Impact OCTAP APACE Culture Tot otal The Impact of OCTAPACE Culture on Total P roductive Maintenance Dr.

Babita Agarwal Prof. Bhavna Chandak

In the present business scenario, firms must

adopt world class competitiveness for their long term survival and sustenance. The undeniable global competition necessitates the simultaneous fulfillment of various stakeholders demands related to delivery times, quality, production processes, equipment, safety, environmental concerns, workforce etc. To be successful organizations must be driven by both effective and efficient management approaches and HR strategies. The maintenance function has rightfully been positioned as an integral part of the overall profitability of business with the introduction of new technologies and innovative practices. Modern maintenance techniques and practical approaches have the potential for significantly increasing competitive advantages for a firm. The challenge for todays maintenance managers and reliability professionals is to establish standards for maintenance and reliability practices, creating an appropriate information system to collect facts, building enthusiasm and initiating enabling action plans. OCTAPACE culture facilitates in meeting these challenges. An expected natural outcome was the emergence of OCTAPACE culture characterized by Openness, Confrontation, Trust, Authenticity, Pro -action, Autonomy, Collaboration and Experimentation (Pareek, 1994). Unless the management defines new terms and persuades/ convinces employees to accept them, it is unrealistic for it to expect employee involvement and commitment. It needs to be understood that employees and organizations have reciprocal obligations and mutual commitments, both stated and implied that define their relationships. The commitment may be in formal,psychological or social terms. The employees wish to know what they are supposed to do for the organization and the support they will get in performing their jobs. Their performance appraisal and reward systems needs to be linked to the new initiative. They should derive personal satisfaction and social recognition from the new initiative. Most of all, they should believe that the top management is sincere and practices what it preaches.

Organizations have to simultaneously meet various stakeholders demands related to

delivery times, supply chains (horizontal, vertical and cross integration), quality, production processes, equipment, safety, environmental concerns, workforce etc. They must be driven by both effective and efficient management approaches and strategies to do so. One approach to improving the performance is to develop and implement Total Productive Maintenance(TPM)under OCTAPACE culture.

This paper describes successful TPM implementation in a continuous process firm in India and its effects, particularly on the firms performance. We describe the TPM concept under the ibid analyze the Indian manufacturing scenario briefly and thereafter chronicle the success of the firm. The paper tests the applicability of theoretical concepts in the Indian context, derives some managerial implications and provides suggestions to firms who are or shall be in the process of implementing such initiatives.

Dr. Babita Agarwal is Senior Lecturer & Head of Department, Shri Vaishnav Institute of Management, Indore Prof. Bhavna Chandak is Lecturer, Shri Vaishnav Institute of Management, Indore

Literature Review Since time immemorial, the maintenance of tools and equipments has been taken care of by the users when it was no longer possible to run them. This was termed as Breakdown or Reactive Maintenance. It was followed by the Preventive Maintenance in 1950s. It was timebased maintenance, featuring periodic servicing and overhaul to prevent damages of the equipments (Nakajima, 1988). Although it helped reduce down-time, it was an expensive alternative as many parts were replaced periodically, while they couldve lasted longer. In order to maintain the equipment in optimal condition, new and progressive maintenance techniques were needed beyond the routine preventive maintenance. In 1960s, a more practical approach called Productive Maintenance came into being . All people related to maintenance were assigned a higher responsibility to make a series of considerations about the reliability and design of the equipment and the plant itself. The following decades witnessed the globalization of the marketplace which forced the firms to excel in all activities. Along with this arose a strong need to adopt the World-Class standards in terms of equipment maintenance. This gave birth to the philosophy of Total Productive Maintenance (TPM). TPM involves the cooperation of the equipment and process support personnel, equipment operators and the equipment supplier. They work together to eliminate equipment breakdowns, reduce scheduled downtime, and maximize utilization, throughput and quality. It also provides the methods to measure and eliminate much of the non-productive time. TPM evolved from TQM, which evolved as a direct result of Dr. W. Edwards Demings influence on Japanese industry. When the problems of plant maintenance were examined as a part of the TQM program, some of the general concepts did not seem to fit or work well in the maintenance environment. Preventative

maintenance (PM) which was practiced in most plants often resulted in machines being overserviced in an attempt to improve production. Nakajima (1986) describes TPM concept under OCTAPACE culture in the following five points: (1) It aims to maximize equipment effectiveness (improve overall effectiveness). (2) It establishes a complete productive maintenance program encompassing maintenance prevention, preventive maintenance, and improvement related maintenance for the entire life cycle of the equipment, (3) It is implemented on a team basis by various departments and it requires the participation of equipment designers, equipment operators, and maintenance department workers, (4) It involves every single employee from top management down to the workers on the shopfloor, Author (5) It promotes and implements productive maintenance based on autonomous small-group activities (participative management). Indian Scenario The Indian Industry has been facing severe global competition since the last decade. The customers are demanding more in terms of cost, quality & variety and have thus become a determinant of the market price of products and services. The current economic environment automatically brings tremendous pressure on optimizing the production cost for survival. Simultaneously, as the Indian firms are entering the world markets it becomes imperative for them to be prepared to face competition. This is to be done by improving their internal efficiencies by building capabilities that gives them an edge over their competitors. They need strategies and programs that help them meet the challenge with increased plant efficiency & productivity. OCTAPACE culture if implemented successfully, addresses many of the concerns of Indian firms. It leverages on their

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assets and efficiency and effectiveness in their operations. Neither improved their internal systems nor are they exporting their products. Customer quality requirements. Management is leading the way in disseminating manufacturing excellence values throughout the organization. Employees are being asked as well as empowered to continually improve all key business processes. Collaborative partnerships with suppliers for improved product and service quality are being worked out. Thus, these managements are nurturing a flexible and responsive corporate culture. Implementation of OCTAPACE Culture in the Concept of TPM at X&Y We chronicle OCTAPACE culture implemetation at X &Y (fictitious name), a continuous process industry of a diversified business group of India. The firm is one of the most professionally managed companies of the Group with the most efficient continuous process plant in its category in Indore using state-of-the art technology. Its main product is the first choice of the customers and it has been continuously bettering its performance in all aspects of business. Objectives of The Study To establish a OCTAPACE culture that maximize production system effectiveness. To introduce a system through OCTAPACE culture that encourages responsible behavior & total employee participation.

Sample Subjects of the present study are selected from two different manufacturing units X & Y. A total of 70 employees are selected (35 each manufacturing units) and the average age of the employees is about 40 years. The operating and supervisory staff constitutes the majority of the manpower. Most of the employees are literate with majority of them being technically qualified. Tool The study is conducted with the help of a questionnaire. For the collection of information pertaining to employees participation and involvement, to achieve zero accident and customer satisfaction, a questionnaire is formed having four options on Likert Scale (High value4, Fairly High value-3, Low value-2, Very low value-1) to analyze the effectiveness of OCTAPACE culture in these two units. Design of The Study The present study is comparative in nature. The main objective of the study is to examine & compare the impact of OCTAPACE culture on total productive maintenance in two units. The implementation of OCTAPACE culture as a foundation-stone for involvement of participation of employees and also to maximize equipment effectiveness . Results and Conclusions As we have observed that in the manufacturing unit Y the OCTAPACE culture is functioning very well as compare to the manufacturing unit X. This system is a motivational factor to excel the performance of the employees in the betterment & advancement of the manufacturing units .On the other hand, in unit X this system is low as employees are not providing management support, training & development. Hence, employees are not interested in doing a good job. Our Result shows that the mean (m=34) is found to be significantly higher in the manufacturing unit Y as compare to manufacturing unit X(m=26).

Research Methodology Hypotheses Our Hypotheses for the present study has 5% significance level=1.96 Null Hypotheses (H0): There is no significant difference in OCTAPACE culture between the two manufacturing units. Alternative Hypotheses (H 1 ): The level of OCTAPACE culture is different between manufacturing units. So we have applied Z test to draw our conclusion.

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The calculated value of Z in the unit X v/s unit Y is 8.16 is greater than the tabulated value of Z(1.96). It signifies that our Null Hypothesis (H0) is rejected & the Alternative Hypothesis (H1) accepted. The main objective of this paper is to develop a critical understanding of factors affecting successful implementation of Total Productive Maintenance in an Indian continuous process industry and thereby understand performance enhancement through continuous improvements. We find that HRD is excellent at creating and reinforcing a team work approach with the key objectives of sharing best practices, problem solving, organizational methods. It is also a method of removing waste, by involving everyone in improving the way things are done successfully implementing a TPM program is relatively small and failure may be attributed to three major obstacles namely lack of management support and understanding, lack of sufficient training and failure to allow sufficient time for the evolution. Successful TPM implementation under OCTAPACE culture requires total commitment by the Top Management as it has to be top driven to succeed. Total involvement & participation of all the employees as well as attitudinal changes & paradigm shift towards job responsibilities need to be cultivated and nurtured continually. What is needed today in India is focus on indigenous R&D, capability driven approach to manufacturing and adaptation of borrowed technology on part of manufacturers. In addition, unbundling of vast human capital resources by training and development should be adopted for developing professionalism, entrepreneurship, employee involvement and empowerment Besides, unshackling of government controls, better infra-structural facilities, and much better co-ordination between academic, industry and government are the desired policy changes. Managerial Implications A lot of spade-work needs to be done before taking up any ambitious program for change

management. It requires detailed strategic planning. Financial implications play a significant role in strategic planning and decision-making. A number of streamlining procedures need to be established and a lot of commitment from top management is required. As the visibility of senior management support generates widespread enthusiasm, top management and managers must lead by example and take charge of the process and address each area of concern. The implementation should be planned in phases. For a beginning, some managers models may be developed. Management should foster change agents and encourage multidisciplinary teams. Change agents are required to facilitate co-ordinate and initiate the activities. They should possess the requisite qualities to effect the desired changes at the desired rate. Services of an expert, preferably outside the roles of the company, may be required to initiate and guide HR activities. Later on, the same may be taken over by change agents who should be accountable for overall implementation of the initiative and this should constitute their full-time job requirements. This leads to clear focus, accountability, expert advice and overall co-ordination. Since mutual trust and confidence are sine qua non for success of any management initiative, people should be taken into confidence. Communication should be improved at all levels as the provision of reliable information by the firm increases efficiency by facilitating worker co-operation in tougher times. Participatory management erodes the traditional powers of middle managers and supervisors and many times makes them seem redundant. Since they have an important role to play, the role of middle managers and supervisors should be made clear. Employees should be encouraged to step outside established roles to accept assignments beyond the scope and structure of the existing organization. A conflict between employee involvement and distributive bargaining over the wage share is likely to arise. It should be solved amicably.

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Directions for Future research Following organizations should embrace change and utilize the HRD audit inputs better, leading to a more effective HR functions such as role clarity, establishment of a systematic induction and training program, initiation of mentoring and high involvement of employees at all levels. Management styles also show a high degree of equivalence with HR effectiveness. There should be a direct relationships between the CEOs commitment towards HRD and the effectiveness of the HRD functions. References
Aswathappa. K, Organizational Behaviour New Delhi, Himalaya Publishing House, Ed. Fifth.2003. Bamber, C.J.; Sharp, J.M. and Hides, M.T. (1999), Factors affecting successful implementation of total productive maintenance: A UK manufacturing case study perspective, Journal of Quality in Maintenance Engineering, Volume 5, Number 3, Pages 162181. Kothari: C.R: Research Methodology , Wishwa Prakashan, New Delhi, 1997, Edition- second. Nakajima, S. (1986), TPM-Challenge to the Improvement of Productivity by Small Group Activity , Maintenance Management International, Vol. 6, Pages 73-83. Nakajima, S. (1988), Introduction to TPM, 1st edition, Productivity Press, Inc., Cambridge MA. Mausolff, Christopher 1996. A Model of Organizational Culture and Learning, a paper prepared for the 57th ASPA National Convention. Ott, J. S. 1989. The organizational culture perspective. Dorsey Press: Chicago. Ott, J. S. 1998. Understanding Organizational Climate and Culture. In eds.

Condrey, Stephen, 1998. Handbook of Human Resource Management in Government. San Francisco: Jossey Bass.

Pareek, U. 1994, Studying organizational Ethos: The OCTASPACE Profile, in Pfeiffer, J. W. ed., The 1994 Annual: Developing Human Resources, pp. 153-165. San Diego: Pfeiffer and Company. Pareek, Udai (1994), Beyond Management, 2nd edition, Oxford & IBH Publishing Company Pvt. Ltd., New Delhi. Pareek Udai and Rao T.V; Designing and Managing Human Resource Systems, Oxford Publications Ltd., Edition second Pareek Udai :- Organizational Behavior Processes, Rawat Publications,1988 Robbins Stephens P., Organizational Behavior: Concepts, Controversies, and Applications New Delhi, prentice Hall, Ed.Tenth 2003. Schein, Edgar H. 1985. Defining organizational culture. In Classics Of Organization Theory, ed. Shafritz, Jay M. and J. Steven Ott, 430-441. New York: Wadsworth Publishing. Schein, Edgar H. 1992. Organizational Culture And Leadership, Second Edition. Jossey-Bass: San Francisco. Strebel, Paul, (1996), Why Do Employees Resist Change, Harvard Business Review, Volume 74, Issue 3, Pages 86-92. Van Maanen J. and S. R . Barley. 1984, Occupational Communities: Culture and Control in Organizations, in Schein, E. 1992, Organizational Culture and Leadership, 2d Edition. San Fran: Jossey-Bass. Waeyenbergh, Geert and Pintelon, Liliane (2002), A Framework for Maintenance Concept Development, International Journal of Production Economics, Volume 77, Issue 3, Pages 299-313.

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Strategic A Case Study of Strategic Alliances: General Motors Asian Alliances

Lokesh Vijayvargy

THE FACTS
Toyota and NUMMI: In Japan, Toyota was the heavyweight of the automotive industry, controlling over fifty percent of the entire Japanese auto market, and eight percent of the total world market, making it the worlds third largest automotive manufacturer, behind only Ford and General Motors. Toyota presided over a tight confederation of companies, known as a keiretsu where a major manufacturer, such as Toyota, presides over a pyramid with the primary manufacturer on top, and several tiers of suppliers below. Unlike General Motors, who held seventy percent vertical integration with its global network of partnerships, alliances, and joint ventures, Toyota only had thirty percent vertical integration in its affiliations, but still managed to have many long-lasting and stable partnerships with its suppliers. Keiretsus were vast and closely-allied corporate partnerships which evolved from the pre-World War II zaibatsus, giant industrial conglomerates that dominated the nations pre-war economy and politics, but were broken up during by the post-war United States-run Occupation authority. These networks were bound by complex and long-lasting arrangements, often minority equity ownership by the company at the top of the keiretsu. The member firms often plan strategies jointly, share information and technology, pooled resources, and in times of trouble, take on employees from each others firms. Normally, memberships in these keiretsus are long-lasting and change very little, creating high levels of trust and stability within these confederations, as well as a strong sense of common purpose. Toyotas keiretsu is dominated by the companys well-refined production and supply system, operated almost entirely within Toyota City, a large and well-integrated complex of assembly and supplier plants in Japan. The kanban or just-in-time system is a tightly controlled distribution system which routes parts directly from suppliers to the assembly plants, as needed, reducing inventory and delivery times, as well as the storage space needed to hold excess

eneral Motors, American-based automotive manufacturer with a large global presence, has long held a large share of the worldwide automotive market. Despite its market position and reputation for quality, the company has recently begun to struggle with new competitors in the Asian Pacific region, which has pushed their needs to develop new manufacturing technologies, as well as to better control costs and quality in its American manufacturing facilities. Beginning in the 1970s, several nations of the Asian Pacific region, most notably Japan and South Korea, emerged as economic powerhouses. As their manufacturing bases matured, they entered the automotive industry and began to present new challenges as well as new opportunities for General Motors. GM would need to find a successful formula for doing business in this region, as well as develop and adopt innovations that would help it improve its manufacturing operations elsewhere. This Case Study will examine the facts, the problems, identify the core problems in how General Motors has managed its business alliances in with Asian partner companies, and offer recommendations how General Motors can best master the challenges of doing business in the East and fully benefit from its joint ventures.

Lokesh Vijayvargy is Lecturer, Jaipuria Institute of Management & Technology, Jaipur.

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inventory. This fast-moving supply system was famous for keeping costs and needed inventory levels low, while helping identify and eliminate distribution bottlenecks and increasing accountability among suppliers. Toyota, in spite of its domestic dominance, had taken a conservative approach to new ideas, including overseas expansion. Typically, the manufacturer was content to allow other Japanese competitors to make the first moves with new products, as well as expanding overseas. However, in 1983, Toyota entered the U.S. market with a manufacturing partnership with General Motors. Funded with $100 million each from General Motors and Toyota, they set the joint venture up in a GM plant in Fremont, California that had been shuttered in the 1970s, New American Manufacturing Incorporated (NUMMI) would produce cars for both companies for sale in the United States. The NUMMI operation, which barely received FTC approval in a 3-2 vote, would be governed by its own board of directors, appointed in equal numbers by GM and Toyota. Toyota would name the ventures president, CEO, and other top officers, while GM was allowed to appoint no more than sixteen executives to the plant at any given time. UAW members would staff the plants production facilities. In exchange for FTC approval, the joint venture would only be allowed to run until 1996. General Motors had two primary reasons for entering the NUMMI venture: to gain access to a small car to help expand its marketing mix, and to learn about the famous Toyota Production System, with the goal of being able to incorporate both into their operations. Toyota had its own motive: to get around the voluntary export restraints agreed to by the Japanese government by manufacturing inside the United States. Some also speculated this venture was to enable the company, which was the last Japanese automaker to set up operation in the United States, to familiarize itself with manufacturing and doing business in the United States towards the goal of establishing a muchlarger long-term presence there.

Plans called for the plant to manufacture approximately 200,000 vehicles a year, for which Toyota would supply the major components, NUMMI would provide stamping and assembly operations, and other parts and components would be supplied by United States-based suppliers. Production would start with a compact car that has been manufactured and sold by Toyota in Japan as the Sprinter, but branded in the United States as the Chevrolet Nova. While the NUMMI plant would be operated with American labor, it would be operated with Japanese management and by Japanese management principles. Many of the first employees at the plant had visited Toyota City for extensive training in the Toyota system, incentives would be provided to encourage workers to train to handle multiple jobs, and much of the day-to-day decision-making was to be delegated to small employee-led teams. The Just-in-Time supply chain system used in Toyota City would be implemented at this facility along with Toyotas stringent quality-control standards for its suppliers. The results of the implementation of these management practices at the NUMMI facility were mixed. GMs quality audits gave the plant very high ratings, and while some suppliers complained about the high quality standards, others promoted themselves as good enough to supply Toyota. While absenteeism had dropped to about two percent, as opposed to twenty-two percent when the plant had been a GM plant, there was friction with the UAW leadership at the plant. The fast pace of operations entailed producing sixty cars an hour with only one-third the workforce used in comparable GM plants, and disgruntled workers had organized an effort to oust the union leadership in their 1988 elections. Toyota was impressed with the plants operations and decided to begin manufacturing its Corolla FX-16s at the plant to be sold through its own United States dealers in 1987. In 1989, this was followed with an announcement that the company would proceed with plans to open a $300 million plant in Canada and an $800

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million plant in Kentucky to manufacture 200,000 Camrys annually. General Motors experience was mixed. Sales of the Nova had not gone well, and production of the car at the NUMMI plant had been cut from 600 to 400 cars daily. Toyota would only allow it to manufacture a four-door model, so as not to conflict with its two-door Corolla. However, it was working to implement the lessons learned from the plant, with a Technical Liaison Office at the plant documenting what was being learned at the NUMMI plant for implementation at other GM plants. The team approach learned from the NUMMI plants was implemented at GMs plants in New Jersey and Delaware, where its new Berretas and Corsicas were being made. Isuzu: In 1971, General Motors acquired a 34.2% interest in Isuzu for $56 million, under an agreement that kept that level of ownership for five years, seated four GM executives on the Isuzu board, but keeping the posts of president and chairman of the board under Isuzus control. This agreement came at a critical time for Isuzu. The companys attempted partnership with Nissan the year before fell through, and the company was rumored to be nearing bankruptcy. Their deal with GM allowed Isuzu to build a parts factory, and a second partnership between Isuzu Finance Company and GMs finance division, GMAC, doubled its capital to six trillion yen, when GMAC bought fifty-one percent of Isuzu Finance Companys stock. As part of the partnership, Isuzu produced two vehicles for GM to sell in the United States, greatly boosting the companys overall production volume. In 1972, Isuzus one-ton truck was marketed as the Chevy Luv, selling 100,000 that year and nearly doubling Isuzus export volume. In 1984, GM began selling the Spectrum, which it had invested $200 million to develop. While voluntary trade restrictions temporarily limited exports to the U.S., 120,000 were shipped two years later with ninety percent being sold by Chevrolet and the rest through Isuzus own dealers. In 1986, the GM Spectrums comprised nearly forty percent of Isuzus total car and truck production.

Other manufacturing and marketing partnerships with Isuzu would create Mesin Isuzu in Indonesia, GM Egypt SAE, Convesco Vehicle Sales in Germany, an exclusive ten-year agreement for Isuzu to supply engines to Lotus, as in exchange for technology from Lotus, a wholly-owned GM subsidiary, as well as a five year contract with GM-owned EDS to upgrade telecommunications, data processing , and software systems in Isuzu plants. Daewoo: Daewoo, a South Korean manufacturing conglomerate with some similarities to the Japanese keiritsus, controlled a business empire which included trade, construction, shipbuilding, industrial machinery, electronics, motor vehicles, textiles, aerospace, personal computers, and financial services. However, the company was not performing well with only $50 million of profits on sales of $8.6 billion in 1985. General Motors relationship with Daewoo dated back to 1972 when it purchased a fifty percent share in Shinjin Industrial, a small Korean auto manufacturer, creating a joint venture known as GM-Korea. In 1978, Shinjins share of stock was purchased by Daewoo, and the company was renamed the Daewoo Motor Company. Working with GM, Daewoo became the second largest Korean motor vehicle firm behind Hyundai, and held seventy percent of Koreas large truck and bus market in 1980. Following the 1979 oil crisis, the Korean economy faltered and the South Korean government ordered Hyundai and Daewoo to merge their automotive manufacturing operations. While GMs refusal to surrender management stopped the merger, in 1982, it gave Daewoo management control over the moneylosing joint venture. Daewoos management moved quickly to reverse the ventures sagging fortunes, earning record profits in 1983. In 1984, the joint venture began to manufacture a new small passenger car, based largely on the Kadett, which was manufactured by Opel, GMs German subsidiary, in a new manufacturing facility that employed Opels state-of-the-art

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manufacturing technology. This car was intended for sale in Korea and abroad. GM bought half of the production of the car to market in the United States as the Pontiac LeMans. Kim Woo-Chone, the chairman of Daewoo, explained the LeMans joint venture as a way to develop a car quickly while using the knowledge and name recognition of GM to build and market a successful car. To overcome quality problems with its suppliers, several Daewoo Group subsidiaries entered into joint ventures with GM divisions during the mid1980s. In each situation these ventures relied greatly on General Motors for capital and technology. Satisfied with the success of these supplier ventures, Daewoos chairman intended the export value of parts from the ventures to match the value of cars. In 1986, Daewoo cars and automotive parts accounted for ten percent of all South Korean exports and their domestic sales of the LeMans had cut Hyundais market share from eighty to sixty percent. The following year, the Daewoo Group began working on plans to open a 300,000 unit a year plant that would be entirely separate from its joint venture with GM. Suzuki: General Motors relationship with Suzuki began in 1981 when the company bought a 5.3% interest in Suzuki for $35 million. At this time, Suzuki was a small player in the Japanese automobile market with about five percent of the total market. They were looking for a company that did not directly compete with them to help them build an international presence. GM was attracted to Suzukis background as the best mini-car producer in Japan. That year, as plans were being made to begin exporting a mini-car to the United States for resale by General Motors, voluntary auto export restrictions limited Suzuki to 17,000, far less than Suzukis ambitious 1983 target of 100,000. In spite of these restrictions, the partnership forged ahead, producing the Cultus, a one-liter engine model in 1983. The Cultus served as a prototype for General Motors Chevrolet division, which introduced it to American car buyers as the Sprint the following year. While the Cultus received

lukewarm welcome in Japan, sixty thousand Sprints were sold in the United States in 1984. The Cultus was such a strong seller for the company that the increasing volume exports allowed it to increase production more than forty percent, in spite of declining market share in Japan. In 1985, Isuzu joined with Suzuki to produce and market a station wagon version of the Cultus, with plans to develop other models and develop joint manufacturing projects. To meet growing demand in the North American market, Suzuki and GM announced plans in 1986 to build a plant in Ontario, Canada to manufacture the Sprint for GM and the Samurai sports utility vehicle for Suzuki, with start-up scheduled for 1989. Suzuki would manage the plant and sell its Samurais exclusively in Canada, while GM announced plants to increase the domestic content of the Sprints to allow them to be sold in the United States as well as use Suzuki to distribute four thousand Sprints to Japan annually. Nissan: When General Motors got involved with Nissan, an industrial group similar to Toyota, Nissans position as the worlds fourth-largest automaker was in trouble. Its market share in Japan was in decline, falling from thirty percent of the Japanese automobile market in 1975 to twenty percent in 1985, and profits plummeted from 96 billion yen in 1983 to 65 billion in 1986. To help overcome growing competition in its home market, the company was looking to expand its foreign presence, with a goal of selling at least twenty-five percent of its cars overseas by the early 1990s. Both GM and Nissan were having trouble in Australia. GMs Holdens subsidiary had lost A$50 million in 1984, and A$100 million the following year, with its market share in Australia falling five points to eighteen percent during the 1980s, while Nissan fell two points to nine percent, its smallest market share ever. For Nissan, the news was even worse, as the Australian government planned to consolidate the five carmakers in Australia to three, possibly shutting them out of the country.

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The partnership began in 1984, with Holdens supplying panels to Nissan for the production of its Pulsar, which were then sold back to Holdens under the Astra name. The following year, Nissan and Holdens jointly developed an engine for Holdens new VL Commodore, which also included a Nissan transmission. During this time, Nissan also entered a partnership with Daewoo, which had several ongoing partnerships with GM, to produce Nissans Vannette, which would first be sold in South Korea, but eventually would be sold in the United States through GMs sales network. Plans were also underway to jointly develop a passenger car. Fanuc Joint Venture (GM-Fanuc): General Motors was the largest buyer of robotics systems in the United States, buying a full third of robots sold in the country for use in its state-of-the-art manufacturing facilities. The automaker was working with its EDS and Saturn subsidiaries, as well as Hughes Aircraft, towards the goal of a large-scale modernization of its plants. However, GM was dissatisfied with some its present robotics vendors. It had also developed some of its own robotics products and technology using its own personnel, and wanted to find a way to better employ them to keep from losing them to other robotics companies. The creation of a joint venture with Fanuc, the Japanese robotics manufacturer, to create the GM Fanuc Robotics Corporation (GMF) seemed to provide solutions to all of these challenges faced by GM. GMs search had followed an extensive effort to identify a robotics manufacturer that met its requirements. The automotive manufacturer was very impressed with Fanucs level of drive, aggressiveness, entrepreneurial management, and its enthusiasm to ally itself with GM. In a deal that was unusually fast for GM the two companies agreed to form GMF within three months of their first contact. The rapid pace was no surprise for Fanuc, which was the creation of Dr. Sieuemon Inaba, the companys founder. The company was founded as an arm of Fujitsu in 1955 under Inabas leadership, and spun it off in 1972, with Fujitsu

holding ownership of about forty percent of its shares. In the company, fourteen-hour workdays were commonplace for management and research staff, many of whom lived in company housing and went home on weekends to visit with their families. In 1981, it opened a plant using one-fifth the workforce of that used by comparable firms and planned to quadruple that level output while only doubling the size of the workforce by 1986. Fanuc had long dominated the market for NC (numerical control) devices, essential to running machine tools, with a seventy-five percent share of the Japanese market and fifty percent of the global market for the devices. These devices and systems comprised ninety percent of the company s total sales, while robotics only counted for three percent. Fanuc sought the partnership with GM to help give them an opportunity to establish a similarly strong presence there. Inaba intended for robotics to comprise at least fifteen percent of Fanucs business within three years. GMF was intended to operate independently of the two parent companies. Its president and CEO, Eric Mittlestadat, a career GM manager, worked with a four-member board of directors that was appointed equally by both companies. Both companies stayed out of GMFs daily operations, believing the company should be allowed to succeed or fail on its own merits. The companys relationships with its parents fell into two categories, with the first being suppliervendor relations. With the exception of a robotic painting system that was built in Michigan, Fanuc built all robots sold by the company. Eighty-five percent of sales and seventy percent of units sold by GMF were to General Motors with most of the rest going to other automotive companies. However, much of the cost in robotics systems was in the software and consulting while most of the profit was in the hardware, most of which came from Fanuc. As the implementation of robotic systems required extensive planning and development, its relationships with its clients were very complex.

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The second category of relationships was product development. Four times a year, GMF executives met with senior executives from both GM and Fanuc to coordinate product development efforts. These development efforts cost far more than was being spent by their nearest competitors and involved complex teams that involved engineers from GM and Fanuc, in addition to GMF staff, out of efforts to protect proprietary robotics technology from both companies. In 1986, slumping demand for robotics products hit GMF hard, forcing it to cut its workforce by almost one-third. This was largely due to General Motors canceling $80 million in order for GMF systems. The same year, Fanuc entered a new partnership with General Electric called GEFanuc Automation, which would focus on creating automated production systems for manufacturing. Japanese parts and components makers: In the 1970s, as it built alliances with Japanese auto manufacturers, General Motors had made little effort to develop a supplier base for parts and components. However, the company began to realize that it would face aggressive competition from Japanese manufacturers in terms of price, quality, and reliability of components supplied. Most efforts to develop GMs supplier bases in Japan were made through Delco Electronics, a GM subsidiary, and grew quickly, with GM buying and estimated $100 million worth of parts and components in 1980, then to $350 million in 1986. These partnerships included Atsugi Motor Parts, Kyoritsu, Nihon Radiator, and Tachikawa Spring, all partially owned by the Nissan group, Akebono Brakes, owned in part by Bendix, an international brake parts supplier, as well as Isuzu, Nissan, and Toyota, as well as NHK Spring, an independent Japanese manufacturer of suspension components. To manage the many partnerships it was developing with parts and components suppliers, General Motors set up two organizations: the Overseas Components Activities (OCA), established as a bridge between GM divisions and Japanese suppliers, and the Japan GM Cooperative Association, to develop

closer relationships between the executives of GM and its Japanese suppliers. However, many of these relationships would require extensive development, as most members of these associations sold less than ten percent of their output to GM. II. THE PROBLEMS General Motors faced numerous problems with its Asian alliances. Covering a broad range of topics, including managerial control, return on investments, and control of General Motors technology. These problems affected, in numerous ways, most of the companys efforts to form alliances with Asian companies. Toyota and NUMMI: General Motors and Toyota sought the NUMMI joint venture for their own motives, and the joint venture was timed to terminate after the two companies had sufficient time to learn the needed lessons and implement them. While GM had provided half the cash and the use of its production facility, it had little control over operations. Toyota was one of GMs biggest competitors, but had not taken the bold move of entering GMs home market until after NUMMI had given it the opportunity to familiarize itself with doing business in the United States. Also there is the risk that the difficult relations between UAW members and their leadership with NUMMI management would backlash into their relations with General Motors in its wholly owned production facilities. Isuzu: While Isuzu was nearing the edge of bankruptcy, General Motors came to their rescue, purchasing thirty-four percent of the stock in the manufacturer, and fifty-one percent of the stock in their finance company. This money was used to shore up Isuzu, which relied on deals with General Motors to generate much of its business through export and marketing arrangements. Isuzu developed the Spectrum with the help of a $200 million investment by General Motors. This car, like the LUV truck in the 1970s, would comprise a large share of Isuzus total production and was largely an export item, which required

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GM to help to get around export restrictions. With GMs money and marketing ability, Isuzu was able to generate a large portion of its business through guaranteed bulk sales to General Motors. Both the Spectrum and the partnership with Lotus allowed the company to receive considerable financial and technical support for Isuzu, which was free to use it in developing their own products. Daewoo: The Daewoo Group of South Korea was struggling with financial difficulties, to which GMs reputation, capital and technology provided, by their own admission, provided quick solutions to their business needs by increasing the profitability of their automotive manufacturing and components divisions. General Motors provided the resources needed to help the Daewoo Group start several joint ventures and provided advanced technology to help these joint ventures build cars both for export to the United States, as well as for domestic sale by Daewoo. General Motors gave up management control of ventures into which it had placed capital and technology, allowing Daewoo free reign with those resources. Its support allowed Daewoo to become a major player in the South Korean automotive market, and its marketing support allowed Daewoo to build a major export business. In return, GM received a car, which it had already developed through its Opel subsidiary and could easily have manufactured on its own. Suzuki: GM bought an interest in Suzuki to help them develop a small economy car, while Suzuki was looking for an international partner who did not compete with them. The centerpiece of this arrangement was the Cultus, which had failed to attract consumer interest in Japan, and was of no further value to Suzuki. When their Canadian joint manufacturing facility opened, GM put up half the money to finance the venture. This allowed Suzuki an opportunity to escape the unsuccessful Japanese market, while giving it full management control of the plant. Furthermore, while the partnership had allowed Suzuki an opportunity to greatly expand its manufacturing and marketing operations outside of Japan,

General Motors was only able to export a paltry four thousand vehicles into Japan. While Suzuki products did not compete with General Motors, the assistance it provided through its partnership with Izuzu allowed it distribute and market other vehicles that could compete more directly with GM. Future plans to enter joint ventures with Isuzu would increase the likelihood that vehicles from their partnership would compete with General Motors. Nissan: Nissans partnership with GM began out of necessity to keep a presence in the tightening Australian market. GM, through its Australian Holdens division, worked with Nissan to develop a new engine using GM technology. After that, Nissan began a partnership with Daewoo, who had direct partnerships with GM to produce vehicles for the United States market, relying on General Motors distribution networks. In both cases, Nissan relied on General Motors to help provide them new markets for their products, overcoming problems they were unable or unwilling to solve on their own. Fanuc Joint Venture (GM-Fanuc): GMF had become a systems integrator, taking on the highcost and low-return work of installing and supporting robotics systems while providing new sales opportunities for Fanucs hardware, where the bulk of profits were made. This situation was made even worse when GE-Fanuc began reselling GMF systems after Fanuc reaped the large profits from selling GMF the hardware, and GMF undertook the low-profit work of systems integration. Also there was a low level of trust in GMs partner, which handicapped product development efforts as greater efforts were expended to ensure the protection of proprietary technologies. Japanese parts and components makers: Loyalty with these suppliers was often an issue with great potentials for conflict with partial ownerships by Japanese automakers who competed with General Motors, while having access to General Motors in order to provide the needs parts and components. Information such as production schedules could help competitors gain more insight to ongoing activities inside GM. With conflicting loyalties, security of GMproprietary technology, as well providing

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manufacturing skills and technologies to aid in improving returns on the investments of competing companies, would be issues of concern for the automotive manufacturer. Also, as most suppliers received a small fraction of business from General Motors there was no assurance they would not give preference to those manufacturers who gave them the most business. III. COMMON THREADS: CORE PROBLEM DEFINITION General Motors Asian business alliances were intended to help the company to benefit from production and technological competencies found in the region, as well as to help the company to develop products for sale in its home market in the United States. However, these alliances have often yielded far greater benefits to their partners than to GM. While it has often helped provide needed financing to help keep its partners in business, and in some cases, helped them become more competitive, General Motors has failed to improve its internal product development program, demand a proper return on its investments and partnerships, loyalty from its partners, and the proper level of control over proprietary technologies crucial to maintaining its overall business position. At the core of these problems is failure by General Motors to maintain control over its partnerships, develop long-term relationships with a high level of trust, as well as to act to defend its own interests in a strategic manner. IV. PROBLEM ANALYSIS Charles Hill, in his textbook International Business: Competing in the Global Marketplace, identifies three key characteristics for a company to look for in selecting a business partner: A good partner helps the first achieve its strategic goals, A good partner shares the firms vision, and A good partner is unlikely to try to exploit the alliance for its own agenda (Hill).

Upon a close examination of the facts and problems with GMs Asian alliances, it becomes obvious that the company did not find partners who did not meet these criteria. Many partners benefited significantly from doing business with General Motors, while GM often received little benefit from the relationships. Often, partnerships were selected to achieve short-term goals, and in some cases, partners had business relationships with other automotive manufacturers. In some situations, such as Daewoo, where the company sought the GM name, and Toyota, which was a short-term partnership, there were clearly reasons to question if the relationships were based upon shared values or common goals. In order to advance its business interests, General Motors must commit itself to establishing partnerships with those who share its values and have the interest, ability, and commitment to developing lasting, productive, and mutually beneficial relationships. Hill also stresses the importance of knowledge in establishing productive business alliances. He encourages firms to investigate potential partners and collect information from three sources: Collect as much pertinent publicly available data about a potential partner, Collect data from informed third parties, including those who have done business with them in the past, bankers, and past employees, Get to know the potential partner well before committing to an alliance, including making sure that senior management will interact well on a personal level (Hill).

While General Motors status as a relative newcomer to the Asian region hurt their ability to acquire the most knowledge possible about potential partners, the long-term costs of failed relationships are much higher. General Motors Asian business partners have often benefited from GM investments of effort, financing , and knowledge, and used this to compete with the company, either directly or indirectly. The Fanuc partnership, which was undertaken in less than

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three months, is one example of a partnership which was undertaken too quickly. Clearly, many of General Motors core problems with its Asian relationships stem from a lack of understanding of its potential partners, as well as a failure to lay the groundwork for healthy and symbiotic relationships that benefit both sides of a partnership. V. GOALS AND OBJECTIVES Resolving these problems will not be easy for General Motors, but they are essential to its survival. Some of these changes will require relatively simply policy changes, while others call for changing deep-rooted philosophies and corporate values. This is complicated by the fact that General Motors is one of the largest corporate organizations in the world, with vast and complex relationships with hundreds of companies across the world. Even simple changes will take much time and diplomacy to implement. Our goals for General Motors are: Develop Stronger Relationships with Suppliers and Partners: Toyotas organization achieves long-lasting and loyal relationships with its partners and suppliers, giving it the high-level of control needed to implement the much-valued Toyota Production System. By contrast, many of General Motors relationships are short-term and involve companies with other potentially conflicting business relationships. General Motors should work towards the long-term goal of building a stable, loyal base of suppliers and partners who will work to its advantage without conflicts. This will insure stability of supply, as well as increased productivity and greater security for knowledge, technologies, and production know-how that has been developed at a great cost to General Motors. Expect More Control from its Investments: NUMMI and Daewoo stand out as the most obvious cases where General Motors has had little managerial control over ventures where it holds large investments. However, we have outlined other situations where General Motors has conceded the level management control needed to protect their investments, or essentially

underwritten potential competitors. General Motors needs to be more selective in establishing partnerships that require large investments, and expect a higher level of control when establishing partnerships. It should expect to receive an appropriate level of managerial and executive control in return for its investments of time and resources, disengage from those which are not, and drive harder bargains in future arrangements. Protect Knowledge and Technologies: In many cases, General Motors has made information available regarding its knowledge base and proprietary technologies available via partnerships where loyalty seemed to be lacking, and potentially conflicting. For example, during the GMF venture, protecting its technologies required cumbersome supervision of Fanuc staff in product development efforts. General Motors should take a multi-faceted approach to protect its knowledge resources by avoiding high-risk partnerships, implementing stricter controls over technologies and knowledge, and developing stronger, closer relationships where those who have access to this information have strong incentives to protect it from falling into the hands of competitors. Put its Business Interests First: The NUMMI venture stands out as an example where General Motors short-term gain came at the price of helping a major competitor become even more of a threat over the long-term. The GMF/Fanuc venture was agreed upon in less than three months after the first discussions. General Motors should take a more deliberate and cautious approach in cultivating business alliances to insure that those it works with will not ultimately act in manners that are not in the best interests of GMs own business interests. Improve Product Development: Much of GMs many partnerships with Asian automotive manufacturers were undertaken with the goal of developing a small economy car for the American market. These efforts not only helped its competitors in many cases, but also created such a conflicting mix that it helped doom the Chevrolet Nova. General Motors, as a major

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automotive manufacturer, should be able to develop products without having to share resources, control, or technologies to competitors. The company must insure that it can provide needed product development solutions from within its own organization. VI. ALTERNATIVES Alternative One-Withdrawal/ Centralization: Toyotas empire was based upon a high-degree of geographical and power centralization, best represented by the massive Toyota City complex and its keiretsu style of organization. This gave them a high level of control over their organization, as well as those suppliers and partners did business with. Several of General Motors core problems arose from loose relationships with its suppliers and partners, which could be resolved through limiting business dealings with organizations who were either not willing to fall under their authority or be located near their home facilities for close supervision. Advantages: By bringing its suppliers and business partners into a tighter control structure, and by attempting to recreate Toyotas Toyota City manufacturing complex, General Motors could force more discipline and develop closer and more loyal relationships. This could help to develop more loyalty through greater dependence, and closer monitoring of suppliers to insure both loyalty and security of General Motors technology and knowledge. Whenever possible, geographical proximity would also help GM emulate Toyotas prized distribution system. Disadvantages: Toyota discovered that its close organizational structure limited its ability to innovate, as well as first mover advantages. General Motors could find itself outmaneuvered in a similar manner. Also, it would be limited in its ability to form advantageous partnerships and pursue new business opportunities outside of its scope of control. This would also risk creating a more adversarial relationship with domestic automotive manufacturers who would be intimidated by a more visible presence from General Motors and who would be facing tougher competition for suppliers as GM built a

more centralized and therefore larger domestic supplier base. Alternative Two-Decentralization/Globalization: In 1966, General Motors defined its belief in a policy of coordinated policy control of all of its operations through the world as essential to the success of its international operations. Its global manufacturing and marketing empire was built by aggressively pursuing new opportunities, not by limiting its reach or its vision. This has been the motive behind its many Asian partnerships. By continuing this approach, General Motors would continue in its present direction, expanding its web of manufacturing and supplier partnerships, and learning from its mistakes in the hopes that it would find solutions to the problems it faces with these alliances. Advantages: General Motors would continue to have the benefits of doing business on a global scale, to help even out their revenue flow and work around fluctuations in currency values. It would have the best position to pursue the best mover advantages in new markets and the widest range of options possible for new suppliers and business partners, to get the best possible cost and quality. It would also be remaining true to its vision as a truly international company. Disadvantages: GM would still be in the difficult position of having to manage a wide range of partnerships and alliances on a global scale. It would continue to have to make trade-offs with control and trust, such as those that had led to the companys problems with its Asian alliances. The difficulties of distance would also continue to make it difficult to manage distribution networks with its suppliers. The risk of providing financial and marketing support to manufacturers who would compete with GM in the long run would be greater. In the end, the company would have to decide how much of a risk it could continue to afford in terms of lost investments and the continuing loss of knowledge and technology to competitors. Alternative Three-Ownership and Effective Equity: General Motors could seek to get out of partnerships where it did not have the financial leverage to control its alliances and partnerships.

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In many of its partnerships, whether it held a majority or minority share, the company often had little to no managerial control which has left it in a poor position to dictate the terms of business, as well as control over its resources, knowledge and technology base. In some cases, General Motors investments simply helped competitors get a firmer footing from which to compete with GM at a later date. Advantages: General Motors would gain greater leverage over those it did business with. This would allow it to dictate the terms of partnerships, have a stronger voice over its investments, and force suppliers to prioritize its needs. It would make it harder for companies to get both the

funding and latitude of operation essential to turn GMs investments against it at a later date. Disadvantages: The costs of such a move would be great and may force General Motors to limit its options for suppliers unless it could raise large amounts of cash to finance such a move. In some cases, control may not be necessary or desirable to achieve the needed results. General Motors would essentially have to commit itself to establishing ownership and/or control over a supplier or partner before it could accurately assess the real value of the company. This would also leave the company at the mercy of those who would be needed to provide equity for such an initiative.

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NEW POLICY REGIME AND PRODUCTIVITY GROWTH MANUFACTURING PUNJAB OF MANUFACTURING SECTOR IN PUNJAB Dr Ravi Kiran Manpreet Kaur

Structural

change is a very complex

ver the past two decades liberalization has become an important part of many countries development strategies. The liberalization process began in India with an objective to expose its economy progressively to market forces. This process has had maximum impact on the manufacturing sector, as it has radically changed its business environment and future growth dynamics. All the states of Indian union have been affected differently due to the structural changes. Punjab had the industrial sector in its state of infancy. In response to changed policy regime different sub sectors of industry have responded differently to adjust optimally. The present research work focuses on studying the response of manufacturing industries in Punjab to the changed policy regime after the advent of liberalization and privatization process in India. The present study analyses the trends in value added, labour, capital as well as trends in labour and capital productivity for sixteen industrial groups for the period 1980-81 to 2002-03 and also for two sub periods, period I,1980-81 to 1990-91 and period II, 199192 to 2002-03.The present study tries to examine the trends in partial productivities in the two periods to see whether there has been an improvement in productivity in the post-1991 period, the period associated with liberalization and globalization. The study tries to analyze the industries which have been showing better performance in terms of partial productivity and also study the trends of the industries which have not performed well in the period of analysis.

phenomenon. It becomes further complex phenomenon when it is in response to some drastic policy changes. Policy regime, in India has undergone a drastic change (almost a U-turn) during the decade of 1990s. Liberalization, privatization and globalization are the buzzwords for the same. At the time of this mega change industry was in developing stage, which was to be followed by the matching growth of tertiary sector. Industry nurtured in a protected and subsidized environment has been suddenly thrown open to the bare realities of market and the global economies. These reforms were aimed at making Indian industry more efficient, technologically up-to-date, and with the expectation that efficiency improvement, technological up-gradation, and enhancement of competitiveness would enable Indian industry to achieve rapid growth. Indian producers were now forced to think about implementing worldclass practices and take a look at issues pertaining to manufacturing efficiencies. In the face of intensified global competition and liberalized trade productivity has emerged as a key indicator of successful restructuring and upgrading by firms and industries Productivity growth has traditionally been regarded as one of the main sources of income growth, along with capital accumulation and the deepening of human capital development. These factors and the historically positive link between productivity, employment and earnings have made productivity improvement an important policy lever for economic development. Advocates of liberalization argue that opening up local markets to foreign competition and foreign direct investment will improve the productivity of domestic industry, resulting in more efficient allocation of resources and greater overall output. The reforms are set to provide an impetus to increase the competition, which in turn affects the productivity. Productivity is the relationship between real output and input to produce a certain level of output. It measures the efficiency with which inputs are transformed into outputs in the

Dr. Ravi Kiran is Assistant Professor, School of Management & Social Sciences, Thapar University, Patiala. Manpreet Kaur is Research Scholar, School of Management & Social Sciences, Thapar University, Patiala.

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production process. An increase in productivity occurs generally when more output is produced either with the same amount of input, or with less input, or with little increment in input. Higher productivity growth is associated with growth in capital intensity, labour productivity and capital productivity. Higher productivity brings about lower unit cost, higher product quality, better wages for workers, and better returns on investment. Porter (1990) and DRI McGraw Hill (1993) stressed that productivity is the prime determinant of a country s level of competitiveness, higher standard of living and sustained growth in the long run. Punjab Manufacturing Enterprise and endeavour are the two words reflecting the essential spirit of the people of Punjab. Since Independence, over the last five decades, the state has earned its epithet of the Granary of India. Punjab economy has experienced an accelerated economic growth and steadily rising per capita income. Punjab is basically an agriculture dominating economy with less emphasis on Industry and Industrial development of Punjab has not kept pace with the agricultural growth. Punjab is a latecomer in the field of industrialisation because it has faced several setbacks due to partition in 1947 and again due to reorganization in 1966. Two Indo-Pakistan wars gave a severe jolt to the industrial sector in the state. Further turbulence has not only austerely hampered the growth of industry in Punjab but also has resulted in migration of industry to the other states of India. As compared to other states of India, industrial sector in Punjab has slowly progressed due to locational disadvantage. Moreover, besides inherent locational disadvantages the dependence of industry on outside raw material and product market, unfriendly international border etc. are other reasons for slow growth of industry in Punjab. Further the industrial activity in Punjab is dominated by small-scale industries. There is less development of medium and large-scale industries in Punjab. Industrial development in Punjab is not only meagre but also

uncoordinated and haphazard. Inspite of the impediments Punjab occupies a place of pride in the industrial map of India. Though Punjab started late in industrialisation but it has started picked up speed. It is on the way to rapid industrialization through coordinated development of Small, Medium and Large scale industries. The main industrial centers of Punjab are Ludhiana, Amritsar, Jalandhar, Batala, Pathankot, Phagwara, Gobindgarh, Rajpura, Mohali, Bathinda and Patiala. Punjab is now moving up in the production of engineering goods, pharmaceuticals, leather goods, food products, textiles, hosiery, yarn, electronic goods, sugar, machine and hand tools, agricultural implements, sports goods, paper and paper packaging. Rapid industrialization will increase the pace of economic growth. The seventh five year plan (1985-90) has focused on the development of small, medium and large scale industries. All the states of Indian union have been affected differently due to the structural changes. Punjab had the industrial sector in its state of infancy. In response to changed policy regime different sub sectors of industry have responded differently to adjust optimally. This adjustment is on the input side, output side or on the processing side. This adjustment is basically a manipulation of several parameters to improve productivity, efficiency and different components of efficiency. The present research work focuses on studying the response of manufacturing industries in the Punjab to the changed policy regime after the advent of liberalization and privatization process in India. This paper examines the impact of economic reform on productivity growth of manufacturing sector of Punjab. The primary purpose of this analysis is to suggest the optimum combination of future policies that is critical for the sustainability of future growth of manufacturing sector of Punjab. The study analyses the pattern of industrial development of Punjab with focus on the Registered Manufacturing Sector. Very few studies have been done on analyzing the trends of Output growth, Productivity and Employment in Registered manufacturing . In this study

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manufacturing industries has covered for the period 1980-81 to 2002-03. With a view to study the inter-industrial growth pattern, an analysis is also done at disaggregate level, i.e. the two digit level and at the firm level. Methodology The analysis has been done for the entire period that is 1980-81 to 2002-03 as well as two subperiods period I, 1980-81 to 1990-91 and period II, 1981-90 and 1991-2001. We all know that the period of nineties is a period of globalization, liberalization and privatization. Removal of trade liberalization tends to make organizations more competitive and helps to improve their efficiency. It is with this view that the study tries to analyze the productivity changes in registered manufacturing sector of Punjab to see whether in the latter period, the period associated with greater openness and liberalization shows improvements in Output and Productivity. In this study, the focus is on the empirical measurement of (a) capital productivity (b) labour productivity and growth of output, capital and labour. Partial factor productivity measures the ratio of output to one of the inputs setting aside interdependence of use of other output. Labour productivity (V/L) is the ratio of value added to total no of persons employed. Capital Productivity (V/K) is the ratio of value added to gross fixed capital. An attempt is made to summarize the evidence at two digit level. The present study uses secondary data (Annual Survey of Industries by Central Statistical organisation) for the analysis. To deflate data price indices have been constructed with the help of the official series on wholesale price indices (Index Numbers of Wholesale Prices in India, prepared by the Office of the Economic Adviser, Ministry of Industry). The gross measure of value added is obtained by adding depreciation to net value added. The data on gross value added has been deflated using industry specific wholesale prices (at 1993-94 prices). For labour input total Number of persons employed has been used. For capital the study used gross fixed capital at replacement cost. Perpetual inventory method

(Balkrishnan, P .et.al., 1994) has been used. The capital stock at any year has been calculated as:

K t = K 0 +

t=1

I t

Where I, is investment in year t and K0 is capital stock for benchmark year, i.e. 197374.Investment figures are obtained using the formula: It= (Bt Bt-1 + Dt)/Rt Where B is book value of fixed capital, D is depreciation. For R Wholesale prices index of Machinery (base 1993-94=100) will be used. The returns to labour are measured by total of wages, salaries and benefits. The returns to capital is measured as value added minus returns to labour. Analysis: Partial Productivity Productivity analysis takes into account the shift in the capital productivity and labour productivity which takes place with the change in factor intensity due to modernization in plant and machinery or adoption of improved process of production. Let us have an insight into the capital and labour productivity of two digit manufacturing industries of Punjab. Capital Productivity Industry Wise Trends in Capital Productivity A look at capital productivity trend (Refer Table One) depicts that for eight manufacturing industries the capital productivity is negative for the entire period of analysis and only two industrial groups depict growth rate more than four percent. The future is not very bright on the capital productivity front. Detailed industry wise trend is given below. i. Industries Having Negative Rate of Growth - Beverages and Tobacco Products#16, Manufacture of Textiles#17, Manufacture of Paper and Paper Products and Publishing, Printing and Reproduction of Recorded Media#21+22, Manufacture of Coke, Refined Petroleum Products and Nuclear

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Fuel and Manufacture of Rubber and Plastic Products#23+25, Manufacture of other Non-Metallic Mineral Products#26, Manufacture of Basic Metals#27, Manufacture of Machinery and Equipment N.E.C#29, Manufacture of Office, Accounting and Computing Machinery30, Manufacture of Electrical Machinery and Apparatus N.E.C.#31, Manufacture of Radio, Television and Communication Equipment and Apparatus#32, Manufacture of Motor Vehicles, Trailer and Semi-Trailers, Manufacture of Other Transport Equipment#34+35. ii. Industries Having Rate of Growth 1-2% - Manufacture of Wearing Apparel; Dressing and Dyeing of Fur#18, Manufacture of Medical, Precision and Optical Instruments, Watches and Clocks#33.

LABOUR PRODUCTIVITY The picture is better for the labour productivity for entire period (Refer Table Two) as eight depict growth rate more than 7.5 percent per year and only one industrial group depicts a negative growth. Detailed industry wise analysis is given below. Industry Wise Trends in Labour Productivity i. Industries Having Negative Rate of Growth - Manufacture of Coke, Refined Petroleum Products and Nuclear Fuel and Manufacture of Rubber and Plastic Products#23+25 Industries Having Rate of Growth 2-5%Manufacture of Basic Metals#27, Manufacture of Machinery and Equipment N.E.C#29, Manufacture of Office, Accounting and Computing Machinery30, Manufacture of Electrical Machinery and Apparatus N.E.C.#31, Manufacture of Radio, Television and Communication Equipment and Apparatus#32, Manufacture of Motor Vehicles, Trailer and Semi-Trailers, Manufacture of Other Transport Equipment#34+35.

ii.

iii. Industries Having Rate of Growth 2-3% - Manufacture of Wood and of Products of Wood and Cork, Except Furniture; Manufacture of Articles Of Straw and Plating Materials#20, Manufacture of Furniture, Manufacturing N.E.C#36. iv. Industries Having Rate of Growth 3-4% - Manufacture of Chemicals and Chemical Products#24, Manufacture of Fabricated Metal Products, Except Machinery and Equipments#28. Industries Having Rate of Growth Above 4% - Food Products#15, Tanning and Dressing of Leather Manufacture of Luggage, Handbags Saddlery, Harness and Footwear#19.

v.

Trends in capital productivity for the two subperiods depicts that capital productivity was higher in the first period of analysis for most of the sectors i. e. the pre liberalisation period and in the liberalisation era only four out of sixteen sectors depicts an improvement in capital productivity.

iii. Industries Having Rate of Growth 57.5% - Beverages and Tobacco Products#16, Tanning and Dressing of Leather Manufacture of Luggage, Handbags Saddlery, Harness and Footwear#19, Manufacture of Paper and Paper Products and Publishing, Printing and Reproduction of Recorded Media#21+22, Manufacture of Medical, Precision and Optical Instruments, Watches and Clocks#33. iv. Industries Having Rate of Growth 7.510%- Food Products#15, Manufacture of Textiles#17, Manufacture of Wearing Apparel; Dressing and Dyeing of Fur#18, Manufacture of Wood and of Products of Wood and Cork, Except Furniture;

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Manufacture of Articles Of Straw and Plating Materials#20, Manufacture of Chemicals and Chemical Products#24, Manufacture of Fabricated Metal Products, Except Machinery and Equipments#28, Manufacture of Furniture, Manufacturing N.E.C#36. v. Industries Having Rate of Growth Above 10%- Manufacture of other Non-Metallic Mineral Products#26.

Harness and Footwear#19 during the entire period of the analysis. Ten sectors depict higher growth of capital for the second period of the analysis. So despite higher growth in capital in the second period, the performance on the productivity front does not show much improvement and is rather a cause of concern. Growth Rates of labour is higher for the Manufacture of Wearing Apparel; Dressing and Dyeing of Fur#18 for the entire period of analysis (Refer Table Five). The manufacturing sector depicts a slow down of labour growth in the second period of the analysis for ten out of sixteen sectors. The post liberalisation phase depicts a deceleration in rate of growth of labour for most of the sectors. Overall picture that emerge from analysis of partial productivity is that capital productivity is higher growth in the first period of analysis i.e. the preliberalisation phase in eleven out of sixteen sectors. Labour productivity is also reported to be higher in twelve out of sixteen sectors in the first period of analysis. Value added is higher for manufacture of Wearing Apparel; Dressing and Dyeing of Fur 18, followed by Manufacture of other Non-Metallic Mineral Products#26 and Food Products#15 for the entire period of the analysis. Growth of capital is higher in ten out of sixteen sectors during the second period of the analysis that is liberalisation phase. Growth of labour is higher in 10 out of sixteen sectors during the first period of analysis that is pre-liberalisation period. So the trends depict a higher growth of both capital and labour productivity in the first period of the analysis i.e. the pre-liberalisation period. The growth of value added and labour is also higher in the period I but the growth of capital is higher in the period II. Conclusion This paper analyses the effects of liberalization on the productivity growth of Punjab manufacturing industries initiated by the 1991 economic reforms. Based on the evidence presented in this paper, there has been a deceleration in capital productivity and labour

However the trends in labour productivity for the two sub-periods depict the similar trends as for the capital productivity. Labour productivity is higher in twelve sectors in the first period of analysis i. e. the pre liberalisation phase. For the entire period the labour productivity is greater than 7.5 percent for eight industrial groups and the industrial group i.e. Manufacture of Coke, Refined Petroleum Products and Nuclear Fuel#23 and Manufacture of Rubber and Plastic Products#25 depicts a negative growth. Labour productivity shows improvement in only four sectors in the post liberalisation phased. Overall manufacturing sector of Punjab has performed better in the pre-liberalisation era. In terms of value added the growth rate for manufacturing sector is higher for nine industrial groups in the pre-liberalisation phase while seven groups depict higher growth in the liberalisation phase (Refer Table Three). Highest growth rate is recorded for Manufacture of Wearing Apparel; Dressing and Dyeing of Fur#18, followed by Manufacture of other Non-Metallic Mineral Products#26 and Food Products#15. Manufacture of Coke, Refined Petroleum Products and Nuclear Fuel, Manufacture of Rubber and Plastic Products#23+25 depicts a negative rate (-1.991) for the entire period of the analysis. Highest growth rate is recorded for Manufacture of other Non-Metallic Mineral Products #26 followed by Beverages and Tobacco Products #16 and Manufacture of Wearing Apparel; Dressing and Dyeing of Fur#18 (Refer Table Four). Capital growth is lower for the manufacture of Tanning and Dressing of Leather Manufacture of Luggage, Handbags Saddlery,

29

productivity in Punjab manufacturing in the reform period. The trends show that capital productivity has fallen in eleven out of sixteen sectors and labour productivity decreased in twelve out of sixteen sectors in the second period of the analysis that is liberalisation period. So the comparative picture of pre liberalisation and liberalisation period demonstrated that the economic reforms and liberalisation process has resulted in slow growth of manufacturing sector of Punjab. The growth of value added and labour decreased in the liberalisation period. Growth of capital shows a higher growth in the second period of the analysis but it does not transformed into productivity growth. This increase in capital may lead to higher growth in productivity in the coming years. The usage of capital could make important productive contribution to the industrial structure. The increase in capital in the production, suggests that many manufacturing industries are moving towards more capitalintensive production. The most challenging solutions lie in the domain of technological innovations, which can be the prime enhancer of productivity. It would be useful to concentrate future research efforts on determining the contribution of foreign capital and technology to the productive performance of the Punjab manufacturing industries, both directly and indirectly through enhancing competition. However whatever growth is attained is far from satisfactory. So in the near future to avoid economic stagnancy due care has to be taken of industrial development of Punjab for which a strong industrial support system and conducive economic environment is needed. So to achieve sustenance, there is need for impetus on productivity in the Punjab manufacturing sector so that Punjab corporate sector enhances and excels on this parameter for the sustainability of growth of the manufacturing sector. References Ahluwalia, I. J. (1985): Industrial Growth in India Stagnation since the Mid-Sixties, Oxford University Press, Delhi.

Balakrishnan, P., Pushapangdan, K. and Babu, M.S. (2000), Trade Liberalisation and Productivity Growth in Manufacturing: Evidence From firm-level panel data, Economic and Political Weekly, vol35 (41), October 7. pp. (3679-3682). Brahmanada, P. R. (1982), Productivity In The Indian Economy: Rising Inputs for Falling Outputs, Bombay: Himalaya Publishing House. Gangopadhyaya, S. and Wadhwa, W. (1998), Economic Reforms and Labour , Economic and. Political Weekly, May 30, 1998. Golder, B. (1986), Productivity Growth in Indian Industry, Allied Publishers Private Limited, New Delhi. Goldar, B. (2000), Employment Growth in Organized Manufacturing in India, Economic and Political Weekly, vol. 35, no. 14, April 1-7. Gupta, S. and Bawa R. S. (2006), Growth performance of small scale industry in Punjab: A comparative study of Preliberalisation and Liberalization Periods, Apeejay Journal of Management and Technology, vol. 1, no 1, January 2006. Kuznets, S. (1966), Modern Economic Growth Rate, Structure and Spread, New Haven: Yale University Press. Raikhy, P S. and Nanda, P. (2006), Impact . of WTO Regime on Punjab Industry Guru Nanak Dev University Press, Amritsar. Singh, L. (1985) Capital-Labour Substitution in Punjab Industry Indian Journal of Industrial Relations, Vol. 21, October 1985. Singh, L. (1987) Productivity Trends and Factor Substitutability in Punjab Industry The Indian Journal of Economics, Vol. LXVII, Part III, No. 266, January 1987. Singh, L. & Jain, V. (2006), Unorganised Manufacturing Industry in the Era of Globalization: A Study of Punjab, http:// mpra.ub.uni-muenchen.de/ 197/, MPRA Paper No. 197, October 7.

30

Rates Capital Productivity Punjab Table One: Growth Rates of Capital Productivity in Punjab manufacturing manufacturing (1980-81 to 2002-03)
Capital Productivity Industry code Industry Name 1980-812002-03 Food Products Beverages and Tobacco Products Manufacture of Textiles Manufacture of Wearing Apparel; Dressing and Dyeing of Fur Tanning and Dressing of Leather Manufacture of Luggage, Handbags Saddlery, Harness and Footwear Manufacture of Wood and of Products of Wood and Cork, Except Furniture; Manufacture of Articles Of Straw and Plating Materials Manufacture of Paper and Paper Products and Publishing, Printing and Reproduction of Recorded Media of India Manufacture of Chemicals and Chemical Products Manufacture of Coke, Refined Petroleum Products and Nuclear Fuel and Manufacture of Rubber and Plastic Products Manufacture of other Non-Metallic Mineral Products Manufacture of Basic Metals Manufacture of Fabricated Metal Products, Except Machinery and Equipments Manufacture of Machinery and Equipment N.E.C, Manufacture of Office, Accounting and Computing Machinery, Manufacture of Electrical Machinery and Apparatus N.E.C., Manufacture of Radio, Television and Communication Equipment and Apparatus Manufacture of Medical, Precision and Optical Instruments, Watches and Clocks Manufacture of Motor Vehicles, Trailer and SemiTrailers, Manufacture of Other Transport Equipment Manufacture of Furniture, Manufacturing N.E.C 5.34 -0.67 -1.61 1.06 4.79 2.91 -4.46 3.11 -7.00 -3.48 -2.50 3.68 1980-811990-91 7.06 5.96 5.20 2.12 4.77 1.30 -4.34 0.92 -8.67 -0.24 4.03 5.89 1991-922002-03 5.73 -4.87 -6.84 -2.10 -0.68 5.22 -7.06 3.39 -4.18 -9.06 -6.55 -4.13

15 16 17 18 19 20 21+22 24 23+25 26 27 28

29,30,31,32

-0.67 1.34 -1.99 2.60

-7.36 -6.28 3.07 -3.39

0.89 -0.62 -1.86 1.67

33 34+35 36

31

Two: Rates Productivity Punjab Table Two: Growth Rates of Labour Productivity in Punjab Manufacturing Manufacturing (1980-81 to 2002-03)
Labour Productivity Industry Name 1980-812002-03 9.44 6.27 7.61 8.50 6.17 9.37 6.33 8.07 -5.98 11.57 4.17 9.50 1980-8119990-91 7.90 7.37 10.73 4.23 3.14 16.11 16.46 5.98 -9.90 7.90 8.24 10.81 1991-922002-03 6.86 2.25 2.66 1.69 -0.37 6.41 -11.88 4.62 -0.82 11.81 -1.07 1.48

Industry code 15 16 17 18 19 20 21+22 24 23+25 26 27 28

Food Products Beverages and Tobacco Products Manufacture of Textiles Manufacture of Wearing Apparel; Dressing and Dyeing of Fur Tanning and Dressing of Leather Manufacture of Luggage, Handbags Saddlery, Harness and Footwear Manufacture of Wood and of Products of Wood and Cork, Except Furniture; Manufacture of Articles Of Straw and Plating Materials Manufacture of Paper and Paper Products and Publishing, Printing and Reproduction of Recorded Media of India Manufacture of Chemicals and Chemical Products Manufacture of Coke, Refined Petroleum Products and Nuclear Fuel and Manufacture of Rubber and Plastic Products Manufacture of other Non-Metallic Mineral Products Manufacture of Basic Metals Manufacture of Fabricated Metal Products, Except Machinery and Equipments Manufacture of Machinery and Equipment N.E.C, Manufacture of Office, Accounting and Computing Machinery, Manufacture of Electrical Machinery and Apparatus N.E.C., Manufacture of Radio, Television and Communication Equipment and Apparatus Manufacture of Medical, Precision and Optical Instruments, Watches and Clocks Manufacture of Motor Vehicles, Trailer and SemiTrailers, Manufacture of Other Transport Equipment Manufacture of Furniture, Manufacturing N.E.C

29,30,31,32

4.84 6.22 4.44 9.59

-1.32 1.85 4.83 7.40

1.33 2.22 3.70 5.65

33 34+35 36

32

Rates Val alues Punjab Table Three: Growth Rates of Values Added in Punjab during 1980-81 to 2002-03
j Industry code 15 16 17 18 19 20 21,22 24 23,25 26 27 28 29-32 33 34,35 36 d Entire Period 13.528 10.845 7.64 17.485 6.596 10.999 3.29 8.788 -1.991 14.122 3.468 12.762 9.81 9.67 8.662 12.896 g Period I 14.511 14.401 14.926 20.522 3.527 8.502 7.723 5.493 -6.99 15.106 8.629 11.084 1.521 -0.858 11.134 2.043 Period II 12.615 6.294 -0.594 9.83 2.887 16.531 -2.733 7.765 0.899 17.631 -3.044 3.834 12.216 7.442 2.439 12.902

33

Four: Rates Capital Punjab Table Four: Growth Rates of Capital in Punjab during 1980-81 to 2002-03
p Industry code 15 16 17 18 19 20 21,22 24 23,25 26 27 28 29-32 33 34,35 36 Entire Period 7.772 11.590 9.406 11.280 1.726 7.865 9.007 7.554 5.388 15.468 6.123 9.573 10.556 8.222 10.873 10.036 j g Period I 6.963 7.971 9.244 6.895 -1.191 7.109 12.606 12.135 1.836 15.380 4.424 4.465 9.582 5.790 7.821 5.626 Period II 6.508 11.730 6.700 10.204 3.591 10.755 7.248 4.231 5.303 21.769 3.749 11.075 11.222 8.116 4.381 11.045

34

Five: Rates Punjab Table Five: Growth Rates of Labour in Punjab during 1980-81 to 2002-03
j Industry Code 15 16 17 18 19 20 21,22 24 23,25 26 27 28 29-32 33 34,35 36 d Entire Period 3.731 4.303 0.026 7.433 0.399 1.492 4.666 4.600 4.238 2.284 -0.673 2.982 4.743 3.252 4.042 3.019 g Period I 6.122 6.544 3.786 12.456 0.379 -6.556 10.453 12.338 3.23 6.682 0.357 0.244 2.884 -2.656 6.017 -4.991 Period II 5.389 3.958 -3.173 8.000 3.267 9.509 10.383 3.01 1.737 4.97 -1.998 2.317 10.741 5.108 -1.219 6.86

35

DISTRIBUTION JITNEY
B. Karthikeyan T. Frank Sunil Justus Dr. N. Panchanatham

Grace Industries had tea plantations as one of its

division. They intended a forward integration and planned to brand their own tea and market it themselves. Before entering in to the market they planned a market survey. The packaged branded tea market in India is estimated at 307 million kilograms during 2005. Loose tea consumption was estimated at around 450 million kilograms in 2005. They made a finding that there is potential for a new brand of tea. They continued that with a consumer survey as there were many brands available in market. They found that the survival chance was higher if they can have a differentiated tea product in the market. They planned to have a dust tea version with few different flavors namely masala, chocolate, cardamom and Tulsi. Objective of the Case Distributors are the backbone of the physical distribution network. A good product will reach the people only if there is a good distributor. This case study takes at look at three different levels of distributor and their marketing behaviour. This case mainly looks at how this behaviour affects the reach of the product to retailers. Introduction to Indian Tea Industry India is one the the largest Tea producer in the world. Indian tea is the finest quality in the world. The consumption of tea is above 600 Million Kg mark per year. The market consists of both Leaf Teas and Dust Teas with the Southern markets consuming more Dust Teas. The tea industry has an important and special place in the Indian economy. Tea is the countrys primary beverage, with almost 85% of total households in the country consuming tea. India is the worlds largest producer and consumer of tea, with India accounting for 27% of the world tea production. In terms of employment, the tea industry employs around 1.27 million people at tea plantations and 2 million people indirectly, of which 50% are women. Introduction to D istribution Distribution is the fourth traditional element of the marketing mix. The other three are Product,

Grace Industries marketing of packaged was involved in the manufacture and

coconut oil. It was a Pondicherry based company, catering to a south India market. The brand name of the product was Nature. The company had a policy of no advertising but concentrated on price based marketing. Its products were moderately cheaper compared to its competitors but were of superior quality.

B. Karthikeyan is Lecturer, Department of Business Administration, Annamalai University, Tamil Nadu. T. Frank Sunil Justus is Lecturer, Department of Business Administration, Annamalai University, Tamil Nadu. Dr. N. Panchanatham is Professor and head, Department of Business Administration, Annamalai University, Tamil Nadu.

36

Price and Promotion. Most businesses use third parties or intermediaries to bring their products to market. They try to forge a distribution channel which can be defined as all the organizations through which a product must pass between its point of production and consumption. Distributors deal products between company or authorized persons and retailers. Distributors are categorized by the image of the products they handle, the investment of the firm, their market coverage and their ability in offering credit and carrying out distributor promotional schemes. Based on the above characteristics the distributors are classified as high segment, medium segment and new to the market. The retailers are classified as a class outlets which are self service super markets, shopping malls and department stores, B class outlets which are traditional grocery stores, general stores and bazaar stores and C class outlets which are street corner shops and residential shops also called street vendors usually situated in interior areas and nearby to households. Company Profile The company had a strong distribution system. In the state of Tamilnadu alone they had ten territories, more than three hundred distributors and a strong sixty member sale force team to take care of their coconut oil Nature. They supplied the product to distributors against demand draft through super stockists and never offered credit to distributors. They maintained an active distributors relationship cell and were able to clear the problem of the distributors then and there. Problem of the Case The company carried out the test marketing of Nature tea in Pondicherry. It was able to get a good consumer response for its tea. But when they analyzed the performance of the distributors after a month they found that the distributors had not invested a higher percentage of additional money for product procurement of Nature tea and had diverted the fund needed for procurement of Nature hair oil. This resulted in a drop in sales of hair oil in Pondicherry. The company got a general opinion to avoid using

the existing distributors and go in for the appointment of new distributors. They appointed Mr. Margabandhu as area sales in-change of adjoining cuddalore district to conduct test distribution of the product by giving him the choice to select his own distributors. He was given thirty days time to appoint the distributors and start operations and further six month time to submit the detailed distributors report. The conditions under which he had to operate was that the company was that not willing to give television advertisement but gave him power to distribute free sample. The sample pack of the Nature tea was prepared and handed over to him. The Beginning of the Operation Mr. Margabandhu was involved in the sales field for the past ten years in various posts. For the chosen cuddalore district he had to appoint thirty distribution points. He gave an advertisement in regional Newspaper for the appointment of distributors for his new product. Almost all the application was freshers that are people new to the market and who wanted to enter to distribution field. He scrutinized it and selected ten persons based on their financial position and interest. He informed the sales representatives under him to appoint distributors for the rest of the areas. They had to struggle as the product was new to the market and as there was no advertisement support from the company. Still they managed to appoint ten distributors. They were all already involved in the distribution of product at a medium segment. Mr. Margabandhu himself got into the act and selected ten distributors who were handling high segment products. Mr. Margabandhu classified these three group of distributors that is new to the market, the medium segment distributors and high segment distributors as C, B and A respectively. This meant that certain towns will have medium segment distributors, certain towns high segment distributors and some towns new to the market distributors. The operation started in June, 2006. Mr. Margabandhu issued free sample of Nature tea along with regional newspaper. He arranged training for his sales force team and prepared

37

them for the market. He took care that the sales Nature hair oil was in no way affected because of divided attention of sales representatives. The New Product Profile They begin test marketing of Nature tea concentrating on one territory alone. They had an attractive packaging and four flavours of tea, all in different colour packaging, the colour to suit with the flavour offered. It was distributed in cartons with each containing 2 Kilogram of tea put in 100 gram packets. They also prepared various point of purchase aids highlighting the different flavours of Nature tea. The price of the product was in line with the price of competitor dust tea but the margin provided was comparatively higher. The distributors profit margin was set at 8 percentage and retailer margin was set at 15 percentage. As soon as the product hit the market he had to face a lot of retail placement problems. There was resistance among retailers for products which had no advertisement and for which there was no customers enquiry. (Refer Table One) Business Analysis After six month he segregated these three segments and made an analysis of each of the three segments. In the case of high segment distributors, he observed that their placement is good in A class outlets. As they have leading products they are able to place Nature tea along with them. Due to vehicle coverage they were able to get good rural retail placements. However they fail to cover B segment retail outlets because they do not offer any credit. It was usual practice of B & C retail outlets to get their product from the wholesaler rather than the distributors because of the concept of one shelf and many products. Some wholesalers do have the practice of providing bill to bill credit to B&C outlets. The draw back with these dealers for Nature tea was that as there was no enquiry from B&C retail outlets there was no movement of the product through these outlets. These kinds of distributors do not engage themselves in aggressive marketing and allow the pull factors in the

product to determine their own placement in retailer shelf. They do not make use of company sales representatives. They were able to provide visibility for the product and also their methods in handling company procedures were found good. Mr. Margabandhu made an analysis of C level distributors who were new to the market. They have taken a large volume of the product. Their placement with B & C retail outlets was excellent. This was made possible by the large amount of credit they offered to these types of outlets. They took extra pains as they knew that their chance of getting additional dealership of various products was based on the performance with this product. As they were dealing with only one product they were able to concentrate on rural market also. They also adopted multiple retailing techniques like in-shop sales, door to door on their own. Their drawback was that they were unable to get placements in upper class shops that were not willing to deal with new dealers and new product. They expected lot of support from representatives and company officials to help them in their distribution process. As they were dealing with a single product their carrying cost becomes higher. They were also giving credit to retailers which meant their return on investment becomes lower. Mr. Margabandhu felt that these distributors have to be provided special motivation if their performance is to be sustained at these same level. Mr. Margabandhu next made an analysis B level distributors they were able to secure placements with all types of retailing outlets. But as they deal with number of products their concentration on this particular product was comparatively low. There was another problem with these distributors. They often face investment problems and hence they are not regular in taking the product from the companies. All the three types of distributors have nearly achieved their targets. They have done it their own way. Each segment has their own positive and negative. The new to the market distributors were more budging but their handling ability

38

needed to be honed. The high segment distributors were indifferent to company pressure but were able to carryout distribution by their own merit and banner. The company decided to retain the same mix of distributors while selecting the distributors for the other territories based on this experiment. The company decided to follow a flexible strategy to suit the distributors. For the high segment distributors they planned to offer perks like van selling incentive. For medium segment distributors they provided trade load offers and distributors sales man incentive scheme. They really intended to give a good encouragement to the new to the market distributors. They provided sales based incentive, extra sales force support and training to the distributors. This incentive provided an extra profit margin to the distributors. (Refer Tabel Two, Figure One)

Discussion Questions Why cant the existing distributors of Nature hair oil themselves be utilized for tea distribution without disturbing the sales of hair oil? What are the problems in having a single level distribution system? Is it the corporate image or the face value of sales man that has an impact on distributors acceptance to distribute a product? What are the problems that you anticipate when adopting the flexible strategy? What are the reasons that you consider for the hesitance of distributors to take distribution of new products?

39

Performance retail Table One: Performance of the Distributors on retail placements

Sl.No Factors Product Placements Category of Distributors High Segment 1 Medium Segment New to the Market High Segment 2 Product Visibility Medium Segment New to the Market High Segment 3 Regular Coverage Medium Segment New to the Market High Segment 4 Credit Offers Medium Segment New to the Market High Segment 5 Rural Coverage Medium Segment New to the Market Order Collection &Delivery Schedule High Segment Medium Segment New to the Market A class outlet High Medium Low High Low Low High Low Low Low Medium Low High Medium Low B class outlets Medium Medium Medium Medium High Medium Medium High High Low High High Medium High High C class outlets Low Low High Low Low High Low High High Low Medium High High Medium High High Medium High

40

Two: Nature Tonnes Table Two: Month wise sales of Nature tea in Tonnes
Sl.No 1 2 3 Distributor Type High Segment Medium Segment New to the Business Total Target/ Month 10 10 10 30 June 8.48 4.36 12.68 25.52 July 7.56 4.18 10.14 21.88 Aug 6.44 7.58 9.84 23.86 Sep 9.02 8.68 7.48 25.18 Oct 8.42 10.44 5.62 24.48 Nov 8.32 9.36 5.92 23.6 Total 48.30 44.60 51.68 144.58 Ave. Sales/ Month 8.05 7.43 8.61 24.09

Figure One: Performance of distributors for

14

the three categories of Nature Tea

12.68 12

10

10.13

10.44 9.84 9.36 9.01 8.69

Sales / Tonnage

8.47 8 7.56 7.58 6.43 6

8.49

8.31

7.48

5.62

5.91

4.35 4

4.17

0 June July Aug Sep Oct Nov'2006 Month wise achievement A B C

41

FEVER: TASK ATTRITION FEVER: A HERCULEAN TASK FOR ORGANIZA ANIZATIONS ORG ANIZA TIONS
Richa Sharma Nancy Dhussa
attrition rate has become a

C ontrolling

ttrition rate is a burning issue for the organizations these days. If an employee leaves the organization, the employer suffers heavy losses. To overcome the attrition rate what measures can be taken to minimize these losses? The employees are given training and are developed according to the needs of the organization. In this process the organization spends its valuable resources on each and every employee. If the employee leaves the organization enters muddle and further the economies of the scale cannot be achieved quickly and this whole process becomes a Herculean task. In this article authors have attempted to help organizations in managing attrition by introducing stress tests etc. Further the organization should identify the indications which indicate that employees are planning to change the job. The organization needs to maintain a free pool of employees to manage exigencies in terms of attrition; this can be dealt with the concept of float management. Float management helps us to minimize the losses of the organization due to attrition.

Herculean task for organizations these days. Indias attrition in all sectors has more than doubled over the last year. Nearly every other company today faces a 20% attrition rate. When an employee leaves the organization, the cost of replacing the employee is very high. If an employee leaves the organization after receiving training the efforts, time and money of the organization goes waste. For example if a person leaves the job after the training program period then the company has to incur the cost of about Rs. 60,000. When an employee joins an organization he has lot of expectations from the organizations in the form of benefits, compensation career advancement, growth etc. Similarly the organization expectations from the employee are in the form value addition to the company, high productivity, and high efficiency in work. When the expectations of an employee are not fulfilled he/ she look for a better opportunity. If large numbers of people are dissatisfied in an organization then the attrition rate of organization would be very high. Attrition is a reduction in the number of employees through retirement, resignation or death whereas; attrition rate is the rate of shrinkage in size or number.

Attrition Rate = TNR x 100 TNE + TNJ - TNR1

1

TNR = Total no. of resigns per months (whether voulntary or forced) TNE = Total no. of emp. at the beginning of the month TNJ = Total no. of new joiners TNR1 = Total no. of resignations

Richa Sharma is Lecturer, BLS Insitute of Management, Ghaziabad. Nancy Dhussa is Lecturer, BLS Insitute of Management, Ghaziabad.

Those days have passed when an employee thought that a company is a one-stop shop and that he would get a kick out of retiring from the organization that gave you your first job. Theres a paradigm shift at the workplace the employees who stick at the workplace the employees, the employees who stick around company for years end up being unwanted in the job market and the route to success is to change as many jobs as possible in the initial six or seven years of there career. These days job hopping makes employees marketable.

42

The organization can retain employees by various retention programs and strategies. For example. If an employee in the Marketing department is dissatisfied with the current job then the employees will look for better opportunities in any other organization. However, the Human Resource person in an organization can retain employee by applying various strategies (Refer Figure One). Managing Attrition Rate To reduce attrition rate organizations should take steps at the grass root level. At the stage of selection of employees certain steps should be taken to select only those employees which will stay in the organization. The organizations should not choose employees who are frequent job hoppers or whose family resides far from the place where the employee is working. The organizations should introduce some stress tests for high stress related jobs so as to choose those employees at the first place who can work in stressful environment. Once an employee is selected he should be given proper training to handle difficult and stressful situations at work. The employees should be given adequate exposure of the job to be handled through role plays in basket exercises etc. However, sometimes smart employer can conjecture that his employee is looking for a job change. The employers who would know in advance their employee is leaving would be well prepared in advance. When an employee receives calls too often, requests for many half days or leaves or the employees attitude changes towards everyone in the organization. Also, the employee starts coming late to office and going early. (Refer Table One) An organization should take adequate steps or measures so that valuable employees dont abandon the organization. Also, the organization should keep exit interviews as mandatory for each employee leaving the organization. The organizations should form a suggestion committee in which the suggestions should be welcomed from the employees, regarding improvement in the firm. The organizations must build emotional bonding with employees and top management involvement in all decisions

should be there like Family days are practiced in Tata Consultancy Services, when an employee is provided with proper working environment. Proper rewards and recognition should also be provided to employees. To minimize the losses due to attrition the organizations can also take the measures like Float Management. Float Management Float management is maintaining extra resources at any level in the organization to mitigate the impact of attrition.. This concept can be applied to any industry, but is generally more valid where the attrition rates are very high. The term Float Management is predominantly used in Cash Management. There can be different floats for different organizations depending on the attrition rate. However, the number of floats will depend on the amount of benefits overridden by the costs. Why do we Need Floats? To save the valuable time of the organization, which the organization will spend in searching for new hires. To save the organization from the financial losses. For the smooth working of the organization The organization will be prepared for the rising attrition rate by hiring skilled and efficient and knowledgeable persons in advance. An organization can achieve returns to scale in less time.

Float Model: Let number of officers in a unit =x Let attrition rate=q% per annum Let T months be the average time of search for replacement Define void cost, v, to be cost to the company if an officer post is unoccupied for a month

43

Total void cost to the company in a year= (q/100)*x*T*v Let Differential cost of replacement for one officer (including recruitment, training and ramp up of new officers) =R Annual cost of replacement = (q/100)*x*R Therefore, annual cost to the company due to attrition =Annual void cost + replacement cost = (q/100)*x*T*v+ (q/100)*x*R Suppose now, that f% float is built into this system, i.e, x*(1+f/100) officers are hired instead of x Annual cost of retaining extra hires(s is salary per month) = (f/100) x*s*12 Void cost becomes zero Cost of replacement is reduced drastically The float system will be feasible if Annual cost due to attrition with float system < Annual cost due to attrition without float system, OR (f/100)*x*s*12< (q/100)*x*T*v+ (q/100)*x*R Or f<q*(T*v+R)/12* Utility of this model: To decide whether maintaining floats will be feasible(only if f is +ve) Float must be build only if f is considerably large (say >10%) How much float? will be decided by f

Conclusion Employees are the assets of an organization. They are the pillars of an organization, just like a building cannot stand without pillars; an organization cannot stand without employees. Therefore, employees should be highly satisfied and content with their jobs. Attrition rate is a burning issue for organizations these days. Most of the time is spent in grappling with the aftermaths of situations caused due to high attrition rate in the organizations. So the organization should take effective and timely measures in managing attrition rate. The organizations should take special measures to recruit employees which would stay in the organization for a long time. The organization should take special measures to recruit employees which will stay in the organization for a long time. In the recruitment process the organization can introduce stress tests and the employees should be given proper training to handle situations that will arise on the job. If the attrition rate of an organization is very high then the organization suffers from immeasurable losses, so the organizations should adapt themselves with the paradigm shift in the employee and develop measures to avoid the catastrophic losses as it is the sacrosanct truth that there is survival of the fittest. So the organization must anticipate the attrition in the organization and meticulously maintain floats accordingly. Reference
Dhussa, Nancy & Sharma, Richa (2006): Float Management: Managing the vivid colours of Human Resources. Productivity Promotion Volume 9, No.35 ,page 52 ,Jan-April 2006 Philips, J.J. Handbook of Training Evaluation and Measurement Methods, 3rd Edition, Philips, J.J., How Much is the Training Worth? Training and Development, Vol.50, 1996. Spencer, L.M. and Spencer S.M.,Competence at Work, NY: John Wiley and Sons. 2005, April 27, Wednesday. Find what workers want. The Times of India (Times Ascent). Page.1. www.bpoindia.org/research/attrition-rate-bigchallenge.shtml

We should be ready enough for the challenge to combat the crisis. The concept of Float management will provide enough knowledge to the organizations so that they can deal with the problems and challenges of attrition. In order to survive in this competitive business world full of challenges we also have to be prepared with new emerging concepts like Float management.

44

What Employees Want Table One: What Employees Want

Rank 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 According to the employees Benefits Compensation/pay Feeling safe in the work environment Flexibility to balance work/life issues Job security management Communication between employees and top management Relationship with immediate supervisor Management recognition of employee job performance Opportunities to use skills, abilities, knowledge. work itself Overall corporate culture Autonomy and interdependence Career development opportunities Meaningfulness of job Variety of work Career advancement opportunities Contribution of work to organisations business goals Organizations commitment to professional development Training which is Job-specific Relationship with co-workers Networking According to the Professionals Relationship with supervisor recognition of employee Benefits job performance Compensation/pay Communication between employees and superior. Opportunities to use skills, abilities, knowledge. Flexibility to balance life issues/work. Career development opportunities Security of job will be more. Organizations commitment to Professional development Job-specific Training Advancement opportunities in career. Feeling of safety in the work environment work itself Relationship with co-workers Corporate culture in overall context. Autonomy and independence Contribution of work to organisations business goals and objectives. Meaningfulness of the job Various types of work in the organization. Networking

45

Figure One: Attrition Model

What employees want from an organization?

Functional Departments

Emp.1

Emp.2

Emp.3

Satisfied

Satisfied

Dissatisfied

Retention Program

Leaves

Exit interview

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Risk Management; With Emphasis On Financial Risk Mangement

Rahul Sharma

The term risk usually refers to The probability

of loss of a valuable resource because of uncertainty. We gamble on possibility of earning in order to gain possible positive outcome. Risk can also be considered The chance that an outcome other than expected outcome will occur. There are two crucial elements while defining risk: Indeterminacy: - We not know with certainty that which outcome will result. Adversity: - One or More Outcomes out of all expected outcomes are undesirable.

Asspotasand forward marketconcerned both far Indian scenario is (for almost all
the commodities) exists but at least this is sure that pricing theories prevailing in America not apply in respect both these markets. Since the underlying theory of Interest rate parity and purchase power parity is in effective here. A detail discussion is being given in the paper on Interest Rate Parity; A Critical Analysis.

To understand concept of risk with reference to commercial practices we can take an example where two businesses a re running in two entirely different surroundings (Refer Table One). In commercial practices concept of risk is very crucial and plays a very important role while decision making of managers. To conclude risk is real world concept and not subjective, risk can exist whether perceived or not [whether accounted for or not] and finally at times risk can be imagined where possibility of loss is not there. While Decision-making finance manager try to take into account these possibilities After taking into account they try to quantify monetary impact of these uncertainties and finally they try to incorporate this effect in decision-making. Some time it is quiet difficult to perceive these uncertainties and some time people encounter this risk at a very later stage of decision-making. This is due to innumerable sources of risks prevailing in todays environment. Some time even a small hint of this uncertainty can change our strategy all together. For example GOI decided to discontinue issuance of TDS certificate in paper form w.e.f. 1.04.2006 at very last moment government could feel risk of failure of this scheme and postponed its implementation to 1.04.2008. Type of risk: -

Rahul Sharma is Chartered Accountant, practicing in Jaipur.

1.

Business Risk: - This risk is risk of doing business in a particular industry Steel, Pharma, IT etc. or in a particular

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economic system India, China, Africa, Iraq, Middle East etc. Few Sources of Business Risk: Project Specific Risk:- An individual project may have higher or lower cash flows than expected, either because of wrong estimation or because of factors specific to that project. Competition Risk: - Project analysis might have considered the reaction of the competitors, the actual action taken by the competitors may be different from those expected. Industry Specific Risk: - The risk that earnings and cash flow of a specific industry will get affected. This risk exist due to following factors: Legal Risk: - Effect of changing laws and regulation. Technological Risk: - Effect of change in technology. Commodity Risk: - Reflect the effect of price changes in goods and services that are used or produced. International Risk: Firm face international risk when it take on projects outside its domestic markets. In such cases, the earning and cash flows might be different from expected owing to exchange rate movement or political changes. Some of this risk may be diversified taking on projects in countries whose currencies may not move in same direction. Market Risk: Those factors which affect all companies and all projects, of course in varying degrees. For example:- Tax structure (Excise and Customs), economic conditions and economy governing rules and regulations.

2.

Financial Risk: - Arise when companies resort to financial leverage or use debt financing. The more the company resort to debt financing greater the financing risks. Here it is to be emphasized that an objective of maximizing E.P usually is .S. not the same as maximizing market price per share. Liquidity Risk: - Arise when an asset cannot be liquidated easily in secondary market. Interest Rate Risk: - Variability in return resulting from changes in the level of interest rates. Market Rate: - Fluctuation in securities (Shares, Bonds etc.) due to fluctuations in security market. Inflation Risk: - Inflation causes reduction in purchasing power. Hence risk posed by inflation is purchasing power risk.

3.

4.

5.

6.

Diversifiable Vs. Non Diversifiable Risk When we think about managing risk. First thing that come into our mind is managing risk through diversification. The facts that returns (Outcomes) do not move in perfect tandem means that risk can be educed through diversification. But the fact that there is some positive correlation between all businesses (Economy as a whole) means that, in practice risk can never be reduced to Zero. Factors that give rise to non diversifiable risk are changes in tax rate, war and other calamities, changes in Inflation rate, change in economic policy, industrial recession, changes in International oil prices etc. Risk that reduces due to diversification is the risk specific to the company or industry and hence can be eliminated is called diversifiable risk. Diversifiable risk is also called unsystematic risk or specific risk. Factors of unsystematic risk includes strikes in the company, bankruptancy of a major supplier, Exit/death of a major supplier, Un expected entry of new competitor in to the market.

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Factors that give rise to Non Diversifiable Risk: Change in tax rate War and other calamities Changes in Inflation rate Change in Economic Policy Industrial Recession Changes in International Oil Prices etc.

I. By Government We have seen that government regulate each and every system in our economy which affects public interest as a whole. 1. Forward contract market is one such area which is related with business community and to control this market government has set FORWARD MARKET COMMISSION. Banking business affects our ECONOMY as a whole and government keep strict control over it as RBI. Normally Financial risk associated with fluctuating debt is being taken care off (To The Maximum Extent Possible) by RBI through credit Policy. Government always considers reasonability as to requirement of fund (as to volume and cost) of the business and tries to promote entrepreneurs through various financial institutions, KVIC, banks etc.. When ever an Unreasonable variation in earning arise government adjust or accommodate terms and condition of its lending so that survival of business could be assured. Similerly at the time of cash insolvency government approve (Normally) rescheduling of debt structure to support business in critical situation.

2.

Total risk that reduces due to diversification is the risk specific to the company or industry and hence can be eliminated is called DIVERSIFIALBLE RISK. Diversifiable risk is also called Unsystematic Risk or Specific Risk. Factors of Unsystematic Risk: Strikes in the company Bankruptancy of a major supplier Exit/ death of a company officer Unexpected entry of a new competitor into the market

3.

4.

5.

Total Risk = Diversifiable Risk + Non Diversifiable Risk Expected return of business is combination of risk free rate plus a premium for risk which could have been eliminated by opting another option Normally this risk free rate of return means return on Government Securities. (Refer Figure One) Financial Risk Management Financial Risk (Refer Figure Three) Risk of variation is more likely in companies where companies operate with financial leverage. Now area of concern is how this risk can be managed. (Refer Figure Two) 2. 6.

II. Through Diversification 1. Long-term debt (including equity having fixed rate of return) which are source of financial risk can be procured through various means like bonds, debentures, T.L. and Loans from FIIs etc. under schemes. These debts are of various types having different nature. These debts can be in the form of Euro Bonds, Zero Coupon

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Bond, Deep discount bond, Convertible debentures etc. Example:Convertible debentures do have more flexibility and negotiation power among these fund providers. This is more probable that they may have negotiations with management. 3. Financial risk is different (for different source of funding) due to possibility of renewal of terms and conditions associated with loans and possibility of re scheduling of loan. We can manage financial risk through opting various debts in our debts in our debt structure. Even different schemes of lending of one institution have different flexibility. Some time industry specific schemes can be found. TUF Scheme is one such. We have different scheme Financial Instruments raising of funds as debts ranging from debentures, loan from financial institution and lease etc. (Refer Figure Four) 1. 2. Risk of Control is inversely proportionate to Financial Risk. Some instruments of debt finance and sources of debt needs special consideration here while deciding debt component of capital structure.

one of their nominee as their representative for inspection of business affairs. When such arrangement is there no such debt provider can insist strict or scheduled repayment of debts without considering financial strength of institution. Nominee Director: Nominee director may be appointed by the institution to safeguard the interests of the organization and to act as a link between the company and the institution. Convertibility Clause: Institution may stipulate a conversion option for their term loans. This clause is now not applicable for new projects in view of the New Industrial Policy of 1991. Other Instruments: There are some debt instruments designed specially to combat risk of variation in earning of organization and some financial instruments have been specially designed to combat risk of cash insolvency. Inflation Bonds : These are the bonds in which interest rate is adjusted for inflation. Thus the investor gets a variation free return as far as inflation is concerned. And at the same time organization gets funds in the form of debt in which return varies according to the earnings of the organization. Zero Coupon Bond: A zero coupon bond does not carry any interest but it is sold by the issuing company at a discount. The difference between discounted value and face value represents the interest earned. Through this instrument we remain in a position to managed our cash insolvency risk for a specified period, since no interest is required to be paid. Participating Debentures: This is one mode of venture capital financing. Participating debentures carries charges in three

4.

5.

6.

Lease Financing: To manage risk of cash insolvency arising from repayment of debt, financial lease can be opted as means of Finance. Term Loan with Special Terms: Financial risk management can be achieved through parting control with debt providers. Some of these terms can be in the form of:Managerial Personnel: Some time managerial personnel get appointed through debt providers or they appoint

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phases. In the start up no interest is charged. In next stage low interest is charged up to a particular level of operations. After that high rate of interest is required to be paid. Income Note:The entrepreneur has to pay both interest and royalty on sale. By this mean our variation in earning is restricted to the extent of fixed interest. Since royalty on sales vary with revenue earned there remains no financial in this respect. Participating Preference Share: Since preference shares also vary earning of equity holders, this instrument emerged where earning of preference holders get affected on variation of earning of organization. Here preference and equity shareholders both are sharing risk of variation. Convertible Preference Shares and Debentures: After specified period these shares and debentures get converted in equity. Thus there remains no risk of cash insolvency. When we raise debt we consider that even with in debts, we can have instruments and loans, which contains different amount of risk of control and risk of variation in earning and risk of cash insolvency. We shall part with our controlling interest with debt providers when ever we find that financial risk of organization is not with in control.

We shall opt. for debt as source of long term finance with out parting controlling interest with them, when we find that full control is with owners and no variation in earning is probable and there is no immediate risk of cash insolvency.

III. Through Derivative Market: Risk of variation in earning due to existence of debt component in capital structure is financial risk. When it is a matter of foreign debt or a domestic debt with fluctuating or fixed earning, then certainly this is one factor of FINANCIAL RISK. This is due to the fact that the immediate cause of this variation is capital structure and not revenue transactions. As we treat differently, different foreign exchange fluctuations considering they are on capital account or revenue account. When we have raised funds from International capital / Debt markets then we are required to repay them in foreign currency. Similarly return in the form of interest is also required to be paid in foreign currency. Risk of variation in earning of equity holders is being further increased by variation in exchange rate. This part of risk of variation in earning can be managed by organization through opting different derivatives. To form a market, any movement should result in gain of one person and loss of another person. It be market of derivative or spot hardly matters. Further how the product will be valued in spot or in future market is another debatable issue.

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Table One : Concept of Risk with reference to Commercial Practices

Feature Profits Defaults Location

Business 'X' Regular and Steady No Default in Dues Situated at peaceful Place

Business 'Y' Irregular and Fluctuating Defaulter Situated where riots or violence occur

Fixed Assets Economy Inflation Industry

High Investment in Fixed Assets Economy having Growth High Moderate Growth and Volatile

Low Investment in Fixed Assets No Growth Low High Growth and less Volatile

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Figure One: Financial Risk Management

Risk of cash Insolvency Risk of Variation in Return

Risk of Winding Up

Risk of Obstruction

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Figure Two: Management of Financial Risk

Through Derivative Market

Governement Managing Risk Direct control over Rate of interest Formation of lending institution Formation of monitoring committee Through revival of sick units

By Company Through Diversification In Debt Structure

Through Insurance Companies or Busienss Agreements (Policy for loss of Profit, Calculated as deviation from Standard Profit

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Figure Three: Balance of Risk

Financial Risk BALANCE OF RISK

Risk of Loss of Control

Figure Four: Term Loan with Special Terms

Term Loan From Pvt. Banks Financial Lease Arrangements Loan Agreement Having Provision for Directors Convertible Debentures

<<----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------!> Risk of Cash Risk of loss of Insolvency Control + Variation in Earning

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Cultural Implica Cultural And Social Implic ation In Business Negotiations With Saudi Business Negotiations With Saudi Arabians Exporter Perspective An Exporter Perspective
Prof. Puneet Sandha Dr. Ram Singh

A kingdom founded upon and unified by Islam,

Saudi Arabia has fascinated travelers for centuries. From its vast deserts and barren plains emerged the monotheistic religion of Islam, the Arab race, and the country s distinctive Arab culture. Occupying approximately 80% of the Arabian Peninsula, today this south-west Asian monarchy, rich in Arab and Muslim heritage and characterized by a high degree of cultural homogeneity is home to a plethora of successful, oil-rich cities. A sound knowledge of the Kingdom of Saudi Arabia, and in particular, of the cultural background, is essential to an understanding of the principals which have guided the Kingdoms business development. Geert Hofstede Analysis: Saudi Arabia The Geert Hofstede analysis for Saudi Arabia is almost identical to other Arab countries their Muslim faith plays a large role in the peoples lives. Large power distance and uncertainty avoidance are the predominant characteristics for this region. This indicates that it is expected and accepted that leaders separate themselves from the group and issue complete and specific directives. The Geert Hofstede analysis for the Arab World, that includes the countries of Egypt, Iraq, Kuwait, Lebanon, Libya, Saudi Arabia, and the United Arab Emirates, demonstrates the Muslim faith plays a significant role in the peoples lives. Large Power Distance (PDI) (80) and Uncertainty Avoidance (UAI) (68) are predominant Hofstede Dimension characteristics for the countries in this region. These societies are more likely to follow a caste system that does not allow significant upward mobility of its citizens. They are also highly ruleoriented with laws, rules, regulations, and controls in order to reduce the amount of uncertainty, while inequalities of power and wealth have been allowed to grow within the society. When these two Dimensions are combined, it creates a situation where leaders have virtually ultimate power and authority, and the rules, laws and regulations developed by those in power

It is essential for Indian Exporters and

International Marketers who are doing business in the Kingdom to understand Saudi etiquette and the personal manner in which they conduct their business. Preparation, and some basic knowledge of Saudi business culture, can make the difference between a successful business deal and a failed negotiation. It is important to note, however, that a majority of Saudi business executives and government officials have studied and/or worked abroad, many of them in the United States or Europe. They are therefore familiar with Western as well as Asian culture and are comfortable with its differing approach to business, provided respect is shown for Saudi customs. The paper discuses the various sensitive cultural and social aspects of Saudi Arabians business people to be taken care of while negotiating or doing business with Saudi Arabians people.

Prof. Puneet Sandha is Lecturer, Business Communication and Organization Behavior, IMS Engineering College, Ghaziabad. Dr. Ram Singh is Programme Director MBA (P/T), IIFT, Kolkata.

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reinforce their own leadership and control. It is not unusual for new leadership to arise from armed insurrection the ultimate power, rather than from diplomatic or democratic change. The high Power Distance (PDI) ranking is indicative of a high level of inequality of power and wealth within the society. These populations have an expectation and acceptance that leaders will separate themselves from the group and this condition is not necessarily subverted upon the population, but rather accepted by the society as their cultural heritage. The high Uncertainty Avoidance Index (UAI) ranking of 68, indicates the societys low level of tolerance for uncertainty. In an effort to minimize or reduce this level of uncertainty, strict rules, laws, policies, and regulations are adopted and implemented. The ultimate goal of these populations is to control everything in order to eliminate or avoid the unexpected. As a result of this high Uncertainty Avoidance characteristic, the society does not readily accept change and is very risk adverse. The Masculinity index (MAS), the third highest Hofstede Dimension is 52, only slightly higher than the 50.2 average for all the countries included in the Hofstede MAS Dimension. This would indicate that while women in the Arab World are limited in their rights, it may be due more to Muslim religion rather than a cultural paradigm. The lowest Hofstede Dimension for the Arab World is the Individualism (IDV) ranking at 38, compared to a world average ranking of 64. This translates into a Collectivist society as compared to Individualist culture and is manifested in a close long-term commitment to the member group, that being a family, extended family, or extended relationships. Loyalty in a collectivist culture is paramount, and over-rides most other societal rules. 3. Social Aspects Of Saudi- Arabian Business People Social aspects of Saudi Arabians Business people are as follows.

Appearance A. B. Never show bare shoulders, stomach, calves and thighs. Visitors are expected to abide by local standards of modesty however, do not adopt native clothing. Traditional clothes on foreigners may be offensive. Despite the heat, most of the body must always remain covered. A jacket and tie are usually required for men at business meetings. Men should wear long pants and a shirt, preferably long-sleeved, buttoned up to the collar. Men should also avoid wearing visible jewelry, particularly around the neck. Women should always wear modest clothing in public. High necklines sleeves at least to the elbows are expected. Hemlines, if not ankle-length should at least be well below the knee. A look of baggy concealment should be the goal, pants or pant suits are not recommended. It is a good idea to keep a scarf handy, especially if entering a Mosque.

C. D.

E.

Behavior A. It is common to remove your shoes before entering a building. Follow the lead of your host. Alcohol and pork are illegal. In the Muslim world, Friday is the day of rest. There are several styles of greetings used; it is best to wait for your counterpart to initiate the greeting. Men shake hands with other men. Some men will shake hands with a woman; it is advisable for a businesswoman to wait for a man to offer his hand. A more traditional greeting between men involves grasping each others right hand, placing the left hand on the others right shoulder and exchanging kisses on each cheek.

B. C. D.

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E.

The left hand is considered unclean and reserved for hygiene avoid gestures with the right hand. Do not point at another person and do not eat with the left hand. Mens walking hand in hand is a sign a friendship. Try not to cross your legs when sitting. Never show the bottom of your feet. The thumbs up gesture is offensive. Gifts are not necessary, but appreciated. Avoid admiring an item too much, you host may feel obligated to give it to you. When offered a gift, it is impolite to refuse. Women in Saudi Arabia are not permitted to drive vehicles.

4. Saudi Arabian Culture Key Concepts And Values: a. Face: In a culture where confrontation and conflict are to be avoided, the concept of face is a fundamental issue of daily life. Dignity and respect are key elements in Saudi Arabian culture and saving face, through the use of compromise, patience and self-control is a means by which to maintain these qualities. Arabian culture utilizes the concept of face to solve conflicts and avoid embarrassing or discomforting others. In a business context, preventing loss of face is equally important and essential for your future business success in Saudi Arabia. For instance, your Saudi Arabian counterparts will not take well to pressure tactics that place them in an uncomfortable position, thus forcing them to lose face. b. Islam: In order to comprehend fully the culture of Saudi Arabia one needs to understand the extensive influence of religion on society. The overwhelming majority of the populations of Saudi Arabia are Arabs who adhere to the Wahhabi sect of Islam. Islam, which governs every aspect of a Muslims life, also permeates every aspect of the Saudi state. As a result, Arabian culture is often described as detail orientated, whereby emphasis is placed on ethics and expected social behavior such as generosity, respect and solidarity. These are customs and social duties that also infiltrate the Saudi Arabian business world and affect the way Arabs handle business dealings (Refer Table One). c. High Context Communication: Saudi Arabia is considered a very high context culture. This means that the message people are trying to convey often relies heavily on other communicative cues such as body language and eye-contact rather than direct words. In this respect, people make assumptions about what is not said. In Saudi Arabian culture particular emphasis is placed on tone of voice, the use of silence, facial cues, and body language. It is vital to be aware of these non-verbal aspects of communication in any business setting in order to avoid misunderstandings. For instance, silence is often used for contemplation and you should not feel obliged to speak during these periods.

F. G. H. I.

J.

Communications A. Do not discuss the subject of women, not even to inquire about the health of a wife or daughter. The topic of Israel should also be avoided. Sports is an appropriate topic. Names are often confusing. Its best to get the names (in English) of those you will meet, speak to, or correspond with before hand. Find out both their full names and how they are to be addressed in person. Communications occur at a slow pace. Do not feel obligated to speak during periods of silence. Yes usually means possibly. Your Saudi host may interrupt your greeting or conversation, leave the room and be gone for 15 to 20 minutes for the purpose of his daily prayers. At a meeting, the person who asks the most questions is likely to be the least important. The decision maker is likely a silent observer. A customary greeting is salaam alaykum. Shaking hands and saying kaif hal ak comes next.

B.

C.

D.

E.

F.

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The historical journey which led to the foundation of the Kingdom of Saudi Arabia was notably one of triumph and misfortune. Prior to the emergence of Islam, the Peninsula was divided between various nomadic Arab tribes and subject to invasion from a number of outside cultures. The creation of modern Saudi Arabia dates from 1932 when the late King Abdul Aziz AL-Saud unified the surrounding regions as the Kingdom of Saudi Arabia. To this day the monarchy remains the central institution of the Saudi Arabian Government, governed on the basis of Islamic law (Sharia). The discovery of oil on March 3rd, 1953 transformed the Kingdom of Saudi Arabia from a purely trade-based economy to the largest exporter of petroleum in the world. This economical revolution paved the way for a greater industrial base and opened up the country to the business world. For those wishing to do business with Saudi Arabia an understanding of Saudi etiquette and the personal manner in which business is conducted is essential to success. 5. Business Practices In Saudi Arabia A. Generally speaking , business appointments in Saudi Arabia are necessary. However, some Saudi business executives and officials may be reluctant to schedule an appointment until after their visitors have arrived. Appointments should be scheduled in accordance with the five daily prayer times and the religious holidays of Ramadan and Hajj. It is customary to make appointments for times of day rather than precise hour s as the relaxed and hospitable nature of Saudi business culture may cause delays in schedule. The Saudi working week begins on Saturday and ends on Wednesday. Thursday and Friday are the official days of rest. Office hours tend to be 09001300 and 1630-2000 (Ramadan 20000100), with some regional variation. The concept of time in Saudi Arabia is considerably different to that of many Western cultures. Time is not an issue;

therefore Saudi Arabians are generally unpunctual compared to Western standards. Despite this, it is unusual for meetings to encroach on daily prayers and you will be expected to arrive at appointments on time. D. The customary greeting is As-salam alaikum, (peace be upon you) to which the reply is Wa alaikum as-salam, (and upon you be peace). When entering a meeting, general introductions will begin with a handshake. You should greet each of your Saudi counterparts individually, making your way around the room in an anti-clockwise direction. However, it is generally uncommon for a Muslim man to shake hands with a woman therefore; it is advisable for business women to wait for a man to offer his hand first. Business cards are common but not essential to Saudi Arabian business culture. If you do intend to use business cards whilst in Saudi Arabia ensure that you have the information printed in both English and Arabic. Initial business meetings are often a way to become acquainted with your prospective counterparts. They are generally long in duration and discussions are conducted at a leisurely pace over tea and coffee. Time should be allocated for such business meetings, as they are an essential part of Saudi Arabian business culture.

E.

F.

B.

G. Gift giving in Saudi Arabia is appreciated but not necessary. Gifts are generally only exchanged between close friends and are seen as rather personal in nature. It is also advised to refrain from overly admiring an item belonging to another, as they may feel obliged to give it to you. In the event that you are offered a gift, it is considered impolite and offensive if you do not accept it. 6. Structure And Hierarchy In Saudi Arabian Companies: A. There exists a distinct dichotomy between subordinates and managers within Saudi

C.

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Arabian companies. Those with most authority are expected and accepted to issue complete and specific directives to others. B. Age plays a significant part in the culture of Saudi Arabia. For this reason, greater respect must be shown to elders at all times. When first entering a room for example, or greeting your Saudi counterparts for the first time, you should shake hands with the most senior person first.

B.

DO abide by local standards of modesty and dress appropriately. As a sign of respect, it is essential to wear the proper attire during business meetings in Saudi Arabia. For men, conservative business suits are recommended. Women are required to wear high necklines, sleeves at least to the elbow, and preferably long skirts below the knee. DO maintain strong eye-contact with your Saudi counterparts and expect a closer distance during conversation in both business and social settings. Both forms of communication are ways in which to strengthen trust and show respect in Saudi Arabia. DONT appear loud or overly animated in public. This type of behavior is considered rude and vulgar. It is important to maintain and element of humility and display conservative behavior at all times. DONT rush your Arabian counterparts during business negotiations. Communications occur at a slower pace in Saudi Arabia and patience is often necessary. DONT assume during business meetings that the person who asks the most questions holds the most responsibility. In Saudi Arabia this person is considered to be the least respected or least important. The decision maker is more often than not a silent observer. For this reason, if you are in a business meeting, it is advised not to ask all the questions. It is not uncommon for men to walk hand in hand in public. It is purely a sign of friendship. Before commencing a business meeting in Saudi Arabia it is customary to engage in some initial small talk. This helps create a more relaxed and familiar environment to conduct business in. Saudi Arabians place great emphasis on written agreements and in accordance with the business culture in Saudi Arabia a final agreement is nonnegotiable.

C.

7. Working Relationships In Saudi Arabia: A. Saudi Arabian business people prefer face-to-face meetings, as doing business in the Kingdom is still mostly done against an intensely personal background. Establishing trust is an essential part of Saudi business culture; therefore cultivating solid business relationships before entering into business dealings is key to your success. Respect and friendship are values that are held very highly by the Arab people . In a business setting, favours based on mutual benefit and trust are ways of enhancing these cultural values. Due to the personal nature of business in Saudi Arabia, family influence and personal connections often take precedence over other governing factors.

D.

E.

B.

F.

C.

8. Saudi Arabian Business Etiquette (Dos And Donts): A. DO address your Saudi Arabian counterparts with the appropriate titles Doctor, Shaikh (chief), Mohandas (engineer), and Ustadh (professor), followed by his or her first name. If unsure, it is best to get the names and correct form of address of those you will be doing business with before hand. The word bin or ibn (son of) and bint (daughter of) may be present a number of times in a persons name, as Saudi names are indicators of genealogy.

G.

H.

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I.

According to Islam, the left hand is considered unclean and reserved for personal hygiene. Arabs traditionally use the right hand for all public functions including shaking hands, eating, drinking and passing objects to another person. The Western OK sign is also a positive expression used in Saudi Arabia.

circumstances and help the business people to effectively and systematically engage in Saudi Arab for foreign trade purposes. References
Nancy J. Adler, International Dimensions of Organization Behavior, 2nd ed. Boston PWSKent,1991 Frederic Kaplan, Julian Sobin Arne de Keijzer, The China Guidebook, Boston: Hougton Mifflin 1987 Adam Pertman, Wondering no More,The Boston Globe Magazine June 30 1991, pp 10 ff Thodore Fischer, Pinnacle: International Issue , March April 1991 p.4 Mary Murray Bosrock., Put Your Best Foot Forward Dresden 1991, p.23

J.

Conclusion On the basis of above discussion we can say as India is largely integrating itself with the Middle East countries it is necessary for Indian business executives to make themselves culturally sensitive for engaging in business with Saudi Arabians. Saudi Arab is rising giant and making sense with these basic social cultural and moral values of Saudi Arab can help in avoiding the unforeseen

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Facts Figures Saudi Table One : Facts & Figures of Saudi Arabia

Fact file Saudi Arabia Official name Kingdom of Saudi Arabia Population 25,795,938 note: includes 5,576,076 non-nationals* (July 2004 est.) Official Language Arabic Currency Saudi riyal (SAR) Capital city Riyadh GDP purchasing power parity $287.8 billion* (2004 est.) GDP Per Capita - purchasing power parity $11,800* (2004 est.)

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