Archive for April, 2011

Arguments regarding freedom and democracy

April 28, 2011

Arguments regarding freedom and democracy
Critical analysis of Hayek’s and Dewey’s arguments regarding freedom
Hayek and Dewey brought out various arguments regarding freedom especially within the market. Market freedom implies that the market forces should be allowed to make suitable adjustments which facilitated equilibrium reaching without involvement of the government (O’Neill, 1998). Those who support market freedom put to light that the government does not have to involve itself in various operations towards market control because the supply and demand market forces have the capacity to appropriately adjust themselves to ensure that market operations reach the desired equilibrium levels. Hayek’s and Dewey’s arguments regarding freedom may be put to light as follows.
For instance, Hayek warned of tyranny danger regarding inevitable government control concerning central planning decision making. He puts to light that abandonment of freedom, liberalization, and individualism inevitably brings about fascist or socialist oppression as well as individual serfdom and tyranny. Most importantly, Hayek disputed the view which was generally held by British academics, expressing that fascism would be viewed as a reaction against socialism by capitalism (O’Neill, 1998). He instead put forward that socialism and fascism had universal roots within economic planning which is central in nature and state power over individuals. Hayek’s work regarding market serfdom stands out as most popular and influential expositions regarding market libertarianism. It remains influential and popular within contemporary discourse.
Hayek indicated that most western democracies like America and England have continuously deserted economic affairs freedom without which political and personal freedom has been unattainable (O’Neill, 1998). Society has misguidedly attempted ensuring that prosperity is realized through central planning which inescapably brings about totalitarianism. He supports free market existence by indicating that through free market existence, various activities are appropriately adjusted to one another without arbitrary or coercive authority intervention. Hayek thus indicates that government involvement is usually an inferior regulation method whereas free market cooperation is usually superior.
Dewey arguments regarding freedom may critically be analyzed as follows. For instance, he held strong views against free market. In his work, Dewey has expressed free market as unsuitable because is its inability to effectively handle aspects regarding market failure (O’Neill, 1998). His arguments therefore indicate the need for government participation in various undertakings regarding market control so as to offer appropriate solutions which may not be realized with laissez-faire economy. Laissez-faire economy in this case is one which does not allow for government intervention but undertakes control activities on its own towards equilibrium market realization.
In his work, Dewey highly criticized free market existence and put to light that free market was accompanied by many inconveniences hence declared it unsuitable (O’Neill, 1998). For instance, he used the example of occurrences whereby market failure occurs and market forces have no efficient capacity to restore the situation or turn the situation to normal. This is usually a period whereby the market highly requires external forces like government involvement to occur. It is apparent that Dewey supports government involvement due to its capacity to appropriately control various tools regarding monetary and fiscal policies to help in solving various market problems which come up due to market failure (O’Neill, 1998). Monetary policies are usually essential because they help in realization of suitable situations within the market which facilitate demand and supply levels capable of steering desirable stability and growth levels. Fiscal policy involves regulation of money supply to the economy by government with the aim of ensuring that moderate supply is maintained which has the capacity to steer suitable stability and growth levels. In cases whereby limited money supply is experienced within the society as well as undesirable stability and growth levels, the government influences money supply through central banks which put in to place various strategies to ensure that money accessibility by public through commercial banks is augmented (O’Neill, 1998). Individuals therefore have the capacity to access substantial money amounts and invest within various economic sectors. This ensures that the various undertakings bring about desirable growth levels. They also facilitate suitable stability levels which have the capacity to bring about desirable outcomes within the society. It is apparent that these government functions, according to Dewey, bring about suitable market conditions and help in doing away with undesirable occurrences like market failures.
From the various aspects brought to light above, it is apparent that government involvement is usually very essential in aspects regarding market control. Although Hayek strongly believes that market forces have the capacity to appropriately bring about stability and desired growth levels, it is apparent that some cases are likely to occur within the market making it difficult for the market to handle them effectively (O’Neill, 1998). This creates more problems within the market due to the fact that undesirable outcomes regarding extended instability and poor growth levels prevail. This have to be handled by external forces for it to be solved and this indicates clearly that government involvement has to apply for desirable market conditions to be realized.
Hayek’s argument that government involvement is usually an inferior regulation method whereas free market cooperation is usually superior is therefore proved unsuitable by the various occurrences which require external forces involvement within the market for them to be solved. Pure existence of laissez-faire markets would be problematic in cases whereby aspects regarding market failure occur (O’Neill, 1998). This is because the free market does not have efficient mechanisms which facilitate appropriate market failure control.
Government is very suitable when it comes to various market operations because of its suitable capacity to employ appropriate control measures which ensure that market irregularities are effectively controlled (O’Neill, 1998). This brings about desirable outcomes explained by stability and growth.
Critical analysis of Ginti’s, Bowels and Hayek’s arguments regarding democracy
Various arguments regarding democracy were expressed by Ginti, Bowels and Hayek and may critically be analyzed as follows. For instance, Hayek held that absolute collectivism headed for by various free nations is totally contrary with democracy, and that social planning may end up wiping out economic, political and individual freedom (Thomas, 1999). He brings to our attention that democracy is only attainable in cases whereby free market is allowed to prevail. This is due to the fact that centralized planning or government involvement tends to satisfy minority requirements and this is looked upon as undemocratic.
Democracy in actual fact implies majority rule or representative democracy wherein representatives’ selection is done through the use of fair and free elections (Thomas, 1999). In this case complete suffrage exists. Hayek argues that for desirable outcomes regarding capitalism to be realized, democracy has to be done away with. Capitalism in this case is highlighted as system of an economy wherein distribution and production means are corporately or privately owned. Capitalism is usually very essential especially when it comes to development activities within a nation (Thomas, 1999). Through capitalism, suitable operations are carries out which promote desirable outcomes realization within the economy through stability or desirable growth levels attainment. In his work, Hayek indicates that the useful outcomes regarding capitalism are usually interfered with by democracy existence and therefore it should be done away with for desirable outcomes to be realized.
According to the various views he has brought to light, Hayek indicates that individuals ought to choose either democracy at the expense of capitalism, or capitalism at the expense of democracy since both may not be applicable at the same time (Thomas, 1999). He attempts to put to light that democracy highly supports government intervention within various operations in the market. GHe is generally against government involvement in the market because he argues that the market has capacity to effectively regulate itself. He supports free market existence by indicating that through free market existence, various activities are appropriately adjusted to one another without arbitrary or coercive authority intervention (Thomas, 1999). Hayek thus indicates that government involvement is usually an inferior regulation method whereas free market cooperation is usually superior. According to him, economies should undertake various operations independently without any government since supply and demand have the capacity to appropriately adjust themselves and bring about suitable outcomes. Suitable outcomes in this case imply desirable stability and growth levels.
Ginti and Bowles put forward various arguments regarding democracy as follows. For instance, they look upon democracy as unable to coexist with capitalism (Thomas, 1999). They put to light that democratic social order establishment has the capacity to bring about capitalist economy elimination. This brings about an ideal society creation according to Ginti and Bowles.It is apparent that from Ginti and Bowles work, democracy and capitalism are expressed as having
values which are completely different from each other (Thomas, 1999). For example, one holds on economic privilege pre-eminence which is usually influenced by property rights while the other is firm on the fact that democratic accountability and liberty priority are based on personal rights’ exercise. The disadvantage associated with contemporary capitalist societies may be explained by the fact that economic theory triumphs over political theory and this ought not be the case.
Democracy has been found to be interlinked with market-capitalism due to the fact that free market economy has been indicated as inefficient, and intervention by the government in terms of policies and regulatory laws is needed for the purpose of ensuring that working market economy is realized (Thomas, 1999). Owing to the fact that free market has no suitable capacity to appropriately regulate various undertakings, it is apparent that for suitable operations to be realized the government has to come in. Various arguments therefore indicate the need for government participation in various undertakings regarding market control so as to offer appropriate solutions which may not be realized with laissez-faire economy (Thomas, 1999). Laissez-faire economy in this case is one which does not allow for government intervention but undertakes control activities on its own towards equilibrium market realization.
It is apparent that support for government involvement is usually because of its capacity to aptly control various tools regarding monetary and fiscal policies to help in solving various market problems which come up due to market failure (Thomas, 1999). Monetary policies are generally fundamental when it comes to market operations because they help in attainment of suitable situations within the market which facilitate demand and supply levels capable of steering desirable stability and growth levels. Fiscal policy involves regulation of money supply to the economy by government with the aim of ensuring that moderate supply is maintained which has the capacity to steer suitable stability and growth levels (Thomas, 1999). In cases whereby limited money supply is experienced within the society as well as undesirable stability and growth levels, the government influences money supply through central banks which put in to place various strategies to ensure that money accessibility by public through commercial banks is augmented. Individuals therefore have the capacity to access substantial money amounts and invest within various economic sectors (Thomas, 1999). This ensures that the various undertakings bring about desirable growth levels. They also facilitate suitable stability levels which have the capacity to bring about desirable outcomes within the society. It is apparent that these government functions, according to Dewey, bring about suitable market conditions and help in doing away with undesirable occurrences like market failures.
The various aspects brought to light above indicate that Ginti, Bowels and Hayek held similar views regarding democracy in which case they explained democracy in terms of the influence it had on capitalism (Thomas, 1999). Through out their work, they have expressed various ideas which support the fact that capitalism has no capacity to exist in cases whereby democracy exists. For instance, Hayek held that absolute collectivism headed for by various free nations is totally contrary with democracy, and that social planning may end up wiping out economic, political and individual freedom. He has highlighted capitalism as system of an economy wherein distribution and production means are corporately or privately owned Capitalism in this case is highlighted as system of an economy wherein distribution and production means are corporately or privately owned. Capitalism is usually very essential especially when it comes to development activities within a nation (Thomas, 1999). Through capitalism, suitable operations are carries out which promote desirable outcomes realization within the economy through stability or desirable growth levels attainment. In his work, Hayek indicates that the useful outcomes regarding capitalism are usually interfered with by democracy existence and therefore it should be done away with for desirable outcomes to be realized.
Capitalism is usually very essential especially when it comes to development activities within a nation. Through capitalism, suitable operations are carries out which promote desirable outcomes realization within the economy through stability or desirable growth levels attainment . In his work, Hayek indicates that the useful outcomes regarding capitalism are usually interfered with by democracy existence and therefore it should be done away with for desirable outcomes to be realized.
Conclusion
It is apparent from the above aspects that government is usually very essential when it comes to market operations regulation. This is because it has the capacity to handle various aspects which seem impossible with the free market regulations. For example, it has the capacity to apply suitable tools which ensure that desirable stability and growth levels are attained.

Reference
O’Neill, J. (1998). The Market: Ethics, Knowledge, and Politics. London: Routledge.
Thomas, K. (1999). Racing to Regionalize: Democracy, capitalism, and Regional Political Economy. Boulder, CO Lynne Rienner.

creating customer value

April 22, 2011

Running Head: CREATING CUSTOMER VALUE

Creating Customer Value

By

(Your Name)

Presented to

(Instructor/Tutor)

(Course/Subject)

(Institution/University)

(City, State)

(Date)

The ingredients of customer value are price, service quality, image, and product image. To fare on well in the highly dynamic market fronts today, the entrepreneur needs to tailor his goods and services such that they are personalized and customized. The entrepreneur is required to identify the needs of the customer and strive to satisfy them. By so doing, the entrepreneur will create customer value, a desired ingredient in business today.  Customer value will cultivate loyalty from the customer (Timm, 2007), thus leading to profitability.  Naumann in his white paper “Creating Customer Value (1995),” has it that customers will judge the value of a business based on the pricing of commodities, the image of the commodities, the product characteristics and the personalized service the customer receives from the sales clerk. These desired attributes should be well understood by the management. Strategies must be put in place to ensure they are improved on so as to achieve customer value.

The customer value model drawn in figure two illustrate that pricing is an important factor in creating customer value. The customer makes decisions based on the value he/she gets for his/her money. While shopping for commodities and services, thus, the customer will be comparing prices against the everyday price, special prices and the payment options afforded to him/her by the sales company. Profit Impact of Market Strategy (PIMS) suggests that high quality products offered at a lower price, among other factors lead to the success of the business. Naumann (1995) agrees with this factor when he attributes 30% customer’ value for money on pricing. He then notes that even though pricing is the most important factor in creating customer value (its importance is more than double the other factors), all these other factors combined surpass pricing. They contribute up to 70% customer’s value for money.

It is difficult to develop all factors leading to customer value create customer value at a go (Miles, 2003). The management is advised to identify factors that have a greater impact on customer value such as pricing and start creating value with those first. The management should anticipate challenges from new entrants into the market who come up with new value propositions in order to woo customers. Future prospects and uncertainties too are challenges on the way of creating customer value. Creating customer value is an important factor in the growth and expansion of the enterprise (Tellis et al, 1996). The enterprise may rely on new or existing customers to expand. If it were to rely on existing customers, it will bank on the loyalty created between it and the customers over the years. This loyalty is a product of customer value. If the enterprise targets new customers in order to expand, it will have to come up with customer value propositions to woo these new customers (Tellis et al, 1996).

Lamb, Hair and McDaniel (2009-2010), deviates from Naumann’s line of thought when they point out that business enterprises do not exist for the sole purpose of satisfying customers, but also to further society’s long term interests. They are vested with the responsibility to keep the environment clean, produce re-usable and recyclable products.  Lamb, Hair and McDaniel (2009-2010) agree that customer value is important for the success of the company. They do not emphasize pricing as the single most important factor in creating customer value – Naumann does.  In the white paper, he gives additional information as to why pricing is important in customer value creation. It is because the customer’s major concern is whether they are getting greater utility from their money.    Further, revenue impact retention is analyzed to a greater detail in Naumann’s white paper. Lamp, Hair and McDaniel (2009-2010), do not discuss revenue impact retention in depth.

Customer value creation, thus, is vital for the success of business enterprises. Customer value will retain the existing customer (loyalty) while at the same time entice new customers through offering value propositions. Satisfied customers will always come back. This will translate to more revenue to the business enterprise and eventual success. Customer value gives the company competitive advantage over its competitors.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

References

Gale, B. & Buzzell, R. (1987). The PIMS principles: linking strategy to performance. New York: Free Press.

Lamp,  C. Hair, J. & McDaniel, H. (2010) MKTG 3.0 2009 Edition, 3rd Edition. London: Cengage Learning.

Miles, R. (2003). Organizational Strategy, Structure, and Process. Stanford: Stanford                   University Press.

Naumann, E (1995). Creating Customer Value: The Value to Competitive Advantage. New York: Thomson Executive Press.

Tellis, G. & Golder, P. (1996) First to Market, First to Fail: The Real causes of enduring market leadership, Sloan Management Review, vol. 37, no. 2, 232-239.

Timm, P. (2007). Customer Service: Career Success Through Customer Loyalty. New York: Prentice Hall.

Nestle

April 22, 2011
Executive Summary
Recent investigations reveal that the British Nation is slowly ageing and this impacts the development of the country, interior and exterior markets. It is not surprising that the companies participating on the British food market should take into consideration these demographics facts, in order to catch their customers. This report would examine the demographics impact provided on one of the top food industry competitors in UK, Swiss company Nestle, touching the issues the company faces due the scrutinized demographics situation.

 

Introduction

From the very beginning it would be essential to mention that the Nestle position in the food industry is stable (the company is among the five largest food companies in UK). The target market Nestle oriented all these years were children of different ages and young people. Speaking about the integrated marketing communications strategies used by the company to attract the target groups the pull strategy to be the most effective.  Media advertising has always been effective tool for the participants of confectionary market and being in the hard situation it would be better to make a use of the reliable methods that would help to reach the desired effect, without investments into the different strategies, but concentrating on the one particular (Kotler& Armstrong, 2008).

Promotion Mix Strategy the core role of the Message Strategy for Nestle
It goes without saying that making use of a pull strategy need to integrate the message strategy too. Understanding the core role of the message, especially it collaborative work with the pull strategy, it would be essential to include slogan into communication mix to reach the target market. As it was already mentioned that the target market could be children aged between 6 – 15 and young people in the age of 16 – 25, the message should be developed in orientation of these target groups. The same time should also take into account the fact that a number of young people and parents of children who are the target group take care about their health and company within the message could promote their intension to keep up the healthy style of life, providing healthy products. The same time the company should understand that the messages for the each product should be also present and they should correspond to the message of the company. In contemporary demographic situation it would be essential to include the target group of the older people and develop products for them. Nestle is already suggesting the marketing strategies that would observe diverse of target groups: “The new strategy involves widening and deepening this market by using differentiated marketing. This enables the company to alter ingredients of the marketing mix such as where and how it advertises its products, the outlets it sells its products in, and gives it the flexibility to charge different prices for the variants of this where appropriate” (The Times, 2010, p. 4)
Promotion Mix: Main Strategies Used by Nestle in UK
Advertising
Advertising has always been one of the most popular methods of promotion in food industry and what would be important to note that one of the most effective. It is essential that reaching the target group, the company should learn with the help of marketing research what are the most reachable media sources for their target market (Kotler, 2003). It provides high visibility and pervasiveness and it is very important for implementing the Nestle strategy and reaching of the message to the youth  and aged target market. To reach the signified target market there are three most important media means: TV (selecting the most often viewed channels and seeking for the core time), Internet (the most popular web sites such as MySpace, Facebook et al) and store signs, motion pictures used for advertising to attract the potential clients in the area of selling the product. Advertising is the core method, where the message strategy would be used to attract the target group attention. It goes without saying that advertising includes monitoring of the social interest and what the media sources are now popular within the target group. Getting it touch with the target group is the core idea of the advertising strategy. Internet is undoubtedly attractive for the youth, but the two others orient more on the older people who do not often use internet, but watch TV and pay attention to the store signs
Sales Promotion
Sales Promotion is one of the most effective strategies in contemporary food industry. It has a number of incentive tools, the majority of them are short term to stimulate quick or greater purchase of the production: different discount systems, additional prizes and gifts etc. It goes without saying that different promotional events attract the representatives of the more older target group to the production of Nestle and it has already become a typical practice for the other competitors, they mainly hold the Sales promotion events before some holidays such as Christmas, Easter, Halloween and others. It goes without saying that receiving the pleasant bonus is very pleasant for the final consumers. It goes without saying that message strategy also plays here a significant role. And such attractive events as sales promotion should demonstrate visibly the target market how the message strategy is realized in practice. It is always pleasant to get a discount, but according the marketing researches youth pay less attention to it
Conclusion and Recommendations
Direct marketing is not used by Nestle comparatively to the previous two strategies. But it is very effective tool for reaching after 40s target group. I think that telemarketing and catalogues are the two methods that would be helpful for raising the interest of the older people rather than youth. It goes without saying that it is also one of the most effective means of the marketing strategy in order to reach the target group, hence with the decay of publishing industry and creation of teleshop channels and internet development it is now becoming less effective, when we speak about youth, but it would undoubtedly be effective for the older people (Solomon, 2004). So I consider that this strategy could be used as the supportive one. It goes without saying that the message would play the significant role in the direct marketing too; it would be represented in the product placement, making a stress and centralizing attention of the target market

References:
Beall A., 2008. Strategic Market Research: A Guide to Conducting Research that Drives Businesses. IUniverse.
Baesens B., Verstraeten G. et al, 2004. Purchase Modeling in Direct Marketing. European Journal of Operational Research. 138 (1), 191-211.

Douglas, S. & Craig S., 2008. Reassessing global marketing strategy. Research in Global Strategic Management. Emerald Group Publishing Limited.

Jacob N. Cross-cultural investigations: emerging concepts. Rotterdam School of Management: Erasmus University, Post Bus, The Netherlands

Jones M. L., 2007. Hofstede – Culturally questionable? University of Wollongong

Kotler, P., 2003. Marketing Management, 11th ed. Prentice Hall/Pearson Education Inc: New Jersey.

Kotler, P. & Armstrong G., 2008. Principles of Marketing 12th ed., Pearson Education Inc/Upper Saddle River: New Jersey.

Knutson, B., 2005. Marketing to lodging, food service and club consumers in the future: A Delphi study to predict marketing management in 200. Advances in Hospitality and Leisure. Emerald Group Publishing Limited.

Schiffman L & Lazar Kanuk L., 2003. Consumer Behavior. Prentice Hall

Sheela S., 2009. Advertising and Sales Promotion. Article Base

Silverman S., Sprott D. & Pascal V., 1999. Relating Consumer-Based Sources of Brand Equity to Market Outcomes. Advances in Consumer Research. Vol.26. pp. 352 – 358. Provo, UT : Association for Consumer Research

Smith S. M., 2004. Fundamentals of Marketing Research. Sage Publications, Inc

Solomon M. R., 2004. Consumer Behavior: Buying, Having, Being. Prentice Hall

White, J., 1989. Case studies in real estate marketing. Journal of Property Management 54.6 12+. Expanded Academic ASAP. Retrieved October 24, 2010 from http://find.galegroup.com.ezp.lib.unimelb.edu.au/gtx/infomark.do?&contentSet=IAC-Documents&type=retrieve&tabID=T002&prodId=EAIM&docId=A7878214&source=gale&srcprod=EAIM&userGroupName=unimelb&version=1.0

 

 Appendix 1

Appendix 2

Micro economics

April 19, 2011

POLICY MEMO

12TH April 2011

To        : Mr. President, United States

Mr. Minister of Trade

Mr. Minister of Health

From       :

Re           : Recommendation of legalization of marijuana

Cc           : Mr. Vice President

Mr. Coordinating minister of economy

Mr. Minister of Finance

Mr. Assistant Minister of Public Health

A recent report released by the international centre of science in drug policy use figures provided by the US government highlights the unquestionable failure of America’s marijuana probation to accomplish a single one of its goals.

By evaluating data over a span of about 20 years back, the description illustrates that despite radically improved expenditure on enforcement labors, including near record-level arrests and attacks, marijuana has become cheaper, more potent, and more available than ever. It concludes, “The legalization of cannabis, combined with the implementation of strict regulatory tools could help reduce cannabis-related harms, as research has demonstrated is successful in tobacco and alcohol control, when strictly enforced.”

The report is very clear in its endorsement of a regulated marijuana market over simply a decriminalized model, in which criminal penalties against users are removed, but the sale of marijuana would remain illegal, and therefore, in the hands of criminals. “Without regulatory controls allowing for limited distribution – as employed for other psychoactive substances such as alcohol and tobacco – organized crime groups continue to exercise control over the cannabis market,” the report states.

It goes on to explain that regulations could include “age restrictions, restricting driving or operating machinery while intoxicated, limiting hours of sale and outlet density, restricting bulk sales and limiting potency of legal cannabis.”This is the same message that MPP and others have advocated for years: marijuana regulation is a far superior policy alternative to the chaotic and ineffective nature of prohibition.

Recently there has been a heated discussion on the ways to move forward in regard to marijuana use. With time a number of movements been established in support of legalizing marijuana. Among the reasons why people think that marijuana should be legalized are: it is generally perceived that marijuana isn’t harmful as compared to other drugs such as alcohol and tobacco, legalization would mean a lower price thus reducing crimes related to theft, it has been noted to have medical benefits for cancer patient, it could be a source of additional tax to the government and lastly it would lead to enforcements of regulatory measures on the quantity and safety of drugs.

It has been noted that the government spend a lot of money in the aim curbing marijuana use in the country. The drug policy alliance advocates for the elimination the creation of a legal regulatory market for the production and distribution of marijuana, and the establishment of laws that provide and protect access to medical marijuana by patients.

The justification and taxation of marijuana might have an effect on its bazaar price and overall use. Learning on lawful drugs, such as alcohol and tobacco, for example, show that taxing them and raising prices can often be quite efficient in lowering utilization even among the heaviest users. It has been eminent that with justification there is an predictable cost drop in price of marijuana.

There seems to be a competitive market in the marijuana market if people used marijuana with no fear of the legal consequences involved and it seems to be a long run analysis. Marijuana use potentially imposes externalities in certain situations, such as driving under the influence, but existing evidence does not support a strong effect in this direction, and in any case such evidence suggests laws against DUI, not a sin tax.   The use of marijuana do not have considerable probability for addiction or negative fitness consequences, so  justification is not valid either.

It have been noted that if marijuana prices can be set at a higher level this would reduce the use f the drug in the household population. In reference to elasticity of demand it is noted that when marijuana was relatively unavailable people are less likely to experiment with marijuana.

In this analysis I will consider some specific assumptions which include: The first assumption is that the marijuana demand curve (relationship between rice and quantity) is the same before and after legalization. In this assumption price and quantity change solely because marijuana becomes less costly to produce.

The second assumption is that Netherlands and United States are similar. In this demand conditions are identical in the two countries and the legalization of marijuana in the United States will have the same effects as the de facto legalization in Netherlands.

The third assumption is that the demand for marijuana in the United States is the same as in 1972. Either that or use the demand from Australia.

The fourth assumption is that the surveys one on illegal activities always lies. Since people fear acknowledging others that they use the illegal drugs and this greatly affects the data collected. The fifth assumption is that the possibility of substitution from other taxed goods to marijuana. It might be that there are no good estimates out there on how people would substitute from alcohol to marijuana, but this is something we need to know.

A cost benefit analysis on marijuana use shows that people between the age of 12 and above have admitted to have smoked marijuana at least once. Also the analysis people arrested with marijuana related cases greatly out ways the number of incidents in other crimes.

As in the year 2009 $14,100,000,000 was spent to reduce drug abuse and availability and at this rate it was observed that $26,809 was spent per minute or else 446.81 per second was spent in trying to reduce the drug use

I would implement the policy by first consulting the various parties involved in the enhancement of the policy. The members to consult involve specialized personnel an areas related to drugs. In implementing the policy I would consider various factors which are: preparing the relevant legislative structure to enable the development, to advance policy development and implementation check out for a specific political change in neighboring countries.

The policy should be implemented in comparatively easy topic areas in order to make sure the initial high visibility and achievement and hold up for the policy at the vital early stages. Also, adopt a flexible approach; be prepared to postpone an activity if it needs more time to prepare for it to explain it and to build consensus for it. The implementation team should have a group of respected political figures and national experts to support the policy publically. Mobilize key groups in the society to support the policy e.g. consumer organizations, trade unions and the media.

The team should also shift in opponents position and identify strategies to involve them and eventually waiver them to your side. It should also create constituencies which support the policy both inside the government and outside the government it is   crucial in the policies sustainability.

The implementation of the policy will cost a huge sum of money. It will be financed by the NGO’s and the charity groups. Smoking condone it use. Of marijuana has been related to moral hazards since the community does not condone that. We therefore believe that the people who are strongly advocating for legalization of marijuana should reconsider their position and look at the hazards related to it.

Table of the potential tax revenue that can be obtained from marijuana production by state

State

Tax revenue

1.      California

105,400,000

2.      New York

65,500,000

3.      Florida

48,200,000

4.      Texas

46,600,000

5.      Ohio

34,800,000

6.      Michigan

32,400,000

7.      Illinois

31,600,000

8.      Pennsylnavia

30,500,000

9.      Washington

22,000,000

10.  Virginia

20,900,000

Total Revenue

437,900,000

 

 

References

Caputo, M. & Ostrom, B. (1994), “Potential Tax Revenue from a Regulated Marijuana Market: A Meaningful Revenue Source,” American Journal of Economics and Sociology, 53, 475-490.

Logistics regression

April 19, 2011

I have added new variables to the model, which has reduced the -2 log likelihood by 1313.19 with 8 degrees of freedom. The p value for the result of adding the variables to the model is 0.000 which is less than the conventional significance level of 0.05. Hence we would conclude that the model is statistically significant and different from the no model solution (step 0).

The model correctly classifies 78.2% of the cases correctly.

Variables in the Equation

B S.E. Wald df Sig. Exp(B)
Step 1a Recency -.629 .025 612.423 1 .000 .533
Frequency .046 .005 99.010 1 .000 1.048
Gender(1) -.388 .093 17.234 1 .000 .679
Age -.014 .005 9.154 1 .002 .986
Income_Group .077 .024 10.282 1 .001 1.080
Constant 1.364 .258 27.918 1 .000 3.913
a. Variable(s) entered on step 1: Recency, Frequency, Gender, Age, Income_Group.

The estimated model is:

All the variables included in the model were statistically significant at the 95% significance level. The output can be interpreted as follows: odds ratios are presented in the last column labeled Exp(B).

An increase in the number of days since last purchase by a day reduces the odds ratio (or the likelihood) that a customer will respond by about 0629. A one unit increase in frequency of purchase increases the odds ratio that a customer will respond by 0.046. The odds ratio of gender is 0.986, meaning that female people are0.986 times more likely to respond than male people (the gender variable was coded as 0=male, 1=female). A one unit increase in age reduces the likelihood that a person will respond by 0.014. A unit movement to a higher income group by a customer increases his/her likelihood of responding by 0.077 times. The odds ratio for the constant is 3.913. This means that if all other variables were set to zero, female respondents would be 1.364time more likely to respond to the request.

Conclusion

Statistical findings: The number of days since last purchase, frequency of purchase, gender, age and income group were significantly related to the likelihood that a person will respond to an offer made to customers.

Scope of Inference: I am unable to state whether we can draw inference from this study given that I am not sure whether the 4,482 individuals used in this study were randomly sampled from any identifiable population to which inference may be made.

Financial Management

April 19, 2011

Financial Management

A proposal of an outline for the planet’s constitution.

Preamble

The reasons behind the writing of this constitutional proposal is to insure domestic tranquility, form a more perfect union, promote general welfare, establish justice, provide for the common defense and secure the blessings of liberty to the inhabitants of the country and hence ensure their prosperity.

The Articles

Article1

This article will state the powers of the legislature, the judiciary and the executive in the land which are the three topmost and most crucial government branches. In this case, the government will enact a legislation to budget for the countries resources providing a structure for a wise spending of its revenues among various government requirements.

Article 2: The Senate

This section will give a direction on the election of the overall leader through a democratic process and selection of the people to head the various government departments or ministries. These will be the main policy makers.

Article 4: Bills

These will include all bills for raising revenue by the government as swell as paychecks for any services provided. This will come from the parliament or House of Representatives and will cover the various ways that the government will use to enhance economic growth and development.

Article 5: Powers Granted to Congress

The congress will have several powers over the country’s economy and functioning:

a)            Collection of taxes, imposts, duties and excises, pay debts and approved defense.

b)           Control the making of money by the central bank

c)            Fix standards, weights and measurements of goods as well as their regulation

d)           Ensure the development of the economy through infrastructural development

Article 6: Powers Forbidden to Congress

The congress will not prevent anyone from leaving the country or entering into the country. In this case, nobody will be punished without trial, No direct tax can be levied on any product or service, no money will be taken from the country’s treasury and no person shall be deprived of life, liberty, or property, without due process of law”

Similarly, the takings clause will ensure that no private property shall be taken for public use, without just compensation and no excessive bail or fines.

Article 7: Powers Forbidden to the provinces

No province or administrative unit will issue its own money, charge duties other than which are levied by the government or keep its own military

Article 8: Relations of the States to Each Other

All states shall have full faith and credit to each other in public acts, records and all public and judicial proceedings. They shall always coordinate in upholding the obedience of all the country’s laws hence provide a unified mechanism.

Article 9: National Debts, Supremacy

All debts incurred by the government or owed to others shall be paid according to the agreed terms and conditions

A proposal of a program budget for the activities of the planet level government for its first full year of operation.

A table showing budget distribution among the key sectors of the economy

Sector Budget(000,000K) Sector Budget(000,000K)
Infrastructural development 550,000,000 Health care&medical service 400,000,000
Democracy and governance 200,000,000 Public service 450,000,000
Foreign affairs 100,000,000 Agricultural activities 350,000,000
Mining 300,000,000 Support for the provinces 700,000,000
Defence and national security 250,000,000 Provincial administration 300,000,000
Local governance 500,000,000 Policy direction 250,000,000
Human rights 150,000,000 Common costs 100,000,000
Education 550,000,000 Integral development 50,000,000
Housing and social welfare 100,000,000 TOTAL 5,300,000,000

 

Difference in government spending in major and minor sectors of the economy.

Revenue collection methods

There are various methods that the government could use to raise revenue and therefore fund its various projects and pay for world government activities. In this case, the government will use a number of revenue generation and collection methods to ensure that enough revenue is collected to cater for the governments expenses. The revenue collection methods will vary depending on the convenience of the method used.

 

A table illustrating distribution of resources among various sectors of the economy

These methods will be enshrined in the constitution and will therefore apply to all individuals as the constitution dictates.  Any individual, organization found to be violating the revenue generation rules will be punished according to the constitutional requirements. These methods used will be both direct taxing methods and indirect taxation methods. To start with, the government will impose a value added tax on goods and services basically the value added tax of 15% on all goods sold and consumed in the country. This will be a direct tax and therefore individuals will pay while buying goods and submitted to the relevant authorities

A calculation showing the rate to be imposed and the amount of revenue expected to be generated through direct tax (value added tax)

Let the number of people be X, Value added tax from purchase of consumer products

Every person spends 60% of their income on food, clothing

Therefore, total tax payable will be

X (60/100*200,000K*15/100) =120,000*15/100*X =18,000*X

Tax collected from shelter

12/100*100,000,000,000,000K, =12,000,000,000,000K per annum

This will also be levied on all services provided as will be referred to as service tax or service charge of 12% on all taxes provided. The payment of these taxes will be compulsory; all firms and individuals must comply as constitutionally failure to pay taxes is an offence punishable by the laid down procedures in the constitution.

Imposition of income tax

On the other hand, the government will also charge tax on both an individual’s income as well as earnings from business operations meaning that a certain percentage of all business profits will go to the government as taxes. In this regard, every individual will pay an income tax at the rate of 20% on all taxable income and 25% of all business profits will be directed to the government’s tax department. This will be directly deducted by the employer as a way of increasing efficiency. Any individual or business organization that defaults will be liable to prosecution and (or) a fine not exceeding 500,000K and therefore all individuals must pay this tax.

Tax to be collected through income tax

Let us assume that the working population is Y people, every individual earns 200,000K per annum, therefore: Total income tax payable by individuals:

20/100*200,000K*Y= 40,000KY per annum.

This will also include income raised from businesses as their profits are part of income. These are charged an income tax at the rate of 25% per annum on all their profits.

The total revenue raised from businesses annually is 12% of all businesses, hence:

Revenue from businesses will be: 12/100*300,000,000,000,000K

                                                      =36,000,000,000,000K

Out of these, 5% are profits; therefore the government will get part of this as income tax.

Business profits form 5% of the value of all businesses and therefore the government levies 25% income tax, therefore out of this 25% will go to the government as taxes.

Total profits from business, are: 5/100*36,000,000,000,000K =1,800,000,000,000K

Out of this, 25% will be paid to the government as income tax, hence the income tax payable by all businesses will be:

=25/100* 1,800,000,000,000K =450, 000,000,000K

There are various reasons that justify a good budget and revenue plan and therefore it is on this basis that the author has based his formulation of a suitable revenue and budget plan for the country. To start with, a good revenue and budget plan should be fair on all citizens and business organizations in the country. This is the main idea that guided the author in formulating this budget and revenue proposal and feels that it is the right one for this country and will be adopted by the congress. A good budget and revenue plan should use the resources available efficiently. The government can therefore fund this budget by using the locally available resources.

At the same time, the services and revenues recommended for this planet are appropriate, the author strongly believes that the constitution will be approved that would permit the plans to be implemented. The plan effectively provides all adequate services to the citizenry of the planet including infrastructural development, water, sanitation, health services and education among others. These are the services that every nation requires to succeed and therefore it would be a good plan to adopt. The plan also uses reliable mechanisms to fund the various government projects utilizing the available resources well. As such, this plan gives the planet the ability to continuously carry out their affairs without them being affected by lack of sufficient funding. This keeps all government projects running facilitating economic development.

In conclusion, this plan touches on all the aspects of the economy. Economic development is achieved through a combination of strategies to achieve economic goals and objectives. These include proper infrastructural development, health care system and an effective tax collection and revenue system that facilitate the collection of revenue to fund all the projects. As a result, it will lead to a balanced rate of growth in the government with the provision of all basic requirements being possible leading to economic growth and development. This is one of the critical aspects considered in this plan and hence budget and is therefore a good one for the planet to adopt. The plan also takes care of the interests of all by providing clear legal policy mechanisms to achieve its objectives. In this case, the author strongly believes that this plan would be acceptable to both houses of the legislature and to the general public.

Application of Statistics

April 19, 2011

Abstract

The study sought to determine employees’ perception of teamwork with reference to whether it improves productivity, cohesion, communication, positive competition and innovation within the department. The study will aim at determining if employees perceive teamwork as effective in influencing cohesion, communication, positive competition, productivity and innovation relative to an individual approach to work. A short questionnaire was used to collect data on how employees’ rate the perceived influence of teamwork on the stated aspects of operations within the department. Fourteen employees participated in the study which had an over 80% success rate. The findings show that employees within the finance department in Goldman Sachs perceive teamwork to be influential on productivity, innovation, competition, communication and cohesion. The standard error in the analysis is small showing that a different sample would have yielded similar results. Therefore, it can be concluded that employees within the department perceive teamwork as an influential aspect in the operations of the department

 

 

 

 

 

 

 

 

 

 

 

Background

Goldman Sachs is a renowned company that deals in investment banking, financial services, securities and investment management. The company has been operational for over a century and is considered to be among the best and most active investment bank in the globe. Team approaches are largely used in the company. Team approaches and management are issues in business management that have been explored far and wide (Plauborg 2009). A team in the simplest definition is a group of people working towards a common goal. In this respect, an entire organization with a clearly defined mission can be considered a team. However, teams as used in the study refer to groups that exclude some members of the respective organizations. Teams can be made up of people from within the same department or from different departments.

Analyses of developments in operations within corporate entities reveal a significant increase in the use of team approaches. This increase is mainly a result of increased appreciation of the potential offered by team approaches to improve synergy and productivity by employees. Increased level of competition in the corporate scene has also driven increased appreciation of teamwork (Lavy & Yadin 2010). The potential offered by team approaches in supporting and promoting innovation and creativity in corporate has been noticed and harnessed by many companies.

Though team approaches have been widely adopted by many companies, most appraisal, reward and bonus systems are still at the individual level. In fact, a large proportion of organizational activities including recruitment and firing are at the individual level. Appraisal which forms the basis for determining employees’ potential is at the individual level. Creating a balance between individual and team approaches is a critical success factor in organizational operations. However, most studies on team approaches are cross-sectional and are therefore not specific to organizations. In fact there are few studies on specific organizations that seek to determine employees’ perception of team and individual approaches to operations (Lavy & Yadin 2010). This is in spite of the important role played by employees’ views in shaping the norms, values and beliefs of an organization. Furthermore, the few studies at organizational level focus on entire firms. This does not help capture employees’ views on teamwork.

Problem Statement

The systems and strategies that businesses use affect their operational efficiency and the levels of productivity they can attain. Employees’ perception of teamwork at the departmental level does affect how teamwork is applied to daily operations and its overall influence on the organization. Goldman Sachs’ finance department plays a vital role in supporting its operations and uses both individual and team approaches in operations. The team approaches can either involve workers from within the department or workers from different departments. However, there has so far not been any study to determine employees’ perception of teamwork. The existing studies on employees’ perception of teamwork generally use samples that are from different organizations and can therefore not be applied for a homogeneous population as is the case in the finance department. Additionally, a study within the department would be more accurate in capturing employees’ views of teamwork.

Aim of the Study

The aim of the study is to determine employees’ perception of teamwork with reference to whether it improves productivity, cohesion, communication, positive competition and innovation within the department. The study will aim at determining if employees perceive teamwork as influential on cohesion, communication, positive competition, productivity and innovation relative to an individual approach to work.

Research Objective

The following were the objectives of the set study:

  1. To determine employees’ perception on the role of teamwork in improving departmental productivity.
  2. To determine employees’ perception on the role of teamwork in improving cohesion among employees
  3. To determine employees’ perception on the role of teamwork in improving communication within the department
  4. To determine employees’ perception on the role of teamwork in providing an environment that is supportive of positive competition
  5. To determine employees’ perception on the role of teamwork in promoting innovation within the department

Research Questions

The following research questions helped in exploring the research questions:

  1. What is the employees’ perception on the role of teamwork in improving departmental productivity?
  2. What is the employees’ perception on the role of teamwork in improving cohesion among employees?
  3. What is the employees’ perception on the role of teamwork in improving communication within the department?
  4. What is the employees’ perception on the role of teamwork in providing an environment that is supportive of positive competition?
  5. What is the employees’ perception on the role of teamwork in promoting innovation within the department?

Rationale and Significance

The study is mainly motivated by observations in my workplace. Employees’ generally differ in their views on the suitability of teamwork. Some teams tend to be more efficient than others. These are observations that could have profound effect on employees’ perception of a team approach to operations. Another motivation for carrying out the study is the fact that no study has so far been carried out within the department to determine how team approaches to operations are perceived by employees. In spite of surveys to determine how the department views new strategies and tools, team approaches are yet to be evaluated within the department.

The study findings will help determine employees’ perception of teamwork and the factors that may have led to their development. This is not only important to employees as it will help highlight areas that they feel team input is lacking but may also help the entire department reshape its approach to operations. Another important significance of the study is that it will help in highlighting other aspects relating to teamwork and its perceived importance to the department that could be researched further. In this way, the study will help promote further research into teamwork and its effects on operational efficiency within the department.

Literature Review

Teamwork has been studied widely mainly with the aim of improving how it is implemented in an organizational setting. For effective teamwork, group cooperation is critical. In fact, team literature basically points to the importance of having structures that allow for conscious team development efforts. Team priorities, accountability, operational procedures, cultures and team targets are vital to team performance. These require conscious efforts by organizations to ensure that teams are properly formulated and are operating effectively. This is brought out clearly if the factors that inhibit effective teamwork are considered. Differences in priorities among the team members, confusion, lack of accountability and poor interpersonal skills have been posited as deadly for team performance. There are other organizational factors that may affect the efficacy of team approaches within organizations. High staff turnover and lack of team learning can hinder the development of team chemistry and result in poor team performance. These precursors to poor team performance are affected by the strategies and operational approaches that the teams adopt. Literature on teams within financial organizations reveals that teamwork philosophy held by both team and individual members influenced their work behavior. It is generally advisable that teams adopt integrative teamwork philosophies as they allow for wide discussion, shared importance of team functionality and it supports complex communication (Rassuli & Manzer 2005). There is therefore evidence that team approaches adopted within an organization may be influenced by the strategic or operational strategies used.

Teamwork involves people and collaboration. In general, teamwork creates a platform where individuals combine their different competencies to generate synergies. However, teamwork is a form of strategy and is therefore influenced by how it is perceived by individual team members. Teamwork can only result in greater collaboration if the employees involved appreciate its role and potential in meeting set team and organizational goals. This is supported by strategic management literature which highlights employee resistance and culture clash as some of the impediments to strategic efforts. Resistance and culture clash can occur if employees are not involved or considered in the formulation of strategies and if they perceive the formulated strategies are irrelevant to their individual and organizational goals. Teamwork as a strategy must therefore be formulated and implemented in a manner that considers employees’ views.

There are some issues that are specific to teams and are dependent upon their individual structure and contexts. In general, effective teamwork with respect to effective decision making and discharge planning is supported by consensus, trust, learning culture and good leadership. Formulating teams that lack experience or expertise may limit their efficiency when tasked with activities that require either. Therefore, the formulation of teams may affect their perceived and actual efficiency. On the other hand, open discussions by team members has been shown to result in creative and practical solutions. This is important since actual team performance does influence employees’ perception of teamwork. Structured reflection, commitment to finding solutions and open communication are requirements for teams to adapt to different work requirements and work effectively. Best practices in team management posit that joint goal setting helps improve team members’ appreciation of the mission of the teams and how they relate to their personal goals as professionals and organizational objectives (Lavy & Yadin 2010).

Introduction of team based work systems is in most cases aimed at improving effectiveness, innovation and creativity within organizations. This is the main reason why organizational psychology has by large been preoccupied with identification of team factors that promote innovation and creativity among employees. Nearly all models on team performance assert that team output is affected by input and team processes. In fact, a variety of input into the teams affects their internal processes which in turn influence their performance or output (Rassuli & Manzer 2005). This effectively implies that input into the teams by not only the firms but also individual team members and other employees can significantly influence the levels of performance that they attain. However, though the relationship between process factors and team innovation is clear, little is known of the input factors that may influence team innovation.

Creativity and innovation are two highly related concepts. Innovation is vital for it leads to not only the generation of new ideas but also new approaches to working. Innovative organizations and teams are therefore more likely to come up with new services and develop better approaches to improving their output. Innovation requires structured efforts to create an environment that is supportive of innovation. Teamwork is often considered suitable to improving and supporting innovation within an organization. This is mainly because effective teamwork results in greater sharing of knowledge and information, research and collaboration which may give rise to new ideas. However, this is only possible if the team approaches have been designed and implemented in a manner that allows for effective communication and sharing among the members. Individuals are also important to innovation. In as much as teams help support and develop ideas into innovations, individual work can be more sobering and minimizes diversions caused by variant views as is the case in teamwork (Plauborg 2009). Teams that support innovation must therefore be able to create a balance between support for individuals and sharing. Individuals should be able to think independently and also as members of a team. This often requires great appreciation of teamwork’s role in innovation and the inclusion of elaborate team training and management strategies. Thus, the importance and role of employees’ appreciation of teamwork and its role in improving organizational performance, innovation and communication is once again brought to the fore.

There are different climates that organizations can create with the aim of supporting innovation. Generally it is essential that organizations endeavor to create environments that display all the elements required to support innovation. It is fundamental that teams and organizations have well-defined, shared, valued and attainable vision to support innovation. A common and valued vision is necessary for employees to appreciate the need for combined or team approach to operations. Furthermore, the vision in this case may help in focusing expertise and efforts by different team members to a common cause. The other important consideration is developing an environment that can be perceived as non-threatening and safe for members to present ideas. This consideration emphasizes the nature of the operational environment and the expectations placed on the employees. An environment that allows for calculated risk taking and presentation of new ideas is developed via efforts by different departments to support innovation and improve communication. Shared concern for quality and improvement of various aspects of operations such as control, appraisal and appraisal is an important requirement for innovation (Lavy & Yadin 2010). The other important characteristic of an environment that is supportive of innovation is approval and support for attempts to improve and introduce new ideas. Management support for innovation is essential in this case. These requirements show that innovation via team approaches require appreciation and support from the management, employees and other organizational structures.

Studies on team dynamics are vital in bringing out the importance of employees appreciation of team approaches (Plauborg 2009). Team orientation which is team tasks and attitudes that members have towards one another may affect their cohesion and performance. Team orientation is a reflection of the team norms and importance attached to team membership. It is noteworthy that in a properly constituted team, each member plays an important role and must therefore be appreciated by other team members. Team leadership is also essential for the success of teams as it help provide coordination and direction (Su 2007). Leadership in this context does not mean authority rather it refers to initiative. Each member has to show the initiative to pursue and attain the set team goals. Monitoring, feedback, back up behavior, coordination and communication are the other variables that are critical for success in team approaches. A critical review of these variables shows that they are all dependent on the appreciation of teamwork by employees. If employees do not appreciate teamwork they will fail to take initiative, communicate poorly, fail to coordinate with other members and generally participate poorly in teams work. Thus understanding employees’ perception of teamwork within a given setting is important in creating greater awareness of teamwork potential. Thus, the literature review sufficiently highlights and supports the rationale for carrying out the study and potential of the study in improving teamwork in the selected department.

Methodology

The methodology used in the study influences the validity and reliability of the results. It is for this reason that considerable efforts and time were channeled to the formulation and execution of the methodology. The research design that was used in the study was primarily influenced by the nature of the research problem. It is important to note that there has so far not been any study aimed at determining how employees in Goldman Sachs perceive the use of teams. Therefore, the nature of the problem is not permissive of designs that require secondary data. A quantitative research design was adopted in the study. It is noteworthy that the study basically focuses on measuring employees’ perception of teamwork’s’ role in improving some of the common predictors to value generation. A quantitative research design is therefore well suited in light of the nature of the problem.

Data Collection

The population in the study is defined as employees who work within the finance department at Goldman Sachs. Since the population is relatively small, the study sought to maximize the sample size. The aim in data collection was to not only ensure accuracy and reliability but also maximization of the number of department members that engage in the study. The first step in data collection was designing a questionnaire that was the primary tool for data collection. In designing the questionnaire special emphasis was awarded to the length. This is because the finance department is notoriously busy and therefore using long questionnaire would introduce risks of low response and inaccurate responses. Next, the employees were informed of the intended study via the department board. The last step in the study was provision of questionnaires that were to be filled and returned within a period of one week. The one week period is aimed at ensuring that the employees have ample time to accurately fill in the questionnaires.

Data Analysis

Analysis in the study was mainly at the descriptive level. Simple data analysis packs were used to aid analysis of the data. Graphs were also used to compare scores on employees’ perception of teamwork’s role in improving various aspects of the departments’ operations. Averages and standard deviations were also used to measure central tendency and variation respectively. Proportions were also used in relaying the results.

Ethical Considerations

The main ethical considerations in the study were seeking permission from the departmental head to carry out the study and seeking employees’ permission and consent. It is noteworthy that before commencement of the study, the departmental head was personally requested to permit the study. In the request, the aim of the study and the methods that will be used were highlighted. Employees were explicitly reminded in the notice for the study and in the questionnaire that their participation will be out of their own volition. This is a measure that is aimed at ensuring that participants are not coerced or forced to participate in the study (Vogt 2007). Lastly, no tabs on employees’ names were kept when collecting and analyzing data. This is a measure that is aimed at ensuring that participants’ confidentiality and privacy is maintained and therefore minimizing the risk of being vindicated due to their participation in the study. This is an aspect that was highlighted in the notice and in the questionnaire.

Limitations

The main limitation of the study is that the results cannot be generalized for other institutions and departments. The level of homogeneity within the department limits the accuracy and reliability in generalizing the results to other contexts. This is because there could be departmental factors that influence the results that are not present in other departments.

Statistical Findings

Fourteen employees participated in the study. This is representative of over 80% of the employees within the department. The high response rate is important for it significantly improves the generalisability of the sample findings to the population. The results on productivity show that in general the employees perceive teamwork to be influential on productivity. Figure 1 shows that only two employees rated the influence of teamwork on productivity below three. This implies that over 85% of the participants in the study perceive teamwork as influential on productivity within the department.

Figure 1

The findings on employees’ perception of the role of teamwork on cohesion show that only two employees perceive teamwork influence to be below three (Figure 2). This implies that at least 85% of the participants think that teamwork influences cohesion among employees in the department.

 

Figure 2

All participants in the study perceived teamwork as vital to communication within the department (Figure 3). All employees rate the influence of teamwork between three and five with only three employees rating it three.

 

Figure 3

 

When compared to other aspects of operations, teamwork would appear to have the least influence on positive competition among employees as per the results in figure 4. The figure shows that only four participants rate the influence of teamwork on positive commmunication at four and above. Most participants rate its effects at three and below.

 

 

Figure 4

 

Figure 5

Figure five shows that teamwork is perceived to be influential on innovation within the department. The figure shows that only two employees rate the effect of teamwork on innovation below three. This implies that over 85% of the participants perceive teamwork to be influential on innovation within the department.

 

 

Table 1

 

Table 1 presents a summary of major findings from the study. The findings show that the mean values range in [3, 4.07]. This implies that in general employees within the finance department generally perceive teamwork to be influential on all surveyed aspects. The standard error in all categories tested is less than 0.32 and therefore the variations in sample findings are negligible. The standard deviations in the observations are generally less than 1.2 (Table 1). The actual variations in the observations are large for instance there are some cases where the range is 4. This is the highest possible value for the range and represents completely different views by two participants on the role of teamwork. However, the relatively small value for the standard deviation implies that employees’ views on the role of teamwork in the aspects tested is relatively uniform with few polarized views. Though generally employees within the department perceive teamwork as influential on communication, innovation, productivity, positive competition and cohesion among employees, there are some that have different views.

Table 2

 

Table 2 presents the results of a linear regression analysis where productivity is assumed to be influenced by the variables cohesion, communication, competition and innovation. The constant is positive 8.2. This would imply that use of teamwork in the organization results in increased productivity even without considering other independent variables. However, innovation, communication and cohesion as per the results in table 2 have a negative relationship with productivity within the department. On the other hand, positive competition has a positive relationship with team productivity. The most important implication of the findings is that team work has the potential to improve productivity without considering other variables. However, in practice there are several variables that influence productivity attained through teamwork. From the findings it is however evident that the level of cohesion, communication and innovation attained through teamwork is not perceived by the participants to be influential on productivity.

Inference

The findings are significant and in line with existing theories and empirical studies on teamwork. However, the clear variations in the mean scores in different categories shows employees’ perceive the role of teamwork in the different categories differently within the department. The role of teamwork in positive competition within the department records the lowest average with incidentally the lowest standard deviation. The department has to look for factors that are responsible for the relative low rating of the role of teamwork in improving positive competition. A possible explanation is that the team sessions are poorly coordinated and are hindered by negative competition by the team members. Another possible explanation could be poor competition within the department. Further studies focusing on employees that perceive teamwork to have limited effect on positive competition should be carried out to determine why they have taken that position.

Scope of Inference

The study findings however show that past findings on the effects of teamwork on productivity, innovation, communication and cohesion at the organizational level can apply at the departmental level. However, this should not be assumed to hold for all departments since the study only surveyed one department. The study findings can only be inferred for the department. This is because the sample includes employees from the department and the questions used make reference to teamwork within the department. Generalization of the findings to other settings will result in loss of validity and reliability since the findings are specific to the department.

Conclusion and Recommendations

The major finding in the study is that employees within the finance department in Goldman Sachs perceive teamwork to be influential on productivity, innovation, competition, communication and cohesion. The standard error in the analysis is small showing that a different sample would have yielded similar results. Therefore, it can be concluded that employees within the department perceive teamwork as an influential aspect in the operations of the department. The study therefore shows greater appreciation and awareness of teamwork within the department. This is considered important when utilizing teamwork as this appreciation is vital in developing and improving internal team structures.

The findings in the study cannot be generalized for other departments. There is need for other departmental level studies to determine if the findings can be replicated. At the policy level, there is need to determine why some employees perceive teamwork as minimally impacting on positive competition. This can also be extended to other aspects for instance innovation and communication so as to determine avenues for improvement. Though the study shows that the finance department has great appreciation of the role of teamwork in its operations there is still room for improvement.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Questionnaire

Questionnaire Code _______________________

This questionnaire is designed for Finance department employees in Goldman Sachs. The aim of the study is to determine employees’ perception of teamwork. The only requirement in the study is to fill the questionnaire. Do not include your name anywhere in the questionnaire.

Questions

  1. Have you ever been involved in any team?

Yes                  No

  1. On a scale of one to five where 5 represents high contribution and 1 represents lowest contribution, what do you perceive as teamwork’s contribution to the following aspects within the department?

Aspect

Productivity

Cohesion among employees

Communication within the Department

Supporting positive competition

Promoting Innovation

Contribution

Thanks for your participation

 

 

 

References

Lavy, I & Yadin, A 2010, ‘Team-Based Peer Review as a Form of Formative Assessment – The Case of a Systems Analysis and Design Workshop’, Journal of Information Systems Education, vol. 21, no. 1, pp. 85-98

Plauborg, H 2009, ‘Opportunities and Limitations for Learning within Teachers’ Collaboration in Teams: Perspectives from Action Learning’, Action Learning: Research and Practice, vol. 6, no. 1, pp. 25-34

Rassuli, A & Manzer, JP 2005, ‘“Teach Us to Learn”: Multivariate Analysis of Perception of Success in Team Learning’, Journal of Education for Business, vol. 81, no. 1 pp. 1-21

Su, AY 2007, ‘The Impact Of Individual Ability, Favorable Team Member Scores, And Student Perception Of Course Importance On Student Preference Of Team-Based Learning And Grading Methods’, Adolescence, vol. 42, no. 168, pp. 805-826

Vogt, PW 2007, Quantitative research methods for professionals, Pearson/Allyn and Bacon, London

Carrefour Entry in United Arab Emirates Market

April 15, 2011

Table of Contents
Abstract    2
Introduction    3
SLEPT Factors    4
Micro-environment Competition    8
SWOT Analysis    9
SMART Development Objectives    11
Entry Mode Strategy    11
Marketing Mix    13
Product Strategies    13
Pricing    14
Place    15
Promotion    16
Evaluation    16
Conclusion    18
References    19

Abstract
The paper makes an analysis of the entry of Carrefour into the UAE retail market. Analysis on the growth rate and success of the company is carried out. As it is evident, the company has experience in internationalisation and has been making good profits and revenues that have provided it with stable income. The company is also able to enjoy political and economic support from the domestic as well as the intended host nation. The paper has noted that it is the favourable economic, political, market factors that have made it possible for Carrefour to succeed in the retail sector. Moreover, three of its competitors—Lulu Hypermarkets, EMKE Group and Fathima Group—have been analysed to evaluate the competitive nature of the market. In the end, it has been proposed that Carrefour makes use of joint venture with Majid Al Futtaim in order to give this retailer a competitive advantage, reduce the risks in entry and enjoy Majid Al Futtaim’s experience of the market. A marketing mix has also been evaluated for Carrefour in which the 4P’s have been utilised. The paper has then concluded that there are challenges that Carrefour will face in the UAE—difficult visa requirements, inflation, competition from international hypermarkets, possible political interference from Iran, Iraq and terrorism.

Introduction
Carrefour is one of the largest retailers in Europe that deals with hypermarkets and discount stores globally. The company has its headquarters in Paris, France. The company started in France in 1959 and opened its first supermarket in 1960. The first major changes and expansions which that it went through were between the 70s and the 80s, a period that saw the stocks of the company being floated in 1970 in the Paris bourse. It was in 1972 when the first Carrefour stores opened in the UK. The company also launched its own magazine, The Carrefour Journal in 1980 as a marketing strategy to get in touch with their customers. Later in 1984, they formed the Assurance Carrefour which gives insurance policies to customers. More diversification happened in the 90s when in 1990, the company launched the express for quick oil changes and in 1993, the launching of the Carrefour car service. It was the merger with Promodes in 2000 which helped Carrefour to enter the domestic market by enabling the company to have control of over 6,000 supermarkets, hypermarkets and convenience stores. This was the decade that saw the company diversify in products and services and gain a big international market.
The company has grown steadily since the last decade with big acquisitions and partnerships with other businesses, which have given it the ability to grow and get a competitive advantage. With the famous 2001 take-over of Notre in Argentina, the largest food retailer in that country, Carrefour gained a large market share of the South American market. Later in 2003, the company acquired two Italian hypermarkets which consequently increased its market share to 100%.
Carrefour offers groceries and consumer goods at the retail level in three formats; these are hypermarkets, supermarkets and discount stores. Apart from these channels of distribution, the company also uses convenience stores, foodservice stores and online virtual markets. It has over 6,550 stores in the whole world, with over 794 hypermarkets, 1490 supermarkets and over 3990 discount stores. Apart from the consumer goods and groceries, the company also has brands like firstline, destination saveurs, produit Carrefour, topbike, filiere qualite Carrefour, reflets de france, GB bio and Carrefour Bio.
Since it establishment, the company has been recording profit more so in the last decade, beginning with revenues as high as €72.7 billion in the fiscal year which ended in 2004. It has been on a steady increase economically since 2003 at a rate of 3.1% annually. The company currently employs more than 495,000 employees, showing its growth capacity. They recorded revenue of €88,225.2 million in the fiscal year that ended 2008, which was an increase of about 5.9% from the year 2007. During the same fiscal year, they recorded a profit of €2, 775.9 million, and a decrease of 16.8% from that of 2007. The revenues for the fiscal year ended 2009 were at $85,963 million, which was a decrease of 1.2% as compared to the revenues of 2008, a fact attributed to the effects of recession. By 2009 the operating profit of the company had reached $1,705 million.
Based on the above analysis, the company has the financial and technical capability to expand and grow. For the company to enter the UAE market, it needs to consider internationalisation factors and look at the market they intend to enter. This is because despite the wide experience they have in international markets, the UAE market is unique and different. For this reason, an international market entry mode that is designed for UAE will be developed. The aim is to give the company a competitive advantage within the UAE which already has domestic and international businesses that specialise in the groceries and domestic products market.
SLEPT Factors
This report shall make use of the SLEPT factors before making any business or marketing plans for entry in the UAE. These factors shall help in the evaluation of the external environment which details the influences on the business the social, legal, economic, political and technological factors have (Robin & Gillies 1996).
Looking at the social environment, the company must face customer preference determined by social factors (Foley 1999). Currently in the European and the international markets, the retail industry is facing a market that demands for branded goods and quality products. For this reason, there is an increase in demand for the retail stores to offer customised products and services to consumers. At the same time, the consumer prefers to shop in a one-stop shop where they can fuel, bank, eat out, do laundry, see a chemist and do the grocery shopping. For this reason, hypermarkets are in demand. At the same time, more and more customers from the East and Arab countries are increasingly doing their shopping from retail stores and especially malls.
There is change in the fashion world in which the domestic customers would prefer shopping in their neighbourhood market and finding quality and good services (Jenster and Hussey 2001). In the grocery arena, the consumers are increasingly demanding fresh and whole products straight from the farm. With the increased awareness on health, more people are demanding for whole healthy foods with the ingredients label showing the amount of calories and nutritional value. Such factors are seen not only in the Western markets but also the Eastern markets too.
At the same time, there is an increase in the size of the population; this means that the overall market segment will increase in size for the retail sector. The UAE society is increasingly encouraging women to work and contribute to the income of the family. For this reason, more women have seen an increase in their economic and financial position. Since it is mostly women who do domestic shopping, this provides a good target market for Carrefour.
The legal climate is continually changing around the world. For this reason, the company is experiencing and will continue experiencing diverse legal issues in all its markets (Jenster & Hussey 2001). The first aspect is that the company’s retail stores found in the European region are under the European Union and are covered by the trade agreements given by this union. These rules and laws are only applicable within those countries that signed the European treaty. However for countries that are not in the European region, they have to deal with the local laws and regulations. The company also has to consider the diversity of the Western and Eastern legal systems. As they try to enter the UAE, they will face a legal system that is different from that of the Western world. This is because the UAE is a region that is increasingly encouraging trade, and for this reason some red tape has become lax. However, it is a system that is still under the influence of the UAE monarch and Muslim religion. These laws require businesses to respect the customers, to follow certain religious days, festivals and employment laws that prevent women from working at night and for more than eight hours in a day. The same law also requires employers to give health and safety measures for the employees. For this reason, women employed must be given maternity leave with pay for three months.
The economic factors at play currently for this company are the effects of the global recession. The reason for its consideration is because the economy affects the social factors and consequently, consumer behaviour (Robin & Gillies 1996). The economy will affect how the market fluctuates, booms and slumps. First of all, the recession affected the interest rates in the whole world. The credit companies pulled out their financing while those that did finance had high interest rates. The cost of production, and consequently the prices of every good and service, increased. In the long run, many companies have been forced to cut back through mass termination of employees and pay reduction. This was the situation of the world market in the late 2008, 2009 and 2010.
Though the economy is slowly improving, many domestic customers are still tightening the belts. This is because unemployment in many countries is still high, and the income for many households has reduced. In the process, the prices of crude oil, prices of daily commodities and groceries have gone up due to inflation. It is never advisable for any business to expand when the interest rates are high or when the demand for goods and services is low.
For the case of Carrefour, the market is currently recovering slowly, with many countries trying to bail out their core industries. In the process, many households prefer to spend money on the basic items like food and drinks. It is for this reason that Carrefour still has recorded profit during the recession period. Therefore, there is still a market demand for foods, drinks and all groceries in the retail industry in any part of the world. They need to completely take into consideration market forces influence by the economy (Foley 1999).
Looking at the eastern market, the UAE still has a stable economy; for this reason, the consumer spending power is not reduced. Furthermore, with more women working too, there is a big market share for the grocery retail industry. The UAE is presenting a flourishing economy for the retail industry. The economy provides the best business friendly environment.
The political factors affecting Carrefour are still diverse; this is because the company has many retail stores in various countries around the world. For example, they are under the influence of the policies and laws set up by the European Union in the EU region countries in which they operate in. They will also experience different policies and legal changes in the UAE due to the political system. The UAE market has a monarch that has influenced the decision to make Dubai a free trade zone. The region offers the best place for business with various advantages like zero corporate taxes and few trade barriers. The government has made sure that their transportation system is good, making it the most superior in the region. It has been characterised by low political risks, few transfer risks, and strong economic growth as it is ruled by a monarch.
There is diverse change in technology that is affecting the retail sector too (Root 1994). For example, the use of the internet to market and sell goods and services is on the rise in today’s market. For this reason, many international and domestic retail stores have to open up a website to interact with their customers. Toward this stride, Carrefour also has a website that showcases their stores, products and services and their social responsibility. On the other hand, there is an increased use of electronic equipment and telecommunication which has improved and eased international business. The company is able to share information with its various branches and offices through the internet, the telephone, video conferencing and satellite phones.
Therefore for Carrefour to be established in the UAE market, they need to take those factors into consideration. They will need to look at their present external environment as elements that may prevent the UAE market from accepting them. They also need to make use of the information pertaining to the UAE market in order to produce the best business strategy (Root 1994).
Micro-environment Competition
In the UAE market, there are several retail stores that will give Carrefour a fair competition. Some of the domestic retail stores, hypermarkets and supermarkets which Carrefour will compete with in the UAE are Lifco Group of Companies, Lulu Hypermarket of EMKE Group, and Fathima Group of Companies. They therefore need to analyse their competitors in order to come up with a strategy that will give them a competitive edge (Hitt 2009).
Lulu Hypermarket is a retail market that was opened by the EMKE Group within the Middle East region. The Lulu Main Hypermarket was opened in Abu Dhabi. Currently, the UAE economy has shown such robust growth that the hypermarket has opened its 88th Hypermarket in Baniyas. At present, the retail sector in UAE is seeing aggressive expansion efforts by the market leaders like EMKE Group. The hypermarket sells groceries, food, drinks and domestic products. They also have a wide range of brands like the IKON products which encompasses hi-tech gadgets and home appliances. Another brand is the Lulu products which are comprised of food and non-food products that have been manufactured by international companies.
The Fathima Group, which began in the70s in Abu Dhabi, has a wide range of services and products. It makes use of several distribution channels like retail outlets, hypermarket, supermarket, wholesale and distribution centres, cold stores and restaurants. They sell a wide range of products like holidays and tours, construction, perfumes and cosmetics, technological and electronic equipment, bakery.
SWOT Analysis
Strengths
•    The largest hypermarket in terms of its size.
•    It has currently the second highest revenues in the retail sector after Wal-Mart, showing a good market segment.
•    Currently, the retail store is the third in the world in terms of profit after Tesco and Wal-Mart. This gives them the resources for expansion and shows they have a good market share.
•    Its joint venture in different countries has given it experience in international expansion and has increased its market share.
•    It has a network of grocery, discount and convenient cash and carry stores and supermarkets and hypermarkets.
•    It has a wide range of products, services and has several brands.
•    It operates in 31 countries of the world and has the strongest brand in the retail sector.
Weaknesses
•    It has a very weak position in the Middle East and the Asian markets.
•    It has high operating expenses.
•    It has poor labour relations with the employees and unions.
•    It has spent too many resources in the expansion efforts.
•    Their own brands have a weak market segment.
•    They have a poor e-commerce strategy.
Opportunities
•    The many joint ventures and acquisitions which the company has engaged in provide room for expansion and diversification.
•    They have been able to develop their discount stores effectively.
•    They also have been able to reduce their operating costs in the recent years.
•    They are in the process of improving their labour relations.
•    They are making use of research and development in marketing.
Threats
•    They are receiving stiff competition from other retailers like Wal-Mart, Tesco and Sears in the international scene, and EMKE and Fathima Groups in the UAE.
•    They are being threatened by the low prices that Wal-Mart is able to give the markets.
•    There are new players within the retail sector, e.g., Lulu Markets in UAE.
•    They are facing the challenges of operating in the Asian and Middle East markets that have become too dynamic for the company.

SMART Development Objectives
The report should be able to:
•    Provide vital information that will help Carrefour to create effective business and competitor intelligence strategies.
•    Create a business strategy that will reflect corporate culture that will help Carrefour enter the UAE market.
•    Create a market research that will help Carrefour realise their market segment and base entry strategies on this market.
•    Create the best marketing mix that will give the business a competitive advantage in the retail industry in the UAE.
•    Provide unique and quality domestic products.
•    Provide the best foods that depict high quality to the UAE market.
•    Give customers affordable prices for the domestic goods.
Entry Mode Strategy
During the entry process, there are several factors that Carrefour needs to consider; first, Carrefour must consider a dynamic mode for the entry which will help them get a competitive advantage in the UAE Market (Anderson & Coughlan 1987). There are many models that are used in the internationalisation process; one of these is the process models. Eriksson et al., (1997) opines that these models give experiential knowledge that determines the cost of entry. This means that Carrefour must take into consideration the cost of market research, policies and laws, product design and strategies, location, advertisement and setting up to be incurred (Autio et al. 2000). The costs of setting up the retail business and running it in the UAE are vital for it has a direct effect on the profit that will be made. They will consider the managerial costs that entail the travel, salaries, start up costs to rent the offices and premises. They will have to consider the training costs of their new staff which will be hired from the UAE market in order to meet Carrefour standards. It is vital that the staff employ personnel from the domestic market rather than exclusively from France in order to reduce the cost. The company is advised to rent rather than acquire property to reduce the initial operating cost.
Carrefour will also need to get experiential knowledge about their potential customers and their market through the market segment, positioning and targeting. From this they will learn that currently the demographic population of UAE is increasing therefore providing a flourishing retail market. Carrefour needs institutional knowledge from the local laws, governments and culture policies that impact the setting up of business (Autio et al. 2000). It was noted in the SLEPT section that the UAE economic, policy, legal and political environments are encouraging investors and therefore they will receive little resistance.
Carrefour has the advantage of having ventured into other international markets; therefore many nationals in the UAE are familiar with the brands (Cunningham 1986). In addition, the company has seen several years of improved profits that can be used in the expansion process. Therefore, their entry time is now when they have the resources and finances.
Following this analysis, it is noted that there are many entry modes that they can use (Root 1994). Some of these entry modes are internet, strategic alliances, licensing, overseas manufacture, international agents & distributors, joint ventures, exporting and international sales subsidiaries (Korey 1986). Among these, those that the retailer can use are joint ventures and strategic alliances. Under the strategic alliances option, Carrefour can make use of marketing agreements, distribution alliances, and research and development arrangements and shared manufacturing (Root 1994).
For the case of Carrefour, this report will recommend the use of joint ventures to enter this market. This is because this will offer it a chance to minimise the risks during the entry and start up period (Robinson 1984). This is because the joint venture partner chosen must be experienced enough to offer the company growth and improved operations within the region.
One of the retailers Carrefour can use in the joint venture is Majid Al Futtaim, which is a conglomerate with many years of experience in the UAE market. This will require Carrefour to acclimatise its market to the UAE market through adapting their foods to the sociocultural norms of the market. The target would be to also promote the non-food items to increase the profit margins. This is because organisations and businesses are advised to take advantage of such alliances as they venture into an international market since they offer many advantages. The benefits for the retail business include the increased ability to tap into the market, get endorsements from respectable incumbents, get access to economies of scale, get complementary resources in the undervalued chain activities and be able to react to environmental uncertainties (Poutziouris, Smyrnios & Klein, 2007).
Marketing Mix
This section will look at the best marketing mix for Carrefour that will make use of the 4P’s of marketing for products. This section will make use of concepts that have been proposed by several literatures and will be applied to the case of Carrefour. These include Korey (1986), Mohammed (2006), Zahra, Ireland, and Hitt (2000), Ferrell and Hartline (2010), Cunningham (1986).
Product Strategies
The products offered by Carrefour Hypermarket are groceries, manufactured foods and drinks, clothing, shoes, home appliances, kitchen ware, bakery, restaurant food, plastic goods, garden equipment and any household item. Within the UAE market, the largest retail market is the Dubai market because of the many expatriates and foreign workers. These will offer the hypermarket the target consumers for their western style products that already have experienced with their products and the store in general. However, they will also need to tailor their products to meet the needs of the increasingly Arab population. This is because the UAE is still the business hub for the Middle East, and for this reason there are still many Arab nationals from various countries in UAE. This means that the store will have to make their products reflect the tastes and preference of their Arab nationals. This means that within the food section, they need to establish counters that are ‘halal’.
Their merchandise has to meet the Arab culture where they should not sell halal food that is lacked in pork. Their butcher should also be acceptable for their meat products to be halal. This also implies that their kitchen and restaurants should also be halal.
They also need to adapt to the seasonal times of the culture, like the yearly summer vacations to escape the heat as such seasons turn to very low sales with almost near closures. They also need to recognise the existence of the Islamic religious and cultural holidays and festivals like Eid, Ramadan that will give them big sales. These periods offer the retail business increased demand for goods and services therefore they need to factor in a need for increased supply and workforce during the peak seasons. This is done not to disappoint their customers who are out to celebrate during their religious feasts. The retail store should also consider their working hours and days of the week to reflect the Islamic time. In this, the working week is from Sunday to Thursday with Friday being the religious day and Saturday being a weekend.
The retailer should also be aware of the effects the banking and insurance systems in the market operate. With a diverse market they should also make accommodations for foreign credit cards and currencies. They need to take into consideration the diversity of the UAE market in terms of all the nationalities and cultures in the region.
Pricing
Pricing can offer the retailer a good promotional tool. They can make use of the discount prices to attract customers. They have a strong brand name therefore they do not need to worry that their brands will be diluted. They need to remember that the food market in the UAE is very competitive therefore their pricing should reflect quality, standard as well as affordability.
Place
The strategy for this business would be to use cultural business of shopping malls. The concept is that the UAE market prefers the shopping mall concept therefore Carrefour should go with the shopping mall theme in which cinemas, food courts, entertainment units, and all amenities which are found less than one roof. This is different from the convectional Carrefour theme of freestanding warehouse building.
Due to the harsh climates and the culture within the UAE region, Carrefour has to make use of these in order to adapt to the market. Within this community, the climate can be too harsh that the only entertainment is going to the mall to cool off and get entertained. On the other hand, the culture requires that families to socialise a lot. For this reason, malls serves this purpose since it is a place of entertainment for the whole family. On other hand, the culture presents a theme where the men are working in the upper floors while the women and children are in the lower floors. In addition, during weekends it is common to find large families getting into the malls eating in the restaurant, resting in the hotels, walking or shopping. The Arabs are also cultured to get high quality goods under one roof. It is for these reasons that Carrefour needs to select a building where they can offer their services and products. They can do so by taking up a space in one of the many malls in Abu Dhabi, Dubai, and Al Mamzar.
They should also take advantage of these malls because they will receive bigger volumes of customers who will walk into their doors. In fact, the Arabs have been able to build spacious malls that can give ample space to stores like Carrefour to operate in. In addition, if they are to get into a joint venture with Majid Al Futtaim, they can take advantage of the large space which the retailer already has. For this reason they can make use of the Deira City Mall in Dubai.
Promotion
As promotion is concerned, the best approach will be to get into the joint venture with Majid Al Futtaim which will provide it with the knowledge necessary to market in UAE. Majid Al Futtaim, through its experience, can handle some of their promotions, and coordinate some of the stores and local operations. Promotions can take advantage of the media like print, television, radio, billboards and the internet. The print and billboards are to be set up in strategic places to attract pedestrians and traffic. The television and radio advertisement should be done at primetime or at family meal times in order to gain the attention of the domestic market.
Since the region has one of the highest costs of living, like the costs in Dubai, due to the influx of people and the foreigners, promotional concept can make use of discount prices to attract customers.
Evaluation
From the report, it is wise that Carrefour chooses Majid Al Futtaim because it has proven to have the ability to expand and grow within the Middle East. This will also prevent the retailer from competing directly with Majid Al Futtaim in the same region of malls. The joint venture with Majid Al Futtaim would ensure the success of Carrefour in the UAE market. This is because it will be considered not as foreign and but as part of the Arab culture and life. There is a need for sufficient parking and traffic control around the mall especially during the weekends when the influx of customer is high.
The Dubai Market has been facing challenges, like competition that is continuously increasing. This is seen more in the food market segment that has effectively reduced the profit margins for retailers. Though domestic competitors like Wal-Mart and Costco are absent in the Middle East, there are other European hypermarkets that are strategically entering this market. For example, Union Coop opened a hypermarket in Dubai in 2006. Another hypermarket which entered the UAE was Geant. In addition to this, small and neighbourhood stores are stealing customers, like the Asians who put up and go to these shops.
The other challenge is inflation; this is seen from the rapid growth, high liquidity, demand, poor supply, and the declining US dollar. Inflation usually reduces revenues and raises the costs of inventory and employment. The decline of the dollar against other currencies has the ability to lower revenues when they are repatriated to foreign countries.
The other challenge is that the UAE government has implemented very difficult visa regulations that are seen to prevent the influx of persons into the region. In effect, this move changes the labour market. This is because it is becoming increasingly more difficult to attract Asians and Westerners as skilled labour.
On the other hand, the country is not completely an island, for this reason it is feared that they will be affected by the politics of Iran and Iraq. In addition, the concept of terrorism is an every day increasing fear within the Middle East, with wars being fought in Iraq, Afghanistan, and Iran over the same matter. From a different point of view, the dependence of Dubai on foreign investment and international tourism increases their chance of being affected by world economy. It is for this reason that the world saw the Emirate being vulnerable to the global economic downturns that affected western nations. However, places within the Emirates like Abu Dhabi were not affected by the recession. The recession and the subsequent credit crunch had a negative effect on the oil prices. UAE’s non-oil GDP growth slowed down from 8.8% in 2008 to 7.1% in 2009.

Conclusion
To compete in the UAE market, Carrefour and Majid Al Futtaim should take courses of action. These will improve the competitive advantages of Carrefour and it will also give them a market positioning that will drive their sales. They need to handle the inconveniences to shop at the Carrefour for a shopping experience as customers consider traffic and transportation inconveniences. They need to make sure they have ample facilities and amenities for the customer, like sufficient parking, taxis and management of traffic mostly during the weekends and holidays. They can take advantage of the market segment, positioning, segmentation and targeting. Moreover, they need to make use of the marketing mix. This is to make sure that customers associate Carrefour with cost effectiveness, affordability and savings in tough economic times. This will help it sustain performance notwithstanding economic downturns. It has been pointed here that the supermarket takes into consideration the sociocultural aspects of the market that they are targeting. This is considering that the Arabs have strong cultural ties.

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Finals

April 11, 2011

 

The innovator whom I shall engage in my interview is a managing Director of Transformational bank. He managed to invent a mobile phone technology that is able to help clients make inquiries about their eligibility to get loans in the bank without themselves going to the bank.

Interview is a method of data collection; it is administered through different oral ways for instance face to face conversation, telephone or videoconferencing.  In my case, I employed face to face/one-on-one conversation where I asked the manager questions which he responded to me. Before the interview I had to make some preparations. For instance I booked an appointment with his secretary. The secretary gave me an appointment day after consulting with the manager. On the appointment day, I went to carry out the interview with my instruments of data collections including notebook and a tape recorder which I was to use in my data recording.  The session was good as we interacted well with the manager. First, I tried to establish a good environment by introducing myself and what my objective of the interview was. I requested the manager if he would allow me to use a recording device in the interview because it was unethical to use a tape recorder without his consent. He allowed me and after a short introduction we began the interview. When the interview session was over I took an initiative and thanked the manager for his time and patience. We shook our hands as I left the interview room with the information that I was to go and analyze which is discussed in the essay.

Business opportunities are always present but in most of the occasions we are not able o identify these opportunity because of our failure to pay attention to smaller details (Vissa, 2010, p40). As an entrepreneur there is need to take every opportunity that presents itself in order to make good of it.

For instance, in the information and communication sector, there are many business opportunities bearing in mind the fact that many operations and transactions are being carried out through computers. This field has opened up many opportunities for entrepreneurs who can come up with an invention that will be able to make the current scenario even much better. It requires concentration, keenness and dedications to be able to realize a new invention (Fulghieri, 2010, p4670).

Therefore, after scanning through the environment, I have seen an opportunity in the internet service use in mobile telephony. This is a business opportunity that will be adapted by many people. The invention relates to inventing mobile phone software that will be able to allow prevention of infestation of virus on mobile phones after accessing the internet. Many users of the mobile phone have been complaining of the virus threats that have destroyed their cell phones as a resulting of accessing the internet. Therefore my invention opportunity is to come up with software that will make this problem a thing of the past.  Although there are antivirus which have been developed, most of them are not conducive or effective in ensuring that these viruses are avoided (Anderson, 2000, p201). It will be therefore a breakthrough as the invention will reduce such cases and provide the users of the mobile good services as they use their mobile phones.

This new product is considered important because it is meant to address the problems faced by mobile users. It is a solution to the problem of mobile spoilage. In addition it will increase the life span of mobile phone which will imply reduced costs since the rate of replacing another will be reduced. Another reason for the development of this new product is that it will provide mobile users with internet enabled handsets an easy and quick way of accessing the internet since there will be no threats that may interrupt the service.

The process that is used in the development of the new product included own experience and the need to provide a solution to the problem that is affecting the mobile users. The process begins from the cognitive or mental thinking where an idea is conceived from a persons’ mind. After the idea is conceived, appropriate measures are put in place to ensure that all the requirements to achieve the vision or objectives are in place (Oestreich, 2002, p16). For instance, it will require special skills and commitments for the vision to become a reality. I will have to use my skills that I have in the mobile industry and also I will have to source information from secondary materials, consultation of expertise in the field of mobile phone industry and get all relevant materials that are required for the new product to make it a reality.

There are various business models or theories which are important in the business or for the entrepreneur to know. Among them is the three sigma’s theory of the business model which was suggested by Ducker peter (Smith-Hunter, 2010, p 14). This model postulates that business fails due to making of invalid and obsolete assumptions that do not put into consideration whether they reflect the current realities or not (Kedia, 2001, p22). This assumption relates to the markets, customers, products, mission, and technology among others. They fail to put into consideration the ever changing environment in terms of these trends hence their invention ending up to be obsolete. For example in this case I should be able to analyze the current situation and connect it with the future needs so as to be able to determine if the new product is really a necessity in the market, and to the consumers. This will then give me an okay to consider the invention (Dacin, 2010, p50).  The manager of Transformational bank I interviewed had a vision and mission in his innovation which was to see a reduction in the queues and faster services in terms of loans enquiries which saw the customers queue in the bank for a long period of time. This invention was well planned and considered all the variables and was in tandem with the changing environment is social life, consumer presence and many others. In a nutshell, in determining the mission of one’s innovation, one needs to state clearly his/her purposes of the invention, state the core beliefs by elaborating clearly who it will serve the vision (Bann, 2009, p70), how the vision will be assessed, key goals; the requirements in order to achieve the goal and by stating the indicators that one would use to measure the goals set forth (Sandee, 2001, p150).

Another aspect in the theory of business is the eternal environment which consists of the society and its structures (Aderson, 2002, p45).  The factors which constitute this include; consideration of the economic, social and political factors. It is important to have a clear picture of the countries or regions where the new products will be used. For example, the target population may be categorized into the level of adoption ranging from the early adopters to the laggards-least adopters. It is also important to be aware of the demographic factors of the target customers in relations to age, status, education, income, ethnic, occupations and many others (Harborne, 2002, p267). This information is important so as to assist in making the decision whether there is need for the software, or where the target customer group will be able to afford and use it. For instance, the invention of the manager of the Transformational bank was intended for people who had accounts in the bank and who had a mobile phone. Those that did not have these two could not be able to access this service. Other factors to be considered include the level of lifestyles of the target audience. In addition, it is important to consider your economic capabilities in the development of the new product and the political factors that may or may not influence the sale of your product. Government legislations that may be in place may restrict you from selling the product to consumers target area therefore it is important to consider these factors (Lehtonen, 2009, p260). For instance the case of using the mobile phone to inquire loan eligibility was not restricted by the government hence it was a good innovation.

Another important aspect an entrepreneur is supposed to know is his markets (Perel, 2002, p9. Here, he should be able to describe his market and his customers and prospective customers in the target markets. It is also important to have clear ways in which the new product will be distributed in order to reach the target customers, advertisements mechanisms, how you will price the new products and be able to describe the importance of your product that makes it best among other related products. This will be important for my new product for instance when it comes to setting of rice, it will enable me to have rough estimates in setting up of my prices.  A good invention should be able to attract the attention of the customers and satisfy them (Pisani, 2002, 95).  Therefore, market research and analysis is an important part of an entrepreneur in terms of rating the viability of an invention.

In addition it is an important thing for an entrepreneur to consider the behaviours of his customers when it comes to adapting to the products. Therefore it is important to identify the nature of the customers that may use your products, and also you should be in a position to demonstrate to the consumers how they can use the products (International Trade Forum, 2001, p17). For example, in the case of use of mobile inquiry on loan eligibility, the innovator must have provided a manual for the use of the service so that the customer can be able to use the service without hassles.

Consideration of technological factors is also one of the points that an entrepreneur should put in mind (Melton, 1997, p120). This will ensure that the practical use of the new innovation is not hindered by advancements and complexities in technology. It should be easy to use. Competition is another factor an entrepreneur should consider in an innovation (Mosakowski, 1993, p819). It is important to have a clear strategy that will assist in coping up with other competitors. It is possible for someone to imitate your innovations and use it for his own benefits. Therefore an entrepreneur needs to be conscious about such occurrences and be able to come up with solutions on combating such like incidences. One of the solutions is to apply for intellectual property rights which will assist in regulating the rate of copying and imitation or the use of the product without payment. Therefore the managers of the Transformational bank should be aware of various threats that are in the environment which might case his invention not to be operational. Therefore in order to protect his innovation he needs to ensure that it is protect under a copyright and intellectual law (Chrysostome, 2009, p20). For the case of my innovation of the software I will also ensure that it is protected to avoid external threats that may lead to it becoming obsolete

Justification of the proposed opportunity.

This proposal to provide software that will allow mobile phones not to be affected by virus threats comes at the opportune time when the spread of mobile use is wide. Many people own at least one mobile phone and this shows how the invention can accrue high profits if it comes into existence. There has been complains and outcry by many mobile users of frequent mobile crash as a result of invasions of viruses which are as a result of access to the internet.  These problems will be a thing of the past if the new software is achieved. This is a problem that I also experienced in person and therefore I understand how helpful the software will be to the mobile users. Therefore this innovation is justified because it is an opportune investment that comes at the right time. The market is very big due to large number of people owning mobile phone and experiencing these problems. Although there are threats (Dies, 1969, p24), appropriate measures will be taken.

On the case of the manager invention of mobile loan eligibility software, the invention was targeting many people who have opened bank accounts and have not made any step of faith in finding out whether they can access to the loan facilities offered by various banks. It was also timely (Knoll, 2007, p57).  Because as the economy grows many people are opening up bank accounts which meant that the service will be in use in the foreseeable future time.

Entrepreneurship is a discipline that has many challenges. For instance when we analyze the interview that was done with the manager who invented an easier way of inquiring about eligibility to access to a loan using mobile phone it is clear that it requires patience. The manager began thinking about the idea long time even before he had the capacity of coming up with the idea. Although at first the idea seemed to be impossible; imaginations that it will never come to be, but with time and dedication he came and achieved it by actually making the invention a reality. It is clear that in the course of coming up with an invention we may encounter some problems and think that all is over, but a real entrepreneur  keep on  fighting even when it seems not to be possible

The inventor was also motivated in achieving his goals. He had some planned objectives that he wanted to achieve. One being to solve the problem of long queues of customers who wanted to inquire about their loan status, second it was an innovation that could benefit him in terms of the financial implication it had. These motivated him to pursue and be able to capitalize on the opportunity.

Every undertaking has got its own challenges. In his endeavors he was faced with challenges but did not give up. Instead he used the challenges as a stepping stone towards achievements of his dream. Some of the challenges included lack of funds to enable him pursue his research. The other challenge was to find appropriate person or a mobile telephone company that could assist him in making his intentions a reality.  Rather he made through this challenges by seeking financial support from well-wishers and donors who assisted him due to the prospective the idea was.

It is also important for an entrepreneur to have a reference point, or rather an icon that motivates him to engage in any inventions. Sometimes the venture may be risky and therefore it requires somebody to stand by you in the course of such moments as was to the manager. He acknowledges his parents for their support both through encouragement and good teaching about life. This teachings and guidance helped him in reaching the far he has reached.

Conclusion

Entrepreneurs should be keen enough in scanning the environment for any business opportunity so as to be able to grab lots of opportunities to advance their business.  Any business opportunity identified requires clear and detailed analysis through application of various research approaches to be able to determine whether the innovation is viable or not. This careful research and analysis may also result in identification of another opportunity which might be much better and rewarding.  For the case of the manager of transformational bank, his innovation was as a result of careful and persistent analysis which made him to achieve it. Therefore there is also need for entrepreneurs to be persistent, creative and hardworking.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

References

Aderson, R. 2002. Entrepreneurship and aboriginal Canadians: a case study in economic development. Journal of Developmental Entrepreneurship, Vol. 7 Issue 1, p45, 21p

Anderson, A. 2000. The protean entrepreneur: the entrepreneurial process as fitting self and circumstance. Journal of Enterprising Culture, Sep2000, Vol. 8 Issue 3, p201, 34p

Bann, C. 2009.  An Innovative View of the Entrepreneur through Exploration of the “Lived Experience” of the Entrepreneur in Startup of the Business. Journal of Business & Economic Studies, Vol. 15 Issue 2, p62-82, 21p

Chrysostome, E. et al 2009. Survival of Necessity Immigrant Entrepreneurs: An Exploratory Study. Journal of Comparative International Management, Vol. 12 Issue 2, p3-29, 27p

Dacin, P. et al 2010. Matear, Social Entrepreneurship: Why We Don’t Need a New Theory and How We Move Forward From Here. Margaret. Academy of Management Perspectives, Vol. 24 Issue 3, p37-57, 21p, 2

Dies, R. 1969. Teaching future sales managers how to manage. Training & Development Journal, Vol. 23 Issue 1, p24, 3p

Fulghieri, P. et al 2010. Size and Focus of a Venture Capitalist’s Portfolio. Review of Financial Studies, Nov2009, Vol. 22 Issue 11, p4643-4680, 38p,

Harborne, P. et al 2002. Many leaders make light work in banking innovation projects. Journal of Financial Services Marketing, Vol. 6 Issue 3, p267, 14p

 

International Trade Forum, 2001. Academic Journal; New business opportunities. Issue 1, p17, 2p

Kedia, B. 2001. International Business Outlook 2002. Business Perspectives, Vol. 14 Issue 1, p22, 4p

Knoll, S. 2007. Cross-Business Synergies: A Typology of Cross-business Synergies and a Mid-range Theory of Continuous Growth Synergy Realization. University of St. Gallen, Business Dissertations, preceding p1-389, 413p,

Lehtonen, O. et al 2009. Venture the role of advisors in the venture capital investment process. Capital, Vol. 11 Issue 3, p229-254, 26p

Mosakowski, E. (1993). A Resource-Based Perspective on the Dynamic Strategy-Performance Relationship: An Empirical Examination of the Focus and Differentiation Strategies in Entrepreneurial Firms. Journal of Management, Vol. 19 Issue 4, p819, 21p

Melton, K. et al 1997. Sustainable development and its effect on the marketing planning process. Eco-Management & Auditing (Wiley), Vol. 4 Issue 3, p116-126, 11p

Oestreich, L 2002.Understanding Career Development. Intercom, Vol. 49 Issue 3, p16, 4p, 2 Color Photographs, 1 Chart

Perel, M. 2002. Corporate courage: breaking the barrier to innovation. Research Technology Management, Vol. 45 Issue 3, p9, 9p

Pisani, M. et al 2002. A Conceptual Model and Propositions for Bolstering Entrepreneurship in the Informal Sector: The Case of Central America. Journal of Developmental Entrepreneurship, Vol. 7 Issue 1, p95, 17p

Sandee, H. et al 2001. Upgrading Traditional Technologies in Small-Scale Industry Clusters: Collaboration and Innovation Adoption in Indonesia.. Journal of Development Studies, Vol. 37 Issue 4, p150, 23p

Smith-Hunter, A. et al 2010. Afro-Brazilian women entrepreneurs: characteristics, critical issues and current comments. Research in Business & Economics Journal, Vol. 2, p1-15, 15p

Vissa, B. 2010. Agency in Action: Entrepreneurs’ Networking Style and Initiation of Economic Exchange. INSEAD Working Papers Collection, Issue 24, p1-57, 57p, 1

 

 

 

 

 

 

 

 

 

 

 

Question schedule

1.      Since when have you been thinking of this invention?

2.      How long has it taken for you to conceive this idea?

3.      What motivated you to engage in this venture?

4.      What are some of the challenges that you came across in your implementation of the idea?

5.      How did you overcome these challenges?

6.       How did you come to think about the idea?

7.      How did you manage to make the concept work?

8.      Who were your role models?

 

 

 

 

 

 

 

 

 

Interview transcript

Before the interview began, all arrangements had been made earlier and the appointment details provide to me.

Before I began the interview we made a short introduction to be able to know each other and familiarize with the contexts.

Question:

Since when have you been thinking of this invention?

Answer:

It is a long story; you know that in every initiative we engage in we must begin by one step.  In my case, I have been always dreaming of doing something different that will have positive influence to the people. I began this journey way back when I was in school.

Question:

How long has it taken you to conceive the idea?

Answer:

It has taken me around ten years to see to it that this idea works. It has been a journey full of sleepless nights and a lot of thinking and consultation

Question:

What motivated you to engage in this venture?

I was motivated by inventions of a small portable mobile which could be used in communication and even as a source of entertainment. My concept actually was as a result of the roles the mobile phone could do. I find it interesting to study more on the technology of the mobile phone. Therefore I can say that I was motivated by the fact that mobile phone could be incorporated and could perform various functions.

Another motivation was that I could be able to assist me people who actually were not able to inquire about their loans and get some assistance. This could allow people to get loans quickly and be able to engage in development initiatives.

My motivation was also that once the concept becomes a reality, I would also benefit through earnings and I would be able to sustain self.

Question:

What were some of the upheavals/challenges in your invention?

Answer:

As you know nothing we engage in can lack challenges.  Some of the challenges in my invention were the understanding of the mobile telephone. It really cost me to study the technology that is used by the mobile phone. Although I had studied IT, it was a great challenge.  Another challenge was inadequate resource at my disposal.

Question:

How did you overcome the challenges?

Answer:

I had to use one of my father’s comrades who worked at the mobile plant to connect me to the company.  This really made me feel that my dream has come true.

In addition, I solicited funds from well-wishers and sponsors. After demonstrating to them and explaining to the sponsors about my idea they came in handy and sponsored my invention.

Question:

How did you come about the idea?

Answer:

When I was young, I witnessed my parents struggling with the long queues in banks .This also contributed to my interest in finding an easy solution to the long queues.

Question:

How did you manage to make the concept work?

Because I was now interested in learning more about mobile phones, most of my times I used to interact with the mobile pone until when I managed to come this far.

Question:

Who were you role model

Answer:

My role models were parents. They inculcated in me a spirit of hard work, respect and fear of God which has made me reach this far.

The end!!

FDI in China

April 7, 2011

 

Introduction

China’s GDP is the second largest globally, after the United States. This has not always been the case, happening only recently in 2001, when it surpassed Japan. To reach this point, China has taken in tremendous amounts in foreign direct investment (FDI), increasing its productivity particularly in the export manufacturing sector. This phenomenon raises the question of whether the FDI brought about the economic growth, or whether the said growth is what attracted the FDI.

This paper seeks to offer ample evidence that China’s growth has been largely fuelled by FDI through capital formation, export promotion, technological and skill transfer, increased tax revenues, among other means. It also seeks to show that the increased growth has also fuelled inflows of FDI into China through the creation of a larger middle class, encouragement of economic reforms and increased infrastructure spending. In essence therefore, it is the position of this paper that FDI is BOTH a cause and an effect of Chinese economic growth since 1979. In making its case, the paper gives a brief history of the Chinese economy since the start of the reform era. It then offers reasons why FDI has been an engine of economic growth, followed by why it has also in turn been driven by economic growth. The paper is largely theoretical, though some insight is offered empirically.

A Brief History of FDI in China During its Reform Era

China was draped in the iron curtain under Mao Zedong, up until 1979. Deng Xiaoping started to take the curtain down that same year by opening up the Chinese economy for very limited access by foreign entities. The principal aim was to import technology and know-how in some limited industries where there the same was lacking locally. The rest of the economy was jealously protected from foreign competition. These conditions persisted for 12 years, with FDI concentrated in such industries as hotel development and tourism, where Chinese firms were absent, and in those where local firms lacked requisite technology, such as in oil exploration and refinery. The next major phase in reforms occurred in 1992, attracting a hoard of real estate investors. The Chinese government was keener on export manufacturing, and further policies guided FDI in this sector to account for 60% of all inflows by 1994. These were the beginnings of an upward trajectory in FDI inflows, rising from $11.1 billion in 1992, to $33.8 billion in 1994, to 44.2 billion in 1997. The three years after that saw a dip in inflows to 38.4 billion by 2000, attributable to the Asian financial crisis; before 2001, a large portion of FDI inflows came from other Asian countries, notably Hong Kong and Japan. The surge resumed in 2000, rising to $49.3 billion over the next 2 years, during which time China joined the WTO. 2004 was the year in which the most dramatic surge started, seeing an increase from $55 billion in that year to $79 billion in 2005. The 2 years between 2006 and 2008 saw inflows rise from $78 billion to $147.8 billion, before the 2007 global financial crisis brought this sharply down to $78.2 billion.

What attracted investors into China for the better part of the last two decades was the availability of cheap land and labor, coupled with government incentives, all working to enable lower-cost manufacturing. A large domestic market was also a factor. This is however increasingly changing as labor costs go up and land along the coastal regions becomes scarcer. Investors are now putting more of their money in high-technology ventures, off-shoring such functions as complex industrial designs and manufacture of aeroplane wings. The process has been aided by extensive labor reforms that have given workers better rights overall, the legal system has been overhauled and employers can now be sued, laws and regulations are now transparent, investment approval procedures have been streamlined thus allowing in more competitors, and a sound financial system which has made access to and flow of finance across borders more efficient, aided by technology.

 

FDI as an Engine for Chinese Economic Growth

Markusen & Venables (1999) reckon that FDI in China has been the engine for economic growth in China in four major ways; by enhancing capital formation and employment augmentation, by promoting manufacturing exports, by bringing in special resources in terms of skilled labor and international brand names, and driving technology transfers coupled with spill-over externalities. This author also posits that FDI has fuelled infrastructural developments through increased tax revenues, and expanded the domestic market through job creation. This section expounds on these points.

Enhancement of Capital Formation

In 1980, the ratio of FDI inflows to China’s Gross Domestic Investment was negligible. This had changed to 7% by 1992, and up again to 36% by 2004 (UNCTAD, 2006). As with any type of growth, China’s has been fuelled by capital investments, and the increasing ratio of FDI to GDI is testimony to the extensive impact that foreign capital has had during the reform years. The country takes a disproportionately large share of overall FDI, coming second overall after the U.S. Among developing countries, it received between 25% and 33% of all FDI throughout the 1990s, according to Fung, Iizaka & Tong (2002), rising steadily from about $19 billion in 1990 to over $300 billion by 1999 (Graham, Wada).

Having said this, it is noteworthy that not all capital investments are equal; some types of investment result in greater productivity than others. In China’s case, the FDI into export manufacturing has had a much greater impact on economic growth than the local investments, especially as regards the creation of employment. Fung & Iizaka (2002) note that during the first half of the 1990s, industrial establishments accounted for 84% of all FIEs, and 72% of all FDI. This slowed to 73% and 58% respectively in the second half of that decade. According to the OECD, in 1995 through 2000, “94% of all FIEs were in manufacturing”, producing an identical quota of all the FIE gross value. Particularly, textile and garment-related industries that included “fiber products, leather, furs and related products” had 13,000 firms in 1995, accounting for more than 25% of all FIEs and more than 20% of all FIE output. These heavy industries are extremely labor intensive, allowing more Chinese to be absorbed into the labor market and become bigger consumers.

FDI Has Promoted Manufacturing Exports

In 1980, China’s export volumes were worth $18 billion, ranked 26th in the world. 47% of these comprised manufactured goods. By 2005, exports had improved to $762 billion, the 3rd highest in the world, with manufactured goods accounting for 93% of these. Of these exports, 58% were made by Foreign-Invested Enterprises (FIEs). FIEs are those firms which have foreign capital invested in them, either as joint ventures or as wholly-owned subsidiaries. The 58% attributed to them in 2005 was worth $444 billion (SSB, 2006). This stark contrast in the ratio of exports by FIEs and those by local entities is self-evidence of how FDI has fuelled growth in China.

Skill, Knowledge and Technology Transfer

Managing complex industrial processes and global supply chains requires expertise that was simply absent in Communist China when it was closed to the world. As FDI flowed into the export manufacturing sector, there was clear need for expertise to run these operations. Additionally, a need was created professional services to support these operations, some of which had to be imported. In the end, a lot of human capital flowed into China, accompanying the FDI. This had a number of effects on the economy; first, the expatriates created a new high-net worth consumer market segment, boosting production for local consumption. Secondly, they transferred their knowledge and skills to locals, and the diffusion created yet more capacity for productivity. Finally, the apparent gap in local supply of critical human capital prompted educational institutions to initiate cutting-edge engineering and science-based courses that created a local pool of talent, one of the best in the world today. In a manner similar to human capital, technological transfer has also diffused into the Chinese economy, prompted the development of local talent, and called for additional services to support the technology in the local setting.

Another externality of technological and human capital transfer is increased competition, where producers have to possess a competitive advantage – cost, quality, etc –to stay in business. This especially applies for government-owned enterprises, which historically have been known to be corrupt and inefficient. Overall, the economy is boosted.

Increased Infrastructural Development

With $444 billion in exports in 2005, FIEs contributed significantly to Chinese revenues, and continue to. In fact, tax revenues from FIEs 4% of the total in 1992, and by 2004 had hit 21%. WTN News reported in 2008 that China was planning to make $586 billion in infrastructure development, with focus on development of rural roads, railways and technology. It was part of the country’s stimulus package following the 2007 global financial crisis, but was only made possible by the large revenues collected from FIEs. Good infrastructure, of course, is critical for communication and transportation of goods to market, and is therefore backbone for economic growth.

 

Why FDI is a Consequence of Economic Growth

Capital is attracted by the opportunity to make profit. In the case of China, the billion-person market more than sufficient opportunity for producers of numerous consumer goods, from clothes to home care products and housing. This section explains how economic growth has attracted more FDI to China by creating a burgeoning middle to upper class, encouraging positive policies and further reforms and promoting infrastructural development.

Creation of a Larger Domestic Market

According to IMF statistics, China’s per capita GDP in 2010 stood at $ 7,518, adjusted for purchasing power parity, the 93rd in the world. This is a tremendous improvement from the $181.19 in 1979. Similarly, per capita disposable income has risen dramatically over the same period. This is best exhibited by the boom in the luxury goods market; bottled water was inaccessible to ordinary Chinese by 15 years ago. By 2008, the industry was forecasted to double in size to a $10.5 billion industry. Tap water in China is considered extravagance; that industry was set to grow 29.3% to $11.9 billion in 2008. The motor vehicle industry is now a $200 billion industry. The increased incomes are attributable to higher wages paid out to more people working in professional services and employed in the export manufacturing industry. As a result of these increased incomes, there is greater demand for more and higher-value goods, presenting investors with the opportunity for returns if they flow in FDI. In this way, the economic growth has created a virtuous cycle that includes increased FDI.

Influences Positive Policy Reforms

Graham & Wada (2001) note that the number of FDI approvals by Chinese authorities gained in 2000 and 2001 over the preceding 2 years. Intellectual property and legal rights laws also improved; most prominent that resulted were the Patent Law in 2000, the State Intellectual Property Office and the Chinese International Economic Trade and Arbitration Commission, all of which aimed at raising the Chinese bar to international standards.

The trend in positive policy reforms is best exemplified by the Special Economic Zones (SEZs) that have been the principal drivers of Chinese export growth. The first 3 SEZs were established in Guangdong in 1980. Their success prompted the opening of 14 other SEZs in 1984 in areas such as Tianjin and Guangzhou. Following similar success, the government has opened up vast parts of the country, variously in 1980, 1990 and 1992. According to Wang (2009), his study of Chinese SEZs led him to the conclusion that SEZs increase per capita FDI by 58% without crowding out domestic investments, and “increases total factor productivity growth rate by 0.6%”. All these must have been encouraged by the huge progress resulting from FDI inflows over the previous 2 decades, seeing as they had no obligation to do so since they were not yet part of WTO; in fact, their joining WTO is a result of the benefits the country would gain from a free market. All these positive reforms fuelled a rally in even more FDI throughout the decade of 2000-10.

Improved Infrastructure

The improved economy – increased GDP, GDP per capita, disposable income per capita, etc – have all worked to increase the revenue base for the Chinese government. As mentioned earlier in an earlier paragraph, the government has been, and continues to, invest very heavily in the infrastructure – roads, rails, ports, airports, communication infrastructure, etc – necessary to make doing business in China much easier. Better infrastructure reduces the cost of doing business, especially that of taking products to market, meaning a better opportunity for profit-making. This has worked to further attract FDI.

 

Issues of Controversy Surrounding FDI

For all its benefits, FDI has not been roundly welcomed from all quarters. A number of contentious issues remain in debate. One of them is the overall long-term welfare of the nation. MNCs have been accused of killing local industry through withering competition. At the same time, inequality is widening, with a vastly disproportionate amount of FDI concentrated in 4 coastal regions. For example, between 1992 and 1994, 87% of FDI went into Guangdong, Jiangsu, Fujian and Shanghai, in descending order. Most of the other 13 percent was similarly channeled into other coastal regions. Most of the hinterland remains rural and under-developed.

As for Western countries, they have an issue with capital flight since, as a fact, off-shoring of production facilities and outsourcing of services has led to job losses in the United States and Europe; the very presence of these companies in China has made other international players a part of it all. This is because the low wages in China have led to a depression of wages worldwide, as workers in developed countries lose their bargaining power as jobs are moved off-shore. This has prompted such bodies as the Congress in the United States to support the Chinese government and condemn the U.S companies for seeking to maintain low wages in China, instead encouraging the improvement of payment and other terms.

On the other hand, the opposite effect is also being witnessed; the foreign support for increased vigilance in rationalization and compliance has recently began to slow, as European and American companies now oppose further measures to improve the welfare of the Chinese workforce. In 2006, American companies AT&T, Microsoft, Google, UPS, Nike and others moved to oppose steps by the Chinese government to introduce laws that would improve labor conditions in terms of wages, health care and overall standards. The opposition has been principally because such changes would increase operating costs.

 

Conclusion

FDI has been the principal source of the phenomenal growth of the Chinese economy since 1979, by enhancing capital formation, promoting manufacturing exports, transferring knowledge and skills and increasing tax revenues. In these ways, it has been a cause of economic growth. At the same time, FDI has also been fuelled by the economic growth it has helped create, because of the new middle and upper class, as is evident in the growth of the luxury goods markets. The economic growth has also encouraged the Chinese authorities to make the business environment increasingly favorable, culminating in its joining the WTO in 2001. The increased tax revenues owing to economic growth has also played a part in attracting FDI, as it has been channeled toward infrastructure development to ease the cost of doing business. With all these in mind, it can only be concluded that FDI has been both a cause and a consequence of economic growth in China during the reform years.

 

 

References

Dayal-Gulati, Anuradha. and Aasim M. Husain. 2000. Centripetal Forces in China’s Economic Take-off. IMF Working Paper WP/00/86. Washington: International Monetary Fund.

 

Graham E.M & Wada E., “Foreign Direct Investment in China: Effects on Growth and Economic Performance”, in Achieving High Growth:Experience of Transitional Economies in East Asia , Peter Drysdale, editor, Oxford University Press, 2001

 

Mankiw, N.G., David Romer, and David Weil. 1992. “A Contribution to the Empirics of Economic Growth”. Quarterly Journal of Economics, 107, 2(May), 407-437.

Marcuse J & Venables A (1999). ‘Foreign direct investment as a catalyst for industrial development”. European Economic Review. 43 (2): 335-356.

Zhang, K.H (2006). Foreign Direct Investment and Economic Growth in China: A Panel data Study for 1992-2004.

 

Tatsuyuki O, “The Role of Special Economic Zones in China.s Economic Development As Compared with Asian Export Processing Zones: 1979 – 1995”, in Asia in Extenso (Mar 2003)

 

UNCTAD, “Rising FDI into China: The Facts Behind the Numbers”, in UNCTAD Investment Brief, Number 2, 2007, Retrieved 12th March 2011 from www.unctad.org/en/docs/iteiiamisc20075_en.pdf

 

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