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Journal of
Marketing Development and Competitiveness
North American Business Press
Atlanta – Seattle – South Florida - Toronto
Journal of Marketing Development and Competitiveness
Dr. Michael Berry, Editor
Dr. David Smith, Editor-In-Chief
NABP EDITORIAL ADVISORY BOARD
Dr. Andy Bertsch - MINOT STATE UNIVERSITY
Dr. Jacob Bikker - UTRECHT UNIVERSITY, NETHERLANDS
Dr. Bill Bommer - CALIFORNIA STATE UNIVERSITY, FRESNO
Dr. Michael Bond - UNIVERSITY OF ARIZONA
Dr. Charles Butler - COLORADO STATE UNIVERSITY
Dr. Jon Carrick - STETSON UNIVERSITY
Dr. Mondher Cherif - REIMS, FRANCE
Dr. Daniel Condon - DOMINICAN UNIVERSITY, CHICAGO
Dr. Bahram Dadgostar - LAKEHEAD UNIVERSITY, CANADA
Dr. Deborah Erdos-Knapp - KENT STATE UNIVERSITY
Dr. Bruce Forster - UNIVERSITY OF NEBRASKA, KEARNEY
Dr. Nancy Furlow - MARYMOUNT UNIVERSITY
Dr. Mark Gershon - TEMPLE UNIVERSITY
Dr. Philippe Gregoire - UNIVERSITY OF LAVAL, CANADA
Dr. Donald Grunewald - IONA COLLEGE
Dr. Samanthala Hettihewa - UNIVERSITY OF BALLARAT, AUSTRALIA
Dr. Russell Kashian - UNIVERSITY OF WISCONSIN, WHITEWATER
Dr. Jeffrey Kennedy - PALM BEACH ATLANTIC UNIVERSITY
Dr. Jerry Knutson - AG EDWARDS
Dr. Dean Koutramanis - UNIVERSITY OF TAMPA
Dr. Malek Lashgari - UNIVERSITY OF HARTFORD
Dr. Priscilla Liang - CALIFORNIA STATE UNIVERSITY, CHANNEL ISLANDS
Dr. Tony Matias - MATIAS AND ASSOCIATES
Dr. Patti Meglich - UNIVERSITY OF NEBRASKA, OMAHA
Dr. Robert Metts - UNIVERSITY OF NEVADA, RENO
Dr. Adil Mouhammed - UNIVERSITY OF ILLINOIS, SPRINGFIELD
Dr. Roy Pearson - COLLEGE OF WILLIAM AND MARY
Dr. Sergiy Rakhmayil - RYERSON UNIVERSITY, CANADA
Dr. Robert Scherer - CLEVELAND STATE UNIVERSITY
Dr. Ira Sohn - MONTCLAIR STATE UNIVERSITY
Dr. Reginal Sheppard - UNIVERSITY OF NEW BRUNSWICK, CANADA
Dr. Carlos Spaht - LOUISIANA STATE UNIVERSITY, SHREVEPORT
Dr. Ken Thorpe - EMORY UNIVERSITY
Dr. Robert Tian - MEDIALLE COLLEGE
Dr. Calin Valsan - BISHOP'S UNIVERSITY, CANADA
Dr. Anne Walsh - LA SALLE UNIVERSITY
Dr. Thomas Verney - SHIPPENSBURG STATE UNIVERSITY
Dr. Christopher Wright - UNIVERSITY OF ADELAIDE, AUSTRALIA
Volume 6(4): Special Issue on International Marketing Topics
ISSN 2155-2843
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This Issue
Technological Capability Improvement as Result of the Entrepreneur’s
Search for Innovation in the SMEs in Colombia ................................................................................... 11
Yonni Angel Cuero Acosta, Md. Noor Un Nabi, Utz Dornberger
The improvement of technological capability (TC) is not only a firm-level issue; it is similarly important
to the catching-up process and improving national competitiveness. Previous works on TC have generally
not paid much attention to the improvement of TC in the micro and small and medium enterprises
(SMEs). This paper shows how the mediator role of entrepreneurial orientation (EO) on the relationship
between networking capability (NC) and absorptive capacity (AC) of firms contributes significantly to the
improvement of TC in the micro and SMEs in Colombia.
Purchase Intention of Consumers for an Automobile in the United States:
A Hierarchical Regression Model............................................................................................................ 26
Hao Fan Mo, Wong Ming Wong
The purpose of this study is to examine the purchase intention of consumers who may be interested in
purchasing an automobile in the United States. The study adopted the Theory of Reasoned Action model
that explores the gender, age, and race of consumers and relates it to their purchase intention of
consumers for automobiles, moderated by income. The research sample consisted of 562 respondents and
was collected from Los Angeles County in the United States. The results of the study indicated that the
purchase intention of consumers is affected by their age and race.
A New Index of Entrepreneurship Measure........................................................................................... 35
Annamaria Bianchi, Silvia Biffignandi
A new index of entrepreneurship measure based on M-quantile regression methods is introduced. This
index allows meaningful comparison of the entrepreneurial performances. The new method is illustrated
using the Kauffman Firm Survey, a study of new businesses in the United States. A comparative analysis
between this index and a classical index obtained with Data Envelopment Analysis is performed. Using
this index, possible determinants of entrepreneurship are investigated applying beta regression.
An Investigation of Marketers’ Attitudes Towards Corporate Restructuring and CSR in Sub
Saharan Africa: A Case of the Nigerian Service Industry in Lagos Metropolis ................................. 51
Bolajoko Nkemdinim Dixon-Ogbechi, Elizabeth M. Haran, Joseph F. Aiyeku, Piyachat Jarutirasarn
The concept of corporate social responsibility (CSR) continues to grow in recent years and is gradually
becoming a global trend. Despite this growth, the adoption of CSR is still very small in the Nigerian
service marketing industry. This paper investigated marketer’s attitude towards corporate restructuring
and CSR in the Nigerian service marketing industry in Lagos metropolis. It concluded that there is a
positive relationship between Nigerian service marketing industry marketers’ attitude and the adoption of
CSR despite the current wave of corporate challenges in the country. Overall results indicate that
actions that followed restructuring were judged to show social responsibility. Social Media Such As the Phenomenon of Modern Business ............................................................... 62
Veronika Svatošová
Social media is becoming an integral part of marketing communications. Therefore, it cannot be ignored
by a successful company when setting its business strategy. The main aim of this paper is to present a
critical view of the current possibilities of social media and based on the findings capture the key factors
for business success through social media. This objective is achieved through a critical analysis of
primary and secondary statistical sources dealing with the possibilities of Internet marketing
communication and through a comparative analysis of the world’s social media population with the
online social population in the Czech Republic.
The Uses of Power in Influencing Relationship Economic Satisfaction:
An Empirical Analysis in the Automobile Industry in Malaysia .......................................................... 85
Selvan Perumal, Nor Azila Mohd Noor, Zolkafli Hussin
Despite the assumption that relationship satisfaction contributes to buyer-supplier relationship, previous
researches have concentrated more on factors affecting an overall relationship satisfaction and very
limited research focus has been given to understand the factors that influence the economic relationship
satisfaction. Using a survey method, this study explores the uses of power as antecedent of economic
relationship satisfaction among 107 car dealers in Malaysia. Results have revealed that uses of non
coercive power could have a pivotal effect on the economic relationship satisfaction. The evidence from
this study suggests the need for enhancing theories and models relating to channel relationships.
Business Ethics: Exploring the Differences about Perceptions of Business
Ethics Among Selected Turkish Financial Specialists ........................................................................... 96
Emrah Cengiz, Murat Ferman, Irfan Akyuz
In a rapidly changing global competition environment regarding business management, professionals
distinguished the importance of the question “how” as well as the question “why”. This clarification
provides the professionals with a point of view that ethics do not form a part of business but business
itself has become a part of ethical issues. The main purpose of this study is to examine the employee’s
attitudes towards business ethics for exploring the diversities in the financial sector. Our results indicate
that the significant diversities in financial sector depend on not only the demographics but also the
employee’s position, department and working experience.
Life-Span Concept - Modern Marketing Technique ........................................................................... 107
Devadatta Ranade
The paper is a thematic paper on the product life cycle concept. This paper adds innovative ideas as new
concepts in addition with the traditional concepts of product life cycle. This article explains modern
marketing techniques as a combined effort to achieve an equilibrium between product life cycle and
users’ life span as an integral part of marketing technique. Concept of users life span is derived with the
stages of product life cycle as a matching consideration. Therefore, we can conclude that the PLC and
ULS are the stages of Introduction, Growth, Maturity and Decline as well as the stages of Idea, Thinking,
Decision and Purchasing.
Exploring Internal Marketing Applications: Case of Egypt ............................................................... 116
Hamed M. Shamma
In this study we aim to explore internal marketing applications in Egypt. There is no evidence about the
extent of internal marketing understanding and its applications. Thus, we explore it by presenting some
case studies and conducting some in-depth interviews. This paper is based on a combination of secondary
and primary research. Some cases of companies that apply internal marketing practices are presented
and discussed. In addition, a series of in-depth interviews with top-level managers were conducted to
examine their views about internal marketing practices in their organizations. The findings provided
some evidence that there are some companies that apply internal marketing in Egypt. This was identified
from the secondary research case studies. However, when the qualitative interviews were conducted, it
was found that there was lack of a clear understanding by many companies about what is internal
marketing and methods for applying internal marketing. This study provides some insights as to internal
marketing practices at Egyptian companies. The paper is useful for managers who want to know more
about internal marketing applications and practices. This study sets the pace for more future work on this
untapped research area.
Brokers and Control of Adverse Selection (Pre-contractual Opportunism) in the
Nigerian Insurance Market .................................................................................................................... 126
Tajudeen Olalekan Yusuf
Insurance opportunism at the pre-contractual stage go largely under-studied. This article explores the
effectiveness of the insurance brokers’ information gathering role at this stage to control adverse
selection in the Nigerian insurance market. It also set to examine stakeholders’ pressure effect on the
brokers to control insurance opportunism. Although semi-structured face-to-face interviews constituted
the primary method of data collection, other methods were used as supplements. The findings suggest that
this role, to a great extent, is performed creditably well in the Nigerian market. Expectedly, this has
reinforced the theoretical framework that the insurance brokers enhance the competitiveness and
efficiency of the insurance market through the resolution of adverse selection.
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Journal of Marketing Development and Competitiveness
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Technological Capability Improvement as Result of the Entrepreneur’s
Search for Innovation in the SMEs in Colombia
Yonni Angel Cuero Acosta
University of Leipzig
Md. Noor Un Nabi
University of Leipzig
Utz Dornberger
University of Leipzig
The improvement of technological capability (TC) is not only a firm-level issue; it is similarly important
to the catching-up process and improving national competitiveness. Previous works on TC have generally
not paid much attention to the improvement of TC in the micro and small and medium enterprises
(SMEs). This paper shows how the mediator role of entrepreneurial orientation (EO) on the relationship
between networking capability (NC) and absorptive capacity (AC) of firms contributes significantly to the
improvement of TC in the micro and SMEs in Colombia.
INTRODUCTION
A number of studies in the field of technological capabilities (TC) have only been carried out in large
companies in developed countries (Ortega, 2009) or come from newly industrializing economies (NIEs)
(Ernst & Kim, 2002; Hobday & Rush, 2007; Kim & et al., 1987; Panda & Ramanathan, 1996). In this
sense there is a gap in the literature about the analysis of the TC in micro, small and medium size
enterprises (SMEs) in emerging economies (Giuliani & et al., 2005; Romijn, 1999). The concept of TC
has been studied as a process with various foci, such as development, acquisition or building up of TC,
and the TC’s impact has mainly investigated in relation to firms’ performance (Acha, 2000; Eternad &
Lee, 2001; Lee & et al., 2001; Afuah, 2002; Schoenecker & Swanson, 2002; Vanhaverbeke, 2002; Tsai,
2004; Zahra & et al., 2007). So far, however, there has been little discussion about how to improve TC at
the firm level.
Various authors have contributed to define TC. They describe TC as the possession of certain
resources or abilities. For instance Figuereido (2002) sees TC as “resources needed to generate and
manage improvement in processes and production organization, products, equipment, and engineering
projects” (Figuereido, 2002, p.74). This definition places TC at the same level of importance as resources,
while other authors differentiate between resources and capabilities1. As thinking about TC evolved, it
became clear that it is not just a store of knowledge but an ability which can be used. In this sense Panda
and Ramanathan 1996 defined TC as “a set of functional abilities, reflected in the firm’s performance
through various technological activities and whose ultimate purpose is firm-level value management by
developing difficult-to-copy organizational abilities” (Panda & Ramanathan, 1996, p.562). From this
perspective TC has the ability to enhance another capability such as marketing capability, but what gives
an advantage to the firm is the understanding of how the new enhanced capability works. Following this
line, Ortega (2009) points out that TC is the firm’s ability to perform technical functions, to develop new
products and processes and to operate the firm’s facilities effectively. It is necessary to highlight the fact
that the main goal of TC is to have an impact on products and/or processes. TC is not found exclusively at
the production plant level, but can also be found at various levels of the organization; for example
Morrison, Pietrobelli and Rabelloti (2007) analyze TC as “skills-technical, managerial or organizationalthat firms need in order to utilize efficiently the hardware (equipment) and software (information) of
technology and to accomplish any process of technological change” (Morrison, et.al., 2007, p.5).
Likewise, Hobday and Rush (2007) point out the process of accumulation of knowledge, experience and
skills; furthermore these authors sees TC as a key element to using technology within a firm, as well as to
achieving competitive advantage. Their definition of TC is “the accumulated knowledge, skill, experience
and organizational base which enable a firm to acquire, develop and use technology to achieve
competitive advantage” (Hobday & Rush, 2007, p.1341).
The above definitions highlight various issues about TC at the firm level. Because this research
investigates at the firm level, the definition of TC must be rewritten to include the features that a firm has
to confront in the use of technology. For this reason this paper will use the Linsu Kim’s definition. Kim
(1997) defined TC as “the ability to make effective use of technological knowledge in efforts to
assimilate, use, adapt, and change existing technologies, which may result in development of technology
and development of new products and process in response to changing economic environment” (Kim,
1997, p.86). For this study the use of such definition is important because it posits the broadest role of TC
at the firm level. Because of the relevance of knowledge to enhance TC, it is important to go back one
step in the analysis to understand how firms can obtain this knowledge and how they can put that
knowledge to use in a practical way which can support the improvement of TC. Firms have their own
partners as external sources of technical knowledge. Normally companies network to have access to
information or knowledge that can advance their technological development. Additionally, firms have to
be entrepreneurial during their activities to overcome their competitors. This entrepreneurial attitude
steers the way in which firms use the acquired knowledge from external sources and put that knowledge
into process and products. This scenario describes the reality that micro and SMEs confront on a daily
basis.
This paper focuses on exploration of the factors that contribute to the improvement of TC within
micro and SMEs in Colombia. In doing so, the main contribution of this paper is the analysis of
entrepreneurial orientation (EO) as a mediator on the relationship between networking capability (NC)
and absorptive capacity (AC). A firm can have a useful network of partners as well as the ability to
efficiently absorb and apply knowledge, but it is the firm’s EO that intervenes to maximize the interaction
between both capabilities and their results. This study examines EO, NC and AC because their
characteristics (that promote improvement, adaptation and innovation) can enhance the positive effect of
AC on a firm's TC. This paper particularly investigates the micro and SMEs which are technology
intensive in their operations and which are tagged with the large firms in different industries as their
suppliers. These firms generally produce tailor-made products and offer customized solutions to their
clients. These companies are known as the technology-intensive suppliers (t-suppliers)2 (Dornberger &
Torres, 2006), which are noted for their contribution to expanding the backward linkage bases
(Hirschman, 1958) of different industries in different parts of the world and for there by adding
momentum to the national catching-up process (Herniesnemi & et al., 1996; Ramos, 2001; De
Obschatko, 1997).
This paper is organized as follows: the next two sections offer the theoretical foundation for the
model regarding the connection between NC, EO, AC and TC. The methodology section presents the
procedures used to test the hypothesis, and the next section reports the results of the analysis. The
discussion section considers the theoretical and practical implications of the findings. The paper ends with
the conclusions developed from the results obtained.
CONCEPTUAL FRAMEWORK
Increased economic development is a priority for all countries, especially for those with emerging
economies. This can be achieved through industrialization. A key element for industrialization is the
acquisition of technological capability (Kim, 1999a). Industrialization can advance within a country when
the country’s firms progress technologically. While markets constantly change in terms of technology
(technological change), firms have to develop skills to respond to this change. In this regard firms have to
carry out technological learning to accumulate TC and to be able to maintain their competitiveness. The
concepts of technological change and of technological learning are quite relevant for emerging countries.
The concept of technological change developed as a result of thought about evolutionary economic
theory. The latter, which is found at the firm level, is investigated through capability literature, which is
one subset of the evolutionary approach (Romijn, 1999). Thus, under this theoretical perspective it is
understood that a company's response to the market’s technological changing environment is through the
internal capabilities that the company develops, in this case TC.
This paper investigates TC at the firm level. At this level such capability is acquired through learning.
Learning is the core of economic development where the TC plays a fundamental role (Nelson & Winter,
1982; Kim, 1999a). TC is accumulated and embodied in skills, knowledge, experience and organizational
systems (Arvanitis & Villavicencio, 1998; Bell & Pavitt, 1993, 1995; Cassen, 1996; Cortes de Castro &
Figuereido, 2005; Dutrénit, 2004; Figueiredo, 2002, 2007; Jonker & et al., 2006; Kumar & Kumar, 2008;
Romijn, 1999; Romijn & Albaradejo, 2002; Westphal & et al., 1985). The accumulation of TC is
described by Dutrénit (2004) as the learning processes involved in the gradual building up of a minimum
base of technological knowledge to be able to carry out innovative activities. The nature of the technology
strategy followed by firms, the processes of knowledge management inside firms and the characteristics
of the national innovation systems determine the level of TC development in the firm (Kim, 1997), while
national TC building is more associated with government intervention in terms of the incentives regimes,
the factor markets and the institutions that support knowledge and technology development (Lall, 2000;
Lall & Pietrobelli, 2002). In a much broader sense, TC development can be conceptualized in different
levels for instance at the acquisitive, operative, adaptive, innovative, and supportive and marketing level
(Lall, 1992; Bell & Pavitt, 1995; Panda & Ramanathan, 1996; Guifu & Hongjia, 2009). From the
perspective of these authors TC can be interpreted as basic or acquisition level when, for instance, a firm
has the ability to acquire equipment, blueprints and technical knowledge, intermediate or operative level
when the firm has the ability to operate and to manage these elements. Finally the advanced level is
achieved when the firm has the ability to improve the possessed technology, and to be able to develop
new products or processes.
Rooted in the concept of TC at the firm level, this paper proposes an approach which can explain how
micro and SMEs can improve this capability. Specifically, this work draws attention to the need for a
comprehensive view of the interaction between factors which can improve a firm's existing TC. Hence,
the focus here investigates the mediator role played by EO on a firm’s knowledge sources. TC's main
input is technological knowledge. Micro and SMEs can acquire knowledge from either external or
internal sources. When considering external sources, this paper looks at the relationships between firms
and their partners in networks. In this sense NC complements TC. For instance NC’s focus is the study of
relationships in the sharing of resources and capabilities among firms. Once TC has been acquired by a
firm, the major value of this achievement can be seen when the firm is able to put the TC into products
and processes. This process can be the starting point for innovations within the firms (Kim, 1999a);
however, this process does not appear as a consequence of the TC’s acquisition. It has to be created,
coordinated and supervised by the entrepreneur3. It is at this moment that EO plays a fundamental role in
the process in which firms can accumulate, develop or improve TC. EO represents all the decisions which
have to be made to steer the technological way that a firm follows. At the firm level TC has been viewed
as the acquisition of knowledge as well as the integration of this knowledge into different levels of the
organization with the objective of introducing diversity and distinctiveness into the organization in
comparison to the competitors in the market (Leonard-Barton, 1995; Prahalad & Hamel, 1990). It is
relevant to investigate the firm’s AC in order to understand the acquisition and integration of knowledge
which is requisite to increase TC. AC is the ability to use knowledge in a complementary way that can
foster the TC.
NC enables a firm to connect its own resources to those of other firms by building relationships
(Walter & et al., 2006). NC can be defined as the organization’s ability to develop, use and maintain
relationships with external partners (Walter & et al., 2006). The relationship between two or more firms is
a strategic action that shares resources and capabilities among the parties. This strategic action is the
activity that can support the entrepreneurial decision-making process in such a way as to improve TC.
Through NC entrepreneurs can have access to the experience of others, which can prevent them from
making mistakes that others have made; moreover, entrepreneurs can learn how to be more efficient in the
use of their own resources to develop capabilities. Indeed, the knowledge that comes from other firms
through relationships makes the NC a supporting factor for EO, too. NC describes how firms join efforts
to achieve goals that each firm, acting alone, could not attain easily (Mohr & Spekman, 1994). From the
perspective of a single firm, a network provides a set of relationships with various organizations,
including customers, suppliers, competitors or public research institutions, relationships which are
connected with each other and which create a wider network structure (Cook & Emerson, 1978). NC
boosts a firm’s abilities to develop and utilize inter-organizational relationships to gain access to various
resources held by other actors. This study will use three categories: coordination, relational skills and
partner knowledge. Coordination refers to the coordination between collaborating firms (Mohr &
Spekman, 1994). Relational skills include such aspects as communication ability, extraversion, conflict
management skills, empathy, emotional stability, self-reflection, sense of justice and cooperativeness
(Marshall & et al., 2003) Partner knowledge refers to the organized and structured information about a
firm’s upstream and downstream partners and competitors (Walter & et al., 2006). Partner knowledge
allows firms to reduce transaction control costs with their partners. Partner knowledge supports firms’
position inside a network, thus entrepreneurs can receive immense support from NC.
Once an entrepreneur has received support from partners, he/she can have a better vision to orient the
firm technological path. This paper analyzes the mediator effect of EO on the relationship between NC
and AC. Even though NC, EO and AC are capabilities at the firm level, there must be a distinction
between the role and the status of each of these capabilities within the firm. This paper assumes that the
entrepreneur is the person who decides which kind of relationship should be implemented with external
sources, as well as with who. Likewise the entrepreneur establishes the way in which knowledge should
be integrated within the different levels of the firm; in other words the orientation of the entrepreneur is
the feature which can enhance the AC. Actions that are often viewed in the literature as examples of
entrepreneurship are: First when an established organization enters a new business; second when an
individual or individuals defend new product ideas within a firm context and third when an
entrepreneurial philosophy permeates an entire organization’s operations (Covin & Miles, 1999). The
third situation is well-known in the literature as entrepreneurial orientation or EO. “EO refers to the
processes, practices, and decision-making activities that lead to new entry” (Lumpkin & Dess, 1996,
p.136). This research studies the influence of EO in the technological development inside a firm. The
assumption is that an entrepreneur with the knowledge that comes from his/her business network can
guide the role that AC plays within the firm. EO stimulates AC because the entrepreneur has to share
his/her own knowledge with the firm’s personnel. The entrepreneur’s orientation contributes to increase
the acquisition of knowledge which is related to technological aspects in the firm. Entrepreneurs have to
assume risks and to have initiative to obtain innovation. For these reasons entrepreneurs are the first
source of internal knowledge within micro and SMEs.
The idea of a new entry into the market refers to the offers that a company makes for a market;
however, it is necessary to differentiate between entrepreneurship and EO. “That is, new entry explains
what entrepreneurship consists of, and entrepreneurial orientation describes how new entry is undertaken”
(Lumpkin & Dess, 1996, p.136). Thus it is clear that EO implies a willingness to innovate to rejuvenate
market offerings, to take risks to try out new and uncertain products, services and markets and to be more
proactive than competitors toward new marketplace opportunities (Covin & Slevin, 1989, 1990, 1991;
Knight, 1997; Namen & Slevin, 1993; Wiklund, 1999; Wiklund & Shepherd, 2005; Zahra, 1993; Zahra &
Covin, 1995). At the firm level researches have agreed that EO is based in three dimensions: innovation,
proactivity and moderate risk-taking (Miller, 1983; Wiklund, 1999). Innovation can materialize both in
the creation of new resources and in new ways of combining available resources (Zahra & et al., 1999).
Proactiveness refers to the firm’s response to market opportunities and implies an opportunity-seeking
perspective (Lumpkin & Dess, 2001; Kreiser, 2002). Risk-taking propensity denotes the willingness to
make investments in projects that have uncertain outcomes (Lumpkin & Dess, 1996). In micro and small
firms due to their structure, the decisions about routines and acquisition of knowledge are steered by the
entrepreneur.
Cohen and Levinthal (1989) define AC as the ability to learn from external knowledge through
processes of knowledge identification, assimilation and exploitation. The same authors redefine the
absorptive capacity construct as the capacity of a firm to value, assimilate and apply, for commercial
ends, knowledge from external sources (Cohen & Levinthal, 1990). Modern economies are not based on
capital and labor as much as they are based on knowledge, which has become the key factor of
development (Davenport & Prusak, 1998). Firms need to acquire knowledge from external sources to use
this knowledge at different levels of the organizations. In a dynamic and turbulent environment
knowledge represents a critical resource to create value and to develop and sustain competitive
advantages (Teece & et al., 1997). AC contributes to the creation and development of competitive
advantage through the management of external knowledge (Camison & Forés, 2010). Additionally Zahra
and George (2002) link AC to a set of organizational routines and strategic processes through which firms
acquire, assimilate, transform and apply knowledge with the aim of creating a dynamic organizational
capacity. The strengthening of the firm’s performance comes from this dynamism where the main
activities of AC are related to the management of knowledge. This feature makes AC a column of the
improvement TC. This paper investigates AC as a key factor which facilitates the improvement of TC
within the firm because TC’s main component is knowledge and this knowledge must be integrated into
the whole organization. “An organization’s absorptive capacity will depend on the absorptive capacity of
its individual members…. A firm’s absorptive capacity is not, however, simply the sum of the absorptive
capacities of its employees” (Cohen & Levinthal, 1990, p.131). Once the AC of a company has received
the influence of EO, AC contributes to the improvement of the TC that the company already has.
Hypothesis
Knowledge accumulation and learning inside the firm depends on a set of subjective and objective
routines targeted to bring knowledge inside the firm from outside, exploiting the knowledge inside the
firm, generate learning from the exploitation of knowledge, internalize the learning inside the firm and
apply the learning further to generate a more advanced level of knowledge. Based on this line of thought
and on the theoretical background, this paper proposes a new method of analyzing the factors which
contribute to the improvement of TC. The proposed model consists of the study of the interplay between
NC, EO and AC as prerequisite for the improvement of TC. The model states that EO has a positive
mediator role on the relationship between NC and AC. EO benefits from the knowledge that comes from
relationships with other firms. Entrepreneurs’ philosophy, vision and the way of operating greatly
influence the determination of what routines the firm sets to maintain the connectivity between a firm and
its external environment, such as market, institutions and other agents who are the repositories of the
extant and potential knowledge. The knowledge obtained from relationships with other firms heightens
EO; thus, the entrepreneur can share his vision and knowledge with all of the organization’s departments
to make decisions in terms of how to improve the firm’s TC. The EO also influences the other set of
objective routines that set out the way the firm internalizes knowledge and learning produced inside the
firm. This internal process of absorption of and application of knowledge is the operationalization of AC
which is a key element for the improvement of TC. Thus EO can foster and enhance AC. It should be
noted that there is no literature to support this attempt to employ EO as a mediator variable. This is a new
exploratory perspective of the EO approach. The hypothesis which this paper tests is the mediator model
itself. The model assumes that the mediator role played by EO on the relationship between NC and AC
allows the AC to have a positive impact on the improvement of TC.
Methodology
Operational Definition of the Constructs and Their Measurements
Table 1 contains the operationalization of the constructs that have been used in this paper as well as
their corresponding indicators and their measurements.
TABLE 1
OPERATIONALIZATION OF THE CONSTRUCTS
Constructs
Entrepreneurial
Orientation (EO)
Absorptive capacity (AC)
Networking capability
(NC)
Operational definition
Components
Firm’s behavior
demonstrating
procativeness, risk taking
propensity,
innovativeness and
competitive
aggressiveness
Innovation (INNO)
Proactiveness and
Competitive
aggressiveness (PCA)
(Ripolles & et al., 2007;
Miller, 1983; Lumpkin &
Dess, 1996)
Risk taking (RISKT)
Firm’s ability to learn
from external knowledge
through processes of
knowledge identification,
assimilation, and
exploitation
Assimilation (ASSIM)
(Cohen & Levinthal,
1989; Camison & Forés,
2010)
Application (APLIC)
Ability to develop
relationship with,
coordinate the interaction
with and gather
knowledge about the
partners and agents
outside the firm
Coordination (COORD)
Number of indicators*
09
Transformation
(TRANM)
11
Relational skills (RELS)
09
Partner knowledge
(PAKN)
(Walter & et al., 2006)
Technological capability
(TC)
Combination of
technology acquiring
capability (TAC),
technology operational
capability (TOC) and
technology shifting
capability (TSC)
(Guifu & Hongjia, 2009)
Technology acquiring
capability (TAC)
Technology operational
capability (TOC)
10
Technology shifting
capability (TSC)
*All indicators were measured with a 1-7 point Likert scale: 1=totally disagree. 2= disagree.3= partially
disagree. 4= indifferent.5= partially agree.6= agree.7= totally agree.
Sample and Data
Micro and SMEs based in Cali (Colombia) and engaged in production of technology-intensive
products or specialized knowledge-intensive solutions acting as suppliers to large firms were included in
this research. For instance these firms produce rollers to clean rice, tailor-made spare parts, industrial
furnaces and tailor-made metalwork. The Cali Chamber of Commerce has provided listing of 280 such
firms, of which 114 were operating. 114 firms were contacted during the period of September -December
2010 with an invitation to fill in a questionnaire designed for this research, 85 questionnaires were
returned. Five questionnaires were incomplete, and 80 questionnaires were finally retained, making the
sample size 80, which represents 70 percent of the population. All of the 80 companies are machinery
manufacturers. The sample is made up of 59 micro enterprises, 20 small enterprises and 1 medium-sized
enterprise4. Average employment size of the sampled firms was 9, while the maximum was 60. Average
age of the sampled enterprises was 12, while the maximum was 51.
Analytical Methods
Both descriptive and inferential statistics have been applied to analyze the collected data. Bivariate
correlation, linear multiple regressions and a mediation model were applied to draw inferences from the
data. First after the data collection, it was applied descriptive analysis of the constructs. Second
correlation analysis was applied to learn the relationships between constructs. Third to understand in
which way EO, NC and AC work to support the improvement of TC, it was necessary to analyze the
mediation effect. This mediation effect presented significant results which support the theoretical
foundation of this paper. According to the literature review, the mediation effect of EO has not been
tested before.
RESULTS
Quality Criteria of the Model
Table 2 shows the quality criteria of the model. The constructs are superior to the criteria of 0.85 in
the composite reliability. The R Square (R2) for the relationship between the constructs NC and EO is
0.1409, this shows that NC can explain the strengthening of EO; the R2 between EO and AC is 0.3101
and between AC and TC is 0.4519. These two relationships are statistically significant. Also the results of
the AVE and the composite reliability of the constructs are substantially higher. The mediator model and
its statistics results are shown in the Figure 2.
TABLE 2
QUALITY CRITERIA OF THE MODEL
R2
Redundancy
AVE
Composite
Reliability
0.9486
Communality
NC
0.0000
0.0000
0.6730
0.6730
EO
0.1409
0.0660
0.5117
0.8788
0.5117
AC
0.3101
0.1506
0.5234
0.8679
0.5234
TC
0.4519
0.2564
0.5719
0.9000
0.5719
FIGURE 1
MEDIATOR MODEL RESULTS
EO
0.1409
β: 0.375**
β: 0.495**
NC
0.000
AC
0.3101
β: 0.672**
TC
0.4519
β: 0.130
Figure 1 shows that EO acts as a mediator between NC and AC. This model confirms the assumption
that entrepreneurs use the external sources of technical knowledge to foster their internal ability to
address the assimilation of that knowledge in the various organizations’ levels. Once the AC is addressed
by the entrepreneur, the TC can be improved. Table 3 shows mediation results which have been
calculated through the indirect effect generated by a particular mediator in this case EO; the statically
validity of the indirect effect has been determined by using the Sobel test. The indirect effect of EO is a
statistically valid effect, as the Sobel test score is a statistically significant score. The result of the model
(NCˣ->ACʸ->EOᶻ) proves the existence of a valid mediating model where EO mediates the relationship
between NC and AC.
TABLE 3
PATH COEFFICIENTS
Mediation results
R²
Β
ͭ
Std.
Error
Indirect
Effect
Sobel
P
NCˣ →EOᶻ 0.1409 0.375 4.1920 0.0895
0.1856250 2.93950769 0.00328734
EOᶻ→ACʸ 0.3101 0.495 4.1263 0.1200
ˣIndependent ʸDependent ᶻMediator
DISCUSSION
The hypothesis that this paper tested was a mediator model itself. The model states that the mediator
role played by EO on the relationship between NC and AC allows the later to have a positive impact on
the improvement of TC. Based on the statistical results, this hypothesis is proven. EO mediates the
relationship between NC and AC. Ellram (1991) pointed out that NC supports a firm’s abilities to share
information related to technology and to new product development with other firms. Among various
needs firms network because of a lack of TC (Brouthers, 1995). NC is a source of technological
knowledge, and firms can access knowledge and expertise from partners (Ellram, 1990; Morgan &
Moncska, 1995). In this regard the paper’s mediator model shows that NC is important as a source of
knowledge for other capabilities. NC is the starting point in the interplay between capabilities that could
improve a firm’s competitiveness. To have a network is not enough; it is the ability to network that
matters (Schmitz & Gentry, 2000). Firms acquire knowledge from external sources through NC; this
knowledge is guided by the firm’s EO to enhance AC. This path is the prerequisite to strengthen the TC
that firms already possess. In this sense NC strengthens the performance of EO within a firm. The
knowledge which comes from partners can trigger EO by giving expertise and technical information that
leads to innovations or improvements within the firm (Schmitz & Gentry, 2000).
Entrepreneurship research has investigated EO and its characteristics such as innovativeness, risktaking and proactivity (Soininen & et al., 2011). EO guides firms to establish relationships with its
partners, and how the knowledge taken from these relationships go through the various organizations’
levels. This use of knowledge allows entrepreneurs to enhance a firm’s AC. Chen et al. (2012) have
pointed out the effects of EO on innovative activities and technological development within an
organization. Although the confirmation of the paper’s hypothesis was expected, there is no support in the
literature for this mediator model attempt. In this regard this paper shed a new light on the understanding
of EO’s role. EO as a firm-level construct has to be analyzed from a broad perspective to show its
interaction as a leading and influential factor to other capabilities. Likewise, this finding shows that the
entrepreneurial vision of a firm, which starts from the entrepreneur’s initiative, is the key contributor to
the firm’s development. In a practical way the stimulation of EO within firms can ensure that companies
develop competitive advantage and strengthen the economic growth of the region and country. Strongest
EO’s components such as innovativeness, risk-taking and proactivity confer more opportunities to
increase the firm’s competitive advantage. Furthermore, EO boosts the effect of AC. AC requires not only
the entrepreneur’s experience and knowledge, but also the entrepreneur’s perspective, to achieve effective
combination of knowledge. It is the effectiveness of the assimilation, application and transformation of
knowledge which shows the relevance of AC at the firm level.
This paper investigates the factors that contribute to the improvement of TC within micro and SMEs
in Colombia. A firm’s competitiveness depends on how well the company responds to market needs. TC
is a fundamental concept for micro and SMEs which have to respond to market pressures. The findings of
this research show that AC can significantly drive the improvement of TC. The process of acquiring TC
requires absorptive capacity (Kim, 1999b). The main function of AC is to use knowledge effectively to
raise the firm’s capabilities. Murovec and Prodan confirmed the importance of AC for innovation and for
the competitiveness and growth of firms (2009). AC allows firms to create value and to gain and sustain a
competitive advantage through the management of external knowledge (Camison & Forés, 2010). Firms
can assimilate, transform and apply knowledge and develop it in order to become more dynamic
organizations in terms of responding to the changes in their contexts. This paper, however, shows that AC
requires the firm to have an entrepreneurial attitude which facilitates the processes related to the
management of technical knowledge. This knowledge is the basis to acquire, operate, manage and shift
technology. Knowledge facilitates innovation in products and processes within firms. For this reason AC
is vital to the improvement of TC. TC is focused on the specific task of applying knowledge to improve
the management of technology. The skill of the firm in using that knowledge which has come from AC
facilitates the use technology. In other words AC is what produces the improvement of TC. It is necessary
to point out that although AC is the factor which has a direct impact on TC, the previous interaction
between NC and EO is fundamental to enhancing AC. Once AC stimulates TC, the results of this
relationship could be seen in the progression of products and processes upgraded. In this sense this allows
the firm to compete with more differentiated products. TC effectively uses technological knowledge to
build up industrial competitiveness (Lall, 1990; OECD, 1996; Kim 1999a; Schacht, 1997).
In the introduction this paper asks the following question: How can firms acquire and put knowledge
to use in a practical way which can support the improvement of TC? The previous paragraphs explain
how the mediator model answers this question. It is important inumerate the specific characteristics of an
entrepreneur. Entrepreneurs’ attitudes toward or the way assuming risks influence on the way their firm
invest their critical resources in developing their offers for their market. In the Colombian context micro
and SMEs are largely risk averse, yet the firms have a tendency to act proactively to beat out the
competition. At the same time EO contributes to a firm's internal ability to use technical knowledge. TC
symbolizes the accumulated technological knowledge the firm employs when developing new
products/services and improving existing ones (Kyleheiko & et al., 2011).
CONCLUSION
This paper has showed which factors contribute to the improvement of TC. Having achieved this
outcome firms can strengthen their competitiveness because of the obtained upgraded products and
processes which can result from this improvement. The improvement of TC has been directly explained
by the relationship between NC, EO and AC. EO acts as a mediator on the relationship between NC and
AC. In the context of emerging economies, this research has presented the Colombian case in which due
to the lack of effective support for micro and SMEs, the primary way to address the improvement of TC
within micro and SMEs is by enhancing into entrepreneurial orientation. In emerging economies EO acts
as the primary stimulant for capability development and improvement, while in developed countries it is
primarily initiated by the national system of innovation. This paper illustrates the need in emerging
countries for the consolidation not only a national innovation system but also effective promotion policies
to micro and SMEs that support the entrepreneurship at the firm level. AC’s significant role toward the
improvement of TC establishes the fact that the knowledge held not only by the manager but also by the
employees, and the internalization of the knowledge in different levels of the firm ensures the expected
capability output. Even though the majority of the organizational structures in the paper’s sample were
not complex, the AC construct showed its relevance at the firm level, where the fact of being micro or
SMEs is a positive characteristic that makes faster the decision process in terms of technical knowledge
sharing within the firm. NC plays a vital role as a source of resources, information and knowledge;
however, more effective governmental policies are needed to foster sectors which can impact the potential
of Colombian micro and SMEs. These results show that governments in emerging economies can foster
economic growth by strengthening of the entrepreneurial spirit and expanding the channels which allow
micro and SMEs to obtain knowledge.
ENDNOTES
1.
2.
3.
4.
“Resources can be tangible assets such as facilities and process technology, or intangible, as in the case of
patents, brand name, reputation and trade secrets….A capability refers to a firm’s capacity to deploy and
reconfigure those resources to improve productivity and achieve strategic goals” (Ortega, 2009, p.2).
A literature review shows there is a consensus that t-suppliers are companies that provide equipment and/or
machinery to other firms that use the equipment and/or machinery in production; moreover, t-suppliers
provide knowledge-intensive services (Torres, 2010).
An entrepreneur is understood to be a person who generated an idea for a business which today is
materialized in a firm.
According to the Colombian national law 590 of 2000; the definition of SMEs is based on the number of
employees working at the firm, thus micro enterprises have 1-10 workers, small enterprises have 11-50
workers and medium enterprises 51-100 workers.
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Purchase Intention of Consumers for an Automobile in the United States:
A Hierarchical Regression Model
Hao Fan Mo
Jinwen University of Science and Technology
Wong Ming Wong
Shantou University
The purpose of this study is to examine the purchase intention of consumers who may be interested in
purchasing an automobile in the United States. The study adopted the Theory of Reasoned Action model
that explores the gender, age, and race of consumers and relates it to their purchase intention of
consumers for automobiles, moderated by income. The research sample consisted of 562 respondents and
was collected from Los Angeles County in the United States. The results of the study indicated that the
purchase intention of consumers is affected by their age and race.
The objective of this study is to explore the purchase intention of consumers for an automobile in a
multiracial society, after moderating for income, as it relates to the gender, age, race of consumers by
utilizing the Theory of Reasoned Action model. Furthermore, the study emphasized the correlation
between race of consumers and their purchase intention in a multiracial and multicultural society.
Researchers and marketers utilize demographics from the view of the microenvironment because “people
make market up” (Kotler & Keller, 2006). The size of the population, age, race, city size, religious
background, educational level, income, and household size all influence the consumers’ attitudes, beliefs,
and values, which in turn affect the purchase intention and behavior of consumers (Kotler & Keller,
2006). Peter and Olson (2008, p. 5) state that “consumer behavior involves the thoughts and feelings
people experience and the actions they perform in consumption processes.” Furthermore, demographic
factors of consumers can be easily measured and the data is accessible for market segmentation (Kotler &
Keller, 2006; Wang, Chan, & Chen, 2001).
Additionally, in order to understand consumers who want to purchase an automobile, their purchase
intention “is the single best predictor of actual behavior” (Peter and Olson, 2008, p. 147). The term
intention is a plan to purchase something in the near further (Peter & Olson, 2008). Behavior is an action
for some target object at a particular time (Peter & Olson, 2008). There is a time frame between the
intention a consumer may have and the actual behavior of the consumer when they act on the intention
(Peter & Olson, 2008). Therefore, the study explores the correlation between demographic factors of
consumers and their intention to purchase an automobile in Los Angeles County, California, the United
States.
BACKGROUND
The research problem is how to identify consumers who have a high intention to purchase an
automobile during an economic recession in a multiracial society such as the United States. Nowadays,
there are two phenomena of the study background that is related to the sales of automobiles in the United
States market. First, during a recession the number of automobiles sold is lower, however, there are still
consumers who purchase an automobile. Comparing 2007 with 2008, the number of automobiles sold in
the United States dropped 18% from 16.1 million to 13.2 million automobiles (Krebs & Visnic, 2009). In
2009, the number of automobiles sold dropped another 21% from 13.2 million cars to only 10.4 million
(Krebs, 2010). However, in 2010 automobile sales recovered about 11% from 10.4 million to 11.5 million
(Visnic, 2011). In short, the number of automobiles sold between 2007 and 2010 show that during an
economic recession consumers reduced their automobile purchasing. Nevertheless, more than 10 million
automobiles were sold during this recessionary period. In other words, the macroeconomic influence
factors affect consumers’ behavior. It is in the marketers and manufacturers interest to understand how to
identify who will be consumers and who will have a high intention to purchase an automobile.
Second, the market share of automobile companies who do business in the United States has changed
due to globalization. In 2006, the market share of automobile in the United States has been divided into:
(a) 23.1% of GM, (b) 15.1% of Ford, (c) 16% of Toyota, (d) 13.3% of Chrysler, (e) 9.2% of Honda, (f)
6.4% of Nissan, (g) 2.6% of Hyundai, and (h) 2.1% of Kia (Detroit, 2007). In summary, the top three
Japanese automobile manufacturers held a 31.6% share of the automobile market while the Korean
automobile manufacturers held a 4.7% market share in the United States, with a combined 36.3% share of
the market.
In May 2008, the automobile market in the United States was divided into the following: (a) 19.3% of
GM, (b) 18.5% of Toyota, (c) 14.7 % of Ford, (d) 10.7% of Chrysler, (e) 12.1% of Honda, (f) 7.2% of
Nissan, (g) 3.3% of Hyundai, and 2.2% of Kia (The Auto Channel, 2008, June 3). The top three Japanese
automobile manufacturers had a market share of 37.8% and Korean automobile manufacturers had 5.5%,
totaling 43.3% share of the market in the United States.
In 2010, the automobile market share in the United States changed due to market forces as follows:
(a) 19.1% of GM, (b) 16.7% Ford, (c) 15.2% of Toyota, (d) 10.6%Honda, (e) 9.4% of Chrysler group, (f)
7.8% of Nissan, and (g) 7.7 % of Hyundai and Kia (The Good Car Guy, 2011). Japanese and Korean
automobile manufacturers held a 41.3% market share. In contrast, the Big Three American automobile
manufacturers had a market share of 45.2%. At the end of 2011, the market share of automobile
manufacturers in the United States has been divided into (a) 19.6% of GM, (b) 16.8% of Ford, (c)10.7%
of Chrysler group, (d) 12.9% of Toyota, (e) 9% of Honda, (f) 8.2% of Nissan, and (g) 8.9% of Hyundai
and Kia (The Good Car Guy, 2012). The top three Japanese automobiles manufacturers had a market
share of 30.1%. Furthermore, the Korean automobile companies increased their market share from 7.7%
to 8.9%. Sine the American automobile manufacturers are losing market share, it would be in their selfinterest to be able to have the capability to identify who will be a consumers or potential consumers in the
near future.
LITERATURE REVIEW
Academic researchers and marketers utilize consumer demographics to identify consumers’
characteristics that will help them segment the consumer market for automobiles. Furthermore,
demographic factors of consumers are “the most readily available and easy to measure on individual
consumers” (Wang, Chan, and Chen, 2001, p. 320). More important is that demographic factors of
consumers may provide information that will help them predict consumer behavior in terms of
consumers’ segmentation with psychographic variables (Wang, Chan, & Chen, 2001). Therefore, the
study utilized demographic factors of consumers to explore the correlation of their intention to purchase a
new automobile, because demographic factors can describe in more detail what individual consumers
need and want. The market environmental factors such as advertising, distribution channel, selling price,
and brand also affect a consumer’s intention for purchasing an automobile.
Demographic factors of consumers can be separated into (a) gender, (b) age, (c) income, (d)
educational background, (e) race, and (f) marital states (Kotler & Keller, 2006). The study only utilized
four demographic factors to explore the relationship with their purchase intention and they are: (a) gender,
(b) age, (c) income, and (d) race. Furthermore, income is the moderating variable for the study because
income can measure the purchasing ability of consumers. In other words, income can be an index to
forecast the purchasing behavior of consumers (Hawkins, Mothersbaught, & Best, 2007; Kerin,
Berkowitz, Hartley, & Rudelius, 2003; Peter & Olson, 2008; Schiffman & Kanuk, 2007). Wang, Chan,
and Chen (2001, p. 320) described, “Income is a key factor that determines consumer ability to buy.” For
purchasing durable products such as housing and automobiles, household income is typically utilized in
the research of consumer behavior. In the research of Wang et al., they concluded that the intention of
consumers to purchase a house is influenced by their household income, attitude toward debt, and their
optimistic/pessimistic view of economic conditions.
Similar research was done by Portolese Dias (2004) and he examined the consumer purchasing
behavior for automobile, electronics, clothing, and household goods in terms of the age of consumers.
The research sample consisted of 561 respondents by online survey and adopted the snowball sampling
method to collect data. The result of Portolese Dias indicated that the income of consumers affected their
automobile and clothing purchasing. However, the income of consumers did not affect their purchase of
household goods and electronics. Furthermore, regarding the purchase intention of consumers for
purchasing clothing, jewelry, or accessories via online, gender and income influenced their purchase (Kim
& Kim, 2004). Kim and Kim (200) conducted their research in the United States with a research sample
of 3,000 adults who completed the survey at home via online. The e-mail address list was provided by a
nationwide database in the United States. The result of this research found that the income of a consumer
can be a predictor of their purchase intention in terms of product categories (Portolese Dias, 2004; Kim &
Kim, 2004).
Another demographic factor that has been researched to explore its influence on the purchase
intention of consumers as it pertains to product categories is gender. For example, research by Ahmad and
Juhdi (2010) on the purchase of organic foods and gender found that women were likely to pay more than
men if the organic foods were not too expensive and more available in Malaysia. The research also
explained that “the intention to purchase organic products were heavily influenced by the perception on
organic product worth of purchase and the belief on the safety and health aspect of the product ” (Ahmad
& Juhdi, 2010, p. 105). Ritter (2004) conducted research on healthcare purchases by senior citizen
healthcare consumers in the United States and he found that gender, income, marital status, ethnicity, and
education of consumers did not significantly influence senior citizens’ healthcare coverage purchase
decisions. Ang, Lin, Cheng, and Tambyah (2001) researched the motivation of consumers to purchase
counterfeits or pirated goods in Singapore and they found that gender and income of consumers
influenced their attitude towards predicting the purchase intention of consumers. Specifically, male and
lower income consumers have a high intention to purchase pirated goods such as music CDs.
Age is another frequently used segmentation variable (Hawkins, Mothersbaught, & Best, 2007; Kerin,
Berkowitz, Hartley, & Rudelius, 2003; Kotler & Keller, 2006; Peter & Olson, 2008). Age is constantly
utilized with other demographic factors such as gender, income, and race when conducting research on
consumer behavior (Ang, Cheng, Lim, & Tambyach, 2001; Kim & Kim, 2004; Portolese Dias, 2004). In
addition, age has a strong correlation with the income of consumers (Kotler & Keller, 2006). For
example, older consumers have a higher income than younger consumers. Kurtz and Boone (2006)
describe that age is a determining factor when it comes to purchasing an automobile and which model to
choose. Since this study is concerned with purchasing an automobile, then the age of consumers will be
utilized as one of the variables to explore the purchase intention of an automobile consumer.
Mafe and Blas (2008) found that the age of a consumer had an impact on the purchasing behavior of
consumers who were shopping for televisions in the country of Spain. The result showed that age was
more significant than the impact of gender, education, and income. Furthermore, the age of consumers
had a correlation to how loyal they were to a particular brand. The research of Patterson (2007) also
concluded that the age and the occupation of consumers had a strong correlation with brand loyalty to a
service industry. The result indicated that older consumers who were over the age of 34 had a higher level
of brand loyalty than younger consumers who were between the ages of 18 to 34 in Australia. .
The other demographic variable utilized in this study is race. For the population sample in the United
States race has been separated into (a) Asian, (b) Black, (c) Hispanics/Latinos, (d) White, (e) Others. In
order to utilize the research time and cost in a prudent manner, the study selected a research population
sample from Los Angeles County, California. U.S Census Bureau (2012) reported that the population of
Los Angeles County in 2010 was divided into the following races: (a) 13.7% Asian, (b) 8.7% Black, (c)
47.7% Hispanic or Latino origin, (d) 27.8% White persons not of Hispanic or Latino origin.
Race can be defined as a group of people who have a common national, communication, or cultural
origin within the larger society (Arnould, Price, and Zinkhan, 2005). Furthermore, race can become an
influential factor in segmenting the target market in a strategic marketing plan (Arnould et al., 2005).
Kotler and Keller (2006) also indicate that race as well as culture can provide an essential determinant to
describe a person’s purchasing behavior. In other words, race helps describe a group of consumers who
share same value, beliefs, and customs (Schiffman & Kanuk, 2007). For example, Propser (2004) found
that Hispanic consumers consult with other people an average of 4.2 times before purchasing an
automobile, which is more three times than the national average in the United States. Furthermore,
Hispanic consumers place an emphasis on the features of value, price, style, and safety of an automobile.
Another similar research conducted by Berkowitz, Bao, and Allaway (2005) investigated the
correlation between the race of consumers and their purchasing behavior as it pertains to product types,
brand preference, and store loyalty in the United States. The research sample was divided into two
groups: Hispanic consumers and non-Hispanic consumers. The research concluded that neither the
Hispanic nor the non-Hispanic consumers showed a significant difference with regard to store loyalty and
brand preference. In regards to the product types, they defined utilitarian goods as products purchased for
their usefulness such as a book bag while other products were purchased for providing pleasure as
hedonistic goods such as cologne. The result of the research indicated that ethnicity was a significant
correlation with product types. Therefore, the research concluded that Hispanic consumers and nonHispanic consumers were different “in terms of store brand purchase mainly in the utilitarian product
category, but not in the hedonistic product category” (Berkowitz et al., 2005, p. 19).
In the area of automobile purchasing research, Prasitphol (2002) and Serhateri (2002) have conducted
researched on automobile purchasing in different countries. Portolese Dias (2004) also researched
consumer purchasing behavior of automobile purchases in terms of cohort groups consumers. The result
of Portolese Dias indicated that income is an influential factor that affects the consumers’ purchase
behavior in the United States.
The research of Prasitphol explored those demographic factors (age, gender, income, occupation, and
education) of consumers in Japan, Thailand, and the United States. The result of Prasiphol’s research
indicated different demographic factors affected consumers in terms of their culture. Culture consists of
unique idiosyncrasies that influence the attitudes and beliefs of consumers, which in turn affects the
consumers’ purchase intention and purchase behavior. As a result, gender was one of influence factors
affected the intention of consumers to purchase an automobile in these three countries. Income only
affected the intention of consumers to purchase an automobile in Thailand.
RESEARCH QUESTIONS AND HYPOTHESES
As mentioned previously, this study adopted the Theory of Reasoned Action model (Fishbein &
Ajzen, 1975) to explore the correlation between demographic factors of consumers and their intention to
purchase an automobile in Los Angeles County, the United States. The research questions and hypotheses
are listed in the following paragraphs.
Does the demographics (gender, age, and race) of consumers influence their intention to purchase an
automobile, after moderating by their income in Los Angeles County?
H1: Income of consumers does influence their purchase intention.
H2: Gender of consumers does influence their purchase intention after moderating by
their income.
H3: Age of consumers does influence their purchase intention after moderating by their
income.
H4: Race of consumers does influence their purchase intention after moderating by their
income.
METHODS
The study utilized an online survey to collect data by the snowball sampling method. The research
sample of the study was collected from working adults, who were 21 years old and above and either
living or working in Los Angeles County. Participants were asked to respond to the questionnaire on the
website of SurveyMonkey. The benefits of snowball sampling consist of a short research time period and
lower cost. In addition, the modern technology of online research provides the capability to confirm that
respondents were actually contacted, thus provide a higher level of confidence in the data collected. The
email list of 14,000 email addresses in Los Angeles County, California was provided by Bulk Email
Software Superstore.
The questionnaire design consists of two parts: (a) demographic factors of consumers; and (b)
purchase intention of consumers. The questionnaire requested information on gender, age, race, and
income of consumers. Race was divided into (a) Asian, (b) Black, (c) White, (d) Hispanic/Latino, and (e)
other. The time of purchase intention was measured by: (a) within 3 months, (b) 4 to 6 months, (c) 7 to 9
months, (d) 10 to 12 months, (e)13 to 18 months, (f) 19 to 24 months and (g) more than 2 years. The
income range has been divided into nine groups: (a) below US$2,000, (b) US$2,000 to US$3,900, (c)
US$4,000 to US$5,999, (d) US$6,000 to US$7,900, (e) US$8,000 to US$9,999, (f) US$10,000 to
US$11,900, (g) US$12,000 to US$13,999, (h) US$14,000 to US$15,900, and (i) US$16,000 and over.
According to the research design, the study adopted the hierarchical regression analysis to test
hypothesis one to four. Hierarchical regression analysis model is one of multiple regression analysis
models and consists of (a) independent variable(s), (b) moderating variable, and (c) dependent variable.
The added variable has a moderating effect on the relationship between independent variable(s) and
dependent variable (Hair, Black, Babin, Anderson, & Tatham, 2006; Mertler & Vannatta, 2005).
Therefore, Hair et al. (2006, p. 201) Hair et al. describes that the moderating variable will moderate “the
form of relationship between another independent variable and the dependent variable.”
RESULTS
The number of respondents of this study was 562 and consisted of 42.5% of male and 57.5% of
female from Los Angeles County, the United States. The top four age range groups were (a) 46 years to
50 years, 18.3%; (b) 41 years to 45 years, 16%; (c) 36 years to 40 years, 11.7%; and, (d) 31 years to 35
years, 11%. The top three household income range groups are: (a) income range from US$4,000 to
US$5,999 per month, 30.1%; (b) income range from US$2,000 to US$3,999 per month, 23.1%; and (c)
income range from US$6,000 to US$7,999 per month, 15.8%. The race of the respondents consisted of
18.5% Asian; 9.8% Black; 28.3% White; 40.4% Hispanic; and 3% other.
As it is observed, Table 1 shows the correlation between age and income of consumers. When
consumers are older, they have more high income. In contrast with older consumers, younger consumers
have less income.
TABLE 1
CORRELATION COEFFICIENTS OF AGE AND INCOME OF RESPONDENTS
IN LOS ANGELES COUNTY
Age
Pearson Correlation
Income Pearson Correlation
Age
Income
1
0.323**
0.323**
1
**. Correlation is significant at the 0.01 level (2-tailed).
Table 2 shows the value of R2 increased from 0.001 to 0.061. The 6.1% of the variations of purchase
intention are explained by age and race as shown in Table 3. In other words, the dependent variable of
purchase intention of consumers in Los Angeles County on age and race can be expressed by the
following regression model.
Purchase intention = 3.104 - 0.106 x age + 1.274 x black + ε
The above model indicates the average purchase intention of blacks exceeded the purchase intention
of other races. Thus, if one wants to rank the purchase intention by race: first were Black consumers;
second were Hispanic consumers; third were the other race category of consumers; fourth were White
consumers; and fifth were Asian consumers.
Regarding the income of consumers, Table 3 illustrates that Model 1 shows the income of consumers
did not influence the purchase intention of consumers in Los Angeles County. The second model adopted
income as a moderating variable, which shows that income did not influence the consumers purchase
intention. In other words, in Los Angeles County the income of consumers did not influence their
intention to purchase an automobile.
TABLE 2
R SQUARED OF THE REGRESSION MODEL USED TO TEST HYPOTHESES
ONE THROUGH FOUR
Model
1
2
R
0.027
0.248
R
Square
0.001
0.061
Adjusted
R Square
-0.001
0.050
Std. Error of
the Estimate
1.854
1.807
Change Statistics
R Square
Change
F
Change
df1
df2
Sig. F
Change
0.001
0.061
0.400
5.979
1
6
560
554
0.528
0.000
a. Predictors: (Constant), Income
b. Predictors: (Constant), Income, Gender, Other , Black, Asian, Age, Hispanic
TABLE 3
SIGNIFICANCE LEVEL OF THE COEFFICIENTS OF THE REGRESSION MODEL USED TO
TEST HYPOTHESES ONE THROUGH FOUR
Unstandardized
Coefficients
Model
1
2
(Constant)
Income
(Constant)
Income
Gender
Age
Asian
Black
Hispanic
Other
B
Std. Error
3.017
-0.025
3.104
0.017
0.165
0.039
0.358
0.042
0.156
0.036
0.235
0.287
0.191
0.439
0.074
-0.106
-0.144
1.274
0.163
0.502
Standardized
Coefficients
t
Sig.
Beta
-0.027
0.018
0.020
-0.130
-0.030
0.204
0.043
0.049
18.333
-0.632
8.676
0.408
0.470
-2.926
-0.611
4.447
0.854
1.142
0.000
0.528
0.000
0.683
0.638
0.004
0.541
0.000
0.393
0.254
Collinearity
Statistics
Tolerance
VIF
1.000
1.000
0.843
0.971
0.863
0.696
0.801
0.661
0.921
1.187
1.030
1.159
1.437
1.248
1.514
1.086
a. Dependent Variable: Intention
DISCUSSION AND CONCLUSION
The study investigated those potential consumers who have a high intention to purchase an
automobile in Los Angeles County, the United States. The result concluded that race and age are
influential factors that influence the purchase intention of consumers who are interested in purchasing an
automobile. First, different races have different purchase intentions to purchase an automobile in terms of
their age. For instance, the results show that Black consumers have a higher intention to purchase an
automobile when compared with other races in Los Angeles County as shown in Table 3.
However, the income of consumers did not become a significant influence on purchase intention as
shown in Table 3. The reason may be the price of an automobile was not too high for consumers to
purchase in the United States to compare other countries such as Malaysia. For example, the price of a
Toyota Camry 2.4V (Engine capacity: 2362cc) is RM174, 990 for individual private (UMV Toyota
Motor, 2012). To calculate the exchange rate, US$1.00 equals RM3.10. Therefore, the price is US$54,448
in Malaysia. In the United States the price of a Toyota Camry 2.5L (Engine capacity: 2.5 Liter 4Cylinder) is US$21,995 (Toyota Motor USA, 2011). The details show that the price of an automobile in
Malaysia is higher than the price in the United States.
Second, the study shows that age has a correlation with income as shown in Table 1. Specifically, the
age of the consumer had an influence on the consumer’s intention to purchase an automobile.
Furthermore, the correlation between the age of consumers and their purchase intention was negative
(Table 3). The negative age means that younger consumers have a higher intention to purchase an
automobile than older consumers. Furthermore, Table 1 also points out consumer’s income in terms of
their age. Combining the data from Table 1 and Table 3, the study indicates younger consumers with less
income have a higher intention to purchase an automobile when compared with older consumers who
have more income.
In conclusion, the study shows that consumers of different races have different levels of intention to
purchase an automobile. Furthermore, the age of consumers also influenced their purchase intention.
Specifically, young consumers have a higher intention than older consumers. The reasons may be due to
young consumers who have just graduated from college and are starting to work. They also may not have
an automobile. In other words, young consumers with less income have a higher intention to purchase an
automobile because they need transportation between their home and work, and vice versa. Alternatively,
although older consumers may have more income, they may already have an automobile. Their income
may be spent on their family holdings such as a house loan or their children’s education (Kotler & Keller,
2006). Therefore, they do not have a high intention to purchase an automobile when compared with
younger consumers.
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A New Index of Entrepreneurship Measure
Annamaria Bianchi
University of Bergamo
Silvia Biffignandi
University of Bergamo
A new index of entrepreneurship measure based on M-quantile regression methods is introduced. This
index allows meaningful comparison of the entrepreneurial performances. The new method is illustrated
using the Kauffman Firm Survey, a study of new businesses in the United States. A comparative analysis
between this index and a classical index obtained with Data Envelopment Analysis is performed. Using
this index, possible determinants of entrepreneurship are investigated applying beta regression.
INTRODUCTION
Entrepreneurship is recognized as a critical factor for the wealth and competitiveness of a nation. It is
a focal point of public policy and policy-makers have made promoting entrepreneurship a priority.
Special attention is focused on how government policies and other factors can influence the amount and
type of entrepreneurship. The interest in this problem is also confirmed by the attention that many
international bodies (like OECD - the Organization for Economic Co-operation and Development - and
Eurostat) are devoting to the study of this phenomenon (OECD/Eurostat, 2009).
Despite its acknowledged importance in the economic process, entrepreneurship is an elusive
phenomenon, difficult to define and measure. Existing research is far from conclusive in terms of
providing a comprehensive definition and measure of entrepreneurship. However, if entrepreneurship is
not properly measured, then it is not possible to understand its determinants, why and where the
phenomenon flourishes, and to assess the effects of public policies.
Being able to measure entrepreneurship is important both as a competitive factor for companies and
in planning development policies. On the one hand, it is useful for searching good entrepreneurs as it
identifies factors on which to focus to make performing companies. On the other hand, it is useful for
policy makers to identify the priority areas of intervention.
In this paper we focus on the problem of measuring entrepreneurship at the firm-level. We propose a
new quantitative index of entrepreneurship measure based on M-quantile regression. It is a production
function approach that relies on the idea that a firm transforms inputs into outputs and the more outputs a
business can produce with fewer inputs the more successful the entrepreneur is. The idea behind this
entrepreneurship indicator is that the performance of the entrepreneur is strictly connected to the
performance of the business. The index is then compared to a common indicator currently used and
obtained from the application of Data Envelopment Analysis (DEA) techniques. We show that the new
index allows overcoming many drawbacks presented by conventional measures.
The empirical analysis is based on the Kauffman Firm Survey (KFS) data. This survey is sponsored
by the Ewing Marion Kauffman Foundation. The KFS is the largest longitudinal survey of new
businesses in the world. It consists of a cohort of 4,928 firms that were started in 2004 in the United
States and tracked over the following years. This dataset presents a number of advantages for our study,
since it contains detailed information on the business, the owner’s personal characteristics and the
financial data. The KFS focus on businesses in their early years of operation. We believe that this dataset
is especially suited for studying entrepreneurship. Indeed, entrepreneurship is especially critical at the
beginning of a business. As it is well know, birth and death of enterprises are quite high and critical
survival time is from three to five years. Thus the performance of the new businesses in the short time
(three to five years) is a crucial indicator of entrepreneurship.
The rest of the paper is organized as follows. In the next section we briefly review some of the
different entrepreneurship measures that have been proposed in the literature for empirical firm-level
studies. Next we propose a new method for the evaluation of entrepreneurship. The methodology is then
applied to the Kauffman Firm Survey database and compared to an index obtained with DEA techniques.
A second stage regression is also considered to measure the impact of different factors on the measured
entrepreneurship.
BACKGROUND LITERATURE
Literature is reach on empirical studies aimed at measuring entrepreneurship and determining its
factors. Various levels of measurement have been proposed. In this section we briefly review the principal
ones. For more details on the historical development of the concept and measurement of entrepreneurship,
please refer to Foreman-Peck (2005).
One approach uses a nominal scale and measures entrepreneurship using binary variables of
success/no success or self-employment/employment. Next probit models are run to study the relationship
between a number of possible determinants (human capital, initial business size, access to finance) and
the defined performance (Evans & Leighton, 1989, Cressy, 1996, Blanchflower & Oswald, 1998, and
Harada, 2003). Although these performance measures have the advantage of being readily available in
surveys, they are not necessarily good measures of entrepreneurship. Indeed, a measure of
entrepreneurship requires for a link with effective innovation and it is clear that not all start-ups involve
innovation.
A higher level of measurement is represented by the ordinal scale. Entrepreneurship measures based
on ordinal scale are necessary to be able to answer questions like ‘How well do entrepreneurs do what
they do?’. These kinds of measures allow to assess whether an entrepreneur is more or less successful
than another one. A multinomial logit is then used to identify determinants (Grilo & Thurik, 2008).
A more demanding level of measurement is the ratio scale, which allows comparisons of the amounts
of entrepreneurship. In this category profit, income or wealth generated by the business are contemplated
as possible indicators of entrepreneurial performance in particular contexts. These kinds of measure are
subject to a number of flaws, mainly connected to the problem of measuring the wealth of an
entrepreneur.
More sophisticated methods are based on production functions and, more specifically, on the
relationship between observed production and some ideal or potential production, represented by the socalled production frontier. Suppose that the value of the output from a certain business can be measured
by a variable y and associated with this is a vector x of inputs values, with the relationship between y
and x determined by an appropriately chosen production function. Production frontier corresponds to
best practice and it is defined as the maximum achievable output f ( x ) from input x . Adopting an
output-oriented approach, entrepreneurship measures are then defined comparing the business’s total
value of output to this frontier. Usually the comparison takes the form of the ratio of observed to
maximum potential output obtainable from the given input, that is, y / f ( x ) . Different approaches are
classified according to the method used for the derivation of the production frontier. The main distinction
is between stochastic and deterministic methods. Methods based on stochastic frontier production
functions, which were introduced independently by Aigner et al. (1977) and Meeusen & van den Broeck
(1977), belong to the first group. They involve the estimation of a stochastic production function, where
the output of a firm is a function of a set of inputs, inefficiency and random error. This method has the
advantage of allowing statistical inference, but it has the disadvantage of strong parametric assumptions
both on the functional form of the frontier and the distribution of the data. In this context various methods
have been proposed for the estimation of f , but all of them may lack robustness if the assumptions are
not satisfied. In particular, outliers in the data may unduly affect the estimate of f .
Alternative deterministic approaches, which overcome some of these problems, are the linear
programming techniques of Data Envelopment Analysis (DEA) (Charnes et al., 1978) and Free Disposal
Hull (FDH) (Deprins et al., 1984). These are nonparametric approaches: they do not impose any
assumptions about the functional form hence they are less prone to miss-specification. These kinds of
measures are widely used as entrepreneurship indicators. See, for example, Foreman-Peck (2005).
However, because the DEA and FDH estimates of f depend critically on the extreme observations, these
techniques are prone to the influence of outliers. Moreover an important flaw of these approaches is that
they are seen as non-statistical, not distinguishing inefficiency from random shocks. Efforts to add a
stochastic dimension to these methods have been made along several lines. For a review of these
extensions, please refer to Ray (2004).
The most important drawbacks of benchmarking measures (both stochastic and deterministic) are that
(i) they are not robust to outliers and (ii) they can result in quite different values for two businesses
operating at the same level of efficiency but with different levels of inputs. Concerning the problem of
outliers, methods have been developed for their identification in this context. See, for example Wilson
(1993). However, the methods are non-robust in nature. Concerning the second point, consider the
following example that was proposed by Kokic et al. (1997) to explain this problem in the single-input,
single-output case.
FIGURE 1
INPUT-OUTPUT RELATION
Note. The lower, central and upper lines correspond to inefficiency frontier, average production
function, and the efficiency frontier, respectively.
Figure 1 represents a possible input-output relation. For simplicity, we consider the homoschedastic
case. The lower and upper lines correspond to production inefficiency and efficiency, respectively.
Businesses that lie on the bottom line are operating at their most inefficient level, while businesses lying
on the upper line are operating at their most efficient level (the equation for this line is f ( x ) ). The
central line represents the ‘average’ production frontier, i.e. the ‘average’ entrepreneurial level.
Since businesses A and B lie on this line, they should have the same entrepreneurship index. The
entrepreneurship indexes associated to A and B by benchmarking measures, however, are 1/2 and 2/3,
respectively. Moreover, business C, which lies on the inefficiency frontier, has the same value as business
A. It is clear from the example that indexes based on benchmarking measures depend on x . This is a
strong limitation of these indexes. Measures of entrepreneurship should not depend on the level of inputs
of the business, otherwise they would be biased and hide the true relationship between returns and the
scale of business operations. The idea underlying this consideration is that an entrepreneur may be
performing well even if he is running a small firm.
PERFORMANCE EVALUATION
In this section we face the problem of introducing an index of entrepreneurship which overcomes the
problems presented by many other performance measures currently used. Just like a productionperformance measure (Kokic et al., 1997), we argue that an entrepreneurship index should satisfy the
following four properties:
1.
It must lie between 0 and 1.
2. The poorest performing entrepreneurs should have indexes close to 0.
3. The best performing entrepreneurs should have indexes close to 1.
4. The distribution of the entrepreneurship indexes should not depend on the level of inputs x of the
business.
As shown in the previous section, the last property is not satisfied in general by indexes of the form
y / f ( x ) , resulting in quite different values for two entrepreneurs operating at the same level of
efficiency but with different levels of inputs. To say it differently, the values of benchmarking indexes
generally increase with the level of inputs of the business run by the entrepreneur. Since the scale of a
business operation is usually related to the amount of inputs, if an entrepreneurship index does not satisfy
criterion 4, then scale effects are convoluted with input value effects. However, not necessarily an
entrepreneur is performing well just because he is running a large firm. Methods that fail criterion 4 are
therefore not appropriate for investigating returns to scale - that is, the effect of business size on
entrepreneurship. For this reason, they are not reliable and they cannot be used for investigating how scale
may affect the entrepreneurial performance. In the example presented in the previous section,
benchmarking measures are positively correlated to business size even though there are no increasing
returns to scale.
A measure of production performance with properties 1-4 can be obtained from the application of Mquantile regression. We decided to adopt this method to construct an index of entrepreneurship measure.
This is an innovative approach to the measurement of entrepreneurship. Indeed to the best of our
knowledge there is no application of such method in this context.
This index presents several appealing characteristics. It is outlier robust, it does not depend on the
level of inputs of the business, and it has a stochastic nature by construction.
Before giving the exact definition of the index, we briefly introduce M-quantile regression basic
concepts. M-quantile regression was proposed by Breckling & Chambers (1998) and it is a generalization
of M-regression, which was introduced by Huber (1973) in answer to the excessive sensitivity of ordinary
least square (OLS) regression to small deviations from the model assumptions. Consider a dependent
variable y taking real values and a set of k -dimensional explanatory variables x and suppose to
observe the values ( xi , yi ) , i  1, , n . Assuming a linear model for the data, the M-regression estimates
are defined as the solution ̂ of the estimating equation
n
 yi  xiT 
s

 
i 1

 xi  0,

(1)
where  is called ‘influence function’ and s is a suitable robust estimator of scale, such as the median
absolute deviation estimator to be defined later. Throughout this article we use the Huber Proposal 2
influence function
u
if | u | c
c sgn(u ) if | u | c

 (u )  
(2)
where c is a properly chosen positive constant. Other specifications for the function  are possible.
Notice that M-regression includes as special cases median regression ( c  0 ) and OLS regression (
c   ).
Similarly, M-quantile regression is defined as the solution ˆq of (1) with the influence function given
by
u0
 q (u )
(1  q) (u ) otherwise
 q (u )  
(3)
Special cases include quantile regression for c  0 (Koenker & Bassett, 1978) and expectile
regression for c   (Newey & Powell, 1987). However, M-quantile regression is preferable to both
quantile and expectile regression. Indeed, unlike expectile regression, it is not unduly influenced by
extremely large residuals; moreover, it overcomes the problems of quantile regression associated with the
use of a discontinuous influence function.
T
The idea on which this method is based is that the M-quantile regression hyperplane x ˆq
corresponding to a particular value of q is obtained by weighting positive residuals by a factor q and
negative residuals by a factor (1  q ) . For example, when q  0.25 negative residuals have three times
the weight of positive residuals in the estimating equation for the corresponding M-quantile. As a result
this plane will lie below the ordinary M-regression hyperplane. In the single-input, single-output case,
Figure 2 shows the M-quantiles fitted on a set of input-output combinations at 0.25, 0.5 and 0.75.
More generally, M-quantile regression leads to a family of hyperplanes indexed by the value of the
T
corresponding quantile coefficient q . For each value of q in (0,1) , the corresponding model x ˆq
shows how the M-quantile of order q of the conditional distribution of y given x varies with x . For
large values of q the M-quantile surface describes the ‘average’ output of relatively efficiently
performing businesses, and for small q it describes the ‘average’ output of relatively inefficiently
performing businesses. For a certain business with input xi and output yi , it is therefore natural to define
an entrepreneurship index as the value q of the M-quantile surface passing through the observation
( xi , yi ) .
FIGURE 2
FITTED M-QUANTILES AT 0.25, 0.5 AND 0.75.
Taking the abovementioned characteristics into account, we define the Index of Entrepreneurship
T
Measure (IEM, hereafter) for unit i as IEM i  q if yi  xi ˆq .
It is clear that the definition of the index rests on the assumption that the underlying production model
is approximately true for the data. This assumption may be checked by simple graphical techniques.
In practice, a common problem raising at this point is that the fitted hyperplanes so obtained can cross
over for different values of q . In this case it is clear that the use of M-quantile surfaces to define the
index turns out to be problematic. Crossing of M-quantile surfaces reflects the paucity of data in the
region concerned. It is a finite-sample problem and it is typically due to a combination of variability of
the estimates, regression model misspecification and collinearity in the explicative variables. If crossing
occurs we define the IEM index following the method proposed by Kokic et al. (1997). Denote Si the set
of those values of q such that the q -th M-quantile passes through yi . The index of entrepreneurship
measure is then defined as the value in Si closest to 0.5. Notice that this is a conservative approach since
we define the index as the value closest to the “mean”. Another possible approach to the problem of Mquantile crossing consists in ensuring monotone fitted M-quantile regression surfaces (He, 1997).
Notice that by construction this index has a stochastic nature, thus allowing statistical inference on the
computed values. It is straightforward to prove that the asymptotic distribution of the index is uniform in
the case of quantile regression ( c  0 ). In the more general case of M-quantile regression, empirical
evidence shows that the asymptotic distribution resembles a Beta random variable. The proof of the
asymptotic properties of the index goes beyond the scope of this work and it will be the subject of further
research.
EMPIRICAL ANALYSIS
In the present section first we introduce the dataset used for the empirical analysis, the Kauffman
Firm Survey (KFS). Next we compute the IEM index of entrepreneurship measure for firms in the KFS
database. We analyze its characteristics and compare them with those of the classical entrepreneurship
index obtained with DEA methods. Finally, we study the impact of various factors on the index by means
of a beta regression.
The Kauffman Firm Survey
The Kauffman Firm Survey (KFS) is a longitudinal study of new businesses in the United States. A
new business is defined as a new, independent business that was created by a single person or a team of
people, the purchase of an existing business or the purchase of a franchise. Businesses that were inherited
from someone else, were set up as a subsidiary of an existing business, or created as a not-for-profit
organization were excluded. At present six years of data are available, from 2004 (foundation year) until
2009. Additional years are planned. The empirical analysis is performed on the 2004 data.
To create the panel a random sample was drawn from the Dun & Bradstreet database. In response to
the Kauffman Foundation’s interest in understanding the dynamics of high-technology businesses, the
KFS oversampled these businesses. The Baseline Survey was conducted between July 2005-July 2006
with data collection reference year 2004. As already said, it contains information on 4,928 firms. For
more details, see Robb et al. (2010).
The survey database includes detailed information both on the firm and up to ten business owners per
firm. We use the KFS restricted-access data file which contains more detailed information, including
industry and geographical coding, as well as other variables. Detailed information on the firm includes
industry, physical location, employment, profits, intellectual property and financial capital. Information
on the owners includes age, gender, race, ethnicity, education, work experience and previous start up
experience. One potential issue for the restricted-access data file is that firms can choose to disclose
financial information using range values. For example, firms can only provide range values for total cost
and total revenue, while other firms provide exact values for the same variables. In order to make the KFS
dataset more complete, we transform these range values into numeric values by using the central point for
each range class.
Since the KFS provides the socio-demographic information of up to ten owners, to assign
entrepreneur demographics at the firm level we defined a primary owner who presumably has the most
influential managerial power over the business. For firms with multiple owners, the primary owner is the
one that has the largest share of the business. In cases where two or more owners owned equal shares,
hours worked and a series of other variables are used to create a rank order of owners in order to define a
primary owner. Once the primary owner is identified, her/his characteristics are assigned to the firm. They
include gender, race, ethnicity, age, education and entrepreneurial activities before she/he started the
business in 2004. As prior entrepreneurial activities, we consider both start-up experience and years of
prior work experience in the same industry as the current business. The list of variables together with their
description is given subsequently (Table 2).
IEM Index
The IEM index is based on the identification of an approximation to the true production function model
relating the inputs and the output of the business. The model used in the analysis is the Cobb-Douglas
type production function
log( REVi )   0  1 log( EXPi )   2 log( HOURSi ),
(4)
where REV is the total revenue of the business, EXP is total cost and HOURS represents owner
hours. The total revenue variable measures the output of the business. Total cost is a measure of the
resources used by the enterprise, while the variable owner hours measures the effort of the
entrepreneur(s). The variable HOURS is the sum over all owners.
Starting from the production function model (4) we estimated M-quantile regression planes over a
grid of values of q , specifically for q  0.02, 0.04, , 0.96, 0.98 :
q ( EXP, HOURS )  0 q  1q log( EXPi )   2 q log( HOURSi ),
where q (EXP, HOURS) is the hyperplane corresponding to the q -th regression M-quantile plane of
the log of total revenue. To obtain the regression fits we used a modification of the rlm function in R
(Venables & Ripley, 2002). We used the KFS data for 2004. Some businesses were excluded from the
estimation procedure because some of the variables were not available. Adjusted survey weights were
used in the estimation to take into account the stratified sample design used in the KFS and the location
and response adjustments. The influence function used was Huber’s Proposal 2 (defined by (2) and (3))
with c  1.345 and s given by the median absolute deviation (MAD) of the residuals
s

.
MED | ( yi  xiT ˆq )  MED | yi  xiT ˆq ||; i  1, , n
0.6745
Since the M-quantile surfaces crossed over for different values of q , we applied the method
described in the previous section by means of the following algorithm. If the value log yi was below the
0.5 M-quantile plane, then we searched for the value q closest to 0.5 in {0.02,0.04,....,0.48} such that
log yi was above the q -th M-quantile plane. If such a q existed, we defined IEM i  q  0.01 , else
IEM i  0.01 . Similarly, when log yi was on or above the 0.5 M-quantile plane, we found the value q
closest to 0.5 in {0.50,0.52,...0.98} such that log yi was below the q -th M-quantile plane. If it existed,
we defined IEM i  q  0.01 , otherwise IEM i  0.99 .
The index was computed for 2975 firms. Next, we checked criterion 4 by examining scatter-plots of
the index IEM against the variables EXP and HOURS. These scatter-plots show that there is no
relationship between the index and the variables. Unfortunately they cannot be shown due to
confidentiality of the data.
In order to analyze the difference of the proposed methodology with benchmarking indexes, we
performed an empirical comparative analysis of the IEM index with an index based on Data Envelopment
Analysis (DEA). DEA combines the estimation of an efficient frontier with the measurement of
performance related to this frontier. With knowledge of all businesses’ input-output combinations, it is
possible to compute which entrepreneurs are efficient (i.e. their business is on a frontier) and which are
inefficient or dominated. An efficiency benchmarking requires not only information about inputs and
outputs, but also weights and formulae for combining them. The basic DEA models mainly differ in the
assumption that they make about the efficient frontier and the production possibility set -- that is, the set
of all feasible input-output combinations. By way of example, we adopt the method based on DEA with
variable returns to scale (VRS) which assumes free disposability of inputs and outputs, convexity and
variable returns to scale. In this context, an entrepreneur is efficient if no linear combination of other
entrepreneurs gives a higher efficiency score for their business. The ‘efficient frontier’ consists therefore
of linear combinations of efficient entrepreneurs. Linear programming is needed to identify the above
mentioned efficient frontier (Bogetoft & Otto, 2011).
In the case of single-input, single-output, Figure 3 shows the efficient frontier generated by a set of
businesses’ input-output combinations in case of VRS.
Once the efficient frontier has been determined, DEA measures the entrepreneurial performance
relatively to this frontier. In the sequel, we adopt an output-oriented approach, that is, we assume that the
objective of an entrepreneur is to produce the maximum quantity of output from a specified input bundle.
The DEA index is then obtained by comparing the actual output produced with the corresponding
benchmarking quantity.
FIGURE 3
DEA EFFICIENT FRONTIER UNDER VARIABLE RETURNS TO SCALE
We compute the DEA indexes of entrepreneurship for the KFS data by means of the Benchmarking
package in R (Bogetoft & Otto, 2011). In order to obtain comparable results, we consider the same
variables used for the computation of the IEM index measured in logarithmic units. Before the
computation, we checked for the presence of outliers using the method proposed in Wilson (1993) and
found that there were any.
Data were analyzed using the SAS System for Windows (release 9.2; SAS Institute Inc, Cary, NC).
All analysis included sample weights that account for the unequal probabilities of selection because of
stratified sampling and nonresponse.
First we performed a Spearman correlation rank test to analyze concordance of the two indexes in
ranking firms. The value for the test statistic was 0.7507, denoting that the indexes partially agree, but
still there are differences in ranking. Looking at the single values, we argue that these differences are
mainly due to the different behaviour of micro-firms and to the fact that the DEA index tends to assign
higher performances to entrepreneurs running large firms. A descriptive analysis of IEM and DEA
indexes is given in Table 1.
TABLE 1
SUMMARY STATISTICS OF IEM AND DEA ENTREPRENEURSHIP INDEXES
Index
IEM
DEA
Mean
95% CI
0.515
0.502-0.528
0.687
0.511-0.517
Q2
Q3
0.253
0.509
0.803
0.485
0.516
0.545
Q1
The mean value of IEM is 0.515, while DEA index mean value is 0.687. Looking at the first and third
quartiles of the distributions of the indexes, it is clear that IEM presents much larger variability.
Comparing the means with the corresponding medians of the distributions, we see that DEA is more
skewed. These conclusions are more evident looking at the histograms of the distributions (Figure 4). It is
also evident that the IEM index allows detecting greater differentiation among the performances.
Concerning the IEM index, a q-q plot suggests that its distribution is consistent with the beta random
variable.
FIGURE 4
HISTOGRAMS FOR IEM AND DEA INDEXES
In order to analyze the effect of scale on entrepreneurial performance, the indexes were locally
regressed against firm size using PROC LOESS in SAS. The smoothing parameter was selected
according to the bias corrected Akaike information (Hurvich & Simonoff, 1998). Firm size is measured in
terms of the log of the number of employees. Notice that we do not expect many returns to scale, as we
are only considering small/medium enterprises (just up to over one hundred and fifty employees). Figure
5 shows the curves obtained for IEM index (solid line) and DEA index (dashed line).
FIGURE 5
NONPARAMETRIC REGRESSION OF IEM INDEX (SOLID LINE) AND DEA INDEX
(DASHED LINE) AGAINST FIRM SIZE
TABLE 2
LIST OF POSSIBLE FACTORS: NAME, DESCRIPTION
Variable
Description and codes
FEM
Gender of the primary owner, 1=female, 0=male
AGE
Age of the primary owner
EDU
Highest level of education completed by the primary
owner, measured with a scale ranging from 1 (=Less
than 9th grade) to 10 (=Professional school or
doctorate)
WORKEXP
Years of work experience in the same business
STARTUP
HISP
Number of new businesses started by the primary
owner
Is primary owner also a paid employee at business?
1=Yes, 0=No
Is primary owner of Hispanic origins? 1=Yes, 0=No
WHITE
Is primary owner white? 1=Yes, 0=No
PAT
Does business have patents? 1=Yes, 0=No
IP
Does business have intellectual properties (patents,
copyrights, trademarks)? 1=Yes, 2=No
Total number of intellectual properties the business
possesses
High technology industry indicator based on whether
the business is a Technology Employer or
Technology Generator, 1=High tech, 0=Non-high
tech
EM P
TOTIP
HT
HOME
Is the business homebased? 1=Yes, 0=No
MULTIOWN
Is the business multiowned? 1=Yes, 0=No
NUMEMP
Number of employees
Considering IEM index, we see a differentiation between firms with less than three employees
approximately and firms with more than three employees. This is interesting since one to three employees
size corresponds to micro-firms, which usually are studied separately because of their particular economic
characteristics. Our IEM indicator suggests that micro-firms are only sensitive to the performance of the
entrepreneur. They are quite insensitive to the number of employees. If one wants to detect an impact, we
see that the relationship is slightly decreasing: the higher the number of employees, the lower the
possibility of entrepreneurial performance. Then we observe performance slightly increasing with size.
The growth is linear. This result can be justified by the fact that, after all, we are considering a welldefined dimension size. On the other hand, DEA index increases with firm size. It is not sensitive to the
differences that IEM index is able to perceive. IEM index grasps immediately the difference between
micro-firms and small-medium size firms. It is detecting only limited differences within the smallmedium size, i.e. it recognizes the approximately homogeneous entrepreneurial performance in this class
size. We expect that, if the dataset contained also data on large firms, this index would be able to perceive
differences in entrepreneurs’ performances related to larger business size.
Determinants of Entrepreneurship
Finally, as a first step towards understanding how different factors contribute to the variability in the
index values (i.e. entrepreneurial performance differences), we modelled the impact of several factors
concerning both the entrepreneur and the firm on the index. The list of possible factors that we considered
together with their description is given in Table 2.
The summary statistics of these possible factors in the Baseline Survey are presented in Tables 3 and
4. We see that 69.3% entrepreneurs of the study population are men, 56.7% have a college degree or
higher level of education, 82.7% are white. The mean age is 44.55, the mean number of other new
businesses started by the entrepreneurs is 0.963 and the mean number of years of experience in the same
industry of the business is 11.87.
TABLE 3
SUMMARY STATISTICS OF THE ENTREPRENEUR
CHARACTERISTICS IN BASELINE SURVEY
Mean
95% CI
Gender (FEM)
Male
Female
AGE
0.693
0.307
44.55
0.682-0.705
0.295-0.318
44.20-44.90
Education (EDU)
College +
College Previous work-experiece (WORKEXP)
0.567
0.433
11.87
0.551-0.583
0.417-0.449
11.54-12.20
Previous start-up (STARTUP)
0.963
0.882-1.043
0.480
0.520
0.464-0.497
0.503-0.536
0.066
0.934
0.058-0.074
0.926-0.942
0.827
0.173
0.815-0.840
0.160-0.185
Employee owner (EMP)
Paid employee
Not paid employee
Hispanic origin (HISP)
Hispanic origin
Not Hispanic origin
WHITE
White
Other
As far as the characteristics of the firms are concerned, Table 4 shows that in the study population
5.6% of the businesses are high-tech and 2.2% possess patents. Moreover, 49.2% are homebased
businesses and 34.9% are multiowned.
In order to quantify the impact of these factors on entrepreneurship, we performed a beta regression
with a logit link specification (Kieschnick & McCullough, 2003). This choice was suggested by the
consideration outlined in the previous section that the IEM index follows a Beta distribution. Starting
from the list of variables given in Table 2, we tested alternative models. The final model includes
entrepreneur’s characteristics related to gender, education, race, and previous work experience. As far as
the business’ characteristics are concerned, factors influencing entrepreneurship are patents, high-tech
firms, intellectual properties and number of employees. The estimates are given in Table 5.
TABLE 4
SUMMARY STATISTICS OF THE FIRMS CHARACTERISTICS IN BASELINE SURVEY
Patents (PAT)
Yes
No
Intellectual properties (IP)
Yes
No
Total number of intellectual properties (TOTIP)
High-tech (HT)
High-tech
Non-high tech
Homebased (HOME)
Yes
No
Multiowned (MULTIOWN)
Yes
No
Number of employees (NUMEMP)
Mean
95% CI
0.022
0.978
0.018-0.027
0.973-0.982
0.192
0.808
1.272
0.179-0.204
0.796-0.821
0.962-1.582
0.056
0.944
0.051-0.061
0.939-0.949
0.492
0.508
0.476-0.508
0.492-0.504
0.349
0.651
1.869
0.333-0.364
0.636-0.667
1.688-2.049
The main findings are the following. Women and non-white entrepreneurs seem to face more difficulties
in starting a new business. Education is a positive factor, as well as previous work experience in the same
industry. The fact that the entrepreneur is also a paid employee at business has a highly significant
positive impact. Entrepreneurs running high-tech firms seem to be favoured. On the other hand,
entrepreneurs running multi-owned firms and firms with intellectual properties seem to have worse
performances. As far as the variable number of employees is concerned, the results found in the previous
section are confirmed.
Since the conditional expectation function is given by a logit, the parameters’ estimates are not
directly interpretable in terms of marginal effects of a change in a regressor on the entrepreneurship
index. The marginal effect of x j is given by




ˆ j exp  xT ˆ
E ( IEM | x)

x j
1  exp  xT ˆ

2
, j  1, , k
where x represents the vector of regressor variables and ˆ the corresponding estimated parameters. For
example, setting FEM=0, EDU=6 (Bachelor’s degree), WHITE=1, IP=0, WORKEXP=11.87 (mean) we
can compute the marginal effect of EMP on E  IEM | x  at three different levels for the number of
employees: NUMEMP=10, NUMEMP=50, and NUMEMP=150. The estimated marginal effects are
5.9%, 5.4% and 2.3%, respectively.
In future work we would like to extend the IEM index to panel data. This would allow us to study the
dynamics of the phenomenon, taking into account the heterogeneity between statistical units, and
addressing traditional econometric problems in cross-section regression, such as unobserved individual
effects, endogeneity, and dynamics.
TABLE 5
RESULTS FOR THE BETA REGRESSION
Variable
Estimate
-0.3415
-0.1721
-0.0012
Std Error
0.1297
0.0512
0.0022
t-value
-2.63 **
-3.36 ***
-0.52
p-value
0.0085
0.0008
0.6009
EDU
WORKEXP
STARTUP
EMP
0.0236
0.0125
0.0039
0.2349
0.0107
0.0023
0.0100
0.0440
2.21 **
5.42 ***
0.39
5.34 ***
0.0272
<0.0001
0.6995
<0.0001
HISP
WHITE
PAT
IP
TOTIP
HT
HOME
MULTIOWN
0.0507
0.0329
-0.1458
-0.1829
-0.0029
0.1366
0.0021
-0.1238
0.0993
0.0139
0.1626
0.0622
0.0027
0.0660
0.0447
0.0462
0.0152
0.0035
INTERCEPT
FEM
AGE
NUMEMP
0.51
2.37
-0.90
-2.94
-1.08
2.07
0.05
-2.68
**
**
*
**
4.40 ***
0.6095
0.0180
0.3697
0.0033
0.2795
0.0388
0.9618
0.0075
<0.0001
* p-value<0.1; ** p-value<0.05; *** p-value<0.001
CONCLUSIONS
In this paper, we have proposed an innovative approach for the study of entrepreneurship. A new
performance indicator (IEM) is introduced in the framework of M-quantile regression. By construction,
this index has a stochastic nature and it is outlier robust. Moreover, it does not depend on the level of
inputs of the business. An empirical comparison with the standard indicator obtained with DEA
techniques is carried out. This comparison showed that DEA index depends on the level of input of the
business and therefore it is not possible to use it for studying returns to scale.
As regards substantive results, a beta regression has been performed to analyze how well the
entrepreneurs and firm characteristics do explain the observed variation in the entrepreneurial
performances. We found that positive factors are education, previous work experience in the same
industry, white race and the fact that the entrepreneur is also a paid employee at business.
ACKNOWLEDGMENTS
Paper supported by the ex 60% University of Bergamo, Biffignandi grant and PAADEL project
(Lombardy Region – University of Bergamo joint project). The authors are thankful to the Kauffman
Foundation for providing training and support. Any opinions, finding, and conclusions or
recommendations expressed in this paper are those of the authors and do not necessarily reflect the views
of the Ewing Marion Kauffman Foundation.
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An Investigation of Marketers’ Attitudes Towards Corporate Restructuring
and CSR in Sub Saharan Africa: A Case of the Nigerian
Service Industry in Lagos Metropolis
Bolajoko Nkemdinim Dixon-Ogbechi
University of Lagos, Nigeria
Elizabeth M. Haran
Salem State University
Joseph F. Aiyeku
Salem State University
Piyachat Jarutirasarn
Ramkhamhaeng University, Thailand
The concept of corporate social responsibility (CSR) continues to grow in recent years and is gradually
becoming a global trend. Despite this growth, the adoption of CSR is still very small in the Nigerian
service marketing industry. This paper investigated marketer’s attitude towards corporate restructuring
and CSR in the Nigerian service marketing industry in Lagos metropolis. It concluded that there is a
positive relationship between Nigerian service marketing industry marketers’ attitude and the adoption of
CSR despite the current wave of corporate challenges in the country. Overall results indicate that
actions that followed restructuring were judged to show social responsibility. INTRODUCTION
Though traditionally, the role of business is viewed to be the creation of wealth for shareholders,
employees, customers and society at large at a profit, happenings in the external business environment
within the last decade has shown that various parties and persons are beginning to see the need to redefine the role(s) of business in society to include corporate social responsibility (Okomoh, 2004). This
view is supported by Aguilera, Rupp, Williams, and Ganapathi (2007) who opined that organizations are
pressured to engage in CSR by many different actors, each driven by instrumental, relational, and moral
motives. To this effect, some organizations’ corporate policies world-wide have started reflecting the new
demands of their external environment by incorporating the concept of Corporate Social Responsibility
(CSR) (Okomoh, 2004). To this effect, there is need for businesses to restructure their organizations to
cope with happenings in the dynamic business environment. Restructuring is the corporate management
term for the act of reorganizing the legal, ownership, operational, or other structures of a company for the
purpose of making it more profitable, or better organized for its present and future needs (McAteer,
2011). It is a managerial strategy aimed at improving efficiency, controlling costs or gaining more
profitability, and coping with fluctuating business environment to survive in the long term. Given the
dynamic nature of the business environment, organizations need to embark on restructuring at one point
in time or another.
However, given the direct business benefits of CSR such as building a reputation, generation of
positive corporate image, reducing resource use, waste and emissions in the environment, ensuring
compliance with regulatory requirements, improvement in company/employees’ morale, among others
(Business Link, 2012; Schmidt, 2011), it is advisable for organizations to incorporate CSR in their
restructuring. This paper as part of a larger study seeks to investigate how this can be done in the
Nigerian service marketing industry by determining the more socially responsible practices that
companies in the Nigerian service industry can adopt during restructuring.
STATEMENT OF PROBLEM
Given the recent rising interest in CSR globally among academicians and organizations both in the
private and public sector, organizations have engaged in serious efforts to incorporate CSR into all
aspects of their businesses (Albareda, Lozano and Ysa, 2007) including during restructuring. However,
research has shown that decisions to incorporate CSR in any organization are usually initiated by the
management team (Dixon-Ogbechi, Aiyeku, Haran and Jarutirasarn, 2011). Therefore, there is a need to
see how organizations can incorporate CSR in their corporate restructuring efforts by investigating the
attitudes of marketers toward corporate restructuring so as to find out what they perceive to be the actions
or practices that are more socially responsible in restructuring.
This is important because an understanding of an individual’s attitude towards an object could help in
the prediction of the individual’s overall pattern of responses towards that object (Ajzen&Fishbein, 1980;
Dixon-Ogbechi et al., 2011). Given this background, it can be inferred that an understanding of
marketers’ attitude towards the actions or practices they perceive as being more socially responsible in
restructuring will facilitate their adoption of CSR in their corporate restructuring efforts.
THEORETICAL FRAMEWORK
Corporate Social Responsibility
Over the last decade scholars have conceptualized the Corporate Social Responsibility (CSR) concept
in different ways. For instance, Eilbrit and Robert (1973) viewed CSR at the micro-level in terms of good
neighbourliness, which encompasses the responsibility not to spoil the neighbourhood (negative
injunction duties), and the voluntary assumption of the obligation to help solve neighbourhood problems
(affirmative duties). In 2001, The European Commission defined Corporate Social Responsibility (CSR)
as a concept whereby companies decide voluntarily to contribute to a better society and cleaner
environment and, second, as a process by which companies manage their relationship with stakeholders.
This view is supported by Xu and Zhang (2011) who added that corporate social responsibility is the
positive fulfillment of obligations and responsibilities to employees, business partners, customers
(consumers), community and nation through enterprise systems and behaviors; and a benign reaction to
enterprise’ stakeholder groups and also the enterprise operation objectives’ overall target.
While agreeing with these views, Visser, Matten, Pohl and Tolhurst (2007) defined CSR from the
developing country’s perspective as ‘the formal and informal ways in which business makes a
contribution to improving the governance, social, ethical, labour and environmental conditions of the
developing countries in which they operate, while remaining sensitive to prevailing religious, historical
and cultural contexts’. They further identified four rationale for focusing on CSR in developing countries
as distinct from CSR in the developed world based on findings from organizations such as International
Monetary Fund (IMF), World Resources Institute (WRI), United Nations Development Programme
(UNDP) and world Bank as follows: developing countries are where globalization, economic growth,
investment, and business activity are likely to have the most dramatic social and environmental impacts
(both positive and negative) (World Bank, 2006); developing countries represent the most rapidly
expanding economies, and hence the most lucrative growth markets for business (IMF, 2006); developing
countries are where the social and environmental crises are usually most acutely felt in the world (WRI,
2005; UNDP, 2006); and developing countries present a distinctive set of CSR agenda challenges which
are collectively quite different to those faced in the developed world (Visser, 2012; Visser et. al., 2007).
Given the foregoing, it can be seen that CSR is about giving back to society from which business has
taken so much. This notwithstanding, some scholars argued that corporate social responsibility (CSR) is
not just about doing the right thing but also about behaving responsibly (Business Link, 2012). Then we
can conclude that CSR is a matter in which a corporate willingly responds to the economy, society, and
environment in a responsible manner with the aim of benefiting people, groups, and society.
Corporate Restructuring
Restructuring or corporate restructuring in its dictionary definition is the act or process of changing
the terms on the assets and/or liabilities of a company (Financial-Dictionary, 2011). It can also be viewed
as a significant modification made to the debt, operations or structure of a company. It is a corporate
action which is embarked upon when there are significant problems in a company with the hope that
through restructuring, a company can eliminate financial harm and improve the business (Investopedia,
2011). While from the business/commercial point of view, restructuring is a change in the business
strategy of an organization resulting in diversification, closing parts of the business, etc., with the aim of
increasing organizational long-term profitability (Free Dictionary, 2012).
Given the dynamic nature of the business environment, there is no way organizations can survive
without embarking on one form of restructuring or the other. However, to adapt to the current strategic
thinking of CSR, the organization needs to be socially responsible in its restructuring efforts. To this
effect, it is important to know what marketers attitude towards CSR and corporate restructuring are so as
to ensure organizational survival and long term profitability.
CSR in Nigeria
Research has recently shown that organizations in Nigeria, just like in other developed and
developing nations, are increasingly practicing CSR. Although in Nigeria, the history of ‘organised’ CSR
can be traced to practices in the oil and gas sector driven by western MNCs. A study by Amaeshi, Adi,
Ogbechie and Amao (2006) revealed that in Nigeria, CSR was mainly seen from a philanthropic and
altruistic perspective as a way of ‘giving back’ to the society. They then concluded that while indigenous
firms were more involved in philanthropic CSR, multinational firms were more strategic in their CSR
activities. This, according to them, is at variance with an understanding and practice of CSR in Western
economies, where CSR is argued to have ‘advanced’ beyond philanthropic understanding in many ways
(Amaeshi et al., 2006).
Research by Amaeshi et. al (2006) also revealed that there have been a number of studies on CSR in
Nigeria, most of which have, mainly, focused on the CSR activities of multinational firms in the Nigerian
oil industry like Shell, ENI, ExxonMobil, ChevronTexaco, TotalFinaElf and less on indigenous firms
(e.g. Ite, 2004, 2005; Frynas, 2000, 2001; Boele, Fabig, and Wheeler, 2001; Wheeler, Fabig, and Boele,
2002). This view is supported by Idemudia (2007) and Tuodolo, (2011) who further opined that oil
multinational companies are making considerable contribution to host community development.
However, these companies mainly engage in CSR in order to make up for the government’s
governance failures, in order to protect their business interests in the region and also in order to remedy
the effects of their extraction activities on the local communities; and the Niger Delta region of Nigeria
(Tuodolo, 2011; Idemudia, 2007). Also, a recent study by Dixon-Ogbechi et al (2011) investigated
marketers’ perception of corporate social responsibility and the impact on performance of companies in
the Nigerian service industry in Lagos metropolis and discovered that firms who participate in CSR will
have more customers, and they will face low business conflict and have more loyal employees. Given this
and given the fact that there are little or no study on CSR and corporate restructuring in the Nigerian
service marketing industry, this paper seeks to fill this gap in knowledge.
METHODOLOGY
Research Objectives
1. Investigate the attitude of marketers in the Nigerian service industry toward CSR.
2. Determine the impact of stakeholders on the corporate image/reputation of companies in the
Nigerian service industry.
3. Determine which are the more socially responsible practices that companies in the Nigerian
service industry can adopt during restructuring.
4. Investigate the attitude of marketers in the Nigerian industry toward corporate restructuring
and CSR.
Research Hypothesis
H1: Marketers’ opinions of the CSR components will be positive overall.
H2: There will be significant differences among demographic grouping of marketers in their
assessment of the impact of stakeholders on their firm’s public image/reputation. Specifically,
assessments will vary by size of company, but not by age, education or gender. There will
also be significant differences among the impact of stakeholder groups.
H3: The actions perceived as most socially responsible in connection with corporate restructuring
will be those that take place during the actual process as opposed to those which take place
prior to, or after, restructuring.
H4: All socially responsible actions offered as options during restructuring will be seen as
positive actions a company should follow.
Research Instrument
This study used the questionnaire to investigate corporate restructuring and CSR in companies in the
Nigerian service Industry. The larger study used the same instrument to find out marketers’ attitudes
toward corporate social responsibility, stakeholders, socially responsible behaviors, corporate social
performance, and CSR activities. It is composed of 7 parts including details of sampling firms, attitudes
of managers toward CSR, stakeholders, socially responsible restructuring, CSR activities, firm’s
performance, and respondents’ profile. The questionnaire was designed to be a self-completed form for
marketers to evaluate various dimensions related to corporate restructuring and CSR. The Likert scale, the
most common and widely used scale in measuring attitudes and perceptions was mostly used to design
the questionnaire (Achyar, 2008).
Population and Sample Size
The population of this study was the marketing staff of companies in the Nigerian service industry in
Lagos metropolis. The sample size for this study is 550. The 550 respondents were selected using
multistage sampling from a total of 13 companies (including banks, electricity and water service, ministry
of works, telecommunications service, academy press, aviation handling, media services and insurance) in
the Nigerian service industry in Lagos metropolis.
Limitations of Study
1. Retrieval of the questionnaires in some instances were quite difficult, even after a series of
follow ups, 34 questionnaires were not returned; hence we could not get a 100% response
rate; nevertheless, the 93.8% response rate was more than adequate.
2. It was difficult to get full attention from some of the respondents because they claimed that
they were busy and could not give much time; however this was overcame through frequent
follow up.
DATA COLLECTION AND ANALYSIS
The research instruments were administered over a period of three months and data were collected
using self administered questionnaires. Out of the 550 questionnaires administered, 516 were returned
with a response rate of 93.8%. Descriptive statistical analysis of the data was done using the Statistical
Package for Social Sciences (SPSS); inferential analyses were performed to identify factors comprising
the scale and to test the hypotheses. They included Factor Analysis, Analysis of Variance (ANOVA) with
Post Hoc tests.
RESULTS
Respondent Profiles
The respondents classified by gender were 51.6% male and 48.4% female. Six percent (6.3%) of the
respondents were age 25 or below, but most were between 26 and 55: 21.7% were between 26-35 years
old; 26.2% between 36-45 years old; and 20.3% between 46 and 55. The majority, 55.7%, had some
college or a bachelor’s degree. Another 29% had a high school or technical diploma. Only 10.7% had an
advanced degree and very few, 4.7% had less than a high school education. Most respondents reported
that they worked in large firms, 31.8%, followed by medium 21.8%, and semi-medium, 18.1%. Only
13.4% reported they were from small firms and 14.9% said medium-large firms. The ownership type was
20% state-owned, 15% collective owned, 24% shareholding, 25% private and 16% other.
Marketers’ Attitudes Toward CSR
Attitudes toward CSR were measured by a 5 level scale of agreement to statements about CSR.
Factor analysis indicated that the statements covered 3 components, described as “information about
CSR”; “characteristics of firms with CSR”; and “employees in high participation CSR firms.” The
statements which loaded on the first factor included: A firm will participate more actively in social
responsibility in prosperous economic times than in recession; A firm is participating in CSR because it
wants to gain a good image from the public; Participating in CSR is called Public Relations (PR); A
firm with a high socially responsible image will face low levels of business conflict; Corporate social
responsibility is a part of running a business. The statements which loaded on the second factor were:
A firm with high reputation does not need to participate in CSR in order to gain more reputation; A
firm with more activities in social responsibility will have more profitability than a firm with less or
none; A firm with high participation CSR needs to spend lots of money on CSR activities. The
employee factor was comprised of: Employees in a firm with high participation in CSR will work more
efficiently for the firm; Employees in a firm with high participation in CSR will have more loyalty to
the firm.
In general the attitudes toward each of the statements related to CSR were in the neutral range. The
means ranged from 2.96 to 3.26, with all medians equal to 3. Respondents were more neutral to
whether CSR is in conflict with pursuit of profit, with whether CSR activities are affected by economic
times and whether companies participate in CSR to gain public image. They were more split in their
opinions on whether CSR is PR, and on whether firms with high reputations do not need to participate
in CSR. The highest percentages of agreement were with the statements about firms with high levels of
CSR will have more customers, more profits, will spend more money and will have employees that are
more efficient.
Analysis of Variance with Post Hoc tests was used to analyze differences in attitudes by size of
firm, level of education, age, and gender. Size of firm showed significant differences on three attitude
statements, about image, high reputation and profits. Medium-large firms showed significantly more
agreement to the opinion that firms participate in CSR to improve public image than medium sized
firms. The idea that firms with high reputations need not participate in CSR was disagreed with by the
small firms and they were significantly different than the medium, medium-large, and large firms in
this regard. Medium large firms were significantly higher in agreement with the statement that firms
active in CSR will have more profits than medium sized firms.
Level of education showed significant difference in three attitude statements as well: image, high
reputation and efficiency of employees. The first two overlap with those in size of firm, above. Those
with less than a secondary education were significantly more in disagreement to the idea that firms use
CSR to gain good image than those with a bachelor’s degree. They were also significantly more in
disagreement that firms with high reputations need not participate in CSR to gain more reputation than
those with advanced degrees. They were also significantly more in disagreement that firms with high
CSR will have more efficient employees, in this case they differed from those with a high school
diploma, a technical degree, a bachelor’s or an advanced degree.
Analysis by age showed significant differences on many CSR attitude statements. Post Hoc
analyses showed these significant differences to be between the older age group(s) which tended to be
more in disagreement and the younger age group(s) which tended to be more in agreement. With the
prosperous economic times statement, the CSR is PR statement, that CSR firms will have more
customers statement, that a firm that participate in CSR has to spend lots of money and that employees
in a high participation CSR firm will be efficient the difference was between the 65 and up (more in
disagreement) and the 26-35 group (more in agreement); with the statement that firms participate to
gain image and that CSR is part of running a business the split was under 45 (more agreement) vs. over
45 (more in disagreement.)
There were many significant differences between the genders. In almost all cases the males were in
more agreement with the CSR statements. The one exception was that the females were more in
agreement that firms with high reputations need not participate in CSR to enhance their reputations.
More men were significantly more positive that: CSR was for prosperous economic times; that firms
participate to gain image; that CSR is PR; that firms that participate in CSR will have more customers;
and that they will face low business conflict; and that they will have more loyal employees.
Assessment of the Impact of Stakeholders
Analysis of the impact of stakeholder groups on a firms’ public image/reputation was based on
seven identified stakeholder groups. Each group was evaluated on a 5-point Likert scale which
evaluated the extent of impact the stakeholder group had on the firm’s public image/reputation. The
impact for almost all stakeholder groups was judged to be in the “to some extent” range, with all
medians in that level and only the shareholder group with a mean in the neutral range. The evaluations
of the shareholder and government stakeholder groups showed the most variability.
Analysis of variance with Post Hoc analyses were carried out to determine if demographic
characteristics affected the ratings. Analysis of difference in mean evaluation of the impact of the
stakeholder group based on age, gender and size of company showed only a few significant differences.
Males were more likely to give a higher level of impact to the government as stakeholder than females,
no other differences were significant. There was a significant difference given to the impact of local
communities between the very small and the largest companies, with the small companies rating the
impact the lowest. No other significant difference among the various sized companies and their ratings
of stakeholders were found.
The age of the managers showed differences in how they rated the customers and the employees, in
terms of impact on public image. The 36-45 age category rated customer impact significantly higher
than older managers did. The 26-35 age category rated the impact of employees significantly higher
than those of age 46-55 and 56-65. The major differences were seen in the ratings of stakeholder by
type of company. All categories of stakeholders showed significant differences. The shareholder stake
holder category was judged significantly higher by those in shareholder companies vs. those in private
companies. Just the opposite was found for customers: they were seen as having significantly higher
impact by private companies vs. shareholding companies. Employees had significantly higher impact
for state owner companies than for private firms. Business partners were significantly more of an
impact in state owned companies than in privately owned. The general public and the local
communities had significantly more impact for state owned companies than for private ones; and the
same was true when government was rated as a stakeholder.
Attitudes Toward Corporate Restructuring
Managers were asked to evaluate actions that would be most socially responsible during the course
of restructuring, if their firm ever needed to restructure. The managers were first given the definition of
restructuring as a managerial strategy aimed at improving efficiency, controlling costs or gaining more
profitability, and coping with fluctuating business environment to survive in the long term such as
downsizing, sale or termination of a business line, facility closures, consolidations, relocations, reduction
of wages, incentives, bonus, and welfare; and then asked to indicate on a 5 point Likert scale their
agreement with 11 statements about actions that could be taken prior to restructuring, during
restructuring and after restructuring. Reaction to all statements was in the neutral range, with the
exception of “Give laid-off employees priority for job vacancies” with which the majority was in
agreement. The only statement that had an average rating lower than neutral was “Make an advance
announcement to employees and community about restructuring.”
Analysis of variance was performed to see if the reaction to the statements would differ depending
upon whether they were to take place prior to, during or after restructuring. There was a significant
difference among the reaction to actions depending upon the time they would occur, (p<.05). Actions
taken after restructuring were looked at in a more positive light. These included severance pay, part
time work, relocating employees to other departments or firm and job priority, as mentioned above.
DISCUSSION AND CONCLUSIONS
The results do not support hypothesis one in its entirety. While the attitudes were not negative, they
were mostly in the neutral range. The CSR statements which received the most positive responses were
that firms with high levels of CSR will have more customers, more profits, will spend more money and
will have employees that are more efficient (although it is not clear if this is due to the CSR or the
perhaps mitigating opinion that large companies are more likely to participate in CSR).
There were differences in opinions among the firms when grouped by size, supporting hypothesis
two. The groups most likely to think significantly different were the middle to large size group. They
were significantly more likely to believe that CSR should be used to improve public image and profits.
Perhaps because they aspire to become more involved in these activities, and want to believe that they
will pay off. Interestingly, it was the small sized firms who were stronger in their belief that firms with
high reputations still have to be involved with CSR, other groups felt that high reputation firms need
not be involved in CSR. It is not clear that they think CSR might put them on the path to an improved
image and then might not be needed, or activity in this area might be decreased but this is a topic that
warrants further study. Education was not hypothesized to make a difference, however, while those
with diplomas or degrees were more likely to be neutral or positive, those with less than a secondary
education were significantly more in disagreement that CSR is used to gain good image, that firms with
high reputations need not participate in CSR to gain more reputation and that firms with high CSR will
have more efficient employees. Further analysis of the employment sector may be needed here to
determine if these opinions are across the board for this education group or if there are other factors
involved. While age was not hypothesized to make a difference, it was in this area that the most clear
cut differences were found. The significant differences were between the older age group(s) which
tended to be more in disagreement and the younger age group(s) which tended to be more in agreement
with the CSR statements. Perhaps the older respondents are more set in their ways, or less
knowledgeable about the recent activities in CSR.
A similar unexpected difference existed between males and females, with males being more
positive. Females were only more positive that firms with high reputations need not participate in CSR
to enhance their reputations. Could it be lack of knowledge or cynicism on the part of the females?
Assessment of the importance of various stakeholder groups was considered to be “to some extent” for
all groups. The largest differences were found among type of companies, as one might expect. Privately
held companies rated customers significantly higher; shareholder companies rated shareholders higher;
and state owned companies were higher on their ratings of employees, business partners, local
communities and the general public. Younger respondents rated customers and employees highest. In
summary, hypothesis two was only partially supported as many more differences among demographic
groups were found, than had been expected.
Hypothesis three was mixed. Rather than the expected reaction that the actions taken during the
restructuring would be those perceived as most socially responsible, it was the actions that followed the
restructuring that were judged to show social responsibility: severance pay, part time work, relocating
to other departments or firms; and giving laid-off employees priority for job vacancies. For the first
three of these it could be argued that they are actually part of the restructuring activities, the last takes
place after the restructuring.
Almost all of the actions related to restructuring were in the neutral range. Only one was rated
high—priority for rehiring—and one rated low—making an advance announcement. The expectation of
positiveness toward these activities was not realized, thus not supporting hypothesis four.
The overall results indicate a more neutral view of CSR and restructuring activities overall. This
may be because the ideas are fairly new to this group of respondents, and to the service area in Lagos,
Nigeria overall. Lack of familiarity and or information may have contributed to the less than positive
attitudes. Nonetheless the differences that were identified will be important to follow as research of this
type moves forward.
RECOMMENDATIONS
1. There is a need to promote and encourage Nigerian service marketing industry to participate in
CSR activities at all levels.
2. Both government and non- government organizations need to embark on public relation effort
that will help the Nigerian service marketing industry realize the added values from conducting
a CSR program in their restructuring efforts.
3. There is a need to educate the consumer on the importance of CSR programs and the direct
impacts to the society as a result encourage them to support and patronize companies that are
engaged in corporate social activities.
FUTURE RESEARCHES
1. Future studies should consider other factors such as attitudes of customers toward CSR. The
outcomes will be helpful in establishing strategies to push CSR adoption.
2. Future studies should look at the obstacles and limitations of incorporating corporate social
activities in restructuring efforts and also compare these to successful integration from other
industries in the same Lagos metropolis.
3. Similar studies are needed in other part of the country using same tools so as to compare the
results with Lagos Metropolis and develop strategies to encourage adoption and implementation
of CSR throughout the country when restructuring.
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SHORT BIOGRAPHY: DIXON-OGBECHI, BOLAJOKO NKEMDINIM., PhD.
Bolajoko N. Dixon-Ogbechi, started her early education in Rome, speaks and writes Italian, French,
English and Yoruba fluently. She is a Senior Lecturer in the University of Lagos, Nigeria, and was also a
visiting scholar to Salem State College now Salem State University, Salem, MA, USA. She holds a B.Sc.
in Business Administration, M.Sc. with distinction and Ph.D. in Marketing from the University of Lagos.
She is a an active member of many professional bodies including American Marketing Association
(member and Alpha Mu Alpha), National Institute of Marketing of Nigeria (member and Registered
Marketer) and Institute for Operations Research of Nigeria (Fellow). Her area of expertise is in Marketing
and Decision Sciences and her publications include: books, Journal articles and Conference Proceedings.
SHORT BIOGRAPHY: Elizabeth Marie Haran, PhD.
Elizabeth has been involved in the field of education for 40 years. She is currently a professor in the
Marketing and Decision Sciences Department at Salem State University, a position she has held for over
25 years. She also served the University as Acting Dean of the Bertolon School of Business for three
years. Her B.A., Math, and M.Ed., Community Counseling, are both from Salem State; her Ph.D. is from
Boston College. Current research activities are in Business Intelligence and Analytics.
SHORT BIOGRAPHY: JOSEPH FOLA AIYEKU
Dr. Joseph Fola Aiyeku is a professor of marketing in the department of Marketing and Decision Sciences
at Bertolon School of Business, Salem State University, where he teaches Global Marketing, Consumer
Behavior, Sales Management, Retailing and Electronic Marketing. He has published and presented over
60 articles in various journals and conferences worldwide. He is a co-editor of three books including
“The Dynamic of Marketing in Africa”. Joseph special research areas are in: Macromarketing, Ecommerce, Marketing and Development, Global Consumer Buying Behavior and Entrepreneurship in the
Developing Countries. He is currently a visiting professor of Marketing at Ramkhamhaeng University in
Thailand as well as a consultant to CETEP City University of Lagos, Nigeria where he helps develop
courses in Global Marketing area. Joseph is the co-founder of two international academies: The
International Academy of African Business and Development and International Association of Nigerian
Studies and Development. He serves in the editorial board of several Journals including the Journal of
African Business, Georgia State University and International Journal of Marketing and Exporting from
University of Western Australia. He is also the associate editor of the International Journal of Nigerian
Studies and Development, University of Minnesota.
Social Media Such As the Phenomenon of Modern Business
Veronika Svatošová
University of Pardubice
Social media is becoming an integral part of marketing communications. Therefore, it cannot be ignored
by a successful company when setting its business strategy. The main aim of this paper is to present a
critical view of the current possibilities of social media and based on the findings capture the key factors
for business success through social media. This objective is achieved through a critical analysis of
primary and secondary statistical sources dealing with the possibilities of Internet marketing
communication and through a comparative analysis of the world’s social media population with the
online social population in the Czech Republic.
INTRODUCTION
The Internet has become a phenomenon of modern times. Without the existence of this virtual world
today’s society would struggle to ensure its stability, meaning that it must also exist in economics,
business and marketing. The Internet not only provides the possibility of independent decision-making
but also the capability of selection and targeting. The Internet is not just a passive medium but there is the
possibility of mutual communication and feedback. These attributes are an important factor in marketing
which increasingly tries to use them to its advantage. The Internet is becoming a powerful independent
marketing tool and not only a support tool as it was before.
The world of business is changing dynamically with the development of information technology. It
appears that best practices and recognized strategies are inadequate for the current market, so
management must constantly seek new ways to maintain long-term competitiveness.
Society is in the information age, which creates hyper-competitive markets. Potential customers
therefore have a much broader view of competitive offers; they are more selective and more demanding
than in the past. The present era is also known as the new economy (digital or information economy).
Štědroň calls the digital economy a “synergistic process converging in the complete dependence of all
businesses on the phenomenon of ITC” (Štědroň, 2009).
The digital economy has reached a stage where companies are forced to clearly define their image
and identify new business opportunities in the markets in which they operate. These facts show that
businesses must understand and master new skills if they hope to prosper in the long-term. Kotler states
that in addition to existing skills and abilities the must fundamentally rethink and revise their business
strategies and rethink the role of marketing in their marketing strategy (Kotler et al., 2007).
THEORETICAL FRAMEWORK
Marketing has come to the fore in the modern business world. This is reflected by the fact that in
many companies marketing costs make up to 50% of all corporate costs (Kotler, 2003). Companies that
maintain a long-term leading position in the market realize that marketing is a key business activity and is
crucial to the success of the business. Crainer states that “marketing reveals the needs of the customer, it
designs products that meet their requirements and demands, and then creates a support system designed to
ensure customer satisfaction” (Crainer, 2000).
According to the traditional concept, marketing is defined as a system for meeting the needs of the
customer. Kotler adds, however, that marketing reaches further and creates needs and wants which were
previously non-existent. According to this theory, marketers encourage consumers to spend more money
than they can afford for the goods and services they actually do not need (Kotler & Keller, 2007).
Marketing is considered as being one of the most dynamically developing fields. Marketing is an art
and science; thus there is constant tension between the theoretical and creative sides of marketing (Kotler
& Keller, 2007). Customers are increasingly demanding, hence the essence of marketing, consisting in
satisfying the needs and wishes of customers, is becoming increasingly difficult to define. Current
marketing activities must be continuously improved and transformed in virtually every industry in order
to increase the chances of success.
More or less coherent concepts gradually formed during the 20th century, leading to the modern
concept of marketing and marketing communication as one of the most important tools affecting customer
behavior and the business environment. Consumers ceased to be the object of marketing communication
and became the subject. They help to shape brands and products and the method of communication on the
market (Přikrylová & Jahodová, 2010).
Pilík defines the current concepts of marketing as being traditional marketing, traditional marketing
with innovative features and new marketing trends. The decision whether to choose a traditional or
innovative marketing approach depends on many factors (Pilík, 2008). Good marketing follows
innovation trends in industry. Consumers are tired of traditional communication tools and increasingly
ignore commercial communications. One of the ways to attract them is through innovation (Kotler, 2005).
The main attributes of a successful modern marketing are:
 Not equating marketing with sales.
 Integration of marketing communication tools instead of planning a communication tool
separately.
 Focus on customer care rather than focus on customer acquisition.
 Transition from operating on the market to operating in cyberspace.
 Transition from using one marketing channel to marketing that uses multiple communication
channels.
 Transition from marketing focusing on the product to marketing focusing on the customer.
(Kotler, 2000; Pilík, 2008)
The key term for the current marketing is customer analysis in the broadest sense. A company which
gains a deeper insight into customer needs, perceptions, preferences and behavior, is undoubtedly at a
competitive advantage (Kotler, 2005).
Companies must monitor customer satisfaction and strive to improve it. Practice shows that the cost
of acquiring a new customer may be five to ten times higher than the costs incurred for the care of
existing customers and retaining them. A five percent decrease in the rate of customers leaving can lead to
increased profits of 25 to 85 percent depending on what industry a company operates in (Kotler, 2003).
These days, traditional marketing tools are not enough for market success. Marketing, therefore,
recently underwent a dynamic and turbulent development from mass marketing and targeted marketing to
today’s IT and institutionalized forms of marketing integrated into the new economy (Štědroň, 2009).
Marketing communication on the Internet takes an increasingly important position in a modern
approach to marketing as it affects the lifestyle and behavior of consumers and changes the existing rules
of the game in world trade. The main advantages of online communication include:
 Interactivity,
 Two-way communication,
 Possibility to communicate 24 hours, 7 days a week,
 The customer can be reached in several ways at once,
 Possibility of immediate updating,
 Personalization,
 Precise targeting,
 Measurable effects.
Internet marketing is gaining in importance and is gradually exceeding traditional mass marketing. Of
course, not in terms of the volume of funds allocated but rather in terms of effectiveness. Marketing on
the Internet involves a wide range of activities: presentation of web pages, online PR, online direct
marketing, various forms of online sales support (affiliate marketing, advergaming, buzz marketing, viral
marketing), Internet advertising or the use of communication on social media.
Social media is the last and latest trend on the list of marketing activities on the Internet. Statistics
show that during its relatively short existence it has become such a phenomenon that it can be regarded as
much as a revolution as the advent of the Internet itself. Companies that do not adapt to this trend cease to
exist. Due to its importance for the scientific and business world social media should be given the
attention it deserves.
SOCIAL MEDIA
Unlike traditional media, the Internet provides new space for two-way communication with customers
and social media provides a new dimension to this environment. This new aspect of business requires a
new approach to the work of marketing and sales personnel, therefore it is necessary to define new
principles of marketing and completely change communication styles. Marketing experts need to find
effective uses of social media for marketing communications. A successful business requires thorough
marketing support and constant communication with their customers. Social media is one of the ways of
doing this. (Svatošová, 2011).
The dynamics of the development of social media are confirmed by surveys conducted in the United
States, which show that while social media was used by 57% of companies in 2007, in 2011 the figure
was 93%, and 90% considered it an important component of the overall mix. Some companies even now,
however, consider social media as a place only for entertainment and not a space for potential marketing
and promotional purposes. Another error is that some companies underestimate social media from a
marketing point of view. Marketing on social media requires much more thorough and sophisticated
strategic preparation than traditional, mass marketing.
Social media is often identified with social networks. The concept of social media, however, includes
a wider range of activities. Social media can also be a web page or e-shop using social elements, as well
as discussion forums, weblogs, multimedia or other online activities motivating participants to purchase.
Social media has no established uniform definition and can also be referred to as “new media”, “media
2.0” or “buzzword”.
According to Janouch, for example, social media can be defined as an “online media, where content is
(co-)created and shared by users. Social media is constantly changing, both in the way it changes
(increases) its content and by adding many functions. Marketers can use social media to directly
determine what customers want, what their attitude is towards the brand or company, and what they
complain about, etc.” (Janouch, 2010). From a marketing point of view social media has the advantage
that its content can be instantly updated based on the opinions, comments and discussions of the
participants or the whole community. Among its other features include the ability to immediately edit the
content, social validation of data, and share content between users of social media. Another important
aspect of marketing on social media is called Search Engine Optimization, which allows optimization of
social media in order to ease searching.
Social media can be broken down based on marketing tactics, because it is more transparent and
surveys on the use social media are most often conducted based on this (Janouch, 2010):
 Social networks (Facebook, MySpace, LinkedIn)
 Blogs, videoblogs, micrology (Twitter)
 Discussion forums, Q&A portals (Yahoo! Answers)
 Social bookmarking systems (Diggo, Delicious, Jagg - social bookmarking)
 Shared multimedia (YouTube, Flickr)
 Virtual worlds (Second Life, The Sims)
 Mobile collocation services with elements of social networks (Foursquare)
 We can also include the website Wikipedia in social media.
In a relatively short time social media has penetrated the consciousness of society so much so that it
has begun to be taken for granted. Its original purpose, a source of entertainment and communication
between users has ceased to be enough and for many participants it has become a tool both for gaining
knowledge and information and also for delivering it. The Internet has become a widely available means
of communication, which can be used for the transmission of social communication. This requires
knowledge of this environment, sophisticated tools and a great deal of creativity from all who intend to
use it for commercial purposes (Svatošová, 2011).
The presentation and promotion of a company or product on social media is referred to as social
marketing. The new platform of social marketing can be defined as “an indirect way of influencing or
persuading a group of people to accept, amend or abandon certain ideas, behavior, practices or approaches
by this media” (Janouch, 2010). A number of surveys show that a third of users are involved at least once
a month on social media, while social media for them means a source of information which they use to
purchase products and more.
Marketers need to be aware of specificity of space in social media and the different rules when
creating marketing communications. Social media represents a space where the view formed on a
particular product or service is mostly true, so much greater confidence is enjoyed than traditional
marketing media. Firms should be aware that on social media they do not only compete among
themselves, but in some ways they also compete with their own users.
Traditional media has a strong position; however, a result of modern times is that many people verify
the information they receive from advertising on the Internet. Companies should keep in mind that their
existing customers also act on social media. Their good references about a product or brand can attract
more participants of social media and spread awareness about the company and its products. This
information will be much more credible for the social community than a presentation on a company
website.
Many surveys show that 78% of consumers trust recommendations before buying a product (both
personal and through discussions on social media), only 14% of them trust the direct advertising. The
surveys also show that only 18% of television advertising campaigns provides a positive ROI (Return On
Investment).
Effective strategies applied to social media also require the involvement of top management in the
decision-making process. In addition, social media requires detailed knowledge of the environment
combined with a high degree of creativity. A company operating on social media must realize that the
classical method of reaching customers in this area is ineffective. The principle of the social community
lies in commenting, discussing, and entertainment. Knowledge of these principles should be utilized by
companies in their online strategies. It is therefore necessary to be familiar with their users and consumers
so that they can be used to their advantage.
For the right strategy in social media it is necessary to understand basic facts about mass
communication and to put them in the context of the perception and use of social media of the users
themselves (Baco, 2011). At the beginning it is necessary to clearly define the goal that the company
needs to achieve in the social media. In addition, the company should find an appropriate audience. Like
every marketing tool it is necessary to create and schedule tasks to be achieved. Of course there are
indicators measuring efficiency in terms of site traffic, the number of supporters, contributors, number of
followers on Twitter, retweets on Twitter, mentions on Twitter, the number of group members on
LinkedIn, comments on the blog, the number of content shares, trackbacks on the blog, the number of
“Likes”, the number of members or supporters in the group pages on Facebook and others (Handl, 2011).
The aim of engaging on social media is not an immediate sale, most important is communication and
information gathering, the potential sale can occur as a secondary effect of marketing activities which
must not look superficially like advertising. This is reflected in a number of surveys conducted in the
United States, which showed that 62% of users are involved on social media but only 2% of them use it to
make a purchase. Users perceive social media as their personal space, so would hardly be willing to
accept conventional advertising. In the social community it should appear in a random, spontaneous way.
The purpose of such marketing support is for the community to begin to spontaneously discuss, comment
and ideally share the (marketing) phenomenon (here is also the ideal space for viral marketing). Users of
social media should get the impression that it is good to participate in a particular community.
It must be kept in mind that social media cannot be the only communication tool. Social media should
be part of an integrated marketing principle and not be treated as a separate and major marketing
communications tool. B. L. Ochman describes some of the pitfalls and shortcomings of social media, as
follows:
1. They cannot substitute for marketing strategy.
2. They cannot succeed without top management buy-in.
3. They cannot be viewed as a short term project.
4. They cannot produce meaningful, measurable results quickly.
5. They cannot be done in-house by a vast majority of companies.
6. They cannot provide a quick fix to the bottom line or a tarnished reputation.
7. They cannot be done without a realistic budget.
8. They cannot guarantee sales or influence.
9. They cannot be successful without the use of people with experience (from the media).
10. They cannot replace public relations. (Ochman, 2009)
Social Networking Sites
At the absolute top of a wide range of social media elements is a relatively new type of web
application - Social networking sites. Consequently, special attention is paid to them in this paper.
According to Bednář, social networking sites are still considered as being trendy and they have
completely changed the face of the virtual world because they have become a universal communication
platform and a standard part of marketing communication (Bednář, 2011).
Social networking sites are currently the most popular web application – they have surpassed
traditional websites (Google) and even content (pornography). Social networking sites are places where
users meet and connect to communities with common interests and provide a network of “friends”. Social
networking sites serve primarily as a great crowdsourcing tool. The most popular networks are personal,
from which the most widely used around the world is Facebook, with more than 811 million users. This
web-based system was founded by Mark Zukerberg and was originally confined to students at Harvard
University. Since August 2006, anyone older than 13 years old can connect to the network. If Facebook
was a country, it would be the third largest in the world (after China and India).
Another major social networking site is MySpace which was founded in 2003 in the United States,
where originally students joined to create a network of friends, have fun together, or exchange photos or
videos. Gradually, the network has grown and changed focus into the world’s largest entertainment
network. In 2006 it was the most visited site in the United States but it was overtaken in 2008 by
Facebook. One reason for this is that Facebook is translated into more than 65 languages, while MySpace
is only available in 15 languages. These days, in addition to personal profiles MySpace is mainly used for
the presentation of musical groups and other performers and has over 30 million users.
Another type of social networking is professional. The largest and most popular professional network
in the world is LinkedIn where professionals meet and discuss their business interests. This service was
launched in May 2003. Currently, the largest professional social network in the world has 100 million
users, mostly from the United States, but now it is gaining popularity in smaller countries like the Czech
Republic. A work profile can be set up by anyone and is a great tool for many recruiters and headhunters.
This professional network is not defined based on professional field but there are specialized networks
(Sermo.com – for doctors, Inmobile.org - for top managers in the field of mobile communications, etc.),
(Janouch, 2010). It has been shown that 80% of companies use professional social networks to recruit
new employees, of which 95% use LinkedIn.
Another important medium on the edge of social networking and blogging is the microlog Twitter,
which allows users to publish and read short texts to a maximum length of 140 characters, known as
tweets (which can also be sent by SMS, or other external applications) and which are displayed on the
user’s profile page and the pages of their followers. Twitter was established in 2006 in the United States
and now has over 200 million users, of which 50 million users log on every day and write over 250
million tweets. The usability of Twitter for commercial public communication is limited compared to
Facebook. The disadvantage of Twitter for Czech companies is a relatively low number of users (over
79,000). The most important group of Twitter users are aged 25-34 and 35-49 years old.
Social networking sites currently create the potential for direct and effective two-way communication,
allowing marketers to be in constant touch with their customers and get as many views and information
from a customer perspective as possible, in order to best define the optimal marketing strategy on social
networks and adapt to its customers. Two things are important for the use of social networks for
commercial communication, simplicity and the ability to attract attention.
The principle of having a company on social networking sites lies in the creation of a fans site, unlike
personal profiles where relationships are built with friends. Official sites on social networking sites offer
information about the brand, product or company and can be used to communicate with customers and
build long-term relationships with them. It is also advantageous to link the site with other marketing
activities. For marketers it is a key system for creating a network of friends and sharing mutual
information. With this feature, the application, image or video put on the company’s site can be seen not
only by friends and fans, but also by friends of their friends. This leads to mass dissemination of
information. It is important to actively care for these sites, update their content, as well as actively
communicate and discuss with their fans – companies now use a variety of polls, games (advergaming) or
competition. Social networks should offer added value compared to other marketing aids. Sophistication
of marketing on social networks is demonstrated by a considerable amount of popular and scientific
articles that provide guidance on how these forms of online sales support can be most effectively utilized.
Users can also be addressed with traditional paid advertising on social networking sites. Compared to
other marketing places, social networking sites have the advantage of precise targeting options. Despite
the threat of leaks of sensitive information about themselves, users of social networking sites repeatedly
reveal and identify personal information such as age, education, occupational activity, marital status or
hobbies by their affiliation to various different sites. These users are then displayed the relevant
advertisement based on this information. After attracting the user’s attention there is the more difficult
task – keeping them. Surveys and experience show that paid advertising on social networks is less
efficient than spontaneously spread advertizing.
A new Facebook application for 2012 allows users to take advantage of new features to automatically
share a number of specific activities with friends, like reading, cooking or tasting. This replaces the like
button and expands its capabilities as well as providing even more precise targeting of the required
marketing support on social networking sites. The development of social networking sites offers the
business world other unsuspected possibilities.
In addition, there are also theories (Ibl, 2009) which say that some users of social networks would
rather claim allegiance to the general concept than the specific brand. For example, the official site of the
Czech beer brand Staropramen (2012) has 46,404 Facebook fans, whereas the site of the generic term
pivo (in English: beer) has 104,862 fans. For brands that are not as familiar as for example Coca-Cola, it
pays to create and promote basic profiles outside the product in a general way and through them promote
the brand.
In implementing these procedures a non-violent style should be used and commercial terminology
should be avoided. Commercial communications can be delivered through non-violent forms for example
by inserting a reference to the action associated with the product. Each stage must be considered carefully
because it should be clear to any relatively experienced marketer that an interested person can leave a
group as quickly as they joined it (Svatošová, 2011).
Another important factor is the target group of users of social networking sites. The most common
group of users is between 15 to 34 years old. According to many surveys, these users on average spend
more time on the Internet than any other form of entertainment (books, magazines, television, etc.).
However, there is considerable potential in the dynamically increasing group of women on social
networking sites between 50 to 65 years old. A very strong group is represented by teenagers who are not
influenced by traditional advertising and ignore it. Companies must first understand the behavior and
interests of users of social networking sites; otherwise they cannot be effectively reached.
According to American psychologists from The University of Texas at Austin who have published
studies on social networking sites, users not only profile their true identity and make online friends from
the real world but also their personality traits (Červáková, 2012).
Social networking sites not only provide many advantages for marketers, who should make the best
use of them for commercial purposes but also disadvantages which some traders underestimate:
Advantages of social networking sites:
 More possibilities for using promotional tools - banner advertising, website creation, creation
of groups.
 Relatively easy to contact the target group and get direct feedback in real time.
 A large number of users.
 Continued development of programs to measure effectiveness and analyses.
 The possibility of using viral marketing (Vysekálová & Mikeš, 2010).
Disadvantages of using social networking sites:
 Not possible to reach all target groups (mostly younger users, mostly between 15 and 34
years).
 Interactivity and instant response carries the risk of negative reactions and spreading of
rumors.
 Can lead to misuse of personal data and contacts.
 Special software needed to monitor and evaluate campaigns is expensive.
 Risk of rapid saturation of advertisements on social networking sites and them being ignored.
 Large number of competitors (Vysekalová & Mikeš, 2010).
METHODS
One of the main methods utilized to meet the objectives of this paper is a critical analysis of
secondary sources that provide statistical information on the phenomenon of social media. Subsequently,
a comparison is made between the use of social media in the Czech Republic and other countries in the
world. Another method selected is a critical analysis of primary data from personally conducted
investigations that focus on the issues of e-commerce and Internet marketing on the Czech market.
Statistical Data on Social Media
Research shows that consumers in developed countries use some form of media up to 14 hours a day;
hence except for when they are asleep they are permanently exposed to media influences. While it took
radio 38 years to reach a population of 50 million people, television needed 13 years, the Internet 4 years,
the multimedia appliance iPod 3 years and the Internet communication server Facebook only two years.
The best-known Internet portal Google now registers 31 billion searches per month, while in 2006 it had
only 2.7 billion. Marketing strategies using new media are individualizing and gaining in importance
(Přikrylová & Jahodová, 2010).
A survey conducted by the 2012 Edelman Trust Barometer shows that social media enjoys much
greater confidence than the previous year. Seventy five percent more people have confidence in the
information it provides about companies than in 2011. The increase from the previous year is indeed
noteworthy but overall it is not so good. Among traditional media, company websites and other online
resources are in last place with 14%. Of this quartet traditional media emerged victorious, as well as last
year, with 32% (Bednářová, 2012). The survey was conducted in 25 countries on a sample of 30,000
people.
According to a survey by Wildfire Interactive with 700 world markers, the greatest advantage of
social media is increased brand awareness (88%), engage to dialogue (85%), increased sales and
partnerships (58%) and cost reduction (41%) (eMarketer.com, 2012).
The following Table 1 shows which social media tools were used by 500 selected companies as a
percentage and their evolution between 2009 and 2011.
TABLE 1
SOCIAL MEDIA TOOLS CURRENTLY USED BY INC. 500 COMPANIES, 2009 – 2011
Source: eMarketer.com, 2012.
According to extensive studies of the consultancy company Altimer Group (Owyang, 2011) there is
evidence that with the development of social media, a social crisis of companies is becoming more
frequent. The causes of the crisis are fairly evenly distributed among the five basic social platforms:
online communities (22%), YouTube (22%), blogs (20%), Twitter (18%) and Facebook (14%). With
regard to the individual business sectors, the most affected are consumer goods, clothing and fashion,
restaurants, the Internet and retail. As the results of the study show, the causes of company problems in
social media are often disappointed fans who vent their bad experiences. The crisis often occurs in
companies that have violated an ethical principle or have just a weak influence on the opinions of their
users. There was also a new trend - problems for companies because of their controversial actions being
increasingly created deliberately by non-profit organizations.
The study also states that 76% of the analyzed crises could have been averted or at least the negative
consequences could have been weaken and only 24% were completely unavoidable. The main reason for
these crises lies primarily in the fact that companies were entirely unprepared for such outside attacks
through social media. According to the study, in the area of relations with social media, companies had
major gaps in staff training, lack of experts, lack of a crisis management plan and an overall lag in policy
dealing with social media (Owyang, 2011).
According to comScore, access to social networks is the most popular online activity. In their study
(comScore 2012) in 2011 smartphone owners in the United States used social networks to connect at least
once a month in 64% of cases and in 45% of cases in the European Union. Social networking sites were
used by 82% of the total global Internet population, roughly 1.2 billion people. In October 2011, time
spent on social networking sites made up a total of 19 % of the total time spent by people in the whole
world on the Internet.
In total, according to comScore there are only seven countries in the world where Facebook is not a
market leader in Brazil, China, Japan, Poland, Russia, South Korea and Vietnam. In China, Facebook is
completely blocked. As for individual countries, the trend is quite clear. Of the 43 markets tracked, the
penetration of social networking sites in 41 of them exceeds 85%.
In addition, comScore also states that the presence of different generations on social networking sites
has balanced out. Although social networking sites are mostly used among the youngest generation of 1524 and the oldest 55+ generation is still low, the difference is only 4.5%. On the other hand, the older the
user is the greater the reduction in their activity. However, social media is still far more effective at
reaching younger audiences. The following Graph 1 shows the activities of Internet users by age group
and compares the percentage change in the months of July 2010 and October 2011.
In terms of marketing, interesting statistics are drawn from the Czech ZoomSphere analytical server,
which focuses on social media and updates data daily (ZoomSphere, 2012). Facebook now has almost
812 million registered users and an annual growth of 40% of users. In 2011, the Facebook doubled its
turnover to US$ 3.7 billion. The largest representation is in the United States (with more than 155 million
users), in second place is Indonesia (more than 43.5 million users), and India occupies third place (nearly
43.5 million users). The Czech Republic is ranked in 43rd place with more than 3.5 million users.
Facebook has been banned in some workplaces and schools for sharing inappropriate content.
Facebook is blocked in Syria, for example, reportedly due to criticism of government authorities via
Facebook (Oweis, 2007). Furthermore, statistics show that by the 31st of January, 2012 only 6 pages on
Facebook surpassed 60 million users. In the first place was the Facebook page, then there was Texas
Hold’em Poker, Eminem, YouTube and Rihanna.
A study by the University of Milan investigating the relationships of all Facebook users showed that
their social ties are more connected every year. It follows on from the well-known experiment of Stanley
Milgram from the 1960s and the theory of six degrees of separation, according to which every person is
connected with every other person through a chain of six people known to each other. The study shows
that the connection between users is increasing every year, so significantly less than the previously
established six degrees is enough because the average distance on Facebook is only 4.74, while in 2008 it
was 5.28 (Markoff, J. & Sengupta, S., 2011). The following Graph 2 shows the age distribution of
Facebook users.
GRAPH 1
CHANGE IN AVERAGE TIME SPENT WITH CONTENT CATEGORY BY AGE SEGMENT,
JULY 2010 VS. OCTOBER 2011
Source: comScore, 2012
GRAPH 2
AGE STRUCTURE OF FACEBOOK USERS
Source: Tyinternety.cz (Bednář, 2011)
The agency TNS Global performed a study of human behavior in an online environment in which it
interviewed a total of 72,000 individuals in 60 countries thus providing marketers with comprehensive
information. The study showed that people in countries with developed online markets are much less open
to brands whilst on the Internet than those in growing markets. On average for developed markets it was
determined that 57% of people had no interest in contact with brands through social media. Although
many users of social media are not open to communicating with brands, this does not mean that they
themselves do not talk about brands. The results showed that 47% of people commented on the brand on
the Internet. Furthermore, the study revealed that people praise more than criticize. - A total of 13% of
respondents praised the brand online, whereas only 10% criticized. It also showed that a quarter of people
in the developed markets and 48% for those in growing markets would be willing to buy goods directly
through social networks (TNS Digital Life, 2011).
According to a comScore study (2012), Facebook (28%) became the publisher of “ad impressions”,
soundly beating the other servers, such as Yahoo! sites (12%), Microsoft sites (4%) and Google sites
(4%). Other statistical data on social media is provided by the Czech server SocialBakers, which shows
that the 5 top brands based on number of fans include Coca-Cola, Starbucks, Red Bull, Oreo and
Converse (SocialBakers, 2012).
While many marketers have tried different platforms, it seems that Facebook is the only medium that
based on their experience deserves a good rating (success rate). The following Graph 3 shows how the
platform fulfills the expectations of marketers. Whilst for example Facebook is rated as having excellent
results by 31% of respondents, for Twitter the figure was only 11%. Despite these values, the study gives
a clear indication that marketers are ready to experiment with a wider array of social networks. Next year
it could all be different.
GRAPH 3
RATINGS FOR PAID AD PROGRAM OFFERINGS ON SELECT
SOCIAL NETWORKS, MAY 2011
Source: eMarketer, 2011
According to the SocialBakers server, Lady Gaga, Justin Bieber, Katy Perry, Rihanna and Shakira
currently have the most followers on Twitter. As for the biggest brands, Facebook, Whole Food Markets,
Starbucks Coffee, iTunes and NASA have the most followers on Twitter. According to comScore, Twitter
is currently used by 1 in 10 Internet users and recorded a 59% growth compared to 2010. Another point of
interest from Twitter is that the announcement that singer Beyoncé was pregnant on the Video Music
Awards was commented on by an average of 8,868 tweets per second.
The general popularity of blogs and discussions on them is also worth mentioning. According to
Technorati, 38% of bloggers mentioned a company product or brand positively or negatively at least once
in 2011 (Technorati.com, 2012). Hence, even this form of social communication has irreplaceable
significance for the business world. It is now common for global companies to hire professional and wellknown bloggers for the introduction of new products onto the market.
According to the Czech SocialBakers, LinkedIn currently has almost 135 million users. In the first
place, according to the number of users is the United States (over 58.5 million users and penetration of
18.87%), then India (over 13 million users), United Kingdom, Brazil and Canada. In the Czech Republic,
LinkedIn has over 218,000 users, which means a penetration of 2.14% and 43rd place in the world, behind
Thailand and Ukraine. On a global level, however, LinkedIn has a much more important position and it
shows a 55% annual growth in users compared to 2010.
Companies operating worldwide ensure the promotion of their brands through this professional social
network more than Czech firms do. LinkedIn’s status in certain areas is very strong particularly in the
United States (Červáková, 2012). In 2011, according to comScore, LinkedIn was the 4th largest social
network in the world. LinkedIn has greatest penetration in the Netherlands (27.2%), Ireland (20.4%),
United States (18.7%), Canada (17.5%) and Denmark (17.4%).
In 2012, the following trends in social media can be expected: further improvement of social
intelligence, which leads to the fact that companies that manage to dominate social media communication
will be successful, increasing the importance of using analytics and measurement, as well as
aggregation and content management, which means that there will be an increase in the use of insiders,
and education in social media, which means that courses will be organized to increase and focus on
social media for business purposes (Huněk, 2011).
Czech Facebook in Statistics
Compared with averages for the various countries of the European Union, the Czech Republic has
essentially the same proportion as the average of the EU27 and the EU15 which in December 2010 was at
around 30% (about one third of the population has a Facebook profile).
Facebook started to use Czech language in June 2008, and since then the number of Czech users
increased dramatically. In 2009 there were 170,000 registered Czech Facebook users, in 2010 there were
approximately 2 million and in 2011 over 3 million users. Currently (2012) 3.55 million Czech users are
registered on Facebook. In the Czech Republic, 58% of the Facebook population is aged 18 to 34 years,
while in the age category 55+ this share is only 5%.
Of the more than 10.5 million population, of which 5.7 million uses the Internet, one third of users
(35%) has a profile on this social network, which represents 53% of the Czech Internet population. But
the reality is somewhat different as some people have more than one profile. The data shows that there are
more women (51%) than men (45%) on Facebook, with 4% of users not specifying their gender. Women
protect their privacy significantly less than men – their profiles are less likely to be hidden. The study
(Appeltauerová et al., 2011) shows that 55% of men have a closed Facebook profile, while women hide
their profile in 47% of cases.
According to the statistics, Facebook users are most active on Thursday because it is the last day
before the weekend when it is possible to use Facebook. Sunday is also a favorite. Although Facebook
users are active on Thursday (and also on Monday), almost nobody writes on Saturday - despite the fact
that there is a no pronounced decrease in user activity on Saturday.
An important aspect of the business world is to compare the activity (the number of contributions) on
Facebook in hours. It can be shown that most users write during so-called “prime time TV”, i.e. 6 pm to
10 pm. In contrast, Facebook sites (i.e., administrators who care for them) are most active in their
working hours. The discrepancy is clear, Facebook sites communicate the most at completely opposite
times to when Facebook fans are active. This means that users fail to act immediately and their
contributions as a result fall deeper in the newsfeed if they get there at all. The visibility of posts in the
newsfeeds of fans is very low and the site is currently facing a great challenge - how to be seen by people.
If they publish at different times than fans and in prime time their friends’ contributions compete with
those of their fans, it is not easy and often requires a change in communication strategy (Appeltauerová et
al., 2011).
Facebook sites and users often share links, although not the content that has the most comments and
Likes. Sites share more visual content than ordinary text statuses, on the contrary users tend to write more
status updates and share less pictures and videos, as shown in Graph 4.
GRAPH 4
POSTS OF FACEBOOK USERS ACCORDING TO TYPE
Source: (Appeltauerová et al., 2011)
Note: Status (17%), Link (58%), Photos and video (10%), Others (0.5%), Comments (14.5%)
Type of content and its length also play an important role. The analysis shows the influence of the
length of a published contribution to its success. The most Likes and comments are obtained by posts
with the shortest text (100-200 characters). Brevity therefore increases the chance of interaction.
According to SocialBakers TOP 100 the most successful sites usually have an average of 46 Likes per
post (Appeltauerová et al., 2011).
According to the Czech daily Ihned.cz (Volf, 2012) Facebook earned US$ 100 million on the Czech
market in 2011. The largest share of this profit is in the form of income from advertising and payments
for Facebook credits usable in computer games. The company Zynga has the largest share of the profits
arising from the sale of credits, constituting 12% of Facebook revenue. Czech game developers are not
yet on Facebook. On a worldwide scale advertising revenues constitute 85% of sales on Facebook; in the
Czech Republic this proportion will probably be similar. According to statistics, games on social
networking sites are mostly played by women over thirty years of age on maternity leave (Volf, 2012).
Most of the advertising on the Czech Facebook is spent by telecommunications companies Vodafone, O2, and T-mobile, who can afford to spend over US$ 20,000 on advertising per month. The
current strategy is to enter the business under its own Facebook profile. Then they can arrange
competitions for their “friends” to win products, discounts or holidays practically free of charge. This
strategy is used for example by the cosmetics company Vichy, the sports brands Adidas and Puma or the
whiskey manufacturer Jameson. The biggest Facebook sites in the Czech Republic are currently: Bez
přátel nežiju! (In English: I can’t live without friends!) with nearly 650,000 fans, Nesnáším loučení (in
English: I hate goodbyes) with over 580,000 fans and Vytvoř si svou vlastní fotku z Avataru a podívej se,
jak bys vypadal (In English: Create your own photo from Avatar and see how you look) with almost
557,000 users. The largest Czech commercial sites include: X.parfémy.cz - exclusive essential (nearly
363,000 fans), Kofola (almost 329,000 fans) and Comeback (270,000 fans). (Volf, 2012)
Czech Twitter in Statistics
Twitter began in the Czech Republic in April 2006. Currently, there are over 79 thousand Czech users
on Twitter. Five hundred Czech and Slovak authors have produced 49% of all tweets, which make up
5,400 posts. Most posts are made between Monday and Thursday, but Twitter activity on Saturday is very
low. Original tweets constitute over 12.35 million with about every tenth being retweeted.
Most retweets are from the YouTube and Justin Bieber accounts. According to the statistics, more
than 9 thousand Twitter accounts are not followed, 9,000 accounts do not follow anyone, 48% have less
than 5 followers, and 93% have up to 100. Only 250 accounts have more than 1,500 followers. Czech and
Slovak Twitter is now growing faster than ever before, nearly a third of all accounts (32%) was
established in 2011. Every day we produce 35,000 tweets. The average user now writes approx. 13.5
tweets per month; thus one almost every other day (Hutníková, 2011).One study (Appeltauerová et al.,
2011) also explains why Twitter would be interesting to marketers. From Twitter users in the United
States: 72% wrote a blog in December 2012, 61% wrote at least one goods review per month, 53% posted
a video, and 50% contributed at least once on Wikipedia.
Discussion on the Czech Web Portals
The statistics (Appeltauerová et al., 2011) show that 63,462 authors contribute to discussions.
However, marketers forget this area, although numerically there are almost as many users as Twitter.
These forums are thematically diverse, dedicated for example to family, IT, photography, finance or
cooking. Contributions to the discussions are of a better quality than anywhere else, so it pays to follow
them. Another feature of forums is the fact that contributions are longer, moderated and are a source of
interesting information. Often they are professional with a minimum amount of spam. The number of
relevant contributions about brands on the forums is comparable with the number of posts on social
networking sites. Contributors are the most active in the forums on Wednesday and Thursday, the same as
with other online communication portals.
Personal Investigative Survey in the Czech Republic (e-Commerce)
During 2010 and 2011, the author conducted a series of investigative surveys that focused on the
possibilities and the level of e-commerce in the Czech Republic in the context of the development of
marketing communication on the Internet. The first partial study was carried out in autumn 2010 to
determine the possibilities and the level of e-commerce among selected Czech e-shop. The basic set was
defined by the following criteria: companies operating on the Czech Internet market, the company exists
for more than 5 years, the company is limited to the Pardubice Region (Note: The Czech Republic is
divided into 14 territorial regions). Thirty seven Czech companies were addressed. In the end, 26 Internet
companies were willing to participate in a questionnaire survey. The data was collected using a
questionnaire with pre-determined questions; companies were contacted by telephone and by email
(Svatošová & Vaculik, 2011).
The investigation revealed that on average 64% of product marketing of the surveyed companies is
done over the Internet because many of the companies surveyed trade exclusively through the Internet or
through mail order. Over 81% of the surveyed companies considered trading over the Internet as being
beneficial because it greatly helps expand the market in which they operate and electronically there are
different ways to reach customers who would not normally receive the given offer. At the same time over
81% of these companies stated that they have recorded a growing trend in e-commerce. In addition, 62%
of the companies reported that they have experienced an increase in sales after the introduction of commerce.
The questionnaire survey also asked what form of promotion the companies use for e-commerce. The
results show that all of the addressed companies use Internet marketing (advertising) for marketing
support. The second most common form of promotion was reported to be printed media. Other forms of
promotion are represented sporadically. The reason for the sparse use of other forms of advertising lies in
the nature of the companies addressed - most of them are small and medium-sized enterprises, which
consider other forms of promotion as too costly and uneconomic due to the low amount of disposable
capital. An evaluation of the responses is shown in the following Graph 5.
GRAPH 5
FORMS OF PROMOTION COMPANIES USE FOR E-COMMERCE, (N = 26), 2010
Source: Own analysis
The investigation showed that most companies surveyed see the distinct advantage of e-commerce
and that the level of e-commerce in the Pardubice region is comparable with the level of e-commerce in
the Czech Republic. For the purposes of this paper it is also an important finding that all of the addressed
companies use some form of Internet marketing and advertising for their promotion. The reason for this
was reported to be in particular the low cost, precise and accurate targeting and direct communication
with customers. More detailed information about Internet marketing was provided by an additional
investigation, which specializes in direct forms of marketing communication on the Internet. The results
of preliminary research cannot be generalized too much because of the number of companies contacted
and their willingness to participate in the survey. Nevertheless, some predictive value can be observed
because the survey focused on the most important companies in the region studied. The survey serves as a
basis for further investigation, analyzing the possibilities of e-commerce and marketing communications
on the Internet.
Personal Investigative Survey in the Czech Republic (Internet Marketing/Advertising)
An additional personally carried out investigative survey was conducted in the first half of 2011,
which aimed to determine the extent to which companies use Internet advertising and the effects Internet
advertising bring to companies. This means, whether it is used, what forms are used and whether they
effectively bring profit. The intention was also to assess the relationship of both larger and smaller
companies with this new form of advertising, what companies advertise on the Internet, how they do it,
and what benefits do they expect from it. The investigative survey was conducted with the help of
selected students of the Faculty of Economics and Administration at the University of Pardubice. Students
contacted several dozens of companies that do business on the Internet and use some of the elements of
Internet advertising. Other criteria could not be applied due to the specificity of the survey and the lack of
willingness of the selected companies to participate in the investigation. In total, 117 Czech firms that do
business on the Internet and use some form of Internet advertising were willing to participate in the study.
The results of investigative survey show that in most cases (66%) the addressed companies use some form
of Internet advertising. Other forms of promotion are represented to a much lesser extent - in second place
was outdoor advertising (24%), in third place was advertising in printed media (18%) and in last place
advertising on television (3%), as shown in Graph 6.
GRAPH 6
TYPES OF INTERNET ADVERTISING THAT USE SURVEYED COMPANIES,
(N = 117), 2011
Source: Own analysis
The results do not correspond to well-known data because the survey focuses on companies that do
business on the Internet, and thus they logically prefer the nature of this form of business. The sum of all
percentages of responses exceeds 100%, since most companies are not limited to one type of advertising
but combine them.
Another question focused on what form of Internet advertising is used. The highest representation is
occupied by banner advertisements (36%). A certain degree of conservatism and inertia probably plays a
role here as this form of promotion is no longer as effective as it was during its infancy, mainly due to
what is known as banner blindness. Still, this kind of advertising dominated as it is technically simple and
does not place demands on either the customer or the provider, and also it can be quickly replaced. The
second and third most frequently used forms of Internet advertising were PPC systems (29%) and
preferential and catalog entries (28%). PPC and catalog entries are closely linked to banner ads and the
reason for their popularity is efficient payment for these forms of promotion and the possibility of
accurate measurement of their effectiveness. Other forms of Internet advertising have a low percentage
representation, as shown in Graph 7.
GRAPH 7
FORM OF INTERNET ADVERTISING USED BY SURVEYED COMPANIES
(N = 117)
Source: Own analysis
The investigative survey also deals with an evaluation of Internet advertising from the point of view
of the companies and specifically how it is used. According to the respondents it increased website traffic
in 58% of cases, in 30% of cases it increased sales of products and services, and in 18% of cases
companies did not report any change.
The survey also focused on other forms of promotion which are closely related to Internet advertising
and are considered innovative. None of the respondents reported that they use discount sites, which is
probably due to the fact that they have been on the market for a relatively short period of time and
awareness of them has yet to be fully aroused. Thirteen percent of respondents who at least consider this
possibility showed that this matter is still in its infancy and we can expect its growth.
The situation regarding the use of social media for promotion is somewhat different. This is a more
deep-seated issue that has still probably not realized its full potential and just as in the previous question
we can expect an increase in its use. This is because 44% of companies use social media to present
products and services, and 17% of those who do not use social media are considering it. Social media is
used by the surveyed companies through the establishment of profile pages on social networking sites,
whereas only a small percentage of them use paid forms of advertising on social networking sites. The
survey showed that the most used social networking site is Facebook (82%), other forms of social media
are not represented at all (0% - blogs, Q&A portals, forums, YouTube, MySpace, or others) or only to a
limited extent (Twitter 18 %).
The resulting investigation reveals that the surveyed companies use Internet advertising tools in
abundance, however, the importance of social media is somewhat underestimated, with less than half
using it. Due to the underlying data set the results cannot be generalized too much, but they certainly have
some meaningful capacity. It is clear that the phenomenon of social media on the Czech market is not
optimally exploited.
DISCUSSION
The analysis of primary and secondary sources indicates that social media has become a serious part
of marketing strategy. The results of the survey clearly show that without effective use of social media for
marketing purposes, companies would currently find it difficult to succeed on the world market.
However, some researchers and marketing professionals are still skeptical about the effectiveness of
investments made in social media, both over time as well as in economic terms.
For example, some companies pin big hopes on Facebook in terms of marketing and sales. However,
they have met with only a minimal reaction, even though their target group belonged to the most active
age group on Facebook (Janouch, 2010). Therefore, there are still doubts about the effectiveness of social
media for marketing and sales, creating speculation as to whether the “Facebook generation” is really the
right target group.
Comparative analysis of the world’s population on social media with a population in the Czech
Republic clearly shows that the behavior of Czech social media users thoroughly reflects the worldwide
trend; however, some companies with a Czech base have failed to respond effectively to this trend.
Practice shows that Czech companies, unlike international companies and multinational corporations, are
yet to grasp the importance of social media for long-term competitiveness.
Generally speaking, the global trends are reflected on the Czech market with a considerable delay,
including the social media trend. However, if Czech companies do not adapt to these trends then in the
medium to long term they will struggle to maintain competitiveness on a global level. There has already
been a gradual trend in the extinction of traditional Czech companies, which are being replaced by global
competition. According to a number of investigations and experience, Czech companies neglect the basic
concept of marketing and underestimate its importance. Accordingly, social media does not have the
opportunity to be utilized by these companies. These attributes have resulted in the fact that Czech
companies break through on the global market only in exceptional cases and in most cases remain just as
local brands.
The reason for the persistent mistrust lies in the ignorance of online social environments and the
inability to identify with the community users. Some marketers cannot effectively use this new marketing
tool. The following 20 rules which are vital for business success in social media can be deduced from the
personal analysis and other sources:
1. Set clear targets of social communication and strategy which will underpin the success of each
business activity.
2. It is important to thoroughly prepare before beginning any social media activity and create a
business plan, including an elaborate schedule that can consistently prevent problems and lead to
positive results.
3. In the planning process it is necessary to analyze the current situation and the virtual
environment. Observe how social media presents competition, what tools it uses and of course
know the user community – i.e. what themes are most discussed, most shared, and what they most
enjoy, etc. At the same time the company should determine what is required by user communities
and subsequently what they should be offered.
4. Identify your target audience on social media - both basic and wider, which can be reached using
the selected communication tools. At the same time the company has to find and address their
greatest fans in the real environment, which in their enthusiasm will help meet the identified
marketing objectives.
5. Select an appropriate communication tool on social media - in particular it is necessary to
determine which social areas the company should begin to work on and where they can reach the
most potential target groups. For smaller start-ups it is recommended to start work on a single
communication channel (e.g. Facebook), and then move also to other social media; established
and well-known companies should engage the social community in several ways.
6. Further clarify whether to engage the users of social media with paid advertising or other forms of
promotion - the establishment of a profile, sites, blogs, viral tools and guerrilla marketing, etc.
7. Involve other company employees including top management in the marketing and sales activities
on social media - educate and train employees in this area.
8. Define a person or team who will be responsible for managing activities and updates on social
media, it is also necessary to have mutual cooperation between business units.
9. Provide social media administrators and other employees enough space for the expression of
ideas and suggestions for establishing and maintaining relationships with community users. The
company should encourage their initiative, creative thinking and the opportunity to learn from
one another.
10. Obtain and maintain community users - a company should attract attention (e.g., by using buzz
marketing tools or word of mouth) and arouse interest in sharing the content with other users of
social media - videos, links, texts on current issues, active discussions, regular updates and
reaction to the interest of fans and users of social media, use their observations to improve
services, hold competitions, games (advergaming), surveys, etc.
11. Understand and identify with the thinking of community users. Users of social media create their
own space which is primarily used for entertainment, communication and discussion with other
members. Superficial promotion has little chance of success.
12. After obtaining sufficient numbers of active fans, create an activity with which fans identify with
the company brand, while becoming part of their identity. Fans should get a sense that it is
necessary to be part of the whole. The company should determine a trend in the form of social
media.
13. Create cohesion in the created group (use of symbols, rituals, etc.), group norms, and coexistence
with other groups - understand the principle of reference groups, use marketing psychology tools
– create trust and group cooperation.
14. It is important to always be up-to-date, authentic and to engage in discussions and respond to the
comments of fans in real time, i.e., when users are most active. It is also important to be
transparent, credible and honest - otherwise, you can expect negative consequences that may
damage the whole concept of the company.
15. Identify emerging crisis signs or problems - even those companies that do not engage in social
media, should actively monitor events on social media. Social media can provide a number of
pitfalls which consist mainly of negative comments, criticisms, and the subsequent parodies,
which can damage the company image. However, the company must count on and face up to this
eventuality - to eliminate the emerging problems before they reach the general public.
16. Activity on social media should be linked to other marketing support - links with the company
website, overall marketing campaigns – connections with TV and radio advertising, guerilla
marketing, press advertising, etc.
17. The company should never rely on social media as the only marketing tool. Conversely, social
media should be integrated into the company’s comprehensive marketing strategy.
18. The company should realize the main purpose of social media - which is primarily
communication and building relationships with potential customers. It should not be understood
as a sales channel but as a tool for building brand awareness and company image. Sales are only
its secondary effect.
19. The company must realize that effective marketing support on social media requires a
considerable degree of its creator’s time, knowledge and financial investment. Often, however,
they do not decide the budget but the idea. Therefore, even newcomers in the field of business
can assert themselves.
20. Companies must keep in mind that social media can be a complementary but also a key tool for
successful business. At the same time an important aspect of any crisis at the company may lie in
the lack of use of social media or incorrect work with it. (Own analysis)
CONCLUSIONS
Anyone who has ever entered the virtual world of the Internet or has at least used its services for a
short period of time certainly cannot doubt its future. The same is true for its commercial use for ecommerce. It is clear that it will be increasingly used by companies for marketing and commercial
purposes.
Electronic media is undeniably an important carrier of marketing messages which can be used to
maintain strong relationships with customers. Selected marketing trends are closely inter-related. They
cannot be looked at separately. If a company wants to be successful, all forms of marketing must be
combined effectively (Kotler, 2003).
Social media is changing contemporary society. Without accepting this fact a company will find it
difficult to succeed. The above analysis shows that American companies utilize aspects of social media as
one of the key marketing communication tools; Czech companies on the other had are considerably
lagging behind. Not monitoring current business trends and neglecting marketing when setting corporate
strategies are some of the main reasons why Czech companies have limited success on the world market.
Due to the dynamics of development social media can be expected to increasingly influence
purchasing decisions of users (mainly through recommendations, comments about products or
companies) and companies will have to invent increasingly sophisticated social strategies to attract new
users and keep existing fans. Therefore, some experts in the context of social networking site talk of a
social revolution or social economics (socialnomics). Trends now show that Internet advertising is
increasingly shifting to a social media environment. Time will tell whether they will adopt a dominant
standing in marketing.
ACKNOWLEDGEMENT
This contribution was supported by the research project SGFES03 “Scientific Research in Economics and
Management”.
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The Uses of Power in Influencing Relationship Economic Satisfaction: An
Empirical Analysis in the Automobile Industry in Malaysia
Selvan Perumal
University Utara Malaysia
Nor Azila Mohd Noor
University Utara Malaysia
Zolkafli Hussin
University Utara Malaysia
Despite the assumption that relationship satisfaction contributes to buyer-supplier relationship, previous
researches have concentrated more on factors affecting an overall relationship satisfaction and very
limited research focus has been given to understand the factors that influence the economic relationship
satisfaction. Using a survey method, this study explores the uses of power as antecedent of economic
relationship satisfaction among 107 car dealers in Malaysia. Results have revealed that uses of non
coercive power could have a pivotal effect on the economic relationship satisfaction. The evidence from
this study suggests the need for enhancing theories and models relating to channel relationships.
INTRODUCTION
In today’s business environment, firms need to evolve from discrete relationship to long-term
relationship which aims to reduce the cost of purchase, improve delivery time and levels of inventory,
provides good customer service, good merchandise and efficient distribution systems. In this regard, small
and large companies are forging partnerships with suppliers as a foundation of their supply strategies
(Theng-Lau & Goh, 2005) because developing successful business-to-business relationships can be
beneficial to buyers and sellers in the supply chain context, creating and delivering value to customers
(Parvatiyar & Sheth, 2000). Thus, interest of researchers and marketers has become more focused on
relationship building and development where, the use of a relationship marketing framework in studying
supply chain relationships has gained significance both in practice and as an academic discipline
(Palmatier, Dant, Grewal, & Evans, 2006).
Moreover, most of the studies on buyer-seller relationship in business-to-business markets focused on
transaction-specific based satisfaction. Recent studies called for an approach to study exchange
relationship rather than transaction specific relationship (Abdul-Muhmin, 2005; Homburg & Rudolph,
2001; Rossomme, 2003; Tikkanen & Alajoutsijarvi, 2002). Thus, many marketing scholars have
recognised the need for an examination of the relationship aspects of buyer-supplier exchange and the
components that influence relationship development and satisfaction (Abdul-Muhmin, 2005; Andaleeb,
1996; Anderson & Narus, 1984; Geyskens, Steenkamp, & Kumar, 1999; Ramaseshan, Yip, & Pae, 2006;
Rodriguez, Agudo, & Gutierrez, 2006; Selnes, 1998). Moreover, a successful buyer-seller relationship has
been empirically shown to improve business performance and customer’s loyalty trough stronger
relational bonds. Thus, key concepts such as interdependence, trust, commitment and relationship
satisfaction have been identified as key constructs influencing relational bonds to build, manage and
maintain supplier-buyer relationships.
With the increasing interest in buyer-supplier relationships, satisfaction has become an important
component in relationship marketing and channel theory (Abdul-Muhmin, 2005; Ramaseshan, Yip, &
Pae, 2006; Rodriguez, Agudo, & Gutierrez, 2006). In business relationships, satisfaction with supplier
relationship is viewed as an essential ingredient in the development and maintenance of long-term buyersupplier relationships. The expansion and importance of relationship satisfaction in business-to-business
relationship have changed the existing shape of transaction relationship between companies. This is
because the importance of relationship satisfaction enables the construction of new relationship model,
which was unavailable under the existing discrete transaction relationship. In other words, the satisfaction
of business relationship has huge potential for enabling companies, small and large, to develop better
collaboration and coordination for long-term based strategies and commitment in business relationship.
Totally new competitive advantages and opportunities would open up for companies. As a result, the
importance of relationship satisfaction is being emphasised.
LITERATURE REVIEW
During the last decade, selling and buying companies relied heavily on short-term economic
transactions where each transaction was looked upon as an independent opportunity without any
consideration of future contact and long-term relationships (Gummesson, 1994). But, due to the
development of relationship marketing approach, firms have been attempting to improve the efficiency of
transaction between buyer and supplier by long-term relationship orientation (Biong & Selnes, 1995;
Cannon & Perreault Jr., 1999; Doney & Cannon, 1997; Ganesan, 1994; Jonsson & Zineldin, 2003). Most
of the research on buyer-supplier relationship characterised it as long-term relationship which required
suppliers to gain an in-depth knowledge on buyer behaviour and satisfaction in order for them to achieve
a sustainable competitive advantage over rival suppliers.
Therefore, researchers have expressed a great deal of interest in identifying various factors that
contribute in creating and maintaining satisfaction in business-to-business industry and marketing channel
firms (Abdul-Muhmin, 2002; Geyskens & Steenkamp, 2000). Specifically, in marketing channel
relationship, researchers have revealed that a channel member’s satisfaction increases long-term
orientation and continuity (Bolton, 1998; Selnes, 1998). Under such a scenario, channel members like
retailers and dealers must develop good working relationships with their suppliers in order to provide
merchandise efficiently and effectively to the consumer. This is because the retailers and their suppliers
are interdependent upon one another and this relationship is one of the keys to successful channel
distribution. Despite that, building strong relationships between manufacturers, suppliers, distributors,
retailers and customers has become an important channel strategy in both industrial and consumer
markets. Through the utilisation of a relationship element like relationship satisfaction, channel members
could integrate various functions spread over different areas within them which could lead to greater
levels of channel trust and commitment. These efforts could enhance their capability to cope with today’s
worldwide trend towards building closer and more integrated relationships between channel
intermediaries and suppliers (Corsten & Kumar, 2005; Leonidou, Palihawadana, & Theodosiou, 2006).
In other words, interest in satisfaction in channel relationship arises primarily from the belief that
establishing and maintaining a network of satisfied resellers is crucial to the long-term viability of the
channel systems (Dwyer, 1980; Geyskens et al., 1999). Besides, the level of satisfaction in relationship is
also an important measure of an inter-organisational relationship (Jonsson & Zineldin, 2003; Rodriguez et
al., 2006). For instance, evaluating existing supplier relationships and determining the major factors that
affect relationship satisfaction could lead to manufacturers, retailers or dealers strategising their way of
working with suppliers, resulting in an increase in relationship satisfaction in the long-term (Andaleeb,
1996; Gassenheimer & Ramsey, 1994; Jonsson & Zineldin, 2003). For this reason, a great number of
studies have attempted to investigate the antecedents of satisfaction in buyer-supplier relationships
(Andaleeb, 1996; Anderson & Narus, 1990; Dwyer, 1980; Ganesan, 1994; Lewis & Lambert, 1991;
Scheer & Stern, 1992; Selnes, 1998).
The previous research focuses more on overall satisfaction of relationship with less research focusing
on investigating specific channel relationship satisfaction as economic and social aspects (Geyskens &
Steenkamp, 2000). It requires a channel member to seriously and comprehensively consider the economic
and emotional aspects that have to be invested in the relationship for further development (Dwyer, Schurr,
& Oh, 1987). According to Geyskens et al. (1999), despite the important and vast empirical research
attention developed on satisfaction in channel relationships, there is no consensus regarding the
conceptualisation of channel member’s satisfaction. Some researchers viewed satisfaction in channel
relationship more as the perceived discrepancy between prior expectations and actual profits; while other
researchers perceived satisfaction in non-economic, social and psychosocial terms, defining it as an
emotional response to the overall working relationship with the channel partner (Anderson & Narus,
1984; Crosby, Evans, & Cowles, 1990; Payan & McFarland, 2005; Selnes, 1998). Geyskens and
Steenkamp (2000) argued that economic satisfaction “is conceptually distinct and created through
different practices and has a different impact on channel relationship”. Economic satisfaction is described
as “a channel member’s evaluation of the economic outcome that flows from the relationship with its
partners such as sales volume, margins and discount”. By specifying the economic satisfaction in
relationship, the suppliers could improve their ability to manage channel relationships.
USES OF POWER
Power is the ability to influence the decisions or actions of others. In channel relationships, power is
typically defined as a channel member’s ability to influence the perceptions, behaviour, and decision
making of another channel member. The previous researchers defined power of channel member as the “
ability to control the decision variables in the marketing strategy of another member in a given channel at
a different level of distribution (El-Ansary & Stern, 1972). This definition of channel power is very much
based on Dahl’s (1957) and Emerson’s (1962) description of power in social theory. Channel members
can use power on various occasions, including the development of operational linkages, providing
channel training, developing discount systems, all of which are possibly relevant to the focal exchange
(Berthon, Pitt, Ewing, & Bakkeland, 2003).
Previous study by French and Raven (1959) is in line with Stern and El-Ansary (1992) which stated
that these resources are known as the channel members’ “bases” of power, and they include rewards,
coercion, expertise, reference and legitimacy. Moreover, these “bases” of power mere classified as
coercive and non-coercive by several researchers. Coercive bases of power represent a power struggle
driven by force (Mallen, 1963), which may decrease the level of cooperation in relationship (Skinner,
Gassenheimer, & Kelley, 1992). Non-coercive bases of power increase the value of the relationship
through team support and common interests as well as promoting collective goals. Scholars have
examined power as a bi-polar construct: coercive, or the ability to compel compliance by means of
threats, legalistic plea and promises; and non-coercive, or the ability to compel by means of requests,
information exchange, and recommendations (Boyle & Dwyer, 1995; Etgar, 1976; Morgan & Hunt,
1994).
More specifically there are many studies which indicate the association between power used by
supplier and buyers’ satisfaction (Frazier & Summers, 1986; Gaski & Nevin, 1985; Gassenheimer &
Ramsey, 1994; Ramaseshan et al., 2006). However study by Howell (1987) on interrelations among a
channel entity’s power produced different findings for power bases and dealer’s satisfaction. The study
using covariance structure modeling reveals no relationship between partner’s use of power bases which
include coercive, expertise, legitimate, referent, assistance, as well as partner’s power with dealers’
relationship satisfaction. The reviews concluded that in channel relationship the exercise of power has
become an important research objective of many marketing channel studies. It is recognized that some
form of power is necessary in inter-organizational relationships because unguided channel activity is
likely to lead to sub-optimal performance (Stern, El-Ansary, & Coughan, 1996). Thus, sources of channel
power and their application have been considered to be immensely important in channel management
theory (Sahadev & Jayachandran, 2004). In line to this, most studies have included power as antecedents
of channel satisfaction but there are mixed empirical results between use of power sources and
satisfaction (Frazier & Summers, 1986; Scheer & Stern, 1992).
Researchers in distribution channels also pointed out that there is a need to extend channel power
research to other locations, and to test the construct in developing economies with different cultural
settings (Ramashehan, Yip & Pae, 2006). This however needs verification. Therefore, the impact of use of
power sources on satisfaction further merits further investigation. Previous empirical trials showed that
threats, promises, and legalistic pleas are termed as coercive use of power, while requests, information
exchange, and recommendations are termed as non-coercive use of power (Frazier & Summers, 1986).
Thus, for the purpose of this study, coercive power is defined as the use of direct pressure through adverse
consequences of punishment in the hope of modifying the focal channel member’s behavior, while noncoercive power is defined as the use of power to affect behavior of channel member’s compliance through
the unconditional provisions of rewards.
Furthermore, the findings of relational elements in channel relationship, have not been fully replicated
in markets in developing countries (Roslin & Melewar, 2004). These underlying gaps have led many
researchers to suggest further empirical research in this area (Abdul-Muhmin, 2005; Geyskens &
Steenkamp, 2000; Ramaseshan et al., 2006). As a result, this study seeks to amplify the current
knowledge base of dealer-supplier relationships by examining the relationship constructs such as use of
power and economic satisfaction that are likely to contribute the most to success in ongoing business
relationships. It is interesting to note that most previous studies on relationship satisfaction concentrated
on industrial buyers and suppliers (Abdul-Muhmin, 2002, 2005; Jap & Ganesan, 2000; Sahadev &
Jayachandran, 2004; Smith & Barclay, 1997) and very little research was done explicitly on the
automobile dealer-supplier relationships. In line with this fact, Geyskens et al. (1999) suggested that
further conceptual and empirical studies need to be carried out in different business market settings
It should also be noted that most of the extensive studies on channel relationships were in Western
developed economies such as the USA (Frazier & Rody, 1991) and Europe (Johanson, Hallen, & SeyedMohamed, 1991). Then research has moved beyond this narrow confine. For example, Abdul-Muhmin
(2002) concentrated on industrial distributors in Saudi Arabia, whereas Lee (2001) investigated a Chinese
local brewery distributors relationship with their suppliers. The studies that have been conducted in nonWestern countries suggest differences in channel participants’ behaviours (Lee, 2001). As a result, it is
questionable whether such studies can be applied universally across various countries. Sahadev and
Jayachandran (2004) suggest the need for studies to be conducted on issues influencing channel members
in other cultures so that such knowledge can be integrated into a general theory of the distribution system
as a behavioural system. Research on channel structures in other countries would be a timely progression
in the study of distribution relationship, given the issues of the applicability of channel research findings
to other countries. Thus, it is important to investigate whether the same evidence can be found in a
Malaysian context for automobile dealer-supplier relationships. If the findings of this study were
consistent with those previous studies, then, it would be possible to identify relationship structure in the
Malaysian automobile industry.
In summary, the automobile industry environment is changing more rapidly than ever before,
competition is increasing, and national manufacturers are being drawn into battle with foreign
manufacturers setting up businesses in Malaysia. Given the need to satisfy dealers and its importance to
business success, knowledge gained in this area will be of great value to dealers and suppliers. As far as
the automobile dealers-suppliers relationship is concerned, there is apparently little literature to suggest
that research has been conducted in the Malaysian perspective. Thus, the present study attempts to
address the gaps discussed in the previous paragraphs by investigating the relationship between the use of
power and dealers’ economic satisfaction with their suppliers among automobile distribution channels
within the Malaysian context.
METHODOLOGY
Our sample consists of car dealers in Malaysia. From the discussions in the literature review, the
following framework has been constructed. Figure 1 shows that coercive and non coercive power are
hypothesized to influence economic relationship satisfaction of the dealers. 300 questionnaires were
distributed to new car dealers of national cars in Malaysia.
Out of this number, 109 were returned and 2 were incomplete. A total of 107 responses were usable
and have been used for subsequent analysis. Thus, the effective response rate is 35.6 percent. This
response rate is consider adequate and within the range reported by other researchers for channel studies
(Abdul-Muhmin, 2002; Baker, Simpson, & Sigauw, 1999; Kumar, Scheer, & Steenkamp, 1995).
FIGURE 1
CONCEPTUAL MODEL FOR USES OF POWER AND ECONOMIC
RELATIONSHIP SATISFACTION
Coercive
power
Economic
Relationship
Satisfaction
Non-coercive
Power
MEASUREMENTS
A questionnaire instrument was developed to measure dealers’ perceptions of economic relationship
satisfaction with their suppliers. The items were based on the previous studies discussed in literatures.
The coercive and non-coercive uses of power were adapted from Scheer and Stern’s instrument (1992)
and Geyskens and Steenkamp (2000). They were operationalised as separate, but related to constructs of
uses of power. The internal reliabilities reported by Geyskens and Steenkamp (2000) was .75 and .78 for
coercive uses of power and non-coercive uses of power respectively. For the economic relationship
satisfaction, the measurement adapted from Geyskens and Steenkamp (2000) was adapted. This scale has
been found to be the most robust measure of satisfaction in channel relationship and the internal
reliabilities reported by Ramaseshan et al. (2006) for economic satisfaction was .86. All of the dimensions
developed were measured using 5 points Likert-type scales, ranking from strongly disagree (1) to strongly
agree (5).
The alpha values for the present study were also calculated to assess the internal consistency
reliabilities of the scales. For the coercive and non-coercive uses of power scales, the results indicate
acceptable values were .84 and .88 respectively. Economic satisfaction was measured using 5 items and
the alpha values are .90. Inter-correlation between variables was done, where the values of correlation
coefficients for all the three variables exceeded .50 and below .80 and were significantly correlated
TABLE 1
DESCRIPTIVE AND RELIABILITY ANALYSIS RESULTS
Variables
Coercive power
Non-coercive power
Economic Satisfaction
No. of Items
4
4
5
Mean
2.66
3.56
3.66
Alpha
.84
.88
.90
FINDINGS
The results from OLS regression are summarized in Table 2. The table reveals that the use of coercive
power (β= -.05; p < .01) was found to have no significant influence on economic relationship satisfaction.
On the other hand, the use of non-coercive power positively influenced economic relationship satisfaction
(β = .73; p< .01). This supports the argument that any business relationship that results in more friendly
and less uses of power exchange would enhance the degree of satisfaction in term of economic. This
study seems to support such an argument.
TABLE 2
THE INFLUENCE OF USES OF POWER ON ECONOMIC RELATIONSHIP SATISFACTION
Independent variables
Coefficient (β)
t value
Coercive power
-.050
-.58
Non-coercive power
.730
8.41*
*p< .01
DISCUSSION
This study has revealed a non-significant relationship between supplier’s uses of coercive power with
dealer’s economic satisfaction. The finding is different from those of the previous studies that reported
direct negative effect of coercive power on satisfaction (Frazier & Summers, 1986; Geyskens &
Steenkamp, 2000). This might be due to the existing harmonious relationship between the dealer and the
supplier. Whereas, in the automobile industry, dealers operate closely with the suppliers in order to
deliver better marketing services to the customers. This indicates that the dealers are tolerant, dependent
and unlikely to retaliate with the supplier’s use of coercive power. The study revealed that Malaysian
channel members behave differently from the Western counterparts in responding to channel partner
coercion, and this is in line with study by Ramasheshan et al. (2006) who also found similar findings in
Chinese channel members. They explained that Chinese collectivist culture places a high value in
conducting exchanges in a harmonious manner which makes the channel members to be more tolerant to
coercive influences. Thus, the results could deduce that dealers are more understanding and tolerant to
coercive reinforcement because Malaysian collectivistic culture also places a high value, closeness,
friendliness and relational in conducting exchanges in a harmonious manner. Indirectly, another reason
that could explain the lack of significant influence of use of coercive power on economic satisfaction is
likely the overriding effect of non-coercive power on economic satisfaction. The latter is likely to
subsume the effect of coercive power on economic satisfaction and could play a mediating role between
the use of coercive power effects and economic satisfaction in Malaysian channel perspective.
This study appears to confirm a positive and significant relationship between the dealers’ degree of
economic satisfaction with supplier’s use of non-coercive power. This means that the greater the
emphasis placed by supplier on use of non-coercive power, the higher will be the economic satisfaction
level of the dealers. This is probably due to the use of reward, information exchange and
recommendations (Boyle & Dwyer, 1995) by the suppliers. Another reason is possibly because of the
behaviour obtained through possession and control of resources that are valued by the other party. In the
case of dealers, although they work independently, non-coercive supports are expected from supplier in
delivering the products as expected by the customers. These include the supplier freely offering its
expertise, information and assistance that might make the dealers happy and satisfied with existing
relationship. This finding validates the earlier study by Boyle and Dwyer (1995), Frazier and Summers
(1986), Lee (2001) and Ramasheshan et al. (2006) on the importance of non-coercive uses of power in
causing satisfaction in working relationship. They concluded that a partner’s attitude towards another
partner is affected by the outcome that results from the behaviour adopted in their relationships. If the
suppliers adopt more positive types of behaviour in dealing with their dealers, they may make the dealers
feel satisfied with the relationship.
IMPLICATIONS FOR SUPPLY PRACTICE
Several implications for implementing uses of power and economic satisfaction blocks result from
this study. It has been greatly assumed that harmonious and collaborative efforts among supplier-buyers
may be the best way to minimize uncertainty and enhance long-term relationship. From a practical
perspective, this study provides a few key implications on how managers in automotive supply in
particular can manage their relationship with dealers in an effective way. The business goal is to establish
and maintain relationship with the dealers for long-term sales instead of maximizing short-term sales.
Relationship marketing helps dealers and suppliers build, develop and keep a continuous process of
relationship building. Suppliers and dealers should specifically devote their attention to relationship
satisfaction in order to “increase the pie rather than divide the pie”.
Both suppliers and dealers should look for effective relationships in order to maximize their profits,
minimize their costs and ultimately lead to the long-term relationship. Obviously, the finding of this study
gives an insight to suppliers to carefully use power reinforcement behaviours. Specifically, the use of
non-coercive reinforcement has been examined as the necessary antecedent to satisfy dealers for as long
as possible. Therefore, suppliers must focus on non-coercive reinforcement behaviours to maintain the
existing relationship in order to gain dealers’ economic satisfaction. The dealer’s economic satisfaction
with a sustainable channel relationship can then be fostered by continuously using non-coercive power
such as freely offering its expertise, providing assistance without requiring specific behaviour in return,
sharing of information and giving rewards and benefits as these would increase the dealers’ relationship
satisfaction. Providing and assisting the dealers with rewards and information related to automotive
industry are very important to increase dealers’ economic satisfaction. The suppliers are thus advised to
distribute useful materials to for help their dealers to conduct their businesses effectively.
Even though our results demonstrate the supplier’s use of non-coercive power as significant, this does
not mean dealers do not feel or perceive supplier’s use of coercive power. This situation may require the
suppliers to use more frequent non-coercive power while avoiding or minimizing the use of coercive
power reinforcement on dealers. However, it is inferable that the supplier should avoid application of
power in term of withholding information and services that were previously provided, sanction such as
delayed delivery, a cancelled order or an added charges on dealers and imposing unilateral actions that
damage dealer’s profitability.
DIRECTION FOR FUTURE RESEARCH
Although this study has some interesting findings on the consequences of relationship satisfaction, it
also has several limitations. The sample of dealers was taken from one industry. Somewhat unique to this
industry is the fact that it is in a mature stage. This means that majority of the firms are well established,
only a few new firms are entering this industry. Consequently, the results of this study could not be
generalized to other industries such as agriculture, mining, health and others. Additional research on
factors affecting relationship satisfaction should be expanded to different types of industries/sectors such
as service (education, health etc.), textiles and clothing, electronics, etc.
Another important limitation is that this analysis was cross-sectional in nature. The nature of data
collection was a cross-sectional study whereby the data was collected at one point of time. However, an
attempt was made to minimize such problem by using a well-established scale for most constructs, and
pre-testing the questionnaire to ensure that there was no perceived overlap between the different
variables. Additional research must be done longitudinally in order to assess the impact of determinants
and consequences over time. The longitudinal studies would provide valuable input in investigating the
impact of channel strategies taken by supplier firms that are aimed at enhancing the degree of economic
satisfaction and uses of power. Since the impact the use of power on economic satisfaction has already
been demonstrated in this current study, an additional research is needed to fully understand the impact of
such issues like opportunism, cooperation, and communication. Further, interpersonal factors in
relationship need to consider how these can be used to determine relationship satisfaction. Other aspects
of relationship might be complaints handling, response strategies, and loyalty (Emerson, 1962)
CONCLUSIONS
One prime conclusion which can be drawn from this study is that the types of power exercised play
an instrumental role in fostering or weakening economic satisfaction in supplier-dealer channel
relationship. A successful relationship in supplier-dealer channel relationship can be achieved when the
non-coercive power rather that coercive power is employed. The use of non-coercive power is a better
choice for supplier to foster economic satisfaction among dealers compared to the use of coercive power.
The finding gives academicians and managers a much stronger basis than intuition and anecdotes for
recommending the wisdom of adopting and implementing relationship-marketing approach. Preferably,
the management should take initiative in the way that has been suggested under discussion for the purpose
of harmonizing the dealer-supplier relationship. There must be a rightful desire within both the supplier
and dealer to understand each other, to feel the importance of the relationship, and arrive at decisions that
are acceptable to each party besides working together towards progress of both in terms of specific goals
and long-term relationship. The evidence from this study suggests the need for enhancing theories and
models relating channel relationships in Malaysia. For this reason, it is hoped that this study will generate
some interest among other researchers to examine the issues related to relationship satisfaction in
Malaysian channel distribution relationship.
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Business Ethics: Exploring the Differences About Perceptions of Business
Ethics Among Selected Turkish Financial Specialists
Emrah Cengiz
Istanbul University
Murat Ferman
Isik University
Irfan Akyuz
Istanbul University
In a rapidly changing global competition environment regarding business management, professionals
distinguished the importance of the question “how” as well as the question “why”. This clarification
provides the professionals with a point of view that ethics do not form a part of business but business
itself has become a part of ethical issues. The main purpose of this study is to examine the employee’s
attitudes towards business ethics for exploring the diversities in the financial sector. Our results indicate
that the significant diversities in financial sector depend on not only the demographics but also the
employee’s position, department and working experience.
INTRODUCTION
In order to shed a light to the dynamics of the business world and to have a deeper vision and
perspective of the new business era and to shape a “better” business environment; researchers, scholars
and practitioners had worked on the results of global economic crisis in 2008. The word “better” implies
the concept of “being more ethical” as the roots of the global crisis based on “unethical implications”.
From this perspective, this paper aims to emphasize on the understanding of the attitudes towards
business ethics particularly in finance sector.
Another motive of this study of business ethics in finance sector is generated from the results of
Bernardi’s et. al. (2008) interesting work which compared the accounting, finance and marketing
disciplines’ ethics research publications and revealed that the finance discipline was lacking ethics
research when compared to the two other disciplines. So this study also aims to provide some cues not
only for marketing literature but also for finance discipline.
This study aims to examine the employees’ attitudes towards business ethics issues in order to explore
the diversities in the financial sector. The originality of this study comes from its being one of the limited
number of studies in business ethics literature on which there is little evidence of research in Turkey. For
this purpose, ATBEQ was conducted through drop-off survey technique on 401 financial specialists in
Istanbul, Turkey.
BUSINESS ETHICS & BUSINESS ETHICS RESEARCH
Marshall (1999) defined ethics as “…guidelines to influence human social behavior in a manner
intended to protect and fulfill the rights of individuals in a society” whereas Krishnan & Sulphey (2009)
describes the concept as “…the methodical and systematic elaboration of norms and values that appeal to
in the day to day activities of any organization.” Ferrell et. al. (1989) summarize the definitions of ethics
as “…as meaning the study and philosophy of human conduct with an emphasis on the determination of
right or wrong”. As seen from the definitions brought to the ethics concept, although there may be some
variations in the definitions, the main idea focuses on: “doing the right thing”.
The literature review shows that not only the definition of ethics varies but also this diversification is
seen on the contexts and findings of the studies. One of the remarkable studies (Loe et. al.; 2000) on
business ethics concept and its research antecedents summarizes these antecedents as “the most
comprehensively examined variables…include gender, moral philosophy, education and work experience
(individual factors), culture and climate, codes of ethics (organizational factors), awareness, rewards and
sanctions, and significant others (organizational factors)”.
In business ethics literature two approaches prominence the research: conceptual and empirical. Also,
empirical studies can be categorized as scenario based techniques and item based survey techniques (e. g.
ATBEQ). Moreover, the findings of the studies are inconclusive. For instance, one study concludes the
importance of the impact of gender on business ethics whereas the other one finds the opposite. In other
words, “…the bulk of studies either determined no significant gender differences or found females tend to
be more ethically sensitive than males” (Loe et. al., 2000). Although, the existence of cultural, conceptual
and methodological differences cannot be denied; these determinations mentioned above are still
important in order to understand the business ethics research from a vast perspective.
Despite of the variations in the results of different studies conducted on miscellaneous samples and
cultures on business ethics, the importance of business ethics concept and implications gain more and
more importance in the new business era no matter what the business industry is. As Karande et. al.
(2000) noted; “…in this age of faster diffusion of management practices due to advancement in
technology and increased mobility of managers, the discrepancies in ethical standards between countries
might narrow down faster than one might expect”.
Despite of the facts mentioned above that makes it a hard area of research for scholars and
practitioners; “…ethical standards and practices that establish trust are necessary to conduct of business at
both the macro and micro level. Without trust, relationships do not develop, and exchange process
ceases.” (Loe et. al.; 2000).
As ATBEQ is a scale that is developed to measure the attitudes towards business ethics, it will be
useful to describe what an attitude towards business ethics is. A useful explanation of this terms was
made by Preble and Reichel in 1988, in which they describe those attitudes as “reflecting the subjective
assessment by a given individual with respect to sets of premises which make up various business
philosophies” (Preble & Reichel, 1988). After its first application in Preble and Reichel’s (1988)
pioneering study; ATBEQ (Attitudes Towards Business Ethics Questionnaire) was utilized in numerous
studies (e. g. Moore and Radloff, 1996; Etheredge, 1999).
Reviewing the ATBEQ literature, it can be said that the studies mostly focused on student samples (e.
g. Preble and Reichel, 1988; Sims and Gegez, 2004). Despite of the very limited number, there are some
other studies conducted on non-student samples (e. g. Chai and Lung, 2010). Another frequently applied
focus of the ethics studies was comparing the results of ATBEQ scores of past studies and cross-cultural
studies (e. g. Moore and Radloff, 1988; Lin, 1999) The current study focuses on a non-student sample
and on a specific sector as finance which is believed to bring a new perspective to the issue.
METHODOLOGY
Sampling & Data Collection
The purpose of the study is to examine the employees’ attitudes towards business ethics for exploring
the diversities in the financial sector in Turkey. Sample was selected from financial specialists’ living in
Istanbul. In this research, quota sampling which is one of the non-probability sampling techniques, was
used in the selection of the financial institutions as banking, insurance companies and participation banks.
For filling quotas, convenience sampling technique was applied.
Data were gathered via drop-off surveys during June 2011. 200 surveys were sent to the financial
institutions simultaneously. Response rates showed differences according to the institution type (bank
specialists’ rate =%56,5 (113); participation bank specialists’ rate =%64 (128) and insurance specialists’
rate = %75,5). Totally 401 completed surveys were achieved. (The sample’s characteristics may be seen
on Table 1). Because of the missing values, sums of columns are not equal to 100%.
TABLE 1
SAMPLE CHARACTERISTICS
Group
Frequency
Male
218
Female
164
19-25
94
Age
26-32
164
33-39
69
40 or older
55
Marital Status
Married
186
Single
196
High School or less
82
Education Level
Uni.or advanced
308
Firm Type
Bank
113
Participation Bank
128
Insurance
151
0-4 years
152
Working Experience
5-9 years
92
10 or more years
137
Department
Marketing
167
Finance-Acc.
97
Other
106
Manager
149
Position
Employee
241
Income(monthly)*
Less 1000TL.
74
1000-1999TL.
168
2000-2999TL.
66
3000-3999TL.
26
4000-4999TL.
12
5000-5999TL.
17
6000TL.or over
16
*(TL = Turkish Lira) and $1 was equal to approximately 1,79 TL.
Gender
Percent
55,6
41,8
23,4
40,9
17,2
13,7
46,4
48,9
20,3
76,9
28,2
31,9
37,7
37,9
22,9
34,2
41,6
24,2
26,4
37,2
60,1
18,5
41,9
16,5
6,5
3,0
4,2
4,0
Research Design
Before preparing and applying the survey, the original ATBEQ scale was back translated by two
bilingual academicians. A pre-test was conducted on 30 MBA students of Istanbul University, Business
Administration Department. According to the results of the pre-test, some minor editing was applied.
Final questionnaire form was formed of 2 parts which that included 39 questions. The first part included
questions measuring the employees’ attitudes towards business ethics on a 5 point likert-type scale
(ranging from 1: strongly disagree and 5: strongly agree). Second part of the questionnaire included
questions aiming to explore the employees’ demographic characteristics regarding gender, age, income,
marital status, education level, firm type, working experience, department and position.
One of the reasons that add up originality to the current study is the non-student characteristic of the
sample. In order to realize the main purpose of this study, which is to examine the employees’ attitudes
towards business ethics in order to explore the diversities in the financial sector, ANOVA and t-test were
applied.
Findings
First of all, in order to test the internal consistency of the data, reliability analysis was conducted.
The Cronbach’s Alpha score achieved for the ATBEQ was α=0.702. The minimum value of Alpha
coefficient is expected to be 0.6 on exploratory research, while the minimum value of it is expected to be
0.7 for descriptive ones (Hair et. al., 1998). The level of internal consistency of this study is found to be
satisfactory.
Gender
According to the Paired Samples t-test results, 4 significant differences, regarding Q5, Q11, Q18 and
Q28 were found at 0,05 probability level as may be seen on Table 2.
TABLE 2
INDEPENDENT SAMPLE T-TEST RESULTS (GENDER)
Paired Sample t-Test
Q5
Q11
Q18
Q28
t
2,282
2,109
-2,696
2,838
Sig. (2-tailed)
,023
,036
,007
,005
Mean
Male
3,52
2,68
4,28
1,86
Female
3,79
2,98
3,97
2,22
The results imply that financial specialists’ gender characteristic has a very limited significance as a
differentiation source for attitudes towards business ethics. In other words, males’ and females’ ethical
attitudes were found to be similar. (Figure 1)
These findings support Ergeneli and Arikan (2002) and Lung and Chai (2010) studies which found no
significant gender-related differences in terms of ethical behavior. On the other hand, both Ekin and
Tezolmez (1999) and Akaah’s (1989) studies revealed that gender differs significantly in terms of ethical
attitudes and also females’ ethics score was found to be greater than males. Present study does not support
these results especially for Q18.
FIGURE 1
ATBEQ MEANS BY GENDER
Male : - - - , Female : --Age
ANOVA was conducted for investigating the differences between age groups. 9 significant
differences were found regarding Q1, Q3, Q9, Q13, Q14, Q16, Q17 as can be seen on Table 3.
TABLE 3
ANOVA RESULTS FOR DIFFERENT AGE GROUPS
Ages ( LCD Results)
Q1
Q3
Q9
19-25
26-32 (40 or Above)*
33-39 (40 or Above)*
N
Mean
94 2,2340
164 2,4512
68 2,1029
Std.
Deviation
1,24801
1,41119
1,27126
40 or above
55
1,8545
1,16139
19-25 (26-32)*, (33-39)*, (40 or 94 3,2979
Above)*
26-32
163 2,9571
33-39
67 2,7164
40 or above
53 2,8113
19-25 (33-39)*, (40 or Above)*
94 2,2234
26-32 (40 or Above)*
163 2,0429
33-39
69 1,7101
40 or above
54 1,8519
1,26005
1,23403
1,31202
1,38754
1,27974
1,21386
1,03044
1,10586
Q13
19-25 (33-39)*, (40 or Above)*
94 2,7979
26-32 (40 or Above)*
164 2,7073
33-39
69 2,3188
40 or above
54 1,9630
Q14
19-25 (33-39)*, (40 or Above)*
94 1,7128
26-32 (33-39)*
164 1,5122
33-39
69 1,2029
40 or above
54 1,2778
Q16
19-25 (33-39)*, (40 or Above)*
94 1,8191
26-32 (33-39)*
164 1,6524
33-39
69 1,3478
40 or above
55 1,3455
Q17
19-25(26-32)*, (33-39)*, (40 or 93 3,3548
Above)*
26-32 (33-39)*
163 3,0000
33-39
69 2,6812
40 or above
55 2,8364
Q23
19-25 (26-32)*, (33-39)*, (40 or 94 4,1915
Above)*
26-32 (33-39)*
164 3,6707
33-39
69 3,1449
40 or above
54 3,2778
Q25
19-25 (40 or Above)*
94 3,5532
26-32 (40 or Above)*
164 3,3963
33-39
69 3,2754
40 or above
52 2,9038
* : significant at 0,05 level.
1,49968
1,44416
1,46018
1,34533
1,22362
1,09370
,60827
,85598
1,31135
1,06012
,88826
,88649
1,33225
1,31937
1,49993
1,43712
1,10984
1,32048
1,44787
1,44610
1,29197
1,29945
1,30479
1,37569
According to the results, those employees aged between 19-25 and 26-32 did show
higher mean values than the other age groups 33-39 and 40 or above ages for 9
variables.
Working Experience
As presented on Table 4, there are 7 differences regarding the working experience groups in terms of
Q2, Q4, Q11, Q13, Q16, Q17 and Q23. The employees, who have working experience between 0-4 years,
have higher mean values than older ones’ except for Q11. ANOVA results of age and working experience
show that younger and less experienced employees have more positive mean scores regarding the
questions measuring the attitudes towards business ethics. But in general, other variables do not support
this situation similar as the results of Ekin and Tezolmez’s (1999) study.
Results of the ATBEQ scale regarding age and working experience also showed differences in terms
of a few variables. These findings seem to be supporting the study of Krishnan and Sulphey’s (2009) who
found no significant differences in demographics. On the other hand, Ergeneli and Arikan’s (2002) results
were parallel to the results of this study in which they found that younger ones were more sensitive
toward ethical issues. Surprisingly, present study has a little empirical support as older ones’ can also be
sensitive, too.
TABLE 4
ANOVA RESULTS BY WORKING EXPERIENCE
Working Years ( LCD Results)
0-4 Year (5-9 Year)*
5-9 Year (10 Year Or Above)*
10 Year Or Above
0-4 Year (5-9 Year)*
5-9 Year (10 Year Or Above)*
10 Year Or Above
N
152
92
136
152
92
137
Mean
2,8092
2,2935
2,7132
3,2829
2,7935
3,4088
Std.
Deviation
1,30579
1,37112
1,58188
1,29910
1,26263
1,35882
0-4 Year (10 Year Or Above)*
5-9 Year(10 Year Or Above)*
10 Year Or Above
0-4 Year (10 Year Or Above)*
5-9 Year
10 Year Or Above
0-4 Year (10 Year Or Above)*
5-9 Year
10 Year Or Above
152
90
135
152
92
136
152
92
137
2,7237
2,5222
3,0963
2,7895
2,5652
2,2647
1,7697
1,5109
1,4453
1,29797
1,32587
1,43970
1,45862
1,46988
1,43623
1,20962
1,01087
,96953
Q17
0-4 Year (10 Year Or Above)*
5-9 Year
10 Year Or Above
150
92
137
3,1867
3,0435
2,7737
1,28171
1,35803
1,49505
Q23
0-4 Year (10 Year Or Above)*(5-9 151
Year)*
5-9 Year
92
10 Year Or Above
137
3,9470
1,17637
3,5870
3,3577
1,41540
1,45893
Q2
Q4
Q11
Q13
Q16
•: significant at 0,05 level
Firm Type
This study was conducted on only finance sub-sector firms employees’ as banks, participation banks
and insurance companies and there were significant differences in reported attitudes towards business
ethics for 7 of the 30 ATBEQ variables which are Q3, Q5, Q11, Q12, Q15, Q16 and Q28. Insurance
companies’ employees’ mean scores regarding 5 of these 7 items were found to be greater than banks and
participation banks. These findings were unexpected as the participation banks in Turkey are known to be
more conservative when compared to the other financial institutions. Due to this property of the
participation banks, employees of these institutions were expected to show higher scores of attitudes
towards business ethics.
TABLE 5
ANOVA RESULTS BY FIRM TYPE
Firm Type ( LCD Results)
Q3
Q5
Q11
Q12
Q15
Q16
Q28
N
Bank
108
Participation Bank
128
Insurance
(Bank&Participation 151
Banks)*
Bank
112
Participation Bank
128
Insurance (Participation Banks)*
150
Bank
111
Participation Bank
128
Insurance
(Bank&Participation 149
Banks)*
Bank
112
Participation Bank (Bank)*
127
Insurance
150
Bank
112
Participation
Bank 128
(Bank&Insurance)*
Insurance
150
Bank
(Insurance&Participation 113
Banks)*
Participation Bank
128
Insurance
151
Bank
(Insurance&Participation 112
Banks)*
Participation Bank
128
Insurance
150
Mean
2,7778
2,7734
3,3444
Std.
Deviation
1,24805
1,19852
1,32185
3,6250
3,4688
3,7933
2,7207
2,5000
3,1342
1,16344
,91305
1,19449
1,44078
1,17050
1,39331
2,8929
3,2598
3,1933
1,4018
1,7422
1,29000
1,12131
1,29892
,88491
1,05924
1,4867 1,02804
1,3805 ,83792
1,8281 1,18461
1,6556 1,22772
1,7768 1,01084
2,1250 1,23594
2,1267 1,33259
*: significant at 0,05 level
Other Demographics Results
The ANOVA and t-test results propose that respondents do not show statistically significant
differences on ATBEQ items in terms of income, position or department. On the other hand, according to
the marital status and education, some significant differences were found with t-test results as can be seen
on Table 6.
Mitchell et al. (1992) mentioned that: “….knowledge of ethical problems and the perceived
seriousness of ethical problems may be influenced by place in organizational hierarchy”. Fritzche (1988)
also stated that: “…there is reason to believe that the ethical behavior of managers may improve as they
climb the management ladder”. The current study does not support these statements as no significant
differences were found in terms of income, position or department.
TABLE 6
T-TEST RESULTS BY EDUCATION & MARITAL STATUS
Paired Sample t-Test
Q11
Q13
Q15
Q20
Q25
Q13
Q17
Q23
t
3,331
-1,958
-1,981
2,675
2,903
3,314
2,987
3,272
Mean
Sig. (2-tailed)
,001
,050
,048
,008
,004
,002
,003
,001
High School or Less
3,24
2,27
1,35
3,43
3,73
Mean
Single
2,78
3,21
3,86
Uni. Or Adv.
2,68
2,62
1,60
3,01
3,26
Married
2,31
2,78
3,41
Although only 5 of 30 ATBEQ items showed differences for financial specialists’ education level, the
results are inconclusive. As Lung and Chai (2010) noted that “…individuals with higher level of
education tend to be more ethical because when they go through formal education, they have more
resources in hand to make judgments about ethical behavior”. In Turkish sample education level produced
different results for different education levels.
This study’s most interesting finding was the significant differences for 3 of 30 ATBEQ items among
marital status groups as there is little evidence on this issue in literature. This finding refers that, marital
status may be conceived in business ethics studies in Turkey, because Turkish family structure can play
an important role, especially for business ethics. Not only age or work experience, but also marital status
may be analyzed in order to understanding individuals’ ethics perceptions profoundly.
CONCLUSION
Business ethics has become crucial for whole stakeholders of the business life, especially in the 21st
century and in the new business era as business life depends on “trust” and “trust” depends on ethics. In
this context, researching the business ethics is not only important but also vital for both business
professionals and academics for preventing the crisis and controlling the business life with a broad
perspective.
Financial institutions need to be investigated more than ever, because of the effects of 2008 global
economic crisis. Despite the limited amount of empirical support for the financial specialists’ attitudes
towards business ethics; this study still creates a basis for future ethics studies especially for Turkey. For
this reason, it may be concluded that this research may be defined as explanatory rather than descriptive.
Also, generality of the research findings are limited due to the size and technique of the sampling as a
result of time and budget restrictions. However, this study may serve as a first step for a larger study of
business ethics in Turkey.
This study has some implications for the future research. First of all, ATBEQ can be conducted to
other financial institutions (i. e. public banks) and further researcher can focus on “panel studies” in order
to explore the attitudes towards business ethics issues in Turkey. In other words, ATBEQ may be
conducted to many other non-student samples. Also, item-based survey techniques and scenario-based
techniques may be unified and used together instead of utilizing them separately.
LIMITATIONS
There are limitations to this study. Only three financial institutions were included in the research and
respondents were recruited only in Istanbul. One of the non-probability sampling techniques was used.
Therefore the results are valid for the sample and are not representative of the whole population.
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Life-Span Concept - Modern Marketing Technique
Devadatta Ranade
Pune University, Maharashtra - India
The paper is a thematic paper on the product life cycle concept. This paper adds innovative ideas as new
concepts in addition with the traditional concepts of product life cycle. This article explains modern
marketing techniques as a combined effort to achieve and equilibrium between product life cycle and
users’ life span as an integral part of marketing technique. Concept of users life span is derived with the
stages of product life cycle as a matching consideration. Therefore, we can conclude that the PLC and
ULS are the stages of Introduction, Growth, Maturity and Decline as well as the stages of Idea, Thinking,
Decision and Purchasing.
Product Life Cycle
Introduction
Growth
Maturity
Decline
Users Life Span
Idea
Thinking
Decision
Purchasing
INTRODUCTION
The global competition has forced the marketers to divert their attention towards the prime factor as
user life span. The Users’ Life Span (ULS) is the psychological situation and circumstances when
consumers make the important purchase of a specific product. The principal underlying the ULS is -when
the time span of both i.e. product and the users matches each other, only then the final decision to
purchase the product by a consumer exists. Therefore, it is vital for the global marketers to identify the
stage that is going through the generic category of the product.
The manufacturer should try to find new uses for old products, or improve them in terms of
functionality and aesthetics. The product should deliver the expected benefits to the customer without any
defects. These can be various types of features, such as ease of use, durability, aesthetic appearance,
manner of operation, ease of repair and so on. These and other features make up the quality of the product
that marketers need to constantly improve, because the competition is doing the same thing. In each
product strategy, in addition to modification of products, consider the problem of innovation. Innovation
strategies, with relative stability and strength of competitive advantage, are the most spectacular product
strategies. (Sahoo, A (2006), “Life cycle Management Strategies”, Business Insights Ltd, London, pp. 16).
The initial 4 P’s (Product, Price, Place and Promotion) along with the additional 3 P’s (People,
Process, Physical Evidence), no doubt, played an important role in establishing the marketing mix
concept useful and practical for global enterprises.
Moreover, 4 C’s (Customer solution, Customer cost, Customer convenience, Customer
communication) also consider about the aspect of consumers.
These approaches stressed prime consideration to marketer and secondary consideration to user
(Francois, V. (2010), “Product lifecycle management: geometric variations”, London: I S T E, pp. 1-3).
GRAPH 1
SALES AND PROFIT – PATTERN & TIME – INTRODUCTION
IMPLICATIONS OF USERS’ LIFE CYCLE OF A PRODUCT
The course of the product life cycle determines the nature of the product, technical progress, product
acceptance by the market, the ease of entering a competitive market for new products. Sometimes many
products are placed in the market, knowing that their life cycle will last for relatively short time, i.e. one
year or just one season.
The Product Life Cycle (PLC) and the Users Life Cycle (ULS) are important for the marketers such
they are comprised of the four stages. The life span of the user has four sections such as Idea, Thinking,
Decision and Purchasing. Therefore, we can say that the ULS of the product is the longer while the mark
is shorter (Immonen, A. (2008), “Product lifecycle management”, Springer, pp. 1-10).
The ULS is very crucial for the marketers as it us about the consumers decision making factors that
the customers keep in mind while choosing or purchasing any certain product. The evaluation of the ULS
strongly considers the sales and profits. The duration of the life span cycle is not stable, so it may vary in
any phase. The internal and the external competitive factors also affect the ULS followed by firms
competing in the market. Additionally, it has observed across the globe by various marketers that the
behavior of sales of the most innovative products shows a progressive short life span, specifically at the
phases of growth and the introduction (Anselmi, I. (2008), “Product Lifecycle Management”, Berlin,
Heidelberg: Springer-Verlag Berlin Heidelberg, pp. 1-15).
The first phase of the Users Life Cycle is period of moderate growth for the new product which is
gradually introduced to the market. During this period, the first customers are pioneers, and competition is
sluggish.
The costs involved in the launch of the product are often higher than the benefits obtained. (Malcolm,
M. (2007), “Marketing in a nutshell: key concepts for non-specialists”, Amsterdam: Elsevier, pp. 10-20)
The second phase of the Users Life Cycle is characterized by a growth in sales of the product with a
favorable word of mouth brings in new customers. New competitors also come into the market, attracted
by the possibilities for development (which may even be beneficial for the product). During this phase,
marketers must try to support growth as long as possible by improving product quality, expanding its
range to reach more customers, increasing distribution, continuing communication campaigns and
gradually lowering prices (Stark, J. (2007), “Global product strategy, product lifecycle management and
the billion customer question”, London: Springer, pp. 1-8).
A slower pace of sales of the product characterizes the third phase of the Users’ Life Cycle: it has
reached maturity. Moreover, competition is fierce than in previous stages, the company must reduce its
price. This is a longer phase than the previous two. The most common products are mature and must be
creative to keep customers and attract new customers.
In the fourth phase of the Users Life Cycle, many products and brands experience a decline phase
characterized by a collapse in sales. This phase may be more or less fast (it is extremely fast for gadgets,
for example). This is the phase of decline due to several factors such as technological breakthrough,
changes in tastes or habits, the arrival of foreign products cheaper etc. The company may decide to
withdraw from the market or maintain the product on the market. The marketing manager must ensure to
boost sales of the product. For this, we must
Invest to upgrade the product in order to retain customers (Day, G. (1981), “The Product Life Cycle:
Analysis and Applications Issues”, Journal of Marketing v.45 pp. 1-5).
FIGURE 1
STAGES OF PRODUCT LIFE CYCLE – INTRODUCTION
SIGNIFICANCE OF THE LIFE – SPAN CONCEPT IN MARKETING MANAGEMENT
Marketing is primarily interested in the life cycle of the product in the market. Product life cycle is
the lifetime of the product in the market. The concept of life cycle is because others eventually replace
any product from the market, or more perfect and cheap goods. There may be long-lived products.
Phase of the life cycle, usually divided into introduction, growth, maturity, saturation and decline.
When we talk about the life cycle, we mean the following:
(1) The life of the goods is limited,
(2) Sales of the product involves several steps, each of which is characterized by specific
challenges, opportunities and challenges
(3) At different stages of life cycle profit, which brings goods, varies,
(4) Each stage of the life cycle requires a special approach to strategy in marketing, finance,
production, marketing and personnel management. Life cycle of most products can be graphically
represented as a bell-shaped curve (Louis E. (2010), “Contemporary marketing”, Mason, OH:
South-Western Cengage Learning, pp. 1-9)
Ultimately, the users’ life span of purchasing the product expires during the time lag of decision and
execution. Life span is the key factor, which must be considered within the limitations of PLC and ULS.
The issue of life cycle is essential for the expansion of the company and for his situation. Accurate
assessment of the phase of the cycle for the product determines the choice of strategy.
For every phase, it requires a different, adaptive marketing strategy. The products have a limited
lifetime. Various measures are necessary for marketing strategy tailored to the phase of the cycle. The
management of the company must be capable of flexible response depending on the location of the
product on the market. The key to the rational decisions of entry or continued functioning of the sector is
to define the main factors of success (Kristiaan, H. (1998), “Global marketing management”, New York:
J. Wiley, pp. 1-5). To achieve success in the future, marketers use three basic methods of analysis:
1. Assessment of the minimum required earnings, the decision placed in the context of the worst and
most rapid change, which may be expected based on previous experience in the sector.
2. Analysis of ground-assumed to base their decisions on events that have already occurred and
which are likely to have a major impact on future operating conditions.
3. Analysis of trends
GRAPH 2
SALES AND PROFIT FOR PRODCUT STAGES
PRODUCT LIFE CYCLE AND MODERN MARKETING TECHNIQUES
The effectiveness of marketing activities will be largely dependent on recognition of the needs of
customers from their universality and intensity. It is necessary, and the need to satisfy them is in fact the
main driver of customer purchasing activity (Kotler, P. (2012), "Product Life Cycle (PLC) Analysis",
SAGE Reference Online, pp. 1-6).
To build effective marketing strategies, it is necessary to gather information about competitors and
their strategies. Consider the most important information about pricing policies, development plans,
strategies, costs, promotion policy, sales policy and implementation of new products.
Considering marketing techniques, a proper attention towards a prime factor as life span is necessary.
Conceptual theory in this regards can be a new approach in addition to the previous, which
simultaneously emphasizes the consideration of both factors of market as Manufacturer/Marketer and
Customer/User. Life Span Theory should develop this concept with equal balance between
manufacturer/marketer and consumer/user as combined part of market mechanism. Simultaneous
Thinking -about “Marketers & Users”- should developed as two sides of a single coin for coping up with
modern marketing technique in global scenario (Cant, M. (2006), “Marketing management”, Cape Town,
South Africa: Juta, pp. 1-11).
FIGURE 2
STAGES OF PRODUCT LIFE CYCLE DESCRIPTIVE
An important problem in the production is to consider the range of products and their brands. Range
is a set of products offered to the purchaser by the manufacturer. The company may offer one or more
types of products (narrow range) or a range of products (wide range), may also offer one (tile range) or
number of variations of the product (deep range). The company should at the same time, and sell several
products in various stages of product life cycle because this reduces the risk of introducing new products.
In the case of a single product or narrow and shallow assortments, company can count only on a limited
number of buyers (Armstrong, G. (2009), “Marketing: an introduction”, Prentice Hall, pp. 1-10). Wide
and deep assortment allows marketer to adjust to the needs and characteristics of many buyers and
different market segments (Stark, J. (2007), “Global product strategy, product lifecycle management and
the billion customer question”, London: Springer, c-15).
However, this increased production costs and maintaining large inventories. We must therefore find
the right strategy between the narrow and shallow, and broad and deep assortment.
Quality improvement may increase the duration, reliability or security product or the consumer durable
nutrient capacity, etc .But an increase in quality is, generally, an increase of cost that the consumer is only
willing to pay if he receives or product improvement is more demanding and appreciates quality. An
improvement in the characteristics or performance of the product increases its usefulness, performance,
safety or comfort. The change in product design or style of product enhances its appeal (Ed. Thousand
Oaks, CA: SAGE, (2003) “Mature Stage of Product Life Cycle", Encyclopedia of Health Care
Management., pp. 1-3)
FIGURE 3
PRODUCT LIFE CYCLE – START TO FINISH EXPLANATION
Strategies of marketing communication change during the life cycle. For example, they can be
informative, educational for the phase of introduction, persuasive and imaginative for the phase of growth
or maturity, supported by photographs, and cognitive in the last stage. The life cycle is also involved in
the choice of business strategy and can determine the latter by means of knowledge management.
Companies should make decisions regarding investment in the products that are in demand.
Companies get help to anticipate when to move into new products. They have to choose different
technologies, which are subject to change.
They must assume that one of them wins. They can engage in only one completely new technology or
to a lesser extent in some of them. If companies intend to use the product life cycle they need to examine
the extent to which this concept describes the history of product development (Stark, J. (2007), “Product
lifecycle management 21st century paradigm for product realization”, London: Springer, pp. 1-10).
Managers of marketing use the concept of product life cycle in order to explain the dynamics of
product and market. This planning tool allows us to identify the main challenges of marketing in each
phase and formulate alternative marketing strategies.
As a control tool allows marketers to measure the effects of the development of the product. (Christ,
A. (2012), “Product Management”, New Delhi: World Technologies, pp. 1-8)
Life cycle theory criticism by arguing is that the model life cycles have too much variation forms, and
the periods are quite different in duration. In addition, critics have accused the suppliers that are
themselves often do not know at what stage of development of their product is produced (the product can
be considered as "aged," though in reality he went to an intermediate level preceding the rise of the
new). Finally, critics argue that the scheme of life cycle is not so much a "constant rate", which must be
followed by the sales department because of the implementation of marketing strategy. Thus, by
analyzing their products and markets, forward-thinking marketers must be careful to use the concept of
life cycle (Tomovic, M. (2009), “Product realization a comprehensive approach”, New York, NY:
Springer, pp. 1-10)
CONCLUSION
Therefore, we can conclude that the PLC and ULS are the stages of Introduction, Growth, Maturity
and Decline as well as the sections such as Idea, Thinking Decision and Purchasing. PLC and ULS
experienced by the generic category of products.
The marketers significantly utilize the concept of the PLC and ULS in order to use marketing as a
tool to know and track the stage where there is a particular product, to identify in advance the risks and
opportunities of each stage for a specific brand. The product life cycle and user life cycle is a concept of
great importance in the process of marketing the product, because the behavior of the market situation and
competitive environment change over time for product marketing.
These changes determine the design and affect the development of marketing strategy. Every product
has a biological evolution as embodied in a series of sequential steps. The product life cycle is the time
path that runs from birth or product launch to the market until death or disappearance (Mark, W. (2011),
“Essentials of marketing management”, New York, NY: McGraw-Hill/Irwin, pp. 20-25).
The concept of life cycle helps marketers to interpret the dynamics of product and market. As a
planning tool, this concept allows management companies to identify key marketing tasks at each stage of
the cycle and to develop alternative marketing strategies. For the purposes of prediction, the concept is of
little use, since the sales history is too varied, and the duration of each stage of the life cycle varies quite
widely (Glen L. (1993), “Design and Marketing of New Products”, Prentice Hall, pp. 1-7).
FIGURE 4
PRODUCT LIFE CYCLE AND USER LIFE SPAN
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Armstrong, G. (2009), “Marketing: an introduction”, Prentice Hall, pp. 1-10.
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Ed. Thousand Oaks, CA: SAGE, (2003) “Mature Stage of Product Life Cycle", Encyclopedia of Health
Care Management., pp. 1-3.
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Glen L. (1993), “Design and Marketing of New Products”, Prentice Hall, pp. 1-7.
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pp. 10-20.
Mark, W. (2011), “Essentials of marketing management”, New York, NY: McGraw-Hill/Irwin, pp. 20-25.
Sahoo, A. (2006), “Lifecycle Management Strategies”, Business Insights Ltd, London, pp. 1-6.
Stark, J. (2007), “Global product strategy, product lifecycle management and the billion customer
question”, London: Springer, pp. 1-8.
Stark, J. (2007), “Global product strategy, product lifecycle management and the billion customer
question”, London: Springer, c-15.
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Tomovic, M. (2009), “Product realization a comprehensive approach”, New York, NY: Springer, pp. 110.
ABOUT THE AUTHOR
Dr. Devadatta G. Ranade- is a renowned teacher in the field of Commerce.
Dr. Devadatta Ranade - has contributed as Lecturer in Commerce Department of Pemraj Sarda College,
India.
At present, he is working as
Ph.D. Guide- for the subject “Marketing” in -Pune University-India
Associate Professor -Pemraj Sarda College- India.
There are three students registered under his guidance for Ph.D. Research. He has worked for almost
all University Committees in different capacities as Chairperson, Member, and Subject Expert for
University Teacher’s Selection, Vice – Chancellor’s Nominee, Syllabus Designing, College Inspection,
Examination Supervision, National Service Scheme etc. Educational development and research in
Education are his fields of interest and devotion. He has worked as Hon. Director – Institute of
Management Studies & Research, India. His contribution towards academics and Research seminars as
Coordinator, Resource Person, and Chairperson in various activities in India are remarkable.
He has worked as Coordinator - State Level Commerce Seminars for following subjectsEntrepreneurial Promotion in Indian Economy – 1990, Entrepreneurial Development -2005, and
Integrated Asian Markets – 2007.
Participated in International conference (GCBF) at Costa Rica, Latin America- Presented a research
paper titled –“Conceptual Theory-8 L Approach of Marketing Mix in Global Scenario” and worked as
Session Chair- 22nd-25th May 2012.-cd format ISSN -1931-0285-volume 7,number 2-2012
Research Published in IOSR Journal of Business and Management Vol., Issue 6, July-Aug. 2012,
Titled –“3 R Approach of Market Mechanism”.-online format- ISSN 2278-487X-
Exploring Internal Marketing Applications: Case of Egypt
Hamed M. Shamma
The American University in Cairo
In this study we aim to explore internal marketing applications in Egypt. There is no evidence about the
extent of internal marketing understanding and its applications. Thus, we explore it by presenting some
case studies and conducting some in-depth interviews. This paper is based on a combination of secondary
and primary research. Some cases of companies that apply internal marketing practices are presented
and discussed. In addition, a series of in-depth interviews with top-level managers were conducted to
examine their views about internal marketing practices in their organizations. The findings provided
some evidence that there are some companies that apply internal marketing in Egypt. This was identified
from the secondary research case studies. However, when the qualitative interviews were conducted, it
was found that there was lack of a clear understanding by many companies about what is internal
marketing and methods for applying internal marketing. This study provides some insights as to internal
marketing practices at Egyptian companies. The paper is useful for managers who want to know more
about internal marketing applications and practices. This study sets the pace for more future work on this
untapped research area.
INTRODUCTION
Internal marketing has not gained equal attention that external marketing has gained. Marketers have
always emphasized marketing to external customers to be their main responsibility. However, they
neglected to realize that internal marketing is equally important, if not more important before doing
external marketing. We need to pay more attention and highlight the importance of internal marketing as
a pre-requisite for external marketing.
From this perspective, there was an interest to investigate internal marketing applications. While
many companies in developing countries have taken the steps to have a more marketing- oriented
approach toward their customers as the markets become more competitive and open to free competition.
Yet, there is no evidence that companies in those countries have considered applying internal marketing
as a strategic approach in their organizations. Accordingly, this study was examined in Egypt as a country
that has recently gone through reform toward more open competition, transparency and advancement. The
following questions formed the basis of this study:
1. Do companies in Egypt apply internal marketing?
2. Are there any cases of companies that apply internal marketing?
3. How do companies apply internal marketing?
In order to address these questions, a combination of secondary-based research and qualitative- based
research methodology was conducted. First, a series of international and local cases of companies that
apply internal marketing were identified and analyzed. Then, a series of in-depth interviews were
conducted with managers at top hierarchical levels in organizations to assess their views about internal
marketing, its applications and importance. This perspective would assess the extent to which companies
believe they apply internal marketing from a top management point of view. This managerial point of
view is necessary before doing any further research at the employee level.
Application of Internal Marketing
Various practitioners have suggested tools for effective internal marketing, some of these include: (1)
promoting the internal brand, (2) promoting worksite wellness, (3) marketing employee benefits, (4)
promoting new systems and upgrades (www.snapcomms.com). Others have suggested tools that promote
internal communications such as: company intranet systems and internal networks, e-mails, internet,
newsletters, posters, stores and point of sales, company events, internal rules and policies, company
boards, company products and services, company stationary, all communications, business cards,
backgrounds (www.bddonline.com).
Others have suggested tools that encourage employee involvement such as: measuring employee
awareness of organizational mission, values and core competencies, e-newsletters, seminars, orientation
programs, quarterly reports, report interesting stories to employees, encourage employees to tell brandrelated stories, identify brand champions, encourage employees to use blogs, training that emphasize the
link to the marketing function, communicating internal and external marketing success stories. Other have
suggested tools that provide incentives and recognitions for employees such as: non-cash rewards,
employee of the month, written acknowledgements to employees, posters, screen savers, field trips and
meetings outside organizational premises. In the following section some cases of companies that apply
different internal marketing practices are presented.
Cases of Internal Marketing Applications
Before conducting in-depth interviews about internal marketing applications in Egypt, it was useful to
identify companies that have successfully applied internal marketing practices. This was done using a
combination of secondary research and interviews with some experts. International companies such as
Southwest, Apple, Dell and Ritz-Carlton, and local companies such as Raya, Mobinil, Eva Pharma and
Vodafone Egypt were identified to be successful in applying various internal marketing practices in their
organizations. Following are some of the internal marketing tools implemented by organizations who
have successfully applied internal marketing together with the reported consequences of those practices.
INTERNATIONAL CASES
Southwest
Southwest airlines is known to be one of the most successful airlines in the United States. Despite the
challenges that face airline carriers with increase in price of oil and the highly competitive market,
Southwest has managed to operate profitably despite these challenges. It is known for its low cost
structure, and reputable customer service. The management of Southwest believes that the true reason
why they are successful is their care for their employees. Southwest provides, fair rewards, empowerment
extensive training, career development, open communication and employment security, many of which do
not exist in other airline carriers (O’Reilly and Pfeffer, 2000). What makes the difference between
Southwest and other airlines is the flight attendant. Many customers cite that the Southwest flight
attendants are fun and enjoy flying with them.
Cheryl Hughey, director of Leadership Training, People and Leadership Development department at
Southwest comments that “we will treat our employees the same way we expect to treat our external
customers,” “we will treat them with caring, respect and concern” (Inside Job, 2005). Internal marketing
starts from day one at Southwest. Employees learn about the company, its mission and the essence of the
Southwest brand. They have a “Culture Committee” consisting of employees from various departments.
Their role is to think of ways to make employees feel and live the brand and to emphasize to employees
how the company appreciates their work (Kochan, 1999). They have their well-known agent of the
quarter and the employee of the year competition which encourages employees to excel in their work.
They may also think of doing non-traditional activities such as barbeques at work, pedicures, manicures
and massages for employees to recognize them for their work.
Southwest has a strong relationship with its employees. They have a strong training and development
program for their employees in order to ensure the attitudes and behavior of employees are consistent
with the brand image. They offer their employees compensation that is one of the highest in the airline
industry and reward employees for distinctive performance. They also care about their employees and
their families in ways where the company will always lend its support financially or otherwise at times of
need (Miles and Mangold, 2005). They use a combination of formal and informal methods to
communicate their brand values; formally by human resources department and public relations
department and informally by employee interaction, meetings, word of mouth and task forces. Through
these tools, Southwest helps reinforce the spirit of this unique airline as a fun, lively and supportive
organization (www.southwest.com).
Southwest has a strong employee branding strategy to create a strong relationship it’s employees
(Miles and Mangold, 2005). Employee branding is “the process by which employees internalize the
desired brand image and are motivated to project the image to customers and other organizational
constituents” (Miles and Mangold, 2004). It has been supported in various studies that employee branding
is a very important method for internal marketing. Further, a strong employee brand is expected to result
in high levels of service quality, customer satisfaction, customer loyalty and employee loyalty (Mangold
and Miles, 2007).
The employee branding process includes marketing the organizational mission, organizational values,
empowering employees to deliver the brand experience, rewarding employees to reflect this brand image
to customers, and being flexible with employees. Southwest clearly communicates the company mission
and values to its employees in its mission statement “dedication to the highest quality of customer service
delivered with a sense of warmth, friendliness, individual pride and company spirit”
(www.southwest.com). Southwest empowers its employees to think of ways to realize this mission. The
Southwest flight attendant, David Holmes entertained customers by rapping with a beat the regular boring
pre-departure announcement. Holmes did the announcement in a very entertaining way that made the
passengers engaged in the announcement. This has made Southwest a brand that is highly respected.
Southwest employees are proud to be part of Southwest. Further, Southwest has positive image in the
eyes of the public. Employees are satisfied, there is a low staff turnover, customer are satisfied many of
whom are loyal customers which has made Southwest have a positive reputation.
Apple
Apple is known for its unique internal marketing practices. Customers of Apple stores are known to
have a unique customer experience. This unique experience is attributed heavily to Apple employees, who
go through intensive training to deliver this unique customer experience. All Apple employees go through
a two-day training where each employee carries a Credo Card including tips on how to become an Apple
brand (Ryan, 2010). They are trained to consider every customer encounter as a chance to market the
essence of the Apple brand identity. The training contains some technical information, but the majority is
about how to interact with customers and market the Apple personality.
Dell
Dell realized that employees are the source of company growth. They assert that “the greatest threat
to Dell wouldn’t come from a competitor, it would come from our people” (Dell, 1999). Dell considers
their employees as co-owners. They give them the authority and provide all the tools needed to achieve
their goals. Further, employees are given the chance to question top management through their annual
“management pay up day” (Schmid, 2003). These employee engagement tools are what help Dell ensure
a long-lasting customer relationship with its employees and customers as well.
Ritz-Carlton
Ritz-Carlton employees are empowered to do anything it takes to respond to customer’s requests,
even if this means that they have to stop what they are doing. Employees are given up to $200 per day in
budget to spend on satisfying and delighting customers without top management approval. Employees are
considered actors in spreading the brand to customers. Employees are responsible for knowing what is
called the “20 Sine Qua Nons” which in other words are the Ritz Carlton basics. Employees are expected
to read, know, memorize and internalize these basics in their work. One of their well known mottos is
“we are ladies and gentlemen serving ladies and gentlemen” (www.ritzcarlton.com). One of their basics
is: “Never lose a guest” (Greshes, 2005). Each employee is responsible for the complaint received, is
responsible for solving it until the guest is satisfied and then record it.
LOCAL CASES
Raya
Raya is a leading Information Technology (IT) and retail service provider in Egypt. It has various
lines of business ranging from IT services to telecommunications, retail and customer support services.
Raya started in 1999 as the sole agent for Nokia phones in Egypt. Since then it has grown and diversified
into many lines of business including: consumer electronics, home appliances, real estate, customer
support, maintenance services among many others (www.rayacorp.com). Raya is known for having one
of the lowest employee turnover rates in the IT and Telecom industry. Many current and former
employees talk favorably about Raya.
Raya has an internal communications function which is housed in the corporate communications
department. Their role is to be close to employees and keep top management in touch with all employees.
Following are some activities done by internal communications at Raya: (1) Raya kick off meeting where
Raya shares its plans and strategies for the next year and long-term plans for the future with all company
employees, (2) Raya Achievers Club Trip, where the highest achievers in the organization are selected to
go to a trip that is fully funded by Raya. These achievers become part of a club where they are given Raya
shares, (3) Raya Newsletter, where all quarterly news are published in addition to any personal news such
as wedding events, newly born babies and other personal news are shared. This newsletter is distributed
internally and externally to the community, (4) intranet communication where information is shared
internally about Raya news, events, internal reports, and employee benefits. It also includes an online
orientation about Raya, (5) Chairman’s Breakfast, where the chairman meets with selected employees to
get their feedback about issues related to the company and their work (6) Raya Library which contains
useful publications on IT, trade and business related sources, (7) Corporate Bulletin Board which
contains highlights about major events, products, services and initiatives, (8) Internal Cafeteria which
offers hot and healthy meals for employees with a relatively cheap price. The cafeteria is subsidized by
Raya (based on interview with Amina Khalil, Marketing Director, Raya).
Mobinil
Mobinil is the first and leading mobile service operator in Egypt. It started operations in Egypt in
1998. Part of the success of Mobinil in the market lies in its relationship with its employees. The
relationship with employees is handled by both the Human Resources (HR) department and the Internal
Communications department. The HR department always searches for new ways to maintain contact and
loyalty of its employees. For example, Mobinil, offers its employees: financial loans, discounts in special
outlets, ability to internally transfer to other departments, educational assistance, and launched a special
flu vaccination campaign and a campaign for blood donation. These incentives make the HR department
close to its employees and be perceived as a “friendly” department to all Mobinil employees
(www.mobinil.com).
Further, their Internal Communications department engages in several activities that help market
Mobinil to its employees. Their objectives are: to provide employees with any information needed about
the company, promote inter-functional communication, build a sense of pride for Mobinil employees who
act as brand ambassadors and ensure that the company’s strategic plans and company values guide
employees in their day-to-day life. To fulfill these objectives, Mobinil launched the Mobinil Family Day,
where Mobinil employees together with their families enjoyed a day together under the spirit, “Proud to
be Mobinilian” (www.mobinil.com). This helped create a strong company spirit among the Mobinil
employees (www.mobinil.com). An internal corporate communications channel, “People Share,” was
developed where any employee can send any complaint or report unethical practices anonymously.
Further, employees can present new ideas on products and services, send complaints and concerns and
respond to the annual Employee Opinion Survey (www.mobinil.com).
Eva Pharma
Eva Pharma is an Egyptian-based pharmaceutical company that was established in 1997. Eva Pharma
is one of the few pharmaceutical companies in Egypt that have a marketing department that work on
developing and executing marketing strategies. Most marketing departments in pharmaceutical companies
are sales oriented as opposed to being marketing oriented. The strength of Eva Pharma is not only in their
external marketing with their customers, but also in their unique internal marketing practices. They have a
strong and unique corporate culture that is felt when one deals with any Eva Pharma employee. This is
realized by the following: (1) company values are communicated in various places such as website,
business cards and across all stationary, (2) all employees are invited for any meeting which makes all
people aware about what others are doing and (3) all employees go through a training program throughout
their advancement and career at the company.
These tools made Eva Pharma employees have a strong loyalty and commitment to their organization.
Employees strive to pursue a long term career at Eva Pharma because they believe the company has high
potentials and want to be part of the growth and success of the company (based on interview with Sherif
Mounir, EVA Pharma Training Manager).
Vodafone Egypt
Vodafone Egypt is one of the local companies that has great interest and value to its employees.
Vodafone invests a lot in its employees and cares about their future career and development. Vodafone
has a special program for its employees, the “Value-Based Organization” program. The aim of this
program is to make sure that employees embrace the company’s values, behaviors and attitudes when
interacting internally with employees and externally with customers and other stakeholder groups.
In order to achieve this objective, an aggressive internal communications campaign was done to
market these values to the employees. This campaign was heavily supported by the CEO and management
team of Vodafone Egypt. A short song was compiled for this purpose with the title “Ma3a Ba3dena”
meaning “All of us Together.” The values included the following: putting customer’s first, joyful
belonging to the firm, caring by listening and respecting others, freedom by taking responsibility and
accountability for work, fairness and integrity between teams and functions.
The aim of this campaign was to achieve the following: (1) an environment that fosters well-being
and continuous development for employees, (2) embrace organizational values in daily activities, (3)
simplify processes and omit bureaucracy, (4) release creativity and the potentials of employees, (5) create
efficient inter-functional collaboration and integration, and (6) retain top performers and increase
employee loyalty (based on interview with George Makram, IT Manager, Vodafone Egypt).
The above cases highlight the importance of internal marketing and the consequences of effectively
implementing internal marketing practices. Companies should invest more time and resources to
implement internal marketing practices. Companies have come to realize that people are the most
important asset for organizations. The more you invest in marketing to company employees, the stronger
their relationship with the company brand. Further, it has been proven that the people’s dimension of a
company to be the main driver for a company’s overall reputation (Shamma and Hassan, 2009). Also a
study by Helm (2011) highlighted the positive relationship between internal reputation and corporate
reputation. This further supports the importance of having a strong internal reputation by employees as a
pre-requisite for a positive overall corporate reputation.
Accordingly, there was an interest to further investigate internal marketing in Egypt. While there are
good examples of companies that apply internal marketing practices in Egypt, it is important to examine
if companies are aware about internal marketing, and examine the extent to which it is applied and
effective in Egypt. Accordingly, a series of in-depth interviews were conducted to investigate the
applications of internal marketing by companies in Egypt.
INTERVIEW ANALYSIS
The focus of this part of the research was to understand the points of view of top management about
internal marketing, as they are the ones responsible for applying it. Accordingly, open-ended interviews
were conducted with high level managers at Egyptian companies to assess their perceptions regarding
internal marketing practices.
Ten interviews were held with the human resources manager, marketing director and chief executive
officer of ten large companies (more than 2,000 employees) from five different industries, namely:
cement, telecommunications, fast moving consumer goods, banking and automobile in Egypt. They were
all local Egyptian companies. The interviews lasted between 45 to 75 minutes. The researcher was not
allowed to video tape or audio tape the interview. Only manual recording of the responses were allowed.
The purpose of the research was explained to all interviewees and they were cooperative and helpful
during the interview process.
Following is a list of the interview guideline questions that were used in the interviews:
- Are you familiar with the term internal marketing?
- Do you apply internal marketing at your organization? If yes, how is internal marketing
implemented within your organization? What are the key activities/practices?
- Why do you apply internal marketing within your organization?
- What are the fundamental aims/objectives of internal marketing at your organization?
- What are the key benefits of the adopting of internal marketing at your organization?
- What are the main difficulties/challenges of implementing internal marketing?
- How effective is internal marketing at your organization?
- Is internal marketing important in product-oriented or service-oriented industries?
- Did you realize the importance of internal marketing after the revolution?
- Do you think that part of the reason for the ongoing strikes is lack of internal marketing?
- Is it easy for employees at lower levels in the organization to communicate with top
management?
- What should be done to do better internal marketing?
Following are the highlights of the important issues discussed during these interviews. First, with
regards to the understanding of the concept of internal marketing, it was clear from the answers of most of
the interviewees, that they do not have a clear understanding of the true essence of internal marketing.
Most of them commented around the idea that: “it is marketing to your internal customer as opposed to
the external customer.” They were not able to elaborate on the concept. One interviewee added that: “it is
about marketing your products and services to your employees first before marketing your products and
services to your customers.”
When asked if they did various internal marketing activities in their organizations, most mentioned
that they communicated to employees about the products and services offered to customers. When the
interviewer assisted the interviewees and asked if activities such as: annual meetings with employees,
marketing of the company values, marketing of companies strategy and marketing of company long term
goals were done, most interviewees mentioned that these activities were done. It seemed from their
responses that the interviewees were not fully aware of what constitutes internal marketing. Annual
meetings for company employees are done by all three Egyptian companies interviewed. These annual
meetings are usually seen as entertainment events to celebrate end of a year achievements and the start of
a new year. There is always an expectation about benefits/profit shares to be announced at these events.
An interviewee mentioned that distribution of profit shares makes employees happy and increase their
loyalty to the organization. However, there was no mentioning that these annual meetings communicated
future plans, strategies and objectives.
There was no formal way for companies interviewed to communicate company’s missions and
objectives. These aspects about the corporation were left for employees to know with time. New
employees did not go through a formal training when they were hired. This was admitted by four
interviewees. The lack of clear direction by company employees sometimes led to internal problems and
miscommunications between various departments with the organization.
Regarding their perceptions about why internal marketing is important, two interviewees highlighted
that internal marketing helps reduce employee turnover rate. Further, they mentioned increased employee
loyalty and commitment to the organization as another important reason for applying internal marketing.
Internal marketing is helpful in spreading the activities of the organization so that everyone knows what
other people are doing. It also helps generate new ideas and new ways of doing things. This makes
employees become more involved and committed to their organization. Three interviewees also
highlighted that there is a strong relationship between employee loyalty, customer satisfaction and
ultimately organizational performance.
Regarding communicating with employees before versus after the January 2011 revolution, it was
clear that workers strikes and demonstrations were rare before the revolution, and thus, companies were
not obliged to exert extra efforts to communicate with their employees. However, as a result of the
unprecedented increase in strikes and demonstrations across Egypt, many companies reacted by
developing direct communication channels with their employees to avoid future strikes and
demonstrations. Two respondents highlighted that companies initiated quarterly meetings with their
employees to update them about company performance, challenges and future plans.
The interviewees mentioned several challenges for implementing internal marketing. These included:
political reasons, as higher level managers tend to keep their strategies for themselves; lack of
transparency, which is a common culture in many Egyptian organizations. It is part of the culture at
Egyptian companies to keep high level information confidential, such as long-term strategy and growth
plans. Transparency with employees is uncommon practice at most Egyptians companies. Employees lack
of awareness of the organizations objectives and strategies resulted in back and forth confrontations with
top management. Other reasons for difficulty in implementing in internal marketing include: resistance to
change, production orientation of most industries in Egypt, which encourages lack of transparency; and
the domination of power in the hands of the organizations which does not encourage companies to be
neither externally marketing oriented nor internally. It was also mentioned that most executives in Egypt
are short-term oriented while the effect of internal marketing should be examined on the long-term.
With regards to their responses as to the reason(s) for employees going on strike after the revolution,
most managers mentioned that after the revolution, the barrier between high level management and
employees was broken. Thus, it was a chance for employees to confront top management and request
their demands. Two interviewees mentioned that lack of trust between top management and employees in
the past caused this alarming number of strikes and demonstrations throughout the nation.
All interviewees cited that it is easy for employees to communicate with anyone at any level in the
organization. This would probably take place in the form of a one-on-one meeting or email
communication. However, communication with top management was not common in the organizations
that were interviewed.
With regards to the aims of internal marketing, respondents provided various responses including:
retaining top notch calibers, helping to ensure a consistent level of quality, improving the work flow,
increasing customer satisfaction levels and increasing organization’s profits.
There were mixed views about the extent to which internal marketing is important in production or
service-oriented industries. Two believed that internal marketing is more important in service industries
than production industries; six believed that it is important for both production and service industries, and
the two believed that it is more important in production oriented industries than service industries.
All ten interviewees highlighted that things have changed a lot after the revolution. They highlighted
that while most did not think of internal marketing before the revolution, nowadays, with the increased
protests and demonstrations, companies are obliged to do effective internal marketing. Thus, the
revolution changed how companies are managing their relationships with their internal customers, the
employees.
In terms of the benefits of internal marketing one interviewee mentioned that internal marketing is a
retention tool to improve employees’ loyalty to an organization. In addition, internal marketing will
improve internal communication which will result in increased productivity. Internal marketing is
expected to result in smooth work flow among employees which in turn leads to improved customer
satisfaction levels and organizational profits.
The interviewees agreed that it is difficult to measure the direct effect of internal marketing.
However, internal marketing should help improve employee loyalty and commitment which will be
reflected externally in terms of customer satisfaction and loyalty and ultimately reflected in organizational
performance.
One interviewee suggested that it is important for companies to think of employees as an asset and
not as a liability. Employees should be considered partners in business in order to feel ownership in their
organization. The interviewees admitted that more could be done to better market internally to employees
in their organizations. However, this would take years before companies fully implement and realize the
benefits of these practices. Further, with the tight budget and economic downturn in the Egyptian
economy after the revolution, companies are focusing on more serious business issues. The business
activity is slowing down resulting in lower revenues and profits, which has caused some companies to lay
off some of their employees.
CONCLUSION AND MANAGERIAL IMPLICATIONS
Internal marketing can be a source of competitive advantage for companies who want to gain a
favorable reputation. It is worth noting that companies that have consistently maintained a positive
reputation have all been effective in managing their employees. This is the case with companies that were
mentioned previously such as: Southwest, Ritz-Carlton Apple, Dell, Raya, Mobinil, Eva Pharma and
Vodafone Egypt. These companies set good examples for internal marketing practices and provide
evidence on its ability to create a unique competitive advantage in the market.
Internal marketing is not limited to organizations that are high in people-to-people relationships such
as hotels, airlines or other service-based organizations. Internal marketing applies to all types of
organizations: for profit, not-for-profit, small enterprises, large corporations and any other form of
organization.
More attention should be given to companies to implement internal marketing practices. Companies
should offer more training to marketing managers and other functional managers on internal marketing.
This is important for all managers who manage teams of employees. This is something that many
managers in Egypt are lacking. It is important for marketing managers to work more closely with human
resources managers in implementing internal marketing practices. It is also important for organizations to
link internal marketing practices to employee performance and achievement and the overall
organizational goals and objectives.
RESEARCH LIMITATIONS AND FUTURE RESEARCH
This study is exploratory in nature. It provides some insights as to internal marketing cases, issues
that need further examination. Future research should offer more quantitative research in methods to
justify the importance of internal marketing and assess its impact on organizations.
REFERENCES
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http://www.mobinil.com/investors/AnnualReport2010/OurBusiness/OurPeople.aspx, www.mobinil.com
(accessed 22nd October).
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York.
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November 2011).
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2011).
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Khalil, A., Senior Marketing Manager, Raya, interviewed December 27, 2011.
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50, 423-433.
Miles, S.J., and Mangold, G. (2004). A Conceptualization of the Employee Branding Process, Journal of
Relationship Marketing, 3, (2/3), 65-87.
Miles, S.J. and Mangold, W.G. (2005). Positioning Southwest Airlines through Employee Branding,
Business Horizons, 48, 535-545.
Mounir, S. Training Manager, EVA Pharma interviewed October 23, 2011.
News and Events, http://www.rayacorp.com/ShowPage.aspx?PID=40, www.rayacorp.com (accessed
22nd October).
O’Reilly, C.A. III, and Pfeffer, J. (2000). Hidden Value: How Great Companies Achieve Extraordinary
Results with Ordinary People, Harvard Business School Press, Boston, MA.
Ryan, C. (2010). “What Makes an Apple Store so Great”, http://gigaom.com/apple/what-makes-an-applestore-so-great/ (accessed 15 December 2011).
Schmid, J. (2003). “Dell Computer Corporation - Best Practice for Relationship Marketing?”
http://www.leavingfingerprints.com/FH-Dortmund/archive/Dell%20%20best%20practice%20for%20Relationship-Marketing.pdf?clsid=9a7fb2c3fadfe2eb6e62671771c26c31
(accessed 29 November 2011).
Shamma, H. and Hassan, S. (2009). Customer and Non customer Perspectives for Examining Corporate
Reputation, Journal of Product & Brand Management, 18, (5), 326-337.
Southwest Mission, www.southwest.com/about_swa/mission.html (accessed 22nd October).
Working at the Ritz-Carlton, http://corporate.ritzcarlton.com/en/Careers/WorkingAt.html (accessed 22nd
October).
www.bddonline.com/InternalMarketingTacticsList.pdf (accessed 22nd October).
Brokers and Control of Adverse Selection (Pre-contractual Opportunism) in
the Nigerian Insurance Market
Tajudeen Olalekan Yusuf
University of Lagos, Nigeria
Insurance opportunism at the pre-contractual stage go largely under-studied. This article explores the
effectiveness of the insurance brokers’ information gathering role at this stage to control adverse
selection in the Nigerian insurance market. It also set to examine stakeholders’ pressure effect on the
brokers to control insurance opportunism. Although, semi-structured face-to-face interviews constituted
the primary method of data collection, other methods were used as supplements. The findings suggest that
this role, to a great extent, is performed creditably well in the Nigerian market. Expectedly, this has
reinforced the theoretical framework that the insurance brokers enhance the competitiveness and
efficiency of the insurance market through the resolution of adverse selection.
INTRODUCTION
Insurance opportunism or fraud has been recognised as a serious economic problem whereby
insurance customers deprive the system of resources as well as cheat it out on resources (Derrig and
Krauss, 1994). This happens when they mask their true risk-type while applying for insurance and when
they are making claims for fabricated or genuine claims. It is a common knowledge that policyholders
have the ability to use their informational advantage to make false declarations in order to be effectively
covered or to pay lower premium (Alary and Besfamille, 2001). Suprisingly, applications, underwriting or
premium fraud go largely under-studied.
Consequently, insurers have deviced various strategies to control the fraudulent trend. Such strategies
involve contract-design (Townsend, 1979; Picard, 2000; Boyer, 2004) and audit (Crocker and Morgan,
1998; Major and Riedinger, 2002; Morse, 2005; Morley et al, 2006) approaches. But these two major
approaches in the literature have achieved minimal results with insurance fraud assuming increasingly
global dimension. But, this may not be unconnected with several factors.
Firstly, insurance contracts are inherently conducted under the atmosphere of informational
asymmetry. This means that the information of the subject matter of insurance is tilted more to the side of
the applicant (prospective insured) than the insurer. The second factor relates to bad attitudes on the part
of the public which view insurance fraud as a crime of easy money with little risk of getting caught, or of
few serious consequences if they are caught. Thirdly, people believe they are entitled to commit fraud
after paying high premiums with no or few losses for many years. Fourthly, too many insurers are in
denial about the scope of fraud and its impact on their bottom lines (CAIF, 2000).
While insurance intermediaries contribute to enhancing transparency in insurance markets due to the
information asymmetries characterising them, they have been systematically excluded from using their
position to deterring opportunistic tendencies of insurance customers. As a result, there seems to be a
begging vacuum in the area of study of operational model of bridging of information gap by insurance
intermediaries to stem the tide of all forms of opportunism in the insurance market.
Scholars have also observed that under adverse selection in insurance markets, the insured has no
incentive to reveal his true risk which is costly to observe by the insurer (Dionne and Lasserre (1985).
This is insurance opportunism that takes place at the precontractual stage of the insurance contract.
It is founded on the assumption that the more rigorous is the information gathering at the
precontractual stage, the more difficult it is for customers to perpetrate opportunism. Insurance customers,
particularly, the commercial clients, are aware that the insurers rate their risks on the amount of
information they give. They, as a result, would like to give less “high risk” information in order to pay
less premium. Two examples of this ex ante behaviours are such as: failing to report an accurate medical
history when applying for health insurance (concealment), and in automobile insurance, declaring that the
usual driver is the middle-aged car’s owner while, in fact, it will be his young son (misrepresentation).
The first objective of this article is to explore how insurance brokers gather information from clients
to control insurance opportunism perpetrated by the customers when they apply for insurance ex ante
(precontractual). This is because they do not have the incentive to reveal all about their risks (at the precontractual stage) so as to pay less amount of premium. Secondly, the paper also aims to examine how
brokers resolve the stakeholders’ pressures that face them at this stage of the insurance contract in the
interests of both clients and insurers.
Opportunism is defined as "self-interest seeking with guile. This includes but is scarcely limited to
more blatant forms, such as lying, stealing, and cheating…More generally, opportunism refers to the
incomplete or distorted disclosure of information, especially to calculated efforts to mislead, distort,
disguise, obfuscate, or otherwise confuse" (Williamson, 1985, p. 47). Translated into insurance parlance,
this refers to the attempt by the insurance customer behaving opportunistically to obtain undue advantage
while applying for insurance (precontractual) and while making a claim (postcontractual). Opportunism in
this study is a compound word encompassing all kinds of guiles and deceit, whether calculated or not,
from petty to organised scam and which serve the purpose of obtaining undue advantage from the
insurance system at precontractual and postcontractual stages of the contract. The present focus is the
precontractual phenomenon.
To address these objectives the paper is structured as follows. Section 2 contextualises the study
while section 3 reviews some relevant literature on asymmetry information and conflicts of interest for
insurance brokers. The theoretical framework is addressed in section 4 while section 5 presents the
research methodology. Section 6 presents the findings; which are discussed in section 7 while section 8
concludes.
THE NIGERIAN INSURANCE BROKING SECTOR
The Nigerian insurance market is, in many respects the next frontier in the Nigerian financial space
but unlike the banking story, the growth opportunity of the Nigerian insurance industry has been
stagnated for too long. It is obvious that the Nigeria insurance market cannot be treated in isolation of the
national economy. The Nigerian insurance market has been highly under-penetrated, particularly when
compared with other African insurance markets. Of the estimated 20m people in formal employment
across Nigeria, less than 1m currently holds personal insurance policies. This is despite a steady growth in
incomes across the working population in recent years, and the emergence of a new middle-class group in
Nigeria (Wiggle, 2009).
The industry is less ‘highly’ competitive, considering the slow pace of growth in overall market size;
and the stringent conditions of entry of new policy. The competitive structure of the Nigerian insurance
industry is complicated by the presence of a large number of insurance brokers (510 as at 2006), who are
major intermediaries in the flow of business between corporate customers and insurance underwriters.
Over 70% of industry premiums are controlled by this large group of brokers. Corporate accounts in
particular, can often only be secured with the involvement of a broker, as companies are comfortable with
the competitive pricing and claims management support that brokers typically provide. Brokers have thus
leveraged on this position of strength to dominate the industry. This situation might have been
accentuated by the problem of asymmetric information characterizing the insurance market.
ASYMMETRIC INFORMATION
According to Puelz and Snow (1994: 237), information asymmetries arise in insurance markets
because underwriters cannot judge with certainty the magnitude and frequency of the risks underwritten
and consequently, the actuarially fair rate at which those risks should be priced. Therefore, in order to
mitigate this problem, underwriters instigate appropriate contracting and contract monitoring solutions.
D’Arcy and Doherty (1990) mention the three approaches that have gained currency in the literature
namely; 1) separating equlibria or self-selection; 2) multiperiod contracts or experience rating and 3) the
integrative contract.
Insurance opportunism (fraud), in real sense, can be traced to the underlying origin—information
asymmetry (Derrig, 2002) that is present in every insurance contract. Put in other words, insurance
opportunism (fraud) is traceable to the manipulations of information asymmetry by-products; namely
adverse selection and moral hazard (Chiappori et al., 2004). But the focus of the present study is restricted
to the precontractual opportunism resulting in adverse selection. This results when the insurance customer
masks his true risk-type while applying for insurance at the precontractual stage. The insurer, also,
without the insurance broker will consequently charge lesser than he should receive had the customer not
misrepresented/concealed his true risk-type. This is called precontractual opportunism where one person
seizes the opportunity of presence of private information to lie prior to a contract taking place (Molho,
1997). The implication of this scenario for the insurance market is depicted in Figure 1 below.
FIGURE 1
Adverse Selection
According to Akerlof (1970), adverse selection refers to the risk that contracting parties have
incentives to actively withhold private information from each other ex-ante in order to secure economic
advantages later on. In his famous landmark piece: “The Market for “Lemon”: Quality Uncertainty and
Market Mechanism”, the author applies this concept to the insurance market by arguing that because it is
not always commercially favourable for insurers to sell policies for applicants above the age 65 even if
price levels are raised for this set of people. The reason for this is tied to the fact that the people who
insure themselves will be those who are increasingly certain that they will need the insurance; for error in
the medical check-ups, doctors’ sympathy with older patients and so on make it much easier for the
applicant to access the risk involved than the insurance company. The result is that the average medical
condition of insurance applicants deteriorates as the price level rises—with the result that no insurance
sales may take place at any price.
Formally stating this, Adverse selection arises when one party—generally, the subscriber—has a
better information than the other party—the insurer—about some parameters that are relevant for the
relationship (Chiappori, 2000: 367). Alary and Besfamille (2001) focus on this particular type of
information asymmetry that takes place during insurance policy negotiation. The authors argue that it is
well acknowledged by practitioners that at this stage, many policyholders often lie and misreport their
private information. They do this on the understanding that the insurers decide to cover them or determine
their rate upon those declarations. They may probably make false declarations in order to pay lower
premiums. The authors further argue against this behaviours by citing two instances of either failing to
report an accurate medical history when applying for health insurance (concealment), or declaring that the
usual driver would be the middle-aged car’s owner while, in fact, it would be his young son
(misrepresentation) in the case of automobile insurance.
Assumptions of the Conceptual Framework
The conceptual framework adopted for this study is based on the following assumptions:
 There is principal-agent relationship between the broker and client on the demand side of the
market and between broker and the insurer on the supply side.
 The broker serves as agent for both insurer and client.
 The broker maintains relational repetitive contract with client.
 The broker is remunerated sometimes by either parties (client or insurer) or both of them at the
sometimes by commissions to mitigate asymmetric information (adverse selection) in the market.
 The broker is a risk averse agent incentivized to control insurance opportunism
 The broker is weary of reputational damage that professional indemnity could cause him should
he fail to report all the information gathered and verified from the client to the insurer.
 The regulatory environment is cost effective to control insurance opportunism.
The implication of these assumptions of the framework is that the agent or broker who fails to provide
accurate information on the short-run faces the loss of his relationship with the insurer because the insurer
would be required to sustain underwriting losses to identify the dishonest agents. The same consequence
is equally applicable to the client who is in the habit of masking his true risk-type ex ante.
RESEARCH METHODOLOGY
A case method was adopted of the Nigerian insurance broking sector. Using the unusual case
sampling strategy (Auerbach, 2003), Lagos city was selected where over 80% of the insurance brokers
head offices are located. In all, 45 interviews were conducted among various insurance broking
executives with titles such as Managing Director, Head of Property-Liability Department, Accounts
executives, and other insurance experts working with the regulatory authority as well as loss adjusters.
(See Appendix 1).
Being a study in the area of incentives and agency relationships, qualitative approach may enable the
observation and discursive evaluation of best-and-worst-practice examples that the proponents of such
practices may be unaware of, or which they may be unable or unwilling to report or evaluate without bias
(Lewis, 1998; Morley et al. 2006). Although, semi-structured face-to-face interviews constituted the
primary method of data collection, other methods were used to supplement these interviews—reviews of
professional journal articles, magazines, annual reports, information gathering templates, claim forms
templates and so on. The number of interviews was not pre-set, but was determined in part by pragmatic
considerations, such as time constraints, and also by the attainment of theoretical saturation (Glaser and
Strauss, 1967; Flick, 2002).
For strategic reason, the researcher adopted an approach that completely refrained from using the
word, “opportunism” throughout correspondence and actual meeting with broker-interviewees so as not
create negative and suspicious mindset. Rather, the word, ‘bridging information gap’ was used in
substitution. In most interview sessions, the word ‘opportunism (fraud)’ was only used when the
researcher had exhausted the main research questions and smoother relationship had developed with
respondents. And as expected, this researcher found the approach quite useful to corroborate Davies’s
(2007) view that the interview method would assist while exploring individual or situational perspectives
and gain an in-depth understanding of personal feelings and experience.
After collecting the data which spanned for four months, the analysis is presented drawing from
Auerbach’s (2003) three-phase (six-step) coding method and data analysis. This process is broken down
into i) Making the text manageable,ii) Hearing what was said, and iii) developing theory.
FINDINGS AND DISCUSSION
The information gathering role of brokers entails collecting detail information about the risks to be
insured. This would include sourcing for prospects, meetings, tools for gathering information,
verification, and prospect’ management quality and presenting the information to insurers to obtain
actuarially fair quotes from which the prospect would make a choice. This procedure is taken up next.
Verification Tools: How Effective?
How effective are these information gathering tools in eliciting the required information before
insurers are invited for quotations? Brokers generally believe that they are credible and effective; based
on the experience they have garnered while doing the same job time and time again. The verification
process often makes brokers to cross-check with published annual report figures of the clients’ assets—
movable and fixed while any discrepancy is ironed out with the client. The verification exercise would
involve brokers contracting with technical experts for surveying the clients’ premises and operations
where these are of complex and highly industrialised nature. Some of them justify the relevance of this
procedure as:
“…safeguard(ing) us in terms of what we are presenting to the insurer because they can
go out there and get their own facts as well. So that does help. Sometimes, we also obtain
surveys from the particular place from qualified surveyors, property surveyors and
liability surveyors and we would pay them to take…prior to signing an agreement with
the client” (New Business Executive).
The brokers are not contented only on the aforementioned verification exercise; they would also
authenticate such information by carrying out a check on the past claim history of the prospects with past
insurers:
“…all insurance quotes are all subject to authenticated (previous) claim experience
being provided. So, if the client withholds, and we incept cover and we get the
experience, and it doesn’t match up with what client had told us, then insurers have the
right to review terms already quoted”( Commercial Department).
The implication of this point is to underscore the credibility and usefulness of the service of the
brokers. The report on past claim history would reveal the risk level of the new prospect and this might
mitigate adverse selection to ensure actuarially fair rating of the new risks being brought on to the pool.
The added usefulness of this is prevention of insurance opportunism of clients who might want to present
less “high risk” information to pay less premium. This role is also akin to Rejda’s (2003) “first
underwriting” and Hall’s (2000) “field underwriting”—a process meant to select and classify applicants
according to the risk they represent. “Failure to effectively underwrite or classify potential insureds can
lead to the problems of adverse selection and price inequity” (Hoyt et al, 2006: 3).
More importantly, the underwriting survey provides broker with a valuable source of information and
is important in obtaining favourable terms. Insurers feel more confident in providing their best terms
when they have the fullest understanding of the risks.
Transmitting Information to Insurers
Presenting information gathered from new prospects to insurer is a crucial function of the broker at
the precontractual stage. Brokers, having gathered and verified the information from new prospects must
present it properly without which the initial purpose of fact-finding would be defeated. Bad presentation
could mar comprehensive and well collected information. Findings suggest that all the information
gathered from new prospects is often vetted by brokers while passing only that part which the insurers
require to quote for the risk exposures.
“We, in the main, we would disclose to the insurers all the information which we
gathered from client which is material fact and pertinent to placing the insurance cover
with them. Once we have obtained information, and based on the duty of disclosure the
information is passed on to the underwriters to allow them to quote. We are not allowed
to withhold any information which is considered to be material fact in placing insurance
cover “(Manager, Oil and Gas Department).
In whose interest is the vetting of information done? Is it the client, the insurer or the broker? How
material is the material fact passed on to the insurer? These and other types of conflict of interests which
are inherently present in the intermediary role of brokers are treated later in the next section.
Brokers’ Role in Controlling Opportunism at the Pre-contractual and Renewal stages
Brokers agree that they are very relevant in deterring and controlling insurance opportunism at the
precontractual stage for their invaluable services in eliciting the proper information from prospective
clients. Apart from marketing the products of the insurers, they base such relevance on the fact-finding
exercises they embark upon in building trust with the client. In the literature, asymmetric information has
been mostly alleged as the underlying cause of the fraud phenomenon (Puelz and Snow (1994; Derrig,
2002). This implies that insurance customers have the ability to use their informational advantage about
the nature of their risks to obtain cheaper quotes. The information gathered by the brokers helps to
improve the efficiency of the insurance markets by reducing adverse selection. From the findings, brokers
do go extra length to identify the extent of their clients’ risks:
“It is easier for clients to hide something when they are dealing directly with insurers and
it would be for brokers to make a visit to the clients and say, well, you told us that the
building was metal- roofed, while in fact it was a timber roofed. That’s where we can
gather information to see whether the information from client is providing is correct”.
(Head, Broking Team).
More importantly, in Nigeria where insurance culture is still very low, the brokers’ role could prove
quite invaluable. In the first place, most commercial prospects—small-scale businesses are just being
introduced into the insurance market to be aware of their risk exposures. The visit by the brokers might be
their first experience of the workings of insurance and its usefulness. At this first visit, they tend to be as
honest as much as they can. With a skilful broker versed in the art of eliciting facts from people, the most
relevant questions are asked and later translated into the insurance language. Brokers, though working for
their own self-interests are saving the insurers the hassles of discovering such ‘innocent’ clients who have
scanty knowledge about insurance to want to mask their risk-type at the precontractual stage. They are
able to collect raw facts from this set of prospects; from where their risk profiles are developed. These
raw facts are subsequently improved upon at the renewal stage when new developments crop up in the
client’s business in terms of additions and deletions as well as the need for revaluation of the insured
assets.
Stakeholders’ Pressures on Brokers
The findings from the study has revealed that insurance brokers which play the role of information
agents in the insurance market are under immense pressures to deliver and not soil their reputation
through conflicts of interest induced by economic gains. What is evident from this study is that these
pressures may have varying effects on the brokers depending on the level of development of the insurance
environment and how well they are regulated to ensure compliance with the rules of the business.
Lawsuits and reputational damage for professional negligence
Most reputable brokerage firms or those that are upcoming are often confronted and influenced by the
fear of facing legal suits from their clients should they be involved in any act of professional negligence.
Such fears are a function of the regulatory and legal environment as well as the level of enforcement of
such rules. Hence, there is the need for regulatory mechanisms of controlling conflicts of interest in
financial firms generally and in the broking sector especially; thereby bolstering their prospective role in
the governance process. It reflects in the study where senior members of staff of broking firms are
monitoring the junior ones responsible for gathering information.
Professional reputation management has quite simply become every company’s duty. For the broker,
trust is a key component of relationship quality with customers which gives the broker a competitive edge
and also determines whether the relationship will continue in the future. High service quality leads to
satisfaction in the service provider which in turn leads to ‘relationship quality’ or a long-term relationship
between the service provider (the broker) and the client. A slip up in this area by the broker could prove
fatal for its existence and survival in the long-run. A broker has this to say:
Everybody gets to know much about you that any job from that place should be
suspicious. The next day, they either avoid you or they jack your rate up. They would not
accept your terms and they would always insist that you must pay before…no credit
insurance for you again and no more latitude for you to play around with in terms of any
of those considerations they may give to other brokers”( General Manager,
Underwriting).
Hence, brokers are always weary of reputation loss with both clients and insurers in their information
bridging role to maintain high level quality service.
Sanctions by regulatory authority
Another external pressure confronting the insurance brokers from the finding is the fear of sanctions
for breach of the rules when the monitoring team of the regulatory authority comes to inspect the records
of the brokerage firms. Apart from examination of the broking records, complaints received from
members of the public or clients are taken seriously to ensure that brokers treat their customers fairly.
Sanctions for erring brokers could be in form of fines, suspension, and license withdrawal and so on to
serve as deterrence. The Nigerian regulatory body—NAICOM—recently sanctioned some brokers for
failing to remit premiums to the insurer within the stipulated 90 days of signing of the contract.
IMPLICATION AND CONCLUSIONS
This article sought to explore the effectiveness of the insurance brokers’ information gathering role at
the precontractual of the insurance contract to control opportunism caused by adverse selection in the
insurance market. It also set to examine stakeholders’ pressure effect on the brokers to control insurance
opportunism. The findings suggest that this role, to a great extent, is performed creditably well in the
markets. Expectedly, this has reinforced the theoretical framework that the insurance intermediaries are
relevant information agents that enhance the competitiveness and efficiency of the insurance market
through the resolution of adverse selection. The effectiveness of this role enhances competitive biddings
which ensures that insurance customers receive fair deals from their brokers while also safeguarding the
interest of the insurers in the control of insurance opportunism.
Through the discussion on stakeholders’ pressures on the brokers, the study has highlighted the reality
of this phenomenon in the insurance market from the regulators, insurers and the clients’ perspectives. It
situates the broker as standing between two principals with differing interests. The client-customer wants
the widest coverage at the cheapest price while the insurer wants to maximize profits and the value of the
company by attracting only good risks. Through the involvement of the broker, the transaction costs of
searching for the best-match by the two parties are overcome through the mitigation of the adverse
selection problem. The regulators are also involved in putting pressures on the brokers to ensure that
customers are treated fairly through threats of various forms of sanction. Hence, it can be reasonably
concluded that insurance intermediaries (brokers) are vital agents in the insurance market to control
opportunism resulting from adverse selection due to asymmetric information.
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APPENDIX
LIST OF INTERVIEWS
Interview
No.
1.
Structure:
Small or
medium
size
Medium
2.
Medium
3.
Medium
4.
Small
5.
6.
7.
Small
Medium
Small
8.
Small
9.
10.
11.
Medium
Medium
Medium
12.
13.
14.
15.
Medium
Medium
Medium
Medium
16.
Small
17.
18.
Small
Medium
19.
Small
Job title
Name (first)
Date of
interview
M.D.
(Operations)
Head (Broking
team)
Accounts
Executive
Commercial
Team
Broking Team
Head (Renewals)
Head
(Operations)
Member
(Commercials)
Head (Claims)
M.D. (Group)
New Business
Executive
Corporate Team
Head (Renewals)
M.D
Manager (Oil and
Gas)
Manager
(General)
Head (Liability)
Director
(Property and
Liability)
Broking Team
Sally
25/12/2007
Steve
25/12/2007
David
23/01/2008
Craig
5/02/2008
Marc
Mal
John
20/03/2008
27/06/2008
30/06/2008
Paul
14/11/2008
David
Peter
Kevin
12/02/2008
16/05/2008
30/06/2008
Monica
Praful
Abolarin
2/07/2008
05/07/2008
11/07/2008
Aremu
11/07/2008
Ade
John
11/07/2008
11/07/2008
Osundosumu
Paul
16/07/2008
16/07/2008
20.
Medium
21.
Medium
22.
Medium
23.
Small
24.
Small
25.
26.
Medium
Small
27.
Medium
28.
29.
Small
Medium
30.
Medium
31.
32.
Medium
Medium
33.
Medium
34.
35.
36.
37.
Small
Small
Small
Small
38.
Medium
39.
Medium
40.
41.
Small
Small
42.
43.
Small
Medium
44.
Small
45.
Small
Head (Accident
and Motor)
Director
(Underwriting)
Head (New
Business)
Manager
(Underwriting)
Manager
(Claims)
Head (Renewals)
Head (Motor
claims)
Head (Oil and
Gas)
General Manager
NAICOM (Head
Lagos zone)
Registrar, Loss
Adjuster
Head (Claims)
Head (Broking
team)
Account
Executive
General Manager
General Manager
General Manager
Claims
department
Head (New
Business)
Accounts
executive
General Manager
Accounts
Executive
General Manager
Head (Liability
Claims)
Accounts
Executive
General Manager
Balogun
22/07/2008
Osinuga
22/07/2008
Ojeah
22/07/2008
Ogunleye
23/07/2008
Segun
Olaoye
23/07/2008
23/07/2008
Biodun
23/07/2008
Rauf
Niyi
24/07/2008
29/07/2008
Adebowu
29/07/2008
Opara
Livinus
30/07/2008
05/08/2008
Lanre
06/08/2008
Ogedengbe
Yemi
Wole
Segun
08/08/2008
17/08/2008
19/08/2008
21/08/2008
Goke
22/08/2008
Sina
29/08/2008
Samuel
John
4/09/2008
5/09/2008
Yemi
Peter
5/09/2008
11/09/2008
Saka
22/09/2008
Taju
Musiliu
23/09/2008
24/09/2008
ABOUT THE AUTHOR
Tajudeen Olalekan Yusuf (B.Sc., M.Sc., M. A., PhD) is a seasoned lecturer and researcher in the
Department of Actuarial Science and Insurance of University of Lagos, Nigeria. He was trained both in
Nigeria and the United Kingdom in insurance, risk management and Islamic finance. He has presented
most of his works on insurance and Islamic finance in several academic and professional conferences
locally and across several continents of the world. His research interests include insurance underwriting,
regulations and broking, risk management and Takaful (Islamic insurance). Tajudeen can be contacted in
[email protected].