which dynamic capability provides such an advantage (Menon,2008).Makadok(2001)andKozlenkova,SamahaandPalmatier(2014)definecapabilitiesasaspecialtypeofresource,specificallyanorganizationallynon-transferableresourcethepurposeofwhichistoprogresstheproductivityoftheotherresourcespossessedbytheorganization.



Winter (2003) claimed it in his work and even implied as the mystery and confusionsurrounding the concept of dynamic capabilities. Actually, the dynamic capabilities analyzecompetitive advantage and performance in high speed and dynamically changing markets(Easterby & Smithetal, 2009). Managers must enhance their understanding of and explainorganizational adaptive behavior in weathering the storm in the business environmentresultingfromtheglobalfinancialcrisisanddynamiccapabilitiesinthecontextofsustainablecompetitive advantage and facilitate this kind of adaptive behavior (Makkonen, Pohjola,Olkkonen, & Koponen, 2014). It has to be stated that the changing environment transformscompetitive infrastructure, and dynamic capabilities effectively explain the competitivecomponents of a firm (Teece et al., 1997; Eisenhardt&Martin, 2000;; Zollo&Winter, 2002;Zahra, Sapienza, & Davidsson, 2006). Lin and Wu (2014) show dynamic capabilities canmediate the firm's VRIN resources to improve performance and reach organizationalcompetency.Mathiassen&Vainio(2007)claimedthatdynamiccapabilitieshavebeencoinedtocapturethefirm’sabilitytoadapttounpredictableandchangingenvironments.Theyallowthefirmtoreconfigureitsresourcesandrespondtomarketchangeseffectively.Foerstletal.(2010)describedthatgeneraldynamiccapabilitieswilldifferfromcompanytocompany.Ithastobestatedthattheyhavecommonfeaturesevenwhentheyimplementindifferentfirmsbutmight be idiosyncratic in their specific form. Eisenhardt, and Jeffery (2000) argued thatdynamic capabilities are a set of specific and identifiable processes such as productdevelopment, strategicdecisionmaking,andalliancing.Consequently, thedynamiccapabilityviewdiscusesorigination,process,contributions,andtheeffectsofdynamiccapabilities(Zollo&Winter,2002;Zahraetal.,2006;Wang&Ahmed,2007;Helfat&Peteraf,2009;Lin&Wu,2014). This study provides four dynamic capability dimensions: sensing, learning,reconfiguration,andcoordinationbasedonthestudiescarriedoutbyTeece(2007)andMenon(2008).Theimplementationofdynamiccapabilitiesleadstobettercompetencetobeachievedas theconsequenceofachievingorganizational competence.Hence, the secondhypothesis isfollowed:Hypothesis2.ThehighertheleveloforganizationalDC,thehighertheleveloforganizationalcorecompetencies(CC).A large and growing body of literature is available on core competencies and their role inincreasingthefirm'scompetitiveadvantage(Srivastava,2005).Itisexpectedthatacademics,consultants and business executives support understanding of competence and dynamiccompetitive advantage by developing normative and theoretical preposition (Bogner et al,1999).Furtherstudiesshowthatcorecompetencyandcompetitiveadvantagearenotquitethesamebut itshouldnotbeoverlookedthatasuccessfulcompetitivestrategy isbasedonbothconcepts of core competence and competitive advantage (Javidan, 1998). Leonard-Bartondefines core competence as a knowledge set that differentiates a firm and creates acompetitive advantage (Leonard-Barton, 1992). Core competence can be considered as thebase of a firm's competitive advantage; vastmajority ofmarkets can implement it for theirfuture products when it refers to a specific knowledge for defining and solving problems(Srivastava,2005). Asuccessfulcompanyshould focuson itscorecompetenceand invest inthedevelopmentofactivitiescreatingvalueandachievecorecompetencethatisthesourceofcompetitive advantage. Core competence is considered as a fundamental concept forcompetitive strategy in a highly competitive market which is identified as knowledge sethelpingacompanytoperforminadifferentwayfromcompetitorsandresultsinacompetitiveadvantage.Thecorecompetenceconcepthasbeenappliedbytheorganizationtoidentifyandefficiently utilize its power. Gupta et al., (2009) further argued that core competence is acollection comprised of communication, involvement and a deep commitment across



organizational boundaries. Ljungquist (2008) demonstrated the core competence has beendevelopedtojustifybusinessdiversityatlargecompaniesandsupportsomeinternalprocessessuchasproductdevelopment.Bani-Hani&AL-Hawary(2009)furthershowedthatapositiverelationshipexistsbetweencorecompetencesandcompetitiveadvantage.Inthelightoftheabovediscussions,itisproposedthatcompetencyhaspositiveeffectsonallthedifferenttypesofSCA.Inthisrespect,CCplaystheroleofmediatorvariablethatcarriesthepositive effects to the various aspects of SCA. Accordingly, the basic hypothesis on therelationshipbetweenCCandSCAisasfollows:Hypothesis 3. There is a positive relationship between the organizational CC and all thedifferenttypesofSCA.H3a.ThehighertheleveloforganizationalCC,thehigherthelevelofsustainablecompetitiveadvantageofmarketoriented(SCAM).H3b.ThehighertheleveloforganizationalCC,thehigherthelevelofsustainablecompetitiveadvantageoforiented(SCAC).H3c. The higher the level of organizational CC, the higher the level of centered sustainablecompetitiveadvantageoffinanceoriented(SCAF).AlthoughtherearemanydifferentviewpointsontheoriesasRBV,KBV,DC,theyareallsimilarinthattomaximizetheorganizationalcompetitiveadvantageandimprovetheorganization'sposition among their competitors. There is debate on how organizations could reach tosustainablecompetitiveadvantage.Alsomanyexpertshaverevealedtheiropinionsforsuchamatter, such as Porter who believed the cheap labors and natural resources are not goodeconomy requirements (Porter 1985 sited by Andersen, 2013). He expressed that acompetitive advantage is the ability obtained through resources and attributes that helps afirm toperformatahigher level than theothercompetitors in thesame industryormarket(ChacarbaghiandLynch,1999sitedbyJosiah,2013).Whenafirmhasreachedacompetitiveadvantage and prevents imitation by competitors, destructing competitor behavior andachieving sustainable competitive advantage is considered as an obvious result. Howeverpreventing imitation is not permanent; the firm should make any effort to delay thisoccurrencetogainthemaximumbenefitfromitscompetitiveadvantage(ReedandDefillippi,1990; Pearce andRobinson, 2000; Christensen, 2001; Chunxia, 2012). Barney argued that afirmhasacompetitiveadvantagewhenimpliesavaluecreatingstrategywhileanycurrentorpotentialcompetitorsaredeprivedtoimplementthestrategysimultaneouslyandtheyarealsonotcapableofduplicatingthat(Barney,2000).Trung(2014)believedthatastrategicpositionof a companies' management is foreseeing the market trend and obtaining sustainablecompetitiveadvantagetoimprovecompanies'positionamongcompetitors.Itmay be said that important subject in a competitive advantage concept is the question ofwhatarethepossiblesignsofacompetitiveadvantage;inotherwordswhatarethemeasuresshowing that a company has reached a competitive advantage. According to the literaturereview and experts views on the subject, thementionedmeasures have been classified intothree categories comprised of market, finance and customer. A sustained competitiveadvantage is obtained through unique values which are creating a strategy that any othercurrentorpotentialcompetitorisunabletoimitateorimplyitsimultaneouslyandfinallytheusingstrategycannotbeduplicatedforlongperiodoftime.Customer: core competencewhich is defined as a skill enabling an organization to create afundamental value and lead to customer loyalty should result in customer perceived value.



Studiesshowthatcustomerloyaltyandcustomerattentionaretwochallengingconceptsforallorganizations. It isclear that loyalcustomerscanraisesalesandcustomershareandreducecostsandhigherprices(AlrubaieeandAlnazer,2010).Asaresultourstudyseekstoaddresstwo critical dimension of competitive advantage with a focus on customers: flexibility andresponsiveness. Flexibility refers toorganization capabilities toprovide a superior customervalue(Johnson,ScholesandWhittington,2008)andresponsivenessisdefinedastheabilityofanorganizationtorespondfasttotheircustomers'requirements(Carlos,SousaandFernando,2010). A competitive advantage can be obtained through meeting organizational goals andcustomer needs in a highly competitive environment (Evans et al., 2006). Thereforeorganizationsshouldcompetewitheachotherfortakingcustomerattention.Inotherwordsacompetitive advantage is reached when customer demands are met more effectively andefficientlythantheircompetitorsaslongaspossible;thereforetheircompetitorsmakeattempttoduplicate,reproduceandevensurpassthecompetitiveadvantage.Market:LiandZhou(2010)investigatehowmarketorientationandmanagerialtiecanimpactscompetitiveadvantage.Thisresearchindicatedthatoneofthemostimportantdimensionsofafirm's competitive advantage is institutional advantage which means an organization'ssuperiorityinobtainingraresourcesandinstitutionalsupport.Inthiscontextitisstatedthatbrands and corporate images have significant impact on sustained competitive advantagerequired for a highly competitive environment (Seetharaman, Nadzir and Gunalan, 2001;Amini,2012).Finance: Achieving a competitive advantage leads a company to reach and sustain aboveaverage profitability for some years (jones and Hill 2013). Profit is gained through salesincomes resulted from customer purchase (Rijamampianina, Abratt, February, 2003;Thompsonetal.,2012).Itcanbearguedthatthefinancialperformance,whichisthecombinationoftheachievementsinperformance indicators suchasprofit rate ishigher than the industryaverage; increasingtheefficiencyinfinancialprocessesandsavingcostsisthefinalgoalofbankingindustrythatispositivelyaffectedbythemarketandcustomerperformance.Hypothesis 5. Higher market and customer performance improvement results in improvedfinanceperformances.H5a.Thegreaterthecustomerperformanceimprovement,thegreaterthefinanceperformanceimprovement.H5b.Thegreaterthemarketperformanceimprovement,thegreaterthefinanceperformanceimprovement.Derived from the existing literature, the proposed relationships among resources andsustainablecompetitiveadvantagearediscussedandhypothesesrelatedtothesevariablesaredeveloped. The research framework generated in this study is illustrated in Fig. 2. ThisframeworkbrieflyproposesthattheRBV,KBV.DCandCCwillenhanceSCA,whichwill thenimprovecustomer,marketandfinanceperformances.



Fig.2.ConceptualmodelbetweenSCAandkeyfactorsaffectingonits

METHODOLOGY

In this section, the sample, procedures of data collection, operationalmeasures of variablesandstatisticalanalysesarestudiedinordertodeterminethelinksamongtheconceptsofKBV,RBV,DC,CCandSCA.SampleandproceduresThe banking industry is a major part of Iran’s economy. After the study of performancestatisticsonIranianbanks, interviewswereconductedwithexpertacademics in thebankingindustry and 50 of the deputy and directors of Iran banks. After all statistical studies anddiscussions,MellatBankofIran(MBI)waschosenascasestudybecauseoftheimplementationofappropriatestrategiesinmaintainingandenhancingitscompetitiveadvantageamongotherIranian banks. The study shows thatMBI has found the competitive advantage among theircompetitorsinrecentyears.AccordingtotheBankreportageofIranannually,Mellatbankissuperior to competitors in terms of finance, customer andmarket; and this superiority hascontinuedovertherecentyears.Here,thestudyattemptstoinvestigatethispracticalsuccessin the context of an empirical study. Following the investigations conducted differentstrategies, these advantages are achieved. MBI has considerable growth in the competitionwithrival,turnedasuitablelocaleforresearchtoexaminetheinfluenceoftieconceptsinthebankingindustry.Asaneffort toascertain thecontentvalidityof the surveyquestionnaire, adraft surveywaspre-tested by both academicians (i.e. two strategic management assistant professors) andpractitioners(i.e.tenbankmanagers).Theparticipantswererequestedtoevaluatethesurveyquestionnaire on its wording, clarity and relevancy. Ultimately, the final version ofquestionnairewasdistributedrandomlyto theexecutorsorseniormanagers,specialistsandconsultants from the administration and improvement methods, marketing, strategy, riskmanagementandoperationalmanagementdepartmentofMBI.Thesamplewaschosenbasedontheirknowledgeonstudyspecificissues.SamplesizewaslimitedbycalculationmethodofCochran sample size and using community correction coefficient. Due to high amount ofquestions,therespondentswereaskedtorespondin4steps.

H H

H

H

H

H

H

H



From the total of 150 questionnaires, 122 were returned with complete answers, whichrepresentaresponserateof81.3%.Thenumberofvalidandusablequestionnaireswas101.Fig.3 shows the company characteristics and the target respondents. In this figure it isindicatedthatthemajorityofrespondents(81.1percent)aremalesthatisconsistentwiththeIranian society which still is relatively male dominated especially in the top managementpositions.Themajorityofmanagersaremiddle-agedandwelleducated.ThisisconsistentwiththeIraniansocietythatisdescribedasmiddle-agedandenjoyshighlevelsofeducationinthebankdepartment.Beingwell educatedwouldgreatlyhelpMBI inbuildingandaccumulatingDCtoreachSCAnowandinthefuture.Moreover,Fig.3showsthatthemajorityofmanagers(67percent)iswellexperiencedinthisindustrywithmorethantenyearsofexperience.Thisholdsastrategic implication that indicatesMBIhasrelevantandsufficientbusiness industryexperience that is crucial for building and sustaining assets and capabilities as a source ofcompetitive advantage. Finally, figure3 shows that 61.6 percent of managers have businesseducation background which indicates there is reasonable recruitment process in the bankthatfocusonqualityofpeopleasoneoftheirmajorassetstoachievesuccess.

Gender Age Yearsofeducation

Jobexperience EducationalbackgroundMeasurementThispart isorganized into five sections thatpresenthow tomeasure thedimensionof eachconstruct. In order to assess the precision and focuses of the respondents, some questionsweredesignednegatively.Resourcebasedview(RBV)Five resourcebasedviewdimensionswereevaluated in this study including tangible assets,intangible assets, executive capability, human resource capability, management capability.

19%

81%

Female Male

16%

28%

38%

18%

<30 30-35 35-40 >40

9%

44%

47%

12 16 18

11%23%

45%

21%

<5 5--10 10--15 >15

29%

26%

24%

11%

10%

Strategist Marketing OperationsManager Economics Others



TheseRBVdimensionswere selectedbasedon the studies ofBarney (1999). Eachof theseRBV practiceswasmeasured by Likert scale ranging from strongly disagree = 1 to stronglyagree=5.Knowledgebasedview(KBV)Threeknowledgebasedviewswereevaluatedinthisstudydimensionsincludingempoweringemployees, promoting confidence, coding rules focus. These KBV dimensions were selectedbasedonthestudiescarriedoutbyBhatt(2002).EachoftheseKBVpracticeswasmeasuredbyLikertscalerangingfromstronglydisagree=1tostronglyagree=5.Dynamiccapability(DC)Fourdynamiccapabilitiesdimensionswereevaluatedinthisstudyincludingsensing,learning,reconfiguration,andcoordinationfocus.ThesedynamiccapabilitiesdimensionswereselectedbasedonthestudiesofTeece(2007)andMenon(2008). Eachof thesedynamiccapabilitiespracticeswasmeasuredbyLikertscale.CoreCompetencies(CC)ThesecorecompetenciesquestionswereselectedbasedonthestudiesofJavidan(1998)andSrivastava(2005).EachofthesecorecompetenciespracticeswasmeasuredbyLikertscale.SustainableCompetitiveAdvantage(SCA)TheSCAhasbeenusedtoassessvariouscompetitiveadvantagesettings.Therefore,thethreeareaofSCAwerechosentorepresenttheSCAdimensionsinthepresentstudy.Reviewingthestudiesconcerningthesustainablecompetitiveadvantageinserviceinstitutionssuchasbanksfoundthatmostofthestudiesassessedtheconstructofserviceinstitutionsfromthemarket,costumerandfinaneview.EachoftheseSCApracticeswasseparatelymeasuredandanalysis.In order tomeasure respondents’ perception towards the SCAwithin bank, a 5-point Likertscalewasdeveloped(1=stronglydisagree;5=stronglyagree).

STATISTICALDATAANALYSISInthisstudy,aStructuralEquationModelling(SEM)wasusedonthemulti-itemmeasures.InordertoperformtheSEMtechnique,dataanalysiswasperformedinfoursteps:Checkingnormalityassumption:priortotheanalysisofthedatathenormalityassumptionwasused.Oneofthemainfunctionsincludescheckingmultivariatenormalitytodetermineifadatasetiswellmodelledbyanormaldistribution.FactorAnalysis:consistsof twoparts, theKaiser-Meyer-Olkin(KMO)andBartlett'sTest,andexploratoryfactoranalysis.Statisticaldataanalysisshouldalwaysraisequestionsuchas:Istherelationshipamongvariablesstrongenough?Isitagoodideatoprecedeafactoranalysisforthe data? Factor Analysis can reply to these questions with KMO and Bartlett's Test. TheKaiser-Meyer-Olkin (KMO) measure of sampling adequacy tests whether the partialcorrelations among variables are small. The Kaiser-Meyer-Olkin measure of samplingadequacyisanindexforcomparingthemagnitudesoftheobservedcorrelationcoefficientstothemagnitudesofthepartialcorrelationcoefficients.Anotherindicatorofthestrengthoftherelationship among variables is Bartlett's test of sphericity. Bartlett's test of sphericity testswhether the correlation matrix is an identity matrix; that will indicate the factor model isappropriate.This test isused to test thenullhypothesis that thevariables in thepopulationcorrelationmatrix are uncorrelated. In order to separate the dimensions of each construct,ExploratoryFactorAnalysis(EFA)performedwithvarimaxrotation.



Confirmatoryfactoranalysis(CFA):isperformedtoevaluatetheoverallmeasurementmodel.Inordertoevaluatethevalidityofmeasurementmodel,convergentanddiscriminantvaliditywere evaluated. Convergent validity, along with discriminant validity, is a subtype ofconstruction validity. Convergent validity can be estimated using correlation coefficients.Convergent validity is concerned with the degree that the both assessments of constructstheoretically and actually should be related (Campbell 1959). A successful evaluation ofconvergentvalidityshowsthatatestofaconceptishighlycorrelatedwithothertestsdesignedtomeasuretheoreticallysimilarconcepts.Examining the hypotheses through SEM:methodologically, the formulated hypothesesweremeasured and tested using SEM approach. This method proved to be far more superior toregression analysis. Firstly, SEM approach supplies statistical competency and provides adefinitemethodtodealwithmultiplerelationshipssimultaneously,whilemultipleregressionanalysisdoesnot.Secondly,asSEMiscapableoftestingtherelationshipscomprehensively,ithas moved from exploratory factor analysis to confirmatory factor analysis. Thirdly, theunobservedconceptsandthemeasurementerrorintheestimationprocessarealsotakenintotheaccountwiththeuseoftheSEMpractice(Kline,2005).GiventhemanyadvantagesofSEM,coupled with the support of many researchers stating that such an approach is a usefulmethodological assessment tool for many measurement models (Bollen, 1989), SEM waschosentotestthestructuralrelationshipsbetweenthesevenconstructsofKBV,RBV,DC,CC,SCAM,SCAC,andSCAF.TestResultsPrior to the analysis of the data, the normality assumption is used in the data preparationstage. One of themain functions includes checkingmultivariate normality to determine if adata set is well modeled by a normal distribution. Normality test was achieved throughskewness<±2andkurtosis<±2.InThisstudy,theamountsofskewnessandkurtosisweretheranges.However,theserangesmaybeconsideredsmallerorlargerbydifferentscientistsof statistics. Furthermore, the Shapiro-Wilks tests were also used to verify the existence ofnormality;thenull-hypothesisofthistestisthatthedataarenormallydistributedandifthep-valueismorethanthechosenalphalevel(i.e.0.05),thenthenullhypothesisisaccepted,thereis evidence that the tested data are normally distributed. The result revealed the normaldistributionofthedatasincethep-valueisgreaterthan0.05.Thep-valueinthisstudyismorethan0.05,thusthemodelsatisfactorilyfitsanormalitydistribution(RazaliandWah,2011).TheKMOmeasuresthesamplingadequacywhichshouldbegreaterthan0.5forasatisfactoryfactoranalysis toprecede.According to table1, theKMOmeasure is0.814,0.865,0.794and0.820forKBV,RBV,DCandSCA,respectively.LargevaluesfortheKMOmeasureindicatethatfactoranalysisofthevariablesissuitable.Fromthesametable,wecanseethattheBartlett'stestofsphericityissignificant.Thatis,itsassociatedprobabilityislessthan0.05.Infact,itisactually 0.000. It is small enough to reject the hypothesis. This means that the correlationmatrixisnotanidentitymatrix.Itisconcludedthattherelationshipamongvariablesisstrong.Itisagoodideatoproceedanexploratoryfactoranalysisforthedata.Inthecourseofthevalidationprocess,someitemswerefoundtohaveunacceptablylowfactorloadings less than 0.5 on their respective unobserved hypothetical or latent variable,whichweresubsequentlyremoved.TheinternalreliabilityisevaluatedscalesbyCronbach’salpha(C-α).TheresulthasshownthattheCronbach’salphavaluerangesbetween0.765to0.953,0.815to0.940and0.762 to0.922 forKBV,RBVandDC factors, respectively, and0.844 forSCAofmarket centered, 0.777 SCA of customer centered and 0.717 for finance centered indicating



accordingtoNunnallyandBernstein(1994),themeasurementofthevariablesarewellabovetheacceptablethresholdof0.70.Aconvergentvalidityhasbeentestedbyassessingfactorloadingswhichshouldbesignificantandexceed0.5,compositereliabilities(CR)whichshouldexceed0.7,andtheaveragevarianceextracted(AVE)thatshouldbemorethan0.5 forallconstructs(Fornell&Larcker,1981). Inourmodel,allthefactorloadingsandcompositereliabilitiesfall intheacceptablerangesandare significantat the0.001 level.Factor loadings ranges from0.52 to0.98,0.59 to1.00, and0.52to0.98and0.52to0.94,compositereliabilities(CR)rangefrom0.762to0.922,0.857to0.955, 0.762 to 0.922 and 0.703 to 0.851, AVE ranges from 0.522 to 0.860, 0.547 to 0.835,0.522to0.860and0.556to0.659forKBV,RBV,DC,andSCA,respectively.Theresultsshowthat the model meets the convergent validity criteria. Table 1 shows the means, SD, factorloading, AVE, CR and C-α of every constructs. Convergent validity can be established if twosimilar constructs correspond with one another, while discriminant validity applies to twodissimilar constructs that are easily differentiated. A successful evaluation of discriminantvalidityshowsthatconcepttestisnothighlycorrelatedwithothertestsdesignedtomeasuretheoreticallydifferentconcepts(Kline,2005).FornellandLarcker’sapproachhasbeenusedtoassessdiscriminantvalidity.Inthisapproach,theAVEforeachconstructshouldbehigherthanthe squared correlation between the construct and any of the other constructs. Table 2indicates themeasurementmodelhas satisfactorydiscriminantvalidity. InTable3,diagonalelementsinitalicsaretheAVEandoff-diagonalelementsarethesquaredcorrelationsbetweenconstructs. It is obvious that each diagonal element is higher than respective off-diagonalelements.Therefore,allconstructsinthemeasurementmodelwerejudgedashavingadequatediscriminantvalidity.

Table1:ResultsofCFAandinternalreliabilitytesting&K–M–Omeasure



Table2:Discriminantvalidityanalysis

ThestructuremodelFig. 2 exemplifies the proposed structural model showing the association among the sevendimensionsofKBV,RBV,DC,CC,SCAM,SCAC,andSCAF,respectively.Toexaminethemodel,conventionalmaximumlikelihoodestimationapproacheswereused.Fig.4summarizesmainfindingsofSEManalysis.Itassessedthemeasurementmodelfitbyevaluating:(1)absolutefitindicesincludingobservednormedχ2(χ2/df),goodnessoffitindex(GFI),adjustedgoodness-of-fit index (AGFI) and adjusted goodness-of-fit index (AGFI); (2) Comparative fit indicesincluding normed fit index (NFI), and comparative fit index (CFI); and (3) parsimonious fitindices including parsimony goodness-of-fit index (PGFI) and parsimony normed fit index(PNFI)and therootmeansquareerrorofapproximation (RMSEA). Thesummaryresultsof



thestructuralequationmodelingtechniqueareshowninTable5.Examplesofthefundamentalmeasuresare the ratioofχ2statistics to thedegreeof freedom(df),normed fit index (NFI),comparative fit index (CFI), goodness-of-fit index (GFI) and the root mean square error ofapproximation (RMSEA). Table 5 summarizes the results of CFA models, all the model-fitindicesarewell above their commonacceptable levels inwhichχ2/dfwas less than3.0andgreater than 0.90 for GFI, AGFI, CFI and NFI as suggested by Bagozzi and Yi (1988), withRMSEAlessthan0.08accordingtoBrowneandCudeck(1993),suggestingthattheCFAmodelsfitwell.Intheirstudies,AndersonandGerbing(1988)suggestthatvaluesgreaterthan0.90aredesiredforGFI,CFI,AGFI,andNFIwhileBrowneandCudeck(1993)requiredvalueslessthan0.08 forRMSEA.BasedonTable5, theratioofχ2statistics to thedegreeof freedomforourmodelwas2.8.ThevalueoftheremainingfitindicesincludetheGFI=0.96;AGFI=0.91;CFI=0.94;NFI=0.95;andRMSEA=0.072.All themodel-fit indicesarewellabove theircommonacceptable levels, suggesting that the structural model fits well. It can be concluded that agoodness-of-fit exists for the measurement scale of market orientation. Fig. 4 shows thestandardizedpathdiagramofT-values for the structuralmodel. Therefore,we can concludethatthemodelfitsthedatawellandthusisabletoexplaintheresearchhypotheses

Fig.4.StructuralRelationshipmodelbetweenSCAandkeyfactorsaffectingonits



Fig.5.T-valuemodelbetweenSCAandkeyfactorsaffectingonits

Table3:OverallfitindicesoftheCFAmodel

HypothesistestingInthehypothesistestingstage,theproposedhypotheseswereexaminedusingtheStructuralEquationModelling(SEM)technique.Thefindings(Table5)forH1a(KBVtoDC,γ11=0.67;p<0.000) and forH1b (RBV toDC, γ11=0.69; p<0.000) imply thatKBVandRBVhave thepositive and significant relationship with DC in Mellat bank. By adopting two theories ofknowledgebasedviewandresourcebasedview,firmswillbebetterabletoimprovethelevelofdynamiccapability throughamoresystematicapproach.Thisresult isconsistentwiththefindings of Lin and Wu (2014), where the authors found that DC has an effect on theperformance,resultinginimprovedSCA.PertainingtoH2(DCtoCC;γ21=0.94;p<0.000),thefindings revealed that there is a positive relationship between the dimensions of dynamiccapability and core competency. This result is consistent with the findings of Lin and Wu(2014), where they found that DC has an effect on the competency, resulting in improvedperformance.PertainingtoH3a(CCtoSCAM;γ21=0.91;p<0.000),thefindingsrevealedthatthereisapositiverelationshipbetweenthedimensionsofcorecompetencyandSCAM.Forthethirdhypothesis,H3b(CCtoSCAC,β21=0.63;p<0.000),theresultsweresignificant,implyingthatthereisasignificantrelationshipbetweencompetencyandSCAC.Thisresultissupported



by the findings of Terziovski and Dean (1998) where they found the intensity of customermanagementpracticesshowedapositiveassociationwithSCACoutcomes.Pertaining toH3c(CCtoSCAF;γ21=0.56;p<0.000),thefindingsrevealedthatthereisapositiverelationshipbetweenthecompetencyandSCAF.Forthethirdhypothesis,H4a(SCAMtoSCAF,β21=0.62;p<0.000),theresultsweresignificant,implyingthatthereisasignificantrelationshipbetweenSCAMandSCAF.PertainingtoH4b(SCACtoSCAF;γ21=0.81;p<0.000),thefindingsrevealedthat there is a positive relationship between the dimensions of core competency and SCAM.ThisresultisquitesimilartoSamatetal.(2006)studyontheMalaysianservicefirms,wherethe information and communication has the greatest impact on service quality followed byother quality management practices such as customer focus, continuous improvement andempowerment.Thisresult isconsistentwith thepreviousstudiesofChangandChen(1998)and Camarero (2007), where they found themarket orientation has a positive relationshipwithservicequality.

Table4:Standardizedpathcoefficients

DISCUSSIONTheempirical findingsof this studyare crucial to SCAand thekey factors affecting it. Fromtheoretical viewpoint, this study has undoubtedly contributed to the existing literature byprovidingabetterunderstandingon theproposedstructural relationshipsbetweenSCAandkey factors affecting it, where the structural relationship between constructs can bedetermined using SEM, which is superior to regression analysis. As far as the proposedstructuralmodelisconcerned,thisstudyofferssomeevidenceforapositiveeffectofKBV,RBV,DCandCCpracticesonSCA.Fromamanagerialperspective,thefindingsofthecurrentstudyguidethebankstoabetterunderstandingoftheimportanceoffactorsaffectingonSCAintheirmanagerial actions in becoming a trulymarket, customer and financial center. Hence, it isimperativeforserviceproviderstodevotemoreattentiontoembracethesefactorsasavitalmanagement tool for improving competitiveness. Inaviewof thehighly competitive serviceenvironment,servicepractitionersshouldemphasizeKBV,RBV,DCandCCasfeasiblechangemanagementtoolstoachieveagreaterdegreeofSCAwithintheirbanks.Consequently,banksshouldconstantlymonitorthecompetitiveservicemarketsandresponsetochangebetterthantheir rivals do. Furthermore, this study shows that the role of customer orientation hasexpandedandcontributed toSCA.Hence, customerorientationpractitionersshould take fulladvantageof customermanagement toenhance theSCA. Indoing so, topmanagementmustensure a close cooperation and coordination among component of customer orientation inmeeting the ever-changing customer needs. From the methodological perspective, thehypotheses formulated were measured and tested using the SEM approach. This method



proved tobesuperior to regressionanalysis.Firstly,whileSEMapproachsupplies statisticalcompetencyandprovidesadefinitemethodtodealwithmultiplerelationshipssimultaneously,multipleregressionanalysisdoesnot.Secondly,asSEMiscapableoftestingtherelationshipscomprehensively, it has moved from exploratory factor analysis to confirmatory factoranalysis. Thirdly, the unobserved concepts and the measurement error in the estimationprocessarealsotakenintotheaccountwiththeuseoftheSEMpractice(Kline,1998).GiventhemanyadvantagesofSEM,coupledwiththesupportofmanyresearchersstatingthatsuchan approach is a useful methodological assessment tool for many measurement models(Boolen,1989;JoreskogandSorbom,1993;Jimenez-JimenezandMartinez-Costa,2009),SEMwaschosentotestthestructuralrelationshipsbetweenthefourconstructs.ThisstudyempiricallycontributestotheattributesofKBV,RBV,DCandCCthatcanbeseenonSCAinthreeareasofmarket,costumerandfinance.Fromtheanalysis,itwasshownthatallthefactorscontributesignificantlyandpositivelytoSCA.Moreover,implementationofsustainablecompetitive advantage of customer and market can improve the SCA of the Mellat bank.Findingsare consistentwith the studiesperformedbyLinandWu (2014),which supportedthe strong positive relationship between organizational resources and capabilities and SCAsincedynamiccapabilitiescanmediatethefirm'sVRINresourcestoimproveperformanceandreach sustainable competitive advantage. Furthermore, Stephen (2007) findings about DCprincipleswhichserveasanapparatus foracompanytoachieveCCandSCAhavealsobeensupported by our study. Once practices of sustainable competitive advantage of marketoriented are in place, market needs can be identified easily andmarketing strategy can befurtherimproved,creatingvaluesforthecustomersandaccordingly,increasecompanyprofits.In other words, market-centered banks have the ability to understand theirmarket targetsbetter.Theyaremorecommittedtoprovidepremiumservicequalitytotheircustomers.Andalso, their efforts can lead to the provision of high quality service,whichwill then result inenhancedcompanyperformance.Generally,market-centeredservice firmsarebetterable tomeet theneedsandexpectationsof theircustomersbyprovidingsuperiorservicequality. Insummary,whendimensionsofsustainablecompetitiveadvantageofcustomerarepresent inthebank,bankswillbeprompt,properandreliable,thusenhancestheassuranceofthebankservicestothecustomers.Consequently,increasetheirprofitsandproductivity.References

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RemunerationandManagementBehavior:AReview

SarahYuliariniTISSA-UniversitiUtaraMalaysia

KuNorIzahKuIsmailUniversitiUtaraMalaysia

Abstract

Environmental accounting (EA) practices are developing rapidly in somecountries and has a positive impact on their organizations. Sustainabilityreport (SR), as an indicator of EA practices, helps company in improving itsreputation, set by the management. However, some countries in ASEANincluding Indonesia do not have relevant accounting standards on theenvironment. EA practice is still not widely known in Indonesia, although,internationally there have been standards that provide guidelines onenvironmentalpracticessuchastheGlobalReportingInitiative(GRI).Anotherprospect in GRI is remuneration. Remuneration is a part of personnel costwhich is a motivation about the positive effects of EA practices to disclosemanagement concerns. This is a review paper that provides discussion onremuneration structure and the consistency of EA practices in theSustainabilityReport.

Keywords: Component; Environmental Accounting; Global Reporting Initiative;Remuneration; Incentive; Personnel Cost, Sustainability Report. JEL Classification:M4,M1

INTRODUCTION

Theword‘environment’hasanimportantdimensioninourlives(Yusoff&Lehman,2007).Thesimple definition of environment is the ‘surrounding' (Guo, Ai & Polenske, 2008). Theenvironmentisacombinationofallofthephysicalandorganicfactorsthataffectalivingbeing,orecologicalsocietyandpower(Yusoff&Lehman,2009),itsenduranceandgrowthtosupporteconomic system and human welfare (Barbier, 1989, p.3). Other researchers named it asbiodiversity-related(Jones,2003;Cho,2007).Theysupportthatthecorporationsshouldtakeenvironmentissuesseriouslyandmakeitasaspartofbusinessstrategyintheirorganizations.AccordingtotheAgenda21oftheRioSummitonEnvironmentandDevelopmentorganizedbytheUnitedNationsin1992,“Naturaldisasterscauselossof life,disruptionofeconomicactivitiesandurbanproductivity,particularlyforhighlysusceptiblelow-incomegroups,andenvironmentaldamage,suchaslossof fertile agricultural land and contamination of water resources, and can lead to majorresettlementofpopulations”(p.57).One of the strategy in environmental aspects is to seriously focus on the environmentaccountingperspective. Scholarsopined thatenvironmentalaccountingcould improveusageof resources efficiently and corporations productivity to enhance profitability (TBLframework).



However, implementation of EA is still at its infancy. There are views that the absence ofuniform environmental accounting standard could be the effect of the lack of EAimplementation.Reviewingtheliterature,itisnotedthateveninacademicfield,thereislackofenvironmentalaccounting empirical evidence. Previous studies mainly emphasized on economic impactthroughbrandequity(Benoit-moreau2011).Othersontheotherhand,focusedonthesocialimpactssuchasexternalitiesofbusinessoperationoncommunity(Beck,CampbellandShrives2010)andenvironmentalimpactsbydecreasingnegativeeffectsonnaturalresources(Farouk,Cherian,&Jacob2012).Littleattentionwasgiventotheenvironmentalaccountingperse.Needless to say, environmental accounting information a key process in performing thecontext of environmental activity into business system. Accounting scholars (Bewley, 2005;Brown & Fraser, 2006; Firoz & Ansari, 2010) pointed that disclosure of environmentalaccounting information is key in performing accountability (Bewley, 2005; Brown& Fraser,2006;Firoz&Ansari,2010). Basedon the importanceofenvironmentalaccountingand thelimitedempirical evidence that contribute toenhance theknowledge in thisarea, thispaperattemptstodiscusstwopoints,whichare:first,thebenefitsofenvironmentalrelatedpracticesforthemanagementwhichshouldberecognizedandmeasuredinEA,andsecond,theimpactofthebeneficiarygivingonmanagementthroughtheconceptofevaluationontherelationshipbetweenremunerationandsustainabilityreport.

BENEFITSOFEVIRONMENTALACCOUNTINGThere are many benefits of environmental accounting; however this paper attempted todiscuss on benefits from external stakeholders and internal management. In respect of theexternal stakeholders, the reporting of environment activities in the financial report wouldeducate stakeholders. Nonetheless, there was view that in the case of standardization ofpractices are less relevant for environmentalmanagement accounting than it is for externalreporting(ACCA,p.65).One other benefits is that environmental accounting (EA) is an important marketing toolbecause it communicates with external parties about a company’s environmental activities(Benoit-moreau, 2011). It also helps a company to establish a satisfactory environmentalimageandcreatecompetitiveadvantage(Becketal.,2010;Raska&Shaw,2012).Aspointed,environmentalaccountingisnotonlyamatterofaccounting,butitalsomattersforsustainabledevelopment(Husseretal.,2012;Farouk,Cherian&Jacob,2012).Accountingcontributesoncorporatemanagement.Itcanaffectthebehaviorofindividualsororganizations extensively by being more transparent, objective and efficient. Behaviorchanging does not happen automatically. Somehow, external policies could be determiningindividual or organization perceptions (Gunningham, Kagan & Thornton, 2004).Implementationofenvironmentalaccounting isanexternalpolicy imposedby lawandotherstakeholders such as consumers, NGOs and international or pleaded as interventionistregulations(Yakhou&Dorweiler2004).LegitimacyStructuresonRemunerationMeasurementGenerally, accounting conservatism in respect of environmental accounting practices relateswithdeterminationoftheallocationofenvironmentalcosts.Here,environmentalcostreferstoassetand liabilities (Firoz&Ansari,2010).Hence,personal cost relate to theenvironmentalconservation in business should be reflected to the actual performance. Magness (2006)revealedhuman resource as a factorwhodriving thedecision todisclose informationaboutsocial and environmental matters. It’s main principle to see the effect of personal cost



(remuneration)relatetotheenvironmentmanagementinthecurrentperiodasthefirstorderwhichrecognizingaspecificprogramsuchastheEnvironmentalManagementSystem(EMS).Whereas,performancemeasurecanbesummarizedatex-postandex-antebasedontheactualmetrics data. However, it’s not all performance data can be published in the environmentaldisclosure(ED).Corporatemanagementsaretobeselectivetopretendcreatingpositiveimageorholdonsomebadinformationnottobepublished(Gunawan,2015).The regulation shall be adjusted to the internal purposes and depend on the strength oflegitimacywithintheorganization.AsrevealedbyDarmadiusingTobin’sQmethod(2012),theprincipal-agentconflictsappeartobemoreprevalentincorporationswithdiffusedownershipstructure, where there is not even a single majority shareholder than in firms withconcentratedownership, suchproblemsmayexistbetween thecontrollingshareholdersandminorityshareholders.Here,remunerationstructureseemstodependonownershipstructure.According to the Sustainability Reporting Generation 4 (GRI-SRG4) section LA13 onManualSustainabilityReportingGuidelines,benefitsformanagementaboutremunerationorincentivearedividedintoseveralcriteria.Themeasurementisbasedonfirst,payrollandsecond,capitalstructures:

1. Thelevelofhighestgovernancebodyandtheboardofdirectorstothelevelbelow,onthe basis of measurements of fixed periodic payments, variable periodic payments,incentiveorbonuses, latestpayments, and the recoveryofmoneyalreadydisbursing,terminationpayments.

2. The level of highest governance body itself. Remuneration becomes a part of capitalequitywhichrepresentsthewealthofshareholders.

Ideally, theappreciation forsupportingcompany'sstrategytoenvironmentalconservation isgiven by highest governance body to the employees. It is an intention to get their loyalty,maintaining the quality of work, and increasing productivity (Li-Chin & Taylor, 2007). Inaccountingprinciples,employeeappreciationandperformancemustbemeasuredinquantity,sothattheinformationcanbegiveninatransparentmanner.In fact, transparencyofremunerationaspartofEAreporting in Indonesia isprovidedtothehighest level of governanceor executive (Darmadi, 2012).He examined thedeterminants ofcompensation structure of the Indonesian listed corporations and found that firmperformance, board structure, ownership structure, and firm-specific characteristics aresignificantlyassociatedwithremunerationstructure.Thepurposeofremunerationinactualityistoavoidagencycost.Themainroleofthemembersof the board executive observe and control the agency cost such as earnings managementactivitiesas thiswouldbecomeanexemplary to the lower levelmanagement forperformingactivitiesinaccordancewiththeirhigherlevelmanagement(Bassett,Koh,andTutticci2007).AllocatingBenefitstotheProperPartiesSome arguments have been given to emphasize on the benefits of EA practices formanagement.AmongstthetopicofEA,thereexistsabetterpracticeaboutitsbeneficiarytotheorganization for thewholestructure fromtoptobottomlineratherthanfrombottomtothetopline(GRI2011).In top-down approach, a discourse image is given to external stakeholders about theperformanceofexecutiveboardmemberssupportingtheneedsofshareholderandpowerful



publicityforeveryactiontootherstakeholderattention.Thebenefitgiventoshareholdersisdefinitelyacapitalrevenue(GRI2011).ItshowsthesuccessofabusinessstrategyrunbytheCEO.Whilethebottom-upapproachisdeterminedthroughthedisclosureofhumanresources(Euginio,2009).Explicitly,GRIinscribesthereportingofbenefitsforemployeesandbenefitsfortheexecutiveboardmembers.Somedisclosureitemsaslisted:

1. Report the process of determining remuneration. Report whether remunerationconsultants are involved in determining the remuneration and whether they areindependent ofmanagement. Report any other relationshipswhich the remunerationconsultantshavewiththeorganization.

2. Report how stakeholders' views are sought and taken into account regardingremuneration,includingtheresultsofvotesonremunerationpoliciesandproposals,ifapplicable.

3. Report the ratio of the annual total compensation for the organization's highest-paidindividual in each country of significant operations to the median annual totalcompensation for all employees (excluding the highest-paid individual) in the samecountry.

4. Report the ratio of percentage increase in annual total compensation for theorganization's highest-paid individual in each country of significant operations to themedianpercentageincreaseinannualtotalcompensationforallemployees(excludingthehighest-paidindividual)inthesamecountry.

Figure1EvaluationonRemuneration

Source:Authors

Accordance to GRI (2011), the methods of remuneration given to the employees and thehighest management level are summarized based on the amount of wages received by theprinciple.Anditwillnotcausetheaggregateincomewidenedinthesamelevel.AsshowninFigure1thattherelationshipsamongstremuneration,disclosureonenvironmentalaccountingpracticesandperformanceexpectedneedtobeevaluatedattheendofeachaccountingperiodinordertoavoidinsignificantperformanceonremunerationallocation.

IMPACTOFREMUNERATIONONMANAGEMENTBEHAVIORRemuneration structure under the guideline of GRI is more determined than without anystandardassistance.ResearchaboutdecisionmakingonspecificaccountingpolicyisbasedonTrotman (2011) who suggested that the research on the judgment and decision making inaccounting canbe inferred frommanagementmotivation inwhich the impactofpersonalityfactors on motivation should also be investigated. Hunton et.al (2008) found that auditcommitteelacksmonitoringinrevenuerecognitionunderSECrequirementbecauseoftied-up



directors,buttheydonotexplainreasonormotivationoftied-up-directorssuchprivateissuesorhaveanotherprojectgiveshigherincentivesorremunerationmatter.Coined about incentivesm Robert et.al (1992) found the interaction of cognition process,performance,andincentivesusingU-test.Astheynotedthattheperformance-basedmonetaryincentiveswillhaveanimpactonexperimentalresultsdependingon(1)thenumberandtypesofcognitiveprocessesrequired for the task(i.e., the taskstructure), (2) thedegree towhichrelevant determinant has taken place prior to the experiment (i.e., expertise), and, (3) theexisting level of intrinsic incentives. Likewise, Rober et al. (1992) put the level of intrinsicincentives as explanatory variables for accounting performance, but they did not putrecognition on statutory legitimacy on the specific task. Considering the compliance toregulatory legitimacy on the environmental issues, it should be taken as part of businesscontinuity.Itisaspecifictaskformanagementandnotfortheorganization.Thus,therelatedintrinsicincentivesshoulddependonperformancethathasregulatoryimposedontheeffort.Environmental disclosure publications are still not in sustainable practices, as accountingregulatorreferstocharacteristicofformalregulation(governmentconstitutionandpolicy).ItisrevealedbyWebb,CahanandSun(2008) that thedifferences inenvironmentaldisclosure(ED)practicesarebasedonhomogenousdatacharacterizedbymandatorydisclosure. Ithasbeenhighlycorrelatedsincemandatorydisclosuresreflectaccountingstandardsandcommon-law countries havemore rigorous accounting standards. As Indonesia is a civil-law countrywhere Civil Law is essential for establishing a civil society based on contracts and also as alegalbasisfordevelopingprivatelaws,sohowitworksforacivilsociety(Sakumoto,2004,p.221).Thecontributionofvoluntarydisclosureismoresubjectivethanobjectivewhichleadstoinappropriate practices on EA. Subjective is highly dependent on the type of social andenvironmental problems that the companies are addressing in the community. ÖzsözgünÇalişkan (2014) emphasized on specific accounting standards to be implemented inbookkeepingandreportingsocialandenvironmental issuesrelatedtoa firm’sactivities.Thestandardswould shed light on the challenges that are the needs of the communities for theevaluation of the implicit consequences of firms’ activities. Heavy tasks for internalmanagement tocontrol thedynamicconditions lead tohighpayoffsofmonitoring (Jensen&Meckling, 1976). Legitimacy theorists believe that business entities provide environmentalinformationtoshowthat theyhavebeengoodstewardsof theearth(Freedman&Stagliano,2004). According to Tilling (2004), business entities motivate to do this as a means oflegitimization.Asignificantapproachusingtheory(x)and(y)ofDouglasMcGregorwhointroducedTheoryXplaces exclusive reliance upon external control of humanbehavior,whereasTheoryY reliesheavily on self-control and self-direction. Adopting on this theory, we can set aspect onreporting based on theory (x) as external control of management behavior about theenvironmentalpolicy,whereasaspectonremunerationastheory(y)onself-controlandself-directionofmanagement.CitedonMcGregorarticleon1966,“Thefact thatmanagementhasprovidedforthesephysiologicalandsafetyneedshasshiftedthemotivational emphasis to the social and perhaps to the egoistic needs. Unless there areopportunitiesatwork tosatisfy thesehigher- levelneeds,peoplewillbedeprived;and theirbehaviorwillreflectthisdeprivation.Undersuchconditions,ifmanagementcontinuestofocusits attentiononphysiologicalneeds, its efforts arebound tobe ineffective.Peoplewillmakeinsistentdemandsformoremoneyundertheseconditions”.



McGregor(1966)referredtophysiologicalandsafetyneedsaspartofperformancemeasure.Itis supported by Magness (2006) and Gunawan (2015) on occupational health and safetystandardaspartofperformancemeasureonpersonalcost.EvaluateRemunerationStructureSecurity analysis is proposed by Jensen & Meckling (1976) that contributes on advanceplausible performance measure directive to “private information”. The environmental andsocialaspectsarecontextuallyinsertedasexternalitiespressures.Itisimportanttodevelopanidentification of determinants of the purpose of the remuneration tomotivatemanagementsupporting EA practices continously as Yang et al (2014) found a significant associationbetweenexecutivecompensationandfirmperformancemoreoncash-basedthanstock-based.Wesuggesttheconceptofequationofy=f(x)toexplaintheintercorrelationbetweenvariable(y) as expected output for management (remuneration level) and determining variable asinputsthatimplyon(x)numberofdiscloseofGRIitems,especially,onenvironmentalaspectas Robert et al (1992) took task structure and firmperformance (Darmadi,2012) and usingvariables accounting conservatism, compliance to regulatory, year, company size, industrialclassificationtogetleastabsolutedeviationregressions(Colesetal,2008).Stemmingontheconceptoftheremuneration,impactevaluationcanbefollowedasshowninFigure2.Inthefigure,itcanbeseenthattheeffectonvariationremunerationexpenditurewillbeaddressedbythetopmanagementaffectingtheheuristicmannerinwhichtheexpenditureburdenedontheircompany.

Figure2BehaviorofRemunerationLevelandReportingLevelRemunerationlevel(RL)y

Sustainabilityreport(SR)x

Source:Authors The first gradient shows higher remuneration level (RL) with higher level of sustainabilityreport(SR).Basedontheassumptionthatemployeesaremotivatedenoughtoexerteffort iftheybelievethat there isahighprobability for theireffortsandgivinganoutcomethat theyvaluesufficiently.Higherperformancewasobtainedunderdifficultbudgetsandsituationsofhigher expected reward (which was also associated with increased satisfaction amongstemployee). Only high remuneration can occur if excessive allocation and size of companyremunerationcharge. If thishappens, then thenext riskonmanagementbudgetarywillhaltbecauseofthevolatilityexpenditureoccurredinthedepartment.Trotman(2011)arguedthatsocialconcernsmightreducetheneedforextensiveincentivecontracting.Thesecondgradientshowstheremunerationlevelishigh,butSRisinlow-levelindicatingtheagencycostorearningsmanagementactivities.Higherunfairremuneration isgiventoeverylayerofmanagementandtheexecutivememberswillallowtheemergenceofagencycost.Thecostislooselyenforcedbythehighestgovernancebodywithoutcontrolfromthebody.Colletti

Grad.IIRL high,SRlow

Grad.IVRL low,SRhigh

Grad.IRL high,SRhigh

Grad.IIIRL low,SRlow



et al. (2005) claimed that the control systems need to be strong enough to maintain thecooperation between collaborators. The control on practices is intense through specificreportingdisclosure. In the thirdgradient,whereRL is loweven the lowermagnitudeof SRoccursbecausethebasicmeasurementiserroneousandallocationisimproper,sothepurposeoftheEAisnotachieved.Lastly, the gradient four shows low RL against high SR. In the long term, the goal will beachieved.But,thismaynotpossiblehappenduetothefactthatthereisnocompensationforthemanagementengaginglong-termpractices.KuangandMoser(2009)foundthatemployeeswilleitherrejectthelattercontractsoracceptthecontractsandreduceeffortsbecauseofnoreciprocity.

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Brownson,C.D.(2016).ExposuretoEntrepreneurialActivitiesandtheDevelopmentofEntrepreneurialCulture.ArchivesofBusinessResearch,4(6),384-388.


ExposuretoEntrepreneurialActivitiesandtheDevelopmentofEntrepreneurialCulture

ChristabelDivineBrownson

FacultyofSocialandManagementSciencesAkwaIbomStateUniversity,

P.M.B.1167,Uyo,AkwaIbomState,ObioAkpaCampusOrukAnam,AkwaIbomState,Nigeria

Abstract

Exposuretopriorentrepreneurialactivitieshasbeenfoundbymanystudiestoinfluence people’s mindset towards starting their own businesses. However,whilemuchresearchonexposuretopriorentrepreneurialactivitieshavebeencarriedoutintermsoffamilybusinesses,limitedresearchhavefocusedontheuse of entrepreneurial exposures through trade fairs and entrepreneurialevents carried out by government agencies to aid the development ofentrepreneurial culture. Using a descriptive study, 195 participants ofentrepreneurship programmes offered by the government in Akwa Ibom,Nigeria were examined and findings reveal that to a large extent, exposingindividuals toentrepreneurialactivitiesusingtradefairsandentrepreneurialeventsdoesaidinthedevelopmentofentrepreneurialcultureinAkwaIbom,Nigeria. The findings contribute new knowledge to the entrepreneurshipliterature in terms of the use of trade fairs and entrepreneurship events tostimulatebusinessstartups.Keywords: Entrepreneurial Activities, Entrepreneurial Behaviour, EntrepreneurialCulture.

INTRODUCTION

EntrepreneurialCulture is a society thatdepicts theexhibitionof entrepreneurial attributes,entrepreneurial values, entrepreneurial mindset and entrepreneurial behavior among thecitizens of such a societywhich propels them towards entrepreneurship (Brownson, 2013).Given various government interest in the promotion of entrepreneurship to reduce the rateunemployment,cansuchasocietyasdescribedabovebedevelopedthroughtheuseoftradefairsandentrepreneurialevents?Exposure to prior entrepreneurial activities has been found by many studies to influencepeople’smindsettowardsstartingtheirownbusinesses(PetermanandKennedy,2003).Manyresearchers have indicated that prior family business exposures constitute a powerfulsocializing influenceon thevalues,mindset,andbehaviourspeopleadoptover thecourseoftheir lives (Carr and Sequeira, 2007). Krueger (1993b) asserted that a family firm shouldstronglyinfluenceitsfamilymembersintheirperceptionsofentrepreneurship.Inhisworkof1989,hepointedout thatentrepreneurialmindsetsand intentionsaresignificantly linkedtobroadmeasuresofexposuretosmallornewventures.HefurtherhighlightedtheusefulnessofShapero’sprocessmodelofdecisionto initiateanewventurewhicharguedthatexposuretoentrepreneurship is one potential influence resulting in situational intentions and attitudestoward entrepreneurship. Drawing furthermore from Self-efficacy theory, Krueger (1993b)assertedthatlimitedexperienceswithentrepreneurshipmaysubstantiallyinfluencehowone



thinks about entrepreneurship. Citing from Elder (1991), Krueger (ibid) enumerated thatentrepreneurialattributeschangeovertimeespeciallyinacourseofimportantlifeeventhencepriorexposurescaninfluenceattributes.Krueger (1993a) also acknowledged that prior entrepreneurship related experiences shouldinfluence entrepreneurial intention indirectly through the perceptions of feasibility anddesirability. He found support that the feasibility element of attitude was significantlyassociatedwithbreadthofpriorexposureanddesirabilityelementofattitudewassignificantlyassociated with the positiveness of that prior exposure. Carr and Sequeira (2007) foundsignificant direct and indirect effects of prior family business exposure on entrepreneurialintent, through the mediation variables of attitude towards business ownership, perceivedfamily support and entrepreneurial self-efficacy. Krueger (1993b) found support for hishypotheses that exposure to family business raises intentions to start a venture; he foundsupport that exposure influences positive attitudes towards entrepreneurship, he confirmedthatexposureleadstosignificantdifferencesinentrepreneurialattributesthusconcludingthatexposuretoentrepreneurialactivitydoesseemtochangepeople(pp.83).Although Drennan et al.’s (2005) finding was contrary to Krueger’s (1993a) study, theyhowever concluded that family business influences may only increase the attractiveness ofself-employmentbutnotnecessarilythefeasibility.However,whilethesestudieshavemainlyfocused on entrepreneurial exposures in relation to a family member, relative, friends orworkinginsomeoneelse’sbusiness,thefocusinthisstudyisontheentrepreneurialexposureactivities of the government via its agencies to promote entrepreneurship. These activitiesinvolve the use ofmix of instruments such as themedia. Lundstrom and Stevenson (2005)havepointedoutthattheuseofentrepreneurialeventsandtradefairsasformsofexposuretoentrepreneurialactivitiescanaidinthefosteringofEntrepreneurialCulture.

METHODSA pilot test was first undertaken in three government agencies in Akwa Ibom State toinvestigate the types of entrepreneurial exposures used by the agencies in theentrepreneurship promotional measures. Thereafter, a posttest- only design with non-equivalentgroupswaslaterusedinthestudyduetoitssuitabilityinsettingsthatdoesnotlenditselfforexperiments(AgodiniandDynarski,2004).Usingpurposivesamplingmethodwithastructured questionnaire, datawas collected from 195 respondentswho participated in thegovernment entrepreneurship programmes. Descriptive statistics was used to analyze thedata.PreliminaryfindingsfromtheAgenciesThefindingsfromthepilotstudyoftheagenciesshowedthatthethreeagencieswereinvolveinexposingindividualstodifferentformsofentrepreneurialactivitiesasshownontable1onthenextpage.Was collected from 195 respondentswho participated in the government entrepreneurshipprogrammes. Descriptive statistics was used to analyze the data. The agencies exposedindividuals in the state to various entrepreneurial activities such as; trade fairs, hands onworkshops/seminars, business events, excursions and exhibitions. Individuals were madeawareof theseevents through thestate (Akwa IbomStateBroadcastingCorporation -AKBC)television,radio,newspaper,seminars,andbannersamongothers.



Table1:ExposuretoEntrepreneurialActivitiesbyGovernmentAgencies AgencyA AgencyB AgencyC

Exposure of

individuals to

Entrepreneurial

Activities

Yes Yes Yes

Type of

entrepreneurial

activities

individuals are

exposeto

Trade fairs, Hands on

Workshops/Seminars,

letters/phone

Business events, Trade

fairs, Hands on

Workshops/Seminars,

Visitation to business

facility(Excursions)and

Exhibitions

Businessevents,Hands

on

Workshops/Seminars,

andExcursions

Medium used to

contact

individuals for

suchexposures

letters/phone AKBC TV, NTA Uyo,

AKBC Radio, Pioneer

Newspaper, Flyers,

Workshops/Seminars

andBanners

AKBC TV, AKBC Radio,

Pioneer Newspaper,

Flyers and

workshop/Seminars

AnalysisTheresultofthedescriptiveanalysisasshowninfig.1belowindicatesafullsupportforthepropositionthatexposuretoentrepreneurialactivitiesprovidedbythegovernmentagenciesaids in thedevelopmentof theconstituentofEntrepreneurialCulture.Theresult shows thatindividualswhoparticipatedintheexposureprogrammeagreedtothefactthattheexposuretoentrepreneurialactivitiesbytheagenciesdidtosomeextentcontributetothefosteringofthe constituent of their entrepreneurial culture since the percentage of respondents whoagreed to its impact on their Entrepreneurial Attribute (62.5%), entrepreneurial values(64.6%), entrepreneurial mindset (71%), and entrepreneurial behaviour (72.2%) was a bithighcomparedtothosewhodisagreedasshownonfig.1above.87%oftherespondentsfoundtheactivitiesprovidedby thegovernmentagenciesuseful.This result corroborates thepilotstudy findings in which the respondents in the agencies agreed that the entrepreneurialactivitiescarriedoutbythemdidaidinthenurturingoftheentrepreneurialattributes(79%),values(62%)andmindset(80%)oftheparticipantsoftheactivities.



DISCUSSIONOFFINDINGSThe aim of this paper was to examine the underlying assumption that exposure toentrepreneurial activities can aid in the development of the constituents of EntrepreneurialCulturewithaparticular focuson theexposure toentrepreneurialactivitiesprovidedby thegovernmentviaitsagencies.This result suggests that exposure to entrepreneurial activities may likely nurture all theconstituent of entrepreneurial culture thereby tackling the unemployment situation in thestate as more self-employed individuals may emerge due to the benefits derived from thepolicymeasures.Thesefindingsarenewinapproachandcontextofthestudyalthoughpriorresearchhasexaminedsimilarissueinrelationtofamilybusinesses(Krueger,1993b)hence;additionalknowledgeisaddedtotheentrepreneurshipliteratureinthisrespect.ThefindingsslightlyconfirmLundstromandStevenson’s(2005)assertionsthattheuseofentrepreneurialeventsandtradefairsasformsofexposuretoentrepreneurialactivitiescanaidinthefosteringofentrepreneurialcultureespeciallyasshownbythefindingsinthedescriptiveanalysis.The finding of the relationship between exposure to entrepreneurial activities andentrepreneurial attributes confirms Krueger’s (1993b) assertion that exposure leads tosignificantdifferences in entrepreneurial attributes thus changingpeople. The findingof therelationship between exposure to entrepreneurial activities and entrepreneurial valuescorroborates Carr and Sequeira (2007) who reported that prior family business exposureconstitutedapowerfulsocializinginfluenceonthevaluespeopleadoptoverthecourseoftheirlives.Thisimpliesthatoverthecourseoftheparticipants’liveswithintheperiodunderstudy,thereisthelikelihoodforthemtohaveachangeoftheirentrepreneurialvaluesduepartlytothe exposures they have received from the policy measures organized by the governmentagencies. The finding of the relationship between exposure to entrepreneurial activities andentrepreneurialmindset corroboratesSchwarzet al. (2009),PetermanandKennedy (2003),CarandSequiera(2007)andKrueger(1993b)whoreportedthatexposuretoentrepreneurialactivities influencespeople’s attitude towards starting their ownbusinesses. The findings oftherelationshipbetweenexposuretoentrepreneurialactivitiesandentrepreneurialbehaviouris a new finding and contributes to the entrepreneurship literature in that there is that

Attributes Values Mindset Entrepreneurial Behaviour

37.5% 35.4% 29% 28%

62.5% 64.6% 71% 72%

Fig. 1: Exposure to Entrepreneurial Activities and the Development of the Constituent of Entrepreneurial Culture

DISAGREE AGREE



possibilitythatexposuretoentrepreneurialactivitiesmaylikelyinfluenceparticipantsofsuchactivitiestostarttheirownbusiness.

CONCLUSIONThe objective of this study was to examine how exposing individuals to entrepreneurialactivitiescarriedoutbygovernmentagenciescouldaidnurturetheirentrepreneurialculture.Through thedescriptive analysis used, it canbe concluded that exposure to entrepreneurialactivities does to some extent aid in the nurturing of entrepreneurial culture of individualswhoparticipatesinsuchexposures.Theresultoftheanalysisdidtosomeextentconfirmthepilotfindingsfromtheagenciesresponsiblefortheimplementationtherebyaddingcredibilitytothefindingsoftheanalysis.Thefindingsaddnewknowledgetoboththeentrepreneurshipandpublicpolicy literature in that,government interventiontopromoteentrepreneurship isnotawastedeffortbutshouldbeencouragedandappropriatelyplannedandexecuted.It can thus be concluded that from the descriptive perspective, exposure to entrepreneurialactivities does to some extent contribute to the fostering of participants’ entrepreneurialattributes,values,mindsetandbehaviorwhicharetheconstituentofentrepreneurialculture.References

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Malik,S.F.(2016).ImpactofPerceivedDiscriminiationandResultatntStressonInnvativeWorkBehaviorModeratedbySpiritualityamongFemaleEmployeesinPrivateBanksofRawalpindi.ArchivesofBusinessResearch,4(6),389-399.


ImpactofPerceivedDiscriminationandResultantStressonInnovativeWorkBehaviorModeratedBySpiritualityamong

FemaleEmoployeesinPrivateBanksofRawalpindi

SamreenFatimaMalikAdvanceResearchMethodology

Abstract

The objective of this research paper is to investigate the negative effects ofperceived discrimination in the form of workplace stress on employeeinnovative work behavior among the female employees working in bankingsector of Rawalpindi. Using a time lagged design, the effects of PD and itscorresponding stresswas tested on IWB,moderated by spirituality. Analysesinvolved data collected from170 female’s bankers. The results show that PDwas positively related toworkplace stresswhile workplace stress negativelyaffected IWB. As hypothesized,moderating effects of spirituality on stress toIWB were verified wherein it was proved that spirituality can mitigate thenegative impact of stress on IWB. Therefore, we can conclude that fairtreatmentandbetterself-esteemimprovesproductivityamongemployees.Thestudy of moderating influence of Spirituality in Pakistani environment hasproved to be a helpful contextual factor in buffering stress and promoting ahealthyandproductiveworkenvironment.

INTRODUCTION

The innovation plays a very important and central role in the long term survival of anorganization (Ancona& Caldwell, 1987). Since innovation is characterized by discontinuousactivities rather than unique, successive stages (Schroeder, Van de Ven, Scudder, & Polley,1989),individualscantobeexpectedtobeinvolvedinanycombinationofthesebehaviorsatanygiventime.Innovationistheproductionandgenerationofusefulideasandideaexecution(Kanter,1988;VandeVen,1986).Thus,innovationalsoinvolvestheadaptationofproductsorprocessesfromoutsideanorganization.Empirical evidences have shown a strong link of employees’ innovativework behaviorwithdesirableorganizationaloutcomes.Forexample,IWBhasbeenprovedasthekeyantecedenttoproductivity, competitive advantage and organizational effectiveness. The critical nature ofIWBmotivated various researchers to know the factors help to encourage innovativeworkbehavior among employees and also to know the factors postulating hindrances towardsinnovative work behavior. For example, personality types, leadership style, workingenvironment and group cohesion has been proved as the key causes of innovative workbehavior (Kanter,1983;Pelz&Andrews,1966).Whereas, abusive supervision, job stressorsand workload have been characterized as the key hindrances towards innovative workbehavior(Hon,2011;HonandLeung,2011).Workplacestresshasbeenhighlightedasanobstructingcauseimpedingcreativityandoutofbox approach (O’Neil and Davis, 2010). Employeesworking in stressful environment spendtheir energies in buffering stress and eliminate causes of stress. Specifically consideringwomenwhoareperceivedtobeemotionallyweak,maybemorevulnerabletostress.Theyare



morelikelytobeexposedtogenderdiscriminationfrommaleofficersandsupervisors,whichmay increase their level of stress and burnout (Martin, 1992). Especially in developingcountriesmarkedhighatpowerdistances,womenhavetostruggleinallspheresoflife.EllisonandGenz(1983) foundthat featuresof theworkorganizationwereparticularlystressful forfemale officers. They are more likely to be discriminated during hiring, performanceevaluation, and responsibility sharing and career progression. In nutshell, workplacediscriminationisakeycauseofstresswhichcurtailtheircreativity.Ontheotherhand,theyareconsidered to be equally innovative same as theirmale counterparts butworkplace factorsmaylimittheirinnovativeworkbehavior.Variousauthorshaverecommendedtoexplorefactorsthatcouldbuffertheadverseimpactofstress towards favorable outcomes (Sheldon Cohen, 1983). Previously, social, peer andsupervisor support have been figured out as common neutralizers of stressful events.Spiritualityandreligiosityhavealsobeenendorsedasvitalfactortobufferstress.ThisstudyexaminestheroleofspiritualityasmoderatoronthestresstoIWBrelationship.Muslimsareperceived to be relatively more religious in nature. Therefore, spirituality in Pakistanienvironmentmaybeahelpfulcontextualfactortomitigatestress.Insumthisstudyisgoingtocontributeinthefollowingways;

• It takes up the important topic of female discrimination in amale dominated societywhichneedsattentionfrompolicymakers.

• ItstudiesthebufferingeffectsofspiritualityonworkplacestresstoIWB.• ItfocusesonfemalepopulationworkinginbankingsectorofRawalpindi• The study examines the postulated relationships in a developing country. Various

authorshavecontendedthattheresearchimplicationsandfindingsoriginatingfromthedeveloped world cannot be generalized to developing countries by disregarding thecultural dissimilarities. There exist a strong need to examine the antecedents andoutcomes of job satisfaction within different societies to understand differences andsimilarities. Countries and societies across the world are commonly different onaccount of norms, values and other cultural dimensions. Therefore, the researchfindings cannot be generalized to other setting particularly when the culturaldissimilaritiesarehigh(Hofstede,1993;DroryandVigoda-Gadot,2010;Tsui,NifadkarandOu,2007).Sincemostof thestudieson jobsatisfactionareconducted inwesternand other developed countries. Therefore, this study is a contribution from thedevelopingcountrywithdifferentsocio-economicstructure.

LITERATUREREVIEW

InnovativeWorkBehaviorCreativityisthetermusedtoexplainthedevelopmentofnewideaswhileinnovationhasmoreto do with the adoption and application of useful ideas (Scott, 1994). The results of studyconducted on the impact of personality traits on innovative work behavior shows thatopennessandwillingnesstoexperiencenewideashasgreaterimpactonindividualinnovativework behavior (Yesil, 2013). The concept of innovation was evolved with the structuralcontingencytheorybyBurns&Stalker(1961)whichsuggestedthatconsistentdemandledtothe mechanical organization while a changing demand developed the need for an organicorganization which was based on innovation and creativity. In organizations, supervisorshaving a positive andhealthy relationshipswith their subordinates in the formof trust andindependencehaveshownconduciveenvironmentforinnovation(Scott,1994).In banking sector, research has shown that equal and justified interpersonal treatmentencourageinnovationandcreativity.Therefore,employeeshavinghigherlevelsofself-esteem



are found to show more innovative capabilities than those with lower level of self-esteem(Ojedokun,2012).WorkPlaceStressTheresearchonworkplacestresscanbeexplainedbythephenomenonof‘Burnout’.Burnoutis a distinctive stress condition which includes emotional fatigue and reduced individualachievement (Cordes, 1993). It is observed that the phenomenon of workplace stress inrelation toemployerandemployee is a complexone.However,psychological abnormality isfound tobean importantproblem inorganizations. (Tennant,2001).Burnout is found tobecommon in workplace. Team work and positive employee feedback can help in keepingworkerssatisfied(Iacovides,2003).Abusive supervision can affect the employee. Therefore, eradicating all forms of abusivesupervisionisimportantandshouldbetheprimeobjectiveofmanagement(Harvey,2007).Itisobservedthatemployeeburnoutincreaseswiththeincreaseinthetimespentwiththeco-workers(Erickson,2001).PerceivedDiscriminationAggressive interpersonal attitudes are found to lower the level of job satisfaction andmayreduceemployeemotivationtoshowinnovativeworkbehavior(Ojedokun,2012).Ithasbeenprovedempirically intheresearchonglassceilingeffectthatthewagediscriminationonthebasis on gender is more pronounced on the upper side of wage distribution (Jellal, 2008).However, research also suggest that when employees are convinced with the presence ofdiscrimination in the organization, their belief in fair promotions are decreasedwhich alsofurtherdecreasetheirperceptionforpositivecareergrowth(Foley,2002)PerceivedDiscriminationCausingWorkplaceStressResearchsupporttheevidencethatfemaleemployeesarefoundtoleaveanorganizationmoreoften thanmaleswhich is attributed to glass ceiling effects (Stroh, 1996). There is evidencesuggesting strong link between job stressors and work place discrimination among femaleworkers. This has implications not only for femaleworkers but also the employers asworkrelatedstressaffectsphysicalandmentalhealththusreducingproductivity(Pavalko,2003).Hypothesis1:Perceiveddiscriminationcancauseworkplacestress.WorkPlaceStressInfluencesInnovativeWorkBehaviorRole ambiguity and situational constraints should be addressed by managers as they areimportant stressors inworkplace. Inorder to remove thenegativeeffectsofwork stressors,organizations should provide the employees with the essential tools and technology toenhance effectiveness (Gilboa, 2008).The motivation of an employee to show innovativebehaviordependsonperceivedself-valueandanticipatedfairtreatmentfromsupervisorsandco-workers.Thereforeenhancingorganizationbasedself-esteemandincreasingfairtreatmentamongemployees canenhance their innovativeworkbehavior (Ojedokun,2012).Therefore,we can conclude that fair treatment and better self-esteem improves productivity. On thecontrary, absence of these factors may lead to less productive and innovative workenvironment.Hypothesis2:Workplacestressnegativelyeffectsinnovativeworkbehavior.



MediatingRoleofStressWorkplace stresshasbeenused asmediator in the relationshipbetween ethical leadershipandleadershipeffectivenessandemployeeturnoverintentions.Itisobservedthatemployeesloyaltotheirleadershavelowerintentionstoleavejobduetodecreasedworkrelatedstress(Elçi, 2012). In a study onmentoring and job attitudes, role stressors is used as mediator.Stressors in the form of role conflict and role ambiguity are studied and are found to beinverselyrelatedtojobsatisfactionandorganizationalcommitment(Lankau,2006).Inastudyon burnout resulting from inequity, the impact of job stress was studied. Wherein, it isdiscoveredthatburnoutduetoinequitycanpartlybeexplainedintermsof jobstress(Taris,2001).Thustheevidencesupportsthefollowinghypothesis:Hypothesis 3: Work place stress can mediate the relationship between perceiveddiscriminationandinnovativeworkbehavior.ModeratingRoleofSpiritualityInastudyinvestigatingthemoderatingeffectsofreligiousandspiritual factors inrelationtoperceptionofstressandpsychologicalwell-being,itisfoundthathigherthespiritualitylowerwill be the levels of psychological distress symptoms (Lee, 2007). Similarly a study on joboverload and job satisfaction with spirituality used as moderator concluded that differentdimensionsof spiritualityhelpsone ingetting focusedandachievingonesgoals in life.Thusbeing satisfiedmakes the employeesmore creative and innovative (Altaf, 2011). Spiritualityhas significance inworkplace as employeeswant todevelopmeaning through theirwork interms of longing for respect and self-worth. Thus, when employees find that their spiritualneedsarefulfilled,theyworkwholeheartedlyandshowmorecommitmenttotheorganization(Rego,2007).Thus,theevidencesupportsthefollowinghypothesis:Hypothesis4:Spiritualitycanmoderatethenegativeeffectsofworkplacestress.

THEORETICALFRAMEWORK

METHODOLOGYSubject/Sample:ThepurposeofthisstudywastoexaminetheeffectsofPerceivedDiscriminationonInnovativeWorkBehavioroffemaleemployeesworkingindifferentorganizations.Thisstudyisconfinedto the females working in the officer grades as they are more vulnerable and exposed todiscriminating behaviors of senior employees or supervisors while those at the seniorpositions are less exposed to such behaviors. Female officers may be exposed to genderdiscrimination from supervisors,whichmay in turn increase their levels ofwork stress and



burnout(Martin,1992).Haarr(1997),forexample,foundthatfemaleofficersexperiencedthattheirmalepartnersprovidedinadequatebackupandoftenquestionedabouttheirabilities.Procedures:Questionnaire survey was conducted to collect the data through purposive study. Thequestionnairecontainsinformationabouttheconfidentialityandsignificanceofthestudy.DatacollectionthroughquestionnairesurveywillbeenteredandanalyzedusingSPSS20.0.The data for this study has been collected from two sources; supervisors as well assubordinates, with a time lag of thirty (30) days between them for the purpose of betterunderstanding of the Constructs of our research paper. Three hundred questionnairesweredistributed with 180 returned. The final sample included one hundred and seventy (170)complete questionnaires, after removing 10 due to missing/erroneous data. In case of age,28.8%ofrespondentswereintherange21-25years,29.4%wereinrange26-30years,27.6%wereinrange31-35years,5.8%wereinrange35-40yearsand8.2%wereabove41yearsofage. As regard education level, 5.8% were Intermediate pass, 32.3% were bachelors while61.7%hadmastersdegree.Withrespecttoyearsinorganization,20%hadlessthanoneyear,32.3%had1-5year,33.5%had6-10yearand14%hadmore thantenyears’experience.Asregardsdesignationinorganization,2.94%werecontractual,3.52%weregradethree,34.7%weregradetwowhile58.8%weregradethreeofficers..Thesedemographicsshowthoroughlyrepresentedestimateofthepopulationofinterest.This is a time-lag study with data collected in two time lags. Employees filled thequestionnairesforperceiveddiscrimination,stressandspiritualitywhilesupervisorsfilledthequestionnaireaboutperceiveddiscriminationandIWB.MEASURES:WorkplaceStress:AmodifiedversionoftheCollegeStudentLife-EventScale(CSLES)wasusedasameasureofstressfulsituations;theoriginalscalewasdevelopedbyLevineandPerkins(1980).Thisscaleiscomposedof99itemsthatrepresenteventsthatfallinto14differentcategories.Stress,themediating variable which is caused by Perceived Discrimination will bemeasured with thehelp of this scale. The scale is based on a five point Likert Scale from 1(Never) to 5 (VeryOften).Cronbach’salphareliabilityoftheWorkplaceStressmeasurewas.86.InnovativeWorkBehavior:The 14 items developed in our research have been adopted from the research on IWB byKleysen and Street, (2006) based on their “Two dimensional measure on innovative workbehavior”. The IWB which is the Independent variable that was measured by 14 itemsmeasuring different forms of IWB reflected in the performance of employees. The scale isbasedonafivepointLikertScalefrom1(Never)to5(Always).Cronbach’salphareliabilityoftheIWBmeasurewas.96.Spirituality:The16 item scalewasdeveloped in combinationwith inputs from theNational Institute onAging/FetzerworkinggroupandisadoptedfromtheresearchpaperbyUnderwoodandTeresionAnnalsofBehavioralMedicine,theobjectiveistohaveasetofitemstocomplimentotherfields in themultidimensional instrument.Thescale isalsobasedona sixpointLikertScalefrom 1(Never or almost never) to 5 (Many times a day). Cronbach’s alpha reliability of thespiritualitymeasurewas.99.



PerceivedDiscrimination:Theseitemareadoptedfromtheresearchpaper,‘Prevalenceandcorrelatesofperceivedworkplace discrimination among older workers in USA’, (Chou & Choi, 2011).This variable ismeasuredby theaggregate scoreofa scaleof six items, representing six typesofworkplacediscrimination. Examples of items include, “unfairly given jobsnoone elsewanted,watchedmore closely at job than others and co-worker with less experience and qualificationspromotedbeforeyou”.Eachitemismeasuredonafive-pointLikert-typescale(1=never,2=lessthan once a year, 3=a few times a year, 4=a few times a month, 5=once a week or more).Cronbach’salphareliabilityofthePDmeasurewas.90.

ANALYSIS

RESULTSTable1Means,StandardDeviations,Correlations,andReliabilities

M SD 1 2 3 4 5 6

1 Education 2.63 0.59 1

2 Designation 4.53 1.094 0.11 1 3 PerceivedDiscrimination 2.51 1.12 -0.07 -0.03 (0.909)

4 Spirituality 4.51 1.03 -0.10 .026 -

0.207**(0.992)

5 Stress 3.22 0.55 0.161* 0.11 0.282** -

0.595** (0.864) 6 Innovative Work

Behavior 4.05 0.87 -0.12 .269** -0.09 .471** -0.255** (.963)

*p<0.01;**p<0.05;N=170;Cronbach’salphapresentedinparenthesis

Table2.Resultsofhierarchicalregressionanalyses.

Predictors MediatorVariable:STRS DependentVariable:IWB

β R2 Δ R2 β R2 Δ R2

Direct Effects

Step-I

ControlVariables 0.033 0.093 Step-II

PD 0.299*** 0.122 -0.099 0.102

Indirect Effects

Step-I

ControlVariables 0.093

Step-II

STRS -.265** 0.164 Step-III

PD -0.019 0.164

Note.N=170.PD=PerceivedDiscrimination;STRS=Stress,IWB=InnovativeWorkBehavior

*p<0.05;**p<0.01;***p<0.001



Table-3ResultsforMainEffectsandModeratedRegressionAnalyses

InnovativeWorkBehavior

β ΔR²

Step1

Education -.125

Designation .286***

Step2 Education -.097

Designation .268***

Stress .003

Spirituality .455***

Step3

Education -.092

Designation .233***

Stress -.338** Spirituality -.097 STRSXSPRTY .536***

Note.N=170.STRS=Stress;SPRTY=Spirituality;IWB=InnovativeWorkbehavior.

*p<0.05;**p<0.01;***p<0.001

Table1showsthedescriptivestatistics,bivariatecorrelationsandthealphareliabilities.Table2showstheregressionanalysisformediation.DescriptiveStatisticsandCorrelations:Table 1 shows the descriptive statistics, bivariate correlations, and the alpha reliabilities.CorrelationsofStresswithPDwas(r=0.282,p<0.05),withSpirituality(r=-0.59,p<0.05),thussignificantandinexpecteddirections.CorrelationsofIWBwithPD(r=-0.09,n.s.),withspirituality (r = 0.47, p < 0.05) andwith stress (r = -0.25, p < 0.05),were also in expecteddirections.Our first hypothesis states thatperceiveddiscrimination causesworkplace stress.Results inthe table supports the hypothesis as a positive relation is found between perceiveddiscrimination and workplace stress as indicated by regression coefficient (β=0.299, p <0.001).Oursecondhypothesisstatesthatworkplacestressnegativelyaffectsinnovativeworkbehavior. Results in Table 2 supports this hypothesis by showing a negative and significantrelation between stress and innovativework behavior as indicated by regression coefficient(β=-0.265,p<0.01).Our third hypothesis states that workplace stress can mediate the relationship betweenperceiveddiscriminationandinnovativeworkbehavior.Inordertoverifythisrelationship,afour stepBarrenandKenny (1986)methodwasadopted. In the first stepPDwas regressedwithIWBandtherelationshipwasinsignificant(β=-0.099,p=0.184).Insecondstep,PDwasregressedwithstressandtherelationshipwasfoundtobesignificant(β=0.299,p<0.001).Inthethirdstep,themediatingvariablestresswasregressedwithIWBandasignificantnegativeimpactwasfound(β=-0.265,p<0.01).InthefourthandfinalstepregressionwasperformedwhenPDwasregressedwithIWBcontrollingtheimpactofstressandaninsignificantimpactwasfound(β=-0.019,P>0.05).



Table3showstheresultsofmoderationanalysis.Moderatedregressionanalysis(Cohenetal.2003)wasusedtotestourfourthHypothesesthatspiritualitymoderatesthenegativeimpactofworkplacestress.Forthispurpose,wecenteredtheindependentandmoderatingvariables.Educationanddesignationascontrolvariablewereenteredinthefirststep.Independentandmoderating variables were entered in the second step. In the third step, product terms ofindependent andmoderator variables (Stress*Spirituality)were entered,which if significantconfirmed moderation. Results in Table 2 show that the interaction term was significantshowing(β=0.536,p<0.001),thusconfirmingmoderationtest.ThusourfourthhypothesisisprovedwhereinspiritualitymoderatestherelationshipbetweenstressandIWB.

DISCUSSIONTheobjectiveof thestudy is toexplorearelationshipbetweenperceiveddiscriminationandinnovativeworkbehaviormediatedbyworkplacestress.Themoderationeffectofspiritualitywastestedinordertobufferthenegativeeffectsofstressoninnovativeworkbehavior.Thisstudyisinspiredfrompastresearchesaswellasrealtimeexperience.Inpastresearchestheimpactsofglassceilingonthewagedistributionhaveshownitseffectsonupperormanageriallevelemployees(Jellal,2008).Thishas focusedourresearchtoexplorethe impactofgenderdiscrimination in lower level female employees. Foley (2002) suggest that perceiveddiscriminationamongemployeesdecrease theirbelief in fairand justifiedpromotionsystemand consequently influencing their career growth. Thus, a positive career growth in anevolving organization requires changes, creativity and innovation tomeet the pace of otherorganizations. In a country like Pakistan, the glass ceiling effects are found to be morepronouncedamong femalesworking innon-managerialposition.However, inorder to studytheseobservations,aresearchwasconductedandtherelationshipwasexploredempirically.The purpose of this research was to explore if PD in workplace leads to stress which issupportedbypastevidenceswhereinfemaleturnoverwasfoundtoberelatedtoglassceilingeffects(Stroh,1996).Similarlywewere interestedtofindif thecorrespondingstressfurthereffectsproductivity. (Pavalko,2003) found thatworkplacestresseffectsphysicalandmentalhealth which reduces productivity and output. However, in a relatively religious society ofPakistan, spirituality can mitigate the negative effects of stress. (Rego, 2007) found thatspirituallysatisfiedworkerscanbemoreproductiveandcommittedtotheorganization.The results of the current research show a positive and significant relationship betweenIndependent variable, Perceived Discrimination and the Mediator, Workplace Stress. Theseresultssupportthepaststudieswhereasignificantrelationexistsbetweenjobstressorsandwork place discrimination among female workers (Pavalko, 2003). While a Negative andsignificant relation is foundbetween themediatorStressanddependentvariable Innovativeworkbehavior.This result supports theevidence thatBurnoutwhich isa formofemotionalfatiguereducesindividualachievement(Cordes,1993).The results of moderation test show a significant value of spirituality jointly effecting withstress on Innovative work behavior. This result supports the past research wherein thespiritually strengthens employees making them more satisfied and focused in their jobresultinginmorecreativityandinnovativeworkbehavior(Altaf,2011).Thesignificantvalueofinteractingvariablesstressandspiritualityisalsoinlinewithpastresearcheswhereinitisfoundthatspiritualitycanmitigatethepsychologicaldistresssymptoms(Lee,2007).In comparing our unique setting of organization in Pakistan with that of a Westernorganization, we assume that the findings can be generalized in other more developed



economies as the perceived discrimination is found to be particularly low in this urbanizedareaofPakistan.However,wecouldn’tfindanypaststudywiththesamevariables.TheoreticalImplications:Direct relationships are also your contribution, as it helps to extend applicability of existingestablished relationships. The current study has contributions to the existing researchesconducted in the same area. First we have explored the relationship of perceiveddiscriminationwithworkplacestressandthefindingsconfirmanegativerelationship.Second,we conceptualized theeffectsof stresson innovativeworkbehaviorwith themoderatingorbuffering effects of spirituality. The findings show that spirituality can buffer or lower thenegativeinfluenceofstressoninnovativeworkbehavior.PracticalImplicationsThe current studyhas implicationson themanagersor supervisors in thebanking industry.Thestudybringsattentiontothediscriminationfacedbythefemale junior levelstaff. If theyaretreatedfairly,theycanshowbettermotivationallevelsandcanshowbetterresultsintheform ofmore creativity and innovation. However, as psychological abnormality or stress isfoundtobeanimportantprobleminorganizations(Tennant,2001),spiritualitycanhelpthefemalescopewiththenegativeeffectsofemotionalstress.Practical implications to the managers include efforts to help cope the female staff withdiscriminatingpracticessothatfemalesarefreefromstressandperformatparwiththeirmalecounterparts.Alsospiritualitymustbeappreciatedatworkplacebyhiringspirituallyhighstaffand provide trainings to inculcate spirituality. Thus top management must inculcate morejustifiedrulesandregulationsintheirpolicies.Strengths,LimitationsandFutureDirectionsThe study has focused on the female staff working in lower or subordinating positions inbanking sector, thus beingmore vulnerable to discriminating behaviors by the supervisors.Thisifappliedpractically,thisstudycanhavelonglastingimplications.There are some limitations in this study as it focused the females in banking in the area ofRawalpindi.Thusthescopeofthisresearchislimitedtothegeographicallocationandfemalepopulationofthelocality.Theresearchisbasedoncrosssectionaldataandthereforehasitslimitations.Someofthemeasureswereself-reportedthereforetherearechancesforcommonmethodbiasnessThe future researches should include a wider geographical area and include a biggerpopulation. As Pakistan has a unique culture and society values, thereforemore researchesshouldbeconductedontheemployeeissuesofthisgeographicallocation.Future studies may be conducted with other mediator such as burnout or psychologicaldistress in order to explore the effects of PD on mental health. Similarly other possiblemoderatorsmayincludesocialsupport,religiosityandenvironment.Futureresearchesshouldinclude actual reading about reported cases of discrimination. Longitudinal study should beconductedinordertoobtainmorepreciseresults.References

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Ndolo,J.&Njagi,E.(2016).BalancingConflictingSupplyChainStakeholderInterests:TheBigProcurementPractioner’sDilemma.ArchivesofBusinessResearch,4(6),400-404.


BalancingConflictingSupplyChainStakeholderInterests:TheBigProcurementPractioner’sDilemma

JacksonNdolo

SchoolofBusinessandEconomicsMountKenyaUniversityCorrespondingauthor

EuniceNjagi

SchoolofBusinessandEconomicsSouthEasternKenyaUniversity

Abstract

Effective Supply chain management practices dictate fair and balancedtreatment of all critical players in any organization’s supply chain for betterperformance.Eachoftheplayershastheirintereststhoughoccasionallysomeareshared;thisscenarioputsthepositionoftheprocurementprofessionalsatcross roads with buyers and suppliers as they implement their employers’objectives within a regulated environment. The paper explores the dilemmacreated by variant stakeholder interests in the procurement system andproposes a consultative and tradeoff approach forprocurementprofessionalso as to achieve desired goals. The researchers surveyed all 74 procurementprofessionalwhoattendedthefirstKISMprocurementresearchforumheldatNew Stanley hotel in Nairobi in June 2014, opinions were sorted using semistructuredquestionnairesandanalyzedusingSPSS.Thestudy focusedmostlyonpublicsectorprocurementpractionerssincethestakeholdersaresimilarasstipulated by the existing legal framework, private regulations mostly varyfrom organization to another depending on governance and positioning ofprocurement. Majority of the procurement professionals cited balancing ofvariantstakeholderinterestsastheirbiggestchallenge.KeyWords:Dilemma,collaboration,sustainability,ProcurementPractioner.

INTRODUCTION

Inmanydevelopingeconomiesprocurementprofessionistreatedasa“back–office”function,not much has been done to explore and address challenges facing the Procurementprofessionals(Takuta,M.&Saruchera,2015).Theresearchersintheirstudytitled“challengesfacing procurement professionals in developing economies: unlocking value throughprofessional international purchasing”; limited recognition, increasing unethical behavior,poor supplier delivery, poor regulatory environment, varying supplier standards and poorcorporategovernancewereidentifiedasthemainchallengesfacedbyprocurementprofessionin developing countries. Procurement has become an integral part of organizationalperformance and it is drawing increased attention from top to lower management levels.Despite shrinking budgets, procurement professionals are responsible for spending a hugeproportion of companies’ revenues of national budget (Anton, Bogetoft & Thorsen 2007;Levaggi1999).ThetermStakeholderhasbecomeincreasinglyimportantasanintegralpartofthe procurement process. Effective Supply chain management practices dictate fair and



balanced treatment of all critical players in any organization’s supply chain for betterperformance.Thekeydriversofsupplychainperformanceare infrastructure, technology, informationandpeople. The people aspect comprises of buyers, suppliers and the organization’s people(businessownersandmanagers).Thepeoplearethemostcriticalfortheyallocateandmanageall the other drivers. Each of the players has their interests though occasionally some areshared,thisisscenarioputsthepositionoftheprocurementprofessionalsatcrossroadwithbuyers and suppliers as they implement their employers objectives. Internally users viewprocurementprofessionalsasproceduralofficerswhorelyonstaticlawstodenythemtimelynecessaryrequirements.Sometimesthepressuresmaybetoomuchtobear.ThecurrentpublicprocurementsectorinKenyaisriddledwithallmannerofaccusationsamongststakeholdersinthesystem.Withallthistheprocurementpractionerisatthecenterstage.Thepressureistoomuchsometimesdepictingawornoutprocurementpractionerwhoisstuckbetweentwohardrocks (citizenry and the political machinery). The varying and conflicting stakeholders’interests are a real nightmare to balance notwithstanding the static legal framework. Thisposes the big question, how does the procurement professional mitigate through the dirtywaterswithoutbeingdrowned?.It’sagainstthisbackgroundtheresearcherssoughttoidentifythemajorconflictingsupplychainstakeholderinterestsandtheresultingdilemma.

OBJECTIVESOFTHESTUDYThe paper sought to bring forth the role of procurement professionals in harmonizingstakeholder interests and proposes the safest strategy for procurement professionals toachieveharmonyandsupportfromthestakeholdersintheirsupplychains.

STAKEHOLDERTHEORYStakeholder theory suggests that the purpose of a business is to create as much value aspossible for stakeholders. Inorder tosucceedandbesustainableover time,executivesmustkeeptheinterestsofcustomers,suppliers,employees,communitiesandshareholdersalignedandgoinginthesamedirection.Innovationtokeeptheseinterestsalignedismoreimportantthantheeasystrategyoftradingofftheinterestsofstakeholdersagainsteachother.Hence,bymanaging for stakeholders, executives will also create as much value as possible forshareholdersandotherfinanciers.(Financialtimes,2014).Ingeneral,stakeholdersaregroupsof peoplewhose interests are considered to bemost important for the overall success of aproject.Theyhavethecapabilitytoinfluencetheprojectandreceivebothgainorlosefromthesuccessorfailureofasystem.AccordingtoRomenti(2010),stakeholdersareconsideredsocialsubjectswhoinfluenceeachother’sperceptions,ratherthanisolatedindividualswhoprocessinformation. Successful completion of projects is therefore dependent on meeting theexpectationofstakeholders(Freeman,2007).Projectsuccessandfailureisdirectlyrelatedtoits stakeholders‟ perceptions of the value created by the project and the nature of theirrelationship with the project team (Bourne, 2005). The success, or failure, is stronglyinfluencedbyboththeexpectationsandperceptionsofitsstakeholders,andthecapabilityandwillingnessofprojectmanagers tomanage these factorsand theorganization’spolitics team(Bourne,2005).

PUBLICPROCUREMENTSYSTEMINKENYAThe current Public Procurement system in Kenya is heavily regulated by various acts ofparliament;keytotheseisthepublicprocurementandDisposalAct2005anditsregulations.This is the law that guides and supersedes all the other laws including internationalagreementsonmatterspertainingtoprocurementas longaspublic fundsareinvolved(GoK,2005).Others includetheanti-corruptionandethicsAct,ThepublicprivatepartnershipsAct



2012, Chapter 6 of the constitution of Kenya etc. The legal framework has been cited as astumblingblock togovernment’s servicedeliverymore soon long timeframes stipulated forvariousprocurementmethods(Ndolo,2014).AccordingtoNjagi(2014)theemergencyofnewprocurement practices notably government to government procurement agreements andprocurementproceedingsbeingdoneabovetheboard,preferenceandreservationclausesforthe youth/womenmake thewhole scenariomore complex. Inter-professional conflicts don’tease the pressure either. This has led to controversial dismissal of senior officers, majorityhavependingcasesincourtornumberlessregisteredcomplainstoregulatorybodies.Asmostof the stakeholder’sdemandsand interests sometimesconflictwitheachother,organizationmust set appropriate strategic goals and priorities to bring sustainability to meet thesedemandsandinterests.Theethicalinclinationoftheprocurementprocessshouldbeviewedasthe responsibility of all stakeholders notably; suppliers, donors, procuring entities,beneficiariesand theKenyancitizenry.Acontinuously improvedprocurementsystemwouldbe the preference of each of the stakeholders since itwill help inmitigating challenges thatkeep on popping up. Successwill bemeasured by the extent towhich the public can see asignificantincreaseinthequalityofservicedeliveryandachievevalueformoney.

KEYSTAKEHOLDERSINTHEKENYANPROCUREMENTSYSTEMEffective stakeholdermanagement is crucial to project's procurement success and it’s reallyimpossible to manage stakeholders if it’s not known who they are and the motive of theirinvolvement. Stakeholder can be classified according to their interest and power. Keystakeholders of the Kenyan procurement system include; The Government, legislature,regulatorybodies,procuremententities,procurementprofessionals,thecitizenship,thecourts,Activistsandthemedia.Thegovernmentsetstheagendabyproposingtoparliamentapprovalofrelevantlegalframeworkgearedtowardsavaluebasedprocurementsystemthatisefficientandeffective.Theselawsareusuallyalignedtothepoliticalagendaofthegovernmentofthedayforexamplethedrafting,passageandadoptionofthepreferenceandreservationclauseintheprocurementactpromotes the jubilee’sgovernmentgoalofgivingmoreopportunities toyouthandwomen.Thelegislaturedebatesandapprovesorrejectssuchproposaltolaws.Itisalsomandatedwith the supervisory role of decidingon the effectivenessof the system.Theeffectivenessofsuchlawsissubjecttoanotherdiscussion.Procurementprofessionalsaretheimplementersofsuchlaws.Regulatorybodiesassisttheprocuremententities intheusageofthelaws.Thecourtsonlygetinvolvedintheprocurementprocesswhenclaimsofmalpracticesarereportedbyanyofthepartiestothesystem.Themediaandactivistsplaythekeyroleofcreating awareness to the public on key laws, opportunities as well as malpractices in thepublicsystem.Thishasoccasionallybeenviewedasantigovernmentorexistingprocurementsystem.

METHODOLOGYThestudyadoptedanexploratorydescriptivemethodologyduetotheinsufficiencyoforiginalresearch related to procurement issues in developing economies. The questionnaires wereemailed to the respondents. A sequential process of combining the existing procurementliteraturewithreal-worldpracticeswasadopted.Datawascollectedusingquestionnairesandanalyzedusingdescriptivestatisticsasshownintable1below.

RESULTSANDDISCUSSIONSResponseRateAftersendingout74questionnaires,69wereproperlyfilledandreturnedwhichrepresentsa93%responseratewhichisadequate.



Table1belowshowsthedescriptivestatisticsofthequestionnaireresults

Table1:DescriptiveStatistics

N Min Max Mean Std.

Deviation Balancing varying stakeholder's interest is my biggest challenge in procurement 69 1.00 4.00 1.2754 .70469

My qualification help to meet stakeholder' interest

69 1.00 4.00 3.6667 .76055

Government regulation helps me to meet stakeholder's interest

69 1.00 4.00 2.3043 1.37525

Stakeholder's consultation helped me to meet stakeholder's interest

69 1.00 4.00 2.9275 1.56542

Trade-off is key in meeting stakeholder interest in procurement

69 1.00 5.00 3.5072 1.45140

Procurement professional’s qualification and trade-off as means of achieving stakeholderinterestshadthehighestmeans.Thisgivesthevariantviewsoftheprocurementprofessionals.Theprofessionals’ viewson stakeholder consultationand trade-offhad thehighest standarddeviation an indication of a wide range of the views from the procurement professionals.Balancingvarying stakeholder interests receivedameanof1.2754andstandarddeviationof0.70469thelowestandtheleastvarying.

CONCLUSIONBasedonthe findingsof thestudy, the followingconclusion isdrawn.Thestudyreveals thatprocurement professional qualification, Trade-off and Stakeholder's consultation helped theprocurementprofessionalsmeetstakeholder'sinterests.Thisisjustifiableduetotheextendeddemocratic space, adoption of new projectmanagement practice that promotes stakeholderinvolvement.Manyprofessionalsarealsobackinclasstoimproveontheirskillshencethehighratingofprofessionalismqualifications.Stakeholderconsultationisalsoratedhighlywhichisin line with stakeholder theory that while balancing stakeholder interests and governmentregulationsassistedtoalowerextendinmeetingstakeholderinterests.Thiscanbeattributedto the accusations that government regulations are an obstruction to efficient and effectivepublic procurement in Kenya. This justifies themyriad court cases pertaining to flouting ofprocurement procedures for the officers don’t seem to think government regulations helptheminmeetingstakeholderinterestshencethereislittlechanceofapplication.

RECOMMENDATIONSBasedonthefindingsofthisstudy,thefollowingrecommendationsaremade;

1. Aconsultativeapproachbothbyprocurementpractionersandpolicymakersshouldbeadoptedsoastowinkeystakeholdersupportintheprocurementprocess.

2. Familiarizationofpubliclegalframeworkamongstakeholderssoastomitigatesomeoftheunnecessarystakeholderconflicts



References

1. HeikoSpitzeck,ErikG.Hansen,(2010),"Stakeholdergovernance:howstakeholdersinfluencecorporatedecisionmaking",CorporateGovernance:Theinternationaljournalofbusinessinsociety.

2. NdoloJ.&NjagiE.,(2014).“AreKenyansSufferingfromProcurementNightmareCulture?”,InternationalJournalofSupplyofManagement.

3. NigelM.deBussy,LorissaKelly,(2010),"Stakeholders,politicsandpower:Towardsanunderstandingofstakeholderidentificationandsalienceingovernment",JournalofCommunicationManagement.

4. SilviaAyuso,MiguelÁngelRodríguez,RobertoGarcía-Castro,MiguelÁngelAriño,(2011),"Doesstakeholderengagementpromotesustainableinnovationorientation?",IndustrialManagement&DataSystems.

5. StefaniaRomenti,(2010)"Reputationandstakeholderengagement:anItaliancasestudy",JournalofCommunicationManagement.

6. Tukuta,M.&Saruchera,F.,(2015).“Challengesfacingprocurementprofessionalsindevelopingeconomies:UnlockingvaluethroughprofessionalinternationalPurchasing”,JournalofTransportandSupplyChainmanagement.


Rohani,A.,Keramati,A.&Razmi,J.(2016).PresentinganInnovativeApproachCombiningFAandANPMethodstoIdentifyandPrioritizeWaterPollutantsinPetroleumandPetrochemicalIndustries.ArchivesofBusinessResearch,4(6),405-418.


PresentinganInnovativeApproachCombiningFAandANPMethodstoIdentifyandPrioritizeWaterPollutantsin

PetroleumandPetrochemicalIndustries

AbolfazlRohaniDepartmentofIndustrialEngineeringPayamNourUniversity(PNU),Iran

andSchoolofIndustrialEngineering,CollegeofEngineering

UniversityofTehran,Tehran,Iran

AbbasKeramatiSchoolofIndustrialEngineering,CollegeofEngineeringAlborzCampus


JafarRazmiSchoolofIndustrialEngineering,CollegeofEngineeringAlborzCampus


AbstractWater contamination is one of the important challenges and problems of theworldandIran.Oneofthemaincausesofdiseaseandmortalityintheworldiswater contamination. Surface and groundwaters are both subject to differentcontaminants. Considering the nature, origin of entrance of the pollutants,being natural orman-made, various classifications have been considered forcontaminants. Themajor organic contaminants ofwater include agricultural,chemical,oil,andfoodcontaminants.Eachofthesefourgroupshassubcriteria.In this research, accurate investigation, identification, and ranking of watercontaminants it all oil and petrochemical industries (urban area of Tehranprovince) have been dealt with using factor analysis and analytical networkprocess methods. The results of factor analysis method suggest that thecontaminantsofnitrate,sodium,andTDHclaimedthehighestscorebyexpertsofenvironmentinthefieldofwatercontamination.Furthermore,theresultsofanalytical network process showed that agricultural contaminants with theweightof0.321stoodinthefirstrank,whileoilcontaminantswiththeweightof0.152rankedthefourth.Keywords: water contaminants, analytical network process, principal componentanalysis,factoranalysis,oilandpetrochemicalindustry

INTRODUCTION

Todayasthedemandmarkethasbecomesomethingcentral,ithasresultedindevelopmentofthe significanceof supplychainsuch that ithas changed intooneof thevital instruments incommercialcompetitions.Ontheotherhand,environmentalismhaschangedintoanimportantcommercial-socialissue.Consideringthesignificanceofthesetwoissues,greenchainconceptwas developed and has attracted the attention of pioneering companies across the globalcompetition. Today, themanagers of leading companies try to benefit from improving their



environmental performance throughout the entire supply chain as a strategic weapon forgaining competitive advantage through developing utility and satisfaction throughout theentire supply chain (Razmi and Nasrollahi, 1392). Furthermore, the environment that hassurrounded the human and allowed him to leave has been threatened by the human itself.Today,weliveinaworldinwhichtheplightofenvironmentalcontaminationduetotherapidgrowthofpopulation, industry,andconstraintofnaturalresourceshasbecomeof interesttoscientists and expertsmore than ever it has also been paid attention to by the public as atangible issue. In today's societies, the significance of environmental protection seems to besomething essential and evident. Undoubtedly, conducting and implementing any programrequires sufficient knowledge and essential understanding of the environment and itscontaminants.Currently,theenvironmentalcrisescausedbythecontaminationsisthreateningmanycountriesseriously.Therefore,countriescancontroltheseenvironmentalcrisesthroughserious and logical protection of their environment and scientific programs. In this regard,recognizing water contamination and the industries that develop these contaminations hasfacilitatedthewaytocombatingsuchcontaminations(Ramudhinetal,2010).Tom Buchert et al (2015) presented development of sustainable product- advantages andobstaclesinaresearchcalledmulticriteriadecision-makingasaninstrumentfor.Inthatpaper,theymergeddiscretedecision-makingtreeswithlifecyclesustainabilityassessment(LCSA)fordevelopmentofmulti-criteriaquantitativeanalysis.Further,toimprovedecision-makingtheyhavepresentedanintegratedmethodfordesigningsustainableproduct.Themainobjectiveofthe selected approach is covering the gap between prospective and retrospective decision-makingthroughquantitativeanalysisinthepreliminarystagesofdesign.Thefinaloutcomeofthisresearchsuggests that fordevelopingsustainableproducts,designengineerscanbenefitfrom multi-criteria quantitative sustainable information which is currently available in thepreliminary stages of product design. In another research, Cozzi et al dealt with spatialassessmentforagriculturewiththeaimofincreasingtheproductivityintermsofeconometricsin Italy. In this research, which has been done in Basilicata region in Italy, for filtering therefuse resulting from chemical wastes, weighted averagemethod has been used alongwithverbalquantifier.Accordingly,asuitablemapfordecreasingtheproductsofacountrywhichwasfarfromchemicalwastesandespeciallywaterwasteswasrecognizedacrossthestudiedregion.Basedongeologicalandagriculturalscalesusedinthisresearch,theresearchersfoundthat out of the entire studied region, only 25 hectares of the 163 available hectares arecultivable. Furthermore, the results of this research confirmed the fact that if entrance ofchemical wastes and especially the water contaminants are not prevented from beingintroduced into groundwaters of agricultural regions, these regions will be on the verge ofdevastation.However, Lam and Dai (2015) used a combinational method of developing the qualityperformance and analytical network process for optimizing the providers of logistics toimprove sustainability of green supply chain in order to lowerwater contaminants. In thatresearch, they concluded that the most important determining factor of sustainability iseconomic and environmental issues (water contaminants). Martijn Bouwknegt et al (2015)assessedthehazardsthreateningproductionoffreshcropsdespiteitsgreenleavesthroughoutits supply chain in Europe. In that research, based on the studies on a wide range ofenvironmental contaminants and especially water contaminants, they found that therethreatening hazards are not merely a general health risk by viruses in foods which areimportantinsupply-chain.Further,theycannotbecopedwithonlythroughidentificationandevaluationofvirusesinretailproducts.Accordingly,presentationofasolutioninthisregardiscrucial. In this research, using a conceptualmodel earned through investigating the indices



affecting the quality of agricultural crops including the level ofwater contaminants such asphenol,nitride,ammonium,andthenitratepresentinsomefoodscultivatedclosetochemicalindustriesinseveralpointsofthemembercountriesoftheEuropeanUnion,thenegativeeffectofthesecontaminantsonthequantityofproductshasbeenobservedabundantly.Theresultsofresearchonseveralspecificproductssuchas lettuceandsoft fruitssuchasstrawberry, incontaminatedregions,whencomparedwithcleanedregions,thequantityofthesecropshadadropinqualityby97.5%andthisreductioninthequalityisduetoliberatingthecontaminantsofthecurrentchemicalindustriesintheregiontoagriculturalfarms.The structure of this paper is as follows: Sections 2 and 3 deal with the significance andnecessityofwaterresourcesandthepresentresearch.Section3dealswiththemethodology.In Section 4, the stages of the research are dealtwith. Statement of the introduction of theeffectivecriteriaandsubcriteria in theassessmentprocesshasbeenthoroughlydiscussed inSection5.Eventually,Section6statestheconclusionoftheresearch.

THESIGNIFICANCEANDNECESSITYOFPROTECTINGWATERRESOURCESWater is one of the most abundant compounds which is found in the nature and occupiesalmost75%oftheearthsurface.However,severalfactorshavecontributedtowatershortageacrosstheworld.Thefirstfactorisheterogeneousgeographicaldistribution;over97%oftheentirewater resources are found in oceans and seas,wheredue to thehigh level of solublesalts, theyarenot suitable fordirect consumption (Alaimo,Peter&Amanda-LynnMarshall).Over2%oftheentirewaterresourcesarepresentinglaciersandPolarRegionsorarefoundashumidityinthesoilandtheearth'satmosphere.Duetounavailability,planningforusingthemis not justifiable in terms of economic feasibility. Thus, for survival andmeeting industrial,agricultural,anddrinkingpurposes,humanbeingscanhaveaccess toonly62%of thewaterremain in the lakes, rivers, and groundwaters. This not only has reduced the quality ofavailablewaterresourcesandbroughtabout further limitations,but theresourceshavealsofaced decreased and altered quality of waters due to development of urbanization andindustrial as well as agricultural activities. It is many years that it is investing in properplanningofmanagementofwaterresources(Azadfallah,M.,&Azizi).THEENVIRONMENTANDENVIRONMENTALCONTAMINATIONSANDTHESIGNIFICANCE

OFTHERESEARCHThe environment refers to all environments in which life exists. A set of external physicalfactorsandlivingcreatureswhichareinteractingwitheachotherconstitutetheenvironmentand influence the growth and behavior of creatures. Environmental protection in the 21stcenturyisknownasoneoftheeightobjectivesofthemillennialdevelopmentandoneofthethree pillars of sustainable development (Azadi et al, 2015). Natural environment is acombinational term from different sciences, which involves a set of biological andenvironmental factors in the form of environment and non-biological factors (physical,chemical) which influence the life of a person or species and are also influenced by them.Today, this definition is mainly related to human beings and their activities, where theenvironmentcanbesummarizedasasetofthenaturalagentsoftheearthsuchasair,water,atmosphere,rocks,plants,etc.whicharesurroundingthehuman.Thedifferencebetweentheenvironment and nature lies in the fact that definition of nature involves a set of natural,biological, and non-biological factors which are considered exclusively, while the term"environment"hasbeendescribedbasedontheinteractionsbetweenhumanandnatureandaccordingtotheirviewpoint(LamandDai,2015).Thecharacteristicoftheenvironmentofmodernbusinessiseverincreasingcompetitionandeconomicglobalization.Undersuchconditions,producersbenefitfromnovelthestrategiesand



technologiestoachievetheenvironment.Therefore,throughouttherecentyears,supply-chainmanagement 3 has attracted the attention of both academics and industries as an effectivebusiness philosophy (Pishvaee & Razmi, 2012). As green supply-chain methods 5 havedevelopedagreenrevolutionacrossthesupplychain,companiesshouldusetheirinternalandexternalresourcestoimplementthegreensupply-chainmethods.Contaminationofwaterandundergroundresourceswithdifferentcontaminantsbringsaboutvariousenvironmentalnegativeeffects.Thecontaminationcausedbyindustrialactivitieshasalways brought concern for industry stakeholders and the Institutes supervising theenvironment.Selectingadaptivepoliciesandlogicalsolutionsforcleaningtheenvironmentinaway congruent with environmental considerations is inevitable. Considering the effect ofenvironmentinthelifeandinturnhumansurvival,protectingtheenvironmentisconsideredsomethingessential.Therefore,toachievethisaim,recognitionoftheissuesthatcontributetoenvironmentalcontaminationseemstobeevident,asthecountryhasmanyindustrial towns(production industries), thus understanding and being aware of the factors influencingenvironmentalcontaminationsareconsideredtobeimportant.Throughthis,thesefactorscanbemitigatedand foreliminating themsome importantmeasurescanbe takentoprotect theenvironment.Aswater isnota consumerandworthlessproduct.Today,water isa strategicandeconomicgoodwhichisveryvaluableandthosewhoownithavebargainingpowerandare able todisturbpolitical and regional equations. Furthermore,water shortage indry andsemidry regions, on theonehand, andwasteful andwrong consumptionofwater resourcesand their contamination on the other are serious threats for sustainable development andenvironmentalprotection.Based on the pointsmentioned above and according to the previous studies,we achieved astudygapandabsenceofanefficientmethodforidentificationandprioritizationofavarietyofwatercontaminationsingreensupply-chain.Basedonthisfact,inthisresearchattemptshavebeenmade topresent amethodwith expert systemdesign for identifying andprioritizing avarietyofwatercontaminationsingreensupply-chainasaninstrumentforrespondingtotheneedsofthetargetpopulation.Briefly,thenoveltiesofthisresearchinclude:

- inthisresearch,itispredictedthatmajorcontaminantsandtheirlevelintheIranianoiland petrochemical industry and especially Tehran province are extracted and afterpresenting a mathematical model with the aim of decreasing environmentalcontaminantsandpresentingittotherelevantorganizations,aneffectivestepistakentowards preventing devastation of the environment of the development ofcontaminantsthisindustry.

- As Iran is an oil-rich country and has many refineries and petrochemical industriesalongwithrelevantindustries,theresultsoftheabove-mentionedplancanbeusedintheseindustriesandothersimilarareas.

STAGESOFTHEPROCEDUREOFTHERESEARCH

In this research, themethodology is of applied type, in termsof objective,while in termsoftype, it isanassessmentmethodbasedonquestionnaireanalysis intherealworld; itcanbeput forward as a case study. Determining the input and output indices, obtaining andextractingthevariablesinthistypeofresearchitselfareimportantpartsofimplementationofthisresearch.Thefollowingstepsweretaken:

- DeterminingthecriteriathroughtheresearchbackgroundandPCAmethod- Developmentofquestionnaire- Examiningthereliabilityofthequestionnaire- Datacollection



- Determiningthevalidityoftheitemsofthecollectivequestionnaires- Givingweightstothevariables- AnalysisandrankingusingANPmethod

Principalcomponentanalysis(PCA)Principal component analysis is one of the classic multivariate methods and perhaps theiroldestandmostfamousmethod.Thismethodwasfirstdevelopedtoanalyzethestructureofvariance-covariancematricesandcorrelationcoefficient.Aswithmanymultivariatemethods,prior to invention of computers, this method was not widely used due to complexity ofcalculations. Thereafter, in terms of theory and application, it was widely developed andemployed.Thistypeofanalysiscanbefocusedonfromseveralperspectives.

- Conversionofdependentvariablestouncorrelatedvariables- Findinglinearcombinationswithlargeorsmallrelativevariability- Reductionofthevolumeofdata- Datainterpretation

This typeofanalysis isnotusuallyconsidereda finalanalysis, rather it ismainlyusedasanintermediatetoolforfurtherstudiesandinvestigations.ThemathematicalaspectsusedinthisresearchinvolvedeigenvaluesandtheEigenvectorsofsymmetricalalwayspositivematrices.Reductionofthevolumeofdataisthemainobjectiveofthisanalysis,wherethesedataconsistof a large number of variables with internal correlations, such that themaximum availableinformation possible in the data is kept. This takes place through converting the data(variables)tonewvariableswhicharecalledprincipalcomponentandareuncorrelated.Theyareprioritizedinanorderthatasmallnumberofthemoftenbringthechanges inthe initialvariableswiththem.Intheanalysisofprincipalcomponent,althoughseeminglythemainfocusis on the variance of variables, considering the relationships between the variances andcovariance’s,thismethodalsotakescovariancesorcorrelationcoefficientsintoconsiderationimplicitly.Analyticalnetworkprocess(ANP)Saati (1996) presented a method for multi-criteria decision-making. This method is calledanalytical network process (ANP) which has the aim of developing a model through whichcomplexmulti-criteriadecision-makingproblemsare analyzed into smaller components andthrough logical initialization they are converted to simpler components and finallycombinationofthesevalueshelpinfinaldecision-making.ANPmethodisthedevelopedformofAHPmethodwhich isable tomodel thecorrelationsand feedbacksbetweentheelementsaffecting a decision-making and can take all internal effects of the effective components indecision-making intoconsiderationandintroducethemintothecalculations.Therefore,withthe help of this characteristic, this technique is superior then the previous relevantmodels.Indeed,itcanbestatedthatAHPisaspecialformofANPmethod.ANPmethodhastwomainparts,whichcombinesthesetwopartsinaprocess.Thefirstpartinvolvesgroupsconsistingofcontrolling criteria and subcriteria as well as the group which takes the options of thevolunteer.Thesecondpartisanetworkofvectorsandarcswhichrepresentthedependenciesand correlations and the feedbacks present in the decision-making system. Eventually, thismethodisbasedonconductingpairedcomparisonswhichissimilartothepairedcomparisonsperformedinAHPmethod.Analyticalnetworkprocesscanbecalledthemostcompletemulti-criteria decision-making method which has been presented so far. However, the singleimportantprobleminthismodelisperformingpairedcomparisons.Thisproblemwhichalsoexists in AHP method is considered problematic as a decision-maker is not always facingaccuratestatesofcommentingandinmanydecision-makingsoftherealworld,thedecision-



makerscannotmakedecisionsaboutpairedcomparisonswithcertainty.Themodelingprocessinvolvesthefollowingstages:

- Thefirststep,basingthemodelandstructureoftheproblem- Thesecondstep,pairedcomparisonsmatrixandestimationoftherelativeweight- Thethirdstep,developmentofthepreliminarysupermatrix- Thefourthstep,developmentofweightedsupermatrix- Thefifthstep,calculationofthegeneralweightedvector- Thesixthstep,calculationofthefinalweightofthecriteria

INTRODUCTIONOFTHEINFLUENTIALCRITERIAANDSUBCRITERIAINTHE

EVALUATIONPROCESSInthisresearch,bypresentingaframework,toidentifyandprioritizetheextentofgreennessofproductionindustriesandpresentationofasolutionforenhancingthegreennessofsupplychain. According to the background and interviewwith experts, the criteria effective in theevaluationprocesshavebeendevelopedas the stepspresented in the researchaccording toFig.1. In thismodel, theaim is identificationandprioritizationof industrialcontaminants inwater (wastewater) which lies at level I. the production industries which include foodindustries,chemicalindustries,agricultureindustries,andoilindustriesintwopetrochemicalandrefineriesoftheoilinTehranhavebeenshownatLevelII,whichareintheformofnitrate(NO3), nitride (N3-), and ammonium (NH3) present in food industries, phosphate (PO4),sulfate (SO4), and chloride (Cl-) present in chemical industries, phenol (C6H5OH), sulfide(H2S), oil, mercury (Hg), and cadmium (Cd) present in oil industries, and nitrate (NO3),ammonium (NH3), phosphate (PO4), and chloride (Cl-) present in agricultural industries,whichareconsideredassubcriteria.BOD,COD,TDS,andTSSwhichareknownascomparativeevaluation indices of contaminants across all production industries are considered as thesubcriteriaatLevel III.Finally, thesecontaminantsareprioritized in industry in theorderofcontaminationintheenvironment.Thelistofthecontaminantsincludesthefollowing(Cozzietal,2015):Introductionofthecriteriathatdetectthecontaminants

- Biochemical oxygen demand (BOD): oxygen consumption rate inside water byorganisms.IfBODislow,wateriscleanandlacksanyorganismortheorganismsinsidewater are dead and have no need to consume oxygen. BOD is the amount of oxygenrequired for biological stability inwater. The size of facilities of biological treatmentespecially the wastewater aeration rate in aeration basins can be calculated by BODlevel.IfwaterBODis1ppm,thenthewaterisalmostpure.WaterwithaBODupto5ppmisconsideredtoberelativelypure,butwhenitexceeds5ppm,purityofwaterisquestioned.Howeverifitsvaluegoesbeyond20ppm,thepublichealthisjeopardized.BODexperimentsprovidearealisticestimationof thequalityofoxygenthathasbeenintroducedintothewater(Bouwknegtetal,2015).

- Chemicaloxygendemand:itistheamountofoxygenthatisrequiredsothattheorganiccompounds present in the sample are chemically stabilized. The utilized oxidizer isusually potassium dichromate in the presence of sulfuric acid. Wastewatercontamination caused by the external compounds that enter water as suspended orsoluble form, cause its contamination and production of wastewater. Evidently, thehigherthelevelofthesecompoundsinwastewater,thegreateritscontaminationload.Therefore, measurement of the amount of external compounds of wastewater is themajorkeyindeterminingtheextentofcontaminationofwastewater(Liuetal,2011).

- Total dissolved solids or concentration of minerals: it is the amount of organiccompounds or mixed inside a liquid, where these compounds can exist in water as



molecularorionizedformorverytinygrainsatmicronlevelasasuspendedform.Theprimary resources (major applications) for TDS in receiving waters, the watersresulting from agriculture and residential areas, soil contamination washing and thecontaminatedwater resourcesdischarged from industrialunitsandwastewaters.Themost importantaspectofTDS, takingwaterquality into consideration, is its effectonthetasteofwater.ClarityandtransparencyofwaterwithaTDSlowerthan600mg/lisgenerally considered a good state. Drinkingwaterwith a degree above 1200mg/l isconsideredanunfavorablestatebythemajorityofconsumers.ThedifferencebetweenTDSandTSSliesinthefactthatinTSStheparticlescannotpassthroughafilterwitha2-micronscaleandremainsuspendedinthesolutionforanunknowntime(Mulberryetal,2010).

ClassificationofwatercontaminantsTheprocesses forselecting theselectioncriteriaof theextentofcontaminationof industriesarebasedonthetwofollowingareas:

- Investigationofthecriteriausedbypreviousresearchers- Studyof the contamination indicesand important contaminating industriesaccording

tomanagersandexpertsofenvironmentBasedonthementionedprocess,asetofthemostimportantselectionindicesofindustriesandcontaminantswereconsideredasthemainmeasurementcriteria.

1. The criterionof contaminationof food industries:Basedon the extent of significanceand development of these contaminants in groundwaters, the criterion of foodindustriesconsistsofthreesubcriteriaof"nitrate","phosphorus",and"protein"(Zhangetal,2013).

2. The criterion of contamination of chemical industries: The four following criteria areconsidered the most important subcriteria of the characteristics of this industry inlaboratory trusted by the environment, which have been selected at this stage: lead,mercury,copper,alkalinityofsuspendedsolidsandheavymetals(Wuetal,2012).

3. Thecriterionofcontaminationofoilindustries:thefollowingsubcriteriaareamongthemostimportantonesofthisindustryinmeasuringtheextentofcontamination:phenol,hydrogensulfide,oil,ammonium,andTPH(Zailanietal,2015).

4. The criterion of contamination of agricultural industries: furthermore, the followingcriteriahavebeenconsideredasthesubcriteriaassociatedwithagriculturalindustries:nitrate,chemicalfertilizers,sediments,andTOG(Yongmingetal,2006).

Fig.1.Representsthemajorcontaminantsbyindividualtypes.

Water contaminants

Agricultural contamination Oil contamination Chemical

contamination Food contamination

NitrateChemical fertilizers

SedimentsTOG

AmmoniaPhenols

Hydrogen sulfideOILTPH

LeadMercuryCopper

Alkaline suspensionHeavy metals

NitratePhosphorus

Protein

Fig.1.Classificationofthecontaminants



RESULTSNextcomesexplanationoftheresultsoftheopen-endedquestionnaireandanalyticalnetworkprocessmethod.StatisticalanalysisAccording to the previous studies, 20 water contaminant indices were extracted and thendistributedamong145experts,sothatbasedontheirpreviousbackground,ascorebetween1(the least significant) and10 (themost significant)wouldbegiven.Accordingly, for rankingthecontaminants,statisticalmethodsandespeciallyfactoranalysisandPCAwereused.Then,wedealwithexplanationof the resultsof theopen-endedquestionnaire.Tables1-3presentthepreliminary factoranalysisof the indices for estimating the contributingperformanceofeachofthecontaminantsontheproblem'sobjective.

Table1.TheratioofthevarianceofeachofthecontaminantsCommunalities

Initial Extraction Nitrate 1.000 .783

phosphor 1.000 .671 PH 1.000 .667 OIL 1.000 .667 TDS 1.000 .712

heavy metals 1.000 .579 TSS 1.000 .559

Ammonia 1.000 .599 Phenols 1.000 .532 Protein 1.000 .491

Chemical fertilizers 1.000 .627 COD 1.000 .591

Sediments 1.000 .712 Hydrogen sulfide 1.000 .684

Lead 1.000 .708 Mercury 1.000 .725 Copper 1.000 .726

DO 1.000 .572 BOD 1.000 .472

Extraction Method: Principal Component Analysis. Table 1 provides the ratio of the variance of the scores taken by each contaminant by theexperts. As can be observed in the table, the contaminants nitrate, sodium, and TDS haveclaimedthehighestscorebytheexpertsofenvironmentregardingwatercontamination.Table2presentsthefrequencydistributionofthesumofthevarianceofcontaminants.Inthistable, the results were investigated based on PCA method. In the above table, Initialeigenvaluescolumnrepresentsthevarianceassociatedwiththecompletesetofcontaminantsfrom the initial results. Furthermore, the column of extraction sums of squared loadingsdemonstratethevarianceofthemostimportantcontaminantsamongallthecontaminants.



Table2.Thesumofdistributionalvarianceofthecontaminants

Total Variance Explained

Component Initial Eigenvalues Extraction Sums of Squared Loadings

Total % of Variance Cumulative % Total % of Variance Cumulative % 1 1.759 9.257 9.257 1.759 9.257 9.257 2 1.621 8.533 17.789 1.621 8.533 17.789 3 1.529 8.049 25.839 1.529 8.049 25.839 4 1.392 7.325 33.163 1.392 7.325 33.163 5 1.374 7.234 40.397 1.374 7.234 40.397 6 1.178 6.199 46.596 1.178 6.199 46.596 7 1.142 6.013 52.609 1.142 6.013 52.609 8 1.078 5.672 58.281 1.078 5.672 58.281 9 1.000 5.266 63.546 1.000 5.266 63.546

10 .970 5.103 68.649 11 .898 4.728 73.377 12 .857 4.509 77.886 13 .811 4.267 82.153 14 .739 3.890 86.043 15 .667 3.511 89.554 16 .610 3.209 92.763 17 .523 2.750 95.513 18 .469 2.471 97.984 19 .383 2.016 100.000

Extraction Method: Principal Component Analysis.

Table3.Thecorrelationmatrixbetweeneachofthecontaminants

Component Matrix(a)

Component

1 2 3 4 5 6 7 8 9 TSS -.583 .098 .315 .224 .149 .011 .181 .057 .046 TDS .572 -.169 .230 .350 .044 .000 -.056 -.416 -.046 Lead .534 -.087 .248 -.086 -.303 -.040 .035 .270 -.423

Chemical fertilizers .070 .566 -.202 .171 .043 -.031 .003 -.432 -.204 heavy metals .213 -.503 .260 -.230 .278 -.149 .183 -.077 .149

Ammonia .365 .488 .227 -.112 .088 .253 -.048 .300 -.009 Sediments .126 .138 -.674 .185 .150 .217 .243 .029 .244 Mercury -.215 .205 .472 .187 -.392 .307 .042 -.343 .103 Phenols .104 .327 .275 .379 .275 .299 .041 .147 -.077

BOD .362 .040 -.095 .375 .246 .001 -.109 .085 .331 Copper -.215 -.314 .110 -.170 .525 .319 -.249 -.061 -.312

DO .158 -.202 .291 .404 .432 -.156 -.156 .065 .137 COD -.124 -.350 -.055 .358 -.383 -.206 -.257 -.123 .227

Nitrate .131 .112 .283 .044 -.030 -.402 .712 -.039 -.012 phosphor .198 .348 .174 -.172 -.178 -.300 -.561 .005 .120

OIL -.179 -.235 .170 .344 -.382 .321 .022 .422 .070 Protein .033 .053 -.250 .312 -.019 -.356 -.021 .414 -.170

Hydrogen sulfide .414 -.098 .016 -.360 -.156 .363 .124 .022 .447 PH -.269 .362 .305 -.257 .217 -.276 -.078 .153 .390

Extraction Method: Principal Component Analysis. a. 9 components extracted.



Table 3 indicates the correlationmatrix between all of the contaminantswith nine selectedcontaminants which had the greatest contamination variance as commented by expertsaccording toTable2.Basedon theresultsof this table,allof thesecontaminantshavea lowcorrelationwitheachother.

Table4.Thefinalrankingofthecontaminantsaccordingtoexpertcommentscontaminants Score Final Ranking

Nitrate 0.955 2 phosphor 0.734 10

PH 0.808 4 OIL 0.719 13 TDS 0.711 15

heavy metals 0.726 12 TSS 0.729 11

Ammonia 0.726 12 Phenols 0.83 3 Protein 0.717 14

Chemical fertilizers 0.707 16 COD 0.764 7

Sediments 0.754 8 Hydrogen sulfide 0.717 14

Lead 0.97 1 TOG 0.703 17

Mercury 0.785 6 Copper 0.788 5

DO 0.743 9 BOD 0.703 17

As can be observed in Table 4, Lead contaminants is considered themost importantwatercontaminant by the experts. It is followed by nitratewith the score of 0.955, as the secondrank. Furthermore, in the above table it can be deduced that several contaminants had thesamescoreaccordingtotheexperts,whichincludehydrogensulfideandheavymetals,bothofwhichhadascoreequalto0.717.AnalyticalNetworkProcessIn order to achieve the objective of the research, paired comparisons questionnaires weredesignedanddistributedamongtheexperts.Consideringtheverbaljudgmentapproachinthisresearch,thestatementsandnumberswritteninTable5wereused.

Table5.ThedefinednumbersPriority number relative comparison of the indices (verbal judgment)

9 Absolute significance 7 Very strong significance 5 Strong significance 3 Weak significance 1 Equal significance

2,4,6,8 Intermediate values Inthissection,basedonthehierarchicalnetwork,thepreparedpairedcomparisonstablesandthemodifiedmethodofAsgharpouretal(1388),theweightofthecomponentswasobtainedandtheywerethenprioritized.TheresultswerecalculatedbySuperDecisionsoftware.In this research,ANP techniquewasused fordetermining thepriorityofobjectives.For thispurpose,usingANPquestionnaire,15(Wibisono,D.,&Khan)managersandexpertsofthefieldof environment related to oil and petrochemical contaminantswere requested to give theircomments. Thereafter, the data written in the matrices were analyzed by Excel and Super



Decisionsoftwareapplications.Basedonthem,theinconsistencyratewasobtainedtobe0.04.Asthisrateislowerthan0.1,thentheobtainedweightsarereliable.Next,theresultsobtainedfromtheanalyticalnetworkprocessareexplainedindetail.

Table6.Rankingofthemajorcriteriarank weight The main criterion

1 0.321 agricultural contaminants 2 0.286 chemical industries 4 0.152 oil contaminants 3 0.241 food industries

Table6representstherankingofthemajorcriteriaofwatercontaminants.Ascanbeobservedin the table, agricultural contaminants (weight=0.321) and oil contaminants (weight=0.152)stand in the first and fourth rank, respectively. Next, in Tables 7-10, the ranking of thesubcriteriaofthecontaminantsofeachofthefourmajorcriteriaispresented.

Table7.Therankingofthissub-criteriaoffoodcontaminantsrank weight The main criterion

1 0.455 Nitrate 2 0.431 Phosphorus 3 0.114 Protein

TheresultsofTable7indicatethatthenitrateelementclaimedthefirstrankinthesubcriteriaoffoodcontaminants.Furthermore,thisresultconfirmsthefirstsectionoftheresearchintheopen-endedquestionnaire, as themajorityof expertshadchosen thiselementas the secondimportantcontaminant.

Table8.Rankingofthesub-criteriaofagriculturalcontaminantsrank weight The main criterion

1 0.287 nitrate 2 0.255 chemical fertilizers 3 0.215 sediments 4 0.243 TOG

The results of Table 8 indicate that the nitrate element lies in the first rank among thesubcriteriaofagriculturalcontaminants.Aswasstatedintheresultsofthissubcriteriaoffoodcontaminants, this result confirms the first section of the research in the open-endedquestionnaire,asthemajorityofexpertshadchosenthiselementasthesecondcontaminant.

Table9.Rankingofthesub-criteriaofchemicalcontaminantsrank weight The main criterion

4 0.155 alkalinity of suspended solids 5 0.096 Heavy metal 1 0.382 lead 3 0.166 mercury 2 0.201 copper

Table9representstheresultsofrankingthesubcriteriaofchemicalcontaminants.Ascanbeobserved,leadwiththeweightof0.382isstandinginthefirstrankofthesesubcriteria.AshadbeenshowninTable4,theleadelementwasconsideredthemostimportantcontaminantbytheexpertsinthefieldofoilandpetrochemicalindustries.



Table10.Therankingofthesub-criteriaofoilcontaminantsrank weight The main criterion

4 0.160 oil 2 0.198 TPH 1 0.301 ammonium 3 0.188 hydrogen sulfide 5 0.143 phenol

Table 10 represents the results of ranking the subcriteria of oil contaminants. As can beobserved,ammoniumwiththeirweightof0.301claimsthefirstrankinthesesubcriteria.ItisfollowedbyTPHandhydrogensulfidewithrespectiveweightsof0.198and0.188.

CONCLUSIONManyoftheriversinthecountrysuchasKaroun,Zayandehroud,andSefidroodarechallengingwithbothquantitativeproblemsanddevastationofthequalityofwaterresources.Gasstationsandunderwater reservoirsof storageofoilproducts andderivatives,due tonotperformingthe necessary monitory and the decay of their walls, are regularly contaminating theenvironment and especially groundwater resources. In the majority of Iranian villages,household wastewaters are present at the level of avenues and open warehouses or aredischarged through absorption wells. This type of discharge of wastewaters has causedcontamination of surface and groundwater resources. Furthermore, the leachates caused bylivestockwastewhichcontains largeamountsofnitrogenandmicrocreatures,contaminateswater resources. Typically, these contaminating sources are also pathogenic. By limiting theoriginofwatercontaminants,thequalityofwaterresourcescanbeimprovedsignificantly.Useof detergents in a controlledway and at the required level, limitation of usage of chemicalfertilizers,pesticides,andinsecticides,andnotdischargingoilcontaminantsontoimpermeablegrounds and runningwater resources can significantly prevent entrance of contaminants towatersystems.Further,theplaceofthelivingandgrazingoflocallivestocksshouldbeasfarfrom water resources as possible, so that entrance of their wastes into surface waters isprevented.Thewastewaterofindustries,smallstores,restaurants,andcanteenscontainlargeamounts of organic and inorganic contaminantswhich should not be discharged into riversandseasdirectlyandwithouttreatment.As was indicated in Table 4, lead contaminant is the most important water contaminantaccordingtoexperts.Thiselementisfollowedbynitratewiththescoreof0.955.Furthermore,inthistableitcanbededucedthatseveralcontaminantshadthesamescoreaccordingtotheexperts,whichincludehydrogensulfideandheavymetals,bothofwhichhadascoreof0.717.In future research, other probabilistic modeling approaches can be used or with acombinationalapproach,fuzzysystemsandartificialintelligencecanalsobeemployed,andtheresults can then be compared with each other. Furthermore, it is possible to benefit fromrobustapproachtoallocateandcorrespondwithuncertainty.

- UseofZ-numberscalculationsintheinvestigationalvariables- further,asthewastewaterfromchemicalprocessesofcompaniesisconsiderableand

environmental contamination is also an issue for the organization of environment, ifthese contaminations exceeda certain environmentaldetermined level, itwill lead toconsiderablefines,thusforfutureresearch,thefactorofairpollutioncanalsobeaddedtotheproblemsandtheresultscanbeinvestigated.



- Placingseptictank1forwastewaterandhentransferenceofthecontentstoremoteandsafe areas or retreat ability of thesewastewaters. These processes can be comparedwiththecurrentenvironmentalimplicationsandtheresultscanalsobeinvestigated.

- Integrationof thestrategicdecisionswith tactical/operationaldecisions.Forexample,in the issue of management of industrial wastewaters and emission of greenhousegases,thepresentedsuggestedmodelscanresultinsavingontheuptoacertainlevel.Agreater levelofsavingcanbeaccompaniedbystrategicandlarge-scaledecisionssuchas construction of treatment systems or to ideological development of constructionprocesses. On the other hand, other strategic decisions such as construction of newproductioncompaniesandsupplierscanalsobeveryinteresting.

- Development of other heuristic and metaheuristic methods for multi-objectiveoptimizationproblemsunderuncertaintyconditionswithlarge-scale

- Problem modeling by considering other objectives such as minimizing the changeacross the human workforce, minimizing emission greenhouse gases and industrialwastes

- Modelingtheproblemasahierarchyandcomparingitsstrongandweakpointswithanintegratedapproach

- modelinginadecentralizedformandcomparingitsweakandstrongpoints,inrelationwith a centralized approach (in the proposed models, all tactical and operationaldecisionshavebeenmodeledbythemaincompanyandbyconsideringtheprofitandlossoftheentirechaininacentralizedform,thedecentralizedapproachcanbetakeninawaythatinthesupplychain,eachcompanyisprogramindividuallysuchthatitisableto both optimize its program and in a multiparty game of the entire chain, movestowardsthetotaloptimum).

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Volume 4, Issue 6 – December 2016 ISSN: 2054-7404

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Transcript of Volume 4, Issue 6 – December 2016 ISSN: 2054-7404