Part 4 - abrmr.com Proceedin… · integral part of human daily ... hotels in Ghana is getting a...

Part 4

Online ISSN 2047-2862

ITARC – London 2011 7th – 8th November 2011

2nd International Trade Academic Research Conference

Co – hosted by the

Academy of Business & Retail Management

Journal of Business & Retail Management

London College of Management Studies

Some of the dynamics of

International Trade

Procurement

Corruption Insurance

Law Origins

Tariffs & Customs

Carbon footprint

Outsourcing

Exchange rates Globalization

Piracy Smuggling

Exports Imports

International Conference on the Restructuring of the Global Economy (ROGE) 1st & 2nd February, 2011

Pune, India.

Corporate Governance and Business Conference (CGBC) 14th & 15th July, 2011

Boston, USA.

The Business & Management Review, Vol. 1 Number 2, November 2011 165

The use of Information and Communication Technologies (ICT) in Front Office Operations of Chain Hotels

Albert Ansah & Millicent Kontoh

University of Mines and Technology (UMaT), Tarkwa, Ghana

Victoria Blankson Zenith University College, Accra, Ghana

Keywords Front Office Operation, ICT, Chain Hotels, Electronic Point of Sale, Reservation Abstract The proliferation of Information and Communication Technologies (ICT) coupled with sophisticated network protocols has unveiled new avenues for enterprises and organizations and the hospitality industries cannot be left out. Technology-based systems stand in a pivotal position to offer better service to the populace. Hospitality industries such as hotels can take advantage of the pervasiveness of ICT vis-à-vis technology-based systems to advance some of their operations. This paper seeks to assess the use of Information and Communication Technologies (ICT) in a front office operation of chain hotels in Ghana. The paper determines the extent of the use of information technology in a front office operation of chain hotels and continues to assess the effect of the use of information technology in the front office operation of chain hotels in Ghana, thus if the use of ICT has any effect on chain hotels’ front office operations. The paper further makes recommendations to chain hotel operators and the Ghana Tourist Authority (GTA) and policy makers on the use of information and communications technology in front office operation in chain hotels. Three chain hotels in Ghana were assessed. Introduction

Information technology is everywhere in this day and age and adding to communication technology, the possibility of how it can be used is endless. Information and Communications Technology (ICT) involves the use of computer hardware, software and telecommunication devices to store, manipulate, convert, protect, send and receive data (Olifer and Olifer, 2006). Computer and technological devices have made it easier for professionals to collect, store, manipulate and share data and information both individually and within organizations, small and large, public and private. ICT has become an integral part of human daily activities that sometimes we barely notice its effect, and has had a major impact on the way we live, work and play. The way hotel companies sell to consumers is changing dramatically over the past few years. The use of networking in front office helps very much in sharing information across. The growth in the use of networked computers is one of the most significant trends in modern computing, though interconnection of computers in itself is not new, application of networking is seeing a dramatic increase such that it is now one of the major issues in computer and information technology (Ritchie, 2003).

Computers are presently widely used in sectors such as banking, educations, health, commerce, agriculture, transport, communication etc. Computers used in business operations could be used for typing documents, keeping and retrieving information, data analyses, sending and receiving information over short and long distances and many more. Computers are becoming popular in businesses because work done by it could be very fast, thus resulting in increasing productivity, accurate in performing repetitive task, store information safely in relatively small space (Olifer and Olifer, 2006).

Despite the increasing popularity of computers, it is still limited to those with the skill to use them. In hotels, computers are used in Accounting for guest, data management, forecasting guest demand for reservations, management of guest services, revenue and reservation management and yield management. These functions could be performed with the aid of management software (Abbott and Lewry, 1999).

The Business & Management Review, Vol. 1 Number 2, November 2011166

The development and delivery of everything today are exposed to information and communication

technologies directly or indirectly. Hotels being a subset of the hospitality industry traditionally practice manual system of operation in their front offices as from occupancy of the guest rooms, recording of guest expenditure through to the eventual departure of the guest. Today, these operations are done using the electronic system or telecommunication devices. The use of information technology in a front office operation of the hospitality industry is fast growing, thus making work pretty easy. Computerization is becoming very important for the efficient and effective operations of the front office. Literature Review 1. ICT on Front Office Operations

Technology is used to take advantage of slower moving competition by providing better service, improved decision making and increasing revenue. Hotel operators are now realising that a brand in itself is not enough (Knowles, 1998). The hotel‟s systems could be networked to share resources via either Local Area Network (LAN) or Wide Area Network (WAN). The LAN helps to share information within a hotel, such as from restaurant to front office and the WAN helps to share information from one hotel branch to another within the same chain across different geographical areas. Computers can connect to these networks to use facilities from another hotel or location. Networks are communication system, which link together computers, storage devices, printers, telephony and other electronic devices (Odom, 2007).

Through ICT, Centralised Reservation Systems (CRS) from sister hotels could be linked to exploit data and information resources. The link to a centralised reservation system is considered one of the most important benefits of joining any hotel franchise (Knowles, 1998). Networking the centralised reservation system enhances cost effectiveness, faster communications, and effective exchange of information and efficient management of data. Networking centralised reservation system again removes time and distance barriers (Lucey, 2005).

With a sophisticated central reservation system, a hotel chain provides individual hotels and managers in the chain with a tool to increase reservations, maximize sales, implement yield management, enhance market capabilities and improve quest services. The systems are also linked to airline CRSs to form a Global Reservation System in order to allow travel agents to make direct reservations for their clients. CRS in no doubt faces unprecedented operational and guest services challenges, but may still be essential to survival (Knowles, 1998).

In this light, it is hard to imagine a contemporary business functioning without adaptation of ICT. ICT permeates every aspect of twenty first century businesses. In hotel front office, computers are used to create bills as in invoices, to monitor bookings and reservations, to check-in and check-out of guests, to record guest expenditure and share information within and across the hotel. Using IT, guests could stay at the comfort of their homes and private places, communicate with the front office staff via telephony or the Internet to make and confirm reservations. Credit and debit card payments have become an integral part of front office operation today with appropriate software and hardware. Guests can make payment for their booking online to facilitate their reservation, which saves time and reduces cuing at the front offices. Using Electronic Fund Transfer (EFT) updates both hotel and guests‟ accounts are instantly after reservation. Tools such Computer Managed Learning (CML) and Computer Managed Instruction (CMI) are used as administrative resources to organize guest data, occupancies and vacant rooms (Olifer and Olifer, 2006).

The way hotel companies sell to customers has changed dramatically over the past few years. In hotel front office operations, the Central Reservation Systems (CRS) is used to share information such as available rooms, room rates etc across hotels within a chain. Global Distribution System (GDS) is also used to link directly the reservation system of hotels, airlines and so on, on a worldwide basis; this can be accessed through seamless connectivity via the internet (Baker et al, 2000).

Technological development certainly would have a great impact on the front office activities. Software packages cover virtually every front office function from reservations, room allocation, and

guest history, billing and accounting to the production of management information (Knowles, 1998). It is for this reason that using information and communication technologies in front office operations in chain hotels in Ghana is getting a face-lift with both positive and negative impact. The positive impact may include networking to share information and resources within and across the hotels to enhance check-in of guests and guests‟ transactions, and easy billing of guests account during check out. On the other hand, however, there must be a budget stretch to accommodate the procurement of software, hardware and networking devices procurement and installation, security headaches, training of staff on the use of systems, routine maintenance, redesign of cabling run, on-site systems administrator, disposal of unwanted hardware equipments etc. and could bring negative consequence to the hotel owners and managers.

Not only but also the effect of the IT hardware on the staff health cannot be overemphasised. Working with Video Display Terminal (VDT) and the Keyboard can be productive in rewarding and a lot of fun. Unfortunately, prolong postures, coupled with high level of concentration and occasional frustration of things going less than perfect can lead to physical problems like Carpal Tunnel Syndrome (CTS), and eye problem. Continual clicking and small precise motions involved in mouse use are a repetitive action that could be a health hazard. In addition, improper disposal of unwanted hardware equipment may also be hazardous to the staff therefore extra money may be spent for apt disposal (Olifer and Olifer, 2006).

The growing importance of computers in the daily lives has raised concerns about possible treat to computers and data. Data collected about clients should be protected from misuse and therefore adequate security measures must be employed, thus data integrity and confidentiality must be ensured. These chain hotels may spend huge amount of money in terms of hardware and software security measures such as purchasing firewall and backup software to protect data held about their clients or hire backup operators to take charge of data backup backups. Other negative consequence may be losing of huge amount of money during system downtime, that is, when the systems are off-line, clients cannot make reservations both on-line and telephony. Chain hotels may also have to spend so much money in training personnel to gain expertise on the use of IT (Olifer and Olifer, 2006). These could affect their budget significantly. 2. Chain Hotel Front Office Operations

The front office department is the most noticeable department in the hotel. It is traditionally known as reception and it is the focal point of most activities within a hospitality business, whether it is a large or small hotel, a cruise liner, a holiday centre, a time-share resort or a youth hostel. The front office is the first and last place where a guest has direct contact with the business, and is the most visible of all departments within the hospitality industry. The front office is a term accepted as including back of house responsibilities, such as switchboard, accounts, cashier and night audit, front desk, concierge and guest services (Edexcel Limited, 2010). The department may have the front desk, reservations, telephony and the concierge, which provides guests with services and facilities. The main function of the front office department is to support and smooth the progress of guest transaction and services through all the four stages in the guest cycle; that is, pre-arrival, arrival, occupancy and departure. The front office department does all the guest transactions such as reservations, check-in and registration, mail and information, uniformed service and baggage handling, telephone calls and messages, guest accounts, check-out and bill settlement (Baker et al, 2000).

Until the 1990's, nearly all hotels were operating under the manual system. With the introduction of computers, hotels are shifting to automated systems. Nowadays, most of the five-star hotels operate under the fully automated system. Most five-star hotels operate under the fully automated system. The fully automated systems are computer-based. This is the best system ever used in the hotel industry and it is characterized by the excessive use of departmental software package programs integrated and connected to a main frame or terminal server situated at the front office department.1,2

There are a wide range of point of sale (POS) applications that are compatible with UNIX and Windows. The availability of processing power, data storage, networking, and graphical user interface made it possible to develop flexible and highly functional POS systems. Some of the key requirements that


guest history, billing and accounting to the production of management information (Knowles, 1998). It is for this reason that using information and communication technologies in front office operations in chain hotels in Ghana is getting a face-lift with both positive and negative impact. The positive impact may include networking to share information and resources within and across the hotels to enhance check-in of guests and guests‟ transactions, and easy billing of guests account during check out. On the other hand, however, there must be a budget stretch to accommodate the procurement of software, hardware and networking devices procurement and installation, security headaches, training of staff on the use of systems, routine maintenance, redesign of cabling run, on-site systems administrator, disposal of unwanted hardware equipments etc. and could bring negative consequence to the hotel owners and managers.

Not only but also the effect of the IT hardware on the staff health cannot be overemphasised. Working with Video Display Terminal (VDT) and the Keyboard can be productive in rewarding and a lot of fun. Unfortunately, prolong postures, coupled with high level of concentration and occasional frustration of things going less than perfect can lead to physical problems like Carpal Tunnel Syndrome (CTS), and eye problem. Continual clicking and small precise motions involved in mouse use are a repetitive action that could be a health hazard. In addition, improper disposal of unwanted hardware equipment may also be hazardous to the staff therefore extra money may be spent for apt disposal (Olifer and Olifer, 2006).

The growing importance of computers in the daily lives has raised concerns about possible treat to computers and data. Data collected about clients should be protected from misuse and therefore adequate security measures must be employed, thus data integrity and confidentiality must be ensured. These chain hotels may spend huge amount of money in terms of hardware and software security measures such as purchasing firewall and backup software to protect data held about their clients or hire backup operators to take charge of data backup backups. Other negative consequence may be losing of huge amount of money during system downtime, that is, when the systems are off-line, clients cannot make reservations both on-line and telephony. Chain hotels may also have to spend so much money in training personnel to gain expertise on the use of IT (Olifer and Olifer, 2006). These could affect their budget significantly. 2. Chain Hotel Front Office Operations

The front office department is the most noticeable department in the hotel. It is traditionally known as reception and it is the focal point of most activities within a hospitality business, whether it is a large or small hotel, a cruise liner, a holiday centre, a time-share resort or a youth hostel. The front office is the first and last place where a guest has direct contact with the business, and is the most visible of all departments within the hospitality industry. The front office is a term accepted as including back of house responsibilities, such as switchboard, accounts, cashier and night audit, front desk, concierge and guest services (Edexcel Limited, 2010). The department may have the front desk, reservations, telephony and the concierge, which provides guests with services and facilities. The main function of the front office department is to support and smooth the progress of guest transaction and services through all the four stages in the guest cycle; that is, pre-arrival, arrival, occupancy and departure. The front office department does all the guest transactions such as reservations, check-in and registration, mail and information, uniformed service and baggage handling, telephone calls and messages, guest accounts, check-out and bill settlement (Baker et al, 2000).

Until the 1990's, nearly all hotels were operating under the manual system. With the introduction of computers, hotels are shifting to automated systems. Nowadays, most of the five-star hotels operate under the fully automated system. Most five-star hotels operate under the fully automated system. The fully automated systems are computer-based. This is the best system ever used in the hotel industry and it is characterized by the excessive use of departmental software package programs integrated and connected to a main frame or terminal server situated at the front office department.1,2

There are a wide range of point of sale (POS) applications that are compatible with UNIX and Windows. The availability of processing power, data storage, networking, and graphical user interface made it possible to develop flexible and highly functional POS systems. Some of the key requirements that


need to be met by modern POS may include high and consistent operating speed, reliability, ease of use, remote supportability and rich functionality. Vendors and retailers are working to standardize development of computerized POS systems and simplify interconnecting POS devices. There are web based POS software that can be run on any computer with an Internet connection and supported browser, without additional software. The POS software is hosted on secure servers with real-time backups.1,2

The reservation network system is when guest are referred by another hotel in the same chain or marketing group through affiliate or non-affiliate reservation network systems (Baker et al, 2000). An affiliate reservation system is a reservation system in which all hotels within the same hotel chain participate. Guests can make reservation for accommodation at any hotel within the same group e.g. Holidex which is operated by the Holiday Inn group. A non-affiliate reservation network is a subscription, which is designed to connect independently operated hotels; guest can make reservation at any hotel within the same network e.g. Leading Hotels of the World.

Central Reservation System (CRS) can deal either directly with the customer or with the hotel. When customers contacts the front office with specific details of their proposed reservation, the Central Reservation Officer (CRO) checks room availability and make reservation directly into the system. (Baker et al 2000.) Making reservation now is pretty easier for guest with the help of computers and internet because a guest do not have to be on site before booking for a room.

Computers are widely used in front office today because of it efficiency and effectiveness in clerical, repetitive, data manipulation, number calculating, speed and accuracy. The involvement of IT does not work only in the front office but links all the departments like housekeeping, food and beverage, conference and health or leisure clubs together. The CRS connects hotels in a chain by sharing information such as available rooms, room rates and so on. Using CRS utilizes yield management to allow better and smoother control of room inventory, provide hotels with a wealth of information that could aid forecast demand and increase occupancy and revenue (Knowles, 1998). Central Reservation Officers can know the availability of rooms at a particular time of another hotel within the same chain (Baker et al, 2000).

Customers could check on marketing information, room availability and room rates with the use of the internet. The reservation clerk constantly updates information on the internet to reflect the current activities of the hotels. Through IT, automatic check-in is available to guest at the front office. Credit cards for it to issue a computer-coded room key (Abbott and Lewry, 1999) activate these machines. The machine displays a menu showing the available rooms and their rate for guests to make their reservations and booking.3 Methodology

Data were collected from three chain hotels in Ghana; namely Golden Tulip, Novotel and Holiday Inn. Questionnaire (Appendix I), which included both open-end and close-end questions were developed and sent to the front office staffs in the above mentioned chain hotels. Respondents were expected to thick the appropriate check box. Unstructured interviews were also conducted with front office staffs. Some officials from the Ghana Tourist Authority (GTA) were also integrated into the interview and were also made to participate in the questionnaire. A quantitative approach of data analysis was used to deduce the data collected by means of questionnaire and interviews. Tables and charts were used to collate the data for the analysis.

Test questions such as; “Has the use of information technology made any effects on chain hotels in Ghana?” and “what significant change has information technology brought on the front office operations of chain hotels in Ghana?” were used in the research. The research was limited to only chain hotels in Ghana so as to realize the full impact.

Data analysis and discussion of findings

Demographic data of the respondents are analyzed here. Forty Eight questionnaires were given to Forty Eight staffs in three selected chain hotels and Ghana Tourist Authority, which was collected after a fortnight. Forty questionnaires were responded to out of the forty eight. Out of the 40 respondents, 28 were females representing 70% and 12 were males, which represent 30%. Table 1 and Figure 1 both show the number of questionnaires given to each hotel and the percentage of responded and unresponded questionnaires and Table 2 shows the age distribution of the respondents

Table 1.0: Questionnaire Respondent Table

Hotels & GTA Responded Not-responded Total Questionnaire

Holiday Inn 10 2 12 Golden Tulip 12 0 12 Novotel 10 2 12 GTA 8 4 12 Total 40 8 48 Percentage 83% 17% 100%

Figure 1.0: Questionnaire Respondent Chart

Table 2.0: Age Distribution of Respondents Age (yrs) Number of Respondents Percentage (%)

22 - 25 12 30 26 - 30 18 45 31 - 35 6 15 36 - 40 4 10 Total 40 100

Table 3.0: Interview on Impact of IT on Front Office Operations Hotels & GTA Positive Negative Total Interviews Holiday Inn 4 1 5 Golden Tulip 4 2 6 Novotel 4 0 4 GTA 3 0 3 Total 15 3 18 Percentage 83.3% 1.7% 100%

The respondents were carefully chosen to include people with different levels of education as

depicted in Table 4. View on whether the use of ICT has brought any impact positively or negatively on the staffs and hotel as a whole as far as the front office operations are concerned is as shown on Table 5.


Data analysis and discussion of findings

Demographic data of the respondents are analyzed here. Forty Eight questionnaires were given to Forty Eight staffs in three selected chain hotels and Ghana Tourist Authority, which was collected after a fortnight. Forty questionnaires were responded to out of the forty eight. Out of the 40 respondents, 28 were females representing 70% and 12 were males, which represent 30%. Table 1 and Figure 1 both show the number of questionnaires given to each hotel and the percentage of responded and unresponded questionnaires and Table 2 shows the age distribution of the respondents

Table 1.0: Questionnaire Respondent Table

Hotels & GTA Responded Not-responded Total Questionnaire

Holiday Inn 10 2 12 Golden Tulip 12 0 12 Novotel 10 2 12 GTA 8 4 12 Total 40 8 48 Percentage 83% 17% 100%

Figure 1.0: Questionnaire Respondent Chart

Table 2.0: Age Distribution of Respondents Age (yrs) Number of Respondents Percentage (%)

22 - 25 12 30 26 - 30 18 45 31 - 35 6 15 36 - 40 4 10 Total 40 100

Table 3.0: Interview on Impact of IT on Front Office Operations Hotels & GTA Positive Negative Total Interviews Holiday Inn 4 1 5 Golden Tulip 4 2 6 Novotel 4 0 4 GTA 3 0 3 Total 15 3 18 Percentage 83.3% 1.7% 100%

The respondents were carefully chosen to include people with different levels of education as

depicted in Table 4. View on whether the use of ICT has brought any impact positively or negatively on the staffs and hotel as a whole as far as the front office operations are concerned is as shown on Table 5.


Table 4.0: Educational Level of Respondents

Educational Level Number of Respondents Percentage (%) Master 4 10 Degree 8 20 HND 8 20 Advance Diploma 12 30 Diploma 8 20 Total 40 100

Table 5.0: Impact of IT on Front Office Operations

Impact Number of Respondents Percentage (%) Positive 35 87.5 Negative 5 12.5

Conclusion The paper looked in totality whether the impact of using Information and Communication

Technologies (ICT) in the front office operation of chain hotels is positive or negative. 87.5 per cent of the 40 respondents pronounced positive to the impact of using ICT on the front office of chain hotels and 12.5 per cent pronounced negative to the same. From Table 3, it could be seen that the respondents were carefully chosen and therefore could say that the result in Table 4 is pretty authentic. The use of IT has reduced queues to barely negligible at the front office during check-in and check-out because of the use of the Internet and Electronic Point-of-sale (EPOS) system that transfers instant charges on guest accounts. Guest can remotely inspect their account from the convenience of their abode.

Recommendations After careful consideration, the following recommendations could be drawn;

1. The front office staff should have adequate IT training in the use of the ICT equipments. 2. The front office staff must receive training to help them prevent Video Display Terminal (VDT) and

Carpal Tunnel Syndrome (CTS) threats. 3. Chain hotels should occasionally organize refresher courses for the front office staff to introduce

them to new software and hardware applicable to their operations. 4. GTA should sensitize chain hotels in Ghana on the importance of networking the operations of the

hotel using ICT. 5. The GTA should organize seminars and workshops at least annually on the use and importance of

ICT not only the chain hotels but the hospitality industries as a whole. 6. Chain hotels should encourage and promote the use of ICT in their front office operations.

Policy makers in the tourism industry should make sure that all chain hotels in Ghana use ICT to network all their branches across the country.

Chain hotels should encourage their guests to use the internet and telephony to make reservations.

References Olifer, N. and Olifer, V. (2006) Computer Networks, Principles, Technologies and Protocol for Network Design, John Wiley and Sons Ltd, England. Ritchie, C. (2003) Operating Systems: Incorporating UNIX and Windows, Continuum, London and New York. 4th Edition Abbott, P. and Lewry, S. (1999) Front Office: Procedures, Social skills, Yield and Management, Elsevier, United Kingdom. Knowles, T. (1998) Hospitality Management: An Introduction, Prentice Hall, London. 2nd Edition Odom, W. (2007) CCENT/CCNA ICND1: Official Exam Certification Guide, Cisco Press, Indianapolis. 2nd Edition Lucey, T. (2005) Management Information Systems, Book Power, Britain. Baker, S., Huyton, J. and Bradley, P. (2006) Principles of Hotel Front Office Operations, Thomson Learning, London. Edexcel Limited (2010) Front Office Operations in Hospitality, BTEC Level 3 Nationals specification in Hospitality, Issue 1

Jamel, C. (2010) Front Office Operations, Retrieved from www.satm.bilkent.edu.tr/~jamel/Foo/ 52148-Chapter%205.doc (23 June 2010 12:25pm) Kofax Front Office Server, Retrieved from http://www.kofax.com/downloads/datasheets/ds-kofax-front-office-server-en.pdf (23 June 2010 12:32pm) Wikipedia (2010) Hospitality Point of Sale Systems, Retrieved from http://en.wikipedia.org/ wiki/Hospitality_point_of_sale_systems#Hospitality_industry (24/06/10 11:29 am)


Jamel, C. (2010) Front Office Operations, Retrieved from www.satm.bilkent.edu.tr/~jamel/Foo/ 52148-Chapter%205.doc (23 June 2010 12:25pm) Kofax Front Office Server, Retrieved from http://www.kofax.com/downloads/datasheets/ds-kofax-front-office-server-en.pdf (23 June 2010 12:32pm) Wikipedia (2010) Hospitality Point of Sale Systems, Retrieved from http://en.wikipedia.org/ wiki/Hospitality_point_of_sale_systems#Hospitality_industry (24/06/10 11:29 am)


Job Satisfaction Among Contingent Employees (A study of Textile Sector in Pakistan)

Fahad Afzal

Army Public College of Management Sciences Rawalpindi, Pakistan Adnan Riaz

Allama Iqbal Open University Islamabad, Pakistan.

Key words Job Satisfaction, Contigent Employee, Competitive Edge, Human Resource Management. Abstract Examining the job satisfaction among contingent employees was the purpose of this study. Since contingent employees are employed by the organizations not only for saving HR cost but for gaining competitive edge in economy. Based on the external literature on job satisfaction, we extracted some important determinants and factors that affect job satisfaction of contingent employees. We found that job characteristics, job autonomy and fairness perception are those important variables that impact job satisfaction level of contingent employees. Data was collected from contingent employees who work in Kohinoor Textile Mills Limited, Sarhad hosiery and woolen mills, Rahat woolen mills, Carson woolen mills and sohail woolen mills through questionnaires. Regression and correlation analysis is used to explain the relationship between the dependent variable (job satisfaction) and the independent variables (job characteristics, and job autonomy and fairness perception). Overall impression on correlation values is that the independent variables have a strong positive correlation with job satisfaction. At the end there are also some recommendations to maximize the job satisfaction level among contingent employees. Introduction

Job satisfaction is in regard to one's feelings or state-of-mind regarding the nature of their work. Job satisfaction can be influenced by a variety of factors, eg, the quality of one's relationship with their supervisor, the quality of the physical environment in which they work, degree of fulfillment in their work, etc. Job satisfaction is a very important attribute which is frequently measured by organizations. The most common way of measurement is the use of rating scales where employees report their reactions to their jobs. Questions relate to rate of pay, work responsibilities, variety of tasks, promotional opportunities, the work itself and co-workers.

As far as the topic of our research is concerned, we must have to discuss the issues related to job satisfaction in textile sector. Basically the textile sector is a large scale business where there are so many contigent employees working. Some of the textile companies have separate department for dealing with contigent employees, during our research we came to know that theseemployees are facing issues related with pay and benefits and appraisals. Secondly their needs are not fulfilled and these needs are of both intrinsic and extrinsic in nature.

Cotton textile industry has been premier industry in Pakistan and a major source of export earning and employment. It also helps in value addition to the manufacturing sector of the economy. Increase in the cotton production and expansion of textile industry has been impressive in Pakistan since 1947. Cotton –bales increase from 1.1 million bales in 1947 to ten million bales by 2000. Number of mills increased from 3 to 600 and spindles from about 177,000 to 805 million similarly looms and finishing units increased but not in the same proportion. It employs 50% of industrial labor force and earns 65% foreign exchange of total exports. Pakistan‟s textile industry experts feel that Pakistan has fairly large size textile industry and 60-70% of machines need replacement for the economic and quality production of products for a highly competitive market.

Purpose of the Study The primary aim of this thesis is to undertake research on job satisfaction among contingent

employees at Textile Sector. Study will explore the concept of contingent employees and factors that affect job satisfaction of those employees. This study will help in determining the usefulness of contingent employees in this particular situation, in addition to this we intend to explore the issues and concerns of these employees so that they can be addressed by managers effectively. This will ensure an improvement in their job satisfaction level, which would translate into better performance. Thus ultimately rendering them will be more beneficial for the organization.

The research will examine the following research questions:

To what extent job characteristics (both intrinsic & extrinsic) will influence the job satisfaction of contingent employees.

To what extent job autonomy will affect job satisfaction of contingent employees To what extent fairness perception will influence the job satisfaction of contingent employees.

Problem Statement

The world market is now becoming an increasingly difficult place in which to operate today‟s business. The number of contingent employees is on the rise. It is estimated that 25 to 30 % of today‟s workforce is made up of temporary, contract, and part-time employees. With this rise in contingent workforce, many companies are beginning to use contingent employees even if they never have before. Contingent work is not what it used to be. As businesses today do all they can to maximize efficiency as well as profitability, the use of temporary employees has become a necessity and it will reflect the significance of their job satisfaction. The problem statement is:

“To determine the factors that can influence Job Satisfaction of Contingent employees and how these factors influence Job Satisfaction. How the level of job satisfaction can be improved by addressing those factors and to give recommendations to employers in order to have satisfied contingent workforce. Significance of study:

The findings of this research will contribute significantly to this subject since there has been limited work previously done on contingent employees job satisfaction as well as exploring different factors that will influence on job satisfaction. Through this research the underlying reasons will be examined via questionnaires.

In contrast to historical patterns, contingent work has continued to grow rapidly during the economic boom of 1990s. In the Present study, we have used the term Job satisfaction as a positive attitude towards one‟s work, which is global in nature, and which is the result of many specific work related experiences. As the present research focuses on specific type of worker‟s job satisfaction so it is better to understand what contingent workers are and their types and other issues related to them.

As contingent employees are becoming huge part of economy so it‟s important to understand the factors that will influence job satisfaction level so that negative factors would be minimized in order to get expected outcome from them by enhancing positive factors. Research Model


Purpose of the Study The primary aim of this thesis is to undertake research on job satisfaction among contingent

employees at Textile Sector. Study will explore the concept of contingent employees and factors that affect job satisfaction of those employees. This study will help in determining the usefulness of contingent employees in this particular situation, in addition to this we intend to explore the issues and concerns of these employees so that they can be addressed by managers effectively. This will ensure an improvement in their job satisfaction level, which would translate into better performance. Thus ultimately rendering them will be more beneficial for the organization.

The research will examine the following research questions:

To what extent job characteristics (both intrinsic & extrinsic) will influence the job satisfaction of contingent employees.

To what extent job autonomy will affect job satisfaction of contingent employees To what extent fairness perception will influence the job satisfaction of contingent employees.

Problem Statement

The world market is now becoming an increasingly difficult place in which to operate today‟s business. The number of contingent employees is on the rise. It is estimated that 25 to 30 % of today‟s workforce is made up of temporary, contract, and part-time employees. With this rise in contingent workforce, many companies are beginning to use contingent employees even if they never have before. Contingent work is not what it used to be. As businesses today do all they can to maximize efficiency as well as profitability, the use of temporary employees has become a necessity and it will reflect the significance of their job satisfaction. The problem statement is:

“To determine the factors that can influence Job Satisfaction of Contingent employees and how these factors influence Job Satisfaction. How the level of job satisfaction can be improved by addressing those factors and to give recommendations to employers in order to have satisfied contingent workforce. Significance of study:

The findings of this research will contribute significantly to this subject since there has been limited work previously done on contingent employees job satisfaction as well as exploring different factors that will influence on job satisfaction. Through this research the underlying reasons will be examined via questionnaires.

In contrast to historical patterns, contingent work has continued to grow rapidly during the economic boom of 1990s. In the Present study, we have used the term Job satisfaction as a positive attitude towards one‟s work, which is global in nature, and which is the result of many specific work related experiences. As the present research focuses on specific type of worker‟s job satisfaction so it is better to understand what contingent workers are and their types and other issues related to them.

As contingent employees are becoming huge part of economy so it‟s important to understand the factors that will influence job satisfaction level so that negative factors would be minimized in order to get expected outcome from them by enhancing positive factors. Research Model


Hypothesis Development: H1a: There is a significant effect of Extrinsic Job Characteristics on Job Satisfaction among Contingent Employees. H1b: There is a significant effect of Intrinsic Job Characteristics on Job Satisfaction among Contingent Employees. H1c: There is a significant effect of Job Autonomy on Job Satisfaction among Contingent Employees. H1d: There is a significant effect of Fairness Perception on Job Satisfaction among Contingent Employees Literature Review:

Scholars study job satisfaction not because it is a good predictor of employee behavior but because of its worth as an in itself and its contribution to other attitude and outcomes. “Contingent work is any job in which an individual doesn‟t have an explicit or implicit impact for long term employment” (Allan 1997) . Job satisfaction basically related to the feeling and behavior of people towards their work and how they feel about it, and if they shows positive behavior towards their job so it means that they are satisfied and vice versa. There must be a positive relationship between individual‟s personal life satisfaction and job satisfaction. Job Satisfaction

Job satisfaction has been defined in several different ways and a definitive designation for the term is unlikely to materialize. A simple or general way to define it therefore is as an attitudinal variable:

Job satisfaction is simply how people feel about their jobs and different aspects of their jobs. It is the extent to which people like (satisfaction) or dislike (dissatisfaction) their jobs.

Contentment (or lack of it) arising out of interplay of employee's positive and negative feelings toward his or her work. (Business Dictionary.com) Other theorists (e.g. Rose, 2001) have viewed job satisfaction as a bi-dimensional concept consisting of intrinsic and extrinsic satisfaction dimensions.

Job satisfaction can be defined as any combination of psychological, physiological and environmental circumstances that cause a person truthfully to say, “I am satisfied with my job. In 1955, Smith considered job satisfaction as an employee judgment of how well his job has satisfied his various needs. Job satisfaction may be a general attitude formed as a result of specific job factors, individual characteristics and workplace relationships (Blum & Naylor, 1968). Locke (1976) defined ob satisfaction as a pleasurable or positive emotional state resulting from the appraisal of one‟s job or job experience. The forgoing definitions of job satisfaction suggest some common features, such as 1- It is the pleasurable emotional state, 2- It is the result of any attitude, 3- It is a global concept. Organizations have significant effects on the people who work for them and some of those effects are reflected in how people feel about their work (Spector, 1997). Job characteristics & Job satisfaction:

Job satisfaction is directly related to job characteristics, autonomy , feedback ,and task identity leads to job satisfaction (Clark and Owswrld 1996).Job satisfaction among contingent workers appears to be highly correlated with intrinsic and extrinsic job characteristics (Glisson & Durick 1988). Job autonomy is also linked with job satisfaction. According to Nguyen, Taylor and Bradley (2003b), one of the variables that may be expected to influence job satisfaction is „the degree of perceived autonomy that workers enjoy in the way they do their job‟. Intrinsic job characteristics are those factors which influence the perceptions or feelings of workers about their work and themselves and motivate them to work hard or better. Intrinsic job characteristic: does the job make the individual consider nature of job significant; does the job provide an opportunity to learn or develop more skills; does the job generate for the individual a sense of accomplishment; does the individual feel job challenging. To the extent that these factors are important to contingent workers, one would expect to find out the relationship between the reported level of job satisfaction and the intrinsic job characteristics. Extrinsic job characteristics reflect outcomes generated by performing the job: pay, job security, recognition job prestige, feed back, and fringe benefits. The notion that intrinsic rewards are more important than extrinsic rewards in producing job satisfaction has been

deeply embedded in the imperatives of nearly every concept of modern management ideas ( Steers, Porter, & Bigley, 1996, p. 19; Thierry, 1998, p. 263). Nevertheless, some of the early research has shown that the link between intrinsic job characteristics and job satisfaction is not necessarily stronger than the link between extrinsic job characteristics and job satisfaction ( Dunnette., 1967; Waters, 1972; Wernimont, 1966).

The motivation hygiene theory was proposed by psychologist Fredrik herz berg believing that an individual‟s attitude towards his or her work can very well determine success or failure, herz berg investigated the question of what people want from their jobs.

Intrinsic factors such as achievement, recognition, and responsibility were related to job satisfaction. When the people questioned felt good about their work , they tended to attributes these characteristics to themselves. On the other hand , when they were dissatisfied, they tended to sight extrinsic factors such as company policy, and administration, supervision, interpersonal relationships, and working conditions.

According to herz berg that factors lead to job satisfaction are separate and distinct from those that lead to job dissatisfaction. Therefore, managers who seek to eliminate factors that create job dissatisfaction can bring about peace but not necessarily motivation; they are placating their workforce rather than motivating it. Because they don‟t motivate employees, the factors that eliminate job dissatisfaction were characterized by herz berg as hygiene factors. When these factors are adequate, people will not be dissatisfied, but neither they will be satisfied. To motivate people on their jobs, herz berg suggested emphasizing motivators, those factors that increase job satisfaction.

The motivation hygiene theory is not without its detractors, who criticized, for example , the methodology herz berg used to collect data and his failure to account for situational variables. Regardless of any criticism herz berg theory has been widely popularized, and few managers are unfamiliar with his recommendations.

Intrinsic characteristics and Job satisfaction: Many researchers have examined the relationship between job satisfaction and intrinsic job

characteristics. After a comprehensive review of literature, Locke (1976) concluded that work satisfaction is engendered by work which (a) is varied in nature, (b) is not physically tiring, (c) is mentally challenging and yet allow the individual to experience the success, and (d) is personally interesting. Despite the controversial nature of motivation Hygiene theory of Herzberg (1996), he has made a major contribution to research and understanding the nature of job satisfaction. He proposed that job satisfaction depends predominantly upon the satisfaction and psychological needs, while dissatisfaction results predominantly from non-satisfaction of physical needs. This contribution stems from his stress on the importance of psychological growth as a precondition of job satisfaction and his showing that such growth sterns from the work itself. (Emmert & Taher 1992) use Hackman and Oldham‟s job characteristic model to evaluate the job satisfaction. This measure considers the following elements; skill variety, task identity, task significant, autonomy and feedback on job performance. In the study of Indian workers, it is found that the nature of work and the nature of workplace is important factor in job satisfaction. Safe workplace may enhance the job satisfaction of workers especially in manufacturing area.

Extrinsic factors and Job satisfaction:

Extrinsic factors were defined as those external benefits provide to the professional by the facility or organization. Those factors are flexible schedules, competitive pay, and training and development (Jansen, 1996). Past studies have shown that monetary compensation is one of the most important explanatory variables for job satisfaction on average in America, temporary workers report low job satisfaction with respect to wage rate as compared to permanent employees. The wage level itself has significantly effect on all types of job satisfaction. In other words, high wage job is closely related to job security as well as decent job. Temporary or daily wagers are less satisfied to their jobs in term of job security and contents of their jobs but not the wage levels. It implies that contingent workers expect their wage level as it is but that they feel that their jobs are neither secure nor decent compared to their expectations (kalleberg, 1977; Taylor & West, 1992).


deeply embedded in the imperatives of nearly every concept of modern management ideas ( Steers, Porter, & Bigley, 1996, p. 19; Thierry, 1998, p. 263). Nevertheless, some of the early research has shown that the link between intrinsic job characteristics and job satisfaction is not necessarily stronger than the link between extrinsic job characteristics and job satisfaction ( Dunnette., 1967; Waters, 1972; Wernimont, 1966).

The motivation hygiene theory was proposed by psychologist Fredrik herz berg believing that an individual‟s attitude towards his or her work can very well determine success or failure, herz berg investigated the question of what people want from their jobs.

Intrinsic factors such as achievement, recognition, and responsibility were related to job satisfaction. When the people questioned felt good about their work , they tended to attributes these characteristics to themselves. On the other hand , when they were dissatisfied, they tended to sight extrinsic factors such as company policy, and administration, supervision, interpersonal relationships, and working conditions.

According to herz berg that factors lead to job satisfaction are separate and distinct from those that lead to job dissatisfaction. Therefore, managers who seek to eliminate factors that create job dissatisfaction can bring about peace but not necessarily motivation; they are placating their workforce rather than motivating it. Because they don‟t motivate employees, the factors that eliminate job dissatisfaction were characterized by herz berg as hygiene factors. When these factors are adequate, people will not be dissatisfied, but neither they will be satisfied. To motivate people on their jobs, herz berg suggested emphasizing motivators, those factors that increase job satisfaction.

The motivation hygiene theory is not without its detractors, who criticized, for example , the methodology herz berg used to collect data and his failure to account for situational variables. Regardless of any criticism herz berg theory has been widely popularized, and few managers are unfamiliar with his recommendations.

Intrinsic characteristics and Job satisfaction: Many researchers have examined the relationship between job satisfaction and intrinsic job

characteristics. After a comprehensive review of literature, Locke (1976) concluded that work satisfaction is engendered by work which (a) is varied in nature, (b) is not physically tiring, (c) is mentally challenging and yet allow the individual to experience the success, and (d) is personally interesting. Despite the controversial nature of motivation Hygiene theory of Herzberg (1996), he has made a major contribution to research and understanding the nature of job satisfaction. He proposed that job satisfaction depends predominantly upon the satisfaction and psychological needs, while dissatisfaction results predominantly from non-satisfaction of physical needs. This contribution stems from his stress on the importance of psychological growth as a precondition of job satisfaction and his showing that such growth sterns from the work itself. (Emmert & Taher 1992) use Hackman and Oldham‟s job characteristic model to evaluate the job satisfaction. This measure considers the following elements; skill variety, task identity, task significant, autonomy and feedback on job performance. In the study of Indian workers, it is found that the nature of work and the nature of workplace is important factor in job satisfaction. Safe workplace may enhance the job satisfaction of workers especially in manufacturing area.

Extrinsic factors and Job satisfaction:

Extrinsic factors were defined as those external benefits provide to the professional by the facility or organization. Those factors are flexible schedules, competitive pay, and training and development (Jansen, 1996). Past studies have shown that monetary compensation is one of the most important explanatory variables for job satisfaction on average in America, temporary workers report low job satisfaction with respect to wage rate as compared to permanent employees. The wage level itself has significantly effect on all types of job satisfaction. In other words, high wage job is closely related to job security as well as decent job. Temporary or daily wagers are less satisfied to their jobs in term of job security and contents of their jobs but not the wage levels. It implies that contingent workers expect their wage level as it is but that they feel that their jobs are neither secure nor decent compared to their expectations (kalleberg, 1977; Taylor & West, 1992).


The primary target for cost cutting has always been labor cost. In the old days, the mechanism was layoffs but these days‟ businesses have found an alternative to layoffs is contingent workers. Contingent workers including daily wagers and part time workers have less access to fringe benefits from their employers. According to BLS (bureau of labor statistics), only 20% of contingent workers are offered health insurance at any cost. Pension coverage is also similar with 21% contingent workers being eligible for pension plans versus 54% of traditional workers. Overall fringe benefits are much lower for contingent workers.

After controlling for selection into job types, workers feel most secure in permanent public sector jobs, least secure in temporary jobs, with permanent private sector jobs occupying an intermediate position (Job Security and Job Protection). Past research has found that contingent work leads to high level of job insecurity. Such feelings may generate stress and job dissatisfaction which cause the high turn over and absenteeism. Roskies and Louis report that managers who were insecure about their jobs showed low job satisfaction and their level of distress rose proportionately with tier degree of insecurity. In addition to continuity of employment and quality of jobs, contingent workers have insecurities about lack of employee benefits, including health and care (Feldmen, 1994). On average, the pay benefits, job security, training opportunities and work content are inferior in non-standard work compare with equivalent standard work.

Most important determinant of job satisfaction is found to be recognized and appreciation. Past researches focus on lack of recognition aspect of work that contributes powerfully to job satisfaction among contingent workers.

Job satisfaction and job autonomy:

According to Nguyen, Taylor and Bradley (2003b), one of the variables that may be expected to influence job satisfaction is „the degree of perceived autonomy that workers enjoy in the way they do their job‟. The expected relationship is that more autonomy is associated with greater job satisfaction. The main trend observed is that workers who report more autonomy in their jobs also report higher levels of job satisfaction. In Finland, the data suggests that people who are more able to influence a number of aspects of their work experience a higher general job satisfaction level.

Self-determination encompasses employees‟ sense of control over how their work is done. Staples (1990) argued that empowerment dealt with the efforts of individuals and groups to increase their control. Deci, Connell and Ryan (1989) describe this as being able to initiate and regulate personal behavior. In other words, employees with self determination have some control over what they will do, how much effort they will put in, and when they will start and stop (Spector, 1986). Thomas and Velthouse(1990) have argued that the element of self-determination is related to Hackman and Oldham‟s (1980) use of autonomy, and Ashforth (1990) argued that a lack of autonomy was associated with a lack of job satisfaction. The findings of Spreitzer and colleagues (1997) also align with the definition of self-determination considering the work assigned to many temporary and part-time nonstandard workers. Many part-time or temporary nonstandard workers would have at most significantly limited self-determination at work over matters that could lead to psychological empowerment or job satisfaction, since they have fewer skills, participate in less training, and receive lower compensation (Befort, 2003; Ferber & Waldfogel,1998; Kalleberg, 2000; Levenson, 2000; Welch, 1997). Fairness Perception:

Over two-third of the public believes it unfair that in some companies, employees who are hired as part time or temporary workers get paid lower hourly wage rate then regular employees doing the same job at same level. A size able majority in every demographic group agreed that such treatment is unfair; less then one quarter considered it fair. 60% of the public reported a willingness to support legislation requiring employers to give the same rate of base pay, and benefits to the temporary or part time employees and workers. A large majority believes that treating contingent workers differently from others is unfair. Dubinsky and Levy (1989) also used equity theory to explain the relationship between organizational fairness and overall job satisfaction, organizational commitment and performance for retail workers.

Dittrich and carell (1976) related the perception of fairness to absenteeism and turnover for

professional and industrial employees, again using equity theory. They found that employees who felt they were receiving fair treatment had lower levels of absenteeism and turnover. Ambrose and Brand (1986) also used equity theory to examine the relationship between job facet comparisons and employee reaction. An employee can make four major comparisons; self-inside (comparing the current situation with his or her experiences in a different position in the same organization), self-outside (comparing one‟s own experiences outside the organization), other-inside (comparing with another individual or group in the same organization) and other-outside (comparing with another individual or group outside the organization). Researchers have used frame of reference theories to explain attitudinal differences between full-time and part-time workers (Felman, 1990; Miller and Terborg, 1979). Part-time casual employees earn only a modest premium over permanent full-time employees. When the loadings, which casuals are paid, are taken into account, researcher finds that part-time casual employees are actually penalized by virtue of working as casuals. It is concluded that casual jobs are inferior jobs, irrespective of the satisfaction levels of their incumbents ( Watson). The variation in the individual characteristics may influence the environment perception, and it will ultimately lead to employee retention. Both individual and the work environment should be addressed.( lee, way, 2010)

Green and Kler 2008 believes that nature of work also a part of job satisfaction, it basically related to the behavior and perception of the employee. That if he thinks that the job is interesting and fun, then obviously they work hard and attend work consistently but on the other hand if employee thinks that the job is boring, hectic and a burden then their level of satisfaction may be decreased. (Thomas, and Jirjalim 2008).

Fairness is examined via consistent application of standard across individuals in the firms decision making. Now here the question arises what is affected by fairness perception? At work it influences employee‟s attitude and behaviors in organizations Salatori, 2010). This is human nature and specially employees care about being treated fairly because fairness includes the needs, belonging, self esteem and meaningful existence. And the employees are also very conscious about the fairness of feed back from their supervisors.( Arthur 2010). Data/ Methodology

Type of study This study was descriptive in nature and describes the textile manufacturing industry in the term of

job satisfaction among contingent employees.

A Regression study is used for the mere identification of important factors "associated with" the problem i.e. there is one dependent variable and more than one independent variable, which affect or alter in some way the dependent variable; the identification of which is sought. In this study, as mentioned in the theoretical framework, the dependent variable is employee‟s job satisfaction which is affected by various independent variables such as extrinsic job characteristics, intrinsic job characteristics, and job autonomy and fairness perception.

The extent of researcher interference is minimal in this study which means that events are candid as they normally occur. The study setting for this study is non-contrived in nature i.e. conducted in the normal work place and routine working conditions. According to the time horizon, this study is One-shot/ cross sectional. This study is a primary data based study.

The chapter 3 of this research gives a full detail of the research methodology. The methodological approach which will be discussed includes the sourcing for information, the data collection and analysis methods, the process used in the sampling and the research design, approaches and findings. This study is principally on the influence of various variables on the job satisfaction of contingent employees. The research will be implemented by quantitative approach using an in-dept open questionnaire, giving the respondents, as well as through, case study and data sources in order to confirm or disconfirm the research theories.


Dittrich and carell (1976) related the perception of fairness to absenteeism and turnover for

professional and industrial employees, again using equity theory. They found that employees who felt they were receiving fair treatment had lower levels of absenteeism and turnover. Ambrose and Brand (1986) also used equity theory to examine the relationship between job facet comparisons and employee reaction. An employee can make four major comparisons; self-inside (comparing the current situation with his or her experiences in a different position in the same organization), self-outside (comparing one‟s own experiences outside the organization), other-inside (comparing with another individual or group in the same organization) and other-outside (comparing with another individual or group outside the organization). Researchers have used frame of reference theories to explain attitudinal differences between full-time and part-time workers (Felman, 1990; Miller and Terborg, 1979). Part-time casual employees earn only a modest premium over permanent full-time employees. When the loadings, which casuals are paid, are taken into account, researcher finds that part-time casual employees are actually penalized by virtue of working as casuals. It is concluded that casual jobs are inferior jobs, irrespective of the satisfaction levels of their incumbents ( Watson). The variation in the individual characteristics may influence the environment perception, and it will ultimately lead to employee retention. Both individual and the work environment should be addressed.( lee, way, 2010)

Green and Kler 2008 believes that nature of work also a part of job satisfaction, it basically related to the behavior and perception of the employee. That if he thinks that the job is interesting and fun, then obviously they work hard and attend work consistently but on the other hand if employee thinks that the job is boring, hectic and a burden then their level of satisfaction may be decreased. (Thomas, and Jirjalim 2008).

Fairness is examined via consistent application of standard across individuals in the firms decision making. Now here the question arises what is affected by fairness perception? At work it influences employee‟s attitude and behaviors in organizations Salatori, 2010). This is human nature and specially employees care about being treated fairly because fairness includes the needs, belonging, self esteem and meaningful existence. And the employees are also very conscious about the fairness of feed back from their supervisors.( Arthur 2010). Data/ Methodology

Type of study This study was descriptive in nature and describes the textile manufacturing industry in the term of

job satisfaction among contingent employees.

A Regression study is used for the mere identification of important factors "associated with" the problem i.e. there is one dependent variable and more than one independent variable, which affect or alter in some way the dependent variable; the identification of which is sought. In this study, as mentioned in the theoretical framework, the dependent variable is employee‟s job satisfaction which is affected by various independent variables such as extrinsic job characteristics, intrinsic job characteristics, and job autonomy and fairness perception.

The extent of researcher interference is minimal in this study which means that events are candid as they normally occur. The study setting for this study is non-contrived in nature i.e. conducted in the normal work place and routine working conditions. According to the time horizon, this study is One-shot/ cross sectional. This study is a primary data based study.

The chapter 3 of this research gives a full detail of the research methodology. The methodological approach which will be discussed includes the sourcing for information, the data collection and analysis methods, the process used in the sampling and the research design, approaches and findings. This study is principally on the influence of various variables on the job satisfaction of contingent employees. The research will be implemented by quantitative approach using an in-dept open questionnaire, giving the respondents, as well as through, case study and data sources in order to confirm or disconfirm the research theories.


The resolution and findings of the interpretive method known as phenomenography inferred from the study and the quantitative data, allows the study direct the research, by exposing respondents‟ understanding and experience of the given phenomenon. this approach deepens the understanding of the ongoing research because it takes an in-dept look at respondents‟ conceptions of the given phenomenon. Sampling technique

Sampling technique used for this research is stratified sampling. Stratified random sampling, as its name implies, involves a process of stratification or segregation, followed by random selection of subjects from each stratum. The population is first divided into mutually exclusive groups that are relevant, appropriate, and meaningful in the context of the study. i.e. we selected groups of contingent employees and then questionnaire is distributed in respected groups of employees. Primary Data Primary data has been collected from the employees of five mills Kohinoor textile Mills Limited

. Carson woollem mills ltd, Sarhad woolen mills ltd, Rahat woolen mills ltd, and Sohail hosiery and Woolen mills ltd through questionnaires. Secondary data would also be used where required particularly in literature review. Equation JS = f (EF, IF, JA, FP) Equation: JS = α + β1 EF + β2 IF + β3JA+ β4FP + є---------------------- (a) Where; JS= Job satisfaction EF= Extrinsic factors IF= Intrinsic factors JA= Job autonomy FP= Fairness perception Research Instrument/Source of Data

As the study is based on primary source of data, thus instrument used to conduct the research is questionnaire, Questionnaire is an efficient data collection mechanism where we know exactly what is required and measures the variables of interest. A detailed questionnaire is designed which has a total of thirty questions and these questions are rated by using the Likert Scale. This scale is designed to examine how strongly respondents agree or disagree with statements on a 5-points scale with the following anchors; Strongly agree agree Neutral disagree strongly disagree 1 2 3 4 5

The responses over a number of items tapping a particular variable are then we find the mean for every respondent. This is an interval scale and the difference in the responses between any two points on the scale remains the same. The questionnaire is composed of five sections such as Individual background, Extrinsic factors, Intrinsic factors, Job autonomy and Fairness perception.

Variables Cronbach Alpha Coefficient Items

Extrinsic Factors 0.81 8

Intrinsic Factors 0.65 10

Autonomy of Work 0.72 4

Fair Perception 0.83 5

Job Satisfaction 0.76 3 Results and Discussions

The study has used the following equation to find out the Job satisfaction among contingent employees by understanding the effect of independent variables “Job characteristics (Extrinsic, Intrinsic & Job autonomy) and Fairness perception” on dependent variable “Jobs satisfaction”.

Equation: JS= α+β1EF+β2IF+β3JA+β4FP+ є

Table 4.1 mean, median, mode Extrinsic Intrinsic Autonomy of Fair Job Factors Factors Work Perception Satisfaction Mean 2.95 2.94 3.10 3.00 2.99 Standard Error 0.04 0.04 0.05 0.05 0.05 Median 2.88 2.90 3.00 3.00 3.00 Mode 2.88 2.90 2.75 3.00 3.00 Standard Deviation 0.42 0.43 0.54 0.52 0.52 Sample Variance 0.18 0.19 0.30 0.28 0.27 Kurtosis -0.43 -0.01 0.30 0.38 0.46 Skewness 0.30 0.29 0.41 0.23 0.25 Range 2 2.2 3 2.8 2.8 Minimum 2.125 2 1.75 1.8 1.8 Maximum 4.125 4.2 4.75 4.6 4.6 Sum 351.25 350.2 369 356.8 356.2 Count 119 119 119 119 119

Job Satisfaction

Fair Perception

Autonomy of Work

Intrinsic Factors

Extrinsic Factors

2.85 2.90 2.95 3.00 3.05 3.10 3.15


Variables Cronbach Alpha Coefficient Items

Extrinsic Factors 0.81 8

Intrinsic Factors 0.65 10

Autonomy of Work 0.72 4

Fair Perception 0.83 5

Job Satisfaction 0.76 3 Results and Discussions

The study has used the following equation to find out the Job satisfaction among contingent employees by understanding the effect of independent variables “Job characteristics (Extrinsic, Intrinsic & Job autonomy) and Fairness perception” on dependent variable “Jobs satisfaction”.

Equation: JS= α+β1EF+β2IF+β3JA+β4FP+ є

Table 4.1 mean, median, mode Extrinsic Intrinsic Autonomy of Fair Job Factors Factors Work Perception Satisfaction Mean 2.95 2.94 3.10 3.00 2.99 Standard Error 0.04 0.04 0.05 0.05 0.05 Median 2.88 2.90 3.00 3.00 3.00 Mode 2.88 2.90 2.75 3.00 3.00 Standard Deviation 0.42 0.43 0.54 0.52 0.52 Sample Variance 0.18 0.19 0.30 0.28 0.27 Kurtosis -0.43 -0.01 0.30 0.38 0.46 Skewness 0.30 0.29 0.41 0.23 0.25 Range 2 2.2 3 2.8 2.8 Minimum 2.125 2 1.75 1.8 1.8 Maximum 4.125 4.2 4.75 4.6 4.6 Sum 351.25 350.2 369 356.8 356.2 Count 119 119 119 119 119

Job Satisfaction

Fair Perception

Autonomy of Work

Intrinsic Factors

Extrinsic Factors

2.85 2.90 2.95 3.00 3.05 3.10 3.15


Descriptive statistics were used to examine Mean, Median, Mode, Standard Deviation and other

information. All the items were measured using Likert scale with 5 points. The outcome explains the intensity of job satisfaction which is positively skewed as Mean (2.99)> Median (3.00)> Mode (3.00). Overall higher Mean values greater than 3.00 for all variables give central tendency of received data. This occurs when mean is increased by high values. So majority of the employees favored idea that job characteristics (extrinsic and intrinsic, job autonomy), fairness perception. The highest value of mean is of job autonomy i.e 3.10, median has the highest value in job autonomy and fairness perception i.e 3.00, and fairness perception has the highest value for mode i.e 3.00.

Standard deviation varies from 0.52 to 0.42 for different variables which reflects the pattern of scatter diagram. The standard deviation is also important as it depicts an indication of the average distance from the mean. A low standard deviation would mean that most observations cluster around the mean.

Table 4.2 correlation analysis Extrinsic Intrinsic Autonomy of Fair Job Factors Factors Work Perception Satisfaction Extrinsic Factors 1 Intrinsic Factors 0.59 1 Autonomy of Work 0.17 0.42 1 Fair Perception 0.59 0.50 0.27 1 Job Satisfaction 0.55 0.47 0.48 0.27 1

Correlation analysis determines the relationship as well as the extent of association between variables. Results of correlation analysis show that job satisfaction is significantly correlated with the extrinsic factors i.e 0.55, after That with autonomy of work i.e 0.48, then with intrinsic factors i.e 0.47 and least with the fairness perception i.e 0.27. Table 4.3 Regression Analysis Regression Analysis Criterion

Predictors Coefficients Adjusted R

t Stat P-value

Variable Square

Extrinsic Factors 0.4339 0.4227 3.5965 0.0005 Intrinsic Factors 0.3435 2.9701 0.0036 Job Satisfaction Autonomy of Work 0.3331 4.4390 0.0000 Fair Perception 0.1672 1.8630 0.0650

Table 4.3 present the results that The adjusted R Square is 0.4227 which shows that 42.27% model of this research is explained by the independent variable “Job characteristics ( Extrinsic, Intrinsic & Job autonomy) and Fairness perception” and other is explained by the error factors (є) , it further demonstrates that our model is good fit in nature.

The beta coefficient of independent variables such as “ Extrinsic factors, Intrinsic factors , Fairness perception & Job autonomy have positive coefficients which is shows that they have a direct relationship or positive influence on the dependent variable “Job satisfaction”.

Discussion and Results

From the above correlation and regression matrix, it is clear that there is a strong positive relationship between extrinsic factors, intrinsic factors, job autonomy, fairness perception and job satisfaction. However on the basis of correlation matrix‟s analysis of extrinsic factors, intrinsic factors, autonomy of work, fairness perception with job satisfaction the results shows that extrinsic factors, intrinsic factors, autonomy of work, fairness perception have strong positive relationship with job satisfaction. Coming towards results of regression matrix, it shows strong positive relation. Values of R square show that there are also some other variables, which affect the organizational commitment

The range correlation values are between 0 to 1, those independent variables which have the values between 0 to 1 are strongly correlated with dependent variable. The result shows that the value of extrinsic factors is 0.55, intrinsic factors is 0.47, autonomy of work is 0.48, fairness perception is 0.27 that shows that all the independent variables are strongly/significantly correlated with the job satisfaction thus all hypothesis are accepted.

The regression analysis shows that each of the independent variables have positive coefficients i.e. all of them have the direct relationship with the job satisfaction. Extrinsic factors have 43.39% dependence on job satisfaction, intrinsic factors have 34.35% dependence on job satisfaction, autonomy of work has 33.31% dependence on the job satisfaction and fairness perception is 16.72% dependence. And the adjusted R square value shows that 42.27% of the model is explained by the independent variable discussed in the study.

For t statistics the values greater than 2 has significant/ positive effect on the dependent variable. The table shows that extrinsic factors, intrinsic factors and autonomy of work have significant effect on job satisfaction i.e. EF=3.596, IF=2.9701 and JA=4.4390, thus we accept our hypothesis H1, H2, H3. Whereas fairness perception has not significant effect on job satisfaction as it has the value less than 2 i.e. FP=1.8630, thus we reject our hypothesis H4.

For probability values, the more it is close to zero it shows the significant effect. So the autonomy of work is the highly significantly effect the job satisfaction as it has the value JA=0.0000, so we accept our hypothesis H3. Whereas the values of extrinsic, intrinsic and fairness perception is EF=0.0005, IF=0.0036, FP=0.0650, that shows that there are some chances of error.

Regression analysis documents the positive relationship between attitude toward work and the level of job satisfaction. Regression analysis documents the positive relationship between attitude toward work and the level of job satisfaction. Further more, there was a positive correlation between job satisfaction and performance and also the relationship is not affected by gender, age, or educational attainment level of the respondents.


It can be concluded from the above cited results and graphical representations that job satisfaction, in ideal case increases or maximizes if there is a direct or positive relation with extrinsic, intrinsic factors, job autonomy, and fairness perception. Results show that the higher grade of extrinsic and intrinsic factors increase the level of satisfaction of contingent employees and they seem to be happy although they don‟t have facilities like a permanent and regular employee. On the other hand, they feel insecure also and worried about their future career and more conscious about their job security issues. This insecure status may fluctuate their job satisfaction and performance level. Companies can overcome this issue by providing them a better and healthy package of intrinsic and extrinsic rewards.

Job autonomy is also an important factor for measuring job satisfaction level of employees. In theoretical framework, it is stated that the more u offer freedom in the work place, the more u will get in term of employees satisfaction and saturation in their occupational motivation. Here results also support the availability of job autonomy level. In the case of contingent employees and contingent workforce, there should be a reasonable freedom in choosing their own style of getting job done. This will increase


Discussion and Results

From the above correlation and regression matrix, it is clear that there is a strong positive relationship between extrinsic factors, intrinsic factors, job autonomy, fairness perception and job satisfaction. However on the basis of correlation matrix‟s analysis of extrinsic factors, intrinsic factors, autonomy of work, fairness perception with job satisfaction the results shows that extrinsic factors, intrinsic factors, autonomy of work, fairness perception have strong positive relationship with job satisfaction. Coming towards results of regression matrix, it shows strong positive relation. Values of R square show that there are also some other variables, which affect the organizational commitment

The range correlation values are between 0 to 1, those independent variables which have the values between 0 to 1 are strongly correlated with dependent variable. The result shows that the value of extrinsic factors is 0.55, intrinsic factors is 0.47, autonomy of work is 0.48, fairness perception is 0.27 that shows that all the independent variables are strongly/significantly correlated with the job satisfaction thus all hypothesis are accepted.

The regression analysis shows that each of the independent variables have positive coefficients i.e. all of them have the direct relationship with the job satisfaction. Extrinsic factors have 43.39% dependence on job satisfaction, intrinsic factors have 34.35% dependence on job satisfaction, autonomy of work has 33.31% dependence on the job satisfaction and fairness perception is 16.72% dependence. And the adjusted R square value shows that 42.27% of the model is explained by the independent variable discussed in the study.

For t statistics the values greater than 2 has significant/ positive effect on the dependent variable. The table shows that extrinsic factors, intrinsic factors and autonomy of work have significant effect on job satisfaction i.e. EF=3.596, IF=2.9701 and JA=4.4390, thus we accept our hypothesis H1, H2, H3. Whereas fairness perception has not significant effect on job satisfaction as it has the value less than 2 i.e. FP=1.8630, thus we reject our hypothesis H4.

For probability values, the more it is close to zero it shows the significant effect. So the autonomy of work is the highly significantly effect the job satisfaction as it has the value JA=0.0000, so we accept our hypothesis H3. Whereas the values of extrinsic, intrinsic and fairness perception is EF=0.0005, IF=0.0036, FP=0.0650, that shows that there are some chances of error.

Regression analysis documents the positive relationship between attitude toward work and the level of job satisfaction. Regression analysis documents the positive relationship between attitude toward work and the level of job satisfaction. Further more, there was a positive correlation between job satisfaction and performance and also the relationship is not affected by gender, age, or educational attainment level of the respondents.


It can be concluded from the above cited results and graphical representations that job satisfaction, in ideal case increases or maximizes if there is a direct or positive relation with extrinsic, intrinsic factors, job autonomy, and fairness perception. Results show that the higher grade of extrinsic and intrinsic factors increase the level of satisfaction of contingent employees and they seem to be happy although they don‟t have facilities like a permanent and regular employee. On the other hand, they feel insecure also and worried about their future career and more conscious about their job security issues. This insecure status may fluctuate their job satisfaction and performance level. Companies can overcome this issue by providing them a better and healthy package of intrinsic and extrinsic rewards.

Job autonomy is also an important factor for measuring job satisfaction level of employees. In theoretical framework, it is stated that the more u offer freedom in the work place, the more u will get in term of employees satisfaction and saturation in their occupational motivation. Here results also support the availability of job autonomy level. In the case of contingent employees and contingent workforce, there should be a reasonable freedom in choosing their own style of getting job done. This will increase


the productivity of workers and contingent employees. But here is also a point that should be in mind while making policies regarding job autonomy about contingent employees that companies or managers cant offer more autonomy to those tasks and happening that effect directly to the managerial decision making process.

Fairness is all about building and sustaining trust in every code of conduct. Its impact is long lasting and it makes people more loyal to u or to your decisions. Employees satisfaction level can be maximizes by treating them equally and offering them reflective mirror on their performances and efforts. Fairness in procedures and processes make employees more pleasant from the employer and a environment of trust and care is automatically created between employee and employer.

By using the methodology we arrive at some conclusions, Overall impression on correlation value is that the five variables have a strong correlation with employee‟s performance. All independent variables like extrinsic job factors, intrinsic job factor, and job autonomy and fairness perception have strong positive correlation with job satisfaction. The study reveals that the job satisfaction level of contingent employees increases mainly due to five factors or called variables.

This study is helpful towards understanding factors that contribute towards job satisfaction among contingent employees. So, we can conclude that all independent variables have strong impact on job satisfaction among contingent employees. Conclusion

This research has made several important contributions. This research is one of the few studies that have addressed the topic of job satisfaction among contingent employees. Past research focusing on employee job satisfaction has for the most part focused on permanent employees. It is very important to know what factors affects job satisfaction of contingent employees and it is one of the biggest challenge for the organizations especially manufacturing organizations. Where the efficient use of human capital can be a tool for cost saving.

So for this reason, this study was carried out, to find out the factors which affect job satisfaction among contingent employees. In a business environment that is increasingly using temporary labor, it is important for researchers to understand the attitudes of temporary employees and this paper addresses the gap in the research in this area.

Relationship between dependent variables and independent variables like job characteristics, and job autonomy and fairness perception with job satisfaction were determined using correlations, regression method.

By using the methodology we arrive at some conclusions, Overall impression on correlation value is that the five variables have a strong correlation with employee‟s performance. All independent variables like extrinsic job factors, intrinsic job factor, and job autonomy and fairness perception have strong positive correlation with job satisfaction. The study reveals that the job satisfaction level of contingent employees increases mainly due to five factors or called variables.

During collection of the data from contingent workers, it was observed that male contingent workers were heavily demanding better wages and overtime rates, at least social security benefits under the factory act 1934 and most importantly they did not have job security. During research it was found that contingent workers were not appreciated fairly although they work more than standard workers do. Contingent workers work more by putting their best efforts due to fear of job security. Contingent employees demand extrinsic rewards like of the standard employees. This study reveals that there is a need to ensure better intrinsic job characteristics like safe and healthy work environment, self recognition, and harassment free workplace for female contingent workers. Female contingent workers were complaining of the job constraints that they face in the work. They need flexibility within the methods defined for the job.

This study is helpful towards understanding factors that contribute towards job satisfaction among contingent employees. So, we can conclude that all independent variables have strong impact on job satisfaction among contingent employees. Recommendations:

Here are some recommendations to manufacturing organizations and to government of Pakistan to make contingent employees more satisfied in their jobs.

1) There are different factors that are important determinants of men‟s and women‟s job satisfaction. In particular it seems that especially for women, monetary factors matter less; working conditions and (at least to a certain extent) a higher degree of flexibility carry a larger weight in the job satisfaction of female contingent employees.

2) Contingent employees are dissatisfied from their insecure job status which can be an important threat for organizational efficiency as well as economy. So there is a need to take well defined actions to resolve this issue.

3) Intrinsic rewards, such as empowerment, participation, more challenging tasks, and more recognition from one's boss, are desirable for all staff. This will enhance organizational commitment and job satisfaction among contingent employees.

4) Job autonomy emerged as having a strong and clear correlation with job satisfaction: more autonomy in a job leads to higher job satisfaction among employees. So organizations should make such policies and allow them to design their own work to some extent.

5) Organizations and Government should restructure the benefit policies to accommodate the contingent workforce of an economy.

6) Employers should properly implement Factory act 1934 and other labor laws so that contingent workers can enjoy social security and other fringe benefits and also there should be proper monitoring from government respected departments.

7) Government of Pakistan must reconsider the “Two-day industry off” policy because it will harm contingent workforce badly in the form of unemployment and low income level.

8) Contingent employees should be evaluated and appraised by the immediate supervisor. This strategy will lead them to contribute more efficiency towards their work like standard employees.

References Allan, P. (2002). The contingent workforce: Challenges and new directions. American Business Review, 20(2), 103-110. Allen, P. and Seinko, S. (1997). A comparison of contingent and core workers' perceptions of their jobs' characteristics and motivational properties. S.A.M. Advanced Management Journal, summer 1997; 62, 3, 4-12. Audrey Freedman. (1985). Conference on employment security. Adrian Furham, K.V. Petrides, Chris J. Jackson, Tim Cotter. Do personality factors predict job satisfaction?( Personality and INDIVIDUAL differences 33 (2002) 1325-1342) Andrew E. Clark Nicolai Kristensen , Niels Wetergard, Nielsen. Job satisfaction and coworker wages status or signal? (IZADP no. 3073, September 2007). Andrea Salvatori , Labour contract regulation and workers wellbeing( international longitudinal evidence IZA DP NO. 4685, January 2010). Andrew E. Clrak, Andrew J. Oswald b.( jornal of public economics 61(1996) 359-381. Chang Lee, Kelly Way, individual employment characteristics of hotel employees that play role in employee satisfaction and work retention. (international journal of hospitality management 29(2010), 344-353). Colin Green, Pervinde Kler, Grath Leevs. Flexible contract workers in inferior jobs: reapprising the evidence, ( working paper 2008/003, http://www.lums.lances.ac.uk). Chong M. Lau, Mahfud Sholihin. Financial and non financial performance measures: how do they affect job satisfaction? ( the british accounting review 37 (2005) 389-413). Daiji Kawaguchi. Compensating wage differentials among self employeed workers: evidence from job satisfaction scores.( discussion paper 568,(2002). Deci E.L . Intrinsic motivation, Extrinsic Reinforcement, and inequity.( journal of personality factors and social psychology, vol. 22(1972), 113-120). Eric Bonsang, Arthur van Soest. Satisfaction with job and income among older individuals across European countries, (discussion paper 02/2010, 005). Erica French, Glenda Strachan. Evaluating equal employeement opportunity and its impact on the increased participation of men and women in the transport industry. ( transportation research part A 43(2009) 78-89).


This study is helpful towards understanding factors that contribute towards job satisfaction among contingent employees. So, we can conclude that all independent variables have strong impact on job satisfaction among contingent employees. Recommendations:

Here are some recommendations to manufacturing organizations and to government of Pakistan to make contingent employees more satisfied in their jobs.

1) There are different factors that are important determinants of men‟s and women‟s job satisfaction. In particular it seems that especially for women, monetary factors matter less; working conditions and (at least to a certain extent) a higher degree of flexibility carry a larger weight in the job satisfaction of female contingent employees.

2) Contingent employees are dissatisfied from their insecure job status which can be an important threat for organizational efficiency as well as economy. So there is a need to take well defined actions to resolve this issue.

3) Intrinsic rewards, such as empowerment, participation, more challenging tasks, and more recognition from one's boss, are desirable for all staff. This will enhance organizational commitment and job satisfaction among contingent employees.

4) Job autonomy emerged as having a strong and clear correlation with job satisfaction: more autonomy in a job leads to higher job satisfaction among employees. So organizations should make such policies and allow them to design their own work to some extent.

5) Organizations and Government should restructure the benefit policies to accommodate the contingent workforce of an economy.

6) Employers should properly implement Factory act 1934 and other labor laws so that contingent workers can enjoy social security and other fringe benefits and also there should be proper monitoring from government respected departments.

7) Government of Pakistan must reconsider the “Two-day industry off” policy because it will harm contingent workforce badly in the form of unemployment and low income level.

8) Contingent employees should be evaluated and appraised by the immediate supervisor. This strategy will lead them to contribute more efficiency towards their work like standard employees.

References Allan, P. (2002). The contingent workforce: Challenges and new directions. American Business Review, 20(2), 103-110. Allen, P. and Seinko, S. (1997). A comparison of contingent and core workers' perceptions of their jobs' characteristics and motivational properties. S.A.M. Advanced Management Journal, summer 1997; 62, 3, 4-12. Audrey Freedman. (1985). Conference on employment security. Adrian Furham, K.V. Petrides, Chris J. Jackson, Tim Cotter. Do personality factors predict job satisfaction?( Personality and INDIVIDUAL differences 33 (2002) 1325-1342) Andrew E. Clark Nicolai Kristensen , Niels Wetergard, Nielsen. Job satisfaction and coworker wages status or signal? (IZADP no. 3073, September 2007). Andrea Salvatori , Labour contract regulation and workers wellbeing( international longitudinal evidence IZA DP NO. 4685, January 2010). Andrew E. Clrak, Andrew J. Oswald b.( jornal of public economics 61(1996) 359-381. Chang Lee, Kelly Way, individual employment characteristics of hotel employees that play role in employee satisfaction and work retention. (international journal of hospitality management 29(2010), 344-353). Colin Green, Pervinde Kler, Grath Leevs. Flexible contract workers in inferior jobs: reapprising the evidence, ( working paper 2008/003, http://www.lums.lances.ac.uk). Chong M. Lau, Mahfud Sholihin. Financial and non financial performance measures: how do they affect job satisfaction? ( the british accounting review 37 (2005) 389-413). Daiji Kawaguchi. Compensating wage differentials among self employeed workers: evidence from job satisfaction scores.( discussion paper 568,(2002). Deci E.L . Intrinsic motivation, Extrinsic Reinforcement, and inequity.( journal of personality factors and social psychology, vol. 22(1972), 113-120). Eric Bonsang, Arthur van Soest. Satisfaction with job and income among older individuals across European countries, (discussion paper 02/2010, 005). Erica French, Glenda Strachan. Evaluating equal employeement opportunity and its impact on the increased participation of men and women in the transport industry. ( transportation research part A 43(2009) 78-89).


Feldman, D.C. reconceptualizing the nature and consequences of part time work, (Academy of Management Review, 15(1). 1990, 103-112). Feldman, D.C. , Doerpinghaus, H.I., &Turnley W.H. employee reactions to temporary jobs ( journal of managerial issues, 7 (1995) 127-141). Gregory C. Wolniak, Ernest T. Pascarell. The effects of college major and job field congruence on job satisfaction. ( journal of vocational behavior 67(2005) 233-251). Hackman J.R. & Oldham G. R. motivation through the design of work: test of a theory. (organizational behavior and human decision processes, 16 (1976) 250-279. Hackman J.R. &Oldham G.R. work redesign ( reading, MA Addison Wesley (1980). Jeffery P. Slattery T.T. Selvarajan John E. Anderson Ron Sardessai. Relationship between job characteristics and attitudes. A study of temporary employees.(journal of applied social psychology, (2010) 40,6, pp. 1539-1565). Koys D. the effects of employee satisfaction, organizational citizenship behavior, and turnover on organizational effectiveness : (a unit level, longitudinal study, personnel Psychology, 54(1) , sep 2001, 101-114). Lance A. Bettencourt , Stephen W. Brown. Contact employees: relationships among workplace fairness, job satisfaction and prosocial service behaviors.( journal of retailing, vol 73(1), 1997, pp.39-61.). Lutz Kaiser. Gender job satisfaction differences across Europe: (an indicator for labor market modernization 2005 , http://ssrn.com). Locke E.A. the nature and causes of job satisfaction. (1976, 16 250-279). Muriel D. Saunders, Jhon P. Smagner, Richard R. Saunders: improving methodological and technological analysis of adaptive switch use of indiviuals with profound multiple impairments. (1990, 15(1), 103-112). Merriam . this is a rigorous integrated account and analysis of a single illustration and occurrence. 54(1) sep 1998 101-114. Marshall Schminke, Russell Cropanzano & Deborah E. Rupp. Organizational structure and fairness perception. ( journal of applied psychology, 2002, 6, pp.45-89). Marloes De Graaf Zijl. The anatomy of job satisfaction and the role of contigent employment contracts( Tinbergen institute, discussion paper119/3, oct 2005). Nguyen, A.N. Tayler J. and Bradley S. job autonomy and job satisfaction: new evidence. ( working paper 050, deptt of economics, Lancaster university management school, 2003b). Osman M. Karatepe, Orhan Uludag, Ismet Menevis, Lejla Hadzimehmedagic, Lulu Badda. ( tourism management 27(2006) 547-560). Patrick G. M. Jansen, Ada Kerkstra, Huda Huijer Abu- saad, Jouke Vander Zee. The effects of job characteristics and individual characteristics on job satisfaction and burnout in community nursing.( international journal nursing. Stud, vol. 33 , no.4, pp 407-421). Rose, M., „Job satisfaction in Britain: Coping with complexity‟, British Journal of Industrial Relations, Vol. 43, No. 3, September 2005. Spector, E. S. (1996). Industrial and organizational psychology: Research and practice. New York: Wiley. Steers, R. M., Porter, L. W., & Bigley, G. A. (1996). Motivation and leadership at work. New York: McGraw- Hill. Spector, P.E. (1997). Job satisfaction: Application, assessment, cause, and consequences. Thousand Oaks, CA: Sage Publications, Inc. Suteria, Gansesan & Ranjindaran. (1982). Source of satisfaction and Dissatisfaction of job. Shafqat Naeem Akhtar, Muhammad Amir Hashmi. A comparative study of job satisfaction in public and private school teachers at secondary level.( procedia social and behavioral sciences 2 92010) 4222-4228). Samuel Aryee, Zhen Xiong Chen. Exchange fairness and employee performance: an examination of the relationship between organizational politics and procedural justice.( organizational behavior and human decision processes 94(2004) 1-14). Susan J. Linz, William Davidson. Job satisfaction among Russian workers. Working paper number 468, deptt of economics (517) 353-7280, may 2002). Stephen P. Schappe, Understanding Employee Job Satisfaction: The Importance Of Procedural And Distributive Justice, (journal of business and psychology, vol 12, no.4 1998). Thomas Cornelissen John S. Heywood Uwe Jirjahn Performance Pay, Risk Attitudes and Job Satisfaction. Oct 2008( http://www.diw.de/soeppapers). Williams, L. J. and Hazer, J. T. (1986). Antecedents and consequences of satisfaction and commitment in turnover models: A re-analysis using latent variable structural equations models. Journal of Applied Psychology, 71, 219-231. Williams, J.R., Job satisfaction and organizational commitment , a Sloan Work and Family Encyclopedia entry, ( tourism management 27(2006) 547-560). Xinyuan (Roy) Zhao, HailinQu, Richard Ghiselli (2010) Examining the relationship of work–family conflict to job and life satisfaction: A case of hotel sales managers journal of retailing, vol 73(1), 1997, pp.39-61.).

A Theoretical Model for Reverse Service Outsourcing and Its Implications for Chinese Economy

MENG Xue & ZHANG Zhi‐dong Shanghai University of Finance and Economics, China

Key Words Chinese Economy, Reverse Service Outsourcing, Stolper-Samuelson Theorem, Rybczynski Theorem. Abstract We develop a theoretical model for reverse service outsourcing based on the traditional international trade theory‐‐‐specific factor model, and the organization of firm theory. Taking the characteristics of producer services into consideration, the model produced the modified version of Stolper‐Samuelson theorem and Rybczynski theorem. An individual firm is in face of two steps of decisions: one is to decide whether to outsource by trading off between lower service price and higher communication and contract costs; the other is to make the decision on outsourcing to which firm, the domestic service firm or the multinationals in the equilibrium model. The quantitative test based on the Chinese‐economy data is used to simulate the theoretical model and gives the implications for Chinese economy.


A Theoretical Model for Reverse Service Outsourcing and Its Implications for Chinese Economy

MENG Xue & ZHANG Zhi‐dong Shanghai University of Finance and Economics, China

Key Words Chinese Economy, Reverse Service Outsourcing, Stolper-Samuelson Theorem, Rybczynski Theorem. Abstract We develop a theoretical model for reverse service outsourcing based on the traditional international trade theory‐‐‐specific factor model, and the organization of firm theory. Taking the characteristics of producer services into consideration, the model produced the modified version of Stolper‐Samuelson theorem and Rybczynski theorem. An individual firm is in face of two steps of decisions: one is to decide whether to outsource by trading off between lower service price and higher communication and contract costs; the other is to make the decision on outsourcing to which firm, the domestic service firm or the multinationals in the equilibrium model. The quantitative test based on the Chinese‐economy data is used to simulate the theoretical model and gives the implications for Chinese economy.


African and Asian Economic Union: A Call for the Establishment of Afrasian Economic Community (AAEC or AfrAsEC)

Rasheed Olajide ALAO Adeyemi College of Education, Ondo, Nigeria

Key Words Africa, Asia, Afrasia, Afrasian Economic Community. Abstract This study explores African and Asian economic communities across the two continents. The research deems it fit to form a unified single economic space in the Afrasian region called Afrasian Economic Community (AAEC or AfrAsEC). Africa or African Union (AU) is blessed with Economic Community of West African States (ECOWAS), Economic Community of Central African States (ECCAS), Common Market for Eastern and Southern Africa (COMESA), Community of Sahel-Saharan States (CEN-SAD), Council of Arab Economic Unity (CAEU), Arab Maghreb Union (UMA), Intergovernmental Authority on Development (IGAD), East African Community (EAC) and the Southern African Development Community (SADC). In Asia, we have Asia-Pacific Trade Agreement (APTA), Association of Southeast Asian Nations (ASEAN), Gulf Cooperation Council (GCC), Economic Cooperation Organization (ECO), Eurasian Economic Community (EAEC), Shanghai Cooperation Organisation (SCO) and the South Asian Association for Regional Cooperation (SAARC). Combining the wealth of the largest duo, a mega regional economic union of AFRASEC needed for mutual benefits of the mega-earth on customs union, foreign direct investments, technological transfer, free trade area, single economic space and trade promotion. Introduction

Regional economic communities (RECs) are mostly formed in order to have common identities such as fostering free trade zone, customs union, single economic space, trade promotion, common currency or monetary union, technological transfer and language exchange. Continent Africa has been dwindling in economic growth, backwardly in engineering and technology, Medicine and virtually in all sectors. Economically combining Africa with Asia will enhance productivity in Africa in particular while Asia will benefit mostly in importing petroleum resources and agricultural products. At this juncture, the law of comparative cost advantage will set in. Direct foreign investment is another key factor considerable for the Africa-Asia tie. Foreign Direct Investment flows to Africa has been complimenting or substituting host economy, depending on the variables put in place in the respective countries. FDI from Asia will undoubtedly improve Africa economies when the western world FDI seems substituting host economy instead of complimentary assistance. Though few African professionals within and outside the continent are extraordinaire relatively to their foreign counterparts. Africa alone produces at least nine regional economic communities, RECs while Asia, the largest and most populous continent on earth have about seven economic regions. In Africa, notable regional economic communities include Economic Community of West African States (ECOWAS) of fifteen member countries, Economic Community of Central African States (ECCAS) of six members while the East African Community (EAC) is the regional intergovernmental organization of the Republics of Burundi, Kenya, Rwanda, Uganda and Tanzania. Others are the Common Market for Eastern and Southern Africa (COMESA), Southern African Development Community (SADC) the most integrated and possibly the most successful of all of the African trade blocs in terms of regional cooperation and the mutual benefit of the member countries. Planet‟s largest and most populous Asia continent comprise many RECs notable among them are the Asia-Pacific Trade Agreement (APTA), Association of Southeast Asian Nations (ASEAN), Gulf Cooperation Council or Cooperation Council for the Arab States of the Gulf (GCC or CCASG), Economic Cooperation Organization (ECO), Eurasian Economic Community (EAEC), Shanghai Cooperation Organisation (SCO) and the South Asian Association for Regional Cooperation (SAARC). In the same parlance with the Eurasian Economic Community (EAEC), the objective of this paper is to form a single economy space for Africa and Asia (or Afrasia) by establishing Afrasian Economic Community (AAEC or AfrAsEC). The remainder of this paper is organised as follows. Section two presents rationale behind the

establishment of Afrasian Economic Community (AFRASEC); section three presents background notes on Africa and Asia while section four covers concluding remarks and recommendation.

Rationale behind the establishment of Afrasian Economic Community (AAEC or AfrAsEC) The fifty-four African Presidents and Heads of governments including South Sudan, the newest

African fifty-fourth country and the forty-four Asian Presidents and Kings need to establish AFRASEC of ninety-eight (98) members which will form the largest economic community on earth for the following reasons:

(a) Free Trade Opportunity (FTO). Both continents will enjoy cross-border and cross-continent free trade opportunity as a result of

forming customs union with lesser tariffs within the mega-community.

(b) Growth and Development (G&D). To boost eco-growth and co-ordinate economic development and formulate programs for the

attainment of joint Africa-Asia development of intercontinental project, AFRASEC is sin qua non.

(c) Intercontinental Tie. The Eurasian Economic Community (EAEC) is a good example worthy of emulation by African and

Asian RECs to form a single economic community. The London-based Hong Kong and Shanghai Banking Corporation (HSBC) in Europe is a product of Europe and Asia tie. The London-based HSBC is one of the strongest banks in the world owned by Hong Kong and Shanghai from Southern coast of China and Eastern China respectively. As of 30 June 2010, it had total assets of $2.418 trillion, of which roughly half were in Europe, a quarter in the Americas and a quarter in Asia (HSBC, 2010). Following the establishment of AFRASEC, HSBC will have no option other than to have branche(s) in African countries.

(d) Foreign Direct Investments (FDI). With establishment of AFRASEC, there will be great influx of capitals especially from the G20

members to Less Developed Countries (LCDs). In Africa, only South Africa belongs to G20 that is the group of best twenty economies in the world while in Asia alone, China, South Korea, India, Singapore, Turkey, Indonesia, Saudi Arabia and Japan form greater part of G20. It is glaringly clear that good numbers of G20 members are from Asia while only a nucleus of South Africa make up of G20. Therefore Africa will tremendously benefit from the economic union.

(e) Foreign Loans Foreign borrowing by African countries from the western world has been pauperizing the continent

for long with long term and unbearable servicing conditions. From records, highly indebted countries to the world monies are mostly from Africa and Asia. With AFRASEC, such loans (both debtors and creditors) within Africa will be comparatively less detrimental to the emerging economies and that lending and borrowing within the proposed community will attract softer interest rates with convenient repayment.

(f) Human Resources Exchange (HRE). Africa is highly blessed with gifted hands of skilled labour most especially in areas of agriculture,

health sciences, engineering and social sciences. With AFRASEC, cross-continental exchange of skilled professionals will enhance the economies of both continents.

(g) Technological Transfer (TT). China, the fastest growing economy in the world coupled with Japan is blessed with world class

manufacturing and industrial technology especially in the areas of automobile, office equipment and machinery. Establishing AFRASEC will therefore benefit emerging African and Asian economies in transferring technology to the needed members.

Background Notes on Africa and Asia

1 Synopsis of Africa AFRICA my AFRICA, the planet's second largest continent and the second most-populous

continent (after Asia) comprises fifty-four (54) countries including the newest Southern Sudan. With just


establishment of Afrasian Economic Community (AFRASEC); section three presents background notes on Africa and Asia while section four covers concluding remarks and recommendation.

Rationale behind the establishment of Afrasian Economic Community (AAEC or AfrAsEC) The fifty-four African Presidents and Heads of governments including South Sudan, the newest

African fifty-fourth country and the forty-four Asian Presidents and Kings need to establish AFRASEC of ninety-eight (98) members which will form the largest economic community on earth for the following reasons:

(a) Free Trade Opportunity (FTO). Both continents will enjoy cross-border and cross-continent free trade opportunity as a result of

forming customs union with lesser tariffs within the mega-community.

(b) Growth and Development (G&D). To boost eco-growth and co-ordinate economic development and formulate programs for the

attainment of joint Africa-Asia development of intercontinental project, AFRASEC is sin qua non.

(c) Intercontinental Tie. The Eurasian Economic Community (EAEC) is a good example worthy of emulation by African and

Asian RECs to form a single economic community. The London-based Hong Kong and Shanghai Banking Corporation (HSBC) in Europe is a product of Europe and Asia tie. The London-based HSBC is one of the strongest banks in the world owned by Hong Kong and Shanghai from Southern coast of China and Eastern China respectively. As of 30 June 2010, it had total assets of $2.418 trillion, of which roughly half were in Europe, a quarter in the Americas and a quarter in Asia (HSBC, 2010). Following the establishment of AFRASEC, HSBC will have no option other than to have branche(s) in African countries.

(d) Foreign Direct Investments (FDI). With establishment of AFRASEC, there will be great influx of capitals especially from the G20

members to Less Developed Countries (LCDs). In Africa, only South Africa belongs to G20 that is the group of best twenty economies in the world while in Asia alone, China, South Korea, India, Singapore, Turkey, Indonesia, Saudi Arabia and Japan form greater part of G20. It is glaringly clear that good numbers of G20 members are from Asia while only a nucleus of South Africa make up of G20. Therefore Africa will tremendously benefit from the economic union.

(e) Foreign Loans Foreign borrowing by African countries from the western world has been pauperizing the continent

for long with long term and unbearable servicing conditions. From records, highly indebted countries to the world monies are mostly from Africa and Asia. With AFRASEC, such loans (both debtors and creditors) within Africa will be comparatively less detrimental to the emerging economies and that lending and borrowing within the proposed community will attract softer interest rates with convenient repayment.

(f) Human Resources Exchange (HRE). Africa is highly blessed with gifted hands of skilled labour most especially in areas of agriculture,

health sciences, engineering and social sciences. With AFRASEC, cross-continental exchange of skilled professionals will enhance the economies of both continents.

(g) Technological Transfer (TT). China, the fastest growing economy in the world coupled with Japan is blessed with world class

manufacturing and industrial technology especially in the areas of automobile, office equipment and machinery. Establishing AFRASEC will therefore benefit emerging African and Asian economies in transferring technology to the needed members.

Background Notes on Africa and Asia

1 Synopsis of Africa AFRICA my AFRICA, the planet's second largest continent and the second most-populous

continent (after Asia) comprises fifty-four (54) countries including the newest Southern Sudan. With just


over a billion people (a 2009 estimate) it accounts for just over 14% of the world's human population and it also contains the Nile River system, the world's longest, and the massive Sahara Desert, the world's largest (Worldatlas, 2011). At about 30.2 million km² (11.7 million sq mi) including adjacent islands, it covers 6% of the Earth's total surface area and 20.4% of the total land area (Sayre, 1999). The continent is surrounded by the Mediterranean Sea to the north, both the Suez Canal and the Red Sea along the Sinai Peninsula to the northeast, the Indian Ocean to the southeast, and the Atlantic Ocean to the west. The continent has 54 sovereign states, including the 54th Southern Sudan, Madagascar and various island groups (see figure 1 and table 1). According to Epstein and Kole (1998) there are 3,000 or more languages natively spoken in Africa in several major language families of the following group:

1) Afro-Asiatic stretches from North Africa to West Africa and the Horn of Africa to Southwest Asia. 2) Nilo-Saharan is centered on Sudan and Chad (disputed validity) 3) Niger–Congo covers West, Central, and Southeast Africa 4) Khoe is concentrated in the deserts of Namibia and Botswana 5) Austronesian on Madagascar. 6) Indo-European on the Southern tip of the continent.

About a hundred of the languages of Africa are widely used for inter-ethnic communication notable among them are: Berber, Igbo, Swahili, Hausa, Amharic, and Yoruba are spoken by tens of millions of people. The African continental community otherwise called African Union (AU) is blessed with many regional economic communities namely, Economic Community of West African States (ECOWAS), Economic Community of Central African States (ECCAS), Common Market for Eastern and Southern Africa (COMESA), Community of Sahel-Saharan States (CEN-SAD), Council of Arab Economic Unity (CAEU), Arab Maghreb Union (UMA), Intergovernmental Authority on Development (IGAD), East African Community (EAC) and the Southern African Development Community (SADC) (IGAD, 2010; AU, 2010; ECOWAS, ECCAS, COMESA, CEN-SAD, CAEU, UMA, EAC, SADC 2011) (see tables 1and 2 and figures 2-3). Figure 1: Map of Africa

Source: www.worldatlas.com/

Table1: Africa: Classification of 54 Countries including Southern Sudan Geographic Regions Africa (54) North Africa (5) Sub-Sahara (contd) Algeria West and Central Africa (23) Morocco Benin Tunisia Burkina Faso Egypt Cameroon Libya Cape Verde Sub-Sahara (48) Central Africa Rep. Horn of Africa (5) Chad Djibouti Congo Rep. Of Eritrea Cote d‟ivoire Ethiopia Equatorial Guinea Somalia Gabon *North Sudan and South Sudan Gambia, The Great Lakes (6) Ghana Burundi Guinea Congo, Dem. Rep. of Guinea-Bissau Kenya Liberia Rwanda Mali Tanzania Mauritania Uganda Niger Southern African (14) Nigeria Angola Sao Tome and Principe Botswana Senegal Comoros Sierra Leone Lesotho Togo Madagascar Malawi Mauritius Mozambique Namibia Seychelles South Africa Swaziland Zambia Zimbabwe Other Economic Group Fuel (8) Nonfuel Primary Commodity Exporters(13) Algeria Burkina Faso Angola Burundi Chad Congo Dem. Rep. Of Congo, Rep. Of Guinea Equatorial Guinea Guinea-Bissau Gabon Malawi Nigeria Mali North Sudan; South Sudan Mauritania Mozambique Namibia Zimbabwe


Table1: Africa: Classification of 54 Countries including Southern Sudan Geographic Regions Africa (54) North Africa (5) Sub-Sahara (contd) Algeria West and Central Africa (23) Morocco Benin Tunisia Burkina Faso Egypt Cameroon Libya Cape Verde Sub-Sahara (48) Central Africa Rep. Horn of Africa (5) Chad Djibouti Congo Rep. Of Eritrea Cote d‟ivoire Ethiopia Equatorial Guinea Somalia Gabon *North Sudan and South Sudan Gambia, The Great Lakes (6) Ghana Burundi Guinea Congo, Dem. Rep. of Guinea-Bissau Kenya Liberia Rwanda Mali Tanzania Mauritania Uganda Niger Southern African (14) Nigeria Angola Sao Tome and Principe Botswana Senegal Comoros Sierra Leone Lesotho Togo Madagascar Malawi Mauritius Mozambique Namibia Seychelles South Africa Swaziland Zambia Zimbabwe Other Economic Group Fuel (8) Nonfuel Primary Commodity Exporters(13) Algeria Burkina Faso Angola Burundi Chad Congo Dem. Rep. Of Congo, Rep. Of Guinea Equatorial Guinea Guinea-Bissau Gabon Malawi Nigeria Mali North Sudan; South Sudan Mauritania Mozambique Namibia Zimbabwe


Source: World Economic Outlook, IMF (cited by Alao, 2010) *South Sudan recently spilt from old Sudan with independence on July 9, 2011 Table 2: Africa International Economic Communities

Community Flag/Logo

Year OfficialLanguage

Secretariat

Members

1 Arab Maghreb Union (UMA)

1989 Arabic, French Rabat, Morocco

Five: Algeria, Libya, Mauritania, Morocco, and Tunisia.

2 Common Market for Eastern and Southern Africa (COMESA)

1994 English, French and Portuguese

Lusaka, Zambia

Nineteen: Burundi, Comoros, D.R. Congo, Djibouti, Egypt, Eritrea, Ethiopia, Kenya, Libya, Madagascar, Malawi, Mauritius, Rwanda, Seychelles, Sudan, Swaziland, Uganda, Zambia, Zimbabwe

3 Community of Sahel-Saharan States (CEN-SAD)

1998 English, French, Arabic and Portuguese

Tripoli, Libya

Twenty-eight: Burkina Faso, Chad, Central African Republic, Mali, Niger, Sudan, Comoros, Djibouti, Egypt, Eritrea, Ethiopia, Morocco, Gambia, Kenya, Libya, Zimbabwe, Benin, Nigeria, Senegal, Togo, Côte d'Ivoire, Guinea, Guinea-Bissau, Liberia, Ghana, Sierra Leone, Mauritania and São Tomé and Príncipe.

4 Council of Arab Economic Unity (CAEU)

1957 Arabic Cairo, Egypt

Eighteen: Algeria, Bahrain, Oman, Qatar, Egypt, Iraq, Jordan, Kuwait, Libya, Mauritania, Palestine, Saudi Arabia, Somalia, Sudan, Tunisia, Syria, United Arab Emirates and Yemen

5 East African Community (EAC)

1967 Swahili, English,

French, Kirundi and Kinyarwanda

Arusha, Tanzania

Five: Burundi, Kenya, Rwanda, Tanzania, and Uganda

6 Economic Community of Central African States, ECCAS (French: Communauté Économique des Etats de l'Afrique

1983 French and Portuguese

Libreville, Gabon

Ten: Chad, Cameroon, Central Africa Republic, DR Congo, Equitorial Guinea, Gabon, Angola, Burundi, Republic of Congo and São Tomé and Príncipe.

Community Flag/Logo


Secretariat

Members

Centrale, CEEAC) 7 Economic

Community of West African States, ECOWAS (French: Communauté économique des États de l'Afrique de l'Ouest, CEDEAO)

1975 English and French

Abuja, Nigeria

Fifteen: Benin, Burkina Faso, Cote d‟ivoire, The Gambia, Ghana, Guinea, Guinea-Bissau, Liberia, Mali, Niger, Nigeria, Senegal, Sierra Leone, Togo and Cape Verde.

8 Intergovernmental Authority on Development, IGAD

1986 French Djibouti City, Djibouti

Seven: Djibouti, Ethiopia, Kenya, Somalia, Sudan, Uganda and Eritrea.

9 Southern African Development Community (SADC)


Gaborone, Botswana

Fifteen: Angola, Botswana, DR Congo, Lesotho, Madagascar, Malawi, Mauritius, Mozambique, Namibia, Seychelles, South Africa, Swaziland, United Republic of Tanzania, Zambia and Zimbabwe

Source: Compiled by the author Figure 2: Euler diagram showing the relationships between various multinational African organizations.

Source: Wikipedia


Community Flag/Logo


Secretariat

Members

Centrale, CEEAC) 7 Economic

Community of West African States, ECOWAS (French: Communauté économique des États de l'Afrique de l'Ouest, CEDEAO)

1975 English and French

Abuja, Nigeria

Fifteen: Benin, Burkina Faso, Cote d‟ivoire, The Gambia, Ghana, Guinea, Guinea-Bissau, Liberia, Mali, Niger, Nigeria, Senegal, Sierra Leone, Togo and Cape Verde.

8 Intergovernmental Authority on Development, IGAD

1986 French Djibouti City, Djibouti

Seven: Djibouti, Ethiopia, Kenya, Somalia, Sudan, Uganda and Eritrea.

9 Southern African Development Community (SADC)


Gaborone, Botswana

Fifteen: Angola, Botswana, DR Congo, Lesotho, Madagascar, Malawi, Mauritius, Mozambique, Namibia, Seychelles, South Africa, Swaziland, United Republic of Tanzania, Zambia and Zimbabwe

Source: Compiled by the author Figure 2: Euler diagram showing the relationships between various multinational African organizations.

Source: Wikipedia


Figure 3: Map of the African Economic Community

Source: Wikipedia 2 Synopsis of Asia

As the planet‟s largest continent, Asia covers about 30% of the world landmass and 44 countries and assorted islands. Notable features of Asia include the tallest mountain of Mt Everest in Nepal (and China) with height of 29,035 ft (8,850m). Also Asia is blessed with world most populated countries, China and India; the world longest coastline and the world deepest lake, lake baykal among other notable rivers. The continent‟s regional economic communities include Asia-Pacific Trade Agreement (APTA), Association of Southeast Asian Nations (ASEAN), Cooperation Council for the Arab States of the Gulf (CCASG), Economic Cooperation Organization (ECO), Eurasian Economic Community (EAEC), Shanghai Cooperation Organisation (SCO) and the South Asian Association for Regional Cooperation (SAARC) (APTA, ASEAN, GCC, ECO, EAEC, SCO, SAARC 2011) (see figure 3 and tables 3-4). Figure 3: Map of Asia

Source: www.worldatlas.com/

Table 3: List of 44 Countries in Asia South Asia Countries North Asia Countries

Country Capital Country Capital

Afghanistan Kabul Kazakhstan Astana Bangladesh Dacca Kyrgyzstan Bishkek

Bhutan Thimpu Tajikistan Dushanbe

Brunei Bandar Seri Begawan Turkmenistan Ashgabat

Cambodia Phnom Penh Uzbekistan Tashkent India New Delhi

Indonesia Jakarta East Asia Countries Laos Vientiane Country Capital

Malaysia Kuala Lumpur China Beijing Maldives Male Japan Tokyo Myanmar Yangon North Korea Pyongyang

Nepal Kathmandu South Korea Seoul Pakistan Islamabad Mongolia Ulan Bator

Papua New Guinea Port Moresby Taiwan Taipei

Philippines Manila

Singapore Singapore West Asia Countries

Sri Lanka Colombo Country Capital Thailand Bangkok Bahrain Manama Vietnam Hanoi Georgia Tbilisi

Iran Teheran Iraq Baghdad Israel Tel Aviv Jordan Amman Kuwait Kuwait City Lebanon Beirut Oman Muscat Qatar Doha Saudi Arabia Riyadh Syria Damascus U.A.E. Abu Dhabi Yemen Sanaa

Source: adapted from www.buzzle.com/ and cited by Alao (2010)


Table 3: List of 44 Countries in Asia South Asia Countries North Asia Countries

Country Capital Country Capital

Afghanistan Kabul Kazakhstan Astana Bangladesh Dacca Kyrgyzstan Bishkek

Bhutan Thimpu Tajikistan Dushanbe

Brunei Bandar Seri Begawan Turkmenistan Ashgabat

Cambodia Phnom Penh Uzbekistan Tashkent India New Delhi

Indonesia Jakarta East Asia Countries Laos Vientiane Country Capital

Malaysia Kuala Lumpur China Beijing Maldives Male Japan Tokyo Myanmar Yangon North Korea Pyongyang

Nepal Kathmandu South Korea Seoul Pakistan Islamabad Mongolia Ulan Bator

Papua New Guinea Port Moresby Taiwan Taipei

Philippines Manila

Singapore Singapore West Asia Countries

Sri Lanka Colombo Country Capital Thailand Bangkok Bahrain Manama Vietnam Hanoi Georgia Tbilisi

Iran Teheran Iraq Baghdad Israel Tel Aviv Jordan Amman Kuwait Kuwait City Lebanon Beirut Oman Muscat Qatar Doha Saudi Arabia Riyadh Syria Damascus U.A.E. Abu Dhabi Yemen Sanaa

Source: adapted from www.buzzle.com/ and cited by Alao (2010)


Table 4: Asia International Economic Communities Community Flag/Logo Year Languag

e Secretariat Members

1 Asia-Pacific Trade Agreement (APTA)

1975 English Bangkok, Thailand

Six: Bangladesh, China, India, Republic of Korea, Lao People's Democratic Republic and Sri Lanka.

2 Association of Southeast Asian Nations (ASEAN)

1967 English Jarkarta, Indonesia

Ten: Brunei, Cambodia, Indonesia, Laos, Malaysia, Burma (Myanmar), Philippines, Singapore, Thailand and Vietnam

3 Gulf Cooperation Council (GCC)

1981 Arabic Riyadh, Saudi Arabia

Six: Bahrain, Kuwait, Oman, Qatar, Saudi Arabia, and United Arab Emirates

4 Economic Cooperation Organization (ECO)

1985 English Tehran, Iran Ten: Iran, Pakistan, Turkey, Afghanistan, Azerbaijan, Kazakhstan, Kyrgyzstan, Tajikistan, Turkmenistan and Uzbekistan

5 Eurasian Economic Community (EAEC or EurAsEC)

1996 Almaty, Minsk, Moscow and Saint Petersburg

Six: Belarus, Kazakhstan, Kyrgyzstan, Tajikistan, Uzbekistan and Russia

6 Shanghai Cooperation Organisation (SCO)

1996 Chinese and Russian

Shanghai, China

Six: China, Kazakhstan, Kyrgyzstan, Russia, Tajikistan, and Uzbekistan

7 South Asian Association for Regional Cooperation (SAARC)

1985 English Kathmandu, Nepal

Eight: Afghanistan, Bangladesh, Bhutan, India, the Maldives, Nepal, Pakistan and Sri Lanka.

Source: Compiled by the author Concluding Remarks and Recommendation

Concluding Remarks This research navigates African and Asian economic communities across the two largest continents.

The study proposes the formation of a unified, single, intercontinental economic bloc in the Afrasian region called African-Asian Economic Community (AFRASEC). Africa or African Union (AU) is blessed with regional economic communities (RECs) such as Economic Community of West African States (ECOWAS), Economic Community of Central African States (ECCAS), Common Market for Eastern and Southern Africa (COMESA), Community of Sahel-Saharan States (CEN-SAD), Council of Arab Economic Unity (CAEU), Arab Maghreb Union (UMA), Intergovernmental Authority on Development (IGAD), East African Community (EAC) and the Southern African Development Community (SADC). In Asia, the continent have notable RECs such as Asia-Pacific Trade Agreement (APTA), Association of Southeast

Asian Nations (ASEAN), Cooperation Council for the Arab States of the Gulf (CCASG) or Gulf Cooperation Council (GCC), Economic Cooperation Organization (ECO), Eurasian Economic Community (EAEC), Shanghai Cooperation Organisation (SCO) and the South Asian Association for Regional Cooperation (SAARC). Combining the wealth of the largest duo continents, a mega transcontinental economic union of Afrasian Economic Community (AFRASEC) is indispensable for mutual benefits of Africa and Asia. Recommendation

It is no doubt that international economic communities fosters on free trade zone, customs union, trade promotion, common currency or monetary union, technological transfer and language exchange within the single economic space. On these bases, this study globally explores and navigates through the pillars of regional economic communities in Africa and Asia. The study therefore recommends: 1. The establishment of the AfrAsian Economic Community (AAEC or AfrAsEC) for betterment and

a greater Afrasia. Each continent‟s regional economic communities (RECs) chairmen/secretaries-general and their commissions‟ chairmen need to put heads together to formulate AAEC.

2. That African Union (AU) and the Asian Unions need to sensitize their Regional Economic Communities‟ chairmen and secretaries-general the mutual benefit of the recommended Afrasian Economic Community (AAEC).

3. That with the establishment of AAEC, the leadership of both continents advisably needs to establish an intercontinental African-Asian University (AAU) with main campus in Africa and satellite campuses across both continents. The world class university, if located in Africa will help develop and expose Africa to the developed global academics. The transcontinental university will benefit both mega earths in producing or training intercontinental personnel in multifarious disciplines especially in areas of agriculture, medical, natural and social sciences, engineering, Arts and Education.

References Alao, R.O. (2006). Fundamentals of Monetary Economics, 1st Edition, Muhasmael Ventures, Lagos. Alao, R. O. (2010). „Impoverishing Africa: The Alternative Therapy to the World Bank and IMF Economic Medicine‟, European Journal of Scientific Research, (EJSR), vol. 47(4): 531-543. African Union (2011). „Regional Economic Communities: Economic Community of Central African States (ECCAS)‟, viewed 12 May, 2011, http://www.africaunion.org /root/au/recs/eccas.htm APTA (2011). „Asia-Pacific Trade Agreement: Background‟, viewed 13 May, 2011, http://www.unescap.org/tid/apta.asp ASEAN (2011). „Association of Southeast Asian Nations: Establishment‟, viewed 21 July, 2011, http://www.asean.org/about_ASEAN.html COMESA (2011). „About Common Market for Eastern and Southern Africa‟, viewed on July 12, 2011, http://www.comesa.int/Epstein, E.L. and Kole, R.(1998). The Language of African Literature, Africa World Press, p. ix. ECO (2011). „About ECO‟, viewed 30 July, 2011, http://www.ecosecretariat.org /ECOWAS (2011). „About ECOWAS‟, viewed 20 June, 2011, http://www.ecowas.int/ EAC (2011). „East African Community: One people One Destiny‟, viewed 21 July, 2011, http://www.eac.int/ GCC (2011). „Gulf Cooperation Council: Foundations and Objectives‟, viewed 25 July, 2011, http://www.gcc-sg.org/eng HSBC (2010). Form 10-K, Hong Kong and Shanghai Banking Corporation HSBC Holdings plc" IGAD (2010). „Intergovernmental Authority on Development: About Us‟, viewed 12 July, 2011, http://igad.int/ Maya P. (2010). „List of 44 Countries in Asia‟, viewed 23 April, 2011, http://www.buzzle.com/articles/list-of-countries-in-asia.html SARRC (2011). „About South Asian Association for Regional Cooperation‟, viewed 29 July, 2011, http://www.saarc-sec.org/ SADC (2011). „Southern African Development Community: About‟, viewed 23 June, 2011, http://www.sadc.int/ SCO (2011). „About SCO‟, viewed 30 July, 2011, http://www.sectsco.org/EN/ Sayre, A.P. (1999). Africa, Twenty-First Century Books. Worldatlas (2011). Map of Africa, viewed on 23 July, 2011, http://www.google.com.ng /imgres?imgurl Worldatlas (2011). Map of Asia, viewed 23 July, 2011, http://www.worldatlas.com /aatlas/infopage/okhotsk.htm


Asian Nations (ASEAN), Cooperation Council for the Arab States of the Gulf (CCASG) or Gulf Cooperation Council (GCC), Economic Cooperation Organization (ECO), Eurasian Economic Community (EAEC), Shanghai Cooperation Organisation (SCO) and the South Asian Association for Regional Cooperation (SAARC). Combining the wealth of the largest duo continents, a mega transcontinental economic union of Afrasian Economic Community (AFRASEC) is indispensable for mutual benefits of Africa and Asia. Recommendation

It is no doubt that international economic communities fosters on free trade zone, customs union, trade promotion, common currency or monetary union, technological transfer and language exchange within the single economic space. On these bases, this study globally explores and navigates through the pillars of regional economic communities in Africa and Asia. The study therefore recommends: 1. The establishment of the AfrAsian Economic Community (AAEC or AfrAsEC) for betterment and

a greater Afrasia. Each continent‟s regional economic communities (RECs) chairmen/secretaries-general and their commissions‟ chairmen need to put heads together to formulate AAEC.

2. That African Union (AU) and the Asian Unions need to sensitize their Regional Economic Communities‟ chairmen and secretaries-general the mutual benefit of the recommended Afrasian Economic Community (AAEC).

3. That with the establishment of AAEC, the leadership of both continents advisably needs to establish an intercontinental African-Asian University (AAU) with main campus in Africa and satellite campuses across both continents. The world class university, if located in Africa will help develop and expose Africa to the developed global academics. The transcontinental university will benefit both mega earths in producing or training intercontinental personnel in multifarious disciplines especially in areas of agriculture, medical, natural and social sciences, engineering, Arts and Education.

References Alao, R.O. (2006). Fundamentals of Monetary Economics, 1st Edition, Muhasmael Ventures, Lagos. Alao, R. O. (2010). „Impoverishing Africa: The Alternative Therapy to the World Bank and IMF Economic Medicine‟, European Journal of Scientific Research, (EJSR), vol. 47(4): 531-543. African Union (2011). „Regional Economic Communities: Economic Community of Central African States (ECCAS)‟, viewed 12 May, 2011, http://www.africaunion.org /root/au/recs/eccas.htm APTA (2011). „Asia-Pacific Trade Agreement: Background‟, viewed 13 May, 2011, http://www.unescap.org/tid/apta.asp ASEAN (2011). „Association of Southeast Asian Nations: Establishment‟, viewed 21 July, 2011, http://www.asean.org/about_ASEAN.html COMESA (2011). „About Common Market for Eastern and Southern Africa‟, viewed on July 12, 2011, http://www.comesa.int/Epstein, E.L. and Kole, R.(1998). The Language of African Literature, Africa World Press, p. ix. ECO (2011). „About ECO‟, viewed 30 July, 2011, http://www.ecosecretariat.org /ECOWAS (2011). „About ECOWAS‟, viewed 20 June, 2011, http://www.ecowas.int/ EAC (2011). „East African Community: One people One Destiny‟, viewed 21 July, 2011, http://www.eac.int/ GCC (2011). „Gulf Cooperation Council: Foundations and Objectives‟, viewed 25 July, 2011, http://www.gcc-sg.org/eng HSBC (2010). Form 10-K, Hong Kong and Shanghai Banking Corporation HSBC Holdings plc" IGAD (2010). „Intergovernmental Authority on Development: About Us‟, viewed 12 July, 2011, http://igad.int/ Maya P. (2010). „List of 44 Countries in Asia‟, viewed 23 April, 2011, http://www.buzzle.com/articles/list-of-countries-in-asia.html SARRC (2011). „About South Asian Association for Regional Cooperation‟, viewed 29 July, 2011, http://www.saarc-sec.org/ SADC (2011). „Southern African Development Community: About‟, viewed 23 June, 2011, http://www.sadc.int/ SCO (2011). „About SCO‟, viewed 30 July, 2011, http://www.sectsco.org/EN/ Sayre, A.P. (1999). Africa, Twenty-First Century Books. Worldatlas (2011). Map of Africa, viewed on 23 July, 2011, http://www.google.com.ng /imgres?imgurl Worldatlas (2011). Map of Asia, viewed 23 July, 2011, http://www.worldatlas.com /aatlas/infopage/okhotsk.htm


The Importance of Corporate Social Responsibility for Development of Global Trade and Corporate Social Responsibility Projects of

Multinational Companies in Turkey

Fatma Ulucan Özkul & Zehra Özdemir Bahcesehir University, Istanbul, Turkey

Key Words Corporate Social Responsibility, Multinational Companies, Multinational Companies in Turkey. Abstract Globalization which is one of the most encountered concepts in recent years makes its impact visible in all areas of the society from routine life to politics, from economics to communication. Globalization in economic sense means integration of countries’ economies to world economy namely the integration of the world in one single market. Multinational companies which could be defined as one of the most decisive actors of this market carry out many social wealth aiming practices with the targets of having reputation, being admired by the society and providing sustainability besides having profit.

In this paper, international institutions’ studies which direct corporate social responsibility practices of global economy leading multinational companies are discussed. Besides, the importance of multinational companies in Turkey is mentioned from the Turkish economy point of view. The study is aimed at putting forth how effectiveness of corporate social responsibility projects contributes to the success of multinational companies by referring corporate social responsibility practices of leading multinational companies in Turkey. Introduction There are plenty of definitions directed to explain globalization since it has many dimensions, many areas under its affects and many elements it is affected from. In economic sense globalization is briefly defined as follows by Eighth Five Year Plan Subcommittee: Globalization means worldwide diffusion of some common economic, political, social and cultural values transcending local and national boundaries. Gradually, global trade liberalizes, and economic systems and economic policies converge to each other.1 In contrast to the structure lies in the basis of traditional national-state, production activities are carried out in a global framework; different stages of the production are concluded in different geographies. Multinational companies show up as the most important element throughout this process. These companies are engaged in many activities from portfolio investments to foreign direct investments, from international trade of commodity and services to tourism. Multinational companies which have already become a global power are expected to not only act with profit motivation but also engage in socially useful activities either at their headquarters or in the location in which they operate. Therefore success in corporate social responsibility area is dependent upon the balance established between profitability and responsibility.2 It is possible to talk about two guidance declarations which could be advisory to multinational companies in establishment of that balance: Tripartite Declaration: Multinational Enterprises and Social Policy Declaration by International Labor Organization (ILO) and The Declaration on International Investments and Multinational Enterprises by OECD. Another international organization attempt

1 Devlet Planlama Teşkilatı, 2000, Küreselleşme Özel İhtisas Komisyonu Raporu, Ankara, pp.1. 2 M.Morand & L.Rayman-Bacchus, November 2006, Think global, act local: Corporate Social Responsibility Management in Multinational Companies, Social Responsibility Journal, Vol.2, Iss.3/4, pp.261.

which should be examined within the multinational companies scope is Global Compact by United Nations (UN). These two declarations will be examined in detail in section five of this study. Impact of Globalization on Trade There are many definitions aimed at explaining the term globalization. The common point of these definitions is that they lack of consensus on any common definition. This is a normal situation because as world-views, point of views and ideologies which are used in explaining globalization change the content of the definition also changes.3 Globalization in general terms means worldwide diffusion of some economic, social and cultural values transcending local and national boundaries.4 Globalization could be stated also as eliminating the barriers against free circulation of trade and capital.5

In this context economic dimension is one of the most important elements of globalization. Economic dimension clould be said to have three subcomponents. First of these is regarding distinctive attributes of todays international trade. As an example in this framework, in the Post World War II Period, world commodity exportation increased by twenty times while world gross domestic product (GDP) increased only by six times. In addition to commercial commodity exportation, a similar increase was being experienced in exportation of manufactured goods and services. Among fundamental reasons of increase in trade in the post war period, primary ones were rapid decrease in taxes, tariff, and restrictions against trade; and the important role that developing countries took upon in world trade besides developed countries.6

The second element of modern economic globalization is about unique volume, depth, and variety today we have in global financial markets and global capital flows. International banking, and foreign currency, bill and bond markets have significant role in today‟s global economy‟s operations.

Considering economic dimension frame of the globalization, lastly it is worth to mention radical change in global production. In contrast to the structure lies in the basis of traditional national-state, production activities are carried out in a global framework; different stages of the production are concluded in different geographies. Multinational companies show up as the most important element throughout this process. These companies are engaged in many activities from portfolio investments to foreign direct investments, from international trade of commodity and services to tourism.7

Under the light of these developments globalization is interpreted as not only the establishment of a series of international relations but also a process of change. The development of a rules-based, international trading system, the increasing integration of financial markets and other new institutional developments have created a different international economic system

3 Oğul Zengingönül, 2005, “Nedir Bu Küreselleşme?, Kaçabilir miyiz?, Kullanabilir miyiz?”, Siyasa, Vol.1, Iss.1, pp.87. 4 Rengin Ak, Spring 2004, “Küreselleşen Ekonomide Bankacılık Sektörünün Durumu”, İktisat Dergisi, pp. 54. 5 Ayşe Çelikel Danışoğlu, 2004, “Küreselleşmenin Gelir Eşitsizliği ve Yoksulluk Üzerindeki Etkileri”, İstanbul Ticaret Üniversitesi Dergisi, pp.218. 6 Fırat Bayar, “Küreselleşme Kavramı ve Küreselleşme Sürecinde Türkiye”, Türkiye Cumhuriyeti Dışişleri Bakanlığı Ekonomik Sorunlar Dergisi,Iss.32, pp.27. 7 Bayar, s.28.


which should be examined within the multinational companies scope is Global Compact by United Nations (UN). These two declarations will be examined in detail in section five of this study. Impact of Globalization on Trade There are many definitions aimed at explaining the term globalization. The common point of these definitions is that they lack of consensus on any common definition. This is a normal situation because as world-views, point of views and ideologies which are used in explaining globalization change the content of the definition also changes.3 Globalization in general terms means worldwide diffusion of some economic, social and cultural values transcending local and national boundaries.4 Globalization could be stated also as eliminating the barriers against free circulation of trade and capital.5

In this context economic dimension is one of the most important elements of globalization. Economic dimension clould be said to have three subcomponents. First of these is regarding distinctive attributes of todays international trade. As an example in this framework, in the Post World War II Period, world commodity exportation increased by twenty times while world gross domestic product (GDP) increased only by six times. In addition to commercial commodity exportation, a similar increase was being experienced in exportation of manufactured goods and services. Among fundamental reasons of increase in trade in the post war period, primary ones were rapid decrease in taxes, tariff, and restrictions against trade; and the important role that developing countries took upon in world trade besides developed countries.6

The second element of modern economic globalization is about unique volume, depth, and variety today we have in global financial markets and global capital flows. International banking, and foreign currency, bill and bond markets have significant role in today‟s global economy‟s operations.

Considering economic dimension frame of the globalization, lastly it is worth to mention radical change in global production. In contrast to the structure lies in the basis of traditional national-state, production activities are carried out in a global framework; different stages of the production are concluded in different geographies. Multinational companies show up as the most important element throughout this process. These companies are engaged in many activities from portfolio investments to foreign direct investments, from international trade of commodity and services to tourism.7

Under the light of these developments globalization is interpreted as not only the establishment of a series of international relations but also a process of change. The development of a rules-based, international trading system, the increasing integration of financial markets and other new institutional developments have created a different international economic system

3 Oğul Zengingönül, 2005, “Nedir Bu Küreselleşme?, Kaçabilir miyiz?, Kullanabilir miyiz?”, Siyasa, Vol.1, Iss.1, pp.87. 4 Rengin Ak, Spring 2004, “Küreselleşen Ekonomide Bankacılık Sektörünün Durumu”, İktisat Dergisi, pp. 54. 5 Ayşe Çelikel Danışoğlu, 2004, “Küreselleşmenin Gelir Eşitsizliği ve Yoksulluk Üzerindeki Etkileri”, İstanbul Ticaret Üniversitesi Dergisi, pp.218. 6 Fırat Bayar, “Küreselleşme Kavramı ve Küreselleşme Sürecinde Türkiye”, Türkiye Cumhuriyeti Dışişleri Bakanlığı Ekonomik Sorunlar Dergisi,Iss.32, pp.27. 7 Bayar, s.28.


from that which existed previously.8 Multinational companies have obtained very significant role in this new system created by globalization. Multinational Companies and Their roles in Global Economy Global economy is getting more internationalized and meanwhile more globalized. One of the most important actors takes role in globalization is multinational companies.

One of the international corporations, United Nations define multinational companies as: “A commercial entity which operates in two or more countries regardless of the legal form and fields of acitivity of economic business units; which enables determining of coherent and common policies in order to form global strategy among business units; which has a decision-making system based on effective control of one or more decision making centers; which comprise economic enterprises sharing information, resources and responsiblities among its units.”

Multinational companies consider the whole world as a market. Some multinational companies go public, and operate as partnerships. There is a continous communication between headquartes and branches of the multinational companies. They implement the strategy which determined in global scale to all branches. Multinational companies could operate in any area. They do not take into account economic system and ideological differences. They operate under imperfect competition markets like oligopoly, monopoly, and monoposony.9

In recent years the importance of the multinational companies have rapidly increased due to increase in global scale economic integration, incerasing effect of free market economy all over the world, and acceleration in liberalization of international trade and financial transactions.10 The number of multinational companies which are the moving spirit of the economic integration are estimated to be approximately more than 37,000, and 170,000 together with their extensions. The real influence area of these companies is much wider than these numbers estimate.11

Considering their economic sizes, these companies become competitor to states as their production volume is more than gross domestic products of many countries. According to the recent data issued by United Nations, the amount of the resources that first 200 biggest multinational companies hold equals USD 7.1 trillion. This number is about one fourth of the economic activities across the world, and more than total economic size of 182 of 189 United Nations member countries.12 Corporate Social Responsibility

The objectives of organizations those carrying out particular activities vary with respect to the sector in which they operate whether public or private. The most important objective of

8 John D. Sullivan, 2000, “Prospering in the Global Economy”, Economic Reform Today, No.1, pp.10, http:// www. cipe .org/publications/ert/e35/e35_03.pdf, [Viewed:10.08.2011]. 9 Cavit Yavuz & Deniz Sivrikaya, 2009, Küreselleşmenin Aktörlerinden Çokuluslu Şirketler ve Yönetişim, International Davraz Congress On Social and Economic Issues Shaping The World‟s Future: New Global Dialogue, http://idc.sdu.edu.tr/tammetinler/yonetim/yonetim6.pdf, pp.14, [Viewed: 10.08.2011]. 10 Coşkun Can Aktan & İstiklal Y.Vural, 2007, Kurumsal Sosyal Sorumluluk, “Globalleşme Sürecinde Çokuluslu Şirketler”, İGİAD Publishing, Iss.4, pp.6. 11 Ali Güner Tekin, January 2003, “Kapitalizmin İpini Çok Uluslu Şirketler Mi Çekecek?”, Ekonomistler Bülteni, pp.1, http://www.angelfire.com/ok4/aligunertekin/200301KapitalizminIpi.pdf, [Viewed: 08.08.2011]. 12 Hasan Tagraf, 2002, “Küreselleşme Süreci ve Çok Uluslu İşletmelerin Küreselleşme Sürecine Etkisi,” http://www. Ceterisparibus.net./dunya/kuresellesme.htm., [Viewed: 08.08.2011].

public institutions is looking out for public interest accordinlgy bringing service to citizens, those operatig in private sector have increasing company value, generating profit, and ensuring the continuity of the company as the most important objectives in their agenda. Therefore organizations established to serve public interest are not quiet expected to look out for any objective out of the service area determined for them. Organizations belong to private sector have been heavily criticized particularly for short term profit motivations. Now, producing long term value and contributing to public‟s wealth are being emphasized more, long term satisfaction of the objectives of the stakeholders who are affected from the operations of the company for the long term (customers, employees, suppliers, competitiors, unions, non-governmental organizations, customer representatives and whole society) has become important.

The idea that organizations are “accountable to anyone affected from its activities” is stated as Coprorate Social Responsibility (CSR) and is based upon the fact that organizations should take into consideration the whole society and all different stakeholders (those interacted). In this context, CSR includes holding organizations responsible for their activities, having them carrying out socially beneficial activities besides economically beneficial activities.13 Corporate Social Responsibility Regulations Addressing Multinational Companies by International Organizations. Today, there are many different definitons of corporate social responsibility in the literature. It will be useful to mention here some of them belonging to international organizations. According to the definition by European Commission corporate social responsibility is "A concept whereby companies integrate social and environmental concerns in their business operations and in their interaction with their stakeholders on a voluntary basis." Being socially responsible means not only fulfilling legal expectations, but also investing “more” into human capital, the environment and the relations with stakeholders.14

Expectations from enterprises particularly those from multinational enterprises have been going through peculiarly fast change as the roles they play in globalized societies increase. Discussions relating to multinational companies‟ social responsibility standards and performance therefore comprise an important component of efforts to develop a stable, prosperous and just global society.15 It is possible to talk about two guidance declarations which could be advisory to multinational companies: Tripartite Declaration: Multinational Enterprises and Social Policy Declaration by ILO and The Declaration on International Investments and Multinational Enterprises by OECD.

Many declarations published by ILO hitherto is directly and/or indirectly related with corporate social responsibility. The one we will examine here is “Tripartite Declaration: Multinational Enterprises and Social Policy Declaration” which is accepted by ILO in 1977.16 After the first issue in 1977, The Declaration was reviewed twice in 1991 and 2001. The principles cover multinationals activities related to labor markets, such as employment, conditions of work

13 Sevcan Kılıç Akıncı & Mehmet Mutlu Akıncı, Winter 2009, “Kurumsal Sosyal Sorumluluk Kapsamında Örgütlerin Çevresel Sorumlulukları ve Çevre Yönetimi”, Ekev Akademi Dergisi, Vol.13, Iss.38, pp.404. 14 Commision of the European Communities, 2001, “Green Paper: Promoting a European Framework for Corporate Social Responsibility, http://europa.eu.int/comm/employment_social/soc-dial/csr/green paper.htm, [Viewed: 08.08.2011]. 15 UNCTAD, 1999, The Social Responsibility of Transnational Corporations, NY and Geneva: United Nations. 16 Coşkun Can Aktan & İstiklal Y.Vural, May 2007, “Kurumsal Sosyal Sorumluluk: Uluslararası Kuruluşlar ve Hükümet Dışı Organizasyonlar Tarafından Sürdürülen Başlıca Girişimler”, Çimento İşveren Dergisi, pp.7.


public institutions is looking out for public interest accordinlgy bringing service to citizens, those operatig in private sector have increasing company value, generating profit, and ensuring the continuity of the company as the most important objectives in their agenda. Therefore organizations established to serve public interest are not quiet expected to look out for any objective out of the service area determined for them. Organizations belong to private sector have been heavily criticized particularly for short term profit motivations. Now, producing long term value and contributing to public‟s wealth are being emphasized more, long term satisfaction of the objectives of the stakeholders who are affected from the operations of the company for the long term (customers, employees, suppliers, competitiors, unions, non-governmental organizations, customer representatives and whole society) has become important.

The idea that organizations are “accountable to anyone affected from its activities” is stated as Coprorate Social Responsibility (CSR) and is based upon the fact that organizations should take into consideration the whole society and all different stakeholders (those interacted). In this context, CSR includes holding organizations responsible for their activities, having them carrying out socially beneficial activities besides economically beneficial activities.13 Corporate Social Responsibility Regulations Addressing Multinational Companies by International Organizations. Today, there are many different definitons of corporate social responsibility in the literature. It will be useful to mention here some of them belonging to international organizations. According to the definition by European Commission corporate social responsibility is "A concept whereby companies integrate social and environmental concerns in their business operations and in their interaction with their stakeholders on a voluntary basis." Being socially responsible means not only fulfilling legal expectations, but also investing “more” into human capital, the environment and the relations with stakeholders.14

Expectations from enterprises particularly those from multinational enterprises have been going through peculiarly fast change as the roles they play in globalized societies increase. Discussions relating to multinational companies‟ social responsibility standards and performance therefore comprise an important component of efforts to develop a stable, prosperous and just global society.15 It is possible to talk about two guidance declarations which could be advisory to multinational companies: Tripartite Declaration: Multinational Enterprises and Social Policy Declaration by ILO and The Declaration on International Investments and Multinational Enterprises by OECD.

Many declarations published by ILO hitherto is directly and/or indirectly related with corporate social responsibility. The one we will examine here is “Tripartite Declaration: Multinational Enterprises and Social Policy Declaration” which is accepted by ILO in 1977.16 After the first issue in 1977, The Declaration was reviewed twice in 1991 and 2001. The principles cover multinationals activities related to labor markets, such as employment, conditions of work

13 Sevcan Kılıç Akıncı & Mehmet Mutlu Akıncı, Winter 2009, “Kurumsal Sosyal Sorumluluk Kapsamında Örgütlerin Çevresel Sorumlulukları ve Çevre Yönetimi”, Ekev Akademi Dergisi, Vol.13, Iss.38, pp.404. 14 Commision of the European Communities, 2001, “Green Paper: Promoting a European Framework for Corporate Social Responsibility, http://europa.eu.int/comm/employment_social/soc-dial/csr/green paper.htm, [Viewed: 08.08.2011]. 15 UNCTAD, 1999, The Social Responsibility of Transnational Corporations, NY and Geneva: United Nations. 16 Coşkun Can Aktan & İstiklal Y.Vural, May 2007, “Kurumsal Sosyal Sorumluluk: Uluslararası Kuruluşlar ve Hükümet Dışı Organizasyonlar Tarafından Sürdürülen Başlıca Girişimler”, Çimento İşveren Dergisi, pp.7.


and life, industrial relations, consultation, examination of grievances and settlement of industrial disputes. 17

The aim of the declaration is mentioned in the text titled as “Tripartite Declaration of Principles Concerning Multinational Enterprises and Social Policy” as following:18

“Multinational enterprises play an important part in the economies of most countries and in international economic relations. This is of increasing interest to governments as well as to employers and workers and their respective organizations. Through international direct investment and other means such enterprises can bring substantial benefits to home and host countries by contributing to the more efficient utilization of capital, technology and labour. Within the framework of development policies established by governments, they can also make an important contribution to the promotion of economic and social welfare; to the improvement of living standards and the satisfaction of basic needs; to the creation of employment opportunities, both directly and indirectly; and to the enjoyment of basic human rights, including freedom of association, throughout the world. On the other hand, the advances made by multinational enterprises in organizing their operations beyond the national framework may lead to abuse of concentrations of economic power and to conflicts with national policy objectives and with the interest of the workers. In addition, the complexity of multinational enterprises and the difficulty of clearly perceiving their diverse structures, operations and policies sometimes give rise to concern either in the home or in the host countries, or in both. The aim of this Tripartite Declaration of Principles is to encourage the positive contribution which multinational enterprises can make to economic and social progress and to minimize and resolve the difficulties to which their various operations may give rise, taking into account the United Nations resolutions advocating the establishment of a New International Economic Order.”

The second important declaration accepted for multinational companies is The Declaration on International Investments and Multinational Enterprises published by OECD.

The original of this declaration was published in 1976 and on 27 June 2000 OECD Council have taken an advisory decision titled as OECD Guidelines for Multinational Enterprise. The Declaration contains the “OECD Guidelines for Multinational Enterprises”, which deal with general policies, information disclosure, competition, financing, taxation, employment and industrial relations, the environment and science and technology.19 In the appendix of the decision The Declaration on International Investments and Multinational Enterprises was published.20

In The Declaration on International Investments and Multinational Enterprises by OECD, multinational companies‟ responsibilities to the country they invested, and the society live in that country have been put forth. According to the declaration multinational companies should:21

17 Şoproni Luminita & Toca Constantin, 2007, Global Business Ethics and The Multinational Companies, steconomice.uoradea.ro/anale/volume/2007/v1...and.../117.pdf, pp.3, [Viewed: 08.08.2011]. 18 International Labour Office, 2001, Tripartite Declaration: Multinational Enterprises and Social Policy Declaration, Geneva, 3.Edition, http://www.ilo.org/wcmsp5/groups/public/@ed_emp/ @emp_ent/ documents/publication/wcms_101234.pdf, [Viewed: 08.08.2011]. 19 Luminita & Constantin, pp.3. 20 Brian W.Burkett and The Others, 2006, Corporate Social Responsibility: An Evolving Global Business Phenomenon, Heenan Blakie, Canada, pp.14. 21 OECD, 2003,Guidelines for Multinational Enterprises, pp.8.

Contribute to economic, social and environmental progress with a view to achieving sustainable development.

Respect the human rights of those affected by their activities consistent with the host government‟s international obligations and commitments.

Encourage local capacity building through close co-operation with the local community, including business interests, as well as developing the enterprise‟s activities in domestic and foreign markets, consistent with the need for sound commercial practice.

Encourage human capital formation, in particular by creating employment opportunities and facilitating training opportunities for employees.

Refrain from seeking or accepting exemptions not contemplated in the statutory or regulatory framework related to environmental, health, safety, labour, taxation, financial incentives, or other issues.

Support and uphold good corporate governance principles and develop and apply good corporate governance practices.

Develop and apply effective self-regulatory practices and management systems that foster a relationship of confidence and mutual trust between enterprises and the societies in which they operate.

Promote employee awareness of, and compliance with, company policies through appropriate dissemination of these policies, including through training programmes. Main responsibilities of multinational companies have been presented in further detail

under some titles in The Declaration on International Investments and Multinational Enterprises. It will be useful to briefly summarize them: 22

Transparency: Enterprises should ensure that timely, regular, reliable and relevant information is disclosed regarding their activities, structure, financial situation and performance. This information should be disclosed for the enterprise as a whole and, with respect to business lines or geographic areas whereever appropriate. Disclosure policies of enterprises should be tailored to the nature, size and location of the enterprise, with due regard taken of costs, business confidentiality and other competitive concerns.

Employment and Employee-Employer Relations: Enterprises should, within the framework of applicable law, regulations and prevailing labour relations and employment practices respect the right of their employees to be represented by trade unions and other bona fide representatives of employees, and engage in constructive negotiations, either individually or through employers‟ associations, with such representatives with a view to reaching agreements on employment conditions. In this declaration multinational companies‟ responsibilities on work life have been presented comprehensively.

Environment: Enterprises should, within the framework of laws, regulations and administrative practices in the countries in which they operate, and in consideration of relevant international agreements, principles, objectives, and standards, take due account of the need to protect the environment, public health and safety; and to conduct their activities generally in a manner to contribute to the more comprehensive goal of sustainable development.

22Aktan &Vural, pp.143-144.


Contribute to economic, social and environmental progress with a view to achieving sustainable development.

Respect the human rights of those affected by their activities consistent with the host government‟s international obligations and commitments.

Encourage local capacity building through close co-operation with the local community, including business interests, as well as developing the enterprise‟s activities in domestic and foreign markets, consistent with the need for sound commercial practice.

Encourage human capital formation, in particular by creating employment opportunities and facilitating training opportunities for employees.

Refrain from seeking or accepting exemptions not contemplated in the statutory or regulatory framework related to environmental, health, safety, labour, taxation, financial incentives, or other issues.

Support and uphold good corporate governance principles and develop and apply good corporate governance practices.

Develop and apply effective self-regulatory practices and management systems that foster a relationship of confidence and mutual trust between enterprises and the societies in which they operate.

Promote employee awareness of, and compliance with, company policies through appropriate dissemination of these policies, including through training programmes. Main responsibilities of multinational companies have been presented in further detail

under some titles in The Declaration on International Investments and Multinational Enterprises. It will be useful to briefly summarize them: 22

Transparency: Enterprises should ensure that timely, regular, reliable and relevant information is disclosed regarding their activities, structure, financial situation and performance. This information should be disclosed for the enterprise as a whole and, with respect to business lines or geographic areas whereever appropriate. Disclosure policies of enterprises should be tailored to the nature, size and location of the enterprise, with due regard taken of costs, business confidentiality and other competitive concerns.

Employment and Employee-Employer Relations: Enterprises should, within the framework of applicable law, regulations and prevailing labour relations and employment practices respect the right of their employees to be represented by trade unions and other bona fide representatives of employees, and engage in constructive negotiations, either individually or through employers‟ associations, with such representatives with a view to reaching agreements on employment conditions. In this declaration multinational companies‟ responsibilities on work life have been presented comprehensively.

Environment: Enterprises should, within the framework of laws, regulations and administrative practices in the countries in which they operate, and in consideration of relevant international agreements, principles, objectives, and standards, take due account of the need to protect the environment, public health and safety; and to conduct their activities generally in a manner to contribute to the more comprehensive goal of sustainable development.

22Aktan &Vural, pp.143-144.


Combating Bribery: Enterprises should not, directly or indirectly, offer, promise, give, or demand a bribe or other undue advantage to obtain or retain business or other improper advantage.

Consumer Interests: When dealing with consumers, enterprises should act in accordance with fair business, marketing and advertising practices and should take all reasonable steps to ensure the safety and the quality of the goods and services they provide.

Science and Technology: Enterprises should endeavour to ensure that their activities are compatible with the science and technology policies and plans of the countries in which they operate and as appropriate contribute to the development of local and national innovative capacity.

Competition: Enterprises should within the framework of applicable laws and regulations, conduct their activities in a competitive manner.

Taxation: It is important that enterprises contribute to the public financing of the host countries by fulfilling their tax liabilities timely. In particular, enterprises should comply with the tax laws and regulations in all countries in which they operate and should exert every effort to act in accordance with both the letter and spirit of those laws and regulations. This would include such measures as providing to the relevant authorities the information necessary for the correct determination of taxes to be assessed in connection with their operations and conforming transfer pricing practices to the arm‟s length principle.

Another international organization attempt which should be examined within the multinational companies scope is Global Compact by UN. On World Economic Forum which was held on January 1999, Kofi Annan , Secretary-General of United Nations (UN) invited business world leaders, companies, UNs, employee unions and non-governmental organizations to meet under the Global Compact which is the single initiative that will throw them together in the direction of “Millenium Development Goals” to support universal environmental and social principles. Within the scope of the project 10 fundamental principles were determined under the titles of human rights, labour, enviroment and anti- corruption. 23 These 4 areas consist of 10 principles. These are:24

Human rights Businesses should support and respect the protection of internationally proclaimed human

rights, and Make sure that they are not complicit in human rights abuses.

Labour Businesses should uphold the freedom of association and the effective recognition of the

right to collective bargaining; The elimination of all forms of forced and compulsory labour; The effective abolition of child labour; and The elimination of discrimination in respect of employment and occupation.

23 Tüsiad, BM Küresel İlkeler Sözleşmesi, http://www.tusiad.org/tusiad/etik/bm-kuresel-ilkeler-sozlesmesi/[Viewed: 20.08.2011]. 24 United Nation Global Compact, Ten Principles, http://www.unglobalcompact.org/AboutTheGC/ TheTenPrinciples index.Html, [Viewed: 20.08.2011].

Environment Businesses should support a precautionary approach to environmental challenges; Undertake initiatives to promote greater environmental responsibility; and Encourage the development and diffusion of environmentally friendly technologies. Anti-corruption Businesses should work against corruption in all its forms, including extortion and bribery. Many big companies such as Coca Cola, Microsoft and Colgate Palmolive also have been

attending in Global Compact which could be referred as the most important and and the largest voluntary Corporate Citizenship Initiative in the world.25

Multinational companies in Turkey With the motivations of increasing employment, transfer of technology, foreign currency inflow, equalisation of balance of international payments, and under appropriate regulations, foreign companies are allowed to produce and invest in the country due to some reasons and rationale alike in many developing countries. We should mention that the company engaging in foreign direct investment, holding and operating the physical capital in foreign country, is defined as multinational company26. Therefore in this section where we take a close look to multinational companies in Turkey, we will refer to international direct investments in Turkey. World Investment Report which is prepared by United Nations Conference on Trade and Development (UNCTAD) on international direct investmensts is launched by International Investors Association (YASED) in Turkey. The 2011 subtitle of World Investment Report which is being issued with a different subtitle every year depending upon the trends in international direct investments is modes of international production and development.27

Figure 1: Foreign Direct Investments in Turkey and in the World. (2000-2010) Global FDI Inflows FDI Inflows to Turkey

Source: Turkey International Investors Association, July 2011, World Investment Report 2011, www.yased.org, [Viewed: 20.08.2011].

Foreign direct investments which are presented fall tendency due to global crisis. 2009-2011 World Investment Expectation Report which is based on a survey study UNCTAD conducted with multinational companies‟ executives explains this fall with more difficult access to financial sources-since the crisis started in financial markets-, decreasing profit margins, decrase in opportunities in the market and the anxieties that crisis will deepen and turn into a

25 Koç Holding, 2007, Küresel İlkeler Sözleşmesi, http://www.koc.com.tr/tr-tr/Kurumsal_Sosyal _Sorumluluk /HoldingF aali yetleri/Pages/KIS_Deger_Yaratmak_Konferansi.aspx, [Viewed: 20.08.2011]. 26 Suna Oksay, January 1998, “Çokuluslu Şirketler Teorileri Çerçevesinde Yabancı Sermaye Yatırımlarının İncelenerek Değerlendirilmesi”, Dıs Ticaret Müsteşarlığı Dergisi, Iss.8, pp.1. 27 Türkiye Uluslararası Yatırımcılar Derneği, July 2011, Dünya Yatırım Raporu 2011, www.yased.org, [Viewed: 20.08.2011].


Environment Businesses should support a precautionary approach to environmental challenges; Undertake initiatives to promote greater environmental responsibility; and Encourage the development and diffusion of environmentally friendly technologies. Anti-corruption Businesses should work against corruption in all its forms, including extortion and bribery. Many big companies such as Coca Cola, Microsoft and Colgate Palmolive also have been

attending in Global Compact which could be referred as the most important and and the largest voluntary Corporate Citizenship Initiative in the world.25

Multinational companies in Turkey With the motivations of increasing employment, transfer of technology, foreign currency inflow, equalisation of balance of international payments, and under appropriate regulations, foreign companies are allowed to produce and invest in the country due to some reasons and rationale alike in many developing countries. We should mention that the company engaging in foreign direct investment, holding and operating the physical capital in foreign country, is defined as multinational company26. Therefore in this section where we take a close look to multinational companies in Turkey, we will refer to international direct investments in Turkey. World Investment Report which is prepared by United Nations Conference on Trade and Development (UNCTAD) on international direct investmensts is launched by International Investors Association (YASED) in Turkey. The 2011 subtitle of World Investment Report which is being issued with a different subtitle every year depending upon the trends in international direct investments is modes of international production and development.27

Figure 1: Foreign Direct Investments in Turkey and in the World. (2000-2010) Global FDI Inflows FDI Inflows to Turkey

Source: Turkey International Investors Association, July 2011, World Investment Report 2011, www.yased.org, [Viewed: 20.08.2011].

Foreign direct investments which are presented fall tendency due to global crisis. 2009-2011 World Investment Expectation Report which is based on a survey study UNCTAD conducted with multinational companies‟ executives explains this fall with more difficult access to financial sources-since the crisis started in financial markets-, decreasing profit margins, decrase in opportunities in the market and the anxieties that crisis will deepen and turn into a

25 Koç Holding, 2007, Küresel İlkeler Sözleşmesi, http://www.koc.com.tr/tr-tr/Kurumsal_Sosyal _Sorumluluk /HoldingF aali yetleri/Pages/KIS_Deger_Yaratmak_Konferansi.aspx, [Viewed: 20.08.2011]. 26 Suna Oksay, January 1998, “Çokuluslu Şirketler Teorileri Çerçevesinde Yabancı Sermaye Yatırımlarının İncelenerek Değerlendirilmesi”, Dıs Ticaret Müsteşarlığı Dergisi, Iss.8, pp.1. 27 Türkiye Uluslararası Yatırımcılar Derneği, July 2011, Dünya Yatırım Raporu 2011, www.yased.org, [Viewed: 20.08.2011].


depression.28 However, it is possible to assess that the negative effect of the crisis shown on foreign direct investments in 2009 has decreased by 2010.29

According to the World Investment Report including the certain latest global direct investment data issued by UNCTAD in 2011, in 2010 Turkey received 0.7% of foreign investments across the world wilst the total share of 173 developing countries was 1.4%.30 Figure 2: FDI Flows to Turkey and Turkey‟s Share in Global FDI

Source: Turkey International Investors Association.

In the developing countries category, Turkey did not rank in accordance with its population, geostrategic location, and economic size in attracting the foreign capital. However, with the reforms beginning since 2001, Turkey has recorded important success in macroeconomic variables such as public sector balance, economic growth and inflation. The structural reforms which provide adoptation to global economy in macroeconomic sense, enable Turkey to become attractive for foreign direct investments.31 Corporate social responsibility practices of multinationalcompanies in Turkey

Corporate social responsibility has become an area which companies operate in Turkey adopts gradually in higher numbers, and produce more activities about. Due to non-governmental organizations‟ relative weakness in Turkey, companies did not face with civilian society‟s pressure as in Western countries while performing their operations in their country or abroad.

On the other hand, the pressure that came from western-centric multinational companies‟ social stakeholders in the country where headquarter is located, made multinational companies diligent on CSR activities they perform in developing countries in which they are investing; and this situation brought corporate social responsibility to the private sector companies‟ agenda in those countries.32 Therefore multinational companies‟ corporate social responsibility performances in Turkey are also affected positively. Multinational companies‟ putting positive

28 Sumru Öz, January 2010, Küresel Kriz Sürecinde Doğrudan Yabancı Yatırımlar, Ekonomik Araştırma Forumu, pp.1. 29 Hazine Müsteşarlığı Yabancı Sermaye Genel Müdürlüğü, May 2011, Uluslararası Doğrudan Yatırımlar 2010 Yılı Raporu, pp.1. 30 Türkiye Uluslararası Yatırımcılar Derneği. 31 M.Emin Erçakar & Erdal Tanas Karagöl, January 2011, “Türkiye’de Doğrudan Yabancı Yatırımlar”, Seta Analiz Dergisi, pp.3. 32 Seçil Deren Van Het Hof, 2009, Türkiye‟de Kurumsal Sosyal Sorumluluk Üçgeni: Şirketler, Toplum ve Toplum Kuruluşları, Tübitak Project No:107K182, pp.19.

pressure on their local extensions and suppliers for corporate social responsibility becomes a moving spirit for other Turkish companies.

In Turkey, corporate social responsibility gains acceleration also with works of international organizations and non-governmental organizations. Consumers and local initiatives like local non-governmental organizations should be encouraged to establish effective power over companies.

“Corporate Governance Principles” declared by Capital Markets Board of Turkey (SPK) created some understanding and awareness about reporting stakeholders policies, and corporate social responsibility practices. However, considering the fact that reporting and assurance systems are still far away being functional and complete, we conclude that more studies are required for proper application of corporate social responsibility. Owing to this situation, application tools still remain among the basic and important needs of private sector in Turkey.

In Turkey, there is a perception that corporate social responsibility is a factor of marketing and a tool to create corporate reputation. By projects through sponsorships, many companies and stakeholder groups are actively trying to be involved and to shape this process.33 However the companies which comprehended corporate social responsibility as an idea beyond sponsorship, and took it seriously, made important gains. By this means brand and market value of the corporations start to increase.34

Media organizations support corporate social responsibility either by broadcasting responsible companies‟ positive performances on their media organs or themselves as a company carry out performance; these favorable efforts by media increase the level of consciousness and quality about corporate social responsibility.35 The research, “The Leaders in Social Responsibility in Turkey” which was first published in 2005 and repeated every year by Capital Magazine aims at bringing companies and leaders successful at CSR to light.36 The results of the “Corporate Social Responsibility Research” which was conducted by Gfk Turkey Custom Research in collaboration with Capital Magazine have been issued on Capital Magazine on March 2011. Two researches performed within the scope of the project consist of public survey, and business world survey. During public survey 1,303 people were talked to face-to-face.

Regarding the business world survey, information was obtained from 336 people through online research method.37

33 UNDP, Corporate Social Responsibility Association and European Commission, Corporate Social Responsibility in Turkey: Assessment Report, 2008, pp.3. 34 Burcu Özçelik, Sosyal Sorumluluk mu Yoksa Pazarlama mı, http://www.kurumsalsosyal.com/tr-TR/haberler/45_sosyal-sorumluluk-mu-yoksa-pazarlama-mi-.aspx, [Viewed: 20.08.2011]. 35 World Alliance for Citizen Participiation, 2006, Uluslararası Sivil Toplum Endeksi Projesi Step II Türkiye Yan Raporları, İstanbul: Tüsev, pp.6. 36 Şeyma Öncel Bayıksel, March 2011, “Yeni Sosyal Sorumluluk Gerçekleri”, Capital Dergisi. 37 GFK , 2011, Kurumsal Sosyal Sorumluluk Araştırması Sonuçları, http://www.gfk.com/ imperia/md/ content/gfk turkiye/pressreleases/capital_kss_arastirmasi_sonuclari.pdf, [Viewed: 20.08.2011].


pressure on their local extensions and suppliers for corporate social responsibility becomes a moving spirit for other Turkish companies.

In Turkey, corporate social responsibility gains acceleration also with works of international organizations and non-governmental organizations. Consumers and local initiatives like local non-governmental organizations should be encouraged to establish effective power over companies.

“Corporate Governance Principles” declared by Capital Markets Board of Turkey (SPK) created some understanding and awareness about reporting stakeholders policies, and corporate social responsibility practices. However, considering the fact that reporting and assurance systems are still far away being functional and complete, we conclude that more studies are required for proper application of corporate social responsibility. Owing to this situation, application tools still remain among the basic and important needs of private sector in Turkey.

In Turkey, there is a perception that corporate social responsibility is a factor of marketing and a tool to create corporate reputation. By projects through sponsorships, many companies and stakeholder groups are actively trying to be involved and to shape this process.33 However the companies which comprehended corporate social responsibility as an idea beyond sponsorship, and took it seriously, made important gains. By this means brand and market value of the corporations start to increase.34

Media organizations support corporate social responsibility either by broadcasting responsible companies‟ positive performances on their media organs or themselves as a company carry out performance; these favorable efforts by media increase the level of consciousness and quality about corporate social responsibility.35 The research, “The Leaders in Social Responsibility in Turkey” which was first published in 2005 and repeated every year by Capital Magazine aims at bringing companies and leaders successful at CSR to light.36 The results of the “Corporate Social Responsibility Research” which was conducted by Gfk Turkey Custom Research in collaboration with Capital Magazine have been issued on Capital Magazine on March 2011. Two researches performed within the scope of the project consist of public survey, and business world survey. During public survey 1,303 people were talked to face-to-face.

Regarding the business world survey, information was obtained from 336 people through online research method.37

33 UNDP, Corporate Social Responsibility Association and European Commission, Corporate Social Responsibility in Turkey: Assessment Report, 2008, pp.3. 34 Burcu Özçelik, Sosyal Sorumluluk mu Yoksa Pazarlama mı, http://www.kurumsalsosyal.com/tr-TR/haberler/45_sosyal-sorumluluk-mu-yoksa-pazarlama-mi-.aspx, [Viewed: 20.08.2011]. 35 World Alliance for Citizen Participiation, 2006, Uluslararası Sivil Toplum Endeksi Projesi Step II Türkiye Yan Raporları, İstanbul: Tüsev, pp.6. 36 Şeyma Öncel Bayıksel, March 2011, “Yeni Sosyal Sorumluluk Gerçekleri”, Capital Dergisi. 37 GFK , 2011, Kurumsal Sosyal Sorumluluk Araştırması Sonuçları, http://www.gfk.com/ imperia/md/ content/gfk turkiye/pressreleases/capital_kss_arastirmasi_sonuclari.pdf, [Viewed: 20.08.2011].


Figure 3: Turkey‟s CRS Leaders of 2011 Public Survey Business World Survey

Source: GFK, 2011, Kurumsal Sosyal Sorumluluk Araştırması Sonuçları, http://www.gfk.com/ imperia/md/ content/gfk turkiye/pressreleases/capital_kss_arastirmasi_sonuclari.pdf, [Viewed: 20.08.2011].

The results of the research show that both groups prefer the same companies in first three places. Sabancı Holding which ranks number one in public survey with a share of 8.63%, ranks the second place in business world‟s survey with a share of 6.5%. Turkcell which is the leader of business world ranking with 19.5% share, takes the second place in public survey with 6.42% share. Koç Holding which has its place at the last of first three places of public survey with 5.9% share, gets the second place in busines world ranking with 7.79% share. Having the same companies in first three places in 2011 results as shown in Figure 3 indicates that these companies truly express their corporate social responsibility understanding over the masses. CEOs of the many companies which ranked in upper ranks of the Turkey Responsible Companies League think that corporate social responsibility projects contribute to growth, development and competitive power. The companies which are aware of the fact that this issue contributes to business, approach social responsibility projects profesionally without a perception of “help” or “social support”.38

Now we shall have a closer look at corporate social responsibility project examples of the multinational companies take place in the research conducted by Capital Magazine. 1. Turkcell – Snowdrops: “Modern Girls of Modern Turkey”

Turkcell which retains the sector leadership, which has vision of making life easier and enriching it, which takes mission of having its customers holding on to life with value creating communication solutions, considers having continuous support and trust of masses by exhibiting socially sensitive behaviours as basis among its strategic job priorities. Therefore Turkcell aims at maintaining its trustworthiness by exhibiting socially sensitive behaviours in short by supporting social responsibility projects. Through social responsibility activities performed, it targets providing value-added for social needs, and strengthening social bonds by establishing a healthy communication between individuals and the company. From this perspective, following the idea of the greatest need in Turkey is qualified human resources, the vision of social responsibility activities is determined as “Contributing to creation of qualified human resources”. In accordance with the vision of creating qualified human resources, in order to support successful youth, and provide equal opportunities in education, education project “Modern Girls of modern Turkey” was given start in 2000 together with Support for Modern

38 Bayıksel.

Life Association (ÇYDD) whose activity field is in line with this purpose.39 Project grants education scholarships every year to young women who are unable to go to school because of economic obstacles. Growing in size and diversity with the addition of new subprojects each year, the “Snowdrops” project hitherto provided scholarships to 12,300 students and put 6,300 Snowdrops through high school of which 950 made it to universities and 67 managed to get a university degree.40

With this project Turkcell has get into a communication effort different than other GSM operators. Furthermore, project Snowdrops is the most comprehensive, professional, and practicable extended longest-term project among goal directed marketing applications performed in Turkey.41 2. Yapı Kredi Bank from Koç Holding Companies- “Infinite Blue”

Yapı Kredi which was established in 1944 as the first private-sector retail bank in international scale in Turkey is in the decisive place for standards in Turkish banking sector both with the products and services it offers, and with contributions it makes to cultural and social life in Turkey.42 Project “Infinite Blue” that Yapı Kredi, which considers protecting natural sources of Turkey among its essential missions, carries out in collaboration with the Turkish Marine Environment Protection Association (Deniztemiz / Turmepa) aims at creating awareness and raising consciousness in primary and secondary school students about protecting natural assets. These two-stage training is first provided to teachers and then to students by means of teachers. The goal of the project which started in 2005 is to reach at 300 thousands teachers and over 6.5 million students in total with priorities in selected pilot areas. Since the beginning, the project has reached at 10,195 teacher, 5,682 schools and 3,500,000 students.43 3. Coca Cola – “Life Plus Project”

“Life Plus” Youth Program which was formed by UNDP and Coca Cola Turkey in 200544, is a “Youth Program” which supports projects that are innovative, creative, environment-friendly, participatory, sustainable, designed by youngsters, aimed at enhancing the quality of life and creating social benefit. Coca Cola Turkey has established The Coca Cola Life Plus Foundation to perform environmental and social projects. By means of supporting the youth in developing environmental and social projects, the foundation which aims at contributing to public, civilian society and private sector collaborations, has supported many projects from different regions of Turkey about building model applications on micro irrigation, bringing up drought and pollution to the agenda, extending the use of renewable energy sources and recovery of solid waste.45

39 Ercan Taşkın & Hamit Kahraman, April 2008, “Amaca Yönelik Pazarlama ve Turkcell Örneği”, Dumlupınar Üniversitesi Sosyal Bilimler Dergisi, Iss.20, pp.238. 40 UNDP, pp.8. 41 Taşkın & Kahraman, pp.245. 42 Yapı Kredi Bankası, 2010, Sürdürülebilirlik Raporu 2010, http://www.yapikredi.com.tr/arsiv/ykb/ surduruleb ilirlik/ YK BKS S3 _09_03.pdf, [Viewed: 20.08.2011]. 43 Yapı Kredi Bankası, Sınırsız Mavi, http://www.yapikredi.com.tr/tr-TR/kss/kss_projeleri/ kssp_ egitimv ecevre_s inirsiz_mavi.aspx, [Viewed: 20.08.2011]. 44 Kurumsal Sosyal.Com, Hayata Artı Katacak Çevre Projeleri, http://www.kurumsalsosyal.com//tr-TR/coca-cola/ 23 4 _hayata-arti-katacak-cevre-projeleri.aspx, [Viewed: 09.08.2011]. 45 Coca Cola İçecek, Hayata Artı Vakfı, http://www.cci.com.tr/tr/kurumsal-sosyal-sorumluluk/toplu m/,[Viewed: 11.08.2011].


Life Association (ÇYDD) whose activity field is in line with this purpose.39 Project grants education scholarships every year to young women who are unable to go to school because of economic obstacles. Growing in size and diversity with the addition of new subprojects each year, the “Snowdrops” project hitherto provided scholarships to 12,300 students and put 6,300 Snowdrops through high school of which 950 made it to universities and 67 managed to get a university degree.40

With this project Turkcell has get into a communication effort different than other GSM operators. Furthermore, project Snowdrops is the most comprehensive, professional, and practicable extended longest-term project among goal directed marketing applications performed in Turkey.41 2. Yapı Kredi Bank from Koç Holding Companies- “Infinite Blue”

Yapı Kredi which was established in 1944 as the first private-sector retail bank in international scale in Turkey is in the decisive place for standards in Turkish banking sector both with the products and services it offers, and with contributions it makes to cultural and social life in Turkey.42 Project “Infinite Blue” that Yapı Kredi, which considers protecting natural sources of Turkey among its essential missions, carries out in collaboration with the Turkish Marine Environment Protection Association (Deniztemiz / Turmepa) aims at creating awareness and raising consciousness in primary and secondary school students about protecting natural assets. These two-stage training is first provided to teachers and then to students by means of teachers. The goal of the project which started in 2005 is to reach at 300 thousands teachers and over 6.5 million students in total with priorities in selected pilot areas. Since the beginning, the project has reached at 10,195 teacher, 5,682 schools and 3,500,000 students.43 3. Coca Cola – “Life Plus Project”

“Life Plus” Youth Program which was formed by UNDP and Coca Cola Turkey in 200544, is a “Youth Program” which supports projects that are innovative, creative, environment-friendly, participatory, sustainable, designed by youngsters, aimed at enhancing the quality of life and creating social benefit. Coca Cola Turkey has established The Coca Cola Life Plus Foundation to perform environmental and social projects. By means of supporting the youth in developing environmental and social projects, the foundation which aims at contributing to public, civilian society and private sector collaborations, has supported many projects from different regions of Turkey about building model applications on micro irrigation, bringing up drought and pollution to the agenda, extending the use of renewable energy sources and recovery of solid waste.45

39 Ercan Taşkın & Hamit Kahraman, April 2008, “Amaca Yönelik Pazarlama ve Turkcell Örneği”, Dumlupınar Üniversitesi Sosyal Bilimler Dergisi, Iss.20, pp.238. 40 UNDP, pp.8. 41 Taşkın & Kahraman, pp.245. 42 Yapı Kredi Bankası, 2010, Sürdürülebilirlik Raporu 2010, http://www.yapikredi.com.tr/arsiv/ykb/ surduruleb ilirlik/ YK BKS S3 _09_03.pdf, [Viewed: 20.08.2011]. 43 Yapı Kredi Bankası, Sınırsız Mavi, http://www.yapikredi.com.tr/tr-TR/kss/kss_projeleri/ kssp_ egitimv ecevre_s inirsiz_mavi.aspx, [Viewed: 20.08.2011]. 44 Kurumsal Sosyal.Com, Hayata Artı Katacak Çevre Projeleri, http://www.kurumsalsosyal.com//tr-TR/coca-cola/ 23 4 _hayata-arti-katacak-cevre-projeleri.aspx, [Viewed: 09.08.2011]. 45 Coca Cola İçecek, Hayata Artı Vakfı, http://www.cci.com.tr/tr/kurumsal-sosyal-sorumluluk/toplu m/,[Viewed: 11.08.2011].


Conclusion Today for a company having pure profit motivation it is impossible to accomplish the

objective of becoming a global company. We could explain this situation in concrete with increase in intangible fixed assets in the financial statements of the enterprises. Brand image, reputation, goodwill… have become the most important issues for the enterprises. While determining the most successful companies in America, besides profitability Fortune Magazine assess companies from many aspects such as how well they serve their customers, how they treat their employees and what is the level of responsibility they are willing to take in society related issues. More than 80% of the companies succeeded to rank in Fortune 500, mention corporate social responsibility issues in their websites. This situation indicates that corporate social responsibility practices are not perceived only as a moral obligation any more but also as an economic obligation.46

Taking a closer look to the situation in Turkey, we could say that the corporate social responsibility efforts of civilian society have both long and short past. The reason is that foundation culture in Ottoman shows us Turkish public has a powerful local responsibility. Citizenships provide a continuous donation inflow to those in need by establishing foundations or charities. The understanding of helping to society which existed in Ottoman and Anatolian traditions continued in Turkey also after the establishment of Republic. In early times of Republic businessmen exhibited their sensitiveness towards social issues by providing support in health, education issues. Especially with spearheading of holdings like Koç, Sabancı, Eczacıbaşı, the business world in Turkey have had a higher interest on social issues.

We also observe that corporate social responsibility performances in Turkey are associated to westernization efforts started in Turkey in 1980s. Thanks to Conference Habitat II which was held in 1996 in İstanbul, subjects related with sustainable development have been brought to Turkey‟s agenda. Later, in 2001 the economic crisis occurred and Turkey recorded serious steps in corporate governance, transparency, and accountability. Turkey follows trends in the world closely and attends in international level economic, social, and political developments. As Turkey issues agreements, declarations, guidelines and makes collaborations with international institutions like United Nations (UN), International Labor Organization (ILO), and Organization of Economic Collaboration and Development (OECD), multinational companies are encouraged to produce CSR solutions and share their solutions. Moreover, Istanbul Stock Exchange (IMKB) records that in recent years corporate social responsibility and sustainability activities have had important place in the agenda of all corporations and institutions related with capital markets, and many corporations have started to publish corporate social responsibility reports as social responsibility and environmental issues included in scope of corporate governance.

Multinational companies are among the leading supportive factors which influence enterprises in Turkey about tending towards corporate social responsibility projects. Especially in developing countries like Turkey, the need for foreign direct investment is being mentioned by administrators in every occasion, and legal arrangements are made accordingly. In financial crisis experienced all around the world, Turkey recorded decrease in receiving investments. However, coming to year 2011, we see that the trend changes to upward. Foreign multinational companies and national multinational companies making direct investments in to our country provide a road map for other companies with the social responsibility understanding they have

46 J.G. Klein, 2004, “Corporate Social Responsibility: A Consumer Perspective”, Advances in Consumer Research, pp.101.

and their performances on social responsibility, and lead corporate social responsibility activities in addition to the economic benefits they provide to our country.

Multinational companies of course can not singly resolve the problems of developing countries however they can improve people‟s lives at a significant level by advancing the trade and development. Multinational companies entering into and operating in developing countries carry their social responsibility conscious to these countries. At this point financial power of the developed world should meet with financial opportunities of the developing world. During all these processes, financial market arrangements and convenience arrangements in some bureaucratic issues executed by the governments of the countries want to attract foreign direct investment will increase the positive effect that foreign direct investments have on the area of corporate social responsibility. References Ak, Rengin, Spring 2004, “Küreselleşen Ekonomide Bankacılık Sektörünün Durumu”, İktisat Dergisi, Iss.455, pp.54-61. Akıncı, Sevcan Kılıç & Mehmet Mutlu Akıncı, Winter 2009, “Kurumsal Sosyal Sorumluluk Kapsamında Örgütlerin Çevresel Sorumlulukları ve Çevre Yönetimi”, Ekev Akademi Dergisi, Vol.13, Iss.38. Aktan, Coşkun Can & İstiklal Y.Vural, 2007, Kurumsal Sosyal Sorumluluk, “Globalleşme Sürecinde Çokuluslu Şirketler”, İGİAD Publishing Iss.4. Aktan, Coşkun Can & İstiklal Y.Vural, May 2007, “Kurumsal Sosyal Sorumluluk: Uluslararası Kuruluşlar ve Hükümet Dışı Organizasyonlar Tarafından Sürdürülen Başlıca Girişimler”, Çimento İşveren Dergisi, pp.4-22. Bayar, Fırat, “Küreselleşme Kavramı ve Küreselleşme Sürecinde Türkiye”, Türkiye Cumhuriyeti Dışişleri Bakanlığı Ekonomik Sorunlar Dergisi, Iss.32, pp.25-34. Bayıksel, Şeyma Öncel, 1 March 2011,“Yeni Sosyal Sorumluluk Gerçekleri”, Capital Dergisi. Burkett, Brian W and The Others, 2006, Corporate Social Responsibility: An Evolving Global Business Phenomenon, Heenan Blakie, Canada. Coca Cola İçecek, Hayata Artı Vakfı, http://www.cci.com.tr/tr/kurumsal-sosyal-sorumluluk/toplum/,[Viewed: 09.08.2011]. Commision of the European Communities, 2001, “Green Paper: Promoting a European Framework for Corporate Social Responsibility, http://europa.eu.int/comm/ employment_social/soc-dial/csr/greenpaper.htm, [Viewed:08.08.2011]. Danışoğlu, Ayşe Çelikel, 2004,“Küreselleşmenin Gelir Eşitsizliği ve Yoksulluk Üzerindeki Etkileri”, İstanbul Ticaret Üniversitesi Dergisi, pp.215-239. Devlet Planlama Teşkilatı, 2000, Küreselleşme Özel İhtisas Komisyonu Raporu, Ankara. Düşler Akademisi, Düşler Akademisi Nedir?, http://www.duslerakademisi .org/?mod=dusler-akademisi-nedir, [Viewed: 09.08.2011]. Erçakar, M.Emin & Erdal Tanas Karagöl, January 2011, “Türkiye‟de Doğrudan Yabancı Yatırımlar”, Seta Analiz Dergisi, s.3-24. GFK , 2011, Kurumsal Sosyal Sorumluluk Araştırması Sonuçları, http://www.gfk.com /imperia/md/content/gfkturkiye/pressreleases/capital_kss_arastirmasi_sonuclari.pdf, [Viewed: 20.08.2011]. Hazine Müsteşarlığı Yabancı Sermaye Genel Müdürlüğü, May 2011, Uluslararası Doğrudan Yatırımlar 2010 Yılı Raporu. International Labour Office, 2001, Tripartite Declaration: Multinational Enterprises and Social Policy Declaration, Geneva, 3.Edition, http://www.ilo.org/wcmsp5/groups /public/@ed_emp/@emp_ent/documents/publication/wcms_101234.pdf,[Viewed:08.08.2011]. Klein, J.G., 2004, “Corporate Social Responsibility: A Consumer Perspective”, Advances in Consumer Research, 2004, pp.101-102. Koç Holding, 2007, Küresel İlkeler Sözleşmesi, http://www.koc.com.tr/tr-tr/Kurumsal_Sosyal_Sorumluluk/ HoldingF aali yetleri/Pages/KIS_Deger_ Yaratmak_Konferans i.aspx, [Viewed: 20.08.2011]. Kurumsal Sosyal.Com, Hayata Artı Katacak Çevre Projeleri, http://www.kurumsa lsosyal.com//tr-TR/coca-cola/ 23 4 _hayata-arti-katacak-cevre-projeleri.aspx, [Viewed: 09.08.2011]. Luminita, Şoproni & Toca Constantin, 2007, Global Business Ethics and The Multinational Companies, steconomice.uoradea.ro/anale/ volume/2007/v1...and. ../117.pdf, [Viewed:08.08.2011]. Morand M & L.Rayman-Bacchus, November 2006, “Think global,act local:Corporate Social Responsibility Management in Multinational Companies”, Social Responsibility Journal, Vol.2, Iss.3/4, pp.261 – 272. OECD, 2003, Guidelines for Multinational Enterprises.


and their performances on social responsibility, and lead corporate social responsibility activities in addition to the economic benefits they provide to our country.

Multinational companies of course can not singly resolve the problems of developing countries however they can improve people‟s lives at a significant level by advancing the trade and development. Multinational companies entering into and operating in developing countries carry their social responsibility conscious to these countries. At this point financial power of the developed world should meet with financial opportunities of the developing world. During all these processes, financial market arrangements and convenience arrangements in some bureaucratic issues executed by the governments of the countries want to attract foreign direct investment will increase the positive effect that foreign direct investments have on the area of corporate social responsibility. References Ak, Rengin, Spring 2004, “Küreselleşen Ekonomide Bankacılık Sektörünün Durumu”, İktisat Dergisi, Iss.455, pp.54-61. Akıncı, Sevcan Kılıç & Mehmet Mutlu Akıncı, Winter 2009, “Kurumsal Sosyal Sorumluluk Kapsamında Örgütlerin Çevresel Sorumlulukları ve Çevre Yönetimi”, Ekev Akademi Dergisi, Vol.13, Iss.38. Aktan, Coşkun Can & İstiklal Y.Vural, 2007, Kurumsal Sosyal Sorumluluk, “Globalleşme Sürecinde Çokuluslu Şirketler”, İGİAD Publishing Iss.4. Aktan, Coşkun Can & İstiklal Y.Vural, May 2007, “Kurumsal Sosyal Sorumluluk: Uluslararası Kuruluşlar ve Hükümet Dışı Organizasyonlar Tarafından Sürdürülen Başlıca Girişimler”, Çimento İşveren Dergisi, pp.4-22. Bayar, Fırat, “Küreselleşme Kavramı ve Küreselleşme Sürecinde Türkiye”, Türkiye Cumhuriyeti Dışişleri Bakanlığı Ekonomik Sorunlar Dergisi, Iss.32, pp.25-34. Bayıksel, Şeyma Öncel, 1 March 2011,“Yeni Sosyal Sorumluluk Gerçekleri”, Capital Dergisi. Burkett, Brian W and The Others, 2006, Corporate Social Responsibility: An Evolving Global Business Phenomenon, Heenan Blakie, Canada. Coca Cola İçecek, Hayata Artı Vakfı, http://www.cci.com.tr/tr/kurumsal-sosyal-sorumluluk/toplum/,[Viewed: 09.08.2011]. Commision of the European Communities, 2001, “Green Paper: Promoting a European Framework for Corporate Social Responsibility, http://europa.eu.int/comm/ employment_social/soc-dial/csr/greenpaper.htm, [Viewed:08.08.2011]. Danışoğlu, Ayşe Çelikel, 2004,“Küreselleşmenin Gelir Eşitsizliği ve Yoksulluk Üzerindeki Etkileri”, İstanbul Ticaret Üniversitesi Dergisi, pp.215-239. Devlet Planlama Teşkilatı, 2000, Küreselleşme Özel İhtisas Komisyonu Raporu, Ankara. Düşler Akademisi, Düşler Akademisi Nedir?, http://www.duslerakademisi .org/?mod=dusler-akademisi-nedir, [Viewed: 09.08.2011]. Erçakar, M.Emin & Erdal Tanas Karagöl, January 2011, “Türkiye‟de Doğrudan Yabancı Yatırımlar”, Seta Analiz Dergisi, s.3-24. GFK , 2011, Kurumsal Sosyal Sorumluluk Araştırması Sonuçları, http://www.gfk.com /imperia/md/content/gfkturkiye/pressreleases/capital_kss_arastirmasi_sonuclari.pdf, [Viewed: 20.08.2011]. Hazine Müsteşarlığı Yabancı Sermaye Genel Müdürlüğü, May 2011, Uluslararası Doğrudan Yatırımlar 2010 Yılı Raporu. International Labour Office, 2001, Tripartite Declaration: Multinational Enterprises and Social Policy Declaration, Geneva, 3.Edition, http://www.ilo.org/wcmsp5/groups /public/@ed_emp/@emp_ent/documents/publication/wcms_101234.pdf,[Viewed:08.08.2011]. Klein, J.G., 2004, “Corporate Social Responsibility: A Consumer Perspective”, Advances in Consumer Research, 2004, pp.101-102. Koç Holding, 2007, Küresel İlkeler Sözleşmesi, http://www.koc.com.tr/tr-tr/Kurumsal_Sosyal_Sorumluluk/ HoldingF aali yetleri/Pages/KIS_Deger_ Yaratmak_Konferans i.aspx, [Viewed: 20.08.2011]. Kurumsal Sosyal.Com, Hayata Artı Katacak Çevre Projeleri, http://www.kurumsa lsosyal.com//tr-TR/coca-cola/ 23 4 _hayata-arti-katacak-cevre-projeleri.aspx, [Viewed: 09.08.2011]. Luminita, Şoproni & Toca Constantin, 2007, Global Business Ethics and The Multinational Companies, steconomice.uoradea.ro/anale/ volume/2007/v1...and. ../117.pdf, [Viewed:08.08.2011]. Morand M & L.Rayman-Bacchus, November 2006, “Think global,act local:Corporate Social Responsibility Management in Multinational Companies”, Social Responsibility Journal, Vol.2, Iss.3/4, pp.261 – 272. OECD, 2003, Guidelines for Multinational Enterprises.


Oksay, Suna, January 1998, “Çokuluslu Şirketler Teorileri Çerçevesinde Yabancı Sermaye Yatırımlarının İncelenerek Değerlendirilmesi”, Dış Ticaret Müsteşarlığı Dergisi, Iss.8. Olmuksa, July 2010, Basın Bülteni, http://www.olmuksa.com.tr/images/haber_ resimler /basinbulteni1.pdf, [Viewed: 09.08.2011]. Öz, Sumru, January 2010, Küresel Kriz Sürecinde Doğrudan Yabancı Yatırımlar, Ekonomik Araştırma Forumu. Özçelik, Burcu, Sosyal Sorumluluk mu Yoksa Pazarlama mı, http://www.kurumsal sosyal.com/tr-TR/haberler/45_sosyal-sorumluluk-mu-yoksa-pazarlama-mi-.aspx, [Viewed: 20.08.2011]. Sullivan, John D., 2000, “Prospering in the Global Economy”, Economic Reform Today, Iss.1, pp.10-63, http://www.cipe.org/publications/ert/e35/e35_03.pdf, [Viewed:10.08.2011]. Tagraf, Hasan, 2002, “Küresellesme Süreci ve Çok Uluslu İşletmelerin Küresellesme Sürecine Etkisi,” http://www. ceterisparibus.net./dunya/kuresellesme.htm. [Viewed:08.08.2011]. Taşkın, Ercan & Hamit Kahraman, April 2008, “Amaca Yönelik Pazarlama ve Turkcell Örneği”, Dumlupınar Üniversitesi Sosyal Bilimler Dergisi, Iss. 20, pp.237-255. Tekin, Ali Güner, January 2003, “Kapitalizmin İpini Çok Uluslu Şirketler Mi Çekecek?”, Ekonomistler Bülteni, http://www.angelfire.com/ok4 /aligunertekin/200301Kapitaliz minIpi.pdf, [Viewed:08.08.2011]. Türkiye Uluslararası Yatırımcılar Derneği, July 2011, Dünya Yatırım Raporu 2011, www.yased.org. [Viewed: 20.08.2011]. Tüsiad, BM Küresel İlkeler Sözleşmesi, http://www.tusiad.org/tusiad/etik/bm-kuresel-ilkeler-sozlesmesi/[ Viewed: 20.08.2011]. UNCTAD, 1999, The Social Responsibility of Transnational Corporations, NY and Geneva:United Nations. UNDP, Corporate Social Responsibility Association and European Commission, 2008, Corporate Social Responsibility in Turkey: Assessment Report. United Nation Global Compact, Ten Principles, http://www.unglobalcompact.org /AboutTheGC/ TheTenPrinciples index. Html, [Viewed: 20.08.2011]. Van Het Hof, Seçil Deren, 2009, Türkiye‟de Kurumsal Sosyal Sorumluluk Üçgeni: Şirketler, Toplum ve Toplum Kuruluşları, Tübitak Project No.107K182. World Alliance for Citizen Participiation, 2006, Uluslararası Sivil Toplum Endeksi Projesi Step II Türkiye Yan Raporları, İstanbul: Tüsev. Yapı Kredi Bankası, 2010, Sürdürülebilirlik Raporu 2010, http://www. yapikredi. com.tr/arsiv/ykb/surdurulebilirlik/YKBKSS3_09_03.pdf, [Viewed: 20.08.2011]. Yapı Kredi Bankası, Sınırsız Mavi, http://www.yapikredi.com.tr/tr-TR/kss/kss_ projeleri/kssp_egitimv ecevre_s inirsiz_mavi.aspx, [Viewed: 20.08.2011]. Yavuz, Cavit & Deniz Sivrikaya, 2009, Küreselleşmenin Aktörlerinden Çokuluslu Şirketler ve Yönetişim, International Davraz Congress On Social and Economic Issues Shaping The World‟s Future: New Global Dialogue, http://idc.sdu.edu.tr/tammetinler/yonetim/yonetim6.pdf. [Viewed:10.08.2011]. Zengingönül, Oğul, 2005, “Nedir Bu Küreselleşme?, Kaçabilir miyiz?, Kullanabilir miyiz?”, Siyasa, Vol.1, Iss.1, pp.85-106.

Opinion Leadership and Opinion Seeking as Mediators of Satisfaction and Loyalty in the Arts

Javier Flores-Zamora & Jesus Garcia De Madariaga Universidad Complutense de Madrid, Spain.

Key Words Opinion Leadership, Satisfaction, Leisure Services, Loyalty, Arts Marketing. Abstract The present study seeks to expand the traditional perspective on the positive linearity between satisfaction and loyalty. An empirical study is proposed to test the mediation of personal factors like opinion leadership and opinion seeking on attitudinal constructs obtained from the service received (satisfaction, perceived quality and value) and the resulting behavioral intentions. An accurate identification of opinion leaders will help art practitioners to maintain and strengthen the relationships with existing customers.

Using consumer behavior and relationship marketing theories, a structural model of satisfaction, loyalty, opinion seeking and opinion leadership was developed. A survey-based experiment in a non-mainstream theatre located in London was conducted to test the interrelationship among constructs. We propose that (1) the satisfaction-loyalty relationship is mediated by the arts consumer’s likelihood to recommend or to give his opinion, (2) the strength of the relationship between satisfaction and loyalty vary according to the loyalty indicator (metric) used, and (3) constructs that measure perceived service show a halo effect. Introduction

In order to improve their relationships with their customers, multinational companies have explored concepts like quality, satisfaction and loyalty. These constructs have been considered the axis of organizations and academic studies to predict profitability. The assumption lies in the expectation that, when a leisure and art service is performed as expected, patrons will become loyal. In other words, it has been thought that increasing the quality of a product or service based on consumer expectations would increase their satisfaction level; therefore, the higher the score on a satisfaction survey, the more loyal a respondent will be, either behaviorally or attitudinally (Garman, Garcia, & Hargreaves, 2004; Lee, 2003; Oliver, 1999).

Considering the specificities found in a leisure service, four aspects have been identified to develop the proposed model: (1) Services that fulfill emotional and self-expression needs (like the Arts) are entitled to subjective evaluations and decisions embodied on holistic perceptions (Oliver, 1993). Constructs like satisfaction, perceived quality and perceived value present high correlation levels amongst them (Garbarino & Johnson, 1999); (2) The belief that high levels of satisfaction lead to more loyal customers has been extensively applied by managers. Contrary to common belief, some authors state that maintaining high levels of satisfaction does not necessarily keep them loyal or increase market share (Griffin, 1995); (3) The loyalty concept consists of behavioral and attitudinal indicators and satisfaction can have a different impact to each of them. In an art show, attitudinal loyalty is more likely to be developed because patrons of the Arts usually do not attend the same art show twice (behavioral loyalty); (4) We consider that there is a mediating role of opinion seeking and opinion leadership tendencies. The decision to attend a Cinema or an art venue depends highly on the personal tendencies to provide or ask for opinions to/from other sources. For instance, opinion Seeking and opinion leadership should be a greater mediator than satisfaction itself.


Opinion Leadership and Opinion Seeking as Mediators of Satisfaction and Loyalty in the Arts

Javier Flores-Zamora & Jesus Garcia De Madariaga Universidad Complutense de Madrid, Spain.

Key Words Opinion Leadership, Satisfaction, Leisure Services, Loyalty, Arts Marketing. Abstract The present study seeks to expand the traditional perspective on the positive linearity between satisfaction and loyalty. An empirical study is proposed to test the mediation of personal factors like opinion leadership and opinion seeking on attitudinal constructs obtained from the service received (satisfaction, perceived quality and value) and the resulting behavioral intentions. An accurate identification of opinion leaders will help art practitioners to maintain and strengthen the relationships with existing customers.

Using consumer behavior and relationship marketing theories, a structural model of satisfaction, loyalty, opinion seeking and opinion leadership was developed. A survey-based experiment in a non-mainstream theatre located in London was conducted to test the interrelationship among constructs. We propose that (1) the satisfaction-loyalty relationship is mediated by the arts consumer’s likelihood to recommend or to give his opinion, (2) the strength of the relationship between satisfaction and loyalty vary according to the loyalty indicator (metric) used, and (3) constructs that measure perceived service show a halo effect. Introduction

In order to improve their relationships with their customers, multinational companies have explored concepts like quality, satisfaction and loyalty. These constructs have been considered the axis of organizations and academic studies to predict profitability. The assumption lies in the expectation that, when a leisure and art service is performed as expected, patrons will become loyal. In other words, it has been thought that increasing the quality of a product or service based on consumer expectations would increase their satisfaction level; therefore, the higher the score on a satisfaction survey, the more loyal a respondent will be, either behaviorally or attitudinally (Garman, Garcia, & Hargreaves, 2004; Lee, 2003; Oliver, 1999).

Considering the specificities found in a leisure service, four aspects have been identified to develop the proposed model: (1) Services that fulfill emotional and self-expression needs (like the Arts) are entitled to subjective evaluations and decisions embodied on holistic perceptions (Oliver, 1993). Constructs like satisfaction, perceived quality and perceived value present high correlation levels amongst them (Garbarino & Johnson, 1999); (2) The belief that high levels of satisfaction lead to more loyal customers has been extensively applied by managers. Contrary to common belief, some authors state that maintaining high levels of satisfaction does not necessarily keep them loyal or increase market share (Griffin, 1995); (3) The loyalty concept consists of behavioral and attitudinal indicators and satisfaction can have a different impact to each of them. In an art show, attitudinal loyalty is more likely to be developed because patrons of the Arts usually do not attend the same art show twice (behavioral loyalty); (4) We consider that there is a mediating role of opinion seeking and opinion leadership tendencies. The decision to attend a Cinema or an art venue depends highly on the personal tendencies to provide or ask for opinions to/from other sources. For instance, opinion Seeking and opinion leadership should be a greater mediator than satisfaction itself.


First, we present a theoretical review of service quality, satisfaction, and loyalty constructs, and the mediation effect of opinion leadership and opinion seeking behavior; then we analyze the results and findings from the empirical study. Finally, we present the implications, and proposed actions and management strategies.

Marketing Constructs with an impact on Loyalty Perceived quality is the consumer‟s judgment about a product‟s overall excellence or superiority

(Zeithaml, 1988). SERVPERF uses actual performance as the unique indicator has been considered more reliable, without considering disconfirmation theories nor expectations (Cronin & Taylor, 1992).

In recent years, most of the marketing literature has been linked, to a certain extent, to the concept of customer value, the concept‟s high level of abstraction has generated several definitions and difficulties to measure it throughout the literature and in managerial situations; this is the case for a leisure service. Some studies measure it with a monetary focus in which the lower the price, the more benefit received (Boulding, Staelin, Ehret, & Johnston, 2005). In contrast, Unger and Kernan (1983) discuss the benefits received when a service is used as a leisure experience; they propose six indicators that define leisure: intrinsic satisfaction, perceived freedom, involvement, arousal, mastery, and spontaneity. Leisure activities vary significantly but the literature on hedonic indicators present subtle adaptations from Unger and Kernan‟s original scale.

One of the most important concepts in marketing literature is the customer satisfaction construct. Customer satisfaction is a judgment of a pleasurable level of consumption-related fulfillment with respect to any aspect of a service experience (Arnould, Price, & Zinkhan, 2004). It is a relatively temporary post purchase state that reflects how the product or service has fulfilled its purpose.

A large selection of studies have addressed the importance to establish consumer‟s levels of loyalty (McMullan & Gilmore, 2008) and have investigated and tested hypotheses that include the loyalty concept by differentiating attitudinal and behavioral loyalty (Chen, Shen, & Liao, 2009; Gómez Suarez & Fernandez, 2009; Mechinda, Serirat, & Gulid, 2009; Yue & Xie, 2008). Customer loyalty is the “willingness of someone -a customer, an employee, a friend- to make an investment or personal sacrifice in order to strengthen a relationship” (Reichheld, 2004). Attitudinal loyalty has been measured by two constructs: commitment and word-of-mouth, and behavioral loyalty by two: nonswitching behavior and purchase repetition. Commitment is an attitudinal type of loyalty and it is defined as the individual‟s intention to remain in the relationship and to make the effort to remain in it (Morgan & Hunt, 1994). Word-of-mouth is the action of referencing a product or brand by passing information about its performance. This attitudinal form of loyalty is considered by some academics the truest form of loyalty since the individual does not only provide information but he also puts his reputation at risk (Reichheld, 2004). Behavioral indicators (repetition and non-switching behavior) have been used throughout a vast number of studies to measure profitability, and to link them with the company‟s growth.

In contrast, little academic research has been done to describe the opinion leadership and opinion seeking personal tendencies as a trigger of behavioral or attitudinal consumption consequences.

Also known as “market mavens” (Feick & Price, 1987), opinion leaders are individuals with the knowledge and the expertise to influence the attitudes and actions of others (Gatignon & Robertson, 1985). Previous studies have noted that this tendency cannot be generalized to all purchasing environments and to all situations of the person‟s life. In contrast, opinion leadership attitude varies by product type (Myers & Robertson, 1972), and by product category (Shoham & Ruvio, 2008).

Opinion seeking, in comparison to the psychological factors found for opinion leadership, has a negative relationship with the need for uniqueness and it is associated positively with people that pay attention to social comparisons (Bertrandias & Goldsmith, 2006). Opinion seeking‟s main components are: seeking information or opinions; a product or service evaluation is the main goal, and interpersonal sources are consulted to achieve objectives. Innovation related contexts and opinion seeking have an asymmetric relationship (Girardi, Soutar, & Ward, 2005).

Model Development Satisfaction as predictor of future intentions groups the basic models that have guided the

consumer behavior theories (Cronin & Taylor, 1992; Zeithaml, Berry, & Parasuraman, 1996).

The consumer behavior literature has suggested various models that predict profitability through future intentions and attitudinal constructs (Gupta & Zeithaml, 2006). The basic criteria used for these models combine perceptual constructs such as perceived quality, value and satisfaction with different types of loyalty (Bolton, Lemon, & Bramlett, 2006; Brunner, Stöcklin, & Opwis, 2008; Johnson & Gustafsson, 2000).

In the case of a leisure experience, communal consumption is influenced by the tendency of oneself to prescribe or ask for opinions. Based on a study conducted in a music related environment, opinion leadership was positively associated with behavioral loyalty, results also showed that opinion leaders are frequent buyers of music products and same category products and they are highly aware of new releases (Goldsmith & Hofacker, 1991). Similarly, for high involvement products, or products that fulfill self-expression and leisure needs, opinion leadership impacts enduring involvement, commitment and status consumption (products that confer social status) (Flynn, Goldsmith, & Eastman, 1996). We believe that opinion leaders in the Arts are committed individuals who tend to refer a show or movie or attend the same arts venue frequently.

As of opinion seeking behavior, Shoham and Ruvio‟s study (2008) provide evidence in the computer and software market about the negative association between computer store visits, readership, involvement and opinion seeking behavior. Since the context of the study explored and the few existing studies on opinion seeking in a leisure setting, we infer that an individual‟s opinion seeking tendency is not related to any type of loyalty. In addition, opinion seekers and opinion leaders are not related to each other,

To sum up and establish a visual approach to the studies mentioned before, we suggest the inclusion of behavioral tendencies (opinion leadership and opinion seeking) to explain the relationship between cognitive and affective evaluations on the types of loyalty found in the literature. A first moment would test the impact between perceived quality, and perceived value on satisfaction, a second moment would examine the positive link between satisfaction with attitudinal and behavioral loyalty, and a third would describe the mediation between opinion leadership and opinion seeking with loyalty (Figure 1).

FIGURE 1

Visual representation the proposed model

Source: Personal compilation based on previous research

WORD OF MOUTH

COMMITMENT

NON-SWITCHING BEHAVIOR

REPETITION

PERCEIVED VALUE

SATISFACTION

OPINION SEEKING

OPINION LEADERSHIP

PERCEIVED QUALITY

0.76

0.45

0.58

0.47

-0.1

0.0

0.0

0.0

0.0

-0.13

0.2

0.0

-0.12

0.88 0.79

0.95


Model Development Satisfaction as predictor of future intentions groups the basic models that have guided the

consumer behavior theories (Cronin & Taylor, 1992; Zeithaml, Berry, & Parasuraman, 1996).

The consumer behavior literature has suggested various models that predict profitability through future intentions and attitudinal constructs (Gupta & Zeithaml, 2006). The basic criteria used for these models combine perceptual constructs such as perceived quality, value and satisfaction with different types of loyalty (Bolton, Lemon, & Bramlett, 2006; Brunner, Stöcklin, & Opwis, 2008; Johnson & Gustafsson, 2000).

In the case of a leisure experience, communal consumption is influenced by the tendency of oneself to prescribe or ask for opinions. Based on a study conducted in a music related environment, opinion leadership was positively associated with behavioral loyalty, results also showed that opinion leaders are frequent buyers of music products and same category products and they are highly aware of new releases (Goldsmith & Hofacker, 1991). Similarly, for high involvement products, or products that fulfill self-expression and leisure needs, opinion leadership impacts enduring involvement, commitment and status consumption (products that confer social status) (Flynn, Goldsmith, & Eastman, 1996). We believe that opinion leaders in the Arts are committed individuals who tend to refer a show or movie or attend the same arts venue frequently.

As of opinion seeking behavior, Shoham and Ruvio‟s study (2008) provide evidence in the computer and software market about the negative association between computer store visits, readership, involvement and opinion seeking behavior. Since the context of the study explored and the few existing studies on opinion seeking in a leisure setting, we infer that an individual‟s opinion seeking tendency is not related to any type of loyalty. In addition, opinion seekers and opinion leaders are not related to each other,

To sum up and establish a visual approach to the studies mentioned before, we suggest the inclusion of behavioral tendencies (opinion leadership and opinion seeking) to explain the relationship between cognitive and affective evaluations on the types of loyalty found in the literature. A first moment would test the impact between perceived quality, and perceived value on satisfaction, a second moment would examine the positive link between satisfaction with attitudinal and behavioral loyalty, and a third would describe the mediation between opinion leadership and opinion seeking with loyalty (Figure 1).

FIGURE 1

Visual representation the proposed model

Source: Personal compilation based on previous research

WORD OF MOUTH

COMMITMENT

NON-SWITCHING BEHAVIOR

REPETITION

PERCEIVED VALUE

SATISFACTION

OPINION SEEKING

OPINION LEADERSHIP

PERCEIVED QUALITY

0.76

0.45

0.58

0.47

-0.1

0.0

0.0

0.0

0.0

-0.13

0.2

0.0

-0.12

0.88 0.79

0.95


Data collection and instrumentation The research is a cross-sectional study conducted in a non-mainstream arts venue located in

London, outside the West End (London‟s most popular theater area for tourists). The venue offers multiple activities, performing arts shows and movie projections. The patron‟s evaluation was based on the overall experience his visit, not on one single event. Considering the nature of the research, the number of variables, the multivariate technique employed, the sample sizes used in similar studies, and the number of constructs included in the model, from the 450 respondents, 409 questionnaires were used after excluding the respondents who had completed the entire self-administered questionnaire. This sample size proves to show stable results (Garbarino & Johnson, 1999; Hair, Black, Babin, & Anderson, 2010; 2009). The majority of the respondent‟s occupations were either in the arts, media, design, management, education and science, medical sector and architecture, and some students; most of them with higher education degrees.

A self-administered questionnaire was used due to the interactivity and control of the respondent (Malhotra, 2007), affordability, time-effectiveness, less assistance requirements, and the sense of anonymity (Brace, 2008).

The scale was developed using items from 65 previous academic studies, more than 400 individual items. Careful assessment of the level of specificity and generality for each scale was performed; scales that measure specific attributes of a different type of service were avoided and the items that evaluated an arts show were used, like the scale used by Garbarino and Johnson (1999).

All the items were measured on a 7-point Likert scale where 1 is “Strongly Disagree” and 7 is “Strongly Agree”. Each item is presented in Table 1. Analysis and results

Structural Equation Modeling (SEM) was chosen as the best multivariate analysis technique because it examines the structure of interrelationships among multiple variables, using a series of equations, similar to multiple regressions (Hair, et al., 2010). Measurement model assessment with CFA. Validity

Table 1 specifies the number of factors used in the model and the items that load on those factors. Definition of variables was conducted with the results from theoretical and exploratory evidence to assess internal consistency and construct validity.

Construct reliabilities were calculated as indicators of convergent validity, following Cronbach‟s alpha results (see Table 1), construct reliabilities range from 0,89 for satisfaction and quality to 0.67 for opinion seeking behavior. The evidence supports convergent validity of the measurement model for most of the constructs. Notably, some of the “poor” items were not dropped from the analysis because they were strongly supported by the literature.

Table 1 Confirmatory Factor Loadings of the Study

ITEMS WITH LATENT VARIABLE

Α STANDARDIZED FACTOR LOADING

MEAN / STD. DEVIATION

ESTIMATED LOADING / STANTARD ERROR

SATISFACTION α=0.89 Overall satisfaction with today‟s experience 0.829 6.13 / 1.002 1.01 / 0.05** Extent experience met expectations 0.817 6.03 / 1.054 1.04 / 0.06** True enjoyment of the experience at venue 0.868 5.95 / 1.058 1.11 / 0.06** Satisfaction with decision to come to venue 0.81 6.15 / 1.025 1.00++ PERCEIVED VALUE α=0.54 Opportunity to escape from daily routine 0.481 5.68 / 1.436 1.07 / 0.168* Visit was a waste of time (reverse) 0.539 5.98 / 1.224 1.00++ Good value for the money paid 0.601 5.85 / 1.396 1.3 / 0.171* PERCEIVED QUALITY α=0.89 Facilities are visually appealing and comfortable

0.762 5.50 / 1.18 1.00++

Reliable show 0.826 5.88 / 1.086 1 / 0.06** Excellent overall service 0.881 5.74 / 1.131 1.11 / 0.06** The Staff is polite and respectful at all times 0.770 6.07 / 1.172 1.01 / 0.06** Additional services (cafeteria, gallery, exhibitions, music) help increase the overall quality

0.711 5.82 / 1.243 0.99 / 0.07**

WORD OF MOUTH (ATTITUDINAL LOYALTY)

α=0.82

I would recommend _____ to my friends and family

0.864 6.00 / 1.01 1.00++

Probability to recommend to a friend is… 0.809 5.86 / 1.238 1.15 / 0.065** COMMITMENT (ATTITUDINAL LOYALTY)

α=0.64

Willingness to “go the extra mile” to come 0.630 5.14 / 1.56 1.00++ I feel loyalty towards this venue 0.768 4.62 / 1.72 1.34 / 0.11 I would continue coming even if prices increased

0.460 4.44 / 1.55 0.73 / 0.09

RETENTION – NONSWITCHING BEHAVIOR (BEHAVIORAL LOYALTY)

α=0.46

Difficult to change my beliefs 0.569 4.62 / 1.66 1.00++ Same preference even If close friends recommended another

0.529 4.17 / 1.65 0.92 / 0.14**

REPETITION – FREQUENCY OF PURCHASE (BEHAVIORAL LOYALTY)

α=0.75

Probability to come back in the next three months is …

0.879 5.23 / 1.745 1.67 / 0.17**

Frequency of attendance in 6 months (intervals) (metric scale)

0.740 2.23 / 1.15 0.93 / 0.09**

I plan to be a member of this venue in the future

0.529 3.47 / 1.73 1.00++

OPINION LEADERSHIP α=0.741 I often persuade others to attend 0.644 5.40 / 1.325 1.00++ I like giving my opinions to my friends 0.808 5.55 / 1.258 1.19 / 0.10** In the past weeks, I have given my opinion on a show I saw to a large number of people

0.627 4.95 / 1.463 1.07 / 0.11**

Number of people Encouraged in intervals (not a Likert scale)

0.527 2.08 / 1.037 0.642 / 0.08**


Table 1 Confirmatory Factor Loadings of the Study

ITEMS WITH LATENT VARIABLE

Α STANDARDIZED FACTOR LOADING

MEAN / STD. DEVIATION

ESTIMATED LOADING / STANTARD ERROR

SATISFACTION α=0.89 Overall satisfaction with today‟s experience 0.829 6.13 / 1.002 1.01 / 0.05** Extent experience met expectations 0.817 6.03 / 1.054 1.04 / 0.06** True enjoyment of the experience at venue 0.868 5.95 / 1.058 1.11 / 0.06** Satisfaction with decision to come to venue 0.81 6.15 / 1.025 1.00++ PERCEIVED VALUE α=0.54 Opportunity to escape from daily routine 0.481 5.68 / 1.436 1.07 / 0.168* Visit was a waste of time (reverse) 0.539 5.98 / 1.224 1.00++ Good value for the money paid 0.601 5.85 / 1.396 1.3 / 0.171* PERCEIVED QUALITY α=0.89 Facilities are visually appealing and comfortable

0.762 5.50 / 1.18 1.00++

Reliable show 0.826 5.88 / 1.086 1 / 0.06** Excellent overall service 0.881 5.74 / 1.131 1.11 / 0.06** The Staff is polite and respectful at all times 0.770 6.07 / 1.172 1.01 / 0.06** Additional services (cafeteria, gallery, exhibitions, music) help increase the overall quality

0.711 5.82 / 1.243 0.99 / 0.07**

WORD OF MOUTH (ATTITUDINAL LOYALTY)

α=0.82

I would recommend _____ to my friends and family

0.864 6.00 / 1.01 1.00++

Probability to recommend to a friend is… 0.809 5.86 / 1.238 1.15 / 0.065** COMMITMENT (ATTITUDINAL LOYALTY)

α=0.64

Willingness to “go the extra mile” to come 0.630 5.14 / 1.56 1.00++ I feel loyalty towards this venue 0.768 4.62 / 1.72 1.34 / 0.11 I would continue coming even if prices increased

0.460 4.44 / 1.55 0.73 / 0.09

RETENTION – NONSWITCHING BEHAVIOR (BEHAVIORAL LOYALTY)

α=0.46

Difficult to change my beliefs 0.569 4.62 / 1.66 1.00++ Same preference even If close friends recommended another

0.529 4.17 / 1.65 0.92 / 0.14**

REPETITION – FREQUENCY OF PURCHASE (BEHAVIORAL LOYALTY)

α=0.75

Probability to come back in the next three months is …

0.879 5.23 / 1.745 1.67 / 0.17**

Frequency of attendance in 6 months (intervals) (metric scale)

0.740 2.23 / 1.15 0.93 / 0.09**

I plan to be a member of this venue in the future

0.529 3.47 / 1.73 1.00++

OPINION LEADERSHIP α=0.741 I often persuade others to attend 0.644 5.40 / 1.325 1.00++ I like giving my opinions to my friends 0.808 5.55 / 1.258 1.19 / 0.10** In the past weeks, I have given my opinion on a show I saw to a large number of people

0.627 4.95 / 1.463 1.07 / 0.11**

Number of people Encouraged in intervals (not a Likert scale)

0.527 2.08 / 1.037 0.642 / 0.08**


OPINION SEEKING BEHAVIOR α=0.67 Views of others are important before I make up my mind

0.659 3.32 / 1.62 1.00++

I feel more comfortable to form my own opinion on a show once I have heard other people‟s views on it

0.581 3.50 / 1.93 1.05 / 0.14**

If the opinion of others is different from mine, I normally adjust mine to match it with the others

0.678 2.29 / 1.52 0.97 / 0.13**

* The factor loadings presented are obtained from the confirmatory factor analyses. ++ Are loadings fixed to 1 for estimating the SEM model. **Significant at p<0.001

Fit-indices

All the items loaded significantly on their assigned dimension and the overall model fit show high levels of goodness-of-fit. In each case, the fit indices surpass the levels recommended by Hair et al. (2010); considering the model complexity, number of items and sample size, except for RMR which approaches the 0,10 threshold considered acceptable: CFI= 0,931, RMSEA= 0,050 with 90% confidence between 0.045 and 0.055, GFI= 0,90, RMR=0,11; indicating an acceptable model fit. Due to the sample size, there was a significant chi-square (341)= 686.557, p<0.001; however, the normed chi-square is 2,013 (686.557/341), same as the cutoff value of 2, suggesting a good CFA model fit. These results suggest that the measurement model provides a reasonably good fit and thus, it is suitable to proceed to validity examination of the model results.

Structural model fit and CFA fit

The information in Table 2 shows the overall fit statistics from testing the proposed model and the comparison to the results from the CFA model. The chi-square is 754.19 with 359 degrees of freedom (p<0,05) and the normed chi-square is 2.10. The model CFI is 0.921 with a RMSEA of 0.052 with a 90% confidence interval of 0.047 to 0.057. The GFI is 0.888 and the RMR is 0.108. Compared to the CFA model, these diagnostics haven‟t changed substantially and they still provide an adequate fit, considering the sample size and the model complexity.

We next examine the path estimates and notice that there were no substantial changes in comparison to the CFA results. All standardized factor loadings haven‟t changed dramatically which shows that the model is stable and supports model‟s validity. Consequently, we proceeded with the evaluation and did not respecify the model. Since it was developed with a solid theoretical foundation, an adequate reliability and a systematic scale development.

Table 2 Comparison of GOF Measures and Standard Regression Weights between the CFA Model and the Structural Model ABSOLUTE MEASURES INCREMENTAL FIT

MEASURES GOF INDEX Chi-

square Degrees of freedom

GFI RMSEA 90% confidence interval of RMSEA

RMR Normed chi-square

CFI NFI RFI

CFA MODEL

663.467 338 0.901 0.049 0.043 – 0.054 0.111 1.963 0.934 0.875 0.850

STRUCTURAL MODEL

754.190 359 0.888 0.052 0.047 – 0.057 0.108 2.101 0.921 0.861 0.843

Hypotheses Tests

The structural theory is based on the consumer behavior literature and the model was designed with nine constructs listed previously. The theory leads us to expect that personal aspects like opinion seeking and opinion leadership on leisure services will have a much stronger effect on having loyal patrons than satisfaction itself. In addition, constructs that are related to consumer‟s attitudes like perceived quality, perceived value and satisfaction will show multicolinearity. In turn, satisfaction will have some influence on different types of loyalty.

The following hypotheses have been tested: Hypothesis 1:

A firm’s overall evaluations of a leisure service present high multicolinearity levels. H1 establishes the multicolinearity effect of attitudinal constructs like perceived quality, perceived value and satisfaction. The corresponding path estimates support this hypothesis. Table 3 shows that quality; value and satisfaction are related; the correlation between perceived quality and perceived value was positive (r=0.58), the effect of perceived quality on satisfaction was significant (β=0.45) and the effect of perceived value on satisfaction was also considerable (β=0.47).

Hypothesis 2: A consumer’s satisfaction level is not related to all types of loyalty. H2 proposes that satisfaction may not

have a direct and positive effect on all constructs that integrate loyalty. Results from the path analysis are consistent with this proposition, when opinion leadership and opinion seeking are integrated, satisfaction only shows to have a poor effect on word-of-mouth communication (β=0.21), a weak negative influence on repetition (β=-0.12) and a null effect on the rest of the loyalty constructs.

Hypothesis 3: Opinion leadership has a stronger moderating effect on loyalty than the impact of satisfaction on loyalty. The

model shown in Figure 1 postulating a mediating effect of Opinion Leadership on loyalty was supported. The effect of Opinion Leadership shows a direct and strong effect for word-of-mouth communication (β=0.76), commitment (β=0.95), retention (β=0.79), and frequency of purchase (β=0.88).

Hypothesis 4: Opinion seeking behavior has no effect on loyalty. Based on the proposed model in Figure 1, we support

the assumption that Opinion Seeking behavior has no impact on three of the constructs that integrate loyalty (relationships were non-significant); results also showed a small and negative effect on Word of mouth (β=-0.1). As with previous studies which suggest no clear impact, the results here demand to explore this relationship further, in different leisure contexts.

Hypothesis 5: Opinion leadership and Opinion seeking behavior have no relationship. The examination of the existing

correlation between these tendencies in the model confirms that Opinion seeking and Opinion Leadership have a small negative correlation, which suggests that some opinion leaders cannot be opinion seekers (β=-0.13), but the low result suggests that both tendencies are independent aspects of the individual‟s


Table 2 Comparison of GOF Measures and Standard Regression Weights between the CFA Model and the Structural Model ABSOLUTE MEASURES INCREMENTAL FIT

MEASURES GOF INDEX Chi-

square Degrees of freedom

GFI RMSEA 90% confidence interval of RMSEA

RMR Normed chi-square

CFI NFI RFI

CFA MODEL

663.467 338 0.901 0.049 0.043 – 0.054 0.111 1.963 0.934 0.875 0.850

STRUCTURAL MODEL

754.190 359 0.888 0.052 0.047 – 0.057 0.108 2.101 0.921 0.861 0.843

Hypotheses Tests

The structural theory is based on the consumer behavior literature and the model was designed with nine constructs listed previously. The theory leads us to expect that personal aspects like opinion seeking and opinion leadership on leisure services will have a much stronger effect on having loyal patrons than satisfaction itself. In addition, constructs that are related to consumer‟s attitudes like perceived quality, perceived value and satisfaction will show multicolinearity. In turn, satisfaction will have some influence on different types of loyalty.

The following hypotheses have been tested: Hypothesis 1:

A firm’s overall evaluations of a leisure service present high multicolinearity levels. H1 establishes the multicolinearity effect of attitudinal constructs like perceived quality, perceived value and satisfaction. The corresponding path estimates support this hypothesis. Table 3 shows that quality; value and satisfaction are related; the correlation between perceived quality and perceived value was positive (r=0.58), the effect of perceived quality on satisfaction was significant (β=0.45) and the effect of perceived value on satisfaction was also considerable (β=0.47).

Hypothesis 2: A consumer’s satisfaction level is not related to all types of loyalty. H2 proposes that satisfaction may not

have a direct and positive effect on all constructs that integrate loyalty. Results from the path analysis are consistent with this proposition, when opinion leadership and opinion seeking are integrated, satisfaction only shows to have a poor effect on word-of-mouth communication (β=0.21), a weak negative influence on repetition (β=-0.12) and a null effect on the rest of the loyalty constructs.

Hypothesis 3: Opinion leadership has a stronger moderating effect on loyalty than the impact of satisfaction on loyalty. The

model shown in Figure 1 postulating a mediating effect of Opinion Leadership on loyalty was supported. The effect of Opinion Leadership shows a direct and strong effect for word-of-mouth communication (β=0.76), commitment (β=0.95), retention (β=0.79), and frequency of purchase (β=0.88).

Hypothesis 4: Opinion seeking behavior has no effect on loyalty. Based on the proposed model in Figure 1, we support

the assumption that Opinion Seeking behavior has no impact on three of the constructs that integrate loyalty (relationships were non-significant); results also showed a small and negative effect on Word of mouth (β=-0.1). As with previous studies which suggest no clear impact, the results here demand to explore this relationship further, in different leisure contexts.

Hypothesis 5: Opinion leadership and Opinion seeking behavior have no relationship. The examination of the existing

correlation between these tendencies in the model confirms that Opinion seeking and Opinion Leadership have a small negative correlation, which suggests that some opinion leaders cannot be opinion seekers (β=-0.13), but the low result suggests that both tendencies are independent aspects of the individual‟s


behavior, without any influence on each other. TABLE 3

Parameter estimates for the Proposed Structural Model Structural relationship Standardized parameter estimate β H1: Value Satisfaction 0.470 H1: Quality Satisfaction 0.453 H1: Value Quality 0.583 H2: Satisfaction Loyalty WOM 0.206 H2: Satisfaction Loyalty Commitment 0.00 (Relationship was non-significant) H2: Satisfaction Loyalty Retention 0.00 (Relationship was non-significant) H2: Satisfaction Loyalty Repetition -0.119 H3: Opinion leadership Loyalty WOM 0.763 H3: Opinion leadership Loyalty Commitment 0.946 H3: Opinion leadership Loyalty Retention 0.788 H3: Opinion leadership Loyalty Repetition 0.879 H4: Opinion seeking Loyalty WOM -0.103 H4: Opinion seeking Loyalty Commitment 0.00 (Relationship was non-significant) H4: Opinion seeking Loyalty Retention 0.00 (Relationship was non-significant) H4: Opinion seeking Loyalty Repetition 0.00 (Relationship was non-significant) H5: Opinion leadership Opinion seeking -0.131

Model respecification was not considered at this point since establishing additional paths will contradict theoretical support in spite of the improvement in model fit. The results have shown reasonably good overall model fit and the hypothesized relationships are generally supported. However, although the estimated indicators from some constructs showed poor performance, we decided to maintain them on the basis of strong theoretical support found in the literature. Discussion

Although there have been previous studies that assess the constructs mentioned here, no studies have stressed the importance of opinion leadership and opinion seeking behavior as a mediator of satisfaction-loyalty.

The analysis of the model suggests several outcomes in managerial and theoretical grounds. First, the evaluation of a leisure service for an individual shows that inferences about specific aspects of the services are shared with among constructs like satisfaction, perceived quality or perceived value. This calls for parsimonious models in the future.

Consumer behavior literature has identified loyalty as a consequence of two elements: the service offered and satisfaction. Although satisfaction is a necessary condition to achieve an enjoyable experience, satisfied individuals do not necessarily generate loyalty. Figure 1 presents this assumption by incorporating interpersonal factors like opinion leadership and opinion seeking behaviors in a leisure setting. The satisfaction-loyalty literature within the social sciences has not attempted to theoretically offer common ground to theories of opinion seeking-opinion leadership with theories of satisfaction or perceived service. When these two behaviors serve as mediators in a model, satisfaction has little impact on loyalty.

Opinion leadership plays a significant role in the identification of loyal customers, those individuals that consider themselves as opinion leaders tend to identify themselves as more loyal. In contrast, there is mixed evidence about consumers that tend to ask for opinions about a leisure service. In addition, there is no condition that links opinion seeking and opinion leadership together, both tendencies are independent. Managerial implications

As many small arts organizations are not created as sources of profit, the economic situation demands an increasing attention to manage and allocate resources in the most effective way. Increasing word of mouth, commitment, frequency of attendance or audience retention provides a sustainable competitive advantage.

Evidence from traditional marketing on whether or not increasing satisfaction levels will have an impact on loyalty has been mixed. Empirical evidence suggests that managerial efforts to increase satisfaction levels do not lead to higher loyalty indicators. Measuring customer satisfaction through surveys is important but it should not be used as a predictor of loyalty or future intentions. Incorporating attitudinal evaluations in a questionnaire that examines the service received in the form of quality, satisfaction or value gives managers valuable information on important indicators about the firm‟s specific attributes but its inferences on aspects not measured should be taken cautiously. Low or declining satisfaction numbers should be used as a sign of corrective action in service performance. The multicolinearity effect found in this study suggests that parsimonious scales are less time consuming for the respondent and scale validity is equally effective. Similarly, service evaluation can prove useful when indexes are compared throughout the time. This can help arts organizations to assess efficiency and identify direction. Limitations of Current Study

The study conducted has some limitations. First, the analytical model linking overall evaluations (perceived quality and value), customer satisfaction, different types of loyalty and the mediation of interpersonal tendencies (opinion seeking and opinion leadership) is an abstraction from processes that occur in a real context. This abstraction only represents the elements modeled here. Considering that reality is much more complex and that we aimed to include the most relevant dimensions, results should be interpreted with caution. The model was analyzed with data obtained from a single arts organization and results can only reflect the opinions of a small segment that attended this arts venue during the time the study took place. Extending the same study to compare the results with other arts venues (competitive environment) demands controlling for variables like place, price, and activity analyzed, in addition to considering the heterogeneous aspect of a service in relation to other venues. While this competitive approach is frequently used to model organizations as a group, it is a limitation of our research, addressed later in the next section, “directions for future research”.

On the other hand, behavioral intentions do not represent future behavior, especially if there is not a subsequent behavior assessment on the difference between intentions and behavior. As discussed by marketing researchers, behavioral intentions are not a wholly reliable predictor of future behavior (Gupta & Zeithaml, 2006).

Particular attention should be given to the differences in the contexts used in this research; arts activities are considered part of leisure services. Although brand loyalty is usual for certain leisure activities as in attending a football match to support a favorite team, large cities with extensive cultural entertainment diversity may cause people to change places to see different shows. Therefore, loyalty may be dependent on the artistic shows offered. Integration of other venues from smaller cities might show a different pattern. Directions for future research

It would be interesting to consider the impact of opinion leadership and opinion seeking on loyalty in related contexts like: visiting a museum, attending a football game, going to a theme park or visiting a zoo. This would build a more solid leisure theoretical ground on the elements used by the individual in his leisure time.

Other phenomena that can be further explored are: expectancy formation, consumption inertia, the changes in social roles within interpersonal groups, differences in consumer‟s perceived value between leisure services (zoo, museum, cinema, etc) and leisure products (video consoles, board games, etc). Similarly, we propose further investigation on the perceived value differentiating the active and passive role that an individual takes when he is consuming a leisure service.

As mentioned above, behavioral intentions and actual behavior can result in substantial differences that can be overcome by implementing a membership program with the use of loyalty cards that can track visitor‟s transactions over the time. Consequently, a longitudinal design can be undertaken to address this question and compare attitudes with actual behavior.


Evidence from traditional marketing on whether or not increasing satisfaction levels will have an impact on loyalty has been mixed. Empirical evidence suggests that managerial efforts to increase satisfaction levels do not lead to higher loyalty indicators. Measuring customer satisfaction through surveys is important but it should not be used as a predictor of loyalty or future intentions. Incorporating attitudinal evaluations in a questionnaire that examines the service received in the form of quality, satisfaction or value gives managers valuable information on important indicators about the firm‟s specific attributes but its inferences on aspects not measured should be taken cautiously. Low or declining satisfaction numbers should be used as a sign of corrective action in service performance. The multicolinearity effect found in this study suggests that parsimonious scales are less time consuming for the respondent and scale validity is equally effective. Similarly, service evaluation can prove useful when indexes are compared throughout the time. This can help arts organizations to assess efficiency and identify direction. Limitations of Current Study

The study conducted has some limitations. First, the analytical model linking overall evaluations (perceived quality and value), customer satisfaction, different types of loyalty and the mediation of interpersonal tendencies (opinion seeking and opinion leadership) is an abstraction from processes that occur in a real context. This abstraction only represents the elements modeled here. Considering that reality is much more complex and that we aimed to include the most relevant dimensions, results should be interpreted with caution. The model was analyzed with data obtained from a single arts organization and results can only reflect the opinions of a small segment that attended this arts venue during the time the study took place. Extending the same study to compare the results with other arts venues (competitive environment) demands controlling for variables like place, price, and activity analyzed, in addition to considering the heterogeneous aspect of a service in relation to other venues. While this competitive approach is frequently used to model organizations as a group, it is a limitation of our research, addressed later in the next section, “directions for future research”.

On the other hand, behavioral intentions do not represent future behavior, especially if there is not a subsequent behavior assessment on the difference between intentions and behavior. As discussed by marketing researchers, behavioral intentions are not a wholly reliable predictor of future behavior (Gupta & Zeithaml, 2006).

Particular attention should be given to the differences in the contexts used in this research; arts activities are considered part of leisure services. Although brand loyalty is usual for certain leisure activities as in attending a football match to support a favorite team, large cities with extensive cultural entertainment diversity may cause people to change places to see different shows. Therefore, loyalty may be dependent on the artistic shows offered. Integration of other venues from smaller cities might show a different pattern. Directions for future research

It would be interesting to consider the impact of opinion leadership and opinion seeking on loyalty in related contexts like: visiting a museum, attending a football game, going to a theme park or visiting a zoo. This would build a more solid leisure theoretical ground on the elements used by the individual in his leisure time.

Other phenomena that can be further explored are: expectancy formation, consumption inertia, the changes in social roles within interpersonal groups, differences in consumer‟s perceived value between leisure services (zoo, museum, cinema, etc) and leisure products (video consoles, board games, etc). Similarly, we propose further investigation on the perceived value differentiating the active and passive role that an individual takes when he is consuming a leisure service.

As mentioned above, behavioral intentions and actual behavior can result in substantial differences that can be overcome by implementing a membership program with the use of loyalty cards that can track visitor‟s transactions over the time. Consequently, a longitudinal design can be undertaken to address this question and compare attitudes with actual behavior.


References Arnould, E., Price, L., & Zinkhan, G. (2004). Consumers. Boston: McGraw Hill/Irwin. Bertrandias, L., & Goldsmith, R. E. (2006). Some psychological motivations for fashion opinion leadership and fashion opinion seeking. Journal of Fashion Marketing and Management, 10(1), 25-40. Bolton, R. N., Lemon, K. N., & Bramlett, M. (2006). The Effect of Service Experiences over Time on a Supplier's Retention of Business Customers. Management Science, 52(12), 1811-1823. Boulding, W., Staelin, R., Ehret, M., & Johnston, W. J. (2005). A Customer Relationship Management Roadmap: What is Known, Potential Pitfalls, and Where to Go. Journal of Marketing, 69(4), 155-166. Brace, I. (2008). Questionnaire design: how to plan, structure and write survey material for effective market research (2 ed.). London: Kogan Page. Brunner, T. A., Stöcklin, M., & Opwis, K. (2008). Satisfaction, image and loyalty: new versus experienced customers. [Article]. European Journal of Marketing, 42(9/10), 1095-1105. Cronin, J. J., Jr., & Taylor, T. S. (1992). Measuring Service Quality: A Re-examination and Extension. Journal of Marketing, 56, 55-69. Chen, Y.-C., Shen, Y.-C., & Liao, S. (2009). An integrated model of customer loyalty: an empirical examination in retailing practice. Service Industries Journal, 29(3), 267-280. Feick, L. F., & Price, L. L. (1987). The Market Maven: A diffuser of Marketplace Information. Journal of Marketing, 51(1), 83-97. Flynn, L. R., Goldsmith, R. E., & Eastman, J. K. (1996). Opinion Leaders and Opinion Seekers: Two New Measurement Scales. Journal of the Academy of Marketing Science, 24(2), 137-147. Garbarino, E., & Johnson, M. S. (1999). The Different Roles of Satisfaction, Trust, and Commitment in Customer Relationships. Journal of Marketing, 63(2), 70-87. Garman, A., Garcia, J., & Hargreaves, M. (2004). Patient Satisfaction as a Predictor of Return-to-Provider Behavior: Analysis and Assessment of Financial Implications. Quality Management Health Care, 13(1). Gatignon, H., & Robertson, T. S. (1985). A propositional inventory for new diffusion research. Journal of Consumer Research, 11(4), 849-867. Girardi, A., Soutar, G. N., & Ward, S. (2005). The validation of a use innovativeness scale. European Journal of Innovation Management, 8(4), 471-482. Goldsmith, R. E., & Hofacker, C. (1991). Measuring consumer innovativeness. Journal of the Academy of Marketing Science, 19(3), 209-221 Gómez Suarez, M., & Fernandez, A. (2009). Consumer-Level Factors That Influence Store Brand Proneness: An Empirical Study With Spanish Consumers. Journal of Euromarketing, 18(1), 23-34. Griffin, J. (1995). Customer Loyalty: How to earn it, how to keep it. New York: Lexington. Gupta, S., & Zeithaml, V. (2006). Customer Metrics and Their Impact on Financial Performance. Marketing Science, 25(6), 718-739. Hair, J. F. J., Black, W. C., Babin, B. J., & Anderson, R. E. (2010). Multivariate Data Analysis. A global perspective. Upper Saddle River, NJ: Pearson Education. Johnson, M. D., & Gustafsson, A. (2000). Improving Customer Satisfaction, Loyalty, and Profit. An integrated Measurement and Management System. San Francisco, California: Jossey-Bass. Lee, F. (2003). Stop measuring patient satisfaction. Marketing Health Services, 23(2). Malhotra, N. K. (2007). Marketing Research: an applied orientation (5 ed.). Upper Saddle River, New Jersey: Pearson. Prentice hall. McMullan, R., & Gilmore, A. (2008). Customer loyalty: an empirical study. European Journal of Marketing, 42(9/10), 1084-1094. Mechinda, P., Serirat, S., & Gulid, N. (2009). An examination of tourists' attitudinal and behavioral loyalty: comparison between domestic and international tourists. Journal of Vacation Marketing, 15(2), 129-148. Morgan, R. M., & Hunt, S. D. (1994). The Commitment-Trust Theory of Relationship Marketing. Journal of Marketing, 58(3), 20. Myers, J., & Robertson, T. S. (1972). Dimensions of opinion leadership. Journal of Marketing Research, 9(1), 41-46. Oliver, R. (1993). Cognitive, affective, and attribute bases of the satisfaction response. Journal of Consumer Research, 20(3), 418-430. Oliver, R. (1999). Whence Consumer Loyalty? Journal of Marketing, 63(4), 33-44. Reichheld, F. F. (2004). The One Number You Need to Grow. Harvard Business Review, 82(6), 133. Schilke, O., Reimann, M., & Thomas, J. S. (2009). When Does International Marketing Standardization Matter to Firm Performance? Journal of International Marketing, 17(4), 24-46. Shoham, A., & Ruvio, A. (2008). Opinion leaders and followers: A replication and extension. Psychology & Marketing, 25(3), 280-297.

Unger, L. S., & Kernan, J. B. (1983). On the Meaning of Leisure: An Investigation of Some Determinants of the Subjective Experience. Journal of Consumer Research, 9(4), 381. Yue, P., & Xie, F. T. (2008). Antecedents and Consequences of Customer Loyalty: An Empirical Synthesis and Reexamination. Advances in Consumer Research - Latin American Conference Proceedings, 2, 173. Zeithaml, V. (1988). Consumer Perceptions of Price, Quality, and Value: A Means-End Model and Synthesis of Evidence. Journal of Marketing, 52(3), 2. Zeithaml, V., Berry, L., & Parasuraman, A. (1996). The behavioral consequences of service quality. Journal of Marketing, 60(2), 31.


Unger, L. S., & Kernan, J. B. (1983). On the Meaning of Leisure: An Investigation of Some Determinants of the Subjective Experience. Journal of Consumer Research, 9(4), 381. Yue, P., & Xie, F. T. (2008). Antecedents and Consequences of Customer Loyalty: An Empirical Synthesis and Reexamination. Advances in Consumer Research - Latin American Conference Proceedings, 2, 173. Zeithaml, V. (1988). Consumer Perceptions of Price, Quality, and Value: A Means-End Model and Synthesis of Evidence. Journal of Marketing, 52(3), 2. Zeithaml, V., Berry, L., & Parasuraman, A. (1996). The behavioral consequences of service quality. Journal of Marketing, 60(2), 31.


Macroeconomic Effects of the Current Crisis in Japan and MENA Countries

Anke Mönnig & Kirsten Wiebe Institute for Economic Structures Research (GWS), Osnabrück, Germany

Key Words: Trade Models, Macroeconomic Effects, Japan, Oil Price. Abstract: In this paper, the global trade model GINFORS is used to estimate the economic effects of the two major events that preoccupied global news in 2011: the political unrest in the Middle East and North Africa (MENA) and the earthquake, tsunami and nuclear catastrophe in Japan. The intention is to quantify the domestic effects and to estimate the consequences of the rest of the world. The overall results culminate in the observation that the world economy heavily reacts on sudden world oil price changes but is less vulnerable to ad-hoc production shortages of leading industrial economies. Introduction

Empirical research has become a prominent tool for estimating quantitative effects of trade issues like multilateral trade liberalization or tariff policies. These analyses often apply computable general equilibrium models (CGE) of trade that link trade flows with domestic welfare. The global macro-econometric input-output model GINFORS which is used here corresponds in many features to CGE-like trade models, although some important differences remain.

In this paper, the global interindustry forecasting system (GINFORS) is used to estimate economic effects of the two major events that preoccupied global news in 2011: the political unrest in the Middle East and North Africa (MENA) and the earthquake, tsunami and nuclear catastrophe in Japan. The intention is to quantify the domestic effects and to estimate the consequences on the rest of the world. The overall results culminate in the observation that the world economy heavily reacts on sudden world oil price changes but is less vulnerable to ad-hoc production shortages of leading industrial economies.

The recent crisis in the MENA countries, especially in Libya, which is a member of the OPEC and a major oil supplier for some European countries, and the imminent oil supply shortage as well as high energy price fluctuations in the past years show that the scenarios depicted in ZTB (2010) are not farfetched and that energy security becomes increasingly important. The disruptions in Libya was estimated to reduce its oil production by three quarters from 1.6 mbd to 0.4 mbd . The price reactions at the global oil market were instantly and pressure on the oil price is expected to increase further.

The natural disaster in Japan on March 11th has multiplied in its dimensions and cumulated to a calamity of a century. The strongest earthquake in Japan‟s living memory with a magnitude of 9 on the Richter scale was followed by a tsunami destroying thousands of kilometres of Japanese coast line from Sendai in the North down to Tokyo in the South of Honshu, taking away lives and homes of many people. Industrial plants and agricultural life were damaged and four units of the Fukushima I nuclear plant were severely destroyed (IEA 2011a). First estimates suggest that total damages might range from 122 to 235 billion US-Dollars, cumulating to 2.5 to 4% of GDP (World Bank 2011). Reconstruction of the area is calculated to last up to five years with costs exceeding those from the earthquake in 1995 in Kobe. Then, 38 billion US-Dollars of public expenditures were used for reconstruction purposes.

In 2008/2009, the world experienced a financial shock that began in the US and carried forward to the rest of the world and finally cumulated to a world economic crisis of historical dimension. This experience still in fresh memory stimulates the question, whether the Japanese natural disaster or the political unrest in MENA countries have similar strong effects on the world economy.

Empirical Modelling of Trade Empirical analysis has become a prominent tool in applied economic research as it helps to

understand the impact of policy issues on the economy and how transmission channels work. Although the empirical outcome heavily depends on the specification of the used model, the application of simulation models can help to assess the effects of exogenous shocks before they are realized. Hence, simulations are some sort of “economic experiment” (Peichl 2005: 5) that help to generate “the response of a system to particular changes in exogenous conditions or to particular changes in the structure of the system itself” (Schmalensee 1970: 10). Simulation Models on Trade

Different classifications of simulation models exist, that can be distinguished according to the dataset used, empirical method and calibration (Peichl 2005). For trade policy analysis, two major modelling types are used: Computable General Equilibrium (CGE) models and Vector Auto-Regressive (VAR) models.

VAR models are characterized by simultaneous econometric estimation of relationships between two or more variables. According to Sims (1980), VAR-models have the advantage of being “unrestricted” (Sims 1980: 15) which means that they are free of assumptions, “apriori knowledge” or theoretical backup. They are mostly smaller and less structured than macro-econometric models (Roos 2007). VAR models applied on trade flows (GVAR) were first introduced by Pesaran et al. (2004) (Bussière et al. 2009 p. 14). GVAR-models have been applied in the past for questions like credit risk analysis, international linkages of the euro area or the opt-out implication of UK and Sweden to the euro area (Bussière et al. 2009 p. 15)

CGE models belong to the macro-economic type of simulation models that evaluate exogenous shocks on business cycles and economic developments. They focus on the calculation of simultaneous equilibrium solutions given exogenous pre-adjustments: “parameters are imposed rather than estimated“(Wilson et al. 2007: 11). In most cases they follow neo-classical traditions. The basic dataset of CGE models are input-output-tables and national accounts (Dixon 2006). Among CGE models applicable for trade analysis, the most well-known representative is the Global Trade Analysis Project (GTAP) model of the Centre for Trade Analysis at the Purdue University (Hertel & Tsigas 1997). Also widely applied is the LINKAGE model of the World Bank (van der Mensbrugghe 2011) and the MIRAGE model developed by the Centre d‟Etudes Prospectives et D‟Information Internationales (CEPII) (Bchir et al. 2002) that rest in general on the dataset provided by GTAP. The Global Interindustry Forecasting System GINFORS

We are using the dynamic interindustry model GINFORS. That not only allows to estimate the impact on other economies in the year of the crisis but also to consider the adjustment process in the preceding years. Furthermore, the trade model explicitly considers first and second round effects of a production slow-down in Japan or adjustment processes to an oil price shock. We have chosen to forecast the economic effects until 2020 with reference to a baseline scenario without the crises of March 2011. The intertemporal effects are shown in reference to the baseline scenario.

The Global INterindustry FORecasting System (GINFORS) combines econometric-statistical analysis with input-output analysis embedded in a complete macroeconomic framework ensuring the accounting identities of the system of national accounts. It explicitly models global economic-environmental interdependencies and can therefore be used as a tool for concrete policy planning (Meyer et al. 2008). As a bilateral world trade model GINFORS links national models for 25 commodity groups and services. All EU-25 countries, all OECD countries and their major trade partners are explicitly modelled. The model is based on time series of international statistics data from 1980 to 2004 and is currently extended to 2007. Behavioural parameters are derived from econometric estimations assuming bounded rationality of agents with myopic foresight. Due to the large number of equations, the simple and robust OLS estimation method is applied. The model ensures global consistency. For instance, energy use anywhere in the world is only possible after extraction of some energy carriers. Imports of one


Empirical Modelling of Trade Empirical analysis has become a prominent tool in applied economic research as it helps to

understand the impact of policy issues on the economy and how transmission channels work. Although the empirical outcome heavily depends on the specification of the used model, the application of simulation models can help to assess the effects of exogenous shocks before they are realized. Hence, simulations are some sort of “economic experiment” (Peichl 2005: 5) that help to generate “the response of a system to particular changes in exogenous conditions or to particular changes in the structure of the system itself” (Schmalensee 1970: 10). Simulation Models on Trade

Different classifications of simulation models exist, that can be distinguished according to the dataset used, empirical method and calibration (Peichl 2005). For trade policy analysis, two major modelling types are used: Computable General Equilibrium (CGE) models and Vector Auto-Regressive (VAR) models.

VAR models are characterized by simultaneous econometric estimation of relationships between two or more variables. According to Sims (1980), VAR-models have the advantage of being “unrestricted” (Sims 1980: 15) which means that they are free of assumptions, “apriori knowledge” or theoretical backup. They are mostly smaller and less structured than macro-econometric models (Roos 2007). VAR models applied on trade flows (GVAR) were first introduced by Pesaran et al. (2004) (Bussière et al. 2009 p. 14). GVAR-models have been applied in the past for questions like credit risk analysis, international linkages of the euro area or the opt-out implication of UK and Sweden to the euro area (Bussière et al. 2009 p. 15)

CGE models belong to the macro-economic type of simulation models that evaluate exogenous shocks on business cycles and economic developments. They focus on the calculation of simultaneous equilibrium solutions given exogenous pre-adjustments: “parameters are imposed rather than estimated“(Wilson et al. 2007: 11). In most cases they follow neo-classical traditions. The basic dataset of CGE models are input-output-tables and national accounts (Dixon 2006). Among CGE models applicable for trade analysis, the most well-known representative is the Global Trade Analysis Project (GTAP) model of the Centre for Trade Analysis at the Purdue University (Hertel & Tsigas 1997). Also widely applied is the LINKAGE model of the World Bank (van der Mensbrugghe 2011) and the MIRAGE model developed by the Centre d‟Etudes Prospectives et D‟Information Internationales (CEPII) (Bchir et al. 2002) that rest in general on the dataset provided by GTAP. The Global Interindustry Forecasting System GINFORS

We are using the dynamic interindustry model GINFORS. That not only allows to estimate the impact on other economies in the year of the crisis but also to consider the adjustment process in the preceding years. Furthermore, the trade model explicitly considers first and second round effects of a production slow-down in Japan or adjustment processes to an oil price shock. We have chosen to forecast the economic effects until 2020 with reference to a baseline scenario without the crises of March 2011. The intertemporal effects are shown in reference to the baseline scenario.

The Global INterindustry FORecasting System (GINFORS) combines econometric-statistical analysis with input-output analysis embedded in a complete macroeconomic framework ensuring the accounting identities of the system of national accounts. It explicitly models global economic-environmental interdependencies and can therefore be used as a tool for concrete policy planning (Meyer et al. 2008). As a bilateral world trade model GINFORS links national models for 25 commodity groups and services. All EU-25 countries, all OECD countries and their major trade partners are explicitly modelled. The model is based on time series of international statistics data from 1980 to 2004 and is currently extended to 2007. Behavioural parameters are derived from econometric estimations assuming bounded rationality of agents with myopic foresight. Due to the large number of equations, the simple and robust OLS estimation method is applied. The model ensures global consistency. For instance, energy use anywhere in the world is only possible after extraction of some energy carriers. Imports of one


country are exports of another. The whole system is consistently linked and iteratively solved at the global level.

GINFORS has recently been applied to various economic questions, ranging from an European environmental tax reform (Lutz and Meyer 2010, Ekins and Speck 2011) and environmental and economic effects of Post-Kyoto regimes (Lutz and Meyer 2009b) to the impact of higher energy prices through international trade (Lutz and Meyer 2009a). For a more extensive description of the model see Lutz, Meyer and Wolter (2010). Scenarios Settings

The baseline scenario in GINFORS is based on the reference scenario of the IEA‟s World Economic Outlook from 2009 (IEA 2009). Even though this mainly emphasises the development of energy related indicators, as energy consumption is highly dependent on economic activity it also gives an indication of the expected long-term economic development. Global economic activity and hence also world energy demand is steadily increasing over the next decade, mainly due to increasing economic activity and corresponding energy demand in the emerging economies.

The stand-alone impact analyses of production slow-down in Japan due to the natural disaster follows the economic implication put forward by the World Bank (2011). In its early estimates, the World Bank assumes that the material damages caused by the earthquake and the tsunami are likely to more than double total damage of the 1995‟s earthquake in Kobe. They predict in its projection update for the Asian-Pacific region a slow-down of Japan‟s GDP by 0.25 to 0.5 percentage points in 2011 which encompasses the reconstruction budget already.

In the present scenario, the economic disruption is expected to be caused by a combined decline in private consumption and in gross capital formation and consequently by a decline in exports. Both determinants are likely to slow-down due to an increasing saving propensity of households in the light of devastation and due to production slow-down as a consequence of a loss in capital stock and electricity shortage. In the next year, reconstruction efforts stimulate the economy and boost gross fixed capital formation. In fiscal year 2012, the Japanese government expects to raise 9.5 billion Yen (around 79 million Euro) for reconstruction purposes. In 2013, reconstruction budget declines to 7.75 billion Yen (around 64 million Euro) with a still stimulating effect on investments (FAZ 2011). Alongside, private consumption recovers as well.

Modelling the macroeconomic effects of decreasing oil supply in GINFORS is done via matching global oil demand to global supply by adjusting the oil price (Lehr et al. 2011), which is one of the key driving forces in GINFORS. The stand-alone impact analyses of an oil price peak in 2011 follows the implication taken from the observed price volatilities in the aftermath of the political unrest in the MENA countries starting in December 2010 in Tunisia. The present spot oil price of one barrel of Brent oil is traded for 122.39 USD. In the meantime, all updated economic forecasts at least for Germany have increased their assumptions concerning the oil price development to average 110 USD per barrel (compare Table 1). We follow the assumptions in 2011 by increasing the oil price from 84 USD per barrel in the baseline to 115 USD per barrel in 2011.

Table 1: Assumptions on oil price in USD/barrel 2011 2012 ifo 115 115 IMK 111 110 IfW 113 115

Sources: ifo(2011), IMK(2011), IfW (2011)

In the following years the oil price decreases, so that from 2014 on it again matches the price given in the IEA World Economic Outlook (2009). This assumption corresponds to the one from IfW (2011, p. 6) and rests on the following observations: First, the OECD oil stock is relatively high compared to high oil price years 2004-2008. Although oil stocks of industrial nations declined in February due to Libya‟s unrest,

forward demand cover is calculated at 58 days (IEA 2011b, p. 34). Second, effective spare production capacities of OPEC47 are recorded at 4.08 mb/d which is still higher than the lowest spare capacity of 2 mb/d recorded so far in 2008 (IEA 2011b, p. 23-25). Both factors support the assumption that current oil price volatility is not the result of real scarcity but of higher risk premiums to be paid on international markets (IfW 2011, p. 6-7). As GINFORS is based on annual data, the effects modelled here might only occur with some delay even though we aim at modelling the immediate effect of the oil price increase. We therefore assume a linear adjustment to the oil price in the baseline until 2014, as shown in Figure 1 Note that the oil price in GINFORS is the price for IEA Crude Oil Import Costs by Type of Crude (USD/bbl) – Total Crude Imports, which is an average price of oil traded on all international markets.

The final scenario setting combines both assumptions put forward in the two stand-alone scenarios for Japan and MENA. Both effects are analyzed simultaneously and are referenced to the baseline scenario.

Figure 1: Oil price development

0

10

20

30

40

50

60

70

80

90

100

110

120

130

140

19801982

19841986

19881990

19921994

19961998

20002002

20042006

20082010

20122014

20162018

2020

USD

per b

arrel

S1 Oil price Baseline Source: IEA (2009), own calculations Effects of a Reduction in Japanese Investment and consumption

Shortly after the earthquake and the realization of the dimension of the catastrophe, first impact analyses estimated the effect of a possible breakdown of the supply chain on the German (Prognos 2011, DSGV 2011, HWWI 2011, BDI 2011) and other economies (World Bank 2011). They were all more or less consistent in their observation, that a production shortcut in Japan does affect the world economy but the impact is rather small although differences might exist among countries and industrial sectors depending on their degree of trade relations. Japan’s Relation to the World

Although Japan is suffering for nearly two decades from slow growth and deflation, Japan is still the world‟s third largest economy measured in terms of GDP. With a positive current account balance, Japan‟s economy produces products that are demanded in other parts of the world. But its dependence on world markets is decreasing in time as the export/import ratio is constantly declining. Compared to other economies, exports have a rather small influence on total final demand due to Japan‟s distinct geography, as

Figure 2 proves. Private and non-profit consumption determine nearly 50% of final demand, followed by gross fixed capital formation (including construction) and state consumption.

47 Effective spare production of OPEC excludes Iraq, Nigeria, Venezuela and Libya.


forward demand cover is calculated at 58 days (IEA 2011b, p. 34). Second, effective spare production capacities of OPEC47 are recorded at 4.08 mb/d which is still higher than the lowest spare capacity of 2 mb/d recorded so far in 2008 (IEA 2011b, p. 23-25). Both factors support the assumption that current oil price volatility is not the result of real scarcity but of higher risk premiums to be paid on international markets (IfW 2011, p. 6-7). As GINFORS is based on annual data, the effects modelled here might only occur with some delay even though we aim at modelling the immediate effect of the oil price increase. We therefore assume a linear adjustment to the oil price in the baseline until 2014, as shown in Figure 1 Note that the oil price in GINFORS is the price for IEA Crude Oil Import Costs by Type of Crude (USD/bbl) – Total Crude Imports, which is an average price of oil traded on all international markets.

The final scenario setting combines both assumptions put forward in the two stand-alone scenarios for Japan and MENA. Both effects are analyzed simultaneously and are referenced to the baseline scenario.

Figure 1: Oil price development

0

10

20

30

40

50

60

70

80

90

100

110

120

130

140

19801982

19841986

19881990

19921994

19961998

20002002

20042006

20082010

20122014

20162018

2020

USD

per b

arrel

S1 Oil price Baseline Source: IEA (2009), own calculations Effects of a Reduction in Japanese Investment and consumption

Shortly after the earthquake and the realization of the dimension of the catastrophe, first impact analyses estimated the effect of a possible breakdown of the supply chain on the German (Prognos 2011, DSGV 2011, HWWI 2011, BDI 2011) and other economies (World Bank 2011). They were all more or less consistent in their observation, that a production shortcut in Japan does affect the world economy but the impact is rather small although differences might exist among countries and industrial sectors depending on their degree of trade relations. Japan’s Relation to the World

Although Japan is suffering for nearly two decades from slow growth and deflation, Japan is still the world‟s third largest economy measured in terms of GDP. With a positive current account balance, Japan‟s economy produces products that are demanded in other parts of the world. But its dependence on world markets is decreasing in time as the export/import ratio is constantly declining. Compared to other economies, exports have a rather small influence on total final demand due to Japan‟s distinct geography, as

Figure 2 proves. Private and non-profit consumption determine nearly 50% of final demand, followed by gross fixed capital formation (including construction) and state consumption.

47 Effective spare production of OPEC excludes Iraq, Nigeria, Venezuela and Libya.


Figure 2: Components of final demand

2005 - Final demand

Private & non-profit consumption

48%

State consumption12%

Exports11%

Changes in inventories

0%

Gross fixed capital formation

18%

Imports11%

Source: OECD Input-Output-Table for Japan

Around 43% of Japanese exports alone are destined for the three major trading partners US, China and Korea. Over 90% of Japan‟s exports are commodities used in industrial processes especially machineries and equipments like office, accounting and computing machineries or radio, television and communication equipments. 20% of manufacturing exports are motor vehicles, trailers and semi-trailers. Accordingly, Japan‟s possible downswing in 2011 is most likely to effect manufacturing industries the most. Considering the dominance of lean production processes in industries and the tendency for outsourcing and offshoring of processes, a shortage in specific components might effect the production cycle in other industries and countries very quickly. Japan is specialized in producing electronic equipment like semiconductor devices which are used in nearly all kind of electronic equipment and hardware. Japan produces roughly 20% of world production of semiconductor (DBResearch 2008). Effects of a Reduction in Japanese Investment and Consumption – Domestic Impacts

The production slow-down in Japan in 2011, are determined by a decline in private consumption and downswing in gross fixed capital formation. The proceeding years are characterized by a boom in investments due to reconstruction efforts. In total, it is expected that real GDP in Japan is lower by 0.8 percentage points compared to the reference scenario. In contrast, the following year exceeds the reference growth rate by 1.5 percentage points and even 2 percentage points in 2013. The recovery process leads to an overshooting of the economic path of the reference scenario due to a statistical effect but also because the government funds and pushes the reconstruction process. In consequence, the state budget is stressed even harder which leads to an increase in state deficit and state debt level. Overall, the forecast assumes that Japan is able to recover from the shock within a year. The negative effects of a slow-down in private consumption and gross fixed capital formation in Japan lowers Japan‟s exports and imports at the same time. The slightly positive effect on the current account in 2011 is the result of a faster decrease of imports which is due to the slow-down in private consumption. The recovery process in the proceeding years are accompanied by a slower development in the current account which is the result of an increasing import demand when reconstruction begins.

The economic slow-down in 2011 in the short-run leads to a decline in government consumption expenditures. In the following years, governmental financing of the reconstruction efforts results in an overshooting development of government consumption expenditures relative to the reference scenario. Up until 2020, government consumption expenditures decline fast in order to approximate the reference level.

Effects of a Reduction in Japanese Investment and Consumption – International Impacts Table 2 shows the percentage deviation of real GDP to the reference scenario for a selected number of countries. All countries show only minor deviations from their reference scenario which confirms earlier estimates of a low impact of Japan‟s economic slow-down on the world economy. China is the main trading partner of Japan, buying 19% of Japanese exports and contributing 22% to its imports, which is why China is mostly affected by Japan‟s economic downturn with a negative deviation of 0.05% to the reference scenario. On the other hand, the US hardly shows any effects. Considering that, the US is the second most important trading partner for Japan (share in Japanese exports 16,4% and in imports 11%) this observation is quite surprising. The reason can be found in the rather low impact on the US current account. In all other countries, the current account deteriorates stronger than in the US. Meanwhile, Korea as a regional neighbour and an also closely related economy shows a comparable strong negative effect of -0.04% to the reference scenario in 2011. Table 2 also shows that all countries are positively affected by the upswing in the years after 2011. As the reconstruction effort boosts Japan‟s economy more than it has been negatively affect by the damage caused by the natural disaster, all countries under review experience a strong positive economic push. In most countries, the positive counter effect in 2012 is twice as high then the negative effect in the previous year. In 2014, the effects slow-down, when Japan‟s reconstruction budget is exhausted.

The growth path until 2020 slowly approximates the path of the reference scenario in all reviewed countries. Balancing the effects over the whole time period, it becomes evident, that the positive effects after 2012 outweigh the negative effects in 2011. Up until 2020, Japanese economy has a cumulated positive effect of 0.39% relative to the reference scenario. Korea increases its cumulated real GDP within nine years by 0.9%, followed by China with a positive cumulated effect of 0.6%.

Table 2: Real GDP in selected countries 2010 2011 2012 2013 2014 2020

Japan 0 -0,80 1,49 2,01 1,60 0,39USA 0 -0,01 0,02 0,04 0,05 0,02China 0 -0,05 0,11 0,19 0,18 0,07Germany 0 -0,02 0,06 0,10 0,09 0,06Great Britain 0 -0,01 0,02 0,04 0,04 0,03France 0 -0,01 0,02 0,04 0,04 0,03Italy 0 -0,03 0,07 0,12 0,11 0,06Brazil 0 -0,01 0,03 0,06 0,08 0,06India 0 -0,00 0,00 0,02 0,04 0,08Korea 0 -0,04 0,10 0,28 0,29 0,15OPEC 0 -0,03 0,05 0,11 0,10 0,05

deviation in % to reference scenario

Source: own calculations

Effects of a Reduction in Oil Production due to the political Disruption in the MENA Countries

Following basic economic principles, the negative oil supply shock should be followed by an increase in the oil price. This effect was clearly visible in the first quarter of 2011, when the oil price increased by about 15 to 20 USD/bbl for the OPEC oil basket (MWV 2011, IEA 2011b). The effects on the economies of different countries though are not easily identified. The extent to which a country is affected by the price impact depends on a number of different factors. Generally, an increase in the oil price is expected to have positive effects on oil producing countries and negative effects on oil importing countries. Other factors are the country‟s stage of industrial development, its energy efficiency and potential to substitute other energy carriers for oil, its trade linkages and geographical factors such as population density and proximity to export markets.


Effects of a Reduction in Japanese Investment and Consumption – International Impacts Table 2 shows the percentage deviation of real GDP to the reference scenario for a selected number of countries. All countries show only minor deviations from their reference scenario which confirms earlier estimates of a low impact of Japan‟s economic slow-down on the world economy. China is the main trading partner of Japan, buying 19% of Japanese exports and contributing 22% to its imports, which is why China is mostly affected by Japan‟s economic downturn with a negative deviation of 0.05% to the reference scenario. On the other hand, the US hardly shows any effects. Considering that, the US is the second most important trading partner for Japan (share in Japanese exports 16,4% and in imports 11%) this observation is quite surprising. The reason can be found in the rather low impact on the US current account. In all other countries, the current account deteriorates stronger than in the US. Meanwhile, Korea as a regional neighbour and an also closely related economy shows a comparable strong negative effect of -0.04% to the reference scenario in 2011. Table 2 also shows that all countries are positively affected by the upswing in the years after 2011. As the reconstruction effort boosts Japan‟s economy more than it has been negatively affect by the damage caused by the natural disaster, all countries under review experience a strong positive economic push. In most countries, the positive counter effect in 2012 is twice as high then the negative effect in the previous year. In 2014, the effects slow-down, when Japan‟s reconstruction budget is exhausted.

The growth path until 2020 slowly approximates the path of the reference scenario in all reviewed countries. Balancing the effects over the whole time period, it becomes evident, that the positive effects after 2012 outweigh the negative effects in 2011. Up until 2020, Japanese economy has a cumulated positive effect of 0.39% relative to the reference scenario. Korea increases its cumulated real GDP within nine years by 0.9%, followed by China with a positive cumulated effect of 0.6%.


Japan 0 -0,80 1,49 2,01 1,60 0,39USA 0 -0,01 0,02 0,04 0,05 0,02China 0 -0,05 0,11 0,19 0,18 0,07Germany 0 -0,02 0,06 0,10 0,09 0,06Great Britain 0 -0,01 0,02 0,04 0,04 0,03France 0 -0,01 0,02 0,04 0,04 0,03Italy 0 -0,03 0,07 0,12 0,11 0,06Brazil 0 -0,01 0,03 0,06 0,08 0,06India 0 -0,00 0,00 0,02 0,04 0,08Korea 0 -0,04 0,10 0,28 0,29 0,15OPEC 0 -0,03 0,05 0,11 0,10 0,05



Effects of a Reduction in Oil Production due to the political Disruption in the MENA Countries

Following basic economic principles, the negative oil supply shock should be followed by an increase in the oil price. This effect was clearly visible in the first quarter of 2011, when the oil price increased by about 15 to 20 USD/bbl for the OPEC oil basket (MWV 2011, IEA 2011b). The effects on the economies of different countries though are not easily identified. The extent to which a country is affected by the price impact depends on a number of different factors. Generally, an increase in the oil price is expected to have positive effects on oil producing countries and negative effects on oil importing countries. Other factors are the country‟s stage of industrial development, its energy efficiency and potential to substitute other energy carriers for oil, its trade linkages and geographical factors such as population density and proximity to export markets.


Macroeconomic Oil Price Effects There is a large number of studies analyzing macroeconomic impacts of oil price shocks. Extensive

summaries can be found in Hamilton (2005), Kilian (2007), or Stern (2009). Jones et al. (2003) stress the importance of using sectorally disaggregated models because an oil price shock has diverse effects on different sectors. Most papers, i.a. OECD (2004) and Fattouh (2007), estimate price elasticities of (sectoral) oil demand and find that short run elasticities are close to zero, whereas long run elasticities are somewhat (according to Hamilton, 2008, about three times) larger. Additionally, price elasticities seem to be lower in emerging economies with strongly increasing oil demand than in industrialized countries with only slowly increasing or even decreasing demand for oil.

Oil Price Reactions of the Global Economy The economic effects of a sudden rise in world oil price in 2011 as shown in Figure 1 are given in

Table 3 for selected countries. The immediate effect of a price increase of 31 USD/barrel for oil producing countries in the OPEC is rather positive. Real GDP growth exceeds the growth path of the reference scenario by 9.5%. Although the price increase cannot be passed on in full, the additional money boosts economic performance of oil supplying economies of the OPEC.


Japan 0 -1,21 -1,76 -1,61 -1,07 -0,06 USA 0 -1,81 -1,36 -1,14 -0,47 0,01China 0 -4,62 -4,27 -2,70 -0,68 0,03Germany 0 -0,70 -0,13 0,01 0,22 0,10Great Britain 0 -0,14 -0,61 -0,50 -0,22 0,01France 0 -3,91 -1,80 -0,89 0,32 0,05Italy 0 -4,51 -2,21 -0,90 0,47 0,05Brazil 0 -1,21 0,06 0,77 1,16 0,26India 0 -1,56 -0,88 0,00 0,78 0,47Korea 0 -0,86 0,87 0,11 -0,06 0,27OPEC 0 9,45 4,37 1,22 -1,56 -0,01



All other economies face a negative deviation from the reference scenario, whereas the negative implications differ widely in their relative volume. The largest negative feedback on its economic development is recorded for China and Italy. In both economies, GDP declines with over 4% relative to their baseline closely followed by France with minus 3.9%. Comparably small negative effects are recorded in Germany, Great Britain and Korea with a negative implication of greater than -1.0%.

The low impact on the German economy can be explained on the one hand by its high share in total imports of OPEC countries. Around 9% of total OPEC imports are from Germany, which is the highest share among those countries under review. The US closely follows with a share of 8.5%. On the other hand, Germany has improved its energy efficiency and put much effort in the development of high quality products. Energy intensity has declined in Germany by 2% p.a. between 1990 and 2009. The US decreased its ratio to the same extent as Germany but shows a slightly higher ratio. Among the European economies, only Great Britain managed a faster decline in energy consumption per unit of gross domestic product. With a relation of 4.8 points this is also the smallest share recorded in Europe (BMWI 2011, Tab. 32). This is closely related to the deindustrialization process in Britain. In 2005, gross value added of manufacturing industries held a portion of 18% on total gross value added which is the lowest among those European countries under review. Italy, in contrast, has hardly improved energy intensity (BMWI 2011, Tab. 32). The relative strong negative impact of a world oil price increase on the Italian economy can be explained with the low improvement in energy consumption per unit of gross domestic product and its relatively high portion of manufacturing industries on gross value added (around 25%).

With 31%, China shows a very high energy intensity which is one of the reasons of the strong negative impact on its economy. Additionally, China is not able to profit from increasing demand in oil exporting countries although its share of total imports of OPEC exceeds Germany‟s import share.

In the years to follow, the oil price approximates IEA price forecasts, which lowers both positive and negative effects on the economies. Moreover, some countries are able to profit from the oil crises. Brazil and Korea and with a year time lag also Germany reach a slightly higher growth path than in the baseline. In contrast, the economic boost in oil producing economies slows down and even turns negative relative to the baseline scenario in 2014. Global Effects of both Crisis

The last and final scenario combines both main global crises of 2011: Japan‟s calamity in the aftermath of the earthquake and the political unrest in Middle East and North Africa. As Table 4 proves and chapters 0 and 0 indicate, the oil price shock increases the effect of a production slow-down in Japan in 2011. All countries, except oil producing nations, face a stronger negative downturn relative to the reference scenario than in each stand-alone scenario. The economic upswing in OPEC countries followed by the steep oil price increase is only marginally lower due to Japan‟s production downturn.


Japan 0 -2,00 -0,29 0,39 0,54 0,33USA 0 -1,82 -1,35 -1,10 -0,43 0,03China 0 -4,66 -4,17 -2,52 -0,50 0,11Germany 0 -0,72 -0,07 0,11 0,31 0,15Great Britain 0 -0,15 -0,59 -0,46 -0,18 0,03France 0 -3,92 -1,78 -0,85 0,35 0,08Italy 0 -4,54 -2,14 -0,79 0,58 0,11Brazil 0 -1,23 0,08 0,83 1,23 0,32India 0 -1,56 -0,87 0,03 0,82 0,55Korea 0 -0,90 0,96 0,38 0,22 0,42OPEC 0 9,42 4,42 1,33 -1,46 0,04



In 2012, the impact of the oil price shock still exceeds Japan‟s reconstruction efforts. The negative implication of the oil price shock is outweighing the positive effect of the huge reconstruction budget initiated by the Japanese government. Only in 2013, when the oil price shock is further declining, the reconstruction boom leads Japan to a higher growth path relative to the reference scenario. The same is true also for other economies that profit from Japan‟s reconstruction effort. Different to the stand-alone scenario of Japan‟s production shortage, the combination of both effects does not lead to an overall surplus in gross domestic product. Only those countries that are less vulnerable to oil price increases like OPEC, Brazil or Korea are able to increase their level of real GDP compared to the baseline. Conclusion

Overall, the analysis has shown that Japan‟s natural disaster is likely to have hardly any effects on the world economy in general and its major trading partners in particular. Moreover, the long-run effects function like a stimulation package to the economy. Due to reconstruction efforts, Japan‟s economy enters a growth path which is more dynamic than the one of the reference scenario. In 2020, real GDP reaches a volume which is 0.4% higher than in the reference scenario. For all countries under review the same observation holds although to a lower extent. The negative implication for the Japanese economy is transmitted to other economies via trade. But the relative deviation to the reference scenario is small. GDP growth rates decline by two digit decimal numbers only. Until 2020, the economic upswing in Japan results to a positive economic growth in trading partner economies as well. Korea and China both profit the most from Japan‟s reconstruction effort, followed by two European economies: Italy and Germany.

The valuation of total damages due to earthquake, tsunami and nuclear emergency is so far only tentative. Higher or lower damage costs would alter the effects on Japan‟s economy. The same is true for the reconstruction effort so far announced by the government. But although the underlying assumptions might differ in detail, the qualitative effects of Japan‟s 2011 drama remain the same.


In the years to follow, the oil price approximates IEA price forecasts, which lowers both positive and negative effects on the economies. Moreover, some countries are able to profit from the oil crises. Brazil and Korea and with a year time lag also Germany reach a slightly higher growth path than in the baseline. In contrast, the economic boost in oil producing economies slows down and even turns negative relative to the baseline scenario in 2014. Global Effects of both Crisis

The last and final scenario combines both main global crises of 2011: Japan‟s calamity in the aftermath of the earthquake and the political unrest in Middle East and North Africa. As Table 4 proves and chapters 0 and 0 indicate, the oil price shock increases the effect of a production slow-down in Japan in 2011. All countries, except oil producing nations, face a stronger negative downturn relative to the reference scenario than in each stand-alone scenario. The economic upswing in OPEC countries followed by the steep oil price increase is only marginally lower due to Japan‟s production downturn.


Japan 0 -2,00 -0,29 0,39 0,54 0,33USA 0 -1,82 -1,35 -1,10 -0,43 0,03China 0 -4,66 -4,17 -2,52 -0,50 0,11Germany 0 -0,72 -0,07 0,11 0,31 0,15Great Britain 0 -0,15 -0,59 -0,46 -0,18 0,03France 0 -3,92 -1,78 -0,85 0,35 0,08Italy 0 -4,54 -2,14 -0,79 0,58 0,11Brazil 0 -1,23 0,08 0,83 1,23 0,32India 0 -1,56 -0,87 0,03 0,82 0,55Korea 0 -0,90 0,96 0,38 0,22 0,42OPEC 0 9,42 4,42 1,33 -1,46 0,04



In 2012, the impact of the oil price shock still exceeds Japan‟s reconstruction efforts. The negative implication of the oil price shock is outweighing the positive effect of the huge reconstruction budget initiated by the Japanese government. Only in 2013, when the oil price shock is further declining, the reconstruction boom leads Japan to a higher growth path relative to the reference scenario. The same is true also for other economies that profit from Japan‟s reconstruction effort. Different to the stand-alone scenario of Japan‟s production shortage, the combination of both effects does not lead to an overall surplus in gross domestic product. Only those countries that are less vulnerable to oil price increases like OPEC, Brazil or Korea are able to increase their level of real GDP compared to the baseline. Conclusion

Overall, the analysis has shown that Japan‟s natural disaster is likely to have hardly any effects on the world economy in general and its major trading partners in particular. Moreover, the long-run effects function like a stimulation package to the economy. Due to reconstruction efforts, Japan‟s economy enters a growth path which is more dynamic than the one of the reference scenario. In 2020, real GDP reaches a volume which is 0.4% higher than in the reference scenario. For all countries under review the same observation holds although to a lower extent. The negative implication for the Japanese economy is transmitted to other economies via trade. But the relative deviation to the reference scenario is small. GDP growth rates decline by two digit decimal numbers only. Until 2020, the economic upswing in Japan results to a positive economic growth in trading partner economies as well. Korea and China both profit the most from Japan‟s reconstruction effort, followed by two European economies: Italy and Germany.

The valuation of total damages due to earthquake, tsunami and nuclear emergency is so far only tentative. Higher or lower damage costs would alter the effects on Japan‟s economy. The same is true for the reconstruction effort so far announced by the government. But although the underlying assumptions might differ in detail, the qualitative effects of Japan‟s 2011 drama remain the same.


The macroeconomic effects of a reduction in oil production due to the political disruption in the MENA countries are considerable. An increase of world oil price to 115 USD/barrel decreases economic growth in all countries except for oil producing economies. The degree to which a country is affected differs greatly. It depends mostly on country‟s specifics concerning energy intensity, trade relations or degree of industrialization and energy efficiency. Generally, it can be observed that those countries with low energy intensity, low industrialization degree and good trading relations with oil producing economies are less negatively affected from the oil price increase than others.

In short, the analysis shows that the world economy heavily reacts on sudden world oil price changes but is less vulnerable to ad-hoc production shortages of leading industrial economies.

References IWH (2011) Konjunktur aktuell: Aufschwung in Deutschland setzt sich kraftvoll fort. In: Wirtschaft im Wandel. Jahrgang 17 (3). 2011. pp. 96-120. RWI (2011) Die wirtschaftliche Entwicklung im Ausland und im Inland zur Jahreswende 2010/2011. RWI Konjunkturbericht. Jahrgang 62 (2011) Heft 1. Rheinisch-Westfälisches Institut für Wirtschaftsforschung. Essen. Bchir, M. H.; Decreux, Y.; Guérin, J-L. & Jean, S. (2002) MIRAGE a Computable General Equilibrium Model for Trade Policy Analysis. Centre d‟Etudes Prospectives et D‟Information Internationales. CEPII Working Paper No. 2002-17. December 2002. BDI (2011) BDI-Aussenwirtschafts-Report. 2/2011. Bundesverband der deutschen Industrie e.V. Berlin. BMWI (2011) Zahlen und Fakten: Energiedaten – nationale und internationale Entwicklung. Bundesministerium für Wirtschaft und Technologie. Update 13.01.2011. Berlin. Bussière, M.; Chudik, A. & Sestieri, G. (2009) Modelling Global Trade Flows – Results from a GVAR Model. European Central Bank. Working Paper Series No. 1087. September 2009. DBResearch (2008) Halbleiterproduktion in Deutschland: Asiens Standortvorteile locken. Aktueller Kommentar. 24. Oktober. 2008. DSGV (2011) Informationen zur Wirtschaftslage – März 2011. Deutscher Sparkassen- und Giroverband. Berlin. Ekins, P. and Speck, S. (2011) Environmental Tax Reform (ETR): Resolving the conflict between Economic Growth and the Environment. Oxford University Press. Fattouh, B. (2007) The Drivers of Oil Prices: The Usefulness and Limitations of Non-Structural model, the Demand-Supply Framework and Informal Approaches. Working Paper 32. Oxford Institute of Energy Studies, March 2007. FAZ (2011) Japan – Die teuerste Naturkatastrophe aller Zeiten. Frankfurter Allgemeine Zeitung. FAZ.NET. 23. März 2011. http://www.faz.net/s/RubB08CD9E6B08746679EDCF370F87A4512 /Doc~E3F14B5D9AFDD4D27AE458F2BB665EF31~ATpl~Ecommon~Scontent.html Gupta, E. (2008) Oil vulnerability index of oil-importing countries. Energy Policy 36, 1195-1211. Hamilton, J.D. (2005) Oil and the macroeconomy. In S. Durlauf and L.Blume (eds), The New Palgrave Dictionary of Economics, 2nd ed., Palgrave MacMillan Ltd. Hamilton, J.D. (2008) Understanding crude oil prices. Department of Economics, UC San Diego, December 2008. Hammouda, H. B. & Osakwe, P. N. (2006) Global Trade Models and Economic Policy Analyses: Relevance, Risks, and Repercussions for Africa. African Trade Policy Centre. Work in Progress No. 47. December 2006. Hertel, Th. W. & Tsigas, M. E. (1997) Structure of GTAP. In: Hertel, Th. W. (ed.) Global Trade Analysis: Modeling and Applications. Cambridge University Press. Chapter 2. HWWI (2011) Aufschwung in Gefahr (?). Pressmitteilung 15. März 2011. Hamburgisches Weltwirtschaftsinsitut. Hamburg. IEA (2009) World Economic Outlook. Paris IEA (2011a) Energy facts about Japan following the March 11 earthquake. 25 March 2011. International Energy Agency. Paris. http://www.iea.org/files/japanese_update_250311.pdf IEA (2011b) Oil Market Report. 15 March 2011. International Energy Agency. Paris. Ifo (2011) Ifo Economic Forecast 2011/2012: Upswing Proceeds at a Slower Pace. Institute for Economic Research at the University of Munich. IfW (2011) Weltkonjunktur im Frühjahr Weltkonjunktur im Sommer 2011. Kieler Diskussionsbeitrag 488492/489493. Institut für Weltwirtschaft. Kiel. IMK (2011) Deutsche Wirtschaft im Aufschwung! Prognose-Update. Deutsche Konjunktur zur Jahresmitte 2011. Institut für Makroökonomie und Konjunkturforschung. IMK-Report Nr. 64. Juni 2011. Jiménez-Rodríguez, R. (2008) The impact of oil price shocks: Evidence from the industries of six OECD countries. Energy Economics 30, 3095-3108. Jones, D.W., P.N. Leiby, and I.K. Paik (2004): Oil Price Shocks and the Macroeconomy: What Has Been Learned Since 1996, Energy Journal 25(2), 1-33.

Kilian, L. (2007) The Economic Effects of Energy Price Shocks. (published 2008 in Journal of Economic Literature 46 (4), 871-909.) Korhonen, I. & Ledyaeva, S. (2010) Trade linkages and the macroeconomic effect of the price of oil. Energy Economics, 32 (4), 848-856. Lehr, U., Lutz, C. and Wiebe, K.S. (2011) Medium run economic effects of peak oil. GWS Discussion Paper 2011/xx, forthcoming. Lutz, C. and Meyer, B. (2009a) Economic impacts of higher oil and gas prices. The role of international trade for Germany. Energy Economics, 31, pp. 882-887. Lutz, C. and Meyer, B. (2009b) Environmental and Economic Effects of Post-Kyoto Carbon Regimes. Results of Simulations with the Global Model GINFORS. Energy Policy, 37, pp. 1758-1766. Lutz, C. and Meyer, B. (2010) Environmental Tax Reform in the European Union: Impact on CO2 Emissions and the Economy. Zeitschrift für Energiewirtschaft, 34, pp. 1-10 Lutz, C., Meyer, B., and Wolter, M. I. (2010) The Global Multisector/Multicountry 3-E Model GINFORS. A Description of the Model and a Baseline Forecast for Global Energy Demand and CO2 Emissions. International Journal of Global Environmental Issues 10(1-2), pp. 25-45. MWV (2011): Rohölpreisentwicklung 2007-2011. Mineralölwirtschaftsverband e.V. (Association of the German Petroleum Industry). Data downloaded March 25th, 2011 from http://www.mwv.de/cms/front_content.php?idcat=14&idart=61 OECD (2004) Oil price developments: Drivers, economic consequences, and policy responses. OECD Economics Department Working Papers No. 412, Paris, 2004. Peichl, A (2005) Die Evaluation von Steuerreform durch Simulationsmodelle. Finanzwissenschaftliche Diskussionsbeiträge No 05-1. Universität Köln. Köln. Prognos (2011) Japan: Ein Abbruch der Lieferketten aus Japan ist für Deutschland verkraftbar – einzelne Branchen wären aber erheblich getroffen. 23. März 2011. Basel Stern, D.I. (2009) Interfuel substitution: A meta analysis. Australian National University Environmental Economics Research Hub Research Reports No. 33, Canberra, June 2009. van der Mensbrugghe, D. (2011) LINKAGE Technical Reference Document Version 7.1. Development Prospects Group (DECPG). World Bank. Washington. wiiw (2008) Economic and trade policy impacts of sustained high oil prices. wiiw Research Report 346, Vienna, April 2008. World Bank (2011) East Asia and Pacific economic update 2011. The recent earthquake and tsunami in Japan: implications for East Asia. Volume 1. ZTB (2010) Teilstudie 1: Peak Oil – Sicherheitspolitische Implikationen knapper Ressourcen. Zentrum für Transformation der Bundeswehr, Dezernat Zukunftsanalyse, Strausberg, Juli 2010.


Kilian, L. (2007) The Economic Effects of Energy Price Shocks. (published 2008 in Journal of Economic Literature 46 (4), 871-909.) Korhonen, I. & Ledyaeva, S. (2010) Trade linkages and the macroeconomic effect of the price of oil. Energy Economics, 32 (4), 848-856. Lehr, U., Lutz, C. and Wiebe, K.S. (2011) Medium run economic effects of peak oil. GWS Discussion Paper 2011/xx, forthcoming. Lutz, C. and Meyer, B. (2009a) Economic impacts of higher oil and gas prices. The role of international trade for Germany. Energy Economics, 31, pp. 882-887. Lutz, C. and Meyer, B. (2009b) Environmental and Economic Effects of Post-Kyoto Carbon Regimes. Results of Simulations with the Global Model GINFORS. Energy Policy, 37, pp. 1758-1766. Lutz, C. and Meyer, B. (2010) Environmental Tax Reform in the European Union: Impact on CO2 Emissions and the Economy. Zeitschrift für Energiewirtschaft, 34, pp. 1-10 Lutz, C., Meyer, B., and Wolter, M. I. (2010) The Global Multisector/Multicountry 3-E Model GINFORS. A Description of the Model and a Baseline Forecast for Global Energy Demand and CO2 Emissions. International Journal of Global Environmental Issues 10(1-2), pp. 25-45. MWV (2011): Rohölpreisentwicklung 2007-2011. Mineralölwirtschaftsverband e.V. (Association of the German Petroleum Industry). Data downloaded March 25th, 2011 from http://www.mwv.de/cms/front_content.php?idcat=14&idart=61 OECD (2004) Oil price developments: Drivers, economic consequences, and policy responses. OECD Economics Department Working Papers No. 412, Paris, 2004. Peichl, A (2005) Die Evaluation von Steuerreform durch Simulationsmodelle. Finanzwissenschaftliche Diskussionsbeiträge No 05-1. Universität Köln. Köln. Prognos (2011) Japan: Ein Abbruch der Lieferketten aus Japan ist für Deutschland verkraftbar – einzelne Branchen wären aber erheblich getroffen. 23. März 2011. Basel Stern, D.I. (2009) Interfuel substitution: A meta analysis. Australian National University Environmental Economics Research Hub Research Reports No. 33, Canberra, June 2009. van der Mensbrugghe, D. (2011) LINKAGE Technical Reference Document Version 7.1. Development Prospects Group (DECPG). World Bank. Washington. wiiw (2008) Economic and trade policy impacts of sustained high oil prices. wiiw Research Report 346, Vienna, April 2008. World Bank (2011) East Asia and Pacific economic update 2011. The recent earthquake and tsunami in Japan: implications for East Asia. Volume 1. ZTB (2010) Teilstudie 1: Peak Oil – Sicherheitspolitische Implikationen knapper Ressourcen. Zentrum für Transformation der Bundeswehr, Dezernat Zukunftsanalyse, Strausberg, Juli 2010.


Impetus to Exports through CSR: Case of ITC Agri Business Division, India

Radhika Lobo

Birla College of Arts, Science and Commerce, Kalyan, India Keywords Corporate Social Rersponsibility, e-Choupal, rural e-business, value chain intermediaries, rural empowerment, enhanced agro exports Abstract Corporate social responsibility is a concept whereby companies decide voluntarily to contribute to a better society and a cleaner environment. It is a cost effective way of gaining competitive advantage in terms of enhanced brand image, increased sales, customer loyalty, a sure shot way of retaining employees and eventually leading to higher profit margins This type of investment takes a longer term perspective and the social benefits and costs are rarely expressed on a quarterly cycle. The aim of the paper is to evaluate the long term value that CSR offers and how such investments provide an additional hedge against risk by showing the nexus between CSR and enhanced exports in the case of ITC Agri Business Division, India.

ITC, an Indian conglomerate has shown the path to enhancing the agro and aqua based exports through the medium of rural empowerment. ITC pioneered a rural e-business model termed as the ‘e-choupal’ project whereby dissemination and disintegration of price information is undertaken with an aim to improve the marketing channel in agriculture. e-Chaupal deals with various products including food grains, fruits and marine products. ITC used the platform of technology in an innovative manner to achieve the dual objectives of improving the financial condition of farmers and consolidate its own position as a leading agro exporter.

The study can provide insights for future research on socially responsible business strategies leading to higher sales/profits and how the same can be emulated by other companies to achieve similar results.

Introduction Corporate Social Responsibility implies contributions undertaken by companies through its

business activities towards social investment. Globally, an increasing number of companies have been adopting various CSR strategies to indicate to customers, the public and the investors that societal, environmental and governance aspects have significant considerations in their business policy making process. There is a realization that CSR can help in increasing the direct economic value and enhance the company‟s image. This in turn will lead to higher profits and growth; consumers purchasing decisions in favour of the company‟s products and the company attracting and retaining skilled workers.

CSR is in a very nascent stage in India and there are only a small number of companies which practice CSR. Globalization, though has brought in enormous benefits, has simultaneously resulted in mammoth costs in terms of both economic and social well-being of the people in many developing countries, including India, in the form of increased unemployment, poverty, suicide rates, and homeless people. In the light of this, CSR initiatives by profit earning companies like ITC will serve as an indicator for other companies to undertake such policies so as to benefit from it, or to those that have suffered losses due to social irresponsibility. Mandating CSR through governmental policies would also go a long way in increasing welfare. Review of Literature

Farhoomand, Bhatnagar (2008) discuss the ITC e Choupal case by stating that business decisions do not necessiarily have to be altruistic. They mention that the launching of the e-Choupal model helped in achieving a dual objective of community development along with benefits of functional procurement and distribution value chains. The accent here therefore is on innovative methods of establishing mechanisms

to overcome supply chain woes and concerns. They mention how ITC could achieve a balance between making social contribution and improving its value supply chain efficiency.

B. Bowonder, et al, suggest that the success of e-choupal has heralded a new era in the Indian agro-sector. The work needs to be carried forward and replicated in the other untapped areas. Creating business channels that can create a win-win situation both business and farming community has enormous economies of scope. Once a channel is created it could be used for many products and services as shown in this case study. The main reasons for the success of the platform have been the involvement of local farmers and maintenance of the rural IT network by the corporate entity.

In order to meet the formidable challenges of reaching 638,365 villages, Indian advertisers have mastered the art of video-van form/technology and the art of crafting messages customized to meet rural tastes and sensibilities (Bhatia 2007). The emphasis here is on the various facets of rural media and how mass media alone may not work if used in isolation and that an integrated marketing communication is the need of the hour. One chapter of the book deals with economic and development impact of e-Choupal, but the entire focus is towards exploring how technology can be used as a medium to achieve this objective.

Most of the research so far focuses on either the innovativeness of e-Choupal as a way of empowering farmers in rural India or the fact that it has worked wonders as a means of marketing communication. There is a need therefore to bring out the nexus between the e-Choupal model and enhanced agro exports. About ITC

ITC is one of India's foremost private sector companies with a market capitalization of over US $ 33 billion and a turnover of US $ 7 billion (www.itcportal.com). The company is a highly diversified one with its products spanning across a spectrum of commodities and services including cigarettes, hotels, paperboards and specialty papers, packaging, agri-business, packaged foods and confectionery, information technology, branded apparel, personal care, stationery, safety matches and other FMCG products. This diversified status of the company enables it to reap rich benefits through economies of scope: effective use of its time-tested core competencies, a large distribution reach, greater brand-building capabilities, effective supply chain management and recognized service skills in hoteliering.

ITC's Agri Business Division is India‟s second largest exporter of agricultural products. It focuses on exports and domestic trading of feed ingredients – soya meal food; grains - rice (Basmati) and wheat; marine products - shrimps and prawns; processed fruits - fruit purees/concentrates, IQF/frozen fruits, organic fruit products and fresh fruits; coffee; Spices - black pepper, chilly, turmeric, ginger, celery and other seed spices. ITC is one of the country's biggest foreign exchange earners- US $ 3.2 billion in the last decade (www.itcportal.com).

ITC figured second in the S&P Environmental, Social and Corporate Governance (ESG) India Index, 2008, among the top 50 Indian companies whose business strategies and performance demonstrate a high level of commitment to meeting environmental, social and governance standards. The index is a pioneering initiative to measure environmental, social, and corporate governance practices based on quantitative as opposed to subjective factors (www.standardandpoors.com). The index also is an assurance to investors that the listed companies are taking cognizance of the interests of all stakeholders and are aiming at sustained long-term performance strategies.

The CSR strategies of ITC are in two distinct areas –one directly linked to its profits and the second not directly linked to the business. The former is manifested through its e-choupal initiative and it‟s social and farm forestry programmes. The latter are conducted in the catchment areas of the business units that support sustainable livelihoods through large scale interventions in watershed development, livestock enhancement, supplementary education and women empowerment.


to overcome supply chain woes and concerns. They mention how ITC could achieve a balance between making social contribution and improving its value supply chain efficiency.

B. Bowonder, et al, suggest that the success of e-choupal has heralded a new era in the Indian agro-sector. The work needs to be carried forward and replicated in the other untapped areas. Creating business channels that can create a win-win situation both business and farming community has enormous economies of scope. Once a channel is created it could be used for many products and services as shown in this case study. The main reasons for the success of the platform have been the involvement of local farmers and maintenance of the rural IT network by the corporate entity.

In order to meet the formidable challenges of reaching 638,365 villages, Indian advertisers have mastered the art of video-van form/technology and the art of crafting messages customized to meet rural tastes and sensibilities (Bhatia 2007). The emphasis here is on the various facets of rural media and how mass media alone may not work if used in isolation and that an integrated marketing communication is the need of the hour. One chapter of the book deals with economic and development impact of e-Choupal, but the entire focus is towards exploring how technology can be used as a medium to achieve this objective.

Most of the research so far focuses on either the innovativeness of e-Choupal as a way of empowering farmers in rural India or the fact that it has worked wonders as a means of marketing communication. There is a need therefore to bring out the nexus between the e-Choupal model and enhanced agro exports. About ITC

ITC is one of India's foremost private sector companies with a market capitalization of over US $ 33 billion and a turnover of US $ 7 billion (www.itcportal.com). The company is a highly diversified one with its products spanning across a spectrum of commodities and services including cigarettes, hotels, paperboards and specialty papers, packaging, agri-business, packaged foods and confectionery, information technology, branded apparel, personal care, stationery, safety matches and other FMCG products. This diversified status of the company enables it to reap rich benefits through economies of scope: effective use of its time-tested core competencies, a large distribution reach, greater brand-building capabilities, effective supply chain management and recognized service skills in hoteliering.

ITC's Agri Business Division is India‟s second largest exporter of agricultural products. It focuses on exports and domestic trading of feed ingredients – soya meal food; grains - rice (Basmati) and wheat; marine products - shrimps and prawns; processed fruits - fruit purees/concentrates, IQF/frozen fruits, organic fruit products and fresh fruits; coffee; Spices - black pepper, chilly, turmeric, ginger, celery and other seed spices. ITC is one of the country's biggest foreign exchange earners- US $ 3.2 billion in the last decade (www.itcportal.com).

ITC figured second in the S&P Environmental, Social and Corporate Governance (ESG) India Index, 2008, among the top 50 Indian companies whose business strategies and performance demonstrate a high level of commitment to meeting environmental, social and governance standards. The index is a pioneering initiative to measure environmental, social, and corporate governance practices based on quantitative as opposed to subjective factors (www.standardandpoors.com). The index also is an assurance to investors that the listed companies are taking cognizance of the interests of all stakeholders and are aiming at sustained long-term performance strategies.

The CSR strategies of ITC are in two distinct areas –one directly linked to its profits and the second not directly linked to the business. The former is manifested through its e-choupal initiative and it‟s social and farm forestry programmes. The latter are conducted in the catchment areas of the business units that support sustainable livelihoods through large scale interventions in watershed development, livestock enhancement, supplementary education and women empowerment.


e-Choupal Indian agriculture is characterized by small and fragmented land holdings, outdated farming

techniques, excessive dependence on the monsoon, variations between different agro-climatic zones, poor marketing network, inadequate availability of institutional credit facilities and a huge presence of intermediaries that ensure non-remunerative prices to farmers. The poor and often illiterate farmers readily accede to giving up their produce at low prices on account of their limited access to information and market prices.

e-Choupal is an initiative of ITC Limited‟s Agri Business division, introduced in June 2000, to directly link with rural farmers via the internet for procurement of agricultural and aquaculture products. Thus the e-Choupal model is expressly intended to deal with the challenges of Indian agriculture. Based on a clever understanding of technology, sociology, and the incentives of the various players involved, the e-Choupal provides farmers with effective methods of price discovery, honest trading, and information sharing to the benefit of all in the channel (David M. Upton, Virginia A. Fuller, 2003). The model bestows long term shareholder value growth along with increasing societal capital.

Currently over 4 million farmers have benefitted from the 6500 installation of computers with internet access spread over 40,000 villages in the 10 States of Madhya Pradesh, Haryana, Uttarakhand, Uttar Pradesh, Rajasthan, Karnataka, Maharashtra, Andhra Pradesh and Tamil Nadu. By the year 2012, ITC proposes to create a network of 20,000 e-Choupals covering 100,000 villages thereby encompassing a significant proportion of rural India. Working of e-Choupal

The programme involves the installation of computers with internet access in rural areas of India to offer small and marginal farmers up-to-date marketing and agricultural information. This digital connectivity facilitates price discovery, provides critical weather information, establishes market linkages and enables the creation of a virtual co-operative ensuring freedom from exploitative intermediaries (ITC Sustainability Report, 2010). The ultimate objective of the programme is to empower these small and marginal farmers through sustainable agricultural practices which in turn will enhance farm productivity and raise rural incomes. Further, a growth in rural incomes will also unleash the latent demand for industrial goods that is necessary for the continued growth of the Indian economy. This will create another virtuous cycle propelling the economy into a higher growth trajectory.

Traditionally, the farmers with small holdings sell their produce in the local mandi or government-mandated market place (Bhatnagar S. et al). They are forced to go through middlemen and prices secured by them are low. Indian farmers have only an approximate idea of price trends and have to accept whatever the price offered them by the traders on the day that they bring their crops to the mandi. Very evidently, traders are in a position to exploit both farmers and buyers. To overcome this constraint, a direct line of communication has been established between ITC and the farmer thereby reducing the role of intermediaries. Internet kiosks have been set up in the villages and manned by ITC trained e-Sanchalak (operator). The e-sanchalak provides information on agriculture through the e-Choupal website. The e-sanchalak has been instrumental in developing his village through imparting education, teaching savings, information sharing, running health programmes, dairy development, water shed management and so on (Kuttayan Annamalai and Sachin Rao, 2003). The villagers can purchase high quality agri-inputs, get on best farming practices, prevailing market prices for their crops at home and abroad and the weather forecast – all in the local language. The e-Choupal model enables the movement of products and services into and out of rural India through an efficient agri sourcing technique.

The e- sanchalak also doubles up as an ITC salesman (DeSai Group, 2011). The farmer can show a sample of his produce to the e-sanchalak, who gives him a competitive and non exploitative price quote. If the farmer finds the quote attractive, he can take the produce to an ITC collection centre and receive payment within two hours.

The e-Choupal network is supported by ITC's procurement teams. The network also consists of handling agents and contemporary warehousing facilities across India, enabling its Agri Business to

source identity-preserved merchandise even at short notice. ITC's processors are handpicked, reliable high quality outfits who ensure hygienic processing and modern packaging. Strict quality control is exercised at each stage to preserve the natural flavour, taste and aroma of the various agri products.

Benefits of e-Choupal

ITC has been able to the empower the marginal farmer of with a certain degree of expertise in his area. This endeavour has metamorfed the Indian farmer into a progressive knowledge-seeking netizen (Trivedi et al, 2007). His competitiveness in the global market has increased manifold. By promoting sustainable agricultural practices and providing efficient market access, ITC's e-Choupal is an example of how private sector intiatives can compliment state interventions to create significant value for the farmer. The sourcing strengths of e-Choupal lend significant competitive advantage to its Foods and other businesses.

e-Choupal delivers real-time information and customised knowledge to improve the farmer's decision-making ability, thereby better aligning farm output to market demands; securing better quality, productivity and improved price discovery. The model helps aggregate demand in the nature of a virtual producers' co-operative, in the process facilitating access to higher quality farm inputs at lower costs for the farmer. The e-Choupal initiative also creates a direct marketing channel, eliminating wasteful intermediation and multiple handling, thus reducing transaction costs and making logistics efficient. The site also provides farmers with specialised knowledge for customising their produce to the right consumer segments. The new storage and handling system preserves the identity of different varieties right through the 'farm-gate to dinner-plate' supply chain (Fernando, 2009). Encouraging the farmers to raise their quality standards and attract higher prices. Impact of e-Choupal on ITC’s Agro and Aqua exports

ITC's Agri Business Division is India‟s second largest exporter of agricultural products. It focuses on exports of in the following categories: feed ingredients – soyameal; food grains - rice (Basmati), wheat; processed fruits - fruit purees/concentrates, IQF/frozen fruits, organic fruit products, fresh fruits; coffee & spices - coffee, black pepper, chilly, turmeric, ginger, celery and other seed spices and marine products - shrimps and prawns.

This pre-eminent position of ITC as one of India's leading corporates in the agricultural sector is based on strong and enduring farmer partnerships that has revolutionized and transformed the rural agricultural sector. A unique rural digital infrastructure network, coupled with deep understanding of agricultural practices and intensive research, has built a competitive and efficient supply chain that creates and delivers immense value across the agricultural value chain.

ITC is one of the country's biggest foreign exchange earners (US $ 3.2 billion in the last decade) of which agricultural exports constituted 65%. Agricultural exports earnings are an indicator of ITC's contribution to rural economy through effectively linking the farmers with international markets. The graph below indicates the overall export performance of ITC.

Export Performance of ITC

Rs Crores

Year


source identity-preserved merchandise even at short notice. ITC's processors are handpicked, reliable high quality outfits who ensure hygienic processing and modern packaging. Strict quality control is exercised at each stage to preserve the natural flavour, taste and aroma of the various agri products.

Benefits of e-Choupal

ITC has been able to the empower the marginal farmer of with a certain degree of expertise in his area. This endeavour has metamorfed the Indian farmer into a progressive knowledge-seeking netizen (Trivedi et al, 2007). His competitiveness in the global market has increased manifold. By promoting sustainable agricultural practices and providing efficient market access, ITC's e-Choupal is an example of how private sector intiatives can compliment state interventions to create significant value for the farmer. The sourcing strengths of e-Choupal lend significant competitive advantage to its Foods and other businesses.

e-Choupal delivers real-time information and customised knowledge to improve the farmer's decision-making ability, thereby better aligning farm output to market demands; securing better quality, productivity and improved price discovery. The model helps aggregate demand in the nature of a virtual producers' co-operative, in the process facilitating access to higher quality farm inputs at lower costs for the farmer. The e-Choupal initiative also creates a direct marketing channel, eliminating wasteful intermediation and multiple handling, thus reducing transaction costs and making logistics efficient. The site also provides farmers with specialised knowledge for customising their produce to the right consumer segments. The new storage and handling system preserves the identity of different varieties right through the 'farm-gate to dinner-plate' supply chain (Fernando, 2009). Encouraging the farmers to raise their quality standards and attract higher prices. Impact of e-Choupal on ITC’s Agro and Aqua exports

ITC's Agri Business Division is India‟s second largest exporter of agricultural products. It focuses on exports of in the following categories: feed ingredients – soyameal; food grains - rice (Basmati), wheat; processed fruits - fruit purees/concentrates, IQF/frozen fruits, organic fruit products, fresh fruits; coffee & spices - coffee, black pepper, chilly, turmeric, ginger, celery and other seed spices and marine products - shrimps and prawns.

This pre-eminent position of ITC as one of India's leading corporates in the agricultural sector is based on strong and enduring farmer partnerships that has revolutionized and transformed the rural agricultural sector. A unique rural digital infrastructure network, coupled with deep understanding of agricultural practices and intensive research, has built a competitive and efficient supply chain that creates and delivers immense value across the agricultural value chain.

ITC is one of the country's biggest foreign exchange earners (US $ 3.2 billion in the last decade) of which agricultural exports constituted 65%. Agricultural exports earnings are an indicator of ITC's contribution to rural economy through effectively linking the farmers with international markets. The graph below indicates the overall export performance of ITC.

Export Performance of ITC

Rs Crores

Year


ITC has been a significant exporter of seafood from India since 1971. It exports frozen as well as cooked shrimps and other seafood products to Japan, USA and Europe. Its well-known brands include Gold Ribbon, Blue Ribbon, Aqua Kings, Aqua Bay, Aqua Feast and Peninsular.

The massive problem of inflation in India and changes in policies relating to India‟s agricultural sector do impact the performance, the scale, risk and profitability of ITC‟s e-Choupal operations. Policies that distort markets (eg. export bans,subsidies) or impose restrictions on smooth operations (viz. stock controls, prohibition of futures) adversely impact companies engaged in the agri-sector. In addition, the slow reform of Agricultural Produce Marketing (Regulation) Act (APMC Act) that enables direct transactions between the farmers and the agri-businesses is another area of concern. Conclusion:

ITC‟s initiatives in the Indian agricultural sector have led to augmentation of agro exports productivity and rural empowerment of farmers. Through the medium of a rural e-business model termed as e-Choupal, ITC has been promoting sustainable agricultural practices and providing efficient market access, reduce the intermediaries in the value chain and increase incomes of farmers. The e-Choupal model has lent a competitive advantage to its packaged foods and other businesses, making ITC a more respected company, far removed from its image of a tobacco company. References: Bhatia, Tej. K, (2007), Advertising and Marketing in Rural India, Macmillan India Limited Farhoomand Ali and Bhatnagar Saurabh, (2008), ITC e-Choupal: Corporate Social Responsibility in Rural India, Asia Case Research Centre, University of HK. Raj, Manoj , Expansion of ITC's eChoupal Initiative in ASIAN countries, http://www.unitar.org The DeSai Group, (2011), ITC eChoupal: Innovation Case Study, http://www.desai.com Shivakumar R., Anupindi R., (2005), ITC’s e-Choupal – A Platform Strategy for Rural Transformation, BSAP Conference, Harvard Business School. Bhatnagar S. et al, e-Choupal ITC’s Rural Networking Projet, World Bank ITC website: http://www.echoupal.com/ and http://www.itcportal.com/about-itc/itc-profile/itc-profile.aspx Kuttayan Annamalai and Sachin Rao, ( 2003), What Works: ITC's E-Choupal and Profitable Rural Transformation, World Resources Institute. http://www.standardandpoors.com B. Bowonder, Vinay Gupta and Amit Singh Developing a Rural Market e-hub The case study of e-Choupal experience of ITC, Planning Comission Of India. S. Sivakumar (2002), „Collaboration Works‟ ,Business World. David M. Upton, Virginia A. Fuller(2003), ITC eChoupal Initiative, HBS Premier Case Collection Sustainability Report 2010, www.itcportal.com. ITC e-Choupal to Quintuple Reach, Economic Times, 12th April, 2010 The DeSai Group, 2011, ITC e Choupal : Innovation Case Study Fernando .A.C, (2009)Corporate Governance: Principles, Policies and Practices, Pearson Education. Trivedi Tapan, Ravneet Kaur Cause Related Marketing, Proceedings of International Marketing Conference on Marketing & Society, April, 2007, IIMK ITC eyes $2.5 bn revenue from e-choupal by ‟10, Jul 7, 2006.

ITARC – London 2011 7th – 8th November 2011

2nd International Trade Academic Research Conference

Co – hosted by the

Academy of Business & Retail Management

Journal of Business & Retail Management

London College of Management Studies

Some of the dynamics of

International Trade

Procurement

Corruption Insurance

Law Origins

Tariffs & Customs

Carbon footprint

Outsourcing

Exchange rates Globalization

Piracy Smuggling

Exports Imports

International Conference on the Restructuring of the Global Economy (ROGE) 1st & 2nd February, 2011

Pune, India.

Corporate Governance and Business Conference (CGBC) 14th & 15th July, 2011

Boston, USA.

Academy of Busines

s & R

etail

Management

T H E B U S I N E S S & M A N A G E M E N T R E V I E W

TH

E B

US

INE

SS

& M

AN

AG

EM

EN

T R

EV

IEW

Vo l u m e 1 , N u m b e r 2

Vo

l 1

, N

o2

w w w. a b r m r. c o m

International Trade & Academic Research Conference (ITARC)

7th–8th Nov, 2011 London UK

International Trade & Academic Research Conference (ITARC)7th–8th Nov, 2011

London UK

ISSN 2047-2854

Alberto Lanzavecchia

Ki�u G. Molla

Anke Mönnig

Elena Meneghetti

Ottavio Quirico

Kirsten Wiebe

Ranajit Chakrabarty

Ogedegbe, Rukevwe Juliet

Radhika Lobo

Smwarajit Lahiri

Chakravarty

Ha Viet Nguyen

Eiman Negm

QinwenTan

Nadia Wacila

Passent Tantawi

David Just

Hanania Vianna

Ayat Yehia

Harry de Gorter

Marcos Roberto Piscopo

Ailemen Moses Isunu

Ranajit Chakrabarty

Jingyi Wang

Fakhir Musharraf

Ayan Chattopadhyay

Reza Allahyari Soeini

Mahinda Henegedara

Amit Sharma

Behzad Jafari

Aditi Abhyankar

S. Rangnekar

Amin Ganjdanesh

Jo-hui Chen

Omolade Adeleke

C. Michael Wernerheim

John Francis Diaz

Ogunleye E. O.

Habtamu Alebachew

Kanokkan Vichasilp

Yousef Mehnatfar

Bruce Blonigen

Takio Nakagawa

Seyed Bijan Babayee

Silke Friedrich

Purushottam, Neha

Ping Xiong

Wesley Wilson

Steve Johnson

Passant Tantawi

Yao Lu

Ioana A. Brote

Heba Sadek

Boyu Sun

Vítor Braga

Dibakar Pal

Yuduo Lu

Jagdish S. Joshi

A. Jayakumar

Duarte Xara-Brasil

Reza Tehrani

Maxwell Agabu Phiri

Andreia Dionísio

Mohammad Reza Mehregan

Thirnavellie Reddy

Cristina Marreiros

Mohammad Reza Golkani

Saeb Farhan Al Ganideh

Albert Ansah

Marco De Cristofaro

Ghaleb A. El Rafee

Victoria Blankson

David Leung, MEcon

Motasem M.H. Al Shareef

Millicent Kontoh

Javier Flores-Zamora

Maxwell Agabu Phiri

Fahad Afzal

Zehra Özdemir

Stewart Peter Kaupa

Adnan Riaz

Jesus Garcia De Madariage

Fon Sim, Ong

MENG Xue

Fatma Ulucan Özkul

Kok Wei, Khong

ZHANG Zhi‐dong

Vincent Mok

Kingsley Yeung, MSc

Rasheed Olajide Alao

Prema Podimanike and

J.A.P Kumari

P.R.Datta

Ogenyi E Omar

Gordon Dixon

Date post:	11-Mar-2018
Category:	Documents
Upload:	vodieu
View:	216 times
Download:	4 times

Part 4 - abrmr.com Proceedin… · integral part of human daily ... hotels in Ghana is getting a...

Documents