Volume 9 : Issue 1. June. 2011 Listed in Ulrich's International Periodicals Directory, USA

Institute of Management Studies

Dehradun

ims

Journal of Management

ISSN No. : 0974-5505

Research Papers/Articles

Emergence of Organized Retail in India-Opportunities and Challenges for Uttarakhand

Amit Adlakha

The Role of The Bank of Lao PDR in Controllong Money and Forex Market Mrinal Kanti Das, Souriya Meunviseth

CRM Practices at Organizational Level in Banking Sector - An Empirical Study

Dr. Dalbir Singh, Dr. Tika Ram

Challenges of Indian Advertising agencies

Ms. Manu Sharma Joshi, Dr Sudhanshu Joshi, Dr.V.K.Singh, Dr. Shruti Nagar

Corporatisation of Agriculture in India- A Study of Contract Farming Rajeshwari Panigrahi, K.C Raut

Spirituality in Corporate Governance: A Mantra to Success Dr. Himanshu Rastogi, Dr. Nimish Gupta, Dr. Kamlesh Kumar Shukla

The challenges in establishing prerequisites and characteristic features of global brands Somroop Siddhanta, Swati Pal

Book ReviewBond Evaluation, Selection, and Management by R. Stafford Johnson, reviewed by Dr Sanjay Tiwari

MEMBERS OF EDITORIAL ADVISORY BOARD

Professor Pulin B NayakDelhi School of Economics Delhi

Professor T J KamlanabhanDMS, IIT Madras

Professor P K ChaubeyIndian Institute of Public Administration,New Delhi

Professor M AkbarIndian Institute of ManagementLucknow

Professor D L SunderIndian Institute of ManagementIndore

Professor Vipin GuptaRos Jaffe Chair Professor of Strategy, Simmons School of Management, Simmons College, Boston, USA .

Copyright @ 2010 Institute of Management Studies, Dehradun.

All rights reserved.

No part of this publication may be reproduced or transmitted in any form or by any means, or stored in any retrieval system of any nature without prior written permission. Application for permission for other use of copyright material including permission to reproduce extracts in other published works shall be made to the publishers. Full acknowledgment of author, publishers and source must be given.

The Editorial Board invites original, unpublished contributions in the form of articles, case studies, research papers, and book reviews.

The views expressed in the articles are those of the contributors and not necessarily of the Editorial Board or the Institute.

Although every care has been taken to avoid errors or omissions, this publication is being sold on the condition and understanding that information given in this journal is merely for reference and must not be taken as having authority of or binding in any way on the authors, editors, publishers and sellers who do not owe any responsibility for any damage or loss to any person, a purchaser of this publication or not, for the result of any action taken on the basis of this work. All disputes are subject to Dehradun jurisdiction only.

Pragyaan : Journal of ManagementVolume 9 : Issue 1. June 2011Patron Shri Amit Agarwal

SecretaryIMS Society, Dehradun

Chief Editor Dr Pawan K AggarwalDirectorIMS, Dehradun

Editor Dr. Anand Swaroop PandeyProfessorIMS, Dehradun

Sub-Editor Mr. Amar MishraAssistant ProfessorIMS, Dehradun

Professor Arun P SinhaDepartment of Industrial & Management Engineering IIT, Kanpur

Professor Narendra K SharmaHead, Department of Industrial & Management Engineering IIT, Kanpur

Professor S P KalaH.N.B. Garhwal University, Srinagar

Professor V. NangiaIndian Institute of Technology, Roorkee

Professor D P GoyalChairperson Computer Centre Management Development Institute Gurgaon

Professor Bhagwati PrasadFormer Director, KIMS, Dharwad

Professor Rudra Prakash PradhanVinod Gupta School of ManagementIndian Institute of Technology, Kharagpur

Professor Himanshu RaiIndian Institute of Management, Lucknow

Professor GeetikaSchool of Management StudiesMotilal Nehru National Institute of Technology,Allahabad

Professor Susmita MukhopadhyayVinod Gupta School of ManagementIndian Institute of Technology, Kharagpur

Professor R K PandeyFMS, Banaras Hindu University,Varanasi

Professor Sita MishraInstitute of Management Technology, GZB.

Professor V NangiaHead, Department of Management StudiesIndian Institute of Technology Roorkee

Professor R C MishraDirector, IPSDRKumaun University, Nainital

Professor Zillur RahmanDepartment of Management StudiesIndian Institute of Technology, Roorkee

Professor Sheeba KapilIndian Institute of Foreign Trade, New Delhi

Professor Ram SinghIndian Institute of Foreign Trade, New Delhi

Professor V P S AroraCollege of Agribusiness Management G B Pant University of Agriculture &Technology, Pantnagar

Panel of Referees

MEMBERS OF EDITORIAL ADVISORY BOARD

Professor Pulin B NayakDelhi School of Economics Delhi

Professor T J KamlanabhanDMS, IIT Madras

Professor P K ChaubeyIndian Institute of Public Administration,New Delhi

Professor M AkbarIndian Institute of ManagementLucknow

Professor D L SunderIndian Institute of ManagementIndore

Professor Vipin GuptaRos Jaffe Chair Professor of Strategy, Simmons School of Management, Simmons College, Boston, USA .

Copyright @ 2010 Institute of Management Studies, Dehradun.

All rights reserved.

No part of this publication may be reproduced or transmitted in any form or by any means, or stored in any retrieval system of any nature without prior written permission. Application for permission for other use of copyright material including permission to reproduce extracts in other published works shall be made to the publishers. Full acknowledgment of author, publishers and source must be given.

The Editorial Board invites original, unpublished contributions in the form of articles, case studies, research papers, and book reviews.

The views expressed in the articles are those of the contributors and not necessarily of the Editorial Board or the Institute.

Although every care has been taken to avoid errors or omissions, this publication is being sold on the condition and understanding that information given in this journal is merely for reference and must not be taken as having authority of or binding in any way on the authors, editors, publishers and sellers who do not owe any responsibility for any damage or loss to any person, a purchaser of this publication or not, for the result of any action taken on the basis of this work. All disputes are subject to Dehradun jurisdiction only.

Pragyaan : Journal of ManagementVolume 9 : Issue 1. June 2011Patron Shri Amit Agarwal

SecretaryIMS Society, Dehradun

Chief Editor Dr Pawan K AggarwalDirectorIMS, Dehradun

Editor Dr. Anand Swaroop PandeyProfessorIMS, Dehradun

Sub-Editor Mr. Amar MishraAssistant ProfessorIMS, Dehradun

Professor Arun P SinhaDepartment of Industrial & Management Engineering IIT, Kanpur

Professor Narendra K SharmaHead, Department of Industrial & Management Engineering IIT, Kanpur

Professor S P KalaH.N.B. Garhwal University, Srinagar

Professor V. NangiaIndian Institute of Technology, Roorkee

Professor D P GoyalChairperson Computer Centre Management Development Institute Gurgaon

Professor Bhagwati PrasadFormer Director, KIMS, Dharwad

Professor Rudra Prakash PradhanVinod Gupta School of ManagementIndian Institute of Technology, Kharagpur

Professor Himanshu RaiIndian Institute of Management, Lucknow

Professor GeetikaSchool of Management StudiesMotilal Nehru National Institute of Technology,Allahabad

Professor Susmita MukhopadhyayVinod Gupta School of ManagementIndian Institute of Technology, Kharagpur

Professor R K PandeyFMS, Banaras Hindu University,Varanasi

Professor Sita MishraInstitute of Management Technology, GZB.

Professor V NangiaHead, Department of Management StudiesIndian Institute of Technology Roorkee

Professor R C MishraDirector, IPSDRKumaun University, Nainital

Professor Zillur RahmanDepartment of Management StudiesIndian Institute of Technology, Roorkee

Professor Sheeba KapilIndian Institute of Foreign Trade, New Delhi

Professor Ram SinghIndian Institute of Foreign Trade, New Delhi

Professor V P S AroraCollege of Agribusiness Management G B Pant University of Agriculture &Technology, Pantnagar

Panel of Referees

From the Chief EditorWe draw immense pleasure in presenting the June 2011 issue of Pragyaan: Journal of Management. Pragyaan : JOM continues to gain appreciation and provides a platform that stimulates and guides the intellectual quest of management scholars. The research articles submitted for publication in our Journal are reviewed by external referees comprising eminent scholars. Our journal has attained heights in the arena of Management under the invulnerable patronage, with the support of panel of referees and valuable contributions by authors.

The articles presented in this issue address a variety of contemporary national and international issues. The focus areas include: Emergence of organized retail in India, Role of the banks in controlling money and forex markets, CRM practices at organizational level, Challenges of Indian advertising agencies, Spirituality in corporate governance and Challenges in establishing prerequisites and characteristic features of global brands.

We would like to express our gratitude to esteemed contributors for their scholarly contributions to the Journal. Appreciation is due to the Editorial Advisory Board, the panel of Referees and the Management of the Institute for their constant guidance and support. Many faculty members from the Management Department of the Institute provided the necessary editorial support that resulted in enhanced reader friendliness of various articles. We are extremely thankful to all of them. We are also thankful to those who facilitated quality printing of this Journal.

We would continue our endeavour to harness intellectual capital of scholars and practitioners of Management and present the same to our valuable readers. We do our best to oversee a review and decision-making process in which we invite experts to review each paper and encourage them to provide timely, thoughtful, constructive and diplomatic critics. We work towards integrating reviewer's feedback along with our own insights into the final decision and craft fair and balanced action that acknowledges the strength of the manuscript, addresses areas of improvement and clearly convey the editorial decision and its rationale.

We have tried our best to put together all the articles coherently. Suggestions from our readers for adding further value to our Journal are however, solicited.

Dr. Pawan K. AggarwalDirector IMS Dehradun

Pragyaan: Journal of Management

Volume 9: Issue 1. June 2011

CONTENTS

Research Papers/Articles

Emergence of Organized Retail in India-Opportunities and Challenges for Uttarakhand 1Amit Adlakha

The Role of The Bank of Lao PDR in Controllong Money and Forex Market 5 Mrinal Kanti Das Souriya Meunvisethh

CRM Practices at Organizational Level in Banking Sector - An Empirical Study 14Dr. Dalbir Singh, Dr. Tika Ram

Challenges of Indian Advertising agencies 20Ms. Manu Sharma Joshi, Dr Sudhanshu Joshi, Dr.V.K.Singh, Dr. Shruti Nagar

Corporatisation of Agriculture in India- A Study of Contract Farming 29Rajeshwari Panigrahi, K.C Raut

Spirituality in Corporate Governance: A Mantra to Success 40Dr. Himanshu Rastogi, Dr. Nimish Gupta, Dr. Kamlesh Kumar Shukla

The challenges in establishing prerequisites and characteristic features of global brands 49Somroop Siddhanta, Swati Pal

Book Review 54 Dr. Sanjay Tiwari

From the Chief EditorWe draw immense pleasure in presenting the June 2011 issue of Pragyaan: Journal of Management. Pragyaan : JOM continues to gain appreciation and provides a platform that stimulates and guides the intellectual quest of management scholars. The research articles submitted for publication in our Journal are reviewed by external referees comprising eminent scholars. Our journal has attained heights in the arena of Management under the invulnerable patronage, with the support of panel of referees and valuable contributions by authors.

The articles presented in this issue address a variety of contemporary national and international issues. The focus areas include: Emergence of organized retail in India, Role of the banks in controlling money and forex markets, CRM practices at organizational level, Challenges of Indian advertising agencies, Spirituality in corporate governance and Challenges in establishing prerequisites and characteristic features of global brands.

We would like to express our gratitude to esteemed contributors for their scholarly contributions to the Journal. Appreciation is due to the Editorial Advisory Board, the panel of Referees and the Management of the Institute for their constant guidance and support. Many faculty members from the Management Department of the Institute provided the necessary editorial support that resulted in enhanced reader friendliness of various articles. We are extremely thankful to all of them. We are also thankful to those who facilitated quality printing of this Journal.

We would continue our endeavour to harness intellectual capital of scholars and practitioners of Management and present the same to our valuable readers. We do our best to oversee a review and decision-making process in which we invite experts to review each paper and encourage them to provide timely, thoughtful, constructive and diplomatic critics. We work towards integrating reviewer's feedback along with our own insights into the final decision and craft fair and balanced action that acknowledges the strength of the manuscript, addresses areas of improvement and clearly convey the editorial decision and its rationale.

We have tried our best to put together all the articles coherently. Suggestions from our readers for adding further value to our Journal are however, solicited.

Dr. Pawan K. AggarwalDirector IMS Dehradun

Pragyaan: Journal of Management

Volume 9: Issue 1. June 2011

CONTENTS

Research Papers/Articles

Emergence of Organized Retail in India-Opportunities and Challenges for Uttarakhand 1Amit Adlakha

The Role of The Bank of Lao PDR in Controllong Money and Forex Market 5 Mrinal Kanti Das Souriya Meunvisethh

CRM Practices at Organizational Level in Banking Sector - An Empirical Study 14Dr. Dalbir Singh, Dr. Tika Ram

Challenges of Indian Advertising agencies 20Ms. Manu Sharma Joshi, Dr Sudhanshu Joshi, Dr.V.K.Singh, Dr. Shruti Nagar

Corporatisation of Agriculture in India- A Study of Contract Farming 29Rajeshwari Panigrahi, K.C Raut

Spirituality in Corporate Governance: A Mantra to Success 40Dr. Himanshu Rastogi, Dr. Nimish Gupta, Dr. Kamlesh Kumar Shukla

The challenges in establishing prerequisites and characteristic features of global brands 49Somroop Siddhanta, Swati Pal

Book Review 54 Dr. Sanjay Tiwari

1

Introduction

The Indian economy has been growing at an average rate of above 8% over the last 4 years putting enormous demands on its productive infrastructure whether it is the physical infrastructure of road, ports, water, power etc. or digital infrastructure of broad band network, t e l e communica t i on e t c . o r the s e r v i c e infrastructure of logistics, all are being stretched to perform beyond their capabilities.

Interestingly this is leading to the emergence of nnovative practice to allow business and public

service to operate at a high growth in an environment where the support systems are getting augmented concurrently.

In this era of high economic growth retail is the latest bandwagon that is witnessing hordes of players leaping onto it. Though this sector is still in its nascent stage, it is fast spreading and making its presence in different parts of the country with Uttarakhand being no exception.

The rapid growth in India's retail sector it likely to continue as the total sales reached $435 billion in 2010 (A.T. Kearney Global Retail Development Index, 2011).There has also been a corresponding increase in the retail space as it has increased more than 200 percent from 40 million to 130 million square meters (A.T. Kearney Global Retail Development Index, 2011).

i

The share of retail trade in country's GDP which is currently between 8-10% is likely to increase and reach12% soon and to 22% by 2010. In this high growth rate scenario where organized retailing is passing through major expansion drive rural retail is also not far away and is gradually getting organized. Though it still continues to be dominated by unorganized sector but from its present size of $30 billion it is likely to grow further and reach $36 billion by 2008 and $45 billion by 2015.

Today when organized retailing is taking the whole country by a storm Uttarakhand as a state is also not far behind to welcome the sector. Despite rapidly growing state it offers reasonable real estate price in comparison to other states. This is a critical element for growth of retail industry; Uttarakhand has been witnessing a high Industrial growth and increasing presence of MNCs both in IT sector and outside it. This Industrial boom has led to the emergence of new residential areas with aggregation of professional as well as rapid increase in the number of double income households and growth of nouvean riche/upper middle class with increased purchasing power. The state is continuously developing the required infrastructure support in terms of rail, roads, airports and warehouses.

Keeping in mind the growing opportunities and potential for high revenue, Ministry of Railways within the state has not just deployed 345 km of rail route but is also working towards improving the rail

ABSTRACT

This paper provides detailed information about the growth of retail sector in Uttarakhand and discusses how the sector is witnessing a significant growth in the urban and semi urban markets in the state. It also explores the growth that the sector under went, the reforms that occurred within the sector and the need for further reforms. In Uttarakhand, there is a vast potential for the retail sector that is still untapped, as major part of the state is still dominated by unorganized retail sector. This vast untapped potential is the key attraction to both domestic and global retail players operating here. A modest attempt has been made in the paper to present the status of evolving retail sector within the state, opportunities and innovations therein and challenges that it faces in the years to come.

Emergence of Organized Retail in India-Opportunities and Challenges for Uttarakhand

Amit Adlakha *

* Faculty Member, Faculty of Management Studies, ICFAI University, Dehradun

"Pragyaan : Journal of Information Management" " Volume 9 : Issue 1, June 2011 2 "Pragyaan : Journal of Information Management" Volume 9 : Issue 1, June 2011

connectivity with other states. Talks are in process for establishment of Dehradun to Sahranpur rail link which will reduce the Dehradun to Delhi distance by 2 hours. This will not just save the transit time but will also rapidate the supply chain and logistic service process.

Air transport too is not far away in catching up fast as Government has already allocated $0.23 million for the construction of a helipad in every district of the state and the Pantnagar airport is also getting upgraded for International flights. This mode of transportation will not just further strengthen the supply chain but will also provide smooth and rapid transport of consumables especially in the hilly region of the state. With these developments in physical infrastructure along with healthy climatic conditions, pollution free environment and close proximity to the NCR region, organized retail in Uttarakhand is surely at a take off stage.

Key-Growth Drivers

1. The growing middle class:

The growing middle class is contributing to the rapid growth in consumption in retail trade in India and so in Uttarakhand. Burgeoning middle class with rising incomes is expected to accelerate consumption in a big way in coming years as well. The per capita income in the state has grown at a CAGR of 5.2% p.a. between 1993-94 & 2004-05. This means more purchasing power which is fuelling the growth in retail. The state economy is also undergoing a change in age profile of spenders as a result of “two-member” households and their number is expected to further increase in future. This younger population translates into higher propensity to spend, hence more is likely to be the consumption. This factor is driving growth of organized retail in urban areas and to a limited extent in rural areas of the state.

2. High Literacy Rate

Literacy rate is Uttarakhand is 71.6% (Census, 2001) and the state is striving to achieve 95% literacy rate and 100% computer literacy for students by end of Tenth Five Year Plan. This makes the retailers interested in the state to fulfill their requirement of trained manpower for upper, middle and lower level

jobs for their expansion plans. Major Institutes of learning and research are available in the state will facilitate this process.

3. Socio-Economic Growth

State is witnessing an increased economic growth. Hefty pay- packets, growing number of nuclear families in urban areas, increased role of women in jobs have today provided more disposable income in the hands of consumers and they have started giving importance to convenience and style. This is favoring growth of retail sector in the state.

4. Attractive Tourist Destination

All types of tourism -Pilgrimage, Cultural, Adventure, Wildlife and Eco-tourism exist in the state. So tourism happens to be an important sector for state's economy. State has also registered a growth in both domestic and international tourists on a Y-O-Y basis. As per IBEF, in 2005 Uttarakhand has registered an 18% growth in domestic and 24% growth in international tourists' arrivals. This factor is also promoting the growth of organization retailing in and near tourist destinations like Dehradun, Hardwar, Rishikesh, Roorkee, Tehri, Badrinath, Kedarnath, Nainital, Udhamsingh Nagar, Mussoorie, Auly etc. The state is also focusing towards development of infrastructure facilities to promote tourism further and make Uttarakhand a world class tourist centre.

5. Fast Developing Infrastructure

In Uttarakhands' Annual plan 2010-11, an outlay of Rs.6800 crores has already been approved by the Deputy Chairman, Planning Commission. To accelerate the state development process a lot of emphasis is being laid on development of roads and bridges, urban infrastructure, power and tourism development .This will favor the growth of organized retailing within the state.

6. Huge Potential for Power Generation

The state has abundant and uninterrupted quality power at most competitive rates of Rs.1.90/unit owing to large water resources. It also has significant hydro- potential (20000MW) out of which only 1124Mw has been used till now. Apart from hydro-power alternate sources of power generation

Emergence of Organized Retail in India-Opportunities and Challenges for Uttarakhand

1

Introduction

The Indian economy has been growing at an average rate of above 8% over the last 4 years putting enormous demands on its productive infrastructure whether it is the physical infrastructure of road, ports, water, power etc. or digital infrastructure of broad band network, t e l e communica t i on e t c . o r the s e r v i c e infrastructure of logistics, all are being stretched to perform beyond their capabilities.

Interestingly this is leading to the emergence of nnovative practice to allow business and public

service to operate at a high growth in an environment where the support systems are getting augmented concurrently.

In this era of high economic growth retail is the latest bandwagon that is witnessing hordes of players leaping onto it. Though this sector is still in its nascent stage, it is fast spreading and making its presence in different parts of the country with Uttarakhand being no exception.

The rapid growth in India's retail sector it likely to continue as the total sales reached $435 billion in 2010 (A.T. Kearney Global Retail Development Index, 2011).There has also been a corresponding increase in the retail space as it has increased more than 200 percent from 40 million to 130 million square meters (A.T. Kearney Global Retail Development Index, 2011).

i

The share of retail trade in country's GDP which is currently between 8-10% is likely to increase and reach12% soon and to 22% by 2010. In this high growth rate scenario where organized retailing is passing through major expansion drive rural retail is also not far away and is gradually getting organized. Though it still continues to be dominated by unorganized sector but from its present size of $30 billion it is likely to grow further and reach $36 billion by 2008 and $45 billion by 2015.

Today when organized retailing is taking the whole country by a storm Uttarakhand as a state is also not far behind to welcome the sector. Despite rapidly growing state it offers reasonable real estate price in comparison to other states. This is a critical element for growth of retail industry; Uttarakhand has been witnessing a high Industrial growth and increasing presence of MNCs both in IT sector and outside it. This Industrial boom has led to the emergence of new residential areas with aggregation of professional as well as rapid increase in the number of double income households and growth of nouvean riche/upper middle class with increased purchasing power. The state is continuously developing the required infrastructure support in terms of rail, roads, airports and warehouses.

Keeping in mind the growing opportunities and potential for high revenue, Ministry of Railways within the state has not just deployed 345 km of rail route but is also working towards improving the rail

ABSTRACT

This paper provides detailed information about the growth of retail sector in Uttarakhand and discusses how the sector is witnessing a significant growth in the urban and semi urban markets in the state. It also explores the growth that the sector under went, the reforms that occurred within the sector and the need for further reforms. In Uttarakhand, there is a vast potential for the retail sector that is still untapped, as major part of the state is still dominated by unorganized retail sector. This vast untapped potential is the key attraction to both domestic and global retail players operating here. A modest attempt has been made in the paper to present the status of evolving retail sector within the state, opportunities and innovations therein and challenges that it faces in the years to come.

Emergence of Organized Retail in India-Opportunities and Challenges for Uttarakhand

Amit Adlakha *

* Faculty Member, Faculty of Management Studies, ICFAI University, Dehradun

"Pragyaan : Journal of Information Management" " Volume 9 : Issue 1, June 2011 2 "Pragyaan : Journal of Information Management" Volume 9 : Issue 1, June 2011

connectivity with other states. Talks are in process for establishment of Dehradun to Sahranpur rail link which will reduce the Dehradun to Delhi distance by 2 hours. This will not just save the transit time but will also rapidate the supply chain and logistic service process.

Air transport too is not far away in catching up fast as Government has already allocated $0.23 million for the construction of a helipad in every district of the state and the Pantnagar airport is also getting upgraded for International flights. This mode of transportation will not just further strengthen the supply chain but will also provide smooth and rapid transport of consumables especially in the hilly region of the state. With these developments in physical infrastructure along with healthy climatic conditions, pollution free environment and close proximity to the NCR region, organized retail in Uttarakhand is surely at a take off stage.

Key-Growth Drivers

1. The growing middle class:

The growing middle class is contributing to the rapid growth in consumption in retail trade in India and so in Uttarakhand. Burgeoning middle class with rising incomes is expected to accelerate consumption in a big way in coming years as well. The per capita income in the state has grown at a CAGR of 5.2% p.a. between 1993-94 & 2004-05. This means more purchasing power which is fuelling the growth in retail. The state economy is also undergoing a change in age profile of spenders as a result of “two-member” households and their number is expected to further increase in future. This younger population translates into higher propensity to spend, hence more is likely to be the consumption. This factor is driving growth of organized retail in urban areas and to a limited extent in rural areas of the state.

2. High Literacy Rate

Literacy rate is Uttarakhand is 71.6% (Census, 2001) and the state is striving to achieve 95% literacy rate and 100% computer literacy for students by end of Tenth Five Year Plan. This makes the retailers interested in the state to fulfill their requirement of trained manpower for upper, middle and lower level

jobs for their expansion plans. Major Institutes of learning and research are available in the state will facilitate this process.

3. Socio-Economic Growth

State is witnessing an increased economic growth. Hefty pay- packets, growing number of nuclear families in urban areas, increased role of women in jobs have today provided more disposable income in the hands of consumers and they have started giving importance to convenience and style. This is favoring growth of retail sector in the state.

4. Attractive Tourist Destination

All types of tourism -Pilgrimage, Cultural, Adventure, Wildlife and Eco-tourism exist in the state. So tourism happens to be an important sector for state's economy. State has also registered a growth in both domestic and international tourists on a Y-O-Y basis. As per IBEF, in 2005 Uttarakhand has registered an 18% growth in domestic and 24% growth in international tourists' arrivals. This factor is also promoting the growth of organization retailing in and near tourist destinations like Dehradun, Hardwar, Rishikesh, Roorkee, Tehri, Badrinath, Kedarnath, Nainital, Udhamsingh Nagar, Mussoorie, Auly etc. The state is also focusing towards development of infrastructure facilities to promote tourism further and make Uttarakhand a world class tourist centre.

5. Fast Developing Infrastructure

In Uttarakhands' Annual plan 2010-11, an outlay of Rs.6800 crores has already been approved by the Deputy Chairman, Planning Commission. To accelerate the state development process a lot of emphasis is being laid on development of roads and bridges, urban infrastructure, power and tourism development .This will favor the growth of organized retailing within the state.

6. Huge Potential for Power Generation

The state has abundant and uninterrupted quality power at most competitive rates of Rs.1.90/unit owing to large water resources. It also has significant hydro- potential (20000MW) out of which only 1124Mw has been used till now. Apart from hydro-power alternate sources of power generation

Emergence of Organized Retail in India-Opportunities and Challenges for Uttarakhand

3"Pragyaan : Journal of Information Management" " Volume 9 : Issue 1, June 2011

Institute of Management Studies, Dehradun

like solar water heaters, biogas bracketing plants and solar plants are also available in the state energy park. This makes the state a potential power house of the nation and makes the organized food chains and grocery item retailers interested in the state, as maintaining the cold storage facilities here will not be much of a problem in this state in comparison to other states.

7. Efficient State Administrative Systems

The proactive state government ,its efficient administrative systems and with wide range of fiscal and non-fiscal benefits laid a red carpet welcome for the retail investors who now look forward to bigger and better expansion plans for the benefits of state, society and consumers.

Challenges

Despite these opportunities there are also some challenges in the path of organized retail sector in the state. In addition to problems such as over supply, fierce competition, high rentals, poor infrastructure and shoddy marketing there are some other challenges that may hamper the growth of sector with in the state:

1. Store positioning

It has been observed in the past that many big names in the organized retail scene e.g. Nanz died much ahead of their time. They could cater well to the requirement of classes but were not meant for the masses. This factor can prove to be a threat in Uttarakhand as well where there exists a lot of income dissiparity in urban as well as rural areas, the consumer buying behavior, preferences and perceptions are also different.

2. High Cost of Technology

For the growth of sector technology holds the key. Retailers use technology for sales forecasting, inventory control, merchandise planning, billing and customer relationship management. Their reliance is also increasing on high-tech solutions like RFID, intelligent shelves etc. which not only increase the price of the product but sometimes also cost more than product itself and if the products are not available at competitive rates then the customers may find unorganized retailing to be a better sector.

3. Human Resource Problem

Retail industry is facing a severe shortage of talented professionals in India and is likely to face the same in Uttarakhand. Due to increased competition from ITeS sector manpower can prove to be a critical bottleneck for the growth of organized retail sector in the state.

Opportunities:

1. Growth and Development of Agriculture

With the growth of organized retailing, farmers will get the opportunity to get engaged with large enterprise. They will not just benefit from facilities like contract cultivation but will also get the necessary financial help and aids from large retailers.

2. Increased Employment Opportunities

Though the farmers will be the major beneficiaries, sectors like textiles, furniture, healthcare, jewellery and furnishing etc. are also going to benefit from organized retail business. This will further increase employment opportunities for 4.5 lakh unemployed youth of the state.

3. Economic development of Rural Areas

With the growth of organized retailing rural malls will develop in the state that will purchase high quality products directly from manufacturers and sell them to the consumers at discounted rates as role of middle men will decrease. With this type of authenticity in their sales they will not only win the brand loyalty of local population in rural areas of the state but with the development of air conditioned mega stores the villagers and small-towners will get a brand new shopping experience and the state government will get an opportunity to develop tourism in the interior parts of the state.

The Road Ahead

Uttarakhand is rapidly evolving into a competitive retail market having potential customers in both niche and middle class segments. Specialty Chains and franchise stores are coming up in urban areas of the state along with supermarkets and hypermarts. Retailing is surely emerging as one of the most dynamic and fast paced sectors and several reputed players are entering the market.

4 "Pragyaan : Journal of Information Management" Volume 9 : Issue 1, June 2011

Retail Sector in Uttarakhand is fast moving towards growth and maturity and is expected to achieve greater heights in years to come. Favorable geographic and climatic conditions, close proximity to NCR, excellent road and rail connectivity with neighboring states, proactive government, quality education infrastructure, huge potential for power generation, unmatched tourism potential and peaceful and secure environment provide ample opportunity for the sector to prosper within the state.

Bibilography

1. Bolton R N (1998), “A Dynamic Model of Duration of the Customer's Relationship with a Continuous Service Provider: The Role of Customer Satisfaction”, Marketing Science, Vol. 17, No. 1, pp. 45-65.

2. Swan J E and Trawick I F (1981), “Disconfirmation of Expectations and Satisfaction with a Retail Service”, Journal of Retailing, Vol. 57, Fall, pp. 49-67.

3. Churchill G A (Jr.) and Surprenant C (1982), “An Investigation into the Determinants of Customer Satisfaction”, Journal of Marketing Research, Vol. 19, No. 4, pp. 491-504

4. Bearden W O and Teel J E (1983), “Selected Determinants of Consumer Satisfaction and Complaint Reports”, Journal of Marketing Research, Vol. 20, February, pp. 21-28.

5. Oliver R L (1980), “A Congitive Model of the Antecedents and Consequences of Satisfaction Decision”, Journal of Marketing Research, Vol. 17, No. 4, pp. 460-469.

6. LaBarbera P A and Mazursky D (1983), “A Longitudinal Assessment of Consumer Satisfaction/Dissatisfaction: The Dynamic Aspect of the Cognitive Process”, Journal of Marketing Research, Vol. 20, November, pp. 393-404.

7. Cardozo R N (1965), “An Experimental Study of Customer Effort, Expectation, and Satisfaction”, Journal of Marketing Research, Vol. 2, No. 3, pp. 244-249.

8. Festinger L (1957), A Theory of Cognitive Dissonance, Stanford University Press, Stanford, CA.

9. Howard J A and Sheth J N (1969), The Theory of Buyer Behavior, John Wiley & Sons, New York.

10. Westbrook R A and Reilly M D (1983), “Value-Percept Disparity: An Alternative to the Disconfirmation of Expectations Theory of Consumer Satisfaction”, in R P Bagozzi and A M Tybout (Eds.), Advances in Consumer Research, pp. 256-261, Association for Consumer Research, Ann Arbor, MI.

11. Tse D K and Wilton P C (1988), “Model of Consumer Satisfaction Formation: An Extension”, Journal of Marketing Research, Vol. 25, No. 5, pp. 204-212.

12. Shemwell D, Yavas J U and Bilgin Z (1998), “Customer-Service Provider Relationships: An Empirical Test of a Model of Service Quality, Satisfaction and Relationship Oriented Outcome”, International Journal of Service Industry Management, Vol. 9, No. 2, pp. 155-168.

13. Muffatto M and Panizzolo (1995), “A Process-Based View for Customer Satisfaction”, International Journal of Quality & Reliability Management, Vol. 12, No. 9, pp. 154-169.

14. Rai, Ashok K. (2006).Cashing in on Customers: The relationship Management Way, Managing Global Organization: Challenges, Opportunities and strategies, Proceedings of the fourth AIMS International C o n f e r e n c e o f M a n a g e m e n t , I I M Indore.p.512.

15. Levit(1980),Deriving Satisfaction Through Retail(5th ed.),New York, McGraw-Hill.

16. Baidya,Mihir and Basu,Partha(1993),”Impact of Marketing on Customer Satisfaction-An Empirical Study”, Journal of Marketing Management, Vol.25, pp.12-15.

17. www.iupindia.org

Emergence of Organized Retail in India-Opportunities and Challenges for Uttarakhand

3"Pragyaan : Journal of Information Management" " Volume 9 : Issue 1, June 2011

Institute of Management Studies, Dehradun

like solar water heaters, biogas bracketing plants and solar plants are also available in the state energy park. This makes the state a potential power house of the nation and makes the organized food chains and grocery item retailers interested in the state, as maintaining the cold storage facilities here will not be much of a problem in this state in comparison to other states.

7. Efficient State Administrative Systems

The proactive state government ,its efficient administrative systems and with wide range of fiscal and non-fiscal benefits laid a red carpet welcome for the retail investors who now look forward to bigger and better expansion plans for the benefits of state, society and consumers.

Challenges

Despite these opportunities there are also some challenges in the path of organized retail sector in the state. In addition to problems such as over supply, fierce competition, high rentals, poor infrastructure and shoddy marketing there are some other challenges that may hamper the growth of sector with in the state:

1. Store positioning

It has been observed in the past that many big names in the organized retail scene e.g. Nanz died much ahead of their time. They could cater well to the requirement of classes but were not meant for the masses. This factor can prove to be a threat in Uttarakhand as well where there exists a lot of income dissiparity in urban as well as rural areas, the consumer buying behavior, preferences and perceptions are also different.

2. High Cost of Technology

For the growth of sector technology holds the key. Retailers use technology for sales forecasting, inventory control, merchandise planning, billing and customer relationship management. Their reliance is also increasing on high-tech solutions like RFID, intelligent shelves etc. which not only increase the price of the product but sometimes also cost more than product itself and if the products are not available at competitive rates then the customers may find unorganized retailing to be a better sector.

3. Human Resource Problem

Retail industry is facing a severe shortage of talented professionals in India and is likely to face the same in Uttarakhand. Due to increased competition from ITeS sector manpower can prove to be a critical bottleneck for the growth of organized retail sector in the state.

Opportunities:

1. Growth and Development of Agriculture

With the growth of organized retailing, farmers will get the opportunity to get engaged with large enterprise. They will not just benefit from facilities like contract cultivation but will also get the necessary financial help and aids from large retailers.

2. Increased Employment Opportunities

Though the farmers will be the major beneficiaries, sectors like textiles, furniture, healthcare, jewellery and furnishing etc. are also going to benefit from organized retail business. This will further increase employment opportunities for 4.5 lakh unemployed youth of the state.

3. Economic development of Rural Areas

With the growth of organized retailing rural malls will develop in the state that will purchase high quality products directly from manufacturers and sell them to the consumers at discounted rates as role of middle men will decrease. With this type of authenticity in their sales they will not only win the brand loyalty of local population in rural areas of the state but with the development of air conditioned mega stores the villagers and small-towners will get a brand new shopping experience and the state government will get an opportunity to develop tourism in the interior parts of the state.

The Road Ahead

Uttarakhand is rapidly evolving into a competitive retail market having potential customers in both niche and middle class segments. Specialty Chains and franchise stores are coming up in urban areas of the state along with supermarkets and hypermarts. Retailing is surely emerging as one of the most dynamic and fast paced sectors and several reputed players are entering the market.

4 "Pragyaan : Journal of Information Management" Volume 9 : Issue 1, June 2011

Retail Sector in Uttarakhand is fast moving towards growth and maturity and is expected to achieve greater heights in years to come. Favorable geographic and climatic conditions, close proximity to NCR, excellent road and rail connectivity with neighboring states, proactive government, quality education infrastructure, huge potential for power generation, unmatched tourism potential and peaceful and secure environment provide ample opportunity for the sector to prosper within the state.

Bibilography

1. Bolton R N (1998), “A Dynamic Model of Duration of the Customer's Relationship with a Continuous Service Provider: The Role of Customer Satisfaction”, Marketing Science, Vol. 17, No. 1, pp. 45-65.

2. Swan J E and Trawick I F (1981), “Disconfirmation of Expectations and Satisfaction with a Retail Service”, Journal of Retailing, Vol. 57, Fall, pp. 49-67.

3. Churchill G A (Jr.) and Surprenant C (1982), “An Investigation into the Determinants of Customer Satisfaction”, Journal of Marketing Research, Vol. 19, No. 4, pp. 491-504

4. Bearden W O and Teel J E (1983), “Selected Determinants of Consumer Satisfaction and Complaint Reports”, Journal of Marketing Research, Vol. 20, February, pp. 21-28.

5. Oliver R L (1980), “A Congitive Model of the Antecedents and Consequences of Satisfaction Decision”, Journal of Marketing Research, Vol. 17, No. 4, pp. 460-469.

6. LaBarbera P A and Mazursky D (1983), “A Longitudinal Assessment of Consumer Satisfaction/Dissatisfaction: The Dynamic Aspect of the Cognitive Process”, Journal of Marketing Research, Vol. 20, November, pp. 393-404.

7. Cardozo R N (1965), “An Experimental Study of Customer Effort, Expectation, and Satisfaction”, Journal of Marketing Research, Vol. 2, No. 3, pp. 244-249.

8. Festinger L (1957), A Theory of Cognitive Dissonance, Stanford University Press, Stanford, CA.

9. Howard J A and Sheth J N (1969), The Theory of Buyer Behavior, John Wiley & Sons, New York.

10. Westbrook R A and Reilly M D (1983), “Value-Percept Disparity: An Alternative to the Disconfirmation of Expectations Theory of Consumer Satisfaction”, in R P Bagozzi and A M Tybout (Eds.), Advances in Consumer Research, pp. 256-261, Association for Consumer Research, Ann Arbor, MI.

11. Tse D K and Wilton P C (1988), “Model of Consumer Satisfaction Formation: An Extension”, Journal of Marketing Research, Vol. 25, No. 5, pp. 204-212.

12. Shemwell D, Yavas J U and Bilgin Z (1998), “Customer-Service Provider Relationships: An Empirical Test of a Model of Service Quality, Satisfaction and Relationship Oriented Outcome”, International Journal of Service Industry Management, Vol. 9, No. 2, pp. 155-168.

13. Muffatto M and Panizzolo (1995), “A Process-Based View for Customer Satisfaction”, International Journal of Quality & Reliability Management, Vol. 12, No. 9, pp. 154-169.

14. Rai, Ashok K. (2006).Cashing in on Customers: The relationship Management Way, Managing Global Organization: Challenges, Opportunities and strategies, Proceedings of the fourth AIMS International C o n f e r e n c e o f M a n a g e m e n t , I I M Indore.p.512.

15. Levit(1980),Deriving Satisfaction Through Retail(5th ed.),New York, McGraw-Hill.

16. Baidya,Mihir and Basu,Partha(1993),”Impact of Marketing on Customer Satisfaction-An Empirical Study”, Journal of Marketing Management, Vol.25, pp.12-15.

17. www.iupindia.org

Emergence of Organized Retail in India-Opportunities and Challenges for Uttarakhand

5"Pragyaan : Journal of Information Management" " Volume 9 : Issue 1, June 2011

The Role of The Bank of Lao PDR in Controllong Money and Forex Market

Introduction

The Central Bank of any country plays a crucial role in obtaining the economic stability in terms of improving the financial status of the particular country and supporting the economic growth which is beneficial to the standard of life of the population. It acts as a banker to the government and commercial banks and maintains sound banking conditions to ensure the continuation of essential banking services. Monetary policy can be seen as actions taken by the central bank to influence the amount of money and credit in the economy. This study highlights the activity of the Bank of Lao PDR (BOL), central bank of Lao PDR, in controlling economic stabilization and other specific objectives suitable for the Lao nation.

Objectives of the study

Identification of objectives is important for any research study and the following prominent objectives have been identified for the study:

? To study the role of the Bank of Lao PDR and tools used by the Bank of Lao PDR in controlling liquidity position of the economy

? To ascertain the impact of macro-economic factors like inflation rate, growth rate of GDP, interest rate on total deposits of Bank of the Lao PDR

? To find out the profitability position of the foreign exchange dealers in parallel market and organized market in respect of US $ and Thai Bath

? To study the risk profile of the foreign exchange dealers in parallel market and organized market

? To study the price predictability in the foreign exchange market

Methodology

This study is basically both theoretical and empirical in nature. The methodology which has been followed in this study can be systematically presented under the following major heads:

? Sources of data: Secondary data have been collected to assess the role of Bank of the Lao PDR in controlling money and FOREX market

? Research design: To get clarity of the problem statements, exploratory study was carried out.

? Data collection period: last eight years data were collected to analyze the performance of the bank of Lao PDR.

? Tools and techniques used: For analyzing data, multiple regressions, ANOVA, mean, S.D., Skewness and Kurtosis were administered. These tests were conducted using SPSS 10.

Mrinal Kanti Das*Mr. Souriya Meunviseth

* Faculty Member, Centre for Management Studies, ** JIS College of Engg.Kalyani, Nadia, West -Bengal.

ABSTRACT

Lao PDR is an underdeveloped nation of Asia. The Bank of Lao PDR (BOL) is the central bank of Laos which was initially named as Lao National Bank. The Bank of the Lao PDR discharges duties suitable for the Lao economy with the intention of achieving the predetermined objectives of the Lao National Social-Economic Plan for different time periods. This paper examines the role of the Bank of Lao PDR in controlling financial activities to improve the standard of living of the individuals of the nation. This paper also evaluates the impact of macro-economic factors on total deposits of the Bank and tries to find out the profitability position and price predictability of the foreign exchange dealers in parallel market and organized market in respect of US $ and Thai Bath.

Keywords: Central Bank, Monetary Policy, Forex Market, Money Market, Multiple Regressions.

6

? Place of Study: This study was carried out on Lao PDR.

The Role of the Bank of Lao PDR over the Controlling of Liquidity Position

The Bank of Lao PDR is a state management organization at the central level within the government apparatus. It is the financial institution of the state and the Central bank of the Republic, having the status of an independent legal entity. Its head office is in Vientiane.

The role of the Bank of the Lao PDR over the controlling of liquidity position is very crucial for supporting of the Lao economy which can lead the ease of money inflow from resources injected in the economy or bring the money out of the economy. In order to achieve the optimum level of the liquidity against the Lao economy, the bank of the Lao PDR has implemented various monetary policies' tools such as Bank rate (BOL Rate), exchange rate, Cash Reserve Requirement, Open Market Operation and other monetary tools which created by the Bank of the Lao PDR itself to obtain the appropriate level of liquidity position which lead the absolute advantage to the Lao economy and resulting the prosperity and growth in the economy of Lao and as well as the society.

The Monetary Strategy of the Bank of Lao PDR for the Year of 2009 in Controlling Economic Activity of the Country

Exchange Rate Policy: BOL has constantly conducted a managed floating exchange rate regime based on market-force in order to maintain the national monetary stability by keeping a close watch on domestic and international foreign exchange markets, aiming at using it as a basis for setting a daily reference rate for commercial banks and exchange bureaus. In addition, BOL also encouraged commercial banks to promote an active inter-bank market as well as carried out intervention in order to balance the supply and demand for foreign currencies in the foreign exchange market whenever necessary in accordance with the role of acting as a lender of last resort, aiming to provide sufficient supply foreign exchange to meet the basic demand of the markets. Subject to the implementation of the above-mentioned measures,

Kip (currency of Lao PDR) appreciated against the US dollar by 2.71 percent and Thai Baht by 5.04 percent in 2009 compared to 2008. The appreciation has increasingly raised public confidence in the Kip and economy as a whole. The spread of exchange rate between commercial banks and the parallel market has become narrow at 0.09 percent for Kip per US dollar and 0.01 percent for Kip per Thai Baht.

Monetary Policy: In the wake of the global and regional economic environment has not been fully recovered from the global financial crisis, BOL has continually implemented a monetary policy with an aim to maintain the national monetary stability and to support the socio-economic development to meet the ta rgeted growth ra te . BOL pursued an accommodative monetary policy with the main instruments as follows : reduced BOL's short-term interest rate for Kip from 7.0 percent to 4.0 percent; kept the reserve requirement ratio unchanged at 5.0 percent for Kip deposits and 10.0 percent for foreign currencies deposits; continued to promote Open-Market Operation (OMOs); issued BOL bonds to mobilize fund for infrastructure development projects as being the government priority. Policy measures were to minimize the adverse impact on money supply and to seek for potential source of financing.

Money Supply: As the end of 2009, money supply (M2) amounted to 15,175.9 billion Kip, up by 31.2 percent and equal to 32.43 percent of GDP as compared to the same period of 2008. The main factors driving the rise in M2 were credit to economy up by 90.1 percent, in which credit provided to state-owned enterprises and to private sector covered 22.9 percent and 77.1 percent of total credit respectively. Most of credits were provided to agriculture, commerce-service, industry-handicraft and construction sectors.

The components of narrow money (M1) included (i) currency in circulation amounting to 3,083.5 billion Kip, rose by 38.7 percent; (ii) deposits in Kip amounted to 5,101.2 billion Kip, rising by 45.1 percent and covered 33.6 percent of M2 and deposits in foreign currency equivalent to Kip amounted to 6,992.2 billion Kip, up by 20.1 percent and covered 46.1 percent of M2.

The Role of the Bank of Lao PDR in Controlling Money and Forex Market

"Pragyaan : Journal of Information Management" Volume 9 : Issue 1, June 2011

5"Pragyaan : Journal of Information Management" " Volume 9 : Issue 1, June 2011

The Role of The Bank of Lao PDR in Controllong Money and Forex Market

Introduction

The Central Bank of any country plays a crucial role in obtaining the economic stability in terms of improving the financial status of the particular country and supporting the economic growth which is beneficial to the standard of life of the population. It acts as a banker to the government and commercial banks and maintains sound banking conditions to ensure the continuation of essential banking services. Monetary policy can be seen as actions taken by the central bank to influence the amount of money and credit in the economy. This study highlights the activity of the Bank of Lao PDR (BOL), central bank of Lao PDR, in controlling economic stabilization and other specific objectives suitable for the Lao nation.

Objectives of the study

Identification of objectives is important for any research study and the following prominent objectives have been identified for the study:

? To study the role of the Bank of Lao PDR and tools used by the Bank of Lao PDR in controlling liquidity position of the economy

? To ascertain the impact of macro-economic factors like inflation rate, growth rate of GDP, interest rate on total deposits of Bank of the Lao PDR

? To find out the profitability position of the foreign exchange dealers in parallel market and organized market in respect of US $ and Thai Bath

? To study the risk profile of the foreign exchange dealers in parallel market and organized market

? To study the price predictability in the foreign exchange market

Methodology

This study is basically both theoretical and empirical in nature. The methodology which has been followed in this study can be systematically presented under the following major heads:

? Sources of data: Secondary data have been collected to assess the role of Bank of the Lao PDR in controlling money and FOREX market

? Research design: To get clarity of the problem statements, exploratory study was carried out.

? Data collection period: last eight years data were collected to analyze the performance of the bank of Lao PDR.

? Tools and techniques used: For analyzing data, multiple regressions, ANOVA, mean, S.D., Skewness and Kurtosis were administered. These tests were conducted using SPSS 10.

Mrinal Kanti Das*Mr. Souriya Meunviseth

* Faculty Member, Centre for Management Studies, ** JIS College of Engg.Kalyani, Nadia, West -Bengal.

ABSTRACT

Lao PDR is an underdeveloped nation of Asia. The Bank of Lao PDR (BOL) is the central bank of Laos which was initially named as Lao National Bank. The Bank of the Lao PDR discharges duties suitable for the Lao economy with the intention of achieving the predetermined objectives of the Lao National Social-Economic Plan for different time periods. This paper examines the role of the Bank of Lao PDR in controlling financial activities to improve the standard of living of the individuals of the nation. This paper also evaluates the impact of macro-economic factors on total deposits of the Bank and tries to find out the profitability position and price predictability of the foreign exchange dealers in parallel market and organized market in respect of US $ and Thai Bath.

Keywords: Central Bank, Monetary Policy, Forex Market, Money Market, Multiple Regressions.

6

? Place of Study: This study was carried out on Lao PDR.

The Role of the Bank of Lao PDR over the Controlling of Liquidity Position

The Bank of Lao PDR is a state management organization at the central level within the government apparatus. It is the financial institution of the state and the Central bank of the Republic, having the status of an independent legal entity. Its head office is in Vientiane.

The role of the Bank of the Lao PDR over the controlling of liquidity position is very crucial for supporting of the Lao economy which can lead the ease of money inflow from resources injected in the economy or bring the money out of the economy. In order to achieve the optimum level of the liquidity against the Lao economy, the bank of the Lao PDR has implemented various monetary policies' tools such as Bank rate (BOL Rate), exchange rate, Cash Reserve Requirement, Open Market Operation and other monetary tools which created by the Bank of the Lao PDR itself to obtain the appropriate level of liquidity position which lead the absolute advantage to the Lao economy and resulting the prosperity and growth in the economy of Lao and as well as the society.

The Monetary Strategy of the Bank of Lao PDR for the Year of 2009 in Controlling Economic Activity of the Country

Exchange Rate Policy: BOL has constantly conducted a managed floating exchange rate regime based on market-force in order to maintain the national monetary stability by keeping a close watch on domestic and international foreign exchange markets, aiming at using it as a basis for setting a daily reference rate for commercial banks and exchange bureaus. In addition, BOL also encouraged commercial banks to promote an active inter-bank market as well as carried out intervention in order to balance the supply and demand for foreign currencies in the foreign exchange market whenever necessary in accordance with the role of acting as a lender of last resort, aiming to provide sufficient supply foreign exchange to meet the basic demand of the markets. Subject to the implementation of the above-mentioned measures,

Kip (currency of Lao PDR) appreciated against the US dollar by 2.71 percent and Thai Baht by 5.04 percent in 2009 compared to 2008. The appreciation has increasingly raised public confidence in the Kip and economy as a whole. The spread of exchange rate between commercial banks and the parallel market has become narrow at 0.09 percent for Kip per US dollar and 0.01 percent for Kip per Thai Baht.

Monetary Policy: In the wake of the global and regional economic environment has not been fully recovered from the global financial crisis, BOL has continually implemented a monetary policy with an aim to maintain the national monetary stability and to support the socio-economic development to meet the ta rgeted growth ra te . BOL pursued an accommodative monetary policy with the main instruments as follows : reduced BOL's short-term interest rate for Kip from 7.0 percent to 4.0 percent; kept the reserve requirement ratio unchanged at 5.0 percent for Kip deposits and 10.0 percent for foreign currencies deposits; continued to promote Open-Market Operation (OMOs); issued BOL bonds to mobilize fund for infrastructure development projects as being the government priority. Policy measures were to minimize the adverse impact on money supply and to seek for potential source of financing.

Money Supply: As the end of 2009, money supply (M2) amounted to 15,175.9 billion Kip, up by 31.2 percent and equal to 32.43 percent of GDP as compared to the same period of 2008. The main factors driving the rise in M2 were credit to economy up by 90.1 percent, in which credit provided to state-owned enterprises and to private sector covered 22.9 percent and 77.1 percent of total credit respectively. Most of credits were provided to agriculture, commerce-service, industry-handicraft and construction sectors.

The components of narrow money (M1) included (i) currency in circulation amounting to 3,083.5 billion Kip, rose by 38.7 percent; (ii) deposits in Kip amounted to 5,101.2 billion Kip, rising by 45.1 percent and covered 33.6 percent of M2 and deposits in foreign currency equivalent to Kip amounted to 6,992.2 billion Kip, up by 20.1 percent and covered 46.1 percent of M2.

The Role of the Bank of Lao PDR in Controlling Money and Forex Market

"Pragyaan : Journal of Information Management" Volume 9 : Issue 1, June 2011

7

Institute of Management Studies, Dehradun

Source: Statistics Department Ministry of Planning and Investment

Money Base: At the end of 2009, money base amounted to 6,427.6 billion Kip, up by 34.6 percent compared to 2008. The components of monetary base (i) cash in circulation amounting to 3,577.2 billion Kip, up by 42.6 percent; and (ii) deposits of commercial banks held at BOL amounting to 2,849.8 billion Kip, rose by 25.7 percent.

BOL continued to reinforce the measures associated with foreign currency management and the promotion of the use of Kip with a goal to contribute to the national monetary stability, the stable exchange rate and more public confidence in the use of Kip. BOL has improved the related regulatory framework issued regulation on foreign exchange, and regulation to cancel the fund transfer of commercial banks at BOL, a circular abolishing the payment regulation for wood export, implemented appropriate and wise rules and policies, allow commercial banks to bring foreign currency in and out of Laos with more smooth manner and, monitored the exchange bureaus and the precious metals import and export companies to comply with the existing rules. For the promotion the use of Kip, BOL conducted a field visit to monitor the price quotation of goods and services in the markets, business units and the trade fairs or exhibitions. Besides that, BOL reinforced means of advertising or promotion via mass media nationwide improved the quality and types of banknote denomination from time to time and encouraged payment through banking system increasingly.

Deposits: As of December 2009, total deposits of commercial banks amounted to 12,087.19 billion Kip, rising from 10,073.43 billion Kip in 2008 or up by 19.99 percent compared to the end of 2008, currently accounted for 25.82 percent of GDP. Kip deposits accounted for 4,217.58 billion Kip, up by 17.00 percent and covered 34.89 percent of total deposits; foreign currency deposits equivalent to Kip accounted for 7,869.61 billion Kip, up by 21.66 percent and covered 65.11 percent of total deposits.

Components of deposits include demand deposits amounting to 3,377.36 billion Kip, up by 6.64 percent; saving deposit amounting to 4,401.37 billion Kip, up by 26.17 percent; time deposit amounts to 4,312.95 billion Kip, up by 60.94 percent; other deposits amounting to 1,271.64 billion Kip and up by 73.59 percent.

Credit: As of December 2009, the total of loan provided by the entire banking sector to the economy was 8,740.42 billion Kip, up by 40.65 percent or equal to 18.68 percent of GDP. Of which, credit provided to agricultural sector was up by 54.17 percent,

Source: Statistics Department Ministry of Planning and Investment

Figure 2: M by Currency Components2

"Pragyaan : Journal of Information Management" " Volume 9 : Issue 1, June 2011

Figure 1: Broad Money (M )2

Figure 3: Foreign Currency Management and the Campaign to Promote the Use of

8

accounting for 13.50 percent of total loans; transportation sector up by 50.35 percent, covered 2.80 percent of total loans; construction up by 48.65 percent and covered 4 percent of total loans; commerce up by 33.95 percent, accounted for 23.50 percent of total loans; industry and handicraft rose by 42.32 percent, covered 18.50 percent of total loans; other sector up by 44.49 percent, accounted to 21.72 percent of total loans.

In 2009, the interest rates on the deposit of commercial banks had adjusted in line with the domestic and global economic conditions. On average, interest rates on 12 months deposit for Kip dropped from 10.28 percent in 2008 to 9.53 percent; while US dollar and Baht accounts rose from 2.52 percent to 2.99 percent and from 2.04 percent to 2.82 percent respectively. Similarly, interest rates on loans had adjusted in line with the domestic condition and demand for loans of the economy. In 2009, the 12 months interest rates of loans for Kip, US dollar and Baht, on average, were down from 17.55 percent in 2008 to 15.25 percent, from 9.89 percent to 8.99 percent and from 11.34 percent to 9.55 percent respectively.

Impact of Macro-economic Factors on Total Deposits of the Bank of Lao PDR

Here an attempt has been made to determine empirically the impact of different selected parameters like Interest Rate, Rate of Inflation and Growth rate of GDP on Total Deposits.

In this analysis, Total Deposits has been taken as the dependent variable and Interest Rate, Rate of Inflation and Growth rate of GDP have been used as the independent variables.

Table 1: Selected Key Economic Indicators of the LaoPDR

Year Interest Rate of Growth Total Rate inflation Rate of Deposits

GDP (Billion Kip)2002 15.43 10.63 5.91 3,300.602003 15.37 15.49 5.79 4,302.882004 12.24 10.46 6.88 5,096.582005 12.04 7.16 7.29 5,316.762006 10.79 6.81 8.6 6492.152007 10.69 4.51 6.8 8,801.842008 10.28 7.63 7.5 10,073.432009 9.53 0.03 7.6 12,087.19

The multiple regression model has been fitted in this study, is given below:

Total Deposits = α + β1.Interest Rate + β2.Rate of Inflation + β3.Growth rate of GDP

"Pragyaan : Journal of Information Management" Volume 9 : Issue 1, June 2011

The Role of the Bank of Lao PDR in Controlling Money and Forex Market

Table 3: ANOVAModel Sum of Squares df Mean Square F Sig.

Regression 56550688.494 3 18850229.498 7.805 .038Residual 9660722.543 4 2415180.636

Total 66211411.037 7

Table 2: Model SummaryModel R R Square Adjusted Std. Error

R Square of the Estimate

1 .924 .854 .745 1554.0851

Predictors: (Constant), Growth rate of GDP, Rate of Inflation, Interest Rate

Predictors: (Constant), Growth rate of GDP, Rate of Inflation, Interest Rate Dependent Variable: Total Deposits

Table 4: Coefficients Model Variables Unstandardized Standardized t Sig.

Coefficients Coefficients

B Std. Error Beta(Constant) 38348.552 14014.895 2.736 .052

Interest Rate -1539.737 684.256 -1.126 -2.250 .088Rate of Inflation -121.378 248.590 -.181 -.488 .651

Growth rate of GDP -1690.965 1135.047 -.507 -1.490 .211

7

Institute of Management Studies, Dehradun

Source: Statistics Department Ministry of Planning and Investment

Money Base: At the end of 2009, money base amounted to 6,427.6 billion Kip, up by 34.6 percent compared to 2008. The components of monetary base (i) cash in circulation amounting to 3,577.2 billion Kip, up by 42.6 percent; and (ii) deposits of commercial banks held at BOL amounting to 2,849.8 billion Kip, rose by 25.7 percent.

BOL continued to reinforce the measures associated with foreign currency management and the promotion of the use of Kip with a goal to contribute to the national monetary stability, the stable exchange rate and more public confidence in the use of Kip. BOL has improved the related regulatory framework issued regulation on foreign exchange, and regulation to cancel the fund transfer of commercial banks at BOL, a circular abolishing the payment regulation for wood export, implemented appropriate and wise rules and policies, allow commercial banks to bring foreign currency in and out of Laos with more smooth manner and, monitored the exchange bureaus and the precious metals import and export companies to comply with the existing rules. For the promotion the use of Kip, BOL conducted a field visit to monitor the price quotation of goods and services in the markets, business units and the trade fairs or exhibitions. Besides that, BOL reinforced means of advertising or promotion via mass media nationwide improved the quality and types of banknote denomination from time to time and encouraged payment through banking system increasingly.

Deposits: As of December 2009, total deposits of commercial banks amounted to 12,087.19 billion Kip, rising from 10,073.43 billion Kip in 2008 or up by 19.99 percent compared to the end of 2008, currently accounted for 25.82 percent of GDP. Kip deposits accounted for 4,217.58 billion Kip, up by 17.00 percent and covered 34.89 percent of total deposits; foreign currency deposits equivalent to Kip accounted for 7,869.61 billion Kip, up by 21.66 percent and covered 65.11 percent of total deposits.

Components of deposits include demand deposits amounting to 3,377.36 billion Kip, up by 6.64 percent; saving deposit amounting to 4,401.37 billion Kip, up by 26.17 percent; time deposit amounts to 4,312.95 billion Kip, up by 60.94 percent; other deposits amounting to 1,271.64 billion Kip and up by 73.59 percent.

Credit: As of December 2009, the total of loan provided by the entire banking sector to the economy was 8,740.42 billion Kip, up by 40.65 percent or equal to 18.68 percent of GDP. Of which, credit provided to agricultural sector was up by 54.17 percent,

Source: Statistics Department Ministry of Planning and Investment

Figure 2: M by Currency Components2

"Pragyaan : Journal of Information Management" " Volume 9 : Issue 1, June 2011

Figure 1: Broad Money (M )2

Figure 3: Foreign Currency Management and the Campaign to Promote the Use of

8

accounting for 13.50 percent of total loans; transportation sector up by 50.35 percent, covered 2.80 percent of total loans; construction up by 48.65 percent and covered 4 percent of total loans; commerce up by 33.95 percent, accounted for 23.50 percent of total loans; industry and handicraft rose by 42.32 percent, covered 18.50 percent of total loans; other sector up by 44.49 percent, accounted to 21.72 percent of total loans.

In 2009, the interest rates on the deposit of commercial banks had adjusted in line with the domestic and global economic conditions. On average, interest rates on 12 months deposit for Kip dropped from 10.28 percent in 2008 to 9.53 percent; while US dollar and Baht accounts rose from 2.52 percent to 2.99 percent and from 2.04 percent to 2.82 percent respectively. Similarly, interest rates on loans had adjusted in line with the domestic condition and demand for loans of the economy. In 2009, the 12 months interest rates of loans for Kip, US dollar and Baht, on average, were down from 17.55 percent in 2008 to 15.25 percent, from 9.89 percent to 8.99 percent and from 11.34 percent to 9.55 percent respectively.

Impact of Macro-economic Factors on Total Deposits of the Bank of Lao PDR

Here an attempt has been made to determine empirically the impact of different selected parameters like Interest Rate, Rate of Inflation and Growth rate of GDP on Total Deposits.

In this analysis, Total Deposits has been taken as the dependent variable and Interest Rate, Rate of Inflation and Growth rate of GDP have been used as the independent variables.

Table 1: Selected Key Economic Indicators of the LaoPDR

Year Interest Rate of Growth Total Rate inflation Rate of Deposits

GDP (Billion Kip)2002 15.43 10.63 5.91 3,300.602003 15.37 15.49 5.79 4,302.882004 12.24 10.46 6.88 5,096.582005 12.04 7.16 7.29 5,316.762006 10.79 6.81 8.6 6492.152007 10.69 4.51 6.8 8,801.842008 10.28 7.63 7.5 10,073.432009 9.53 0.03 7.6 12,087.19

The multiple regression model has been fitted in this study, is given below:

Total Deposits = α + β1.Interest Rate + β2.Rate of Inflation + β3.Growth rate of GDP

"Pragyaan : Journal of Information Management" Volume 9 : Issue 1, June 2011

The Role of the Bank of Lao PDR in Controlling Money and Forex Market

Table 3: ANOVAModel Sum of Squares df Mean Square F Sig.

Regression 56550688.494 3 18850229.498 7.805 .038Residual 9660722.543 4 2415180.636

Total 66211411.037 7

Table 2: Model SummaryModel R R Square Adjusted Std. Error

R Square of the Estimate

1 .924 .854 .745 1554.0851

Predictors: (Constant), Growth rate of GDP, Rate of Inflation, Interest Rate

Predictors: (Constant), Growth rate of GDP, Rate of Inflation, Interest Rate Dependent Variable: Total Deposits

Table 4: Coefficients Model Variables Unstandardized Standardized t Sig.

Coefficients Coefficients

B Std. Error Beta(Constant) 38348.552 14014.895 2.736 .052

Interest Rate -1539.737 684.256 -1.126 -2.250 .088Rate of Inflation -121.378 248.590 -.181 -.488 .651

Growth rate of GDP -1690.965 1135.047 -.507 -1.490 .211

Institute of Management Studies, Dehradun

Dependent Variable: Total DepositsTherefore, from above analysis we can write:Total Deposits = 38,348.552 - 1539.737.ί -121.378.ί -1690.965.ί 1 2 3

(14014.895) (684.256) (684.256) (1135.047)

From the analysis, it is evident that independent variables are not found statistically significant at 5% level of significance. The multiple correlation coefficient between dependent variable (Total Deposits) and independent variables (Interest Rate, Rate of Inflation and Growth rate of GDP) is 0.924.

The above equationindicates that the Total Deposits is highly negatively influenced by Interest Rate, Rate of Inflation and Growth rate of GDP. It is also evident

2from the coefficient of determination (R ) that 85.40% of the variation in Total Deposits was accounted for by joint variation in Interest Rate, Rate of Inflation and Growth rate of GDP.

Price Predictability in the Foreign Exchange Market

From Table 5, it is seen that the difference between bid price and ask price, in parallel market and organized markets are positive which show profitability for the exchange market dealers in respect

of US $. Mean spread (Table 6) in parallel market is 46.40 and it is 39.86 in commercial bank. So average return of parallel market is greater than that of commercial bank (organized market). Standard deviation, a measure of dispersion, in parallel market is 11.59 which is lower than that of organized market which is 20.80. It shows risk profile of both markets. From kurtosis which measures degree of flatness in the region about mode of a frequency curve, it is clear that parallel market is mesokurtic as the value is about 3 whereas, organized market is leptokurtic as the value is greater than 3. It indicates that parallel market follows normal distribution but organized market does not follow normal distribution. So movement of exchange rate is random in parallel market which does not help one to speculate exchange rate. In organized market exchange rate is not moving randomly and it helps one to speculate exchange rate which, in turn, helps to earn super natural profit. Skewness shows both markets are positively skewed. It shows degree of asymmetry against mean. Table 6 reflects that the degree of asymmetry against mean is higher in organized market than that in parallel market.

"Pragyaan : Journal of Information Management" " Volume 9 : Issue 1, June 2011

Table 5: Monthly Exchange Rate in respect of US$

Kip/US$

Month/Year Parallel Market Rates Commercial Bank Rates

Buy Sell Spread Buy Sell Spread1-Jan 9,700.86 9,787.52 86.66 9,671.19 9,764.60 93.41

Feb-07 9,668.41 9,741.41 73.00 9,654.45 9,720.69 66.24

Mar-07 9,600.00 9,673.05 73.05 9.622.35 9.676.30 53.95

1-Apr 9,596.80 9,658.02 61.22 9,606.61 9,645.97 39.36

May-07 9,573.96 9,621.70 47.74 9,571.70 9,626.76 55.06

Jun-07 9,585.00 9,625.57 40.57 9,569.95 9,625.41 55.46

1-Jul 9,542.94 9,600.36 57.42 9,542.30 9,592.19 49.89

Aug-07 9,588.63 9,634.97 46.34 9,556.34 9,601.33 44.99

Sep-07 9,611.22 9,652.84 41.62 9,605.74 9,636.16 30.42

1-Oct 9,606.40 9,647.38 40.98 9,601.46 9,630.95 29.49

Nov-07 9,544.27 9,580.18 35.91 9,527.22 9,555.63 28.41

Dec-07 9,423.33 9,466.99 43.66 9,382.13 9,411.33 29.20

1-Jan 9,276.10 9,327.75 51.65 9,259.11 9,287.64 28.53

Feb-08 9,129.13 9,184.67 55.54 9,122.63 9,141.35 18.72

Mar-08 8,773.42 8,828.31 54.89 8,770.68 8,800.55 29.87

1-Apr 8,708.86 8,752.72 43.86 8,716.96 8,798.04 81.08

9 10

Table 5: Monthly Exchange Rate in respect of US$ (Contd.)

Kip/US$

Month/Year Parallel Market Rates Commercial Bank Rates

Buy Sell Spread Buy Sell SpreadMay-08 8,711.52 8,759.77 48.25 8,715.00 8,742.14 27.14

Jun-08 8,703.70 8,750.82 47.12 8,691.18 8,720.60 29.42

1-Jul 8,632.85 8,675.10 42.25 8,627.09 8,654.34 27.25

Aug-08 8,624.51 8,663.63 39.12 8,619.36 8,658.90 39.54

1-Sep 8,618.63 8,661.76 43.13 8,618.82 8,650.04 31.22

Oct-08 8,546.95 8,598.41 51.46 8,546.27 8,584.57 38.30

Nov-08 8,545.31 8,595.17 49.86 8,545.34 8,582.77 37.43

1-Dec 8,501.03 8,549.51 48.48 8,499.65 8,536.55 36.90

Jan-09 8,476.97 8,529.30 52.33 8,478.36 8,505.70 27.34

Feb-09 8,499.59 8,543.43 43.84 8,490.80 8,525.24 34.44

1-Mar 8,555.49 8,602.65 47.16 8,548.37 8,581.38 33.01

1-Apr 8,547.18 8,586.92 39.74 8,542.98 8,577.11 34.13

May-09 8,525.51 8,563.17 37.66 8,523.42 8,557.97 34.55

Jun-09 8,513.97 8,552.67 38.70 8,509.17 8,541.30 32.13

1-Jul 8,509.51 8,544.12 34.61 8,504.05 8,533.42 29.37

Aug-09 8,505.87 8,533.53 27.66 8,499.17 8,526.99 27.82

1-Sep 8,496.00 8,528.92 32.92 8,495.16 8,521.36 26.20

Oct-09 8,546.59 8,598.41 51.82 8,479.05 8,505.39 26.34

Nov-09 8,545.31 8,595.17 49.86 8,469.28 8,496.03 26.75

1-Dec 8,501.03 8,549.51 48.48 8,473.08 8,499.56 26.48

Jan-10 8,470.93 8,502.94 32.01 8,472.53 8,497.42 24.89

1-Feb 8,477.30 8,509.80 32.50 8,473.74 8,599.54 125.80

Mar-10 8,459.14 8,493.47 34.33 8,458.22 8,487.40 29.18

Apr-10 8,341.44 8,378.76 37.32 8,337.26 8,406.54 69.28

1-May 8,271.10 8,312.16 41.06 8,272.94 8,307.45 34.51

Jun-10 8,256.43 8,299.63 43.20 8,253.41 8,283.94 30.53

Table 6: Descriptive Statistics

Variables N Mean Std. Skewness KurtosisDeviation

Statistic Statistic Statistic Statistic Std. Error Statistic Std. Error

Spread(Parallel Market ) 42 46.4043 11.5914 1.431 .365 3.061 .717

Spread(Commercial Bank) 42 39.8579 20.7981 2.476 .365 6.980 .717

Valid N (listwise) 42

"Pragyaan : Journal of Information Management" Volume 9 : Issue 1, June 2011

The Role of the Bank of Lao PDR in Controlling Money and Forex Market

Institute of Management Studies, Dehradun

Dependent Variable: Total DepositsTherefore, from above analysis we can write:Total Deposits = 38,348.552 - 1539.737.ί -121.378.ί -1690.965.ί 1 2 3

(14014.895) (684.256) (684.256) (1135.047)

From the analysis, it is evident that independent variables are not found statistically significant at 5% level of significance. The multiple correlation coefficient between dependent variable (Total Deposits) and independent variables (Interest Rate, Rate of Inflation and Growth rate of GDP) is 0.924.

The above equationindicates that the Total Deposits is highly negatively influenced by Interest Rate, Rate of Inflation and Growth rate of GDP. It is also evident

2from the coefficient of determination (R ) that 85.40% of the variation in Total Deposits was accounted for by joint variation in Interest Rate, Rate of Inflation and Growth rate of GDP.

Price Predictability in the Foreign Exchange Market

From Table 5, it is seen that the difference between bid price and ask price, in parallel market and organized markets are positive which show profitability for the exchange market dealers in respect

of US $. Mean spread (Table 6) in parallel market is 46.40 and it is 39.86 in commercial bank. So average return of parallel market is greater than that of commercial bank (organized market). Standard deviation, a measure of dispersion, in parallel market is 11.59 which is lower than that of organized market which is 20.80. It shows risk profile of both markets. From kurtosis which measures degree of flatness in the region about mode of a frequency curve, it is clear that parallel market is mesokurtic as the value is about 3 whereas, organized market is leptokurtic as the value is greater than 3. It indicates that parallel market follows normal distribution but organized market does not follow normal distribution. So movement of exchange rate is random in parallel market which does not help one to speculate exchange rate. In organized market exchange rate is not moving randomly and it helps one to speculate exchange rate which, in turn, helps to earn super natural profit. Skewness shows both markets are positively skewed. It shows degree of asymmetry against mean. Table 6 reflects that the degree of asymmetry against mean is higher in organized market than that in parallel market.

"Pragyaan : Journal of Information Management" " Volume 9 : Issue 1, June 2011

Table 5: Monthly Exchange Rate in respect of US$

Kip/US$

Month/Year Parallel Market Rates Commercial Bank Rates

Buy Sell Spread Buy Sell Spread1-Jan 9,700.86 9,787.52 86.66 9,671.19 9,764.60 93.41

Feb-07 9,668.41 9,741.41 73.00 9,654.45 9,720.69 66.24

Mar-07 9,600.00 9,673.05 73.05 9.622.35 9.676.30 53.95

1-Apr 9,596.80 9,658.02 61.22 9,606.61 9,645.97 39.36

May-07 9,573.96 9,621.70 47.74 9,571.70 9,626.76 55.06

Jun-07 9,585.00 9,625.57 40.57 9,569.95 9,625.41 55.46

1-Jul 9,542.94 9,600.36 57.42 9,542.30 9,592.19 49.89

Aug-07 9,588.63 9,634.97 46.34 9,556.34 9,601.33 44.99

Sep-07 9,611.22 9,652.84 41.62 9,605.74 9,636.16 30.42

1-Oct 9,606.40 9,647.38 40.98 9,601.46 9,630.95 29.49

Nov-07 9,544.27 9,580.18 35.91 9,527.22 9,555.63 28.41

Dec-07 9,423.33 9,466.99 43.66 9,382.13 9,411.33 29.20

1-Jan 9,276.10 9,327.75 51.65 9,259.11 9,287.64 28.53

Feb-08 9,129.13 9,184.67 55.54 9,122.63 9,141.35 18.72

Mar-08 8,773.42 8,828.31 54.89 8,770.68 8,800.55 29.87

1-Apr 8,708.86 8,752.72 43.86 8,716.96 8,798.04 81.08

9 10

Table 5: Monthly Exchange Rate in respect of US$ (Contd.)

Kip/US$

Month/Year Parallel Market Rates Commercial Bank Rates

Buy Sell Spread Buy Sell SpreadMay-08 8,711.52 8,759.77 48.25 8,715.00 8,742.14 27.14

Jun-08 8,703.70 8,750.82 47.12 8,691.18 8,720.60 29.42

1-Jul 8,632.85 8,675.10 42.25 8,627.09 8,654.34 27.25

Aug-08 8,624.51 8,663.63 39.12 8,619.36 8,658.90 39.54

1-Sep 8,618.63 8,661.76 43.13 8,618.82 8,650.04 31.22

Oct-08 8,546.95 8,598.41 51.46 8,546.27 8,584.57 38.30

Nov-08 8,545.31 8,595.17 49.86 8,545.34 8,582.77 37.43

1-Dec 8,501.03 8,549.51 48.48 8,499.65 8,536.55 36.90

Jan-09 8,476.97 8,529.30 52.33 8,478.36 8,505.70 27.34

Feb-09 8,499.59 8,543.43 43.84 8,490.80 8,525.24 34.44

1-Mar 8,555.49 8,602.65 47.16 8,548.37 8,581.38 33.01

1-Apr 8,547.18 8,586.92 39.74 8,542.98 8,577.11 34.13

May-09 8,525.51 8,563.17 37.66 8,523.42 8,557.97 34.55

Jun-09 8,513.97 8,552.67 38.70 8,509.17 8,541.30 32.13

1-Jul 8,509.51 8,544.12 34.61 8,504.05 8,533.42 29.37

Aug-09 8,505.87 8,533.53 27.66 8,499.17 8,526.99 27.82

1-Sep 8,496.00 8,528.92 32.92 8,495.16 8,521.36 26.20

Oct-09 8,546.59 8,598.41 51.82 8,479.05 8,505.39 26.34

Nov-09 8,545.31 8,595.17 49.86 8,469.28 8,496.03 26.75

1-Dec 8,501.03 8,549.51 48.48 8,473.08 8,499.56 26.48

Jan-10 8,470.93 8,502.94 32.01 8,472.53 8,497.42 24.89

1-Feb 8,477.30 8,509.80 32.50 8,473.74 8,599.54 125.80

Mar-10 8,459.14 8,493.47 34.33 8,458.22 8,487.40 29.18

Apr-10 8,341.44 8,378.76 37.32 8,337.26 8,406.54 69.28

1-May 8,271.10 8,312.16 41.06 8,272.94 8,307.45 34.51

Jun-10 8,256.43 8,299.63 43.20 8,253.41 8,283.94 30.53

Table 6: Descriptive Statistics

Variables N Mean Std. Skewness KurtosisDeviation

Statistic Statistic Statistic Statistic Std. Error Statistic Std. Error

Spread(Parallel Market ) 42 46.4043 11.5914 1.431 .365 3.061 .717

Spread(Commercial Bank) 42 39.8579 20.7981 2.476 .365 6.980 .717

Valid N (listwise) 42

"Pragyaan : Journal of Information Management" Volume 9 : Issue 1, June 2011

The Role of the Bank of Lao PDR in Controlling Money and Forex Market

11

Institute of Management Studies, Dehradun

"Pragyaan : Journal of Information Management" " Volume 9 : Issue 1, June 2011

Table 7: Monthly Exchange Rate in respect of Thai Bath

Kip/Thai Bath

Month/Year Parallel Market Rates Commercial Bank Rates

Buy Sell Spread Buy Sell Spread

1-Jan 271.53 273.16 1.63 270.67 273.52 2.85

Feb-07 271.82 273.22 1.40 270.25 272.86 2.61

Mar-07 274.89 276.46 1.57 273.64 275.91 2.27

1-Apr 275.01 276.81 1.80 273.41 275.76 2.35

May-07 277.30 278.70 1.40 276.64 278.63 1.99

Jun-07 278.31 279.56 1.25 277.26 279.26 2.00

1-Jul 283.49 285.32 1.83 281.36 283.33 1.97

Aug-07 282.37 283.91 1.54 280.41 281.66 1.25

Sep-07 281.79 282.90 1.11 281.29 282.45 1.16

1-Oct 281.86 282.96 1.10 281.76 282.88 1.12

Nov-07 282.24 283.47 1.23 281.79 282.86 1.07

Dec-07 280.94 282.32 1.38 280.33 281.30 0.97

1-Jan 280.21 281.65 1.44 279.09 280.45 1.36

Feb-08 280.54 281.91 1.37 279.18 280.51 1.33

Mar-08 280.65 181.81 1.16 279.21 280.43 1.22

1-Apr 277.69 279.01 1.32 276.73 277.83 1.10

May-08 273.47 274.81 1.34 272.66 273.81 1.15

Jun-08 264.08 265.40 1.32 263.15 264.22 1.07

1-Jul 258.39 259.79 1.40 257.90 259.31 1.41

Aug-08 256.07 257.41 1.34 255.23 256.55 1.32

Table 7 reflects that spreads in parallel market and organized markets are positive which indicates profitability for the exchange market dealers in respect of Thai Bath. Mean spread (Table 8) in parallel market is 1.31 which is 1.34 in case of organized market. So average earning of organized market is greater than parallel market. Standard deviation, in parallel market is 0.1974 which is also lesser than that of organized market which is 0.4615 (which means that risk profile is low in parallel market). From kurtosis, it is evident that parallel market is platykurtic as the value is less than 3 and organized market is mesokurtic as the value is about

3. It indicates that parallel market does not follow normal distribution and organized market follows normal distribution. So exchange rate is not moving randomly in parallel market and so this market is predictable which helps one to earn super normal profit. On the other hand, scope of speculation is absent in organized market as market is predictable. It helps none to speculate exchange rate which, in turn, does not help to earn abnormal profit. Skewness shows both markets are positively skewed. It shows degree of asymmetry against mean. Table 8 indicates that the degree of asymmetry against mean is higher in organized market than that of parallel market.

Table 7: Monthly Exchange Rate in respect of Thai Bath (Contd.)

Kip/Thai Bath

Month/Year Parallel Market Rates Commercial Bank Rates

Buy Sell Spread Buy Sell Spread

1-Sep 252.36 253.63 1.27 251.67 252.87 1.20

Oct-08 249.62 250.90 1.28 249.08 250.26 1.18

Nov-08 244.48 245.87 1.39 253.36 254.41 1.05

1-Dec 243.19 244.50 1.31 243.35 244.45 1.10

Jan-09 243.10 244.57 1.47 243.12 244.17 1.05

Feb-09 241.78 243.20 1.42 241.57 242.55 0.98

1-Mar 239.87 241.25 1.38 240.05 241.10 1.05

1-Apr 241.46 242.77 1.31 241.31 242.37 1.06

May-09 246.43 247.73 1.30 246.26 247.40 1.14

Jun-09 249.87 251.05 1.18 249.49 250.65 1.16

1-Jul 250.74 251.73 0.99 250.02 251.18 1.16

Aug-09 250.70 251.57 0.87 250.16 251.18 1.02

1-Sep 251.58 252.66 1.08 251.17 252.14 0.97

Oct-09 254.51 255.66 1.15 253.84 254.77 0.93

Nov-09 255.13 256.20 1.07 254.51 255.84 1.33

1-Dec 255.52 256.61 1.09 255.26 256.47 1.21

Jan-10 256.73 257.85 1.12 256.55 257.75 1.20

1-Feb 256.15 257.22 1.07 255.70 256.90 1.20

Mar-10 258.92 260.34 1.42 258.02 259.42 1.40

Apr-10 258.11 259.49 1.38 257.52 258.69 1.17

1-May 255.93 257.11 1.18 255.62 256.85 1.23

Jun-10 255.15 256.32 1.17 254.69 255.83 1.14

Table 8: Descriptive Statistics

Variables N Mean Std. Skewness KurtosisDeviation

Statistic Statistic Statistic Statistic Std. Error Statistic Std. Error

Spread(Parallel Market ) 42 1.3055 0.1974 0.491 0.365 0.851 .717

Spread(Commercial Bank) 42 1.3452 0.4615 1.958 0.365 3.057 .717

Valid N (listwise) 42

12 "Pragyaan : Journal of Information Management" Volume 9 : Issue 1, June 2011

The Role of the Bank of Lao PDR in Controlling Money and Forex Market

11

Institute of Management Studies, Dehradun

"Pragyaan : Journal of Information Management" " Volume 9 : Issue 1, June 2011

Table 7: Monthly Exchange Rate in respect of Thai Bath

Kip/Thai Bath

Month/Year Parallel Market Rates Commercial Bank Rates

Buy Sell Spread Buy Sell Spread

1-Jan 271.53 273.16 1.63 270.67 273.52 2.85

Feb-07 271.82 273.22 1.40 270.25 272.86 2.61

Mar-07 274.89 276.46 1.57 273.64 275.91 2.27

1-Apr 275.01 276.81 1.80 273.41 275.76 2.35

May-07 277.30 278.70 1.40 276.64 278.63 1.99

Jun-07 278.31 279.56 1.25 277.26 279.26 2.00

1-Jul 283.49 285.32 1.83 281.36 283.33 1.97

Aug-07 282.37 283.91 1.54 280.41 281.66 1.25

Sep-07 281.79 282.90 1.11 281.29 282.45 1.16

1-Oct 281.86 282.96 1.10 281.76 282.88 1.12

Nov-07 282.24 283.47 1.23 281.79 282.86 1.07

Dec-07 280.94 282.32 1.38 280.33 281.30 0.97

1-Jan 280.21 281.65 1.44 279.09 280.45 1.36

Feb-08 280.54 281.91 1.37 279.18 280.51 1.33

Mar-08 280.65 181.81 1.16 279.21 280.43 1.22

1-Apr 277.69 279.01 1.32 276.73 277.83 1.10

May-08 273.47 274.81 1.34 272.66 273.81 1.15

Jun-08 264.08 265.40 1.32 263.15 264.22 1.07

1-Jul 258.39 259.79 1.40 257.90 259.31 1.41

Aug-08 256.07 257.41 1.34 255.23 256.55 1.32

Table 7 reflects that spreads in parallel market and organized markets are positive which indicates profitability for the exchange market dealers in respect of Thai Bath. Mean spread (Table 8) in parallel market is 1.31 which is 1.34 in case of organized market. So average earning of organized market is greater than parallel market. Standard deviation, in parallel market is 0.1974 which is also lesser than that of organized market which is 0.4615 (which means that risk profile is low in parallel market). From kurtosis, it is evident that parallel market is platykurtic as the value is less than 3 and organized market is mesokurtic as the value is about

3. It indicates that parallel market does not follow normal distribution and organized market follows normal distribution. So exchange rate is not moving randomly in parallel market and so this market is predictable which helps one to earn super normal profit. On the other hand, scope of speculation is absent in organized market as market is predictable. It helps none to speculate exchange rate which, in turn, does not help to earn abnormal profit. Skewness shows both markets are positively skewed. It shows degree of asymmetry against mean. Table 8 indicates that the degree of asymmetry against mean is higher in organized market than that of parallel market.

Table 7: Monthly Exchange Rate in respect of Thai Bath (Contd.)

Kip/Thai Bath

Month/Year Parallel Market Rates Commercial Bank Rates

Buy Sell Spread Buy Sell Spread

1-Sep 252.36 253.63 1.27 251.67 252.87 1.20

Oct-08 249.62 250.90 1.28 249.08 250.26 1.18

Nov-08 244.48 245.87 1.39 253.36 254.41 1.05

1-Dec 243.19 244.50 1.31 243.35 244.45 1.10

Jan-09 243.10 244.57 1.47 243.12 244.17 1.05

Feb-09 241.78 243.20 1.42 241.57 242.55 0.98

1-Mar 239.87 241.25 1.38 240.05 241.10 1.05

1-Apr 241.46 242.77 1.31 241.31 242.37 1.06

May-09 246.43 247.73 1.30 246.26 247.40 1.14

Jun-09 249.87 251.05 1.18 249.49 250.65 1.16

1-Jul 250.74 251.73 0.99 250.02 251.18 1.16

Aug-09 250.70 251.57 0.87 250.16 251.18 1.02

1-Sep 251.58 252.66 1.08 251.17 252.14 0.97

Oct-09 254.51 255.66 1.15 253.84 254.77 0.93

Nov-09 255.13 256.20 1.07 254.51 255.84 1.33

1-Dec 255.52 256.61 1.09 255.26 256.47 1.21

Jan-10 256.73 257.85 1.12 256.55 257.75 1.20

1-Feb 256.15 257.22 1.07 255.70 256.90 1.20

Mar-10 258.92 260.34 1.42 258.02 259.42 1.40

Apr-10 258.11 259.49 1.38 257.52 258.69 1.17

1-May 255.93 257.11 1.18 255.62 256.85 1.23

Jun-10 255.15 256.32 1.17 254.69 255.83 1.14

Table 8: Descriptive Statistics

Variables N Mean Std. Skewness KurtosisDeviation

Statistic Statistic Statistic Statistic Std. Error Statistic Std. Error

Spread(Parallel Market ) 42 1.3055 0.1974 0.491 0.365 0.851 .717

Spread(Commercial Bank) 42 1.3452 0.4615 1.958 0.365 3.057 .717

Valid N (listwise) 42

12 "Pragyaan : Journal of Information Management" Volume 9 : Issue 1, June 2011

The Role of the Bank of Lao PDR in Controlling Money and Forex Market

Remarks

It is seen that, the Bank of Lao PDR has been playing very crucial role over the Lao economy as a whole, because it has responsibilities on contributing and maintaining the economic stabilization as well as the prosperity to Laos and mobilizing the Lao economy in the positive manner and effective ways. Furthermore, the Bank of Lao PDR is not only still getting involved in the Lao national development plans by offering the financial efforts and proper monetary policies but also remaining both the domestically and internationally disciplinary banking systems in Lao PRD. In the absence of proper functioning of the Bank of Lao PDR, the Lao economy will face various serious problems internally and globally.

References

1. Beri G.C., (2000), Marketing Research, Tata rdMcGrow-Hill, New Delhi, 3 Edn.

2. Kothari, C.R., (1999), Research Methodology Methods and Techniques, Wishwa Prakashan, New Delhi.

3. Burns A.C. and Bush R.F., (2007), Marketing th Research, Pearson Education, Inc., 5 Edn.

New Delhi.

4. Sharma J.K., (2007), Business Statistics, nd Pearson Education, Inc., 2 Edn. New Delhi.

5. Levine D.M., Berenson M.L., Krehbiel T.M. and Viswanathan P.K., (2007), Business

nd Statistics, Pearson Education, Inc., 2 Edn. New Delhi.

Website References:

ht tp : / /www.bo l . gov. l a / toge the r_use / annaul%20report2002.pdf

http://www.bol.gov.la/together_use/ annaul% 20report2003.pdf

h t tp : / /www.bo l . gov. l a / toge the r_use / annaul%20report2004.pdf

h t tp : / /www.bo l . gov. l a / toge the r_use / annaul%20report2005.pdf

h t tp : / /www.bo l . gov. l a / toge the r_use / annaul%20report2006.pdf

http://www.bol.gov.la/together_use/annaul %20report2007.pdf

http://www.bol.gov.la/together_use/annaul %20report2008.pdf

http://www.bol.gov.la/together_use/annaul %20report2009.pdf

http://www.bol.gov.la/english/interestrate. html

http://www.bol.gov.la/english/decreecom1. html

http://www.bol.gov.la/english/bollaw.pdf

http://www.bol.gov.la/english/listofgovernor. html

13"Pragyaan : Journal of Information Management" " Volume 9 : Issue 1, June 2011

Institute of Management Studies, Dehradun

Introduction

Marketing plays a key role in strategic planning and business operations, it is a fundamental determinant of business success, consequently, over the last few years; the concept of marketing effectiveness has attracted increasing attention among academic researchers and business practioners. In multiple studies, experts have found that marketing effectiveness differentiates superior organizations from their competitors.

Relationship marketing is not new. The principles that underlie it represent the essence of marketing, with its focus on concepts like trust and commitment. It predates the mid-20th century view of marketing as a set of tools pertaining to product, price, distribution, and promotion. If we accept that the ultimate goal of marketing activities is customer satisfaction, and that this satisfaction is achieved through the creation of value for the customer, then many small firms have been practicing “relationship marketing” over the years without realizing what they were doing.

Relat ionship management , however, emphasizes the organization of marketing activities

CRM Practices at Organizational Level in Banking Sector - An Empirical Study

ABSTRACT

As business processes become increasingly knowledge intensive, transactions decline, and new relationships are defined opportunistically, the focus of attention shifts to core capabilities of the firm-the few things it can do well. CRM builds on the philosophy of relationship marketing that aims to create, develop and enhance relationships with carefully targeted customers to maximize customer value, corporate profitability and thus shareholders value. This paper explores various dimensions of CRM at Organizational Level in Banking Sector and study the future perspective of the CRM in banks. CRM at organisational level signifies the internal processes of the organisations utilized to address customers' issues and building relationship. The managers of both Public and Private Banks constituted the population of the subject in the study. A sample of 330 managers was randomly selected from banks located in north India. The major findings of the study indicate that CRM is in initially stage at organisational level in banking sector.

Key Words: CRM, CRM at Organizational Level, CRM Practices

around cross-functional processes as opposed to organizational functions or departments. This results in a stronger link between the internal processes and the needs of customers, and results in higher levels of customer satisfaction. CRM evolved from business concepts and processes such as relationship marketing and the increased emphasis on improved customer retention through the effective management of customer relationships.

Literature review

Both RM and CRM emphasize that customer retention affects company profitability, therefore, it is more efficient to maintain an existing relationship with a customer than create a new one (Reichheld,1996).

Establishing relationship with a customer is to attract the customer and to build the relationship with the customer so that the economic goals of the relationships are maintained (Gronroos, 1997). Customer Relationship Management appeared as a new concept at the climax of the Internet boom (Kotorov, 2003). It changed both the CRM market and customer-related business requirements of all sizes of companies (Chou et al., 2002). During the early

*Assistant Professor, Haryana School of Business, Guru Jambheshwar University of Science and Technology, Hisar (Haryana)**Assistant Professor, Haryana School of Business, Guru Jambheshwar University of Science and Technology Hisar (Haryana)

Dr. Dalbir Singh*Dr. Tika Ram**

14 "Pragyaan : Journal of Information Management" Volume 9 : Issue 1, June 2011

Remarks

It is seen that, the Bank of Lao PDR has been playing very crucial role over the Lao economy as a whole, because it has responsibilities on contributing and maintaining the economic stabilization as well as the prosperity to Laos and mobilizing the Lao economy in the positive manner and effective ways. Furthermore, the Bank of Lao PDR is not only still getting involved in the Lao national development plans by offering the financial efforts and proper monetary policies but also remaining both the domestically and internationally disciplinary banking systems in Lao PRD. In the absence of proper functioning of the Bank of Lao PDR, the Lao economy will face various serious problems internally and globally.

References

1. Beri G.C., (2000), Marketing Research, Tata rdMcGrow-Hill, New Delhi, 3 Edn.

2. Kothari, C.R., (1999), Research Methodology Methods and Techniques, Wishwa Prakashan, New Delhi.

3. Burns A.C. and Bush R.F., (2007), Marketing th Research, Pearson Education, Inc., 5 Edn.

New Delhi.

4. Sharma J.K., (2007), Business Statistics, nd Pearson Education, Inc., 2 Edn. New Delhi.

5. Levine D.M., Berenson M.L., Krehbiel T.M. and Viswanathan P.K., (2007), Business

nd Statistics, Pearson Education, Inc., 2 Edn. New Delhi.

Website References:

ht tp : / /www.bo l . gov. l a / toge the r_use / annaul%20report2002.pdf

http://www.bol.gov.la/together_use/ annaul% 20report2003.pdf

h t tp : / /www.bo l . gov. l a / toge the r_use / annaul%20report2004.pdf

h t tp : / /www.bo l . gov. l a / toge the r_use / annaul%20report2005.pdf

h t tp : / /www.bo l . gov. l a / toge the r_use / annaul%20report2006.pdf

http://www.bol.gov.la/together_use/annaul %20report2007.pdf

http://www.bol.gov.la/together_use/annaul %20report2008.pdf

http://www.bol.gov.la/together_use/annaul %20report2009.pdf

http://www.bol.gov.la/english/interestrate. html

http://www.bol.gov.la/english/decreecom1. html

http://www.bol.gov.la/english/bollaw.pdf

http://www.bol.gov.la/english/listofgovernor. html

13"Pragyaan : Journal of Information Management" " Volume 9 : Issue 1, June 2011

Institute of Management Studies, Dehradun

Introduction

Marketing plays a key role in strategic planning and business operations, it is a fundamental determinant of business success, consequently, over the last few years; the concept of marketing effectiveness has attracted increasing attention among academic researchers and business practioners. In multiple studies, experts have found that marketing effectiveness differentiates superior organizations from their competitors.

Relationship marketing is not new. The principles that underlie it represent the essence of marketing, with its focus on concepts like trust and commitment. It predates the mid-20th century view of marketing as a set of tools pertaining to product, price, distribution, and promotion. If we accept that the ultimate goal of marketing activities is customer satisfaction, and that this satisfaction is achieved through the creation of value for the customer, then many small firms have been practicing “relationship marketing” over the years without realizing what they were doing.

Relat ionship management , however, emphasizes the organization of marketing activities

CRM Practices at Organizational Level in Banking Sector - An Empirical Study

ABSTRACT

As business processes become increasingly knowledge intensive, transactions decline, and new relationships are defined opportunistically, the focus of attention shifts to core capabilities of the firm-the few things it can do well. CRM builds on the philosophy of relationship marketing that aims to create, develop and enhance relationships with carefully targeted customers to maximize customer value, corporate profitability and thus shareholders value. This paper explores various dimensions of CRM at Organizational Level in Banking Sector and study the future perspective of the CRM in banks. CRM at organisational level signifies the internal processes of the organisations utilized to address customers' issues and building relationship. The managers of both Public and Private Banks constituted the population of the subject in the study. A sample of 330 managers was randomly selected from banks located in north India. The major findings of the study indicate that CRM is in initially stage at organisational level in banking sector.

Key Words: CRM, CRM at Organizational Level, CRM Practices

around cross-functional processes as opposed to organizational functions or departments. This results in a stronger link between the internal processes and the needs of customers, and results in higher levels of customer satisfaction. CRM evolved from business concepts and processes such as relationship marketing and the increased emphasis on improved customer retention through the effective management of customer relationships.

Literature review

Both RM and CRM emphasize that customer retention affects company profitability, therefore, it is more efficient to maintain an existing relationship with a customer than create a new one (Reichheld,1996).

Establishing relationship with a customer is to attract the customer and to build the relationship with the customer so that the economic goals of the relationships are maintained (Gronroos, 1997). Customer Relationship Management appeared as a new concept at the climax of the Internet boom (Kotorov, 2003). It changed both the CRM market and customer-related business requirements of all sizes of companies (Chou et al., 2002). During the early

*Assistant Professor, Haryana School of Business, Guru Jambheshwar University of Science and Technology, Hisar (Haryana)**Assistant Professor, Haryana School of Business, Guru Jambheshwar University of Science and Technology Hisar (Haryana)

Dr. Dalbir Singh*Dr. Tika Ram**

14 "Pragyaan : Journal of Information Management" Volume 9 : Issue 1, June 2011

1990's providers of CRM solutions were offering products that accentuated the automating and standardizing of internal processes related to acquiring, servicing and keeping customers. Still, these solutions were very expensive and hard to maintain. The new CRM system means that the existing and potential customers are now able to interact and communicate with corporations.

CRM builds on the philosophy of relationship marketing that aims to create, develop and enhance relationships with carefully targeted customers to maximize customer value, corporate profitability and thus shareholders value. The goal then is to improve the customer's experience of how they interact with the company, which hopefully, will turn into more satisfaction, which might lead to more loyalty, and finally, increase the profit. CRM is a comprehensive business and marketing strategy that integrates technology, process and all business activities around the customers (Anton, 1996). Thompson (2000) declared that Customer Relationship Management is a business strategy to select and manage customers to optimise long-term value. CRM requires a customer-centric business philosophy and culture to support effective marketing, sales, and service processes. CRM applications can enable effective Customer Relationship Management, provided that an enterprise has the right leadership, strategy, and culture.

According to Kotler (2000), the marketing effectiveness of a firm is reflected in the degree to which it exhibits five major attributes of marketing orientation viz. customer philosophy, integrated marketing organization, adequate marketing information, strategic orientation, and operational efficiency.

Objectives of Study

The broad objective of the study is to know the existing practices of organisation on CRM in banks. CRM at organisational level signifies the internal processes of the organisations utilized to address customers' issues and building relationship. In order to pursue this broad objective, some affiliated objectives have been identified, which are given as follows:

To study the practices of CRM at Organisational Level in banking industry;

To study the future perspective of the CRM in banks; and

To investigate the problems arising in implementation of CRM.

Research Methodology

The present study is exploratory in nature. After making intensive review of literature, a questionnaire; containing 31 questions was drafted.

Bank managers of both public and private sector banks constituted the population of the subject in the study. A sample of 330 managers was randomly selected from banks located in North India only.

Before collecting the data, researchers decided to establish the validity of questionnaire by surveying 50 managers. After getting their response, the necessary corrections were incorporated in the questionnaire.

Then, this questionnaire was served for collecting the response of all members being contained in the sample. Response of each question was measured on 5 point linkert scale.

In all, 300 questionnaires were filled by managers out of which 30 were dropped out because of inadequate incomplete information. Thus final success rate was about 81%.

Analysis

Nine factors were extracted from 31 statements of the questionnaire. These nine factors jointly explain 68.28% of the behaviour under CRM at the organisational level in banks. These nine factors are shown in Table 1.

The major components of CRM at Organisational Level in banks are summarized in Table 2.

a) CRM at Organisational Level in Banks

To know the magnitude of the role of different factors based on CRM, the factors have been normalized on a scale of ten by using the following formula:

15"Pragyaan : Journal of Information Management" " Volume 9 : Issue 1, June 2011

Institute of Management Studies, Dehradun CRM Practices at Organizational Level in Banking Sector - An Empirical Study

F - F a min

Z = ___________ X10 F -F max min

Where,

Z - Standardized factor score at the scale of ten

Fa - Actual value of factor score

Fmin - Minimum value for the factor score

Fmax - Maximum value for the factor score

The mean factor scores for nine factors at Organisational level in banks are shown in Table 3.

The results given in the Table 3 are the reflections of the score achieved by banks on normal scale of ten. The trend shows that CRM is in initially stage at organisational level. There are only few cases

where a banking organisation is able to reach the value of factor score more than half value of ten.

Table 3: CRM at Organisational Level: Factor Scores

Factor Mean Factor Score

F-I 3.91F-II 3.25F-III 4.72F-IV 3.19F-V 2.8F-VI 2.93F-VII 2.61F-VIII 5.32F-IX 2.76Average 2.44

Source: Primary Data

Table 1: Percentage Variance Explained by Factors (Rotated and Unrotated)

Component Unrotated Variance Cumulative Variance Rotated Variance Cumulative Variance

1 27.829 27.829 10.892 10.8922 7.902 35.731 10.722 21.6143 6.617 42.349 9.347 30.9614 5.739 48.087 7.275 38.2365 4.657 52.745 6.636 44.8726 4.490 57.235 6.439 51.3117 4.147 61.382 6.258 57.5708 3.516 64.898 6.198 63.7689 3.383 68.282 4.514 68.282

Source: Primary Data

Table 2: Major Components of CRM at Organisational Level

Factor Name

F-I Readiness for CRM and change management issues

F-II Readiness for CRM and management future issues

F-III Readiness for CRM and pilot training

F-IV Readiness for CRM and organisations cultural changes

F-V Readiness for CRM and training issues

F-VI Readiness for CRM and sales process level changes

F-VII Readiness for CRM and corporate objectives

F-VIII Readiness for CRM and corporate level changes

F-IX Readiness for CRM and sales motivation

Source: Primary Data

16 "Pragyaan : Journal of Information Management" Volume 9 : Issue 1, June 2011 17"Pragyaan : Journal of Information Management" " Volume 9 : Issue 1, June 2011

1990's providers of CRM solutions were offering products that accentuated the automating and standardizing of internal processes related to acquiring, servicing and keeping customers. Still, these solutions were very expensive and hard to maintain. The new CRM system means that the existing and potential customers are now able to interact and communicate with corporations.

CRM builds on the philosophy of relationship marketing that aims to create, develop and enhance relationships with carefully targeted customers to maximize customer value, corporate profitability and thus shareholders value. The goal then is to improve the customer's experience of how they interact with the company, which hopefully, will turn into more satisfaction, which might lead to more loyalty, and finally, increase the profit. CRM is a comprehensive business and marketing strategy that integrates technology, process and all business activities around the customers (Anton, 1996). Thompson (2000) declared that Customer Relationship Management is a business strategy to select and manage customers to optimise long-term value. CRM requires a customer-centric business philosophy and culture to support effective marketing, sales, and service processes. CRM applications can enable effective Customer Relationship Management, provided that an enterprise has the right leadership, strategy, and culture.

According to Kotler (2000), the marketing effectiveness of a firm is reflected in the degree to which it exhibits five major attributes of marketing orientation viz. customer philosophy, integrated marketing organization, adequate marketing information, strategic orientation, and operational efficiency.

Objectives of Study

The broad objective of the study is to know the existing practices of organisation on CRM in banks. CRM at organisational level signifies the internal processes of the organisations utilized to address customers' issues and building relationship. In order to pursue this broad objective, some affiliated objectives have been identified, which are given as follows:

To study the practices of CRM at Organisational Level in banking industry;

To study the future perspective of the CRM in banks; and

To investigate the problems arising in implementation of CRM.

Research Methodology

The present study is exploratory in nature. After making intensive review of literature, a questionnaire; containing 31 questions was drafted.

Bank managers of both public and private sector banks constituted the population of the subject in the study. A sample of 330 managers was randomly selected from banks located in North India only.

Before collecting the data, researchers decided to establish the validity of questionnaire by surveying 50 managers. After getting their response, the necessary corrections were incorporated in the questionnaire.

Then, this questionnaire was served for collecting the response of all members being contained in the sample. Response of each question was measured on 5 point linkert scale.

In all, 300 questionnaires were filled by managers out of which 30 were dropped out because of inadequate incomplete information. Thus final success rate was about 81%.

Analysis

Nine factors were extracted from 31 statements of the questionnaire. These nine factors jointly explain 68.28% of the behaviour under CRM at the organisational level in banks. These nine factors are shown in Table 1.

The major components of CRM at Organisational Level in banks are summarized in Table 2.

a) CRM at Organisational Level in Banks

To know the magnitude of the role of different factors based on CRM, the factors have been normalized on a scale of ten by using the following formula:

15"Pragyaan : Journal of Information Management" " Volume 9 : Issue 1, June 2011

Institute of Management Studies, Dehradun CRM Practices at Organizational Level in Banking Sector - An Empirical Study

F - F a min

Z = ___________ X10 F -F max min

Where,

Z - Standardized factor score at the scale of ten

Fa - Actual value of factor score

Fmin - Minimum value for the factor score

Fmax - Maximum value for the factor score

The mean factor scores for nine factors at Organisational level in banks are shown in Table 3.

The results given in the Table 3 are the reflections of the score achieved by banks on normal scale of ten. The trend shows that CRM is in initially stage at organisational level. There are only few cases

where a banking organisation is able to reach the value of factor score more than half value of ten.

Table 3: CRM at Organisational Level: Factor Scores

Factor Mean Factor Score

F-I 3.91F-II 3.25F-III 4.72F-IV 3.19F-V 2.8F-VI 2.93F-VII 2.61F-VIII 5.32F-IX 2.76Average 2.44

Source: Primary Data

Table 1: Percentage Variance Explained by Factors (Rotated and Unrotated)

Component Unrotated Variance Cumulative Variance Rotated Variance Cumulative Variance

1 27.829 27.829 10.892 10.8922 7.902 35.731 10.722 21.6143 6.617 42.349 9.347 30.9614 5.739 48.087 7.275 38.2365 4.657 52.745 6.636 44.8726 4.490 57.235 6.439 51.3117 4.147 61.382 6.258 57.5708 3.516 64.898 6.198 63.7689 3.383 68.282 4.514 68.282

Source: Primary Data

Table 2: Major Components of CRM at Organisational Level

Factor Name

F-I Readiness for CRM and change management issues

F-II Readiness for CRM and management future issues

F-III Readiness for CRM and pilot training

F-IV Readiness for CRM and organisations cultural changes

F-V Readiness for CRM and training issues

F-VI Readiness for CRM and sales process level changes

F-VII Readiness for CRM and corporate objectives

F-VIII Readiness for CRM and corporate level changes

F-IX Readiness for CRM and sales motivation

Source: Primary Data

16 "Pragyaan : Journal of Information Management" Volume 9 : Issue 1, June 2011 17"Pragyaan : Journal of Information Management" " Volume 9 : Issue 1, June 2011

b) Size and CRM

For analysing how size of company is related to the readiness for CRM, the companies are classified on the basis of turnover and employees strength. On the basis of turnover, the banks have been classified into three categories, namely, having turnover upto 50 crore, 50-100 crore and above 100 crore; and on the basis of employees strength they have been classified into banks having employees strength upto 50 employees, 51-100 employees and above 100 employees.

Readiness for CRM by Turnover Categories

It is observed that banks having turnover less than 50 crore are having maximum average value of 2.8. The factors Readiness for CRM and management future issues, pilot training, organizational cultural changes, Training Issues, Sales Process Level Changes and Corporate Level Changes respectively scored high value.

The factor readiness for CRM at organisational level, change management issue, corporate objective and sales motivation are well taken by the banking organizations having turnover between 50 to 100 crore.

And the factors like management future issues, pilot training, organisational cultural changes training issues, sales process level changes and corporate level changes are well taken by the banks having turnover less then fifty crore. But the overall average is reflecting that CRM initiatives at organisational level are same irrespective of the size of banking organisations on the basis of turnover (Table 4).

Table 4: Factor Score for Banking by Turnover categories

Factor Upto 50 50 to100 Above crore crore 100 crore

Mean Mean Mean

F-I 3.9 5.2 3.4

F-II 3.2 2.0 2.7

F-III 4.7 3.3 3.3

F-IV 3.8 3.8 3.4

F-V 3.0 2.9 2.9

F-VI 4.8 3.5 3.5

F-VII 3.7 4.1 3.8

F-VIII 5.5 5.4 5.0

F-IX 3.9 3.9 3.5

Average 2.8 2.5 2.3

Source: Primary Data

Readiness for CRM on the Basis of Employees Strengths

The results indicate similar type of behaviour as that of the turnover. The banking organisations having size upto 50 employees have scored relatively more average in comparison to other categories. The banks having employees' strength upto 50 are leading in average factor score in factor Readiness for CRM and Management Future Issues, Training issues, Sales process level changes, corporate level changes and sales motivation. The medium size banks having employees' strength between 51 to 100 employees are leading in factor Readiness for CRM and Organisational Cultural Changes and Corporate Objectives.

The large size banks having employees' strength more then 100 are leading in factor Readiness for CRM and Change Management and Pilot Training. It can be interpreted that the small size banks with less than 100 employees are scoring well in factors like, Readiness for CRM in management future issues, training issues, sales process level changes, corporate level changes and sales motivation.

The medium size banks having employees' strength between 51 to 100 are good at factor organisational cultural changes and corporate objective and big size banks having more than 100 employees strength are good at factor change management issues and pilot training (Table 5).

Table 5: Factor Score for Different Banks on the basis of Employees Strength

Factor Upto 50 51 to 100 100 to above Employees Employees Employees

F-I 3.4 3.6 4.0

F-II 3.2 2.6 2.5

F-III 3.4 3.2 3.9

F-IV 3.3 3.7 3.3

Institute of Management Studies, Dehradun

F-V 3..3 2.7 2.9

F-VI 3.8 3.6 3.6

F-VII 3.6 4.1 3.4

F-VIII 6.4 4.9 5.0

F-IX 4.2 3.5 3.5

Average 2.5 2.4 2.4

Source: Primary Data

The overall conclusion is that banks are showing the similar type of pattern towards CRM at Organisational level irrespective of their employees' strength.

c) Perception of Banks Towards CRM Practices

In order to know future perspective towards CRM practices, Perception of banks were analysed on 1 to 10 point scale. Higher score on the variables indicates encouraging perception of banks on CRM practices.

The results in table 6 indicates that banking organizations perceive that CRM oriented practices improve their performance with average score of 7.00. The other indicators of performance based on CRM practices are also scoring the average value more than 6. It means respondents are strongly in favour of CRM based system for better performance of banks.

Table 6: Perception towards CRM Practices

Variable Mean

To improve our ability to capture and 6.5analyses business intelligence data to inform strategic and marketing decisions

To improve our customer retention 6.7statistics

To improve our ability to conduct real 6.9time analysis of data when interacting with customers

To improve collaboration with customers 6.3and/or partners in the supply chain

To improve our company performance 7.0

To improve elements of our service 6.5provision

To improve our marketing information 6.9 and associated capabilities

To improve our contact with customers in 6.8terms to the number of touch points and different channels to market.

Source: Primary Data

Table 7 indicates the perceived importance of CRM in banking organisations is and clears that banks consider CRM as an important tool to improve performance.

Table 7: Future Perspectives of CRM for in Banks

Variable Mean

To improve our ability to capture and 7.9analyse business intelligence data to inform strategic and marketing decisions

To improve our customer retention 7.8statistics

To improve our ability to conduct real-time 8.1 analysis of data when interacting with customers

To improve collaboration with customers 7.5and/or partners in the supply chain

To improve our company performance 8.8

To improve elements of our service provision 7.8

To improve our marketing information 7.7and associated capability

To improve our contact with customers in 7.8terms of the number of touch points and different channels to market

Source: Primary Data

d) Change in Return on Investment Due to CRM

Implementation of CRM has the potential to increase return on investment. The approximate estimates of ROI? due to CRM is shown in table 8. It shows that majority of the banks (nearly 54%) reported 10 to 15 percentage of change in ROI due to CRM. Almost the 15% banks recorded it at 20%. A higher change in ROI is reported by nearly 2.4% of banks i.e. more than 25%. It can be inferred from the above analysis that nearly three fourth of banks use to get 5-15% of ROI.

18 "Pragyaan : Journal of Information Management" Volume 9 : Issue 1, June 2011 19"Pragyaan : Journal of Information Management" " Volume 9 : Issue 1, June 2011

b) Size and CRM

For analysing how size of company is related to the readiness for CRM, the companies are classified on the basis of turnover and employees strength. On the basis of turnover, the banks have been classified into three categories, namely, having turnover upto 50 crore, 50-100 crore and above 100 crore; and on the basis of employees strength they have been classified into banks having employees strength upto 50 employees, 51-100 employees and above 100 employees.

Readiness for CRM by Turnover Categories

It is observed that banks having turnover less than 50 crore are having maximum average value of 2.8. The factors Readiness for CRM and management future issues, pilot training, organizational cultural changes, Training Issues, Sales Process Level Changes and Corporate Level Changes respectively scored high value.

The factor readiness for CRM at organisational level, change management issue, corporate objective and sales motivation are well taken by the banking organizations having turnover between 50 to 100 crore.

And the factors like management future issues, pilot training, organisational cultural changes training issues, sales process level changes and corporate level changes are well taken by the banks having turnover less then fifty crore. But the overall average is reflecting that CRM initiatives at organisational level are same irrespective of the size of banking organisations on the basis of turnover (Table 4).

Table 4: Factor Score for Banking by Turnover categories

Factor Upto 50 50 to100 Above crore crore 100 crore

Mean Mean Mean

F-I 3.9 5.2 3.4

F-II 3.2 2.0 2.7

F-III 4.7 3.3 3.3

F-IV 3.8 3.8 3.4

F-V 3.0 2.9 2.9

F-VI 4.8 3.5 3.5

F-VII 3.7 4.1 3.8

F-VIII 5.5 5.4 5.0

F-IX 3.9 3.9 3.5

Average 2.8 2.5 2.3

Source: Primary Data

Readiness for CRM on the Basis of Employees Strengths

The results indicate similar type of behaviour as that of the turnover. The banking organisations having size upto 50 employees have scored relatively more average in comparison to other categories. The banks having employees' strength upto 50 are leading in average factor score in factor Readiness for CRM and Management Future Issues, Training issues, Sales process level changes, corporate level changes and sales motivation. The medium size banks having employees' strength between 51 to 100 employees are leading in factor Readiness for CRM and Organisational Cultural Changes and Corporate Objectives.

The large size banks having employees' strength more then 100 are leading in factor Readiness for CRM and Change Management and Pilot Training. It can be interpreted that the small size banks with less than 100 employees are scoring well in factors like, Readiness for CRM in management future issues, training issues, sales process level changes, corporate level changes and sales motivation.

The medium size banks having employees' strength between 51 to 100 are good at factor organisational cultural changes and corporate objective and big size banks having more than 100 employees strength are good at factor change management issues and pilot training (Table 5).

Table 5: Factor Score for Different Banks on the basis of Employees Strength

Factor Upto 50 51 to 100 100 to above Employees Employees Employees

F-I 3.4 3.6 4.0

F-II 3.2 2.6 2.5

F-III 3.4 3.2 3.9

F-IV 3.3 3.7 3.3

Institute of Management Studies, Dehradun

F-V 3..3 2.7 2.9

F-VI 3.8 3.6 3.6

F-VII 3.6 4.1 3.4

F-VIII 6.4 4.9 5.0

F-IX 4.2 3.5 3.5

Average 2.5 2.4 2.4

Source: Primary Data

The overall conclusion is that banks are showing the similar type of pattern towards CRM at Organisational level irrespective of their employees' strength.

c) Perception of Banks Towards CRM Practices

In order to know future perspective towards CRM practices, Perception of banks were analysed on 1 to 10 point scale. Higher score on the variables indicates encouraging perception of banks on CRM practices.

The results in table 6 indicates that banking organizations perceive that CRM oriented practices improve their performance with average score of 7.00. The other indicators of performance based on CRM practices are also scoring the average value more than 6. It means respondents are strongly in favour of CRM based system for better performance of banks.

Table 6: Perception towards CRM Practices

Variable Mean

To improve our ability to capture and 6.5analyses business intelligence data to inform strategic and marketing decisions

To improve our customer retention 6.7statistics

To improve our ability to conduct real 6.9time analysis of data when interacting with customers

To improve collaboration with customers 6.3and/or partners in the supply chain

To improve our company performance 7.0

To improve elements of our service 6.5provision

To improve our marketing information 6.9 and associated capabilities

To improve our contact with customers in 6.8terms to the number of touch points and different channels to market.

Source: Primary Data

Table 7 indicates the perceived importance of CRM in banking organisations is and clears that banks consider CRM as an important tool to improve performance.

Table 7: Future Perspectives of CRM for in Banks

Variable Mean

To improve our ability to capture and 7.9analyse business intelligence data to inform strategic and marketing decisions

To improve our customer retention 7.8statistics

To improve our ability to conduct real-time 8.1 analysis of data when interacting with customers

To improve collaboration with customers 7.5and/or partners in the supply chain

To improve our company performance 8.8

To improve elements of our service provision 7.8

To improve our marketing information 7.7and associated capability

To improve our contact with customers in 7.8terms of the number of touch points and different channels to market

Source: Primary Data

d) Change in Return on Investment Due to CRM

Implementation of CRM has the potential to increase return on investment. The approximate estimates of ROI? due to CRM is shown in table 8. It shows that majority of the banks (nearly 54%) reported 10 to 15 percentage of change in ROI due to CRM. Almost the 15% banks recorded it at 20%. A higher change in ROI is reported by nearly 2.4% of banks i.e. more than 25%. It can be inferred from the above analysis that nearly three fourth of banks use to get 5-15% of ROI.

18 "Pragyaan : Journal of Information Management" Volume 9 : Issue 1, June 2011 19"Pragyaan : Journal of Information Management" " Volume 9 : Issue 1, June 2011

Institute of Management Studies, DehradunCRM Practices at Organizational Level in Banking Sector - An Empirical Study

Table 8: Change in ROI due to CRM

% Change in ROI Frequency Percent

5% 11 3.6

10% 83 27.6

15% 79 26.4

20% 43 14.4

25% 7 2.4

No response 77 25.6

Total 300 100.0

Source: Primary Data

e) The Problems Faced in Implementation of CRM

Organizations face various problems in implementing CRM. Management, employees, organizations, financial resources, etc. create hurdle in smooth implementation of CRM practices. The most significant problems in the implementation of CRM are employee related (44.5%), which is followed by the financial limitation (18.1%) and other problems (15.4%). Problems related to organizations and management are comparatively less (11% each) in CRM implementation (Table 9).

Table 9: Problems Faced in Implementation of CRM

Organisations Frequency PercentageManagement side 33 11.0

Employee side 134 44.5Organization side 33 11.0

Financial side 54 18.1Any others 46 15.4

Total 300 100.0

Source: Primary Data

Findings

? CRM at organisational level in banking sector is in initial stage as indicated by factor scores.

? CRM initiatives at organisational level are same irrespective of the size of business organisations.

? CRM practices at banks are indifferent of employees' strength at the branches of the bank.

? The banks are strongly in favour of CRM based system for better performance because they consider CRM as an important tool to improve better understanding of customers.

? Bank employees and financial constraints are the biggest challenges in the implementation of CRM at banks.

Implications

Gaining the better understanding of CRM practices in banking organisations is the bedrock of this study. Even through CRM is not to be considered a technology solution; its full integration is a requirement for success. The Banking organizations need to focus on customer data management for better understanding the customers. This will help them in the assessment of economic impact of the market and will lead to enhance customer total experience and loyalty which provide competitive edge. Globalisation is opening the doors for the MNCs in India. There is scope to compare the CRM practices of MNCs versus Indian organizations. CRM is the key to success, in the times to come, banks have to cope up with the problems faced in implementing CRM practices and initiate, learn, and adapt these CRM practices.

References

1. Anton, J. (1996), Customer Relationship Management, New York: Prentice Hall.

2. Frederick F. Reichheld (1996), The Loyalty Effect, Cambridge, MA: Harvard Business School Press.

3. Kotler, P. (2000), Marketing Management, New Jersey: Prentice Hall.

4. Chou, D., Xu, Y., Yen, D. & Lin, B. (2002), “Adopting Customer Relationship Management Technology” Industrial Management & Data Systems, Vol. 102 No.8, pp.442-52.

5. Gronroos, C. (1997), “From Marketing Mix to Relationship Marketing: Towards a Paradigm Shift in Marketing” Management Decision, Vol. 35, No. 3 & 4, pp.322-340.

6. Kotorov, R. P. (2002), “Ubiquitous Organization: Organizational Design for e-CRM” Business Process Management Journal, Vol. 8, No.3, p. 218.

7. Capturing and Keeping Customers in Internet Real Time. New York: McGraw Hill Osborne Media.

Introduction

Indian advertising is not very old, it witnessed a spurt after the country became independent in 1947. The current environment replete with debate, speculations and risk about how rivalry among the media may be reshaped in the future. The threat to traditional advertising media is posed by the rapid growth of the internet, and it is becoming “more like television”(Wall street Journal). Liberalization opened the floodgates for some of the best names in international advertising, who began to look at India as a serious place for business operations. As of 2004-05, there are 775 accredited advertising agencies in India, besides hundreds of smaller ones looking for accreditation and to be engaged in national advertising. India's economic prosperity and maturity has also helped to shape the world of advertising agencies enabling the latter to reach global standards. It has become serious and big business in India, with its worth being estimated at Rs. 13,200-crore, and one of the consistently growing industries of the world along with oil, automobiles, information technology and

Challenges of Indian Advertising agencies

Ms. Manu Sharma Joshi* Dr Sudhanshu Joshi **

Dr.V.K.Singh***Dr. Shruti Nagar****

*Faculty Member-Advertising & Marketing, Department of Management Studies, Graphic Era University(GEU), Dehradun, INDIA **Assistant Professor (Senior Scale), College of Management Studies, University of Petroleum & Energy Studies(UPES),Dehradun,INDIA ***DIBA, College of Applied Science, Sur Campus, Sultanate of Oman, OMAN

ABSTRACT

The research paper argues that in order to appraise the growth prospects of advertising in India, one needs to develop an understanding of patterns prevailing in the market and the expected focus areas to be targeted by the advertisers. The challenge is to overcome the threat imposed by the dynamic environment and coping up with the changes affecting the overall advertising functionality. In this part-real-part-virtual world, advertising and marketing services in India are trying to marry the age-old traditions of story-telling and brand experience. The key objective of this paper is to evaluate the marketers' strategies to keep on top of the scale of change, ensure their strategies to touch the points where consumers are spending their time.

Keywords: Advertising agencies strategies, online advertising, Indian advertisers, changing consumer dynamics, Advertising Portfolio(AP).

agriculture. The growth of this industry in any country is in direct relation to the level of business activity and the health of the economy. In fact, the size of the advertising industry is looked upon as a perfect indicator of the living standard of the people in the particular country and its economic development. In India, the last decade of the 20th century has witnessed a phenomenal growth in advertising business. In 1974, the amount spent in India for advertising was as low as Rs. 75 crore, in 1990 it jumped to Rs. 1504 crores and the growth recorded was 17.1% and improved each year till 1994-95, showing a growth of 49.5% and in 2003, it reached the height of Rs. 15000 crore which indicates the increased relevance of advertising in the Indian economy. This was due to the first major economic boom in the country.

From Table 1, it would be noted that India is sixth on the world list in terms of absolute growth in advertising expense during 2007-10. India's own advertising growth market chart shows that the whole advertising spend was set to boom 8 times from around Rs. 47 billion in 1995 to around Rs.

20 "Pragyaan : Journal of Information Management" Volume 9 : Issue 1, June 2011 21"Pragyaan : Journal of Information Management" " Volume 9 : Issue 1, June 2011

Institute of Management Studies, DehradunCRM Practices at Organizational Level in Banking Sector - An Empirical Study

Table 8: Change in ROI due to CRM

% Change in ROI Frequency Percent

5% 11 3.6

10% 83 27.6

15% 79 26.4

20% 43 14.4

25% 7 2.4

No response 77 25.6

Total 300 100.0

Source: Primary Data

e) The Problems Faced in Implementation of CRM

Organizations face various problems in implementing CRM. Management, employees, organizations, financial resources, etc. create hurdle in smooth implementation of CRM practices. The most significant problems in the implementation of CRM are employee related (44.5%), which is followed by the financial limitation (18.1%) and other problems (15.4%). Problems related to organizations and management are comparatively less (11% each) in CRM implementation (Table 9).

Table 9: Problems Faced in Implementation of CRM

Organisations Frequency PercentageManagement side 33 11.0

Employee side 134 44.5Organization side 33 11.0

Financial side 54 18.1Any others 46 15.4

Total 300 100.0

Source: Primary Data

Findings

? CRM at organisational level in banking sector is in initial stage as indicated by factor scores.

? CRM initiatives at organisational level are same irrespective of the size of business organisations.

? CRM practices at banks are indifferent of employees' strength at the branches of the bank.

? The banks are strongly in favour of CRM based system for better performance because they consider CRM as an important tool to improve better understanding of customers.

? Bank employees and financial constraints are the biggest challenges in the implementation of CRM at banks.

Implications

Gaining the better understanding of CRM practices in banking organisations is the bedrock of this study. Even through CRM is not to be considered a technology solution; its full integration is a requirement for success. The Banking organizations need to focus on customer data management for better understanding the customers. This will help them in the assessment of economic impact of the market and will lead to enhance customer total experience and loyalty which provide competitive edge. Globalisation is opening the doors for the MNCs in India. There is scope to compare the CRM practices of MNCs versus Indian organizations. CRM is the key to success, in the times to come, banks have to cope up with the problems faced in implementing CRM practices and initiate, learn, and adapt these CRM practices.

References

1. Anton, J. (1996), Customer Relationship Management, New York: Prentice Hall.

2. Frederick F. Reichheld (1996), The Loyalty Effect, Cambridge, MA: Harvard Business School Press.

3. Kotler, P. (2000), Marketing Management, New Jersey: Prentice Hall.

4. Chou, D., Xu, Y., Yen, D. & Lin, B. (2002), “Adopting Customer Relationship Management Technology” Industrial Management & Data Systems, Vol. 102 No.8, pp.442-52.

5. Gronroos, C. (1997), “From Marketing Mix to Relationship Marketing: Towards a Paradigm Shift in Marketing” Management Decision, Vol. 35, No. 3 & 4, pp.322-340.

6. Kotorov, R. P. (2002), “Ubiquitous Organization: Organizational Design for e-CRM” Business Process Management Journal, Vol. 8, No.3, p. 218.

7. Capturing and Keeping Customers in Internet Real Time. New York: McGraw Hill Osborne Media.

Introduction

Indian advertising is not very old, it witnessed a spurt after the country became independent in 1947. The current environment replete with debate, speculations and risk about how rivalry among the media may be reshaped in the future. The threat to traditional advertising media is posed by the rapid growth of the internet, and it is becoming “more like television”(Wall street Journal). Liberalization opened the floodgates for some of the best names in international advertising, who began to look at India as a serious place for business operations. As of 2004-05, there are 775 accredited advertising agencies in India, besides hundreds of smaller ones looking for accreditation and to be engaged in national advertising. India's economic prosperity and maturity has also helped to shape the world of advertising agencies enabling the latter to reach global standards. It has become serious and big business in India, with its worth being estimated at Rs. 13,200-crore, and one of the consistently growing industries of the world along with oil, automobiles, information technology and

Challenges of Indian Advertising agencies

Ms. Manu Sharma Joshi* Dr Sudhanshu Joshi **

Dr.V.K.Singh***Dr. Shruti Nagar****

*Faculty Member-Advertising & Marketing, Department of Management Studies, Graphic Era University(GEU), Dehradun, INDIA **Assistant Professor (Senior Scale), College of Management Studies, University of Petroleum & Energy Studies(UPES),Dehradun,INDIA ***DIBA, College of Applied Science, Sur Campus, Sultanate of Oman, OMAN

ABSTRACT

The research paper argues that in order to appraise the growth prospects of advertising in India, one needs to develop an understanding of patterns prevailing in the market and the expected focus areas to be targeted by the advertisers. The challenge is to overcome the threat imposed by the dynamic environment and coping up with the changes affecting the overall advertising functionality. In this part-real-part-virtual world, advertising and marketing services in India are trying to marry the age-old traditions of story-telling and brand experience. The key objective of this paper is to evaluate the marketers' strategies to keep on top of the scale of change, ensure their strategies to touch the points where consumers are spending their time.

Keywords: Advertising agencies strategies, online advertising, Indian advertisers, changing consumer dynamics, Advertising Portfolio(AP).

agriculture. The growth of this industry in any country is in direct relation to the level of business activity and the health of the economy. In fact, the size of the advertising industry is looked upon as a perfect indicator of the living standard of the people in the particular country and its economic development. In India, the last decade of the 20th century has witnessed a phenomenal growth in advertising business. In 1974, the amount spent in India for advertising was as low as Rs. 75 crore, in 1990 it jumped to Rs. 1504 crores and the growth recorded was 17.1% and improved each year till 1994-95, showing a growth of 49.5% and in 2003, it reached the height of Rs. 15000 crore which indicates the increased relevance of advertising in the Indian economy. This was due to the first major economic boom in the country.

From Table 1, it would be noted that India is sixth on the world list in terms of absolute growth in advertising expense during 2007-10. India's own advertising growth market chart shows that the whole advertising spend was set to boom 8 times from around Rs. 47 billion in 1995 to around Rs.

20 "Pragyaan : Journal of Information Management" Volume 9 : Issue 1, June 2011 21"Pragyaan : Journal of Information Management" " Volume 9 : Issue 1, June 2011

367 billion in 2010 including Rs. 36 billion expected to be spent on online advertising.( Lintas media report, 2009).Economic policy changes introduced in 1990s have opened the doors for global competition and a new economic era has begun. Most businesses in our country had to wake up and take serious notice of the emerging changes which were threatening their survival in their otherwise well established markets. The emergence and growth of the new technologies, availability of new media and media vehicles and an increase in middle class income and aspirations have contributed to the phenomenal increase in the level of the advertising and other forms of promotions. The web is now used as a mass market media channel.

Table 1. Top Ten Contributors to global Advertisement Growth during 2007 - 10

Country Absolute growth Growth (US $ mn) Percentage

USA 14,182 8.3

CHINA 9,243 61.5

RUSSIA 8248 92.1

UK 4541 19.5

BRAZIL 4520 46.6

INDIA 3163 52.2

JAPAN 2347 5.7

SOUTH KOREA 2095 21.6

SOUTH AFRICA 2070 45.8

PAN ARAB 1987 54.2

Source: Interactive Advertising Bureau (June, 2008)

Objective

The Indian advertising industry has transited exhaustedly for last decade with the continuous adaptations with the market media mix, selecting a concrete media mix and customers' demand/choice are consistently forcing this industry to bring innovative changes to sustain or survive in the

competitive world. The purpose of research paper is to explore the challenges faced by the advertising agencies to confront the dynamism developed in the market due to shift in the state-of-the-art living of Indian consumers, global competition, and the digital revolution. The major objective is to identify the key areas where the advertisers have to concentrate completely & for utilizing the media options optimally for fulfilling their desired markets. It also examines strategies adopted by small and big advertising agencies facing challenge for their survival and searching for innovations in new segments and areas.

Research Methodology

This research paper analyzes top rated Indian advertising agencies' revenues, approaches, strategies etc and examines their initiatives/ steps taken for capturing the clientele targeted. Factors are analyzed on the basis of changes and strategies adopted by the small and medium advertising agencies.

Advertising Agencies

Technological advancements in the last decade or so have enabled the common man to consume the media of their choice at their convenience. Blurring of lines between TV, Internet, mobile phones and other devices has increased media fragmentation leading to paradigm shifts within the industry. Agencies are creating, sharing and managing stories and brand experiences in a manner that involves and engages, rather than interrupts or alienates. Almost all Marketing and Advertising agencies in India believe in the concept of 360 degree branding. The services provided by most of these agencies include advertisement for TV, print ads, creating web sites, working on web banners, email marketing, direct marketing, telemarketing, radio promotions, outdoor promotions, tracking retail visibility and communications, designing inputs on packaging, rural communications and PR. It is safe to say that at present a single ad agency provides a host of services from content creation, developing the artwork to radio jingles, to monitor the effectiveness of the advertisements, and even inventing new idioms and language to relate to consumers of all pocket shapes and sizes.

Institute of Management Studies, Dehradun

Table 2. Global Holding of Advertising Agencies

In the current scenario, the top agencies in India are Ogilvy and Mather (Subsidiary of WPP Group), J Walter Thompson India, Mudra Communications Pvt ltd, FCB ULKA Advertising Pvt ltd, Rediffusion- DY R, BBDO Advertising Pvt ltd. The above Table 2 shows the current Indian advertising group holdings of the big players in the Indian market. (Omnicon is leading in India, with 8.62 billion).

Literature Review

All aspects of planning, the marketing mix and the idea of targeting the consumers arose in 1900's. Scientific advertising ( Claude Hopkin's , 1920) tried to give marketing and advertising a professional discipline. Marketers and advertisers needed to make the unmeasurable and unmanageable consumers as measurable and controllable assets of the firm. This was attempted through the development of professional organizations, standards of training and the rise of marketing concept.The marketing concept was first articulated after the Second World War by the GE Company. This concept assumed

Global The Indian ad agencies Revenue holding in Billioncompany $

Omnicom RK Swamy, BBDO, TWA 8.62Anthem, Minor stakes in Mudra

WPP JWT, O & M, Contract, 6.76RMG David, Bates, Red Cell, Everest, Rediffusion / DY & R

Interpublic Lowe, SSC&B, Quadrant, 5.86McCann, FCB Ulka

Publicis Leo Burnett, Saatchi 7 Saatchi, 4.41Ambience D' Archy

Dentsu Dentsu communication, 2.35dentsu Marcom

Havas Euro RSCG 1.88

Source: www.adage.com, 2006

that buyers were rational and chose and preferred those brands that met their wants. This meant that firms should try to identify wants and then try to satisfy them (Dickinson et al, 1986: 18).The concept of synergy is not new for communication researchers and advertising professionals. It is defined as “the interaction of two or more agents or forces so that their combined effect is greater than the sum of their individual effect” (American Heritage College Dictionary, 1997). As a matter of fact, advertisers frequently use multiple communication tools (e.g., advertising, public relations, etc.) or channels (e.g., television, press, the Web, etc.) within a single campaign as the ultimate goal of integrating multiple communication vehicles to create the optimal persuasive effect (Chang & Thorson, 2004). Synergy is the fundamental concept of Integrated Marketing. Synergy is the fundamental concept of Integrated Marketing Communication. It differs from simple repetition in that it is believed to bring in integrated increment rather than just simple addition of different components. As Chang and Thorson (2004) elaborated: “An advertisement is usually viewed more than once. The effect resulting from repeated exposure to the same advertisement is called the repetition effect and is assumed to be the incremental effect of each additional advertising exposure. The effect resulting from exposure to coordinated advertisement is called the synergy effect.” Conventional advertising, predominantly TV-commercials and print ads, still dominate today's advertising market. However, a diversity of new advertising formats emerges. One major “threat” comes from the Internet, as advertising through internet is constantly seen to be on the rise (Janoschka, 2004). As Leong and his colleagues (1998) suggested, “the phenomenal growth of consumers and businesses connected to the Internet indicates a viable audience for advertising and promotional messages for many companies”.

Challenges faced by Indian Advertisers

1. The Indian market matrics

The Indian market m tr ics consist of a combination of organized and unorganized segments. While organized buyers have a chunk of the market,

a 0

22 "Pragyaan : Journal of Information Management" Volume 9 : Issue 1, June 2011 23"Pragyaan : Journal of Information Management" " Volume 9 : Issue 1, June 2011

367 billion in 2010 including Rs. 36 billion expected to be spent on online advertising.( Lintas media report, 2009).Economic policy changes introduced in 1990s have opened the doors for global competition and a new economic era has begun. Most businesses in our country had to wake up and take serious notice of the emerging changes which were threatening their survival in their otherwise well established markets. The emergence and growth of the new technologies, availability of new media and media vehicles and an increase in middle class income and aspirations have contributed to the phenomenal increase in the level of the advertising and other forms of promotions. The web is now used as a mass market media channel.

Table 1. Top Ten Contributors to global Advertisement Growth during 2007 - 10

Country Absolute growth Growth (US $ mn) Percentage

USA 14,182 8.3

CHINA 9,243 61.5

RUSSIA 8248 92.1

UK 4541 19.5

BRAZIL 4520 46.6

INDIA 3163 52.2

JAPAN 2347 5.7

SOUTH KOREA 2095 21.6

SOUTH AFRICA 2070 45.8

PAN ARAB 1987 54.2

Source: Interactive Advertising Bureau (June, 2008)

Objective

The Indian advertising industry has transited exhaustedly for last decade with the continuous adaptations with the market media mix, selecting a concrete media mix and customers' demand/choice are consistently forcing this industry to bring innovative changes to sustain or survive in the

competitive world. The purpose of research paper is to explore the challenges faced by the advertising agencies to confront the dynamism developed in the market due to shift in the state-of-the-art living of Indian consumers, global competition, and the digital revolution. The major objective is to identify the key areas where the advertisers have to concentrate completely & for utilizing the media options optimally for fulfilling their desired markets. It also examines strategies adopted by small and big advertising agencies facing challenge for their survival and searching for innovations in new segments and areas.

Research Methodology

This research paper analyzes top rated Indian advertising agencies' revenues, approaches, strategies etc and examines their initiatives/ steps taken for capturing the clientele targeted. Factors are analyzed on the basis of changes and strategies adopted by the small and medium advertising agencies.

Advertising Agencies

Technological advancements in the last decade or so have enabled the common man to consume the media of their choice at their convenience. Blurring of lines between TV, Internet, mobile phones and other devices has increased media fragmentation leading to paradigm shifts within the industry. Agencies are creating, sharing and managing stories and brand experiences in a manner that involves and engages, rather than interrupts or alienates. Almost all Marketing and Advertising agencies in India believe in the concept of 360 degree branding. The services provided by most of these agencies include advertisement for TV, print ads, creating web sites, working on web banners, email marketing, direct marketing, telemarketing, radio promotions, outdoor promotions, tracking retail visibility and communications, designing inputs on packaging, rural communications and PR. It is safe to say that at present a single ad agency provides a host of services from content creation, developing the artwork to radio jingles, to monitor the effectiveness of the advertisements, and even inventing new idioms and language to relate to consumers of all pocket shapes and sizes.

Institute of Management Studies, Dehradun

Table 2. Global Holding of Advertising Agencies

In the current scenario, the top agencies in India are Ogilvy and Mather (Subsidiary of WPP Group), J Walter Thompson India, Mudra Communications Pvt ltd, FCB ULKA Advertising Pvt ltd, Rediffusion- DY R, BBDO Advertising Pvt ltd. The above Table 2 shows the current Indian advertising group holdings of the big players in the Indian market. (Omnicon is leading in India, with 8.62 billion).

Literature Review

All aspects of planning, the marketing mix and the idea of targeting the consumers arose in 1900's. Scientific advertising ( Claude Hopkin's , 1920) tried to give marketing and advertising a professional discipline. Marketers and advertisers needed to make the unmeasurable and unmanageable consumers as measurable and controllable assets of the firm. This was attempted through the development of professional organizations, standards of training and the rise of marketing concept.The marketing concept was first articulated after the Second World War by the GE Company. This concept assumed

Global The Indian ad agencies Revenue holding in Billioncompany $

Omnicom RK Swamy, BBDO, TWA 8.62Anthem, Minor stakes in Mudra

WPP JWT, O & M, Contract, 6.76RMG David, Bates, Red Cell, Everest, Rediffusion / DY & R

Interpublic Lowe, SSC&B, Quadrant, 5.86McCann, FCB Ulka

Publicis Leo Burnett, Saatchi 7 Saatchi, 4.41Ambience D' Archy

Dentsu Dentsu communication, 2.35dentsu Marcom

Havas Euro RSCG 1.88

Source: www.adage.com, 2006

that buyers were rational and chose and preferred those brands that met their wants. This meant that firms should try to identify wants and then try to satisfy them (Dickinson et al, 1986: 18).The concept of synergy is not new for communication researchers and advertising professionals. It is defined as “the interaction of two or more agents or forces so that their combined effect is greater than the sum of their individual effect” (American Heritage College Dictionary, 1997). As a matter of fact, advertisers frequently use multiple communication tools (e.g., advertising, public relations, etc.) or channels (e.g., television, press, the Web, etc.) within a single campaign as the ultimate goal of integrating multiple communication vehicles to create the optimal persuasive effect (Chang & Thorson, 2004). Synergy is the fundamental concept of Integrated Marketing. Synergy is the fundamental concept of Integrated Marketing Communication. It differs from simple repetition in that it is believed to bring in integrated increment rather than just simple addition of different components. As Chang and Thorson (2004) elaborated: “An advertisement is usually viewed more than once. The effect resulting from repeated exposure to the same advertisement is called the repetition effect and is assumed to be the incremental effect of each additional advertising exposure. The effect resulting from exposure to coordinated advertisement is called the synergy effect.” Conventional advertising, predominantly TV-commercials and print ads, still dominate today's advertising market. However, a diversity of new advertising formats emerges. One major “threat” comes from the Internet, as advertising through internet is constantly seen to be on the rise (Janoschka, 2004). As Leong and his colleagues (1998) suggested, “the phenomenal growth of consumers and businesses connected to the Internet indicates a viable audience for advertising and promotional messages for many companies”.

Challenges faced by Indian Advertisers

1. The Indian market matrics

The Indian market m tr ics consist of a combination of organized and unorganized segments. While organized buyers have a chunk of the market,

a 0

22 "Pragyaan : Journal of Information Management" Volume 9 : Issue 1, June 2011 23"Pragyaan : Journal of Information Management" " Volume 9 : Issue 1, June 2011

Institute of Management Studies, DehradunChallenges of Indian Advertising agencies

there is still about Rs. 30 billion (Chart 1) or more worth of buying that does not come a media agency's way. Some very big advertisers- like paras, Nirma or Cavin Care- don't use an agency.

Chart 1(a)

a) Competition and Declining Margins

Ten years after media buying started moving out of ad agencies and five years after consolidated buying picked up speed, the real cost of the media has actually fallen over last few years, squeezing their margins. The advertisers offer lower rates to the media buyers so as to capture the maximum market. So, the media agencies have build volumes at the cost of margin.

The highly unorganized nature of both space providers and the digital printers (even though, there exist a few associations), has driven advertisers to a negotiating spree. As a result, there is less and less of organisation, and small players tend to seize a share of the ad budget and provide unprofessional services. The other common issues associated with the booming OOH segment is the clutter it creates in the skyline of urban India and the hazards connected with it.

b) Evolution of new media technologies

There are several 'new media' categories where growth rates are high, like mobile telecom or dotcoms or local newspapers, which deal directly with advertisers. As a result, while the total media buying in India is closer to Rs. 8500 crore, agencies get only 65% of it. It is a large chunk, but constantly splintering and fast becoming unprofitable.

In the digital age, mobile phones and web based advertising are pushing revenues. Advertising on the internet is the most cost-efficient way of reaching customers all over the world including one's own country. Indian advertising agencies need to wake up to the challenges posed by global economic trends and emerging interactive technologies like the Internet. Indian companies need to pay attention to characteristics of the new economy like open standards, digitalization, and volatility, as Internet-based communication offers "tremendous new opportunities for Indian companies via media convergence and re-intermediation." This also requires Indian advertising agencies to pay attention to the importance of online market research, since new media like the internet are bound to affect people's perceptions of advertising. The nature and time path of its evolution is subject to considerable uncertainty arising from issues relating to expansion of the Internet's penetration of households; consumer demand for information; development of pricing policies and measurement capabilities; and its attractiveness to advertisers in different product/ service categories. The analysis of these issues suggest that its long-term impact on intermedia rivalry will be broad and substantial. From Table 3 it would be noted that internet is emerging as an adaptive, hybrid medium with respect to the factors hypothesized to affect intermedia substitutability, namely, audience addressability, audience control, and contractual flexibility.

Table 3. Media mix Expenditures 2007 - 08

Medium Year 2007 Year 2008 % Growth(Rs Crores) (Rs. Crores)

TV 6823 6766 -0.8

Press 8304 8591 3.5

Radio 413 529 28.0

Cinema 167 194 16.0

Outdoor 908 1068 17.0

Internet 150 215 43.0

Total 16,765 17,356 3.5

Source: lintas media report, 2008

c) Expansion in the market regions

Over the years, media buyers have somehow squeezed out all the joy of using a 30 second commercial or a newspaper advertisement. The buying game is as much about reaching out to the people and giving them a compelling reason to remember or to buy a brand, as it is about a great deal. This is a fatal flaw that several agencies are now attempting to fix. Some of the more profitable Indian agencies, like Lodestar Media (a division of FCB ULKA), insist on or have a common balance sheet for media and creative, even though, operationally, they are different. The idea is to invest in tools and research which help the consumer connect better, without the pressure margins, that a separate profit centre involves. Most of these agencies are offshoots of advertising agencies and now they are going down the same path that ad firms went in late 1990s in their quest for growth, when media unbundling happened. The reason why the other countries are cropping up so early in India is because both media and media buying have grown without a pause for over 12 years now. The channels increased from two to two hundreds, from a few newspapers to hundreds fighting for advertisers attention. In last decade, media has quickly shifted from about 50 agencies to the hands of just eight major holding companies. So India has raced through decades of evolution at a breath- taking speed in 12 years. As the industry catches its breath, it is becoming evident that this growth ignored glaring deficiencies in the way the market is built. It is now time to pause and figure out just how and where growth will come from.

d) Advertisers' fight with rate obsession

Consolidation happened because several creative agencies typically handled different brands. So, if HUL has 30 brands, it could have anything between 8- 15 agencies, each doing the creative and media buying for the brands it handled. When there was one newspaper and one TV channel to buy, it did not matter. As the options increased, so did the complexities. Today one needs to choose between 100 channels, several dozen newspapers, half a dozen radio stations, outdoor cinema multiplexes, mobile and other options for advertising. Clearly, buying separately for each brand brings no economies of scale.

Agencies have a very little incentive to negotiate or cut cost. So in 1994, HLL (Now HUL) started experimenting by having one agency, Lintas, O & M , for six months each, to do all buying, and that straightway made a difference.

Over the last 8 years, media buying is about rates, rates and rates alone. That was the best way for agencies to show that they are good; that they get better GRPs for the same money, or more efficiencies, the measures of which have been simple and suspect for long. Despite the obvious difference, technically there is no difference the way the media and vegetable are being bought and sold. Most agencies are not fighting on the fact that they offer a better, more impressive way of reaching the consumer, but on rates. It is routine for agencies to take lower rate media and use it either to pitch for a business or to earn brownie points with advertisers.

e) Less Consolidation more fragmentation

There are some differences in the way consolidation of buying happened in India versus mature markets like the US and UK. The biggest one is how fragmented both the Indian consumer and media markets are. In India, there are no conglomerates that sells dozens of dominant brands of newspapers, TV stations, films, radio, and so on. There are very few media owners with some negotiating power; the rest are all small players. Media buying in India is complex because of too many languages and diversity. SAMSUNG is one of the largest ad spenders in India. It has 800 products which include 150 models in IT, TVs, scanners, IT equipments and others. Every year it launches about 150 models in IT, 20 in phones, 50 in audio and video, and about 30 in household appliances. The scale of its business, and of India, means that Samsung spends three times the money it did 3 years back to reach the same audience.

f) Value added services

Now a days, the best way for media agencies and owners to deliver impact is by offering the very things advertisers are looking for-whether it is inside a programme or outside. These could be in-content services. In last few years, non-traditional businesses grew at 100 %, against the 5-6 % growth in its regular

Institute of Management Studies, DehradunChallenges of Indian Advertising agencies

there is still about Rs. 30 billion (Chart 1) or more worth of buying that does not come a media agency's way. Some very big advertisers- like paras, Nirma or Cavin Care- don't use an agency.

Chart 1(a)

a) Competition and Declining Margins

Ten years after media buying started moving out of ad agencies and five years after consolidated buying picked up speed, the real cost of the media has actually fallen over last few years, squeezing their margins. The advertisers offer lower rates to the media buyers so as to capture the maximum market. So, the media agencies have build volumes at the cost of margin.

The highly unorganized nature of both space providers and the digital printers (even though, there exist a few associations), has driven advertisers to a negotiating spree. As a result, there is less and less of organisation, and small players tend to seize a share of the ad budget and provide unprofessional services. The other common issues associated with the booming OOH segment is the clutter it creates in the skyline of urban India and the hazards connected with it.

b) Evolution of new media technologies

There are several 'new media' categories where growth rates are high, like mobile telecom or dotcoms or local newspapers, which deal directly with advertisers. As a result, while the total media buying in India is closer to Rs. 8500 crore, agencies get only 65% of it. It is a large chunk, but constantly splintering and fast becoming unprofitable.

In the digital age, mobile phones and web based advertising are pushing revenues. Advertising on the internet is the most cost-efficient way of reaching customers all over the world including one's own country. Indian advertising agencies need to wake up to the challenges posed by global economic trends and emerging interactive technologies like the Internet. Indian companies need to pay attention to characteristics of the new economy like open standards, digitalization, and volatility, as Internet-based communication offers "tremendous new opportunities for Indian companies via media convergence and re-intermediation." This also requires Indian advertising agencies to pay attention to the importance of online market research, since new media like the internet are bound to affect people's perceptions of advertising. The nature and time path of its evolution is subject to considerable uncertainty arising from issues relating to expansion of the Internet's penetration of households; consumer demand for information; development of pricing policies and measurement capabilities; and its attractiveness to advertisers in different product/ service categories. The analysis of these issues suggest that its long-term impact on intermedia rivalry will be broad and substantial. From Table 3 it would be noted that internet is emerging as an adaptive, hybrid medium with respect to the factors hypothesized to affect intermedia substitutability, namely, audience addressability, audience control, and contractual flexibility.

Table 3. Media mix Expenditures 2007 - 08

Medium Year 2007 Year 2008 % Growth(Rs Crores) (Rs. Crores)

TV 6823 6766 -0.8

Press 8304 8591 3.5

Radio 413 529 28.0

Cinema 167 194 16.0

Outdoor 908 1068 17.0

Internet 150 215 43.0

Total 16,765 17,356 3.5

Source: lintas media report, 2008

c) Expansion in the market regions

Over the years, media buyers have somehow squeezed out all the joy of using a 30 second commercial or a newspaper advertisement. The buying game is as much about reaching out to the people and giving them a compelling reason to remember or to buy a brand, as it is about a great deal. This is a fatal flaw that several agencies are now attempting to fix. Some of the more profitable Indian agencies, like Lodestar Media (a division of FCB ULKA), insist on or have a common balance sheet for media and creative, even though, operationally, they are different. The idea is to invest in tools and research which help the consumer connect better, without the pressure margins, that a separate profit centre involves. Most of these agencies are offshoots of advertising agencies and now they are going down the same path that ad firms went in late 1990s in their quest for growth, when media unbundling happened. The reason why the other countries are cropping up so early in India is because both media and media buying have grown without a pause for over 12 years now. The channels increased from two to two hundreds, from a few newspapers to hundreds fighting for advertisers attention. In last decade, media has quickly shifted from about 50 agencies to the hands of just eight major holding companies. So India has raced through decades of evolution at a breath- taking speed in 12 years. As the industry catches its breath, it is becoming evident that this growth ignored glaring deficiencies in the way the market is built. It is now time to pause and figure out just how and where growth will come from.

d) Advertisers' fight with rate obsession

Consolidation happened because several creative agencies typically handled different brands. So, if HUL has 30 brands, it could have anything between 8- 15 agencies, each doing the creative and media buying for the brands it handled. When there was one newspaper and one TV channel to buy, it did not matter. As the options increased, so did the complexities. Today one needs to choose between 100 channels, several dozen newspapers, half a dozen radio stations, outdoor cinema multiplexes, mobile and other options for advertising. Clearly, buying separately for each brand brings no economies of scale.

Agencies have a very little incentive to negotiate or cut cost. So in 1994, HLL (Now HUL) started experimenting by having one agency, Lintas, O & M , for six months each, to do all buying, and that straightway made a difference.

Over the last 8 years, media buying is about rates, rates and rates alone. That was the best way for agencies to show that they are good; that they get better GRPs for the same money, or more efficiencies, the measures of which have been simple and suspect for long. Despite the obvious difference, technically there is no difference the way the media and vegetable are being bought and sold. Most agencies are not fighting on the fact that they offer a better, more impressive way of reaching the consumer, but on rates. It is routine for agencies to take lower rate media and use it either to pitch for a business or to earn brownie points with advertisers.

e) Less Consolidation more fragmentation

There are some differences in the way consolidation of buying happened in India versus mature markets like the US and UK. The biggest one is how fragmented both the Indian consumer and media markets are. In India, there are no conglomerates that sells dozens of dominant brands of newspapers, TV stations, films, radio, and so on. There are very few media owners with some negotiating power; the rest are all small players. Media buying in India is complex because of too many languages and diversity. SAMSUNG is one of the largest ad spenders in India. It has 800 products which include 150 models in IT, TVs, scanners, IT equipments and others. Every year it launches about 150 models in IT, 20 in phones, 50 in audio and video, and about 30 in household appliances. The scale of its business, and of India, means that Samsung spends three times the money it did 3 years back to reach the same audience.

f) Value added services

Now a days, the best way for media agencies and owners to deliver impact is by offering the very things advertisers are looking for-whether it is inside a programme or outside. These could be in-content services. In last few years, non-traditional businesses grew at 100 %, against the 5-6 % growth in its regular

24 25"Pragyaan : Journal of Information Management" Volume 9 : Issue 1, June 2011 "Pragyaan : Journal of Information Management" " Volume 9 : Issue 1, June 2011

media buying and planning business. Madison now gets half its revenues from its non-media units. These include creative, Anugraha (for rural marketing), MRP( for Retail), and PR. Even media owners now try to offer 360 degree services.

2. Innovative market with advanced technologies

While it is true that new medium takes away a chunk of ad budget from other media, the total pull of mass media as a whole is under threat from the new innovative basket of media channels. This is because the adoption rate of the new media is quite fast. Besides gaining numbers very quickly, these non traditional media have emerged as cheaper and more effective options for advertisers. The various non-traditional tools are Internet advertising including rural marketing, search engine advertising, Blogging entertainment etc, Mobile SMS advertising, retail outlets advertising and word of mouth marketing. Internet's rapid acceptance and worldwide spread opened the floodgates for global advertisers. Banner ads promised to deliver eyeballs in large numbers. Viral marketing uses the pace of information flow online to spread communication messages. Pop-up ads that crop up at pre-determined time-intervals, are used to catch the surfers unawares and are very difficult to ignore. Entertainment as a medium began to be experimented through in-film and in-program advertising in movies and television programs respectively. Carefully planted brands in the background, characters mentioning or using a brand and deliberate panning of a prominently placed brand have become a media for attention. Cell phones' mass base quickly caught the attention of advertisers, for text based and visual advertisements. Similarly ATMs are being experimented with to display commercial messages. Consumerism and professional retailing lured more and more shoppers into outlets. Marketers, ever eager to catch customer's eyes, could not resist point of purchase advertising.

With media explosion reverberating all around and increasing competition amongst the brand marketers beginning to be eye-catching, media planners are now opting for the new technological developments available with outdoor advertising, in contrast to the traditional modes with limited options. Currently, the Indian outdoor advertising market

contributes 10% of the total advertising expenditure and has been growing at 20% 2007. 8% of the total advertising spend in India is being done through out-of-home advertising which has grown from 5% in 2003-04. The Indian outdoor media is growing steadily and it expected to grow to Rs.17,500 million with a compounded annual growth rate of 14%. As the efficiency of the print media is waning globally and due to the non-measurable ROI on advertising, the trend is gradually shifting to Out-of-Home advertising, which is becoming increasingly predominant. The assumption that the Internet will become a major advertising medium has been an important factor contributing to the growth of electronic commerce. For numerous fledgling Internet businesses, the prospects of becoming profitable are highly dependent on their ability to generate

sinceing

wasin 2010,

substantial amounts of revenue from the sale of advertising.

3. Growth of social media and networking

Despite the fact that the Indian online population is not very large, they have latched onto social media pretty early. Social networking sites and blogs are the most popular forms of social media, with a large following from the Indian online audience. Marketers are finding it easier to reach customers through tweets and forums than e-mails. Indian users are in the transition face for accessing the various networking sites and thus it is acting as an attraction for the media partners. Several Indian companies were advertising on Orkut via AdWords, which Google had integrated into Orkut a short while ago. However, rising problems, mainly cultural, forced Google to remove ads from Orkut. Several companies like MTV have sought out the option to run official communities on Orkut. At this time, Orkut does not offer varied advertising options similar to Facebook's sponsored groups, social ads, pages etc.

4. Paradigm shift in rural strategies

This is perhaps the first time that Indian companies have tried to understand the habits of rural consumers, their tastes, preferences & brand consciousness and surprisingly the rural consumers are more adaptive and aspired towards adoption of advanced technologies. The studies have shown a

Institute of Management Studies, DehradunChallenges of Indian Advertising agencies

straight jump from no-TV to DTH directly & no-Phone to mobile services from rural consumers. For last one year the rural market has gained strength, companies are developing a network to reach their products to the country's village and small towns in this economic tsunami. A paradigm shift in the policy of rural development has also taken place, with the rural poor treated as resource who form an integral part of the development strategy and not as burden. Indian advertisers are forced to develop strategies for the rural people as to capture maximum they can. The advertisers are highlighting the common or rural people in the advertisement in order to create their image. This is out of the compulsion because the urban market is saturated and also because the opportunity lies in this segment. Currently more than 74% of the total population makes the rural segment. Now, rural consumers are better exposed, better informed, have a greater choice and are in a position to demand the same service as urban consumers. Also, they've become far more discerning in terms of which brand they want to trust right across categories. Before 1995, there were no mobile phones in this country. In 2009, of all the phone users in India, only 9 % use landlines, the rest use mobile phones. In rural areas, they are graduating from no-phone to mobile phones. The case of direct-to-home television is the same, again from no-TV they are skipping cable and going straight to DTH. These examples show that rural consumers are more adaptive in adopting new concepts.

The Indian rural consumer lives in over 600,000 villages across the country and they account for over 70% of the population of the country. For several product categories, rural markets account for well over 60 per cent of the national demand. While the rural consumer is generally seen as less affluent than his urban cousin, things are changing in rural India over the last ten years.

Table 4: Percentage Distribution of Households and Income

Area Households PopulationRural 72.6% 74.6%Urban 27.4% 25.4%All India 100% 100%

Source: NCAER report

If 50% of your target market is in rural India, and if television delivers only a 26% reach, the marketers' have to think for other media to communicate with the users. The major consumers of products and services are lying in the rural areas and hence the need of the industry to target these people.

Also there is rise in the adoption of the technologies by the rural people. Today there are over 15 million villagers in India who are aware of the Internet and over 300,000 villagers have used it. Ten years back, history was created with Public Call Office phone booths (essentially manually operated payphone facilities), opening in every corner of the country. The Government of India moved a step further in its efforts to strengthen the reach of IT enabled services to the people in the rural areas by setting up 18,000 Common Service Centres (CSCs). These centers are part of the overall plan of the Government to establish one lakh CSCs in 600,000 villages ( the Ministry of Communications and IT Report). The rural consumers spend time and money to access higher level information. Studies have indicated that if the content has direct relevance and will result in commercial gains, people in rural areas are willing to pay for information services. Consumerism has altered rural buying behavior in recent years. Spending patterns of those who spend are now adapting to face the technology bug. Today's rural children and youth will grow up in an environment where they have 'information access' to education opportunities, exam results, career counseling, job opportunities, government schemes and services, health and legal advice and services, worldwide news and information, land records, mandi prices, weather forecasts, bank loans, livelihood options

5. Match fit of media mix with customers' expectations

Increased consumer's purchasing power, changing patterns, brand consciousness and easy payment demand more personal attention and professional services for their convenient living pattern. The advertisers have understood that the tastes and preferences of the consumers changes day by day, require prompt service to face cut throat

24 25"Pragyaan : Journal of Information Management" Volume 9 : Issue 1, June 2011 "Pragyaan : Journal of Information Management" " Volume 9 : Issue 1, June 2011

media buying and planning business. Madison now gets half its revenues from its non-media units. These include creative, Anugraha (for rural marketing), MRP( for Retail), and PR. Even media owners now try to offer 360 degree services.

2. Innovative market with advanced technologies

While it is true that new medium takes away a chunk of ad budget from other media, the total pull of mass media as a whole is under threat from the new innovative basket of media channels. This is because the adoption rate of the new media is quite fast. Besides gaining numbers very quickly, these non traditional media have emerged as cheaper and more effective options for advertisers. The various non-traditional tools are Internet advertising including rural marketing, search engine advertising, Blogging entertainment etc, Mobile SMS advertising, retail outlets advertising and word of mouth marketing. Internet's rapid acceptance and worldwide spread opened the floodgates for global advertisers. Banner ads promised to deliver eyeballs in large numbers. Viral marketing uses the pace of information flow online to spread communication messages. Pop-up ads that crop up at pre-determined time-intervals, are used to catch the surfers unawares and are very difficult to ignore. Entertainment as a medium began to be experimented through in-film and in-program advertising in movies and television programs respectively. Carefully planted brands in the background, characters mentioning or using a brand and deliberate panning of a prominently placed brand have become a media for attention. Cell phones' mass base quickly caught the attention of advertisers, for text based and visual advertisements. Similarly ATMs are being experimented with to display commercial messages. Consumerism and professional retailing lured more and more shoppers into outlets. Marketers, ever eager to catch customer's eyes, could not resist point of purchase advertising.

With media explosion reverberating all around and increasing competition amongst the brand marketers beginning to be eye-catching, media planners are now opting for the new technological developments available with outdoor advertising, in contrast to the traditional modes with limited options. Currently, the Indian outdoor advertising market

contributes 10% of the total advertising expenditure and has been growing at 20% 2007. 8% of the total advertising spend in India is being done through out-of-home advertising which has grown from 5% in 2003-04. The Indian outdoor media is growing steadily and it expected to grow to Rs.17,500 million with a compounded annual growth rate of 14%. As the efficiency of the print media is waning globally and due to the non-measurable ROI on advertising, the trend is gradually shifting to Out-of-Home advertising, which is becoming increasingly predominant. The assumption that the Internet will become a major advertising medium has been an important factor contributing to the growth of electronic commerce. For numerous fledgling Internet businesses, the prospects of becoming profitable are highly dependent on their ability to generate

sinceing

wasin 2010,

substantial amounts of revenue from the sale of advertising.

3. Growth of social media and networking

Despite the fact that the Indian online population is not very large, they have latched onto social media pretty early. Social networking sites and blogs are the most popular forms of social media, with a large following from the Indian online audience. Marketers are finding it easier to reach customers through tweets and forums than e-mails. Indian users are in the transition face for accessing the various networking sites and thus it is acting as an attraction for the media partners. Several Indian companies were advertising on Orkut via AdWords, which Google had integrated into Orkut a short while ago. However, rising problems, mainly cultural, forced Google to remove ads from Orkut. Several companies like MTV have sought out the option to run official communities on Orkut. At this time, Orkut does not offer varied advertising options similar to Facebook's sponsored groups, social ads, pages etc.

4. Paradigm shift in rural strategies

This is perhaps the first time that Indian companies have tried to understand the habits of rural consumers, their tastes, preferences & brand consciousness and surprisingly the rural consumers are more adaptive and aspired towards adoption of advanced technologies. The studies have shown a

Institute of Management Studies, DehradunChallenges of Indian Advertising agencies

straight jump from no-TV to DTH directly & no-Phone to mobile services from rural consumers. For last one year the rural market has gained strength, companies are developing a network to reach their products to the country's village and small towns in this economic tsunami. A paradigm shift in the policy of rural development has also taken place, with the rural poor treated as resource who form an integral part of the development strategy and not as burden. Indian advertisers are forced to develop strategies for the rural people as to capture maximum they can. The advertisers are highlighting the common or rural people in the advertisement in order to create their image. This is out of the compulsion because the urban market is saturated and also because the opportunity lies in this segment. Currently more than 74% of the total population makes the rural segment. Now, rural consumers are better exposed, better informed, have a greater choice and are in a position to demand the same service as urban consumers. Also, they've become far more discerning in terms of which brand they want to trust right across categories. Before 1995, there were no mobile phones in this country. In 2009, of all the phone users in India, only 9 % use landlines, the rest use mobile phones. In rural areas, they are graduating from no-phone to mobile phones. The case of direct-to-home television is the same, again from no-TV they are skipping cable and going straight to DTH. These examples show that rural consumers are more adaptive in adopting new concepts.

The Indian rural consumer lives in over 600,000 villages across the country and they account for over 70% of the population of the country. For several product categories, rural markets account for well over 60 per cent of the national demand. While the rural consumer is generally seen as less affluent than his urban cousin, things are changing in rural India over the last ten years.

Table 4: Percentage Distribution of Households and Income

Area Households PopulationRural 72.6% 74.6%Urban 27.4% 25.4%All India 100% 100%

Source: NCAER report

If 50% of your target market is in rural India, and if television delivers only a 26% reach, the marketers' have to think for other media to communicate with the users. The major consumers of products and services are lying in the rural areas and hence the need of the industry to target these people.

Also there is rise in the adoption of the technologies by the rural people. Today there are over 15 million villagers in India who are aware of the Internet and over 300,000 villagers have used it. Ten years back, history was created with Public Call Office phone booths (essentially manually operated payphone facilities), opening in every corner of the country. The Government of India moved a step further in its efforts to strengthen the reach of IT enabled services to the people in the rural areas by setting up 18,000 Common Service Centres (CSCs). These centers are part of the overall plan of the Government to establish one lakh CSCs in 600,000 villages ( the Ministry of Communications and IT Report). The rural consumers spend time and money to access higher level information. Studies have indicated that if the content has direct relevance and will result in commercial gains, people in rural areas are willing to pay for information services. Consumerism has altered rural buying behavior in recent years. Spending patterns of those who spend are now adapting to face the technology bug. Today's rural children and youth will grow up in an environment where they have 'information access' to education opportunities, exam results, career counseling, job opportunities, government schemes and services, health and legal advice and services, worldwide news and information, land records, mandi prices, weather forecasts, bank loans, livelihood options

5. Match fit of media mix with customers' expectations

Increased consumer's purchasing power, changing patterns, brand consciousness and easy payment demand more personal attention and professional services for their convenient living pattern. The advertisers have understood that the tastes and preferences of the consumers changes day by day, require prompt service to face cut throat

26 27"Pragyaan : Journal of Information Management" Volume 9 : Issue 1, June 2011 "Pragyaan : Journal of Information Management" " Volume 9 : Issue 1, June 2011

competition. Thus advertisers find out what matches consumer requirement and offer better than competitors'. It is not all about deciding the format but all about serving the consumer better, faster and at less cost. Advertisers certainly need to be innovative in designing the ads, campaigning, interactive media selection, and deciding the media mix to deliver that to the consumer.

6. Advertising associations and laws

The main objective of advertising associations is to identify the common priorities and potential areas of action for advertisers, both local and international, operating in the region. The participants agreed to re-convene on a regular basis in order to build on the cooperation and action developed during this first summit. The issues included self-regulation versus government regulation, appropriate and accurate media measurement and media monopolies, which lead to high media prices. Ad professionals debated the prolific increase in advertising expenditure across the Asia-Pacific, and the region. Ad professionals in Asia were particularly concerned about the increasing trend of introducing legislation to restrict advertising, which in turn leads to stifled innovation and competition and reduced consumer choice. This impacts economic growth, jobs, the press and media and becomes a burden that is ultimately shouldered by the consumer.

WFA called on the advertising and research industries to put transparent and effective systems of audience measurement in place, which would serve as an incentive for greater commercial communications expenditure (Hongkong Meet 2008). Increased diversity was suggested to ensure healthy competition and as a defense against increasing media ownership concentration, which, it was felt, was impacting on media costs and creating significant barriers to real and free competition.

Conclusions

The Indian advertisers are facing a transition phase where the strategies are implemented in order to survive and grow in this competitive market. Literature review shows that there are various phases

with dominance of particular media leading the market, and, also advertisers' choice of media is according to the demand of the market. The findings suggest that Indian market is fragmented and competition is enhancing as there is a lack of consolidation due to which the advertisers face rate obsession. This decade is dominant with the new advertising media option and thus the advertisers are focusing on innovation and advanced media tools. There is still a need to conduct research to explore the differences between small and big advertising agencies in India and their competency level.

References

1. Barwise, P. & Strong, C. (2002), “Permission-based mobile advertising”. Journal of Interactive Marketing, 16(1), pp. 1424.

2. Borden, N. (1942), “The Economic Effects of Advertising”, Chicago, IL: Richard Irwin, Inc

3. Bruner, G.c. & Kumar, A. (2000), “Web commercials and advertising hierarchy-of effects”, Journal of Advertising Research, 40(112), pp. 3542

4. Dicther, Ernest (1949), “A Psychological View of Advertising Effectiveness”, Journal of Marketing, Vol. 14, No. I, July 1949, pp. 61-66.

5. Ducoffe, Robert H, (1996), "Advertising Value and Advertising on the Web." Journal of advertising Research 36, 5(1996):21-35.

6. Hoffman, Donna L, Thomas P. Novak, And Patrali Ciiatterjee (1995) , "Commercial Scenarios for the Web: Opportunities and Challenges," Journal of Computer-Mediated Communication 1,3 (1995).

The paper concludes that the advertising agencies are experimenting with the new media, inculcating the desired changes in strategies, expanding their market horizons and coming forward to reshape the advertising trends. The paper suggests a tool that enables organizations to recognize how they should handle the critical situations and develop required changes in the strategies.

Institute of Management Studies, DehradunChallenges of Indian Advertising agencies

7. Joyce, Timothy (1967), “Advertising s Major Role? Bolstering Brand Loyalty”, Advertising Age, May 29, 1967a, pp. 69-70. 72.

8. Karson, E.j., Mccloy, S.d. & Bonner, P.g. ,(2006) “An examination of consumer attitudes and beliefs towards web site advertising”, Journal of Current Issues & Research in Advertising, 28(2), pp. 7791.

9. Kim, J. & Mcmillion, S.j.,(2008), “ Evaluation of internet advertising research: a bibliometric analysis of citations from key sources”, Journal of Advertising, 37(1), pp. 99112.

10. Lavidge, Robert J. And Gary A. Steiner(1961), “A Model for Predictive Measurements of Advertising Effectiveness”, Journal of Marketing, Vol. 25, No. 6. October 1961, pp. 59-62.

11. Leavitt, Clark.(1970) , “A Multidimensional Set of Rating Scales for Television Commercials”, journal of Applied Psychology. Vol. 54, No. 5, October 1970, pp. 427-429.

12. Malcolm Wright (2009), “A New Theorem for Optimizing the Advertising Budget”, Journal of advertising research, June, 2009

13. Mendelson, Harold (1963), “The Process of the Effect of Television in Inducing Action” , In Leon Arons and Mark . May (Eds.I. Television and Human Behavior. New York: Appleton-Centurv- Crofts. 1963.

14. Morrison; B, J,, and M,J. DAÍNOFF, "Advertisement Complexity and Looking Time," Journal of Marketing Research 9, 4 (1972): 396- 400.

15. Novak, Thomas P., and DONNA L, HOFRVIAN, "New Metrics for New Media: Towa rd th e Deve l opmen t o f Web Measurement Standards." Project 2000, 1996.

16. Pagnani, M., Determinants of adoption of third generation mobile multimedia Services, Journal of Interactive Marketing, (2004) 18(3), pp. 4659.

17. Pedrick, J. H., and F. S.ZUFRYDEN. "Evaluating the Impact of Advertising Media Plans: A

18. Model of Consumer Purchase Dynamics Using Single-Source Data," Marketing Science 10, 3(1991):111-30,

19. Stephenson, William (1967), The Flax Theory of Mass Communication. Chicago: University of Chicago Press, 1967.

20. Stevenson,). C, G. C. Bruner Ii, and A. Kumar. "Webpage Background and Viewer Attitudes." Journal of Advertising Research 40, 1 & 2 (2000) 29-34.

21. Stewart, David, And D. H.furse. Effective Television Advertising: A Study of 1000 Commercials. Lexington, MA: Lexington Books, 1986

22. Unni, R. & Harmon, R. (2007) Perceived effectiveness of push Vs pull mobile location based Advertising, Journal of Interactive Advertising, 7(2), pp. 154177.

23. William Wells, (1970), “Improving Day-After Recall Techniques”. Journal of Advertising Research. Vol. 10, No. 3. June 1970. pp. 13-17

24. Wright, P.l. (1973), “The cognitive processes mediating acceptance of advertising”, Journal of Marketing Research, 10 (February), pp. 5362.

25. Yale. L. And M,c. Gilly, (1988) , "Trends in Advertising Research: A Look at the Content of Marketing-Oriented Journals from 1976 to 1985," Journal of Advertising, (1988), 17 (1). 12- 22.

26. Zufryden, Fred S, (1987) "A Model for Relating Advertising Media Exposures to Purchase Incidence Behavior Patterns." Management Science 33, 10(1987):1253-66.

Challenges of Indian Advertising agencies

26 27"Pragyaan : Journal of Information Management" Volume 9 : Issue 1, June 2011 "Pragyaan : Journal of Information Management" " Volume 9 : Issue 1, June 2011

competition. Thus advertisers find out what matches consumer requirement and offer better than competitors'. It is not all about deciding the format but all about serving the consumer better, faster and at less cost. Advertisers certainly need to be innovative in designing the ads, campaigning, interactive media selection, and deciding the media mix to deliver that to the consumer.

6. Advertising associations and laws

The main objective of advertising associations is to identify the common priorities and potential areas of action for advertisers, both local and international, operating in the region. The participants agreed to re-convene on a regular basis in order to build on the cooperation and action developed during this first summit. The issues included self-regulation versus government regulation, appropriate and accurate media measurement and media monopolies, which lead to high media prices. Ad professionals debated the prolific increase in advertising expenditure across the Asia-Pacific, and the region. Ad professionals in Asia were particularly concerned about the increasing trend of introducing legislation to restrict advertising, which in turn leads to stifled innovation and competition and reduced consumer choice. This impacts economic growth, jobs, the press and media and becomes a burden that is ultimately shouldered by the consumer.

WFA called on the advertising and research industries to put transparent and effective systems of audience measurement in place, which would serve as an incentive for greater commercial communications expenditure (Hongkong Meet 2008). Increased diversity was suggested to ensure healthy competition and as a defense against increasing media ownership concentration, which, it was felt, was impacting on media costs and creating significant barriers to real and free competition.

Conclusions

The Indian advertisers are facing a transition phase where the strategies are implemented in order to survive and grow in this competitive market. Literature review shows that there are various phases

with dominance of particular media leading the market, and, also advertisers' choice of media is according to the demand of the market. The findings suggest that Indian market is fragmented and competition is enhancing as there is a lack of consolidation due to which the advertisers face rate obsession. This decade is dominant with the new advertising media option and thus the advertisers are focusing on innovation and advanced media tools. There is still a need to conduct research to explore the differences between small and big advertising agencies in India and their competency level.

References

1. Barwise, P. & Strong, C. (2002), “Permission-based mobile advertising”. Journal of Interactive Marketing, 16(1), pp. 1424.

2. Borden, N. (1942), “The Economic Effects of Advertising”, Chicago, IL: Richard Irwin, Inc

3. Bruner, G.c. & Kumar, A. (2000), “Web commercials and advertising hierarchy-of effects”, Journal of Advertising Research, 40(112), pp. 3542

4. Dicther, Ernest (1949), “A Psychological View of Advertising Effectiveness”, Journal of Marketing, Vol. 14, No. I, July 1949, pp. 61-66.

5. Ducoffe, Robert H, (1996), "Advertising Value and Advertising on the Web." Journal of advertising Research 36, 5(1996):21-35.

6. Hoffman, Donna L, Thomas P. Novak, And Patrali Ciiatterjee (1995) , "Commercial Scenarios for the Web: Opportunities and Challenges," Journal of Computer-Mediated Communication 1,3 (1995).

The paper concludes that the advertising agencies are experimenting with the new media, inculcating the desired changes in strategies, expanding their market horizons and coming forward to reshape the advertising trends. The paper suggests a tool that enables organizations to recognize how they should handle the critical situations and develop required changes in the strategies.

Institute of Management Studies, DehradunChallenges of Indian Advertising agencies

7. Joyce, Timothy (1967), “Advertising s Major Role? Bolstering Brand Loyalty”, Advertising Age, May 29, 1967a, pp. 69-70. 72.

8. Karson, E.j., Mccloy, S.d. & Bonner, P.g. ,(2006) “An examination of consumer attitudes and beliefs towards web site advertising”, Journal of Current Issues & Research in Advertising, 28(2), pp. 7791.

9. Kim, J. & Mcmillion, S.j.,(2008), “ Evaluation of internet advertising research: a bibliometric analysis of citations from key sources”, Journal of Advertising, 37(1), pp. 99112.

10. Lavidge, Robert J. And Gary A. Steiner(1961), “A Model for Predictive Measurements of Advertising Effectiveness”, Journal of Marketing, Vol. 25, No. 6. October 1961, pp. 59-62.

11. Leavitt, Clark.(1970) , “A Multidimensional Set of Rating Scales for Television Commercials”, journal of Applied Psychology. Vol. 54, No. 5, October 1970, pp. 427-429.

12. Malcolm Wright (2009), “A New Theorem for Optimizing the Advertising Budget”, Journal of advertising research, June, 2009

13. Mendelson, Harold (1963), “The Process of the Effect of Television in Inducing Action” , In Leon Arons and Mark . May (Eds.I. Television and Human Behavior. New York: Appleton-Centurv- Crofts. 1963.

14. Morrison; B, J,, and M,J. DAÍNOFF, "Advertisement Complexity and Looking Time," Journal of Marketing Research 9, 4 (1972): 396- 400.

15. Novak, Thomas P., and DONNA L, HOFRVIAN, "New Metrics for New Media: Towa rd th e Deve l opmen t o f Web Measurement Standards." Project 2000, 1996.

16. Pagnani, M., Determinants of adoption of third generation mobile multimedia Services, Journal of Interactive Marketing, (2004) 18(3), pp. 4659.

17. Pedrick, J. H., and F. S.ZUFRYDEN. "Evaluating the Impact of Advertising Media Plans: A

18. Model of Consumer Purchase Dynamics Using Single-Source Data," Marketing Science 10, 3(1991):111-30,

19. Stephenson, William (1967), The Flax Theory of Mass Communication. Chicago: University of Chicago Press, 1967.

20. Stevenson,). C, G. C. Bruner Ii, and A. Kumar. "Webpage Background and Viewer Attitudes." Journal of Advertising Research 40, 1 & 2 (2000) 29-34.

21. Stewart, David, And D. H.furse. Effective Television Advertising: A Study of 1000 Commercials. Lexington, MA: Lexington Books, 1986

22. Unni, R. & Harmon, R. (2007) Perceived effectiveness of push Vs pull mobile location based Advertising, Journal of Interactive Advertising, 7(2), pp. 154177.

23. William Wells, (1970), “Improving Day-After Recall Techniques”. Journal of Advertising Research. Vol. 10, No. 3. June 1970. pp. 13-17

24. Wright, P.l. (1973), “The cognitive processes mediating acceptance of advertising”, Journal of Marketing Research, 10 (February), pp. 5362.

25. Yale. L. And M,c. Gilly, (1988) , "Trends in Advertising Research: A Look at the Content of Marketing-Oriented Journals from 1976 to 1985," Journal of Advertising, (1988), 17 (1). 12- 22.

26. Zufryden, Fred S, (1987) "A Model for Relating Advertising Media Exposures to Purchase Incidence Behavior Patterns." Management Science 33, 10(1987):1253-66.

Challenges of Indian Advertising agencies

28 29"Pragyaan : Journal of Information Management" Volume 9 : Issue 1, June 2011 "Pragyaan : Journal of Information Management" " Volume 9 : Issue 1, June 2011

*Dr.Rajeshwari Panigrahi is an Associate Professor, GITAM Institute of Management GITAM University* *Prof K.C Raut is a senior Professor in Dept of Commerce Berhampur university with more than 25 years of teaching and research experience in the area of Marketing and Consumer Behavior, e-mail: kc123raut@yahoo.com

Introduction

Corporatization of agriculture can be traced back to the forced commercialisation of agriculture under the aegis of East India company where farmers

th thwere forced in 18 and 19 century to cultivate opium and Indigo for the benefit of the Company leading to loss of the fertile quality of the land rendering it unsuitable for any other crop cultivation which resulted in India losing its independence for food grains at the time of independence.

After independence, India heavily relied on foreign countries for its food grains requirement. Being an agrarian economy which was once independent and self sufficient for all types of agricultural requirements had become dependent on other countries because of hostile policies of East India Company. Subsequently, the Indian Policy makers tried hard to get to the previous status of self sufficiency but attained it only after green revolution which made India largely self sufficient and an exporter of food grains. Agriculture contributes significantly to the Indian economy. In the year 2009-10, it contributed 14.6% to GDP, 10.23% to exports and provided employment to 55% of the workforce.

For a long time, Indian government discouraged private and corporate participation in

Corporatisation of Agriculture in India- A Study of Contract Farming

Rajeshwari Panigrahi* K.C Raut**

ABSTRACT

Indian Agriculture has been under policy reforms for some time now. With the onset of liberalisation and globalisation, technology has entered even the farms as the need for greater productivity and output is being realised all over the world to meet the growing demands of food grains. Contract farming has been in existence for some years from now mainly as a means of organising the commercial production of agriculture by both large scale and small scale farmers. Yet the expanding agri- business unfolds a foreseen danger for the small-scale farmers who will find it difficult to sustain and participate in the market economy. This paper therefore intends to identify the extent of penetration of corporate farming in India, and the resulting implications thereof.

Key Words : Corporate Farming, Contract Farming, Product Processor, Distributor.

agriculture, because corporatisation of agriculture could lead to cultivation of cash crops instead of food grains making India dependent on imports for its basic food necessities.

With the emergence of a market oriented economy and increasing need for food grains and other agriculture products, the Indian government recognised the need of liberalisation, globalisation, privatisation and rapid expansion of agro-business in order to meet the growing demand. With the urbanisation of rural areas and migration of rural population to urban areas for better living and in search of alternative occupations, the land holdings under agriculture have consolidated facilitating use of modern technology and the government encouraged the participation of corporate houses to ensure capital inflow for better use of technology and better output of agriculture sector.

The national agricultural policy thus, envisages that "private sector” participation will be promoted through contract farming and land leasing arrangements (corporate farming) to allow accelerated technology transfer, capital inflow and an assured market for crop production, especially of oilseeds, cotton and horticultural crops, leading to two types of private participation models i.e. corporate farming (land leasing arrangements) and contract farming

Objectives :

(i) To identify the need for legalising corporate farming in India.

(ii) To understand the scope, rationale and limitations of contract farming in India.

(iii) To understand successful models of contract farming in India

(iv) To identify the implications of corporate farming.

(v) To know the current scenario of contract farming in India

Methodology

The research depends on secondary data and information which is used for further analysis to draw suitable inferences.

Theoretical Framework

Corporate Farming

Corporate Farming is a term that describes the business of agriculture where mega-corporations are involved in food production on a very large scale. It is a modern food industry concept which encompasses a chain of agricultural related business viz., seed supply, agro-chemicals, food processing machinery, storage, transportation, distribution, marketing, advertising and retail sales. The ultimate goal of corporate farming is to integrate the entire process of food production, up to the point of distribution and sale of food to the consumers which means retailing of the food products. As a broad term, corporate farming deals with the general practices and effects of a small number of large global corporations that dominate the food industry with better capital and technology inflow (Wikipedia). As a part of corporate farming initiation, waste cultivable and uncultivable land will

be allotted to approve projects submitted for development of such land for cultivation and subsequent agricultural production.

Contract Farming

Contract farming is defined as a system for producing and supplying agricultural/horticultural produce under forward contract between producers/suppliers and buyers. The essence of such an arrangement is the commitment of the producer/seller to provide an agricultural commodity of a certain type, at a time and price and the quantity required by a known and committed buyer (Crisil report).

Contract farming has also taken a new dimension whereby, farmers with small land holdings can come together to form companies in which they would be the joint owners along with the corporate entities supporting these groups by engaging in agro-processing and trading to support the farmers.

If the framework works out, the new-found love of corporates like ITC, Bharti and Reliance for farm produce could create a new breed of companies in which farmers rub shoulders with corporate biggies on company boards. Farmers would pool their land and that would form their contribution to the capital base of the company. While farmers would hold equity stake in the company in proportion to the land contributed by them, companies involved in agro-processing or trading would have their stake capped at 25%.

Legal Frame Work

The National Agriculture Policy (NAP) was enunciated in July 2000. The NAP does not, quite correctly, emphasise corporate farming. It encourages participation of the corporate sector through contract farming and land leases to allow technology transfer, capital inflows and assured markets and through collaboration between producer, co-operatives and companies to promote the agro-processing industry.

The NAP emphasises the importance of improving farm productivity and incomes and the reduction of risk through commodity futures. However, the NAP incorrectly ignores the composite

30 "Pragyaan : Journal of Information Management" Volume 9 : Issue 1, June 2011 31"Pragyaan : Journal of Information Management" " Volume 9 : Issue 1, June 2011

Corporatisation of Agriculture in India- A Study of Contract Farming

28 29"Pragyaan : Journal of Information Management" Volume 9 : Issue 1, June 2011 "Pragyaan : Journal of Information Management" " Volume 9 : Issue 1, June 2011

*Dr.Rajeshwari Panigrahi is an Associate Professor, GITAM Institute of Management GITAM University* *Prof K.C Raut is a senior Professor in Dept of Commerce Berhampur university with more than 25 years of teaching and research experience in the area of Marketing and Consumer Behavior, e-mail: kc123raut@yahoo.com

Introduction

Corporatization of agriculture can be traced back to the forced commercialisation of agriculture under the aegis of East India company where farmers

th thwere forced in 18 and 19 century to cultivate opium and Indigo for the benefit of the Company leading to loss of the fertile quality of the land rendering it unsuitable for any other crop cultivation which resulted in India losing its independence for food grains at the time of independence.

After independence, India heavily relied on foreign countries for its food grains requirement. Being an agrarian economy which was once independent and self sufficient for all types of agricultural requirements had become dependent on other countries because of hostile policies of East India Company. Subsequently, the Indian Policy makers tried hard to get to the previous status of self sufficiency but attained it only after green revolution which made India largely self sufficient and an exporter of food grains. Agriculture contributes significantly to the Indian economy. In the year 2009-10, it contributed 14.6% to GDP, 10.23% to exports and provided employment to 55% of the workforce.

For a long time, Indian government discouraged private and corporate participation in

Corporatisation of Agriculture in India- A Study of Contract Farming

Rajeshwari Panigrahi* K.C Raut**

ABSTRACT

Indian Agriculture has been under policy reforms for some time now. With the onset of liberalisation and globalisation, technology has entered even the farms as the need for greater productivity and output is being realised all over the world to meet the growing demands of food grains. Contract farming has been in existence for some years from now mainly as a means of organising the commercial production of agriculture by both large scale and small scale farmers. Yet the expanding agri- business unfolds a foreseen danger for the small-scale farmers who will find it difficult to sustain and participate in the market economy. This paper therefore intends to identify the extent of penetration of corporate farming in India, and the resulting implications thereof.

Key Words : Corporate Farming, Contract Farming, Product Processor, Distributor.

agriculture, because corporatisation of agriculture could lead to cultivation of cash crops instead of food grains making India dependent on imports for its basic food necessities.

With the emergence of a market oriented economy and increasing need for food grains and other agriculture products, the Indian government recognised the need of liberalisation, globalisation, privatisation and rapid expansion of agro-business in order to meet the growing demand. With the urbanisation of rural areas and migration of rural population to urban areas for better living and in search of alternative occupations, the land holdings under agriculture have consolidated facilitating use of modern technology and the government encouraged the participation of corporate houses to ensure capital inflow for better use of technology and better output of agriculture sector.

The national agricultural policy thus, envisages that "private sector” participation will be promoted through contract farming and land leasing arrangements (corporate farming) to allow accelerated technology transfer, capital inflow and an assured market for crop production, especially of oilseeds, cotton and horticultural crops, leading to two types of private participation models i.e. corporate farming (land leasing arrangements) and contract farming

Objectives :

(i) To identify the need for legalising corporate farming in India.

(ii) To understand the scope, rationale and limitations of contract farming in India.

(iii) To understand successful models of contract farming in India

(iv) To identify the implications of corporate farming.

(v) To know the current scenario of contract farming in India

Methodology

The research depends on secondary data and information which is used for further analysis to draw suitable inferences.

Theoretical Framework

Corporate Farming

Corporate Farming is a term that describes the business of agriculture where mega-corporations are involved in food production on a very large scale. It is a modern food industry concept which encompasses a chain of agricultural related business viz., seed supply, agro-chemicals, food processing machinery, storage, transportation, distribution, marketing, advertising and retail sales. The ultimate goal of corporate farming is to integrate the entire process of food production, up to the point of distribution and sale of food to the consumers which means retailing of the food products. As a broad term, corporate farming deals with the general practices and effects of a small number of large global corporations that dominate the food industry with better capital and technology inflow (Wikipedia). As a part of corporate farming initiation, waste cultivable and uncultivable land will

be allotted to approve projects submitted for development of such land for cultivation and subsequent agricultural production.

Contract Farming

Contract farming is defined as a system for producing and supplying agricultural/horticultural produce under forward contract between producers/suppliers and buyers. The essence of such an arrangement is the commitment of the producer/seller to provide an agricultural commodity of a certain type, at a time and price and the quantity required by a known and committed buyer (Crisil report).

Contract farming has also taken a new dimension whereby, farmers with small land holdings can come together to form companies in which they would be the joint owners along with the corporate entities supporting these groups by engaging in agro-processing and trading to support the farmers.

If the framework works out, the new-found love of corporates like ITC, Bharti and Reliance for farm produce could create a new breed of companies in which farmers rub shoulders with corporate biggies on company boards. Farmers would pool their land and that would form their contribution to the capital base of the company. While farmers would hold equity stake in the company in proportion to the land contributed by them, companies involved in agro-processing or trading would have their stake capped at 25%.

Legal Frame Work

The National Agriculture Policy (NAP) was enunciated in July 2000. The NAP does not, quite correctly, emphasise corporate farming. It encourages participation of the corporate sector through contract farming and land leases to allow technology transfer, capital inflows and assured markets and through collaboration between producer, co-operatives and companies to promote the agro-processing industry.

The NAP emphasises the importance of improving farm productivity and incomes and the reduction of risk through commodity futures. However, the NAP incorrectly ignores the composite

30 "Pragyaan : Journal of Information Management" Volume 9 : Issue 1, June 2011 31"Pragyaan : Journal of Information Management" " Volume 9 : Issue 1, June 2011

Corporatisation of Agriculture in India- A Study of Contract Farming

role that forward contracts could play in improving productivity and incomes and reducing risk. (Business Line,2001). As a policy to encourage participation of corporate houses in agriculture, the government ensures a 20-year lease of wasteland to big business houses and individually capable (big) farmers.

Scope of Contract Farming

In India, contract farming is classified into following three categories :

1. Procurement contracts under which only produce, sale and purchase conditions are specified

2. Resource provision contracts where in some of the inputs are supplied by the contracting farm and the produce is bought at pre-agreed prices.

3. Total contracts under which the contracting firm supplies and manages all the inputs on the farm and the farmer becomes just a supplier of land and labour.

The first type is generally a marketing contract (Nestle model) and the other types are production contracts viz., MDVFL Model (Scott, 1984; Welsh, 1997). The relevance and importance of each type of contract depends on the type of the product and the time. The relevance and importance of each type varies from product to product and over time and these types are not mutually exclusive (Hill and Ingersent, 1987; Key and Runsten, 1999). There is a link between product and the market factor under the contractual agreement as these necessarily require a definite quality of produce and therefore, needs specific type of inputs (Scott, 1984; Little, 1994). Different types of production contracts allocate production and market risks between the producer and the processor in different ways.

Rationale of Contract farming

The rationale for both the farmers and the farm product processors/distributors for preferring contract farming are discussed below.

Rationale for farmers

1. A farmer may prefer a contract which can be terminated at reasonably short notice without much legal hassles.

2. Contracting gives access to additional sources of capital with a reasonably certain price by shifting part of the risk of adverse price movement to the buyer (Hill and Ingersent , 1987).

3. Farmers also get an access to new technological inputs including credit through contracts (Glover, 1987; Eaton and Shepherd, 2001).

Rationale for the farm product processor/ distributors

1. Contract farming is a better alternative to corporate farming because corporate farming can be more risky and requires lots of investment which can be difficult to manage especially for new entrants and may not be viable. (Payer, 1980).

2. For a corporate who wants to venture into farming as a fresh initiative especially those interested in marketing contracts like processing and distributor firms' contract arrangements are more flexible and needs less investment and impose less additional burden of labour relationships, ownership of land and production activities in the face of market uncertainty (Buch-Hansen and Marcussen, 1982; Kirk, 1987). The firm gets access to unpaid family labour (White 1997) that can make use of state funds which are directed at farmers by developmental agencies (Clapp 1988).

3. Food processing units receive a continuous supply of raw material which enables them to use their capacity at the optimum level and reducing their operating cost (Kirk. 1987).

4. Product quality is ensured as it's pre-determined and any deterioration in the quality has financial consequences. (Wolf et al, 2001).

5. Contract farming reduces market imperfections in the produce capital (credit), land, labour, information and insurance markets at a micro economic level. (Grosh, 1994; Key and Runsten, 1999)

Institute of Management Studies, Dehradun

6. Contracts help in reducing transaction cost and facilitate better coordination of local production activities which often involve initial investment in processing, extension etc. (Grosh, 1994; Key and Runsten, 1999).

7 . Contract farming is used as a policy step by the state to bring about crop diversification and to improve farm incomes and employment opportunities. Because of economies of scale, contract farming is seen as a way to reduce production and marketing costs. It also provides access to better inputs and more efficient production methods. (Benziger 1996; Singh, 2000).

8. Agro-business firms create more positive externalities like employment, market development or infrastructure (Key and Runsten, 1999).

9. Contributes to development in the agricultural sector in the fields of inputs, product exchange, and product upgrading through research and innovations (Glover, 1987, Christensen, 1992)

Advantages for the farmers

1. Provision of inputs and production services;

2. Access to credit;

3. Introduction of appropriate technology;

4. Skill transfer;

5. Guaranteed and fixed pricing structures; and

6. Access to reliable markets.

Limitations for farmers

For farmers, the potential problems associated with contract farming include:

1. Increased risk

2. Un s u i t a b l e t e c h n o l o g y a n d c r o p incompatibility

3. Manipulation of quotas and quality specifications

4. Corruption;

5. Domination by monopolies

6. Indebtedness and over reliance on advances.

As a part of the study, this paper also intends to look into some of the successful corporate/contract farming models and understand the popular types of such models available.

Direct Procurement Models

Direct procurement models are the agreements between the firm and the farm which range from simple marketing agreements to risk sharing and the forward and futures contracting. In a bid to keep their supply chain moving, processors and retailers may choose to source raw materials from government regulated market yards, small traders or even from farmers. Direct procurement is preferred to reduce the transaction costs and eliminate any quality problems associated with procuring. In such an arrangement there is no contractual tie-up with the farmers and everyone is free to sell their produce subject to certain quality criteria. Indian retailers such as Amul, Reliance, Spencer's, Subhiksha, and Food Bazaar currently use this procurement model.

Advantages

(i) It reduce transaction costs and quality problems.

(ii) There is no contractual tie-up with the farmers and they are free to sell or not to sell in such an arrangement.

(iii) The chances of exploitation of the farmers by the corporate in a country like India where there i s low leve l o f l i t e racy and understanding of corporate laws i s automatically minimised.

32 "Pragyaan : Journal of Information Management" Volume 9 : Issue 1, June 2011 33"Pragyaan : Journal of Information Management" " Volume 9 : Issue 1, June 2011

role that forward contracts could play in improving productivity and incomes and reducing risk. (Business Line,2001). As a policy to encourage participation of corporate houses in agriculture, the government ensures a 20-year lease of wasteland to big business houses and individually capable (big) farmers.

Scope of Contract Farming

In India, contract farming is classified into following three categories :

1. Procurement contracts under which only produce, sale and purchase conditions are specified

2. Resource provision contracts where in some of the inputs are supplied by the contracting farm and the produce is bought at pre-agreed prices.

3. Total contracts under which the contracting firm supplies and manages all the inputs on the farm and the farmer becomes just a supplier of land and labour.

The first type is generally a marketing contract (Nestle model) and the other types are production contracts viz., MDVFL Model (Scott, 1984; Welsh, 1997). The relevance and importance of each type of contract depends on the type of the product and the time. The relevance and importance of each type varies from product to product and over time and these types are not mutually exclusive (Hill and Ingersent, 1987; Key and Runsten, 1999). There is a link between product and the market factor under the contractual agreement as these necessarily require a definite quality of produce and therefore, needs specific type of inputs (Scott, 1984; Little, 1994). Different types of production contracts allocate production and market risks between the producer and the processor in different ways.

Rationale of Contract farming

The rationale for both the farmers and the farm product processors/distributors for preferring contract farming are discussed below.

Rationale for farmers

1. A farmer may prefer a contract which can be terminated at reasonably short notice without much legal hassles.

2. Contracting gives access to additional sources of capital with a reasonably certain price by shifting part of the risk of adverse price movement to the buyer (Hill and Ingersent , 1987).

3. Farmers also get an access to new technological inputs including credit through contracts (Glover, 1987; Eaton and Shepherd, 2001).

Rationale for the farm product processor/ distributors

1. Contract farming is a better alternative to corporate farming because corporate farming can be more risky and requires lots of investment which can be difficult to manage especially for new entrants and may not be viable. (Payer, 1980).

2. For a corporate who wants to venture into farming as a fresh initiative especially those interested in marketing contracts like processing and distributor firms' contract arrangements are more flexible and needs less investment and impose less additional burden of labour relationships, ownership of land and production activities in the face of market uncertainty (Buch-Hansen and Marcussen, 1982; Kirk, 1987). The firm gets access to unpaid family labour (White 1997) that can make use of state funds which are directed at farmers by developmental agencies (Clapp 1988).

3. Food processing units receive a continuous supply of raw material which enables them to use their capacity at the optimum level and reducing their operating cost (Kirk. 1987).

4. Product quality is ensured as it's pre-determined and any deterioration in the quality has financial consequences. (Wolf et al, 2001).

5. Contract farming reduces market imperfections in the produce capital (credit), land, labour, information and insurance markets at a micro economic level. (Grosh, 1994; Key and Runsten, 1999)

Institute of Management Studies, Dehradun

6. Contracts help in reducing transaction cost and facilitate better coordination of local production activities which often involve initial investment in processing, extension etc. (Grosh, 1994; Key and Runsten, 1999).

7 . Contract farming is used as a policy step by the state to bring about crop diversification and to improve farm incomes and employment opportunities. Because of economies of scale, contract farming is seen as a way to reduce production and marketing costs. It also provides access to better inputs and more efficient production methods. (Benziger 1996; Singh, 2000).

8. Agro-business firms create more positive externalities like employment, market development or infrastructure (Key and Runsten, 1999).

9. Contributes to development in the agricultural sector in the fields of inputs, product exchange, and product upgrading through research and innovations (Glover, 1987, Christensen, 1992)

Advantages for the farmers

1. Provision of inputs and production services;

2. Access to credit;

3. Introduction of appropriate technology;

4. Skill transfer;

5. Guaranteed and fixed pricing structures; and

6. Access to reliable markets.

Limitations for farmers

For farmers, the potential problems associated with contract farming include:

1. Increased risk

2. Un s u i t a b l e t e c h n o l o g y a n d c r o p incompatibility

3. Manipulation of quotas and quality specifications

4. Corruption;

5. Domination by monopolies

6. Indebtedness and over reliance on advances.

As a part of the study, this paper also intends to look into some of the successful corporate/contract farming models and understand the popular types of such models available.

Direct Procurement Models

Direct procurement models are the agreements between the firm and the farm which range from simple marketing agreements to risk sharing and the forward and futures contracting. In a bid to keep their supply chain moving, processors and retailers may choose to source raw materials from government regulated market yards, small traders or even from farmers. Direct procurement is preferred to reduce the transaction costs and eliminate any quality problems associated with procuring. In such an arrangement there is no contractual tie-up with the farmers and everyone is free to sell their produce subject to certain quality criteria. Indian retailers such as Amul, Reliance, Spencer's, Subhiksha, and Food Bazaar currently use this procurement model.

Advantages

(i) It reduce transaction costs and quality problems.

(ii) There is no contractual tie-up with the farmers and they are free to sell or not to sell in such an arrangement.

(iii) The chances of exploitation of the farmers by the corporate in a country like India where there i s low leve l o f l i t e racy and understanding of corporate laws i s automatically minimised.

32 "Pragyaan : Journal of Information Management" Volume 9 : Issue 1, June 2011 33"Pragyaan : Journal of Information Management" " Volume 9 : Issue 1, June 2011

Institute of Management Studies, DehradunCorporatisation of Agriculture in India- A Study of Contract Farming

Some Successful direct procurement models of contract farming

Success of contract farming can be examined by three different models of contract farming adopted by firms dealing with three different commodities viz., milk, vegetables and Boilers (Birthal 2005)

Contract farming in dairying takes form of an intermediate contract. The model was developed and is being implemented by the Nestle India Limited. It is well-known that dairying in India is an integral part of rural economy, yet its scale of production is too small for a majority of the households to generate cash benefits (Birthal, 2007)

Contract Farming Models in India

With 62 percent farm households in India producing only 24% of the total milk, Nestle wanted to reduce the cost of contracting with such a large number of small producers. Hence it followed an intermediate model where a local villager was appointed as an agent. The agent collects milk from small scale producers and also facilitates distribution of inputs and delivery of services with this agreement. Nestle was assured of the procurement because of this contractual agreement. The contract farming scheme of the Nestle now covers about 100 thousand dairy farmers in over 1500 villages in several districts of Punjab. In 2005, Nestle collected 438 million kg of

milk from farmers. The Intermediate option being the dominant one the firm also started direct contracting with the large producers. Most of the milk collected by Nestle firm is processed into value- added products like baby food, butter, ghee, curd, etc. The firm observes strict food safety and quality standards right from the milk production stage. It has a well-developed traceability and milk chilling systems, and for quality milk supplies it encourages farmers to use milking machines and quality inputs. This model was proven successful and was used subsequently by other companies.

Table-3. Economics of Contract Versus Non-contract Production of Milk.

Source : Birthal et al. (2005)

The data provided in table 3 clearly presents the success of contract farming of milk which shows the positive improvement in yield and reduction in the production and marketing cost and thereby in total cost. This means an increase in yield and decrease in the cost that results in an increase in the net revenue.

Mother Diary Model : Mother Diary fruits and vegetable Ltd. (MDFVL)

Mother diary fruits and vegetables limited is a pioneer case of contract farming in vegetables. Widely dispersed horticulture in India led to a new model of contract farming. 15% farm households in India grow vegetables and 5% grow fruits (Birthal et

al., 2007), which means high transaction costs to the firms in securing supplies from scattered suppliers. MDFVL reduces these costs and also secures the supply from associations promoted by it. Firm also provides technical guidance, services and inputs to association members whereby ascertaining that the farmers follow production and marketing practices. MDFVL (earlier called SAFAL) is an organised retail chain started in 1988 in Delhi. MDFVL secures its supplies from 300 growers spread across the country and also has an almost equal number of retail outlets across Delhi.

Venkateshwara Hatcheries Limited (VHL)

The model of contract farming in broilers in India is a replica of what prevails in most other countries. Firms provide day-old chicks, feed, vaccines and services to farmers at no cost to them, and lift entire output by paying fixed growing charges (per kilogram of body weight of bird) in lieu of their contribution to cost (labour, water and electricity charges, litter and rent for poultry shed and equipment). Farmers are thus insured against market risks.

The case of contract farming in broilers relates to the Venkateshwara Hatcheries Limited (VHL) - one of the leading firms in poultry business in India since early 1970s. The firm is engaged not only in contract farming poultry, but also manufacturing of poultry feed, medicines, vaccines and value-added poultry products. Recently, the firm has started a retail chain in poultry products with brand name BROMARK.

Open Source Intermediation

This is a variant of farm-firm linkage where the firm acts as an open source intermediary and acts as a source of providing information about market prices, crop and good cultivation practices to farmers without any buy back guarantee. The idea is not to create a back-end supply chain but to bridge the knowledge and information gap that exists at the farmer level, and also supply inputs to farmers without any 'lock in' agreement . This is well observed in the case of the Choupal Sagar and Choupal Fresh models adopted by ITC following the success of e-choupal.

Implications of Corporate Farming

Corporate farming has different implications at different levels which are discussed below :

(a) Social and economic implications

(i) It will lead to urbanisation of rural areas leading to commercialisation of agriculture.

(ii) Unemployment at rural level.

(iii) Shortage of food grains as corporate houses may force the agriculturists to cultivate cash crops.

(iv) Farmers may lose their land and these corporate may tempt the farmers by giving very high prices as values for their land.

(v) Concentration of wealth in the hands of few large scale farmers because of their affordability to adopt modern practices.

(b) Business Implications

(i) Better technology leads to lower cost of the product.

(ii) Better quality of the product

(iii) Some agricultural products which used to be seasonal once upon a time are now available throughout the year because of the storage facilities and packing standards.

(iv) Self dependency on agricultural produce means less import of food grains and saving forex.

(v) Continuous supply of raw materials to industries which depend on agriculture for raw materials which keeps them running and providing employment opportunities.

(vi) Export of agricultural products because of better quality meeting international standards.

Operation of MDFVL

34 "Pragyaan : Journal of Information Management" Volume 9 : Issue 1, June 2011 35"Pragyaan : Journal of Information Management" " Volume 9 : Issue 1, June 2011

Institute of Management Studies, DehradunCorporatisation of Agriculture in India- A Study of Contract Farming

Some Successful direct procurement models of contract farming

Success of contract farming can be examined by three different models of contract farming adopted by firms dealing with three different commodities viz., milk, vegetables and Boilers (Birthal 2005)

Contract farming in dairying takes form of an intermediate contract. The model was developed and is being implemented by the Nestle India Limited. It is well-known that dairying in India is an integral part of rural economy, yet its scale of production is too small for a majority of the households to generate cash benefits (Birthal, 2007)

Contract Farming Models in India

With 62 percent farm households in India producing only 24% of the total milk, Nestle wanted to reduce the cost of contracting with such a large number of small producers. Hence it followed an intermediate model where a local villager was appointed as an agent. The agent collects milk from small scale producers and also facilitates distribution of inputs and delivery of services with this agreement. Nestle was assured of the procurement because of this contractual agreement. The contract farming scheme of the Nestle now covers about 100 thousand dairy farmers in over 1500 villages in several districts of Punjab. In 2005, Nestle collected 438 million kg of

milk from farmers. The Intermediate option being the dominant one the firm also started direct contracting with the large producers. Most of the milk collected by Nestle firm is processed into value- added products like baby food, butter, ghee, curd, etc. The firm observes strict food safety and quality standards right from the milk production stage. It has a well-developed traceability and milk chilling systems, and for quality milk supplies it encourages farmers to use milking machines and quality inputs. This model was proven successful and was used subsequently by other companies.

Table-3. Economics of Contract Versus Non-contract Production of Milk.

Source : Birthal et al. (2005)

The data provided in table 3 clearly presents the success of contract farming of milk which shows the positive improvement in yield and reduction in the production and marketing cost and thereby in total cost. This means an increase in yield and decrease in the cost that results in an increase in the net revenue.

Mother Diary Model : Mother Diary fruits and vegetable Ltd. (MDFVL)

Mother diary fruits and vegetables limited is a pioneer case of contract farming in vegetables. Widely dispersed horticulture in India led to a new model of contract farming. 15% farm households in India grow vegetables and 5% grow fruits (Birthal et

al., 2007), which means high transaction costs to the firms in securing supplies from scattered suppliers. MDFVL reduces these costs and also secures the supply from associations promoted by it. Firm also provides technical guidance, services and inputs to association members whereby ascertaining that the farmers follow production and marketing practices. MDFVL (earlier called SAFAL) is an organised retail chain started in 1988 in Delhi. MDFVL secures its supplies from 300 growers spread across the country and also has an almost equal number of retail outlets across Delhi.

Venkateshwara Hatcheries Limited (VHL)

The model of contract farming in broilers in India is a replica of what prevails in most other countries. Firms provide day-old chicks, feed, vaccines and services to farmers at no cost to them, and lift entire output by paying fixed growing charges (per kilogram of body weight of bird) in lieu of their contribution to cost (labour, water and electricity charges, litter and rent for poultry shed and equipment). Farmers are thus insured against market risks.

The case of contract farming in broilers relates to the Venkateshwara Hatcheries Limited (VHL) - one of the leading firms in poultry business in India since early 1970s. The firm is engaged not only in contract farming poultry, but also manufacturing of poultry feed, medicines, vaccines and value-added poultry products. Recently, the firm has started a retail chain in poultry products with brand name BROMARK.

Open Source Intermediation

This is a variant of farm-firm linkage where the firm acts as an open source intermediary and acts as a source of providing information about market prices, crop and good cultivation practices to farmers without any buy back guarantee. The idea is not to create a back-end supply chain but to bridge the knowledge and information gap that exists at the farmer level, and also supply inputs to farmers without any 'lock in' agreement . This is well observed in the case of the Choupal Sagar and Choupal Fresh models adopted by ITC following the success of e-choupal.

Implications of Corporate Farming

Corporate farming has different implications at different levels which are discussed below :

(a) Social and economic implications

(i) It will lead to urbanisation of rural areas leading to commercialisation of agriculture.

(ii) Unemployment at rural level.

(iii) Shortage of food grains as corporate houses may force the agriculturists to cultivate cash crops.

(iv) Farmers may lose their land and these corporate may tempt the farmers by giving very high prices as values for their land.

(v) Concentration of wealth in the hands of few large scale farmers because of their affordability to adopt modern practices.

(b) Business Implications

(i) Better technology leads to lower cost of the product.

(ii) Better quality of the product

(iii) Some agricultural products which used to be seasonal once upon a time are now available throughout the year because of the storage facilities and packing standards.

(iv) Self dependency on agricultural produce means less import of food grains and saving forex.

(v) Continuous supply of raw materials to industries which depend on agriculture for raw materials which keeps them running and providing employment opportunities.

(vi) Export of agricultural products because of better quality meeting international standards.

Operation of MDFVL

34 "Pragyaan : Journal of Information Management" Volume 9 : Issue 1, June 2011 35"Pragyaan : Journal of Information Management" " Volume 9 : Issue 1, June 2011

Present Scenario of Contract Farming In India

1. The Union Agricultural Ministry is on its way to draft a model law to give support to a practice that makes technology & resources accessible to small farmers. An institutional mechanism is being contemplated to record contractual arrangements and help to resolve possible disputes.

2. The ministry has formed an agenda for expansion of agricultural credit to the tune of

thRs.7,36,570 crores during 10 plan and the official note to the finance ministry gave financing of contract farming by banks priority.

3. Agricultural and Food processing Development Authority is developing policy guidelines on contract farming and sending it to the state governments for implemantation. The guidelines will focus on regularizing the relation between producers and processors of food materials. During this year, 20 Agro-Export zones set-up in different states that would integrate the complete process from production to export stage and contract farming is being encouraged to rope in local farmers to join these export zones as members to pool in their produce.

4. The national agricultural policy, announced last year, had highlighted the need for an increase in the private sector participation in farming by leasing private land for agro-business and contract farming to private companies.

5. The Standing Committee on Food Management and Agricultural Exports had recommended suitable amendments to the State Agricultural Produce Marketing Regulation Act to promote development of marketing infrastructure in private and co-operative sectors, direct marketing and contract farming.

6. Contract farming is already undertaken in tea estates by major companies including Pepsi Food, ITC, Hindustan Lever and for crop diversification by Mahindra Shubhlabh Services with Punjab Agro Food grains Corporation; Escort Limited with Punjab Agro for Basmati rice and durum wheat besides

drawing a plan to set up grain handling and storage facilities like conveyor belts and silos and earmarking Rs.1 billion for contract f a rming and c re a t ing po s t -ha r ve s t infrastructure in Punjab and other states in next three years.

7. Punjab plans to diversify crops in 1.5 million acres in next four years through contract farming. Already 3 lakh acres under contract farming have been diversified from paddy and wheat to commercial crops like maize, barley, white mustard, Basmati rice and oil seeds during this year.

8. In Karnataka, wide varieties of vegetables, gherkins, lime, pomegranate, grapes for resins pearl onions, asparagus and mangoes for pulp are already covered under contract farming. Table 4 shows state-wise contract farming initiatives, involving about 90000 farmers in about 1600 villages.

Tabel 4. State-wise Contract Farming Initiatives by Private Sector

State Crop Company/ Corporate

Karnataka Ashwagandha Himalaya Health Care Ltd

Karnataka Dhavana Mysore S N C Oil Company

Karnataka Marigold & AVT NaturalCaprica Chili Products Ltd

Karnataka Coleus Natural Remedies Private Ltd

Karnataka Gherkins 20 Pvt Companies* (Major Companies Global Green Company Pvt Ltd, Unicorn Agrotech Ltd, Green Agro Park Pvt Ltd, Ken Agritech Pvt Ltd, etc)

Maharashtra Soybean Tinna Oils and Chemicals

Institute of Management Studies, DehradunCorporatisation of Agriculture in India- A Study of Contract Farming

Tabel 4. State-wise Contract Farming Initiatives by Private Sector (Contd.)

State Crop Company/ Corporate

Maharashtra Several Fruits, Ion ExchangeVegetables, Enviro Farms LtdCereals, Spices (IEEFL) & Pulses

Maharashtra Safflower Marico IndustriesOilseeds

Madhya Wheat, Maize Cargil India LtdPradesh & Soybean

Madhya Wheat Hindusthan Lever Pradesh Ltd (HLL)

Madhya Several Fruits, Ion Exchange Pradesh Vegetables, Enviro Farms Ltd

Cereals, Spices (IEEFL) & Pulses

Madhya Soybean ITC_IBD Pradesh

Punjab Tomato & Nijjer Agro FoodsChilly Ltd

Punjab Barley United Breweries Ltd

Punjab Basmati, Maize Satnam Overseas, Sukhjit

Source: NIAM (2003), Times Agriculture Journal 1(2003), (FICCI-IFPRI-ICRISAT: 2003 ) and Centad,

Sukhpal Singh:2005)

Findings

1. Agriculture plays very important role in India by contributing about 16 % to GDP and provides employment to 55% of the workforce.

2. Government has lots of inhibition in legalizing and allowing free entry of corporates as they would result in exploitation of farmers.

3. Modifications made in the national agricultural policy and corporate farming is allowed with some regulatory mechanism.

4. The outcome being some corporate have invested in the sector but not in direct farming activities as it needs lots of investment and they have still very little experience in farming activities especially in Indian context.

5. Majority of the corporate farming ventures are marketing and intermediating deals of agricultural and related goods viz., Agricultural machinery, seeds fertilizer, pesticides and building up related infrastructure(cold storage and food processing units) which will definitely help the farmers in marketing their produce and get better price.

6. It is identified that use of technology is also essential to increase productivity and growing market demands.

7. Government intervention is must to prevent exploitation of innocent Indian farmers by the corporate.

8. Corporate farming in India has still long way to go which depends on the success of such ventures and social acceptance in India.

Conclusions

Corporate farming is the need of the hour. With the growing population and soaring food grains requirement the demand for better technology and investment in this sector is necessitated. India's low consumption of high-yield seeds, fertilizers, and pesticides in comparison with other countries indicates a huge potential for market growth. Many farmers do not use high-quality agro-inputs. Others tend to misuse agro-inputs thus, leading to higher costs and lower yields. In the interiors of rural India, farmers lack access to a wide choice of agro-inputs. These farmers have disadvantages of price and accessibility. Government has to come forward and solve such problems with the help and participation of corporate houses.

Hence, extensive and efficient supply chains have to be built to service these farmers. While the untapped parts of the rural market present profitable opportunities, companies will have to innovate and adapt products to suit rural operating conditions. New

36 "Pragyaan : Journal of Information Management" Volume 9 : Issue 1, June 2011 37"Pragyaan : Journal of Information Management" " Volume 9 : Issue 1, June 2011

Present Scenario of Contract Farming In India

1. The Union Agricultural Ministry is on its way to draft a model law to give support to a practice that makes technology & resources accessible to small farmers. An institutional mechanism is being contemplated to record contractual arrangements and help to resolve possible disputes.

2. The ministry has formed an agenda for expansion of agricultural credit to the tune of

thRs.7,36,570 crores during 10 plan and the official note to the finance ministry gave financing of contract farming by banks priority.

3. Agricultural and Food processing Development Authority is developing policy guidelines on contract farming and sending it to the state governments for implemantation. The guidelines will focus on regularizing the relation between producers and processors of food materials. During this year, 20 Agro-Export zones set-up in different states that would integrate the complete process from production to export stage and contract farming is being encouraged to rope in local farmers to join these export zones as members to pool in their produce.

4. The national agricultural policy, announced last year, had highlighted the need for an increase in the private sector participation in farming by leasing private land for agro-business and contract farming to private companies.

5. The Standing Committee on Food Management and Agricultural Exports had recommended suitable amendments to the State Agricultural Produce Marketing Regulation Act to promote development of marketing infrastructure in private and co-operative sectors, direct marketing and contract farming.

6. Contract farming is already undertaken in tea estates by major companies including Pepsi Food, ITC, Hindustan Lever and for crop diversification by Mahindra Shubhlabh Services with Punjab Agro Food grains Corporation; Escort Limited with Punjab Agro for Basmati rice and durum wheat besides

drawing a plan to set up grain handling and storage facilities like conveyor belts and silos and earmarking Rs.1 billion for contract f a rming and c re a t ing po s t -ha r ve s t infrastructure in Punjab and other states in next three years.

7. Punjab plans to diversify crops in 1.5 million acres in next four years through contract farming. Already 3 lakh acres under contract farming have been diversified from paddy and wheat to commercial crops like maize, barley, white mustard, Basmati rice and oil seeds during this year.

8. In Karnataka, wide varieties of vegetables, gherkins, lime, pomegranate, grapes for resins pearl onions, asparagus and mangoes for pulp are already covered under contract farming. Table 4 shows state-wise contract farming initiatives, involving about 90000 farmers in about 1600 villages.

Tabel 4. State-wise Contract Farming Initiatives by Private Sector

State Crop Company/ Corporate

Karnataka Ashwagandha Himalaya Health Care Ltd

Karnataka Dhavana Mysore S N C Oil Company

Karnataka Marigold & AVT NaturalCaprica Chili Products Ltd

Karnataka Coleus Natural Remedies Private Ltd

Karnataka Gherkins 20 Pvt Companies* (Major Companies Global Green Company Pvt Ltd, Unicorn Agrotech Ltd, Green Agro Park Pvt Ltd, Ken Agritech Pvt Ltd, etc)

Maharashtra Soybean Tinna Oils and Chemicals

Institute of Management Studies, DehradunCorporatisation of Agriculture in India- A Study of Contract Farming

Tabel 4. State-wise Contract Farming Initiatives by Private Sector (Contd.)

State Crop Company/ Corporate

Maharashtra Several Fruits, Ion ExchangeVegetables, Enviro Farms LtdCereals, Spices (IEEFL) & Pulses

Maharashtra Safflower Marico IndustriesOilseeds

Madhya Wheat, Maize Cargil India LtdPradesh & Soybean

Madhya Wheat Hindusthan Lever Pradesh Ltd (HLL)

Madhya Several Fruits, Ion Exchange Pradesh Vegetables, Enviro Farms Ltd

Cereals, Spices (IEEFL) & Pulses

Madhya Soybean ITC_IBD Pradesh

Punjab Tomato & Nijjer Agro FoodsChilly Ltd

Punjab Barley United Breweries Ltd

Punjab Basmati, Maize Satnam Overseas, Sukhjit

Source: NIAM (2003), Times Agriculture Journal 1(2003), (FICCI-IFPRI-ICRISAT: 2003 ) and Centad,

Sukhpal Singh:2005)

Findings

1. Agriculture plays very important role in India by contributing about 16 % to GDP and provides employment to 55% of the workforce.

2. Government has lots of inhibition in legalizing and allowing free entry of corporates as they would result in exploitation of farmers.

3. Modifications made in the national agricultural policy and corporate farming is allowed with some regulatory mechanism.

4. The outcome being some corporate have invested in the sector but not in direct farming activities as it needs lots of investment and they have still very little experience in farming activities especially in Indian context.

5. Majority of the corporate farming ventures are marketing and intermediating deals of agricultural and related goods viz., Agricultural machinery, seeds fertilizer, pesticides and building up related infrastructure(cold storage and food processing units) which will definitely help the farmers in marketing their produce and get better price.

6. It is identified that use of technology is also essential to increase productivity and growing market demands.

7. Government intervention is must to prevent exploitation of innocent Indian farmers by the corporate.

8. Corporate farming in India has still long way to go which depends on the success of such ventures and social acceptance in India.

Conclusions

Corporate farming is the need of the hour. With the growing population and soaring food grains requirement the demand for better technology and investment in this sector is necessitated. India's low consumption of high-yield seeds, fertilizers, and pesticides in comparison with other countries indicates a huge potential for market growth. Many farmers do not use high-quality agro-inputs. Others tend to misuse agro-inputs thus, leading to higher costs and lower yields. In the interiors of rural India, farmers lack access to a wide choice of agro-inputs. These farmers have disadvantages of price and accessibility. Government has to come forward and solve such problems with the help and participation of corporate houses.

Hence, extensive and efficient supply chains have to be built to service these farmers. While the untapped parts of the rural market present profitable opportunities, companies will have to innovate and adapt products to suit rural operating conditions. New

36 "Pragyaan : Journal of Information Management" Volume 9 : Issue 1, June 2011 37"Pragyaan : Journal of Information Management" " Volume 9 : Issue 1, June 2011

marketing tools would be critical for companies eyeing rural markets to enlarge their rural pie. Also the rural consumers need to be educated of new concepts, relevant to the environment and thereby increasing their income.

Companies have traditionally distributed their agro input products through their own distributors and through collaboration with a local distribution network. The need of the hour is to increase the accessibility of rural markets by companies. This is possible only through decentralisation of the whole chain. For better delivery of agro inputs and services, HLL has proposed a model that would create a partnership between agro input companies, banks, insurance companies, grain handling and storage companies and food processors. This would make the agro inputs directly available to the farmer, credit and insurance would be available to the farmers at reasonable rates, increase the accessibility of information.

When it comes to deploying innovative distribution strategy, several companies are exploring alternative cost effective channels. Direct selling through company delivery vans, syndicated distribution between non-competitive marketers, setting up of temporary stalls in rural melas/ haats are few successful examples. Use of stockiest and their staff for effecting direct sales to rural consumers have also been found to be successful by companies. Rural markets /mandis are emerging as target centers for direct sales. Because of these necessities corporatization of farming became a necessity. Indian government has made necessary changes in the agricultural policy to encourage corporate participation in agricultural sector. The reason for such a drastic shift in government policy is to attract investment to the sector and increase productivity for meeting growing demands. The kind of investment India witnessed in farm sector is more farming related than direct farming which was in the expected line. This sector needs huge investment and corporate houses lack experience in farming. Thus, the investments are seen in the area of building supply chain, farm machinery, agricultural inputs like seeds, fertilisers and pesticides and infrastructure services like banks, insurance companies and storage facilities

Some successful models of contract farming discussed in the paper shows landholding and production capacity of the farmers being very small. Majority of the contractual agreements are marketing and purchase agreements carried out with the help of intermediaries. Like any other policy legalizing, corporate farming has its own advantages but to get maximum utility and benefit government should monitor and control any misuse of the law and protect farmers from being exploited. Against such a backdrop, we suggest a model which considerably protects farmer's interest from corporate exploitation through a regulatory framework.

Proposed Contract farming model of Organizational Regulatory Structure

State Government

Ministry of commerce and Industry

DIC

Corporate houses (Farmers /Farmers' representatives)

With the present economic and education status of Indian farmers the government should take necessary steps and intervene wherever necessary for safe guarding the interests of the farmers. Studies prove that in some cases contracts with the farmers have been used for exploitation by the corporate. Contract growers in Punjab and Haryana faced many problems like undue quality cut on price and high rejections in the name of quality, delayed deliveries at the factory, delayed payments, low price and pest attack on the crop. The firms were found to be working only with large farmers and contracts were also biased against the farmers. Many such studies undoubtedly prove that there is a need for constant monitoring from the government. The government regulatory structure should involve the farmers and farmer representative bodies, ministry, administrators from the District industries center should be empowered to look into all types contracts especially legal contracts between farmers and corporate. DIC along with some representatives of the farmers should constitute a forum where such elected and nominated members should look into all types of contracts and grievances and take necessary action to protect their interests. The

Institute of Management Studies, DehradunCorporatisation of Agriculture in India- A Study of Contract Farming

aim of any such regulatory body should be to protect the interest of innocent farmers from the illicit interests of the corporate.

References

1. A sano-Tamanoi, M (1988): "Farmers, Industries, and the State: The Culture of Contract Farming in Spain and Japan", Comparative Studies in Society and History, 30(3), 432-452.

2. Benziger, V (1996):"Small Fields, Big Money: Two Successful Programs in Helping Small Farmers Make the Transition to High Value-Added Crops”, World Development, 24 (11), 1681-1693.

3. Birthal, P.S. and P.K. Joshi. (2007). Institutional innovations for improving smallholder participation in high-value agriculture: A case of fruit and vegetable growers' associations. Quarterly Journal of International Agriculture, 46(1), pp. 49-68.

4. Bhalla G.S and G.Singh (1996) Impact of GATT on Punjab Agriculture, Ajanta.

5. Birthal, P.S., P.K. Joshi and Ashok Gulati.( 2005). Vertical coordination in high-value food commodities: Implications for smallholders. Markets, Trade and Institutions Division Discussion Paper No. 85, International food Policy Research Institute, Washington DC. Available at: http://www.ifpri.org/divs/ mtid/dp/mtidp85.htm.

6. Buch-Hansen M and H S Marcussen (1982): "Contract Farming and the Peasantry: Cases from Western Kenya", Review of African Political Economy, Number 23, 9-36.

7. Christensen, S R (1992): Between the Farmer and the State: Towards A Policy Analysis of the Role of Agribusiness in Thai Agriculture, Thailand Development Research Institute (TDRI) Background Report to the 1992 Conference on Thailand's Economic Structure: Towards Balanced Development?, Chon Buri, Thailand.

8. Christensen, S R (1992): Between the Farmer and the State: Towards A Policy Analysis of the Role of Agribusiness in Thai Agriculture, Thailand Development Research Institute (TDRI) Background Report to the 1992 Conference on Thailand's Economic Structure: Towards Balanced Development?, Chon Buri, Thailand.

9. Clapp, R. A. J. (1988): “Representing Reciprocity, Reproducing Domination: Ideology and the Labour Process in Latin American Contract Farming”, The Journal of Peasant Studies, 16(1), 5-39.

10. Details of the Model Act 2003 are available at http://agmarknet.nic.in/amrscheme/modelact.htm, accessed on 10th July, 2008

11. Glover, D (1987): “Increasing the Benefits to Smallholders from Contract Farming: Problems for Farmers' Organisations and Policy Makers”, World Development, 15(4), 441-448.

12. Glover, D. and K. Kusterer (eds.) (1990): Small Farmers, Big Business - Contract Farming and Rural Development, Macmillan, London.

13. Hill B. E. and K. A. Ingersent (1987): An Economic Analysis of Agriculture, London, Heinemann. Jayati Ghosh (2003), Corporate agriculture: The implications for Indian farmers, December

14. Key, N and D Runsten (1999): “Contract Fa rming , Sma l lho lde r s , and Rura l Development in Latin America: The Organisation of Agro-processing Firms and the Scale of Outgrower Production”, World Development, 27 (2), 381-401.

15. Key, N and D Runsten (1999): “Contract Fa rming , Sma l lho lde r s , and Rura l Development in Latin America: The Organisation of Agro processing Firms and the Scale of Ou grower Production”, World Development, 27 (2), 381-401.

16. Kirk, C (1987): "Contracting Out: Plantations, Smallholders and Transnational Enterprise", IDS Bulletin, 18 (2) April, 45-51.

38 "Pragyaan : Journal of Information Management" Volume 9 : Issue 1, June 2011 39"Pragyaan : Journal of Information Management" " Volume 9 : Issue 1, June 2011

marketing tools would be critical for companies eyeing rural markets to enlarge their rural pie. Also the rural consumers need to be educated of new concepts, relevant to the environment and thereby increasing their income.

Companies have traditionally distributed their agro input products through their own distributors and through collaboration with a local distribution network. The need of the hour is to increase the accessibility of rural markets by companies. This is possible only through decentralisation of the whole chain. For better delivery of agro inputs and services, HLL has proposed a model that would create a partnership between agro input companies, banks, insurance companies, grain handling and storage companies and food processors. This would make the agro inputs directly available to the farmer, credit and insurance would be available to the farmers at reasonable rates, increase the accessibility of information.

When it comes to deploying innovative distribution strategy, several companies are exploring alternative cost effective channels. Direct selling through company delivery vans, syndicated distribution between non-competitive marketers, setting up of temporary stalls in rural melas/ haats are few successful examples. Use of stockiest and their staff for effecting direct sales to rural consumers have also been found to be successful by companies. Rural markets /mandis are emerging as target centers for direct sales. Because of these necessities corporatization of farming became a necessity. Indian government has made necessary changes in the agricultural policy to encourage corporate participation in agricultural sector. The reason for such a drastic shift in government policy is to attract investment to the sector and increase productivity for meeting growing demands. The kind of investment India witnessed in farm sector is more farming related than direct farming which was in the expected line. This sector needs huge investment and corporate houses lack experience in farming. Thus, the investments are seen in the area of building supply chain, farm machinery, agricultural inputs like seeds, fertilisers and pesticides and infrastructure services like banks, insurance companies and storage facilities

Some successful models of contract farming discussed in the paper shows landholding and production capacity of the farmers being very small. Majority of the contractual agreements are marketing and purchase agreements carried out with the help of intermediaries. Like any other policy legalizing, corporate farming has its own advantages but to get maximum utility and benefit government should monitor and control any misuse of the law and protect farmers from being exploited. Against such a backdrop, we suggest a model which considerably protects farmer's interest from corporate exploitation through a regulatory framework.

Proposed Contract farming model of Organizational Regulatory Structure

State Government

Ministry of commerce and Industry

DIC

Corporate houses (Farmers /Farmers' representatives)

With the present economic and education status of Indian farmers the government should take necessary steps and intervene wherever necessary for safe guarding the interests of the farmers. Studies prove that in some cases contracts with the farmers have been used for exploitation by the corporate. Contract growers in Punjab and Haryana faced many problems like undue quality cut on price and high rejections in the name of quality, delayed deliveries at the factory, delayed payments, low price and pest attack on the crop. The firms were found to be working only with large farmers and contracts were also biased against the farmers. Many such studies undoubtedly prove that there is a need for constant monitoring from the government. The government regulatory structure should involve the farmers and farmer representative bodies, ministry, administrators from the District industries center should be empowered to look into all types contracts especially legal contracts between farmers and corporate. DIC along with some representatives of the farmers should constitute a forum where such elected and nominated members should look into all types of contracts and grievances and take necessary action to protect their interests. The

Institute of Management Studies, DehradunCorporatisation of Agriculture in India- A Study of Contract Farming

aim of any such regulatory body should be to protect the interest of innocent farmers from the illicit interests of the corporate.

References

1. A sano-Tamanoi, M (1988): "Farmers, Industries, and the State: The Culture of Contract Farming in Spain and Japan", Comparative Studies in Society and History, 30(3), 432-452.

2. Benziger, V (1996):"Small Fields, Big Money: Two Successful Programs in Helping Small Farmers Make the Transition to High Value-Added Crops”, World Development, 24 (11), 1681-1693.

3. Birthal, P.S. and P.K. Joshi. (2007). Institutional innovations for improving smallholder participation in high-value agriculture: A case of fruit and vegetable growers' associations. Quarterly Journal of International Agriculture, 46(1), pp. 49-68.

4. Bhalla G.S and G.Singh (1996) Impact of GATT on Punjab Agriculture, Ajanta.

5. Birthal, P.S., P.K. Joshi and Ashok Gulati.( 2005). Vertical coordination in high-value food commodities: Implications for smallholders. Markets, Trade and Institutions Division Discussion Paper No. 85, International food Policy Research Institute, Washington DC. Available at: http://www.ifpri.org/divs/ mtid/dp/mtidp85.htm.

6. Buch-Hansen M and H S Marcussen (1982): "Contract Farming and the Peasantry: Cases from Western Kenya", Review of African Political Economy, Number 23, 9-36.

7. Christensen, S R (1992): Between the Farmer and the State: Towards A Policy Analysis of the Role of Agribusiness in Thai Agriculture, Thailand Development Research Institute (TDRI) Background Report to the 1992 Conference on Thailand's Economic Structure: Towards Balanced Development?, Chon Buri, Thailand.

8. Christensen, S R (1992): Between the Farmer and the State: Towards A Policy Analysis of the Role of Agribusiness in Thai Agriculture, Thailand Development Research Institute (TDRI) Background Report to the 1992 Conference on Thailand's Economic Structure: Towards Balanced Development?, Chon Buri, Thailand.

9. Clapp, R. A. J. (1988): “Representing Reciprocity, Reproducing Domination: Ideology and the Labour Process in Latin American Contract Farming”, The Journal of Peasant Studies, 16(1), 5-39.

10. Details of the Model Act 2003 are available at http://agmarknet.nic.in/amrscheme/modelact.htm, accessed on 10th July, 2008

11. Glover, D (1987): “Increasing the Benefits to Smallholders from Contract Farming: Problems for Farmers' Organisations and Policy Makers”, World Development, 15(4), 441-448.

12. Glover, D. and K. Kusterer (eds.) (1990): Small Farmers, Big Business - Contract Farming and Rural Development, Macmillan, London.

13. Hill B. E. and K. A. Ingersent (1987): An Economic Analysis of Agriculture, London, Heinemann. Jayati Ghosh (2003), Corporate agriculture: The implications for Indian farmers, December

14. Key, N and D Runsten (1999): “Contract Fa rming , Sma l lho lde r s , and Rura l Development in Latin America: The Organisation of Agro-processing Firms and the Scale of Outgrower Production”, World Development, 27 (2), 381-401.

15. Key, N and D Runsten (1999): “Contract Fa rming , Sma l lho lde r s , and Rura l Development in Latin America: The Organisation of Agro processing Firms and the Scale of Ou grower Production”, World Development, 27 (2), 381-401.

16. Kirk, C (1987): "Contracting Out: Plantations, Smallholders and Transnational Enterprise", IDS Bulletin, 18 (2) April, 45-51.

38 "Pragyaan : Journal of Information Management" Volume 9 : Issue 1, June 2011 39"Pragyaan : Journal of Information Management" " Volume 9 : Issue 1, June 2011

17. Little, P D and M J Watts (eds.) (1994): (eds.): Living Under Contract - Contract Farming and Agrarian Transformation in Sub-Saharan Africa, Madison, University of Wisconsin Press, 216-247.

18. Payer, C (1980):"The World Bank and the Small Farmer", Monthly Review, 32 (6), 30-46

19. S. Erappa( 2006), Contract Farming in Karnataka-boon or Bane, Agricultural Development and Rural Transformation Centre, Institute for Social and Economic Change, March.

20. Scott , C D (1984): "Transnat ional Corporations and Asymmetries in the Latin American Food System", Bulletin of Latin American Research, 3(1), January, 63-80.

21. Shoja Rani B N, Globalization and Contract Farming in India-Advantages and Problems, Conference on Global Competition & Competitiveness of Indian Corporate, IIMK & IIML

22. Singh, S (2000): “Contract Farming for Agricultural Diversification in the Indian Punjab: A Study of Performance and Problems” Indian Journal of Agricultural Economics, 56 (3), 283-294.

23. Satish P(2003), Contract Farming as a backward linkage for agro-processing experiences from Punjab, an unpublished paper.

24. Singh.J (2003) Contracted green peas dumped in open market, the Tribune March 28

25. Sindhu HS (2002),Crisis in Agrarian Economy in Punjab-Some urgent steps Economic and political weekly,31(30) July 27 Review of agriculture,3132,3138.

26. Swaminathan, M.S (2002) “Food for Peace and Development”, The Hindu, January 10.Viewed on 21/4/2006.

27. Welsh, R (1997): “Vertical Co-ordination, Producer Response, and the Locus of Control over Agricultural Production Decisions”, Rural Sociology, 62(4), Winter, 491-507.

28. White, B (1997): “Agro-industry and Contract Farming in Upland Java”, The Journal of Peasant Studies, 24(3), 100-136.

29. Wolf, S, B Hueth, and E Ligon (2001): “Policing Mechanisms in Agricultural Contracts”, Rural Sociology, 66(3), 359-381.

30. Wolf, S, B Hueth, and E Ligon (2001): “Policing Mechanisms in Agricultural Contracts”, Rural Sociology, 66(3), 359-381.

LINKS

http://nsm.org.in/2008/07/20/contract-and-corporate-farming/

Business Line,Financial Daily,from THE HINDU group of publications,Tuesday, November 06, 2001

http://business.mapsofindia.com/india-gdp/ sectors/agriculture sectorwise/

http://business.mapsofindia.com/.html

http://www.ibef.org/economy/agriculture.aspx 3.1

http://www.seminarprojects.com/Thread-contract-farming#ixzz1CjPfAWam

http://www.seminarprojects.com/Thread-contract-farming

http://www.arc.unisg.ch/org/arc/web.nsf/1176ad62df2ddb13c12568f000482b94/43cf0caeed566faac12571d30061daac/$FILE/India%20Symposium_IBEF_Sectoral%20Reports_Agriculture.pdf

http://www.scribd.com/doc/79649/SG-KE-ET-Farmers-Join-India-Inc-With-Landshare-Firms

http://www.zeenews.com/news613491.html

Institute of Management Studies, DehradunCorporatisation of Agriculture in India- A Study of Contract Farming

Background

Today Corporate Governance is the talk of the industrial world and this topic is gaining importance with every passing day. This was not the case in the early 1990s and conducting business and running industrial units were easily manageable. To a great extent business ethics were also in place and there were hardly any news relating to malpractices being adopted by the management board of the company including cheating of people associated with the business. But, ever since the opening of Indian economy in 1991 and adaptation of the policy of liberalization, privatization and globalization, the way of conducting business and managing companies have changed enormously. Globalization has changed the world we look at as we now see it as a global village and not as a globe divided into several nations. This shift in outlook has on one hand increased the scale of trade and the size and on the other hand it has increased the complexities of corporations, such as introduction of few dubious and unethical practices which today are accepted as part and parcel of the trade. For instance, certain banks with a slick image discreetly employ musclemen to recover loans from recalcitrant debtors

Spirituality in Corporate Governance: A Mantra to Success

* Assistant Professor, Amity University, Amity Business School, Lucknow, Uttar Pradesh, India. **Assistant Professor, Amity University, Amity Business School, Lucknow, Uttar Pradesh, India.***Senior Lecturer, Babu Banarasi Das National Institute of Technology & Management, Department of Management, Lucknow, Uttar Pradesh, India.

Dr. Himanshu Rastogi *Dr. Nimish Gupta**

Dr. Kamlesh Kumar Shukla***

ABSTRACT

In today's complex world where the top management of every company is projecting to have adopted the policy of applying fair trade practices and safeguarding the interest of all the stakeholders in the company by way of implementation of the system of Corporate Governance, but it is not as easy to implement as it seems, the reason being that adapting fair practices requires a complete change in mindset, firm determination to do right even in crunch situations, ethical behavior, equitable treatment, to mention a few. This can only be achieved through regular meditation i.e. spirituality. The present paper tries to highlight that corporate governance with spirituality together is helpful in contributing to the growth and success of a company with right frame of attitude.

Key Words: Corporate Governance, Spirituality, Ethical Behavior, Stakeholders.

an unsound practice barely a decade ago. This has resulted in increasing the importance of corporate governance coupled with high spiritual values and at the same time internal regulation has been amplified as it becomes increasingly difficult to regulate externally.

Corporate Governance

As the name suggests, Corporate Governance means governing or managing with fair and positive commitment all those related to the corporation directly or indirectly, in the most efficient and effective manner so as to get the best from them and in pursuit take the company to greater heights based on trust, faith, honesty and truthfulness. As such Corporate Governance includes a set of processes, customs, policies, laws, and institutions affecting the way a company is directed, administered or controlled. Corporate governance also includes the relationships among the many stakeholders involved and the goals for which the corporation is governed. The principal stakeholders are the shareholders, the board of directors, employees, customers, creditors, suppliers, banks, lenders, regulators and the community at large. Corporate governance is thus a complicated subject. An important theme of corporate governance is to

40 "Pragyaan : Journal of Information Management" Volume 9 : Issue 1, June 2011 41"Pragyaan : Journal of Information Management" " Volume 9 : Issue 1, June 2011

17. Little, P D and M J Watts (eds.) (1994): (eds.): Living Under Contract - Contract Farming and Agrarian Transformation in Sub-Saharan Africa, Madison, University of Wisconsin Press, 216-247.

18. Payer, C (1980):"The World Bank and the Small Farmer", Monthly Review, 32 (6), 30-46

19. S. Erappa( 2006), Contract Farming in Karnataka-boon or Bane, Agricultural Development and Rural Transformation Centre, Institute for Social and Economic Change, March.

20. Scott , C D (1984): "Transnat ional Corporations and Asymmetries in the Latin American Food System", Bulletin of Latin American Research, 3(1), January, 63-80.

21. Shoja Rani B N, Globalization and Contract Farming in India-Advantages and Problems, Conference on Global Competition & Competitiveness of Indian Corporate, IIMK & IIML

22. Singh, S (2000): “Contract Farming for Agricultural Diversification in the Indian Punjab: A Study of Performance and Problems” Indian Journal of Agricultural Economics, 56 (3), 283-294.

23. Satish P(2003), Contract Farming as a backward linkage for agro-processing experiences from Punjab, an unpublished paper.

24. Singh.J (2003) Contracted green peas dumped in open market, the Tribune March 28

25. Sindhu HS (2002),Crisis in Agrarian Economy in Punjab-Some urgent steps Economic and political weekly,31(30) July 27 Review of agriculture,3132,3138.

26. Swaminathan, M.S (2002) “Food for Peace and Development”, The Hindu, January 10.Viewed on 21/4/2006.

27. Welsh, R (1997): “Vertical Co-ordination, Producer Response, and the Locus of Control over Agricultural Production Decisions”, Rural Sociology, 62(4), Winter, 491-507.

28. White, B (1997): “Agro-industry and Contract Farming in Upland Java”, The Journal of Peasant Studies, 24(3), 100-136.

29. Wolf, S, B Hueth, and E Ligon (2001): “Policing Mechanisms in Agricultural Contracts”, Rural Sociology, 66(3), 359-381.

30. Wolf, S, B Hueth, and E Ligon (2001): “Policing Mechanisms in Agricultural Contracts”, Rural Sociology, 66(3), 359-381.

LINKS

http://nsm.org.in/2008/07/20/contract-and-corporate-farming/

Business Line,Financial Daily,from THE HINDU group of publications,Tuesday, November 06, 2001

http://business.mapsofindia.com/india-gdp/ sectors/agriculture sectorwise/

http://business.mapsofindia.com/.html

http://www.ibef.org/economy/agriculture.aspx 3.1

http://www.seminarprojects.com/Thread-contract-farming#ixzz1CjPfAWam

http://www.seminarprojects.com/Thread-contract-farming

http://www.arc.unisg.ch/org/arc/web.nsf/1176ad62df2ddb13c12568f000482b94/43cf0caeed566faac12571d30061daac/$FILE/India%20Symposium_IBEF_Sectoral%20Reports_Agriculture.pdf

http://www.scribd.com/doc/79649/SG-KE-ET-Farmers-Join-India-Inc-With-Landshare-Firms

http://www.zeenews.com/news613491.html

Institute of Management Studies, DehradunCorporatisation of Agriculture in India- A Study of Contract Farming

Background

Today Corporate Governance is the talk of the industrial world and this topic is gaining importance with every passing day. This was not the case in the early 1990s and conducting business and running industrial units were easily manageable. To a great extent business ethics were also in place and there were hardly any news relating to malpractices being adopted by the management board of the company including cheating of people associated with the business. But, ever since the opening of Indian economy in 1991 and adaptation of the policy of liberalization, privatization and globalization, the way of conducting business and managing companies have changed enormously. Globalization has changed the world we look at as we now see it as a global village and not as a globe divided into several nations. This shift in outlook has on one hand increased the scale of trade and the size and on the other hand it has increased the complexities of corporations, such as introduction of few dubious and unethical practices which today are accepted as part and parcel of the trade. For instance, certain banks with a slick image discreetly employ musclemen to recover loans from recalcitrant debtors

Spirituality in Corporate Governance: A Mantra to Success

* Assistant Professor, Amity University, Amity Business School, Lucknow, Uttar Pradesh, India. **Assistant Professor, Amity University, Amity Business School, Lucknow, Uttar Pradesh, India.***Senior Lecturer, Babu Banarasi Das National Institute of Technology & Management, Department of Management, Lucknow, Uttar Pradesh, India.

Dr. Himanshu Rastogi *Dr. Nimish Gupta**

Dr. Kamlesh Kumar Shukla***

ABSTRACT

In today's complex world where the top management of every company is projecting to have adopted the policy of applying fair trade practices and safeguarding the interest of all the stakeholders in the company by way of implementation of the system of Corporate Governance, but it is not as easy to implement as it seems, the reason being that adapting fair practices requires a complete change in mindset, firm determination to do right even in crunch situations, ethical behavior, equitable treatment, to mention a few. This can only be achieved through regular meditation i.e. spirituality. The present paper tries to highlight that corporate governance with spirituality together is helpful in contributing to the growth and success of a company with right frame of attitude.

Key Words: Corporate Governance, Spirituality, Ethical Behavior, Stakeholders.

an unsound practice barely a decade ago. This has resulted in increasing the importance of corporate governance coupled with high spiritual values and at the same time internal regulation has been amplified as it becomes increasingly difficult to regulate externally.

Corporate Governance

As the name suggests, Corporate Governance means governing or managing with fair and positive commitment all those related to the corporation directly or indirectly, in the most efficient and effective manner so as to get the best from them and in pursuit take the company to greater heights based on trust, faith, honesty and truthfulness. As such Corporate Governance includes a set of processes, customs, policies, laws, and institutions affecting the way a company is directed, administered or controlled. Corporate governance also includes the relationships among the many stakeholders involved and the goals for which the corporation is governed. The principal stakeholders are the shareholders, the board of directors, employees, customers, creditors, suppliers, banks, lenders, regulators and the community at large. Corporate governance is thus a complicated subject. An important theme of corporate governance is to

40 "Pragyaan : Journal of Information Management" Volume 9 : Issue 1, June 2011 41"Pragyaan : Journal of Information Management" " Volume 9 : Issue 1, June 2011

ensure the accountability of certain individuals in an organization through mechanisms that try to reduce or eliminate the principal-agent problem. A brief picture of stakeholders is depicted in figure 1.

Fig. : 1 Principal Stake Holders in a Company

Source: http://www.applied-corporate-governance. com/best-corporate-governance-practice.html

Important Issues in Corporate Governance

Board independence and Board Structure

The effectiveness of good corporate governance depends largely on the board's ability to how well it manages, monitors and controls the management without affecting adversely the performance of the company.

The corporate scandals of the recent past have sharply increased board accountability. For increasing the effectiveness of the board it is essential that independent directors are given complete freedom and allowed to work in the larger interest of the stake holders of the company. Though it is easier said that the independent directors should be fair and act freely when it comes to making crunch decisions, but the point is that when independent directors themselves are appointed by the board of directors headed by CEO, how they can work with complete freedom. In this context, it would have been appropriate that such independent directors were appointed by a national governing body like

SEBI, Company Law Board or alike, and deputing them on duty in different companies, making such independent directors to perform and act without any pressure or fear.

Conflicts of Interest

Quite often there arises a situation of conflict between employees and more particularly between the members of management and supervisory board which often face conflict of interest situation. Companies in order to deal with such situations should define the non-competition obligations, prohibit the pursuit of personal interests in company decisions, define an authorization frame-work for outside activities, and require immediate disclosure of potential conflicts of interest.

Complete Transparency

Yet another important issue in making Corporate Governance effective is adaptation of the policy of transparency in all aspects of operations related to the stakeholders at all levels. Transparency in operations helps in reducing conflicting situations as well. A better way to improve transparency is the publication of company specific Corporate Governance guidelines coupled with meaningful annual governance reporting. All stakeholders thus gain the opportunity to self-assess the governance quality. This can help to promote improvements of critical governance elements.

Sensible and Long Term-oriented Remuneration Structures

Many of the recent corporate scandals resulted from the short-term orientation of top managers caused by compensation packages that were not aligned with longer-term shareholder interests. Full disclosure of the compensation structure should be mandatory and particularly the details of share option plans should require shareholder approval. To justify the reward of outperformance, appropriate benchmarks must be found that reflect best practice in the company's industry. Windfall profits caused by general stock market rises that do not reflect individual achievement should simply no longer be part of a fair compensation concept.

Institute of Management Studies, Dehradun

Auditing Area

In order to enjoy the trust of stake holders in the audit of financial statements, true and complete independence of the auditor backed by the policy of a regular auditor change at regular intervals combined with the prohibition of most non-auditing services are important. In the Satyam Computers case consequent to a written confession by its Chairman B. Ramalinga Raju, admitting to the recent multi crore scam of misrepresenting facts in the Company's balance sheet to the tune of around Rs. 8000 Crore, has brought the role of auditors and accountants for the company under scrutiny. The role of PricewaterhouseCoopers- the statutory auditors in “India's Enron” comes under the spotlight amid allegations that large Indian companies regularly use misleading accounting techniques and bully analysts, accountants and auditors into staying quiet. Given the scandals of the past like Worldcom, Parmalet and Enron, the imminent issue is how effective and trustworthy Auditors really are.

Rights of Shareholders

Many companies still do not give their shareholders the possibility to exercise their shareholder rights in the Annual Meeting. It is remarkable that no satisfactory solution has yet been found to implement full cross-border voting powers for many companies that have ADR's outstanding.

Spirituality

Spirituality is often confused with religion but there is a dividing line between the two. Religion is bhakti or worship performed by a group of like minded people belonging to a particular culture to appease the Almighty. On the other hand Spirituality has more vast meaning and it goes beyond the boundaries of particular religion. As per Bhagavad Gita meaning of spirituality means diving deep into inner self and realizing ones true identity and relate to the spirit within. In fact the meaning of spirituality is the meaning of life. To be faced with good and evil, and evolve for good into a positive energy. So a basic definition of spirituality is the quality of one's sensitivity to the things of the spirit i.e. justice. And what are these things of the spirit? These are those that

cannot be directly perceived by our senses but which can be deduced or inferred by our observations, like love, justice, peace, etc in all spheres of life be it personal or professional. Thus spirituality in true sense means doing things right in the manner as ones inner heart agrees upon.

For gaining success in corporate world with a tag that the management of a particular company can do nothing wrong or which is against justice, Corporate Governance coupled with spirituality has a greater role to play, as Corporate Governance itself can not prove effective unless it is backed by spirituality i.e. the determination that the company will always do right whatever be the outcome and impact of such philosophy on the company's prospects in the near future.

Relationship between Spirituality and Corporate Governance

Prayer and Truthfulness

The success of true Spirituality and effective Corporate Governance depends upon the philosophy of prayer and truthfulness. Prayer is talking over ones life with God. The goal of all true prayer is to look at life with the eyes of God. Prayer attempts to make one patient, compassionate and honest toward others, and peaceful most of all. The management of a company adopting this approach can never do injustice with its stakeholders at any time. Similarly Organizations can very much manifest the quality of the truthfulness by being grounded i.e. dealing with the ground realities from all the stakeholders' perspectives including the employees.

Intimacy and Flexibility

Intimacy and flexibility go hand in hand for seeking cooperation and gaining the best out of the associated members at all levels. Intimacy means more than proximity; it means sharing the depths of self with another and giving proper and patience hearing to the other as well. Encouragement is another facet of intimacy. Where members of an organization thank each other, pay each other sincere compliment, and resist the many opportunities to be critical of each other, there develops a loving web in the company. Spirituality thus promotes and develops the art of

42 "Pragyaan : Journal of Information Management" Volume 9 : Issue 1, June 2011 43"Pragyaan : Journal of Information Management" " Volume 9 : Issue 1, June 2011

Spirituality in Corporate Governance: A Mantra to Success

ensure the accountability of certain individuals in an organization through mechanisms that try to reduce or eliminate the principal-agent problem. A brief picture of stakeholders is depicted in figure 1.

Fig. : 1 Principal Stake Holders in a Company

Source: http://www.applied-corporate-governance. com/best-corporate-governance-practice.html

Important Issues in Corporate Governance

Board independence and Board Structure

The effectiveness of good corporate governance depends largely on the board's ability to how well it manages, monitors and controls the management without affecting adversely the performance of the company.

The corporate scandals of the recent past have sharply increased board accountability. For increasing the effectiveness of the board it is essential that independent directors are given complete freedom and allowed to work in the larger interest of the stake holders of the company. Though it is easier said that the independent directors should be fair and act freely when it comes to making crunch decisions, but the point is that when independent directors themselves are appointed by the board of directors headed by CEO, how they can work with complete freedom. In this context, it would have been appropriate that such independent directors were appointed by a national governing body like

SEBI, Company Law Board or alike, and deputing them on duty in different companies, making such independent directors to perform and act without any pressure or fear.

Conflicts of Interest

Quite often there arises a situation of conflict between employees and more particularly between the members of management and supervisory board which often face conflict of interest situation. Companies in order to deal with such situations should define the non-competition obligations, prohibit the pursuit of personal interests in company decisions, define an authorization frame-work for outside activities, and require immediate disclosure of potential conflicts of interest.

Complete Transparency

Yet another important issue in making Corporate Governance effective is adaptation of the policy of transparency in all aspects of operations related to the stakeholders at all levels. Transparency in operations helps in reducing conflicting situations as well. A better way to improve transparency is the publication of company specific Corporate Governance guidelines coupled with meaningful annual governance reporting. All stakeholders thus gain the opportunity to self-assess the governance quality. This can help to promote improvements of critical governance elements.

Sensible and Long Term-oriented Remuneration Structures

Many of the recent corporate scandals resulted from the short-term orientation of top managers caused by compensation packages that were not aligned with longer-term shareholder interests. Full disclosure of the compensation structure should be mandatory and particularly the details of share option plans should require shareholder approval. To justify the reward of outperformance, appropriate benchmarks must be found that reflect best practice in the company's industry. Windfall profits caused by general stock market rises that do not reflect individual achievement should simply no longer be part of a fair compensation concept.

Institute of Management Studies, Dehradun

Auditing Area

In order to enjoy the trust of stake holders in the audit of financial statements, true and complete independence of the auditor backed by the policy of a regular auditor change at regular intervals combined with the prohibition of most non-auditing services are important. In the Satyam Computers case consequent to a written confession by its Chairman B. Ramalinga Raju, admitting to the recent multi crore scam of misrepresenting facts in the Company's balance sheet to the tune of around Rs. 8000 Crore, has brought the role of auditors and accountants for the company under scrutiny. The role of PricewaterhouseCoopers- the statutory auditors in “India's Enron” comes under the spotlight amid allegations that large Indian companies regularly use misleading accounting techniques and bully analysts, accountants and auditors into staying quiet. Given the scandals of the past like Worldcom, Parmalet and Enron, the imminent issue is how effective and trustworthy Auditors really are.

Rights of Shareholders

Many companies still do not give their shareholders the possibility to exercise their shareholder rights in the Annual Meeting. It is remarkable that no satisfactory solution has yet been found to implement full cross-border voting powers for many companies that have ADR's outstanding.

Spirituality

Spirituality is often confused with religion but there is a dividing line between the two. Religion is bhakti or worship performed by a group of like minded people belonging to a particular culture to appease the Almighty. On the other hand Spirituality has more vast meaning and it goes beyond the boundaries of particular religion. As per Bhagavad Gita meaning of spirituality means diving deep into inner self and realizing ones true identity and relate to the spirit within. In fact the meaning of spirituality is the meaning of life. To be faced with good and evil, and evolve for good into a positive energy. So a basic definition of spirituality is the quality of one's sensitivity to the things of the spirit i.e. justice. And what are these things of the spirit? These are those that

cannot be directly perceived by our senses but which can be deduced or inferred by our observations, like love, justice, peace, etc in all spheres of life be it personal or professional. Thus spirituality in true sense means doing things right in the manner as ones inner heart agrees upon.

For gaining success in corporate world with a tag that the management of a particular company can do nothing wrong or which is against justice, Corporate Governance coupled with spirituality has a greater role to play, as Corporate Governance itself can not prove effective unless it is backed by spirituality i.e. the determination that the company will always do right whatever be the outcome and impact of such philosophy on the company's prospects in the near future.

Relationship between Spirituality and Corporate Governance

Prayer and Truthfulness

The success of true Spirituality and effective Corporate Governance depends upon the philosophy of prayer and truthfulness. Prayer is talking over ones life with God. The goal of all true prayer is to look at life with the eyes of God. Prayer attempts to make one patient, compassionate and honest toward others, and peaceful most of all. The management of a company adopting this approach can never do injustice with its stakeholders at any time. Similarly Organizations can very much manifest the quality of the truthfulness by being grounded i.e. dealing with the ground realities from all the stakeholders' perspectives including the employees.

Intimacy and Flexibility

Intimacy and flexibility go hand in hand for seeking cooperation and gaining the best out of the associated members at all levels. Intimacy means more than proximity; it means sharing the depths of self with another and giving proper and patience hearing to the other as well. Encouragement is another facet of intimacy. Where members of an organization thank each other, pay each other sincere compliment, and resist the many opportunities to be critical of each other, there develops a loving web in the company. Spirituality thus promotes and develops the art of

42 "Pragyaan : Journal of Information Management" Volume 9 : Issue 1, June 2011 43"Pragyaan : Journal of Information Management" " Volume 9 : Issue 1, June 2011

Spirituality in Corporate Governance: A Mantra to Success

intimacy. Intimacy must be followed by flexibility and not rigidness. It is flexibility in operations that forms the base for success and not the rigidness. Organizations which speak high of successful adaptation of corporate governance should therefore, be more adaptive and flexible in understanding matters deeply than merely looking at its surface. For instance, though there are fixed office hours, if the situation is that any member of the management is about to leave and suddenly someone comes with the problem which requires his guidance and can be sorted out by giving him fifteen minutes or so, then the necessary guidance and help should be provided to the needy. This approach will be appreciated by all the stakeholders in the company. This is called flexibility and can only be developed by spirituality.

Forgiveness and Erasing Evil

The two terms seems to be governing in opposite direction yet they are essential for effective implementation of Corporate Governance based on Spirituality. Forgiveness does not mean always overlooking the ill acts of the other nor does it mean firing the person on committing even a small mistake. Forgiveness is letting the other person know that one is aware of his indecent and intolerable act and at the same time counseling him in a proper manner so that he realizes his mistake and promises not to repeat such act in future and he means it. To make one realize of his indecent act, with erasing of evil, is forgiveness. Thus the management of an organization should adopt the features of 'Fire' which absorbs the good and destroys the evil. Corporations should have the fire to clear the evil forces that hinders the growth of the Organization. The governance should be structured in a way that it is clearly seen as a lethal weapon to all the destructive forces.

Creativity and Endless Possibilities

Both Spirituality and good Corporate Governance are based on the twin principles of creativity and endless possibilities. Bible says that a spiritual worker is one who is creative, hopeful, goal-oriented; not haphazard, sets aside time to think about the implications of one's work and how the work can be done in different way. The promotion of this type of attitude by the management brings in new opportunities and possibilities for the company and at

the same time it succeeds in taking care of all its stake holders in an effective manner without taking the path of malpractices, making Corporate Governance much more effective and result oriented.

Invisible Presence

Spirituality and Corporate Governance, both are invisible. Since no mention needs to be made that the elements of spirituality such as truthfulness, kindness, forgiveness, commitment, joyfulness all are invisible and stay in heart as no outsider can judge and see the inner feelings and thoughts. Corporate Governance to be effective should also work in invisible manner and that is the reason it is said that true governance is all about not knowing that we are being governed. To me, that is the highest level of governance, it should be as simple as electricity flowing from the switch, water flowing from the taps. No drama! Just silently going through the motions of doing what it does. Governance needs to be invisible yet exist everywhere like air. It should transmit the sounds of governance to the right levels as to the true attribute of air which transmits sound and it will show its color if something is mixed up.

Spirituality Combined with Corporate Governance = Success : A Case of Infosys Technologies

Opening Remark

Narayana Murthy is the man behind setting up India's leading software company - Infosys. Narayana Murthy turned a small software development venture that he had set up with his friends in 1981, into one of the leading companies of the country. Infosys grew rapidly throughout the 1990s. Narayana Murthy distributed the company's profits among the employees through a stock-option program, and adopted the best corporate governance practices based on high ethical values and systems. All this earned him praise and respect. In 1999, the company became the first Indian firm to be listed on the Nasdaq Stock Market. In 2000, Infosys was poised to become a true global company. By 2000, Infosys' market capitalization reached Rs.11 billion and by 2001, Infosys was one of the biggest exporters of software from India. Narayana Murthy had built an organization that was respected across the country, with very strong systems, high ethical values and a nurturing working atmosphere. In February 2001, Infosys Technologies Ltd. (Infosys) was voted as

Institute of Management Studies, Dehradun

the Best Managed Company in Asia in the Information Technology sector, in leading financial magazine Euromoney's Fifth Annual Survey of Best Managed Companies in Asia.

Creation of Infosys

Narayana Murthy obtained his Bachelor's degree in Electrical Engineering from University of Mysore in 1967 and his Master's degree in Technology from Indian Institute of Technology, Kanpur in 1969. He started his career as head of the computer centre at IIM, Ahmedabad. In 1972, he went to Paris where he was part of the team that designed a 400-terminal, real-time operating system for handling air cargo for Charles De Gaulle airport. Narayana Murthy was a left-wing activist and mingled with French communists during his stay in Paris but his outlook changed while travelling around Europe. He believed that the only way to pull India out of poverty was to create more jobs, by setting up new companies. In 1975, he returned to India and joined Systems Research Institute, Pune,(Maharashtra). He then headed Patni Computer Systems Pvt. Ltd., Mumbai, (Maharashtra) before founding Infosys in 1981, along with six other professionals.

Managing Human Resources

Analysts felt that one factor which helped Infosys to grow at a faster pace than others was the low employee turnover. The turnover rate at Infosys was around 11% as opposed to industry average for software companies' of over 25% during the 1990s.Infosys' retention capability was a function both of its rigorous selection procedures as well as proactive HRD practices. About 80% of the middle and senior level executives were promoted from within the organization.

Corporate Governance and Infosys

Analysts felt that Infosys became one of the most respected companies in India, through its corporate governance practices and spiritual values, which were better than those of many other companies in India. Narayana Murthy's move to adhere to the best global practices was driven by his vision to become a global player. Infosys adopted the stringent US Generally Accepted Accounting Practices (GAAP) many years before other companies in India did.

Narayana Murthy believed in commitment to values, and ethical conduct of business. He said, “Investors, customers, employees and vendors have all become more discerning and are demanding greater transparency and fairness in all dealings”. He also made a clear distinction between personal and corporate funds. Founding members took only salaries and dividends and did not have other benefits from the company.

Infosys Ahead of Others on Corporate Governance and Spiritual Values

Ultimately, however, the corporate governance standards coupled with good ethical values at Infosys are the exception rather than the norm in India. Recent study and analysis of data on corporate governance backed by spirituality in India suggest that most firms fall far short of the Infosys benchmark, including most firms within the software industry.

Awards Bagged by Infosys for Excellence in Corporate Governance and Ethical Values

Infosys was the recipient of awards for its good governance practices. A glimpse of it can be had from Table 1.

The Success Story

The success story of Infosys having high moral values, promoting Corporate Governance in right spirit can be judged from the performance of the company which has shown continuous spurt in profits year after year and yet continued to enjoy the status of being fair in promoting and adapting good business practices.

Table: 1 Corporate Governance Awards to Infosys

Year Award Description

2000 'National Award for Excellence in Corporate Governance' by Government of India.

2001 Rated India's most respected company by Business World.

Ranked second in Corporate Governance among 495 emerging companies in a survey conducted by Credit Lyonnais Securities Asia (CLSA) Emerging Markets.

44 "Pragyaan : Journal of Information Management" Volume 9 : Issue 1, June 2011 45"Pragyaan : Journal of Information Management" " Volume 9 : Issue 1, June 2011

Spirituality in Corporate Governance: A Mantra to Success

intimacy. Intimacy must be followed by flexibility and not rigidness. It is flexibility in operations that forms the base for success and not the rigidness. Organizations which speak high of successful adaptation of corporate governance should therefore, be more adaptive and flexible in understanding matters deeply than merely looking at its surface. For instance, though there are fixed office hours, if the situation is that any member of the management is about to leave and suddenly someone comes with the problem which requires his guidance and can be sorted out by giving him fifteen minutes or so, then the necessary guidance and help should be provided to the needy. This approach will be appreciated by all the stakeholders in the company. This is called flexibility and can only be developed by spirituality.

Forgiveness and Erasing Evil

The two terms seems to be governing in opposite direction yet they are essential for effective implementation of Corporate Governance based on Spirituality. Forgiveness does not mean always overlooking the ill acts of the other nor does it mean firing the person on committing even a small mistake. Forgiveness is letting the other person know that one is aware of his indecent and intolerable act and at the same time counseling him in a proper manner so that he realizes his mistake and promises not to repeat such act in future and he means it. To make one realize of his indecent act, with erasing of evil, is forgiveness. Thus the management of an organization should adopt the features of 'Fire' which absorbs the good and destroys the evil. Corporations should have the fire to clear the evil forces that hinders the growth of the Organization. The governance should be structured in a way that it is clearly seen as a lethal weapon to all the destructive forces.

Creativity and Endless Possibilities

Both Spirituality and good Corporate Governance are based on the twin principles of creativity and endless possibilities. Bible says that a spiritual worker is one who is creative, hopeful, goal-oriented; not haphazard, sets aside time to think about the implications of one's work and how the work can be done in different way. The promotion of this type of attitude by the management brings in new opportunities and possibilities for the company and at

the same time it succeeds in taking care of all its stake holders in an effective manner without taking the path of malpractices, making Corporate Governance much more effective and result oriented.

Invisible Presence

Spirituality and Corporate Governance, both are invisible. Since no mention needs to be made that the elements of spirituality such as truthfulness, kindness, forgiveness, commitment, joyfulness all are invisible and stay in heart as no outsider can judge and see the inner feelings and thoughts. Corporate Governance to be effective should also work in invisible manner and that is the reason it is said that true governance is all about not knowing that we are being governed. To me, that is the highest level of governance, it should be as simple as electricity flowing from the switch, water flowing from the taps. No drama! Just silently going through the motions of doing what it does. Governance needs to be invisible yet exist everywhere like air. It should transmit the sounds of governance to the right levels as to the true attribute of air which transmits sound and it will show its color if something is mixed up.

Spirituality Combined with Corporate Governance = Success : A Case of Infosys Technologies

Opening Remark

Narayana Murthy is the man behind setting up India's leading software company - Infosys. Narayana Murthy turned a small software development venture that he had set up with his friends in 1981, into one of the leading companies of the country. Infosys grew rapidly throughout the 1990s. Narayana Murthy distributed the company's profits among the employees through a stock-option program, and adopted the best corporate governance practices based on high ethical values and systems. All this earned him praise and respect. In 1999, the company became the first Indian firm to be listed on the Nasdaq Stock Market. In 2000, Infosys was poised to become a true global company. By 2000, Infosys' market capitalization reached Rs.11 billion and by 2001, Infosys was one of the biggest exporters of software from India. Narayana Murthy had built an organization that was respected across the country, with very strong systems, high ethical values and a nurturing working atmosphere. In February 2001, Infosys Technologies Ltd. (Infosys) was voted as

Institute of Management Studies, Dehradun

the Best Managed Company in Asia in the Information Technology sector, in leading financial magazine Euromoney's Fifth Annual Survey of Best Managed Companies in Asia.

Creation of Infosys

Narayana Murthy obtained his Bachelor's degree in Electrical Engineering from University of Mysore in 1967 and his Master's degree in Technology from Indian Institute of Technology, Kanpur in 1969. He started his career as head of the computer centre at IIM, Ahmedabad. In 1972, he went to Paris where he was part of the team that designed a 400-terminal, real-time operating system for handling air cargo for Charles De Gaulle airport. Narayana Murthy was a left-wing activist and mingled with French communists during his stay in Paris but his outlook changed while travelling around Europe. He believed that the only way to pull India out of poverty was to create more jobs, by setting up new companies. In 1975, he returned to India and joined Systems Research Institute, Pune,(Maharashtra). He then headed Patni Computer Systems Pvt. Ltd., Mumbai, (Maharashtra) before founding Infosys in 1981, along with six other professionals.

Managing Human Resources

Analysts felt that one factor which helped Infosys to grow at a faster pace than others was the low employee turnover. The turnover rate at Infosys was around 11% as opposed to industry average for software companies' of over 25% during the 1990s.Infosys' retention capability was a function both of its rigorous selection procedures as well as proactive HRD practices. About 80% of the middle and senior level executives were promoted from within the organization.

Corporate Governance and Infosys

Analysts felt that Infosys became one of the most respected companies in India, through its corporate governance practices and spiritual values, which were better than those of many other companies in India. Narayana Murthy's move to adhere to the best global practices was driven by his vision to become a global player. Infosys adopted the stringent US Generally Accepted Accounting Practices (GAAP) many years before other companies in India did.

Narayana Murthy believed in commitment to values, and ethical conduct of business. He said, “Investors, customers, employees and vendors have all become more discerning and are demanding greater transparency and fairness in all dealings”. He also made a clear distinction between personal and corporate funds. Founding members took only salaries and dividends and did not have other benefits from the company.

Infosys Ahead of Others on Corporate Governance and Spiritual Values

Ultimately, however, the corporate governance standards coupled with good ethical values at Infosys are the exception rather than the norm in India. Recent study and analysis of data on corporate governance backed by spirituality in India suggest that most firms fall far short of the Infosys benchmark, including most firms within the software industry.

Awards Bagged by Infosys for Excellence in Corporate Governance and Ethical Values

Infosys was the recipient of awards for its good governance practices. A glimpse of it can be had from Table 1.

The Success Story

The success story of Infosys having high moral values, promoting Corporate Governance in right spirit can be judged from the performance of the company which has shown continuous spurt in profits year after year and yet continued to enjoy the status of being fair in promoting and adapting good business practices.

Table: 1 Corporate Governance Awards to Infosys

Year Award Description

2000 'National Award for Excellence in Corporate Governance' by Government of India.

2001 Rated India's most respected company by Business World.

Ranked second in Corporate Governance among 495 emerging companies in a survey conducted by Credit Lyonnais Securities Asia (CLSA) Emerging Markets.

44 "Pragyaan : Journal of Information Management" Volume 9 : Issue 1, June 2011 45"Pragyaan : Journal of Information Management" " Volume 9 : Issue 1, June 2011

Spirituality in Corporate Governance: A Mantra to Success

2002 Recipient of Golden Peacock Award for Excellence in Corporate Governance in the Global Category by the World Council for Corporate Governance, London

The Institute of Company Secretaries of India National Award for Excellence in Corporate Governance by the Ministry of Law, Justice and Company Affairs, Department of Company Affairs, Government of India.

2005 Tops the regional rankings for best Corporate Governance in Asiamoney's Corporate Governance Poll.

2009 Received the highest rating on Corporate Governance by ICRA

2010 Honored for best practices in IR Global Rankings conducted jointly by Investor Relations (IR) Global Rankings and MZ Consult, a leading investor relations and financial communications firm.

Voted the best company in management, corporate governance, investor relations, and corporate social responsibility (India) in a Finance Asia magazine survey

Source: http://www.infosys.com/about/awards/pages/all-awards.aspx

Fig: 2 A Schematic of the Effects of Infosys Corporate Governance Initiatives

Source: JOSTOT: Journal of International Business Studies, Vo l . 35 , No. 6 (Nov. 2004) , h t t p : / /www. jstor.org/pss/3875235

Table: 2 Performance of Infosys Technologies

Years 2005-06 2006-07 2007-08 2008-09 2009-10

PAT from 2,458 3,856 4,659 5,988 6,218ordinary activities (In Rs. Crore)

Source: http://www.infosys.com/investors/financials/ Pages/data-sheet.aspx\

Fig: 3 Graphical Presentation of Performance of Infosys Technologies

Lack of Spirituality and Corporate Governance = Failure : A Case of Satyam Computers

"Satyam” is a Sanskrit word which means the truth but the Satyam case is one of the biggest frauds in India's corporate history. B. Ramalinga Raju, Founder & CEO of Satyam Computers announced that his company had been falsifying its account for years.

Background Note

Satyam was incorporated in 1987 as a private limited company providing software development and consultancy services. Raju and his brother Rama Raju were the promoters of the company. Before starting Satyam, they were involved in other businesses like construction and textiles.

Software companies need to compete globally• Global talent pool• Need to offer options as part of compensation package• Gaining credibility with customers• Global M&A activity

Voluntary adaptation of increased disclosure, independent directors, pay for performance

NASDAQ listings Rise to prominence of existingindustry lobby, NASSCOM

Increased international analyst coverage.Arrival of foreign financial intermediaries

Pressure on other Indian software companies to adapt similar Evolution of regulation to support to corporate governance practices

and entrench new practices

Intermediation depth increases

Pressure on other industries

Corporate Governance Convergence

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

2005-06 2006-07 2007-08 2008-09 2009-10

PAT from ordinary activities(In Rs. Crore)

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

2005-06 2006-07 2007-08 2008-09 2009-10

PAT from ordinary activities(In Rs. Crore)

Institute of Management Studies, Dehradun

Governance Practices and Spiritual Values at Satyam

According to Satyam's annual reports, corporate governance and spiritual values were given high importance in the company. The corporate governance in Satyam was driven by its core values - Associate Delight, Investor Delight, Customer Delight, and the Pursuit of Excellence and for which spiritual values formed the basis, as all the aspects mentioned above can never be achieved if one is not truthful, fair and justifiable in the toughest of situations and this calls for corporate governance with spiritual values.

The Maytas Fuss

As On September 30, 2008, Satyam reported that it has cash reserves of US$ 1.2 billion. On December 16, 2008, the company announced that it planned to use these cash reserves to acquire two companies - Maytas Properties and Maytas Infrastructure owned by the family members of Satyam's founder and Chairman Ramalinga Raju. Due to adverse reaction from institutional investors and the stock markets, the deal was withdrawn within 12 hours. Questions were raised on the corporate governance and spiritual practices of Satyam with analysts and investors' questioning the company's board on the reasons for giving consent for the acquisition as it was a related party transaction.

Confession to Accounting Irregularities

On January 07, 2009, B. Ramalinga Raju made a shocking admission that for several years, the revenues and profits of Satyam had been inflated, without the knowledge of the board, senior managers of the company, and the auditors. There was a huge question mark over the philosophy of fair Corporate Governance having the backing of sound spiritual values. All the claims blew in the air and it was clear-cut indication that a company with poor Corporate Governance and poor moral values in the long run is going to flounder no matter how loudly it talks of principles.

Question over the Board

The issue of Maytas' aborted acquisition and the subsequent disclosure of financial irregularities in

Satyam cast a shadow on the role played by the independent directors at Satyam as they failed to perform their duties and subdued under pressure and have been the part of fraudulent practices being opted by the Board of Directors of the company. This shows that the independent directors too lacked integrity. Where have the huge claims of Corporate Governance and Spirituality vanished.

The Board's Limitations

Some corporate governance experts pointed out that though the independent directors were responsible for good governance in companies, they themselves relied mostly on the information presented to them by the management, and that it was not possible for them to investigate such accounting frauds. Can the independent directors shoulder away from their duties by giving such lame excuses.

End Result

The Satyam fiasco was expected to have an adverse impact on the image of IT services companies in India, as it was the fourth largest company in the industry. Anand Mahindra, Vice-chairman and MD, Mahindra Group, said, "This development has resulted in incalculable and unjustifiable damage to Brand India and Brand IT in particular. What is especially ironic is that Satyam was started by entrepreneurs who have served as role models for an entire generation of young Indians." Theirs false promises regarding good Corporate Governance and high moral value (spirituality) have proved futal and has dented the Indian IT industry. Thus lack of Corporate Governabce and Spirituality in business can turn the success story of a company into a failure.

Satyam's Results under Scanner

stThough till 31 March,2008 Satyam financial results have shown effective performance but after the confession of its Chairman B. Ramalinga Raju, admitting to the recent multi crore scam of misrepresenting facts in the Company's balance sheet to the tune of around Rs. 8000 Crore, questions have been raised over the authenticity of previous years financial results as well. The company has been taken over by Mahindra but till date they have not been able

46 "Pragyaan : Journal of Information Management" Volume 9 : Issue 1, June 2011 47"Pragyaan : Journal of Information Management" " Volume 9 : Issue 1, June 2011

Spirituality in Corporate Governance: A Mantra to Success

2002 Recipient of Golden Peacock Award for Excellence in Corporate Governance in the Global Category by the World Council for Corporate Governance, London

The Institute of Company Secretaries of India National Award for Excellence in Corporate Governance by the Ministry of Law, Justice and Company Affairs, Department of Company Affairs, Government of India.

2005 Tops the regional rankings for best Corporate Governance in Asiamoney's Corporate Governance Poll.

2009 Received the highest rating on Corporate Governance by ICRA

2010 Honored for best practices in IR Global Rankings conducted jointly by Investor Relations (IR) Global Rankings and MZ Consult, a leading investor relations and financial communications firm.

Voted the best company in management, corporate governance, investor relations, and corporate social responsibility (India) in a Finance Asia magazine survey

Source: http://www.infosys.com/about/awards/pages/all-awards.aspx

Fig: 2 A Schematic of the Effects of Infosys Corporate Governance Initiatives

Source: JOSTOT: Journal of International Business Studies, Vo l . 35 , No. 6 (Nov. 2004) , h t t p : / /www. jstor.org/pss/3875235

Table: 2 Performance of Infosys Technologies

Years 2005-06 2006-07 2007-08 2008-09 2009-10

PAT from 2,458 3,856 4,659 5,988 6,218ordinary activities (In Rs. Crore)

Source: http://www.infosys.com/investors/financials/ Pages/data-sheet.aspx\

Fig: 3 Graphical Presentation of Performance of Infosys Technologies

Lack of Spirituality and Corporate Governance = Failure : A Case of Satyam Computers

"Satyam” is a Sanskrit word which means the truth but the Satyam case is one of the biggest frauds in India's corporate history. B. Ramalinga Raju, Founder & CEO of Satyam Computers announced that his company had been falsifying its account for years.

Background Note

Satyam was incorporated in 1987 as a private limited company providing software development and consultancy services. Raju and his brother Rama Raju were the promoters of the company. Before starting Satyam, they were involved in other businesses like construction and textiles.

Software companies need to compete globally• Global talent pool• Need to offer options as part of compensation package• Gaining credibility with customers• Global M&A activity

Voluntary adaptation of increased disclosure, independent directors, pay for performance

NASDAQ listings Rise to prominence of existingindustry lobby, NASSCOM

Increased international analyst coverage.Arrival of foreign financial intermediaries

Pressure on other Indian software companies to adapt similar Evolution of regulation to support to corporate governance practices

and entrench new practices

Intermediation depth increases

Pressure on other industries

Corporate Governance Convergence

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

2005-06 2006-07 2007-08 2008-09 2009-10

PAT from ordinary activities(In Rs. Crore)

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

2005-06 2006-07 2007-08 2008-09 2009-10

PAT from ordinary activities(In Rs. Crore)

Institute of Management Studies, Dehradun

Governance Practices and Spiritual Values at Satyam

According to Satyam's annual reports, corporate governance and spiritual values were given high importance in the company. The corporate governance in Satyam was driven by its core values - Associate Delight, Investor Delight, Customer Delight, and the Pursuit of Excellence and for which spiritual values formed the basis, as all the aspects mentioned above can never be achieved if one is not truthful, fair and justifiable in the toughest of situations and this calls for corporate governance with spiritual values.

The Maytas Fuss

As On September 30, 2008, Satyam reported that it has cash reserves of US$ 1.2 billion. On December 16, 2008, the company announced that it planned to use these cash reserves to acquire two companies - Maytas Properties and Maytas Infrastructure owned by the family members of Satyam's founder and Chairman Ramalinga Raju. Due to adverse reaction from institutional investors and the stock markets, the deal was withdrawn within 12 hours. Questions were raised on the corporate governance and spiritual practices of Satyam with analysts and investors' questioning the company's board on the reasons for giving consent for the acquisition as it was a related party transaction.

Confession to Accounting Irregularities

On January 07, 2009, B. Ramalinga Raju made a shocking admission that for several years, the revenues and profits of Satyam had been inflated, without the knowledge of the board, senior managers of the company, and the auditors. There was a huge question mark over the philosophy of fair Corporate Governance having the backing of sound spiritual values. All the claims blew in the air and it was clear-cut indication that a company with poor Corporate Governance and poor moral values in the long run is going to flounder no matter how loudly it talks of principles.

Question over the Board

The issue of Maytas' aborted acquisition and the subsequent disclosure of financial irregularities in

Satyam cast a shadow on the role played by the independent directors at Satyam as they failed to perform their duties and subdued under pressure and have been the part of fraudulent practices being opted by the Board of Directors of the company. This shows that the independent directors too lacked integrity. Where have the huge claims of Corporate Governance and Spirituality vanished.

The Board's Limitations

Some corporate governance experts pointed out that though the independent directors were responsible for good governance in companies, they themselves relied mostly on the information presented to them by the management, and that it was not possible for them to investigate such accounting frauds. Can the independent directors shoulder away from their duties by giving such lame excuses.

End Result

The Satyam fiasco was expected to have an adverse impact on the image of IT services companies in India, as it was the fourth largest company in the industry. Anand Mahindra, Vice-chairman and MD, Mahindra Group, said, "This development has resulted in incalculable and unjustifiable damage to Brand India and Brand IT in particular. What is especially ironic is that Satyam was started by entrepreneurs who have served as role models for an entire generation of young Indians." Theirs false promises regarding good Corporate Governance and high moral value (spirituality) have proved futal and has dented the Indian IT industry. Thus lack of Corporate Governabce and Spirituality in business can turn the success story of a company into a failure.

Satyam's Results under Scanner

stThough till 31 March,2008 Satyam financial results have shown effective performance but after the confession of its Chairman B. Ramalinga Raju, admitting to the recent multi crore scam of misrepresenting facts in the Company's balance sheet to the tune of around Rs. 8000 Crore, questions have been raised over the authenticity of previous years financial results as well. The company has been taken over by Mahindra but till date they have not been able

46 "Pragyaan : Journal of Information Management" Volume 9 : Issue 1, June 2011 47"Pragyaan : Journal of Information Management" " Volume 9 : Issue 1, June 2011

Spirituality in Corporate Governance: A Mantra to Success

to publish financial results of the newly formed company Mahindra Satyam and sought time from Company Law Board till October 2010 for publishing financial results for the years 2009 and 2010. Furthermore, the financial results were to be accompanied by a brief annexure known as prior period accounts, containing explanations for discrepancies between the old and new figures from fiscal 2003 to 2008. This has converted the company claiming to promote good Corporate Governance into a fraudulent practices promoting company. Thus, lack of Spirituality in Corporate Governance has brought the company from high skies down to the earth.

Glimpse of Unethical Acts and Poor Corporate Governance at Satyam

January 7, 2009 will be considered as a black day in India's corporate history for this was the day India was hit by its first corporate market scandal. Ramalinga Raju founder & former chairman of Satyam, admitted to fraud and inflating the revenues and costs and resigned from the company and the board. He admitted that he falsified the accounts books at Satyam.

What was more shocking was that the money that had been recorded in Satyam's balance sheets and books of account and being audited by the internationally reputed firm of auditors, Price Waterhouse Coopers (PWC), was to be fictitious later. This raised question over the credibility of auditors as well.

Apart from the above issues more alarming aspect was that Raju himself acknowledged that for last several years his company's financial records had been fudged and manipulated.

The down fall of Raju began when Satyam attempted to acquire two companies controlled by his sons- Maytas Properties and Maytas Infrastructure for 1.6 billion dollars in order to compensate the holes in his books of accounts.

The entire episode of the attempt of purchasing Maytas by Satyam was nothing but making mockery of the concept of spirituality in corporate governance in India, the very definition of which i.e. fairness, transparency and accountability, failed here.

Satyam Computers episode has also raised questions on the role performed by independent directors and whether they all need to be regulated. This case is an eye opener of the extent to which the independent directors have really performed well their role.

Conclusion

After the big scams in corporate world including that of Satyam, people have lost faith in corporate sector. Though the governing bodies of corporate sector all over the world have made it mandatory for companies to follow Corporate Governance norms, and make certain disclosures in their annual reports. But only implementation of rule is not going to help out unless and until these is commitment from the inner soul of all those who are taking control if operations of business on behalf of the stakeholders, that they will protect the interests of all those associated with the organization at all costs, only then the Corporate Governance will be able to produce the desired results where every one, at all levels and areas, will be implementing fair and justifiable policies promoting and strengthening the trust web. This change in attitude and fair commitment can only be brought through continuous practice of Spirituality. Though many argue that spirituality is against economic prosperity, but looking at the benefits of spirituality we find that Spirituality brings enthusiasm. It brings more time in life. One can do with only five to six hours of sleep. It keeps every one energized, enhances creativity and increases energy levels. Above all, when all the actions are done with clear conscience, there are no choice of committing anything wrong. And all these lead to prosperity. Is this different from business? Business needs creativity, and creativity needs alertness and being in the present moment, and one gets these through spiritual practices. To conclude it can be said it is spirituality all the way that generates positive energy and the management filled with positive attitude can never do any thing wrong and thus translates Corporate Governance from being just a legal dimension to an effective tool which would be admired by all in the corporate world as has been the case with Infosys.

Institute of Management Studies, Dehradun

References

1. Becht, Marco., Patrick, Bolton., Ailsa, Roell.(2002) "Corporate Governance and Control". ECGI - Finance Working Paper No. 02/2002.

2. Chakrabarti, R., Megginson, W., Yadav, P.(2002) “Corporate Governance in India” CFR-Working Paper No. 08-02

3. Clarke, Dr A. “Small and medium-sized enterprises (SMEs) and corporate governance: politics, resources and trickle-down effects”, Keeping Good Companies, Vol. 58 (6) July 2006, p332

4. Colley, J., Doyle, J., Logan, G., Stettinius, W., (2004). “What is Corporate Governance”?, McGraw-Hill

5. Corporate Governance International Journal,(2003) "A Board Culture of Corporate Governance”, Vol 6 Issue 3

6. Kumar Cherupalli, Kiran. Article on Corporate Governance, Internet: http://www.articlesbase. com/ authors/ kiran-kumar-cherupalli/75385.

7. Manglini, Hemlata., Srivastava, Sumit, “Corporate Governance: Necessity for Companies” (Comparative Analysis of Infosys and Satyam) Internet:http://www.indianmba.com/Faculty_Column/FC1068/fc1068.html

8. McKinsey (2002): “Global Investor Opinion Survey, undertaken in cooperation with the Global Corporate Governance Forum:” Internet: http://www.mckinsey.com/governance/.

9. Paper “Good Corporate Governance the relevance for companies and investors” presented by Strenger, Christian. in 6th International Conference on Corporate Governance WCFCG World Council for Corporate Governance London, 12 - 13 May, 2005

10. Sawhney, Clifford “Corporate Management - S p i r i t u a l i t y i n t h e B o a r d B o o m” , Internet:http://www.lifepositive.com/mind/ wo rk / c o r po ra t e -manag emen t / bu s in e s s -spirituality.asp.

11. Sirisha, D. “Narayan Murthy and Infosys”, ICMR Case Collection, ICFAI Center for Management Research.

http://en.wikipedia.org/wiki/Corporate_governance

http://spirituality4now.blogspot.com/2010/02/meaning-of-spirituality.html

http://www.activegarage.com/five-elements-of-corporate-governance

http://www.appleseeds.org/7-Keys_Spirit.htm

http://www.caclubindia.com/forum/files/45_satyam.pdf

http://www.dreamit.mn/index.php?option=com_myblog&show=corporate-governance-and-spirituality.html &Itemid=390&lang=mn

http://www.icmrindia.org/casestudies/catalogue/Business%20Ethics/Corporate%20Governance-Satyam-Case%20Studies.htm

48 "Pragyaan : Journal of Information Management" Volume 9 : Issue 1, June 2011 49"Pragyaan : Journal of Information Management" " Volume 9 : Issue 1, June 2011

Spirituality in Corporate Governance: A Mantra to Success

to publish financial results of the newly formed company Mahindra Satyam and sought time from Company Law Board till October 2010 for publishing financial results for the years 2009 and 2010. Furthermore, the financial results were to be accompanied by a brief annexure known as prior period accounts, containing explanations for discrepancies between the old and new figures from fiscal 2003 to 2008. This has converted the company claiming to promote good Corporate Governance into a fraudulent practices promoting company. Thus, lack of Spirituality in Corporate Governance has brought the company from high skies down to the earth.

Glimpse of Unethical Acts and Poor Corporate Governance at Satyam

January 7, 2009 will be considered as a black day in India's corporate history for this was the day India was hit by its first corporate market scandal. Ramalinga Raju founder & former chairman of Satyam, admitted to fraud and inflating the revenues and costs and resigned from the company and the board. He admitted that he falsified the accounts books at Satyam.

What was more shocking was that the money that had been recorded in Satyam's balance sheets and books of account and being audited by the internationally reputed firm of auditors, Price Waterhouse Coopers (PWC), was to be fictitious later. This raised question over the credibility of auditors as well.

Apart from the above issues more alarming aspect was that Raju himself acknowledged that for last several years his company's financial records had been fudged and manipulated.

The down fall of Raju began when Satyam attempted to acquire two companies controlled by his sons- Maytas Properties and Maytas Infrastructure for 1.6 billion dollars in order to compensate the holes in his books of accounts.

The entire episode of the attempt of purchasing Maytas by Satyam was nothing but making mockery of the concept of spirituality in corporate governance in India, the very definition of which i.e. fairness, transparency and accountability, failed here.

Satyam Computers episode has also raised questions on the role performed by independent directors and whether they all need to be regulated. This case is an eye opener of the extent to which the independent directors have really performed well their role.

Conclusion

After the big scams in corporate world including that of Satyam, people have lost faith in corporate sector. Though the governing bodies of corporate sector all over the world have made it mandatory for companies to follow Corporate Governance norms, and make certain disclosures in their annual reports. But only implementation of rule is not going to help out unless and until these is commitment from the inner soul of all those who are taking control if operations of business on behalf of the stakeholders, that they will protect the interests of all those associated with the organization at all costs, only then the Corporate Governance will be able to produce the desired results where every one, at all levels and areas, will be implementing fair and justifiable policies promoting and strengthening the trust web. This change in attitude and fair commitment can only be brought through continuous practice of Spirituality. Though many argue that spirituality is against economic prosperity, but looking at the benefits of spirituality we find that Spirituality brings enthusiasm. It brings more time in life. One can do with only five to six hours of sleep. It keeps every one energized, enhances creativity and increases energy levels. Above all, when all the actions are done with clear conscience, there are no choice of committing anything wrong. And all these lead to prosperity. Is this different from business? Business needs creativity, and creativity needs alertness and being in the present moment, and one gets these through spiritual practices. To conclude it can be said it is spirituality all the way that generates positive energy and the management filled with positive attitude can never do any thing wrong and thus translates Corporate Governance from being just a legal dimension to an effective tool which would be admired by all in the corporate world as has been the case with Infosys.

Institute of Management Studies, Dehradun

References

1. Becht, Marco., Patrick, Bolton., Ailsa, Roell.(2002) "Corporate Governance and Control". ECGI - Finance Working Paper No. 02/2002.

2. Chakrabarti, R., Megginson, W., Yadav, P.(2002) “Corporate Governance in India” CFR-Working Paper No. 08-02

3. Clarke, Dr A. “Small and medium-sized enterprises (SMEs) and corporate governance: politics, resources and trickle-down effects”, Keeping Good Companies, Vol. 58 (6) July 2006, p332

4. Colley, J., Doyle, J., Logan, G., Stettinius, W., (2004). “What is Corporate Governance”?, McGraw-Hill

5. Corporate Governance International Journal,(2003) "A Board Culture of Corporate Governance”, Vol 6 Issue 3

6. Kumar Cherupalli, Kiran. Article on Corporate Governance, Internet: http://www.articlesbase. com/ authors/ kiran-kumar-cherupalli/75385.

7. Manglini, Hemlata., Srivastava, Sumit, “Corporate Governance: Necessity for Companies” (Comparative Analysis of Infosys and Satyam) Internet:http://www.indianmba.com/Faculty_Column/FC1068/fc1068.html

8. McKinsey (2002): “Global Investor Opinion Survey, undertaken in cooperation with the Global Corporate Governance Forum:” Internet: http://www.mckinsey.com/governance/.

9. Paper “Good Corporate Governance the relevance for companies and investors” presented by Strenger, Christian. in 6th International Conference on Corporate Governance WCFCG World Council for Corporate Governance London, 12 - 13 May, 2005

10. Sawhney, Clifford “Corporate Management - S p i r i t u a l i t y i n t h e B o a r d B o o m” , Internet:http://www.lifepositive.com/mind/ wo rk / c o r po ra t e -manag emen t / bu s in e s s -spirituality.asp.

11. Sirisha, D. “Narayan Murthy and Infosys”, ICMR Case Collection, ICFAI Center for Management Research.

http://en.wikipedia.org/wiki/Corporate_governance

http://spirituality4now.blogspot.com/2010/02/meaning-of-spirituality.html

http://www.activegarage.com/five-elements-of-corporate-governance

http://www.appleseeds.org/7-Keys_Spirit.htm

http://www.caclubindia.com/forum/files/45_satyam.pdf

http://www.dreamit.mn/index.php?option=com_myblog&show=corporate-governance-and-spirituality.html &Itemid=390&lang=mn

http://www.icmrindia.org/casestudies/catalogue/Business%20Ethics/Corporate%20Governance-Satyam-Case%20Studies.htm

48 "Pragyaan : Journal of Information Management" Volume 9 : Issue 1, June 2011 49"Pragyaan : Journal of Information Management" " Volume 9 : Issue 1, June 2011

Spirituality in Corporate Governance: A Mantra to Success

The Challenges in Establishing Prerequisites and Characteristic Features of Global Brands

*Assistant Professor-Marketing, NSHM College of Management and Technology, Arrah Shibtala, via-Muchipara, Durgapur-713212**Assistant Professor-Marketing,JIS College of Engineering, Block A, Phase III, Kalyani, Dist Nadia, Pin - 741235

Somroop Siddhanta* Swati Pal**

ABSTRACT

Today we are living in the world of brands for better or for worse. Everyday we are exposed to thousands of brands. They are not just mere names, logos, or symbols but something more beyond being just business platforms. In twenty first century brands have become reflection of changing values of our society and culture. Think of a Tanishq, a Knorr Soup, a Nokia or a Coca-Cola. or for that matter consider the electronic media brands Google, Facebook, Orkut and YouTube, all of them are more than just mere names - they are a part and parcel of our society, representing more about who we are, what we look like, who our friends are and what our dreams and wishes are, than any other brand, organization or company, ever knew before. Moreover, brands dominate our working lives, and corporate logos are now in every civic space, from schools, universities and playgrounds to hospitals and art galleries. With the advent of globalization, organizations have changed their focus from local brands to global brands. Today, global brands are highly valued corporate assets that require immense investment to manage. Thus, this paper is dedicated to discussing the prerequisites and characteristic features of global brands and the challenges in establishing them.

Key words : Brand Equity , Strategic Planning , Corporate Social Responsibility , Brand Strategy

Introduction:

Brand signifies a combination of name, term, sign, symbol, design and anything else with prime objective of identifying a seller and consequently differentiating it from its competitors so that all customers can associate themselves emotionally with it.

When it comes to creating a global brand, the task becomes more challenging as the brand needs to be recognized, identified and associated globally. A global brand requires the building of compelling relationships across a diverse spectrum of broadly spread audiences. Global brands need to acquaint themselves with the global culture which comprises of consumers sharing different tastes or values. Global brands allow people to take part in a shared conversation and make way for enculturation. A strong global brand must build a platform that speaks directly to customers and improves their lives no matter how small or incremental that improvement is.

According to Prof. Keller, global brands give competitive advantages like :

? Economies of scale in production & distribution.

? Lower marketing and promotional costs.

? Consistency in brand image.

Apart from the above advantages, some more advantages like increased leverage with channel partners, improved alignment across the organization, workforce, and sharing of best practices also follow. Thus, it definitely pays to establish global brands. Therefore, it goes without saying that designing and implementation of the strategies that lead to building strong and long lasting relationships with consumers from diverse culture is the need of hour.

Objective of the study

The main objective of this research paper is to analyse the challenges in establishing prerequisites and characteristic features of global brands.

The Prerequisites

As more and more organizations begin to see the world as their market, the idea of creating global brand

has gained paramount importance. Attracted by success stories of different organizations, many organizations nowadays want to globalize their brands. But before going for a global brand there are certain prerequisites that have to be taken care of.

The prerequisites may be either brand-specific or organization-specific.

Brand-specific prerequisites

1. Brand has to be innovative and creative. These are the two hallmarks of any successful brand. Brands with creative & unique ideas register in consumer's mind quickly, tend to have longer Product Life Cycles and consequently become successful global brands.

2. The brand has to have a history or a legacy which has to be narrated and communicated well to the audience so that they feel that the brand is in some way, superior to the others. It goes without saying that the brand has also to deliver what it communicates and live up to its reputation.

3. The brand needs to have the power of affinity in the sense that it has to outperform competition in terms of building relationships with customers. Thus it has to have a distinct appeal to consumers, should be able to communicate with them affectively and thus reinforce the 'bonding' process. The better the 'bonding', the stronger the Global Brand Power Score. Global Brand Power Score is a combination of two measures. The first measure is the average percentage of people 'bonded' to the brand across all the countries where the brand was studied. The second measure is a multiplier that describes a brand's ability to create a strong relationship with category consumers in multiple countries. The brand qualifies as having a "strong" relationship if its bonding score is among the top 33 percent of bonding scores in the category.

Figure 1 shows the 10 strongest brands based on The Global Brand Power Score. For instance, on an average, over 40 percent of mobile phone buyers across 30 countries are bonded to Nokia

in the mobile phone product category. By contrast, less than one percent of people are bonded to Philips. Similarly, For example, Coca-Cola achieved strong bonding scores with soft drink consumers in 30 out of 31 countries, yielding a multiplier of 0.97 (30/31). By contrast, 7-Up has a far lower multiplier. It achieves a strong brand relationship in only 1 country out of the 25 in which it was measured.

4. The brand needs to have recognition. Recognition may come from being heard above the din by becoming better known among consumers than competition. This is the case with 'me too' brands with less distinguishable features in the minds of the consumers. Needless to say, the brand has to outspend competition in terms of promotional campaigns if it has to gain recognition in this case.

Organization-specific prerequisites

1. They must inculcate a positive attitude about the product's success across countries.

2. They should be consistent across markets, products and services.

3. They should try to create cross country synergy and try to fight local bias.

4. They need to execute brilliant brand building strategies.

5. The organizations need to understand that the shaping of brand expression will vary from country to country as business strategies, corporate cultures and organizational structures change. This shaping of brand expression needs to be taken care of while creating global brands.

50 "Pragyaan : Journal of Information Management" Volume 9 : Issue 1, June 2011 51"Pragyaan : Journal of Information Management" " Volume 9 : Issue 1, June 2011

The challenges in establishing prerequisites and characteristic features of global brands

The Challenges in Establishing Prerequisites and Characteristic Features of Global Brands

*Assistant Professor-Marketing, NSHM College of Management and Technology, Arrah Shibtala, via-Muchipara, Durgapur-713212**Assistant Professor-Marketing,JIS College of Engineering, Block A, Phase III, Kalyani, Dist Nadia, Pin - 741235

Somroop Siddhanta* Swati Pal**

ABSTRACT

Today we are living in the world of brands for better or for worse. Everyday we are exposed to thousands of brands. They are not just mere names, logos, or symbols but something more beyond being just business platforms. In twenty first century brands have become reflection of changing values of our society and culture. Think of a Tanishq, a Knorr Soup, a Nokia or a Coca-Cola. or for that matter consider the electronic media brands Google, Facebook, Orkut and YouTube, all of them are more than just mere names - they are a part and parcel of our society, representing more about who we are, what we look like, who our friends are and what our dreams and wishes are, than any other brand, organization or company, ever knew before. Moreover, brands dominate our working lives, and corporate logos are now in every civic space, from schools, universities and playgrounds to hospitals and art galleries. With the advent of globalization, organizations have changed their focus from local brands to global brands. Today, global brands are highly valued corporate assets that require immense investment to manage. Thus, this paper is dedicated to discussing the prerequisites and characteristic features of global brands and the challenges in establishing them.

Key words : Brand Equity , Strategic Planning , Corporate Social Responsibility , Brand Strategy

Introduction:

Brand signifies a combination of name, term, sign, symbol, design and anything else with prime objective of identifying a seller and consequently differentiating it from its competitors so that all customers can associate themselves emotionally with it.

When it comes to creating a global brand, the task becomes more challenging as the brand needs to be recognized, identified and associated globally. A global brand requires the building of compelling relationships across a diverse spectrum of broadly spread audiences. Global brands need to acquaint themselves with the global culture which comprises of consumers sharing different tastes or values. Global brands allow people to take part in a shared conversation and make way for enculturation. A strong global brand must build a platform that speaks directly to customers and improves their lives no matter how small or incremental that improvement is.

According to Prof. Keller, global brands give competitive advantages like :

? Economies of scale in production & distribution.

? Lower marketing and promotional costs.

? Consistency in brand image.

Apart from the above advantages, some more advantages like increased leverage with channel partners, improved alignment across the organization, workforce, and sharing of best practices also follow. Thus, it definitely pays to establish global brands. Therefore, it goes without saying that designing and implementation of the strategies that lead to building strong and long lasting relationships with consumers from diverse culture is the need of hour.

Objective of the study

The main objective of this research paper is to analyse the challenges in establishing prerequisites and characteristic features of global brands.

The Prerequisites

As more and more organizations begin to see the world as their market, the idea of creating global brand

has gained paramount importance. Attracted by success stories of different organizations, many organizations nowadays want to globalize their brands. But before going for a global brand there are certain prerequisites that have to be taken care of.

The prerequisites may be either brand-specific or organization-specific.

Brand-specific prerequisites

1. Brand has to be innovative and creative. These are the two hallmarks of any successful brand. Brands with creative & unique ideas register in consumer's mind quickly, tend to have longer Product Life Cycles and consequently become successful global brands.

2. The brand has to have a history or a legacy which has to be narrated and communicated well to the audience so that they feel that the brand is in some way, superior to the others. It goes without saying that the brand has also to deliver what it communicates and live up to its reputation.

3. The brand needs to have the power of affinity in the sense that it has to outperform competition in terms of building relationships with customers. Thus it has to have a distinct appeal to consumers, should be able to communicate with them affectively and thus reinforce the 'bonding' process. The better the 'bonding', the stronger the Global Brand Power Score. Global Brand Power Score is a combination of two measures. The first measure is the average percentage of people 'bonded' to the brand across all the countries where the brand was studied. The second measure is a multiplier that describes a brand's ability to create a strong relationship with category consumers in multiple countries. The brand qualifies as having a "strong" relationship if its bonding score is among the top 33 percent of bonding scores in the category.

Figure 1 shows the 10 strongest brands based on The Global Brand Power Score. For instance, on an average, over 40 percent of mobile phone buyers across 30 countries are bonded to Nokia

in the mobile phone product category. By contrast, less than one percent of people are bonded to Philips. Similarly, For example, Coca-Cola achieved strong bonding scores with soft drink consumers in 30 out of 31 countries, yielding a multiplier of 0.97 (30/31). By contrast, 7-Up has a far lower multiplier. It achieves a strong brand relationship in only 1 country out of the 25 in which it was measured.

4. The brand needs to have recognition. Recognition may come from being heard above the din by becoming better known among consumers than competition. This is the case with 'me too' brands with less distinguishable features in the minds of the consumers. Needless to say, the brand has to outspend competition in terms of promotional campaigns if it has to gain recognition in this case.

Organization-specific prerequisites

1. They must inculcate a positive attitude about the product's success across countries.

2. They should be consistent across markets, products and services.

3. They should try to create cross country synergy and try to fight local bias.

4. They need to execute brilliant brand building strategies.

5. The organizations need to understand that the shaping of brand expression will vary from country to country as business strategies, corporate cultures and organizational structures change. This shaping of brand expression needs to be taken care of while creating global brands.

50 "Pragyaan : Journal of Information Management" Volume 9 : Issue 1, June 2011 51"Pragyaan : Journal of Information Management" " Volume 9 : Issue 1, June 2011

The challenges in establishing prerequisites and characteristic features of global brands

6. The organizations need to analyze how different consumer segments perceive their brands in relation to other competitive and related brands and then go for further strategic planning.

Features of a Successful Global Brand

Global branding is not simply a marketing or advertising program. It is a way of doing business that affects every aspect of business enterprise. A brand is a very valuable commodity in any market usually commanding a premium price and significant loyalty among its regular users due to the proposed promise of performance and meets a perceived need among its customers.

The features of a successful global brand include:

1. Demonstrable brand promise whether the consumers see the promise of performance in action.

2. Uniqueness whether it is different from locally available alternatives.

3. Meaningful - whether the promise being made is meaningful or not, i.e. the brand should not offer something which is not important to local consumers.

4. Believable - It means whether the promise being made is believable or not. For if the consumers do not buy the claim, they would never buy the product.

Challenges in Creating Global Brand

So far we have seen different aspects of a good global brand, but to establish strong global brand in real sense the companies need to cross many hurdles. The various challenges that might be encountered by the companies are as under :

1. Quality The companies need to be cautious about the quality aspect of the brand that they want to offer to the consumers spread throughout the world.

To borrow Noriaki Kano's two dimensional model of quality, there are two sides of quality viz. “must-be quality” and “attractive quality”. The former refers to the “fitness for use” aspect of Juran and the latter is what the customer would love, but has not yet thought about. But these two parameters tend to vary

from one set of customer to another globally; for instance what may be a minimum requirement for an American customer may be an added benefit for an Asian one. Thus achieving a quality which will be perceived uniformly worldwide becomes a major challenge for companies going for global branding. This challenge can be overcome by proper geographical segmentation and thereby finding out how people in different countries perceive the quality aspect of the brand. For instance, Indians consider pizzas of Mc Donald of premium quality while the same in USA being considered as the minimum requirement.

2. Corporate Social responsibility People nowadays are of the view that the global companies have a duty to fulfill towards society's well being. Consumers have become conscious about how their products are obtained, grown and produced. They expect transnational companies to address issues related to social problems like public health, worker rights, and environment. Indeed, many consumers consider the brand behind the brand. It is no longer the product that has to consider environmental issues but also the entity as a whole.

Consumers do not expect the local companies tackle global warming but they expect multinational giants like BP and Shell to do so. Similarly people may turn a blind eye when local companies take advantage of employees but they won't stand for companies like Nike and Reebok adopting similar practices. With such expectations being as pronounced in developing countries like India, China as they are in developed countries: the job of building global brand which would address all such issues becomes that much more challenging.

One of the good examples as portrayed by Henkel India Pvt. Ltd. towards social responsibility is its Project Environment which promotes the plantation of Neem trees.

3. Consistency with the essence of local brands To build a global brand it needs consistency and ability to speak with one voice. Global brands must send market signals consistent with the idea they stand for, for over a period of time. The more consistent this marketing signal is, the clearer the brand image stands

Institute of Management Studies, Dehradun

across the country. Many a time global brands suffer from mistaken identity and brand dilution, if they are not treated in a consistent fashion in terms of looks, feel, language, and behaviour. Thus the companies in pursuit of creating global brands need to keep in mind that they should be associated emotionally to all and try to appeal to all the coming generations over and over again. For instance, Raymond suiting boasts of its existence since 1925 because of its consistent quality and distinctiveness.

4. Unrealistic price expectations One cannot get global service for a local price. There are lot of overheads to the effective implementation of a global research project that are not incurred with a project conducted in a s ingle market. Regional coordination, translation and travel costs are additional to the equivalent national study and often overlooked.

5. Using segmentation appropriately the companies must define their target customers with respect to geographical location and speak relevantly to them because what appeals to one section of the population may not appeal to the other section. It is not always possible to appeal to all the people all of the time, so it is better to select one or two segments to whom the company can serve at its best depending upon the homogeneity in likes, dislikes, preferences, attitudes, cultural, and linguistic heritage.

6. Understanding culture and cultural differences and accordingly getting moulded The companies face a major problem regarding their acceptance in different countries due to cultural differences. For instance, a colour or a design that achieves a positive result in one country may be disastrous in another. While the brand must portray the products or company values, attributes, personality and positioning, it must also ensure that cultural tastes and differences are taken into account. Since the acceptance level and tolerance differ across markets, it would be worthwhile if the companies go for test marketing of their ideas in local markets to ascertain how they will be interpreted. For example Mattel had to face problems while launching Barbie in Japanese culture did not want their girls to play with Barbie because of her attire.

7. Define business broadly Developing global brand largely depends on brand's ability to explore fresh avenues and sustain its competitive advantage in terms of economies of scale and productivity. The companies going for global branding must leave room for expansion and extension beyond current product or service offering because the world is changing constantly. What separates a customer in one part of the world to that in another are the complex social, cultural and esteem needs each of them has depending upon the stage at which the civilization is in the process of development. This requires the companies to be flexible so that they can fit themselves to the ever changing environment.

8. Creating an appealing name and symbol The first and foremost element that needs to be taken into consideration while creating a global brand is the name and symbol that will be used to represent the company, product or service throughout the world. The name must be pronounceable in all languages and dialects, free of negative connotations, and not confusingly similar to existing names. It must also draw the attention of people around the world with diverse socio cultural set up. Selection of colour of the symbol also plays a vital role while designing the brand for global markets as different colours carry different connotations across different cultures.

Not only for the name and the symbol but also marketers find that Government control in matters of packaging, labeling differs greatly from country to country. All these need to be kept in mind while deciding upon the name, symbol and packaging of the product or service.

9. Connecting with the people The companies create a brand which will communicate and connect to people. A strong global brand creates associations in the consumers' mind which guides them to attach distinct functional and emotional benefits and appropriate meanings and beliefs to the brand. Successful brand live beyond generations due to this ability to connect to people. It is also not just a question of satisfying customers of different countries with varied cultural background but also one of connecting with new generation of consumers with new sets of values, hopes, and ambitions. For a brand

52 "Pragyaan : Journal of Information Management" Volume 9 : Issue 1, June 2011 53"Pragyaan : Journal of Information Management" " Volume 9 : Issue 1, June 2011

The challenges in establishing prerequisites and characteristic features of global brands

6. The organizations need to analyze how different consumer segments perceive their brands in relation to other competitive and related brands and then go for further strategic planning.

Features of a Successful Global Brand

Global branding is not simply a marketing or advertising program. It is a way of doing business that affects every aspect of business enterprise. A brand is a very valuable commodity in any market usually commanding a premium price and significant loyalty among its regular users due to the proposed promise of performance and meets a perceived need among its customers.

The features of a successful global brand include:

1. Demonstrable brand promise whether the consumers see the promise of performance in action.

2. Uniqueness whether it is different from locally available alternatives.

3. Meaningful - whether the promise being made is meaningful or not, i.e. the brand should not offer something which is not important to local consumers.

4. Believable - It means whether the promise being made is believable or not. For if the consumers do not buy the claim, they would never buy the product.

Challenges in Creating Global Brand

So far we have seen different aspects of a good global brand, but to establish strong global brand in real sense the companies need to cross many hurdles. The various challenges that might be encountered by the companies are as under :

1. Quality The companies need to be cautious about the quality aspect of the brand that they want to offer to the consumers spread throughout the world.

To borrow Noriaki Kano's two dimensional model of quality, there are two sides of quality viz. “must-be quality” and “attractive quality”. The former refers to the “fitness for use” aspect of Juran and the latter is what the customer would love, but has not yet thought about. But these two parameters tend to vary

from one set of customer to another globally; for instance what may be a minimum requirement for an American customer may be an added benefit for an Asian one. Thus achieving a quality which will be perceived uniformly worldwide becomes a major challenge for companies going for global branding. This challenge can be overcome by proper geographical segmentation and thereby finding out how people in different countries perceive the quality aspect of the brand. For instance, Indians consider pizzas of Mc Donald of premium quality while the same in USA being considered as the minimum requirement.

2. Corporate Social responsibility People nowadays are of the view that the global companies have a duty to fulfill towards society's well being. Consumers have become conscious about how their products are obtained, grown and produced. They expect transnational companies to address issues related to social problems like public health, worker rights, and environment. Indeed, many consumers consider the brand behind the brand. It is no longer the product that has to consider environmental issues but also the entity as a whole.

Consumers do not expect the local companies tackle global warming but they expect multinational giants like BP and Shell to do so. Similarly people may turn a blind eye when local companies take advantage of employees but they won't stand for companies like Nike and Reebok adopting similar practices. With such expectations being as pronounced in developing countries like India, China as they are in developed countries: the job of building global brand which would address all such issues becomes that much more challenging.

One of the good examples as portrayed by Henkel India Pvt. Ltd. towards social responsibility is its Project Environment which promotes the plantation of Neem trees.

3. Consistency with the essence of local brands To build a global brand it needs consistency and ability to speak with one voice. Global brands must send market signals consistent with the idea they stand for, for over a period of time. The more consistent this marketing signal is, the clearer the brand image stands

Institute of Management Studies, Dehradun

across the country. Many a time global brands suffer from mistaken identity and brand dilution, if they are not treated in a consistent fashion in terms of looks, feel, language, and behaviour. Thus the companies in pursuit of creating global brands need to keep in mind that they should be associated emotionally to all and try to appeal to all the coming generations over and over again. For instance, Raymond suiting boasts of its existence since 1925 because of its consistent quality and distinctiveness.

4. Unrealistic price expectations One cannot get global service for a local price. There are lot of overheads to the effective implementation of a global research project that are not incurred with a project conducted in a s ingle market. Regional coordination, translation and travel costs are additional to the equivalent national study and often overlooked.

5. Using segmentation appropriately the companies must define their target customers with respect to geographical location and speak relevantly to them because what appeals to one section of the population may not appeal to the other section. It is not always possible to appeal to all the people all of the time, so it is better to select one or two segments to whom the company can serve at its best depending upon the homogeneity in likes, dislikes, preferences, attitudes, cultural, and linguistic heritage.

6. Understanding culture and cultural differences and accordingly getting moulded The companies face a major problem regarding their acceptance in different countries due to cultural differences. For instance, a colour or a design that achieves a positive result in one country may be disastrous in another. While the brand must portray the products or company values, attributes, personality and positioning, it must also ensure that cultural tastes and differences are taken into account. Since the acceptance level and tolerance differ across markets, it would be worthwhile if the companies go for test marketing of their ideas in local markets to ascertain how they will be interpreted. For example Mattel had to face problems while launching Barbie in Japanese culture did not want their girls to play with Barbie because of her attire.

7. Define business broadly Developing global brand largely depends on brand's ability to explore fresh avenues and sustain its competitive advantage in terms of economies of scale and productivity. The companies going for global branding must leave room for expansion and extension beyond current product or service offering because the world is changing constantly. What separates a customer in one part of the world to that in another are the complex social, cultural and esteem needs each of them has depending upon the stage at which the civilization is in the process of development. This requires the companies to be flexible so that they can fit themselves to the ever changing environment.

8. Creating an appealing name and symbol The first and foremost element that needs to be taken into consideration while creating a global brand is the name and symbol that will be used to represent the company, product or service throughout the world. The name must be pronounceable in all languages and dialects, free of negative connotations, and not confusingly similar to existing names. It must also draw the attention of people around the world with diverse socio cultural set up. Selection of colour of the symbol also plays a vital role while designing the brand for global markets as different colours carry different connotations across different cultures.

Not only for the name and the symbol but also marketers find that Government control in matters of packaging, labeling differs greatly from country to country. All these need to be kept in mind while deciding upon the name, symbol and packaging of the product or service.

9. Connecting with the people The companies create a brand which will communicate and connect to people. A strong global brand creates associations in the consumers' mind which guides them to attach distinct functional and emotional benefits and appropriate meanings and beliefs to the brand. Successful brand live beyond generations due to this ability to connect to people. It is also not just a question of satisfying customers of different countries with varied cultural background but also one of connecting with new generation of consumers with new sets of values, hopes, and ambitions. For a brand

52 "Pragyaan : Journal of Information Management" Volume 9 : Issue 1, June 2011 53"Pragyaan : Journal of Information Management" " Volume 9 : Issue 1, June 2011

The challenges in establishing prerequisites and characteristic features of global brands

to be successful globally, it has to click across the vertical class of generations and horizontal mass of global markets. For instance, Britannia connects 'eat healthy' and 'think better' to emphasize that Britannia biscuits are healthy and help people to think better. Likewise, Vicks (Procter & Gamble), Maggie noodles (Nestle), Bata footwear, Cadbury Dairy Milk (Cadbury Schweppes), Lifebuoy soaps (Unilever) and many others have created an indelible connection with the people.

10. Creating a global myth Consumers look to global brands as symbols of cultural ideals. They use brands to create and imagine global identity that to share with likeminded people. Thus transnational companies not only have to offer the highest value of products or services, but also have to deliver cultural myths with global appeal along with it. So the companies offering global brands need to spin myths about their products or services to keep them abreast in global competition.

Conclusions

Consumers judge the product only after judging the brand. Brand is the projection of image, reputation, and trust that requires continuous perseverance. Thus, we see that the basics of brand building apply to global branding strategy as well. For a brand to be successful globally, a genuine demand or a psychological need must exist in the target market. A global brand is one that, which induces the feel of connectivity around the world, removes national barriers and linguistic inhibitions, eliminates socio-cultural differences thereby addressing to the social responsibility and basic human need uniformly and consistently generation after generations.

Thus, in order to make brands successful globally, Research and Development capabilities have

to be harnessed that provide a constant stream of innovation and can readily adapt existing products and services to meet new market needs. One also needs to have an understanding of what is likely to work in a new market based on experience elsewhere. It is for this reason that nowadays organizations keep big marketing budgets with which to establish their brands. If their first attempt to enter a market fails, they have the resources to try again, using research to understand where they went wrong and how they might do better.

References

http://hbswk.hbs.edu/item/4377.html

http://www.ibef.org/artdisplay.aspx?cat_id=431&art_id=7294&arc=show

http://www.thehindubusinessline.com/catalyst/2002/09/26

http://www.thehindubusinessline.com/catalyst/2002/09/19

http://www.amazon.com/Lure-Global-Branding-David-Aaker/dp/B00005RZ8J

www.lippincottmercer.com/pdfs/s95_creating.pdf

http://www.networlding.com/news/index.jsp?article_id=109

http://www.dmi.org/dmi/html/publications/journal/pdf/01124ROE40.pdf

. Design Management Journal, Fall 2001, Vol. 12, No. 4 globalint.qxd

http://www.landor.com/pdfs/k9/HRoth_GlobalBrand_30Jun08.pd

http://www.placebrands.net/_files/General_Strategies_for_Global_Brands.pdf

Institute of Management Studies, Dehradun

Book Review

Book : Bond Evaluation, Selection, and Management

Author : R. Stafford Johnson

Publisher : John Wiley & Sons Inc., Hoboken, New Jersy (USA)

Edition : Second (2010)

Price : $ 125.00 USA/$ 150.00 CAN

ISBN : 978-0-470-47835-6 (cloth) ; 978-0-470-64462-1(ebk)

Pages : 881

Reviewed by : Dr. Sanjay Tiwari, Associate Professor, Department of Management Studies, School of Law, Governance, Public Policy & Management, Central University of Haryana, Mahendergarh (Haryana)

E-mail : stiwarigju@rediffmail.coms

As an important instrument of financial market, debt or fixed income securities have invited much attention during sub-prime crisis period in 2008. In India also, debt market is confined to G-sec market and the equity market prevails over debenture market as the investment in debt is lower than in the equity segment that is evident from the NSE and BSE activities. Even the efforts are going on to infuse confidence in fixed income securities market which is characterized by fixed and sustained returns. Further, most of the B-schools in India have not included core or elective courses related to the study of debt for whatever reasons. As a consequence there is a dearth of research work in the field of debt securities, management and strategies of investment. The present book on Bond Evaluation, Selection and Management is a silver lining in the space of securities market as the bond market is underdeveloped, there is lack of learning resources on the topic, and awareness is in nascent stage. In the Preface, the author expresses his hope that “this synthesis of fundamental and advanced topics will provide students of finance with a better foundation in understanding the complexities and subtleties involved in the evaluation and selection of bonds and debt positions with detailed structures.”

The book is divided into five parts having twenty two chapters. Part one is devoted to wider theme of bond evaluation containing five chapters. The first chapter tries to conceptualize the financial system with definition and structure of financial markets and regulation with reference to US. The characteristics of Eurobond, foreign bond, treasury bills and treasury bonds have been explained with an overview of inter-relationship among various functionaries and instruments of financial markets. In the second chapter, valuation of bonds has been included by establishing relationship between variables like coupon rate, required rate, value and par value with the help of mathematical formulae. The basic and advanced concepts of valuation of bonds in terms of YTM have been dealt with in light of some model building which also shows the relationship between a bond price sensitivities to interest rate changes and term maturity. How to compute yield to call, yield to put, yield to worst, cash flow yield and bond portfolio yield is well expressed mathematically in this chapter. Estimation of spot rates of bonds with bootstrapping approach is also elaborated in the chapter. Chapter three and four discuss about the level and structure of interest rates, the term structure of interest rates, and the factors affecting these parameters. The impact of economic factors such as economic growth, monetary and fiscal policy, international capital flows, relative risk and inflation on interest rate of bond is described in detail in third chapter while the relationship between yield and terms maturity is evident in chapter four. Theories like Market Segmentation Theory (MST), Preferred Habitat Theory (PHT) and Pure

54 "Pragyaan : Journal of Information Management" Volume 9 : Issue 1, June 2011 55"Pragyaan : Journal of Information Management" " Volume 9 : Issue 1, June 2011

to be successful globally, it has to click across the vertical class of generations and horizontal mass of global markets. For instance, Britannia connects 'eat healthy' and 'think better' to emphasize that Britannia biscuits are healthy and help people to think better. Likewise, Vicks (Procter & Gamble), Maggie noodles (Nestle), Bata footwear, Cadbury Dairy Milk (Cadbury Schweppes), Lifebuoy soaps (Unilever) and many others have created an indelible connection with the people.

10. Creating a global myth Consumers look to global brands as symbols of cultural ideals. They use brands to create and imagine global identity that to share with likeminded people. Thus transnational companies not only have to offer the highest value of products or services, but also have to deliver cultural myths with global appeal along with it. So the companies offering global brands need to spin myths about their products or services to keep them abreast in global competition.

Conclusions

Consumers judge the product only after judging the brand. Brand is the projection of image, reputation, and trust that requires continuous perseverance. Thus, we see that the basics of brand building apply to global branding strategy as well. For a brand to be successful globally, a genuine demand or a psychological need must exist in the target market. A global brand is one that, which induces the feel of connectivity around the world, removes national barriers and linguistic inhibitions, eliminates socio-cultural differences thereby addressing to the social responsibility and basic human need uniformly and consistently generation after generations.

Thus, in order to make brands successful globally, Research and Development capabilities have

to be harnessed that provide a constant stream of innovation and can readily adapt existing products and services to meet new market needs. One also needs to have an understanding of what is likely to work in a new market based on experience elsewhere. It is for this reason that nowadays organizations keep big marketing budgets with which to establish their brands. If their first attempt to enter a market fails, they have the resources to try again, using research to understand where they went wrong and how they might do better.

References

http://hbswk.hbs.edu/item/4377.html

http://www.ibef.org/artdisplay.aspx?cat_id=431&art_id=7294&arc=show

http://www.thehindubusinessline.com/catalyst/2002/09/26

http://www.thehindubusinessline.com/catalyst/2002/09/19

http://www.amazon.com/Lure-Global-Branding-David-Aaker/dp/B00005RZ8J

www.lippincottmercer.com/pdfs/s95_creating.pdf

http://www.networlding.com/news/index.jsp?article_id=109

http://www.dmi.org/dmi/html/publications/journal/pdf/01124ROE40.pdf

. Design Management Journal, Fall 2001, Vol. 12, No. 4 globalint.qxd

http://www.landor.com/pdfs/k9/HRoth_GlobalBrand_30Jun08.pd

http://www.placebrands.net/_files/General_Strategies_for_Global_Brands.pdf

Institute of Management Studies, Dehradun

Book Review

Book : Bond Evaluation, Selection, and Management

Author : R. Stafford Johnson

Publisher : John Wiley & Sons Inc., Hoboken, New Jersy (USA)

Edition : Second (2010)

Price : $ 125.00 USA/$ 150.00 CAN

ISBN : 978-0-470-47835-6 (cloth) ; 978-0-470-64462-1(ebk)

Pages : 881

Reviewed by : Dr. Sanjay Tiwari, Associate Professor, Department of Management Studies, School of Law, Governance, Public Policy & Management, Central University of Haryana, Mahendergarh (Haryana)

E-mail : stiwarigju@rediffmail.coms

As an important instrument of financial market, debt or fixed income securities have invited much attention during sub-prime crisis period in 2008. In India also, debt market is confined to G-sec market and the equity market prevails over debenture market as the investment in debt is lower than in the equity segment that is evident from the NSE and BSE activities. Even the efforts are going on to infuse confidence in fixed income securities market which is characterized by fixed and sustained returns. Further, most of the B-schools in India have not included core or elective courses related to the study of debt for whatever reasons. As a consequence there is a dearth of research work in the field of debt securities, management and strategies of investment. The present book on Bond Evaluation, Selection and Management is a silver lining in the space of securities market as the bond market is underdeveloped, there is lack of learning resources on the topic, and awareness is in nascent stage. In the Preface, the author expresses his hope that “this synthesis of fundamental and advanced topics will provide students of finance with a better foundation in understanding the complexities and subtleties involved in the evaluation and selection of bonds and debt positions with detailed structures.”

The book is divided into five parts having twenty two chapters. Part one is devoted to wider theme of bond evaluation containing five chapters. The first chapter tries to conceptualize the financial system with definition and structure of financial markets and regulation with reference to US. The characteristics of Eurobond, foreign bond, treasury bills and treasury bonds have been explained with an overview of inter-relationship among various functionaries and instruments of financial markets. In the second chapter, valuation of bonds has been included by establishing relationship between variables like coupon rate, required rate, value and par value with the help of mathematical formulae. The basic and advanced concepts of valuation of bonds in terms of YTM have been dealt with in light of some model building which also shows the relationship between a bond price sensitivities to interest rate changes and term maturity. How to compute yield to call, yield to put, yield to worst, cash flow yield and bond portfolio yield is well expressed mathematically in this chapter. Estimation of spot rates of bonds with bootstrapping approach is also elaborated in the chapter. Chapter three and four discuss about the level and structure of interest rates, the term structure of interest rates, and the factors affecting these parameters. The impact of economic factors such as economic growth, monetary and fiscal policy, international capital flows, relative risk and inflation on interest rate of bond is described in detail in third chapter while the relationship between yield and terms maturity is evident in chapter four. Theories like Market Segmentation Theory (MST), Preferred Habitat Theory (PHT) and Pure

54 "Pragyaan : Journal of Information Management" Volume 9 : Issue 1, June 2011 55"Pragyaan : Journal of Information Management" " Volume 9 : Issue 1, June 2011

Expectations Theory have been explained with practical examples and case studies which make the reader comfortable with the practice and concepts of term structure of bonds. In the fifth chapter the risk associated with bond investment has been identified and the types of default risk, call risk and market risk have been explained very well and also probability analysis and mathematical models describing risk are supported by live examples for more clarity on the topic. Duration and convexity which are two methods of computing volatility of yields of bonds with their mathematical derivation are also noteworthy feature of this chapter.

The second part of the book consists of seven chapters related to various types of debt markets. Chapter six in this part describes the types and characteristics of the corporate bonds, corporate notes, coupon bonds, zero coupon bonds, deep discount bonds, floating rate notes (FRN), secured, unsecured and guaranteed bonds, medium term notes, and commercial papers. The discussion on markets; primary, secondary and private placement, for trading the bonds is also an attraction of this chapter. In the seventh chapter, the concepts of treasury and agency securities have been analyzed. Also, treasury bills, Treasury bond and notes, treasury inflation-indexed bonds (TIPS), treasury strips, repurchase agreements and their types and the market where these are traded are described in detail. The eighth chapter introduces about the municipal securities and their types, such as anticipation notes, general obligation bonds (GO), and revenue bonds with their inherent features and risks. Also, municipal bonds markets are included in this chapter. The ninth chapter of the book is focused on debt securities by intermediary financial markets which consist of commercial banks, savings and loans, insurance companies, investment funds and other financial intermediaries. A conceptual description of certificate of deposit(CD), CD markets, types of CDs, bank notes, leveraged loans, syndicated loans, bankers' acceptance(BAs), mortgage backed and asset backed securities(MBSs and ABSs), collateralized mortgage obligation (CMOs), collateralized debt obligations (CDOs) and their characteristics are explained along with investment funds, (ETFs). In addition, bond market indexes are also highlighted with hedge funds in US settings. Similarly, insurance funds and pension funds have been defined in addition to the above mentioned categories of debts. Chapter ten describes debt securities such as domestic bonds, euro bonds, foreign bonds which are traded through internal bond market and external bond market also called offshore market where as the global markets in which bonds of both internal and external markets are bought and sold. Chapter eleven of the book talks of residential mortgages and mortgage backed securities (MBSs) which are innovative development issued through the process of securitization. These MBSs are of different types based on their maturity, interest rate (fixed or adjustable), security, credit quality and prepayment. In chapter twelve a new category of MBSs such as non agency residential MBSs, commercial MBSs and other asset backed securities backed by auto loans, credit card receivables and home equity loans of prime and sub-prime nature. The chapter gives a comprehensive account of the innovative debt instruments with the computing techniques of the risk inherent in them.

Part three of the book discusses about the bond investment strategies and evaluation of bonds with embedded options with probability approach. Chapter thirteen is devoted to bond investment strategies with classification like active and passive investment strategies. There are some hybrid strategies which consist of immunization position and have been widely explained in the chapter. The active strategies include trying to profit from forecasting yield curve shifts, taking positions in different quality bonds in anticipation of a narrowing or a quality yield spread, identifying mispriced bonds or taking positions in identical bonds that are equally priced. Indexing strategies are passive strategies used by managers who believe that actively managed bond strategies do not outperform bond market index which are very well elaborated in the chapter in simple but mathematical language from computational view point. One of the innovative bond instruments are the bonds with the embedded option (right to buy or sell) i.e. callable and putable bonds as in case of derivatives. Valuation of these types of bonds is a complex and difficult task. The author has used binomial tree approach to calculate the value of these bonds. In

binomial interest rate model the value of a two period and three period bond is computed using the tree approach. The reader will get more benefit provided he/she is conversant with derivatives and probability analysis to develop understanding of the valuation of these bonds. In addition to the valuation of the option bonds, the valuation techniques of computing bonds with other option features have also been describes and illustrated broadly by the author such as the sinking funds and convertible bonds. Chapter fifteen deals with how to estimate the binomial tree for calculation of bonds mentioned in previous chapter and how Black-Scholes (B-S) formula for calculating value of a put or call be used with the help of EXCEL programme. Calibration model is also described which is helpful in generating a binomial tree by first finding spot rates that satisfy variability condition between the upper and lower rates.

Fourth part of the book has four chapters aimed at debt derivatives which include futures and options. Fundamentals of futures contracts on debt securities have been highlighted in this chapter. Various types of interest rate futures e.g. T-Bill futures,, T-bonds, T-notes and euro dollar deposits traded on CBOT, CME, LIFFE and other exchanges are explained with their characteristics and how these can be used as hedging is also disclosed in the same. Futures pricing has been described in context of carrying-cost model with suitable numerical illustrations. The seventeenth chapter describes the fundamentals and practical concepts of interest rate options contracts with their types, market, nature and valuation mechanism. Also, the trading strategies are explained with plenty of figures, charts and diagrams. Some types of interest rate futures like T-bond future options, euro dollar and T-Bill futures options, OTC options, interest rate call, interest rate put, cap and floor have also been conceptualized with examples in the chapter. The next chapter continues the analysis that how interest rate derivatives are used in managing fixed income positions with relevant examples of long, short and cross hedging. Similarly in the nineteenth chapter, there is an examination of OTC interest rate options and how these can be used to manage different types of fixed income investment and debt management positions along with how the currency denominated positions can be hedged using currency options the currency derivatives.

The last part of the book consists of three chapters which are devoted to swaps-interest rate swaps, currency swaps, cross currency swaps and credit default swaps. Chapter twenty examines the market, uses and valuation of generic interest rate swaps with illustrations and strategies using swaps. Swap derivatives including forward swaps and swaptions are the core issues in the twenty first chapter with an insight into strategies and pricing. The book has concluding chapter as currency and credit default swaps with a discussion on market, valuation and uses of these for investors and borrowers as a tool for hedging asset and liability positions against interest rate and exchange rate fluctuations. Thus, the books speaks about the relationship between various debt instruments and their uses for hedging and speculation from the view points of investors and borrowers and lead us to understand and analyse the complex world of bonds with their evaluation, selection and management. In the end there are annexure related to mathematical and statistical concepts and application of the same in the bond valuation and model building which are useful for refreshing the concepts to the non- mathematics background readers. Web exercises make the book more relevant as the live sources and illustrations are incorporated with the solution at the end.

The book is a must read for the students and researchers who wish to pursue their work on different dimensions of debt or bonds. This is a blend of theoretical and practical aspects of debt securities and their management which not only enrich the readers with fundamental concepts but widens the analytical horizon of advanced techniques of complex world of bonds. The present book is a boon for the researchers, teachers and students of management, economics, commerce and financial planners who wish to augment their knowledge base and interested to do intensive research in debt securities.

56 "Pragyaan : Journal of Information Management" Volume 9 : Issue 1, June 2011

Expectations Theory have been explained with practical examples and case studies which make the reader comfortable with the practice and concepts of term structure of bonds. In the fifth chapter the risk associated with bond investment has been identified and the types of default risk, call risk and market risk have been explained very well and also probability analysis and mathematical models describing risk are supported by live examples for more clarity on the topic. Duration and convexity which are two methods of computing volatility of yields of bonds with their mathematical derivation are also noteworthy feature of this chapter.

The second part of the book consists of seven chapters related to various types of debt markets. Chapter six in this part describes the types and characteristics of the corporate bonds, corporate notes, coupon bonds, zero coupon bonds, deep discount bonds, floating rate notes (FRN), secured, unsecured and guaranteed bonds, medium term notes, and commercial papers. The discussion on markets; primary, secondary and private placement, for trading the bonds is also an attraction of this chapter. In the seventh chapter, the concepts of treasury and agency securities have been analyzed. Also, treasury bills, Treasury bond and notes, treasury inflation-indexed bonds (TIPS), treasury strips, repurchase agreements and their types and the market where these are traded are described in detail. The eighth chapter introduces about the municipal securities and their types, such as anticipation notes, general obligation bonds (GO), and revenue bonds with their inherent features and risks. Also, municipal bonds markets are included in this chapter. The ninth chapter of the book is focused on debt securities by intermediary financial markets which consist of commercial banks, savings and loans, insurance companies, investment funds and other financial intermediaries. A conceptual description of certificate of deposit(CD), CD markets, types of CDs, bank notes, leveraged loans, syndicated loans, bankers' acceptance(BAs), mortgage backed and asset backed securities(MBSs and ABSs), collateralized mortgage obligation (CMOs), collateralized debt obligations (CDOs) and their characteristics are explained along with investment funds, (ETFs). In addition, bond market indexes are also highlighted with hedge funds in US settings. Similarly, insurance funds and pension funds have been defined in addition to the above mentioned categories of debts. Chapter ten describes debt securities such as domestic bonds, euro bonds, foreign bonds which are traded through internal bond market and external bond market also called offshore market where as the global markets in which bonds of both internal and external markets are bought and sold. Chapter eleven of the book talks of residential mortgages and mortgage backed securities (MBSs) which are innovative development issued through the process of securitization. These MBSs are of different types based on their maturity, interest rate (fixed or adjustable), security, credit quality and prepayment. In chapter twelve a new category of MBSs such as non agency residential MBSs, commercial MBSs and other asset backed securities backed by auto loans, credit card receivables and home equity loans of prime and sub-prime nature. The chapter gives a comprehensive account of the innovative debt instruments with the computing techniques of the risk inherent in them.

Part three of the book discusses about the bond investment strategies and evaluation of bonds with embedded options with probability approach. Chapter thirteen is devoted to bond investment strategies with classification like active and passive investment strategies. There are some hybrid strategies which consist of immunization position and have been widely explained in the chapter. The active strategies include trying to profit from forecasting yield curve shifts, taking positions in different quality bonds in anticipation of a narrowing or a quality yield spread, identifying mispriced bonds or taking positions in identical bonds that are equally priced. Indexing strategies are passive strategies used by managers who believe that actively managed bond strategies do not outperform bond market index which are very well elaborated in the chapter in simple but mathematical language from computational view point. One of the innovative bond instruments are the bonds with the embedded option (right to buy or sell) i.e. callable and putable bonds as in case of derivatives. Valuation of these types of bonds is a complex and difficult task. The author has used binomial tree approach to calculate the value of these bonds. In

binomial interest rate model the value of a two period and three period bond is computed using the tree approach. The reader will get more benefit provided he/she is conversant with derivatives and probability analysis to develop understanding of the valuation of these bonds. In addition to the valuation of the option bonds, the valuation techniques of computing bonds with other option features have also been describes and illustrated broadly by the author such as the sinking funds and convertible bonds. Chapter fifteen deals with how to estimate the binomial tree for calculation of bonds mentioned in previous chapter and how Black-Scholes (B-S) formula for calculating value of a put or call be used with the help of EXCEL programme. Calibration model is also described which is helpful in generating a binomial tree by first finding spot rates that satisfy variability condition between the upper and lower rates.

Fourth part of the book has four chapters aimed at debt derivatives which include futures and options. Fundamentals of futures contracts on debt securities have been highlighted in this chapter. Various types of interest rate futures e.g. T-Bill futures,, T-bonds, T-notes and euro dollar deposits traded on CBOT, CME, LIFFE and other exchanges are explained with their characteristics and how these can be used as hedging is also disclosed in the same. Futures pricing has been described in context of carrying-cost model with suitable numerical illustrations. The seventeenth chapter describes the fundamentals and practical concepts of interest rate options contracts with their types, market, nature and valuation mechanism. Also, the trading strategies are explained with plenty of figures, charts and diagrams. Some types of interest rate futures like T-bond future options, euro dollar and T-Bill futures options, OTC options, interest rate call, interest rate put, cap and floor have also been conceptualized with examples in the chapter. The next chapter continues the analysis that how interest rate derivatives are used in managing fixed income positions with relevant examples of long, short and cross hedging. Similarly in the nineteenth chapter, there is an examination of OTC interest rate options and how these can be used to manage different types of fixed income investment and debt management positions along with how the currency denominated positions can be hedged using currency options the currency derivatives.

The last part of the book consists of three chapters which are devoted to swaps-interest rate swaps, currency swaps, cross currency swaps and credit default swaps. Chapter twenty examines the market, uses and valuation of generic interest rate swaps with illustrations and strategies using swaps. Swap derivatives including forward swaps and swaptions are the core issues in the twenty first chapter with an insight into strategies and pricing. The book has concluding chapter as currency and credit default swaps with a discussion on market, valuation and uses of these for investors and borrowers as a tool for hedging asset and liability positions against interest rate and exchange rate fluctuations. Thus, the books speaks about the relationship between various debt instruments and their uses for hedging and speculation from the view points of investors and borrowers and lead us to understand and analyse the complex world of bonds with their evaluation, selection and management. In the end there are annexure related to mathematical and statistical concepts and application of the same in the bond valuation and model building which are useful for refreshing the concepts to the non- mathematics background readers. Web exercises make the book more relevant as the live sources and illustrations are incorporated with the solution at the end.

The book is a must read for the students and researchers who wish to pursue their work on different dimensions of debt or bonds. This is a blend of theoretical and practical aspects of debt securities and their management which not only enrich the readers with fundamental concepts but widens the analytical horizon of advanced techniques of complex world of bonds. The present book is a boon for the researchers, teachers and students of management, economics, commerce and financial planners who wish to augment their knowledge base and interested to do intensive research in debt securities.

56 "Pragyaan : Journal of Information Management" Volume 9 : Issue 1, June 2011

? Ali, Mohammed Mujahed; Assistant Professor, Department of Business Management, Mohaboobia Panjetan P G College, Warrangal, India.

? Anand, Sandip; Assistant Professor, Xavier Institute of Management, Bhubaneswar, India.

? Chary, Dr. T. Satyanarayana ; Associate Professor & Chairman of Board of Studies, Department of Commerce, Telangana University,Dichpally, Nizamabad, India.

? Chaubey, D.S; Director, Omkarananda Institute of Management and Technology Rishikesh,Uttarakhand, India.

? Dahiya, Richa; Faculty, Bhagwan Mahaveer Institute of Engineering and Technology, Sonepat , Haryana, India.

? Ganakumar, P. Baba; Head, Department of Commerce, Sri Krishna Arts and Science College,Coimbatore Tamil Nadu, India.

? Gupta, Vipin; Ros Jaffe Chair Professor of Strategy, Simmons School of Management, Simmons College, Boston, USA .

? Khare , Arpita; Associate Professor, LDCITS, Allahabad, India.

? Palackil, Muhammed Shaduli; Financial Analyst,Alkhor & Dakira Schemes and Services,Alkhor, Doha, Qatar.

? Paudel, Narayan Prasad; Assistant Professor, School of Management , Kathmandu University, Lalitpur, Kathmandu, Nepal .

? Raj, M.Prasanna Mohan; Assistant Professor ,Alliance Business School Anekal, Bangalore ,Karnataka, India .

? Sarmah, Ranjit Kumar; Sr. Assistant Director, The Institute of Chartered Accountants of India (ICAI), New Delhi, India.

? Sharma, Bindu; Faculty , in management studies ,Advanced Group of Institutions, Palwal, Haryana, India.

? Sully de Luque, Mary; Assistant Professor of Management , Research Fellow in the Garvin Center for Cultures and Language, Thunderbird School of Global ManagementGlendale, USA.

? Zafar. SMT ; Director, Roorkee College of Pharmacy, Roorkee , Uttarakhand, India.

Our Contributors Invitation and Guidelines for Contributors

PRAGYAAN : Journal of Management, is a biannual publication of IMS, Dehradun. Its objective is to create a platform, where ideas, concepts and applications related to Management can be shared. Its focus is on pure and applied research on emerging issues in management.

The articles are invited from academicians, practicing managers and research scholars.

Guidelines for Contributors

1. Manuscripts for publication should be typed in double space with a margin of 1.5 inches on both sides to facilitate editing, only on one side of the paper and sent in duplicate to the Editor along with a soft copy in the format of 12 point text single font- Times Roman and package preferably MS Word for Editorial convenience. All articles should include an abstract of about 150 words.

2. Each manuscript should be accompanied by a declaration of the author that the paper has neither been published nor submitted for publication elsewhere.

3. Articles which are published should not be reproduced or reprinted in any form either in full or in part without the prior permission of the editor.

4. Wherever copyrighted material is used, the authors should be accurate in reproduction and obtain permission from the copyright holders, if necessary.

5. Papers submitted or presented in a seminar must be clearly indicated at the bottom of the first page.

6. Notes and references should be consecutively numbered and presented at the end of the article on separate sheets of paper, and not at the foot of each page.

7. The articles can fall into any one of the following types research based articles on management or IT (with executive summaries), case studies, book reviews, letters to the editors, and interviews with and academicians and gurus and/or CEOs.

8. Footnotes, typed in double-space, should be numbered serially and placed at the end of the text. Reference to literature cited should be carried within the test in brackets. The bibliography, to be placed after footnotes, should be listed alphabetically by author and chronologically for each author. It should be kept as brief as possible.

9. Contributors are advised to be brief in introducing the subject and devote most of the paper to the principal theme. The Journal prefers papers based on original data and fresh theoretical insights. References to previous work should be made economically. The Journal does not publish survey of literature comprising lengthy bibliographical references.

10. Present each figure and table on a separate sheet of paper. All tables must be consecutively numbered using Arabic numerals with appropriate titles.

11. Write numbers in figures (rather than words) for exact measurement and series of quantities, including percentages. Use thousands and millions rather than lakhs and crores.

12. Book review must contain the name of the author and the book reviewed place of publication and publisher, date of publication, number of pages and price.

13. A brief resume of the author/s should accompany the research articles.

14. Manuscripts are accepted for publication on the understanding that they are subject to editorial revisions. Proofs will not be sent to the authors.

15. Authors will receive a complimentary copy of the journal.

16. All manuscripts should be addressed to:

Dr. Anand Swaroop Pandey

Editor PRAGYAAN : Journal of Management

Institute of Management Studies Makkawala Greens Mussoorie Diversion Road Dehradun, Uttarakhand (India). Phones: 91-135-3000600 E-mail: editor.pragyaan@gmail.com - (preferred)

deanmba@ims.edu.in

? Ali, Mohammed Mujahed; Assistant Professor, Department of Business Management, Mohaboobia Panjetan P G College, Warrangal, India.

? Anand, Sandip; Assistant Professor, Xavier Institute of Management, Bhubaneswar, India.

? Chary, Dr. T. Satyanarayana ; Associate Professor & Chairman of Board of Studies, Department of Commerce, Telangana University,Dichpally, Nizamabad, India.

? Chaubey, D.S; Director, Omkarananda Institute of Management and Technology Rishikesh,Uttarakhand, India.

? Dahiya, Richa; Faculty, Bhagwan Mahaveer Institute of Engineering and Technology, Sonepat , Haryana, India.

? Ganakumar, P. Baba; Head, Department of Commerce, Sri Krishna Arts and Science College,Coimbatore Tamil Nadu, India.

? Gupta, Vipin; Ros Jaffe Chair Professor of Strategy, Simmons School of Management, Simmons College, Boston, USA .

? Khare , Arpita; Associate Professor, LDCITS, Allahabad, India.

? Palackil, Muhammed Shaduli; Financial Analyst,Alkhor & Dakira Schemes and Services,Alkhor, Doha, Qatar.

? Paudel, Narayan Prasad; Assistant Professor, School of Management , Kathmandu University, Lalitpur, Kathmandu, Nepal .

? Raj, M.Prasanna Mohan; Assistant Professor ,Alliance Business School Anekal, Bangalore ,Karnataka, India .

? Sarmah, Ranjit Kumar; Sr. Assistant Director, The Institute of Chartered Accountants of India (ICAI), New Delhi, India.

? Sharma, Bindu; Faculty , in management studies ,Advanced Group of Institutions, Palwal, Haryana, India.

? Sully de Luque, Mary; Assistant Professor of Management , Research Fellow in the Garvin Center for Cultures and Language, Thunderbird School of Global ManagementGlendale, USA.

? Zafar. SMT ; Director, Roorkee College of Pharmacy, Roorkee , Uttarakhand, India.

Our Contributors Invitation and Guidelines for Contributors

PRAGYAAN : Journal of Management, is a biannual publication of IMS, Dehradun. Its objective is to create a platform, where ideas, concepts and applications related to Management can be shared. Its focus is on pure and applied research on emerging issues in management.

The articles are invited from academicians, practicing managers and research scholars.

Guidelines for Contributors

1. Manuscripts for publication should be typed in double space with a margin of 1.5 inches on both sides to facilitate editing, only on one side of the paper and sent in duplicate to the Editor along with a soft copy in the format of 12 point text single font- Times Roman and package preferably MS Word for Editorial convenience. All articles should include an abstract of about 150 words.

2. Each manuscript should be accompanied by a declaration of the author that the paper has neither been published nor submitted for publication elsewhere.

3. Articles which are published should not be reproduced or reprinted in any form either in full or in part without the prior permission of the editor.

4. Wherever copyrighted material is used, the authors should be accurate in reproduction and obtain permission from the copyright holders, if necessary.

5. Papers submitted or presented in a seminar must be clearly indicated at the bottom of the first page.

6. Notes and references should be consecutively numbered and presented at the end of the article on separate sheets of paper, and not at the foot of each page.

7. The articles can fall into any one of the following types research based articles on management or IT (with executive summaries), case studies, book reviews, letters to the editors, and interviews with and academicians and gurus and/or CEOs.

8. Footnotes, typed in double-space, should be numbered serially and placed at the end of the text. Reference to literature cited should be carried within the test in brackets. The bibliography, to be placed after footnotes, should be listed alphabetically by author and chronologically for each author. It should be kept as brief as possible.

9. Contributors are advised to be brief in introducing the subject and devote most of the paper to the principal theme. The Journal prefers papers based on original data and fresh theoretical insights. References to previous work should be made economically. The Journal does not publish survey of literature comprising lengthy bibliographical references.

10. Present each figure and table on a separate sheet of paper. All tables must be consecutively numbered using Arabic numerals with appropriate titles.

11. Write numbers in figures (rather than words) for exact measurement and series of quantities, including percentages. Use thousands and millions rather than lakhs and crores.

12. Book review must contain the name of the author and the book reviewed place of publication and publisher, date of publication, number of pages and price.

13. A brief resume of the author/s should accompany the research articles.

14. Manuscripts are accepted for publication on the understanding that they are subject to editorial revisions. Proofs will not be sent to the authors.

15. Authors will receive a complimentary copy of the journal.

16. All manuscripts should be addressed to:

Dr. Anand Swaroop Pandey

Editor PRAGYAAN : Journal of Management

Institute of Management Studies Makkawala Greens Mussoorie Diversion Road Dehradun, Uttarakhand (India). Phones: 91-135-3000600 E-mail: editor.pragyaan@gmail.com - (preferred)

deanmba@ims.edu.in

To The EditorPragyaan : Journal of Management,Institute of Management Studies,Makkawala Greens, Mussoorie- Diversion Road,DehradunPin- 248001, UttarakhandPh: (M) 09897910917Fax: +91-0135-2738005

Sir,

Sub: Assignment of Copyright

I/We, _____________________________________________________________________, author(s) of the

article entitled ____________________________________________________________________________

do hereby authorize you to publish the above said article in PRAGYAAN: JOURNAL OF

MANAGEMENT.

I/We further state that:

1) The Article is my/our original contribution. It does not infringe on the rights of others and does

not contain any libelous or unlawful statements.

2) Wherever required I/We have taken permission and acknowledged the source.

3) The work has been submitted only to this journal PRAGYAAN: JOURNAL OF MANAGEMENT

and that it has not been previously published or submitted elsewhere for publication.

I/We hereby authorize you to edit, alter, modify and make changes in the Article in the process of

preparing the manuscript to make it suitable for publication.

I/We hereby assign all the copyrights relating to the said Article to the Institute of Management

Studies, Dehradun.

I/We have not assigned any kind of rights of the above said Article to any other person/Publications.

I/We agree to indemnify the Institute of Management Studies, Dehradun. against any claim or

action alleging facts which, if true, constitute a breach of any of the foregoing warranties.

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1. Name: 2. Name: 3. Name:

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To The EditorPragyaan : Journal of Management,Institute of Management Studies,Makkawala Greens, Mussoorie- Diversion Road,DehradunPin- 248001, UttarakhandPh: (M) 09897910917Fax: +91-0135-2738005

Sir,

Sub: Assignment of Copyright

I/We, _____________________________________________________________________, author(s) of the

article entitled ____________________________________________________________________________

do hereby authorize you to publish the above said article in PRAGYAAN: JOURNAL OF

MANAGEMENT.

I/We further state that:

1) The Article is my/our original contribution. It does not infringe on the rights of others and does

not contain any libelous or unlawful statements.

2) Wherever required I/We have taken permission and acknowledged the source.

3) The work has been submitted only to this journal PRAGYAAN: JOURNAL OF MANAGEMENT

and that it has not been previously published or submitted elsewhere for publication.

I/We hereby authorize you to edit, alter, modify and make changes in the Article in the process of

preparing the manuscript to make it suitable for publication.

I/We hereby assign all the copyrights relating to the said Article to the Institute of Management

Studies, Dehradun.

I/We have not assigned any kind of rights of the above said Article to any other person/Publications.

I/We agree to indemnify the Institute of Management Studies, Dehradun. against any claim or

action alleging facts which, if true, constitute a breach of any of the foregoing warranties.

First author Second author Third author

1. Name: 2. Name: 3. Name:

Signature: Signature: Signature:

SUBSCRIPTION/ADVERTISEMENT RATES

The Subscription rates for each of our three journals, viz., Pragyaan: Journal of Management, Pragyaan: Information Technology and Pragyaan: Mass Communication are as follows:

Advertisement Rates (Rs.)

1 Year 3 Years 5 YearsCategory Domestic

Rates(Rs.)

Foreign Rates (US $) (US $)(US $)

Domestic Rates(Rs.)

Foreign Rates

Domestic Rates(Rs.)

Foreign Rates

Academic Institutions

500 30 1200 75 2000 120

Corporate 1000 60 2500 150 4000 240Individual Members

400 25 1000 60

1600 100

Students 300 20 700 40 1200 75

Location/Period 1 Year 2 Years 3 Years B/W (Inside Page) 10,000/- (2 Issues) 18,000/- (4 Issues) 25,000/- (6 Issues)Colour (Inside Back Cover)

17,000/-

(2 Issues)

30,000/-

(4 Issues)

45,000/-

(6 Issues)

Single Insertion (1 Issue) (Inside B/W Page) - Rs.5000/-

Please cut out and mail along with your cheque/DD to: The Registrar, Institute of Management Studies, Makkawala Greens, Mussorrie Diversion Road, Dehradun 248009, Uttarakhand , India

Phone No. 0135-2738000, 2738001, 6454003

Date: ____________ Signature (individual/authorized signatory)

Please send the amount by DD/Local Cheque favouring Institute of Management Studies Dehradun, for timely receipt of the journal. Outstation cheques shall not be accepted.

A bank draft/cheque bearing no ________________ dated_____________ for Rs. ________ Drawn in favour

of Institute of Management Studies, Dehradun towards the subscription is enclosed. Please register me/us for

the subscription with the following particulars:

Name ____________________________________________________________ (Indiviual/Organisation)

Address_______________________________________________________________________________

______________________________________________________________________________________

Phone__________________ Fax _________________ E- mail___________________________________

Pragyaan: Journal of Management

Pragyaan: Information Technology

Pragyaan: Mass Communication

SUBSCRIPTION FORM

I wish to subscribe to the following journal(s) of IMS, Dehradun:

Name of Journal No. of Years Amount

Total

ims

IMS at a glance

The recent call for knowledge capital has increased the demand for a quality education specifically in professional courses like management and IT.

With a focus on catering to the demands of modern industry for quality education, Institute of Management Studies, Dehradun started its venture in the year 1996, under the aegis of IMS Society, which is registered body under The Societies Registration Act 1860.

The potential employers of professional students today are looking for visionaries with skills to create future. IMS Dehradun has accordingly taken a stride to produce world class professionals. It is totally committed to provide high quality education, enhance the intrinsic abilities, and promote managerial and technological skills of the students.

IMS has been constantly pouring its efforts to upgrade effectiveness of educational process, and is committed to:

• Provide sound academic environment to students for complete learning.

• Provide state of-art-technical infrastructure.

• Facilitate students and staff to realize their potential.

• Promote skills of the students for their all round development.

Since its inception, it has been conducting professional courses in business administration, information technology and mass communication in a best professional manner. These courses are affiliated to Uttarakhand Technical University or HNB Garhwal University, Uttarakhand. Today more than 2000 students are admitted at the Institute in courses like PGDM, MBA, MCA, MIB, MA (Mass Comm.), BBA, BCA, B.Sc.(IT) and BA (Mass Comm.). Our courses, namely, PGDM, MBA and MCA are duly approved by AICTE and Ministry of HRD, Government in India.

The Institute has also taken up activities to facilitate respectable placement for our students. Our Corporate Resource Center (CRC) has been working with the industry to cater to its current needs effectively and the final placement scenario has been phenomenal. Many organizations are showing strong desires to have our students on board as their employees. For all round development of our students, many extra curricular activities are arranged. This is proving to be useful in translating efforts of our students into positive results.

Bringing out this Journal is an effort towards fulfilling our objective of facilitating and promoting quality research work in India.