Business Intelligence Journal

Description
In collaboration with the Business Intelligence Service of London, UK and with the European Business School of Cambridge, UK.

Business Intelligence Journal
Business Intelligence Journal - January, 2009 Vol.2 No.1
Volume 2 - Number 1 - January 2009 - Semiannual Publicaton
Published by the IIU Press and Research Centre, A.C., Brussels EU Commission Building, Rond Point, Schuman
6, Box 5, 1040 Brussels, Belgium, for the Department of Business Management and Economics (BME) of the
School of Doctoral Studies (European Union) at the Isles Internatonale Université (IIU-EU), Brussels, Belgium
in collaboraton with the Business Intelligence Service of London, UK (Sayco UK).
Editorial Note
1
Profle of authors included in this number
2
Information for Contributors
4
Articles
Common Factors between Swedish and Chinese Entrepreneurial Leadership Styles.
9
Ingmar Bremer
Economic Model for Monopoly Analysis in Telecommunication: Proposal to Demonstrate
Uniqueness.
43
Jürgen Albinger
Relationships between Corporate Social Responsibilities Promotion and Corporate Performance in
Multinational Corporations.
93
J.C. Arias, Kate Patterson
The Impact of International Trade on Less Developed Countries (LDC).
113
Roel van den Cate
The Inevitable Role of Spirituality in the Workplace
139
Luidolf Bosch
Analyzing the Proftability of the Greek Football Clubs: Implications for Financial Decision
Making
159
Dimitropoulos E. Panagiotis
Scale of Conficts between Firms, Communities, New Social Movements and the Role of
Government
171
José G. Vargas-Hernández, Mohammad Reza Noruzi
Rational Exuberance and Revival of the US Automotive Sector
199
Balkrishna C. Rao
Corporate Social Responsibility: The Key Role of Human Resources Management
205
Supam Sharma, Joyti Sharma, Arti Devi
Research
Proposals
Key Elements to Identifying and Managing Diversity of Workforce with Different Generational
Characteristics and Values
215
Robert D. Lawsson
General Information
Business Intelligence Journal
January, 2009 Vol.2 No.1
2009 Business Intelligence Journal
Business Intelligence Journal - January, 2009 Vol.2 No.1
1
Business Intelligence Journal
In collaboration with the Business Intelligence Service of London, UK and with the European
Business School of Cambridge, UK, the Business Intelligence Journal (BIJ), produced by
the Department of Business Management and Economics (BME) at the School of Doctoral
Studies of the European Union, hosted at the Isles Internationale Université (IIU-EU) in
Brussels, Belgium, publishes research, analysis and inquiries into issues of importance to
the business community. Articles in BIJ examine emerging trends and concerns in the areas
of general management, business law, public responsibility and ethics, marketing theory
and applications, business finance and investment, general business research, business
and economics education, production/operations management, organizational behavior
and theory, strategic management policy, social issues and public policy, management
organization, statistics and econometrics, personnel and industrial relations, technology
and innovation, case studies, and management information systems. The goal of BIJ is
to broaden the knowledge of business professionals and academicians by promoting free
access and provide valuable insight to business-related information, research and ideas.
All articles included in the BIJ are peer-reviewed. The Business Intelligence Journal is
published semiannually (one volume per year) by the Business Intelligence Service of
Secured Assets Yield Corporation Limited based in London, UK.
EDITORIAL NOTE
Department of Business Management and Economics (BME)
School of Doctoral Studies (European Union)
Isles Internationale Université (IIU-EU)
Brussels EU Parliament Building:
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th
Floor
1000 Brussels, Belgium
[email protected]
Head of Department (BME): Dr. Jünger Albinger (PhD)
Published by
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1040 Brussels, Belgium
Research Centre’s Director: Professor Michael Rockwell (PhD)
Periodical Publications Editorial Unit Director: Dr. Anne D. Surrey (PhD)
Business Intelligence Journal Editor: Robert B. Stacey
Associate Editors: Michael Summers
Susan G. Boots
Martin A. Miller
Kenneth C. Michaels
Reviewers Coordinators: Anita Peters
Roger Puig
Robert Miller
Editorial Design: Pablo Gámez-Olivo
ISSN 1918-2325http://www.saycocorporativo.com/saycouk/BIJ/journals.html
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Business Intelligence Journal - January, 2009 Vol.2 No.1
2 Business Intelligence Journal January
Business Intelligence Journal
Profile of authors included in this number
January 2009, Volumen 2, Number 1
Article 1: Common Factors between Swedish and Chinese Entrepreneurial Leadership Styles
Author: Ingmar Bremer – PhD in Psychology, Stockholms univertitet, Sweden; Head of the
Department of Social Science (SSc), School of Doctoral Studies (European Union) at the Isles
Internationale Université (IIU-EU), Brussels, Belgium; researcher at the Sayco’s Business
Intelligence Service in Sweden.
Article 2: Economic Model for Monopoly Analysis in Telecommunication
Author: Jürgen Albinger – PhD in Economics, WU Wirtschaftsuniversität Wien, Austria; Head
of the Department of Business Management and Economics (BME), School of Doctoral
Studies (European Union) at the Isles Internationale Université (IIU-EU), Brussels, Belgium;
researcher at the Sayco’s Business Intelligence Service in Austria.
Article 3: Relation between CSR Promotion and Corporate Performance in Multinational Corporations
Author: 1 – J.C. Arias – PhD in Economics by Trinity College and Doctor of Business Administration
by the European Business School (Cambridge, UK); Vice-Chancellor of the Isles Internationale
Université (IIU-EU), Brussels, Belgium; Professor of Management Science in the European
Business School (Cambridge, UK); Chief Executive of the Business Intelligence Service of
London, UK.
2 – Kate Patterson – MBA by the European Business School (Cambridge, UK); Academic
Registrar of the Isles Internationale Université (IIU-EU) Brussels, Belgium; candidate to
Doctor of Business Administration at the School of Doctoral Studies of the European Union,
Isles Internationale Université (IIU-EU), Brussels, Belgium; researcher at the Business
Intelligence Service of London, UK.
Article 4: The Impact of International Trade on Less Developed Countries
Author: Roel van den Cate – PhD in Business Studies, Universiteit van Amsterdam, The Netherlands;
Dean of the School of Doctoral Studies of the European Union, Isles Internationale
Université (IIU-EU), Brussels, Belgium; researcher at the Business Intelligence Service in
The Neteherlands.
Article 5: The Inevitable Role of Spirituality in the Workplace
Author: Luidolf Bosch – Doctor scientiarum agriculture; Head of the Department of Engineering
and Technology (E&T), School of Doctoral Studies of the European Union, Isles Internationale
Université (IIU-EU), Brussels Belgium; researcher at the Business Intelligence Service in
Germany.
Business Intelligence Journal - January, 2009 Vol.2 No.1
2009 Business Intelligence Journal 3
Article 6: Proftability of the Greek Footfall Clubs: Implications for Financial Decisions Making
Author: Dimitropoulos E. Panagoitis – Teaching and Research Associate, University of
Peloponnese, Department of Sport Management, Sparta, Greece
Article 7: Scale of Conficts between Firms, Communities, New Social Movements and the Role of
Government
Author: 1 – José G. Vargas-Hernández – MBA and PhD, Miembro del Sistema Nacional de
Investigadores, Departamento de Mercadotecnia y Negocios Internacionales, Centro
Universitario de Ciencias Económico Administrativas, Universidad de Guadalajara,México
2 – Mohammad Reza Noruzi – EMBA and MA, Islamic Azad University, Payam e Noor
University of Maragheh, Iran
Article 8: Rational Exuberance and Revival of the US Automotive Sector
Author: Balkrishna C. Rao – PhD, Assistant Professor Indian Institute of Technology-
Madras, India; Member of the Royal Economic Society-UK, the Green Economics
Institute-UK and the Econometric Society-USA
Article 9: Corporate Social Responsibility: The Key Role of Human Resources Management
Author: 1 – Suparn Sharma – PhD, Assistant Professor, School of Economics, Shri Mata Vaishno
Devi University, India
2 – Joity Sharma – PhD, Assistant Professor, School of Business, College of Management,
Shri Mata Vaishno Devi University,Katra, Jammu & Kashmir, India
3 – Arti Devi – Lecturer, School of Business, College of Management, Shri Mata Vaishno
Devi University,Katra, Jammu & Kashmir, India
Research
Proposal 1:
Identifying and Managing Diversity of Workforce
Author: Robert D. Lawsson – MSc and candidate to PhD in Management Science at the School
for Doctoral Studies (European Union) of the Isles Internationale Universitate in Brussels,
Belgium; Researcher for the Sayco’s Business Intelligence Service in Canada
In order to make contact with any of the Authors referred to above, please forward your request to: edit.bij@saycocorporativo.
com, including BIJ’s edition (BIJ Volume 2, Number 1, January 2008), article’s and author’s names with your requirement.
BIJ’s Editor will be glad to submit your requests or inquiries before authors.
Business Intelligence Journal - January, 2009 Vol.2 No.1
4 Business Intelligence Journal January
INFORMATION FOR CONTRIBUTORS
Electronic submission of manuscripts is
strongly encouraged, provided that the text,
tables, and fgures are included in a single
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Submit manuscript as e-mail attachment
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The length of a full paper should be the
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pages) in length.
Reviews: Submissions of reviews and
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Reviews should be concise and no longer
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manuscript pages). Reviews manuscripts
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All manuscripts are reviewed by an
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Business Intelligence Journal - January, 2009 Vol.2 No.1
2009 Business Intelligence Journal 5
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Business Intelligence Journal - January, 2009 Vol.2 No.1
6 Business Intelligence Journal January
Examples:
Smith (2000), Wang et al. (2003), (Kelebeni,
1983), (Usman and Smith, 1992), (Chege,
1998; Chukwura, 1987a,b; Tijani, 1993,
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Papadogonas TA (2007). The fnancial
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Serv. Manage. 2(1/2): 14 – 20.
Mihiotis AN, Konidaris NF (2007). Internal
auditing: an essential tool for adding
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fnancial institutions and organizations.
Int. J. Financ. Serv. Manage. 2(1/2): 75
– 81.
Gurau C (2006). Multi-channel banking
in Romania: a comparative study of the
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Manage. 1(4): 381 – 399.
Yoon CY,Leem CS (2004).Development
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levels Int. J. Electron. Bus. 2(4): 404 –
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Business Intelligence Journal - January, 2009 Vol.2 No.1
2009 Business Intelligence Journal 7
Costs for Authors
Revision, edition and publishing costs will
be totally paid by the IIU Press & Research
Centre A.C. and authors’ sole contribution
will be providing BIS with their invaluable
work.
Publication Decisions
Decisions by the editor of all submitted
manuscripts refect the recommendations of
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though writing style, structure and length
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without sacrifcing clarity or meaningfulness
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manuscripts with strong contributions will
be assigned more pages than those making
narrower contributions. Papers intended to
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and Times New Roman twelve-pitch font)
will, at discretion of the editor, be allotted
additional space. Authors are expected to get
and use feedback from colleagues prior to
submitting a manuscript for formal review.
Business Intelligence Journal - January, 2009 Vol.2 No.1
8 Business Intelligence Journal January
2009 9
Bremmer I. - Common Factors between Swedish and Chinese Entrepreneurial Leadership Styles
Ingmar Bremer
COMMON FACTORS BETWEEN SWEDISH AND
CHINESE ENTREPRENEURIAL LEADERSHIP
STYLES
Ingmar Bremer (PhD)
Abstract
This paper includes a comparative study of the entrepreneurial leadership of both Sweden and China,
taking into consideration such factors as their political and economic history, leadership styles, and
regulatory changes. It will conclude with an analysis of the factors that both entrepreneur leadership
styles have in common, as well as substantial differences between fundamental approaches to business
development.
Business Intelligence Journal - January, 2009 Vol.2 No.1
10 Business Intelligence Journal January
Introduction
In recent years, researchers have
contributed different causes as responsible
for the success of a country’s economic
system, and as a result, differing models for
economic growth suggest multiple possible
paths for success. Two countries of notable
global success, attributable to each of its’
entrepreneurial leadership skills, are Sweden
and China. The world is changing fast, and
China is now an important part of the global
economy. However, cooperation in Europe
is growing closer and broader. Sweden is a
small nation with a history of major success
on the global market, success that has been
attributable to the Swedish business sector’s
strong position and skilled company leaders.
This paper will offer a comparative study
of the entrepreneurial leadership of both
Sweden and China, taking into consideration
such factors as their political and economic
history, leadership styles, and regulatory
changes. It will conclude with an analysis of
the factors that both entrepreneur leadership
styles have in common.
The fact that entrepreneurship is a catalyst
for economic growth and development is
well known. Small businesses in the United
States, for example, account for 58% of
the private work force, 51% of GNP and
about 75% of net new jobs (Asel, 2003).
Entrepreneurship is even more important to
the growth of developing economies where
small businesses frequently account for 80%
or more of employment and virtually all job
growth (Asel, 2003). Differing economic,
cultural and political circumstances
abroad also suggest the need for a better
understanding of entrepreneurship with a
local context (Asel, 2003). Fortunately,
the ability to study entrepreneurship
abroad is expanding rapidly as a result of
the emergence of global private equity
markets and microfnance. International
entrepreneurship spans cultural boundaries
and involves a variety of stakeholders,
including the entrepreneur, investors and
policy makers (Asel, 2003).
Entrepreneurs operate at the margins
of the economy exploiting opportunities
overlooked by incumbents. They innovate
to develop promising, but untested markets
and fexibly managing scarce resources in
an uncertain, often unforgiving environment
(Asel, 2003). International entrepreneurship
thus offers a rich tapestry to explore many of
the issues that are at the heart of business
strategy and economic development (Asel,
2003). Companies play a key role with
regard to achieving long-term sustainable
development based on economic growth,
environmental considerations and social
commitment. Finally, an economically
thriving society with low infation creates an
important base for business growth.
Entrepreneurial Leadership
Entrepreneurial leadership is leadership
that is based on the attitude that the leader
is self-employed. Leaders of this type take
initiative and act as if they are playing a
critical role in the organization and energize
their people, demonstrate entrepreneurial
creativity, search continuously for new
opportunities and pursue them, take risk,
venture into new areas and provide strategic
direction and inspiration to their people
(Kotelnikov, 2005). These leaders also
take responsibility for the failures of their
team, learn from these failures and use them
as a step to ultimate success and strategic
achievement. Entrepreneurial leadership
involves instilling the confdence to think,
behave and act with entrepreneurship in
the interests of fully realizing the intended
purpose of the organization to the benefcial
growth of all stakeholders involved
(Kotelnikov, 2005). In the new era of rapid
2009 11
Bremmer I. - Common Factors between Swedish and Chinese Entrepreneurial Leadership Styles
Ingmar Bremer
changes and knowledge-based enterprises,
managerial work becomes increasingly a
leadership task. Leadership is the primary
force behind successful change, as leaders
empower employees to act on the vision
(Kotelnikov, 2005). They execute through
inspiration and develop implementation
capacity networks through a complex web
of aligned relationships (Kotelnikov, 2005).
Venture values are different from
established corporate shared values.
Research indicates that entrepreneurial
independence demands space for action
and trust, while independence in a
corporation implies responsibility and
control imposed from above (Kotelnikov,
2005). Entrepreneurship is important
because any county’s economy demands
agility, experimentation, adaptation, and
rapid response in order to be frst to market.
Corporate experimentation comprises
analysis, review, somber consideration
of facts, and willingness sacrifce speed
for thoroughness (Kotelnikov, 2005).
Entrepreneurial paranoia, or the impending
belief that competitors are catching up, is
overshadowed by an essential need to build
corporate consensus and minimize perceived
risk (Kotelnikov, 2005). Entrepreneurial
leadership skills are important because
leading innovation is a delicate and
challenging process.
As a result, a true leader must encourage
expansive thinking in order to generate new
ideas, but also flter through these ideas to
decide which to commercialize. “Loose
tight” leadership alternates the creation
of space for idea generation and free
exploration with a deliberate tightening that
selects and tests specifc ideas for further
investment and development (Kotelnikov,
2005). Looseness usually dominates the
early stages of the innovation process; in
the later stages, tightening becomes more
important to scrutinize the concepts and bring
the selected ones to the market (Kotelnikov,
2005). Those who remain loose too long
generate plenty of ideas but have diffculty
commercializing them. Those who lock
into the tight mode choke off all but most
obvious ideas, thus confning innovation
to incremental line extensions of existing
products that add little value (Kotelnikov,
2005).
An examination of the literature
regarding entrepreneurial leadership reveals
that creativity is a continuous activity for the
entrepreneur, a method of always seeing new
ways of doing things with little concern for
how diffcult they might be or whether the
resources are available. But the creativity in
the entrepreneur is combine with the ability
to innovate, to take the idea and make it work
in practice (Kotelnikov, 2005). This seeing
something through to the end and not being
satisfed until all is accomplished is a central
motivation for the entrepreneur. Indeed once
the project is accomplished the entrepreneur
seeks another mountain to climb because
for him or her creativity and innovation are
habitual, something that he or she just has to
keep on doing (Kotelnikov, 2005).
An “entrepreneur” has been defned as a
person who habitually creates and innovates
to build something of recognized value
around perceived opportunities (Kotelnikov,
2005). The best entrepreneurs have the ability
to devise new combinations dependent on
their ability to discern relationships between
seemingly disparate items. In other words,
creativity is the juxtaposition of ideas which
were previously thought to be unrelated,
and it is the entrepreneurs ability to combine
ideas in a unique way or to make useful
associations among ideas. Entrepreneurial
leadership includes creating an atmosphere
where you and others are comfortable
expressing new ideas, an atmosphere where
ideas are not immediately evaluated and
attacked (Kotelnikov, 2005).
Business Intelligence Journal - January, 2009 Vol.2 No.1
12 Business Intelligence Journal January
The term “entrepreneur” is originally a
French word – entreprendre – that means to
undertake (Mamede & Davidsson, 2003).
According to Casson (1987), it seems to
have been introduced into economics by
Richard Cantillon in 1755. It was through
J.B. Shay in the early 1980’s that the
expression became recognized, referring to
a person who shifted economic resources
out an area of lower and into an area of
higher productivity and greater yield
(Mamede & Davidsson, 2003). The term
“entrepreneurship” was coined in the early
1900’s, to refer to the actions conducted
by the entrepreneur. Wennekers, Thurik
and Buis (1997), defned entreprenuership,
for research purposes, as the ability and
willingness of individuals, both on their
own and within organizations: to perceive
and create new economic opportunities (new
products, new production methods, new
organized schemes and new product market
combinations); to introduce new ideas in
the market, in the face of uncertainty and
other obstacles, by making decisions on
location, form and the use of resources and
institutions; and compete with others for a
share of the market.
Entrepreneurial Research and
Development and Economic
Growth
Although economic growth and
development have similar meanings and
are sometimes treated interchangeably,
there are some distinctions that should be
considered. While economic growth mainly
refers to the capacity of a nation to become
wealthier through the production of more
goods and services, economic development
ultimately implies that citizens of that
nation be better off (Mamede & Davidsson,
2003). Saemundson and Kirchhoff (2002)
defne economic growth and development
as an expression frequently used to refer
to improvement in social well being within
nations. In economic terms, development
has traditionally denoted the capacity of a
country, whose initial economic situation
has been relatively static for a long time,
to generate and maintain growth rates on
the order of 5% to 7% or more of its gross
national product (Todaro and Smith, 2003).
According to Todaro and Smith (2003),
before the 1970’s, development was normally
seen as an economic phenomenon in which
rapid increase in the gross national product
would trickle down to the population in the
form of jobs or other economic opportunities
or at least generate the proper conditions for
the distribution of the economical and social
benefts of growth.
Though different perceptions regarding the
concept may exist, the traditional economic
vision of development was reconsidered
during the 1970’s (Mamede & Davidsson,
2003). The experience of developing nations
during the 1950’s and 1960’s, in which the
realization of economic growth targets did
not mean improvement in the levels of living
of their population, indicated that the existing
defnition of the term was not adequate
(Mamede & Davidsson, 2003). As a result,
economic development was redefned in
terms of reduction or elimination of poverty,
inequality, and unemployment within the
perspective of a growing economy (Mamede
& Davidsson, 2003).
Research indicates that entreprenuership
can be both the cause and effect of economic
development in the sense of wealth
distribution. Countries in which wealth is
concentrated in the hands of a small fraction
of the population face greater diffculties
in coordinating the major components of
progress (Mamede & Davidsson, 2003).
These three components are labor, capital,
resources and innovation. According to
Mamede and Davidsson (2003), considering
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Bremmer I. - Common Factors between Swedish and Chinese Entrepreneurial Leadership Styles
Ingmar Bremer
that the three driving forces of entrepreneurial
success - founders, opportunity recognition,
and resource requirements – are more likely
to occur in a combined way, there are better
chances to prosper in regions in which
wealth is more equitably distributed. These
researchers have also observed that members
of such societies are in a more favorable
condition to get involved in entrepreneurial
endeavors.
National and international research and
development and innovation policies are
being improved around the world, in order
to increase economic growth and achieve
higher living standards (Erskine, 2003).
Understanding of the drivers of technological
progress and the key factors that underlie
successful research and development and
innovation is intensifying (Erskine, 2003).
A review of a large number of studies that
assess the factors that have helped drive
successful research and development and
innovation in countries that are research
and development and innovation leaders
confrms a few general conclusions. First,
it is very diffcult to determine exactly what
underlies a successful national research
and development effort, and it is easy
to conclude that everything depends on
everything else, but it is clear that innovation
systems and processes must be considered,
not just specifc technical issues with the
promotion of research and development
(Erskine, 2003). Culture, and in particular
an entrepreneurial spirit and a willingness
to risk and experience failure, is vital to
innovation (Erskine, 2003).
Research indicates that it is still unknown
how to change a nation’s culture, but all the
available evidence confrms that incentives
that reward particular behavior do tend to
have results and that education in processes
not well understood. Private expenditure
on research and development in any
country will be insuffcient to maximize
the nation’s productivity potential, unless
it is subsidized, either through taxes or
grants or some other mechanism (Erskine,
2003). International studies suggest that the
social return for such subsidization is high.
Research and development expenditures are
likely to have a greater commercial impact
if aggregate these funds are allocated with
commercialization potential as a key criterion
(Erskine, 2003). This is best fulflled through
competitive and market-driven or industry-
driven mechanisms for allocating research
and development funds (Erskine, 2003).
Research indicates that education, tax and
immigration policies that ensure availability
of skilled and motivated labor are a feature
of almost all the leading countries. A review
of the literature reveals that the pace and
intensity of global innovation is accelerating
and that all the international evidence is that
leadership from the top can make a critical
difference.
Diffculties faced by poor countries,
wherein low average income is a limiting
factor of savings and investments, tend to
reinforce each other in what is known as
the vicious cycle of poverty, in which low
savings and investment is followed by low
pace of capital formation, that results in
low levels of productivity, which does not
all lead to improvements in the levels of
average incomes (Mamede & Davidsson,
2003). The consequences of such cycles,
usually worsened by signifcant inequalities
in the distribution of wealth, negatively
impact the level of entrepreneurial activity
of a nation or region (Mamede & Davidsson,
2003). Baumol (1993) argues that even if
entrepreneurs are not in complete control
of their economic destiny, they infuence
its direction as few others are able to do.
Baumol (2003) also sees the entrepreneur
as responsible for a signifcant amount of
historic growth of modern society. Baumol
(2003) sees the entrepreneurial talent and
Business Intelligence Journal - January, 2009 Vol.2 No.1
14 Business Intelligence Journal January
motivational mechanisms of entrepreneurial
activity as one of the main explanations for
the successful growth of some economies in
contrast with others.
Studies have been conducted to assess
what the international best practices are, in
order to identify the key factors in each of
the countries that are critical for that success.
It is now well accepted that innovation and
research and development are positively
associated with productivity growth.
Research and development provides an
important contribution to output and total
factor productivity growth (Erskine, 2003).
The empirical evidence typically shows
that a 1% increase in the stock of research
and development leads to a rise in output of
0.05-0.15% (Erskine, 2003). There is also
evidence that research and development
may play a different role in small and large
economies (Griffth et al., 1998). In smaller
economies, it primarily serves to facilitate
technology transfer from abroad. The belief
that less advanced countries would catch
up with the technological world leaders
as technological knowledge is diffused
or transferred through the world has been
severely shaken over the past decade by a
widening in the productivity gap between
countries (Erskine, 2003).
The opportunities for wealth creation in
and the increasing economic importance of
‘knowledge-based’ industries has heightened
the need to understand the processes
underlying technological progress (Erskine,
2003). Firms, industries and countries are
now engaged in very direct competition
to produce technological progress, to
create wealth, jobs and human and social
well-being. Innovation and research and
development have become vital activities
in an increasingly knowledge-based world
(Erskine, 2003). No country leads in every
sphere of innovation, but some dominate in
particular industries. Research indicates that
considering research and development, the
USA is the global leader; the UK also ranks
highly, as a recent success in biotechnology
leadership and because of its relevance to
the development of Australia’s education
system and legal framework (Erskine, 2003).
Other countries of interest would most likely
include Singapore, South Korea and Taiwan,
and even perhaps China, where research
and development effort is intensifying
most rapidly and the policy framework is
developing the fastest (Erskine, 2003).
The question of whether east Asia can
compete in global markets has recently been
evaluated in a 2002 World Bank report.
According to the report, the factors that
determine whether or not countries such
as China can compete include the building
of research and development capital; the
business environment, including ease of
entry by frms, level of competition, and
protection of intellectual property; and the
effectiveness of the education system in
producing an adequate supply of skilled
and technical workers; the links among
businesses, universities, and public and
private research institutes that stimulate
innovation and its commercialization (Yusuf
& Evenett, 2002).
Also included among the factors are the
interaction among frms and agglomeration
economies in industrial clusters; the extent
of technology generation and absorption
by frms through their own research and
development, licensing, assistance from
lynchpin buyers in a production network,
new equipment purchases, and support from
equipment or component suppliers; the
degree of access to an international pool of
professionals and to centers of excellence in
East Asia and the West; and the development
status of production networking, supply
chain management, and logistics (Erskine,
2003).
2009 15
According to Stern et.al., (2000),
innovative capacity depends on the overall
technological sophistication of an economy
and its labor force, but also on an array
of investments and policy choices by
both government and the private sector.
Innovative capacity is related to but distinct
from non-commercial scientifc and technical
advances, which do not necessarily involve
the economic application of new technology
(Stern et.al., 2000). Differences in national
innovative capacity refect variation in both
economic geography and innovation policy.
Other researchers have examined fnance
and its infuence on economic growth and
technical progress, concluding that the
fundamental fnancing problem for frms
undertaking research and development is
uncertainty over the outcome of the research
and development. The frm and any fnancier
suffer from a signifcant information
asymmetry about the prospects for future
income fows, and typically a fnancier
will be unwilling to accept research and
development as collateral to a debt (Hall,
2002). Equity fnance is thus an imperative
for research and development conducting
frms. According to Hall (2002), this is
an obvious limitation in economies with
poor markets for venture capital. Finance
and access to fnance have become more
important determinants of research and
development effort as international capital
has become more mobile across borders
and as “research and development costs per
invention” have increased (Hall, 2002).
Evidence on the “funding gap” for research
and development has been surveyed, with a
focus on fnancial market reasons for under
investment in research and development that
persist even in the absence of externality-
induced under investment (Hall, 2002). The
conclusions are: 1) small and new innovative
frms experience high costs of capital that
are only partly mitigated by the presence of
venture capital; 2) evidence for high costs
of R&D capital for large frms is mixed,
although these frms do prefer internal
funds for fnancing these investments;
3) there are limits to venture capital as a
solution to the funding gap, especially in
countries where public equity markets are
not highly developed; and 4) further study
of governmental seed capital and subsidy
programs using quasi-experimental methods
is warranted (Hall, 2002).
Leadership Studies and Analysis
Since its introduction over twenty years
ago, charismatic leadership has been strongly
emphasized in the US management literature
(Bass, 1985; House,1977; Shamir, House &
Arthur, 1993). The benefts of charismatic
or transformational leadership are thought
to include broadening and elevating the
interests of followers, generating awareness
and acceptance among the followers of the
purposes and mission of the group, and
motivating followers to go beyond their self-
interests for the good of the group and the
organization (Bass, 1985). Charismatic or
transformational leaders articulate a realistic
vision of the future that can be shared,
stimulate subordinates intellectually, and
pay attention to the differences among the
subordinates. Tichy and Devanna (1990)
highlight the transforming effect these
leaders can have on organizations as well
as on individuals. By defning the need for
change, creating new visions, and mobilizing
commitment to these visions, leaders can
ultimately transform organizations (Hartog
et.al., 1999).
According to Bass (1985) the
transformation of followers can be
achieved by raising the awareness of the
importance and value of desired outcomes,
getting followers to transcend their own
self-interests and altering or expanding
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Ingmar Bremer
Business Intelligence Journal - January, 2009 Vol.2 No.1
16 Business Intelligence Journal January
followers’ needs. Bass (1985) defned the
transactional leader as one who: recognizes
what followers want to get from their work
and tries to see that followers get what they
desire if their performance warrants it;
exchanges rewards for appropriate levels
of effort; and responds to followers’ self-
interests as long as they are getting the job
done. Numerous research studies have been
conducted in this area, and, collectively, the
empirical fndings demonstrate that leaders
described as charismatic, transformational,
or visionary have positive effects on their
organizations and followers, with effect sizes
ranging from .35 to .50 for organizational
performance effects, and from .40 to .80 for
effects on follower satisfaction, commitment,
and organizational identifcation (Fiol et al.,
1999).
Studies have been carried out in many
different countries, and research in this area
also shows that transformational leadership
is closer to perceptions of ideal leadership
than transactional leadership. As Lord and
Maher (1991) note, being perceived as a
leader is a prerequisite for being able to go
beyond a formal role in infuencing others.
They hold that leadership perceptions can
be based on two alternative processes. First,
leadership can be inferred from outcomes
of salient events, and attribution is crucial
in these inference-based processes (Lord &
Maher, 1991). For example, a successful
business ‘turnaround’ is often quickly
attributed to the high quality ‘leadership’
of top executives or the CEO (Hartog et.al.,
1999). Leadership can also be recognized
based on the ft between an observed
person’s characteristics with the perceivers’
implicit ideas of what ‘leaders’ are (Hartog
et.al., 1999).
Cultural groups may vary in their
conceptions of the most important
characteristics of effective leadership. As
such, different leadership prototypes would
be expected to occur naturally in societies
that have differing cultural profles (Bass,
1990a; Hofstede 1993). Historical research
indicates that in some cultures, one might
need to take strong decisive action in order to
be seen as a leader, whereas in other cultures
consultation may be a better approach.
Additionally, the evaluation and meaning of
many leader behaviors and characteristics
may also strongly vary in different cultures.
In a culture that endorses an authoritarian
style, leader sensitivity might be interpreted
as weak, whereas in cultures endorsing a
more nurturing style, the same sensitivity
is likely to prove essential for effective
leadership (Hartog et.al., 1999).
Research indicates that leadership
exists in all societies and is essential to the
functioning of organizations within societies
(Wren, 1995). Because individuals have
their own ideas about the nature of leaders
and leadership, they develop idiosyncratic
theories of leadership. As such, an
individual’s implicit leadership theory refers
to beliefs held about how leaders behave
in general and what is expected of them.
This type of attribution process provides a
basis for social power and infuence (Lord
& Maher,1991). In recent years, decision-
making models in business organizations
have emerged as a signifcant factor in
the determination of the organization’s
success or failure. Organizations require
that individuals carry out job assignments
dependably, make creative suggestions,
and carry out self-training (Katz, 1958).
However, the organization does not obtain
all these behaviors simply through hiring the
employee.
Research has noted the distinction
between membership and decision making
behaviors required by organizations and the
quite different sources of these behaviors.
In one such study, the motivation to acquire
and keep organizational membership from
2009 17
Bremmer I. - Common Factors between Swedish and Chinese Entrepreneurial Leadership Styles
Ingmar Bremer
productivity was distinguished (March &
Simon, 1958). Membership motivation
results from a favorable inducements-
contributions balance. Employees must
perceive a continuing favorable balance
if they are to remain members. The
motivation to perform represents a much
more complex psychological contract
between the individual and the organization
involving perceived alternatives, perceived
consequences of these alternatives, and
individual goals (March & Simon, 1958).
Organizations have no choice but to provide
membership motivation if they wish to
remain organizations.
Process or theories explain the operation
of motivation, or the factors that infuence
an individual to choose one action
rather than another. Process theories are
subdivided into cognitive and non-cognitive
approaches. Cognitive theories see behavior
as involving some mental process. Non-
cognitive theories see behavior as caused
by environmental contingencies. The major
cognitive theories are equity theory, goal-
setting theory, and expectancy theory. All of
them focus on perceptions of the outcomes
that fow from behavior.
Equity theory suggests that motivated
behavior is a form of exchange in which
individuals employ an internal balance
sheet in determining what to do. It predicts
that people will choose the alternative they
perceive as fair. The components of equity
theory are inputs, outcomes, comparisons,
and results. Inputs are the attributes the
individual brings to the situation and the
activities required. Outcomes are what
the individual receives from the situation.
The comparisons are between the ratio of
outcomes to inputs and some standard.
Results are the behaviors and attitudes
that fow from the comparison, but other
standards of comparison, including oneself in
a previous situation, seem equally probable
(Adams, 1965).
Goals setting theories argue that
employees set goals and that organizations
can infuence work behavior by infuencing
these goals. The major concepts in the theory
are intentions, performance standards, goal
acceptance, and the effort expended. These
concepts are assumed to be the motivation.
Participation in goal setting should increase
commitment and acceptance. Individual
goal setting should be more effective than
group goals because it is the impact of goals
on intentions that is important. In goal-
setting theory the crucial factor is the goal.
Tests of the theory show that using goals
leads to higher performance than situations
without goals, and that diffcult goals lead to
better performance than easy ones (Mitchell,
1979). Although participation in goal setting
may increase satisfaction, it does not always
lead to higher performance.
Expectancy theory supports the contention
that people choose the behavior they believe
will maximize their payoff. It states that
people look at various actions and choose the
one they believe is most likely to lead to the
rewards they want the most. The elements
in the theory are expectancies that certain
outcomes will occur and the anticipated
satisfaction of those outcomes. Although
the formal elements are expectancies and
valences, in most formulations expectations
are divided into two types: expectancy,
or the expectation that effort will lead to
performance, and instrumentality, or the
expectation that performance will lead to
reward.
Expectancy theory has been tested
extensively. The usual approach is to obtain
expectancies, instrumentalities, and valences
by questionnaire or interview and to relate
these responses to self-reported or measured
choices, such as occupational choice, job
satisfaction, effort, or performance (Mitchell,
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18 Business Intelligence Journal January
1980). It has been found that expectancy
theory can do an excellent job of predicting
occupational choice and job satisfaction and
a moderately good job of predicting effort on
the job. Expectancy theory implies that the
anticipation of rewards is important as well
as the perceived contingency between the
behaviors desired by the organization and
the desired rewards. The theory also implies
that since different people desire different
rewards, organizations should try to match
rewards with what employees want.
Although these implications suggest that
following the requirements of expectancy
theory will lead to performance motivation
in organizations, organizations should be
aware of possible diffculties. Employees
may not believe that good performance does
in fact lead to more desired rewards, and
convincing them may require more changes
than the organization is prepared to make.
Poor selection and training of employees, for
example, even with maximum effort, results
in poor performance. Finally, it should
be noted that the components of decision-
making models are beliefs that require
a good deal of information and a rather
complex cognitive process in determining
action. Some employee groups do want
the rewards the organization has to offer,
do want to believe that greater effort results
in improved performance, and do want to
believe that better performance leads to
greater rewards.
The way in which the social environment
is interpreted is strongly infuenced by the
cultural background of the perceiver. This
implies that the attributes that are seen as
characteristic or prototypical for leaders
may also strongly vary in different cultures
(Hartog, et.al., 1999). Hunt, Boal and
Sorenson(1990) propose that societal culture
has an important impact on the development
of superordinate category prototypes and
implicit leadership theories. They hold that
values and ideologies act as a determinant
of culture specifc superordinate prototypes,
dependent on their strength.
The research in this area mentions three
elements attributable to the leadership styles
of different cultures; a stress on market
processes, a stress on the individual, and
a focus on managers rather than workers.
As a result there is a growing awareness of
need for a better understanding of the way
in which leadership is enacted in various
cultures and a need for an empirically
grounded theory to explain differential leader
behavior and effectiveness across cultures
(House, 1995). Culture profles derived
from Hofstede’s theoretical dimensions of
cultures, yield many hypotheses regarding
cross-cultural differences in leadership.
Hofstede’s dimensions of culture are:
uncertainty avoidance, power distance,
masculinity-femininity, individualism-
collectivism, and future orientation. High
uncertainty avoidance cultures, with the
resulting emphasis on rules, procedures and
traditions may place demands on leaders
not expected in low uncertainty avoidance
cultures (Hartog et.al., 1999).
According to Hofstede, innovative
behaviors may therefore be expected in low
uncertainty avoidance cultures. Cultures
that are more masculine are probably more
tolerant of strong, directive leaders than
feminine cultures, where a preference for
more consultative, considerate leaders
appears likely (Hartog et.al., 1999).
Research indicates that preferences for a
low power distance in societies could result
in other desired leader attributes than a
preference for high power distance (Hartog
et.al., 1999). Other research indicates that
managers in high power distance countries
report more use of rules and procedures
than do managers from low power distance
countries. The most cited study, by Gerstner
and Day (1994) focused on cross-cultural
2009 19
comparisons of leadership prototypes. In this
study, respondents completed a questionnaire
asking them to assign prototypically ratings
to 59 leadership attributes. Comparing the
ratings from a sample of American students
(n=35) to small samples (n= between 10 and
22) of foreign students from 7 countries,
they found that the traits considered to be
most, moderately or least characteristic
of business leaders varied by respondents
country or culture of origin. However, this
study has several limitations; small sample
sizes, student samples, only foreign students
currently in the US to represent other
cultures in the sample, and employing a not
cross-culturally validated English-language
trait-rating instrument (Hartog et.al.,
1999). Despite these limitations, presenting
conservative biases, reliable differences
in leadership perceptions of members of
various countries were found.
A new study, focusing on the
entrepreneurial leadership characteristics
of Sweden and China, would no doubt be
useful, because sampling is a problematic
issue in cross-cultural studies. As has
been noted in cross cultural research, using
national borders as cultural boundaries may
not be appropriate in countries that have
large subcultures (Hartog, et.al., 1999). In
large, multi-cultural countries such as China
it is not even clear which sample would be
most representative. As a result, the samples
from all countries need to be relatively
homogeneous within countries. An ideal
sample would consist of representatives
from the fnancial industry, food industry,
and telecommunication industry. These
industries are fairly universal and thus,
such organizations could be identifed in
participating countries. Additionally, these
industries differ in terms of the rate of
change typically experienced.
The proposed study would consist of
interviews with Swedish and Chinese
Bremmer I. - Common Factors between Swedish and Chinese Entrepreneurial Leadership Styles
Ingmar Bremer
entrepreneurs being asked the following
questions. The model consists of 5 roles
with two to three competencies each with
questions. A random sample of the questions
to be asked are as follows:
Designing (Developing executable 1.
business models)
Recognizing opportunities for value a.
creation
ƒÞ I anticipate the future course of
events
ƒÞ I understand needs of other people,
social groups and organizations
ƒÞ I have an ability to see the forest
through the trees
ƒÞ I see possibilities of combining
different products, services, or
technology to create new value
ƒÞ I successfully identify alternative
uses for different products, services,
or technologies ƒÞ I differentiate
between executable and non-executable
opportunities
Turning ideas into specifc action b.
plans
ƒÞ I understand the economics of the
business
ƒÞ I understand what is needed to make
a business successful
ƒÞ I have a long-term view
ƒÞ I recognize risks and plan how to
mitigate them
ƒÞ I convert business vision into specifc
plans which can be realized
ƒÞ I break big projects into smaller
pieces of manageable size
1c.Developing a clear and convincing
vision for the venture
ƒÞ I set and communicate a clear
direction for the venture
ƒÞ I consider the whole situation rather
than details only
Business Intelligence Journal - January, 2009 Vol.2 No.1
20 Business Intelligence Journal January
ƒÞ I convey my ideas in a clear and
understandable way
ƒÞ I can talk about complex things in
simple terms
ƒÞ I come up with powerful metaphors
and images
ƒÞ I ensure that employees and other
stakeholders understand personal
benefts of achieving the vision
Assembling (assembling stakeholders 2.
and resources into a performing
organization)
Creating performing organizations a.
and teams
ƒÞ I set clear and challenging performance
and behavior standards and goals
ƒÞ I identify required competencies and
fnd people who possess them
ƒÞ I integrate people with different
backgrounds into a cohesive working
system
ƒÞ I introduce systems and procedures
to facilitate performance
„X I develop incentives to attract and
motivate people
„X I identify resource requirements of
the business and effectively meet them
through various channels
Possessing High Emotional intel- b.
ligence
„X I analyze my feelings before acting
on them
„X I make sure that my behavior is
appropriate to the situation
„X When someone is talking to me, I
give my full attention
„X I can read other people’s feelings
quite well
„X I make sure people feel at ease with
me
„X I get people to open up by being
easily approachable
Extracting value from social net- c.
works
ƒÞ I have a large and diverse network of
contacts
ƒÞ I am able to make transactions with
others on favorable terms
ƒÞ I can ask for favors
ƒÞ I am effective in formulating specifc
requests to other people
„X I fully leverage my contacts
„X I easily develop new contacts in
different areas to help out the business
Developing others d.
„X I personally mentor some people in
my organization
„X I regularly review how my people
develop
„X I allocate adequate fnancial
and organizational resources to the
development of people
„X I adjust organizational structure
to provide better developmental
opportunities for my people
„X I advise people to leave my company
when I see that they have reached the
ceiling in their development
„X I reward and promote people with
leadership potential
Additional questions would consist of
questions addressing topics such as leading
by example, enthusiasm for the venture,
role models, rules, and interacting with
people at different levels of organization
and outside of it. Additional questions
would revolve around goals, determination,
focus, distractions, risks and external events.
Other possibilities include social interaction,
constructive disagreement, improvements,
and performance strengths and weaknesses.
Next, criteria would be established for
items to be considered universally endorsed
as contributors to outstanding leadership.
Possible criteria would be that 95% of country
2009 21
Bremmer I. - Common Factors between Swedish and Chinese Entrepreneurial Leadership Styles
Ingmar Bremer
scores had to exceed a mean of 5 on a 7 point
scale for that attribute, and the grand mean
score for all countries had to exceed 6 for
the attribute. In addition to examining the
universally endorsed attributes, the results
would also show which attributes were found
to be viewed universally as ineffective and
which were found to be culturally contingent.
Universally endorsed leader attributes, as
well as attributes that are universally seen
as impediments to outstanding leadership
and culturally-contingent attributes would
be presented. It is predicted that the results
support the hypothesis that specifc aspects
of charismatic or transformational leadership
are strongly and universally endorsed
across cultures. Sweden and China will be
compared utilizing such a proposed study
in the section following an examination of
the economic, political and entrepreneurial
leadership in both countries.
Entrepreneurial Leadership in
Sweden
Research indicates that there is strong
commitment and determination among
entrepreneurs throughout Sweden to work
for growth and increased prosperity. When
companies produce goods and services, they
also generate jobs and tax revenue, and are
responsible for research and for training
employees. To new Swedes, employment
in companies and self-employment are
important ways into Swedish society
(Advantage Sweden, 2005). Productivity
is high, the labor force is well-trained,
research and development is world
class and its global business network is
extensive (Advantage Sweden, 2005). In an
international perspective, Sweden has a low
investment level, and this undermines its’
future competitiveness. Over one million
Swedes of working age are on sick leave,
have taken early retirement, are unemployed
or are living on social allowance (Advantage
Sweden, 2005). There is imbalance in the
age structure in Sweden; after 2010, the
number of people aged over 80 will increase
faster than the number gainfully employed.
(Advantage Sweden, 2005).
In Sweden, the dependency burden is
increasing as the proportion of entrepreneurs
in Sweden has never been as low as it
currently is (Advantage Sweden, 2005).
Research indicates that Sweden faces several
big challenges, including international
cooperation. According to Advantage
Sweden (2005), trade and personal relations
bind together people from different cultures,
and build peace and tolerance. Business
affrms a freer and more open world,
where democracy and market economies
lay the foundations for better living
conditions. Thus, international cooperation
is a necessity to counteract environmental
problems, poverty and terrorism (Advantage
Sweden, 2005). Closer and broader
European cooperation is important to
enable Swedish business to be competitive
at global level (Advantage Sweden, 2005).
European Union enlargement creates new
possibilities, but also sets new challenges
such as competitiveness, growth and jobs
(Advantage Sweden, 2005).
Sweden appears to have a distinct
advantage over the potential growth
of China’s economy. Many Swedish
companies, both big and small, are world
leaders. As a result, Sweden has a strong
foundation on which to build, as well as
access to important raw materials, a well-
trained labor force, and a good level of
research. There is strong environmental
commitment, and at the local level, there is
generally good consensus between unions
and employers, and between business people
and politicians (Advantage Sweden, 2005).
Wage formation, state fnances and infation
have stabilized in recent years. Research
Business Intelligence Journal - January, 2009 Vol.2 No.1
22 Business Intelligence Journal January
indicates that to create even better conditions
for favorable development, both companies
and the public sector must continuously
become better and more effective in their
operations and must raise skills and quality
(Advantage Sweden, 2005). That will make
Sweden even more attractive to investors
and to overseas visitors
International competition has never been
as intense as now. For example, in 1997, one
million vacuum cleaners were manufactured
in China, and in 2005, 25 million (Advantage
Sweden, 2005). However, more and more
overseas companies and owners choose to
invest in Sweden, so the conditions for trade
are improved through the removal of trade
barriers and harmonization of regulations.
Additionally, legislation in the European
Union is implemented in an effective way
in Sweden, through the removal of duplicate
regulation and harmonization of legislation
so that competition between companies
is free and fair. This is important because
an advantage is created through a stable
and competitive legislative framework,
implemented consistently and smoothly
(Advantage Sweden, 2005). Regulations
that are diffcult to overview, an increasing
number of public bodies and unpredictable
implementation put unnecessary constraints
on companies (Advantage Sweden, 2005).
This hampers company performance, and
thereby companies’ competitiveness.
Since Sweden is a sparsely populated
country located far from the major markets
on the continent, for Sweden to have an edge,
there is a need for a well-constructed and
well-functioning infrastructure, as well as a
competitive transport network (Advantage
Sweden, 2005). If Sweden’s growth is to
continue, there is also a need for secure, long-
term access to energy at competitive prices
(Advantage Sweden, 2005). The energy
supply must meet the highest reliability and
environmental requirements. According
to Advantage Sweden (2005), the use of
information technology creates many new
opportunities, and is an important base for
enterprise in the future, and for continued
growth in productivity and competitiveness.
An effective capital supply for the start-
up and expansion of companies is also
important.
. In order for companies to start
and expand, there is a need for both a
technological and a mental infrastructure
that makes it attractive and straight forward
to be an entrepreneur. In Sweden, attitudes
towards business people have become
increasingly favorable (Advantage Sweden,
2005). Every year, Swedish companies
complete 73 million forms for submission
to 75 different authorities (Advantage
Sweden, 2005). In Sweden, it is diffcult to
start up companies due to the high tax rate
on labor, which acts as a deterrent to both
existing and new service-sector companies,
at the same time as the informal sector is
expanding. Good quality in basic education
and good opportunities for adults to learn
new work skills are important to a strong
and competitive business sector (Advantage
Sweden, 2005). Quality must permeate the
entire school system, not only vocational
training. Collaboration must improve
between the business sector and both basic
and tertiary education (Advantage Sweden,
2005). Increased international cooperation
in education gives new perspectives,
creates understanding of other cultures and
strengthens Sweden.
Entreprenuership evolves through faith in
people’s will and ability to take responsibility,
to have dreams, to want to develop, and to
dare to seek new challenges. This is how
an effcient public sector is created, but this
requires that work and entrepreneurship are
economically worthwhile. Furthermore,
there must also be fundamental security
for both employees and company leaders,
2009 23
as 34 per cent of students do not complete
their upper secondary education within the
three years (Advantage Sweden, 2005). To
encourage increased entrepreneurship, the
Confederation of Swedish Enterprise in the
coming years will work to ensure that it is
economically worthwhile to work, to save
and to invest in companies so that the legal
framework is changed so that entrepreneurs
are given better conditions for expansion in
the private service sector (Advantage Sweden,
2005). Another goal is for entrepreneurship
and enterprise to become a self- evident
part of all education so that quality is raised
in the entire education system and that
collaboration improves between school and
business. Also, workforce immigration
should be permitted and that the integration
of immigrants is carried out in an active and
resolute way. The end result will be that
people shall have reasonable prospects of
saving for the start-up capital to realize their
ideas.
To strengthen Sweden’s competitiveness,
investment in development and innovation
is needed. Therefore, conditions for research
and development must be given high priority
(Advantage Sweden, 2005). A clearer
link is demanded between state research
investments and the needs of the business
sector, making it easier for research results to
reach the market in the form of new products
and new services, and can create more growth
companies (Advantage Sweden, 2005). The
legislation governing public companies,
intellectual property rights and venture
and capital markets must be developed to
encourage and facilitate enterprise with
innovative business development and the
production of good sand services in Sweden
(Advantage Sweden, 2005). For a company
to develop, it must make a proft. Companies
without proft requirements are not under
the same pressure to increase effciency and
offer customers quality and new solutions.
Thus, competition stimulates new ideas, new
methods and effcient production (Advantage
Sweden, 2005). Competition also favors
consumers, through lower prices and better
quality (Advantage Sweden, 2005).
In Sweden there is considerable
knowledge within the public sector, which
through private enterprise can reach
overseas markets, generating new jobs
in Sweden. Today, there are a number of
obstacles in the way of this process. It is
crucial that these obstacles be removed and
that public procurement should always take
place openly, simply and through sound
competition (Advantage Sweden, 2005).
For example, company registration and
start-up must be a simple, brief procedure.
It must be made easier to build up equity
in a company for fnancing development
(Advantage Sweden, 2005). The tax and
levy burden must not be allowed to impede
Sweden in international competition
(Advantage Sweden, 2005). The informal
sector creates unfair competition and creates
diffculties for responsible companies.
It is becoming increasingly attractive to
own, start up, run and develop proftable
companies in Sweden. More entrepreneurs
are needed, and the necessary dynamics of
enterprise mean the start-up of companies
and the liquidation of companies. Risk-
taking must give the possibility of profts,
at the same time as bankruptcy should not
necessarily mean that one loses the chance
to try again (Advantage Sweden, 2005). In
a comparison between 28 countries of how
many new companies were started, Sweden
ranked 21st (Advantage Sweden, 2005).
The research also indicates that Sweden
needs more people to work and pay tax
on their income. It appears that too many
people of working age do not work, but have
taken early retirement, are on sick leave, are
unemployed or are in labor market schemes
(Advantage Sweden, 2005).
Bremmer I. - Common Factors between Swedish and Chinese Entrepreneurial Leadership Styles
Ingmar Bremer
Business Intelligence Journal - January, 2009 Vol.2 No.1
24 Business Intelligence Journal January
Young people, elderly people and
immigrants often have diffculty in fnding
employment in Sweden. Outmoded labor
market regulations and rules governing
taxation and allowances reduce mobility on
the labor market (Advantage Sweden, 2005).
Complicated rules and tax regulations lead to
undeclared work. High payroll costs, major
risk factors for companies, such as costs in
connection with sickness and comprehensive
legislation, have created high recruitment
thresholds (Advantage Sweden, 2005). Few
employees change employer, even if they are
not content. The labor market of tomorrow
demands increased mobility, regulations
on working hours that lead to more hours
of work input and solutions that are suited
to both the company and the employees
(Advantage Sweden, 2005). Wage
formation must be based on the conditions of
individuals and companies. Unemployment
insurance and social insurance are important
factors in stimulating labor market mobility
(Advantage Sweden, 2005). Thus, systems
must be coordinated, must stimulate work
and must provide benefts during certain
periods (Advantage Sweden, 2005).
In Sweden, through collective agreements
that give stability and support for both
development and reorientation, labor
market players can increase companies’
competitiveness and capacity to create
new jobs (Advantage Sweden, 2005). The
current legislation on labor disputes does not
provide the necessary balance between the
players, since even minor union actions can
swiftly bring disproportionately far-reaching
consequences to both companies and the
community (Advantage Sweden, 2005). A
more internationalized labor market creates
possibilities and challenges. Security on the
labor market is not primarily a question of
keeping a job, its about being able to fnd a
new job if the old one disappears (Advantage
Sweden, 2005). Statistics reveal that the
average Swede works for 8 per cent of his or
her lifetime (Advantage Sweden, 2005).
The economic background of Sweden
reveals that Sweden has faired fairly badly
in terms of economic growth for almost
three decades, but has faired very well in
terms of employment, and in terms of low
unemployment, until about 1990. At that
time Sweden had the highest employment
rate in the world, 81 percent of the population
between 18-64 years were gainfully
employed (Henrekson, 2005). Since then,
there has been a dramatic change in terms of
employment. At the peak of the employment
boom in 1989-90 there were about 4.5
million jobs in Sweden (Henrekson, 2005).
That fgure dropped by about 600,000 jobs
in just a couple of years time, and in late
1993 the economy began to bounce back,
and 150-200,000 jobs were gained, but now
those jobs have been lost again (Henrekson,
2005).
This research indicates that the recovery
of the Swedish economy after the severe
crisis of 1991-93 has been one of jobless
growth. So far there has not been any
permanent change in the job level, at the
private sector and in the public sector.
Since entrepreneurship is a key to job
growth in the private sector, the jobs have
to be created in existing frms or new frms.
Thus, the challenge is to be build institutions
and rules of the game in the Swedish economy
that render strong employment expansion
possible (Henrekson, 2005). Such incentives
include employing more people in existing
businesses or starting new businesses for
good, viable ideas. A disaggregation of
the employment record in Sweden shows
that employment growth looking over the
entire post-war period has been bleak for
the private sector (Henrekson, 2005). There
are fewer jobs in the private sector now than
there was 47 years ago, despite the fact that
there are almost 2 million more Swedes now
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Bremmer I. - Common Factors between Swedish and Chinese Entrepreneurial Leadership Styles
Ingmar Bremer
than there were in 1950.
In the Swedish economy, large
corporations play a very dominant role.
There are a number of studies showing
that Sweden is perhaps the single industrial
economy with the highest dominance of large
frms in the whole OECD area (Henrekson,
2005). There has been a low share of self-
employment, and corporate ownership has
been very concentrated, with a reliance on
large corporations. Research indicates that
corporate taxation is very important from
an entrepreneurial perspective. Historically,
Sweden has historically had corporate
taxation which has been very benefcial to
institutional owners and to debt fnancing
(Henrekson, 2005). It has been an extreme
characteristic of the Swedish tax system
benefting institutional ownership to the
detriment of private, individual ownership,
and the tax system has encouraged a high
debt-equity ratio (Henrekson, 2005).
The only types of frms that can beneft
from this type of tax system consist of
institutional ownership; as a result the
Swedish engineering industry, Swedish
raw material based large companies and
construction companies have benefted from
these tax rules. In contrast, small and new
frms, must be individually owned. Also
frms which are labor intensive or knowledge
intensive have very little collateral, so
they have to work with a high-equity ratio
(Henrekson, 2005). Likewise, new frms
based on a new innovation, where it takes
a long time for the fnished product to reach
the market, and where the risk level is high
require a low debt-equity ratio (Henrekson,
2005).
Sweden now has a 40-60 percent tax rate
schedule, rather than the 30-50 schedule
that was instituted in the 1991 tax reform.
A recent report shows that Sweden has the
highest tax burden of all countries on low
incomes, about 62 percent of labor income
for a typical low income earner is taxed away
(Henrekson, 2005). On the consumer‘s side,
demand may be very low because those who
are going to buy the service will have to pay
out of their own after-tax income. A very
high total tax burden also makes it very
diffcult to save in Sweden, and high taxes
also render it very diffcult to accumulate
wealth. As a result, an individual is unlikely
to have any capital to support a business
venture, leading to less venture capital and
fewer frm start-ups.
Labor security legislation has also
affected entreprenuership in Sweden. There
is evidence suggesting that the employment
security provisions fall more heavily on
smaller frms and some other classes of
frms (Henrekson, 2005). Sweden has a
much more centralized wage formation
structure and a narrower wage dispersion,
meaning that in the Swedish setting, small
frms have to pay a higher wage in the initial
stage of their life cycle than otherwise. As
a result, this increases their wage costs and
makes it more diffcult for them to get started
and obtain the impetus to fnally become
a large frm. Especially noteworthy is the
dramatic increase in employment in health
and medical care and social services. These
services are labor-intensive, and in many
instances are very suitable for production by
a small frm (Henrekson, 2005).
The entrepreneurial process is such a
pervasive feature of a market economy that
the most effcient way to encourage frm
births is to enhance the environment for
all business activity. Thus, Sweden should
work to create a stable and internationally
competitive economic framework for all
types of frms (Henrekson, 2005). This
framework should offer suffcient incentive
for change and for investment in real capital,
education, and knowledge capital, and it
should be neutral in terms of an enterprise’s
orientation, size, and organizational
Business Intelligence Journal - January, 2009 Vol.2 No.1
26 Business Intelligence Journal January
principles (Henrekson, 2005). The research
indicates that if Sweden succeeds in this
endeavor, Sweden can become as powerful
a job machine as the United States.
Holmberg and Akerblom (2003) studied
Swedish leadership styles, and their analysis
reveals that institutional contexts seem
to generate different implicit models of
leadership, but within the same national
framework. Excellent leadership is
evidently executed and enacted as aspects of
socially constructed institutions and socially
grounded culturally values (Holmberg &
Akerblom, 2003). According to a common
understanding of the culture concept,
collective conceptions of leadership are
therefore expressions of the culture at large
in which both leaders and followers are
embedded (Holmberg & Akerblom, 2003).
Therefore, a Swedish leadership style
would consequently be an expression of the
Swedish culture.
Researchers have noted that Swedish
leadership is vague and imprecise, and the
typical Swedish order is ‘See what you can
do about it (Holmberg & Akerblom, 2003)!’
Researchers have attributed this to a far-
reaching delegation of authority; managers
who say ‘See what you can do about it!’
demonstrate trust for their co-workers. It
is also a matter of the execution of control
by a common understanding of the problem,
rather than direct orders (Holmberg &
Akerblom, 2003). This must be regarded as a
strength with the egalitarian Swedish society
(Edström &Jönsson, 1998). Due to the
cultural similarity among the Scandinavian
countries in an international perspective,
Swedish leadership is furthermore described
within the broader notion of Scandinavian
management.
In ethnographic descriptions of Sweden,
it is often asserted that Swedes have a strict
border between public and private life,
whereas in many other parts of the world,
the two are inseparable (Daun, 1989).
Independence and solitude are important
and positive concepts for Swedes in general
(Daun, 1989), something which is enacted
in the private sphere. Hampden-Turner &
Trompenaars (1993) assert that Swedes
more than any other culture begin with the
individual, his or her integrity, uniqueness,
freedom, needs, and values, yet insist that
the fulfllment and destiny of the individual
lies in developing and sustaining others by
the gift of his or her own work and energy.
Holmberg & Åkerblom (1998) found
Sweden to be both an extremely collective
and extremely individualist society. Their
fndings can be contrasted with the result
of Hofstede (1980), in which Sweden was
labeled an individualistic culture. One
explanation to this difference is that Hofstede
did not distinguish between the small family
group, or clan, and the much wider group
constituting the society as a whole. This
distinction is obviously important in the
Swedish case, where the two life worlds
(public and private) preferably are kept
separate in time and space (Holmberg &
Akerblom, 2003). In Hofstedes (1980)
seminal work Sweden was ranked among
the least uncertainty avoiding cultures in
contradiction to the contemporary study by
Holmberg & Åkerblom (1998), who found
Sweden to be a highly uncertainty avoiding
culture with a strong future orientation.
The development of the consensus culture
is connected to the fact that the Swedish
population is unusually homogeneous,
compared to other countries (Holmberg &
Akerblom, 2003). For example, Swedes
share the same history, same language, same
religion; and differences between different
groups within the nation are comparatively
small (Holmberg & Akerblom, 2003).
Everyone’s opinions, ideas and experiences
are respected and listened to, since all are
potential contributors to the accomplishment
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Bremmer I. - Common Factors between Swedish and Chinese Entrepreneurial Leadership Styles
Ingmar Bremer
of the task in place or to the solution of the
problem being dealt with (Holmberg &
Akerblom, 2003). Mutual understanding,
collective consideration and compromised
solutions are favored (Holmberg &
Akerblom, 2003).
Entrepreneurial Leadership in
China
Rapid economic development over
20 years has led some commentators to
claim China could deliver sustained global
growth, however, it has started to falter, and
risks becoming a destabilizing factor in the
world. China, for two decades the world’s
fastest growing economy, has become a
major force in the global economy. But
as the ostensibly ‘communist’ regime in
Beijing struggles to put the brakes on an
economy which is experiencing an extreme
form of overheating, euphoria among the
capitalist class internationally has given way
to nervousness (Coates, 2004). As Steven
Roach, chief economist at investment bank
Morgan Stanley, warns, “the world may
be unprepared for the impact of a Chinese
slowdown (Coates, 2004).”
Last year, according to offcial statistics,
China’s gross domestic product (GDP)
grew by 9.1 percent (Coates, 2004). For
years, independent economists have viewed
offcial Chinese statistics with skepticism,
believing them to be exaggerated. Today,
many believe the fgures understate reality
which predicts that the economy may have
grown by 11 or 12 percent in 2003 (Coates,
2004). One reason for the discrepancy is that
city and provincial governments are playing
down local growth data in order to avoid
penalties from Beijing aimed at reining in
overheated sectors such as property, steel
and cars (Coates, 2004). Investment in new
steel capacity rose by 87 percent last year
and total output is set to double again in two
to three years (Coates, 2004). The director
of a stainless steel mill on the Yangtze river,
owned jointly by South Korea’s Posco
and China’s largest private steel company,
Shangang, recently told the UK Financial
Times that in a few years his complex alone
will be making as much steel as the whole
country of France (Coates, 2004).
In China, the steel sector is an example
of the uncontrolled expansion of capacity
taking place throughout the economy, much
of which is ‘blind’ or ‘duplicative’ according
to the government (Coates, 2004). This is
creating huge imbalances such as chronic
shortages of electricity, water and raw
materials. Blackouts, often forcing factories
to halt production, are commonplace even
in the most developed cities (Coates, 2004).
Despite huge investment in recent years,
road, rail and port capacity is overloaded.
These shortages are being exploited by
capitalists and corrupt offcials for huge
speculative gains (Coates, 2004). For
example, shipping costs for freight in
northeast Asia rose by 400% last year on the
basis of surging Chinese orders, with scrap
metal, coal and iron ore for the steel industry
accounting for half this sea-borne traffc
(Coates, 2004). While mining and energy
transnationals made bumper profts from the
Chinese boom, other branches of the world
economy have been squeezed by higher
prices for raw materials (Coates, 2004).
The question of whether China can
continue to grow at its’ current rate for the
next two decades has been speculated by
fnancial advisors. Media comment on China
in this area has struck a more cautious tone
as a result of signs including an explosion
of credit, rampant over capacity (nine tenths
of manufacturing goods are in over supply),
and the return of infation (2.8% in the frst
quarter of 2004) (Coates, 2004). President
Hu Jintao, and his prime minister, Wen
Jiabao, have assured fnancial markets that
Business Intelligence Journal - January, 2009 Vol.2 No.1
28 Business Intelligence Journal January
‘resolute’ measures are being taken to rein
in excessive investment and engineer a ‘soft
landing’ for the economy but, so far, with no
discernible impact (Coates, 2004). “China
is in a situation of severe over-investment,”
notes Credit Suisse First Boston’s Hong
Kong offce (Coates, 2004). Investment is
chasing diminishing returns, and according
to The Economist, China currently needs $4
of investment to generate each additional
dollar of annual output, compared with $2-3
in the 1980s and 1990s (Coates, 2004).
China’s money supply grew by 20 percent
last year, and bank credit (new loans) by
56 percent (Coates, 2004). Additionally,
the sharp rise of the US dollar in 1995, to
which most Asian currencies were linked,
priced some exports out of world markets.
China, although it exports 25 percent of
national output, is less dependent on the
world market (Coates, 2004). The super-
Keynesian measures of the government,
implemented in response to the Asian crisis
to boost demand by slashing interest rates
six times since 1997, and by fnancing huge
infrastructure projects, have increased the
specifc weight of the home market (Coates,
2004).
China is now the world leader in many
branches of manufacturing, including
cellular phones, colour TVs and computer
monitors. Since the start of its global export
offensive 20 years ago, manufacturing
industry in China has shifted from low-
tech sectors like textiles, toys and simple
manufactures to computers and electronics
which now account for 60 percent of exports
(Coates, 2004). Refecting the increased role
of high-tech production, China accounted
for 14 percent of global semiconductor
consumption in 2003 (Coates, 2004).
Additionally, 16 million manufacturing jobs
have actually disappeared since 1995, as
Chinese industry has upgraded its technology.
Shanghai Baosteel Group, for example, the
world’s sixth largest steel producer, cut its
workforce to 100,000 from 176,000 fve
years ago (Coates, 2004). As industry in the
southern and eastern provinces has become
more capital intensive, low-tech production
has shifted to the poorer (and cheaper)
inland provinces (Coates, 2004). This right
now is where there is greatest resistance to
government attempts to curb new investment
(Coates, 2004).
China still lags behind the advanced
capitalist countries in the application of
new technology, but the gap is closing.
A million engineering graduates leave
Chinese universities every year and there
is an ongoing transfer of technology from
the huge network of foreign partnerships
and joint ventures (Coates, 2004). A survey
by the Japanese newspaper, Nihon Keizai
Shimbun, based on interviews with 350
Japanese corporations, concluded that, “in
the feld of technical development China
would catch up with Germany and Japan
within ten years (Coates, 2004).” China’s
integration into the capitalist world economy
means that many facets of US and European
industry are now dependent on components
or fnished products from Chinese factories.
“In a crisis”, warned Ted Dean, managing
director of consultancy frm, BDA, “Chinese
labor could become as destabilizing a force
for the world economy as oil prices (Coates,
2004).”
These indisputable facts are often cited
by capitalist commentators to present a
picture of unstoppable economic progress:
a 20-year Chinese boom (Coates, 2004).
Take this example into consideration: with
282 million mobile phone subscribers,
China is the world’s biggest market. But
growth rates are already slowing, with fewer
new subscribers in the frst months of 2004
(Coates, 2004). Overproduction consisting
of too many phones combined with too few
buyers has caused prices to plummet, which
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Bremmer I. - Common Factors between Swedish and Chinese Entrepreneurial Leadership Styles
Ingmar Bremer
in turn squeezes proft margins. Research
indicates that the re-emergence of infation
or rising prices, in China is mainly due to
the rising cost of capital goods, some farm
products and services such as education.
A more serious problem, however, is the
longer-term potential for defation, or falling
prices, arising from such extreme levels of
overcapacity (Coates, 2004). Defation
not only squeezes profts, it magnifes the
problem of debt, making repayments costlier
in relative terms (Coates, 2004). This is
a potential time-bomb for the Chinese
economy which has fnanced its investment
boom with unprecedented levels of credit
(Coates, 2004).
For years, Chinese labor has been a source
of super-profts for global corporations and
local capitalists. Manufacturing wages
averaged just 61 US cents (€0.52, £0.34)
an hour last year, compared with $16 in
the US and $2 in Mexico (Coates, 2004).
One hundred thousand Chinese workers
die every year from industrial accidents
or work-related illnesses (Coates, 2004).
Low wage levels impose severe limits on
the growth of a mass consumer market, as
Chinese workers can only afford to buy
back a fraction of what they produce. While
average per capita incomes have risen
rapidly in the last 20 years, the gap between
rich and poor is now the biggest in the world
(Coates, 2004). This has been a largely urban
boom, with average incomes in the cities six
times those of rural ones. Shanghai, with 16
million inhabitants, has the same per capita
GDP as Portugal (Coates, 2004). But the
poorest region, Guizhou, has a per capita
GDP lower than Bangladesh (Coates, 2004).
Although incomes for China’s 800 million
rural population are now rising due to a
rise in prices for farm goods, the Financial
Times pointed out that, “a consumer society
has largely failed to materialize among
two thirds of China’s population (Coates,
2004).”
The pressure of migration from the
countryside, predicted to be up to 400
million set to move to the cities by 2020,
will most likely hold down wage levels.
There are numerous plans for expansion in
east Asia, such as a new $15 billion natural
gas pipeline from Xinjiang province to
Shanghai to bring cleaner fuel to the coastal
areas, though uneconomical from a market
standpoint (Coates, 2004). Additionally,
eighty-six new subway lines are under
construction. These policies, rather than
aiming to improve living conditions for
the masses, aim to create a more effective
framework for the exploitation of Chinese
labor. In the absence of democratic control
of these projects by workers’ organizations,
waste, corruption and abuses such as
environmental degradation and the forcible
relocation of local communities are legion
(Coates, 2004).
According to prime minister Wen, the
Chinese economy has reached a critical
juncture (Coates, 2004). For example, in
April of 2004, the central bank raised the
minimum level of deposits that banks must
keep in reserve from 7 percent to 7.5 percent
(Coates, 2004). Smaller banks were ordered
to halt all lending temporarily, a measure
backed up by police measures including a
crackdown on ‘illegal’ sales of farmland,
and beefed-up environmental and other
controls at new factories and construction
sites. Furthermore, housing construction in
China is overwhelmingly pitched towards
the luxury market and over capacity in the
form of vacant properties is widespread.
Research indicates that property prices rose
by 25 percent last year and are approaching
US levels in cities like Shanghai and
Beijing. This points to the danger of a crash
in land prices which, in turn, could trigger
a banking collapse (Coates, 2004). Higher
Business Intelligence Journal - January, 2009 Vol.2 No.1
30 Business Intelligence Journal January
interest rates would be the most effective
way to regain some control over credit levels
and investment, but the results may be too
dramatic (Coates, 2004).
More than anything, the Chinese regime
fears political instability, and a movement
of the working class (Coates, 2004). Labor
protests in China are numerous, among
unemployed workers, laid-off from the state
sector. These movements have so far been
isolated, local outbursts, which have been
defused by a combination of concessions
and repression from the authorities (Coates,
2004). Given the now pivotal role it plays
in the global economy, it is clear that any re-
run of the Asian crisis in China, would have
major international implications (Coates,
2004). China’s role as the number one market
for capital goods (minerals, fuel, building
materials and machinery) made it the main
locomotive of global growth in 2004. World
GDP grew by 3.2% in 2003, with China
contributing a third of this growth, or 1.1%,
while US capitalism accounted for just 0.7%
(Coates, 2004). In 2003, China accounted
for 70% of Japan’s total export growth, and
40% of South Korea’s.
Last year, China became the world’s
third largest importer after the US and
Germany. For the frst time since 1993, it
is heading for a trade defcit in upcoming
years, with imports exceeding exports on an
annual basis. The surge in Chinese demand
in 2003 drove world prices for industrial
raw materials up by 73% (Coates, 2004).
China is the world’s biggest steel producer,
accounting for one ffth of global output in
2003 with 220 million tons, or as much as
the US and Japan combined (Coates, 2004).
In 2003, China also became the world’s
third largest market for motor vehicles with
sales growing 60% (Coates, 2004). By
2007, production is predicted to reach 15
million vehicles, against sales of 7 million.
Unfortunately, these prices have already
begun to fall, as steel prices rose 35% in the
twelve months to February 2004, car prices
fell 5.1%. Fierce competition between car-
makers makes it impossible to pass on rising
costs to consumers, so proft margins are
falling (Coates, 2004).
Today, China, with one quarter of
the world’s population is seen as a great
opportunity for many corporations. For the
expatriate businessperson and their family,
China can be one of the most exciting and
arduous international assignments, however,
researchers warn that before considering
any international assignment in China, a
family needs to take stock of its motivations,
expectations, strengths and weaknesses
(Goodman, 2005). Contemporary China is a
combination of Confucianism, Communism
and a free market spirit of entrepreneurship.
To be successful in China the expatriate
must understand how the mixture of these
forces impacts day-to-day living (Goodman,
2005). In China, there is no business without
guanxi or relationship. Relationships take
a considerable time to develop and are
based on many continuous signs of good
faith (Goodman, 2005). Though diffcult
to establish, once a relationship exists it
tends to be long lasting and is full of many
mutual obligations and favors; these mutual
obligations are remembered and are balanced
out over time (Goodman, 2005). The actual
“value” ascribed to each favor may differ
due to cultural factors.
Traditional Chinese values are based
on human feelings rather than political or
religious principles; respect for the feelings
of others helps to hold society together.
Considerable time and effort are spent on
“face working” particularly one’s own face
as well as that of others (Goodman, 2005).
Causing someone to “lose face” is humiliating
and will not be forgotten (Goodman, 2005).
Thus, so important is the preservation of face
that it is sometimes preferable to agree to a
2009 31
Bremmer I. - Common Factors between Swedish and Chinese Entrepreneurial Leadership Styles
Ingmar Bremer
decision even if there is no intent to carry
out the decision. Additionally, China is in a
state of rapid change. This has resulted in a
situation where the rules and regulations of
government and business and the authority
to enforce the rules are constantly changing.
In China, health issues are an important
concern, as air pollution is very bad due
to the burning of coal. Furthermore, the
Chinese work ethics and educational systems
are based on socialism.
The Chinese private equity industry has
become the largest private equity industry in
Asia in recent years despite the tremendous
regulatory hurdles and institutional
uncertainties that venture capital frms
face. In 2001, China, together with Hong
Kong, captured 30% of Asia’s private equity
investment to overtake Japan for the frst time
(Batjargal, 2004). By the middle of 2002, the
total venture capital fund pool in mainland
China reached $7.15 billion. Although the
frst domestic venture capital organization
was set up in 1986, development of the
private equity industry intensifed only after
March 1998, when the Chinese government
adopted a number of policy schemes to
promote venture investments (Batjargal,
2004). In the frst two quarters of 2002,
venture capital frms raised $156 million in
funds, a steep decline from$1.86 billion in
2001 (Batjargal, 2004).
In the frst two quarters of 2002, 36 foreign
frms invested $87 million while Chinese
frms invested$70 million (Batjargal,
2004). Until 1998, venture capital frms
were regarded as fnancial institutions that
provided privileged loans to small frms.
The main legal form of venture capital
frms, limited liability partnership, is not
recognized in mainland China’s laws. As a
result, all venture capital frms are registered
and operate as limited liability companies,
adding con-fusion as well as serious risks to
the processes by which venture capital frms
raise, invest, and manage funds (Batjargal,
2004). The assets of the venture capital frm
are not separated legally from those of the
fund, thus increasing agency risks in venture
investments, such as misuse of funds.
Research on personal networks of
entrepreneurs revealed that entrepreneurs
obtain information and advice from network
members (Birley 1985) and access bank
loans through contacts (Uzzi 1999). The
idea of social capital in the Chinese context
captures the indigenous social phenomenon
called guanxi, or the Chinese version of
social networks and networking (King
1991). Researchers defned guanxi as a web
of extended family relationships (Kipnis
1997), a cluster of patron-client exchange
relationships for instrumental purposes
(Walder 1986). Research indicates that
Guanxi capital promotes inter-personal
trust, facilitates job mobility, and enhances
frm performance (Batjargal, 2004). A
study of private equity in China emphasizes
the important role guanxi plays in venture
capital practices, as a substantial portion of
the cash that goes into private equity funds
originates from government sources. As a
result, guanxi relationships with government
offcials are often regarded as a defning
factor for securing government investments
in venture capital funds.
Investors are likely to invest in only
those projects that are expected to produce
acceptable net present values. Informal
socialization such as social eating, an
important component of guanxixue, or the
art of net-working. This enables investors to
know the values and beliefs of entrepreneurs
better, and facilitate interpersonal and
cognitive trust in entrepreneurs’ abilities
and intentions (Batjargal, 2004). Cultural
features of the Chinese, such as a strong
sense of role obligation, favoritism, and
inclinations to categorize people into in-
group and out-group circles also facilitate
Business Intelligence Journal - January, 2009 Vol.2 No.1
32 Business Intelligence Journal January
better communication between investors
and entrepreneurs who know each other.
The Chinese context adds culture-
specifc variables that also affect investment
selections through referrals. In the culture
of shame, a favor giver (the one who
recommends some-one to a third party) is
regarded as a face giver, and a favor receiver
(the one who gets access to the third party
through the recommendation) is regarded as
a face receiver (Batjargal, 2004). Successful
transactions between face giver (referee),
face receiver (fund seeker), and investor will
enhance the face—mianzi (social standing,
symbolic resources, and reputation)—of all
parties (Batjargal, 2004). Referrals may
improve odds of obtaining venture capital
for entrepreneurs because of opportunity
fltering, matching, and trust benefts that
mitigate social risks indecisions. In the
Chinese context, venture capitalists are
likely to invest more in common stock
rather than other senior securities such as
convertible preferred stock, nonconvertible
preferred stock, debt coupled with common
stock, or common stock purchase warrants
(Batjargal, 2004).
The Chinese prefer to keep details
of guanxi deals confdential and resolve
potential issues and problems through
tacit understandings and actions. A recent
survey found that about 60% of Chinese
entrepreneurs preferred social solutions for
dispute settlement (Krug and Hendrischke
2002). Precise calculations of dividends,
conversion, liquidation, and antidilution
terms may hurt the commitment of the
entrepreneurial team and are likely to be
perceived as unenforceable by investors
and entrepreneurs (Batjargal, 2004). The
stronger the tie between the entrepreneur
and the venture capitalist, the fewer the
number of contractual covenants that protect
venture capitalists’ interests. Peculiarities
of Chinese negotiation behavior are likely
to lead to increases in venture values. A
sense of balance, modesty, and mutuality is
likely to smooth out negotiation processes
where acceptable compromises are crafted
(Batjargal, 2004). A cultural inclination of
the Chinese to favor those whom they know
also contributes to the risk-mitigating role of
personal relationships in venture fnancing
in the Chinese context.
The human quality of emotional affection
is also a factor in the Chinese culture
and rendering of human obligations. A
Confucian exchange tactic of giving more
in expectation of getting more is at work
(Malik 1997). By increasing frm values,
investors manufacture and accumulate social
receivables, and these advance monetary
favors provide leverage over entrepreneurs.
Finally, in China, social relationships
embedded in local cultures and traditions do
affect entrepreneurial process and venture
investment decisions. Changes in network
structures, compositions, and relations over
time, is an important issue, given the social
and economic transformations that are
taking place in China. An implication for
entrepreneurship research is to examine the
impact of the way in which venture capital
was raised on frm performance.
Comparison of Swedish and
Chinese Entrepreneurs
Researchers have argued that new frm
creation, innovation and competition are
the three major aspects through which
entreprenuership can contribute to economic
development in the sense of wealth
distribution. Every year, Swedish companies
complete 73 million forms for submission to
75 different authorities (Advantage Sweden,
2005). Indicated above, in Sweden, it is
diffcult to start up companies due to the high
tax rate on labor, which acts as a deterrent
to both existing and new service-sector
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Bremmer I. - Common Factors between Swedish and Chinese Entrepreneurial Leadership Styles
Ingmar Bremer
companies, at the same time as the informal
sector is expanding. In applying these facts,
it would appear that entreprenuership in
Sweden is not as strong as it could be due
to the diffculties facing new frm creation,
innovation and competition. In China, there
has been an economic boom as more and
more and more new frms are created. Due to
the fact that a million engineering graduates
leave Chinese universities every year, there
is an ongoing transfer of technology from
the huge network of foreign partnerships
and joint ventures (Coates, 2004). These
new graduates begin the creation of new
frms, however, innovation and competition
in China appear to be very high. China may
not be able to continuously put out new
frms and new innovations, as competition
is very ferce, and already it is predicted that
the Chinese economy will fail.
New frm creation is an ability and a
willingness of individuals to perceive and
create new economic opportunities (Mamede
& Davidsson, 2003). The innovative process
has been defned as occurring within new
frms which generally does not arise out of
the old ones, but start producing alongside
them (Mamede & Davidsson, 2003). This
is relative to Swedish frms, because many
old frms exist, small and large in Sweden.
Entering the markets with their innovations
entrepreneurs challenge the dominating
frms, and their willingness is motivated by
the desire of creating wealth for themselves,
and to succeed they strive in for the product
or solution they believe in (Mamede &
Davidsson, 2003). If successful in creating
demand for their innovation they expand
their business to new markets and in doing
so they also infuence economic structures in
other regions (Mamede & Davidsson, 2003).
In Sweden, many older frms exist which
are already strong and have the capability to
innovate new ideas. As a result, in Sweden,
new wealth is not only created by this
process, but also distributed along with the
previous one.
In China, however, there has been a giant
boom of new frms and innovations, which
do not have a traditional foundation to stand
on, such as in Sweden. In China, there exists
the possibility, since competition is so ferce,
that the activities of the new frms may
negatively affect the existing ones causing
them to ultimately decline. This is because
the new entrepreneurs acquire the market
shares that previously belonged to the older
companies, thus acquiring some of their
wealth. As time goes by the older companies
are not able to retain their workforce and have
to dismiss their employees. Some of them
declare bankruptcy, and a as consequence
creditors, employees and shareholders lose
part of their wealth (Mamede & Davidsson,
2003). At the same time, the new expanding
frms employ new workers, pay increase
dividends to their shareholders, and intensify
their purchases from suppliers (Mamede &
Davidsson, 2003). Thus, China bears the
example of its wealth as being in the process
of constantly changing hands, along with
the creation of new frms.
Innovation is the process of introducing
new ideas in the market in the face of
uncertainty and other obstacles (Wennekers,
Thurik & Buis, 1997). Another important
link between entreprenuership and wealth
distribution is innovation. The new products
and new processes that result of innovative
activity are seen by many economists as
the main source of dynamism in capital
development (Mamede & Davidsson, 2003).
Research indicates that the introduction of
new innovations can generate changes and
cycles in the economy, causing wealth to
become increasingly concentrated in the
hands of a few large frms, thus destabilizing
society. In China, there is always something
new coming out in the market. China
has a great number of steel products, and
Business Intelligence Journal - January, 2009 Vol.2 No.1
34 Business Intelligence Journal January
technological advances create many new
products. Through a strong belief in their
ideas and dedicated effort, they manage to
allocate resources in a better way, develop
a greater appeal to buyers and succeed in
creating demand for their new products and
solutions (Mamede & Davidsson, 2003).
Competition has been defned simply
as to compete with others for a share of
that market (Wennekers, Thurik & Buis,
1997). Competition is one of the most
important forces in the market, and often
a determining factor for the future of
many enterprises (Mamede & Davidsson,
2003). The success of these frms is in a
large extent associated with the way they
assess their business environment in order
to meet the needs of the market. In China,
the needs of the market were increasing due
to the population boom, however in recent
years, the output is exceeding the amount of
purchases in the country. The competition
in China is steadily increasing, at a faster
pace that the competition in Sweden. As a
result, in China, the disposition to compete
and face the risks and uncertainties involved
in the competitive process is an important
element of what it truly means to be an
entrepreneur.
Furthermore, not all types of competition
are benefcial to the mechanism of wealth
generation and distribution. While it is
perceived as a positive effect for many
nations as it increases the levels of trade and
the total production, to others it is harmful
(Mamede & Davidsson, 2003). Examples
of this fact are the developing economies in
east Asia. Some countries have experienced
signifcant growth throughout the nineties
and have managed to increase their standards
of living. However, other countries, by
opening their markets to international
competition, have been inundated with
imports, unable to sell their exports. This is
occurring presently in china, as production
is beginning to fall behind purchases. This
causes lower levels of growth and worse
standards of living.
The competition that creates and
distributes wealth is one that results from
innovation and new frm creation (Mamede
& Davidsson, 2003). In Sweden, this is
favorable, as entrepreneurs are willing to pay
the price assuming the risks of their choices.
In Sweden, it appears that the chance of
risk is less than that in China. As people
gain confdence, improve the fnancial
situation, and have access to information,
they also develop political will and are less
likely to accept corrupt governments and
inadequate living conditions (Mamede &
Davidsson, 2003). Consequently, they seek
better education for themselves and their
children, along with the improvements in
the household and community (Mamede &
Davidsson, 2003). It is clear from the research
that entrepreneurs in Sweden already realize
this, and are initiating changes to improve
the educational system, whose graduates
secure the future of their country.
As they create their new frms, innovate
and strive for the ideas they believe
in, entrepreneurs in Sweden not only
succeed in harvesting good profts, the
deserved outcomes of their efforts, but
also in contributing to the prosperity of
organizations and nations (Mamede &
Davidsson, 2003). As a result, it appears that
Sweden has secured their position as prime
movers of progress, and as the engine of both
economical and social change (Mamede &
Davidsson, 2003). Much emphasis has been
given to an existing association between
entrepreneurial leadership and economic
growth. Many studies have been developed,
or are being carried out, in order to analyze
the links between entreprenuership and
economic growth. Evidence shows that
this relationship is complex and that more
data are necessary in order to determine
2009 35
Bremmer I. - Common Factors between Swedish and Chinese Entrepreneurial Leadership Styles
Ingmar Bremer
the causal mechanisms of this association
(Reynolds, et.al., 2001).
The Global Entreprenuership Monitor
(GEM) is a unique, unprecedented effort
to describe and analyze entrepreneurial
processes within a wide range of nations.
By doing so, GEM focuses on one of the
most important forces driving and carrying
economic change, one that has until now
remained elusive for researchers due to a
lack of reliable, internationally comparable
data (Reynolds et.al, 2002). The major
objectives of the GEM report include
measures for the differences in the level of
entrepreneurial activity between countries, to
probe for a systematic relationship between
entreprenuership and national economic
growth, to uncover factors that lead to higher
levels of entreprenuership, and to suggest
policies that may enhance the national level
of entrepreneurial activity. In the 2002
GEM assessment, representative samples
of 1,000 to 5,000 randomly selected adults
in each country were selected to provide a
harmonized measure of the prevalence of
entrepreneurial activity (Reynolds et.al,
2002).
The GEM report also includes up to
50 face to face interviews with experts
in their country, chosen to represent the
entrepreneurial framework features. These
same experts were additionally asked to
complete a standardized questionnaire in
order to obtain a precise measure of their
judgments about their country as a suitable
context for entrepreneurial activity (Reynolds
et.al, 2002). Finally, standardized national
data was collected from international data
sources such as the World Bank and United
Nations. The 2002 GEM report indicated
that the level of entrepreneurial activity was
lowest in Central Europe, and highest in the
developing Asian countries, such as China.
The GEM report also indicated that age and
gender have a very stable relationship to
entrepreneurial activity, as men are twice as
likely to engage in entrepreneurial conduct
than are women. Additionally, those ages
25 to 44 are most likely to be involved
with all types of entrepreneurial activity.
In countries women are more likely to be
involved where there is equality in career
opportunities, whereas in developing
countries low participation of women may
refect the lack of jobs and an inadequate
education (Reynolds et.al, 2002).
Of the 2.4 billion persons comprising the
labor force represented in the 37 countries of
the 2002 GEM report, 286 million are either
actively involved in starting a business or are
the owner-manager of a business less than
42 months old (Reynolds et.al, 2002). In
China, the total population was estimated at
1,284,000,000 for 2002. The total labor force
in 2002 was 814,470,000. By comparison,
in 2002, there was a total population of
8,876,000 in 2002 in Sweden, with a total
labor force of 5,433,000 in 2002. The GEM
report indicates that entrepreneurial activity
is uniformly low in the east Asian groups,
as well as within most of the members of
the European Union. In contrast, the Anglo
nations have a relatively higher level of
activity, and the developing Asian countries
have the highest total entrepreneurial activity
rates. Paradoxically, many of the most and
least entrepreneurial countries are located
in Asia where they often share the same
cultural background (Reynolds et.al, 2002).
The 2002 GEM report also indicates the
changes in the percentile of the growth of
gross domestic products over a three year
period. Sweden’s percentile of growth
in gross domestic products for 1999 was
4.51%, in 2000, 3.61%, and in 2001, 1.21%.
The change from the previous year for
Sweden was -.90% from 1999 to 2000, and
–2.40% from 2000 to 2001. Sweden’s total
entrepreneurial activity for 2001 was 6.68%,
Business Intelligence Journal - January, 2009 Vol.2 No.1
36 Business Intelligence Journal January
and for 2002, 4.00%. China’s statistics were
not located on the 2002 GEM report.
The GEM report also indicated a
constantly negative relationship between
the quality of the infrastructure and the
level of necessity entreprenuership, as
well as the lack of relationship between
framework conditions (Reynolds et.al,
2002). Necessity entreprenuership was
most prevalent in developing nations
such as Thailand, India and China, where
fnancial support, education, training, and
infrastructure are clearly absent (Reynolds
et.al, 2002). Entreprenuership-enhancing
programs and policies implemented in a
number of developed countries, principally
in the European Union, have only resulted in
modest levels of necessity entreprenuership
(Reynolds et.al, 2002). This research
indicates that there is substantial uniformity
across the GEM countries with regard to the
concepts, language, and judgments utilized.
Additionally, it supports the notion that this
uniformity is especially prominent among
the more developed nations and may have
evolved very similar infrastructures in
support of entrepreneurial activity.
Most new frms receive their initial
fnancial support from informal investments
made by family, friends, and associates.
An extremely small proportion of the most
promising frms receive funding from venture
capital frms, which are a specialized form
of formal investment. Informal fows were
estimated in the 2002 GEM report by means
of asking all those in the adult population
surveys if they had made an investment in a
new frm, not their own, the past three years.
The 2002 GEM report indicates the amount
of venture capital invested as a percent of
gross domestic product for each of the
countries on the report. Nations that enjoyed
year-to-year increases included Sweden,
with a 101 percent increase. A large portion
of all businesses are owned and managed
by families or groups of relatives. Sweden
was one of the 10 countries in which family
owned businesses were started with family
sponsored entreprenuership. In Sweden,
the low estimate of family sponsored
entrepreneurships was 26%, with the high
estimate being 52%. Again, China was not
included in these statistics.
Conclusion
Finally, researchers’ Ralston, Gustafson,
Cheung and Terpstra (1993) analyzed and
interpreted the results of a study based on the
convergence and divergence of managerial
values in the United States, Hong Kong and
the People’s Republic of China. Although
this study did not include Sweden, the results
of the study are consistent with a review of
the literature used for this paper. The study,
which utilized four Western-developed
measures, found that both culture and the
business environment interact together to
create a unique set of managerial values
in a country. The goal of the study was
twofold: to help understand convergence
or divergence of managerial values, and to
investigate similarities and differences of
managerial values in the study countries.
The study examined the contrasting
themes of convergence and divergence.
The convergence approach proposes that
managers in industrialized nations would
embrace the attitudes and behaviors common
to managers in other industrialized nations
despite the numerous cultural differences.
The divergence view proposes that individuals
would retain diverse, culturally based values
despite any economic and social similarities
between their nations. The countries were
chosen based on criteria defned in a previous
study. The United States represented a
capitalist business environment at the height
of technological development. On the other
extreme, the People’s Republic of China
2009 37
Bremmer I. - Common Factors between Swedish and Chinese Entrepreneurial Leadership Styles
Ingmar Bremer
represented a socialist legal and political
system with communist origins. Serving
as a link between these two extremes, was
Hong Kong, with a well-developed fnancial
system at the forefront of world commerce.
It was hypothesized that convergence
would be found if the Hong Kong managers
adopted Western values, and divergence
would be found if they maintained Eastern
values. It was hypothesized that the U.S.
and the People’s Republic of China would
be polarized on the variables in the study.
The results of the data supported the theory
that there were signifcant differences
between managers in the U.S. and People’s
Republic of China. The data provided little
support for the convergence hypothesis, and
some support for the divergence hypothesis.
The majority of the fndings for measures
developed with both Eastern and Western
constructs supported the cross-vergence
view.
The data of the study summarizes the
prevailing view found in the examination
of the entrepreneurial leadership styles of
Sweden and China. As a result, it appears
that values must be viewed individually
and not together as an entity. It has been
determined that some values may change
while others do not, some may change more
rapidly, and that other values may evolve
from a combination of infuences. The
results of the Ralston et.al. (1993) study
were similar to those of a previous study,
which taken together, theorize the possibility
of a concurrent convergence, divergence
and cross-vergence which depend on the
values measured and the countries studied.
It was also concluded that different national
cultures would contribute to the unique
behaviors of managers in the different
industrialized nations.
A review of the literature on the
entrepreneurial leadership styles in Sweden
and China leave open a few important aspects
that would assist in the interpretation and
performance of future studies. One important
possibility raised is that it would be necessary
to recognize that values may differ between
groups within a nation. The implications
for future research that this raises is that
different values in the same nation may
need to be looked at from different angles
not previously thought of. For example,
comparable elements such as the differences
between male and female managers in the
same nation, or the differences in managerial
styles between the present managers and
the next generation of managers could be
examined. Other cultural differences could
be taken into consideration, such as social
class or environmental infuences of the
countries studied. The political scene of
the country, liberal or conservative are also
additional factors that can be taken into
consideration.
Finally, the results of the examination
of the entrepreneurial leadership styles in
Sweden and China have offered support
for previous research and other studies.
It is highly likely that the differences in
entrepreneurial leadership in these countries
have contributed to their respective successes
and failures. Future research using different
value sets is likely to be the fnal deciding
factor in interpreting this important research
question, the results of which have many
implications in forecasting, globalization,
and the international economy
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2009 43
Albinger J.. - Economic Model for Monopoly Analysis in Telecommunication: Proposal to Demonstrate Uniqueness
Jürgen Albinger
ECONOMIC MODEL FOR MONOPOLY ANALYSIS
IN TELECOMMUNICATION: PROPOSAL TO
DEMONSTRATE UNIQUENESS
Jürgen Albinger (PhD)
Abstract
The Telecommunications Act of 1996 sought to end the monopoly that once existed in the
telecommunications industry. Since its adoption, the telecommunications industry has been undergoing a
period of rapid change and development. The entry of new players into the market encouraged them to
seek new ways to attract and keep customers. These changes have led to a rapid influx of new technology
and services. Many times what defines a monopoly is not clear in every circumstance and there are
many pending lawsuits for violations of antitrust laws in the courts today. Economic models are useful
in resolving issues of whether a monopoly truly exists, or whether claims are unsubstantiated. Previous
models were applicable only in certain situations. These models are unreliable in predicting monopolies
outside the parameters for which they were designed. This research will develop and test an economic
model that accurately predicts the existence of a monopoly in the telecommunications sector, based on the
United States of America’s marketplace case, as the best representative example to deal with.
Business Intelligence Journal - January, 2009 Vol.2 No.1
44 Business Intelligence Journal January
Introduction
In some ways, it would appear that
a monopoly represents a good deal for
consumers. By having all of the resources
needed to provide a good or service managed
by one organization, there are some enormous
advantages to be derived including effciency
and availability. Given the negative
connotations that have been assigned to the
term in recent years, it becomes necessary to
understand why these business forms are not
being used more frequently today. Indeed,
monopolies have been the subject of large
amounts of media attention in recent years.
Recently, there has been the question of
whether Bill Gates constituted a monopoly,
or whether his vast empire was a just and fair
reward for good business savvy. There have
been many questions regarding mergers and
acquisitions of corporate giants would create
a monopolistic environment, this creating
an unfair advantage and virtually destroying
any smaller companies that were unable to
compete on their scale. Courts are fooded
with cases such as these and surrounding all
of these cases is one key question, “What
exactly is a monopoly?”
Everyone is familiar with the textbook
defnition of a monopoly, that is, a marketplace
where a lack of competition exists and one
company and all or a signifcant portion of the
market place. Notwithstanding the outward
appearances of representing a good deal for
consumers, in reality, a monopoly is only
good for one entity: the monopoly itself. A
lack of suffcient competition allows them
to set their own places and in some cases, no
incentive to produce the best quality product
available. If the product or service that the
monopoly produces is necessary for life,
then the customer has only one choice. They
must take the product that is offered, and pay
the price that is offered, especially if there is
a lack of a suffcient substitute product.
Monopolies tend to drive up prices
and have many negative effects on the
establishment of a fair marketplace. One of
the key issues surrounding the court cases
regarding monopolies is that there are many
different types of monopolies that exist for
many different reasons. Some monopolies
exist because of scale. In this case, the
monopoly simply out-produces anyone
else in the industry. They are price makers
and everyone else must follow their lead.
Because of their size, they can often produce
goods cheaper than their competition and
there fore can offer them at lower prices.
Eventually, the smaller companies may be
forced out of business and a true monopoly
will then emerge.
Some monopolies exist due to sheer
geographic location. This is particularly
common in the telecommunications sector
and other utility sectors. In these cases,
there may only be one service provider
established in an area and the product may
be necessary to life. Therefore a monopoly
exists due to location. There are other more
subtle forms and reasons for a monopoly
existing, however, such as the effect that at
a provider is the frst to offer a service. They
establish brand equity and name recognition.
This may make entry into the market more
diffcult for the competition.
Monopolies may be complete, where
the monopoly is the only provider and has
complete control over the marketplace.
The monopoly may be partial, where there
is competition, but the monopoly retains a
signifcantly large portion of the marketplace.
By all accounts, a monopoly makes it
diffcult to enter into the marketplace. The
more complete, the monopoly, the more
diffcult, entry into the market will be.
However, in an incomplete monopoly, it is
possible for the monopoly to drive prices up
and a lower priced competitor steal a portion
of the marketshare from the monopoly.
2009 45
As can be readily seen, there is not one
hard and true defnition of what constitutes a
monopoly. The term “monopoly” has many
shades and subtleties that make a black-
and-white defnition a diffcult task. There
have been many mathematical economic
models that have attempted to provide
a legal defnition by which the courts,
businesses, and general public could use to
classify whether a market is a monopoly or
not. If this clear-cut defnition existed, the
courts would not be bogged with Anti-trust
suits; there would be no argument. This
is the purpose for the following research.
To this end, this research will focus on the
telecommunications industry and develop a
mathematical economic model that will be
useful in determining if a monopoly exists
in the telecommunications industry. This
model will be tested through empirical
research.
Rationale for Study
Recent focus in the telecommunications
industry has been on the cell phone
sector and other new technologies such
as broadband communication and other
wireless services. However, the predecessor
to this expansion in the telecommunications
industry began with the Telecommunications
Act of 1996. Prior to this act, one primary
company owned a large portion of the
communications industry, which at the time
consisted of telephones. This company was
Bell Telephone, the pioneers of modern
communication. In his essay, “TELRIC vs.
Universal Service: A Takings Violation?,”
Buck (2003) reports that:
The Telecommunications Act of
1996 (“Telecom Act” or “1996 Act”),
however, introduced a new wrinkle into
the realm of telecommunications pricing.
By law, local telephone companies,
known as incumbent local exchange
companies (“ILECs”), would be forced
to lease virtually all of their equipment
and facilities to their competitors, the
idea being that the competitors could
then offer a competitive product to the
consumers. The pricing terms of such
leases are to be set by state public utility
commissions, who must calculate the
theoretical cost of constructing a new
network. This system of cost-based
pricing is known as TELRIC, which
stands for ‘total element long-run
incremental cost.’ (p. 2)
As others began to wish to enter the
marketplace, they found it diffcult or
nearly impossible to compete with the giant.
Clearly, this scenario and comparable ones
that resulted were not conducive to the ideals
of free enterprise and true capitalism, so the
government decided to act. They passed the
Telecommunications Act of 1996, which
de-regulated the industry and paved the
way for open competition. The act included
provisions for helping new companies enter
the marketplace including providing extra
licenses in many areas and funding sources
for new business startups. This created a
wealth of opportunity for new businesses. In
an attempt to out-compete their competition,
companies experimented with new services,
pricing schemes and eventually, new
technology. This created a boom in new
technology and led to the invention of cell
phones, pagers, and other wireless products.
It seemed that everyone has benefted from
this move by enjoying lower prices and a
wealth of new products and services. Every
one has benefted, that is, except “Ma Bell.”
As in other sectors, the privatization of
the telecommunications industry has led to a
plethora of business startups. Some of these
new enterprises became shining stars and rose
to the top of their industries quickly, while
others crashed and burned. As in any other
industry that experiences this type of boom,
Albinger J.. - Economic Model for Monopoly Analysis in Telecommunication: Proposal to Demonstrate Uniqueness
Jürgen Albinger
Business Intelligence Journal - January, 2009 Vol.2 No.1
46 Business Intelligence Journal January
there were many allegations of mergers
and shining stars becoming monopolistic in
nature. This led to a backlog of court cases
that is likely to be there for some time in the
future.
An economic model that tests for
the existence of a monopoly in the
telecommunications industry would be of
great use in determining if a monopoly truly
exists, or of the claims are unsubstantiated.
This research will examine several existing
models for the existence of monopolies.
There are many instances in which these
existing models reliably predict the
existence or nonexistence of a monopoly;
however, they were developed for prediction
under certain types of markets and market
conditions. As a result they are reliable in
predicting monopolies in certain sectors of
the market, however, prove themselves to
be inadequate in predicting monopolies in
other sectors. The existing models do work
in certain circumstances’ however, their
inability to work in other circumstances
has resulted in some cases, particularly
that of the telecommunications feld, in a
predicament where no clear decisions can be
reached. Furthermore, there are still some
who argue that the Telecommunications Act
of 1996 was unnecessary because no true
monopoly existed in the frst place.
For the purposes of this analysis, it is
important to keep in mind that every sector of
the market has its own set of characteristics.
For instance, some are cyclical, such as retail,
and some are steady growth, as in the case of
many manufacturing sectors. Some sectors
have many small players, while others are
made of a few larger players. Sometimes
one company is the clear leader. Sometimes
there is a group who emerges ahead of
the pack and sometimes all are on a level
feld. These varying characteristics make it
necessary to develop a separate economic
model for each sector or sub-sector in the
market.
The telecommunications sector has
experienced a fundamental restructuring in
recent years and is still in a period of rapid
change. The most drastic change came after
the adoption of the Telecommunications
act of 1996; however, this is a rapidly
changing industry and by all accounts,
there are many more changes to come. In
this environment, some observers have
suggested that even though there are more
companies in competition, that there is still
a monopoly, or an environment closely
resembling a monopoly. This is particularly
true in the case of companies such as Lucent
Technologies and AT & T. Mergers Such
as Viacom and WorldCom draw even more
suspicion as they form conglomerates large
enough to force smaller companies out of
business, by their shear scale.
This is the rationale behind the need for
the proposed research. It is the objective
of this research to develop an economic
model that accurately predicts the existence
of a monopoly in the telecommunications
industry. The telecommunications industry
consists of many sub-sectors and the model
will be tested in each of the sub-sectors
to assure that it can accurately predict
conditions in a variety of conditions within
the telecommunications sector.
The proposed model will be tested both
before the Telecommunications Act of 1995
and after its inception. It will be tested
in the rapidly changing environment that
exists today. It is the goal of this research
to develop a real-world working model that
will be helpful in solving the many issues
that exist today regarding monopolies and
the telecommunications industry.
2009 47
Scope of Problem
The telecommunications sector has
been a leader in the technology sector
since the infux of new companies and new
technologies that resulted in the invention
and proliferation of technology after the
adoption of the Telecommunications Act of
1996. While different components of the
industry, the regulators, and the economists
expressed different concepts concerning
what changes should be made in the
telecommunications industry, virtually all
stakeholders agree that competition in all
segments of telecommunications should be
encouraged (Mcmaster, 2002). Anti-trust
lawsuits have caused many disruptions in
the development of the sector and as a result
caused massive overheads for companies
that could barely afford it. Many of these
lawsuits have centered on the existence of
local or large monopolies. These lawsuits
lowered the proftability of many companies
and forced many of them to go bankrupt
pr make drastic cuts in their workforce.
The costs of these lawsuits have been
devastating and have hurt the proftability of
many companies. As a result, the sector, as
a whole, has suffered a downturn that will
likely take some time to recover.
Statement of Hypothesis and
Research Questions
The hypothesis of this research is that a
mathematical economic model can accurately
predict the existence of a monopoly in the
telecommunications industry as follows:
Hypothesis 1 (H1): As market
concentration shifts from low to high, the
effect on the top four players out of ten in an
industry shifts becomes more pronounced
than for the remaining top six in a manner
discernible through one of the economic
models to be analyzed.
The successful model will be useful in
predicting the existence of a monopoly in
the telecommunications industry, and will
thereby become a useful tool in resolving
the issue of whether a monopoly exists
or not. The guiding research questions
of this research will demonstrate that the
economic model developed as a part of
this research will accurately predict the
existence or nonexistence of a monopoly in
the telecommunications sector. The primary
research question will be, “Can the model
developed for this model accurately predict
the existence or nonexistence of a monopoly
in the telecommunications sector?”
Literature Review
Given the importance of the industry, it
is not surprising that much literature exists
on the telecommunications industry and the
history of the Telecommunications Act of
1996. There is a wealth of scholarly debates
regarding whether it has been a help or
whether it has been of harm to the industry.
It can be debated as to which side holds the
most truth at the present time. The following
will review the current literature available,
both on the telecommunications industry and
the models that have been used to describe
other monopoly models. The review will
be critical in nature and will attempt to
summarize as much of the information as
possible on the topics at hand.
The Telecommunications Industry
The telecommunications industry is
important and considered a vital part of our
everyday lives. The telecommunications
industry represents only a small portion
of the country’s Gross Domestic Product,
only 1-2 percent (Stigiltz, 1998). While this
amount may seem insignifcant, the services
that it provides are vital to every other sector
Albinger J.. - Economic Model for Monopoly Analysis in Telecommunication: Proposal to Demonstrate Uniqueness
Jürgen Albinger
Business Intelligence Journal - January, 2009 Vol.2 No.1
48 Business Intelligence Journal January
in the economy. Telecommunications is the
backbone of many other sectors.
The Telecommunications Act of 1996
is one of the most highly debated topics in
economics. There are some that say that it
has been ineffective and that we now have
a monopoly again, as a result of mergers
and acquisitions. Despite its constraints,
the Telecommunications Act of 1996
was an absolute necessity according to
Henricks (1999). This author points out
that, “Despite the amendments and revisions
that have been added throughout the years,
Congress saw no choice but to completely
replace the obsolete Communications Act of
1934. Because communication technology
has grown by leaps and bounds over the
last few years, the Communications Act
of 1934 was considered an antiquated
document. Edmund L. Andrews states that
advances “in technology and rapid change
in the marketplace have made [the 1934 act]
increasingly outdated and, many experts
believe, [the 1934 act] has been harmful to
competition and consumers’” (p. 39). As a
result, Congress replaced the 1934 act with
a new, more contemporary law that was
intended to regulate the electronic media
of the 21st century (Hendricks, 1999).
There are others who say that it has had
the intended result, but that the movement
towards a competitive marketplace does not
happen overnight. Poulson (1997) believes
that achieving a fair market in Colorado
will not be immediate and will take some
time. There are others who believe that it
is working in some cases and not working
in others. Alaska is moving towards a more
competitive marketplace on a local level.
Rural communities often have a localized
monopoly as there are not enough customers
to attract competition (APUC, 1997).
Many have made predictions, similar to
the one that will be made by this research
project. Many of these feel that the
telecommunications market in 2010 will be
a pure competition, with no single company
emerging as the dominant force. Pehal
(2000) believes that the market in 2010 will
not be dominated by one type of technology
and that the result will be a mixture of the
new and the familiar. Powers and associates
(2000) predict a similar scenario. Others see
the market moving towards a monopolistic
setting in the future (Farrell, 1995, Goldstein,
1993, Kanell, 1998, Kitmari, 1998, and
others). They are basing these claims on the
fact that some companies are now beginning
to emerge as monopolies at the current time.
Sun is currently being accused of attempting
to gain a monopoly of scale (Malik, 1999).
According to Black’s Law Dictionary
(1990), a monopoly is “A privilege or
peculiar advantage vested in one or more
persons or companies, consisting in the
exclusive right (or power) or carry on a
particular business or trade, manufacture a
particular article or control the sale of the
whole supply of a particular commodity” (p.
1007). Not surprisingly, monopolies can have
many negative effects on the marketplace.
Monopolies prevent competition and raise
barriers of entry into a market. Senator Leahy
points out that the cable television companies
are a prime example of this (Kenyon, et. al.,
1995). A free and open competition ensures
that customers will have many benefts,
such as lower prices, a variety of new and
developing products and services.
A competitive market forces companies to
strive to maintain a customer base, whereas
a monopoly promotes routine and is resistant
to change. In a free competition, businesses
must strive to provide customers with new
and innovative products at reasonable prices
or face the loss of customers and declining
profts (FCC, 1995). It is the customer and
society as a whole that benefts from free
competitions.
2009 49
A natural monopoly exists when the
people in an area need a service or product
to sustain their daily lives and there is no
product substitution (Stoffels, 1999). It
also exists where there is no other close
competition, due to the fat that there is a
lack of resources for expansion into the
area. A prime example of this is a rural
electric cooperative. Usually the one who
ran the lines frst can have a monopoly. The
people will use whoever is there and have
no other choice. It is unlikely that another
company will run lines to the same locations
due to the cost involved and the uncertainty
that customers will switch. In this regard,
Gasmi, et. al., (1999) developed a test for
a natural monopoly that he feels would
be applicable to the telecommunications
industry. It was developed to determine
natural monopolies in the rural electricity
industry. Upon examination of the test, it
was felt that it would be useful in certain
sectors of the telecommunications industry,
especially where rural hardwire telephones
were involved.
However, it did not appear that it would
be useful in other segments of the market,
such as cell phones and other wireless
products, or in urban areas. In their chapter,
“A Technico-Economic Methodology for
the Analysis of Local Telephone Markets,”
Gasmi, Laffont and Sharkey (1998) provide
an empirical methodology for analyzing the
regulation of local telephone markets that
combines an engineering process model of
costs with models from the new regulatory
economics. According to Gasmi and his
colleagues (1998), this technico-economic
methodology is comprised of two separate
analyses.
The frst step involves studying the
properties of optimal regulation under
asymmetric information in detail by
examining three issues:
The extent of natural monopoly when 1.
informational rents associated with
regulation are taken into account;
The extent of the divergence of pricing 2.
under the optimal regulatory mechanism
from optimal pricing under complete
information (incentive correction); and,
The implementation of optimal 3.
regulation through a menu of linear
contracts (Gasmi et al., 1998).
The authors determined that for fxed
territory, strong economies of scale allow
local exchange telecommunications to
retain monopoly characteristics even when
the (informational) costs of regulation are
properly accounted for. In addition, they
report that the incentive correction term is
small in magnitude, and optimal regulation
can be well approximated through relatively
simple linear contracts (Gasmi et al., 1998).
The second phase of the technico-
economic methodology involves an
evaluation of the relative performance of
various regulatory mechanisms, from both
traditional and modern (incentive) points of
view. This analysis allows us to quantitatively
assess the social value of regulatory transfers
and of good cost auditing procedures, the
redistributive consequences of the various
forms of regulation, and the sensitivity of the
relative performance of the various methods
of regulation to the cost of public funds.
The importance of costing methods
in regulation of network industries is by now
well established. This is particularly the case
in telecommunications. Historically, various
approaches have been used to evaluate costs
in telecommunications, including accounting
and econometric methods. However, with
the rapidly changing technology, forward-
looking engineering models of costs have
increasingly proven useful. Meanwhile,
Albinger J.. - Economic Model for Monopoly Analysis in Telecommunication: Proposal to Demonstrate Uniqueness
Jürgen Albinger
Business Intelligence Journal - January, 2009 Vol.2 No.1
50 Business Intelligence Journal January
new forms of regulation have made their
way into telecommunications, triggered, on
the one hand, by widespread dissatisfaction
with the performance of traditional forms
of regulation, and on the other hand by the
broad political trust in private incentives for
enhancing the performance of operators.
The technico-economic methodology
described by Gasmi and his associates
uses the engineering approach in a modern
regulatory economics framework for
analyzing some important issues facing
regulation of telecommunications today.
The usefulness of this technico-
economic methodology is demonstrated
through two investigations:
This approach was used to empirically 1.
investigate in detail the properties of the
optimal regulation of the local telephone
service and its implementation;
specifcally, Gasmi and his colleagues
researched ways to generalize the natural
monopoly test in order to take account of
the (informational) costs of regulation.
The technico-economic methodology 2.
was used to compare the performance
of various regulatory schemes from
both traditional and modern incentive
regulation.
In order to successfully assess the
various forms of regulation that impact
on the technico-economic methodology,
a detailed specifcation, in the context of a
representative local telecommunications
network, of the frm’s observable cost
function, the market demand function,
the disutility of effort function, and the
distribution of the technological uncertainty
parameter (Gasmi et al., 1998).
The regulatory schemes involved in this
analysis are subject to constraints of three
types:
Mechanisms differ in the (ex post) 1.
observability of costs;
In the feasibility of lump sum transfers 2.
to the frm, and,
In the degree of bounded rationality of 3.
the regulator (in addressing incentive
issues) (Gasmi et al., 1998).
A duopoly exists where there are two
companies that compete in a marketplace.
In this case, there is limited competition, but
no clear competitors exist, other than the two
duopolists there are some that many consider
this situation to be a small oligopoly. In
this case, the two competitors must match
each other in price and quality. One cannot
afford to fail to match the other’s price. This
market can be good for the monopolists, if
cooperation exists between them. However,
if they are ferce competitors, the competition
will serve to harm both, as they strive to
lower prices and out-perform one another;
however, Pociask and Rutner (2000) believe
that a separate test must be applied when
analyzing a monopoly versus a duopoly.
In a similar vein, Huisman (2000)
explores the specifc benefts and effects that
a monopoly will have on the marketplace
and draws the conclusion that the long-
distance market is currently an extremely
concentrated market. The proposed MCI
WorldCom/Sprint merger will make it even
more concentrated. There are those who feel
that the MCI WorldCom/Sprint merger will
make it even harder to compete for smaller
companies.
Furthermore, Huisman argues that entry
into the marketplace is currently high. The
established companies have a considerable
amount of brand equity attached to their
names. It would take a massive and very
expensive media campaign to compete
with MCI WorldCom and Sprint. There is
2009 51
a certain amount of trust associated with a
name. People will not be likely to switch to
a small, barely known carrier, even if their
prices are substantially lower. There are also
considerable regulatory and capital expense
barriers that make it nearly impossible to
enter into the market. These factors tend to
weaken the opinions of those who claim that
MCI WorldCom and Sprint do not resemble
a monopoly, or a strong duopoly. These
carriers are able to meet future demands
of a growing client base, therefore it seem
unlikely that the current situation will change
(Huisman, 2000).
To this end, Huisman argues that the MCI
WorldCom/Sprint merger should not be
allowed, as this will create a true monopoly
in the telecommunications industry. As long
as the two remain separate, there is at least
a limited amount of competition. He feels
that a limited amount of competition is
better than allowing this market to become
a pure monopoly. These two companies
have cornered the market on an economy
of scale and it would not be possible to
retain effciency in any other way. This
is the case in the long-distance area of the
market; however, Huisman feels that the
merger would be benefcial in other markets
such as in the wireless and local exchange
services. The merger would provide better
interconnectivity but there remains a concern
that this would create a smaller competitive
market in these areas as well (Huisman,
2000).
Clearly, Huisman is against a further
concentration in the telecommunications
marketplace and argues that re-creates the
same situation that the Telecommunications
Act of 1996 sought to prevent and suggests
that a strong campaign be launched to
convince the government to disallow the
merger of MCI WorldCom and Sprint;
nevertheless, this author maintains that this
is not enough and calls for a divestiture of
Sprint’s equipment and backbone to allow
others to enter into the marketplace (Huisman,
2000). In addition, this author suggests
that the Telecommunications Act of 2996
was necessary and that the intentions were
good; yet, since its adoption, the market has
been allowed to develop with no guidance
or intervention and that this has created a
market similar to that, which existed prior
to the Telecommunications Act of 1996.
The merger will effectively eliminate the
two companies who currently have a chance
to pose competition to the impending
“supergiant,” Bell Atlantic and GTE. Due
to a lack of maintenance, it would seem that
we have taken a step backward and that it is
“Ma Bell” all over again (Huisman, 2000).
Economic Models of a Monopoly
Even a casual review of its circumstances
today makes it quickly apparent that
the telecommunications industry is a
complex entity and there are multiple sub-
industries within the primary industry. The
telecommunications industry has gone from
a relatively pure monopoly to an attempted
competition, and now it is questionable
as to whether it is gravitating towards a
monopoly again. In addition, there are
now more products and services available.
The market is no longer comprised of one
market. There is a long-distance market, a
local service market, and a cell phone and
wireless market. All of these markets have
different characteristics and the previously
existing models fail to useful in all areas
of the telecommunications industry. For
instance, the Gasmi Model (Gasmi, et. al.,
1999) is useful in the rural local phone service
industry in rural areas. However, is very
ineffective in prediction in an urban market,
where there are many competitors, such as
the cell phone market. In this market, there
may still be a monopoly but the monopoly
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does not have as much power as in a natural
monopoly setting.
Studies have been conducted on
monopolistic markets in other areas. It has
been found that monopolies retain certain
characteristics and that they are subject to
many factors that infuence their behavior.
Consumers have a set of guidelines, by
which they make purchases. Even in a pure
monopoly, the company must provide a
certain level of perceived quality and cannot
engage in overly high pricing schemes. It
would seem as if the consumer would have
no recourse, especially if they need the
product or service. However, disgruntled
customers will complain to their government
and could pressure the government to break
up their monopoly.
Many studies by Shimonura and
Shimonura and associates (1197-1198)
demonstrated that market equilibrium could
be manipulated by placing a set of export
constraints on the market (Kemp, M., Okawa,
M., Shimonura, K., 1996). Other researchers
such as Graham, et. al. (1983) studied the
airline industry after deregulation. They
found that fares are independent of market
concentration. Likewise, Rogerson (1982)
found that monopolies seek resources
directed at obtaining proft and that there are
social costs to the monopoly because of this
rent-seeking activity.
According to Miller (1996), “A major
rationale of the assault on regulation that
has taken place in the work of orthodox
economists over the past several decades,
and in the courts and legislatures since the
late 1970s, is the view that regulation retards
technological advance and that an ‘optimal’
rate of investment in new technology will
be a happy by-product of deregulation” (p.
719). A monopoly frm’s pricing strategy
in a market in which consumers have
varying perceptions of the quality of the
frm’s product. The effect is refected in the
price that the frm will be able to secure for
the product (Kehoe, 1996). For example,
Caminal (1996) found that a monopoly can
choose between no advertising and large-
scale advertising. The monopoly will adopt
the most effcient advertising strategy in
conjunction with lower fxed prices for their
services. In a duopoly, when consumers have
a fxed time-horizon, such as signing a one-
year contract, the two frms may alternately
dominate the customer base, alternately
charging high and low prices (To, 1996).
Using a maximum entropy technique,
it is possible to approximate the market
shares of each frm in an industry using the
available government summary statistics
such as the four-frm concentration ratio
(C4) and the Herfndahl-Hirschmann Index
(HHI). The HHI technique is reported to
be effective in estimating the distribution
of market shares in 20 different industries.
Golan et al. (1996) support practice of using
HHI rather than C4 as the key explanatory
variable in many market power studies
(Golan et. al. 1996). According to Jorde
and Teece (1992), with regard to the issue
of the appropriate Herfndahl-Hirschmann
Index thresholds, the Merger Guidelines
identifes critical HHIs at 1000 and 1800;
however, it is diffcult to hypothesize and
propose alternative HHIs for technologically
dynamic markets, but the inclusion of
performance competition and the extension
of the time frame of competitive response
may mean that it is not necessary to change
these critical HHIs (Jorde & Teece, 1992).
In addition, Jorde and Teece suggest that
with technologically dynamic markets, the
dynamics of market structure in the past
should provide some guidance to assessing
market defnition and predicting likely
changes in market concentration. “Key
factors are the change in concentration and
the trend in the number of competitors,” they
advise. “Failure to recognize that competition
2009 53
is often on the basis of performance
attributes and not price will lead courts and
the antitrust agencies to underestimate the
breadth of product markets in industries
characterized by rapid technological change.
This process, in turn, will lead courts and
agencies to exaggerate antitrust dangers. As
a consequence, technological development
may be retarded” (Jorde & Teece, 1992, p.
11).
Golan et al. (1996) presented their
HHI technique as a one-size-fts all factor
that would be useful and applicable in a
variety of situation, citing its usefulness
in 20 industries. Upon examination of the
technique used, however, it was found that
many variables were not taken into account,
such as changes in industry structure and the
existence of markets within markets, Golan
and associates tout their method as being
useful in almost any situation. However, it
was not found to have the wide applicability
that they claim. Before applying their
method, one should be careful to examine
the circumstances to which it was originally
applied and to be certain that the situation
being tested has similar characteristics to
those used by Golan and associates.
Golan and associates did apply their
method to 20 industries; however, they
did not state the conditions in the industry.
Generalizations such as these can be
dangerous and should be carefully examined
when choosing to use the method for one’s
own analysis. This is not to say that the
method is not useful, it certainly has some
merit. It is the widespread applicability that
is in question in this case, not the method
itself. In this regard, Young (2000) notes
that the predominant assumption in media
economics to date has been that market
structure is a central feature of media
markets:
The problem that has emerged is that
once market outcomes (prices and
outputs) under conditions of oligopoly
are sensitive to the precise specifcation
of frms’ conjectures with regard to
other incumbents and to potential rivals,
there is a need to theorize in terms of
frm specifc behavior (conduct) and less
in terms of any structural characteristics
of a given industry or market. It is
less likely that a summary measure
of concentration, such as the widely
adopted Herfndahl-Hirschmann index,
can convey as much regarding the likely
performance of a particular industry.
That is, we cannot easily deduce that
an increase in the level of concentration
is likely to lead to a higher price-cost
margin (or high supernormal profts)
and a corresponding misallocation
of resources. As noted previously, it
might, on the contrary, be the case that
a particular set of interactions between
rival oligopolists, along with specifc
conjectures regarding likely potential
entrants, leads to an outcome that is
relatively competitive (i.e., one that is
much closer to a perfectly competitive
or Pareto effcient state than a pure
monopoly outcome). (Young, 2000, p.
31)
Lieberskand et al. (1996) examined the
impact of corporate restructuring measured at
the industry level on industry concentration
in US industries. These industries were
engaged in the basic, manufacturing, and
services sectors between 1981 and 1989.
The results demonstrated a modest increase
in median industrial concentration in
sample industries between 1981 and 1989.
There were few sell-offs of assets at the
industry level through horizontal mergers,
acquisitions, and inter-frm asset sales
increased US industrial concentration during
the 1980s (Lieberskand et al., 1996).
The Lieberskand study is interesting when
one compares the manufacturing industry
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54 Business Intelligence Journal January
to the telecommunications industry. The
telecommunications industry has undergone
a complete restructuring, as compared to the
manufacturing industry. The manufacturing
industry has been relatively steady, yet
still shows a trend toward a higher level of
concentration. The manufacturing industry
has high barriers to entry, and in many cases,
only one of two producers of a particular
product. Lieberskand was baffed by the trend
towards a more concentrated marketplace in
what he considers to be a free competition.
Lieberskand considered the entire
manufacturing sector to be a free
competition. However, in reality it is a bunch
of small natural monopolies. For instance,
Colgate/Palmolive makes hundreds of
consumer products. There are only two or
three competitors that manufacture similar
products. One of their primary competitors
is Proctor and Gamble. They could be
considered to be a duopoly. However, a
closer examination of the market shares
would have to be undertaken. This industry
does not have hundreds of competitors. This
represents only one product line.
Another example is in the airline
industry. There are only two or three major
manufacturers of airplanes. Lieberskand
made the error in his analysis of considering
manufacturing to be one entity. However, it
is really a number of smaller entities and this
is the factor that confounded Lieberskand’s
analysis. Lieberskand was confused by his
fndings and this is explanation that eluded
him. Some of these monopolies are natural
monopolies. However, most are monopolies
of scale.
Economic textbooks have called the
telecommunications industry an ideal
model of a natural monopoly (Thierer,
1994). However, Theirer points out that this
monopoly came into existence with the aid of
the US government and that many would-be
competitors were excluded and not allowed
to obtain licenses in the beginning. As stated
before, monopolies are detrimental to the
market place by creating higher prices and
sometimes-lower quality. Let us examine
one possible reason why the government
would wish to promote a monopoly.
A natural monopoly can serve consumers
at lower costs than two or more frms. This
would seem contrary to popular convention
until one considers the high barriers to entry
into a natural monopoly. Once a single frm
overcomes the initial costs, such as laying
the cable, or building the sub-stations, their
average cost of doing business drops rapidly,
relative to newcomers in the industry.
Kellogg, (2000) found that if a
monopolist sets their price before they have
determined the level of demand for their
product, then they have essentially limited
the availability of output at lower prices. It
cannot lower its prices and this can lead the
way for competition and lead to its eventual
displacement as a monopoly. Kellogg
cautions companies to wait until demand
can be determined before setting prices.
Kellogg (2001) examined the
homogeneous good Cournot model with
two existing companies and one potential
entrant into the market. This researcher
demonstrated that entry can occur even if
the entrant has no cost advantage and must
rely on existing companies to distribute their
product. This is exactly what happened in the
wireless portion of the telecommunications
industry. In the beginning there were only a
few companies manufacturing cell phones.
The costs to enter this market are high.
However, in spite of this, other manufacturers
were able to enter the market and there are
now a large number of manufacturers in the
industry. Some manufacture their phones
and sell them under a larger conglomerate
name. This gives the larger conglomerate
another product line, for which it does not
have all of the manufacturing costs and
2009 55
gives the smaller company the advantage
of the larger companies brand equity. The
Cournot model could prove itself to be
highly useful in the development of a model
for the telecommunications industry.
The practice described above is called
“bundling.” Martin (1999) found that
bundling be a frm with a monopoly over
one product is strategic and that it changes
the substitution relationships between
the goods. Now the monopoly does not
have to worry about the competition as a
substitution product. It can now use the
product produced by the other company to
its advantage. This is a highly proftable
proposition for the monopoly. This strategy
is usually used by the monopoly to reduce
or eliminate competition. In many cases,
the larger company will force the smaller
company into this arrangement as they can
easily override them otherwise.
Labor Unions are not usually considered
to be an monopoly. However, there have been
many models that prove them to have all of
the characteristics of a monopoly. Many
models have been developed describing
the characteristics of labor unions as being
monopolistic in nature. Some of these models
may be useful in determining the existence
of monopolies in the telecommunications
industry because the structure of the labor
union is similar to the telecommunications
industry.
Labor unions are national in scope, just
as with the national telephone carriers.
However, they are local in nature as well,
small branches serve limited sections of
the population. Labor unions engage in
a variety of trades, such as plumbing,
painting, electricians, etc. They have many
products to offer and each of these products
represents a different market. This is very
similar to the telecommunications industry
where there are long-distance markets, local
service markets, cell phones, PDA’s and
other products, all representing a different
market. For these reasons, models that
are used to describe the labor unions may
prove to be the most useful in describing the
telecommunications industry.
In order to develop an adequate model for
describing the telecommunications industry,
it is obvious that an examination of other
industries and comparisons will be required.
Similarities and differences will have to be
carefully considered. Currently, there are
many models that claim to be the answer in all
cases involving the existence of a monopoly.
In the models that make these claims, one
thing is obvious: They did not compare the
market characteristics of the industries for
which they have proposed the model. In the
case of the telecommunications industry, it
was surprising to fnd that the labor unions
were the most similar in structure and
market scope. These may be the most useful
in constructing a model for conduct of this
research.
Many of the models were sound in
theory. However, suffcient testing was not
performed to substantiate the claims being
made. It is not expected that any one of
these models will adequately apply to the
telecommunications industry. However,
in the case of the labor union models, a
few modifcations may make the most
meaningful model. These statements are
only speculative at this point and no clear
conclusion regarding the methodology can
be proposed at this time.
The literature on the telecommunications
industry has to this point, focused on the
effects of the Telecommunications Act
of 1996. There are as many reports that
state that the act created a competitive
marketplace. Research has shown that this
may have been true, at least for a while.
However, it is possible that the marketplace
may be changing to a monopolistic model in
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the near future, especially with the upcoming
proposed merger between MCI WorldCom
and Sprint and AT&T and Bell South.
Michael Porter and Monopolies and
Clusters
By all accounts, segment differentiation
and geographic scope are central concepts
of international strategy at the business
level (Porter, 1986). According to
Cooke (2001), Michael Porter is one of
the leading proponents of clustering for
competitive advantage. From a competitive
advantage perspective, the goal of segment
differentiation is to customize products and
services to better ft the needs of different
groups of customers; however, Porter points
out that such segment differentiation is
expensive because differences in product
designs, advertising programs, distribution
channels, and so forth work against the
development of economies in research and
development, production and marketing.
“In contrast,” Carpano, Chrisman, and Roth
(1994) advise, “if a frm fails to segment
its market, it risks sacrifcing effectiveness
for effciency; few customers will be
attracted by a product that fails to meet
their needs, no matter how economical the
purchase may be” (p. 640). In an industry
characterized by multidomestic enterprises,
the needs of customers are regarded as
being heterogeneous; companies that do
not adequately respond to the diversity of
customer needs and buying motives may fnd
themselves at a competitive disadvantage
compared to companies that do (Carpana
et al., 1994). “On the other hand,” they
advise, “customer needs in a global industry
are predominantly homogeneous. In this
instance, a frm that attempts to differentiate
its offerings to different national markets
may see its attempt go unrewarded. It has,
in other words, sacrifced effciency with
no corresponding gain in effectiveness”
(Carpana et al, 1994, p. 640).
Knowledge Engineering in Relation to
Monopolies and Business Intelligence
Applied to Monopolies
According to Davidson (1999), “Today’s
knowledge-based organisations have a
problem. Their most important assets tend
to be in the heads of their workers. As a
result they need tools to capture, store and
redistribute this knowledge, so that the
corporation doesn’t grind to a halt every time
an employee walks out of the door” (p. 37).
To date, computer scientists have been able
to integrate various individuals’ knowledge
into “expert systems” that autonomously
perform complex tasks such as confguring
large-scale computer systems and assessing
credit applications. It was not that long ago
that such knowledge engineering systems,
though, were considered too restrictive in
their scope to be of any real signifcant use
to all but the most esoteric applications.
For example, Davidson notes that
although experts in artifcial intelligence
had created a number of “knowledge
engineering tools” to help build expert
systems, at the time, “Few companies have
the time or resources to use them to capture
knowledge in this depth. Nor would they
necessarily want to. Expert systems are
limited inevitably to a single, specifc feld
of interest, whereas what companies often
want from their knowledge workers is
fexibility and creativity” (Davidson, 1999,
p. 37). This situation is no longer the case
today, however, and a wide range of expert
systems, algorithms, knowledge bases and
various business intelligence applications
can help model real-world settings and help
researchers better understand the various
forces at play. According to Hakken (2003),
2009 57
knowledge engineering requires a solid
theoretical basis: “[A] computer, no matter
how sophisticated, is useless if you have…
no rules to drive the inference machinery
designed to process…data. Knowledge
Engineering attempts to codify and distil
information so that it can fuel the increasingly
powerful logic machines processing the
data stored in their memories. Intelligent
knowledge-based systems (IKBSs) and
expert systems are computer-based systems
which take information and process it in
an ‘intelligent’ manner” (Hakken, 2003, p.
154).
From another perspective, then, clusters
are monopolies in the market for economic
space (Cooke, 2001). Some early uses
of knowledge engineering for estimating
forward-looking costs of a local telephone
exchange were made by Mitchell (1990, cited
in Mackie-Mason & Waterman, 1998) who
used a heuristic model of the local exchange
network, including the local loop, end-offce
switching, tandem switching, and interoffce
transport. According to these authors:
Simple linear functional forms were
assumed for individual cost components
of the network, and these were calibrated
either by econometric techniques where
data were available, or by engineering
estimates provided by Pacifc Bell and
GTE of California, in whose territory
the study was conducted. Both capital
costs (network investments multiplied
by a 15 percent annualization factor)
and operating expenses (primarily
maintenance and billing costs) were
considered. The end result of the study
was an estimate of both the fxed costs
and average incremental costs associated
with each of the network components.
Mitchell’s study focused on estimating
the incremental cost of an additional
access line or an additional minute of
usage of the network. These results are of
potential interest in guiding investment
decisions of telecommunications
providers and, in a regulatory context,
for setting price foors or for detecting
predatory behavior.
Using such knowledge engineering
systems to improve returns on investment
tend to accrue to frst-mover frms in a
knowledge-based industry or those that
otherwise gain a monopoly position in
a given market has become increasingly
common today. In this regard, more recently,
Cooke (2001) reports that:
Some Knowledge Economy frms
with an arm-lock on key Internet
technologies, like Cisco Systems,
virtual monopolists in Internet ‘routers’
which control Internet communication
channels, have this characteristic, as
did telecommunications monopolies
before privatization and the introduction
of competition for telecom services
market-share. Increasing returns arise
from the widespread and repetitive
gains that accrue from the continuously
improved codifed knowledge
responsible for the technological change
in question. In Cisco’s case this is
achieved by acquisition of specialist
knowledge-intensive smaller businesses
in appropriate technologies. In other
cases it arises from equity investment
by corporate venturing arms of such
(quasi)-monopolists in equivalent
small businesses, as in the case of Intel
Technology, which is assumed to possess
this increasing returns characteristic.
This, in turn, requires the replacement of
the neoclassical cornerstone assumption
of perfect by one of imperfect
competition, since increasing returns to
scale clearly imply monopolistic rather
than fair competition. [M]ost of these
models suffer from some of the same
unrealistic assumptions and the same
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58 Business Intelligence Journal January
measurement problems as the ‘old’
growth models. In particular, they take
little or no account of organizational
innovations and of the interplay between
institutional change, technical change
and investment. (Cooke, 2001, p. 35).
Finally, other knowledge engineering
techniques that have been applied to the
telecommunications industry in recent years
include the Local Exchange Cost Optimization
Model (LECOM), used to calibrate the cost
function for local telecommunications costs.
According to Mackie-Mason and Waterman
(1998), “LECOM has been developed to
determine the degree of economies of scale
and scope in local telephone markets and the
cost-minimizing deployment of technology
(e.g., analog vs. digital or fber vs. copper).
The software for LECOM combines an
engineering process model, which computes
the cost function for a local exchange
network with a given confguration of switch
locations, using an optimization algorithm
which solves for the optimal number and
location of switches” (p. 21).
The LECOM knowledge engineering
applications allows the user to specify the
size of the local exchange territory, which
is comprised of three concentric rectangles
representing a central business district, an
area of mixed residential and commercial
demand, and a residential district. The size
and the population density of each region
are both specifed by the user, as well as
specifc data concerning calling patterns.
Furthermore, the user is able to specify a set
of technological inputs and a detailed set of
input prices in order to calibrate the model
to the specifc characteristics of an exchange
area (Mackie-Mason and Waterman,
1998). By all accounts, more sophisticated
applications of these techniques are expected
in the near future.
Methodology
This research will be conducted in two
phases, to be discussed in detail in the
remainder of this section. The frst phase
of research involved a detailed review of
the telecommunications industry, both
historically and in present times. Existing
methodologies for determining the
existence of monopolies were explored
in detail and compared to the needs of the
telecommunication industry. Finally the
developed model was tested using examples
from the telecommunications industry both
before and after the Telecommunications
Act of 1996.
Description of the Study Approach
The frst section of this research involves
development of the model. This involved a
detailed study of existing models and how
they apply to the circumstances for which
they were originally developed. These models
were then studied to determine if they would
be useful in the telecommunications industry.
Unique factors in the telecommunication
industry will be identifed and worked into
the equation. The model in this research
served as the research instrument.
After the development of the model,
the model must be tested to ensure that it
works as planned. It will be tested in several
environments. It will be tested before the
adoption of the Telecommunications Act of
1996. If the model reacts as planned it would
be expected that the model will show strong
evidence for the existence of a monopoly.
The model will be tested after the adoption
of the Telecommunications Act of 1996,
where it should not show strong evidence
for the existence of a monopoly. A variety
of tests will be conducted in more recent
times where the existence of a monopoly is
questionable. If the results obtained fail to
2009 59
make the expected results, then the model
will be reexamined and adjusted. The tests
will be repeated until the desired results
are obtained and found to be statistically
signifcant.
Sample Population
The sample population for this
study will be various sub-sectors of the
telecommunications sector over the period
of time from 1986 through 2002; this period
will cover the period both before and after
the Telecommunications Act of 1996. It
is not believed from historical literature
examined that going farther back than
1986 will produce signifcant results, as
the market remained relatively unchanged
until this time. According to Compaine and
Gomery, using the year 1986 as the base
year for comparison is appropriate for this
purpose because it was the frst year after
the Federal Communications Commission
relaxed the number of television stations
under the ownership of a single frm from
7 to 12; in addition, 1986 was the year that
News Corp. frst successfully challenged the
longstanding dominance of the major three
commercial networks, thereby creating an
opportunity for additional competition in
the broadcasting industry (Compaine &
Gomery, 2000). Furthermore, in the early
1990s, the FCC’s restrictions on broadcast
networks owning a fnancial interest in
prime time programming were eased and
by early 1996, the Telecommunications Act
essentially eliminated the size of broadcast
radio groups and further loosened restriction
on television station group ownership
(Compaine & Gomery, 2000).
As the research progresses, the exact
time periods of interest are expected to
emerge. One example may be to study sector
structure at the beginning of the advent of
cell phones, and then one year after their
inception to determine if any leaders have
emerged and if they did, if they began to
resemble a monopoly, either by scale or by
location. Then the same sector would be
analyzed three years after its beginning to
study how it has changed in that time. This
is only one example of the types of questions
that may be examined in this research. There
are many such issues that may be examined
upon closer investigation of the sectors over
time.
Data Analysis
The frst portion of data analysis will be
to determine if, when the model is applied,
a monopoly is found to exist. Each time
period examined will be considered to
comprise one data set. Each data set will be
either positive or negative for the existence
of a monopoly. Some may be considered to
be partial monopolies. These will be treated
as a monopoly for purposes of this study.
This data will be analyzed and scatter-
plotted according to time to determine
if more or less monopolies come into
existence over a long period of time.
Patterns in this data are expected to reveal
trends in the formations of monopolies over
a period of time. Trends in the movement
towards a monopoly or towards a more even
competition are expected to be revealed by
this graphical method. Regression analysis
will be used to attempt to predict future
trends in the formation of monopolies in the
telecommunications sector in the future.
Findings
It is expected that the data will reveal
defnite trends in the telecommunication
industry. For many years the
telecommunications industry was dictated
by a few large-scale companies. There were
virtually no smaller players and even if they
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Business Intelligence Journal - January, 2009 Vol.2 No.1
60 Business Intelligence Journal January
did exist, they could not compete with the
Bell conglomerate. The Telecommunications
Act of 1996 paved the way for a free market
in the Telecommunications sector.
Immediately following the passage of
the 1996 Act, a plethora of small companies
emerged. The government supported the
growth of the industry by providing more
licensing opportunities and providing grants
and low interest loans to those who wished
to enter into the lucrative enterprise. When
an industry booms such as this one, there
are many who enter that are not prepared
to compete. Many lack the knowledge
and skills necessary to make a sustainable
proposition. As a result, many of these
fedgling businesses fail in a short amount
of time.
This left gaps in the market to be flled,
either by another new company, or by an
existing company that is positioned to take
over that area of the market. More often than
not, the latter is the case. This makes the
existing company stronger and more able to
control a larger section of the market. During
this phase of market development, this same
process occurs many times over. In the
end, many of the small companies that were
unable to compete will disappear and the
market will emerge with fewer players, each
controlling a larger section of the market
than in the beginning of this development.
Sometimes, as many believe is the case
currently in the telecommunications sector,
one of these strong contenders will capture
a large enough marketshare that they
themselves become another monopoly by
scale. Mergers and acquisitions can help
play a role in this process. At this stage,
prices tend to level, production levels and
the market will eventually reach equilibrium.
This has been the stage that has occurred in
the telecommunications industry. Currently
the market is in the stage where many of
the smaller companies are beginning to fade
into the sunset, and the few stable success
stories are beginning to emerge.
The main question that must be posed
at this juncture in time is whether there is
currently a monopoly either existing now,
or arising in the telecommunications sector?
The other question is to attempt to determine
whether this trend will continue in the future
or whether there will again be another
restructuring in the telecommunications
industry. It is expected that the data will
demonstrate the trends described earlier
in an emerging market and that the market
will be found to be reaching a period of
more stability and steadier, less explosive
growth. No predictions regarding fndings
concerning the existence of a monopoly can
be made at this time. Nor can predictions
regarding future trends be revealed until
the data for the fnal report is collected and
analyzed.
Conclusion
The telecommunications industry is
unique and previous models to product the
existence of a monopoly have to this point
proven inadequate. Many of them only apply
in certain sectors of the market, while others
are only applicable on a limited basis, such
as in the rural local telephone industry. It is
expected that the fnal model will draw from
these previous models, but that it will have to
be modifed to ft the circumstances unique
to the industry. The possibility exists that
one model may not be adequate in assessing
the entire telecommunications industry. A
series of models may eventually have to be
developed which are applicable in various
markets, or situations in the market. This
cannot be determined until the research is
underway.
Many of the models discussed in the
literature review purport to have a wide
applicability. However, upon closer
2009 61
examination, it can be found that they were
not adequately tested to make such claims.
In addition, the samples for these tests were
not selected according to a certain criteria. It
cannot be determined if the sample sets used
to make draw these conclusions contained
markets that were similar in characteristic,
or if the models were tested on a variety of
markets under widely varying conditions.
In order to make the types of claims made
by these models, one would have to have
more information on the markets and test
conditions than was provided in the reports.
The primary concern in developing the
model or models that will be used to determine
that existence of a monopoly will be certain
to learn from past mistakes and not make the
same mistakes as our predecessors. In order
to avoid this conundrum, the research and test
methods must include protocol for testing in
various time periods under varying market
conditions. In addition enough tests will
have to be performed to make an accurate
determination as to the applicability. The
actual test results will have to be critically
view to be certain that they are logical given
what is qualitatively know about the market
place. The entire industry will have to be
tested as a whole, as well as the individual
sectors separately. Only then can one make
a determination as to the usefulness of the
model in varying market conditions.
Though the previous models have
been criticized, they cannot be discounted
altogether. They will still be useful as examples
in developing the fnal model. Surprisingly,
the labor union models for determining
monopolies were initially revealed to hold
the greatest promise for providing a basis
for the model. The market is nationwide,
yet local in nature. It involves many trades,
all representing different markets. These
markets are similar to the various sub-
sectors in the telecommunications industry.
The labor union models may provide an
interesting ground for cross- testing our
own model to determine if it applies in other
industries as well.
Today, the telecommunications industry
is changing rapidly and there is a growing
need to defne what constitutes a monopoly
in this sector. This research hopes to resolves
the existing dilemma by developing and
testing a model for predicting the existence,
either now or in the future of monopolies.
The telecommunications industry is unique
and models developed in the past fail to
meet the needs of this industry. It is hoped
that the model developed as a result of this
research will prove useful in settling the
many questions surrounding anti-trust in the
telecommunications market.
Data Analysis
Herfindahl-Hirschmann Index.
According to Jorde and Teece (1992), the
term “Herfndahl-Hirschmann Index” is a
term used to refer to the total of the squares of
the market shares of all actual competitors in
any relevant market (Compaine & Gomery,
2000). This measure of concentration is
increasingly being used in empirical work
and is typically abbreviated to “HHI”
(Sawyer, 1991, p. 29). This index is defned
according to the number of frms in the
industry (T), with the share of each frm (si)
weighted by itself; while the concentration
ratio places a weight of 1 on the share of
the largest n frms and zero on the share of
the other frms, this index places a weight
equal to the share on the share of the frm.
As a result, the index is able to incorporate
information on all frms rather than just the
largest n frms. In addition, the HHI can
vary between a value of zero (where there
are a large number of roughly equally sized
frms) and unity (where there is just one
frm) (Sawyer, 1991).
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Business Intelligence Journal - January, 2009 Vol.2 No.1
62 Business Intelligence Journal January
Traditionally, economic criteria have been
the only or at least the key criteria that have
been used to determine the concentration in
all industries; while the congressional debate
over the Celler-Kefauver Amendment to
Section 7 of the Clayton Act suggested
that social and political criteria should be
considered in antitrust proceedings, the
amendment itself did not include such
language (Compaine & Gomery, 2000).
Consequently, the assessments of effciency
and entry to an industry are measured by
such criteria as the percentage of industry
revenue accounted for by the largest players,
as well as by the more complex Herfndahl-
Hirschmann Index. In the most conservative
determination of oligopoly, proposed by
Carl Kaysen and Donald Turner (1959, cited
in Compaine & Gomery, 2000), the eight
largest frms would have at least 33-1/3
percent of sales and the 20 largest at least 75
percent; this is called a type II oligopoly.
In this calculation, the index number
increases as the number of companies
declines and the inequality in the largest and
smallest increases; HHIs of 1,800 or greater
represent industries of great concentration
and index numbers at or below 1,000 are
signs of no concentration; according to
Compaine and Gomery (2000), “From an
antitrust viewpoint, an industry must reach
a type I oligopoly, at which time the eight
largest frms have 50 percent of receipts and
the 20 largest at least 75 percent, before the
concentration allows frms to charge prices
and make profts above competitive levels
and to misallocate resources” (pp. 555-6).
Among the various economic measures of
concentration, the Herfndahl-Hirschmann
Index (HHI) is one of the more robust because
“it refects . . . the number and size distribution
of frms in a market, as well as concentration
of output” (Compaine & Gomery, 2000, p.
558). As noted above, the HHI is calculated
by squaring the market share of each player
in the industry. Generally speaking, an HHI
score of greater than 1,800 indicates a highly
concentrated industry; a rate that is under
1,000 is regarded to be unconcentrated,
with scores in between representing degrees
of moderate concentration (Compaine &
Gomery, 2000).
In an example of an industry with
10 providers, the HHI has the ability to
differentiate between a marketplace where
the market is relatively equally divided and
one where a few players hold most of the
revenue. In example A, the three largest
players account for 30 percent, 25 percent
and 20 percent, respectively, of industry
sales. The remaining seven divided up 25
percent about equally. This example has an
HHI of 2,014, which is highly concentrated.
By contrast, in example B, the largest frm
has a 15 percent market share, the second
frm 12 percent, the third 10 percent and the
seven remaining frms roughly divide the
remainder; the HHI in this industry is 1,036,
which is a low concentration (Compaine &
Gomery, 2000).
Yet another study applied the HHI model
to the book publishing industry from 1989 to
1994 (Greco, 1999). According to Greco’s
analysis of a “media monopoly” in the book
publishing industry using the Herfndahl-
Hirschman Index to ascertain whether
Department of Justice antitrust guidelines
were violated because of these mergers and
acquisitions. “Between 1960 and 1994,
there were approximately 72,000 mergers
and acquisitions in the United States. This
metamorphosis captured the attention of
scholars eager to understand the impact
this transformation had on the business
landscape” (Greco, 1999, p. 165). This
period followed several decades of apparent
consolidation from mergers, including the
1970s period that resulted in the decision by
the Federal Trade Commission to investigate
media concentration in 1978 (Greco, 1999).
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According to Greco, the impact
horizontal mergers and acquisitions had on
concentration in the U.S. book publishing
industry between 1989 through 1994 were
appropriate for investigation because these
years represented peak-to-peak periods
during a period of relative economic
prosperity; furthermore, previous studies on
book publishing ended with 1989, so this
research, which was based on more recently
released statistical data, was an important
study of mergers and acquisitions into the mid-
1990s (Greco, 1999). The author analyzed
empirically data sets on book publisher’s
market shares and revenues between 1989
through 1994 (due to data collection lags,
the most recent ones available) using the
Herfndahl-Hirschman Index to determine
whether antitrust guidelines were violated
because of the mergers and acquisitions in
the book industry; additional issues related
to market entry barriers, title output, and
pricing were also take into account (Greco,
1999).
The Book Industry Study Group divides
the U.S. book industry into three separate
market categories: (a) consumer books, (b)
professional and reference books, and (c)
the education or textbook market (including
workbooks); each of these markets has specifc
considerations that Greco took into account
in his analysis. The author frst examined
a variety of analytical methodologies in
an effort to accurately measuring market
concentration levels, including “Lerner’s
Index of Monopoly Power” (Lerner, 1934,
cited in Greco, 1999), in which p is price
and MC is marginal cost:
L = (p-MC)/p (1)
Likewise, Greco reviewed the “Bain
Index of Monopoly” (Bain, 1941, cited in
Greco, 1999) was also investigated; this
methodology focuses on excess profts,
which would indicate the presence of a
monopoly. To accomplish this analysis, all
relevant costs must be deducted from total
revenue; thereafter, the index is expressed in
terms of where PQ is price times quantity
or total revenue, C(Q) represents the current
cost of generating the income, D represents
the depreciation on fxed capital investment,
and iV is the opportunity cost on the owned
assets of the frm or the implicit costs of the
frm.
p = PQ - C(Q) - D - iV (2)
The author reports that both of these
methodologies proved unusable because
the information needed to assess demand
elasticity and marginal costs was not
available in annual reports, industry data, or
U.S. government statistics, a point that was
also identifed by the author of the instant
report as well. Based on this review, Greco
reports that the HHI emerged as the best
tool to measure market concentration levels
because:
It was the analytical formula employed 1.
by the U.S. government (by both the
Department of Justice and the FTC)
and,
The necessary post-1989 data were 2.
available.
The Department of Justice Manual
(1997, cited in Greco) stated that “market
concentration is a function of the number of
frms in a market and their respective market
shares”; as an aid to the in terpretation of
market data, the Agency will use the [HHI]
of market concentration” (p. 7-58). Once
an index is determined, the Department of
Justice (p. 7-58) divided a market into three
distinct regions: (a) unconcentrated (HHI
below 1,000), (b) moderately concentrated
Business Intelligence Journal - January, 2009 Vol.2 No.1
64 Business Intelligence Journal January
(HHI between 1,000 and 1,800), and (c) and
highly concentrated (HHI above 1,800). The
author concludes that the HHI is “widely
considered to be a useful summary measure
of market concentration because it refects,
at least to some extent, the number and size
distribution of frms in a market, as well
as concentration of output”; researchers
have also consistently demonstrated the
effcacy of the HHI in their study of various
industries. For example, Viscusi, Vernon,
and Harrington (1995, cited by Greco,
1999) described the HHI as the “weighted
average slope of the concentration curve. . .
. The weight for the slope of each segment
of the curve is the corresponding MS i for
that segment” (p. 150). According to Greco,
“Where MS i represents the market share
of frm i and where there are n frms in the
market. If a market consisted hypothetically
of a single seller, the HHI would be 10,000,
a perfect example of a monopoly” (p. 171).
As can be seen in Table 1 below, during
the period studied, the 14 largest book
publishers accounted for 75 percent to 80
percent of total book industry revenue;
however, the industry experienced some
signifcant swings over the years as well.
Table 1. HHI for Book Publishing, 1989-1994.
% of Industry Revenue by 14
Largest Publishers
HHI Index
1989 74.6 454
1990 78.6 488
1991 73.7 443
1992 74.6 450
1993 76.0 464
1994 80.0 511
Source: Compaine & Gomery, 2000, p. 559
Figure 1. HHI for Book Publishing, 1989-1994.
Source: Based on data in Compaine & Gomery,
2000
The highly fragmented nature of the
industry can be seen in the HHL; even when
it was reported at its highest (in 1994),
the HHI refected a highly competitive
industry, well below even the low boundary
of oligopoly (Compaine & Gomery, 2000).
According to Greco (1999), the U.S. data
collected for the top 14 book publishers
showed that they held approximately a 75%
market share between 1989 through 1994;
an analysis of the HHI totals found that
in 1989 these top 14 frms accounted for
74.57% of all book sales ($10.523 billion) in
the United States and had an HHI of 454.06
and by 1990, these corporations had sales of
$11.68 billion (78.62% share), with a HHI
of 488.46 (Greco, 1999)
The industry enjoyed another increase in
revenues in 1991; as the result of fairly intense
competition in the market place, though,
Greco notes that their total market share
declined to 73.65%, as did the HHI (443.49),
lower than the 1989 mark. Nevertheless, by
1992, revenues had increased once again and
reached the $12.173 billion mark; market
shares eased upward (74.55%) with an HHI
of 449.77. In the following year, the top
frms’ posted revenue increases (75.96%),
topping the $13.2 billion plateau. The HHI
0
100
200
300
400
500
600
% Ind Rev - 14
Largest
HH1 Index
1989 1990 1991 1992 1993 1994
2009 65
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increased to 463.82; in 1994, the last year
in this study, the major frms accounted for
$14.591 billion in sales, a 79.95% market
share, and a 510.88 HHI, the highest totals
in this 6-year cycle (Greco, 1999).
The study also calculated the effect of a
single company controlling the 25 percent
to 20 percent of the industry revenues not
accounted for by the 14 in the study, a fgure
that would have resulted in an HHI of 931
in 1994, representing a decrease from 1,101
in 1989, below the minimum required for
designation as low concentration according
to the Herfndahl-Hirschman Index
(Compaine & Gomery, 2000). In addition,
this research further confrmed that over
the decades of mergers the volume of new
titles published grew dramatically, a sign of
great competition, adding credibility to the
HHI data of a highly competitive market
(Compaine & Gomery, 2000).
Table 2. Top 14 Book Publishers’ Market Share: 1989-1994.
Publisher
Market Share
1989 1990 1991 1992 1993 1994
Simon & Schuster 9.35 9.57 9.31 9.33 9.77 9.79
Time Warner Book Group 8.02 6.58 7.07 6.31 6.20 6.25
HarperCollins 8.14 8.19 6.67 5.88 5.70 6.01
Readers Digest 6.69 7.82 8.36 8.62 7.54 7.94
Random House 6.02 6.66 6.49 6.74 6.61 7.21
Harcourt General 5.85 5.72 5.14 5.30 5.43 5.04
Bantam Doubleday Dell 5.49 5.52 5.30 5.51 5.17 5.21
Encyclopaedia Britannica 4.42 4.38 3.90 3.47 2.63 --
Maxwell Macmillan 3.76 3.75 3.42 -- -- --
McGraw-Hill 3.54 3.71 3.42 3.47 3.83 6.37
Times Mirror 3.54 3.70 3.97 4.95 4.85 4.82
Thomson 3.52 4.68 4.82 5.31 7.03 7.46
Viking-Penguin/Addison Wesley 3.38 3.73 4.12 4.45 5.43 5.27
Houghton Mifin 2.86 2.83 2.68 -- 2.67 2.65
Scholastic -- -- -- 2.65 3.09 3.36
Harlequin -- -- -- 2.56 -- 2.60
14 frm totals 74.57 78.62 73.65 74.55 75.96 79.95
All other frm totals 25.43 21.38 26.35 25.45 24.04 20.50
Source: Greco, 1999, p. 172.
Business Intelligence Journal - January, 2009 Vol.2 No.1
66 Business Intelligence Journal January
Figure 2. Top 14 Book Publishers’ Market Share: 1989-1994. Source: Based on data in Greco, 1999, p. 172.
Table 3. Top 14 Book Publishers’ Herfndahl-Hirshman Indices: 1989-1994.
Publisher
HHI
1989 1990 1991 1992 1993 1994
Simon - Schuster 87.42 91.61 86.68 87.05 95.45 95.84
HarperCollins 66.23 67.10 44.49 34.57 32.49 36.12
Random House 36.24 44.36 42.12 45.43 43.69 51.98
Readers Digest 44.76 61.15 69.89 74.30 56.85 63.04
Time Warner 64.32 43.30 49.98 39.82 38.44 39.06
Harcourt General 34.22 32.72 26.42 28.09 29.48 25.40
Bantam Doubleday Dell 30.14 30.47 28.09 30.36 26.73 27.14
The Thomson Corporation 12.39 21.90 23.23 28.20 49.42 55.65
Encyclopedia Britannica 19.54 19.18 15.21 12.04 6.92 --
Macmillian/McGraw-Hill
School Publishing -- 14.06 -- -- -- --
Viking-Penguin;
Addison-Wesley 11.42 13.91 16.97 19.80 29.48 27.77
McGraw-Hill 12.53 13.76 11.70 12.04 14.67 40.58
Times Mirror 12.53 13.69 15.76 24.50 23.52 23.23
Houghton Mifin 8.18 -- 7.18 -- 7.13 7.02
Scholastic -- -- 5.77 7.02 9.55 11.29
Harlequin -- -- -- 6.55 -- 6.76
Maxwell Macmillan 14.14 21.25 -- -- -- --
Total industry HHI 454.06 488.46 443.49 449.77 463.82 510.88
Source: Greco, 1999, p. 173.
0
10
20
30
40
50
60
70
80
1989 1990 1991 1992 1993 1994
Simon & Schuster Time Warner Book Group HarperCollins Readers Digest Random House
Harcourt General Bantam Doubleday Dell Encyclopaedia Britannica Maxwell Macmillan McGraw-Hill
Times Mirror Thomson Viking-Penguin/Addison Wesley Houghton Mifflin Scholastic
Harlequin 14 firm totals All other firm totals
2009 67
Figure 3. Top 14 Book Publishers’ Herfndahl-Hirshman Indices: 1989-1994.Source: Based on data in Greco,
1999, p. 173.
Albinger J.. - Economic Model for Monopoly Analysis in Telecommunication: Proposal to Demonstrate Uniqueness
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Although the specifc HHI for the top 14
frms was calculated, this was not possible for
each one of the remaining 2,630 frms because
data sets are not available for this portion
of the industry; assuming a hypothetically
perfect sharing of the remaining highly
fragmented market, though, Greco notes
that the “average” frm in 1994 would have
revenues of $1.39 million, a 0.01% market
share, and an HHI of 0.0001. The total HHI
for this entire industry subset in 1994 would
fall below the 0.30 rate (Greco, 1999).
In addition, if it is assumed that the entire
remaining market were held by one company
instead of 2,630 frms, then the adjusted
total HHI totals for the entire industry
would be as follows: (a) 1989: 1,100.74;
(b) 1990: 945.56; (c) 1991: 1,137.81; (d)
1992: 1,097.47; (e) 1993: 1,041.74; and (f)
1994: 931.13. The HHI dropped 169.61
points between 1989 through 1994, falling
below the U.S. Department of Justice and
FTC unconcentrated 1,000 threshold. Entry
barriers were quite low to support a total
increase of 1,708 frms (+182.48%) since
1963 and marginal changes in the HHI
between 1989 through 1994. Based on his
review of the 1989 through 1994 empirical
data on market concentration, as well as
statistical information concerning new
entrants into the book marketplace, new title
output, and book prices, Greco concluded
that the creation of a “media monopoly”
or illegal levels of concentration in the
U.S. book publishing industry could not be
substantiated.
A similar type of analysis may be applied
to the television broadcasting segment as
shown in Table 4 below.
0
100
200
300
400
500
600
1989 1990 1991 1992 1993 1994
Simon - Schuster HarperCollins Random House Readers Digest Time Warner
Harcourt General Bantam Doubleday Dell The Thomson Corporation Encyclopedia Britannica Macmillian/McGraw-Hill
School Publishing Viking-Penguin; Addison-Wesley McGraw-Hill Times Mirror
Houghton Mifflin Scholastic Harlequin Maxwell Macmillan Total industry HHI
Business Intelligence Journal - January, 2009 Vol.2 No.1
68 Business Intelligence Journal January
Company
1997
(in millions)
1996
(in millions)
1995
(in millions)
1997
Media %
of Total
Revenue
1996
Media %
of Total
Revenue
1995
Media %
of Total
Revenue
1. CBS $4,839 3,390.0 3,483.0 88.6 78.2 79.6
2. NBC (GE) 4,803 4,940.0 3,659.0 93.2 94.5 93.4
3. ABC (Walt Disney) 4,572 4,005.0 4,177.0 66.2 61.1 67.2
4. News Corporation 2,730 2,500.0 1,580.0 49.2 62.4 53.7
5. Tribune 927 681.0 630.0 39.2 32.3 31.2
6. Gannett 704 641.5 523.8 15. 7 15.2 13.1
7. Cox 650 391.0 354.0 19.6 12.7 13.0
8. A.H. Belo 537 333.4 322.6 43.1 40.4 43.9
9. Sinclair 517 326.0 273.5 100.0 86.1 100.0
10. Univision 460 370.3 321.3 100.0 100.0 100.0
11. BHC Commun* 444 446.3 454.7 100.0 100.0 100.0
12. Viacom 422 390.3 385.5 15.7 16.2 19.0
13. Hearst 422 368.0 285.0 14.9 14.3 11.3
14. Washington Post 338 335.2 306.0 18.8 19.6 19.3
15. E.W. Scripps 331 349.6 320.3 30.1 29.9 29.2
16. Lin Television 292 273.4 217,2 100.0 100.0 100.0
17. Raycom Media 286 200.0 187.0 100.0 97.3 97.2
18. Young Broadcasting 264 261.5 245.8 100.0 100.0 100.0
19. Pulitzer Publishing 227 208.5 188.0 38.8 39.0 39.8
20. Chronicle Publishing 148 147.0 131.0 32.8 31.5 24.5
Source: Compaine & Gomery, 2000, p. 196.
Figure 4. Broadcast Revenues of Media Largest Companies, 1995-1997.Source: Based on data in Compaine &
Gomery, 2000.
0
10
20
30
40
50
60
70
80
90
100
1997 1996
CBS NBC (GE) ABC (Walt Disney) News Corporation Tribune Gannett Cox
A. H. Belo Sinclair Univision BHC Commun* Viacom Hearst Washington Post
E. W. Scripps Lin Television Raycom Media Young Broadcasting Pulitzer Publishing Chronicle Publishing
Table 4. Broadcast Revenues of Media Largest Companies, 1995-1997
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Figure 5. Average Weekly Television Viewing,
Selected Years, 1950-1997. Source: Based on data
in Compaine & Gomery, 2000.
During 1997, these companies had an
aggregate of $23.9 billion in broadcast
revenue; CBS and NBC each accounted
for approximately 20 percent of the total;
i.e., ABC 19 percent and Fox 11 percent
(Compaine & Gomery, 2000). Table 5
below shows these four top frms accounted
for fully 60 percent of the revenue of the
top 20 broadcasters, which in turn had
the dominant share of the total broadcast
market; however, contrary to what might
have been assumed, this share, and the HHI,
was actually lower in 1997 than in 1994,
before the wave of mergers in response to
the liberalized ownerships standards of the
1996 Telecommunications Act (Compaine
& Gomery, 2000).
Table 5. Average Weekly Television Viewing,
Selected Years, 1950-1997.
Weekly Set
Usage Per Home
Channels
Available
Per Home
Channels
Viewed
Weekly
Time
Spent Per
Channel
Weekly
1950 32.5 Hours 2.9 2.8 11.6 Hours
1960 36.5 5.9 4.2 8.7
1970 42.0 7.4 4.5 9.3
1980 46.5 10.2 5.6 8.3
1990 483.5 27.2 8.8 5.5
1997 50.0 43.0 10.3 4.9
Source: Compaine & Gomery, 2000, p. 206.
0
5
10
15
20
25
30
35
40
45
50
No. of Hours
1950 1960 1970 1980 1990 1997
The data in Table 6 below indicates that
television broadcasting is a moderately
concentrated industry which represents no
major surprise; however, the table also shows
that over this period the concentration, as
measured by HHI, also decreased by almost
12 percent among the 20 largest companies.
The revenue share of the top four and top
10 players was found to be lower, due
mostly to the mergers at the bottom of the
industry which resulted in more intensive
competition for an industry that, until 1986,
was dominated by only three networks and
limited to many small groups that could
have no more than seven stations each.
An approximate estimate by the authors is
that, in 1980, the three largest players (the
networks) held an industry share similar
to that of the four major networks in 1997
(Compaine & Gomery, 2000).
The authors report that these are small
changes; however, at a minimum, they
suggest a different outlook than the intuitive
one created by merger announcements
(Compaine & Gomery, 2000).
Table 6. Revenue Share and HHI of Largest
Broadcasters, 1994-1997.
Total Revenue Top
20 (billion)
Share
Top 4
Share Top 10 HHI
1994 18.9 72.6 87.8 1553
1995 18.0 71.5 86.3 1455
1996 20.6 72.2 86.4 1432
1997 23.9 70.9 86.7 1372
Source: Compaine & Gomery, 2000, p. 559.
Business Intelligence Journal - January, 2009 Vol.2 No.1
70 Business Intelligence Journal January
Figure 6. Revenue Share and HHI of Largest
Broadcasters, 1994-1997. Source: Based on data in
Compaine & Gomery, 2000.
70
70.5
71
71.5
72
72.5
73
Share Top 4
1994 1995 1996 1997
A comparison of the overall media
industry look based on concentration
percentages as well as the HHI is shown in
Table 7 below.
Table 7. Media Revenue of the Largest Media Companies, 1986 and 1997.
No. Parent Company
1997
Media
Revenue
% (mil)
Total Parent Company
1986
Media
Revenue %
Total
HHI
1997
HHI
1986
1 Time Warner 22,283 9.22 CBS 4,714 5.61 85.03 31.52
2 Disney 17,459 7.22 Capital-Cities/ABC 4,124 4.91 52.20 24.13
3 Bertelsmann 9,525 3.94 Time 3,828 4.56 15.54 20.79
4 Viacom 9,051 3.75 Dun & Bradstreet 3,114 3.71 14.03 13.76
5 Sony 8,253 3.42 GE (NBC) 3,049 3.63 11.66 13.19
6 News Corp 7,695 3.18 Warner Comm 2,849 3.39 10.14 11.51
7 TCI 6,803 2.82 Gannett 2,802 3.34 7.93 11.14
8 Thomson 5,849 2.42 Times Mirror 2,684 3.20 5.86 10.22
9 Seagram 5,593 2.31 Newhouse 2,371 2.82 5.36 7.97
10 PolygramN.V. 5,535 2.29 Gulf + Western 2,094 2.49 5.25 6.22
11 CBS 5,363 2.22 Knight Ridder 1,880 2.24 4.93 5.01
12 GE(NBC) 5,153 2.13 Tribune 1,830 2.18 4.55 4.75
13 Reed Elsevier 4,902 2.03 MCA 1,829 2.18 4.12 4.75
14 Gannett 4,730 1.96 Hearst 1,688 2.01 3.83 4.04
15 Reuters 4,729 1.96 McGraw Hill 1,577 1.88 3.83 3.53
16 Cox 4,591 1.90 New York Times 1,565 1.86 3.61 3.47
17 Newhouse 4,250 1.76 Cox 1,544 1.84 3.09 3.38
18 EMI Group 4,088 1.69 News Corp 1,510 1.80 2.86 3.23
19 MediaOne 3,586 1.48 Coca Cola (Columbia) 1,374 1.64 2.20 2.68
20 McGraw Hill 3,534 1.46 Readers Digest Assoc 1,255 1.49 2.14 2.23
21 Times Mirror 3,298 1.36 Washington Post Co 1,162 1.38 1.86 1.92
22 Pearson 3,066 1.27 Dow Jones 1,135 1.35 1.61 1.83
23 Knight Ridder 2,879 1.19 Thomson 1,000 1.19 1.42 1.42
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No. Parent Company
1997
Media
Revenue
% (mil)
Total Parent Company
1986
Media
Revenue %
Total
HHI
1997
HHI
1986
24 New York Times 2,866 1.19 Thom EMI 959 1.14 1.41 1.30
25 Hearst 2,800 1.16 Viacom 932 1.11 1.34 1.23
26 Tribune 2,720 1.13 Westinghouse 839 1.00 1.27 1.00
27 Readers Digest 2,662 1.10 Harcourt Brace Jovanovich 800 0.95 1.21 0.91
28 Dow Jones 2,573 1.06 Thomson 756 0.90 1.13 0.81
29 Hollinger 2,538 1.05 Storer Communications 649 0.77 1,10 0.60
30 Dun & Bradstreet 2,154 0.89 Tele Communications 646 0.77 0.79 0.59
31 SBC Comm 2,110 0.87 Maclean Hunter 638 0.76 0.76 0.58
32 Cablevision Sys 1,949 0.81 Macmillan 611 0.73 0.65 0.53
33 BellSouth 1,934 0.80 Harte Hanks Comm 576 0.69 0.64 0.47
34 Washington Post 1,799 0.74 Disney 512 0.61 0.55 0.37
35 AOL 1,685 0.70 Afliated Publications 401 0.48 0.49 0.23
36 Primedia 1,488 0.62 Amer Television & Comm 569 0.68 0.38 0.46
37 Sprint 1,454 0.62 A.H.Belo 399 0.48 0.38 0.23
38 Grupo Televisa 1,446 0.60 Houghton Mifin 321 0.38 0.36 0.15
39 Harcourt General 1,376 0.60 Lorimar Telepictures 757 0.90 0.36 0.81
40 A.H. Belo 1,284 0.57 Media General 431 0.51 0.32 0.26
41 Hughes Electronics 1,277 0.53 Meredith Corporation 507 0.60 0.28 0.36
42 E.W. Scripps 1,246 0.53 MGM/UA 355 0.42 0.28 0.18
43 Zif Davis 1,154 0.52 Multimedia 372 0.44 0.27 0.20
44 PrimeStar 1,097 0.48 Orion Pictures 328 0.39 0.23 0.15
45 Rogers Comm 958 0.45 Pulitzer Publishing 329 0.39 0.21 0.15
46 Media General 910 0.40 Southam 530 0.63 0.16 0.40
47 Torstar 894 0.38 Taft Broadcasting Co. 490 0.58 0.14 0.34
48 Meredith 830 0.37 Turner Broadcasting 507 0.60 0.14 0.36
49 Houghton Mifin 797 0.34 Advo Systems 460 0.55 0.12 0.30
50 USA Networks 796 0.33 Berkshire Hathaway 400 0.48 0.11 0.23
Source: Compaine & Gomery, 2000, p. 561.
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72 Business Intelligence Journal January
0
10
20
30
40
50
60
70
80
90
1997 1986
Time Warner Disney Bertelsmann Viacom Sony News Corp TCI Thomson
Seagram PolygramN.V. CBS GE(NBC) Reed Elsevier Gannett Reuters Cox
Newhouse EMI Group MediaOne McGraw Hill Times Mirror Pearson Knight Ridder New York Times
Hearst Tribune Readers Digest Dow Jones Hollinger Dun & Bradstreet SBC Comm Cablevision Sys
BellSouth Washington Post AOL Primedia Sprint Grupo Televisa Harcourt General A.H. Belo
Hughes Electronics E.W. Scripps Ziff Davis PrimeStar Rogers Comm Media General Torstar Meredith
Houghton Mifflin USA Networks
Figure 7. Media Revenue of the Largest Media Companies, 1986 and 1997.Source: Based on data in
Compaine & Gomery, 2000.
Table 7 above identifes the 50 largest
media companies in 1986 and 1997 by the
revenue from their media activities. In most
cases, this is 100 percent of their revenue;
in the case of a few companies, though,
the parent company enjoyed much greater
revenue. For example, NBC’s revenue
in Table 8 below is shown to be about 6
percent of parent General Electric’s revenue
(Compaine & Gomery, 2000).
Table 8. Concentration of Media Industry Revenue
by Number of Companies, 1986 and 1997 % of
Industry Revenue 1997 % of Industry Revenue 1986.
% of Industry
Revenue 1997
% of Industry
Revenue 1986
Top 50 81.81 78.67
Top 20 59.16 56.79
Top 8 35.97 32.35
Top 4 24.13 18.79
Source: Compaine & Gomery, 2000, p. 562.
0
10
20
30
40
50
60
70
80
90
1997 1986
Top 50 Top 20 Top 8 Top 4
Figure 8. Concentration of Media Industry Revenue
by Number of Companies, 1986 and 1997 % of
Industry Revenue 1997 % of Industry Revenue 1986.
Source: Based on data in Compaine & Gomery,
2000.
According to Compaine and Gomery, the
use of 1986 as the base year for comparison is
appropriate because it was the frst year after
the Federal Communications Commission
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relaxed the restrictions on the number of
television stations under the ownership of a
single frm from 7 to 12. “It was in that year
that News Corp. launched the frst successful
challenge to the long dominance of the older
three commercial networks, opening the
gates to new competition in broadcasting.
The timing of the Fox network a year later
was not coincidental. The ability of News
Corp. to gain ownership of local stations in
12 major markets gave it the core of network
affliates” (Compaine & Gomery, 2000, p.
562). During the closing years of the 20th
century, the FCC’s restrictions on broadcast
networks owning a fnancial interest in prime
time programming were gradually removed
and in early 1996, the Telecommunications
Act in essence eliminated the size of
broadcast radio groups and further eased
restriction on television station group
ownership (Compaine & Gomery, 2000).
An evaluation of media ownership as a
single industry indicates that if the mergers
that were pending in 1999 between Viacom
and CBS and between Seagram and Polygram
had been in effect in 1997 (assuming no
divestitures of any lines of business of the
participants), the top 50 would have been
82.13 percent, top 20, 61.80 percent, top
8, 40.37 percent and top 4, 27.02 percent
and the HHI would be 295 instead of 268
(Compaine & Gomery, 2000).
The highlights of the HHI analysis of the
media industry by Compaine and Gomery
were as follows:
As measured by revenue, there was very 1.
little change in media concentration
between 1986 and 1997. In the former
period, the top 50 accounted for about
79 percent of revenue. By the end of the
period, it edged up to under 82 percent.
The change in concentration among the
top 20 and top 8 was similarly small.
Only at the top four level has there been
a sign of greater concentration.
At the very top, the two largest companies 2.
(CBS and Capital Cities/ABC) accounted
for 10.5 percent of industry revenue in
1986. The top duo in 1997 (Time Warner
and Disney, with most of Capital Cities/
ABC) had 16.4 percent of industry
revenue. This is the only economic
measure by which the notion of increased
concentration of ownership of the media
had substantive backing. But it was prior
to Disney selling off substantial parts of
the newspaper and magazine properties
that were part of the acquisition.
The HHI increased from an extremely 3.
low 206 in 1986 to a still very low 268
in 1997. Therefore, while this measure
did show some increased concentration,
with HHI levels of under 1,000 indicating
low concentration, the media industry
remains one of the most competitive
major industries in U.S. commerce.
There has been a substantial turnover 4.
in the companies in the top 50 and even
the top 12. CBS, the largest in 1986, was
11th in 1997. Dun & Bradstreet, Gannett,
Times Mirror, Newhouse, Knight-Ridder
and Tribune Co. are frms that were still
around but had dropped from the top tier.
Gulf + Western become Paramount and
was acquired by Viacom. New to the top
tier in 1997 were Bertelsmann, Viacom
(with Paramount), Sony, News Corp.,
TCI, Thomson, Seagram (with MCA)
and Polygram.
Fully half the names in the 1997 list 5.
were not in the top 50 in 1986. In some
cases, they were too small in 1986 but
grew rapidly (e.g., Cox Enterprises,
Cablevision). In other cases, they were
Business Intelligence Journal - January, 2009 Vol.2 No.1
74 Business Intelligence Journal January
new to the U.S. market (e.g., Bertelsmann,
News Corp.). Others refect new owners
and new names for old players (e.g.,
Sony, which renamed Columbia Pictures;
Seagram, which renamed MCA). Yet
others were companies that are totally
new to the media industry or did not
exist (e.g., AOL, SBC Communications,
Hughes Electronics/DirecTV).
Finally, the authors report that out of the
25 names from 1986 that were no longer
in the top 50 in 1997, 15 were completely
eliminated as the result of mergers and
acquisitions. The other 10 simply did not
grow fast enough to stay at the top as shown
in Table 9 below.
Cournot Model.
According to Fellner (1949), “It was
Augustin Cournot’s great achievement to
have discovered the distinctive feature of the
oligopoly problem. He also showed in 1838
that on certain assumptions a determinate
equilibrium solution is obtained for the
duopoly problem and that this solution can
be extended from duopoly to oligopoly”
(p. 56). In their book, A History of Game
Theory, Dimant and Dimant (1996) report
that Cournot pioneered the most widely
used equilibrium concept in the course of
analysing duopolies. According to these
authors, “Recognition of Cournot’s eminence
has become almost axiomatic to economists.
One of the most familiar treatments of
duopoly and the most-frequently employed
equilibrium concept in game theory have
been named after him: Cournot duopoly
and Cournot—Nash equilibrium. Before
Cournot (1838), writers on strategic
interdependence such as Sun Tzu, Pascal
and Waldegrave had formulated problems
in the felds of war, ethics or card games.
It was Cournot who frst gave a rigorous
analysis of market structure, and he gave it
from a game-theoretic perspective” (Dimant
& Dimant, 1996, p. 18).
The Cournot solution is founded on the
tenet that (in undifferentiated duopoly) each
duopolist will believe that his competitor
will go on producing a defnite quantity
irrespective of the quantity he produces. In this
regard, Fellner (1949) suggests, “Obviously
Table 9. Change in Firms on Largest 50 List, 1986
and 1997.
Top 50 Companies 1986
Merged/Acquired by 1997
.Capital Cities/ABC with Walt
Disney Co.
Top 50 Companies
1997 Not in 1986 List
Bertelsmann
Warner Communications
with Time Inc.
Sony Pictures (formerly
Columbia)
Gulf + Western with Viacom News Corporation
MCA with Seagrams Seagram
Westinghouse Broadcasting
with CBS
Reed-Elsevier
Storer Broadcasting Reuters
MacLean Hunter Cox Enterprises
Macmillan, pieces sold to
various
EMI
Afliated Publications with
New York Times Co
MediaOne
American Television &
Comm
Pearson
Lorimar Telepictures with
Time Inc.
Hollinger
Multimedia SBC Communications
Orion Pictures Cablevision Systems
Taft Broadcasting Bell South
Turner Broadcasting with
Time Warner
America Online
Primedia
Sprint
Grupo Televisa
E.W. Scripps
Hughes Electronics
(DirecTV)
Rogers Communications
USANetworks
Zif-Davis
Torstar
Source: Compaine & Gomery, 2000, p. 563.
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in these circumstances each duopolist
believes that he can calculate the quantity
he should produce in order to maximize his
profts. For, by deducting the fxed quantity
of the rival’s output from the total quantity
indicated by the market demand function for
each price, he can obtain his own assumed
individual demand function; and he may then
proceed to equate his individual marginal
revenue to his marginal cost. Yet this is not
the reason why the solution is regarded as
determinate. Neither duopolist is likely to
make a correct guess of the quantity his rival
will produce, because the rival produces the
quantity which maximizes his profts on the
same assumption with respect to his rival’s
behavior, and hence does not generally
keep his output constant. Consequently,
the “position” (pair of outputs) obtained at
frst does not last; each frm will change its
output” (p. 57).
“The characteristic feature of the Cournot
model is that if each duopolist continues to
assume that the other will not change his rate
of output, then ultimately they will prove
to be correct although during the approach
to the equilibrium, for a limited period
of time, they will be wrong. A produces a
quantity which maximizes his profts on
the assumption that B will go on producing
his present output, whereupon B adjusts his
output so as to maximize his profts on the
assumption that A will go on producing his
present output, which induces A to adjust his
output, etc. What Cournot proved is that these
adjustments ultimately result in an output
for A which he can actually go on producing
on the assumption that B will continue to
produce his “present” output because B
will ultimately produce an output which
truly justifes A’s output on the assumption
he makes. This statement must clearly be
symmetrical; e.g., B must in this equilibrium
position also be producing an output which
is truly justifed (that is, need not be further
adjusted) on the assumption he makes about
A’s behavior (Fellner, 1949).
Clearly, this means that ultimately they
are proven to be “right,” but for the wrong
reasons. In this regard, Fellner points out
that each competitor will assume that his
rival follows a policy of fxed output while
in reality each follows a policy of adjusting
his own output to the requirement of proft
maximization, on the assumption that
the other follows a policy of fxed output;
however, if, on this incorrect assumption,
they both have actually adjusted their output
to the simultaneous output of the other,
then (from there on) the assumption they
make with respect to one another is “quasi-
correct” (Fellner, 1949, p. 57). Furthermore,
it is reasonable to assume that the other
producer will continue producing a fxed
output, although the reason is not (as is
mutually assumed) that he follows a policy
of producing a fxed output disregarding
his rival’s behavior. “This is what we
meant by saying that they are right for the
wrong reason” (Fellner, 1949, p. 57). The
geometrical proof provided by Fellner is as
follows:
Measure along the abscissa the output
of A, and along the ordinate that of B.
Label the curve indicating A’s output
as a function of B’s output F 1, and
the curve expressing B’s output as a
function of A’s output F 2. The shape of
these reaction functions is given by the
postulate that each duopolist maximizes
his individual profts on the assumption
that the other will go on producing his
“present” output. Let us frst assume that
the market demand function is linear
(which Cournot did not assume) and
that the producers have constant costs
at the identical level (which Cournot
did assume in the frst exposition of his
theory) (Fellner, 1949, p. 57).
The main proposition is established by
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76 Business Intelligence Journal January
the fact that the two curves intersect and that
the intersection marks stable equilibrium. In
other words, to the right of the intersection,
A’s output tends to fall and B’s to rise, while
to the left of the intersection A’s output tends
to rise and B’s to fall, so that the equilibrium
becomes restored in the event of disturbances.
This must be so because F 1 must intersect
with the ordinate above F2, while it must
intersect with the abscissa to the left of F 2,
For point 1 shows that output of B which
would induce A to produce nothing, while
point 2 shows the output which B produces
if A produces nothing. The frst of these two
quantities is the competitive output for the
industry in question. 4 The second quantity
is B’s monopoly output. The competitive
output exceeds the monopoly output. For the
analogous reason A’s output in point 3 must
be smaller than in point 4. Point 4 marks the
competitive output and point 3 marks A’s
monopoly output (Fellner, 1949).
The reaction functions (F 1 and F 2) are
linear if it is assumed linear demand functions
and constant costs. Consequently, the stable
intersection point just described is the only
intersection point. Furthermore, given
identical cost functions in undifferentiated
duopoly, the individual outputs of the
duopolists will be the same. It also is
straightforward to demonstrate that, based
on these assumptions, the aggregate duopoly
output is two-thirds of the competitive
output, while the monopoly output would be
one-half of output under pure competition
(Fellner, 1949).
In his assessment of the economics
of monopoly and equilibrium analysis,
Schumpeter (1954, cited in Dimant &
Dimant, p. 18) suggested that:
The chief performance was Cournot’s and
the period’s work may be described as a
series of successful attempts to develop
his statics of straight monopoly and as
another series of much less successful
attempts to develop and to correct
his theories of oligopoly and bilateral
monopoly. Second honors are divided
between Marshall and Edgeworth. (p.
976).
According to Sarkar, Gupta, and Pal
(1998), “The frst and still one of the most
widely cited models of noncooperative
oligopoly behavior is the Cournot model,
developed by the French mathematician
Augustin Cournot in 1838. The Cournot
model is the fundamental model used to study
strategic interactions among quantity-setting
frms in an imperfectly competitive market”
(p. 118). In recent years, there has been a
renewed interest in Cournot-based models of
strategic behavior that can be used to analyze
various real-world phenomena ranging from
horizontal mergers to intra-industry trade.
In this regard, Sarker and his colleagues
advise, “A proper understanding of the
Cournot model of imperfect competition and
strategic interactions among frms in various
contexts is thus essential” (p. 118).
In his analysis, “Structural Screens in
Stochastic Markets,” Shaffer (1996) reports
that if companies manage to negotiate multi-
period contracts with their suppliers, then
differences in the timing of contracts may
lead to variations in input prices across frms,
even within a single input market; these
effects are not explicitly represented in the
Cournot model, but the author emphasizes
that these effects may underlie some of
the assumed interfrm asymmetries in real-
world settings (Shaffer, 1996). According
to Boumans (2005), a number of economists
have maintained that models function as
instruments of investigation that can be
used to learn about the world as well as the
theories involved because they both involve
some type of representation. “They either
represent an aspect of the world or an aspect
of theories about the world, or both,” he
advises (Boumans, 2005, p. 74).
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In order to gauge an instrument’s
accuracy, it is important to test it to
determine the association, if any, between
the representation itself and the aspect of the
world that is to be represented. In this regard,
Boumans notes that, “The accuracy of this
correspondence depends on the complexity
of the system under investigation and our
ability to construct representations of it.
This is, in principle, a technical problem,
termed by Kevin Hoover as the “Cournot
problem” (after the man who formulated it
explicitly, Antoine Augustin Cournot, 1801-
77) (2005).
According to Cournot:
The economic system is a whole of which
all the parts are connected and react on
each other. … It seems, therefore, as if,
for a complete and rigorous solution
of the problems relative to some
parts of the economic system, it were
indispensable to take the entire system
into consideration. But this would
surpass the powers of mathematical
analysis and of our practical methods
of calculations, even if the values of all
the constants could be assigned to them
numerically. (Cournot, 1971, p. 127,
cited in Boumans, 2005)
In their essay, “Proftable Mergers in a
Cournot Model of Spatial Competition,”
Norman and Pepall (2000) report that
whenever two companies merge, they
act as Cournot competitors against other
merged frms but as Stackelberg leaders
with respect to the remaining nonmerged
frms. With linear demand and costs, any
two-frm merger is proftable. We adopt a
less extreme approach to commitment by
introducing the assumption that our Cournot
frms compete across a set of spatially
differentiated markets. In this setting, frms
choose not just the quantity of o utput to
supply to the spatially differentiated markets
but also where to locate their production
plants to serve these markets (Norman &
Pepall, 2000).
Location is a key factor underlying why a
merger can lead to a bigger and better frm.
Firms that have different locations have
different locational advantages in serving
the set of spatially separated markets. As a
result, in contrast to the standard nonspatial
Cournot model, a merger between two frms
need not result in one of them effectively
being shut down. Rather, a merger between
two frms allows them to coordinate their
location decisions with the result that the
merged frm becomes potentially bigger
than its rivals, better adjusted to consumer
locations (Norman & Pepall, 2000).
The results of the investigation by Norman
and Pepall (2000) show that a two-frm
merger results in the merged frm relocating
its plants away from the market center,
whereas the nonmerged frms remain at the
center. “Being a leader or Stackelberg frst
mover in location choice and coordinating
the two plants’ locations to serve certain
segments of the market more effciently lead
to a merged frm with a larger overall market
share than its nonmerged rivals,” they
advise. “This explains why, in sharp contrast
to the standard Cournot model, a two-frm
merger can be proftable even in relatively
unconcentrated markets” (p. 667).
Not only does a two-frm merger improve
locational effciency, it also increases market
concentration and reduces competitive
pressure across the set of markets (Norman
& Pepall, 2000). The bottom-line for
companies is that it generally leads to
higher prices across the set of consumer
markets, in sharp contrast to nonspatial
analysis, though, the increased proft of
both the merged frm and the nonmerged
frms, together with improved locational
effciency, is such that the merger increases
total surplus. “In other words,” the authors
conclude, “the introduction of commitment
Business Intelligence Journal - January, 2009 Vol.2 No.1
78 Business Intelligence Journal January
through location leadership means that
merger can indeed lead to a bigger frm,
which so far as total welfare is concerned
serves the market ‘better’” (Norman &
Pepall, 2000, p. 667). In this regard, Herk
(1993) reports that allowing frms to set
prices individually once capacities are fxed
provides a capacity-constrained model
that offers more complete and plausible
description of duopoly competition than
the widely used Cournot model, which in
effect assumes that frms always select the
market-clearing price corresponding to their
aggregate capacity.
An example of the oligopoly Cournot
model is shown below:
Ex: The demand function is given by: p
= 105 - 5 (q1 + q2) where Q= q1 + q2 and
C(q) = 5q (both frms face the same cost
function.)
max p = (105 - 5 (q1 + q2)) q1 - 5q1
d p/dq1 = 105 - 10q1 - 5q2 - 5q1 = 0
Simplifying = q1 = 10 - ½ q2
The frst company’s decision to produce
is a function of the second frm’s decision.
This formula is known as a reaction
function. Once frm one has an idea of what
frm 2 will produce, it can decide on its own
production. So the next question is, are the
frms likely to be able to second guess each
other’s decisions. If so, will the solution be
a Nash equilibrium?
This equation can be plotted with q2 and
q1 on the X and Y axes respectively; it can
also be solved for the second frm’s reaction
function, which turns out to be identical to
the frst (except q1 and q2 are reversed),
since the cost functions for both frms are
identical.
Therefore, frm 2’s reaction function will
be q2 = 10 - ½ q1
This can also be graphed and an
equilibrium point identifed; this equilibrium
point is the solution to the Cournot model.
If the second equation is substituted into
the frst, it is shown that:
10 - ½ (10 - ½ q1) = q1
10-5 + 1/4 q1 = q1
5 = 3/4 q1
q1 = 20/3
It will also be the case that q2 = 20/3
p = 105 - 5(40/3) = 105 - 200/3 = 115/3
“So how do the monopoly, perfect
competition and Cournot duopoly fare in
terms of p and q outcomes?” (Olmsted,
2002, p. 3). The answer provided by this
author is shown in Table 8 below:
Table 10. Sample Cournot Model Analysis.
Monopoly: p = 105 - 5q
(105 -5q) q - 5q
105 -10q -5 =0
100 = 10q
q=10
p = 105 -50
p=55
PC
p = 5
5 = 105 - 5q
100 = 5q
q=20
Source: Olmstead, 2002.
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It can be seen from the above that the
Cournot duopoly is between PC and the
monopoly in terms of pricing and quantity
supplied to the market (Olmsted, 2002).
There are some fundamental constraints
to the Cournot model, particularly as it
applies to the telecommunications industry,
however. For example, in his book,
Competition, Commitment and Welfare,
Kotaro Suzumura (1995) reports that, “It
goes without saying that Cournot conjecture,
whereby an oligopolistic competitor expects
that rival frms will not adjust their strategies
in response to a change in its own strategies,
is a great simplifer of the analysis of
oligopolistic competition and economic
welfare. It is clear that our analyses in this
monograph have extensively utilized the
services rendered by this simplifcation.
Unfortunately, however, Cournot conjecture
is self-defeating out of equilibrium, as it
just implies that frms keep on expecting
that other frms will not respond when they
are in fact changing their strategic variables
throughout the process of adjustment
towards equilibrium. We should also add
that the assumption of Cournot conjecture
prevents us from examining the welfare
effects of collusion among oligopolistic
frms” (p. 160).
Four-Firm Concentration Ratio (C4).
This model seeks to identify and
understand the combined share in released
length of the four largest companies in a given
industry (Pokorny & Sedgwick, 2004). In
order to capture the interdependence of frms,
measures of industries’ competitiveness as
represented by each industry’s four-frm
concentration ratio (C4) and industry-level
estimates of the price elasticity of demand
(PELAS) can be made (Cohen & Levinthal,
1990).
By conventional economic measures,
the newspaper industry would seem quite
competitive. For example, Table 11 below
shows that in 1947 the four and eight frm
concentration ratio for newspapers was 21
percent and 26 percent, respectively. The
four largest newspaper publishing companies
in 1992 accounted for 25 percent of industry
shipments. The eight largest accounted for 37
percent of shipment value. These ratios are
similar to the book and magazine publishing
sectors of the publishing industry. This
compares, just to choose several unrelated
industries for context, with 63 percent
and percent, respectively, for the soap and
other detergent industry (SIC 2841); 70
percent and 77 percent, respectively, for
commercial printing, gravure; and 34%
and 49%, respectively, for bread, cake and
related product manufacturing. Compared
to the median concentration ratios for
all manufacturing industries, newspaper
publishing, in 1992, was considerably less
concentrated at all size levels (Compaine &
Gomery, 2000).
Table 11. Share of Total Dollar Shipments by
Largest Firms in Publishing Industries, Selected
Years, 1947-1992
Newspapers
(SIC 2711)
Periodicals
(SIC 2721)
Book
Publishing
(SIC 2731)
Median All
Manufac-
turers
1947
4 largest 21% 34% 18% NA
8 largest 26 43 28
50 largest NA NA NA
1967
4 largest 16 24 20 NA
8 largest 25 37 32
50 largest 56 72 77
1992
4 largest 25 20 23 37
8 largest 37 31 38 52
50 largest 70 62 77 87
NA: Not available
Source: Compaine & Gomery, 2000, p. 6.
Business Intelligence Journal - January, 2009 Vol.2 No.1
80 Business Intelligence Journal January
Industry consolidation and a trend toward
market oligopoly have been the evolutionary
paths of a various industries in the U.S.;
some examples from various sectors of the
economy include the airline industry, the
wine and beer industries, the petroleum
production industry, the motion-picture
distribution industry, the microcomputer
industry, and the steel industry, among
numerous others (Caroll, Dobrev & Kim,
2002).
According to Carroll and his colleagues
(2002), “Concentration propels the formation
of a strong and visible market structure
whose effects inevitably reverberate through
all levels of the social system, infuencing
the behavior of both economic and non-
economic actors” (p. 233). For example,
the authors cite the instance of studies by
industrial organization economists that found
that a broad spectrum of a frm’s activities
and processes are directly affected by the
rising industrial concentration: incentives
to innovate, mechanisms for price setting,
the expectation for investment returns and
stability, budgeting for advertising expenses,
and the distribution of wages all seem to
hinge on the rising market power of a few
dominant producers and the relationships
that develops among them; however, to
date, there has been a dearth of research
concerning the social dimension of market
structure (Carroll et al., 2002).
In many industries in which scale provides
an advantage, the gradual rise to dominance
of a few large competitors is accompanied
by a horizontal expansion of their market
positions or niches. This was what
happened with Daimler-Chrysler’s merger
in the auto industry, WarnerBros.-Lorimar’s
merger in the motion-picture distribution
industry, LTV-Republic merger’s in the steel
industry, and American-TWA’s merger in
the airline industry (Carroll et al., 2002).
The authors offer somewhat disingenuously
that, “Accordingly, it seems important that
analyses of organizational evolution in
concentrating industries deal with questions
of niche and scale simultaneously and how
they interrelate. The answer is far from
obvious and might be complex” (emphasis
added) (Carroll et al., 2002, p. 234).
Variations in the industry size distribution
that may give rise to the emergence of structure
and market partitioning are captured by our
measure of market concentration; in this
regard, Carroll and his colleagues depended
on the frequently used concentration-ratio
measure, defned as the ratio of the annual
production of the four largest frms to the
total industry output for that year (C4). For
their analysis, this measure has an advantage
over other concentration measures because it
captures well the process of consolidation in
the market center, where only a few frms are
able to dominate, which has been the case in
the U.S. automobile industry. The measure
implies that as the combined market share
of the top four industry frms increases,
concentration increases proportionately. It
also implies that if the market in any given
year consists of four or fewer producers,
concentration will equal one, even if
production is evenly divided among them.
This is not a concern in their analysis,
however, because they used two other size-
based measures to account for positional
and scale differences among individual
frms: relative size and scale competition
(described further below) (Carroll et al.,
2002).
Organizational ecologists have cited a
pattern of density evolution that is relevant
across a wide range of industries, including
the U.S. automobile industry; in these cases,
the number of organizations initially grows
slowly until the form acquires taken-for-
grantedness, causing density after that point
to increase steeply (Carroll et al., 2002).
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According to these authors, as the
carrying capacity of the population is
reached and competition increases, the
number of companies involved will tend to
decrease, refecting the consolidation of the
market. The subsequent entry of specialists
leads to a modest resurgence of density in
scale-dominated industries. One important
implication of this density pattern for
interpreting variation in concentration is that
the slow increase in the number of frms in
the early years of the industry confnes our
measure of concentration to equal 1 until at
least fve frms are present on the market.
Because their argument is based on the
concept that rising concentration solidifes
industry structure, and because high mark
et concentration in the very early years of
the industry clearly does not signify this
theorized process, we estimated models in
which we controlled for the effect of high
concentration during that initial period
(Carroll et al., 2002).
Niche overlap density (NO) represents
the total number of companies involved
whose niches overlap with the niche of the
focal frm; while there are different ways to
compute niche overlap, we chose to use a
density measure because it is a better ft with
our hypotheses. A more complex alternative
cited by the authors would require weighing
the overlaps based on the portion of the
niche that overlaps with that of competitors
(Carroll et al., 2002).
Next the market center addresses the
range of the niches of the four largest frms
in the industry; this measure of the market
center is based on the rationale of the
concentration measure described above.
Should the four largest frms in the industry
provide a revealing example of the level of
concentration, then the range of their niches
should provide an adequate description of
the most resource-abundant segment in the
market, where the dominant players position
themselves (Carroll et al., 2002).
The authors report that they used the
midpoint of a frm’s technological product
range to indicate its niche position in the
market. The midpoint could be used to mark
position (or location) whenever niche width
on a focal dimension can be represented as
a continuous variable and the distribution of
a frm’s capabilities across the range of the
niche is symmetrical. Distance away from
the market center is the difference between
the midpoint of the focal frm’s niche and the
midpoint of the market center. Finally, the
authors estimated the effects of the distances
of frms both “above” the market center
(position: DAMC), meaning a niche width
that contains a larger engine capacity than
the center, and “below” the market center
(position: DBMC) (Carroll et al., 2002).
The assumptions used by Carroll and his
colleagues differ signifcantly from those of
the original theory of niche width, in which
other authorities assumed that organizations
face only one environmental state at a point
in time and that the alternation of states
over time imposes contradictory demands
on the organization; in this case, the various
states of the environment may impose
complementary demands (Carroll et al.,
2002).
Summary, Conclusions and
Recommendations
Summary
The purpose of this study was to determine
the effcacy of the Herfndahl-Hirschmann
Index in identifying a monopoly within
the telecommunications industry based
on an analysis of the relevant statistical
from before and after the enactment of the
Telecommunications Act. The research
showed that the economic models reviewed
Business Intelligence Journal - January, 2009 Vol.2 No.1
82 Business Intelligence Journal January
were useful for certain aspects of analyzing the
telecommunications industry. In this regard,
the Herfndahl-Hirschmann Index (HHI)
was shown to be useful in identifying market
concentration among frms on the Largest 50
List before the Telecommunications Act for
1986 and subsequently in 1997. Likewise,
the trend of fewer owners generally earning
a larger percentage of market revenue can be
identifed by analyzing the revenue share of
the top four owners in the market using the
four-frm concentration ratio (Compaine &
Gomery, 2000). Nevertheless, the research
also showed that there are a wide range of
confounding variables that must be taken
into account in these models. Furthermore,
while these economic models are useful in
determining whether a high concentration
actually exists in a given industry, they
remain applicable only in certain situations.
Conclusions
This study set out to identify a reliable
economic model that could be used
to identify and predict monopolies in
the telecommunications industry. This
research determined that the Herfndahl-
Hirschmann Index economic model can
be used to accurately predict the existence
of a monopolizing condition in the
telecommunications sector, assuming that
the data sets employed and fndings derived
therefrom are viewed in the appropriate
context. For example, Jorde and Teece point
out that, “It is diffcult to hypothesize and
propose alternative HHIs for technologically
dynamic markets. However, the inclusion of
performance competition and the extension
of the time frame of competitive response
may mean that it is not necessary to change
these critical HHIs. Furthermore, we
believe that with technologically dynamic
markets, the dynamics of market structure
in the past should provide some guidance to
assessing market defnition and predicting
likely changes in market concentration. Key
factors are the change in concentration and
the trend in the number of competitors”
(p. 11). In reality, economists have been
using economic criteria as the only or at
least the primary criteria for determining
concentration in all industries for some
time now. While the congressional debate
over the Celler-Kefauver Amendment to
Section 7 of the Clayton Act indicated
that social and political criteria should be
taken into account in antitrust proceedings,
the amendment itself was devoid of any
such language; consequently, assessments
of effciency and entry to an industry are
measured by such criteria as the percentage
of industry revenue accounted for by the
largest players, as well as by the more
complex Herfndahl-Hirschmann Index
(Compaine & Gomery, 2000). Based on the
foregoing considerations, the hypothesis was
confrmed that the Herfndahl-Hirschmann
Index represents an accurate measure of
high market concentration for virtually
any industry where the index is 1,800 or
greater. In reality, though, the nature of the
telecommunications industry today makes
such blanket assessments problematic but
the HH1 remains the most effective tools for
this analysis.
Recommendations
A number of economists and researchers
have become increasingly concerned about
the infuence mergers and acquisitions had
on specifc industries. Taken together, the
critical review of the literature and the
results of the data analysis suggest that
if a degree of signifcance is placed on
the diversity of program choice, then it is
important to consider the number of frms
within the market and their relation to each
other. These are the basic dimensions of
2009 83
Albinger J.. - Economic Model for Monopoly Analysis in Telecommunication: Proposal to Demonstrate Uniqueness
Jürgen Albinger
market structure, which are proxied by the
number of frms and their size distribution
and these, in turn, are refected by standard
measures of concentration such as the
Herfndahl-Hirschmann index. Although
some experts have maintained that a high
number of companies in a given industry
may result in some program duplication, the
reality of the marketplace is that if pluralism
is to involve more than simply the diversity
of programs but something that embodies
the nature and quality of what is broadcast,
then the production and ownership pattern
may be very important (Young, 2000).
By any measure, though, the ownership link
between different frms does not necessarily
imply a similar approach to program types
but clearly suggests that greater scrutiny of
the plurality of the types of programs offered
is required. For standard economic analysis
it may not matter because the concern is
whether the market structure produces the
socially optimal program variety but, as
we have argued, ownership does matter if
we are concerned with a diversity of source
and a diversity of opinions as embodied in
the ways in which programs are presented
(Young, 2000).
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2009 93
Arias, J.C., Patterson K.- Relationships between Corporate Social Responsibilities’ Promotion and Corporate Performance in the Multinational Corporations
J.C. Arias, Kate Patterson
RELATIONSHIPS BETWEEN CORPORATE
SOCIAL RESPONSABILITIES’ PROMOTION
AND CORPORATE PERFORMANCE IN THE
MULTINATIONAL CORPORATIONS
J.C. Arias (PhD, DBA), Kate Patterson (MBA)
Abstract
The responsibility of companies has historically been defined in purely economic terms. For example,
Friedman (1990) considered maximization of shareholder wealth as being the sole objective and
responsibility of a well-managed company. This perspective, though, generally viewed corporate social
responsibility activities as a distraction rather than a goal. From this perspective, any expenditures of
resources in the interests of social responsibility was at the expense of shareholders, and the interests of
shareholders and other stakeholders were defined implicitly as conflicting and mutually exclusive. Today,
though, stakeholder theory maintains that stakeholders should be considered as an important component
in a company’s overall business plan. By sharp contrast, neoclassical economic theory treats companies as
unitary actors that seek to maximize their profits. The stakeholder approach to doing business suggests that
all people who hold a legitimate interest in an entity have a right to be heard, and to have their views must
be considered as well. Today, the stakeholders in a corporation include not only shareholders and officers,
but also customers, lenders (including those other than creditors), employees, creditors, suppliers and the
community at large. The vast majority of multinational corporations, though, compete in environments
that are characterized by a lack of regulatory or other oversight. This paucity of regulatory guidance
has compelled many corporations to forego their responsibilities to their stakeholders in favour of more
profits in the near term, a practice that some observers believe is no longer a sustainable approach to
doing business in an increasingly globalized marketplace. To gain some additional insights into how these
forces are playing out in the real world today, this study examines the scholarly and refereed literature to
identify the salient issues involved in stakeholder theory as they apply to multinational corporations, and
what companies can do today to ensure their long-term profitability while balancing the needs of all of
their stakeholders. A summary of the research and findings is presented in the conclusion, followed by
personal reflective journal in the appendix.
Business Intelligence Journal - January, 2009 Vol.2 No.1
94 Business Intelligence Journal January
Introduction
According to Mcmenamin (1999),
today, it is not possible, or even desirable,
for a company to seek to achieve
shareholder wealth maximization in terms
of proftability to the total exclusion of all
other considerations. Indeed, this author
reports that, “In the management of a frm
there are a diverse group of interests, often
conficting interests, which need to be
recognized and included within the goals and
objectives of the frm” (p. 40). For example,
there is the primary group of the company’s
managers who are responsible for operating
and controlling the company on a day-to-
day basis on behalf of the shareholders, the
actual owners of the enterprise. Further,
in larger publicly owned companies, there
is a principal-agent relationship between
shareholders and managers, with managers
acting as agents on behalf of shareholders as
their principals (Mcmenamin, 1999).
This separation of ownership and control,
or agency relationship, particularly in
large corporations, can result in conficts
and problems between the interests of
managers and the interests of shareholders.
Mcmenamin notes that this confict of
interests is known as the agency issue or the
agency problem. “In addition to the interests
of shareholders and managers, there are
other ‘stakeholders’ whose interests need
to be considered,” he says. “That is, other
groups exist who can be considered to have
a legitimate interest, or stake (economic or
otherwise) in the goals and objectives of the
frm” (p. 40). For instance, all corporations
have employees, customers, and community
groups, all with interests that are frequently
different and even competing that must
be taken into account. Proponents of the
stakeholder theory suggest an all-inclusive
approach to management by recognizing the
rights of all the diverse interest groups in
managing the activities of the corporation;
further, stakeholder theory applies equally to
public sector and not-for-proft organizations
(Mcmenamin, 1999).
General overview
Multinational corporations have become
increasingly common in recent years, a
process that suddenly accelerated in the
late 1990s, particularly in the felds of
telecommunications and energy; further,
approximately one-third of the $3.3 trillion
in goods and services traded internationally
in 1990 was comprised of transactions within
a single frm (Korten, 1995, p. 43). The
globalization of markets, the increased need
for working capital, and new technology,
combined with an improved investment
environment, are contributing to this
acceleration today as well (Miller, 2000).
According to Rao (1999), “Globalization,
with its corollaries of global products, global
consumers and the global marketplace,
appears to signify the crystallization of the
entire world as a single place. The questions
are: what economic, political or cultural
parameters does this process of globalization
render invisible? What groups of people or
regions are excluded from this discourse?”
(pp. 58-9). These fundamental issues have
emerged as the result of the globalization of
the world’s marketplace, a process that has
been driven by two primary technological
forces. First, transportation costs have
decreased dramatically with the introduction
of improved physical communications
such as better vehicles, modern aircraft;
containerization; and expanses of interstate
and international motorways. Second, and
more spectacular, advances in computing
power and in telecommunications through
the introduction of a wide range of computer-
based systems, satellite technology, and,
more recently, fbre optics; these innovations
2009 95 J.C. Arias, Kate Patterson
have fundamentally improved the ease,
speed, quantity, and quality of international
information fows around the world (Cable,
1995).
According to Mayer (2001), though,
today, just a few multinational corporations
are increasingly consolidating their hold on
the global economy. “Given their impact
on our lives,” he advises, “it is predictable
that individuals will in various ways
accommodate their lives to the dynamics and
beliefs of corporate values” (p. 215). These
trends have resulted in many observers
suggesting that multinational corporations
owe a higher duty to the communities in
which they are situated, with various theories
being advanced on how best to accomplish
this end. In reality, though, most major
multinational corporations are constrained
only by various laws and regulations in these
venues that do not pertain to their ethical
conduct, and the consequences have been
both severe and pervasive in many cases.
In order to determine how a multinational
can compete in an increasingly globalized
economy today, this study examines
multinational corporate governance policies
and what issues have emerged in recent
years to compel these companies to afford
greater attention to their responsibilities
to all of their stakeholders rather than just
a few shareholders. Stakeholder theory
maintains that there are constituents other
than the shareholders of the corporation to
whom the corporate leadership has certain
responsibilities; these constituents are
groups that are likely to be affected, either
directly or indirectly, by the decisions of
executives. Therefore, these stakeholders
are said to have a “stake in the corporation”;
stakeholder theorists recognize that corporate
managers may act from various incentives
and a number of stakeholder theorists
recognize that the interests of noninvesting
stakeholders may not always override the
fnancial interests of shareholders (Karake-
Shalhoub, 1999).
Problem statement
According to Mayer (2001), “The vast
majority of international trade and business is
carried on by large multinational corporations
whose pursuit of ever-increasing global
market share is breaking down traditional
patterns of life and community, imposing a
dynamic of rapid change on many segments
of most societies, and severely degrading
the natural environment on which business,
communities, and human life ultimately
depend” (p. 215). “Readers may rightly
ask about the corporate responsibilities that
accompany those rights. Suffce it to say
that the responsibilities are few. With the
exception of those activities either banned
by government (child labour) or mandated
by government (minimum wage, job safety,
etc.), the corporate entity operates largely in
a do-as-you-please environment” (Gates &
Schmidheiny, 1999, p. 313).
Research question
The primary research questions that will
guide this study are:
What are corporate responsibilities 1.
in general and how do they affect
multinational corporations in particular;
and,
Can an ethical multinational corporation 2.
compete in a globalized marketplace
where other similarly situated companies
may not be so concerned about
stakeholder rights?
Arias, J.C., Patterson K.- Relationships between Corporate Social Responsibilities’ Promotion and Corporate Performance in the Multinational Corporations
Business Intelligence Journal - January, 2009 Vol.2 No.1
96 Business Intelligence Journal January
Purpose and significance of
study
Claims that various types of corporate
activity have a detrimental impact on
human welfare are certainly not new, but
the assertions today represent different
issues both in terms of their origin and their
content. According to Ratner (2001), these
claims “emanate not from ideologues with
a purportedly redistributive agenda, but
from international organizations composed
of states both rich and poor; and from
respected nongovernmental organizations,
such as Amnesty International and Human
Rights Watch, whose very credibility turns
on avoidance of political affliation” (p.
435). Just as importantly, these groups have
not attempted to undermine capitalism or
corporate economic power per se; rather,
they have levelled increasing amounts
of criticism at certain types of corporate
behaviour that has clearly transcended
accepted norms of human rights law based
on widely ratifed treaties and customary
international law (Ratner, 2001).
These claims are virtually all based on
the concept that corporations – particularly
multinationals -- should be held accountable
for their actions within their sphere of
operations. “Corporations, for their part,
have responded in numerous ways, from
denying any duties in the area of human
rights to accepting voluntary codes that could
constrain their behaviour” (Ratner, 2001,
p. 436). In fact, this very point is echoed
throughout the literature; for example, “At
the turn of the 20th century, corporations
tended to disregard the public interest willy-
nilly.
And even as recently as one-half century
ago, corporations had so much power over
the marketplace and so little responsibility to
society” (Sriramesh & Vercic, 2003, p. 450).
Despite these trends, things are changing,
though, as Ratner points out: “The last decade
has witnessed a striking new phenomenon in
strategies to protect human rights: a shift by
global actors concerned about human rights
from nearly exclusive attention on the abuses
committed by governments to close scrutiny
of the activities of business enterprises, in
particular multinational corporations” (p.
435). This closer scrutiny has profound
implications for those companies who would
seek to expand their market share into the
global marketplace.
Research method of the study
The research method used in this study
will consist of an exploratory approach
comprised of a critical review of the scholarly
and refereed literature, with an emphasis on
identifying the corporate responsibilities of
multinational corporations today based on
historic trends and events.
Literature Review
Background and overview
It just makes good sense the companies
must be concerned with their proftability;
clearly, without profts, the company would
simply cease to exist and there would be
no benefts accruing to anyone. In recent
years, however, there has been an increasing
amount of attention paid to the underlying
ethics of how companies, and particularly
multinationals, compete in an increasingly
globalized marketplace, and precisely what
responsibilities are associated with doing
business abroad. These questions are not
new, but they have assumed increasing
importance today. Citing studies by J. Scott
Armstrong, Mayer reports that in the 1970s,
there was fairly global and homogenous
response to increasing corporate pressures
to make decisions with their bottom line
2009 97 J.C. Arias, Kate Patterson
foremost in mind identifed. Armstrong
surveyed approximately 2,000 management
students from ten countries to play the
roles of corporate board members of a
multinational pharmaceutical company; the
author posed the question of whether the
company should remove a drug that had
been found to endanger human life from the
market. As board members, fully 79 percent
refused to withdraw the drug and sought
legal and political actions to either delay
or stop government efforts to ban the drug
(Mayer, 1999).
Likewise, the Bhopal tragedy caused by
Dow Chemical and the Exxon Valdez oil spill
are just some of the better-known instances
of the disasters that took place in the late 20th
century that clearly demonstrated the power
of the multinationals to cause enormous
devastation on the health and safety of
neighboring communities if unconstrained.
Not surprisingly, these events have resulted
in a demand for the imposition of corporate
responsibilities (Mehmet & Mendes, 2003).
Unfortunately, these authors point out
that, “These patterns of immediate denials
and downplaying or withholding of vital
information seem a constant theme in these
corporate activities which have devastating
impacts on local communities. Such exercise
of power without responsibility is a serious
faw in the workings of global governance.”
(Mehmet & Mendes, 2003, p. 122). In order
to identify precisely what responsibilities
such multinationals have, it is frst necessary
to defne and describe them; these issues are
discussed further below.
Corporate responsibilities – What
are they?
According to Pava (1999), things have
changed in fundamental ways for most
companies today. “Most of us, most of the
time,” he says, “look at business through
the commodity-based lens. Business is
action-oriented. Defning the corporation
in this way does not necessarily entail an
amoral view of the business corporation.
The best example of a business ethics
built upon a commodity-based view of the
corporation is the now-familiar ‘stakeholder
theory’” (p. 6). The stakeholder theory
maintains that corporations must recognize
their responsibilities to various stakeholder
groups in society, beyond just their
own stockholders; in this regard, these
responsibilities include:
Providing customers to produce safe, 1.
high-quality products at reasonable
prices;
Treating suppliers with honesty and with 2.
integrity;
Ensuring that employees and managers 3.
are provided with proftable work
opportunities and to be rewarded in an
open and just way;
Being good corporate citizens with 4.
regards to local, national, and global
communities; and,
Providing their shareholders and 5.
creditors with a fair return on their
invested capital (Pava, 1999).
While the stakeholder theory assumes
that corporate executives are responsible
to stockholders, it also maintains that there
are other groups that are directly affected by
the conduct of the company. For example,
employees, consumers, creditors, suppliers,
and legal subsystems are representative
constituents who have a vested interest in
the corporation and who might affect, in one
way or another, corporate decision making;
consequently, corporate executives have a
Arias, J.C., Patterson K.- Relationships between Corporate Social Responsibilities’ Promotion and Corporate Performance in the Multinational Corporations
Business Intelligence Journal - January, 2009 Vol.2 No.1
98 Business Intelligence Journal January
direct responsibility to promote the interests
of these groups. Nevertheless, there remains
signifcant disagreement among stakeholder
theorists concerning whether stakeholders’
interests of these groups take precedence
over the fnancial interests of stockholders,
just as there is disagreement over which
of the stakeholders’ interests should be
the predominant ones (Karake-Shalhoub,
1999).
By sharp contrast, social demandingness
theorists maintain that corporations have a
fundamental responsibility to protect and
to promote certain interests of the general
public. According to Karake-Shalhoub:
They [social demandingness theorists]
agree with the stakeholder theorists that
the interests of stakeholder groups are
important, but they believe that these
interests do not override nonstakeholders’
interests or demands for such things as
safety, health, freedom, and prosperity.
As with the stakeholder theory, this
one repudiates the notion that there
is some balanced or sensible list of
tangible responsibilities that corporate
executives always have toward society.
The list varies as the nature and ranking
of the interests or demands of the public
change. (p. 6).
Furthermore, many companies are seeking
to decentralize and make basic corporate
functions such as buying, selling, fnancing,
developing, producing, and servicing, more
effcient and effective by changing their
mode of internal organization; these changes
have placed greater reliance on worker
initiative and a less rigid division of labour
(Dunning, 1999).
Today, groups or circles of workers (or
‘associates’) are being empowered to make
front-line decisions based on their own best
judgments concerning the best way to run
a production line or a specifc machine,
reduce costs at all stages of production,
and improve quality. As a result, “Middle
strata (such as supervisors), as a result, are
becoming increasingly irrelevant” (Dunning,
1999, p. 433). The fundamental goal of
these new business models is to improve
company performance by facilitating the
fow of information both within the frm,
and between the frm and its network of
suppliers and clients; and by establishing new
incentive regimes for labor, whose greater
involvement and increased responsibilities
is being rewarded with longer tenure,
extensive training, and better compensation
(Dunning, 1999).
In reality, though, the key challenge
facing multinational corporations and their
leadership today does not so much concern
the diffculties related to guiding individual
behaviour, but rather in providing an ethical
framework for corporate behaviour (Casmir,
1997). In this regard, Casmir suggests
that when the individual is the subject of
investigation, the majority of attention
is afforded to straightforward issues of
compliance, while the value of the policy or
procedure to which compliance is directed
receives little or no attention. “Additionally,
the largest issues of responsibility and value
relate to systemic problems and collective
actions. Clearly this is also the case in
international business. There are unethical
employees and they do harm (judged by
any number of standards and measures),
but their compliance to laws and corporate
policies will not solve many of today’s
diffcult problems” (Casmir, 1997, p. 190).
The primary objectives and day-to-day
activities of multinational corporations have
become the focus of concern; however, the
primary constraint involved here concern
developing an adequate public rather than
merely private ethic (Casmir, 1997).
According to Casmir, “Today, many
lament the weak morality of commercial
corporations. Thus, an adequate discussion
2009 99 J.C. Arias, Kate Patterson
of ethics must focus on both the individual
and corporate levels. But the discussion of
corporate responsibilities has been severely
hampered by dominant social conceptions
which make such a discussion diffcult” (p.
190). Indeed, while it is frequently diffcult,
if not impossible, to provide a “one-size-
fts-all” guide concerning the critical issues
related to business ethics, the stakeholder
theory provides a useful framework for
investigating and pinpointing corporate
responsibilities while at the same time
providing a company’s leadership with a
powerful reminder that their stockholders
are not the only legitimate stakeholders
involved (Dunning, 1999, p. 433).
Unfortunately, it would appear that these
trends have created more questions than
answers, and the underlying issues have
been perhaps better described than they
have been understood by most observers
today. In his essay, “Community, Business
Ethics and Global Capitalism,” Mayer
(2001) advises that, “The feld of business
ethics is in a quandary. No unifed theory
has been accepted by its many scholars and
practitioners, and, according to some, little
practical guidance to business managers
has been generated” (p. 215). This is not
to say, though, that multinational managers
do not have any tools at their disposal to
help them make these judgment calls; it is to
say, though, that many have not recognized
the need or accepted these responsibilities
in a meaningful way. For example, Mayer
points out that, “Rather than trying to
apply the most abstract moral theories
(Utilitarianism, Kantian Deontology, or
Aristotelian Eudiamonism) to ongoing
ethical quandaries, business ethicists as well
as managers of multinational enterprises can
usefully examine the customs and mores of
a particular community to discover viable
ethical norms (or microsocial contracts)” (p.
215). This type of attention to the particular
extant norms, though, must be balanced
by the corporate regard for broader, more
universally applicable standards, a process
that is inherently confounded by a wide
range of social, cultural, geographic as well
as a need to continue to focus on a company’s
bottom line. In this regard, Andrew Carnegie
recognized early on the responsibilities of
wealth while at the same time maintaining
a clear differentiation between personal and
corporate responsibilities. For example,
in his 1889 essay appropriately titled “The
Gospel of Wealth,” Carnegie pointed out
that the man of wealth has a duty:
. . . to consider all surplus revenues
which comes to him simply as trust funds,
which he is called upon to administer,
and strictly bound as a matter of duty
to administer in the manner which,
in his judgment, is best calculated to
produce the most benefcial results for
the community - the man of wealth thus
becoming the mere trustee and agent for
his poorer brethren, bringing to their
service his superior wisdom, experience,
and ability to administer, doing for them
better than they would or could do for
themselves (in Krauz & Pava, 1995, p.
113).
In 1919, in the case of Dodge v. Ford,
the State of Michigan Supreme Court held
that “[a] business corporation is organized
and carried on primarily for the proft of
the stockholders” (Tsuk, 2003, p. 1861).
This concept of corporate responsibility
has remained the standard for the doctrine
of fduciary duties; Tsuk notes that this
concept is based on the assumption that
market competition, “as manifested in the
proft motive,” is in and of itself a suffcient
constraint on corporate power. “Legal
doctrine does not exist in a vacuum,”
though he notes. “Over the past century
legal scholars and political scientists helped
legitimize the shareholder-centred vision of
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the corporation by suggesting how different
interests would help direct corporate power
toward socially benefcial aims.” (Tsuk, p.
1861).
In fact, during the middle of the 20th
century, this sharp distinction between
personal and corporate responsibilities
began to change and the nature of corporate
social responsibility today has become
focused on transforming these concepts
into a set of standards that can be called
upon by corporate leaders when they are
faced with situations where the ethical
alternative may not be so readily discernible
though (Krauz & Pava, 1995). According
to Mayer, “These more universal standards
are called hypernorms, and would limit the
moral free space of microsocial contracts
by forbidding acts which violate the most
fundamental principles of human existence”
(p. 215). In response to violations and
perceived violations of these fundamental
principles, the following small set of claims
is representative of the challenges being
made today concerning private business
activity and the venues in which they take
place:
The United Nations Security Council 1.
condemns illegal trade in diamonds for
fuelling the civil war in Sierra Leone
and asks private diamond trading
associations to cooperate in establishing
a regime to label diamonds of legitimate
origin;
The European Parliament, concerned 2.
about accusations against European
companies of involvement in human
rights abuses in the developing world,
calls upon the European Commission
to develop a “European multilateral
framework governing companies’
operations worldwide” and to include in
it a binding code of conduct;
In response to public concern, that 3.
American companies and their agents
are violating the rights of workers in the
developing world, the U.S. government
endorses and oversees the creation of a
voluntary code of conduct for the apparel
industry;
The South African Truth and 4.
Reconciliation Commission, in a
searching study of apartheid, devotes
three days of hearings and a chapter of
its fnal report to the involvement of
the business sector in the practices of
apartheid;
Human Rights Watch establishes a special 5.
unit on corporations and human rights;
in 1999, it issues two lengthy reports,
one accusing the Texas-based Enron
Corporation of “corporate complicity in
human rights violations” by the Indian
government; and another accusing
Shell, Mobil, and other international
oil companies operating in Nigeria of
cooperating with the government in
suppressing political opposition;
Citizens of Burma and Indonesia sue 6.
Unocal and Freeport-McMoRan in
United States courts under the Alien Tort
Claims Act and accuse the companies
of violating the human rights of people
near their operations; the corporations
win both suits without a trial.
Holocaust survivors sue European banks, 7.
insurance companies, and industries
for complicity in wartime human
rights violations, and, with the aid of
the U.S. government, achieve several
multimillion-dollar settlements (Ratner,
2001, pp. 436-7).
2009 101 J.C. Arias, Kate Patterson
Stakeholder Theory and Its
Implications for Multinational
Corporations.
Stakeholder theory is fairly straightforward
in its approach to developing effective and
ethical corporate governance regimens. The
term “stakeholder” frst appeared in the
business lexicon after its introduction by
Robert K. Merton in the 1950s, and it frst
appeared in the 1963 management literature
at Stanford Research Institute (Kakabadse,
2001). The stakeholder concept was defned
originally as being “those groups without
whose support the organization would cease
to exist” (Freeman, 1984, p. 31 cited in
Kakabadse, p. 25). Freeman was the frst
scholar to provide a theory that examined
the role and impact of actors with divergent
agendas on an enterprise, frm; in his works,
he sought to provide an understanding of
the dynamic relationships that a typical
company develops with its external
environment, and its behaviours within this
environment (Kakabadse, 2001). This body
of early research emphasized the fact that a
wide variety of internal and external actors
have an impact on a company’s actions. As
a result, stakeholders today are regarded
as being “any group or individual who can
affect or is affected by the achievement of
the organization’s objectives and as such
frms should identify their direct and indirect
stakeholders” (Kakabadse, p. 25). Along
these lines, Donaldson and Preston (1995)
maintain that individual stakeholder groups
are not so readily discernible; however, it is
the interests that groups represent (internal or
external) that can be highlighted. Therefore,
Kakabadse suggests that today, it is the
“interest” that is the critical variable rather
than the individual stakeholders involved.
According to Mcmenamin (1999), “What
is needed is for the concept of shareholder
to be broadened to that of ‘stakeholder.’
All those affected by corporate behaviour
— the general public, workers, consumers,
and the surrounding community — ought
to have some representation on corporate
boards” (p. 53). In the private sector, the
primary stakeholders are, of course, the
company’s owners; in the public sector,
though, the primary stakeholders are citizens
as exemplifed by a wide range of citizens’
charters, patients’ bill of rights, and so on.
In addition, a company’s employees, lenders
(besides its creditors) and any others who may
have a direct economic interest in the entity
are regarded as secondary stakeholders;
while potential investors and their advisers,
stockbrokers, tax authorities, members of the
public and other users of published accounts
are considered to be “tertiary stakeholders”
(Mcmenamin, p. 54). Those corporations
that subscribe to the stakeholder theory of
corporate governance consider these actions
to be part of their “social responsibility”;
these enterprises tend to believe that
encouraging and actively promoting good
stakeholder relationships is vital for the
long-term beneft and competitiveness of
the company. According to Mcmenamin:
For example, providing good value for
customers enhances customer loyalty
and improves competitiveness, which
in turn creates value for the frm,
allowing it to create even greater value
(wealth) for its other stakeholders such
as its employees. Stakeholder theory is
refected in the ‘partnership’ approach
taken by many organizations in their
relationships with suppliers, customers
and community groups. (p. 54).
The stakeholder approach to corporate
management is also a comprehensive one
in that it must recognize the rights of all
the diverse interest groups rather than just
the rights of the shareholders. As a result,
numerous organizational goals are likely to
emerge, just one of which the maximization
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of shareholder return on investment; in
fact, this author suggests that for some
multinationals, this aspect may not even
be the most important goal (Mcmenamin,
1999). In their book, Rethinking Business
Ethics: A Pragmatic Approach, Buchholz and
Rosenthal point out that effective stakeholder
management by multinational corporations
demands attention to the legitimate interests
of all appropriate stakeholders, including the
government as just one among the variety
of types of stakeholder; in fact, this is the
very basis of the stakeholder model which
precludes assigning any inordinate attention
to the interests of any one constituency
over another. In this regard, Donaldson and
Preston emphasize that:
To be sure, it remains to implement in law
the sanctions, rules, and precedents hat
support the stakeholder conception of the
corporation. . . . Yet over time, statutory
and common law are almost certainly
capable of achieving arrangements
that encourage a broader, stakeholder
conception of management--one which
eschews single-minded subservience
to shareowners’ interests--while at the
same time restraining the moral hazard
of self-serving managers. (p. 91).
The responsibilities of multinational
corporations to society at large as well as
their stakeholders in particular has received
greater attention in recent years, particularly
in view of the above-cited instances of
extreme abuses by some companies as well
as others that are not as well known. For
instance, in the UK, the Prince of Wales
Trust recently sponsored a meeting of the
Prince of Wales Business Leaders Forum
devoted to the topic of “responsible business”
(Kennedy, 2000, p. 206). According to this
author, “North American readers may fnd
this obscure, but as one who has lived in
the UK for many years, I can tell you it is
an event of note in the business community
there. Closer to home, hundreds of articles
and a score of books have been published
every year for the past twenty years extolling
the virtues of stakeholder management”
(Kennedy, p. 206). The need to assess
stakeholder interests while competing on
a global basis though carries with it some
inherent diffculties that may not be readily
discernible to the casual observer. For
example, “Duties of care and loyalty emerge
in the corporate setting as restraints upon
managerial behaviour. Corporate profts do
not belong to the managers -- they belong to
the shareowners. These duties thus compel
managers (1) to conduct business in such as
way that contributes toward increasing these
profts, and (2) not to use corporate profts
to serve personal purposes, or the purposes
of anyone other than shareowners” (Radin,
2003, p. 620).
Despite these restrictions and frequently
indiscernible limitations, though, a number
of organizations have been established in
North American college campuses that are
concerned with the associated issues that
have emerged from the stakeholder theory
of the corporation, including concepts such
as business ethics, corporate responsibility,
corporate community relations, and
corporate citizenship. Kennedy suggests
that one reason the shareholder value theory
of the global marketplace has gained such
popular acceptance is that it has struck a
responsive chord among the citizens of the
world. “And as far as it goes, it is true,” he
adds. “I have argued that the shareholder
value theory of the corporate world, though
perfectly valid, went wrong in its exploitation
of stakeholders when it forced their backs
so much to the wall that each and every one
of them had to respond aggressively, so that
the future viability of corporations is today
threatened” (Kennedy, p. 206). The author
cautions, though, that these observations are
not advocating one position over another,
2009 103 J.C. Arias, Kate Patterson
but rather they are simply the reality of doing
business in the international marketplace
today.
According to Kennedy, “Corporate
managers and board members should take
heed, or they will be overwhelmed by the
forces set in motion against them. There
is nothing wrong with the idea that people,
even theoretical ‘people’ like corporations,
should do ‘right.’ It just belongs in the
province of religion, not commerce.” (p.
206). Clearly, what is “right” in any given
setting can be a highly subjective matter, but
the vast majority of people appear to have a
fne-tuned sense of justice that can readily
detect when something does not pass the
“smell test.” In this regard, Radin suggests
that, “Ignoring stakeholder concerns might
not affect short-term performance, but it
can have a serious negative impact on long-
term performance. If we have not learned
anything else from the experiences of such
companies as Enron, Arthur Andersen, and
WorldCom, we should have learned that life
catches up to you. This is true for individuals,
organizations, and society at large”
(emphasis added) (p. 621). Therefore, if a
multinational corporation seeks to develop
a comprehensive set of ethical guidelines
by which it intends to prosecute its business
interests abroad, there is much to consider
but there are a number of issues involved
that may not be readily discernible to the
casual observer. These issues are discussed
further in the analysis section following a
description of the methodology employed
below.
Methodology
As noted above, this study employs a
critical review of the scholarly and peer-
reviewed literature in an exploratory fashion
to answer the guiding research questions. In
his book, Social Research Methods (5th ed.),
Neuman (2003) reports that, “Reviewing the
accumulated knowledge about a question is
an essential early step in the research process.
As in other areas of life, it is best to fnd out
what is already known about a question
before trying to answer it yourself.” (p. 96).
According to Wood and Ellis (2003), a well-
conducted literature review can produce a
wide range of positive results including the
following:
It helps describe a topic of interest 1.
and refne either research questions or
directions in which to look;
It presents a clear description and 2.
evaluation of the theories and concepts
that have informed research into the
topic of interest;
It clarifes the relationship to previous 3.
research and highlights where new
research may contribute by identifying
research possibilities which have been
overlooked so far in the literature;
It provides insights into the topic of 4.
interest that are both methodological
and substantive;
It demonstrates powers of critical 5.
analysis by, for instance, exposing taken
for granted assumptions underpinning
previous research and identifying the
possibilities of replacing them with
alternative assumptions;
It justifes any new research through a 6.
coherent critique of what has gone before
and demonstrates why new research is
both timely and important.
Both primary and secondary sources will
be consulted, and a qualitative assessment
will be made as to the relevance of the
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material for the purposes of this analysis.
Analysis
It would seem reasonable to assert that if
a multinational corporation seeks to ensure
that its behaviours afford the maximum
protections and benefts for all of its
stakeholders; it would be at a competitive
disadvantage compared to those which did
not. After all, any efforts that are directed
at initiatives that do not contribute to a
company’s overall proftability would
seem to detract from its ability to compete
effectively, particularly in a globalized
marketplace; however, this is not always
the case and studies have shown time and
again that to the extent that a multinational
seeks to achieve this balance is the extent to
which it will enjoy an improved reputation
and facilitate consumer loyalty (Rao,
1999). In this regard, Krauz and Pava
point out that although there is not a one-
to-one relationship between corporate social
responsible activities and proftability,
nevertheless, these initiatives represent
“a signal of the presence of a style of
management that extends broadly across the
entire business function and leads to more
proftable operation” (p. 31). These authors
conclude that “it is exactly this ability to
sense, adapt, negotiate with, and cope with
these forces that is . . . the sign of managerial
excellence and hence proftability” (Krauz
& Pava, p. 31).
In his book, Managers and National
Culture: A Global Perspective, Peterson
(1995) reports that, “International business
operations have changed rather dramatically
in the latter years of the twentieth century.
The frst international presence of a German,
American, or Japanese frm may have been
through exporting a product or establishing
a sales operation in another country” (p. 5).
A few years later, though, companies
may have established an international
division to assist in the management of
operations in a variety of countries. Even
more recently, the same companies may
be attempting to compete on a global basis
such as exemplifed by Unilever (Peterson,
1993). A key feature of the modern global
economy has been the emergence of what
Dunning terms “alliance” capitalism (also
called relational, collective, stakeholder and
collaborative capitalism). “While retaining
many of the characteristics of hierarchical
capitalism,” the authors advises, “the
distinctive feature of alliance capitalism
is the growing extent to which, in order to
achieve their respective objectives, the main
stakeholders in the wealth-seeking process
are needing to collaborate more actively and
purposefully with each other” (p. 119).
This level of collaboration includes
the conclusion of closer, continuing, and more
clearly delineated intra-frm relationships,
such as that required between functional
departments and between management and
labour; the growth of a variety of interfrm
cooperative agreements between suppliers
and customers and among competitors; and
the increasing recognition by governments
and companies alike concerning the
requirement to work as partners if the
economic goals of the enterprise itself and
society at larger are to realized (Dunning,
2001).
The stakeholder theory suggests that
by taking into account the broader interests
and responsibilities that go hand-in-hand with
multinational enterprises, a frm stands to
fulfl its obligations in such a manner that the
public will naturally support it (Rao, 1999).
Likewise, Karake-Shalhoub (1999) reports
that the most commonly endorsed argument
in support of the stakeholder theory is the
performance one, which has been advanced
by some strategic management theorists,
who emphasize the advantages that accrue
2009 105 J.C. Arias, Kate Patterson
to multinational corporations that subscribe
to the stakeholder approach.
This view is in stark contrast, though,
with some other traditional views about how
companies should behave in a globalized
marketplace; a comparison of such
assumptions is provided in Table 1 below.
Table 1. Comparison of Paradigm Assumptions Concerning Firm Behaviours and Their Implications
Neoclassical Environmental
Goals Maximize wealth through
consumption and
economic expansion Survival and quality-of-life issues
Economic growth Sustainable development
Context of external
environment Social, political, cultural, economic Social, political, cultural, economic,
biophysical
Resource constraints Financial, human, technological Financial, human, technological,
natural
Progress Unlimited growth and resources Limits to growth, limited resources
Strategy focus Resource conservation and utilization Resource conservation
Nature of relationship Anthropocentric, reversible processes Holistic, irreversible processes
Time span Short to medium, focus on present
and
immediate future Ecological time span, longterm, future
generations
Stakeholder groups Shareholders, customers, public,
institutions
Shareholders, customers, public,
institutions, planet
preservation, future generations
Source: Rao, 1999, p. 57.
In his essay, “Transaction Costs and the
Historical Evolution of the Capitalist Firm,”
Pitelis (1998) observes that the neoclassical
view holds that “institutions are sets of
rules, compliance procedures, and moral
and ethical behavioural norms designed to
constrain the behaviour of individuals in the
interests of maximizing the wealth or utility
of principals” (p. 999). The proponents of
the neoclassical approach to competing in a
global marketplace maintain that corporate
law requires managers to exercise their
power to maximize shareholder value, not the
interests of other corporate constituencies,
specifcally workers; however, the collapse
of Enron and the enormous losses suffered
by its rank-and-fle workers identifed
serious problems with this shareholder-
centred vision of corporate law (particularly
the short-term shareholder-wealth-
maximization norm) (Tsuk, 2003).
According to Prakash (2000), neoclassical
economists view the social objective of
business is to maximize shareholders’
wealth; by contrast, stakeholder theory
maintains that multinationals should (and
in some cases do) design corporate policies
by taking into account the preferences of
multiple stakeholders; stakeholders being
“any group or individual who can affect
or is affected by the achievement of the
organization’s objectives” (p. 5). In a
similar vein, the literature on corporate
social performance, responsibility, and
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responsiveness suggests that companies
have inherent societal responsibilities other
than the goal of maximizing shareholder
wealth. For example, Ostas (2001) points
out that some authorities on corporate social
responsibility may simply adopt a formalist
perspective that naturally assumes that the
relevant “law” comprises a set of singular and
well-defned commands. “When a corporate
social responsibility issue arises,” Ostas
notes, “the manager is advised to consult in-
house counsel, and the legal consequences of
alternative actions will be made clear. The
manager has no real discretion; he or she
must simply follow ‘the law’” (p. 261). By
contrast, Prakash notes that corporate social
performance policies are frequently adopted
by many multinational companies simply
because they are the “right things to do” (p.
5). However, in her book, The Governance
of Corporate Groups, Dine (2000) points out
that:
A major diffculty with stakeholder
theory, at least as it has been applied in
Britain, is that the term ‘stakeholding’ has
been used to refer to a very wide range
of interests which are loosely related at
best … If the category of stakeholding
interests is widened to include those of
all potential consumers of the company’s
products, for example, or to refer to
the general interest of society in the
sustainability of the environment, there
is a danger that the idea of stakeholding
will cease to be relevant. (p. 20)
Of course, different stakeholders and
institutions have different expectations;
sometimes expectations may even be
mutually exclusive; Rao makes the point,
though, that all of these frameworks have
been based on Western perspectives to the
virtual exclusion of other worldviews, a
fact that compelled many researchers to re-
examine their underlying tenets in the face
of the new realities of the 21st century if
companies want to attract and retain loyal
customers. According to Kennedy, though,
“Consumer loyalty is at best a nebulous
concept. Does it mean a consumer is
willing to buy something more than once
or shop regularly at the same retail outlet?
Or does it mean a consumer has a regular
and immutable pattern of buying only one
brand and not another?” (p. 149). Taken
together, this means that identifying where
consumer loyalty stands at any point in
time is challenging, but it is a basic precept
to ensuring the survival of almost every
organization today.
Based on the important nature of
developing consumer loyalty, it is little
wonder that so much attention has been
focused on attempting to quantify it. The
results of a survey of food-buying behaviour
in 1997, for example, found that: fewer than
one in four consumers in any food category
relies on a brand; 26 percent of consumers
who do have a preferred brand buy instead
what best fts their budget at the time; 37
percent of those who think of themselves as
brand loyal indicate they try other brands all
the time; and, 71 percent of those surveyed
who did switch brands said they experienced
no difference from the switch (Kennedy,
2000). Likewise, a 1998 survey of traveller
brand loyalty determined that fully 65
percent of travellers avowed loyalty to a
particular brand in 1998, a decrease from 75
percent in the same survey in 1997; however,
45 percent of the leisure travellers surveyed
indicated they were more than willing to
change brands, and business travellers
reported that their brand allegiance (which
is frequently obtained at great expense
through airline or hotel loyalty programs)
was important only when it was convenient
for them. Similarly, a 1996 research study
of loyalty to 500 separate brands concluded
that only 12 percent of consumers were
2009 107 J.C. Arias, Kate Patterson
“highly loyal to any brand” (Kennedy, p.
150).
Given these constraints, multinationals
are at a distinct disadvantage, it would seem,
in attempting to garner additional market
share particularly if they are distracted by
issues involved the potential stakeholders
that are involved. In this regard, Kennedy
reports that, “Loyalty is dead, the experts
proclaim, and the statistics seem to bear
them out. On average, U.S. corporations lose
half their customers in fve years, half their
employees in four, and half their investors
in less than one. We seem to face a future
in which the only business relationships
will be opportunistic transactions between
virtual strangers” (p. 151). Notwithstanding
these dismal conclusions, though, the fact
remains that multinationals have succeeded
in attracting new customers whilst balancing
their responsibilities to their shareholders
and stakeholders alike. In fact, Radin
(2003) points out that convincing arguments
can be and have been made that attention to
multiple stakeholders can actually improve
a multinational’s overall proftability in the
long-term if not the short-term as well. In
reality, consumer choice, legal regulations,
and global competition all make assessments
of what products are acceptable to consumers
in one venue or another (Fort, 2001). Because
corporations are legal entities but not actual
“people,” some authorities suggest that they
are fundamentally incapable of assuming
a moral position on these matters; in other
words, a corporation can neither be considered
to be a moral agent nor be said to have social
responsibilities. The following statement is
illustrative of this point: “A corporation .
. . is nothing more than a legal fction that
serves as a nexus for a mass of contracts
which various individuals have voluntarily
entered into for their mutual beneft. Since it
is a legal fction, a corporation is incapable
of having social or moral obligations much
in the same way that inanimate objects
are incapable of having these obligations.
Only people can have moral obligations or
responsibilities” (Dalton & Metzger, 1996,
p. 66). Nevertheless, these authors also
make it clear that:
Just as the forest is not itself a full-fedged
biological entity, so the corporation is
not a full-fedged person. Gulf Oil Co.
does act in some sense of that term,
but its acts are vicarious ones, and its
personhood is thus greatly restricted.
But, corporate agency is not restricted
to such an extent that moral appraisal
of its action is ruled out. There are
actions of the corporation which can
be morally blameworthy even though
the corporation’s agency status is much
more restricted than that of full-fedged
moral agents. (p. 491)
According to Krauz and Pava (1995), the
leadership of many multinational corporations
perceives corporate social responsibility
activities as being legitimate endeavours
that are also in their own best interests. In
terms of socially responsible behaviours on a
company’s bottom line, the fndings reported
to date are largely inconsistent and there is
evidence to support both the neoclassical and
stakeholder approaches (Blackburn, Doran
& Shrader, 1994). In their book, Work and
Life Integration: Organizational, Cultural,
and Individual Perspectives, Kossock and
Lambert (2005) point out that the results
of 60 years of scientifc research on criteria
between 1917 and 1976 was the identifcation
of the “criterion problem”; this term
describes the inherent diffculty involved
in the conceptualization and measurement
of performance constructs, particularly
when fnancial performance measures are
multidimensional and are used for different
purposes. In this regard, Blackburn et al.
report that the most widely used measures
of corporate social responsibility are
Arias, J.C., Patterson K.- Relationships between Corporate Social Responsibilities’ Promotion and Corporate Performance in the Multinational Corporations
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108 Business Intelligence Journal January
reputational indexes; however, the primary
constraint associated with this measure is
its undetermined reliability. “An equally
prevalent reputational measure of social
responsibility has been provided by the
Council on Economic Priorities (CEP),”
they advise. “The CEP reported the
pollution control performance of 24 frms
in the paper and pulp industry; this measure
has been subsequently used as a proxy for
social responsibility in numerous studies”
(Blackburn et al., 1994). Reputational
measures are insuffcient for a number
of reasons, though. For example, this
technique assumes that social responsibility
is a one-dimensional concept that can be
delineated in an investigation of the frm’s
pollution control record; however, this
assumption requires yet another assumption
concerning the commonality of interests of
all stakeholder groups. The validity of these
assumptions becomes unwieldy in view of
the number of affected stakeholder groups;
likewise, the pollution control measure has
only been provided for a single industry
which represents an enormous constraint
on the external validity of the fndings since
it is most likely inappropriate to assume
that the dimensions of social responsibility
are comparable across all industries. In
this regard, Blackburn and his colleagues
point out that, “The interests of stakeholder
groups and their ability to affect corporate
activities are also likely to vary with respect
to the nature of the industry, be it upstream
manufacturing, consumer products or
service oriented” (p. 196). Still another
technique designed to assess the impact of a
company’s social responsibility behaviours
using reputational measures was advanced
by McGuire et al., who employed the
Fortune reputational measure comprised
of executive rankings of frm performance
within certain industries. According to
Blackburn et al, the largest ten companies
within each industry were rated on eight
separate dimensions: 1) fnancial soundness,
2) long-term investment value, 3) use of
corporate assets, 4) quality of management,
5) innovativeness, 6) quality of products
and services, 7) ability to hire and maintain
qualifed personnel, and 8) community and
environmental responsibility. It remains
unclear, though, whether these researchers
used only the social responsibility measure or
an aggregate measure of all eight dimensions
(Blackburn et al., 1994). The McGuire et al.
study cited previous work suggesting strong
correlation between the Fortune rankings
and fnancial performance as being sound
evidence of the validity of the measures,
while Blackburn and his colleagues point out
that the opposite is most likely true in reality.
In still other studies, there has being a strong
“halo effect” identifed within the Fortune
rankings. According to Blackburn et al, “The
results of the principal component analysis
report in these studies suggests that fnancial
performance is most likely the source of the
“halo effect” since the public information
that is available is generally limited to
fnancial results, a fact that may help to
explain McGuire et al.’s fndings that past
performance was more strongly correlated
with socially responsibility behaviours than
future performance. “At a minimum,” they
add, “the evidence casts suspicion on the
use of the Fortune reputational survey as
a valid measure of social responsibility”
(Blackburn et al, p. 197). Therefore,
developing appropriate criteria for
multinational corporations to assess the
impact of socially responsible behaviors
requires the accurate conceptualization
and measurement of success. The terms
“conceptual,” “theoretical” and “ultimate
criterion” describes the full spectrum
of corporate performance and includes
everything that ultimately defnes success
2009 109 J.C. Arias, Kate Patterson
for a given enterprise (Kossek & Lambert,
2005). According to these authors:
The ultimate criterion is strictly
conceptual and therefore cannot be
measured or directly observed. It
embodies the notion of true, total,
long-term, and ultimate worth to the
employing organization. Implicit in
this model for analyzing criterion
contamination, defciency, and the like
is the questionable assumption that we
all know and agree about the conceptual
defnition of performance or success
(i.e., the idea that the ultimate criterion
is obvious and uncontroversial). (Kossek
& Lambert, p. 322).
Likewise, the defnition of what constitutes
satisfactory job performance, a successful
career, an effective organization, and so on
also requires the ability to make decisions
about what will constitute facets of success
and what will be considered irrelevant for the
corporation’s unique purposes. According to
Kossek and Lambert, in most organizations,
“The most powerful stakeholders set the
agenda and decide what will legitimately
defne success. In addition, the most
powerful stakeholders infuence how these
dimensions of success are actually measured
and by whom” (p. 322). In multinationals,
it is generally the company’s management
that determines how best to conceptually
defne and then measure their success along
these dimensions; however, this defnition
necessarily involves a value judgment
concerning whose values are important.
“The values of various stakeholders might
lead to widely varying defnitions of
performance or success.” (p. 322). Clearly,
then, developing clear measures of success
transcends mere fnancial performance,
but it does not obviate the need to remain
proftable for the company’s long-term
survival.
Conclusion
The last few years have witnessed
fundamental changes in the social and
political arena of the global marketplace.
Markets that were formerly restricted have
now eagerly embraced the principles of free
market economies, and the focus of many
multinational corporations has shifted to these
emerging markets (Rao, 1998). Likewise,
the past few years have also witnessed a
trend away from the neoclassical view of
corporate responsibilities toward one that
emphasizes the stakeholder relationships
that infuence companies and communities
alike, indeed, not only on a local or national
level, but also on a truly global scale (Radin,
2003). Neoclassical theorists have long
maintained that the primary obligations of
a company’s leadership is to maximize the
return on investment of their shareholders,
but increasingly, stakeholder theorists are
justifying their rationale with substantive
examples of how multinationals can achieve
their organizational goals while balancing
the needs of all of those affected by their
enterprise. One of the primary limitations
of this analysis, though, is also related to its
primary strength. The analysis of the extant
data at any given point in time provides the
researcher with a “snapshot” view of the
state of affairs, but given the nature of the
international marketplace today, this view is
of only passing value.
Recommendations
Based on the foregoing, it would seem
that any company that seeks to achieve
its organizational goals in an increasingly
globalized marketplace must pay careful
attention to how it is perceived by its customers
and potential customers. Companies that
invest too heavily in social responsible
activities may jeopardize their proftability,
Arias, J.C., Patterson K.- Relationships between Corporate Social Responsibilities’ Promotion and Corporate Performance in the Multinational Corporations
Business Intelligence Journal - January, 2009 Vol.2 No.1
110 Business Intelligence Journal January
thereby failing their shareholders; likewise, to
the extent that such companies fail to engage
in such social responsible activities at all, or
only in superfcial ways, may threaten their
company’s survival by driving customers
and potential customers away. Therefore,
a careful balance of the neoclassical and
stakeholder approach to doing business in
the international marketplace is required
today.
The primary issue that emerged from the
analysis of the literature was that corporate
managers today are faced with some
profound challenges as they seek to achieve
their organizational goals in an increasingly
competitive, international marketplace. On
the one hand, a company’s management
has a primary obligation to ensure that
they manage the enterprise’s affairs in a
responsible way that ensures the long-term
survival of the company; on the other hand,
these same managers are being confronted by
a wide range of external forces over which
they have little or no control, but which must
be taken into account in formulating strategic
business plans. Perhaps the most glaring
issue in this analysis concerned the need to
balance these needs while conforming to a
standard that appears in many cases to be a
highly elusive moving target. For example, a
company might well be regarded as a highly
ethical enterprise because of its commitment
to a certain set of ideals in one country, while
the people of another nation might view
the same set of standards with contempt
and disdain. Further complicating this mix
is a highly volatile international political
situation today that may adversely affect
even the best-laid plans of a multinational
today.
Another issue to emerge from the
research was just how much attention has
been devoted to the subject of socially
responsible corporate behaviours, perhaps
as a refection of a world that is becoming
smaller by virtue of telecommunications
and improvements in transportation, or
perhaps as a reaction to disastrous effects
carried by greedy corporate behaviour in
the marketplace which derived onto painful
consequences against the doer agent. Issues
that may not have even been considered
important just a few years ago have assumed
critical importance for many multinationals
today. What was not surprising was that the
research to date on the relationship between
corporate proftability and social responsible
behaviours showed mixed results; what was
surprising, though, was that there has been
such a paucity of reliable measures that can
accurately assess the impact of these actions
on a company’s fnancial performance.
Given its relevance and importance today,
this would seem to represent a principal
component of any company’s strategic
business plans, particularly for those who
would seek to expand their operations into
foreign locales. Even for those companies
who merely wish to establish a presence in
the global marketplace through a Web site,
for example, understanding why and when to
engage in activities that may detract from a
company’s short-term proftability in favour
of developing a “corporate halo” must be
viewed with some degree of suspicion
notwithstanding the underlying need to “do
what is right.” Knowing what is “right”
today involves much more than it did just a
few years ago, it would seem, and even the
most environmental friendly and socially
responsible multinationals may fail to reap
the full beneft of their investments abroad if
they fail to take into account these sometimes
nebulous concepts. Nevertheless, it became
abundantly clear as the research progressed
that this is what is required today, and those
managers who ignore these realities do so at
their companies’ peril.
2009 111 J.C. Arias, Kate Patterson
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van den Cate R.- The Impact of International Trade on Less Developed Countries
Roel van den Cate
THE IMPACT OF INTERNATIONAL TRADE ON LESS
DEVELOPED COUNTRIES
Roel van den Cate (MSc)
Abstract
The very idea of Free Trade is, of course, a noble one. The idea is to bring the third World nations of Latin
America, Asia, and Africa into a fair competition with, and economic parity with, the Western countries.
The many strong pro- and con- convictions of a number of respected authors do deal with the fact that
the original framework, which was based on the Industrial Revolution has vanished. It has already been
mentioned that the idea of a “ borderless economy” is now a fait accompli. The world, therefore, no longer
“consists of a series of closed national economies, each with its unique set and factors of production….But
there is a problem with this view of the world. Today it is increasingly irrelevant…(we now) confront...
the inevitable integration of national capital markets into a single, powerful global market.”
1

1
Bryan, Lowell and Diana Farrell: Market Unbound, New York: John Wiley & Sons, 1996, p. x
Business Intelligence Journal - January, 2009 Vol.2 No.1
114 Business Intelligence Journal January
Introduction and Overview.
Calvin Coolidge once said that the
business of America was business. This is
now true of every nation in the world. Of
course, business is a far more structured and
sophisticated part of the First and Second
world countries. In fact, their globalization
efforts are now creating opportunities as
well as mischief in the less developed
countries. By mischief, of course, one must
understand the rituals for getting plants,
roads, infrastructure, a work force and a
place to train them and a splitting of profts
and royalties with the governments (and, not
incidentally with those who have the power
to grant licenses and overcome bureaucratic
snafus).
On the next pages, we will examine
whether the concept of “free trade” remains
an oxymoron, and whether agreements such
as NAFTA and the successors to GATT
have any positive impact on less developed
nations.
The recent WTO meeting, disruptive
and unsuccessful as it was, gives signs
that emerging nations hold the power to
pass, block, or delay any meaningful trade
agreements. This WTO meeting, in other
words, accomplished nothing, since the
representatives of these “lesser” nations
decided not to make any defnitive actions.
What the WTO meeting did signify
was that this organization tends to be more
protectionist than ever, and that these
lesser developed nations see the removal
or reduction of trade barriers as a means of
shutting them out from signifcant profts.
In addition to free trade, we need to
take a look at how foreign capital provides
more opportunities. The globalization of the
world’s corporations and its market places
have created an infux of capital into areas
which were dormant, or under-served, at
best.
There is a need to look at the utilization of
the work-force in the less developed nations
to see if merely being “employed” is equal to
being in a better economic situation, and an
upwardly mobile opportunity which would
include improvements in living standards,
education, adequate housing and a social
life not dominated by some dictatorial quasi-
military force.
Finally, we will need to look at whether
the competition among less developed
nations for the largesse of the Capitalist
countries will create animus, political in-
fghting, and perhaps even military action.
While the current example of Russian troops
destroying Chechnya is economically based,
may be moot. But, certainly a look at the
various new soviet republics is warranted to
see if stability through economic growth can
be forecast.
There are three economic developments
in the past decade that make “International
Business” and its management a vital means
of economic domination. First, there is
the communications explosion. Second,
the development of the “euro” currency
which makes the whole of Europe (the
EU) a predominant economic and fnancial
force to be reckoned with. And, the third
development is the rise and fall and rise of
various Asian nations. Currency fuctuations,
and speculation, have caused severe fnancial
strains in recent years, but Thailand, South
Korea, Singapore, and Japan are making
strong comebacks. How will this teeter-
totter effect infuence the less developed
nations in Asia, Micronesia, and even reach
to India and Pakistan and Sir Lanka?
There is frequent use of the term “global
village” now, since national borders tend
to disappear with the internationalization,
mergers, and acquisitions of frms throughout
the world. If there is one thing globalization
can provide, it is economies of scale in
manufacturing as well as in marketing.
2009 115 Roel van den Cate
This means that many global companies
can now show a far improved bottom line,
with a reduction in the overhead costs of
warehousing and shipping.
With attractive opportunities in the less
developed nations, there can be a greater
fexibility in the strategic location of plants
and distribution centers, regional offces, and
the hiring and training of locals to implement
foreign management which, with some good
training results, could eventually fade, so
that the local presence is strong and visible.
Economists who are globally minded
will also have to look beyond the concern of
giving mainland China Most Favored Nation
status, and adapt some of their strategies
to implementing opportunities in the less
developed nations.
Why are we calling these countries “less
developed”? Two major reasons: First,
there is no foundation of self-suffciency
within the country. Even when, as in the
case of a Nigeria, there are abundant natural
resources available, for political reasons
those professionals best equipped to control
and manage these resources and turn them
into bankable goods for export have left.
Nigeria is a wasteland for professionals.
Globalization might, therefore, help
stabilize such local economies which are
tottering under the weight of political unrest
and instability The second reason is that
the opportunity to negotiate fairly has been
absent, partially due to the xenophobia of
the LDCs, and partially toward an overly-
benign and condescending attitude on the
part of the Western corporations and their
offcials.
All this is changing, because the
competitive nature of the world of business
is boiling over. It is not necessarily greed
of shareholders and security analysts’
recommendations, it is the fact that
international corporations are now spread so
wide in the various industries they control
that more attention must be paid to fnding the
resources available in the once-overlooked
nations that have been under-developed.
There is a downsize risk of course: Over-
development, in the sense of too much too
soon. The key to successful development is
a mutually benefcial, even-handed approach
which can satisfy the giver (i.e. the nation)
and the taker, (i.e., the global company).
The time is past for colonial thinking. Just
because the nation is under-developed does
not necessarily mean that the goals and the
understanding of local offcials and managers
is under-developed, as well.
Free Trade and Its Effect and
Meaning on Less Developed
Nations.
We are living at a time when
Microeconomics has reached the same
plateau as Macroeconomics. We are dealing
now with “the study of individual markets...
how it explores how consumers, workers, and
companies behave in specifc situations.”
2
What is the impact of microeconomics on
free trade? More than likely the fact that it
is consumer-driven. It begins with a single
consumer, his wants, his needs, his desire
to purchase goods and his ability to pay for
them. The less developed nations have the
consumer base, and certainly the desire, but
without free trade that has goods fowing into
these countries for sale at affordable prices,
the consumer’s ability to pay is minimal,
What do we know about this consumer?
First of all, “every consumer has a set of
tastes for the commodities that he can buy in
a market, and these tastes are a ‘given’ in the
sense that they are not affected by a change
in his income or a change in the price of any
commodity.”
3
2
Samuelson, Robert J.: “God is in the Details” NEWSWEEK
Magazine, April 20, 1998, p. 47
3
Dewey, Donald: Microeconomics: The Analysis of Prices and
Markets, New York: Oxford University Press, 1975,
van den Cate R.- The Impact of International Trade on Less Developed Countries
Business Intelligence Journal - January, 2009 Vol.2 No.1
116 Business Intelligence Journal January
What this view, however, fails to
distinguish is that a consumer in a developing
country’s desires may be for a new
automobile, but the prices and his income
prevent such a purchase. His desires, then,
must be reduced to the affordable goods-
clothes, food, furnishings and appliances
for the home, perhaps farm machinery and
tools. Of course, the original assumption
of microeconomics is that the consumer
has a certain priority for his commodity
preferences: milk before bread, bread before
eggs, eggs before bacon, etc.
But, a fair question may well be- why
introduce the subject of microeconomics in
a discussion of free trade. The simple answer
is that free trade can only be successfully
managed when the needs of the consumer
and his ability to satisfy those needs with
purchases are taken into consideration.
It is the old “marketing” cliché of selling
refrigerators to Eskimos. If Free Trade is
to be successful with, and among, the less
developed countries that trade has to include
goods that can be easily purchased, rather
than stored in some massive inventory for
future use. Nigeria, for example, has oil to
export. It needs no fuel to import. But, it
does need tools and materials to improve
its infrastructure. So, a trade for paving
materials, additional cement factories, buses
and/or railroads to transport goods and
workers, and appliances for those Nigerians
in the labor force who need an incentive to
remain on the job and not mobile, moving
from place to place to seek other work.
We need to pause in the aspect of
examining Free Trade and how it affects the
less developed countries to realize that the
whole notion of “less developed”
4
stands for
a lack of a trained and effective labor force.
We have none other than Adam Smith to
look to, for the assumption that “labor” is the
most important means of judging the riches
of a nation. Smith sees two “circumstances”
that are far more important than fertile
soil, extent of territory, or climate; namely,
“the skill and dexterity and judgment with
which…labour is applied, and secondly,
by the number of those who are employed
in useful labour, and that of those who are
not employed.” In other words, the wealth
of nations lies in the useful employment of
its workers, and not in the monetary results
of that labor. Free trade, then, according to
these basic tenets, is to establish the basis for
full employment so that the results of that
employment can then be bartered or traded.
While this may make good sense in a book
written a hundred or more years ago, the fact
remains that Free Trade cannot work under
those concepts because the employees are far
from equal. An American worker, it is safe
to say, is far more productive and effective
during his hours of work per day than, say
a Thai or a Ugandan. This is not racism. It
is a fact of tradition, training, and different
approaches to the fulfllment of personal,
family, and even government needs.
The very idea of Free Trade is, of course,
a noble one. The idea is to bring the third
World nations of Latin America, Asia, and
Africa into a fair competition with, and
economic parity with, the Western countries.
Eugene R. Black, as president of the World
Bank, told these under-developed countries:
“Give us the right atmosphere an d we will
sow towns and cities in place of theories…
Without sacrifcing your ancient traditions,
we will carry forward the historical revolution
in the way people everywhere long for.”
5
However, since this statement was made,
it is obvious that ancient traditions have
fallen by the way side, bulldozed by the
hi-tech and communications revolutions,
by globalization and mergers, acquisitions
4
Smith, Adam: The Wealth of Nations, Chicago: The Great Books
Series, Vol. 39, 1956, p. 1
5
Turner, Louis: Multinational Companies and the Third World,
New York: Hill & Wang, 1973, p. 5
2009 117 Roel van den Cate
and the need to fnd, open, and dominate
markets other than those already saturated.
“Information and capital now migrate around
the globe in the blink of an eye.”
6
Free trade
can fourish, many economists, believe
because we have now created a “borderless
economy”. “Most visibly, the nation-state
itself- that artifact of the Eighteenth and
Nineteenth Centuries- has begun to crumble,
battered by a pent-up storm of political
resentment, ethnic prejudice, tribal hatred
and religious animosity….(But) as the fow
of information creates a growing awareness
among consumers everywhere about how
other people live, tastes and preferences
begin to converge. Global brands of colas,
blue jeans, athletic shoes. And designer ties
and handbags are as much on the mind of
the taxi driver in Singapore as they are in the
home of the school teacher in Stockholm.”
7

Free trade, therefore, is at the mercy of so-
called “global consumer desires.
Is this borderless global economy the
result of free trade options, or is it the
reverse? The fact, as Ohmae points out, is
that the desires for global products- whether
blue jeans of Coke are just as strong in the
underdeveloped nations as in the major
Capitalist ones.
Free trade is the prop that now holds
the world’s economies together. That is the
opinion of the powers who attempted to make
the WTO meeting provide open markets and
access throughout the world. The reason
why this was (and still is) desirable can be
seen in the sheer numbers. “As recently
as 1957, the total volume of services and
goods traded across national borders was
$57 billion. In 1989, that amount had risen
to $12.7 trillion.”
8
One of the key factors that many pro-free
trade economists now proclaim is needed is
education. “Economic educators have the
considerable job of making clear that tariffs
don’t protect jobs (actually they destroy
6
Ohmae, Kenichi: The Emerging Global Economy, Cambridge
MA: Harvard Business Review books, 1995, p. xiii
7
Tibid, p. 130
8
Bender, David, (ed.) Trade: Opposing Viewpoints, San Diego
CA: Greenhaven Press, 1991, p. 13
9
Peterson, William H. “Free Trade is the Best Trading System”,
essay in Trade: Opposing Viewpoints, p. 23-4
10
Greaves, Bettina Bien: Free Trade: The Necessary Foundation
for World Peace, quoted in Trade: Opposing Viewpoints, p. 35
11
Robertson, James Future Wealth, quoted in Trade: Opposing
Viewpoints, p. 27
jobs!)…that the rich hardly become richer
by exploiting the poor (actually they get
richer in a market economy by enriching the
poor, and by raising living standards through
capital formation)…The market system is a
moral system, a system of voluntary social
cooperation.”
9
Another positive view of free trade
states: To minimize conficts in the future,
we should aim to create a world in which
people are free to buy what they want, live
and work where they choose, and invest
and produce where conditions seem the
most propitious….Would-be traders should
encounter no restrictions or barriers to trade
within and across national borders…”
10

There are opposing viewpoints to Free
Trade. Needless to say, we are all familiar
with the anti-NAFTA diatribes of Ross
Perot. But there are many who feel that free
trade, as it is now constituted, is harmful.
“The world has never had a genuinely free
and fair trading system. Ever since people
argued whether trade follows the fag or the
fag follows trade , trade has been based on
domination and dependency, and has been
an instrument of them.”
11
The many strong pro- and con- convictions
of a number of respected authors do deal with
the fact that the original framework, which
was based on the Industrial Revolution has
vanished. It has already been mentioned
that the idea of a “ borderless economy” is
now a fait accompli. The world, therefore,
no longer “consists of a series of closed
van den Cate R.- The Impact of International Trade on Less Developed Countries
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118 Business Intelligence Journal January
national economies, each with its unique
set and factors of production….But there
is a problem with this view of the world.
Today it is increasingly irrelevant…(we
now) confront...the inevitable integration
of national capital markets into a single,
powerful global market.”
12
“There can be no doubt that the prosperity
of the industrialized nations sine World War
II has been largely to global specialization
and interdependence. No single country
does all tasks today- products are designed
in one country, produced in another, and
assembled in a third….The ‘fair trade’
argument for protection is but one of several
false arguments…(There is) 1) the cheap
labor fallacy- that the advanced industrial
nations cannot compete with cheap foreign
labor….2) the unemployment fallacy- that
free trade creates unemployment; 3) the
infant industry argument….and the cheap
foreign currency argument- that protection is
necessary to counter the alleged competitive
disadvantage imposed on domestic producers
by countries with “cheap” currencies.”
13
As was mentioned earlier, Ross Perot
led the fght against NAFTA. But, in the
testimony of Philip M. Condit before the
Subcommittee on Trade of the House
Committee on Ways and Means, he provided
some positive fgures on NAFTA. “ In the
frst year under NAFTA, U.S. exports to
Mexico rose over 22 percent. Even with
Mexico’s economic problems, 1995 exports
to Mexico were 11 percent more than pre-
NAFTA fgures. In 1995, U.S. exports to
Canada increased 29% overt the 1993 pre-
NAFTA level.”
14
There is no doubt that the emerging
nations of the world have been led astray by
the socialist theories “The LDCs are caught
in the vicious circle of poverty…To break
out of that circle, apart from foreign aid,
calls for vigorous taxation and government
development programs; on this point opinion
is nearing a consensus.”
15
This consensus
seemed to believe that state, and not private
enterprise, will determine the major features
of industrial development in the low income
areas. So, it will be the governments of,
say, Nigeria, or Zaire, Thailand, and Gabon
who will have to take some power into their
own hands. The problem is that the political
climate in these countries is so tentative
that anything positive, such as taxation for
development, might well topple some of the
governments anxious to move their nations’
economies to a higher level.
Free trade, however anxious some
people are to grab bulldozers, shovels,
and establish deep-water ports, highway
systems and so on, still has a problem about
putting the cart before the horse. Albert O.
Hirschman, in The Strategy of Economic
Development explains that “if we endow
an underdeveloped country with a frst-class
highway network, with extensive hydro-
electric and perhaps irrigation facilities…can
we be certain that industrial and agricultural
activity will expand in the wake of these
improvements? Would it not be less risky and
more economical frst to make sure of such
activity…and then let the ensuing pressures
determine the appropriate outlays for social
overhead capital and its location?
16
In returning to the social arguments of
the so-called “human rights” advocates who
intend to block any additional free trade
with the less developed countries, one can
read a column, which Krauss cites, that
appeared in the New York TIMES: “Would
you buy a rug wove in Indian by ten year
olds who were beaten if they did not work
12
Bryan, Lowell and Diana Farrell: Market Unbound, New York:
John Wiley & Sons, 1996, p. x
13
Krauss: Melvyn: How Nations Grow Rich: The Case for Free
Trade, New York: Oxford University Press, 1997, p. xiii
14
Condit, Philip M. “Trade Myths and Realities” The Business
Roundtable, www.altavista.com 1998
15
Krauss (quoting Walter Heller) p. 85
16
Krauss (quoting Hirschman) p. 87
2009 119 Roel van den Cate
fast enough? Would you wear a shirt if it had
been sewn by a nine-year old locked into a
factory in Bangladesh until that day’s quota
was met?…”
17
Trade- or, rather, trade restrictions- has
become the weapon of choice for the U.S.
human rights advocates who want to bludgeon
poorer countries- India, Bangladesh, the
Philippines are all examples- into accepting
U.S. fair employment standards for their
own countries. There have been columns
written about toys made by slave laborers
and child labor in China and elswhere in
Southeast Asia, we have seen Kathy Lee
Gifford vilifed for allegedly having her
brand-line of clothes made by sweat shops
in Guatemala and Nicaragua.
Decent, as the efforts of the many writers
and advocates are, the fact remains that
different cultures have different values,
and we really have no right to impose ours
on them. Free trade, as many pro-trade
economists and humanitarians will admit,
is just that: these developing nations should
have a right to handle the way their laborers
perform in their way, and not according
to the rules and regulations of a far more
advanced society such as that of the U.S.
We have to remember that, as late as
the 1920s, there were still sweat shops
turning out garments in New York, with the
admonition on the wall that said “If you don’t
come in on Sunday, don’t bother to come in
on Monday.” There are still illegal sweat
shops, often in Chinatowns, or Koreatowns
scattered throughout various metropolitan
areas in the U.S.
The WTO meeting in Seattle proved
one thing: getting some 130 countries as
varied as Malaysia and Sweden to agree on
common labor or environmental standards
is next to impossible. The majority of
countries represented were LDCs, and they
were not about to let the U.S. and other
powerful industrialized nations interfere
with their internal policies. “The Asian
nations have made it clear that they will
not be bullied into adopting Western human
rights standards….These self-confdent
nations will not capitulate to foreign human
rights ideas regardless of the commercial
pressures placed on them…”
18

The Asian nations, for example, have an
option. “In East Asia, intra-Asian trade is now
on the same level as trade across the Pacifc
and is likely to grow much faster as Asian
nations reduce their trade barriers and take
advantage of one another’s prosperity.”
19
The Asian nations are also now willing
and able to spend more on research and
development. “There is signifcant untapped
technological promise…Measured as a
percentage of GDP, for example, Taiwan
and South Korea spend as much on research
and development as do most European
countries. For other ASEAN nations like
Thailand and Singapore, the rate of growth
of investment in R & D surpasses that of
virtually all industrial countries.”
20
The eventual realignment of national
economies in the increasingly borderless
economy will turn some of the LDCs into
BEMs- Big Emerging Markets. There are ten,
according to Mr. Garten- Mexico, Argentina,
Brazil, South Africa, Poland, Turkey, India,
Indonesia, China, and South Korea. While
each of these so-called big emerging markets
is important as an individual country, it is
the combined effect of the group as a whole
that will have a critical impact on the U.S.
interests, both at home and abroad.
What makes these ten specifc markets so
important is that they are a key swing factor
(as Garten calls it) in “the future growth of
17
Krauss, quoting Anna Quindlen’s November 23, 1994 column,
p. 49.
18
Krauss, p. 52.
19
Garten, Jeffrey E.: The Big Ten, New York: BasicBooks, 1997,
p. 32.
20
ibid, p. 32.
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Business Intelligence Journal - January, 2009 Vol.2 No.1
120 Business Intelligence Journal January
world trade, global fnancial stability, and
the transition to free market economies in
Asia, Central Europe and Latin America.”
21
Nevertheless, these ten countries and their
economies can be an explosive factor as we
enter the 21st Century. India, for example,
now has nuclear capabilities. It also has a
most unstable political situations, fueled by
traditional religious and ethnic differences.
Turkey has the same ethnic instability. Brazil
is just emerging from a treacherous infation,
and is still overly dependent on coffee as its
main export. What will happen in Mexico
if the ruling PRI party, which has had a
political lock on the national government
for generations, suddenly becomes less
of a majority party? Will South Korea
overcome the problems some of its major
industries are facing, with downsizing and
even bankruptcy a social disaster? What will
happen if China does not get that Favored
nation status it so desperately seeks,. And,
if China becomes a Big Emerging Market,
what of Taiwan., Surely the leaders in Taipei
won’t go quietly.
And, perhaps most important of all to the
U.S., what will happen during the Election
Year, 2000- and the possibility of a change
of administrations. Does George W. Bush
understand global economics well enough,
or will Al Gore follow the precedents set
down by the Clinton administration?
The world will not , and it cannot wait,
for a possible change of White House
leadership. American trade experts will have
to do the best they can, supporting the idea of
free trade with the less developed countries.
It seems to be the only positive alternative
to increasing the dominance expected by
American industrialists.
The Flow of Capital and its Effect
on LDC’s
Capital is on the move. Its fow is no longer
restricted to the well-off nations. It no longer
comes in the form of risk investments in the
Third World. Billions of dollars now move
from a fnancial institution in Country A to
a provider of jobs, factories, manufacturing
know-how and distribution and infrastructure
developments in what may still be considered
an Emerging Market, under-developed but
ripe for implementation.
We now see investments by companies as
diverse as IBM and General Motors and Philip
Morris in mainland China. The fnancial
debacle in southeast Asia which may well
have been fueled by greedy speculators like
Nick Leeson in Singapore, and caused tidal
waves ion Bangkok, Manila, Seoul and even
Tokyo seems now to have straightened itself
out and moved back upward, increasing the
confdence of overseas investors.
Financial institutions and their investor
branches are looking at the LDCs as if they
were oases in an otherwise drying up market,
over-developed through the years.
The role of foreign capital is still not
properly defned or proven. “The collapse
of the Asian fnancial markets in 1997
painfully demonstrated the interdependence
of economies throughout the world.”
22
This,
and some tottering economies in Uganda and
Nigeria currently, for example, make foreign
capital investments in so-called “emerging
nations” still risk for some. The entire idea
of free trade, then, still is tempered with the
concerns of politics, not raw materials or a
potential labor force. There are experts who,
in looking at some of the political instabilities
in the LDCs, still feel that corporations might
go ahead with capitalization, provided they
are willing to diversify capital investment
portfolios or share the risks, even with
competitors after the same markets. As Mr,
21
ibid, p. 3.
22
Thompson, Maurice K.: Common Sense Global Investing, Chi-
cago: Dearborn Financial Corp, 1998, p. vii.
2009 121 Roel van den Cate
Thompas has it “Diversifcation is the refuge
of the timid.”
23
He speaks, in his book, for
a number of fnancial institutions poised to
send capital overseas. He feels that too much
diversifcation can hide bad investments,
sometimes until it is too late.
The real facts, of course, are that foreign
capital plays a far greater role in the bottom
line of international companies than it does
in the development of emerging nations.
Nigeria, for example, fooded with petro-
dollars until recently, and able to make
positive legislation which enabled a high
percentage from international frms like
Royal Dutch Shell, now fnds itself in serious
economic straits due to the precipitous drop in
oil prices. In some areas, obviously, it hardly
pays to drill and transship, until oil prices
frm and rise, which OPEC is attempting to
do, even as this is written.
It is interesting to go on the Internet to
fnd trade commissions and government web
sites of foreign countries, eager to promote
their areas as ripe for investment, and, for
doing so, they offer various incentives.
For example, Siping, China, has a web
site which, in English, promises expedient
handling of real estate and tax matters, and
even certain fee abatements for up to three
years. The web site begins with “Article
1: In order to improve the investment
environment in Siping, to encourage
foreign capital, technology, and equipment
and administrative experience, to expand
export potential and speed up the economic
development of our city, we have instituted
certain preferential policies.”
24
What would be the role of foreign capital
here? To provide an economic advantage
for Siping over competing Chinese cities,
and for its citizens as well as the territorial
and local government offcials, who are
(obviously) under orders from Beijing,
to create opportunities for export and for
employment of Siping citizens.
However, there has been a change -
and not really a subtle one- for the role of
foreign capital in China. It has nothing so
much to do wu\ith the current government,
or the Communist recent past. It goes well
back to the time of the Opium Wars in
China. And, outward-looking Chinese are
well aware of what colonial policies did
elsewhere, the literal “raping” of the natural
resources of the Congo by the Belgians,
for example. The Chinese, as well as other
emerging nations who want a place at the
economic table are not seeking foreign
capital- regardless of incentives offered or
their need- without having some say in how
that capital is spent, and where, and what the
eventual consequences will be for the nation
or area offering its facilities and land and
labor force for the capital infusion.
One look at Africa today and it is obvious
that even the poorest nations, those who
continue their ethnic cleansing (Rwanda
and Burundi are two current examples of a
devastating mass slaughter of tribes people),
still are not willing to cede total autonomy.
As was pointed out in Chapter 2, these
nations are not willing to be “bullied” into
transforming their culture and tradition
to conform to Western standards. The fact
that concessions, such as Siping is offering
on the internet, or that other nations offer-
Nigeria promised dredging ports for the big
tankers, and, with money to build cement
plants, developed a highway system to
bring the oil from drill site to ports (A
pipeline is still in the discussion stage)-
nevertheless, the governments will insist
on a favorable concession for royalties. Of
course, depending on the stability of the
government, into whose hands those dollars
or yen or Deutschemarks or euros fow is
still a chancy proposition.
23
ibid, p. viii.
24
“Siping Investment Opportunities” www.chinesebusinessworld.
com/business/vn…ng/policies.htm
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Business Intelligence Journal - January, 2009 Vol.2 No.1
122 Business Intelligence Journal January
While in Chapter 2, the advocates for
Human rights were mentioned, there has
been another role required for the fow of
foreign capital into less developed countries:
environmental issues. “As investors search
the globe for the highest return, they are often
drawn to places endowed with bountiful
natural resources but handicapped by weak
or ineffective environmental laws. Many
people and communities are harmed as the
environment that sustains them is damaged
or destroyed…villages are displaced by huge
construction projects…Foreign investment-
fed growth also promotes Western-style
consumerism. (Note the previous mention
of “global consumerism,”)”
25
Here, the
environmentalists are concerned with
everything from the growth of fast-
food restaurants, car ownership, and a
“conversion” to a Western life style not
native to the indigenous population. In
other words, for all the economic “good”
that foreign capital from the West does, it
also has the power to corrupt and upset the
balance of both nature and population.
WorldWatch, in its position paper,
encourages adding some environmental
“conditions” to bilateral and multilateral
trade agreements. In one aspect, this
environmental concern is already having
an effect. “The U.S. Export-Import Bank
which provides subsidized loans to other
governments for the purchase of U.S. goods
and services has taken steps to strengthen
its environmental policy.”
26
Unfortunately,
other nations have not followed suit, causing
American investors and companies to lose
out on some enormous projects, such as the
Three Gorges project in China, which was
turned down by the Ex-Im Bank.
Foreign capital infusion, however, is
not merely aimed at developing countries.
Here in the U.S. we are faced with foreign-
owned companies in direct competition with
American-owned and operated frms. So,
capital fows to capital, not merely to where
it is most needed.
There is still a major concern among
many governments and economists about
how foreign capital is affecting the world,
and if it is somehow skewing the balance
of trade, and the incursion by overseas
interests within the domestic policies of
LDCs. Conservative legislators think
that the investment in foreign nations, for
whatever reason, is disguised foreign aid,
and they want to curb it, or eventually stop
it altogether. One reason for this concern is
simple:” it has tended to create dependence on
the part of the borrower countries…(and )no
longer either advance U.S. interests abroad
or promote economic development.”
27

What is happening, therefore, is the joining
of foreign capital and its role with political
functions. Of course, “there are times when
foreign capital fow into emerging nations
is not merely for proft, but for political
advantage. But once that advantage is
achieved (or denied) the next step must be
to maximize that capital investment.”
28
Economic forecasts continue to see more
and more capital fowing into the LDCs,
even at the possible expense of domestic
savings. This can be determined by the fact
that more and more American investors,
to name just one nation, are investing in
multi-national corporations whose capital is
now being committed to LDCs. “Estimates
suggest that in the next ten years, the gap
between domestic savings and investment
needs in the developing nations will likely
exceed $2 trillion in real terms. This gap
is the minimum level of required external
25
French, Hilary: In Focus: Capital Flows and Environment,
WorldWatch Institute, Vo. 3, No. 22, Aug. 1998, p. 1
26
ibid, p. 3.
27
Glickman, Norman J. and Douglas P. Woodward: The New
Competitors, New York: BasicBooks, 1989, p. 7.
28
Vasquez, Ian: “What Congress Should Do” online: www.al-
tavista.com.
2009 123 Roel van den Cate
capital. And, as these nations join the global
capital market, some of their existing capital
will leave the country as ‘fight capital’
as domestic savers seek to diversify their
risks.”
29
The red fag of “capital fight” might well
be hoisted when and if there is the sort of
Rwanda-Burundi confagration where capital
is so severely at risk that leaving it there for
the possibility that matters will be settled is
ludicrous and certainly indefensible fscally.
Figures during the decade of the late 1970s
to the early 1980s when there were so many
problems in African developing countries,
show that well over $100 billion fed the
area.
However, on the positive side, money
managers, investing companies and
international corporations are more willing
to take some risks now. In fact, it might be
considered that these managers are now
working in a different environment.
“These developments have had three
broad effects. First, at the macroeconomic
level, they have made it possible for capital
to be shifted instantaneously anywhere in
the world. This means both that the capital
fows no longer need to be tied to physical
movement of goods, and that, by extension,
the traditional forms of trade represent only
a minute and decreasing fraction of cross-
border trade activity. “
30
This gives managers
a distinct advantage since they can know
far more quickly in real time what their
customers need, where they need it, and
when. Responsiveness, therefore, is one of
the advantages of this instantaneous move
of capital.
Again, it needs to be emphasized that
the fow of capital is in sync with the new
global demands of consumers. “This means
that economic nationalism exerts an even
smaller infuence on purchase decisions.”
31
Foreign capital and its usefulness to
the development of the LDCs is refected
not merely in the utilization of natural
resources, a labor force, and the location for
effective and effcient distribution of goods,
but on the wants and needs of consumers
who, as has been stated in this thesis time
and again, are now the wants and needs of a
global economy. Again, wanting something
and needing something and being able to
purchase it are not necessary as closely
linked as capital investors might like. (In the
next Chapter, there will be ample discussion
of the globalization of local economies and
its effects on the ability to buy.)
Money still talks, of course. And, while
there seems to be plenty of venture capital
available, there is still competition for that
fow of capital. We have seen how, even
on the Internet various cities and areas
throughout the developing world, there is
competition and the offering of substantial
amenities to receive capital in-fow. From
an objective observer, studying the ebbg
and fow of capital, of risk investment, of
the downside of greed and even fraud, there
should be fve caveats for capital fow to
LDCs:
Capital invested in an LDC requires 1.
patience. This means that any investment,
grant, or cession should not be consider
a quick turn-around opportunity, a get-
rich-quick scheme which would rob the
LDC of any incentive to continue on
uneven terms.
The Investment cannot be done on a 2.
national or dominant theme. In other
words, if it is EU money, the dominance
should not necessarily favor ONLY the
EU or its member nations, but should be
primarily concerned with the building
29
Bryan and Farrel, p. 123.
30
Ohmae, Kenichi: The End of the Nation State, New York: The
Free Press, 1995, p. 27
31
ibid, p. 28.
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Business Intelligence Journal - January, 2009 Vol.2 No.1
124 Business Intelligence Journal January
of a stable and growing economy in
that LDC. This may be an extremely
diffcult item to control, since the
purpose of the investment is to gain an
economic advantage. Capital fow is not
philanthropy any more. Governments
will no longer shield corporations from
a confict with the rules and regulations
covering foreign aid, for example.
Fraud, bribery, kick-backs, private 3.
enrichment of government offcials
must be avoided. There has to be an
ethical and moral standard for capital
investment. If the WTO or the UN
cannot provide such safeguards, then the
entire international system of building
LDCs is lost. We cannot continue - in
the 21st Century to see LDCs as “banana
republics”, those feeble moral
and ethical characters reminiscent of
Graham Greene. We cannot continue to
cause South East Asian nations to see
U.S. involvement as the intrusive “Ugly
American”.
While there are still the “old boys 4.
club” investors and risk takers who see
the LDCs as a playground for dollars
or pounds sterling or francs, these
nations must be treated in a way that
the investment and capital fow goal is
to permit the investment to be returned,
and the LDC able to stand on its own
two economic feet. Capital investment
is not an “allowance” for doing “good
things” for the investor. It is like moving
from walker to crutch, from crutch to
cane, from cane to an orthopedic shoe,
and then complete freedom to walk or
run.
The motivation for investment must be 5.
a objective one, not based on traditional
or ethnic preferences. It can be a case
of the wolf lying down with the sheep
and reaching an entente. All too often,
the LDCs are seen as being “different”
from the Western world because of the
religion, habits, customs, history, ethnic
and moral standards which may well
differ from Western outlook on things.
In short, we cannot bind LDCs with our
own moral and traditional precepts. As
has been said several times now, these
nations do not want to be bullied. On
the other hand, investors from the West
do not want to transfer funds in eight
and nine-digit amounts and, at the same
time, wink at what they might consider
the amorality of the deal.
Of course, with the development of
the sort of instantaneous communication
and funds transfer, the problem areas are
switching from costs in terms of time and
real time, to the continued rise of what could
be considered “regionalism”. The EU, of
course, is perhaps the prime new example of
that. ASEAN and even NAFTA are regional
“bundling” of a sort.
However, there is still a traditional
animosity among some of the countries that
stands in the way of foreign capital fow.
Korea and Japan have problems, and have had
for thousands of years. Turkey and Greece,
the various small Russian Republics, Chile
and Argentina, India and Pakistan- these are
some of the cultural and traditional inimical
situations which capital infusion may not
solve. “The rise of regionalism in Europe
and the Western Hemisphere threatens to
leave Japan and East Asia the odd men out.
Unable to join either America or Europe
by virtue of its geographic locale, Japan is
also unable to form a free trade area of its
own in the Pacifc Basin for want of willing
partners. China is the most logical partner,
but is years, maybe decades, away from
2009 125 Roel van den Cate
such an arrangement, South Korea wants no
part of a partnership with Japan.”
32
There is a new development for a trade
free zone now under discussion among the
so-called Pacifc Rim nations. It will be
2020 at the earliest before this becomes
a reality. Right now it seems to include
some, but not all, of the 18 APEC nations:
Australia, Brunei, Canada, Indonesia, Japan,
South Korea, Malaysia, New Zealand, the
Philippines, Singapore, Thailand and the
U.S. were the original members. China,
Taiwan, Hong Kong, Mexico and Papua
New Guinea were accepted later.
“APEC agreed in principle two years
ago to dismantle tariffs and other barriers to
commerce and achieve a free trade among
the industrialized members by 2010 and the
developing members by 2020.”
33
Trade, trade barriers, capital infusion,
speculative movement of foreign capital,
political unrest and instability: these are the
“major” areas which are both positive and
negative in the development of international
trade that could provide a boost for the
LDCs.
The Third World and under-developed
nations continue to look to the U.S. for
salvation. And that can be both a problem
and an opportunity. Just as there are many
who now reject the notion that the U.S.
should be the policeman of the world, there
are those who feel this country should not
be the international banker of frst choice, as
well. Yet, when the EU, Japan, or some other
capitalist country gains a foothold (the Three
Gorges project was mentioned earlier), then
the outcry begins.
The fact is that the U.S., more than any
other country, possesses an enormous pool
of investment sources. “The problem lies
in how that capital is allocated- at what
rates and into what development. One
consideration is whether there is over- or
under-investment. A second is whether an
investment is complemented by associated
investment…and a third is whether private
investments also create benefts for society
through spillovers or externalities.”
34
With all that money “lying around”
the form of the competition for its use
and investment has drastically changed.
There is now a premium on investment in
increasingly complex and intangible forms-
the kinds of investments most penalized by
U.S. regulators.
The American economy has become far
more exposed to global competition than it,
perhaps, bargained for. There are many in
this country who continue to oppose Japan
and Germany for no other reason than “we
beat them in the War”, and the fact that
their economies’ rise is due to our original
infusion of time and capital to rebuilt their
infrastructure and industrial capabilities.
The fact of American capital running
the fortunes of LDCs, as it turns out, is an
inaccurate one. American companies are
now playing catch-up, because they tended
to invest in foreign opportunities at a lower
rate than Japan or Germany. This includes
investments in everything from R & D to
human resources, and these investments
also suffer from a point made earlier in
this thesis- the willingness to be patient,.
American CEO’s, it seems, get antsy when
reports have to be made to shareholders, and
this refects in holdings abroad as much as
two years less than comparable German or
Japanese frms.
The American investment problem varies
by industry (it is not government driven, as
in Japan). There are also complaints that
American frms have over-invested in some
areas, such as acquisitions, and underinvested
in others, such as intangible assets.
32
Krauss, p. 119.
33
Unsigned: “Pacifc Rim Nations Gearing Up for Free Trade
Zone” Maclean Hunter Publishing online, 1997.
34
Ohmae (ed.), p. 35.
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126 Business Intelligence Journal January
The question, then, can be rightly asked:
“The United States has the most effcient
capital markets of any nation and the
most highly sophisticated investors. How
can such effcient markets be guilty of
producing apparently suboptimal investment
factors?”
35
What does this do to the foreign capital
movement to the LDCs? It shows them that
the competition is heating up, and that their
expected and traditional “savior”, the U.S.,
may no longer be that optimal resource.
It may be a buyers’, rather than a sellers’;
market, after all.
Politics, Economics, Problems,
Solutions.
The 21st Century will bring about
untold changes and challenges for which
most nations- the First as well as the third
World- may not be fully prepared. “We
are in the midst of a cataclysmic change
that will result in a new map of power and
infuence, a map being drawn by emerging
markets. It is a revolution as signifcant in its
implication as…great historical shifts (such
as) the growth of a global economy in the
nineteenth century, and the collapse of the
old order in the 1930s and 1940s…”
36

Political change, stability or lack thereof,
will continue to be a prime consideration in
how capital fows, how risks are taken, how
global corporations will see their destinies
in the less developed countries of the world.
A quick overview can see that nearly every
African nation, excepting South Africa, is at
political risk. (This includes Egypt, where the
threat of the Islamic Brotherhood to disrupt
Mubarak’s regime has already resulted in
a failed assassination attempt within the
last several months). Uganda is accused of
human slavery. Liberia is in political turmoil.
Rwanda and Burundi continue tribal warfare.
Zaire, Gabon, Ethiopia, the Sudan, Nigeria,
Libya, Tunisia- even instability in Algeria
and Morocco, puts the entire continent at
tremendous risk.
Latin America’s politics are not stable,
either. Argentina now has a new President,
Brazil has found that politics and economics
seldom mix, Peru, Colombia, Venezuela,
Paraguay- all under some sort of internal
rebellions by left-wing or right-wing
guerillas. Only Chile and Uruguay seem
totally stable at this point in time. Central
America has its own system if political
upheavals in Guatemala, Nicaragua, and
especially Panama, where the Canal now
goes into Panamanian hands (and there are
rumors of some sort of Canal Management
deal with the Chinese), Mexico, despite the
encouraging economic results of NAFTA,
has problems in Chiapas, and there are local
and regional threats to the dictatorial ruling
party, the PRI.
The UN is concerned about what it terms
IDCs- the island Dependent Countries of the
Caribbean. According to UN documents:
“IDCs are a very diverse group of countries
with a wide range of geographical situations,
natural resource endowments, and economic
capacities. These disparities are refected in
the diversity of national income levels within
the group: half of the 37 island developing
countries and territories with a population
under one million belong to the two highest-
income countries group, according to the
World Bank, while nine IDCs within the
same size limit are in the category of Least
Developed Country.”
37
There is no doubt that Haiti, with its
unstable government and starvation-based
economy, the Dominican Republic are two
of the saddest economic examples in the
Caribbean today. American investment and
35
ibid, p. 37.
36
Garten, p.xiii.
37
UN Documents on IDCs, online at www.iwon.com.
2009 127 Roel van den Cate
risk capital are fowing into the bottomless
pit called Haiti, but no signifcant growth
has been seen.
“The two main categories of factors of
economic disadvantage of IDCs are the
handicaps of smallness and remoteness,
which are usually analyzed as the intrinsic
factors of trade concentration, external
dependence and economic vulnerability.”
38
So, it seems, even in the “back yard of
the U.S. there are underdeveloped nations
which require massive infusions of capital
for improvement and some sort of economic
progress. That capital infusion is currently
considered a failure.
Politics are, of course, a relative
consideration. If the Western World
attempts to stabilize what it considers an
unstable situation, it can rightly be accused
of interference in another nation’s domestic
affairs. But, what would have happened in
the mid-Thirties, if Britain and France has
“interfered” in the domestic policies of
Germany?
Politics aside then, one should re-
examine and consider what Jeffrey Garten
considers the “Big Ten”- those big emerging
markets from what could be considered
underdeveloped or developing countries. A
very brief overview of these ten emerging
markets is worth noting:
Mexico:
A nation of 88 million people, it has
already repaid the emergency loans provided
by the U.S. in 1995, and has regained the
ability to borrow funds in international
markets. It is, in fact, now moving from a
very closed economy to one of the most
open trading nations. It will represent one of
the U.S.’s most important markets.
Brazil:
Someone once said that “Brazil is the
country of the future, and always will be”. It
has been plagued by what can only be called
hyperinfation for the past several years,
including one year when it went as high as
2,500%. Its current government has now
brought infation under some sort of control:
It is somewhere around 15% now. It is the
largest “destination” for American capital
investment in Latin America, and perhaps
the most important South American trading
partner. The coffee economy is now, at
least, being challenged with other industrial
efforts, including a growing commuter-type
aircraft business, and automobile production.
There are still considerable environmental
problems in the Amazon and the rain forests,
and warfare literally has erupted between
those who want to preserve the area, versus
those who want to tap the natural resources
there.
Argentina:
It has overcome a serious recession
in 1995, and its agricultural economy is
rebounding. There will now be a “wait
and see” attitude as a new government just
was elected. Argentina, like it or not, is
economically tied to Brazil. Together, they
constitute more than half the GDP of Latin
America.
South Africa:
The nation has moved beyond apartheid.
With a population of some 41 million, South
Africa represents 45% of the GDP of the
entire African continent. It has a modern
infrastructure, and highly sophisticated
industries in fnance, communications,
transport, and energy. With the political
climate normalized, the country is open to
38
ibid, p. 3.
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128 Business Intelligence Journal January
multi-national investments, and the risks
of problems in that nation are now very
slim. The potential of industrialization
and natural resources make South Africa a
major player in that part of the world. One
consideration: there is an ethnic bond with
African-Americans which, as more and
more of them rise to important positions in
American companies, can well spell relief
for the needs of South Africa’s emerging
industries.
Turkey:
This country of some 61 million lies in a
most strategic area in the world, the bridge
between Europe and Asia. It is a NATO
member, and is hoping for membership
in the EU. It has applied. There is still the
problem of traditional enmity with Greece,
but it would seem that Turkey is far more
valuable, economically, than Greece. If there
is a problem, at present, it is the proliferation
of state-owned businesses, which, when
privatized, will be far more acceptable for
foreign investment and trade.
Poland:
This is now the largest country in Eastern
Europe, with 39 million people- more than
Hungary and the Czech Republic combined.
After the break-up of the USSR, Poland
was the frst country to break out of the
depression and recession that had caused.
It is, in essence, a democracy, and has done
more to privatize its industries than any
other country in Eastern Europe. Polan is
now considered the most “entrepreneurial”
country in that region with more than 2,000
new businesses established in the 1990s.
Germany and the U.S. are the two largest
investors in Poland today. Poland’s work
force is considered among the most well
educated, and it has the biggest and stable
middle class in Eastern Europe. Poland
wants to join both NATO and the EU, and
there seems to be a good chance that it will
be admitted to both.
South Korea:
South Korea is the most heavily
industrialized of all the so-called big Ten.
Its economy represents about 7% of the
entire East Asia GDP. But, it has enormous
walls to protect its industry, and to make
it diffcult for foreign investment. There is
great potential if the tariff barriers were ever
to come down, Even so, statistics show that
in 1994 and 1995, both exports and imports
increased by some 30%. There is a risk for
investment, of course, with the continuing
problems between the two Koreas. Perhaps,
in the future, there will be some sort of
reunifcation, but that does not seem likely
in the near future. When and it that happens,
there should be tremendous interest in
rebuilding North Korea, now decimated by
its lackluster and oppressive Communist
regime.
China:
Can a market of nearly 1 and a half billion
people be overlooked? Right now, there is
considerable to-do in Congress about the
Clinton Administration’s desires to have
China given Most Favored Nation status.
There are Republicans who, suddenly, talk
about Human Rights, pressured, no doubt,
by lobbyists whose industries have been
lagging in China investments.
In the last several years alone, however,
Beijing has attracted more than $80 billion
a year in commitments, over half of which
has already been invested. We have seen
how individual cities (see Siping) are on
the Internet, encouraging foreign capital
investment. There are now a good many
2009 129 Roel van den Cate
Chinese entrepreneurs, willing and able
to cut through government red tape to
provide opportunities for building factories,
establishing distribution points, mining
natural resources, and using the tremendous
work force available at cheap rates. These
entrepreneurs, of course, are enriching
themselves, Capitalism-style.
There is no single market in the entire
world that holds more potential opportunity
than China. The future of China, economists
say, is also the future of Asia. China must
be able to link its enormous resources to the
world economy. There is, of course, already
a “Chinese Economic Area”, which includes
Hong Kong, China, and Taiwan. Despite
political infghting, the economic relations
between Taiwan and mainland China are
on the increase. Taiwan, for example, is
improving its past emphasis on low-tech
products, and it is moving into far more
sophisticated software, such as Chinese-
language software, for example, as well as
moving ahead in the biotech area.
Indonesia:
Right now, the political and environmental
climate in Indonesia is seriously fawed. The
current rebellion in East Timor, which had
opted for freedom, the 1998 “haze” which
blanketed most of Indonesia due to forest
fres and industrial pollution did little to
encourage Western investment. But, any
nation with 194 million inhabitants, cannot be
ignored. There certainly is a strong infuence
on the part of Indonesia in the entire region,
including The Philippines and Micronesia,
extending even to Australia. Indonesia is
important to America, not only for its role
in the ASEAN bloc of nations, but also
because, other than China, it is the one nation
in the region without a democratic political
foundation. Suharto ruled for a generation.
His successors have failed to improve the
situation, politically or economically, and
certainly not ethnically. Of all the Big Ten
nations, Indonesia seems the most turbulent
and ripe for a serious rebellion within its
territory.
These ten big emerging markets offer
international trade opportunities unmatched,
currently, by other nations: they have large
populations, they have large resource bases,,
large markets, and are powerhouses in their
respective regions.
39
The problem with most texcts and
economists’ tomes available are that they
tend to be skewed toward American policies.
The thinking is that the Developing countries
must insist on American trade if they are to
grow. As has been established earlier, this
is simply not the case any more. Japan is
shedding its xenophobia and making strong
efforts to be a leading force in its invasion of
developing nations- economic invasion and
penetration, of course. The EU is stronger
in intra-European trade that trans-Atlantic
trade, and this makes it possible for capital
to be utilized in LDCs.
The trend toward multi-nationals, of
course, obviates American dominance,
even though some of the multi-nationals
are headquartered in the U.S. and others
in Europe. Will the economics of LDCs
proft from multi-nationals, rather than
national companies? The jury is still out on
a complete answer to that question. What is
certain is that the term “global village” will
be used more and more (as it already has in
this paper).
The solutions to raise the economies
of LDCs are linked closely to the proft
incentive, of course. As the guru of
American Marketing practices said: “The
primary business of business is to remain
in business.”
40
Globalization, then, will be
39
based on various information in Garten.
40
Levitt, Theodore: Innovations in Marketing, New York: McGraw
Hill Co., 1961, p. 1
van den Cate R.- The Impact of International Trade on Less Developed Countries
Business Intelligence Journal - January, 2009 Vol.2 No.1
130 Business Intelligence Journal January
successful only if the investors, producers,
distributors, and countries can realize a
fnancial proft. A social proft for countries
must be included in this. We have already
used the term “borderless economy”.
As frontiers disappear, and the advent of
new communication technologies make
it unimportant where the real estate of the
headquarters is located, the emphasis of
benefts to LDCs really comes down to four
basic facts. Economic advantages, migration
of workers, the effects of economic incursion
on LDCs and the survival mode of capital
investors.
The one area where no overview has
been utilized is that of the worker involved
in raising economic standards in LDCs.
The geographical spread of production
facilities has been accompanied by far-
reaching changes in the workplace all over
the world. “The most important has been
the increasing diffculty of protecting the
interests of relatively immobile workers
in a global economy in which capital is in
constant motion. Workers face hardships in
pulling up stakes or in leaving the family for
a distant job, though more and more people
are faced with the need to do it. Capital has
no home., and money in the trillions moves
routinely across the world with the punch of
a key.”
41
Increasingly, hundreds of millions of men
and women who will be entering the labor
market in less developed countries over the
next few years will be directly competing
with workers in the more developed nations
to produce the same “basket” of goods.
There will, unfortunately, then, be hundreds
of millions in these LDCs who will not fnd
permanent jobs, or any jobs, or meaningless
jobs in terms of income. With all the hue and
cry about “exporting” jobs that U.S. NAFTA
opponents continue to use, the jobs that are
exported are, for the most part, low income,
even minimum wage jobs. It is seldom the
middle or upper management person who is
downsized because of job exports as a result
of relocation of production or distribution
facilities.
LDCs, then, cannot expect to raise the
standard of living of its untrained work force
quickly. The meaningful tasks will either be
performed elsewhere, or taught merely to be
duplicated in the LDCs.
Politics engender economic opportunities,
to be sure. Economic development in LDCs
may stabilize their governments. Workers
may fnd employment, even if it may be
temporary, and the capital investors will
fnd profts by imposing Western-style
manufacturing techniques on nations that
had little or no techniques whatsoever.
A Review, Projections, and
Conclusions.
The purpose of this paper is not to re-
defne the technological advances, or the
advantages of investment in less developed
countries. They are less developed, as was
pointed out, because they were (or are) unable
to harness their natural resources, attract
technicians and sophisticated work force to
manage building an economy; because there
was (and is) an unstable political climate,
because Western nations sought I(and seek)
to impose their morality, ethics, tradition,
and means of doing business on LDCs.
Perhaps one of the problems of properly
infusing LDCs with a supportable and do-
able means of building their economies
lies in some of the terminology. A native
in Botswana is less interested in what
“globalization” means, than in fnding a job
to feed and house and clothe his family. A
Thai may seek employment with a “multi-
national”, but the “multi” part is unimportant
to him, unless it means an improved system
41
Barnett, Richard J. and John Cavanagh: Global Dreams, New
York: Simon & Schuster, 1994, p. 310
2009 131 Roel van den Cate
of education for his children. No global
corporation has yet found a way to solve the
problem in India among Hindus and Sikhs.
No capital movement has been able to deter
the Tamils, or Peruvian Tigers, or found
a way to settle political and ideological
differences between Pakistanis and Indians,
or to fnd a way to curb the monsoons that
continue to take thousands of lives along the
Bay of Bengal.
In the idea of globalization, one must
look to nations now closed to the majority
of First World nations- Iran, Iraq, Libya.
One must attempt to build rapport with the
various new republics that were part of the
USSR, from Ukraine to Uzbekhistan.
The raising of LDCs’ economies also
must include a careful look at the role gender
plays in the work force. Will women bwe
able to fnd work alongside men, at equal
pay? Will children continue to be utilized
to create consumer goods, and, if not, what
will that do to the family economies that
may depend on their children’s incomes?
While there has been a rise in the number of
women in high political offce in developing
nations, from Indira Gandhi in India to Suu
Kyi in Myanmar (Burma) to Benizar Bhutto
in Pakistan, there have been no women with
real economic decision-making power.
What will economic and international
efforts to LCDs mean when religion is an
issue? Will there be a caution in dealing with
Islamic republics, for example? How will
capital investment be of use to Palestinians,
for example. What, for that matter, will be
the fate of the Near Eastern nations of Jordan,
with a new King, of Syrian, with Assad
ailing? What of Iraq after Saddam, Hussein?
And Saudi Arabia, if, somehow, the house of
Saud and its spendthrift princes fall to some
insurrection. There are problems, of course,
in Afghanistan. Ethnic troulb elooms with
Armenians, Kurds, and the Taliban. Who
will seek to raise the economic levels of this
unsettled part of the world? And, if sudden
changes occur, who will be the frst to take
advantage of these changes which are sure
to invite economic assistance.
And what of the job market as we move
into the next millenium? How will poorly
educated, untrained Third world and LDC
natives function usefully if multi-national
capital fows in to build a new viable
economy in their country?
“Government has played a crucial role in
changing what factories look like, what jobs
they offer, and where they are….Ironically,
one result of all that is that national
governments have less power to maintain
high levels of employment than they once
had. A number of strategies formerly
used to put people to work are no longer
politically or fnancially feasible.”
42
What
will become of these potentially displaced
or discarded people? And who will they
blame? These are the kinds of conditions
that, in some LDCs could be the spark that,
over eighty years ago, provoked the Russian
Revolution. There may not be a Lenin, but
one never knows. There are underground
forces at work in nearly every LDC who are
just waiting for the government to make an
enormous economic blunder.
It is a fact that, in the past generation, the
less developed countries have been unable
to deliver economic growth without, at
the same time, developing infation. It was
mentioned earlier in this paper, that the
LDCs may well need to establish a system
of taxation. But, add taxation to the ravages
of self-imposed infation, and there is the
tinder for a major confagration.
“Most of the reborn or newly-created
nation-states are too small or too poor
to operate successfully in the world
economy……in many countries the national
capital has become the symbol for everything
42
Barnet, p. 339
van den Cate R.- The Impact of International Trade on Less Developed Countries
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132 Business Intelligence Journal January
that has gone wrong in people’s lives. The
refex action is to opt out of failing political
communities. Ethnic or religious bonding
becomes the surrogate for a functional
political order.”
43

If the tone of this paper tends to be
negative, that, unfortunately, is the outlook
on any immediate impact on the economies
of the truly underdeveloped nations. As has
been pointed out, there are some among the
LDCs which are ready for moving up the
economic scale. There are some which are
potentially able to do so, once their internal
political situations are settled. But, there are
also those nations where economic uplift is
still so far in the distant future as to consider
them apart from the others- a Fourth World.
The conclusion of this paper, then, is a
despairing look at the have-not’s.
The economic explosion of the 1990s
has exposed a huge and disturbing income
gap between the industrialized and the
developing worlds. “The divide was wide
before, but technology and globalization
have expanded it to nearly incomprehensible
breadth. Technology drives performance
today, and poorer nations just don’t have it.
Yes, the gulf between the haves and have-
nots in America is wide, but it is nothing
compared with this global crisis.”
44
Too few of the developed countries are
really paying close attention, as could be
seen at the recent WTO meeting in Seattle.
During the several days of meetings, even
though interrupted by demonstrations, the
subject of this widening gap never arose.
The popular idea in world economies is
based on the concept of laissez-faire, and so
anything that diverges from that is a subject
to be kept on someone’s back burner. It is
an unpopular subject. Yet, half the world’s
population is increasingly threatened with
economic oblivion. That is dangerous for
world stability. There is no reason the rest
of the world should just accept that as an
economic fact of life, and move on. It is not
a sense of denying that we (the industrialized
strong) should be our brother’s keeper (i.e.
the weak and impoverished LDCs). It is
the adaptation of one of the oldest cliches
of strength- the fact that strength can be
measured only to the extent of the weakest
link.
The world is not merely in danger of
splitting into two- it is already doing so,
and there is no Richter scale measurement
that can acknowledge the tremors. There is
a widening gulf between the very rich and
the very poor. And that is making the future
of the world as a whole a very unstable and
potentially infammatory situation. Perhaps
this is why Mr. Altman considers these
nations that are the least-developed and are
the lowest on the priority of the First World
as the “Fourth World”. It is almost as if we
are placing that Dantean slogan above the
borders of those nations: Abandon Hope, all
ye who enter.
What about this so-called Fourth World,
the truly deprived nations for whom little or
nothing is being done? They represent the
least-developed parts of Africa and Asia,
and they will become even more susceptible
to brutality, state-sponsored terrorism and
mass tragedy. There will be more spots like
North Korea, Iraq, and Rwanda, and some
will be more dangerously armed. Iraq, for
example, may have some serious virus-flled
armaments, and other scientifc weapons of
destruction, unwittingly provided through aid
and training by Western nations (Germany
now is the most obvious suspect, with raids
and arrests begun in 1997).
The solutions, if there are any, do not
involve the Western nations merely writing
out checks- and big checks, at that. And, the
United States is as much at fault for ignoring
43
ibid, p. 340.
44
Altman, Roger C.: “The Fourth World” Los Angeles TIMES,
December 12, 1999, p. M 1.
2009 133 Roel van den Cate
this Fourth World as any other country, since
it is the richest nation in the world. The U.S.
is showing pitifully little interest in its own
poor, let alone those in Africa and India,
Bangladesh, etc.
Hope, if there is any, seems now to be
centered on ever-cheaper technology that
enlightened businesses and even private
philanthropic organizations will bring to
the Fourth World. The basic premise in this
“giving” seems to be that supply can induce
demand: the availability of extremely cheap
cellular phones, Internet access, or medicines,
for example, can create consumers of them,
even in these terribly distressed markets.
Yet, there are few changes in the policies of
the “Have” nations, other than money, that
can truly help.
If there is one horrifying shock in the
world, it is the increasing gulf between
the have’s and the have-nots. This cannot
be stressed often enough, or repeated until
someone not only pays attention but takes
positive action. “The income disparity
between the richest and the poorest ffths of
the world’s population was 30 to 1 in 1960.
Today it is 75 to 1. A hundred years ago,
America’s per capita income was nine times
larger than Chad’s and Ethiopia’s. Today, it
is 45 times larger. Especially poignant, 98%
of children who die before age 5 live in the
developing world.”
45
More than any other single factor, it is
technology that separates the fortunate from
the less-fortunate. Today, technology drives
productivity, which, in turn, determines
standards of living. But the gap in
technological capability between wealthier
and poorer nations is huge and growing.
Communications is a perfect example
of that gulf. Virtually all U.S. and Western
European homes have telephone service;
half of Americans have a computer at
home. But there are only 14 million phone
lines in ALL of Africa, fewer than in the
Los Angeles metropolitan area. There are
almost no homes with a computer, however
much out-of-date. One out of every three
Americans now uses the Internet, but only
one out of 10,000 residents in India uses it..
It may seem incredible, but statistics show
that there are more Internet users in the U.S.
than in the other nine most populous areas in
the world combined.
The questions the “Have” governments
need to ask- and ask in a hurry- is whether
we are willing to accept a two-planet system
in the 21st century. Should these nations,
including, of course, the U.S. be rather
selfsh and concentrate on one’s self, or build
those nations who “respect” our interest in
dominating their markets? Or, on the other
hand, do these nations have a responsibility
to try harder to lift this Fourth World up?
And if so, how?
Yes, it is a moral issue. Over the
foreseeable future, none of the Fourth
World nations pose a threat to the U.S. or
any other industrialized country. At the
same time, the poverty of this Fourth World
has absolutely no impact on Y.S. or other
Western economies. In other words, it is not
to the ECONOMIC benefts of the “Have”
nations that some action must be begun, and
begun now. It is, unfortunately (speaking of
moral issues) more of a concern for many
Americans, to save the whales or baby seals
than it is to assist the starving in the horn
of Africa. But, it is unconscionable to do
nothing while nearly three billion people
are existing on less than $2 a day. And are
receding into oblivion.
We can use technology to improve their
lot. The question is, still how? One key
is the same technology that is widening
income inequalities. It may ultimately be the
economic salvation of the developing world.
This is true because the accelerating speed
45
ibid, p. M 1.
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134 Business Intelligence Journal January
of technological advancement is lowering
the price of all technology. From laptops to
Internet service, prices are plummeting.
This will enable a far more global use
of the Internet. Soon, any computer user in
Africa or India will be able to download all
information free from the greatest libraries
in the world. any remote medical unit will be
able to have instant access to case histories
from the greatest teaching hospitals.
If there is one nearly immediate
opportunity to do something for the Fourth
World countries it is a) to teach people how
to access information and a general usage
of a computer, and b) for private industry to
provide computers and their technology at
little or no cost, hoping to recoup eventually
in other economic areas within that nation.
With the WTRO seemingly paralyzed,
it might be an occasion for the World Bank
to step in and do something. But that means
that capitalization would have to increase,
which can happen only through increased
contributions by the “Have” nations. The
fnancial resources, as pledged by the
“Have” nations would not be outright cash
grants, but would be offered in the form of
teacher and education assistance, and other
recipients in those countries who are either
private or religious, thus circumventing
the often corrupt governments and their
offcials.
The industrial nations can also provide
some positive relief and assistance in
areas such as lowering tariff regulations
on goods imported from the Fourth World
countries. It is mind boggling to realize that
many countries, including the U.S. keep
import tariffs so high that it is economically
unfeasible for many of the Fourth World
nations to attempt some sort of trade. The
U.S. and other nations are overdue in
lowering tariffs aggressively, particularly
since trade with the Fourth World has no
negative impact on their economies.
Private philanthropy can also help. Over
the past decade, fortunes have been made,
and- it would seem truly magnanimous if
some of those funds would go to the Fourth
World economies rather to a Monet painting
that few, if any, will end up appreciating.
There are some recommendations that
might be considered to provide impetus to
raising the economies in LDCs. None of
them may be universally acceptable, but an
attempt must be made to close that wide gap
among the world’s economies.
All the industrialized nations who earn a 1.
surplus from trade should join together to
pledge a percentage of that surplus into
a fund for improving conditions in the
LDCs. A special commission, other than
under UN auspices, could be set up to
administer this fund, free from political
pressures. Members of this commission
would serve without compensation,
and be equally divided among the
First, Second, and Third World nations.
Any attempt to infuence appropriation
because of ethnic, religious, or racial
reasons would immediately dismiss that
member from further consideration.
An international version of America’s 2.
Peace Corps would be formed.
Instead of military service in various
nations, for example, a tour of duty in
emerging nations would be substituted.
Organizations, such as Medicins sans
Frontieres, (who were awarded this
year’s Nobel Peace Prize) would be
encouraged to expand with grants
provided. The need for such a Job
Corps, or Peace Corps, approach would
have certain priorities: agriculture, birth
control and/or family planning, medical
needs including mass vaccinations,
education, building of infrastructures,
food control, sanitation, providing tools,
2009 135 Roel van den Cate
transportation, literacy, among others.
The volunteers for these projects would
encompass all nationalities, religions,
ethnic backgrounds, and ages. Until a
self-sustaining world-wide organization
can be set up and managed effciently,
it is suggested that UNICEF handle the
initial phases.
Under the aegis of the current United 3.
Nations, a regulatory commission
must be set up to oversee the domestic
political policies of the LCDs, when such
governments interfere with the growth
opportunities of these nations. Yes, this
is a form of “bullying”, but the end result
will be a positive one. The time has come
to make some choices: a Fourth World or
other LDC which cannot survive under
its present domestic governing structure
must be, at least temporarily, put into a
sort of “political receivership”. When a
government is bankrupt, then it should
be handled the same as a bankrupt
corporation: a receiver appointed to turn
it around and make it productive once
again.
The human rights activities of the UN, 4.
as now constituted, is a waste of time
and money. We have seen, in the past
decade, how fruitless the UN activities
were in Africa, as well as in Bosnia
and Kosovo. What is needed is a joint
effort by the wealthy nations of the
world to create a super-structure that
would preserve the integrity of the
environment, protect wild-life, but not at
the cost of jobs or the economy. Despite
efforts byu a toothless UN, Japanese
fshermen are again hunting whales,
Russians are slaughtering seals, and
dolphins are caught and killed in South
and Central-American tuna nets. The
tiger is almost hunted out of existence
in Bengal. And, worst of all, child-labor,
sweat shops, communes and collectives
still proliferate the poorer nations.
Special tariff- and tax-free zones should 5.
be established in the wealthy nations for
goods from the LDCs. A moratorium
needs to be established that eliminates
any import duties from African and
Asian poverty-stricken countries.
Labor leaders from wealthy nations 6.
should develop task forces that can
build craft guilds and cooperatives in
LDCs, helping to organize labor in order
to obtain fair wages, establish contracts
for work, and raise working and safety
standards.
Governments and private philanthropic 7.
organizations must create scholarships
for study at leading educational facilities
in the West, ON THE CONDITION
that the recipients return to their native
countries to implement what they
learned. There can be no echo of the
fight of intellectuals from LDCs, such as
happened in Liberia and Nigeria within
the last decade.
The media is not doing enough to alert 8.
the world about economic deprivation
in LDCs. A concerted effort for a
fair appraisal (not scare tactics on
exploitative programming) of the world
situation is needed. It is interesting to
note that an effort was made with U.S.
school children to raise money to “buy”
the freedom of some of Uganda’s slaves.
Perhaps, the next UNICEF Halloween
project, and projects by organizations
such as the Boy Scouts, Girl Scouts
and Girl Guides, could develop some
fnancial support for education LDC
children.
van den Cate R.- The Impact of International Trade on Less Developed Countries
Business Intelligence Journal - January, 2009 Vol.2 No.1
136 Business Intelligence Journal January
What is important in the development of
strategies for relief of the Fourth World is
that there can be no confict. These various
suggestions cannot turn into a “Me frst”
debacle, where one deprived nation becomes
angry because another nation has received
more than it has. Global development has to
have as one of its major points Peace.
Economic development also requires
solutions to ethnic and religious confict.
Economic uplift cannot stop at foundations
for new factories, the installation of new
technologies, and various international trade
agreements. The impact of international trade
has to be felt by every resident who may now
fnd a longer, healthier, and more productive
life. Without a positive effect on the human
and humane factor in the LDCs simply
providing greater opportunities for trade is
like giving away free tires for an automobile
whose engine is not functioning.
The gulf between the Have’s and have-
Nots will never entirely disappear. But, it can
be bridged, and narrowed. And, if that can
be accomplished within the next decade, the
world can sense a new Industrial Revolution
where no one will have to left on the outside,
looking in.
References
Altman, Roger C.: “The Fourth World”, Los
Angeles TIMES, December 12, 1999
Barnet, Richard J. and John Cavanagh:
Global Dreams: Imperial Corporations
and the New World Order, New York:
Simon & Schuster, 1994.
Bender, David (ed.) Trade: Opposing
Opinions, San Diego: Greenhaven
Press, 1991:Essays included by:Greaves,
Bettina Bien: “Fair Trade: the Necessary
Foundation forWorld Peace” Peterson,
William H.: “Free Trade is the Best
Trade System”Robertson, James: “Future
Wealth”
Bryan, Lowell and Diana Farrell: Market
Unbound: Unleashing Global Capitalism,
New York: John Wiley & Sons, 1996
Dewey, Donald: Microeconomics: The
Analysis of Prices and Markets, New
York: Oxford University Press, 1975
French, Hilary: In Focus: Capital Flows and
Environment WorldWatch Institute, Aug,
1998
Garten, Jeffrey E.: The Big Ten, New York:
BasicBooks, 1997
Glickman, Norman J. and Douglas P.
Woodward: The New Competitors, New
York: BasicBooks, 1989
Krauss, Melvyn: How Nations Grow Rich:
The Case for Free Trade, New York:
Oxford University Press, 1997
Levitt, Theodore: Innovations in Marketing,
New York: McGraw Hill Publishers,
1962
Ohmae, Kenichi: The End of the Nation
State: The Rise of Regional Economies,
New York: The Free Press, 1995
Ohmae, Kenichi (ed.) The Evolving Global
Economy, Cambridge MA: Harvard
Business Review Books, 1995
Samuelson, Robert J.: “God is in the Details”
NEWSWEEK Magazine, April 20, 1998
Savitt, William and Paula Bottorf: Global
Development, ABC-Clio, 1995
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Smith, Adam: The Wealth of Nations, Great
Books Series, Vol, 39, 1956
Thompson, Maurice K. : Common Sense
Marketing, Chicago: Dearborn Press,
1998
Turner, Louis: Multinational Companies
and the Third World, New York: Hill &
Wang, 1973
Accessed on the Internet:
Condit, Philip M. “Trade Myths and
Realities” Business Roundtable, www.
altavista.com
Siping Investment Opportunities: www.
chinesebusinessworld.com/business/
vn…ng/policies.htm
United Nations; Documents about IDCs,
www.un.org
Vasquez, E.: “What Congress Should Do”
www.altavista.com
WTO Statistics on International Trade: www.
caso.cz/engl/fgures.select/select.htm
van den Cate R.- The Impact of International Trade on Less Developed Countries
Business Intelligence Journal - January, 2009 Vol.2 No.1
138 Business Intelligence Journal January
2009 139
Bosch L. - The Inevitable Role of Spirituality in the Workplace
Luidolf Bosch
THE INEVITABLE ROLE OF SPIRITUALITY IN THE
WORKPLACE
Luidolf Bosch (D. sc. agr.)
Abstract
It is a telling fact that in the literature on the issue of leadership in management has become a central
focus of concern in the nexus of contemporary management studies. “Leaders are beginning to understand
more fully the full impact that their behavior has on others, on organizations and the sustainability of the
planet”. The purpose of this study is to use qualitative rather than quantitative methods and procedures
to explore this subject. Whilst quantitative measure have been used in the literature and research, yet a
qualitative approach allows the more subjective and introspective aspects to be communicated in research
and analysis.
Business Intelligence Journal - January, 2009 Vol.2 No.1
140 Business Intelligence Journal January
Introduction
Contemporary management theory and
practice has in recent years taken cognizance
of a new trajectory in management and
workplace theoretical perspectives. This
refers to the perceived increasing importance
of research into the various aspects and
dimensions of spirituality in the business
world and the workplace. Issues such as
learning and leadership in the workplace
has been enhanced and expanded upon by
numerous research studies, which have been
particularly focused on the interrelationships
between aspects of spirituality and the
meaning of work. (Howard, 2002) As
Howard (2002) states:” Recently, the term
spirituality has gained greater currency in
organization and management development
circles” (p.230). Therefore, the study of
spirituality in the workplace is no longer
seen as a peripheral concern in management
praxis but rather as a subject that can
throw considerable light and understanding
on managerial issues and the process of
leadership, as well as on learning processes
in the workplace and organization.
Furthermore, the study of spirituality has
begun to be seen as an indispensable part
of managerial and organizational success.
Howard (2002) goes on to the state that there
is an “…explosion of interest in spirituality
as a new dimension of management
“(Howard, 2002, p. 230). On the other hand,
that problematic of this area of research
must also be borne in mind. The study of
workplace spirituality is a provocative and
sensitive issue that needs to be studied in-
depth and understood in terms of its impact,
relevance and practical signifcance in the
working environment.
This paper will provide an overview of
the various aspects and components of this
study and will deal briefy with the theoretical
as well as practical issues surrounding the
topic of spirituality in the workplace.
Background
In essence, workers are an integral
part to the part of a management system.
Thus, a leader’s decisions or actions in the
workplace might positively or negatively
impact a worker’s living conditions, health,
culture, and personality. Theorists in the
feld have realized that in order to maximize
a leaders’ decision-making effectiveness in
organizations, leaders need to evaluate and
be aware of the perceptions of workers as
well as their own perceptions of their inner
spirit, moral values, and desires. Essential to
the background on any study on spirituality
in the workplace is that, in the context
of spiritual leadership, positive attitudes
and behaviors might contribute to healthy
organizations.
A central aspect that underlies this
topic is the meaning of spirituality and its
signifcance in terms of business. The terms
business and spirituality have generally in
the past been seen to refer to very different
and even opposed worldviews. However,
as this thesis will illustrate, there have been
an increasing number of studies and reports
dealing with the intersection between
business and spirituality, which is the focus
of the present thesis.
In terms of a rather simplistic defnition
of the term spirituality, this concept can be
seen as a non-rational aspect of existential
life which includes emotions, feelings
and intellectual components that provide
“meaning” to the life – world of the
individual. While it is strictly outside the
ambit of this thesis to discuss the immense
theological and philosophical dimensions of
the meaning of spirituality, yet it is important
to understand this need for meaning and
signifcation that spirituality often provides
2009 141
Bosch L. - The Inevitable Role of Spirituality in the Workplace
Luidolf Bosch
in the life of an individual, and by implication
the worker, as being a central aspect to the
background to this study. Explanations of
spirituality as a human need necessary for
aspects of advancement and learning can
also refer to the expression of the hierarchy
of human needs, as discussed by Maslow
(1970).
The study of spirituality in the
workplace is also an indicator of the
movement in Western thought since the
middle of the Twentieth Century away from
the dominance of pure materialism and
towards a realization in managerial theory
and other discourses which emphasize the
importance of an “…unseen order of things
behind the veil of materialism” (Howard,
2002, p. 321) . The distinction is also made
between spirituality per se and religion. It is
from this basis that managerial leadership and
workplace spirituality can be approached.
Furthermore as Moxley (2000) and
others have noted, the concept of spirituality
is seen to interpenetrate all areas and aspects
of life and is also an aspect that has been
ascertained as having a profound effect on
human interaction and communication. This
in turn implies that this social, psychological
and metaphysical reality will have an affect
in the workplace and needs to be taken into
account in research on management aspects,
such as learning and staff interaction.
In terms of the above points, spirituality
has obvious implications for a number of
central managerial and leadership criteria
that will be explored in this study; this refers
to aspects of leadership and management
such as morality, stress, and unawareness
of human welfare. An example of this
aspect is that the literature on organizational
and management learning has begun to
take greater cognizance of the impact and
signifcance of spirituality in varies aspects
relating to management in the workplace.
(Howard, 2002, p. 234)
Problem Statement
The problem that forms the foundational
trajectory of the research on spirituality in
the workplace is refected in statistics, report
and studies which indicate that there is a loss
of meaning and a high rate of dissatisfaction
among workers in America. For example,
Fairholm, (1996) fnds that one-fourth of
workers in America are highly dissatisfed
with their work. Central to this sense of
ennui and dissatisfaction is the general loss
of faith and direction in some determining
and meaningful stratum of reality in the
post-capitalist society as a whole. Many
contemporary theorists have realized that
despite the postmodern references to a
deconstruction of hegemonies and a suspicion
of master narratives (Howard 2002) there is
strong evidence from surveys and research
that most individuals in society are in search
of spiritual certainties. (Howard 2002)
If one translates these larger societal issue
and concerns to the level of the individual
in the workplace and the problems of
management and business, then one fnds
these issues represented in aspects such
as ethical scandals, pressure, and lack of
compassion and love from leaders.
This lack of spiritual cohesion and a
concomitant sense of shared and unifed
morality can be seen fraud and corruption in
business. For example, Grant (2003) stated
that fraud in big corporations such as Enron,
WorldCom, Global Crossing, and Adelphia
caused the stock market crash in October
2002 and led to an elimination of employee
retirement accounts. Conner and Douglas
(2005) showed that stress can negatively
affect the effectiveness of organizations by
increasing the number of absentees, turnover,
and unpredictable behaviors.
This qualitative research study will
explore managers’ perspectives in three
problem areas; namely, morality, stress,
Business Intelligence Journal - January, 2009 Vol.2 No.1
142 Business Intelligence Journal January
and lack of compassion and love; and
discover if spiritual practices help them to
lessen these problems. While this study is
aimed at contributing towards the general
assessment and understanding and relating
to the general managerial population and
spirituality, the present study is aimed at a
specifc section of that population within
a restricted geographical area. However,
it is hoped that the study of this selected
population will provide results and data that
may be tested against other samples and
population groups.
Purpose of this study
It is a telling fact that in the literature
on the issue of leadership in management
has become a central focus of concern in
the nexus of contemporary management
studies. As Howard (2002) states: “Leaders
are beginning to understand more fully the
full impact that their behavior has on others,
on organizations and the sustainability of
the planet” ( Howard, 2002, p, 236). The
purpose of this study is to use qualitative
rather then quantitative methods and
procedures to explore this subject. While
quantitative measure have been used in the
literature and research ( Heaton et al 2004)
, yet a qualitative approach allows the more
subjective and introspective aspects to be
communicated in research and analysis.
However, the central reason for using
the qualitative approach is that is it more
intrinsically suited to the exploration
of spirituality as a provides insight into
perceptions and feelings that are non-
materialistic and non-rational. The use of
more rational, objectivist and qualitative
measure was not deemed suitable to the
specifc areas of concern of this research:
namely to explore the perspective
of managers on morality, stress, and
unawareness of human welfare, and to
discover the impact of spiritual practices
such as mindful meditation, detachment
from expectations, and compassion and love
on those three areas.
In more practical terms the scope of
this study will be comprised of face-to-
face interviews with twenty managerial
professionals in commercial aviation services
within the western region of Washington
State. The purpose of the interview is to
establish these participants’ perspectives on
moral values. The interview also focuses
on determining the extent to which their
spirituality drives their decision-making
values and helps them to effciently connect
with people in organizations. The elements or
central variables that will be used include the
concepts of mindful meditation, detachment
from expectations, or compassion and love.
In scientifc methodological terms, there
are some cogent reasons for this approach
to the subject of spirituality. There are
two central approaches that are most
commonly employed in management and
business research. “Two terms often used
to describe the major research approaches
to management or organizational research
is quantitative and qualitative. Other terms
used include functionalist, objectivist or
positivist for the former and interpretivist
or subjectivist to describe the latter…”
(RESEARCH AND PARADIGMS) It is
usually the case that more emphasis is placed
on the quantitative approach and the focus
on “objective” techniques of data collection
and synthesis. A qualitative research model
on the other hand places focus on subjective
experiences, perceptions and knowledge
in order to shed light on managerial and
leadership roles and actions. This approach is
therefore more inclined towards sources and
data and knowledge that are “… conditioned
by personal mental characteristics or states,
and preferring language and description.”
(RESEARCH AND PARADIGMS)
2009 143
Bosch L. - The Inevitable Role of Spirituality in the Workplace
Luidolf Bosch
The study of perceptions and
preconceptions of management and
management research play an important
role in the choice of method and research.
In the case of the present study, the focus
in on the perceptions of managers in terms
of experiential feeling states and inner
perceptions as they relate to external actions,
decisions and affects in the workplace. An
approach that will develop around personal
and intimate interviews with the participants
will therefore necessitate methodological
criteria that are suitable to qualitative rather
than quantitative processes.
A cardinal element that has been taken
into account is the fact that in quantitative
models of research, “…interdependencies
among variables are far more diffcult to
model and to measure than dependencies.”
(Mugler) This has led many researchers to
realize that quantitative research methods
have “… brought about more insight into
what was measurable instead of what
was important.” (Mugler) This point has
been taken into account in the choice of
methodology and this study will emphasize
the “interdependencies” in terms of the focus
on moral and social perceptions rather than”
facts”; making the qualitative approach a
more appropriate point of departure.
This methodological stance also applies
to the variables that need to be identifed and
established in this study. These variables
include the following general aspects.
Firstly, the degree to which the interviewees
understand and are familiar with the three
central concepts that are being “measured”.
This refers to the three main experiential
and theoretical areas of mindful meditation,
detachment and compassion and love. The
central variable of detachment, for example,
has a large number of subcategories and
conceptual element that also become variables
in the interview situation and in subsequent
analysis and response data. These elements
are in turn related to the perceptions of the
manager’s interviews towards the aspects
of stress, morality and compassion in the
workplace and in leadership situations.
Furthermore, an element that is also
borne in mind in the research design is the
fact that a concept such as detachment is
strictly foreign to the Western manager in
its spiritual sense and therefore the research
design will need to accommodate the issue
of the correct perception and understanding
of the three main spiritual variables.
1
These
variables will in turn be related to the sites
of moral and ethical perception expressed by
the interviewees and particularly to the way
that they perceive these main variables in
terms of the affect they have on managerial
decision, actions and approach. This will
also lead to many interrogatives forms of
questioning that will attempt to elicit the
responses of the participants that can be
formalized and logically interpreted.
Significance of the study
In the frst instance, the signifcance
of this study builds on the results and the
potential for further study that have been
revealed in contemporary research. For
examples, Fairholm‘s study (1996) indicated
that nearly 85% of participants replied yes
in response to the question of whether or
not leaders’ spirituality infuenced their
organizations. Furthermore Novak (1996)
suggested that spirituality is needed for
business life. In this regard Cavanagh
(1999) elaborated, “[Spirituality] helps the
business person to become more centered on
the important things in life: God, family, and
a physical world that can be passed on to our
children” (p. 193). Garcia-Zamor (2003)
has observed the awakening of realizing
1
The term ‘ detachment” will be extensively analyzed and dis-
cussed in terms of its Buddhist and Eastern derivations and also
in terms of its Western applicability.
Business Intelligence Journal - January, 2009 Vol.2 No.1
144 Business Intelligence Journal January
the needs of spirituality in the workplace.
In terms of the link between morality with
spirituality, Thompson (2004) has stated,
“Spiritually engaged leadership can build
moral solidarity by enabling the integration
of intellectual, affective, material, and social
elements of collective morality” (p. 32).
There have also been instances of larger
companies and corporations realizing the
signifcance of these studies. For instance
Boeing, AT & T, and Ford have developed
spiritual training for their executives.
The present study intends to contribute
to the growing research into this subject
area. It intends to do so by focusing in
three central areas that have been identifed
as having signifcance and ramifcations
for managerial leadership as well as other
business practices. These refer to the spiritual
practice of mindful mediation, which has
been found to be helpful in terms of making
managers aware of the use of “present
time” and immediate reality. Secondly,
the concept of detachment is a cardinal
and central principle element in the link
between spirituality and positive learning
and action. In essence detachment is an
experiential spiritual mode of understanding
which removes the barriers that separate
“self” or ego from reality and the world.
This is usually accomplished through
forms of mediation leading to insight or, in
Buddhist terms, “enlightenment” or Satori.
In this process the perceiver in the spiritual
experience of detachment become more
aware of others and less distracted by “habit
energy” or habitual modes of experience.
(Verluis, 1986) The concept and ideology
of detachment also provides managers and
workers with a possible spiritual solution
in the distancing of the self from desire
and greed; in other words detachment as
a spiritual philosophy purports to free the
sensibility and senses of the individual
from illusion and false perceptions. Finally,
compassion and love will assist the manager
in focusing on positive behaviors. Together,
practicing spirituality in the workplace is
seen as one of the central aspects in building
effective organizations.
Therefore, the signifcance of this
study in terms of the leadership dimension
of management lies in the ability of the
managers to better ascertain and understand
the motivating forces and moral proclivities
of their workforce. In a more general sense
the signifcance of a study of this nature lies
in lies in the burgeoning feld of concern and
research into non-materialist implications
and considerations that shape the workforce
and working environment and which
extends the understanding of leadership and
management.
In essence the signifcance of this study
is to add to the research on the meaning
of leadership in a spiritual context. In
this sense it is intended to deal with the
question of leadership responsibility and
the understanding that spirituality affects
the practical dimensions of leadership in
monument. Numerous studies have been
undertaken issues (Howard et all, 2004)
aimed at exploring the spiritual aspects and
responsibilities in leadership. This study
intends to add to this body of knowledge by
investigating aspects of leadership morality
and sensitivity in the workplace. It has
also been noted in the literature that issues
relating to compassion and care are still
relatively unexplored areas of research and
this study intends to make some headway in
remedying this situation.
There are various aspects that will be
explored in this context: including the issue
of spirituality and the Zen Buddhist concept
of “letting be” or detachment. These are
relatively new areas of discourse especially
in the context of management and business
leadership research. This also refers to the
exploration of the non-dualistic viewpoint
2009 145
Bosch L. - The Inevitable Role of Spirituality in the Workplace
Luidolf Bosch
that emphasizes holism and unity as opposed
to the fragmented nature of reality. (Howard
236)
A further reason for the importance
of this study is that it approaches many
essential issues that relate to the entire
discipline of leadership and management
in a compressive and holistic context. This
refers to the idea that a study of this nature
increases the possibility of moving towards
some comprehensive answers to questions
such as; is the way we work and manage
our businesses and organizations providing
a sense of primary and essential meaning
in our lives? Another question that will be
addressed within the context of this study
refects on the structure of society and
particularly on late capitalistic society in
which here has been a “loss of meaning”
This refers to questions such as ; what is
the meaning and purpose of work and how
can this be better managed to make it more
meaningful?
Nature of the Study
The nature of this study is intimately
connected to its purpose and signifcance. It
is also concerned with the realization that the
manager and leader in contemporary society
and in the workplace have a responsibility
that extends beyond the routine task of
running a business. Taking into account the
importance of the manager and business
leader in modern industrialized society
it stands to reason that their leadership
decisions and managerial approach can
have a profound effect on the larger society.
Therefore the nature of this study and the
methods that have been adopted are intended
to add to the growing body of knowledge
and research on the ways that this process of
managerial perception and spirituality in the
workplace can be advanced.
It is also important to state at this juncture
that to ascertain and take into account the full
dimensionality of the emotional and ‘feeling’
aspects of the spiritual in this research study,
it is necessary to use a broader and more
fexible qualitative rather than quantitative
research procedures and methodologies. The
purpose of this qualitative study is to explore
managers’ perspectives on morality, stress,
and unawareness of human welfare, and to
discover the impact of spiritual practices
such as mindful meditation, detachment
from expectations, and compassion and love
on those three perspectives’ areas.
In this research study, the defnitions
of mindful meditation, detachment, and
compassion and love, are dealt in relation to
the following theoretical pointers. Firstly the
concept of mindful mediation is discussed
by Thich Nhat Hanh (1987), a Vietnamse
Buddhist monk and a Zen master, who refers
to the term mindfulness as the awareness
of present time, that is, “keeping one’s
consciousness alive to the present reality”
(p. 11) . Research on compassion has a large
area of theoretical knowledge that has to
be taken into account in the understanding
of the term. Solomon (2002) combined
feeling and understanding into the meaning
of the word compassion. Finally, the word
detachment is defned by Kirger and Hanson
(1999) as to let thing go. This term is also
not unproblematic in its meaning and
refers to the central Buddhist view that all
reality is an illusion and that attachment to
illusions result in false and empty actions.
Therefore detachment refers to a “letting
go” of illusionary and false notions or views
of reality. There are many corollaries in a
modern sense to this view and while this
concept may not always be understood or
observed in its “pure” or traditional Buddhist
or Zen sense it has received a great amount
of attention as a factor in modern society
and has also been shown to have an effect on
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contemporary perceptions of the intersection
between management in the workplace and
spirituality.
This study will also determine if these
three aspects of spirituality improve
managers’ life, morality, business decisions,
leadership values, and interrelation with
their employees. The qualitative research
design is grounded in theory. This study
will use face-to-face interviews with twenty
managerial professionals who work in
commercial avionics services within the
western region of Washington State.
With regard to the above and to the choice
of a qualitative methods of data collection
and research , it is also of important to bear
in mind the dominant modes of research
which has been used in management
research to date. It is also important to take
account of the underlying philosophical
foundations of the standard research process
as it relates to management in order to
compare it with the present approach and to
stress the signifcance and functionality of
the approach that is being adopted in this
study.
Essentially conventional management
research theory has three foundational
levels to the research paradigm. These
are the meta-theoretical levels and the
philosophical or basic beliefs about the
world in which we live. The social level deals
with various guidelines dealing with how a
researcher should conduct their research.
(RESEARCH AND PARADIGMS) Thirdly
there is technical or methodological level of
paradigm construction.
What is of concern here is the
foundational or philosophical level which
is conventionality divided into fve sets
of assumption; subjectivist /objectivist
dimensions; ontological, epistemological,
axiological, methodological assumptions.
(RESEARCH AND PARADIGMS) All
of these areas have an impact on the
research process. However, central to
this thesis in terms of the subject matter
under investigation is the epistemological
foundations of the understanding of
management and leadership within the
research context. Epistemology as the
investigation of the construction and nature
of knowledge is divided into positivist and
anti-positivist points of view. (RESEARCH
AND PARADIGMS) The positivist stance
assumes that true objectivity is possible in
research; while the anti - positivist stance
suggests that knowledge and understanding
is obtained and dependent on an interaction
and interdependence between the knower
and known. It is this awareness of the
interaction suggested by the anti-positivist
mode of research that forms the basis of the
qualitative approach that is being employed
in this research study. This difference is
essential in understanding the present
research design that is being applied in the
analysis the function of spirituality in the
workplace.
There are also other assumptions within
the ambit of the research methodology
that have to be taken into account. The
distinction between Nomothetic and
ideographic approaches is also taken into
account in the choice of the methodological
foundation. Nomothetic methodology “…
focuses on an examination of regularities
and relationships to universal laws, while
ideographic approaches centre on reasons
why individuals create and interpret their
world in a particular way.” (Putman, 1983,
p. 41).
Therefore, from a conventional point
of view it is clear that the majority of
studies and research on management is
strongly related to a rigorous, systematic
and methodical investigative process. The
purpose of research in this feld is essentially
to review and process existing knowledge,
as well as to provide solutions to problems
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via the analysis of general issues. This leads
to the three central research classifcations;
namely, exploratory, descriptive and causal
or predictive. (Sarantakos, 31-35).
However, central as well to the modern
view of management research and
particularly with regard to the problematics
of learning in management is the importance
of the more holistic approach which does not
attempt to fragment or compartmentalize.
This focus here is on learning and leadership
in management as an integrative process. In
terms of human research development it has
been recognized for example that research into
human development within the management
contact “… will be increasingly concerned
with facilitating the learning of individuals,
teams and organizations through the design,
structuring and organization of work itself”
(Mcgoldrick, Stewart, and Watson 396).
This tends to suggest that there has been
a shift in management research theory
from a positivist to a more interpretive and
subjectively orientated approach – which
is the foundation of the present qualitative
approach in this study.
Research questions
The proposed research and data
collection in this study will be qualitative
and generative in nature. By this is
meant that there will be a great degree
of fexibility and openness to responses
from the interviewees. On the other hand
these responses and answers to the various
questions will of course be closely related to
various parameters dictated by the research
design and the central theoretical construct
that informs this study. The questions that
are asked will therefore have to be carefully
selected and presented so as to ensure that
a consistent and useful response pattern can
be drawn for the answers. Certain variables
will also have to be borne in mind in terms
the question design and construction. These
have been discussed in other sections of
this introduction and include the three main
issues of detachment, care and compassion
and mindfulness.
However, a central concern that affects
the construction of the questions and the
way in which they are asked is the focus on
providing adequate data and material that
will assist in proving or disproving the central
hypothesis of the study. This hypothesis can
be stated as follows.
The present study is frstly concerned a.
with establishing the connection between
spirituality and managerial concerns in
the workplace.
Secondly, this study intends to show that b.
spirituality and spiritual practices have a
profound and measurable effect on the
development and learning process of the
individual.
That this personal individual growth tends c.
to translate into actions and into aspects
such as positive motivation and the
reduction of negative work aspects and
increases in positive facets and values,
such as caring and communication.
By being aware of spirituality and d.
spiritual aspects managers can become
better leaders and can motivate and
understand their staff more effectively
As was mentioned previously, a more
phenomenological approach to the interview
process will be used in which the questions
are more interrogative and open to the fow
of responses and counter – responses; rather
then being predetermined to ft into certain
pre-selected categories. A useful guideline
in this regard is the psycho – biographical
format to qualitative research. This involves
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an interview and research methodology
which “…involves doing research with
rather than on people” ( Lips-Wiernma,
2002, Analyzing the Career Concerns….).
This implies a more interactive interview
process where the participant does not
merely respond to the questions being asked
but rather interacts with the interviewer in
an interview process that is intended to elicit
more subjective and in-depth results.
There are eight central questions that
will act as guiding questions in this study. It
should be pointed that these are basic guiding
questions and that a certain amount of latitude
will be exercised in their application. The
questions are to be seen as starting points of
inquiry that are to be amplifed and expanded
on. This will also lead to their extension into
various sub-questions and areas that will be
determined by the interactions between the
interview and the interviewee. However the
central impetus of the main hypothesis and
the central variables will essentially act as
guiding elements in the collation of the data
as well as in the analysis of the material.
The frst of these questions that will
be explored is stated as follows: to what
extent does low morality, stress, and lack
of emotional intelligence in terms of
empathy and caring for people, impact
organizations?
The central impetus of this question is
intended to explore the degree to which
the interviewee discerns a problem in terms
of the variables that have been associated
with a lack of spirituality in the workplace;
namely low morality, stress and lack of
empathy. The general intention of this
question will be to determine the extent of
the problem from the point of view of the
manager. This relates to the frst section
of the basic hypothesis to this study and
serves to explore the connection between
spirituality and the working environment.
This question can also lead to more specifc
subsections of the investigation; such as
which aspect or aspects are seen by the
interviewee to have a negative effect in the
workplace. For example, the emphasis may
be on low morality rather than on stress or
lack of empathy.
The second question is intended to
directly address the meaning and defnition
of spirituality. This question therefore builds
on for the previous one and is intended to
ascertain what the interviewee understands
by the term spirituality. In this regard
reference should be made to the theoretical
foundations of this study and to the various
defnitions and perceptions of spirituality;
particularly with regard to the differentiation
between “pure “ spiritual and applied
spirituality. ( Heaton et al 2004)
The fourth question is; in business
decision-making, does spirituality infuence
morality? This question is directed at
establishing the extent of the infuence of
spirituality in the actual process of business
and in the active workplace. This also relates
to the central hypotheses in terms of the way
that the manager perceives spirituality as an
active and “real” factor in the workplace,
rather than a theoretical construct. This
question is also intended to ascertain the
personal view that the interviewee has of
his or her spirituality and the way that this is
subjectively perceived as having an impact
on work and business activity. As was noted
previously, this question will be open to
variations and extensions in terms of the
interviewee’s responses.
The above question is followed up
with a further interrogation of the way
that spirituality affects business decision.
The following question is: What are the
perceptions of the interviewee based on?
This is intended to explore and analyze the
foundations of the view of spirituality that the
interviewee has. This will obviously include
a number of possible variations in response
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and the central intention is to remain sensitive
to personal responses that can add to the
understanding of the way that spirituality is
perceived as a means of reducing negative
aspects in the workplace and improving
the positive and functional elements in the
business and working environment. This
is an interrogative question that requires
further questioning.
Throughout the process of the interviews,
the three central variables of detachment,
compassion and mindfulness form the
background to these questions. Aspects of
these variables are therefore included in the
questions where appropriate. For example,
within the framework of the central eight
questions at appropriate junctures questions
such as, do you feel that unselfsh actions are
important in management, are asked. This
question therefore adds to our knowledge
of the way in which detachment acts as a
part of spirituality in the workplace. These
questions therefore add depth in terms of the
collation of data and analysis.
The following question is intended
to elicit a more personal and subjective
response which builds on the previous
views and answers that have already been
produced by the earlier question. The sixth
central question is: in practicing spirituality
in the workplace, how do managers guard
their souls, in the manner of not letting the
mind be deluded by greed and negative
emotion, as part of their leadership values?
This question obviously alludes to the main
variables and particularly to the centrality
of the concept of detachment as a spiritual
means of improving workplace functionality
and the avoidance of negative aspects such
as greed.
This question is followed by more in-
depth questions that are aimed at eliciting
extensive information and data that can be
analyzed in terms of the central theoretical
constructs of this study. The seventh
question used in the interview process is: Is
there a paradigm shift when the managers
face temptations that go against their moral
values, and, if so, how? This question is
intended to explore the world-views and
the changes in the perception of reality
that is engendered by the understudying of
spirituality in the workplace. This is followed
by the fnal question which is: To what extent
does having compassion and love continue
to shape managers’ interrelation with their
subordinates?
These questions will subscribe to the
phenomenological and qualitative approach
that has been suggested in this study.
Central to this process will be the theoretical
distinction between pure and applied
spirituality – although it should be borne
in mind that this is in reality an artifcial
separation. For the purposes of analysis
however the personal interview situation
allows for an in-depth approach which can
be used to ascertain the relationship between
pure and applied concepts of spirituality.
Conceptual or Theoretical
Framework
This qualitative research study is based on
general system theory, originally introduced
in 1948 by Ludwig von Bertalanffy, in which
all parts are interdependent components
in a system. That means in business
organizations, in spite of the unpredictable
behaviors of human beings, people are
still part of a management system that
needs to be understood in order to make it
work effciently. The conceptual patterns
underlying systems theory have been
chosen as the most appropriate theoretical
framework as it allows for the analysis of
interaction on many levels and, furthermore,
provides a theoretical scaffolding, as it
were, that is able to take into account the
more subtle and interactive nature of this
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study. To this end a more phenomenological
theoretical approach will also be used in
this research study in order to provide an
interpretive platform for an analysis of the
many subjective perceptions and constructs
that that will form an integral part of the
process of the research.
The conceptual approach in this study
is therefore aligned to a subjective and
inter-subjective stance in terms of the data
collection. In a study by Heaton et al ( 2004 )
this conceptual model is seen as an approach
to organizational change from the “ inside”
rather than from the “outside ! in”. In other
words, this theoretical approach is reliant on
subjective interpretations from individual
responses to spirituality. This approach is
also dependent on the understanding and
implication of a more spiritual approach.
Conventional approaches to
changing people and culture involve
aligningorganizational systems and
structures with desired behaviors…We
may characterize this kind of approach
as “outside ! in” because it aims to
change human behavior by frst changing
something outside the individual,
which in turn defnes or constrains
behavior. Recognition of spirituality as
the fundamental aspect of the human
personality suggests that there may be
another approach to managing change.
While traditional approaches aim at
managing change from the outside in,
knowledge of the spiritual foundation of
life suggests that change can be spiritual
foundation of life can grow and develop
in ways consistent withorganizational
goals.(Heaton et al 2004 )
The above quotation is cited at length
because it is important implications for the
theoretical foundations of this study. In
essence, what Heaton states is that positive
change and learning in the workplace is not
only determined by external factors and
actions. Change in the workplace can come
from within – or rather change within the
emotional, spiritual and emotional complex
of the leader or worker can be the precursor
to major changes and in the advancement
of the learning process in the workplace.
This is related to the three central variables
that will be the focus of this study: namely
the subjective implications of mindful
mediation, the concept of detachment and
the meaning of love and compassion. These
are the central theoretical aspects that inform
this study.
In terms of the history of research theory
and techniques associated with the study
of spirituality, a distinction has been made
between interior forms of spiritual expression
and its outer manifestations. ( Tishlet et al,
2002) The term interior spirituality refers
to the inner and subjective emotional states
in the individual. These forms of experience
are not easily accessible or amenable to a
quantitative or objective scientifc approach.
Within this context, the study of spirituality
in the workplace must therefore fall within
the theoretical category of internal spiritual
experiences.
The history of the qualitative and more
descriptive approach to the study of the
phenomenon of spirituality as a subjective
experience and a legitimate focus of scientifc
research, has an impressive history since the
latter half of the Twentieth Century. For
example, one might mention scholars like
Charles Tart, who is renowned for research
into altered states of spiritual consciousness
and who has encouraged the recording of
reports of subjective spiritual experiences
and “ trance” states. ( Tishlet et al, 2002)
Tart has stated that there are at present (
2001) more than 2000 studies on the effect
of spiritual experiences.
There are also numerous studies which
show that spiritual experiences and the
centrality of spiritual aspects in everyday
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life has been seen to provide positive
psychological and physiological effects.
“ For example , spiritual well-being has
been purported to provide a signifcant
inner strength to people, especially in times
of uncertainty and chaos in life” ( Tichter,
2002, p. 208). This view also coincides
with research on the propensity of spiritual
well-being to enrich life and personality.
Numerous studies attest to the realization of
spirituality as a factor that enhances positive
proclivity and action in human life.
Spiritual development is the process
through which all aspects of the
personality grow from experiences of
pure spirituality. Like most psychological
processes, spiritual development occurs
in stages representing a hierarchy of
increasingly more abstract, and thus
more inclusive, levels of functioning.
(Heaton et al 2004 )
Another very signifcant aspect of the
theoretical foundations of this study is that
there is a sense of progression or movement
from a sense of “pure” spiritually to an
“applied” spirituality. This means that true
inner and subjective spiritual experience is a
central motivating force in the manifestation
of that spirituality in life and work. (Heaton
et al 2004) Therefore “applied” spirituality
is in reality inner spirituality in action
in the external world. This aspect has
enormous implications for the present study
as it suggests that the inner signifcance
of spiritual experiential aspects such as
detachment or “ letting go” ( Zazen in Zen
Buddhism ) as a deeply felt experience in
the subjective nature of the individual, is
translated into understanding and action
which can practically improve leadership
capabilities and interaction in the workplace.
As Kinjerski and Skrypnek (2004) state, this
theoretical model,
… is the foundation for a comprehensive
research program for investigating an
“inside ! out” approach: investigating the
practical value of growth of spirituality
in the individual as the basis for
exploring its impact on organizations. It
can focus research by measuring applied
spirituality in terms of behavior, sensory
perception, mental processes, decision-
making, emotional intelligence, intuition,
insight and wisdom. This model also
suggests a means to develop applied
spirituality through the experience
of pure spirituality. (Kinjerski and
Skrypnek, 2004)
This view and the application of
spirituality in the workplace lead to positive
aspects that coincide with effects such as
increased creativity and commitment and
a reduction of aggression and hostility, as
evidenced by Arias’ work in positive effects
of meditation on executives’ performance
(Arias, J.C., 2008).
Definitions
Spirituality
The central concept of spirituality is
problematic from a number of points of
view. However, as has been noted, the
concept of spirituality is a multivalent but
internally uniform concept that, for the
purposes of research, can be can be divided
into “pure’ and “applied” spiritually. Pure
spirituality refers to “…silent, unbounded,
inner experience of pure self-awareness, to
devoid of customary content of perception,
thoughts, and feelings” ( Heaton et al,
2004). While applied spiritually refers the
“…domain of practical applications and
measurable outcomes that automatically
arise from the inner experience of
‘pure spirituality’”(Heaton et al, 2004).
Furthermore, the term spiritual development
refers to a “…holistic process of positive
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152 Business Intelligence Journal January
transformation through experience of pure
spirituality.” (Heaton et al, 2004).
Detachment and “letting go”
Detachment is a complex concept which is
often diffcult to understand for the uninitiated
Western person who is used to rational and
logocentric concepts. Detachment implies
a removal of attention and concern from
what is seen as the illusionary nature of
reality. In more practical and applied terms,
detachment can be understood as the ability
to go beyond self-concern and thoughts of
self-only; in other words it is a spiritual
attitude that transcends the personal ego and
allows the individual to see the reality of the
situation unencumbered by the constraints
of personal ambition, greed etc’ At it most
pure and intense it is known as “Letting
go of body and mind” in Zen Buddhism
as exemplifed in the works of Zen master
Dogen.
In some sense, “Body and mind
dropped off” refers to the letting go of
our ancient, twisted karmic attachment
to this limited body and mind. We are
conditioned to try to acquire objects
to embellish, enhance, or improve this
body and mind. So just dropping off
body and mind is to abandon that effort
of acquisitiveness, and is a statement of
the ultimate for Dogen. (Leighton)
Assumptions
The frst and most important assumption
that infuences this study is that there is
in innate connection between spirituality,
human development in society and learning
and growth in the workplace. This main
assumption is, as has been discussed in the
various subsections to this introduction,
a relatively well accepted position taken
by many experts and researchers. This
assumption also has further implication that
leads to other assumptions.
If this frst aspect is assumed to be correct
then it follows that the impact
and the effect of spirituality is a factor
that has a profound effect on business,
leadership and managerial research. The
assumption that directly fows from this
is that understanding spirituality from a
refective and subjective point of view can
therefore help to improve the leadership
and other managerial considerations in the
workplace.
A further central assumption is that
spirituality is a positive aspect and not a
negative one. However caution must be
taken in the ready acceptance of this view
as spiritual aspects may also cause friction
in the workplace due to factors such as
opposing ideologies and is therefore an
aspect that is borne in mind in the overall
assessment of this study.
Another assumption is that the measure
and assessment of spirituality in the
workplace can be generally obtained in
an acceptable scientifc context through
theoretical constructs such detachment,
mindfulness and compassion and love. This
is also associated with another assumption;
namely that these essentially Eastern
concepts can be applied with positive effect
in a Western social and business environment.
This implies all spiritual experiences have
a common foundation and that the spiritual
experiences in terms of different cultures and
societies are fundamentally interchangeable
and mutually applicable.
However, the most important assumption
that infuences this research on spirituality
is that the pure spiritual experience, as in the
case of detachment from illusion, “…gives
rise to positive and measurable changes in
health, personality, mental functioning and
behavior “(Kinjerski and Skrypnek, 2004).
Kinjerski and Skrypnek state that this in
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turn leads to an improved work ‘spirit’.
“Specifcally, the experience of spirit at work
is linked with increased creativity, honesty,
trust, and commitment in the workplace,
along with an enhanced sense of personal
fulfllment of employees” (Kinjerski and
Skrypnek, 2004). This view also leads to the
theoretical construct of a “spiritual intellect”
which is seen by some theorists as the link
between pure spirituality and spirit in the
workplace.
There is a fnal major assumption that
pervades this study. This is that a form of
spiritual intelligence exist that functions
outside of the parameters and beyond the
ambit of the formal structures of faith and
religion and which informs and affect the
growth and develop and management and
workers in the workplace.
Scope, Limitations, and
Delimitations
The scope of this study is necessarily
ambitious. It is an attempt to add signifcantly
to the developing store of knowledge and
research in a meaningful and practical way.
On the other hand, instead of attempting
as large –scale and possibly unmanageable
research project a large sample base; this
study is purposefully limited and prescribed
to a certain area as well as to interviews
within a specifc discipline. While this is
from one perspective a limitation, it is also
an advantage in that the study by confning
itself to an intimate data sample and base and
using a qualitative methodology it is intended
that the study will provide an in-depth and
penetrative set of results, rather then a large
discursive overawe; which will, hopefully,
add to the discourse on this subject in a
pertinent and realistic way. This also refers
to an obvious limitation which is the fact
that externally, the study does not represent
classes of managerial professionals not
interviewed, such as those from educational
institutions, health-related industries, law
enforcement, or global businesses.
The methodology used could also be seen
as a limitation. The qualitative method does
not allow for the wide array of statistical
and scientifc tools that could give greater
legitimacy and weight to the study. However,
as has been suggested in the above sections,
the qualitative approach is seen to be the
most fruitful and successful approach to the
topic.
This also relates to the fact that the
qualitative research internally constrains
itself within the perceptions of Buddhism
in terms of mindful meditation, detachment,
and compassion and love. On the other hand
this is a purposeful limitation in terms of
the criteria and variables that are the centre
of the research design. However there is
also delimitation in this study, which is
that although the defnitions of spiritual in
this study are based on Buddhist doctrine,
the spiritual practices can be applied to
everybody, regardless their beliefs. Thus, the
study delimits biased judgments, and brings
the fndings closer to reality. A cardinal that
adds to the scope of this study is that, “…
interdependencies among variables are far
more diffcult to model and to measure than
dependencies.” (Mugler)
There is no empirical research to prove
that one method of practicing spirituality
in the workplace is better than another
in creating effective organizations. Thus,
while the attributes of the enneagrams are
different, the purpose is the same. That is
to help managers to connect themselves
harmoniously and positively to other
people in organizations, and to develop the
workplace into an enjoyable environment.
However, one challenge for this study might
be that participants in the interviews, being
in good part from a western culture, may not
be able to relate well to some of the eastern-
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culture-based concepts being explored. For
example some may not value detachment
from expectations. Another challenge
might be that the study could be quite time-
consuming.
Conclusion
The key elements of this study can be
summarized as follows. There are numerous
studies that emphasize the increasing
importance of concepts of spirituality in
management and leadership research. “The
management feld will beneft greatly from
incorporating a spiritual perspective into
our theories as well as into our research and
theory development process” (Neal et al.,
1999, pp. 182-3). This has led to a growing
consensus that spirituality is central factor
which can contribute to the enhancement
and development of leadership, learning
and communication in the modern business
workplace.
Therefore, the present study has attempted
to use various concepts of spiritual praxis
in research to determine their necessity,
effectiveness and relevance to the workplace
environment. Concepts derived from mainly
Eastern spiritual theory have been included
in the research design. These include the
aspects of detachment, mindfulness and
mindful mediation and compassion and love.
These aspects are explored in terms of the
perception, attitudes and views of managers;
as well as in terms of their subjective
assessments of morality, stress and care
without that environment. The central aim
of the study is to ascertain the relevance of
spirituality within the parameters of this
theoretic research design.
To this end a qualitative methodology
will be used. This is seen to be the most
appropriate and advantageous method of
collation of the relevant data. The central
reason for this is that the subject matter is
concerned with subjective expression and
states of being which are more amenable
to an intimate and personal interview
situation.
The intention of this study is not only
to ascertain the necessity for spirituality in
the workplace but also to determine, via
the directed interviews, what aspect and
elements are seen by managers to more or
less effective in terms of the applications of
spirituality in the workplace.
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Business Intelligence Journal - January, 2009 Vol.2 No.1
158 Business Intelligence Journal January
2009 159
Panagiotis D.E. - Proftability of the Greek Football Clubs: Implications for Financial Decision Making
Dimitropoulos E. Panagiotis
PROFITABILITY OF THE GREEK FOOTBALL
CLUBS: IMPLICATIONS FOR FINANCIAL
DECISIONS MAKING
Dimitropoulos E. Panagiotis
Abstract
In the present study we examine the profitability of the football clubs participating in the first division
of the Greek Football League, as well as the factors that contribute to this performance, over the period
from 1994 to 2004. The results indicated that the profitability of the football clubs is positively associated
to their short run success, but not on the long run success and seasonal uncertainty of the league.
Additionally, the size of the club, measured as a fraction of the club’s assets, is a distinct factor which
affects the financial performance positively. Finally, the level of asset turnover and ROA reported by the
clubs proved to have a significant positive impact on profitability suggesting that those football clubs that
are able to use their assets efficiently, are more resourceful by means of profitability.
Business Intelligence Journal - January, 2009 Vol.2 No.1
160 Business Intelligence Journal January
Introduction
Soccer has become a capital market, the
main characteristic of which is investment of
uncounted billions. Extravagant expenditure
for transfers, astronomical sums for signing
of contracts with footballers, disputes
and battles among sponsors to get ‘star’
footballers to promote and advertise their
products, endless negotiations to obtain a
share of the TV rights, professional managers
and fnding the model team for potential
investors piece together the current soccer
environment.
There are some indications with regard
to the relationship between soccer and its
macroeconomic consequences for the global
economy. Certainly, the consequences are
not as wide-ranging as those of a petroleum
crisis in leading the economy out of a recess
into a boom or vice-versa. One certain thing
is that the impacts of a great soccer event are
felt on an economy, even to a small extent.
ABN-AMRO investigates these impacts
in its Soccernomics 2006 report on the
occasion of the World Cup that took place
in Germany last July. Data from the past
show that the World Cup winning country
enjoys, on average, an extra bonus of 0.7%
in its economic growth rate. On the other
hand, the country whose team loses in a
World Cup Final also loses an average 0.3%
from its annual economic growth rate. Now,
with regard to companies, the income of the
20 largest European clubs reached record
levels in the period 2004/05, for the frst
time exceeding the barrier of 3 billion euros
(Source: Deloitte, Soccer Money League
2006). A 6% growth rate on an annual basis
has been shown in the income of the football
‘giants’ for the said period, exceeding many
growth rates of other signifcant economic
sectors.
In Greece, with the exception of 2004,
when the Greek national team won the
European Cup, no signifcant achievements
have been recorded on an individual club
basis. This is probably the main reason why
the overwhelming majority of the teams
appear to be in diffcult fnancial straits,
having accumulated great losses. Our
main aim in this paper is to investigate the
distinct factors (athletic and fnancial) that
are related to their fnancial performance of
Greek teams. To our knowledge, this is the
frst study within the Greek football setting
which tries to distinguish the signifcant
determinants of proftability, thus our study
adds to a growing body of research on
sports fnance. The remainder of the paper
is organized as follows: In the next section
we provide a short overview of the relevant
regulatory framework. Section 3 develops
the theoretical background while in section
4 there is a description of the data and the
methodology employed. Section 5 presents
the empirical results. Section 6 concludes
with a summary.
Regulatory Framework
Professional soccer in Greece is governed
by the rules and provisions enforced by the
Ministry of Development. The competent
body for the supervision and observance
of the regulatory framework as well as
the smooth running of the Super League
is the Hellenic Football Federation. After
2003, and in response to the innumerable
irregularities ascertained in this sector, a new
inspection body was established in the form
of the Professional Athletics Committee,
which is now, as an independent authority,
the main inspector and principal guarantor
of transparency and legality in the feld of
professional athletics. The Athletic Football
Clubs have fnancial and administrative
independence. They keep minute-books of
the decisions of the boards of directors and
third class accounting books as per the Greek
2009 161 Dimitropoulos E. Panagiotis
Code for Accounting Books and Records
and draw up a budget and balance sheet. The
Athletic Football Clubs are obliged to submit
to the Professional Athletics Committee, at
least 15 days before the season begins, an
income and expense budget for the new
season, balanced and verifed by at least one
certifed public accountant. Nevertheless,
signifcant problems with regard to the
mismanagement of club fnances have
remained unsolved for decades. Thus, in
accordance with recent data, the accumulated
accounting losses have exceeded the share
capital of the Athletic Football Clubs and
their operation should normally have been
curtailed. However, the paradox is that, with
the tolerance of the authorities and under the
legal shield provided by ARTICLE 44, LAW
1892/90, soccer teams continue to compete
in the championships, while their debts are
either prescribed or settled by long-term
installments which run the risk of never
being collected.
Certainly, there is no uniform Community
legislation to determine what should be
applied in every European football league.
Each country has its own federation that
determines its own rules and penalties in
cases of debt. The strictest countries in
respect of debts are France, Italy, Austria,
Denmark, Hungary and Switzerland. More
specifcally, in Italy – and the same stands
in Belgium – when the debt of an Athletic
Football Club exceeds a specifc amount,
the team is relegated to a lower division. In
Switzerland, when a soccer team has debts,
it is deprived of its professional status and
is relegated to the 1st amateur division. In
Spain, a case of relegation due to debts has
never been recorded. In England, a team that
has debts loses ten points until they have
been settled (which rarely happens more
than twice in one team, since it is ultimately
deprived of its professional status should
it not comply). In any case, the current
situation in Greece favours the phenomenon
that the majority of teams, either to a large
or small extent, show fctitious losses, which
at all events are written off by the State, in
order to avoid paying taxes.
Theoretical Background
Research on sport economics has been
extended on a variety of issues and felds of
sports during the last three decades. Since
the seminal work by Sloane (1969, 1971)
many researchers have attempted to examine
the special features of the economics of the
professional team sports. Bird (1982), Cairns
et. al (1986) and Dobson and Goddard
(1992, 2001) among others, have tried to
determine the characteristics of the demand
function for sport events and the factors that
affect the market equilibrium. Under this
framework, Janssens and Kesenne (1987),
Jennett (1984), Peel and Thomas (1988)
extended the aforementioned work and
introduced match and seasonal uncertainty
as distinct factors that affect the demand for
sport events. The intuition behind the above
mentioned argument is that the uncertainty
of an outcome is positively associated to
match attendance since spectators generally
prefer a close match than a one-sided match
(Borland and Lye, 1992).
Nevertheless, it was in the beginning
of the 1990’s that the researchers’ interest
shifted to the increased importance of
fnancial management for the viability
and prosperity of professional teams.
Two distinctive studies by Szymanski and
Smith (1995, 1997) examined the impact
of market and wage size on the fnancial
performance of the English football clubs.
They documented that the English football
industry is a mature industry with declining
demand, including many loss reporting
teams which assets are under-utilized and
require increased investment funds in order
Panagiotis D.E. - Proftability of the Greek Football Clubs: Implications for Financial Decision Making
Business Intelligence Journal - January, 2009 Vol.2 No.1
162 Business Intelligence Journal January
to improve the quality of their product and
to meet governmental safety standards.
Moreover, a relative study conducted
by Burger and Walters (2003) addressed
the issue of market size and the fnancial
performance of the teams participating
on the US major league baseball. Their
fndings document that market size and the
team performance are strongly associated
with marginal revenues and thus teams’
motivation to bid for new talent players.
Finally, a recent paper by Pinnuck and Potter
(2006) carried out within the Australian
Football League examined how the on-feld
football success impacts on the off-feld
fnancial performance of the AFL football
clubs. Their results provide evidence that
the short and long run success of the clubs
and the uncertainty of the outcome affect
attendance at AFL matches. Additionally,
they argue that changes in membership
are a positive function of past success and
found to be directly associated to marketing
expenditures made by the club.
However, one important limitation of
all the aforementioned studies is that they
have restricted their research agenda trying
to determine the relation between sport
characteristics (athletic success) and revenue
creation. No research until now has properly
addressed the issue of proftability and the
specifc factors that contribute to proft
making. The aim of this paper is to enrich the
existing literature by attempting to identify
the effects of frm specifc characteristics
(size, fnancial risk, liquidity, cash fows) on
the proftability of the football clubs.
Data & Methodology
Data Selection Procedure
The sample of our study comprises data
from 17 football clubs participating on
the frst division of the Greek professional
football league over the period from 1994
to 2004. We chose the specifc period of
investigation for two reasons. First of all, we
needed to be sure that we had enough frm-
year observations in order to conduct the
time-series tests and secondly because we
wanted to control for any bias that maybe
exist on the fnancial data due to unexpected
success of the Greek national football team on
the Euro 2004 championship. Each football
club had to meet some specifc criteria in
order to be included in the sample:
Each club must have full fnancial data 1.
of earnings, assets, liabilities and cash
fows published in their annual fnancial
statements, audited by an independent
chartered accountant.
Each club must have suffcient data 2.
regarding their on-feld performance
and specifcally, league position, wins
achieved in a season, league scores and
tickets sold.
Each club must have participated at 3.
least once in the 1st division of the
professional football league.
All fnancial data were extracted from the
I.C.A.P. database while data concerning the
clubs athletic success were hand collected
from the website of the Greek Football
Federation (E.P.O.). No further trimming on
data was conducted since we did not want to
limit our sample to a small number of clubs
because this could bias the fnal results.
Model Specification for Evaluating
Profitability
In this section we attempt to identify the
effect of frm specifc characteristics on the
proftability of the football clubs. However,
there is no previous research on this type
2009 163 Dimitropoulos E. Panagiotis
of business organization that has properly
addressed the issue of proftability and the
specifc factors that contribute to proft
making. Therefore it is necessary to examine
additional fnancial and frm quality variables
in the context of the following model:
PR
it
= ?
0
+?
1
SIZE
it
+ ?
2
LEV
it
+?
3
LIQ
it
+?
4
CF
it
+ ?
5
??
it
+ ?
6
ROA
it
+ ?
7
ROE
it
+ ?
8
WIN
it
+ ?
9
PASPOS
it
+?
10
UNCERT
it
+ v
it
(1)
PR is the ratio of earnings to sales, SIZE
is the natural logarithm of total assets, LEV
is the ratio of total debt to equity, LIQ is the
ratio of current assets to current liabilities,
CF is the ratio of cash fow to total assets, AT
is the asset turnover ration measured by net
sales over total assets, ROA is the returns on
assets estimated as net income over assets
and ROE is return on equity estimated by
dividing net income over shareholders’
equity. WIN is the number of wins achieved
by the team in every season, PASPOS
is a dummy variable taking the value of
(1) if the team has fnished in the six frst
positions of the ladder in the previous three
periods and zero otherwise, UNCERT is the
league’s uncertainty measured by the ratio
of the points that each team lags from the
champion divided by the total points of the
champion team.
As Majundar (1997), and Barbosa and
Louri (2005) argue, frm size impacts
signifcantly on frm level performance.
Large frms may be able to generate
superior performance since they can exploit
economies of scale and organize their
activities more effciently resulting into
increased proft streams compared to small
frms. Thus if this intuition is valid we expect
large clubs (according to total assets) to be
more effcient by means of proftability and
this will be depicted by a positive coeffcient
on the SIZE variable.
Additionally, frm specifc choices are
closely related to fnancial risk and the
asset management effciency may lead into
heterogeneity within the industry which can
help explain frm performance (Copeland
and Weston, 1983). In order to control for
fnancial risk that can be associated to the
club’s fnancial performance we introduced
the variables of leverage, liquidity and the
level of cash fows per assets. A positive
and signifcant coeffcient on either LIQ or
CF indicates that football clubs are able to
convert assets into cash thus resources can
be used quickly so as to respond to proft
opportunities. Furthermore, leverage is an
indicator of the risks associated with the
probability of default by the frm and as
Penman (2001) argues the lower the leverage
ratio the greater the fnancial security and
the higher the level of the expected profts.
Thus according to the previous discussion
we expect to fnd a negative and signifcant
coeffcient on the LEV variable.
Moreover, the asset turnover and return
on assets (ROA) variables are introduced in
order to control for the level of effciency
in assets management. It is expected that
the higher the ratio of sales over assets and
ROA the higher the proftability, since clubs
are more able to differentiate their product
resulting into increased profts. Therefore,
a positive and signifcant coeffcients is
expected on the AT and ROA variables.
The last fnancial variable employed in our
study is return on equity (ROE) or how
well managers are employing the funds
invested by the football club’s shareholders
in order to generate returns. ROE is the
most comprehensive indicator of a frm’s
performance thus we expect a positive and
signifcant coeffcient on the ROE variable.
Also, prior research by Forrest et. al
(2002), Forrest and Simmons (2002),
Panagiotis D.E. - Proftability of the Greek Football Clubs: Implications for Financial Decision Making
Business Intelligence Journal - January, 2009 Vol.2 No.1
164 Business Intelligence Journal January
Borland and Macdonald (2003), document
that proftability is signifcantly affected by
the short and long run success of the football
club and the uncertainty of the outcome.
Under this framework the variable we use
in order to control for the recent athletic
success of the football clubs is the number
of wins (WIN) the team has achieved during
the season. If there is a positive association
between attendance and the short run success
of the team then we expect to fnd a negative
and positive coeffcient on WIN variable
respectively.
Additionally, proftability may also
be affected by the long run success of the
football club since we can assume that the
athletic performance persists over seasons
thus a team which is successful on the long
run is more possible to be also successful
on the short run which in turn leads into an
increase in attendance (Pinnuck and Potter,
2006). The long run success (PASPOS) of
the football clubs is controlled by using a
dummy variable which takes the value of
one (1) if the team has fnished within the
six frst positions of the ladder and zero (0)
otherwise. The reason for the aforementioned
defnition is that in Greece the frst six places
of the 1st division league give the ability to
the runner ups to participate into the major
European football events, Champions
League and UEFA cup and this could result
into increased revenue either by the UEFA
organization, or by sponsors, TV licensees
and tickets. Consequently if there is a
relation between the long run success of the
clubs and attendance this will be depicted by
a signifcant and positive coeffcient on the
PASPOS variable.
Finally, Jennett (1984) argues that the
uncertainty of the match outcome impacts
positively on proftability since the closeness
of the competition attracts more spectators. In
order to control for the seasonal uncertainty
(UNCERT) we constructed a ratio of the
points that each team lags from the champion
at the end of the season, divided by the total
points of the champion team. The smaller
the aforementioned ratio is, the higher the
uncertainty of the championship which in
turn will result into increased attendance.
Thus if this intuition is valid we will expect
a negative and signifcant coeffcient on the
UNCERT variable.
Empirical Results
Descriptive Statistics & Correlations
The following Table 1 includes the
descriptive statistics of the sample variables
for the whole period of investigation from
1994 to 2004. Regarding the on-feld variables
Greek football clubs achieve 13 wins during
a season and the overall championship can
be characterized by moderate uncertainty
(0.43). As for the accounting variables we
can argue that football clubs in the Greek
professional league suffered from severe
losses throughout the period of investigation,
since the median net proft margin is negative
and up to -1.10. Also the Greek football
clubs are small in size, highly leveraged
(1.29) and face intense liquidity problems
since their current assets cover only the
26 per cent of current liabilities. Finally,
the median AT value of 0.31 indicates that
professional football clubs do not use their
assets productively in order to generate sales
and this fact is depicted in the median values
of ROA and ROE which are negative and up
to 16 per cent and 18 per cent respectively.
Put it another way, from each euro of club’s
assets and equity, managers yield 18 cents
net loss a fact that indicates severe fnancial
mismanagement.
2009 165 Dimitropoulos E. Panagiotis
Table 1: Descriptive statistics of the sample
variables (1994-2004)
Variablles Mean Median
S
t
.

D
e
v
i
a
t
i
o
n
1
s
t

Q
u
a
r
t
i
l
e
3
r
d
Q
u
a
r
t
i
l
e
WIN 14.01 13.0 6.59 9.0 19.0
PASPOS 0.36 0.00 0.48 0.0 1.0
UNCERT 0.36 0.43 0.24 0.14 0.56
PR -2.93 -1.10 4.46 -3.44 -0.55
SIZE 6.10 6.16 0.62 5.59 6.61
LEV 2.59 1.29 3.27 0.88 2.79
LIQ 0.44 0.26 0.68 0.16 0.56
CF 1.72 0.91 3.01 0.37 2.39
AT 0.45 0.31 0.42 0.16 0.57
ROA -0.28 -0.16 0.52 -0.47 0.014
ROE -0.52 -0.18 1.81 -0.44 0.019
Sample comprises from 17 football clubs participating on
the 1st division of the Greek football league from 1994-
2004. WIN is the number of wins achieved by the team in
every season, PASPOS is a dummy variable taking the value
of (1) if the team has fnished in the six frst positions of the
ladder in the previous three periods and zero otherwise,
UNCERT is the league’s uncertainty measured by the ratio
of the points that each team lags from the champion divided
by the total points of the champion team, PR is the ratio
of earnings to sales, SIZE is the natural logarithm of total
assets, LEV is the ratio of total debt to equity, LIQ is the
ratio of current assets to current liabilities, CF is the ratio
of cash fow to total assets, AT is the asset turnover ration
measured by net sales over total assets, ROA is the returns
on assets estimated as net income over assets and ROE
is return on equity estimated by dividing net income over
shareholders’ equity.
Table 2 presents the correlation coeffcients
among the sample variables for the period
under investigation. Pearson coeffcients
are below and Spearman coeffcients are
above the diagonal. Regarding the on-fled
performance variables, there are positive
correlations between proftability and the
WIN and PASPOS variables (0.41 and
0.31 in Pearson coeffcients and 0.33 and
0.29 in Spearman coeffcients respectively)
suggesting that the short and long run of
a football club enhances its proftability.
Also the league’s uncertainty impacts
positively on the club’s proftability since
the correlation coeffcient between PR and
UNCERT is negative and signifcant on
both types of estimates (Pearson coeffcient
is -0.37 and Spearman coeffcient is -0.32
both signifcant at the 0.01 level). As for the
fnancial variables PR is positively correlated
with SIZE and AT (0.34 and 0.41 respectively
on Pearson estimates and 0.23 and 0.70 on
Spearman estimates, all signifcant at the
0.01 level) suggesting that larger clubs by
means of total assets and clubs with greater
asset utilization can achieve increased levels
of proftability. Also proftability found to be
positively and signifcantly correlated with
liquidity (0.22 signifcant at the 0.01 level)
and negatively correlated with leverage
(-0.19 signifcant at the 0.05 level).
Variables WIN PASPOS UNCERT PR SIZE LEV LIQ CF AT ROA ROE
WIN
0.74* -0.89- 0.33** 0.59** -0.018 -0.17 -0.29** 0.10 -0.21 -0.28**
1.0
(0.00) (0.00) (0.00) (0.00) (0.84) (0.060) (0.00) (0.26) (0.016) (0.00)
PASPOS
0.75** -0.73** 0.29** 0.60** 0.00 -0.09 -0.26** 0.025 -0.26** -0.33**
1.0
(0.00) (0.00) (0.00) (0.00) (1.0) (0.32) (0.00) (0.78) (0.003) (0.00)
UNCERT
-0.87** -0.75** -0.32** -0.56** 0.079 0.13 0.24** -0.09 0.25** 0.26**
1.0
(0.00) (0.00) (0.00) (0.00) (0.38) (0.13) (0.00) (0.32) (0.006) (0.00)
Table 2: Correlation coeffcients among the sample variables (1994-2004)
Panagiotis D.E. - Proftability of the Greek Football Clubs: Implications for Financial Decision Making
Business Intelligence Journal - January, 2009 Vol.2 No.1
166 Business Intelligence Journal January
Variables WIN PASPOS UNCERT PR SIZE LEV LIQ CF AT ROA ROE
PR
0.41** 0.31** -0.37** 0.23* -0.14 -0.07 -0.17 0.70** 0.10 0.11
1.0
(0.00) (0.00) (0.00) (0.011) (0.10) (0.43) (0.052) (0.00) (0.24) (0.22)
SIZE
0.58** 0.59** -0.54** 0.34** 0.021 -0.034 -0.36** -0.22* -0.08 -0.24**
1.0
(0.00) (0.00) (0.00) (0.00) (0.81) (0.71) (0.00) (0.011) (0.34) (0.00)
LEV
-0.034 -0.017 0.073 -0.19* 0.041 -0.07 0.44** -0.22* 0.08 -0.13
1.0
(0.71) (0.85) (0.42) (0.030) (0.65) (0.44) (0.00) (0.012) (0.37) (0.15)
LIQ
-0.23** -0.13 0.22* 0.24** -0.40** -0.052 -0.098 -0.34** 0.45** 0.35**
1.0
(0.00) (0.14) (0.013) (0.00) (0.00) (0.56) (0.27) (0.00) (0.00) (0.00)
CF
-0.006 -0.055 0.024 -0.17 -0.16 0.049 -0.17 0.003 0.051 0.015
1.0
(0.95) (0.54) (0.78) (0.060) (0.067) (0.59) (0.051) (0.97) (0.57) (0.86)
AT
-0.069 -0.10 0.049 0.41** -0.33** -0.20* -0.19* -0.037 -0.13 0.041
1.0
(0.44) (0.25) (0.59) (0.00) (0.00) (0.024) (0.035) (0.68) (0.15) (0.65)
ROA
-0.47 -0.062 0.19* 0.15 0.11 0.015 0.003 0.046 -0.036 0.85**
1.0
(0.60) (0.48) (0.030) (0.091) (0.21) (0.87) (0.97) (0.60) (0.69) (0.00)
ROE
-0.14 -0.24** 0.11 0.048 -0.21* -0.29** 0.11 0.037 0.13 0.25**
1.0
(0.12) (0.007) (0.20) (0.59) (0.017) (0.21) (0.68) (0.15) (0.005) (0.00)
Pearson correlations are below the diagonal and Spearman correlations are above the diagonal.
P-values are in the parentheses, (**) indicates signifcance at the 0.01 level and (*) indicates signifcance at the 0.05 level
(two-tailed test). Sample comprises from 17 football clubs participating on the 1st division of the Greek football league from
1994-2004. WIN is the number of wins achieved by the team in every season, PASPOS is a dummy variable taking the value of
(1) if the team has fnished in the six frst positions of the ladder in the previous three periods and zero otherwise, UNCERT is
the league’s uncertainty measured by the ratio of the points that each team lags from the champion divided by the total points
of the champion team, PR is the ratio of earnings to sales, SIZE is the natural logarithm of total assets, LEV is the ratio of total
debt to equity, LIQ is the ratio of current assets to current liabilities, CF is the ratio of cash fow to total assets, AT is the asset
turnover ration measured by net sales over total assets, ROA is the returns on assets estimated as net income over assets and
ROE is return on equity estimated by dividing net income over shareholders’ equity.
Pooled regression results
The fnal Table 3 presents the results
from the estimation of the proftability
equation. In order to control separately the
impact of fnancial and athletic variables
on proftability we decomposed the initial
equation on two separate equations, where
in the frst we regress the proftability
variable on the WIN, PASPOS and
UNCERT variables only, while in the second
modifcation we regress PR on the fnancial
variables. Results were qualitatively the
same in all model specifcations, thus we
limit our analysis on the estimation of the
main empirical model (1). All coeffcients
on both athletic and fnancial variables have
the predicted sign yet only the SIZE, AT,
2009 167 Dimitropoulos E. Panagiotis
ROA and WIN variables are signifcant.
The coeffcient of the SIZE variable is 1.09
signifcant at the 0.01 level verifying our
assumption that large clubs may be able to
generate superior performance since they
can exploit economies of scale and organize
their activities more effciently resulting
into increased proft streams compared
to small clubs. Furthermore, the positive
and signifcant coeffcients on both the AT
and ROA variables (5.78 and 1.32 both
statistically signifcant) indicates that the
ability of football clubs to convert assets into
cash can help them to use their resources
quickly so as to achieve higher levels of
proftability. Finally, among the athletic
variables only the WIN variable found
positive and signifcant (0.14) indicating
that the short run success of the teams has
a signifcant positive effect on proftability.
Specifcally, the aforementioned coeffcient
on the WIN variable (0.14) practically
suggests that one win in the season will
lead on average, to a 14 per cent increase
in the net proft margin. This fnding may
be proved useful to football clubs managers
since the investment on talented players and
the improvement of a club’s on-feld success
can enhance their proft making ability.
However, the leverage, cash fow, return
on equity and liquidity variables found
insignifcant. This result can be attributed to
the special nature of this specifc business
organization. Football clubs operate mostly
on their human resources (players and
trainers) and their non-current assets and
consequently this result may be driven
by management decisions on their asset
allocation on non-current assets, or the
minimum importance of fnancial risk and
asset management on proftability.
Table 3: Pooled regression results of proftability
equation (1994-2004).
Variables Model 1 Model 2 Model 3
Intercept
-5.53 -7.67** -1.86**
(-2.047) (-6.75) (-4.04)
SIZE
1.52** 1.09**
(6.11) (3.46)
LEV
-0.11 -0.10
(-1.13) (-1.06)
LIQ
0.52 0.43
(0.92) (0.76)
CF
0.017 0.003
(0.58) (1.04)
AT
6.22** 5.78**
(7.16) (6.63)
ROA
0.89 1.32*
(1.64) (2.07)
ROE
0.008 0.037
(0.43) (0.20)
WIN
0.23* 0.14*
(1.93) (1.64)
PASPOS
0.18 0.97
(0.15) (0.90)
UNCERT
-1.66 -2.21
(-0.51) (-0.78)
R
2
-adj 14.7% 42% 45%
F-stat 8.14 13.83 11.13
White (1980) T-statistics are in the parentheses, (**)
indicates signifcance at the 0.01 level and (*) indicates
signifcance at the 0.05 level (two-tailed test).
Model 1:
PR
it
= ?
0
+ ?
1
WIN
it
+ ?
2
PASPOS
it
+?
3
UNCERT
it

+ e
it
Model 2
PR
it
= ?
0
+?
1
SIZE
it
+ ?
2
LEV
it
+?
3
LIQ
it
+?
4
CF
it

+ ?
5
??
it
+ ?
6
ROA
it
+ ?
7
ROE
it
+ u
it
Model 3
PR
it
= ?
0
+?
1
SIZE
it
+ ?
2
LEV
it
+?
3
LIQ
it
+?
4
CF
it

+ ?
5
??
it
+ ?
6
ROA
it
+ ?
7
ROE
it
+ ?
8
WIN
it
+
?
9
PASPOS
it
+?
10
UNCERT
it
+ v
it
WIN is the number of wins achieved by the team in every
season, PASPOS is a dummy variable taking the value of
(1) if the team has fnished in the six frst positions of the
ladder in the previous three periods and zero otherwise,
UNCERT is the league’s uncertainty measured by the ratio
of the points that each team lags from the champion divided
by the total points of the champion team, PR is the ratio
of earnings to sales, SIZE is the natural logarithm of total
Panagiotis D.E. - Proftability of the Greek Football Clubs: Implications for Financial Decision Making
Business Intelligence Journal - January, 2009 Vol.2 No.1
168 Business Intelligence Journal January
assets, LEV is the ratio of total debt to equity, LIQ is the
ratio of current assets to current liabilities, CF is the ratio
of cash fow to total assets, AT is the asset turnover ration
measured by net sales over total assets, ROA is the returns
on assets estimated as net income over assets and ROE
is return on equity estimated by dividing net income over
shareholders’ equity.
Concluding Remarks
The aim of this paper is to investigate the
distinct factors (athletic and fnancial) that
are related to their fnancial performance
of Greek teams. Being more specifc, by
examining frm specifc characteristics such
as leverage, liquidity, size, asset turnover,
ROA, ROE and cash fows we provide an
insight into the football costs that need to be
invested and the managerial decisions need to
be taken in order to achieve both a prosperous
athletic and fnancial performance.
The results suggest that the proftability
of the Greek professional football league is
positively affected by the short success of the
football clubs but not on the long run success
and the uncertainty of the football league.
Additionally, the number of wins that a clubs
achieve in a season has a signifcant positive
effect on sales suggesting that one win in the
season will lead on average, to a 14 per cent
increase in the net proft margin. Furthermore,
the proftability analysis revealed that large
clubs, by means of total assets, may be able
to generate superior performance since they
can exploit economies of scale and organize
their activities more effciently resulting
into increased proft streams compared to
small clubs. Finally, our fndings suggest
that football clubs with increased asset
turnover and return on assets have the ability
to use their resources quickly and more
effciently so as to achieve higher levels of
proftability.
Our fndings have implications for
the growing body of empirical research
on this feld, as well as implications for
the administrators of the Greek football
federation and the managers of the Greek
football teams. Specifcally team managers
can fnd the results very useful for receiving
the proper decisions regarding team’s on-
feld success, in order to improve their
fnancial position.
Regarding future research we must consider
additional variables in order to advance the
explanatory power of the aforementioned
models for instance membership level,
stadium capacity, budget expenses etc. Also
it will be interesting to examine the issue
of the in-house talent development and its
impact on the club’s accounting disclosure
and overall performance, and fnally we
must consider the on-going debate whether
transfer fees paid to football clubs for
acquiring players should be capitalized and
amortized according to IAS 38.
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2009 171
Vargas.Hernández J. G., Reza Noruzi M., - Scale of Conficts Between Firms, Communities, New Social Movements and the Role of Government
José G. Vargas-Hernández, Mohammad Reza Noruzi
SCALE OF CONFLICTS BETWEEN FIRMS,
COMMUNITIES, NEW SOCIAL MOVEMENTS AND
THE ROLE OF GOVERNMENT
José G. Vargas-Hernández (MBA, PhD)
Mohammad Reza Noruzi (EMBA, MA)
Abstract
Globalization and technological change is provoking a conflict of feelings within and between people.
As more and more organizations extend their reach globally, and new national and multi national business
emerging in new markets, organizations are faced with questions regarding the scale of conflicts, and it
remains a real challenge, This paper is aimed to review the different levels of scale of conflicts between
firms, communities, also we will study Global Conflict, different typology of conflicts,(between firms and
state, firms and community, Inter-communities and intra-communities and Multi party conflicts), New
Social Movements and the role of government.
Business Intelligence Journal - January, 2009 Vol.2 No.1
172 Business Intelligence Journal January
Introduction
This analysis indicates infuences of
conficts in different areas between Firms,
Communities and states also following
these observations, this research aimed to
answer three interrelated questions within
the context of environmental problems.
Which forms of confict and co-operation 1.
between frms and new social movements
do exist (typology)?
What is the impact on organisations (both 2.
in relation to internal organisational
changes as well as in relation to their
relations with their social environment?
Which role can government play in these 3.
new forms of confict and co-operation?
The research also consists out of
literature review, the analysis of a database
which contains information on different
forms of confict and co-operation and, most
importantly, an in-depth analysis of 15 case
studies referring to Mexican, European and
international environment.
Global conflicts
A global economy is characterized by
economic and political asymmetries and
dependency relationships, which restrict
cooperation and confict resolution.
Structures of societies and politics refect
the processing of conficts and problems
Structures of societies and politics refect
the processing of conficts and problems.
The confuence of situational, structural and
contextual factors produced violent political
conficts at the level of the national state.
NGO’s activists and advisors, etc, eager
to intervene in solution of conficts have
split social movements provoking more
confusion and other conficts. Agencies also
have different and sometimes conficting
responsibilities.
From fundamentalism, xenophobia and
marginalization arises confict within and
between societies. Historical, national and
ethnic ties acquire power to cause confict.
Ethnicity is related to confict when a highly
plural society is moderately homogenous and
safer (De Soysa, 2001). Ethnic nationalism
refects its confict with ideas of a plural
society with multiple identities. Some
reactions are articulated by the sharpening
of cultural zones in the growing number of
ethno-national conficts. Also, the concepts
of order and procedures in economics make
conficts.
Difference may foster mutual fears and
in-group/out-group dynamics that leads to
confict. Huntington (1997:20) suggests
that cultural differences is a central factor
in confict: ‘culture and cultural identities,
which at the broadest level are civilization
identities, are shaping patterns of cohesion,
disintegration and confict in the post-Cold
War world.’ Incompatible ethos between the
West and Near-East will lead to confict, as
he argues that an ‘overwhelming majority
of fault line conficts have taken place along
the boundary looping across Eurasia and
Africa that separates Muslims from non-
Muslims.’ Islamic are no more prone to
confict than others, Thus, it is salient to
test Islam’s independent effect on confict
in models holding resource wealth, ethnic
fractionalization, and democracy constant
(Soysa, 2001) and fnd out of moderate
ethno-religious fractionalization’s positive
effect on confict, as reported by Collier and
Hoeffer (1999),
Global politics brings diffuse interests
into relations with each other and develops
a common language and values in which
conficts are articulated. One perspective of
society considers is formed by the existence
2009 173
Vargas.Hernández J. G., Reza Noruzi M., - Scale of Conficts Between Firms, Communities, New Social Movements and the Role of Government
José G. Vargas-Hernández, Mohammad Reza Noruzi
of networks of relationships, with mutual
expectations, that may indeed be of sustained
and systematic confict over values and
resources. The global society perspective has
an ideological signifcance opposed to that
of international society. However, between
these positions, at a political and ideological
level, no decisive result can be expected to
the confict, because pressures for global
responsibility. A good example are the civil
conficts in Iraq after the Gulf war that were
taken as the pretext of imperial powers
to invade under repudiation of a divided
international society and community of
nations.
The potential for confict between trade
measures used in national environmental
policies and WTO have increased in the
last few years. The WTO round aims to
give preference to the trade agendas of
developing countries which conficts with
COOL OMC needs to address the impact
the environmental policy in confict with
trade, such as the case of tuna and dolphin
case resulting from the Marine Mammal
Protection Act. Conficts have discouraged
inclusion of trade provisions that could make
environmental agreements more effective
or enforceable. There might be ways to
minimize frictions between these both
concerns important for the world welfare.
Evolution of capitalism is confronted
with increasing interdependent interests’
conficts among frms, between frms
and communities and between frms and
governments. Culture of capitalism is
conceptualized as sets of relations between
the nation-state, capitalists, laborers, and
consumers as the essential elements, each
one depending on the other, placing demands
on, and conficting with the others (Robbins,
2005).
Figure 1: Patterns of relations in the culture of
consumer capitalism
$ $
$
NATION-STATE
Firms strive to monopolize the market
while communities and sometimes
governments try to rule out such
monopolization. In essence, market agents
and public policy makers, “react” to the
current situations while inherent conficts
continue. Firms need a strong market, a
community buying power and a competitive
national economy to support increasing
sales. An endemic feature of capitalism is its
internal confict between different segments
of the capitalist class who can also rely on or
are in confict with the power of their own
nation state. External fnancial shocks to the
market are also considered conficts (Gintis
and Bowles 1982)
Societal structures refect the processing
of conficts and problems but it is lagging
behind the dynamic global economic and
technology changes. Economic effciency
may confict with social effciency. Economic
activities are regulated and ordered which
make confict solutions possible. Economic
conficts may be attributed in part to the
lack of cooperation. It is already provoking
conficting points of view and feelings Topics
of confict are arising between and within,
societies. The growing number of ethno-
national conficts is a cultural zones reaction
Business Intelligence Journal - January, 2009 Vol.2 No.1
174 Business Intelligence Journal January
to trans national world where historical,
national and ethnic ties gain power.
The sense of openness of non aggressive
religions to sharing and receiving values
indicates anew consciousness of being a
global community despite the traditional
conficts
International and regional
conflicts
International confict has changed its
character after the end of the Cold War.
Interstate disputes over ideology or resources
have turned to intrastate ethnic conficts.
This recent outbreaks of ethnic confict are
more numerous and deadly than earlier eras.
Regional economic, political, military and
cultural conficts and crisis are considered
as global issues, such as the creation of a
common military system, during the East-
West confict. In an ideological confict
between opposed powers is diffcult to fnd
for a stance which stresses a consensual
framework of relations between states. As
a result, international conficts have specifc
effects of ideologization, bipolarization
and nuclearization, as it happened during
the Cold War confict, a bipolar East-West
confict that neutralized other international
conficts.
International Monetary Fund and World
Bank conditions tied to loans cause conficts
between international policy advisors and
in-country technocrats and politicians, and
the working rural and urban sector of the
population.
Literature on interstate war gives an
account of empirical evidences and theories
on interdependence and confict, such as
‘liberal peace,’ (Oneal and Russett,1997)
For example, to assure control of strategic
resources, United States needed armed
forces outside the bases to be in charge
of internal conficts in Mexico. A wrong
approach to conficting inters states policies
and regulations across the borders often
result in undesirable impacts to consumers
and the involved economies.
Social interests represented by the civil
society may be in confict with the dominant
interests of the state system. In international
conficts, pressure groups attempt to ensure
human rights, respect for human needs and
democracy. The grievance effects of a lack
of democracy are overshadowed by the
opportunity costs of confict (Soysa, 2001).
Democratization is counterproductive
if the economic and political elite do
not relinquish their power Institutional
change and decentralization processes may
allowed latent conficts to spill into regional
violence.
Absence of effective, accountable and
transparent institutions to redistribute
resources in a fair and equitable manner
and regulate tensions has allowed conficts
to often take violent form Environmental
policies have contributed to the emergence
of new fsheries conficts (Thorpe, Aguilar
Ibarra and Reid, 2000). Charles (1992)
identifed a range of fsheries conficts, among
others, conficts over fsheries jurisdiction
arising from historic fshing rights in
Mexico’s shrimp fsheries, enforcement
conficts in the Patagonian tooth fsh fshery
and group confict upon the hubbsi hake
fshery in Argentina. The absence of clearly
defned exclusive access rights possessed
by cooperatives and jurisdiction are sources
of confict in Mexico’s Pacifc coast shrimp
fsheries.
Unregulated “free-fshermen’ who
enter the inshore shrimp fsheries after the
economic crisis of 1994, exacerbated confict
between the offshore and inshore fshermen
with the growth of an informal market Re-
allocation of rights encouraged new actors
into the fshery and exacerbated confict. The
number of parties and costs involved in the
2009 175
Vargas.Hernández J. G., Reza Noruzi M., - Scale of Conficts Between Firms, Communities, New Social Movements and the Role of Government
José G. Vargas-Hernández, Mohammad Reza Noruzi
confict reduces the likelihood of a negotiated
agreement (Panayotou, 1993, p. 44).
Reducing shrimp exports and improvement
of national markets may reduce confict.
(McGoodwin, 1987, p. 231).
Authoritarians’ regimes have created
latent conficts to establish new institutions.
Procedures of institutions and organizations
are not responsive to community interethnic
and inter group conficts and do not empower
them to solve their own problems and resolve
conficts.
The defnition of the new states on an
ethnic basis as Nation-States, rather on
the bases of a civic sense of belonging, is
creating tensions and conficts between
communities.
Local regulations confict with state and
federal laws. The Commission of European
Union of nations may not be able to resolve
conficts that may exist between or among
local and state food safety systems and
foreign nations, for example.
Governments of NAFTA partners and
their agricultural sectors have devoted
greater attention to resolving conficts
related to other issues such as sanitary and
phytosanitary (SPS) measures. NAFTA
partners strengthened their institutional
capacity to resolve conficts through
government and private-sector negotiations,
technical committees, and technical
assistance. However, agrarian and rural
conficts in Mexico, sometimes violent
are the result of an increasing poverty and
hunger of millions of peasants after the
NAFTA negotiations. These conficts are
widespread and had been violent in states
such as Chiapas, Oaxaca, and Guerrero and
threaten to re-ignite armed struggle across
Central America.
Industrial and labor relations are
institutional forms of the regulation of
processes of social exchange and confict.
To avoid escalation of labor conficts, it
has been proposed negotiated agreements
of intergovernmental cooperation among
Mexico, USA and Canada. The agreements
monitor and treat labor conficts, reducing
distances between labor law and labor
practices it has been to the governments’
advantage not to allow trade relations
between the countries too bogged down
in disputes or even a spiraling of confict
levels. To avoid spillages labor conficts,
the ministries of labor are coordinated with
the ministries of trade. However, strategies
of confict avoidance and mutual distrust
limit open cooperation on labor conficts.
(Dumbois, Hornberger and Winter, 2003).
The strategy of low intensity can
delay confict solutions as the result of a
contradictory political process rationality
of governments involved. The cooperation
and confict strategies of low intensity in
the bilateral intergovernmental relationships
are based on a paradox combination of
distrust, reluctance to cooperate, the need
to control and retain conficts. (Dumbois,
Hornberger and Winter, 2003). The tense
process of bilateral confict resolution of
intergovernmental political depends of
willingness of governments involved to
cooperate instead of utilization of dispute
and sanctions mechanisms. International
labor regimes are refected in problems of
sovereignty, dominance cooperation-confict
and participation.
The imbalance between confict and
cooperation, the lack of common policy and
procedures for “integrative bargaining” and
lack of redistribution mechanisms causes
the mutual distrust among governments.
International labor regulation regimes may
address to solve the problem of the balance
between cooperation and confict and not
solely on the basis of confict resolution.
Cooperation may not only be restricted solely
to confict, but may include resources and
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mechanisms for integrative and distributive
bargaining.
The point is to maintain balance between
cooperation, confict and dominance from
participation of civil actors in such conficts
as sovereignty, international regulation and
“embedded ness” of labor relations. The
balance between cooperation and confict can
be supported not only by confict processing,
but by joint policymaking combining
regulatory functions with distributive
mechanism. Confict processing under the
logic of “zero-sum” is a bilateral process
of confict resolution. Confict resolution
procedures may be supplemented by joint
labor policies from the three countries
(Dumbois, Hornberger and Winter, 2003).
Actors of civil society are disillusioned
of low intensity confict solution and
cooperation blockades strategies between
governments, which prefer consensual
bilateral forms of confict resolution. Trans
national actors, networks of organizations
and trade unions select conficts and elaborate
the complaints as a political instrument for
confict resolution that does not supersede
institutional patterns of confict regulation but
that give way to inter governmental or public
pressures to infuence on labor practices.
Although US Government is concerned
with complaints against Mexico as a source
of confict that puts national sovereignty at
risk and endangers relationships it has had
little inclination to exploit the potential for
confict and sanctions (Dumbois, Hornberger
and Winter, 2003).
Conflicts between the state,
governments and communities
The role of the nation-state is to regulate
conficts between the essential elements, the
nation-state, capitalists (frms), laborers and
consumers, binding together disparate and
conficting interests (Robbins, 2005). One
good example is the case of the bill to allow
merger of Travelers CEO Sandy Weill and
Citicorp that remained mired in United States
Congress because jurisdictional disputes
among federal agencies, intra-industry
conficts and consumer groups opposition.
Almost all ethnically diverse states
experience some form of political tension,
this do not escalate to violence. Of 58
armed conficts underway in 1995, 57 were
intrastate disputes, out of which 48 were
ethno political conficts and only one was an
interstate confict (Gurr and Moore, 1997)
Literature on nationalist and ethnic confict
analysis (Diamond and Plattner, 1994;
Gurr, 1993; Gur and Harf, 1994). Ethnic
confict is not always violent. The state can
politically manipulate the ethnic conficts
and the identity differences. Difference is a
resource exploited for gaining access to hard
resources through control of political levers
of power vested in the states (Gurr and Harff
1994; Wimmer 1997).
The confict aspects of diversity and
cultural differentiation is linked to political
confict and relationships of mutual
dependence requiring development of a
culture of cooperation, common responses
and institutions for regulation. Avoiding
entrenching in the polar positions of
‘confict’ and ‘consensus’ and assuming the
existence of de jure normative consensus
as the foundation of society, maintains the
materialist foundations of the confict view.
Ethno political confict involves ethnic
and religious identity groups defned
themselves to have common descendent,
shared historical and cultural backgrounds
who make claims on behalf of community
interests against either state or other groups.
The state can make these claims on behalf of
the dominant ethnic group and use strategies
to accommodate and of co-optation of
conficting communities. Communities
and NGOs make demands that confict
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with the limits set on regional autonomy
to secure revenues for their beneft, a
sustainable resource management, and an
effective confict resolution of disputes over
resources. However, the work of Mexican
NGOs is relevant in fostering community
development and solving conficts
between local communities and private
or governmental actors. The depletion of
resources due to past inequitable exploitation
is generating the potential for confict and
national disintegration.
Governments manage the stick and
carrot dilemma when solving conficts.
For instance, conficts in the state forestry
institutions between conservationists and
politicians engaged in land reform resulted
in loss of power for conservationists in the
forest department in the 1940s (Mathews,
2002). In the history of struggle for control
of the forests, the silvicultural system has
been the greatest source of friction and
inter-community conficts. In a local confict
between a community and the state, local
resistance to the government concessions
issued to large frms in the Sierra Norte, the
community succeeded in a process of struggle
for local autonomy, defense of labor rights
and refusing to renew forest concessions
to timber companies. The concessions
were eventually nullifed in 1984 (Abardía
and Solano 1995), and legally recognized
transfer of control to local communities two
years later (Klooster,1997).
Local resistance has often promoted
clandestine forest resource use combined
with escalating conficts between different
stakeholders over resource access and user
rights. Comuneros have learned that they gain
control of the foresters by being ecological
guardians and by preventing deforestation.
(The future of Mexican forestry: Ideology
and confict. Journal of Sustainable Forestry:
24).
Some of these conficts are drawn into
cycles of rebellion and repression and some
other fnd accommodation with rivals and
regimes. Each one of the ethno political
confict requires specifc microanalysis to
isolate the confict relationships with the
state and the ethnic group. A theoretical
model of the ethno political confict process
developed by Gurr and Moore, (1997)
involves four interdependent concepts
depicted as dependent variables:
Figure 2. Linkages among the four main concept
REBELLION REPRESSION
MOBILIZATION GRIEVANCES
(+)
(+) (+)
(+)
Source: Gurr and Moore (1997)
Rebellion may diffuse through collective
action and mobilization among like-minded
groups elsewhere in the international system.
Persistence of ethno rebellions prompts the
state elites to establish autocratic rules to
institutionalize repression. Sources of State
repression and coercion to manage ethnic
political conficts are driven by internal
ethno rebellions, past use of coercion and
coercive capabilities. These sources lead
to creation and development of institutions
that reinforce preferences of state elites for
repression and coercion of ethno political
conficts. Political repression can drive down
confict because it affects the opportunity
costs of participants (Soysa, 2001)
Analysis of large-scale civil wars focuses
on determinants suggesting that conficts are
associated to economic motivations around
the greed versus grievance thesis (Collier,
1999 and Collier and Hoeffer, 2000). Thus,
it is important to understand confict in
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178 Business Intelligence Journal January
terms of whether or not greed or objective
grievance drives confict. Both greed and
grievance predict confict signifcantly
although grievance is hardly the strongest
stimulant for confict as most claim (Gurr
and Harff 1994). Greed has strongest effects
on confict. Greed is more potent driver of
confict than grievance because grievance
should be highest at the highest point of
repression, but so are the opportunity costs
of rebellion. The net effect of repression
is larger than that of grievance-reducing
democracy (Soysa, 2001).
Resource wealth might lead to civil
confict in two ways. The “looting
hypothesis” sustains that rebel movements
arise from greed and grievances and thus, the
availability of resource wealth gives rebels
the ability to fnance. Resource wealth raises
the likelihood of civil conficts because
rebels fund themselves through looting and
extortion. Confict may be caused by other
mechanisms such as taxation, although “the
increased tax revenue eventually augments
the capacity of the government to defend
itself suffciently to offset the attraction of
enhanced loot” (Collier and Hoeffer, 1998,
2000).
Resource wealth has fueled civil wars,
which arouse by other reasons. Through then
grievance mechanism, the rebel activities
target grievances against the resource frm
or its symbols in resource wealth territories.
A confict appearing resource wealth may
force manufacturing sector to leave while
staying the dominant force in the economy.
A resource wealth territory may give
population the economic incentive to fght for
independence and autonomy. The existence
of these conficts tends to confrm Rudolph
Rummel’s point that most deadly quarrels is
between nation-states and their own citizens.
Resources plays a different role in separatist
conficts than non-separatist conficts (Ross,
2001).
A civil war is conventionally defned
as an intrastate military confict between
government and a non state organization that
generates at least 1000 battle deaths a year,
with each side suffering at least fve percent
of these deaths. Conficts have produced
fewer than 1000 battle deaths a year; are
referred as “civil conficts”. (Ross, 2001).
The traditional nationalist and unionist
approaches for the Northern Irish confict
were seeking rationalizations for particular
policies to justify antagonisms and to blame
for the confict.
Violent civil conficts take place in states
with an abundance of natural resources
although correlation between civil confict
and resource dependence may be caused
by other variables such as weak rule of law
and undefned property rights. Resource
extraction may contribute to civil confict by
offering rebels the opportunity to loot, and
by creating grievances. Resource looting
may have not be the cause of the confict but
may infuence the determinants of duration
and intensity of a confict. (Collier, Hoeffer,
and Söderbom, 2001). Scholars fnd
discrepancy in that resource dependence is
tied to the incidence of confict but not its
duration (Collier and Hoeffer 2000; Collier,
Hoeffer, and Söderbom, 2001).
Resource wealth could infuence the
duration of a confict when a party in
the confict carries out resource looting
and when within the rebel organizations
or armed forces create principal-agent
problems. Resource dependence is linked
to the duration of civil wars but not their
incidence.(Fearon, 2001). Ross (2002) fnds
evidence to support that resource wealth
is linked to the onset of confict and the
duration of confict. Resource wealth may
increase the lethality of civil conficts if
adversaries are not given any incentive to
cooperate. Resource wealth has a mixed or
ambivalent impact on duration and intensity
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of confict, although resource revenues
may infuence the duration of confict, it
may reduce the intensity of confict by
encouraging cooperating in exploiting the
resource. For instance, Lerma Basin Council
(1989) solved contentious inter-state water
conficts in Mexico (Gedicks, Al. 1996).
There are different arguments about how
resource dependence is linked to civil wars
and scholars disagree about dimensions
of confict. The onset of civil war made
the economy more dependent on resource
exports (Minter 1994). Primary goods to total
exports ratio is strongly related to confict.
Social factors of poor countries vulnerable
to conficts affect the investment and
export activity. Civil wars may exacerbate
dependence. The civil wars may make the
economy more resource-dependent and
forces states to grow more dependent on their
resources. Resource dependence infuences
civil war but not its duration (Collier and
Hoeffer, 2000) and not infuences civil war
but affects its duration (Collier, Hoeffer,
and Söderbom 2001; Fearon, 2001).
Ross (2001) raises questions about how
to explain the correlation that exists between
a state’s natural resource wealth and the
likelihood of civil war it will suffer (Collier
and Hoeffer, 2000, and De Soysa (2000). The
ability to identify the nature of any conficts
is important for the protection of natural
resource areas. There is a threat to natural
protected areas from encroachment by
outsiders and through land tenure conficts.
The confict is usually state versus federal
in US, for example. Ross (2001) argues that
correlation between resource wealth and
civil war could be spurious, if both resource
wealth and civil war are produced by a third
variable, such as poorly enforced property
rights. Ryan, (1987)..Analyses property and
land management conficts
The Collier-Hoeffer analysis provides
a robust result of some causes for pursuing
governance factors. The size of population
is correlated with confict. Ross (2002)
found that the natural resource-civil war
correlation accounted for by a variety
of different mechanisms, some of which
infuence the onset, others infuence duration
and still others intensity of confict. The
resource dependence-civil war correlation is
produced by a variety of causal mechanisms.
However, Ross fnds no evidence for the
“looting” mechanism (Collier and Hoeffer,
2000) that links natural resource dependence.
The expanded Collier-Hoeffer mechanism
“resource looting” includes related
phenomena – such as the sale of resource
futures, the extortion of money from frms
building resource infrastructure, and the
incentives facing neighboring governments
(Ross, 2002).
Ross (2002) suggests that different
mechanisms require different policy
interventions. He gives the example of
mining that causes confict because it
produces grievances over access to jobs
and resource revenues, and offers as a
solution greater community involvement
by mining frms. However, rebel groups
extorting money from resource frms,
requires stricter mine site security and less
community involvement. There is evidence
that natural resource wealth is causally
linked to civil confict (Ross, 2002) He fnds
strong evidence “that resource wealth has
made confict more likely to occur, and last
longer and produce more casualties when
it does occur. Resource wealth not always
make conficts worse, sometimes have
contradictory and even benefcial effects
over the course of a civil war like bring
about an end (Ross, 2002).
A drawback in the Collier-Hoeffer model
is the lacks of an institutional component,
although the analysis is based at state level.
Institutional factors fashion the opportunity
costs of fghting and solve collective action
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180 Business Intelligence Journal January
problems for maintaining peace (Soysa, 2001)
Democratic institutions have an impact on the
forms and extent of political confict within
states (Zimmermann, 1980). Governments
of developing and less democratic countries
can use military or police force, although
it may be counterproductive. Autocratic
governments can use coercive force to repress
communities increasing the risk of further
civil unrest (Gurr, 1970, Hirschman,1981;
Gupta,1990; Bourguignon, 1999; Boix,
2004) States that have developed democratic
institutions are expected to experience
lower ethno political conficts than more
authoritarian regimes. Democracy will
infuence levels of repression, which affects
levels of mobilization and in turn infuence
levels of rebellion.
Democracy reduces elite preferences
for repression by institutionalizing confict
management (Gurr and Moore, 1997).
Empirical evidence supports that confict
is less likely among moderate democracies
because they lower opportunity costs for
organizing opposition to the state which is
less likely to be repressive. Collier (1998)
argues those high levels of autocracy
and high levels of democracy are both
conducive to peace. Moderate democracy
tends to increase the incidence of confict
while further increases induce peace (Soysa,
2001).
Conficts between state and local
communities (Angelsen, 2001) are
based on cultural differences. Culture of
indigenous peoples confict with the culture
of capitalism. For instance, Lacandons
have allied themselves with the federal
government and a business-oriented
environmental organization in a demand
that the communities settled on lands within
the Montes Azules Biosphere Reserve be
evicted in order to protect an ecological area.
The Mexican government was urged not to
take any steps that could lead to a worsening
of social conficts in Chiapas This situation
may not be an inter-ethnic confict between
the Chol and the Lacandon indigenous
people.
In Mexico there are more than 30, 000
unresolved agrarian conficts, land disputes
and conficts between villages involving
indigenous communities. The Mexican state
exploits conficts within and between agrarian
communities to divide them ensuring they
do not mobilize against it around common
interests (Dennis 1987).
The land boundary confict between Santo
Domingo Teojomulco and San Lorenzo
Texmelucan in Oaxaca has its historical
roots in contradictory decisions on the part
of the federal government dating back even
to the colonial era There are approximately
656 agrarian conficts in the state.. These
conficts that have already taken a heavy
death toll, have the lack of response on the
part of authorities as one constant factor, and
the Ministry of Agrarian Reform has made no
proposal for resolving the conficts, although
each one has its particular characteristics.
Most of the confictive situations in Oaxaca
are characterized by a politics of “terror”
Conficts between indigenous communities
have negative repercussions on social and
economic rights. (Comité pour la Justice
Sociale, 2003).
Conficts in Mexico have given rise
to solidarity movements abroad, such as
the international support for the Zapatista
demands in Chiapas, termed as “Marginalized
Violent Internal Confict”. The insurgency
unfolded in the face of overwhelming odds
under objective standards of military power
to defeat opponent government (Tschirgi,
2004).
Solutions to ethnic confict are
explored can be classifed as domestic and
internationally based solutions, Domestic
solutions that focus on design of political
and cultural institutions include power
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sharing in government (e.g., consociational
democracy), protection of minority rights,
and autonomy arrangements. International
solutions include territorial partitioning and
the stationing of UN peacekeeping troops.
To prevent or offset large scale civil
conficts may be implemented social
redistributive policies. These policies play a
role in prevention and reduction of political
unrest and result on positive externalities on
economic growth and social development.
The nature and effects of confict on human
security and social welfare is manifest when
social cohesion tends to break. Redistributive
policies may become an institution to
reduction of socio political tensions and
to prevent or diffuse internal community
conficts caused by inequalities and social
divides by addressing economic, social and
political discontent over poverty of people
and protecting them again losses of income,
assets and capabilities.
Different forms of redistribution of
income to the conventional ones, from the
whole population into the accumulation
of assets among the poor, will allow them
to be more productive and less excluded
socially (Bourguignon, 2002). But may face
similar economic and political diffculties to
the redistribution of incomes, wealth and
assets. Redistribution of fnancial resources
and social and political rights require an
increasing demand and active participation
from civil society but also political
determination from government and support
from economic elites.
Spending on social services, health
and education contribute towards stronger
economic growth. But implementation may
be constrained by budget restrictions. Policies
to guarantee more equal opportunities,
reduction of discrimination and segregation
from social and political rights may be
impeded by labor market structures and
may face opposition from established elites
(Justino, 2004). One good example is the
case of RUTA-100 union, one of the most
radical trade union movements in Mexico.
The Union is allied with the rebel Ejercito
Zapatista de Liberacion Nacional (EZLN)
have an active confict with the Mexico city
administration over the mass fring of its
members and the arrest of its leaders.
There is a increasing confict within
households between women as suppliers
of labor and men who reap fnancial
rewards (Vermeulen, Nawir and Mayers,
2003). Developing countries that have high
income inequalities have also high potential
for sociopolitical confict (Binswanger,
Deininger and Feder,1993).
Increases in redistributive policies may
have a role to play in the establishment
and/or maintenance of stable socio-
political environments in developing
countries. Redistributive policies contribute
towards the socio economic protection of
vulnerable groups creating a politically
stable environment and generating positive
externalities for economic growth and social
development.
Conflicts between firms and
States
Relationships between frms and
government can be both cooperative and
confict (Dicken, 1998) and Sklair, 1995)
changing over time and depending upon
the specifc bargaining power of each one.
Angelsen, (2001) study conficts between
state and local communities
The state can impose economic policies
of restructuring strategies over frms that
can give raise to the emergence of conficts.
Long-run economic effciency counts in
high-innovation markets, although it may
be in confict with economic effciency in
the short run. If the competition agency
pursues economic effciency implying that
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182 Business Intelligence Journal January
conficts between different objectives are
resolved between different institutions
in accordance with their powers and
responsibilities. However, the consequence
is that there is a great concentration of
power in the competition authority with the
consequent disadvantage that there may be
conficts of interests between investigation
and adjudication. There is the potential
for much confict in these arrangements. A
confict between economic effciency and
competition versus capitalization ratios,
may be resolved by institutional design
of the structure of economic governance
in the country and its competencies and
responsibilities in relation to those of other
authorities.
Centralization of political power would
stife the ability of public actors to manage
restructuring conficts. Public actors mediate
conficts regarding the use of assets and risk
sharing by private actors, to regulate market
and facilitate investment. The active role of
government in the economy would regulate
conficts between frms and banks through
contracts that will allow reorganization of
assets, buyouts and closures.
Social power can be exercised to lead
strategies to reduce and resolve international
confict between frms and countries,
produced by differences between participants
in the substance of the business. The strategy
for doing international business may produce
suffcient confict to undermine the success
of that business. The danger and depth of
confict when these strategies are used may
be signifcant. The reason for the confict
is that if business do strategies their way,
implicitly accepting the correctness of their
perspective to do business internationally,
others may be at a disadvantage skill wise.
Interest groups oppose State restrictions
that discourage entry by multi-location
frms. Firms may face States reluctant
to deregulate having national impact on
obligations, which can derive as imputed
conficts of interests. These conficts may be
deal through adequate structures to provide
effcient rules. Small frms can hold the
balance of power on rigid confict of interests
and confict of law rules while large frms
may oppose government reforms not as a
cohesive group that would help competitors
for building reputation capital. Reputation
is an asset that frms may not be willing to
destroy by behaving as predicted by agency
theory. States may move towards adopting
some sort of structure for regulating non-
competition agreements, rules governing
ownership and rules on imputing conficts.
Ethical restrictions on non-competition
agreements must distinguish legal multi-
level payouts based on potential damage
caused by the departing partner from illegal
non-competes (Ribstein, 2001).
Post privatization disputes and
negotiations may still occur between
governments and frms (Pires and Goldstein,
2001; Gentzoglanis, 2001).
A decisive factor is whether or not the host
government can be forced to take a proactive
role in helping to resolve conficts between
foreign capital and labor. International
agencies and government can take this role
as for instance, the International Labor
Offce (ILO) providing technical assistance
to solve the confict between workers and
the Korean maquiladora Maxmode at Nike’s
urging (Kidd, 2001). Since the judicial
system as a mechanism to solve conficts
between frms and regulators is weak in
some countries, frms seek protection from
international agreements
Regulation has two components:
regulatory governance and regulatory
incentives (Levy and Spiller, 1996) or political
stability (Heller and McCubbins,1997).
Regulatory governance refers to “all
mechanisms that a society uses to restrain
government discretionary moves to solve
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conficts between frms and regulators”
(Abdala, 2000). Regulatory governance
refers to mechanisms used by society to
restrain government discretionary moves
and to solve conficts between frms and
regulators. Political stability is defned as a
situation with minimum risk that government
would introduce substantial changes to the
way it treats investment.
Regulatory governance is under pressure
by unresolved conficts among interest
groups. Conficts among members of
families facing the dilemma of retaining
control despite the increased needs for
external fnancing are a threat to the Mexican
corporate governance model.
Crucial differences of regulatory style
are in the degree to which regulations are
developed harmoniously through discussion,
mutual accommodation and implicit or
explicit bargaining or through confict and
all available political and legal tactics on
maintaining one’s position on the other.
A science-based approach to setting clear
parameters for decision making regulation is
necessary to safeguarding the environment
and avoiding unnecessary confict (Graham
and Wiener, 1997).
Institutional characteristics such as
nature of conficts among business groups
affected by reform and administrative
capabilities, determines a wide variety
of government choices for regulatory
incentives and produces different outcomes
across sectors (Levy and Spiller, 1996)
Agency costs in regulated frms extend to
conficts of interests between shareholders
and regulators. Conficts with regulators
requires a higher level of monitoring to
control agency problems. To promote
credibility and commitment, government
use several mechanisms to solve conficts
such as informal contacts with frms and
political pressure on regulatory agencies
and other institutions
In any potential confict the executive
power can give the beneft of the doubt to
the frms at the expense of other parties such
as consumers. High state intervention is an
extension of agency problems to shareholder-
management conficts.Interventions of
government bypassing regulatory agencies
to accommodate contending interests among
groups can be explained by the lack of
effective mechanisms for solving conficts.
Thus, good regulatory institutional design
should provide mechanisms to restrain
government and avoid private opportunism.
Contracts may include specifc mechanisms
for confict resolution under different
contingencies.
The allocation of responsibilities
between governments and agencies should
take into consideration signifcant conficts
of interests. When rules impose conficting
obligations to frms such as disclosure and
confdentiality it is not easy to comply
them.
Conflicts between firms
Inter-frm co-operation fnds expression
in the network model ( Cooke & Morgan
1993) in which relations are based on
trust between economic actors for mutual
benefts. In the course of mutual adaptation
disputes and conficts between frms tend
to be “resolved within the relationship
rather than by reorganizing it (Grabher,
1991:63). Cooperative arrangements give
rise to conficts between frms over the
appropriation of results.
Conficts of interest created by business
groups (Dewenter, Novaes and Pettway,
2001) include conficts among member
frms and conficts between member frms
and external investors.
The existence of asymmetric interests
and expectations between frms may
confict promoting opportunistic behaviors
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184 Business Intelligence Journal January
from one partner while the other seek
higher control over the alliance’s operation
(Anderson and Gatignon, 1986). Conficts
arise between frms competing to make
their proprietary technology and industry
standard. Uncertainties of production
development entail signifcant risks between
interdependent frms that often conficted
with one another and created restructuring
conficts.
The dynamics of incentive and confict
political dimensions in the transfer of
knowledge and mutual learning agreements
and the creation of competencies over the
long term may coexist with other conficting
values. Agents can choose strategies
to implement a preferred equilibrium,
irrespective of any incentive conficts
between frms that may surface when a
standard is to be set. Affliated frms may
be incompatible with their asset structures
and control within the group (Khanna and
Palepu, 1999).
Trade-offs between capabilities of local
actors and external resources may exist which
cannot always be resolved without confict
between vertical and horizontal growth in a
cluster. Power as relationships creates rules
of dominance and subordination within a
group of frms or a cluster network (Allen,
1997) helping to settle conficts and speed
up decision making processes between frms
(Clegg 1989; Taylor 1995).
Complexity, group affliation and group
visibility may impact agency conficts within
groups (Gul,1999) Dewenter, Novaes and
Pettway (2001) discuss the trade off between
business groups controlling agency conficts
The complexity of organizational structures
may limit their ability to control conficts
and to reduce information asymmetries.
The potential for agency conficts and the
need for a dividend control mechanism both
decrease when the percentage of insider
holdings rises.
Agency conficts in groups are
complicated and determined by visibility,
complexity, and conficts between frms and
controlling entity. Agency costs are the loss to
shareholders of controlling agency behavior.
Costs of agency conficts become important
to the frm that measures should be taken by
stakeholders and managers. When the level
of institutional monitoring is insuffcient
for greater agency problems, it is required
that the infuential group of shareholders
pushes for higher payouts to induce capital
market monitoring. Affliation on agency
costs. Reducing agency conficts requires
monitoring the frm and its management The
components of agency costs are monitoring
expenditures, bonding expenditures and
residual loss (Jensen and Meckling, 1976).
Group affliation has the potential for
increasing or decreasing conficts between
managers and investors (Dewenter, Novaes
and Pettway, 2001). Gul (1999) fnds group
frms membership to reduce potential
conficts between equity and debt holders.
Conficts between debt and equity holders
in business group affliated frms formed
around a main bank which is also likely to
be the main shareholder.
The need of shareholders (principal) to
monitor management (agents) behavior
arises due to the separation of ownership
and control and the associated conficts of
interests. Stakeholder theory implies an
increasing need to monitor an extension
of agency problems to conficts of
interests between equity holders and other
stakeholders; Most of this attention has
focused on internal conficts among group
members. The potential for external conficts
of interest between large, diversifed business
groups and investors may be constrained by
reputation concerns. However, underwriters
may pose a confict of interest associated
with higher initial returns. Potential conficts
between borrowers and individual lenders
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inhibit the development of markets because
defrauding borrowers are not penalized.
The confict of interest between
investment banking and stock research was
fully ingrained in the culture of investment
banks. The inherent conficts of interest
within any large fnancial institution tempt
greedy brokers and investment bankers to put
company profts frst and fdelity to investors
second. Investors are unable to know when
research is coloured by conficts of interest.
These conficts could have an impact on
client retention. Large frms ignore conficts
of interests as long as the fnancial rewards
outweigh the potential costs. (Sirignano,
2004). It is a basic inherent confict between
investment banking, equities and retail.
Investors do not know about the conficts of
interest that exist between the research and
investment banking departments of large
frms.
There is dissimilarity in how conficts of
interest affect different banks. Investments
banks have conficting economic interests.
Conficts of interest concerning research and
investing banking stem from an asymmetry
of information and the self-interests of
analysts that did not align with the interests
of the investors. Access to information would
enable investors to better value. Actions of
an individual agent affect other principals
whose preferences confict (Bernheim,
1986). Investment bank analysts had an
effect on the price of stocks the conficts of
interest arise. Because frms and investors
give stock analysts the right to perform their
research, confict of interest is modeled by
common agency.
Michaely and Womack (1997) show
that underwriters’ buy recommendations
of their own underwriting perform poorly,
as compared to recommendations by non-
underwriters, attributed to confict-of-interest
bias. Firms extend the confict of interest
to analysts by tying their compensation to
how much investment banking revenue they
could generate. It is the confict of interest
with investment banking not trading that
is driving the infated research reports.
Regulations may prevent future conficts of
interest and biased research, may also block
conficts between frms’ investment banking
and research departments. Regulators have
tried to remove or at least diminish the
potential conficts. The concept of meta
preferences (Sen 1984) supports guiding
principles in the solution of preference
confict.
A confict arising from a fraudulent
asset transfer by the borrower if the bank
can withhold the subsidy and emerge as
an institution that can resolve conficts
without court interventions. If institutional
arrangements resolve the conficts, legal
rights are less important, but either
contractual solutions or past social ties can
mediate conficts between frms and banks
over restructuring. Although banks have
suffcient clout over borrowers to resolve
conficts without court interventions, banks
rely on courts to resolve some of their
conficts with the borrowers. If capital
markets prevent conficts before they arise,
then the need for courts and shareholders
rights will be lower.
Firms may prefer markets as a source
of funds in common-law countries where
courts are effective in solving the conficts
between frms and individual investors. A
cost minimization model should consider
conficts between the frm and its non-equity
shareholders through the introduction of free
cash fow as an agency variable (Holder,
Langrehr and Hexter, 1998).
Conficts of interests often exist among
children and grandchildren in family frms
regarding such issues as the allocation
of corporate cash fows. Viewpoints may
change in some countries as people place
more emphasis on children and their needs
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186 Business Intelligence Journal January
and less emphasis on wealth. Agency
conficts and dependency on capital market
for external fnance may be different for
group-affliated frms. However, links
between business groups and the capital
structure decision may be subject to culture
(Gleason, Mathur, and Mathur, 2000).
Conficting rules are a potent bar to multi-
disciplinary frms. A client of any branch
can create a confict for the entire frm
depending on conficting defnitions of the
frm and the type of structures to deal with
conficts. Rules imputing client conficts of
interest between the frm and agencies need
to be regulated, but not necessarily to be
frm-wide to avoid malpractice damages and
vitiating the confict. Firms avoiding client
conficts may limit their ability to growth
and to break up where the benefts from
conficting business exceed scale and scope
economies (Ribstein, 2002).
Conficts of interest between frms
arguably present greater potential dangers
to clients because individual and business
consumers want a broad variety of providers
from which to choose. Ethical values may
lead to conficts between frms and their
customers. Transaction ethics is focused in
own rights and aimed at reaching personal
goals and controlling conficts for your own
sake and cooperation with others benefts
both parties. (Brand, 1989) Companies do
not recognize the society and conficts may
occur between economic and social goals.
There will be confict between business
results and following the General Business
Principles Ethics, as Universals has no
clear indication of how to choose between
conficting obligations or duties (Kok. et
al,).
The inherent characteristics of the
advertising agency-client relationship
are confictive in nature. Agencies and
clients are often in confict with each other.
Potential conficts arise from the interaction
between frms, an advertising agency and a
client includes both common and conficting
interests (Ellis and Johnson, 1993). An
advertising agency-client confict emerges.
Private incentive and welfare concerns arise
when frms undertake some activities, such
as comparative advertising as a welfare
improving policy (Albano, 2001). The
tensions are imperfectly controlled through
the usual fnancial arrangements negotiated
between the client and its agency.
Conficts between advertising agencies
and their clients are rooted in the nature of the
service and the structure of their interaction.
According to Dowling (1994) conficts
between agencies and clients typically are
played out around four areas: (1) the style
of the advertising campaign (a creativity
issue); (2) the effectiveness of the campaign
(a success or failure issue); (3) the cost of
the campaign; and (4) client service (an
interpersonal issue). Conficts may rise either
because of the competence of the agency to
fulfl the client’s needs or contradictions
that exist between the incentives facing
the two parties. The advertising agency-
client relationship is one that is subject to
potentially conficting incentives of agency
proftability and client proftability. Creative
awards may lead to additional conficting
incentive.
Conficts that arise between the internal
and external agencies are conficts over
power. A possibility of resolution to the
agency-client confict may be that the
less the incentive the frm has to take
advantage of its agency, the more likely it
is that an incentive contract based on sales
performance will align the interests of the
agency with its client. Conficts could be
resolved by changing the structure of the
payoffs to the agency and client, and fnding
mechanisms to measure inputs and outputs.
(Devinney and Dowling, 1999). Because
ingredients to agency compensation and
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control are imperfect solutions to confict-
of interest problems, complex mixing-
and-matching approaches may create new
conficts between the client and its agency
(Bhattacharya and Lafontaine, 1995).
The open divergence of opinions and
confict between frms of the agrochemical
industry sector is because their strategies
diverged and their markets became more
competitive (Tait, 2001)
Trade conficts followed by political
bickering after dispute settlements cases
are more domestic between export frm
interests and import competing interests
than as confict between countries. Kant
argued that trade promoted peace by
acting as a constraint on rulers who might
otherwise embark on confict. Trade may
reduce confict by raising the capacity of
government, reducing opportunity costs and
by increasing social capital (Soysa, 2001).
Political and social conficts between
frms and employees have resulted in the
emergence of welfare. Origins of social
confict and instability not accountable
or are considered dysfunctional The
distributional approach argues that the proft
motive depends on distributional confict.
Teams try to raise the level of output, which
is subsequently subject to a distributional
confict. “The coordination and problem-
solving nature of organizational routines.”
(Coriat, Dosi 1998; p. 104), it “neglects
the second major role of organization and
organizational routines, namely their being
a locus of confict, governance, and a way
of codifying microeconomic incentives and
constraints”. Distributional confict is not
very relevant and so is any confict between
consumer requirements and proft seeking
activity. Business related values may
clash with religious values and may foster
distributional confict within frms.
The ensuing frustration of reducing
consumption and opportunities to improve
one’s job, may well expand the scope for
social confict. Lack of security of workers
is tied to the economic crises and social
conficts. If workers resent exploitation
per se and its increase still more, the old
problem of inequality generating social
confict could resurface with a vengeance.
Conficts between frms and employees
about payments and wages concern issues
on monitoring the work. The welfare state
assumes the role of referee in the labor
conficts between frms and workers.
Conficts between employees concern
issues on egalitarian practices.
Conflicts between firms and
communities
Studies to analyze community-
frm interactions are scarce and can be
characterized in two approaches (Engel and
López, 2004) . The frst approach emphasizes
conficts over property rights and focuses on
confict issues and not in the possibility of
negotiation or bargaining. Conficts between
frms and environmentalist groups (Burton,
2003), conficts between landowners and
squatters (Alston, Libecap and Mueller,
1999a, b.) and landowners and potential
encroachers (Hotte, 2001) A second approach
analyzes interactions through a bargaining
model. Communities receive from frms a
large variation of benefts but also there are
conficts and collusion.
The are some approaches to analyze
community-frm interactions conficts
focusing on property rights. Property right
may confict with open-source tenets
Literature on confict and bargaining
endogenously derive the conditions under
which community-frm interactions result
in confict or, alternatively, in bargaining
agreements. Bargaining or confict depends
on the two parties’ outside options, defned
as the party’s payoffs available when the
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188 Business Intelligence Journal January
bargaining fails (Binmore, 1985). Engel
and López (2004) derive endogenously the
conditions under which community-frm
interaction result in confict or in bargaining
agreements. Linkages between confict and
bargaining outcomes leads to non-trivial
changes in the comparative static analysis
Prevalence of bargaining or confict depends
on the parties payoffs available (Binmore,
1985). Improvements in the community’s
bargaining power vis-á-vis the frm are
likely to increase resource extraction that
harms the environment. The outside options
may be the outcome of a potential war of
attrition between the community and the
frm Property rights are considered as the
outcome of a confict and bargaining between
the community and the frm.
If power is not well balanced between
frm and community may be a reluctant
concession to external demands. History of
conficts and weak institutional mechanisms
within the government, frm or community
is a factor working against frm-community
cooperation. Individual deals may be started
off in response to confict between the two
parties.
The confict and bargaining outcomes
leads to non-trivial changes in a comparative
static analysis. Engel and López, (2004)
conclude, “improvements in the community’s
bargaining power vis-á-vis the frm are
likely to increase resource extraction and
thereby harm the environment. Moreover,
an increase in the wage rate may have
continuous or discontinuous effects on the
environment, depending on initial conditions.
We show that the continuous effect generally
corresponds to the standard comparative
static intuition (i.e., an increase in the wage
rate reduces environmental degradation).
The discontinuous effect, however, can be
paradoxical and counter-productive.”
The confict between the community and
the frm is an outcome of property rights.
Under the attrition model, the strategy for
the frm involves logging and the strategy of
the community is to block. If the community
wins, the frm is forced to bargain Attrition
models assume that competing agents
follow a strategy to win conficts. When
there is absence of information asymmetries
the war can be virtual Determination of the
critical attrition point for each player as the
maximum length of the confict that can
afford and the costs involved.
If a community wins the attrition
confict the frm may be forced to bargain
sharing the benefts of the exploitation
with the community. Burton (2003) using a
discrete framework considers the boundary
conditions that determine the winner.
Bargaining requires two conditions. First,
complementarities between the frm (capital
and technology) and the community (natural
resource and manpower) in terms of access
to the factors of production Second, the
community has to be able to enforce its
property rights. The asymmetric outcomes
are shown in a confict game in Figure
(Engel and López, 2004). Bargaining is
possible (area II). Theory of collective action
may infuence community’s ability to face
confict but still negotiation is needed.
Mexico require that frms interested in
exploiting natural resources get involved
in some form of negotiation with local
Figure 3: Possible outcomes of the pre-bargaining
property right game
Source: (Engel and López 2004)
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communities, but does not preempt other
forms of potentially more conficting
interactions.
Precarious communities suffer more when
frms fail. Arrangements between frms and
local communities over exploitable natural
resources are crucial to prevent long term
conficts. In confictive situations between
frms and communities, social risk may be
managed through high impact social spending
controlled by democratic decisions. Public
information and involvement in decision
making in potentially contentious areas may
help to avoid the emergence of uncertainty
and political confict.
Competition of mining companies over
access to resources can lead to conficts
with communities and mining companies.
Conficts between communities and the
mining companies arise from the enormous
differences in fnancial resources, power
and cultural background, which entail high
costs for all concerned. Mining frms often
reduce access by communities to the natural
resource and cause signifcant environmental
damage.
Conficts may develop between
landowners and potential encroachers,
(Hotte, 2001) and between landowners and
squatters (Alston, Libecap and Mueller,
1999a, b). Land conficts are common in
Mexico as the result of past land management
policies. Land property rights in Mexico
generate conficts and form a backdrop for
understanding much of Mexican history.
Socials issue, and land rights conficts
between frms and local communities are
spreading throughout the country and will
take a long term to solve.
Large frm development policy is creating
poverty in forest regions. Broader scale
conficts exist between out growers and
pastoralists (Vermeulen, Nawir and Mayers,
2003). There are conficts and power
struggles in Mexican rural communities and
ejidos which consist of groups of families
dependent on diverse economic activities
such as agriculture, cattle raising, forestry,
mining, etc. The resort Hotel Serenidad
built on ejidal land in Baja California now
claimed by peasants is a confict that arises
out of disputes over land and resources. The
struggles for the use of available resources
have caused violent conficts between
families. A good example is the community
of the ejido El Centenario (Durango)
where there were serious internal conficts
Communities involved in forestry activities
are good example of internal conficts within
the community and between neighboring
communities.
Firm-community forestry partnerships
may be capable of soothing and exacerbate
local social confict rather than ignite
it. Forestry enterprises of certifed
communities by an external agency, reduce
these conficts and tensions and justify the
productive project.. Examples of forestry
enterprises of non-certifed communities
are Macuiltianguis, Atepec and Peras in
Oaxaca.
Land ownership and transparent land-
use allocation and compensation clearly
understood by parties reduce confict
between frms and communities. Plantations
of timber and oil palm altered the livelihood
of the communities, and have created confict
between communities and frms over tenure
and allocation of land-use (Suyanto et al,
2004). Large frms who obtained land by
force and other less transparent process
has resulted in confict over tenure with
communities.
The Chimalapas region is characterized
by instability and violent conficts between
local “campesinos” and “outsiders” involved
in illegal timber extraction, drug traffcking,
land invasion, and cattle ranching (García
et al. 1993). Conficts between Indian
communities of the Chimalapas and
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190 Business Intelligence Journal January
outside logging and ranching interests
have been ongoing (Russell 1996). Confict
has prevailed between the ejidos and
indigenous communities of the Chimalapas
and powerful outside interests. To curb out
escalation of conficts among local groups,
the Chimalapas communities have protected
forest areas and have promoted a policy of
accepting all campesinos living in the region
requesting their contribution to defend and
protect the area.
Conficts of land tenure between local
communities and large frms in Indonesia
increased in 1998 where communities as
a weapon used fre. During the course of
conficts, local communities frequently
burned young plantations established by
large companies (Suyanto et al. 2000a). Land
tenure arrangements have caused escalating
conficts between different stakeholders
over access to and ownership of resources.
The role of tenure arrangements and land
conficts affect cattle ranching practices,
deforestation and land degradation. The
ambiguous communal tenure and problems
in delineating boundaries frequently leads to
conficting tenure claims between indigenous
communities. Lack of legal mechanisms for
the resolution of disputes over land only
exacerbates conficts over natural resource
use and control (DeWalt and Rees 1994).
Land tenure confict between frms and
communities, resulting from government
policies and practices, is often the motive
behind forest and land fres, triggered
by the frustrations involved in getting
representation in a fair and transparent
judicial system. Large-scale plantations must
take into account the existing land claims of
local communities. Recognizing communal
land claims would help minimize conficts
over land allocation.(Suyanto. et al, 2000b)
Consumers have a confict when their
choices are determined by different and
opposing characteristics of the same good or
service. It is likely to be a confict between
the objectives of raising welfare and market
access increase and falls apart once we
move to the case where two or more goods
are subject to tariffs. Any reductions in
dispersion are good for welfare but bad for
market access. If prices are set at too high
a level to absorb potential output, a confict
ensues between what businesses pursue and
what a community needs.
Social movements organize around
conficts.
Marxist theory supports that all social
movements are strategic actors in the social
struggles involved in economic conficts.
Touraine found the new central confict
claiming that social movements were central
actors in the shaping of society.
The cultural version of social change
theory and confict focuses on the nature of
decentralized power and resistance of NSM
and rejects the Marxist theory based on class
struggle. Critics of the cultural version argue
that it “… leaves unresolved the analysis of
mechanisms which lead from confict to
action” (Della Porta and Diani, 1999:13).
Social movements are informal networks
based on shared beliefs and solidarity, which
mobilize about confictl issues, through the
frequent use of various forms of protest”
(Della Porta and Diani, 1999:19). Confict and
protest represent the essential characteristics
of the normal state of affairs, which are
woven into the fabric of capitalist culture.
Culture of indigenous peoples confict with
the culture of capitalism. Violent protest
may be uprooted and disorganized
Resource mobilization theory neglects
the structural sources of confict created
by NSM, over emphasize the rationality
of collective action and the potential of
resource rich and self organized groups
without entrepreneurship. However, social
movements are collective action focusing
on conficts.
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Conficts between frms and environmental
groups Burton, (2003) considered the
boundary conditions that determined the
critical attrition points using a discrete rather
than a continuous framework.
Devolution means for communities the
possibility to bargain with frms interested
in exploiting the resources although it is
diffcult to prevent conficting interactions.
Inter-communities and intra-
communities conflicts
There are few studies concerned with
intra and inter-communal conficts (Barron,
Kaiser and Pradhan, 2004; Boix, 1994)
internal civil unrest and sociopolitical
instability that affects developing countries.
Underlying the agrarian conficts affecting
intra-communities and inter-communities of
rural Mexico are causes such as the power
of local politicians know as caciques,
intra-community power struggles, armed
movements, drug-traffcking, paramilitary
forces.
Longstanding unresolved inter-
community conficts lead to incidents of
serious violence and impede community
development. The social fabric of a
community torn apart by confict, collective
work ceases to meet community development.
Process of natural resource management
by local communities is refected in the
internal conficts for the communities.
Internal conficts within the community of
Chalchijapa, for instance, has resulted in the
severance in collaboration with Maderas del
Pueblo, a local NGO, established to support
and facilitate local peoples’ struggles to fnd
solutions in land use conficts and natural
resource management. However, recent
political divisions and local conficts have
forced Maderas del Pueblo to abandon their
development activities. Support from the
municipality may resolve conficts between
neighboring communities and cattle
ranchers who continue to annex Chalchijapa
communal lands.
The exacerbation of these conficts
transforms them into inter-community and
intra-community violence and accentuates
rural poverty. Local governments have failed
to guarantee public security, respect for
human rights and help the communities to
reach a defnitive solution to their disputes.
Government’s will to reach negotiated
solutions to social conficts is subordinated
to powerful economic interests.
Conficts between communities can have
a religious background
The levels of vulnerability and insecurity
within the confict affect communities.
Small scale conficts between communities
have more deadly consequences given that
the nature of confict has changed by the
proliferation of small weapons.
The pattern of confict between contending
social groups is one important factor that
most enter into the analytical framework
Multi party conflicts
Conficts between communities and the
state, between communities and owners and
between communities and communities are
common in several states of Mexico stem
from agrarian problems.
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2009 199
Rao C.B. - Rational Exuberance and Revival of the U.S. Automotive Sector
Balkrishna C. Rao
RATIONAL EXUBERANCE AND REVIVAL OF THE
U.S. AUTOMOTIVE SECTOR
Balkrishna C. Rao (PhD)
Abstract
The recent woes of the US manufacturing sector have prompted the search for an effective solution
for its resuscitation. Such a plan can aid the big three automotive companies in regaining their market
share. This article takes a holistic approach in addressing this issue and attempts to, at least, provide a new
perspective on the problem.
Business Intelligence Journal - January, 2009 Vol.2 No.1
200 Business Intelligence Journal January
Comeback of Manufacturing
In this era of globalization, the robust
U.S. economy affects the economic
workings of the rest of the world in one
way or another. With the dot com boom a
relic of the past and the real-estate boom
showing signs of fagging, this country will
need a boom in another area to galvanize
consumer spending. In this vein, the
feasibility of inducing the next boom in the
manufacturing sector should be mulled over
by the U.S. government. The manufacturing
sector referred to in this article encompasses
the quintessential aerospace and automotive
divisions together with all other industries,
such as pharmaceuticals, semiconductors
and computers that use manufacturing
operations.
This sector has been the backbone of
the American industrial revolution in the
past and has greatly contributed to this
country’s superpower status. It accounted
for about 14 % of the U.S. GDP and 11 %
of total U.S. employment as of 2003 down
from 22 % of total employment in 1977
(US Department of Commerce, 2004). The
global lead maintained in the past by the U.S.
manufacturing sector has resulted in a pool
of workers with enhanced productivity. In
fact, the labor productivity in manufacturing
doubled during the 1977-2003 period (US
Department of Commerce, 2004). Therefore,
considering the excellent infrastructure and
manpower residing in this sector, it might
be possible to tap into its potential for a
bright future. China’s graying population
is another incentive because manufacturing
will make its comeback in America with
China facing labor shortage in the future.
Manufacturing is also a giant in terms of
inciting immense activity in a wide variety
of other areas that span from raw materials
right down to healthcare and fnance (US
Department of Commerce, 2004). And this
boom will be distributed across the width
and breadth of America. And as we proceed
with the 21st century, progress in this sector
will be of import because of its application
in many scientifc endeavors and production
of various fnished products. Moreover, the
size of the U.S. manufacturing sector makes
it an apt candidate for a pilot program to test
the effcacy of a subsidized national pension
and healthcare plan for improving both its
work culture and intrinsic value. Considering
its past proftable performance, a properly
resuscitated manufacturing sector should
be able to account for about 20 % of U.S.
GDP which is close to Japanese and German
manufacturing’s share of total GDP in 2004
(The Economist, April & May 2004). This
rebound in the manufacturing sector will
boost the U.S. economy and a strong U.S.
economy will have positive ramifcations
for economies around the world. This
success could pave the way for a larger
national pension and healthcare system built
on the earnings of a thriving manufacturing
sector. This larger system could in the long
run cover all sectors of the U.S. business
enterprise inclusive of manufacturing.
Is it possible to stimulate the manufacturing
sector with the U.S. already reigning the
realm of services industry? Much of the
manufacturing sector is sagging under the
burden of health-care and pension outlays
they owe to their current and retired work
force. If the U.S. government could undertake
these healthcare and pension liabilities then
the U.S. manufacturing sector could compete
with its Asian and European counterparts on
an even keel. The absence of this fnancial
burden will help manufacturing companies
to enhance innovation for getting involved
in cutting-edge technologies for coping with
the looming energy and environmental crises
and that in turn will aid in counterbalancing
the run-of-the-mill manufacturing operations
outsourced to Asian countries. Freedom
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Balkrishna C. Rao
from these stupendous liabilities will allow
manufacturing companies, with emphasis
on the automotive division, to concentrate
on another serious issue “quality” which has
bedeviled entrepreneurs since the Japanese
forayed into the manufacturing sector.
According to a research effort published
by McKinsey & Company (Johnson, 2005),
globalization is prodding businesses in the
developed countries to encourage workers
with innovative skills. With routine chores
being outsourced to emerging economies,
companies, including those in the
manufacturing sector, need to nourish “tacit”
(innovative) workers and encourage the
transformation of low-skilled laborers into
the innovative realm. The encouragement
of tacit workers and special training
programs for the low-skilled workforce can
be achieved in the manufacturing sector
with ease by relieving the industrial frms
of their legacy costs. The special training
programs developed by the manufacturing
frms for elevating the low-skilled workforce
will do good to the community in general
allowing these companies to score in terms
of a social context. In this regard, the Ford
Motor Company’s recent initiative to adopt
innovation is noteworthy considering the
fnancial woes troubling the automotive
sector. By embracing innovation, the
intrinsic value of any commercial setup
(for all sectors inclusive of manufacturing)
is augmented and this can enhance share
value without taking recourse to mechanical
schemes such as share buy-backs. A model
for innovation that could be followed by the
manufacturing sector is that of 3M. It has been
very successful in developing, and continues
to develop, a wide array of new products by
encouraging its workforce to think outside
the box. Even Google has adopted this
initiative by allowing its workforce to use
their imagination, for a certain portion of
their offcial working time, to pursue new
ideas. In this era of globalization, prescient
adoption of disruptive technologies in
developed economies such as the U.S. would
neatly balance the routine tasks outsourced
to a global workforce in the rest of the world.
Besides embracing disruptive engineering
technologies, the manufacturing sector
should integrate itself with information
technology which is revolutionizing
the global business enterprise and will
continue to do so in the future. Innovation-
based initiatives should be encouraged
in relevant U.S. business sectors, and not
just manufacturing, considering the ever
increasing global work force available in the
rest of the world for varied tasks.
Over and above the shoring up of
manufacturing effciency through innovation
and quality-consciousness, the absence
of legacy costs can facilitate the sector in
expanding its work force and also improve
wages. This underwriting of the massive
expenditure by the cash-strapped U.S.
government might be termed as “rational
exuberance”. But this exuberance might just
jump-start an ailing, but important, sector of
the U.S. business enterprise that will keep
the economy rolling.
Bequeath Legacy-Costs?
The frst step in achieving this exuberance
would be the raising of a staggering amount
of seed money for under-writing the pension
and health-care costs. Unlike countries such
as natural-resource-rich Australia and oil-
rich Norway that can channel their budget
surpluses from an almost single source into
national pension funds, the U.S. government
will have to consider various sources of
capital. The capital squeezed out of the
disparate sources could be put together to
raise the huge sum. The lines that follow
describe some possible disparate sources.
Business Intelligence Journal - January, 2009 Vol.2 No.1
202 Business Intelligence Journal January
One source could be a suitable portion of the
overwhelming foreign investments fowing
into U.S. debt securities. If U.S. treasury
bonds and notes do not appear appealing
then new bonds, called manufacturing bonds,
could be issued by the government for this
cause or a combination of these new bonds
and traditional U.S. treasuries could be used
for raising the capital. Another source for
this initial capital could also be the corporate
and personal income tax revenues collected
by the U.S. government. Yet another source
could be based on the Australian scheme with
the U.S. government indulging in trading
commodities needed by hungry emerging
economies in South Asia and South America.
Besides trading natural resources, the U.S.
government could also look into trading
technology with these countries. The U.S.
private sector, another potential source, could
be enlisted for help in this endeavor. There
are certain companies in the manufacturing
sector whose proftability has progressed at
a decent clip. Examples of such companies
exist in the computer and semi-conductor
industries, where manufacturing prowess
are harnessed to fabricate microprocessor
chips and related hardware. This despite
the tremendous outsourcing experienced by
semiconductor industries to keep themselves
proftable. Recently, industrial tycoons
such as Bill Gates and Warren Buffet have
unleashed their valuable business acumen
and gobs of money into global philanthropy.
Their philanthropic organizations could be
beseeched to contribute generously for this
cause. Oil companies could be entreated to
generously funnel some of their high profts
for this noble cause. The aerospace industry
is another proftable group that could be
encouraged to help its manufacturing
brethren at this time of critical need. A
source already existing would be the stock of
capital invested in government organizations
such as the Social Security Trust Funds and
Medicare for the present manufacturing
workforce which could be pooled together
for this task. Of course, the U.S. government
would have to stand guaranty for the
anxious workforce whose active funds
would be transferred. Any attempt to raise
this staggering amount of seed money will
also require the U.S. government to redeem
locked sources of useful capital. Certain
non-performing government assets could be
liquidated for raising a portion of the initial
capital. Even symbiosis with developed
countries like Canada could be considered
for this purpose.
The debt incurred through a combination
of the disparate sources mentioned above
could be honored at a suitable period in time
by taxing the then thriving manufacturing
sector. Tax rates on both corporate revenue
and workforce income could be increased for
a suitable period of time to level this debt.
These increased tax rates could be phased
out at a time when the debt is relieved. An
alternative to increasing the tax rates could
be a value-added-tax (VAT) wherein a
small tax could be added at those stages of
fabrication where manufacturing processes
are employed. The VAT could be applied to
a wide swath of manufactured products from
industries that encompass semiconductors,
computers, pharmaceuticals, automotive
vehicles, aerospace etc. Here again the VAT
should be discontinued after leveling the
debt. Beyond all these redemption plans,
there is always the possibility that the new
manufacturing sector armed with innovative
techniques and products and quality-
consciousness will reap rich rewards for the
U.S. economy by exporting its wares to the
rest of the world.
The important task of raising the massive
amount of seed money could be achieved
through a non-proft federal body created
for this purpose. This body should also
be authorized for fnancial activities to
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Balkrishna C. Rao
maintain a substantial stock of capital for
future needs through investment options
that it deems ft. These options could
include hedging strategies, commodities-
trading, investing in hedge funds, equity,
investments in emerging economies and
investments in OECD countries, to name
a few, to maximize the returns over long-
term. Even investments in this country in
booming non-manufacturing sectors could
be employed to maintain the cash fow.
Such a federal body could also look at the
investment strategies employed by some
government pension funds, e.g. Singapore,
Australia, Norway and even CalPERS, the
pension and healthcare system of the state of
California, to subsidize wholly or partially the
legacy costs of their workforce. If properly
invested, the returns in the long-term could
be used by this federal body to negate legacy
costs for the U.S. business enterprise at
large. The second stage of the exuberance
endeavor would involve the funneling of
this seed capital to traditional government
organizations such as the Pension Beneft
Guaranty Corporation (PBGC), Medicare
and Medicaid for covering the pension and
healthcare liabilities of the manufacturing
workforce. These organizations, which
have existed for a substantial period of
time, possess the non-fnancial wherewithal
necessary for dispensing the capital to the
companies comprising the manufacturing
sector. Their use would minimize the costs
associated with the tedious task of directing
the cash fow to the individual companies.
The roles of these organizations might
have to be expanded in this new context to
accommodate member companies which are
not receiving their benefts. The Pension
Beneft Guaranty Corporation (PBGC),
which currently offers pension protection
to numerous Single-Employer and
Multiemployer based companies, incurred a
loss of about $ 23 billion for 2005 (PBGC,
2005). Despite its loss-making status, the
PBGC could be used only as a means for
capital dispensation and with time, maybe,
a thriving manufacturing sector might haul
it out of the red. Similarly, expenditure for
healthcare should be managed through the
dispensation systems already in place for
Medicare and Medicaid. The ideas outlined
in this article are just some of the myriad
alternatives to save a critical sector in poor
health. A thorough analysis of all the sources
is beyond the scope of this article.
Jump Starting the U.S. Automotive
Sector
The automotive and aerospace divisions
have been two of the major representatives
of the U.S. manufacturing sector with the
latter being well-heeled. The automotive
bloc has accounted for about 1.6 % of the
total U.S. GDP in 2003 (US Department
of Commerce-II, 2004). Therefore from an
economic viewpoint it stands to gain from a
revamp. For its revival, the advent of rational
exuberance should be followed by the U.S.
automotive division infusing “quality”,
in addition to innovation, into its cherry-
picked brands. Improving the quality of a
few selected automotive brands will make
this division competitive and, maybe, even
supplant the products coming from their
foreign counterparts. This notwithstanding
a benefcial dollar exchange-rate that makes
Japanese cars cheaper. The case for fewer
brands is corroborated by the sweeping
success of the Japanese carmaker Toyota
which has 4 brands as opposed to 15 and 8 by
General Motors and Ford respectively (The
Economist, Sept. 2005). This large variety
of automotive vehicles manufactured by the
American big three has crimped their bottom
lines to some extent. Another example for
limited brands from the U.S. manufacturing
sector is the aerospace company, Boeing.
Business Intelligence Journal - January, 2009 Vol.2 No.1
204 Business Intelligence Journal January
It has worked on a piecemeal basis on its
limited feet of commercial airplanes which
has contributed to its strong position in
the business of commercial aviation. This
notwithstanding the fact that there are just
two global companies catering to the world’s
need for commercial aviation. With the
looming energy crisis, quality will become
a signifcant issue affecting fuel effciency.
Moreover, innovative technologies such as
alternative fuel systems will be dependent on
quality for these products to compete head-
on with their foreign counterparts. This is
because high quality automotive vehicles
using standard or innovative technologies
will consume lesser fuel and require lesser
maintenance. Innovation without quality
will result in novel U.S. technologies being
put to extremely good use in the hands of
a foreign competitor who has a workforce
that believes in quality. In this regard, as
mentioned previously, U.S. automotive
companies will have to encourage their tacit
workforce and develop training programs
for the lower-skilled ones. But the entire
workforce, both tacit and low-skilled,
will have to be encouraged to be quality-
conscious. The latest wave of car models
churned out by the American big three have
excelled in the aesthetics of appearance. It
should be easier to cherry-pick a limited
number of these brands that have been well
received by customers and continue working
on them with innovation- and quality-based
efforts to fortify their market share. In such
a scenario, a U.S. automotive company’s
limited brands, with some using innovative
alternative fuel technologies, would work so
well that both domestic and foreign customers
would help them gain top rankings in terms
of global production and operating margins.
A fourishing automotive division will in turn
spawn innovative business opportunities for
automotive parts makers such as Delphi.
The combination of government’s-rational-
exuberance, innovation (new fuel systems
and other novel technologies), fewer brands
and quality can aid in the timely revival of
the U.S. auto industry to capitalize on the
demand foreseen both in the U.S. and in
emerging economies such as China and
India.
References
Economic Structure: Japan (April 2004).
The Economist.
Economic Structure: Germany (May 2004).
The Economist.
Extinction of the Predator (September 2005).
The Economist.
Johnson BC, Manyika JM and Yee LA (2005).
The Next Revolution in Interactions. The
McKinsey Quarterly. 4.
Pension Beneft Guaranty Corporation
(2005). Performance and Accountability
Report, Washington, D.C.
U.S. Department of Commerce-I
(2004). Manufacturing in America: A
Comprehensive Strategy to Address
the Challenges to U.S. Manufacturers,
Washington, D.C.
U.S. Department of Commerce-II (2004).
U.S. Automotive Parts Industry
Assessment, Washington, D.C.
2009 205
Sharma S., Sharma J. and Devi A. - Corporate Social Responsibility: The Key Role of Human Resource Management
Suparn Sharma, Jyoty Sharma, Arti Devi
CORPORATE SOCIAL RESPONSIBILITY: THE KEY
ROLE OF HUMAN RESOURCE MANAGEMENT
Suparn Sharma (PhD),Joity Sharma (PhD), Arti Devi
Abstract
Business organizations have waked up to the need for being committed towards Corporate Social
Responsibility. But still majority have just been taking up some form of philanthropic activities for its
stakeholders. Nurturing a strong corporate culture which emphasizes Corporate Social Responsibility
(CSR) values and competencies is required to achieve the synergistic benefits. The employees of an
organization occupy a central place in developing such a culture which underlines CSR values and
competencies. The present study, therefore, is an attempt to explore the engagement of human resource
management professionals in undertaking Corporate Social Responsibility. It also suggests Human Resource
Management to take a leading role in encouraging CSR activities at all levels. The combined impact of
CSR and human resource activities, which reinforce desirable behavior, can make a major contribution in
creating long term success in organizations.
Business Intelligence Journal - January, 2009 Vol.2 No.1
206 Business Intelligence Journal January
Introducción
Business houses, right from the inception
of human race, have been regarded as
constructive partners in the communities
in which they operate. Though they have
been instrumental in creating employment,
wealth, products and services, yet the
pressure on business to play a role in social
issues involving employees, stakeholders,
society, environment, government etc. is
continuously increasing. The society is
questioning the existence of business houses,
especially in the wake of the scandals and
scams conducted by the business houses
like UTI, Enron, and WorldCom. In
response to it, the organizations around the
globe are forced to wake up to the need for
being committed towards Corporate Social
Responsibility. Over the years this concept
of Corporate Social Responsibility (CSR)
has gained unprecedent momentum in
business and public debate and has become
a strategic issue crossing the departmental
boundaries, and affecting the way in which
a company does business. It has become
so important that many organizations have
rebranded their core values to include
social responsibility. Almost all corporate
websites/ policies/reports talk about their
endeavors for CSR which has become a
way of ensuring that the organization is
fulflling all the obligations towards society
and thus is eligible for the license to operate.
It assures that the organization can grow on
sustainable basis.
These activities of CSR ranging from
small donations to bigger projects for social
welfare sustainable practices differ from
organization to organization depending on
the resources available to an organization for
undertaking sustainable practices. Business
practices of big and successful companies,
with plenty of resources at their end,
have set the trend for being committed to
sustainable practices. Such business houses
around the globe show their commitment to
social responsibility. In India, the initiatives
of Dabur India Limited, for example, which
commenced ‘Sundesh’ in 1993, a non-
proft organization, with an aim to promote
research and welfare activities in rural areas
are appreciable. On the same track to fulfll
its urge to do something for community,
Bharat Petroleum Corporation Limited has
adopted 37 villages as their responsibility to
develop in all walks of life. It has made efforts
to make them self-reliant, provided them
fresh drinking water, sanitation facilities,
medical facilities, vocational training and
literacy camps. (http://www.karmayog.org/
csr500companies). Around its industrial
facilities, Tata Group has created towns and
cities like Jamshedpur, Mithapur, Babrala
for the beneft of its employees. Cadbury
India, Glaxo and Richardson Hindustan are
some of the companies which are helping
farmers to grow crops which in turn shall
serve as raw materials for them (Tripathi &
Reddy, 2006).
Although the implementation of such
activities involves time, effort and resources
yet the business houses have realized that it
(CSR) is one of the important ways in which
an organization can distinguish itself from
its competitors. The tangible and intangible
benefts associated with for organization are
immense. A powerful tool like CSR not only
enhances the brand image and reputation of
the business but also leads to improvement
in sales and customer loyalty, and increased
ability to attract and retain employees. By
capitalizing on it, the organizations can
improve their fnancial performance and
attract more investment with immense
economic value. The word CSR has, as a
result, occupied very important place in the
plans and strategies of the organizations in
the present era.
2009 207
But still there are numerous organizations
which understand CSR as undertaking some
donations or philanthropic activities. Rather
in its true sense CSR constitutes a strong
commitment to social obligations and
internalization throughout the organizational
culture which lays emphasis on the execution
of the obligations towards the employees and
involving them in responsible endeavors.
However from the very beginning the key
player in undertaking such activities in the
organizations has been top management and
it has been the driving force in the area of
social responsibility. Employees have been
rarely covered under the ambit of CSR. To
ensure organization-wide commitment, non-
management workforce has to be involved in
the process. This involvement of employees
speaks of the strategic contribution of
Human Resource Management (HRM) in
CSR. In this context, the responsibility of
human resource management department
for encouraging sustainable practices that
offer practically and theoretically new
opportunities is very much.
So the present composition is an attempt
to fnd out that how the staff can become
the brand ambassadors of the organizations
and that “feel good factor” can permeate
out to others, especially customers and
clients. To commensurate that it will try
to suggest a plan of action by analyzing
the CSR activities of various organizations
to promote sound corporate citizenship
which is necessary for the development of
a culture for social responsibility. Divided
into three sections, the present study shall
put light on the studies emphasizing the
involvement of human resources in socially
responsible endeavors in Section I. Section
II proposes suggestions on internalizing
social responsibility by underlining the
contribution of Human Resource (HR) and
Section III concludes the study.
Literature Review
Different researchers at different points of
time have emphasized the critical importance
of HR for the proper implementation of CSR
and the role that HR can play in developing
the process where the business objectives
are assessed and values re-aligned to match
them with staff expectations.
Greening & Turban (2000) found that
job applicant and employee perceptions of
a frm’s CSR determines their attractiveness
towards the organizations. Moving on
the same track Cropanzano et al (2001)
demonstrates that employee attitudes and
behaviors are heavily infuenced by fairness
of organizational actions towards them. In
a survey conducted by Cherenson group,
a New Jersey based public relations and
recruitment ad agency; in 2002 found that
the most important factors affecting the
reputation of an organization as a place
to work in are the way the employees are
treated and the quality of its products and
services (http://www.hrmguide.net/usa/
commitment/employer_branding). Further
Good relationships with employees also
allows a company to gain additional benefts
including improving their public image,
increasing employee morale, and support
from the community (Zappala and Cronin,
2002). Nancy (2004) while discussing the
role of HR in developing CSR culture in
organizations emphasized that with the
growing importance of human capital as a
success factor for today’s organizations,
the role of HR leadership has become
more critical in leading and educating
organizations on the value of CSR and
how best to strategically implement CSR
policies and programmes domestically
and abroad. In view of this HR must be
aware that effective CSR means respect for
cultural and developmental differences and
sensitivity to imposing values, ideas and
Sharma S., Sharma J. and Devi A. - Corporate Social Responsibility: The Key Role of Human Resource Management
Suparn Sharma, Jyoty Sharma, Arti Devi
Business Intelligence Journal - January, 2009 Vol.2 No.1
208 Business Intelligence Journal January
beliefs when establishing global HR policies
and programmes.
Redington (2005) with the help of
twelve case studies, while underlining the
HR professionals’ key role in managing
the changes required for CSR activities to
succeed, stated that employees are the most
neglected though most important stakeholder
of the organization for conducting CSR
activities. While accentuating on this issue
he said that having a good reputation socially
implies that a company’s behaviour towards
its people is consistent and is of a particular
standard in which they are valued in as much
as the external stakeholders. Rupp et.al
(2006) accentuated that CSR plays a role
about fostering positive social relationships
between organizations and communities.
They highlighted that employees will turn
to CSR to assess the extent to which their
organization values such relationships and
so high levels of CSR can meet employees’
need for belongingness with the organization
and the society. A survey by Sirota Survey
Intelligence (2007) affrmed that employees
who are satisfed with their organization’s
commitment to social and environmental
responsibilities are likely to be more
positive, more engaged and more productive
than those working for less responsible
employers and when employees are positive
about their organizations’ CSR commitment,
their engagement rises to 86 per cent. On the
other hand, when employees are negative
about their employer’s CSR activities, only
37 per cent are highly engaged. Similarly,
Murray (2008) on the basis of survey stated
that more than one-third of respondents
pointed that working for a caring and
responsible employer was more important
than the salary they earned and nearly half
would turn away from an employer that
lacked good corporate social responsibility
policies.
However Fenwick & Bierema (2008)
has pointed that HR department, which
has the potential to play a signifcant
role in developing CSR activities within
the organization, found to be marginally
involved or interested in CSR. Mehta (2003),
in a survey, found that only 13 per cent of
the companies involved their employees
in undertaking the various CSR activities.
Moreover, the employees have also been less
likely to fully internalize the corporate culture
(Rupp, et. al, 2006). The implementation of
the CSR policy has also traditionally been in
the hands of ‘management’ and ‘employees’
as the non-management workforce have
been less likely to be involved in developing
and implementing a policy on business
responsibility towards society. There are
large variations in the understanding of CSR
in the head offce and the local plant or sales
offce of an organization (Young, 2006). The
perceptions of workers and management
also differ about whether an organization is
complying with such regulations as related
to labour or working conditions (Mehta,
2003).
Agarwal (2007) stated that with the
adoption of HR policies, such as, periodic
review of employee performance, adequate
training for the workforce and career
advancement norms for its personnel,
creating motivation, and commitment in the
workforce the organization can reap the full
business benefts and become successful to
the great satisfaction of all its stakeholders.
This is also reinforced by Malikarjunan
(2006). Emphasizing upon such dimensions
Krishnan & Balachandran (2004) pointed out
the role of HRM in incorporating responsible
practices within an organization. It is due to
the lack of involvement of employees and
failure to embed the socially responsible
values into the organizational culture that
many CSR initiatives inevitably fail and they
2009 209
just become an exercise in public relations
(Mees & Bonham, 2004).
The above verdicts of different researchers
at different points of time entail that no doubt
they have underscored the role of employee
involvement through HR in various socially
responsible initiatives of organization.
But they have paid little attention on this
aspect that how the internalization of CSR
culture can happen with the initiatives of
HR department of organization. How the
company’s values and policies for corporate
responsibility can be refected through
various HR functions and consequently how
the HR function can be a powerful agent in
effecting company-wide progress in its CSR
performance. With this backdrop in mind
present study has designed.
Internalizing CSR: Initiatives of
HRM
The role of HR function in embedding
the CSR values in the corporate culture is
immense and has been underlined also. An
organization can exhibit a better image in
the minds of people by presenting itself as
an excellent employer which cares for its
people and involves them in the ambit of
social responsibility. This involvement of
employees indicates the strategic importance
of HRM in the CSR initiatives of an
organization. Human Resource policies,
forming the framework for the culture in
the business management, create awareness
towards the need to achieve the business
goals in the best possible and ethical manner
(Agrawal, 2007). With the help of HR
functions, the socially responsible values
can be inculcated and sustained in the
organizational culture through the following
ways:
The HR department should take the •
responsibility to develop a formal
policy on sustainable practices
involving employees. British gas, for
example, used employee volunteering
as a vehicle to achieve business-driven
culture. The success of the initiative
led to the development of a formal
policy on employee volunteering. The
company developed the ‘Cardiff Cares’
volunteering initiative with the purpose
of encouraging employees to raise funds
and donate some of their time to the
local community (Redington, 2005).
Employee fundraising was a way to show
support for the local community, to build
positive team spirit in the organization
and to create a ‘winning’ environment at
the workplace. The managing director
and the HR team’s strong commitment
enabled the initiative to be a big success
improving the employee retention levels
and employee satisfaction.
The orientation programme of newly •
recruited candidates should be designed
in a manner that corporate philosophy
about CSR gets highlighted. The
commitment of top management
towards CSR is very important which
should be expressed in tangible terms
to reinforce the right kind of behavior
in the organization. Wipro, for example,
inculcates CSR values amongst its
workforce right at the beginning
during the induction process (http://
www.developednation.org/interviews).
Corporate presentations, keeping
employees updated through mails,
regular newsletters are the instruments
used to keep employees energized about
the organization’s socially responsible
initiatives.
The designing of Performance •
Management System should be done
in such a manner that it measures the
Sharma S., Sharma J. and Devi A. - Corporate Social Responsibility: The Key Role of Human Resource Management
Suparn Sharma, Jyoty Sharma, Arti Devi
Business Intelligence Journal - January, 2009 Vol.2 No.1
210 Business Intelligence Journal January
socially responsible initiatives taken
by employees. This becomes important
as the internalization of CSR in an
organizational culture requires that
appropriate behaviors get appraised,
appreciated as well as rewarded.
Otherwise, the organization might fail to
inculcate it amongst all employees due
to lack of positive reinforcement.
The Training facilities may also be •
made available to instill the CSR culture
among employees. This becomes
necessary to make employees learn and
practice CSR activities. The training
of employees through “CSR Living
Our Values Learning Tool” at Cadbury
Schweppes (Young, 2006), the major
global beverage and confectionary
organization, has been a good example
of partnership between HR and CSR.
The company has also included social
responsibility in the latest management
development initiatives like the global
“Passion for People” management skills
programme.
Empowerment of managers by giving •
them decision-making authority shall
help in executing social responsibility at
local level. It becomes important when
an organization with plants or units at
multiple locations around the world
operate. Armed with decision making
authority, the managers will be able to
appreciate and assess the needs. Therefore,
the employees may be appropriately
authorized to encourage initiative in
the area of social responsibility. Clear
reporting and review mechanisms may
be put in place in the organization which
shall improve the focus and effectiveness
of CSR (Mehta, 2003) .
Code of ethics of an organization •
can stimulate social responsibility to
a great extent reinforcing amongst
its employees the underlying values.
Training on code of ethics should be
undertaken by the organization. Best
Buy, a fortune 100 company and the
largest specialty retailer of consumer
electronics in the United States and
Canada, has initiated ethics training for
its employees. Electronic Data Systems
(EDS) has a global CSR strategy which
is well supported by HR function and
the employees (Redington, 2005). The
HR department of the company has also
developed an e-learning course for its
employees built around the Department
of Trade and Industry, CSR Competency
framework.
Responsible Human Resource •
Management practices on equal
opportunities, diversity management,
whistle blowing, redundancy, human
rights, harrasment shall give credibility
to the CSR initiatives of the organization.
It is beyond doubt that protecting human
rights such as denial or prevention of
legal or social rights of workers is a very
important issue under CSR. Companies
like Wipro, Infosys, Dabur, and ICICI
have even framed whistle blowing
policy, providing protection to the
employees who come to know about any
unethical practice going on within the
organization, covering a whole gamut
of subjects and showing their positive
approach towards unethical practices.
The separation of employees during •
mergers, acquisitions, downsizing etc.
should be strategically aligned with the
business strategy as well as Corporate
Social responsibility. Retraining,
retention, redeployment of people
2009 211
can be worked out with aggressive
communication, information campaigns
and outplacement services in place
to assist the transition of people from
the organization. Hindustan Unilever
Limited (HUL), for example, provided
outplacement services to the employees
of its foods division at Bangalore
when they were unable to move to
Mumbai in 2006. Over 60 frms and 25
placement agencies were contacted by
the company to arrange for multiple job
interviews for a number of employees
(http://timesofindia.indiatimes.com/
articleshow)
Social Reports or Sustainability Reports •
should be prepared to underline the
organization’s commitment to social
or sustainable practices. In India, the
top management, in their messages,
speeches to shareholders and in annual
reports has been resorting to social
reporting but it should be made more
formal in nature (Bhatia, 2005 & Raman,
2006). Tata Steel Limited, for example,
has been preparing Sustainability
Reports under the stringent guidelines
of Global Reporting Initiatives, 2002
on economic, environment and social
performance (http://www.tatasteel.com/
corporatesustainability).
The Human Resource department should •
effectively measure and evaluate CSR
activities. The value added by CSR in the
form of direct results, such as, economic
savings and indirect results like increase
in employee satisfaction, less employee
turnover, measured by staff attitude
surveys, shall indicate contribution
to improved business performance.
There is also a need to conduct periodic
review of the CSR activities. CurAlea
Management Consultants Pvt. Ltd.
(2007) has suggested for conduction
of periodically an independent internal
review or audit of the effectiveness
of CSR programmes (http://www.
c ur a l e a . c om/ pdf f i l e s / Cur Al e a _
ApproachPaperForAuditofCSR).
Conclusion
Successful programmes on social
responsibility rely heavily on enlightened
people management practices. In this
context HR department is assumed to be
the coordinator of CSR activities in getting
the employment relationship right which
is a precondition for establishing effective
relationships with external stakeholders
and thus can orient the employees and the
organization towards a socially responsible
character. There is also an increasing
trend in the corporate sector which has
started leveraging upon employees and
their management for exhibiting their
commitment towards CSR. Armed with a
strong and committed organizational culture
reinforced by responsible Human Resource
Management practices, the organizations
can achieve heights of success by improved
proftability, employee morale, customer
satisfaction, legal compliance and societal
approval for its existence. It is high time
for all other organizations which have been
paying only lip service to CSR that they
must capitalize upon the existing Human
Resource Department in framing such
practices, procedures and policies that
ensure the internalization of quality, ethics
and excellence in the whole system. By
doing this they can sensitize the employees
and the whole organization towards CSR
without adding any additional cost.
To recapitulate it can be said that
companies have increasingly felt the need
to co-ordinate their CSR activities and
demonstrate their commitment to social
Sharma S., Sharma J. and Devi A. - Corporate Social Responsibility: The Key Role of Human Resource Management
Suparn Sharma, Jyoty Sharma, Arti Devi
Business Intelligence Journal - January, 2009 Vol.2 No.1
212 Business Intelligence Journal January
responsibility. But delivery, not rhetoric, is
the key in developing the trust of external
stakeholders for any organisation and it
cannot be done without beginning charity
at home. To do that social responsibility
needs to be embedded in an organisation’s
culture to bring change in actions and
attitudes in which Human Resource can
play a signifcant role. Otherwise, CSR may
run the risk of being categorised as shallow
‘window-dressing’.
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Sharma S., Sharma J. and Devi A. - Corporate Social Responsibility: The Key Role of Human Resource Management
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Business Intelligence Journal - January, 2009 Vol.2 No.1
214 Business Intelligence Journal January
2009 215
Lawsson R.D. - Identifying and Managing Diversity of Workforce
Robert D. Lawsson
IDENTIFYING AND MANAGING DIVERSITY OF
WORKFORCE
Robert D. Lawsson (MSc)
Abstract
The objective of this work is to complete a research proposal on the comparison of work values for
gaining of knowledge for management of the multi-generation workforce. The specific focus is upon
Generation ‘X’ and the Millennium Generation which are the two primary groups comprising the new
workforce.
Business Intelligence Journal - January, 2009 Vol.2 No.1
216 Business Intelligence Journal January
OBJECTIVE
The objective of this work is to
complete a research proposal on the
comparison of work values for gaining of
knowledge for management of the multi-
generation workforce. The specifc focus
is upon Generation ‘X’ and the Millennium
Generation which are the two primary groups
comprising the new workforce.
INTRODUCTION
The generation that a person is born within
has some impact upon that individual in terms
of work styles, work values and self-image.
The demographic profle of the workforce
is undergoing quite a change insofar as
the representation of generations and the
result is that organizations are experiencing
a necessity to make changes as well. The
workforce will become increasingly more
diverse in the future and this greatly affects
the organization in its capacity of hiring
and retaining employees. The literature
reviewed within this study illustrates the
fact that the expectations of employees
differ within the generations represented
in today’s workforce and unless managers
have a sound knowledge-base of the needs
and expectations of the organization’s
employees then keeping these employees
motivated may prove to be quite diffcult.
STATEMENT OF THE PROBLEM
The specifc problem is the fact that as
more and more members of the Generation
X and the Millennial Generation move
into the workforce a greater demand is
created for the manager and the need to
possess the knowledge that calculates the
expectations and needs of all employees into
the organizational management strategy.
Following the events of September 11,
2001, many intelligence agencies have
experienced a surge in hiring however;
many of these employees have fve (5) years
experience or less. Furthermore, a recent
intelligence agency report stated fndings
that employees coming to retirement age
in the next fve (5) years are expected
to increase greatly. If the organizational
effectiveness is to be maintained in this
diverse workforce, the current corporate
culture must evolve to satisfy those diverse
values, attitudes and behaviors. (Harris,
Moran & Moran, 2004) The organization
that fails to address these issues will be
the organization that faces human resource
issues of critical import. The culture of the
organization must experience rapid and
substantial change if the human resource
challenges are to be negotiated successfully
and specifcally demonstrated in employee
retention, recruitment, development, and
motivation. The organization that intends
to remain competitive in global markets
will be required to strive in order to become
the ‘employer of choice’ which may
accomplished by the company that gains
the great commitment of the employee and
through means of increasing ability to attract
and retain the best talent.
PURPOSE
The purpose of this quantitative study is
to measure the work values of the Generation
X - (1961-1981) and Millennium Generation
– (1982-2000) (Strauss & Howe, 1991)
within the Intelligence Community in order
to provide managers with tools to assist in
managing and maintaining generational
diverse work environment. An examination
of the generational diversity workforce will
be done by using a survey order to determine
that key elements (i.e., dependent variables;
multinational workforce skills, recruitment
and retention, professional development,
2009 217 Robert D. Lawsson
benefts and rewards, cultural change, and
best practices) are essential in managing
a multi-generational workforce (i.e.,
independent variable). Only Generation X
(1961-1981) and Millennial (1982-2000)
who have been employed by an intelligence
agency will be included in this research. The
Silent Generation and the Baby Boomers
were not included in the study because the
emphasis of the research is placed on the
younger more diverse work force.
Several research questions will be
answered to achieve the stated purpose
of this research. By applying statistical
procedure of multivariate analysis of
variance (MANOVA) to the Work Values
Inventory (Super 1970) a measurement can
be made of the null hypothesis showing the
mean vector of 15 work values. Univariate
tests of each variable were used to address
the other research questions:
INSTRUMENT
The instrument chosen to measure the
work values of Gen X and the Millenniums
was the Work Values Inventory (WWI:
Super, 1970) and in Chapter 3 of this
proposal for research. The founder, Donald
Super, developed the WVI in 1951 as a part
of the Career Pattern Study publishing the
current in 1970. Although, this study was
developed 1970, revision was made 1982,
which allow it to be suitable for this research.
The underlining objective of this inventory
was to measure the goals, which motivated
employees to work. In the process of this
inventory, the question of value is critical.
Eslinger (2000) noted that “a value was
a desirable end or objective people seek
in behavior and a work value was a goal
directed need that infuence a person’s
choice in the vocation these individuals may
pursue” (p. 53). The survey is based on a 15
sub-scale work values, which measures:
Creativity 1.
Management 2.
Achievement 3.
Surroundings 4.
Supervisory relations 5.
Way of life 6.
Security 7.
Associates 8.
Esthetics 9.
Prestige 10.
Independence 11.
Variety 12.
Economic return 13.
Altruism; and 14.
Intellectual stimulation (Super, 1970). 15.
According to Murphy, Conoley, &
Impara (1994) the Work Values Inventory
is “designed to measure the values which
are extrinsic to as well as those which are
intrinsic in work” (p. 998). The survey is
developed using a 5-point Likert style and is
ranked by the participants as follows:
5 = Very Important
4 = Important
3 = Moderately Important
2 = Of Little Importance
1 = Unimportant
SIGNIFICANCE OF THE STUDY
The signifcance of this study is the
information that will be added and knowledge
gained by organizations in the employment of
the Millennial and Generation X generations.
This study will inform the organization as to
necessary changes in structure and culture
of organizations in gaining the talent of
these generations and in retaining these
individuals in the organization in the years to
come. The fndings of this study will serve to
inform management not only in the area of
direct management of tasks and projects but
as well as to the use of specifc information
technology, learning styles, communication
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218 Business Intelligence Journal January
styles, workplace environment features and
characteristics, supervision of employees
whether direct, indirect and as well will
inform the manager as to the best methods
of supervision to use in relation to each
specifc generation in the workplace.
QUESTIONS OF THE RESEARCH
Research Question 1
Are there signifcant differences on Values
by Generation (X vs. Millennium)?
H
0
: There are not signifcance differences
on Values by Generation.
H
1
: There are signifcant differences on
Values by Generation.
Research Question 2
Are there signifcant differences on
Values by Gender (Male vs. Female)?
H
0
: There are not signifcance differences
on Values by Gender.
H
1
: There are signifcant differences on
Values by Gender.
Research Question 3
Are there signifcant differences on
Values by SES (High vs. Low)?
H
0
: There are not signifcance differences
on Values by SES.
H
1
: There are signifcant differences on
Values by SES.
Research Question 4
Are there signifcant differences on
Values by Ethnicity (you will need to
create groups)?
H
0
: There are not signifcance differences
on Values by Ethnicity.
H
1
: There are signifcant differences on
Values by Ethnicity.
.
Research Question 5
Is there a signifcant relationship between
the several value dimensions?
H
0
: There are signifcant relationships
among the value dimensions.
H
1
: There are not signifcant relationships
among the value dimensions.
DATA ANALYSIS
Research Question 1 will be analyzed
through the conduction of a one-way
MANOVA on the value dimensions by
generation. Research Question 2 will be
analyzed through conductions of a one-
way MANOVA in order to look at the value
dimensions based upon gender. Analysis
of Research Question 3 will be through
conduction of a one-way MANOVA in
order to look at the value dimensions by
SES. Research Question 4 will undergo
analysis through conduction of a one-way
MANOVA in order to look at the value
dimensions based upon Ethnicity. In making
an analysis of Research Question 5, a
generic hypothesis will be used which states
that signifcance differences exist on values
by workforce Generation of the employee
through conduction of Bivarite Pearson
correlations.
THE WORK VALUES INVENTORY
(WVI)
The Work Values Inventory (WVI)
is used to assess the work values or
preferences for characteristics of work of
respondents in the survey. “Individuals tend
to value different things when it comes to
work (e.g., physical activity, autonomy).”
(Sager, Iddekinge, and Russell, 2004) The
Work-Values Inventory is: “…computerized
assessment that yields an ordering of 28
work characteristics in terms how important
these individuals would be in ideal job,
and distinguishes between important and
unimportant characteristics (in an absolute
sense). To make the rank ordering activity
2009 219 Robert D. Lawsson
easier, respondents are frst asked to sort the
28 work characteristics into four categories
of varying importance (A-D). For example,
respondents place the seven most important
work characteristics in Category A and the
seven least important work characteristics
in Category D. Respondents then rank order
the importance of the work characteristics
within each category.
After completing the rankings within each
category, respondents are presented with the
full list of 28 work characteristics in the order
these individuals ranked these characteristics.
Respondents are asked to review the list and
to make a line through it such that the work
characteristics important for the ideal job are
above the line and the characteristics below
the line are unimportant to have on the ideal
job.” (Ibid) One purpose of the Work-Values
Inventory survey is ‘Monitoring’ which
is used to: “…assess the stage of career
development or the career maturity of an
individual or group. It can tell us about the
individual’s readiness for choice rather than
content of choice. Monitoring informs us of
work-related factors such as work values,
job satisfaction, and a wide variety of other
measurable variables pertinent to work life.”
(Ibid)
LITERATURE REVIEW
BACKGROUND
In the work “Final Environmental
Scanning Trend Document” which was
sponsored by the Washington State
Workforce Education Council technology
trends that are occurring include the adoption
and adaptation to: “technological advances
in three primary areas: development/
training demand; information, technology
roles and hiring; and in the general feld of
information technology.” (2006) Political
trends are stated to include: “Projected
demographic changes in the period 2005-
2009 will require higher education to
compete for government resources requested
for corrections, medical assistance, long-
term care and K-12 education.” (2006)
Social, Values and Lifestyle trends are
stated to include: (1) Generation Y (born
between 1981 and 1995) members’
learning preferences include emphasizing
teamwork, experiential activities, structure,
and use of technology. The number of Gen
Y students will increase over the next 3-5
years; and (2) Beginning in 2000, three
unique generations in the workplace and
community and technical college system are
present. Each generation has very unique
values, expectations, wants, needs, desires,
etc. and these may clash in the workplace
and classroom. This trend will continue over
the next 3-5 years.” (2006) Trend 3 of this
study is particularly important to note when
giving consideration to the work values of
the Millennial Generation.
TREND 3: The rapid development and
demand for wireless multi-tasked compact
personal life-style communication
devices, providing connectivity services
world-wide, will continue to accelerate
academic, economic and technological
challenges as well as opportunities,
for educating our workforce in a
highly competitive global marketplace.
(Final Environmental Scanning Trend
Document, 2006)
The stated rationale for this stated trend
includes: (1) Mapping technology and an
increasing availability of databases of place
combine to create new applications for
public use; (2) IT solutions are increasingly
infused into the consumer market; (3) Phone
service is moving to becoming internet
based; (4) Voice and data access is available
simultaneously via cell phone; (5) Radio
frequency identifcation devices (RFID)
are introduced to business schools; (6) Cell
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220 Business Intelligence Journal January
phones are being used as hand held kiosks;
(7) Cell phones are the ideal platform for
computer-aided learning; (8) As voice, data
and media technologies merge e-mail will
become yesterday’s technology and instant
messaging (IMing) will surpass e-mail by
next year; (9) Text messaging between cell
phones is growing rapidly; (10) Pocket
PC’s combining cell phones and high-
end PDA devices will include alternative
communication choices, GPS and internet
access; (11) Collective intelligence (i.e. Wiki
as an information source, Wikipedia is the 26
th

busiest internet site) provides a free online
encyclopedia in over 100 native languages,
with articles written by users not experts;
(12) Voice over Internet (VoIP) protocol is
growing as the distinction between local and
long distance is blurring; (13) Technology is
leading to an increase in telecommuting as
people working from home now outnumber
mass transit commuters in 27 on the nation’s
largest metropolitan centers; (14) As
wireless becomes a viable option to fber
the distinction between wireless handsets
(cell phones) and other lifestyle devices is
blurring; and (15) Simultaneous real-time
translations into a variety of languages
is available as researchers have switched
to using statistical analysis rather then
computer languages, mapping one word to
another utilizing the increases in computing
speed, power and databases.” (Ibid, 2006)
Furthermore this work states that Information
Technology will play a larger role in hiring.
Trend 9 of the study states as follows:
TREND 9: The importance of
information is driving the fattening of
organizational structures where subject
matter expertise is increasingly essential
and this fattening is expected to increase
in the future. (Final Environmental
Scanning Trend Document, 2006)
Stated as rationale on which this is
based is inclusive of: (1) “The innovation
economy is driven by the availability of
human capital; there will be a widespread
supply-demand gap for workers at the
moderate preparation level; (2) Proliferation
of web and other technologies have enabled
billions of new people into the marketplace,
largely displacing the once predominate
multi-national corporation; (3) As this
convergence took place around 2000,
business and individuals began to adopt
new habits, skills, and processes to get the
most out of it; (4) They moved from largely
vertically structured (command and control)
organizations to horizontal ones (connect and
collaborate). This affects how communities
defne themselves and where businesses start
and stop; and (5) Supply chain management
has allowed small businesses that manage
global logistics on their own to compete
with the likes of Wal-Mart’s. Collaboration
comes in multiple forms these days through
technology in real time without regard for
geography, distance, or even language.
(Final Environmental Scanning Trend
Document, 2006) Trend 6 of this same study
is important for managers of organizations
to understand.
TREND 6: In the next 3 – 5 years, the
number of individuals working during
their retirement years will increase.
(Final Environmental Scanning Trend
Document, 2006)
The rationale behind these stated trends
includes the facts that:
The American style of retirement is 1.
about to change;
Four-ffths of baby boomers claim they 2.
expect to work in retirement;
The oldest baby boomers are pushing 60 3.
and many of them have already begun a
second career;
2009 221 Robert D. Lawsson
As of now, 31 percent of boomers have 4.
moved to a new line of work.
Aneesh (2001) in the work entitled:
“Skill Saturation: Rationalization and
Post-Industrial Work” published in the
Journal of Theory and Society states that:
“The proliferation of new information
technologies in the US has brought about
a shift in work skill requirements.” (2001)
The work entitled: “Emerging Trends
and Demographic Forces to Watch For
in the Next Decade” states: “In the next
decade, many large and small businesses
will employ four, sometimes even fve
generations in the workplace. Workers from
each generation bring different backgrounds,
educations, and work life experience to the
workplace. Organizations will need to be
sensitive to these differences -- particularly
in communication styles and the meanings
of work - in order to help each generation
maximize its contribution to the organization
while facilitation communication and
collaboration among cross-generational
teams. “ (Blanchard, nd) Blanchard states
that there are now more women in the
workplace than ever before and in order for
the organization to “...attract more women
to the workplace, organizations will need
to create more fexible work arrangements,
such as fexible hours, telecommuting, and
family leave, especially as demographic
forces put a squeeze on the labor supply.”
(nd) Blanchard further relates the fact that
due to a large growth in the Hispanics
population in the U.S. that the organization
must plan for this demographic factor as
well in the organization’s workforce. It
is important to note the factors relating to
Hispanic males, specifcally in the study of
Blanchard, Hispanic males in the state of
California of whom the following facts are
stated:
Highest rate of male participation in •
labor force;
Lowest use of public assistance; •
Highest rate of family formation; •
Spend twice as much on mortgages; •
450,000 middle-class households in Los •
Angeles;
97 percent work in the private sector; •
210,000 Latino-owned businesses; •
Buying power increases $1 billion every •
6 weeks; and
Reputation for brand loyalty (Data: •
David Hayes, Center for Study of Latino
Health, University of California, Los
Angeles, 1998 as cited in Blanchard,
nd)
Demographic factors affecting
organizations in the coming decade
include the following: (1) An aging global
population; (2) People living longer more
productive lives; (3) The median age is up;
(4) More retiring workers and not enough
younger workers to fll the positions left
vacant; (5) International migration which
is expected to reach 17 million each year;
(6) Baby Boomers in the U.S. retiring en
masse would create a severe labor shortage;
(7) Fewer individuals are graduating from
college; (8) Students in the U.S. lag behind in
academic scores; (9) Fewer individuals who
are major in the sciences and mathematics
feld; (10) Developing countries are reaping
the economic benefts of a population that
is younger than that of the U.S.; and (11)
Mexican workers in the U.S. are growing
rapidly. Blanchard states: “A technological
revolution is changing the world...” (nd) Stated
as well is: “Advances in communication and
information technology, such as the Internet,
have fueled awareness of and access to
information around the globe. Breakthroughs
in biomedical engineering, such as stem cell
research, promise to improve the quality and
length of human life. Advances in materials
technology and nanotechnology will produce
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222 Business Intelligence Journal January
items and systems that are smaller, smarter,
multifunctional, and environmentally safer
and friendlier. However, this explosion
of technology has its shortcomings. In the
1960s, futurists predicted that by the 1990s
we would be working fewer than 25 hours
per week, have a slower paced life, and enjoy
more leisure time. Not so! Today, advanced
technologies, such as voice mail, email, and
text messaging, which were supposed to make
work easier, are adding tremendous stress
for the average worker. Some are working
24/7 to keep up with the technology.” (nd)
According to Blanchard concerns of clients
include the fear that the individual will
not be able to: “...effectively interface and
manage people with the new technology.”
(nd) While the computer aids the individual
in the tasks set out in the job the human side
is still needed. According to Blanchard:
“The frustration is in putting together a
good knowledge management system that
works not only for the organization but for
the workers. The best database program in
the world needs to be part of an employee’s
job...” (nd) The challenge to leaders in the
future will be formulating a plan that creates
a “sense of community, spirit and values that
will guide business decisions and practices
infuenced by technology.” (Blanchard, nd)
The work of Jopling entitled:
“Understanding Generations” states:
“Generational differences are becoming
easier to identify.” Generations are based
upon ‘the range of birth years of a group
of people. Generations can span many
years, since people are individuals, not all
members of a generation exhibit the same
traits. Generational traits develop during the
formative growth years of the generation.”
(2004) The infuences and experiences
of a generation affects people in terms of
their values and their attitudes throughout
the entirety of their life. Jopling relates
additionally that gaining knowledge as to what
“motivates the member of each generation
and developing operational practices” can
greatly assist the organization as the key to
reaching a group goal is based in cooperation
with a leaders that understands the group
in order to assist the group in reaching its’
goals. Through understanding the values of
the individuals and groups within the overall
group of the organization, the leadership is
able to place employees into their ‘comfort
zones’ within the organization.” (2004)
There are stated to be four ‘generations’
related in the work of Jopling (200) which
are the generations of: (1) The Silent or
Traditional Generation (1922-1945); (2)
The Baby Boomer Generation (1946-1964);
(3) Generation X (1965-1980); and (4)
Generation Y (Why) /Millennial Generation
(1981- present). The following chart relates
the different infuences of Generation X and
the Millennial Generation while growing
up.
Different Infuences in the Lives and World of
Generation X and the Millennial Generation
Generation X (born 1965-1980)
Most popular names: David, Michael, Jason, Jennifer,
Lisa; beginning to use ethnic
and heritage names.
Cost of living index: A 1982 dollar would buy $1.90
worth of goods today.
Popular Toys: Rubik’s Cube, Cabbage Patch
Dolls, hand held video games,
early TV video games, new
Barbie, theme toys based on
TV characters.
Entertainment: Adventure movies, hero
movies, happy endings making
comeback, still pushing
limits with TV and movie
censors, MTV. Representation
of family units changing in
entertainment world.
World infuences: Space shuttle explosion,
Berlin Wall comes down, fall of
communism, Persian Gulf War,
AIDS, wide use of computers
and the Internet.
2009 223 Robert D. Lawsson
Generation Y (Why) (born 1982-2003)
Most popular names: Michael, Christopher, Jennifer,
Ashley, Jessica, traditional
names spelled in new ways,
creative and ethnic names.
Cost of living index: A 1995 dollar would buy $1.58
worth of goods today.
Popular Toys: TV game systems, video and
computer games, skateboards,
in-line skates, Barbies, toys that
make little girls seem grown
up, toys based on themes from
TV and movies.
Entertainment: Rebirth of Disney and family
movies; teenage-specifc
movies; home video/DVD
movies; children’s classics re-
released or remade. Rating
system emphasized. Superstars
in movies, like old Hollywood.
Reality TV everywhere, with
average people becoming
household names.
World events: Clinton impeachment trial,
death of Princess Diana,
scandals in the government,
the Middle East wars, breakup
of Soviet Union, terrorist
attacks, war in Iraq
COMMUNICATION STYLE
DIFFERENCES
Communication styles are different from
one generation to another. Jopling (2004) states
that: “Generation myopia is the mistake…”
(Jopling, 2004) Jopling states that it is often
a fnding that when these generations all
attempt collaboration that creativity arises
and is a very positive experience more times
than not. Communication styles are different
and Jopling notes the following styles of
communication:
Traditional generation • likes formal
communication and tradition. Clear,
concise messages are good, but short,
curt messages may seem rude to these
individuals. Mailed letters or face-to-
face contacts work well. Phone calls are
OK also. This group may even read a
newsletter or a newspaper article. Many
have e-mail and cell phones, especially
those living in urban areas.
Baby Boomers • like messages that
explain clearly, what is happening without
sounding like someone is controlling
these individuals. These individuals like
to be invited to share rather than watch.
want their questions answered without
too many conclusive, direct statements.
respect letters, but get overwhelmed
with mail so probably prefer e-mail.
like phones and answering machines.
Generation X • likes their messages in
short, understandable bites. may not
deal too well with letters because are not
a writing generation. E-mail is perfect
and chances are the members of this
generation have it. Generation X likes
places for feedback and want to feel a
part of whatever asked to do. Informal
communication style is preferred. These
individuals use cell phones and depend
on answering machines or voice mail.
Furthermore these individuals may
not read mailed newsletters, but these
individuals may scan electronic ones.
Generation Y • (Why) likes concise action
words. Emphasize that whatever you ask
these individuals to do is fun and worth
their time. Humor can be used with this
group to get a message across, but this
group’s humor may not be understood
by other generations. This group likes
all senses to be stimulated with colors,
movement, and music. These individuals
want to respond quickly so e-mail is
fne. Instant messages on computers are
a communication choice of this group.
Although these individuals are the
youngest group, many have cell phones.
Regular telephones are fne, too. Many
in this group have never used a postage
stamp.” (Jopling, 2004)
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224 Business Intelligence Journal January
I. GENERATION X (1965-1980)
Generation X is a group comprised of
those born between the years 1965 through
1976 in the US. Generation X is a small
highly educated and widely diverse group
of individuals with values that greatly differ
from those of the massive Baby Boomer
generation. These individuals have been
overlooked and underestimated for a long
time; but as the Baby Boomers retire,
Generation X will be brought to the forefront
of the workforce.” (Getting to Know
Generation X, NASA Recruitment, nd)
Stated to be one of the most notable features
of Generation X is its size because it is small
in number compared to the generations
just before and just after. Generation X is
comprised of 9.1 million people while the
group just previous has 7.7 million members
and Generation Y/Millennial is comprised
of 73.5. The following chart shows the
population by generation as stated in the
2005 US Census.
Figure 1 - Population by Generation
Source: 2005 US Census
Generation X is highly educated and
in fact, Ansoorian writer of the work
“Managing Generational Differences” states
that approximately 60 percent of Generation
X has at least some college education
“making these individuals the best-educated
generation in U.S. history.” (NAS, 2006) The
following fgure illustrates the educational
attainment of Generation X.
Figure 2 - Education Attainment of Generation X
Men and Women
Source: 2005 US Census
The following chart illustrates the
Diversity of Generation X.
Figure 4 - The Diversity of Generation X
Source: 2005 US Census
Source: 2005 US Census
Generation X members were labeled as
“slackers” during their teenage years. The
following chart illustrates the employment
status of members of Generation X.
Figure 5 - Employment Status of Generation X
2009 225 Robert D. Lawsson
Generation X is comprised of “latchkey
children who have had to fend for these
individual selves on a regular basis all
their lives. These individuals are highly
adaptable...” which has assisted them
in gaining their independence as well
as causing development of more life
experience at younger ages than other
generations previously. This generation
was the frst “to be brought up in an ‘instant
gratifcation’ society full of microwaves,
ATMs, and remote controls. Generation X
has the mentality of wanting to know what
is in it personally for this generation. (NAS,
2005) This Generation is cynical in relation
to employer-employee commitment after
witnessing grandparents and parents loss
of jobs after years of dedicated service to
their employer. Corporations and hype are
greatly distrusted by Generation X as well
as is government control “of anything.”
(NAS, 2006) The dedication of Generation
X is toward that of their own profession
instead of the company who employees
them. Generation X puts their family before
their jobs unlike the previous baby boomers
who put their job frst before event heir
family. This generation of women is taking
off time from work to have children and
then returns to work demanding “fexible
scheduling and work-from-home options.”
(NAS, 2006) The website of a company
should be well-designed and complete and
the homepage should have clearly identifed
links to jobs, privacy issues should be clearly
stated and receipt of resumes should provide
confrmation. Avoid dead links and if a portion
of the website is still being constructed clearly
state the reason and when it is expected that
construction will be complete. If Generation
X has a diffcult time navigating the website,
interest in the company will be quickly
lost. Positive branding of a company is
extremely important because the perception
of Generation X in relation to the image
of the company “can make or break the
deal. Generation X will use their technical
skills and online resources to research a
company. These individuals will check
the company’s reputation on the Internet,
with friends, message boards, Google and
ask around through whatever means are
feasible.” (NAS, 2006) Suggestions for job
fairs include giving away free items such as
pens, mugs, writing pads and so forth when
a resume is received because “Generation X
wants something tangible; these individuals
want to know there is something in it for
them. Plus, it is a great way to bring in
branding – getting your logo out there
is essential to your company’s success.”
(NAS, 2006) Job advertisements to draw
Generation X should be candid and accurate
in terms of the expectations of the job. There
should be no type used while highlighting
the opportunities for learning skills that are
marketable and for building relationships.
(NAS, 2006; paraphrased).
The 2006 NAS report states that:
“Employers need to literally woo Generation
X, create an atmosphere that lets the individual
know that these individuals are important to
the company, and give them opportunities to
meet and interact.” Retention of Generation
X is suggested through use of the following
ideas and benefts specifcally in view of the
members comprising Generation X.}
Flexible schedules (key beneft for •
companies that can do it) or extra time-
off or telecommuting;
Continued learning and skill development •
– relevant training on cutting-edge
technology
Interesting work •
Sense of purpose •
Emphasis on accomplishments rather •
than tenure
Minimal bureaucracy •
Casual business attire and atmosphere •
on a daily basis
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Constant feedback •
Recognition programs •
Open and honest communication •
between all levels of the organization
Employee-friendly facilities – childcare, •
pleasant surroundings, on-site
conveniences
Diversity initiatives/training •
Appreciation and reward perks (monetary •
and non-monetary, recognition); and
Retirement savings plan. (NAS, 2006) •
Generation X desires exciting and
enjoyable careers and values balance in their
work and personal life. The author of “For
Gen Xers, It’s Work to Live” Choa, states
that “Generation X wants work to be only
one component of a balanced portfolio of
meaningful life experiences that include
family, friends, ftness, and fun.” (NAS,
2006) It is the belief of Generation X that
the best job security “lies in their ability to
prepare for their next job.” (NAS, 2006)
Development of additional skills and
knowledge is of primary importance to
members of Generation X making if critical
that companies “provide opportunities for
continued learning and skill development.
Continued learning fulflls the ‘what’s in
it for me’ mentality; it is something these
individuals can take with them wherever
the chips may fall.” (NAS,. 2006) While
pay that is decent is valued by Generation
X this generation values other perks or
benefts which improve life quality further,
Generation X is “willing to trade less money
for more freedom.” (NAS, 2006) Generation
X values:
Feedback; 1.
Communication; and 2.
Recognition and value being part of the 3.
“decision-making process, teamwork,
fexibility and being in a relaxed,
comfortable environment.
Generation X will not fnd a rigid
bureaucratic hierarchy welcoming.” (NAS,
2006) It is important to remember the
Generation X is comprised of individual and
the key in this generation is the identifcation
of the factors that provide modifcation
as these individuals want to enjoy their
work, have time for their personal life and
family and is a group that values education
while being “quite cynical with respect
to corporations.” (NAS, 2006) Coupland
is a Canadian novelist and the individual
who frst coined the term ‘Generation X’
to describe his own generation. That which
shaped the American family trends for
Generation X include the following:
Generation X members were born during •
one of the most blatantly anti-child
phases in history.
Generation X members were born into •
an era where their parents had the highest
divorce rate in our history, the highest
abortion rate, the highest dual income,
and the most permissive parenting
habits.
Generation X members were viewed as •
intrusive obstacles to their parents’ self-
exploration.
Generation X members experienced 9/11 •
and “…terror on their streets.”
Generation X member were the most •
unsupervised generation in our history.
(NAS, 2000)
The career trends have shown the •
Generation X member will have 10 to 12
jobs during their lifetime of employment
and will stay an average of three years in
each of these jobs.
Generation X member will have three to
four different careers and created 70 percent
of the 1990’s start-up companies. Generation
X members leave jobs for the following
reasons:
2009 227 Robert D. Lawsson
Limited career growth; •
Lack of Promotion •
Lack of regular feedback on work •
performance;
Low pay; •
Poor treatment from managers; •
Lack of recognition and stress; •
specifcally stress from understaffng.
(NAS, 2000)
Generation X member demonstrate the
differences and attributes when compared
with generations before them in the areas as
follows:
More collaborative and independent •
Less hierarchical •
More altruistic •
Good at dealing with change •
More comfortable with women bosses •
More skilled in management •
More tech-savvy (the frst real •
information-age generation)
Financially savvy •
Candid in communication •
Self-reliant •
Rule-shy •
Not intimidated by authority •
Creative •
Strive for real balance between work •
and private life
Desire workplaces that feel like •
communities. (NAS, 2000)
Common complaints of managers in
relation to Generation X employees include
that this generation:
Asks why; •
Are unwilling to pay their dues; •
Are unwilling to go the extra mile; •
Are cynical and have a dim view of the •
world;
Are not committed •
Don’t respect authority •
These individuals ask why; •
Are more interest in things other than •
their jobs;
Want things now. (NAS, 2000) •
The work environment characteristics in
view of Generation X employees are those
as follows:
Fear-based management •
Poor time management •
Micromanagement •
Politically based culture •
Indirect Communication •
Opinions and ideas ignored •
Prevalence of lip service and not action •
Failure to give feedback and regular •
performance reviews
Meaningless raises; •
Insincere, gratuitous thanks you; •
People thrown into jobs without •
training
Disorganized, cluttered or dirty •
workplace
Not telling the ‘whys’ •
Because I said so or similar attitudes •
Unacceptable staff behavior overlooked •
(NAS, 2000)
Characteristics of the best work
environment for Generation X employees
are inclusive of the following:
Team-based management; •
Diversity •
Exploration •
Experimentation •
The idea is the power, not the person •
Team and individual credit •
Resume building” opportunities. (NAS, •
2000)
The requests made by Generation X
employees generally include that Generation
X:
Wants to be appreciated; •
Wants fexibility or a life beyond work •
Wants to be part of a team; •
Wants to be developed •
Wants to be involved •
Wants a light environment •
Wants everyone to be genuine. (NAS, •
2000)
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arising from the survey include those as
follows:
Allow fexibility in scheduling; •
Create a meaningful mentorship •
program;
Provide opportunities to learn new skills •
on the job; and
Have one-on-one meetings frequently to •
keep the lines of communication open
(Ibid)
II. THE MILLENNIAL GENERATION
(1981 – PRESENT)
Generation ‘Y’, Generation “why” and
the Millennial Generation all refer to the
group of individuals born 1981 to the present.
This group frmly demands to understand
the reason for everything that is occurring
as well as the reason for doing anything that
do. This generation does not easily impress
over new technologies and are optimistic
for the future while being realistic about the
present day. This group has a good work ethic
are very closely aligned to the Traditional
Generation in view of their work ethics.
Motivation for this generation comes from
knowing why something is being done and
rarely take blind orders easily. A challenge
for this generation is developing patience.
The work of Pirie and Worcester entitled:
“The Millennial Generation” states that most
of those in the Millennial Generation have
“spent virtually all their teenage years against
a backdrop of economic boom and a rising
stock market. have seen standards of living
rise steadily but have not seen the same level
of job security, which predecessors could
look to. For the Millennial Generation the
idea of a job for life belongs to the history
books.” (Pirie and Worcester, nd) Pirie and
Worcester state that approximately one third
of this generation will complete their degree
at a college or university and this will lead
the majority of them to an average lifetime
The guidelines in communication
among Generation X members is stated to
include: (1) a belief in mutual respect, open
communication, (2) support of the principle
that it is possible to disagree respectfully
and still meet the goals that have been set;
(3) willingness to take responsibility for
the quality and depth of communication;
(4) assumptions are not made in knowing
the intentions behind each other’s words or
actions until we ask; (5) avoidance of the
use of blame in defecting responsibility
for direct communication; (6) when
disagreements occur the air is immediately
cleared; (7) when communication occurs
the issues, situations and tasks are the focus
and not persons, observable behaviors and
events and in specifcs not in generalities;
(8) if conficts cannot be resolved among
team players then this generation does not
mind being mentored by a third party; (9)
this generation is willing to forgive one
another when imperfect communication
results in misunderstanding or feelings
being hurt; and (10) this generation holds
one another accountable for these principles
and guidelines. (NAS, 2000)
In a survey of 1,200 Generation X
members of both the male and female
gender, the authors of “The Next Revolution:
What Generation X Women Want at Work
and How Their Boomer Bosses Can Help
Them Get It”, Charlotte and Laura Shelton
state fndings that “Generation X women
have high expectations about work, yet
do not defne themselves solely by their
jobs; want work to be only one component
of “a balanced portfolio of meaningful
life experiences.” also value “interesting
work” and “opportunities for learning” as
higher priorities than salary. In the coming
environment of skilled-worker shortages
and slow workforce growth, retention of
Gen X employees will be a business priority”
(Shelton and Shelton, 2006) Suggestions
2009 229 Robert D. Lawsson
income that is higher than mere average.
This group is more brand conscious than
those before them especially in clothing
and shoes and while do not have the same
disposable income levels as Generation X
and the boomers this generation is “prepared
to pay the high prices that the top brands
command.” (nd)
This group enjoys the social scene of
clubs and is the frst Internet generation. This
generation travels abroad frequently and has
friends throughout the globe. This group is
aware of their appearance and spends enough
on cosmetics and personal hygiene to “have
specifc products introduced and marketed
to their age group.” (Pirie and Worcester,
nd) No choice in career stands out among
this generation. While business and industry
are the interest of 10% of this group, 5%
expressed an interest in the fnancial sector
inclusive of banking, accounting and
insurance. 8% stated wanted to be a doctor
or lawyer with % stating education as their
choice. Public services work (nursing,
social work, and police) was chosen by
12% (5% of males) while only 1% of this
generation is interested in civil service
and local government employment. The
largest number of the Millennial Generation
wants to work for “themselves”. (Pirie and
Worcester, nd) The work of Christopher
Knight entitled: “Strategies for Generation
‘X’ Leaders” states that the Millennial
Generation is technologically savvy. (2000)
The Practice Management Digest article
entitled: “Generations: Dealing with
Boomers, Gen-X, and Beyond” illustrates
the following:
Figure 6 - Generalizations about Generations—
Categorizations vs. Stereotypes
Generational Group Born Age Stereotype
Silent Generation 1925 -
1942
61 - 78 Adaptive
Baby Boomers 1943 -
1960
43 - 60 Idealists
Thirteenth (Gen. X) 1961 -
1981
22 - 42 Reactive
Millennial (Gen. Y) 1982 - ? 13 - 21 Civic
Source: The Practice Management Digest (2004)
WORKPLACE SUPPLY AND DEMAND
TRENDS
Workplace supply and trends over the
past twenty years include the following
facts:
In the 1990s, the number of younger •
workers declined by 14 percent.
The growth rate of the U.S. labor force •
declined from 2.5 percent per year in
1965 to 0 percent in the late 1990s.
In the U.S. today, someone turns 50 •
every 8 seconds (11,000 per day).
By 2006, 80 million aging baby boomers •
will total one-third of the nation’s
population.
From 2010 to 2030, the portion of the •
U.S. population over age 65 will grow
four times as much as it did in the last
80 years.
There will be a 30 percent shortfall of •
younger workers—a shortfall that will
persist for 40 years.
In a Bureau of National Affairs (BNA)
survey of 1,550 human resources and
employee relations executives, plus a
random sample of 2,600 members of the
Society for Human Resources Management
(SHRM) states fndings that: “…65 percent
of the respondents see recruiting and
hiring as the most critical human resource
challenge and trend.” (BNA, nd) Stated to be
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a consequence of the trends in demographics
and the workplace, HR issues that will be
‘key’ in the future include the following:
Cost Attraction and retention; •
Productivity; •
Culture; •
Innovation; and •
Competitiveness. (BNA, nd). •
Companies listed in Fortune magazine’s
top ten list of “America’s Most Admired
Companies” (1999) had twice as many job
applications per opening in the company
than all the other companies combined in the
Top 100 list. (BNA, nd) The work entitled:
“The Millennial Generation: Recruiting,
Retaining and Managing” states that the
Millennial generation is “special, sheltered,
and achieving.”(Today’s CPA, 2006) The
parent’s of the Millennial generation set out
determined to protect their offspring “from
a hostile world with everything from zero-
tolerance discipline policies in schools to
“parental advisory’ stickers on video games
and music CD’s with adult-themed lyrics.
Their families, communities and institutions
have sheltered Millennials. But also face
tremendous pressure to achieve; feel
pressure from parents to perform well in
school, from their peers to contribute to the
team, and for time in an overly scheduled
life.” (Today’s CPA, 2006) Molly Epstein
built upon the work of Strauss and Howe
in a survey of more than 800 college
students in order to gain confrmation of the
characteristic of members of the Millennial
Generation. Epstein received responses
from both public and private institutions
located in different geographic regions and
from US. Students and students abroad.
Questions were asked that were explorations
into the student’s attitudes toward authority
fgures, in relation to their careers and in
their preferred communication methods. In
fact, most of the changes that an organization
will need to make in their interactions with
Millennials is in the area of communication
with and development of “this promising
group of employees.” (Epstein and Howe,
2006) More so than did generations before
them, the Millennial employees “value and
expect relationships with those in authority.
Throughout their lives have developed
relationships with authority fgures. Those
relationships have been more collegial
and supportive than the ones previous
generations had with authority fgures.
Therefore, Millennials desire relationships
with those in authority in a workplace
setting.” (Epstein and Howe, 2006, 2006)
In the survey when asked to either agree
or disagree with the statement of “I prefer
to develop personal relationships with my
bosses.” 65% of those surveyed strongly
agreed with only 7% disagreeing with this
statement. When asked to either agree or
disagree with the statement of: ‘Authority
fgures should set and enforce rules” 68%
of those surveyed strongly agreed with this
statement. Millennials trust authority fgures
quite a bit more than Gen X before them.
When asked to agree or disagree with the
statement of: “I trust authority fgures to
act in my best interest” 62% of Millennials
agreed while only 46% of Gen X respondent
stated that agreed. (Epstein and Howe,
2006)
Epstein states fndings that when
Millennials need special treatment 58% of
the Millennials agree in feeling comfortable
approaching the boss and asking for this
help. When asked whether these individuals
prefer that the supervisors show an interest
in them by asking about their activities and
interests 61% of Millennials agree with
this statement while 56% of Generation
X members agree with this statement.
Millennial employees are ‘eager to provide
their opinions and contribute to your
organization.” (Epstein and Howe, 2006)
Furthermore, the Millennial employees
2009 231 Robert D. Lawsson
are comfortable in their interactions with
superiors and value relationships with their
superiors and are “often ideally placed to
provide input and receive feedback. Because
the Millennials value their own worth and
are confdent in their ability are likely to
provide input their Gen X employees would
not have had the confdence to express.
The Millennial Generation agrees with the
statement “I enjoy expressing my opinions to
test and challenge the rules” than any other
generation before agrees. It is stated that
60% of Millennials agree with the statement
of: “When I feel I have been evaluated
inaccurately, I feel comfortable approaching
my boss to discuss.” When asked to agree
or disagree with the statement “I prefer a
structured environment with clear rules”
72% of Millennials agree.
NEEDED CHANGES IN THE
ORGANIZATION
Needed changes are composed of “small
changes or updates to a system you already
have.” (Epstein and Howe, 2006) Members
of the Millennial generation are stated
to “embrace electronic communication
in multiple formats – e-mail, websites
intranets, blogs, text messages and podcasts.
place high value on and enjoy ‘virtual’ or
electronic relationships as evidence by the
tremendous growth of sites such as Myspace
and Friendster.” (Epstein and Howe, 2006)
Suggestions include leveraging the value
of electronic communication with the
Millennials in the creation of formats that
allow for better communication with the
Millennial employees. This generation
received a great deal of “guidance and
direction” while were students and continue
to look to receive this during their career.
While all generations are known to respond
well to mentoring it is particularly appealing
to Millennial employees. It is stated that
while more experienced employees share
with newer and younger employees that
“the transfer of tacit knowledge between
current and new employees raises the group
intelligence level in your organization and
strengthens the overall communication.”
(Today’s CPA, 2006)
Millennials are referred as “socially
conscious and very action-oriented” and
as a collection have achieved “measurable
results”. (Epstein and Howe, 2006)
Community outreach is the method suggested
in giving the organization “an edge in both
recruiting and retaining the best candidates.
The Millennial enjoys volunteering during
the workweek and receiving praise from the
employer for their contribution and enables
the Millennials to maintain a balance
between their professional life and interests
in humanitarian activities and concerns.
Because grew up in environments that
were “highly structured” (Ibid) Millennials
“dislike ambiguity”. (Epstein and Howe,
2006) This group desires continued
structure in employment and specifcally
like “defned routes of progress”. (Epstein
and Howe, 2006) Hershatter states that:
“Millennials have been protected and
directed since childhood. The helmets
these individuals have worn during every
potentially dangerous physical activity are
a great symbol of the early years.” (Epstein
and Howe, 2006)
CREATING STRUCTURE FOR
MILLENNIALS
Articulation of the following assist in
the creation of this desired structured career
path for Millennials:
Ideal Skills Set 1. – These skills should
be detailed as to the education and
experience needed to succeed in each
position. “Millennials are ready to work
hard to achieve a skill set that enables
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them to reach a goal – and ’re most
focused when those steps are clearly
established.” (Epstein and Howe, 2006)
Timeline for Promotions 2. – Set realistic
expectations by establishing a timeline
for promotions. Driven and focused on
goals, these employees may become
frustrated without clear information
about the amount of time spend in each
position before are considered for a
promotion.” (Epstein and Howe, 2006,
2006)
Career Progression 3. – Because these
individuals are goal-oriented, will
fourish and work hardest when know
are working toward a specifc career
direction or position. For example, will
put in longs hours in an entry-level
position if know that excelling in this
job for one-year is a stepping stone.”
(Epstein and Howe, 2006)
Other suggestions include accelerating
the career development of the Millennials
“by providing these individuals with
ample opportunities to gain experience
and exposure to different areas within your
frm or company. are curious and want to
understand all aspects of your business.”
(Epstein and Howe, 2006) It is additionally
suggested that the organization assist in
development of leadership skills in the
Millennials through placing responsibility
upon them in managing a small portion of
a large project. (Epstein and Howe, 2006;
paraphrased) Because were provided with so
much in the way of information feedback as
to their performance in the Information Age
in which grew up, this generation values and
expects feedback and frequently This group
values clear communication about their
performance and even appreciate negative
feedback which generally will cause them
to “make immediate changes to behaviors or
performances that are substandard.” (Epstein
and Howe, 2006)
One Millennial Generation employee is
noted as having stated preference of knowing
the area in which employee performance
was considered poor allowing the individual
a change to correct it. “I’d rather know I’m
doing poorly now, so that I can correct it now”.
(Epstein and Howe, 2006) The reason? The
employee stated: “The worst thing that can
happen is to lose opportunities…” because
the individual didn’t have the information
to assist in changing…” (Epstein and Howe,
2006) Because these employees value
feedback and are comfortable providing
feedback this may be leveraged with the use
of “360-degree performance evaluations in
which every employee receives evaluations
from superiors, peers and subordinates. The
Millennials are stated to be: “…sociable,
optimistic, talented, well-educated,
collaborative, open-minded, infuential,
and achievement-oriented.” (Raines, 2002)
These individuals have always “felt sought-
after, needed, indispensable.” (Raines, 2002)
It is pointed out that the Millennials, just
now entering the workforce, have employers
“scrambling to fnd out everything can…”
about these employees. (Raines, 2002)
It is stated that Generation Xers complain
that the Millennials are “self-absorbed and
Pollyanna-ish” like the Baby Boomers
generation while the Millennials claim that
Generation Xers are “cynical and aloof-
that throw a wet blanked on fresh ideas and
idealism.” (Raines, 2002) The messages that
Millennials were “bombarded” with were
a set of messages stated to be “consistent
and compelling” and “imbedded in the
culture”. The messages include being told
that these individuals are special and this
is evidenced in their having been catered
to. This generation is inclusive and was
taught to be tolerant of other races, religions
and sexual orientation. This generation is
interdependent on families, friends and
teachers. This is a group whose parents hired
2009 233 Robert D. Lawsson
someone to check into and line up the right
college. This group is community oriented
with 50% stating that volunteered in their
community.
The work of Raines (2002) states that
Millennial characteristics include: (1)
confdence; (2) hopefulness; (3) achievement
oriented; (4) civic-minded; and (5) inclusive.
Raines (2002) states that Federal reports
reveal Millennials to be “healthier and more
economically secure” than any generation
before them. furthermore, are conservation
in relation to drinking and driving. Sixteen
percent of this generation grew up in poverty
and while there are portions of all generations
that this is true of the portion of Millennials
growing up in poverty is disproportionate
among this group. A digital divide is stated
by Raines (2002) to exist in this generation
due to the disproportionate number of
members in this generation having grown up
in poverty. However, within this generation
is a group of individuals who have grown
up with a consistent and free access to the
computer both at home and at school and
even within the community. It is stated in
the work of Raines (2002) that “Companies
like Microsoft who have donated literally
millions of dollars to community programs
that make computers available to low-income
children are leading the way. Internships,
mentoring, and training programs make a
big difference. In the true spirit of diversity,
forward-thinking companies will reach out
to young new employees who’ve grown up
without the beneft of the best our society
has to offer—but who want to create
challenging, satisfying, meaningful work
lives for themselves.
SIX PRINCIPLES OF MILLENNIAL
MANAGEMENT
Stated to be ‘Six Principles of Millennial
Management” are those as follows:
This generation wants someone else to •
lead. This generation has grown up with
structure and supervision, with parents
who were role models.
This generation wants to be challenged. •
This generation wants to work with •
friends
This generation wants to have fun at •
work.
This generation wants respect; •
This generation wants fexibility in the •
workplace.
INTERNAL CUSTOMER SERVICE
Internal customer service is reviewed
in the work of Raines (2002) who states
the fact that for some time now companies
have “given lip service to ‘internal customer
service’.” What this means is providing the
treatment for employees as the treatment
reserved for customers. However, according
to Raines (2002) “In most companies the idea
hasn’t been put into practice. The Millennial
workforce will cause us to make internal
customer service a way of doing business.”
(Raines, 2002) In terms of ‘internal customer
service’ Raines states that companies need
to ask the following questions:
Where the organization’s employees •
tend to come from?
How can the organization attract •
employees?
What kind of experience and environment •
are employees seeking?
How will the organization retain the •
employees that it gains?
What kind of perks can the organization •
offer to retain employees?
How can the organization reward •
employee’s loyalty? (Raines, 2002)
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DO’S AND DON’T FOR COMPANIES
HIRING MILLENNIALS
Raines (2002) states that companies
hiring Millennials should be prepared for:
High expectations; and 1.
Possible involvement of parents. 2.
Companies are advised not to:
Expect the Millennial Generation to pay 1.
dues?
Throw a web blanket on the Millennial 2.
Generation’s enthusiasm. (Raines,
2002)
Companies are alternatively advised to:
Encourage the Millennials; 1.
Mentor the Millennials; and 2.
Learn from Millennials. (Raines, 2002) 3.
Stated by Raines (2002) are the
following “Three Cool Ideas for Managing
Millennials”:
“Design offce space so that Millennials 1.
are set up physically to share ideas.
Consider assigning projects to groups 2.
of employees that will be evaluated as a
group for reaching a goal.
Set up a reverse mentoring program. 3.
Companies from Procter and Gamble to
Siemens have set up tutoring for middle-
aged executives. Young newcomers help
the executives navigate the Net. Jack
Welch of General Electric fame says
that “e-business knowledge is usually
inversely proportional to age and rank.”
GE matched 1,000 managers and 1,000
young employees. Even though the
younger cohort had just joined the frm,
tended to understand new technologies
better than GE’s fnest.” (Raines, 2002)
The desire of Millennials in relation to
their jobs includes:
Working with positive people; •
Being challenged •
Being treated respectfully •
Learn new knowledge and skills; •
Work in a friendly environment; •
Have fexible schedules; •
Be well-paid. (Raines, 2002) •
Raines (2002) states that organizations
go wrong with Millennial Generation
employees by:
Failing to meet the high expectations; •
Discounting ideas due to lack of •
experience;
Allowing negativity; •
Feeling threatened by technical know- •
how;
The Millennial Generation prefers to
learn in a spirit of teamwork, through use of
technology and in a structured environment.
Learning should provide entertainment,
excitement, and experiential activities.
(Raines, 2002) The Millennial Generation
prefers communications to be of the nature
of:
positive communication; •
respectful communication; •
respectable communication; •
motivational communication; •
electronic communication; and •
Goal-focused communication. (Raines, •
2002)
Brandweek News reported in June 2006
in the report entitled: “Magid: Millennial
Generation Imperative for Media Business”
that ‘Researcher Brent Magid says no other
group of consumers have as profound an
impact on the media business over the next
10 years.” Magid informed both promotion
and marketing executives that it is imperative
that fnd a way to get messages across to
this generation of workers. (Consoli, 2006)
Success in marketing products is much
akin to the success of the organization in
2009 235 Robert D. Lawsson
attracting the talent among the Millennials.
Magid states that the organization: “…must
pay attention to this group, which gets much
of its information from word-of-mouth or
from social networking sites on the Internet.”
(Consoli, 2006) Stated as well is that Magid
holds that television on-air promotional
messages specifcally stations and networks
in an important venue in which to target
Millennials.
According to Bod Liodice, president
and CEO of the Association of National
Advertisers: “…the most successful
companies will be those that continually
reinvent ways in which build the
organization’s brand and use integrated
marketing, fnd ways to make the marketing
results more accountable, and recreate
their internal marketing teams “so that
every individual has a stake in the success”
of the campaigns.” (Consoli, 2006) It is
stated in the work of Reith that: “Important
infuences on the communications styles of
Millennials include diversity, the parents
of this generations, educational trends and
challenges, psychological issues, technology
and last but not least popular culture. (Strauss
and Howe, 2000; as cited in Reith, nd)
The society in which the Millennials have
developed within is one that is characterized
by diversity and multiculturalism “where
barriers of race tend to be disappearing.”
(Reith, nd) This broad range both in terms of
their global and cultural views is “refected
in all areas of the lives of these individuals,
public as well as private.” (Reith, nd) Reith
relates that in a 2001 Lifestyle and Media
Monitor poll approximately 50% of students
believe it is possible that there will be an
African-American US president in the next
two decades while approximately 58%
express the belief that there will be a female
president. (Fields, Manning and Roberts,
2001; as cited in Reith, nd) Reith states that
the parents of the Millennial generation aver
“very involved in” and “very protective” in
their children’s lives. Reith additionally notes
the enactment of child protection policies
since 1982 to include harsher punishment of
those committing child offenses, structure
child restraint/helmet laws, stricter vaccine
and child health protocols, curfews in urban
areas, V-Chips for television, ratings on new
movies and video releases.” (Reith, nd)
The work of Strauss and Howe (2000)
cited by Reith holds that due to all of the
planning and attention toward the lives
and well-being of the Millennials that
have developed a health self-confdence
and feeling of being safe. (Reith, nd;
paraphrased) Reith notes that there are
contributing psychological issues among
this generation due to the large proportion
(60%) of divorce among the parents of this
generation but also the blended families in
its infuence on the development of personal
identify. Furthermore, Reith states the issue
of “the rapidly increasing use of psychotropic
pharmaceuticals at a very young age. Many
Millennials have been using this type of
medication for years, and the long-term
effects have yet to be determined. (Benton,
Robertson, Tseng, Newton and Benton,
2003).” (Reith, nd) Reith stresses greatly
the impact that the Internet has upon the
interaction and communication among
this generation. Reith states that due to the
“prevalent use of technology…Millennials
will process information differently,
approach academic research differently, and
engage in cyber-relationships…” (Shaw and
Grant, 2002; in Reith, nd) The work of Emily
Rogers entitled: “Supervising Millennial
Workers” states the following categories and
the facts within each of these categories:
Work expectations
Fun environment and a connection to 1.
work.”
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236 Business Intelligence Journal January
This generation is more selective about 2.
accepting and keeping a job.
If this generation doesn’t enjoy work and 3.
feel a connection to work this generation
will fnd other employment.
This generation wants to work with 4.
other;
This generation expects to have more 5.
group projects;
This generation dislikes working in areas 6.
alone.
Personal Attention
Flexibility; 1.
Have many commitments and expect to 2.
work the job around the personal life;
and
Have a voice in decisions 3.
Value
Need projects viewed as worthwhile 1.
Wants to own the project; 2.
Wants extra training and support; 3.
Expect more support in the job because 4.
of having grown up with many coaches,
tutors, and mentors;
Structure and Detail
What to do 1.
How to do it 2.
When to do it; and 3.
Where to do it. 4.
Use of technology
Because this generation is so
comfortable with technology the manager
must incorporate this into the training. The
stated example is to set up an online training
course.
Communication Tools
This generation is good at asking 1.
questions and offering opinions so
allow time and space for feedback to be
given.
Newsletters and email do not work 2.
Require meeting once a month; and 3.
The suggestion given is setting up an 4.
online meeting.
Listen
This generation is not afraid to speak up
therefore the organization needs to learn to
listen;
Provide individual time
Set aside time in your schedule to talk to
these individuals one by one periodically.
Provide Many Details
This generation tends to take things very 1.
literally so be detailed in how you want
tasks done.
Allow peer to peer training or working 2.
in groups when possible
Assign this generation to project that this 3.
generation can feel ownership in.
This generation does not want to only be 4.
given a position of a project and then have
someone else fnish it. This generation
wants to do the entire project.
Praise
Acknowledge when this generation has 1.
fnished a project or done a good job
with a task;
Find ways to make work fun 2.
Scavenger hunts; 3.
Group worksheets; and 4.
2009 237 Robert D. Lawsson
Prize box for times when something 5.
extraordinary has been accomplished.
Changes Millennials bring to the
workplace
Schedules: this generation is used to be •
tightly scheduled and have a hard time
with open blocks of time;
Need for fexibility: this generation •
generally has multiple jobs, committees
and extra-curricular commitments;
Parental involvement includes •
involvement in:
Setting up interviews, i.
Following up on interviews; and ii.
Arranging schedules and absence iii.
Attention: this generation is not aware •
that a need for attention takes away from
productivity;
Blurring lines of class, work and personal •
lives: Too much personal info in the
work place
High Stress Levels: This generation •
needs to vent stress or otherwise become
unable to function at work.
Millennials require more supervision “up
front” however, function “fairly well without
supervision once trained”. (Rogers, nd) In the
work entitled: “Intergenerational Diversity”
(nd) listed as the: (1) events; (2) values and
(3) Motivators of both Generation X and the
Millennial Generation. In the work entitled:
“Neckties to Nose Rings: Earning the Trust
of a Multi-generational Workforce” it is
related that the workforce is changing and
that employers who wish to hire and retain
talent in the workforce must be prepared to
make changes. Stated is the fact that “the
future implications of demographics are
many. It means employers will need to recruit
and embrace” (Tyler, 2002) a larger range of
workers than ever before. In another report
it is related that The Gates Corporation is
“one of the world’s largest manufacturers of
automotive and industrial products, systems
and components.” Gates operates with sales
and marketing throughout each majority
market (industrial and automotive) including
North America, Europe, Asia, Australia, and
South America.. The mother corporation
of Gates is the Industrial and Automotive
Group of Tompkins place, employing more
than 40,000 worldwide with its headquarters
in London. Gates has a history of strong
traditions with a culture that was established
in 1911. Honor, character, and hard work
are valued by the Gates Corporation and this
fact is just as true with the new generation
workforce therefore, Gates determined
that the company culture would have to
make certain adjustments if sustained
their workforce. Efforts were identifed as
needing to be focused on what was a state
of ineffective recruiting and interviewing.”
(Marston Communications, nd)
The following are stated in the Marston
Communications report:
Recruiters determined that the description 1.
of the Gates culture, a strong focus of
the current interviewing process, was
scaring away the younger recruits as
many assumed that working for Gates
could be neither engaging nor enjoyable,
regardless of stability and security.
Recruiters further realized that the 2.
interview process was not uncovering
the right information about a candidate’s
cultural ft, even when qualifed
candidates were identifed.” (Marston
Communications, nd)
The assessment of guidelines for
interviews that were formulated “from a
generational perspective” was conducted
by Cam Marston. Marston made a “detailed
assessment of inter ctive. During a half-day
session with the Gates Interview Guidelines
Committee, Cam measured the current
interview process against the common
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238 Business Intelligence Journal January
biases of the two youngest generations
– Generation X and Millennials – and
evaluated the appropriateness of this format
for this generation of Gates employee.
During the session , the Committee also
gained a new understanding of what makes
these younger generations tick, and how to
appeal to the unique sense of loyalty and
initiative...” of these generations. (Marston,
nd) After receiving the results the Gates
Interview Guidelines Committee added new
questions, altered existing questions and
adjusted the candidate screening process to
make it a bit less intimidating.” (Marston
Communications, 2002) more time is
now spent in walking around the physical
structure and meeting the current team. It is
stated that this “newfound awareness is far
reaching as managers are challenged to create
new opportunities for younger employees
to contribute to cultural business growth at
Gates.” (Marston Communications, nd)
In the work entitled: “Scenes from the
Culture Clash” related is that ‘Beverly Hills
psychiatrist’s offce is an unlikely triage
center for the mash-up of generations in
the workforce.” (Sacks, 2006) The story
relates that when a salesman didn’t receive
an expected yearly bonus and was informed
by the boss that frst the individuals should
work on personal weaknesses in the job the
employee related this to the parents of the
employee. . The parents left many messages
for the employer. This story relates the
patients of “Sophy” a psychiatrist and the
many HR individuals who are seen due to
being traumatized by the youngest workers in
the workforce and the worker’s parents. The
story states: “Millennials aren’t interested in
the fnancial success that drove the boomers
or the independence that has marked the gen-
Xers, but in careers that are personalized.
want educational opportunities in China
and a chance to work in the companies’
R&D departments for six months. “have no
expectation that the frst place work will at
all be related to the individual’s career, so
these individuals are willing to move around
until a place is found to the individual’s
liking.” (Sacks, 2006; paraphrased) The
over-involvement of the parents of these
employees has caused these individuals
to be “coddled and pumped up to believe”
that these individuals can achieve anything
whatsoever. It is held that the thought
patterns of these individuals have been
changed due to “immersion in PCs, video
games, email, the Internet and cell phones.”
(Ibid) Furthermore it is held that these things
have changed how these individual’s brains
“developed physiologically.” (Sacks, 2006)
This generation wants feedback “…daily,
not annually”. (Sacks, 2006) Furthermore
this generation is “…fearless and blunt.”
(Sacks, 2006) The Millennial Generation
is “…infuriated by busywork, doesn’t have
time to be intimidated; and permanently
plugged in and juggling.” (Sacks, 2006;
paraphrased) Even if these individuals
might be constantly playing video games or
on the cell phone while completing work it
is the belief of this generation that if the job
gets done and well then it is just fne. They
believe that: “If the results aren’t great, then
fne, but if not, who cares how it gets done?”
(Sacks, 2006)
According to Joseph Gibbons, research
director at the FutureWork Institute: “It’s
not a case of when this generation grows
up, that this generation will see the world
differently…These values don’t change
over time. So if companies want to attract,
retain, manage, and motivate the next
generation of workers, the organizations
are going to have to adapt.” (Sacks, 2006)
It is pointed out that over the next two and
one-half decades that 80 million boomers
will be retirement age and with only 46
million members in Generation X the
Millennials will be the dominant workforce
2009 239 Robert D. Lawsson
for approximately 70 years. Related as well
is the company ‘Womble Carlyle’ with an
established incentive structure that is non-
operable with the Millennial generation and
furthermore this company’s culture doesn’t
work. Stated is: “Young lawyers were once
willing to sacrifce the next 10 years of life
chained to a desk in the law library, working
100-hour weeks, for the chance to make
partner. But increasingly, law-school grads
want work-life balance, fexible schedules,
and philanthropic work. and couldn’t care
less about partnership. “The older lawyers
think the younger lawyers are lazy,” says
Kristin Carretta, director of professional
development at Womble Carlyle. Womble
Carlyle can’t afford to think that way. Top-
tier frms all compete for the same elite law-
school grads, and Carretta says that it costs
frms $400,000 to lose an associate. So this
October, Womble formalized a part-time
track, in which attorneys can work with
supervisors to shape personalized schedules.
Carretta tells the group that so far two lawyers
have decided to pursue it--but not without
lingering resentment from the top. “I think
the struggle going forward is opening the
eyes of the other generations that it’s okay
to have a different type of law employee,”
she says.” (Sacks, 2006) Other companies
that are making “profound changes” in order
to gain the Millennial Generation talent for
the organization’s workforce and includes
the company Deliotte & Touche USA
which employees 32,000 in the US alone.
This consulting frm was informed by the
Millennial generation workers that: “brutal
audit schedules, in which teams had to camp
out at client companies for weeks or months
at a time, seemed superfuous in an age
when client records are digitized. felt the
organization could get the same work done
remotely. Deloitte’s clients told the frm that
the organization didn’t care whether auditors
were on-site or not, as long as the quality of
the work didn’t suffer. After a successful test
in its New York offce in which employees
had the choice to work off-site, Deloitte is
rolling the program out nationally over the
next 18 months.” (Sacks, 2006)
Another company in on these changes
is Marriott International specifcally
change have been made in the training
approach “in recognition of Millennials’
multisensory, rapid-fre style of information
consumption. “ have exacerbated the need
for brevity--on-demand, short sound bites,”
says Michelle Lapierre, a baby boomer
who helps run Marriott’s global salesforce
of 415 people across 70 countries. Lapierre
is now developing bite-size “edutainment”
training podcasts so workers can download
information to their cell phones, laptops, and
iPods as need it.” (Sacks, 2006)
Also related is General Mills’ bakeries
and food service division director, Sheila
Gallagher who “knew last summer that
she’d soon be hiring a batch of fresh
college grads. So the 18-year veteran of the
company rethought her management style.
To address desire for a lot of feedback,
Gallagher decided to connect this generation
with senior staff, including herself. When
Gallagher hired Frank Brodie, 22, as a
marketing associate, Gallagher made sure to
devote time to building a relationship with
him, and paired Brodie with a sales manager
to act as a mentor. Brodie also joined the
company’s “newcomers club,” where
General Mills’ youngest employees can
socialize with its oldest. Her team was also
prepared last September when Brodie, then
a grizzled veteran of four weeks, sprang a
surprise. The employee had an idea to sell
Totino’s Pizza Rolls to restaurants that were
trying to reach folks just like the employee.
Huge opportunity, Brodie fgured, and it was
backed up with market data research relating
to prices, and emerging restaurant trends.
While sitting in the audience at a four-
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240 Business Intelligence Journal January
day marketing and sales meeting, Brodie
decided there was no better time to pitch
the plan. Between sessions, Brodie took the
idea to Gallagher. Because Brodie had facts
behind him and a new spin on an old idea,
Gallagher opted to bend the rules and let the
employee present the idea to the sales team
so the team could decide. The following
morning, Brodie ran out to the supermarket,
whipped up 200 pizza rolls, and made his
pitch between tightly scheduled sessions.
“General Mills is a fairly hierarchical
organization,” Gallagher admits. “But being
fexible is really key. It ended up inspiring
a lot of enthusiasm on the team.” The sales
managers are now actively pitching pizza
rolls to fast-food chains and sub shops, and
Brodie, still glowing from his triumph, has
learned that when he does his homework,
ideas are respected regardless of the lack of
title and that is what the organization wants
from its employees according to Brodie: “A
chance to learn, to be challenged, to be taken
seriously.” (Sacks, 2006)
The Millennial Generation is causing a
stir all the way around as this generation is
“diffcult to reach and understand”. (Gerarci,
nd) Millennials have gained the attention of
all sector of business. Gerarci specifcally
reports from a retail point of view. While
Generation X was one of individuals were
“individualistic, untrusting and pessimistic”
and in all truth lived in a “parent-centric
world” which meant that “marketing
to children was really accomplished by
marketing to their mom.” (Gerarci, nd) This
has changed with Millennials “born during
the longest economic boom in history.”
(Gerarci, nd) This group has gained
“tremendous economic power” and is a
group that is part of a collaborative formed
by kids and their parents in “decision-
making units, and work together to make
shopping decisions in a complex way.
Marketers who want to be successful with
youth must also be successful with the
parents of these youth. “Retailers must not
only engage today’s young consumers but
also guide these individuals to intelligent
buying decisions that their parents will
approve of.” (Gerarci, nd) Again, the
involvement of parents in the lives of the
Millennial Generation is stressed. Colleges
and schools have also noted the changes that
are occurring to accommodate and attract
the Millennial Generation. The work of
Crawley and Crane (nd) states that schools
are asking the question of: “How can the
school build on its’ history and remain true
to its’ founding missions while competing
successfully in this changing market? The
answer is through brand transformation –
the process of identifying, embracing, and
articulating your historic mission to have an
impact in a new marketplace.” (Crawley and
Crane, nd) These authors hold that: “When
it comes to marketing and communicating
to prospective and current parents, using
the “mass market” approach won’t always
work. Baby Boomer and GenX parents don’t
always see the world the same way. (nd)
It is related that parents of the Millennials
or: “Gen X parents, often exasperating
hoverers, are claiming center stage at
boarding schools. Research documents this
generation’s skepticism, sacrifces, and
demanding expectations of these parents. To
forge workable patterns of communication
with this new generation of parents, start
early–in your branding, recruitment, and
campus-wide awareness–and then follow
through in the curriculum and fund raising.”
(Crawley and Crane, nd)
The work entitled: “Workforce Trends,
Workplace Issues” (2006) states that
several recent case studies have revealed
that the view of Generation X employees
about work is that it is “secondary” to the
personal lives of these employees. In fact,
when a good balance is maintained between
2009 241 Robert D. Lawsson
personal life and work “Generation X
employees are more productive (making
business more proftable) and more likely to
be retained (saving the expense of recruiting
and training replacements).” (Ibid) The
Emerging Workforce study published by
Spherion Corporation states that 60% of all
workers of all ages rate time and fexibility as
very important factors in retention. Yet only
35% of employers feel the same way, and
the percentage of full-time wage and salary
workers on fexible schedules declined from
28.6% to 27.5% between 2001 and 2004
according to the U.S. Department of Labor.”
(Ibid)
The Millennial Generation wants
fexible scheduling in employment and
personalized careers. This generation is not
interested particularly in the stability that the
traditionalists cherished, nor is this generation
interested in the fnancial success so sought
after by the boomer generation. Furthermore,
the Millennial generation is not driven by
the same independence of the Generation
X members. It is stated that “Millennials
appear to be ideal workforce, combining a
strong work ethic with personal confdence
and technological savvy but need far more
supervision and structure than their Gen X
predecessors. Further this generation will be
looking for more mentoring and one-on-one
attention, and employers and supervisors will
have to create a clear picture of expectations
and outcomes.” (Ibid) The following chart
labeled Figure 7 and Figure 8 illustrate the
Events, Values and Motivators of Generation
X and the Millennial Generation Members.
Figure 7 - Events, Values and Motivators –
Generation X
Events Values Motivators
Assassinations Political cynicism and
apathy
Work-life balance
Vietnam and
POW’s
Question authority Telecommuting
Lunar Landing Feminism Aren’t attracted by
the promise of a
rosy future
Oil Crisis Challenge traditional
roles and values
Customized
Munich
Olimpyc
Games
Global leadership Flexibility
Sexual
Revolution
Entitlement of rights Immediate
feedback
MTV Make it work for me Skill building
Disco Convenience Resist hierarchy
CNN Innovation Cross-training
Downsizing Embrace Change Doubt the wisdom
of authority
Roe vs. Wade Disponsable
Consumption
Dynamic work
environment and
mission
Computers Lifestyle comes frst -
balance
Time of
Civil Rights
legislation
Don’t care what
others think
Stock options
Iran Hostage
Crisis
Prefer to work alone,
not in teams
Highly adapted to
an environment
that is unstable,
without clear lines
of authority
Cable TV Techno literacy Less
oversight–more
empowerment
VCRs Task and result
oriented
Software and
hardware
Fax Machines Job focused Lack of rules
Microwaves Straightforward Not corporate -
informal
Pagers Self-reliant
Cell Phones Skeptics
Palm Pilots Diversity
Personal
Computer
Informality
Source: Intergenerational Diversity (nd)
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242 Business Intelligence Journal January
Figure 8 - Events, Values and Motivators –
Millennial Generation
Events Values Motivators
Columbine Stopping Violence Time Of
Oklahoma City Sense of civic duty Portable Skills
Random violence Self-confdence Meeting own
goals
Clinton-Lewinsky Tolerance Loyalty to self
Computers/
technology
Technically savvy Flex Time
The Internet Lifestyle frst Personal Safety
Talk shows with
no limits
Live with parents Opportunities to
collaborate and
participate with
others
Multi-culturalism Sports Involvement
Exposure to
diversity from
birth
Fitness Diverse workforce
– not just token
diversity
High speed video
games
Doers and
achievers
Technology
ATM Education Allowing for
creativity
Speed dial in Responsible Ability to
multitask
Barney Diversity Defned career
path
9/11 Equality for all New
opportunities
Integrity Portable beneft
packages
Realistic Short training
sessions – “boot
camp” style
Collaboration Opportunities for
mentorship
Negotation
Work Ethic
Professionalism
Source: Intergenerational Diversity (nd)
SUMMARY OF THE LITERATURE
REVIEWED
The literature reviewed in this work
includes the work of Jopling who has
informed that the differences in generations
are becoming much easier to identity. It
is important to gain knowledge of the
motivators of each generation and further to
gain knowledge of their values and attitudes.
In gaining this understanding it becomes
much easier for the organization to place the
employees in their ‘comfort zone’ within the
organizational structure. The infuences that
the generations referred to as Generation X
and the Millennial Generation experienced
while growing up are quite different. One of
the biggest results noted of these different
infuences is the resulting communication
styles of these two generations. While
Generation X likes information to be
supplied in short and understandable pieces
of information the Millennial Generation
likes concise information supplied with
action words. (Jopling, 2004)
Generation X is stated to be composed
of the latchkey children and are highly
adaptable and very independent. Generation
is easier reached through well-designed
webpages when targeting these individuals
for employment whereas, targeting the
Millennial generation means at the same
time attracting their parents in many
cases. Generation X is drawn through
offering fexible schedules, continued skill
development and learning and interesting
work. Generation X further needs to feel
a sense of purpose and it is important to
place emphasis on their accomplishments.
Generation X expects to have a balanced
work-personal life and when this is the
case these employees provide a great
contribution to the organization employing
these individuals. (NAS, 2006) Generation
X member will generally have 10 to 12
jobs during the life of their career and are
known to leave jobs because there is limited
career growth, lack of promotion, lack of
regular feedback on work performance, low
pay, poor treatment by managers, and lack
of recognition for their accomplishments
or stress due to understaffng within the
organization. (NAS, 2006)
Generation X members are more
2009 243 Robert D. Lawsson
collaborative than previous generations,
more independent, less hierarchical, more
altruistic, good at dealing with change,
more comfortable with women bosses, more
skilled in management, more technical savvy,
more fnancially savvy, more candid in their
communication, more self-reliant, more
rule-shy and un-intimidated by authority.
This generation is creative and strives for
a balance between their work and personal
lives. The workplace is desired by this group
to feel as though it were a community. (NAS,
2000)
The best work environment for the
members of Generation X include the factors
of a team-based environment, diversity,
exploration, experimentation, the idea is
the power and not the person, the provision
of both team and individual credit, and the
opportunities of resume-building activities.
(NAS, 2006) Communication guidelines
for use with members of Generation have
been reviewed which include mutual respect
and open communication, allowing these
individuals to respectfully disagree while
still meeting their goals, understanding that
these individuals are willing to discover
the intentions behind words and actions,
and understanding that avoid the use of
blame in defecting their responsibility for
direct communication. If a disagreement
does occur Generation X will want to
immediately clear the air with the person the
disagreement occurred with. In the course of
communication Generation X tends to focus
on issues, situations or tasks instead of on
persons, their behavior or events. Generation
X frst wants to solve their own conficts but
if cannot are willing to counsel with a third
party to work through the issue. Generation
X is a group that tends to be willing to
forgive one another for imperfections in
communications when misunderstandings
or hurt feelings result and hold each other
accountable to maintain the same standards
in communication. (NAS, 2000)
The Millennial Generation has been
described as “special, sheltered and
achieving” (Today’s CPA, 2006) and
furthermore the organization can understand
that the parents of this generation tends to be
overly involved in their lives. This study has
reviewed the study of Epstein building upon
the work of Strauss and Howe in which more
than 800 college students were surveyed in
an attempt o gain information concerning
characteristics of this generation. This
group was determined to be one that is quite
accustomed to having relationships with
authority fgures and is a generation that is
a “promising group of employees”. (Epstein
and Howe, 2006) 65% of the members of
the Millennial Generation “prefer” to have
relationships with those who supervise these
individuals and 68% agree that it is authority
fgures who should both set and enforce
rules of the organization. Millennials do not
mind asking their boss for special treatment
when it is needed and furthermore, these
individuals desire that their supervisors ask
about and show interest in their activities.
The Millennial generation wants to give
their opinions and provide contribution
to the organization and very comfortable
interacting with those supervising these
individuals. The relationships with
supervisors are valued. This group doesn’t
mind receiving feedback and are confdent
in their own ability.
A structured career path and work
environment is important in the view of
the Millennial Generation. This generation
prefers that ‘ideal skills sets’ are set out and
that there is a specifc timeline set out for
promotions. This group is goal-oriented and
works better and hardest when specifc goals
are set and being worked toward. This group
is curious and desires to understand each and
every aspect of the organization. This group
wants information and feedback and doesn’t
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244 Business Intelligence Journal January
want to fail due to lack of information as so
much in the way of information was at their
disposal growing up in the information age.
These employees do not mind and greatly
desire to change any behaviors that are
considered substandard in the organization.
(Epstein and Howe, 2006) The Millennials are
‘social, optimistic, talented, well-educated,
collaborative, open-minded, infuential and
achievement oriented.’ (Raines, 2002) Other
values of the Millennial generation include
the fact that have been convinced that are
special, that no one should be left behind
(inclusive), interdependent, achievement
oriented, and community oriented. The work
of Raines informed this study that according
to Federal reports this generation is healthier
and more economically secure than previous
generations. Six principles of management in
view of the Millennial Generation has been
stated by Raines in this study inclusive of
the fact that the Millennial Generation wants
great role models, want to be challenged,
want to have relationships with those work
with, want to mix some fun with their work,
want to be respected and want fexibility in
their career.
METHODOLOGY
DATA COLLECTION & ANALYSIS
Data collection and analysis will be
conducted through use of the instrument of
the Work Values Inventory (WVI, Super,
1970) The survey will be administered
via the SurveyMonkey website located at
SurveyMonkey.com by using a MANOVA
model and a distinguish analysis computed
to answer the research questions.
POPULATION
The population to be survey in this study
is current employees of the Intelligence
Community. This study will make random
selection of full-time government employees
of the Intelligence Community for the
purposes of measuring work values. A
formal request to collect information will
be made to the Public review board (See
attachment A). After permission has been
granted by the Public review board the same
will be attached to this work as Appendix B.
After the researcher receives permission to
survey the organization, a letter of “Request
for Survey” will be sent via email to 200
Gen X and 200 Millenniums full employees
to recruit volunteers for the survey.
PROCEDURE
Along with the letter of “Request of
Survey” a ‘login’ and ‘password’ will be
supplied to each respondent in order that the
respondent may access the survey link via
Monkey Survey. Monkey Survey is similar
to the use of a web browser to create unique
survey while allowing intuitive survey
features. Once the respondents enter the
login and password provided the respondent
will complete the survey and the survey
will be made available to the researcher for
purposes of data collection and analysis.
INSTRUMENT
The instrument chosen to measure the
work values of Gen X and the Millenniums
was the Work Values Inventory (WWI: Super,
1970, The founder, Donald Super, developed
the WVI in 1951 as a part of the Career
Pattern Study publishing the current in 1970.
Although, this study was developed 1970,
revision was made 1982, which allow it to
be suitable for this research. The underlining
objective of this inventory was to measure
the goals, which motivated employees to
work. In the process of this inventory, the
question of value is critical. Eslinger (2000)
2009 245 Robert D. Lawsson
noted that “a value was a desirable end or
objective people seek in their behavior and
a work value was a goal directed need that
infuence a person’s choice in the vocation
may pursue” (p. 53). According to Murphy,
Conoley, & Impara (1994) the Work Values
Inventory is “designed to measure the
values which are extrinsic to as well as those
which are intrinsic in work” (p. 998). The
statements in the Work Values Inventory
represent values that individuals consider
to be important in the workplace. These
are ‘satisfactions’ that are often sought in
jobs or resulting from employment. These
‘satisfactions’ are not considered equally
important by the individual and while some
may be of great importance to one individual
others may be considered more important by
another individual. The participants in the
survey will be asked to read the questions
listed below and to respond to each question
on a scale from 1 to 5.
5= Very Important
4= Important
3= Moderately Important
2= Of Little Important
1= Unimportant
The statements to which participants will
provide a response by assigning rank of
importance as shown above in 1-5 will be
those as follows:
Work in which you . . .
have to keep solving new problems 1.
help others 2.
can get a raise 3.
look forward to changes in your job 4.
have freedom in your own area 5.
gain prestige in your feld 6.
need to have artistic ability 7.
are one of the gang 8.
know your job will last 9.
can be the kind of person you like to be 10.
have a boss who gives you a square 11.
deal
like the setting in which your job is 12.
done
get the feeling of having done a good 13.
day’s work
have authority over others 14.
try out new ideas and suggestions 15.
create something new 16.
know by the results when you’ve done 17.
a good job
have a boss who is reasonable 18.
are sure of always having a job 19.
add beauty to the world 20.
make your own decisions 21.
have pay increases that keep going up 22.
with the cost of living
are mentally challenged 23.
use leadership abilities 24.
have adequate lounge, toilet and other 25.
facilities
have a way of life, while not on the job, 26.
that you like
form friendships with your fellow 27.
employees
know that others consider your work 28.
important
do not do the same thing all the time 29.
feel you have helped another person 30.
add to the well being of other people 31.
do many different things 32.
are looked up to by others 33.
have good contacts with fellow 34.
employees
lead the kind of life you most enjoy 35.
have a good place in which to work 36.
(good lighting, quiet, clean, enough
space, etc.)
plan and organize the work of others 37.
need to be mentally alert 38.
are paid enough to live right 39.
are your own boss 40.
make attractive products 41.
are sure of another job in the company if 42.
your present job ends
Lawsson R.D. - Identifying and Managing Diversity of Workforce
Business Intelligence Journal - January, 2009 Vol.2 No.1
246 Business Intelligence Journal January
have a supervisor 43.
see the results of your efforts 44.
contribute new ideas 45.
SCORING THE WVI
When scoring the Work Values Inventory
responses the following are the scores for the
ranks of: (1) Creativity; (2) Management;
(3) Achievement; (4) Surroundings; (5)
Supervisory Relations; (6) Way of Life; (7)
Security; (8) Associates; (9) Esthetics; (10)
Prestige; (11) Independence; (12) Variety;
(13) Economic Return; (14) Altruism; and
(15) Intellectual Stimulation. The researcher
will place the score for each number listed
and then add the scores only across each
individual line and then place the total of
those scores at the end of the line.
Scores are ranked highest to lowest.
Rank Total
1 Creativity 15 +16 +45 =
2 Management 14 +24 +37 =
3 Achievement 13 +17 +44 =
4 Surroundings 12 +25 +36 =
5 Supervisory Relations 11 +18 +43 =
6 Way of Life 10 +26 +35 =
7 Security 9 +19 +42 =
8 Associates 8 +27 +34 =
9 Esthetics 7 +20 +41 =
10 Prestige 6 +28 +33 =
11 Independence 5 +21 +40 =
12 Variety 4 +29 +32 =
13 Economic Return 3 +22 +39 =
14 Altruism 2 +30 +31 =
15 Intellectual Stimulation 1 +23 +38 =
RELIABILITY AND VALIDITY
The work entitled: “Reliability and
Validity of Instruments Measuring Job
Satisfaction - A Systematic Review” states
that: “Retaining an adequate and qualifed
workforce is a prerequisite for a well-
functioning organization, but is sometimes
diffcult to realize when conditions, such
as a good economic situation, a tight labor
market and an ageing workforce, tend to
increase the turnover of the workforce. It
can be hypothesized that job satisfaction
could function as a buffer against conditions
favoring a high turnover, because a small
but signifcant relationship exists between
a low level of job satisfaction and turnover
Moreover, job satisfaction could also buffer
against other negative infuences in the
workplace, such as occupational stress.”
(Saane, Sluiter, Verbeek and Frings-Dresen,
2003) These authors states that research on
job satisfaction has been carried over for over
40 years and “The conceptual foundation
of job satisfaction, its content validity...has
received little attention in the literature on
job satisfaction instruments.” (Ibid) Stated
additionally is: “Job satisfaction can be
interpreted in different ways. While some
researchers have theorized about more-
or-less specifc work factors relevant to
job satisfaction there is no ‘gold standard’
2009 247
that indicates which job aspects should be
taken into account when job satisfaction is
measured.” (Saane, Sluiter, Verbeek and
Frings-Dresen, 2003)
The work of Judge and Bretz (1991)
entitled: “The Effects of Work Values on Job
Choice Decisions” states: “Work values have
been shown to be related to the way people
feel about their work (Spence, 1985), the way
people behave on their jobs and their overall
job satisfaction.” (2003) Additionally
stated is: “H values are relatively stable ,
it would be important to examine their role
in the selection process since that would be
the primary means through which person
-organization value congruence may be
achieved.” (Saane, Sluiter, Verbeek and
Frings-Dresen, 2003) These authors state that
the perspectives on motivational psychology
in early interactionism held that the person/
environment ft “in terms of matching
individual needs and environmental press.”
(Saane, Sluiter, Verbeek and Frings-Dresen,
2003) That which ‘needs’ represent are the
determinants of behavior of the individual
and may be inferred from:
observed patterns of behavior, 1.
attention, or particular responses, to 2.
specifc stimuli, or
Satisfaction or dissatisfaction with 3.
particular outcomes.
Needs and values are internalized and to
this extent needs and values affect motivation
of the individual in fulflling specifc needs
and values may also be expected to have an
infuence upon the decisions of the individual
in relation to the job of that individual. Stated
is: “When faced with a choice, a person
activated by particular value structures
may be expected to seek out organizational
environments that offer the opportunity for
value expression and to avoid organizational
settings that stife or repress internalized
values. Thus, decision making processes,
of which job choice is one example, may be
dependent on an individual’s value system.”
(Saane, Sluiter, Verbeek and Frings-Dresen,
2003)
WORK VALUES INVENTORY
DEFINITIONS
The following are the defnitions for the
rankings in the ‘Work Values Inventory’:
Creativity
Creativity 1.
This is associated with work that allows
the individual to invent, design, or develops
and is related to artistic and scientifc pursuits
and is the type of work commonly viewed
as self-expression. In this view the job
provides the outlet for this ‘work value’ and
allows the individual the chance to create,
unrestrictedly and express the ideas of the
individual. While this is important to writers
and artists it would not be so important to the
individual who is an accountant or farmer.
Mangement 2.
This is associated with employment
that allows the individual to plan, set out
and organize the work of other individuals.
This is related to occupations in which one
supervises other and is a leading role in the
organization. Work is often the outlet for the
individual needs of power and the desire to
maintain control of other individuals. This
value is important in occupations such as
politics or business for the supervisor or the
executive.
Achievement 3.
This is associated with gaining a feeling
of accomplishment from ones’ work in
which tasks have been completed and
tangible results are desirable for completed
work. Achievement is measured in many
ways from typing the day’s letters to making
life-changing impacts in the lives of others.
Robert D. Lawsson
Lawsson R.D. - Identifying and Managing Diversity of Workforce
Business Intelligence Journal - January, 2009 Vol.2 No.1
248 Business Intelligence Journal January
Surroundings 4.
This is associated with employment
that is in pleasant conditions such an
air-conditioned offce that is clean and
comfortable and pertains specifcally
to the physical conditions of the work
environment.
Supervisory Relations 5.
This is associated with the importance
of having a supervisor or boss who is fair
and with whom the employee gets along
well with. It is extremely hard for many
individuals to work for someone they dislike
extremely. This may well depend on how
close the employee’s contact with the boss
is and if the employee minds being told what
must be done and if the employee has respect
for the supervisor or boss.
Way of Life 6.
This is associated with work that allows
the employee the freedom to be the type of
person they choose to be. This may depend
upon whether the demands of the job require
that the individual live in a manner that is
unacceptable to that individual. Further,
many jobs place the employee in a position
to be forced into a role. Another factor is
how important it is to the individual to be
independent in their lifestyle.
Security 7.
This is associated with work that provides
the individual with the surety of keeping
their employment and will depend upon the
individual’s chances of being laid off or fred
and also depends on the obligations of and
the dependents of the employee. Another
variable is whether or not the employee is
under constant pressure to perform or lose
the employment.
Associates 8.
This is associated with employment that
brings the individual into contact with other
workers who they like.
Esthetics 9.
This is associated with employment
that permits the individual to create
beautiful things and provide these as
contributions to the world’s beauty. Esthetic
and artistic interests are much the same.
This would be an important factor in the
employment of architects, artists, writers,
musicians and would matter less to life
insurance salespersons, accountants or
mathematicians.
Prestige 10.
This is associated with work that provides
the employee with a level of ‘status’ in the
eyes of others or that evokes respect from
others.
Independence 11.
This is associated with work that permits
the individual to work in that individual’s
preferred method in accordance with the
level of achievement and direction desired
by that individual. This would be important
to those who do not want to be told what
to do however, for those who do not mind
being given explicit instructions this would
not matter greatly.
Variety 12.
This is associated with work that provides
the individual with the chance to experience
different types of work within one position
of employment.
Economic Return 13.
This is associated with well-paying
work that enables the employee to have the
material and tangible things in life that they
desire. In the case that this is important to
the employee it could be important due to:
attaching value to tangible, material •
things and to earnings
money as a means to buy things •
money as a producer of freedom •
money often makes an unpleasant job •
bearable
Altruism 14.
This is associated with employment that
2009 249
enables the employee to contribute to other’s
welfare such as employment in the social
services feld.
Intellectual Stimulation 15.
This is associated with work that provides
the employee with the opportunity for
thinking independently and in learning how
and why things work. This is considered
‘mentally challenging’ work and is important
to individuals in professional and scientifc
occupations.
TIMEFRAME FOR COMPLETING OF
WORK VALUES INVENTORY
According to Super (1970) the average
individual should complete the survey within
a ffteen (15) minutes timeframe.
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Zemke, R., Raines, C., & Filipczak, B.
(2000) Generations at work.. managing
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AMACOM.
Robert D. Lawsson
Lawsson R.D. - Identifying and Managing Diversity of Workforce
SRRNet
Social Responsibility
Research Network
www.socialresponsibility.biz
Social Responsibility Research Network
Who are we?
We are an international network of scholars who share similar interests in aspects of social
responsibility. Currently we have about 500 members and membership is free.
Network offcers:
Chair of the Network: Professor Dr. David Crowther, De Montfort University, Leicester Business
School, The Gateway, Leicester LE1 9BH, UK [email protected]
Vice Chair: Professor Dr. Güler Aras, Yildiz Technical University, Institute of Social Science,
Yildiz Besiktas 34349, Istanbul, TURKEY [email protected]
What do we do?
Conferences
2008 7th conference CSR and SMEs
Durham, UK
2009 8th conference CSR and NGOs
Pretoria, South Africa
2010 9th conference CSR and Global Governance
Zagreb, Croatia
2011 10th conference CSR and the New Economy
New Orleans, USA
Publications
Social Responsibility Journal
The offcial refereed journal of the Network; published 4 times per year by Emerald.
Discussion Papers in Social Responsibility
An opportunity for early publication of articles. Published when necessary by SRRNet.
The Newsletter
Published 3 times per year and containing news and opinion pieces. Sent to all members.
Research Book Series: Issues in Corporate Behaviour and Sustainability
Books published in association with the conferences and given to all conference delegates.
Full details of all of our activities can be found from our website – www.socialresponsibility.biz
If you share our aims then please join us. We look forward to hearing from you.
Approved by Charter of The Ministry of Education of the British Isles to act as a chartered
University outside of the United Kingdom; with Full Accreditation granted from the Académie
Européenne d’Informatisation; established in Brussels, Belgium by Order of the King of
Belgium Albert II, with full recognition from The Ministry of Justice and Research of the
Belgian Crown:
The Isles Internationale Université (European Union) has been commended to host the School of Doctoral Studies (EU)
in Brussels, Belgium, aiming to accomplish three fundamental missions:
Development and enhancement of elite doctoral studies’ programmes, with cutting edge standards on academic and •
scientifc research;
Enforcement of EU analogue quality standards on academic programmes developed by tuition institutions outside the •
EU area: (a) By evaluating academic methodology applied on learning programmes; (b) By providing full coaching
and tutoring support to tuition institutions worldwide to upgrade, assure and maintain academic methodology quality
levels on their way towards excellence; and (3) By awarding EUASC Seal (EU Analogue Standards Certifcation) at
corresponding quality levels achieved at each evaluation point; and
Ensuring academic EU Analogue Standard by performing: (a) Academic Validation on degrees earned by students at •
recognised and/or certifed tuition institutions located outside the EU area; (b) Double Degree awarding on degrees
earned by students at recognised and/or certifed tuition institutions located elsewhere the EU area; and (c) Degrees
awarding on studies programmes developed by tuition institutions, once certifcation at higher quality levels on applied
academic methodology has been achieved and after collaboration agreement has been executed for these purposes .
In order to achieve its missions, the Isles Internationale Université has gathered some of the best minds in Europe, who
have developed sate-of-the-art doctoral academic programmes, elite research methodology and cutting edge technological
tools, and who act as permanent Faculty Members to strictly enforce this toolkit’s proper application on daily basis.
Doctoral Studies
The School of Doctoral Studies of the EU’s academic structure includes four Departments (Business Management and
Economics, Engineering and Technology, Science and Social Science) which host 37 Disciplines, offering PhD studies on
practically every main feld of human knowledge.
Over 355 PhD students are involved in more than 116 cutting edge research projects, most of them being currently
developed in collaboration with 12 other universities in the EU area and elsewhere; 94% of these students are engaged on
programmes designed to undertake pure research assignment and 6% are required to undertake a research assignment and
pursue theoretical studies in the form of seminars or courses.
Studies towards a doctoral degree are worth 240 higher education credits (ECTS credits) and require an average of four
years of full-time study. The research is intended to lead to a scholarly thesis; writing it will take up most of a student’s
time and all theses are publicly defended. Every doctoral student receives a studies grant for partial or total coverage on
full programme’s term costs, as well as individual tutoring. Currently, slightly over 72% of all programmes’ full term
costs are covered by studies grants.
Science students spend a great deal of time in the laboratory. Some departments may require that the thesis be part of an
ongoing project within the department. In the felds of technology and natural science, researchers often work as part of a
team. If research fndings are reproduced in academic journals the thesis may be a compilation of the published articles.
Forward inquiries to: [email protected]
Isles Internationale Université
School of Doctoral Studies
(European Union)
Who are we?
The Universidad del Valle de México (UVM) is one of the largest and most prestigious universities in
Mexico. Founded in 1960 and accredited by the Federacion de Instituciones Mexicanas Particulares de
Educacion Superior, UVM enrolls students at 32 campuses throughout Mexico.
Universidad del Valle de México was founded by a Group of entrepreneurs and
academics, led by Mr. Jose Ortega in response to the professional requirements
of the Mexican labor market, aiming to provide education with quality:
High School
Undergraduate
Undergraduate for working adults
Graduate
Continuing Education
UVM’s mission is to be an institution that fully educates with an equilibrium
between sciences and technology, ethics and culture, according to the social needs,
in search of truth and welfare. The institutional philosophy and educational model
seek to educate in human values, updated knowledge and the acquisition of skills
that teach the student to competitively adapt to the labor market.
UVM alumni are distinguished by their abilities, knowledge, attitudes, and social skills
that are shaped by the identity subjects.
UVM is the only global university in Mexico
Because of its prestige and quality the UVM is part of Laureate International Universities, the
most important network of universities in the world which is integrated by 24 well-known private
universities in:
Spain, Switzerland, France, Costa Rica, Panama, Honduras, Ecuador, Chile, Peru, Brazil, England,
Chipre, China, Canada, US, Germany and Mexico.
UVM has 35 campuses throughout Mexico offering 38 undergraduate degree programs in Arts
and Humanities, Social Sciences, Economic and Management Sciences, and Engineering; 11
undergraduate degree programs for working adults and 28 graduate programs. UVM has more than
100,000 students and more than 9,000 employees (teachers and staff).
UVM opens its door to the world
UVM students have access to international qualifed academic opportunities through programs
offered by Laureate International Universities
Summer courses
Semester academic exchanges
Double degree
Graduate studies
Recognitions:
Through its history, UVM has received recognitions that prove its excellence:
Academic Excellence - Secretaría de Educación Pública (SEP). •
Affliation - Asociación Nacional de Universidades e Instituciones •
de Educación Superior (ANUIES).
Academic Quality Certifcation - Federación de Instituciones •
Mexicanas Particulares de Educación Superior (FIMPES).
Second private university in the country holding the highest fgure •
of academic programs accredited by Consejo para la Acreditación
de la Educación Superior, A.C. (COPAES).
National Registree of Scientifc and Technologic Institutions and •
Enterprises (RENIECYT) - CONACYT.
According to the Reader´s Digest Intelligent Decision Markers (IDM) Guia Universitaria 2008, •
UVM is one of the best upper education institutions in the country, from a range of over 100
public and private universities.
UVM’s faculty training programs
UVM’s commitment with its students and with the country is to enhance its academic quality and
prepare successful professionals; therefore, it invests in constant training and specialization of its
teachers through the Centre for Academic Excellence (CAE).
2008 Year of academic strengthening
UVM trained more than 3.000 teachers and staff in different areas of knowledge between January
and September of this year. It also started a program of specialization with postgraduate and
doctorate courses, as well as an English program. UVM has identifed important public and private
upper education institutions in Mexico and abroad, to perform together development and training
programs.
Teacher training and professional development
Nearly 2.000 UVM teachers all over the country took the Institutional Teaching and Pedagogy
Program with a focus on the correct implementation of the educational model, which underlies the
students’ principles: learn to learn, learn to be, learn to do, and learn to undertake.
Also, more than 400 teachers of the 35 campuses took 12 seminars in areas such as: Industrial
Engineering, Mechatronic, Animation, Marketing, Management, Communication, Law, Psychology,
Health Sciences and Hospitality.
140 academic leaders of the 6 regions in which UVM has classifed its campuses in 15 states of
Mexico and Mexico City, are enrolled in the Diplomat in Leadership for Academic Management.
Postgraduate Studies in prestigious institutions
A priority for UVM is to have teachers with postgraduate studies; thus, Walden University, a prestigious
on-line upper education institution accredited in the US, has offered scholarships for Master degrees
in Education, Management, Information Technologies, Psychology and Systems Engineering.
Sports at UVM go beyond boundaries
UVM considers Sports an important part of the student’s education. This has allowed some of its
students to excel at national and international events. Maria del Rosario Espinoza and Guillermo
Perez were both Tae Kwon Do gold medal winners in the Olympic Games of Beijing, China.
UVM supports young leaders of projects with social impact
From creating eco-tourism opportunities to developing a
national hotline to combat domestic abuse, young people
in Mexico are using their energy and creativity to improve
their communities – and country. To support their efforts,
Universidad del Valle de Mexico (UVM), joined the
Sylvan/Laureate Foundation and the International
Youth Foundation in 2006 in creating “Premio UVM
por el Desarrollo Social” (UVM Prize for Social
Development). Its goal: to celebrate and support
outstanding young Mexican social entrepreneurs.
Premio UVM has adapted the YouthActionNet® Global Fellowship model to provide a tailor-
made, culturally-relevant, and Spanish-language centered leadership development experience for 15
young Mexican leaders, ages 18-29, annually. The Premio UVM fellowship strengthens the project
management and communications skills of young Mexican leaders, while connecting them to their
peers and experts to create a national network of youth leaders affecting positive change.
Student Development
Responsible of the education that students receive, UVM sets special emphasis on the students’
integral education and the continuous improvement of its faculty. This way, it responds to the
expectations and trust of Mexican families and prepares good successful professionals with a global
vision, who will acquire the skills and knowledge that the labor market requires.
The student development area at UVM has important national and international projects as:
Institutional Fair of Entrepreneurs UVM
Congress Simulation.
United Nations Simulation Model.
Congresses.
Student Councils.

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