Organizational Behavior: A Study On Managers, Employees, and Teams

Journal of
Management Policy and Practice

North American Business Press
Toronto - Miami - Seattle
Journal of Management Policy and Practice
Editor
Dr. Daniel Goldsmith
Founding Editor
Dr. William Johnson
Editor-In-Chief
Dr. David Smith
EDITORIAL ADVISORY BOARD
Dr. Bill Bommer, California State University, Fresno
Dr. Michael Bond, University of Arizona
Dr. Charles Butler, Colorado State University
Dr. Daniel Condon, Dominican University, Chicago
Dr. Bahram Dadgostar, Lakehead University
Dr. Deborah Erdos-Knapp, Kent State University
Dr. Philippe Gregoire, University of Laval
Dr. Samanthala Hettihewa, University of Ballarat
Dr. Jerry Knutson, AG Edwards
Dr. Tony Matias, Matias & Associates
Dr. Patti Meglich, University of Nebraska, Omaha
Dr. Robert Metts, University of Nevada, Reno
Dr. Roy Pearson, College of William and Mary
Dr. Sergiy Rakhmayil, Ryerson University
Dr. Robert Scherer, Cleveland State University
Dr. Ira Sohn, Montclair State University
Dr. Carlos Spaht, Louisiana State University, Shreveport
Dr. Ken Thorpe, Emory University
Dr. Robert Tian, Medialle College
Dr. Calin Valsan, Bishop's University
Dr. Anne Walsh, La Salle University
Dr. Christopher Wright, Lincoln University
Volume 12(1)
ISSN 1913-8067
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This Issue
Paradigms and Patterns: Assessing the Multicultural
Aptitude of Students at a Midwest University ..........................................................................11
Mary Rittenhouse
The need for international experiences has never been greater, but what is the acceptance and
participation on a regional level? This purpose of this paper is to consider the interest level of students at
a Midwest university compared to national trends and the factors that contributes to or subtracts from the
students level of participation. This project is attempting to determine the level of openness and support
of international education programs on a regional level compared to national trends. Also under
consideration will be regional perceptions for the need of international experiences.
Recession Compassion: 7 Steps on How to Treat Employees to Get the Best
Performance During These Global Economic Times ...............................................................21
Heidi K. Barclay, Allen C. Barclay
Leadership is influencing employees to voluntarily pursue organizational goals. Leadership is also
getting people to follow, even if they have another choice. To lead effectively, managers must motivate
others to want to be lead or get people to choose to follow. What makes this difficult are the barriers
thrown in based on the multitude of cultures that we have in the current work place tied to the current
economic state of the world. Using compassion towards employees creates an environment of employee
buy-in that will decrease turn-over and increase the need to do better for the organization.
A Study of Hard Drive Forensics on Consumers PCs: Data
Recovery and Exploitation..........................................................................................................27
B. Dawn Medlin, Joseph A. Cazier
One of the first actions to take when getting rid of an old personal computer is to remove all of the files
that contain identifying and personal information. Individuals can be surprisingly negligent in this effort.
Many individuals may also believe that by simply moving their files to the recycle bin and then emptying
that bin that all of their programs and files are permanently erased. If personal information is not totally
deleted, acts of identity theft can easily occur. Our research study identified the types of information
found and/or recovered from hard disk drives on computers that have been donated to charity, sold
second-hand, or otherwise donated to other organizations for reuse. Of the fifty-five hard drives studied
approximately 300,000 files contained identifiable information. Results showed the need for further
training in relation to total file erasure from a hard drive as well as the negative results such as identity
theft that can occur due to this lack of training or knowledge.
Comprehensive Economic Partnership Agreements ................................................................36
John R. Patton
This paper examines the extent to which Japan has entered into comprehensive economic partnership
agreements (CEPAs) to enhance its international trade position. Facing challenges from the creation of
other major trading blocs such as the European Union (EU) and the North American Free Trade
Agreement (NAFTA) and the ubiquitous presence of protectionist provisions in the World Trade
Organization system, Japan and other countries have tilted toward pursuing their own regional
integration. This study confirms an increasing degree of regional trade agreements (RTAs) being made
globally. Despite Japans late start in this policy, its ongoing successes and challenges are highlighted
here.
Before the Attack: A Typology of Strategies for Competitive Aggressiveness ......................49
Jeffrey E. Stambaugh, Andy Yu, Alan J. Dubinsky
We argue that a firms competitive actions should flow from a strategy. Yet, the issue of strategy has
seemingly been ignored in the competitive dynamics literature. To address that gap, we distinguish
between the logics of innovativeness and competitive aggressiveness and build the foundation for a
competitive strategy by outlining the economic mechanisms of competitive action that lead to superior
performance. Drawing on the resourced-based view of the firm we develop three resource-based attacks
that may be used by competitively aggressive firms. Using this foundation, we derive a typology of
strategies that use competitive actions to achieve sustained competitive advantage.
Part-Time Entrepreneurship, Learning and Ability................................................................64
Kameliia Petrova
Recent evidence from a large cross-national study on the level of entrepreneurial activity of 40 countries
has established that 80 percent of those who implement start-ups also hold outside paid jobs. To explain
part-time entrepreneurship, I develop a model in which individuals become part-time entrepreneurs
because they do not know their entrepreneurial ability ahead of time. Better entrepreneurs manage to
transform their start-ups into successfully operating businesses; those with lower entrepreneurial ability
withdraw. The model gives rise to industry selection and agrees with the empirical evidence from the
Panel Study of Entrepreneurial Dynamics (PSED).
Convergence, Divergence or Middle of the Path: HRM Model for Oman.............................76
Sami A. Khan
The role of human resource management function is at the crossroad, and on the one hand it is facing the
crisis whereas there also exists an unprecedented opportunity to redefine and refocus the HRM function
to leverage its credibility in organization. In Oman, HRM is in its infancy and there is a need to
strengthen its discourse and learning. The present paper attempts to understand the dynamics of HRM in
Oman and evaluates various HRM models which have evolved over a period of time. It is difficult to
prescribe a HRM model without analyzing the regional and socio-contextual factors inherent in Oman
and neither convergence nor pure divergence provides a solution to this end.
Organizational Behavior: A Study on Managers, Employees, and Teams ............................88
Belal A. Kaifi, Selaiman A. Noori
In recent decades, there has been a tremendous shift in the structure and operation of organizations.
Advancements in technology and skill diversity have fostered a modern workplace of skill and workflow
interdependencies. Hence, for success in todays business world, it is imperative for organizations to
understand the forces that impact team outcomes. This study on 100 managers from the same organ-
ization shows that female managers have higher communication skills when compared to male
managers, but are also more influenced by group think. A total of 200 employees from this organization
were also studied and the results show that female employees contribute to team outcomes more than
male employees. Implications for researchers, managers, and human resource professionals are
considered.
Case Study of Chinese and U.S. University, College of Business
Partnerships: Form, Process, Opportunities, and Challenges.................................................98
Daniel Borgia, Gary Bonvillian, Arthur Rubens
This paper presents the experiences of three regional universities - one public and two private - that have
established academic partnerships in business with Chinese institutions of higher education. The paper
briefly highlights the process used by three universities to establish linkages with their Chinese partners,
the relative success of these alliances, and the lessons learned in the process. Although many Western
Universities have established partnerships with Chinese Universities, there remains an enormous unmet
demand for Western business education in China. However, Western business schools must prepare
themselves for the many challenges in establishing these partnerships.
What Impact Do Economic Issues Have on the Sustainability of Small,
Medium and Micro Entrepreneurs?........................................................................................108
D.B. Tshabalala, EM Rankhumise
The article presents evidence from SMME entrepreneurs regarding their experiences on economic issues
which impact negatively on their sustainability. The inception of the democratic government resulted in
the fast boom of small, medium and micro enterprises (SMMEs) due to the introduction black economic
empowerment (BEE) initiatives. Using structured questionnaires, the data were collected by personally
visiting the SMME entrepreneurs. Empirical evidence shows that indeed economic issues are drastically
affecting their chances of sustenance. The findings present valuable information that policy makers can
used to address the issues since entrepreneurs themselves will find it difficult to come with long term
solutions.
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Paradigms and Patterns: Assessing the Multicultural
Aptitude of Students at a Midwest University
Mary Rittenhouse
University of Nebraska at Kearney
The need for international experiences has never been greater, but what is the acceptance and
participation on a regional level? This purpose of this paper is to consider the interest level of students at
a Midwest university compared to national trends and the factors that contributes to or subtracts from the
students level of participation. This project is attempting to determine the level of openness and support
of international education programs on a regional level compared to national trends. Also under
consideration will be regional perceptions for the need of international experiences.
The importance for international experiences for todays college students has been recognized for its
ability to gain knowledge of different cultures, cultural communication skills and cultural aptitudes. The
future for all of todays post-secondary students in all disciplines across the campus now includes an
international facet due to the interconnectivity of the global markets. This mandates that students who
wish to position themselves as leaders of the 21
st
century must recognize and prepare for this
interconnectivity. Even if students do not see themselves leaving domestic soil, knowledge and
competencies of cultural diversities as managers and team members will increase their marketability.
Nationally, evidence shows that a wide majority of students, parents, and faculty approve and support
international experiences during their academic years, that international experiences and study abroad
programs increases the value of undergraduate education. While there is this evidence that shows strong
support, participation rates, while increasing, still remain low. Prominent factors listed for the low
participation rates include cost, interruption of academic goals, and lack of language skills.
BACKGROUND AND INTRODUCTION
Travel is fatal to prejudice, bigotry and narrow-mindedness all foes to real understanding.
Likewise, tolerance or broad, wholesome charitable views of men and things cannot be acquired by
vegetating in our little corner of the earth all ones lifetime.
Mark Twain
Innocents Abroad (Twain, 1869)
It is with common agreement that todays college students will be facing a labor market that is global
in scope. Not only is the labor market globally interconnected and interdependent requiring experience
and skills that demonstrates this awareness but also competency of working with and among different
cultures. It is becoming increasingly important for institutions of higher education recognize their roles in
increasing this awareness and developing these skills by providing focused international experiences for
Journal of Management Policy and Practice vol. 12(1) 2011 11
their students. (For the purpose of this paper, the term focused international experience is defined as:
engaging in an international academic study or work program that focuses on development of knowledge
and skills.
While the current paradigm, or mindset, is that a focused international experience is a necessary and
beneficial component of preparing for todays labor market, the patterns, or sensitivity to these skills, is
contradictive. In the 2002-2003 academic year, only 11 percent of the graduates of U.S. post-secondary
institutions were involved in any type of focused international experience. (Institute of International
Education, 2003)
On a national level, the lack of participation does not appear to be due to an absence of awareness. It is
hypothesized that this lack of participation is due to a lack of substantial incentive, explicitly and
implicitly, to compensate for the cost of this type of decision. Economic theory states that decisions are
based on a marginal analysis of costs versus benefits. What are the perceived costs and benefits? Also,
how do these paradigms and patterns found on a national level compare to those found on a more focused,
regional, level?
In July of 2007, a Midwest University was awarded a grant from the U.S. Department of Education
Title VI B Business and International Education Program (BIE). The BIE program entitled Global
Economic Gardening: An Alliance for Business and International Education in Rural
Nebraska was designed to change the current paradigm among our younger population so they begin
thinking about growing global entrepreneurial capacity in Nebraska's by seeking global links, acquiring
global business knowledge, and engaging in global economic growth to prepare them to be globally-
focused business leaders.
Through alliances with regional leaders in government, business, and economic development,
activities in this program are designed to help the targeted populations in rural Nebraska recognize and
develop opportunities for engagement in global business by continuing to partner with the universities
and businesses in Europe and Asia with which the University has established relationships.
Specifically, the program's objectives and activities are:
x Objective One (Acquiring Global Business Knowledge): The grant will enable the
college to (1) introduce an International Business minor in the undergraduate program, (2) implement
international internships and study abroad opportunities for undergraduates, (3) create a web site to
inform students, faculty and community about international business opportunities and experiences, (4)
develop a speaker database of faculty and students who have international business experiences, and (5)
hold global awareness seminars for students. Further, to encourage the understanding and embracement of
the possibilities of global entrepreneurship in the region's K-12 student population, a web-based, pod-
casted international entrepreneurship curriculum with complementary lesson plans will be created and
made available to the regions elementary and secondary teachers.
x Objective Two (Seeking Global Links): The grant will enable the College to strengthen
its faculty through participation in international conferences and study programs. This will create an
environment conducive to teaching, learning, and scholarship in international business.
x Objective Three (Engaging In Global Economic Growth): The grant will enable the
College to provide networking opportunities for entrepreneurs, business owners, and undergraduate
students while learning about and engaging in international business practices and opportunities through
(1) seminars and professional development programs, and (2) a non-credit certificate program in
International Business and Technology.
After two years of implementation of the BIE grant, the purpose of this paper is to determine the
current success of this BIE grant and the challenges that are still present. Have the extra resources aligned
the paradigms of the students at this Midwest University with their patterns? Have the additional
exposures to the opportunities available provided the necessary incentive to participate in international
experiences?
12 Journal of Management Policy and Practice vol. 12(1) 2011
REVIEW OF LITERATURE
The base of literature that substantiates the need of a focused international experience is considerable.
The review of literature centers around three main areas of focus. The first centers on the fact that the goal
of higher education is to prepare culturally competent individuals. This competency goes beyond the
availability of focused international experiences but also a domestic learning environment that provides
exposure to international students. (Astin, Four Critical Years, 1977) (Astin, 1993) (Chickering, 1993)
(Smith, 2000). This focus is particularly important because a common perception among students may be
that their chosen career will not require international travel. The obvious myopic analysis behind this
thought is that it ignores the obvious that, while their position may not require international travel, it is
more than probable that they will be working with other cultures on a daily basis. Diversity on college
campuses from international students provides a relevant and important source for this exposure. (Calleja,
2000) Having a base of international students allows for increasing their sensitivity towards and ability to
work with different cultures and backgrounds.
The second area of focus found in the literature is that while the knowledge of different cultures will
be beneficial, it does not replace the competency that would be gained from a focused international
experience. (Ledwith, 2001) Theoretical exposure does not replace the ability to function with diversity.
This function is most efficiently accomplished through actual international experiences. Sensitivity to
differences in mores, traditions, and ethnicities are not absorbed into practice simply by the interactions
found in a classroom. Affective learning requires an incorporation of relevancy to understand and
appreciate. In other words, it is not enough to recognize the differences, but requires assimilation. (Slate,
1993, October)
The third area of focus it that a focused international experience is a prime method to start the process
of understanding how to function in a global economy. (Ortiz, 2004) Contributing to the second area of
focus is the growing body of information that the process of assimilating diversity includes awareness,
understanding and competency of other cultures. This process requires active learning via actual
international exposure. (Arpan, 1993)
Finally, beyond the professional benefits possible for students, personal benefits are also important. In
a study by Angene Wilson, these personal benefits were broken into four main areas. First is the gain of
substantive knowledge. It is a dynamic, not static, knowledge of other cultures, world issues and global
dynamics. Second focused international experiences provide perceptual understanding which is supported
by a resistance to stereotyping, an inclination to empathize, and an increased ability to be open-minded.
Third, focused international experiences, besides contributing to a students resume, provides personal
growth through the acceptance of self and others, responsibility and independence. Finally, students grow
personally through increased interpersonal connections and the development of intercultural relations.
(Wilson, 1993, Winter)
METHODOLOGY
The national trend for focused international experiences, through a study abroad program among
undergraduate students is increasing. And while also increasing, the rate of growth has been slower in
Nebraska. (Table 1)
TABLE 1
U.S. STUDY ABROAD STUDENTS
2005/2006 2006/2007
U.S.
% Change
223,534 241,791 8.2
Nebraska 1,499 1,556 3.8
Source: Institute of International Education, Open Doors 2008 (Institute of International Education, 2008)
A regional state University was used to gauge the tendencies of its students to national propensities.
The University is a public, residential university that consistently strives for a high quality, multi-
dimensional learning environment. A progressive University of approximately 6,500 students, eighty-six
percent of the undergraduate students lists Nebraska as their permanent residence, six percent are from
other U.S. states and territories and eight percent are from other countries.
A survey (Appendix 1) was used to gauge the level of the perceptions of the students and determine if
these perceptions matched their mindsets. Also of interest was the perceived costs of a focused inter-
national experience and what format is better suited for their designed career path.
The following classes were selected for distribution of the survey.
x Two Personal Financial Management Classes: As a general studies course the students in these
classes are primarily freshmen and sophomores and provided a cross-campus representation.
x Four Contemporary of Economics Classes: Also a general studies course for economics, these
classes consist primarily of freshmen and sophomores and provides the study a cross-campus
representation.
x Four Principles of Economics Classes (Micro and Macro): A general studies course taken
primarily by freshmen and sophomores, representing a heavier concentration of business students.
x Two Upper level Economic Classes: Primarily juniors and seniors with declared business majors.
The survey was given to 391 students representing a cross-campus sample of the students.
RESULTS
At the beginning of the Fall 2009 semester the survey was distributed to 391 students. Among those
surveyed, 12.3 percent were Freshmen, 49.4 were Sophomores, 24.5 percent were Juniors, 13.5 percent
were Seniors, and 0.3 percent did not respond.
What is the mindset of the students surveyed? How do their patterns relate to these paradigms?
While several points of interest presented itself in the aggregate results of this survey, this section will
be contained to students paradigms and patterns.
CHART 1
PARADIGM 1
130
200
49
9
2 1
0
50
100
150
200
250
Strongly agree Agree Neither agree
or disagree
Disagree Strongly
disagree
No response
BARRIERS IN THE WORLD ARE DISAPPEARING AND SUCCESSFUL
PEOPLE WILL HAVE TO BE ABLE TO WORK WITH PEOPLE FROM
OTHER COUNTRIES AND CULTURES
TABLE 2
PARADIGM 1
BARRIERS IN THE WORLD ARE DISAPPEARING AND SUCCESSFUL PEOPLE WILL
HAVE TO BE ABLE TO WORK
WITH PEOPLE FROM OTHER COUNTRIES AND CULTURES
Percentage
(%
Strongly Agree
)
33.2
Agree 51.2
Neither Agree or Disagree 12.5
Disagree 2.3
Strongly Disagree
No Response
0.5
0.3
CHART 2
PARADIGM 2
84
186
104
16
0 1
0
20
40
60
80
100
120
140
160
180
200
Strongly
agree
Agree Neither
agree no
disagree
Disagree Strongly
disagree
No
response
INTERNATIONAL EXPERIENCE AND
EDUCATION WILL BE AN ADVANTAGE IN
GETTING INTO GRADUATE
OR PROFESSIONAL SCHOOL
TABLE 3
PARADIGM 2
INTERNATIONAL EXPERIENCE AND EDUCATION WILL BE AN ADVANTAGE IN
GETTING INTO GRADUATE OR PROFESSIONAL SCHOOL
Percentage
(%
Strongly Agree
)
21.5
Agree 47.6
Disagree 4.0
Strongly Disagree
No Response
0.0
0.3
CHART 3
PARADIGM 3
HAVING INTERNTAIONAL XPERIENCES WILL BE BENEFICIAL
TO MY CONTRIBUTION AS A MEMBER OF THE LABOR
FORCE AND A CITIZEN OF A GLOBAL ECONOMY
101
188
79
15
5 3
0
50
100
150
200
Strongly
agree
Agree Neither
agree or
disagree
Disagree Strongly
disagree
No
response
TABLE 4
PARADIGM 3
HAVING INTERNATIONAL EXPERIENCES WILL BE BENEFICIAL TO MY
CONTRIBUTION AS A MEMBER OF THE LABOR FORCE AND A
CITIZEN OF A GLOBAL ECONOMY
Percentage
(%)
Strongly Agree 25.8
Agree 48.1
Disagree 3.8
Strongly Disagree 1.3
No Response 0.8
In a national poll of college-bound high school seniors, 55 percent indicated that they would participate in
a college study abroad. An additional 26 percent had a strong desire to study abroad. (American Council
on Education, Art & Science Group LLC, and the College Board, 2008) But what happens when reality
meets idealism? When our high school students are immersed into the programs of higher education do
their expectations change?
According to the respondents of this study survey, patterns differ from their mindsets.
CHART 4
PATTERN 1
DO YOU SEE YOURSELF TRAVELING INTERNATIONALLY?
192
199
188
190
192
194
196
198
200
Yes No
CHART 5
PATTERN 2
TABLE 5
PATTERN 1
DO YOU SEE YOURSELF TRAVELING INTERNATIONALLY?
Percentage
Yes 49.1
(%)
No 50.9
TABLE 6
PATTERN 2
DO YOU HAVE A CURRENT PASSPORT?
Percentage
(%)
Yes 41.7
No 58.0
No response 0.3
An apparent disconnect is observed between the mindset of the students and the patterns of their actions.
This requires an explanation of why? What do the students perceive as challenges or obstacles to
participating in a recognized benefit for their career path? The obvious indicator would be that, for the
students, perceived costs outweigh perceived benefits.
163
227
1
0
50
100
150
200
250
Yes No No response
DO YOU HAVE A CURRENT PASSPORT?
TABLE 6
WHICH PERTAINS TO YOU AS A REASON FOR NOT WANTING TO STUDY ABROAD OR
PARTICIPATE IN AN INTERNATIONAL INTERNSHIP?
Percentage
(%)

Percentage
(%)
Worried about cost
62.9
Do not want to delay degree
29.2
Do not speak a foreign language well enough
53.5
Would not fit in with culture
7.4
Will take too much time fromacademic goals
18.4
Not worth the time
3.3
Interfere with social or extracurricular life/sports
26.6
Not worth the expense
5.9
Anxiety/concern about security or acts of
terrorism/recent world events
11.5
Other
6.7
No interest
15.3
Don't Know
4.9
Sixty-eight percent listed what amounts to explicit costs as a reason for their hesitancy. The nominal
costs of an international study abroad or internship ranked highest among the students concerns. As more
and more institutions of higher education provide subsidies and other forms of financial support for these
focused international experiences, this challenge should diminish. However, the implicit costs also
dominated their concerns at almost fifty-one percent. Time is a strong non-price determinant for students
decisions. This factor is an important challenge for higher education institutions. How can these
perceptions be changed to address the benefits? For students in this mid-west University the support
system of the students needs to also be addressed. The encouragement by faculty and parents will be
required to help reinforce the need of international experiences as a benefit.
SUMMARY AND FUTURE RESEARCH RECOMMENDATIONS
The discussion of the results of this survey was limited to students paradigms and patterns. The
observations from this survey reveal that students do understand and accept the importance of focused
international experiences. However, it also revealed that the majority of students find the costs, implicit
and explicit, as strong deterrents to the benefits perceived. The results of this survey strongly highlight the
need to provide substantial information, relevant to them, that acts as a buttress to their objections of cost.
The support systems that exist in the lives of the students will provide the strongest reinforcement for a
decision to take time for an international experience. To participate in an international experience of any
duration typically requires a loss of credit hours for graduation, income from jobs and an extension to
their time as a student.
Faculty can assist in providing a support for this change. By sharing focused international experiences,
talk becomes action and has more meaning to students. The role of faculty in encouraging and supporting
focused international experiences for students is not being sufficiently utilized across the campus. Future
studies should include a more focused section on the role of faculty and a comparison of this role on the
national and regional level.
Also of importance to most students in this Midwest institution is the parental support system. It is
recommended that any future study include the perceptions and concerns of parents concerning
international experiences.
This study is the first step in determining the strengths of an active program and how to change
challenges into strengths.
REFERENCES
American Council on Education, Art & Science Group LLC, and the College Board. (2008). College-
Bound Students' Interests in Study Abroad and Other International Learning Activities. 1: American
Council on Education.
Arpan, J. S. (1993). Curricular and administrative considerations - The Cheshire cat parable. In S. T.
Cavusgil, Internationalizing business education: Meeting the challenge (pp. 15-30). East Lansing:
Michigan State University Press.
Astin, A. W. (1977). Four Critical Years. SanFrancisco: Jossey-Bass.
Astin, A. W. (1993). What Matters In College? Four Critical Years Revisited. San Francisco: Jossey-
Bass.
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Recession Compassion:
7 Steps on How to Treat Employees to Get the Best Performance
During These Global Economic Times
Heidi K. Barclay
Metropolitan State University
Colorado State University
Allen C. Barclay
Metropolitan State University
Colorado State University
Leadership is influencing employees to voluntarily pursue organizational goals. Leadership is also
getting people to follow, even if they have another choice. To lead effectively, managers must motivate
others to want to be lead or get people to choose to follow. What makes this difficult are the barriers
thrown in based on the multitude of cultures that we have in the current work place tied to the current
economic state of the world. Using compassion towards employees creates an environment of employee
buy-in that will decrease turn-over and increase the need to do better for the organization.
INTRODUCTION
During these hard economic times, organizations are discovering there is very little room for
experimental leadership. Todays leaders are learning that they must provide guidance and direction for
everyone in the organization to provide good leadership. But what does it mean to provide good
leadership? Leadership as defined in many management texts books is the ability to influence employees
to voluntarily pursue organizational goals (Kinicki & Williams, 2008). We believe that leadership is
getting people to follow you, even if they have the choice not to. What both of these definitions have in
common is that for managers or supervisors to lead effectively, they must either motivate others to want
to be lead or somehow get people to choose to follow. This paper is going to discuss why it is important
for leaders to understand that using compassion or relationship building can increase motivation,
retention, and organizational buy-in.
As employees, we have often wondered if our supervisor knows anything about our culture. Or even
worse, we have wondered if he or she even knows we have our own cultural identity and if we can show
it at work. Leading is a complex topic, one that requires planning, organizing, controlling, and leading
(Kinicki & Williams, 2008) skills. Successful leaders have the keen ability to motivate and engage
employees through the toughest projects. But beyond these four basic managerial skills, what does it
really take to really become a great leader? Throughout our years leading and even more so, being lead,
we have concluded that it is the intangible skills of leading that will separate a good leader from an
exceptional, caring leader. What it takes to go beyond basic managing to effective leading is compassion.
Compassion is not speaking of handwringing displays of sympathy. [Compassion] is referring to ones
having an innate respect and fondness for the other person. (Sorrell, 1991) This includes an
understanding of their cultural identity.
Compassionate Leadership
Going back to our initial questions about supervisors, this paper is not concerned if an employee has a
cultural identity; we all have one regardless of where we came from. In fact having cultural identity is not
really a prerequisite for employment at most organizations. What we are targeting is the personal aspects
of employees or employees lives that all managers and supervisors should know. Not that all employers
should pry into the deep dark secret lives of all their subordinates but they should have a basic
understanding of the joys and passions that make their employees happy. Even though there is no
scientific proof that happy employees are more productive, there is proof that happy employees are
happy. And happy employees typically leads to productive benefits like long term employment, increased
job satisfaction, pride in the organization, and overall better communication. All of which contribute to
lower operating expenses. Tracey Warson states that you need to develop relationships with
othersbuild relationships with people within the company because thats how things really get done.
(Coughlin, Wingward, & Hollihan, 2005) Leaders must learn enough about their employees to create an
environment that fosters long term loyalty. Long term employment saves the company in the long run
due to lower turnover costs. Turnover costs can include posting for jobs which may include
advertisements, the hiring process which may include hidden costs such as salaries if a search committee
is required, and training new employees which definitely has costs, as well as the stress on co-workers
who have to help during the training process.
A great leader must have the ability to understand what is important to their employees is important to
himself or herself. A compassionate leader must also pay attention to more than just culture; they need to
understand what is going on in an employees life including disabilities, illnesses, family problems, and
much more. Employees should be treated with respect and as equals with management. Thinking like this
is pretty radical, but we believe employees will be more productive if they are treated with respect.
Globalization and Leadership
With the shrinking of the world with globalization, and with the downturn in the global economy, an
uncaring manager has no business being a leader. And will ultimately do a disservice to the company if
they do it poorly. In the book Enlightened Power, How Women are Transforming the Practice of
Leadership executive coach and organizational development consultant Kira Hower comments on how:
Leaders from the old command-and-control world of management may view empathy,
understanding, and compassion as showing vulnerability, also known as poor management
skills. In reality, the more human and balanced you are in being confident and compassionate,
the more successful you will be because employees want to be treated has human beings, not as
human doers. (Coughlin, Wingward, & Hollihan, 2005)
It is important to understand that employees are people and as people they have needs outside of the
normal rewards programs to feel vested and appreciated. Compassion is one way a leader can show his or
her employees that they are important to the organization.
But where to compassionate leaders come from? Are good leaders born or created? We say that there
are some people who are just born to lead. But for the rest of us, these skills can and should be developed.
In their book Primal Leadership, Learning to lead with Emotional Intelligence Daniel Goleman, Richard
Boyatzis, and Annie Mckee state that in the not only that leader can be made, but also that [great
leadership] can be learned. (Goleman, Boyatzis, & Mckee, 2004) They then go on to explain that many
people are born with the ability to lead and that those who are not born with these skills can learn it.
Knowing this will help organizations understand that they can create great leaders.
Managers and supervisors need to learn that the personal employee/employer relationship aspect of
the job is the most difficult. Each employee requires the supervisor to have a different set of skills. Soft-
skills training encompass techniques that require experience, relationship building, the ability to
communicate, and how to empathize. This is where effective leaders move past the technical requirements
of the job and on to the personal relationship building with staff. Harvard professor of management,
Karen Stephenson says the relationships between people in an organization create the real pathways of
knowledge, for the actual power of an organization exists in the structure of a human network.
(Coughlin, Wingward, & Hollihan, 2005) For all leaders, now is the time to learn about his or her staff.
Leaders need to learn what their staff likes and/or dislikes. These leaders must find out if they have
special skills, hobbies, or interests. Many effective leaders even find special hidden talents possessed by
employees that create positive financial returns for the company.
Taking a genuine interest in your staff will make them feel valued, listened to, and understood.
Leading is the concept of motivating employees to productively tow the company line. Leadership is
defined as a process of influencing individual and group activities toward goal setting and goal
achievement. (Mosley, Pietri, & Mosley, 2005) Leaders are asking employees to follow into the world of
business and be productive. This becomes even more difficult when leaders have to implement something
new or if leaders have to make a change that affects others. If we, as leaders, are not willing to know
about our employees and understand what motivates them, we will never succeed at tapping their full
potential during times of change or stress. Many change efforts fail not because the managers intentions
are incorrect or insincere but because the managers are unable to handle the social challenges of
changes. (Bolman & Deal, 2008) Just like life, the more you give, the more you receive. The more we
care about our staff, the more they care about their own productivity. According to Aristotle, Pleasure in
the job puts perfection in the work. (Rohmann, 1999)
For most managers it is often the small cultural events that happen to their employees more often than
major life changes. And it is the successful leaders job to know this and know how to deal with the
employees that these life events are concerning. The more a leader knows, the less that leader will be
surprised. Knowing about an employees issues, background, cultural identity, the more they can fit this
information into the strategic plans of the organization. This will help successful leaders become more
effective; which in turn will be more beneficial for the organization.
Does this mean that leaders have to know everything about all employees? No, this just means that
great leaders know something about each of their staff. Most people, regardless of their cultural identity
will not want to share their inner most secrets with their supervisor, nor will they want to divulge personal
information that will leave them feeling vulnerable. What we are stating is that in the process of daily
duties, leaders must take the time to find out what makes employees tick. Take time to create an open
communication environment for all employees. In learning organizations, individuals recognize that they
can glean important information from anyone regardless of their status. (Johnson, 2001) Employees will
learn from each other and most often from their leaders. The more open the environment, the more
learning that is able to take place in the organization. A leader must take some time to learn about his or
her staff. Leaders might find that some employees will have interests that can be beneficial to the
organization.
Seven Steps to Compassion
To start with, leaders should learn the basics about his or her staff. Great leaders take some time each
day to find out what interests staff members. Many go beyond what they are interested in and learn how
to show interest. Here are seven simple ways that we have developed to help leaders manage with
compassion;
1. Know and understand each employee and their own cultural identity.
2. Listen to what your employee is saying through language, body movements, and tone of
their voice.
3. Treat your employees how they want to be treated, not how you want to treat them.
4. Show respect, by showing that you really care.
5. Ask questions and follow up. If an employee is having an issue, make sure you check in
with them.
6. Role model cultural awareness
7. Celebrate diversity
A negative example of this not happening that we can think of in our own working experience relates
to when a co-worker lost of a family member. They were given the leave that they requested but that was
the end of it from the employers perspective. Our co-worker stated to us that she just wished someone
would have asked her how she was doing. A few months later, that co-worker quit. She just could not
handle working for people that she believed did not care about her.
When there is a major emotional experience in the family of an employee, it just is not enough to
provide the time off. Great leaders take a moment to ask about it. This might not the most comfortable
situation and many managers might be thinking what should I say? It is not about what is said. The
point is that someone took the time to say something. Sometimes we are so afraid of saying the wrong
things that we make the biggest mistake of all and say nothing. (Cullen, 2008) Intent and impact are two
different topics. Intending to do good will always trump the impact of saying something wrong. At times
we have to reach around the words to discover the true intent. (Cullen, 2008) As a leader, the
organizations staff needs to know that upper management cares. Especially in times of hardship, a little
will go a long way with an employee. Plato once said Be kind, for everyone you know is fighting a hard
battle (Rohmann, 1999). You just never know when your battle will need the support of your friends at
work.
Diversity
The same can be said about diversity. As the world shrinks and companies grow, diversity becomes a
more relevant topic. Many leaders approach diversity as a topic to avoid, like it is better to treat everyone
the same. They will use the old adage of treating people equally will provide equal results. Nothing can be
further from the truth. People do not enjoy being treated the same as everyone else. Most people want to
seen as individuals. Just think about rewarding employees, do all employees want the public parade of
notoriety? Or do some want just a private job well done? People are different.
A Study by Walker Information, a research firm based Indianapolis stated; that employers spend too
little time showing workers they matter, as manifested in lack of communication and lack of interest in
new ideas and contributions. A majority of employees feel underappreciated, according to a 1999 survey.
Forty percent of employees who rated their bosss performance as poor said they were likely to look for a
new job; or eleven percent of those who rated it excellent said they would. (Kinicki & Williams, 2008)
Many employees will give that extra bit of effort when they know the organizations leadership will
support them in the way they want to be supported.
Diversity is the concept of dealing with people with differences, keeping in mind that any time you
have more than one person you will have differences. Maura Cullen states valuing diversity starts off as
something that we do and grows into something that we are. (Cullen, 2008) Instead of avoiding
diversity, embrace the uniqueness of each employee. Remember that as long as you respect these
differences and only use what you know for benefit of relationship building, people will allow you into
their world. And in order to find out their individual differences, all that needs to be done is simple; ask
questions. People will not share what they do not what you to know. As managers, we have learned that
the more we know about people, the more we learn what they are willing to share.
Leaders may find success in a corporation without having feelings. But is that how you as a leader
want to be remembered? If a manager is task oriented but loses a bunch of people along the way and
morale is at an all-time low; where does that leave the organization? If people are beating down the doors
to leave, then you have a problem. The number one reason people quit their jobs, its believed, is their
dissatisfaction with their supervisors. (Kinicki & Williams, 2008) Success should not be derived solely
from whether you completed the project but whether you and your staff completed the project and
enjoyed the work along the way. Leaders should derive satisfaction from knowing that they supported the
staff through a tough job with a sense of humility, humor, and accomplishment.
Like we stated earlier, employees want to feel valued. Taking the time to learn about them will do just
that. It will provide a safe environment where employees are comfortable. From a training perspective it
costs roughly eleven times more to train a new employee then is does to keep an existing employee. We
believe it is time to slow the revolving door of employee turnover within organizations and find a way to
keep the talented people that organizations have already invested in with so much time and money. Aging
trends state that the newer generations of employees are into changing companies faster than hairstyles. Is
this because they are flighty? Or are they just looking to find a fit? Time will only tell if the newest
generation entering the workforce will continue to job shop but one thing is certain, very few people leave
good jobs. And most people in good jobs will tell you they work for great managers.
International and National Management
Traditional western management tends to focus on outcomes and strategies. Where Asian management
styles tend to focus on what the customer wants and needs. Michael Porter wrote that Japanese
[organizations] have a deeply ingrained service tradition that predisposes them to go to great lengths to
satisfy any need a customer expressesbecoming all things to all customers. (Porter, 1996) This focus
creates a gap between what the employee can accomplish and doing whatever it takes to make the
customer happy.
Organizations in the United States might market that they focus on the customer, but their end results
usually tend to focus on the shareholders. The need to create a profit will supersede any internal or
external customer service focus. Return on investment becomes the modus operandi and managers are left
without time to focus on learning about their subordinates.
Neither focus is correct, or incorrect. It is not a bad thing to focus on the organizations return on
investment, nor is it a bad thing to focus all your effort on your customers. But either way, you cannot
create great customer service or a solid return on investment without the proper employees in place.
Where a western organization like Southwest Airlines will focus on short haul, low-cost point-to-point
service (Porter, 1996), not really considered going out of their way to provide service that their customer
want, they do still provide great service and are recognized for service year after year. Honda and Toyota
on the other hand have been working diligently to focus on exactly what customers want, and still they
are both reaping the benefits based on company market share growth, [Toyota is] the world's most
profitable automaker - and soon to be its biggest - now has a 15% market share in the U.S., where it sold
2.5 million cars and trucks last year. (Taylor, 2007)
What become important to these organizations relates to how all three of these companies treat their
employees, not what they focus on for their processes. National or International organizations must place
an emphasis on how they currently treat their employees.
CONCLUSION
In conclusion, leadership is a skill that can be grown in any person. Leadership is often confused with
management. But a person can be a leader without being a manger and many managers could not lead a
squad of seven-year-olds to the ice-cream counter. (Gardner, 1986) And it is this point that we have
conveyed in this paper, managers and people in leadership positions must take the time required to
become more people-centered. They must utilize relationship building skills to become more compassion-
ate with their subordinates and/or staff.
We both have extensive leadership experience including serving the military, in corporations, and in
academic settings. The one underlying aspect that has helped us become successful in all of these very
different organizational structures is the fact that we have always taken the time to learn our subordinates
as individual humans verses standard employees. In terms of human resource development, the term
human comes first. That is because the most important part of an organization is the human element.
Without people there would not be an organization. We know that if we treat employees as individual
humans, they in turn will provide a much more stable environment that will allow the organization to be
successful. Like we said earlier, people want and need to feel valued. It is up to the leaders to take the
time to create this feeling amongst all people in the organization.
REFERENCES
Bolman, L., Deal, T, (2008). Reframing Organizations, Artistry, Choice, and Leadership, San Francisco,
CA: Jossey-Bass.
Coughlin, L., Wingward, E., & Hollihan. (2005). Enlightened Power, How Women are Transforming the
Practice of Leadership. San Francisco, CA: Jossey-Bass.
Cullen, M. (2008). 35 Dumb Things Well-Intended People Say, Surprising Things We Say that Widen the
Diversity Gap, Garden City, NY: Morgan James Publishing.
Gardner, J. (1986). Handbook of Strategic Planning. Wiley Publishing: New York, NY.
Goleman, D., Boyatzis, R., & Mckee, A. (2004). Primal Leadership, Learning to Lead with Emotional
Intelligence, Boston, MA: Harvard Business School Press.
Johnson, C. (2001). Meeting the Ethical Challenges of Leadership, Casting Light or Shadow, Thousand
Oaks, CA: Sage Publications.
Kinicki, A. & Williams, B. (2008). Management, A Practical Introduction, Third Edition, New York,
NY: Mcgraw-Hill.
Mosley, D., Pietri, P., & Mosley Jr., D. (2005). Supervisory Management, the Art of Inspiring,
Empowering, and Developing People, Mason, OH: Thompson, South-Western.
Porter, M. E. (1996.). What is Strategy, Harvard Business Review, November-December 1996.
Rohmann, C. (1999). A World of Ideas, a Dictionary of Important Theories, Concepts, Beliefs, and
Thinkers, New York, NY: Ballantine Books.
Sorrell, F. (1991). Success, Executives, Three Cs in Public Personnel Management, 20(3).
Taylor, A. (2007). Americas Best Car Company, Fortune, March 7, 2007.
A Study of Hard Drive Forensics on Consumers PCs:
Data Recovery and Exploitation
B. Dawn Medlin
Appalachian State University
Joseph A. Cazier
Appalachian State University
One of the first actions to take when getting rid of an old personal computer is to remove all of the files
that contain identifying and personal information. Individuals can be surprisingly negligent in this effort.
Many individuals may also believe that by simply moving their files to the recycle bin and then emptying
that bin that all of their programs and files are permanently erased. If personal information is not totally
deleted, acts of identity theft can easily occur. Our research study identified the types of information
found and/or recovered from hard disk drives on computers that have been donated to charity, sold
second-hand, or otherwise donated to other organizations for reuse. Of the fifty-five hard drives studied
approximately 300,000 files contained identifiable information. Results showed the need for further
training in relation to total file erasure from a hard drive as well as the negative results such as identity
theft that can occur due to this lack of training or knowledge.
INTRODUCTION
Wiping a computer clean is not as easy as it may appear. Just deleting the personal files and emptying
the recycle bin is essentially next to useless. The delete function only removes file names from a directory
list and makes the sectors the files occupy on the hard drive available for future use. Meanwhile, these
files actually continue to exist.
To positively prevent data from recovery, disks can be removed from disk drives and broken up, or
even ground to microscopic pieces. But the question remains how many individuals will go to this length
to destroy data from their personal computers before donating them?
Although hard disks should only be disposed of after attempts of permanent erasure, many individuals
may dispose of their computers without concern for their data believing that the data is simply not of
value. Nevertheless, in todays digital age of computers where information technology has grown in
substantial ways, the issue of securing information becomes even more imperative, especially given the
increase in identity theft.
The scope of identity theft can be large and the levels of theft can range from the takeover or creation
of bank accounts, credit cards, loans and/or utility services, to gaining employment and even using the
victims identification to purchase medicines and medical insurance. Experts have found that more than
10 million people were victims of identity theft as of 2004. Those numbers have declined over time, with
9.3 million people reporting in 2005 and 8.4 million in 2007. Yet, in 2007, there was more than $49.3
billion in fraud reported lost because of identity theft, with each victim averaging around $5,000 in losses
(FTC, 2010). Therefore, when individuals dispose of computers, they need to be aware how easy it can be
to recover the data from the hard disk. In many cases it simply requires booting the computer and
browsing the files on the disk if no passwords were required. In other situations it requires special data
recovery programs and/or hardware. It is sufficient to say that it is a relatively easy task that most anyone
can attempt.
Since a large number of individuals choose to donate, and their certainly is a need for these computers,
it becomes even more imperative that individuals are made aware of the actions needed to completely
erase their hard drives. If they do not complete the erasure, potential computer criminals will have no
difficulties in obtaining through legitimate methods the information that they may need to commit
identity theft and other computer crimes.
LITERATURE REVIEW
Recently, researchers have revealed that a large number of computers have been found in secondary
markets that have contained information such as consumers names, credit card numbers, and social
security numbers (Jones, 2005). In fact, the most recently reported cases of identity theft seem to have
originated more in offline situations than online. This is not a surprising fact in that most end users may
believe that by simply deleting files from their recycle bins they are fully removing all of the files that
could be potentially harmful.
It should also be noted that it is not just the data that contains personal information that can be
exploited. Files containing video and audio footage, blogs, diaries, and instant messenger conversations
can prove to be equally damaging and more easily exploited, especially if it can be linked to an
individual. Calendars as well as address books provide routines and places that may be used to stalk an
individual.
Identity Theft
Beyond the issue of stalking, identity theft of one of the largest negative results that can occur from
information being left on a computer. A 2007 Identity Fraud Survey Report by Javelin states that it takes
an average of 55 hours to repair any damage that might be done to a persons identity at a cost of $5,270
to the victim (Monahan, 2007). Further, the number of real hours spent recovering from identity theft is
highly variable and lengthy, just as the time frame in which those hours are spent. It takes at least a year
for 59% of victims to recover and it takes over two years for another 27% to recover (Foley, et. al 2006).
In general, the timeframe in which the victim has the opportunity to make the phone calls and travel to
clear their name is not during the weekend or in the evening, but during the normal work week. This
creates a loss in employee productivity for victims, which in the end affects the bottom line of a business.
While the financial and time costs of being a victim of identity theft are somewhat concrete, there are
other effects known as secondary wounding. When asked, 30% of respondents stated, my ability to go
on with my life is still being impacted well over two years from the discovery of identity theft, and 7%
stated that they were still affected ten or more years later. These secondary wounding effects include
credit denial, increased rates on insurance and credit, collection harassment, card cancellations, inability
to get employment and credit, and an inability to clear a false criminal record. The most common effects
were difficulties gaining credit and loans (63%), credit denial (51%), and collection agency harassment
(46%) (Foley, et al, 2006).
The emotional costs after the original crime are not taken into account when dealing with secondary
wounding, but they should be considered when accounting for a loss in productivity (Gordon, et. al.
2007). Dr. Nelson, a noted victim psychologist, provides a section in the Identity Theft Resource Center
(ITRC) Aftermath Report that sheds light on the extreme toll taken on victims as evident in the following
quote:
This study clearly proves the impact of identity theft on its victims leaves similar scars
and long-term impact as demonstrated by victims of violent crime....It is disturbing to see
how many people felt exhausted, too tired to continue to fight or even consider suicide
instead of standing up for their rights (Gordon, et. al. 2007).
The ITRC report includes a large table of emotional responses/symptoms describing an experience.
Twenty-eight percent (28%) of respondents stated that they felt shame, and 29% felt an inability to trust
others.
Proactive Erasure Methods
The literature review supporting the research topic surrounding hard drive data erasure encompasses
the topics of data types, preservation, erasure, and recovery. Considering the fact that Microsoft
Windows dominates 91% of the market share, we have designed our study around the skills and
equipment available to the average consumer (Garfinkel, S.L. & Shelat., A., 2003).
In order to completely understand why an individual needs to be aware of the risks involved with the
proper disposition of their computer, one needs to first understand how a hard disk works. The average
user probably does not know how files are written to the hard disk, how they are deleted, what types of
files contain potentially harmful information, and how files can be recovered. To address these
aforementioned topics, listed below are the steps that should be taken in order to ensure complete hard
disk erasure.
How Data is Written to the HD
Data is written to the hard disk drive in clusters (the default size is 512 MB) by the drives read/write
head(s) that float on a cushion of air above the platters. A read/write head cannot move from a cluster in
one sector (track) to a cluster in a track directly beside it without rotating the platter one full turn, thus
clusters are written to the hard drive in a checkerboard fashion.
Because Microsoft Windows products use a fixed cluster size; often the clusters themselves do not
completely fill with data, creating what is commonly known as slack space. When files are stored, the
operating system physically writes the files to clusters on the platters, as well as logically writing a path in
the operating system. This action occurs so that the computer will know which cluster is housing a
specific file. (http://support.microsoft.com/kb/q211632/).
When files are sent or deleted to the recycle bin or trash, they are recoverable. The recycle bin or
trash is just a hidden folder in the file system of the operating system to which files to be deleted are
moved. File locations are also stored logically in the form of paths or pointers within the operating system
(OS), so that the operating system knows where to find the file. This storage action is referred to as file
allocation tables. When files are deleted using the operating systems delete function, the computer, to
save time, only deletes the path or pointer to the files location on the hard disk. Next, the operating
system erases the path by labeling the entries for the appropriate clusters in the file allocation tables as
free space. Unbeknownst to most end users, the file, however, remains completely intact in the
cluster(s) that house(s) it until the cluster(s) is (are) overwritten, allowing off-the-shelf programs to
fully recover the files.
Residual Magnetism
A hard drive platter is like that of a dusty vinyl record, one could compare that the dust that may reside
on the record is representative of the magnetically stored data on the platter, and the needle on the
turntable on which the record would be played is representative of the read/write head. Additionally, the
grooves on the record can represent or equate to the sectors (tracks) of the hard drive platters that the
read/write head follows. As the record turns and the needle moves along the grooves, the needle pushes
the dust to either side of the groove.
When files are overwritten, there is data that is spewed upwards by the read/write head, causing a kind
of magnetic dust that piles up on either side of the path of the read/write head. This concept is called
Residual Magnetism Rosencrance. This data can be recovered with certain software and hardware
scans.
Deleting Files
Many organizations publish what they consider acceptable standards for deleting files. The
Department of Defense (DoD) and the National Security Agency (NSA) indicate that overwriting the
entire hard drive seven times using a combination of passes with ones, zeros, and random data will
effectively wipe out any information that may be present (United States Defense Security Service, 2006).
The Gutmann method uses three different algorithms to overwrite files with 35 passes of the hard disk.
With this method, the algorithms used are generally accepted encoding algorithms used by hard drive
manufacturers.
Data Recovery
Data can be recovered using a myriad of programs available at little to no cost. Most programs search
slack space and free space. Other programs can be set up to search the unallocated space. Unallocated
space is the section of the hard disk that the operating system does not recognize as part of a partition.
There are other methods available for recovering data from the hard disks that require the removal of
the platters, then using specialized hardware to scan the surface. These methods would be used to recover
data from residual magnetism or from a read/head crash. Both are instances that require a microscope that
can scan a large area, such as a hard disk platter.
Erasure programs can also be purchased off the shelf or online and range from $50.00 to $995.00.
These programs can be effectively used for those individuals who are computer novices and may not be
comfortable with recovering data and information through more technical methods. As seen in Table 1,
several programs are quite inexpensive and can be easily purchased at most computer stores or through
online sites such as Amazon.com. In addition, these programs offer the steps that make it quite simple for
the average user to erase information or data that is stored on their computers hard drive.
TABLE 1
SOFTWARE PACKAGES
Name of software package Cost for single user license
Symantecs Norton Utilities $50 - $80
Directory Snoop from Briggs
Software
$39.95
Recover My Files from Get
Data
$70
Win Hex $50 - $200 depending on features
Easy Recovery from Ontrack $200 - $325 depending on features
ProDiscover Basic from
Technology Pathways
$995
As previously noted, individuals may not have either the computer or security knowledge to securely
erase sensitive information from their donated computers. Although previous studies by researchers such
as Garfunkel et al. (2003) and Jones (2005) have addressed security awareness levels of end users, their
major metrics addressed only the number of recovered files on hard drives. This information does not
truly convey the real threat that occurs if individuals leave sensitive information on their donated
computers (Kwon, Lee, & Moon, 2006).
METHODOLOGY
Hard drives were collected from thrift stores and student donated hard drives during the summer and
fall of 2007. Brand, model, size, and manufacture data were recorded for each drive. A pilot analysis of
six hard drives was conducted to determine if there would be enough sensitive information found to
justify a larger study. Interestingly, the pilot analysis resulted in information found that included such
items as social security numbers, names, and passwords among other types of information.
After the pilot analysis was completed, fifty-five hard drives were examined for information. Of the
fifty-five hard drives, eleven were un-bootable. Over 50,000 files were recovered on each hard drive with
some hard drives containing over 300,000 files.
If the drives were password protected, access was attempted using a password-clearing program called
ntpsswrd. Those hard drives that were not bootable were hooked up as secondary hard disks (the
primary hard disk being a clean Microsoft Windows XP load) and browsed as any other hard drive.
Several hard drives had other operating systems other than Microsoft Windows and a different file
structure. These hard drives were booted with either a Knoppix Live CD or an Ubuntu Live CD. Once
the Live CD was loaded, the files could be browsed. Because the primary purpose was to emulate what
the average user would see using readily available resources, only those hard drives that either booted, on
their own or with a Live CD, were examined in depth.
As previously, noted, sensitive information provides a prime target opportunity for identity thieves. As
shown in Table 2 over half of the hard drives tested included at least a full name. Over 20% had addresses
or phone numbers, with 8% that had at least one social security number available.
TABLE 2
INSTANCES OF INFORMATION
1 > 10
Instances
11 > 100
Instances
100+
Instances Total
Full Names 24% 7% 13% 44%
Phone Numbers 11% 4% 11% 26%
Addresses 5% 5% 11% 21%
Other Financial Documents 11% 11%
Social Security Numbers 5% 3% 8%
Bank Accounts 8% 8%
Tax Return/Information 8% 8%
Credit Card Information 5% 5%
Debit Card Information 5% 5%
PIN Numbers 5% 5%
Wills 3% 3%
Exploitable Examples
One hard drive contained the users calendar and also contained an extensive address book in which the
names, positions, addresses, and personal (cell) phone numbers of several high-ranking government
employees were included. This user had a file that consisted of their last will and testament and other
personal documents which had been saved and later sent to the Recycle Bin, all of which were
recoverable without using special software. The same user owned two homes at the time the laptop was
purchased at an estate sale. Left on the computer were files with directions to both properties, so it would
be easy for a malicious individual to find out where the individual had homes and based on that fact
possibly determine their income bracket, thus making them an easy target. Because of the contact
information this individual had about government employees in various positions, the user could serve as
a prime target for intimidation or blackmail.
Another hard drive contained information related to tax returns which contained individual clients
names, addresses, phone numbers, social security numbers, and date of birth, almost everything one
would need to assume another persons identity. The tax returns also found contained information
regarding their annual income, what securities they held, and whether there were, any capital gains/losses
based on those securities. Because of this information, activities such as the opening of bank accounts
could occur as well as loans taken out in both this individuals name as well as the other employees of the
organization. All of this information is part of what forms ones identity, and once in the wrong hands can
be used to steal or even destroy that identity. If this personal information had been found with other
potentially harmful data, the individuals connected with the data may have set themselves up for extortion
and/or blackmail.
The next examined hard drive contained enough information to ascertain that the individual had homes
in three different geographic locations, as well as several bank accounts in each of the three locations.
Desktop software was found that contained notes about bank account numbers, credit/debit card numbers,
PIN numbers, passports, drivers and pilots license information for both the user and their spouse. The
user had a file labeled passwords in which they listed access information to all of their online accounts.
Other information such as Internet records, multimedia files, and e-mail contents were also available.
This information may not create the threat of serious harm, but it could be information that can be
exploited, used to blackmail the user, or embarrass the user if the information were to become public.
Some users possess enough knowledge to delete their temporary internet files, but they forget about other
areas where files may be store such as cookies, which essentially tracks and individuals internet
movement. As seen in Table 3, of the hard drives tested, 50% had cookies, 47% had temporary internet
files, and 26% had mailboxes with accessible content.
TABLE 3
CONTENT INSTANCES
CONTENT
1 > 10
Instances
11 > 100
Instances
100+
Instances Total
Cookies 11% 39% 50%
Temporary Internet Files 3% 45% 48%
Internet Favorites 8% 24% 11% 44%
Pictures 11% 16% 11% 48%
Mailbox Contents (Accessible &
# of Messages) 3% 8% 16% 27%
Other Misc. Personal Docs. 13% 11% 24%
Music 5% 8% 13%
Videos 5% 5%
Other Misc. Multimedia 3% 3%
One of the hard drives purchased from a thrift store, apparently had been donated by a medical
professional. On this computer there were e-mails between the husband, wife, and their sons school
teacher in regards to their sons performance (or lack thereof) in school. That same e-mail account had e-
mails between the dentist and her patients as well as other medical professionals, which at the very least is
a violation of doctor-patient privilege, and potentially a violation of HIPPA.
Several of the hard drives as seen in Table 4 contained accounting software packages that included
individuals names and social security numbers at 11%, followed by 8% of Napster files. With that
information, government officials could file possibly file suit for downloading files from illegal P2P sites.
Of the drives tested, there were 5% of the file instances between 11 and 100 that contained employee
and/or volunteer data.
In addition, and as noted in Table 4, when an individual donates their computer, information such as
corporate tax returns, employee/volunteer information and memos and letters often contain information
about multiple individuals and their private/sensitive information. The result of this information can
create an opportunity for cyber criminals to gather information about multiple individuals.
TABLE 4
OTHER SECURITY RISKS
1 > 10
Instances
11 > 100
Instances
100+
Instances Total
Accounting Software 11% 11%
Napster or Napster
Equivalent 8% 8%
Memos 3% 5% 8%
Letters 8% 8%
RECOMMENDATIONS
There are many sites on the Internet that recommend different methods for erasing a hard drive from
simply placing the files into the recycle bin to purchasing software. Our recommendation is based on
those hard drives that were built after 2001.
Many of the hard drives built after 2001 have a built-in program for securely erasing data, entitled
Secure Erase. The program can be accessed through a series of commands embedded in the hard drive.
However, before it can be used, the default must be changed from disable to enable within the
motherboard BIOS. Additionally, this program works by overwriting every track on the hard drive. Most
areas not touched by a simple deletion include bad blocks, directory structure, tracks not touched by the
operating system, and unformatted sections of the disk, all of which can be touched by this embedded
hard disk utility. In addition, most average computer users may not possess the knowledge of how to
access the erasure program through these series of commands.
However, as previously mentioned there are several software packages that are available off the
shelf, that end users can purchase at reasonable prices. In addition, there are external block overwriting
software that may be purchased; however, there is now a free open source version called Dariks Boot
and Nuke (Jones, 2005). Whether purchased or downloaded at no cost, the program used should conform
to a variety of different standards.
At minimum, it should offer choices of:
1) A single pass overwriting with either zeros, ones, or random data
2) The 1995 DoD standard of 3 passes, the first with either ones or zeros, the second with the
opposite of the first, and the third pass should write random data
3) The current DoD standard of 7 passes
4) The Gutmann standard of 35 passes using different algorithms.
Degaussing will effectively render a working hard drive useless, unless a determined individual takes
the platters out of the physical disk and attempts to recover the data using Magnetic Force Microscopy
(MFM) (Minasi, 1999). The process of degaussing involves exposing the drive to a strong magnetic field.
If degaussing is successful, it renders the drive unusable (Rosencrance, 2007).
CONCLUSION
In todays age of identity theft, data left on donated hard drives can lead to devastating results. As
indicated in this paper, some methods of data elimination may also prove inadequate. Whichever method
is chosen either software wiping or physical destruction, individuals must take "reasonable measures" to
safeguard their personal data. Although thoroughly sanitizing or destroying a hard drives takes some
effort, the potential costs associated with compromised data make it an important task.
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Comprehensive Economic Partnership Agreements
John R. Patton
Florida Institute of Technology
This paper examines the extent to which Japan has entered into comprehensive economic partnership
agreements (CEPAs) to enhance its international trade position. Facing challenges from the creation of
other major trading blocs such as the European Union (EU) and the North American Free Trade
Agreement (NAFTA) and the ubiquitous presence of protectionist provisions in the World Trade
Organization system, Japan and other countries have tilted toward pursuing their own regional
integration. This study confirms an increasing degree of regional trade agreements (RTAs) being made
globally. Despite Japans late start in this policy, its ongoing successes and challenges are highlighted
here.
INTRODUCTION
The 1990s witnessed a resurgence of regionalism. Major trading blocs in Western Europe and North
America became a concern and a reality check for those countries such as Japan that had no arrangement
of economic integration whatsoever. In the Asia-Pacific region there are many obstacles to overcome for
the formation of a regional trade bloc. In addition to cultural differences and historic animosities, there is
the problem of no or weak political leadership in the region. An effective trading bloc requires a major
structural adjustment of the region as a whole, to include reforms of domestic industrial policy and
external trade policy (Park & Gaidai, 2005).
Despite Japans leadership in the region over the years, the so-called flying geese pattern of
economic and technological development, many now question the capabilities for Japan to lead going
forward, given the economic troubles of the worlds second largest economy for over a decade, its
changing political leadership, and the concurrent rapid rise of China. In this shifting geopolitical world
free trade agreements (FTAs) have been proliferating (Kong, 2006; Pomfret, 2006).
Japans trade policy historically centered on multilateral negotiations (and dispute settlement
mechanisms) and has shied away from bilateral and regional free trade agreements that eliminate or
reduce tariffs and other barriers on trade in goods and services among the agreeing partners. During the
past five years, however, Japan has shifted course somewhat by seeking out such agreements. Now Japan
is trying to further energize its economy as well as further compete with China for influence and
leadership in Asia and throughout the world (Ahearn, 2005; Asias never-closer union, 2010;
Burgschweiger, 2009; Sutton, 2005). Regional trade agreements are an integral part of the international
trade system and have been rapidly rising in numbers and complexity (Collinson & Rugman, 2008;
Corning, 2008; Fratianni & Oh, 2009).
This paper, focusing on the role that Japanese CEPAs play with the accelerating process of regional
integration, is organized as follows: Starting with distinctions between CEPAs and FTAs, another clear
distinction is made between multilateralism versus regionalism. In the next section the impact of
globalization is discussed in the context of the rise of China and the fact that Japans export-based
economy is trading more with China. This is followed by an examination of the newly formulated China-
ASEAN (Association of Southeast Asian Nations) pact; the expansion of ASEAN and Japans discussions
with South Korea and China for an eventual free trade agreement. All of the foregoing sections are
summarized in a discussion section and conclusions.
ECONOMIC PARTNERSHIP OR FREE TRADE AGREEMENT
A region is typically made up of a limited number of countries that are geographically close but the
definition of a region isnt straightforward, considering the various types of groupings being formed
today. Some scholars have defined regions based on geographical distance, others according to
institutional similarities, trade agreements, and so forth. In this paper we consider regions that certainly
involve a greater geographic size and diversity than a country and our interest is most predominately
involved in international trading arrangements (Arregle, Beamish, & Hebert, 2009).
Among the developing regions, East Asia and the Pacific appear to be the region that possesses the
most favorable location-specific advantages. According to the World Bank, the average growth of gross
domestic product, external trade, personal consumption, and domestic investment in this particular region
are the highest in the world and inflation and external debt remain the lowest (Qian, Li, Li, & Qian,
2008).
Japanese CEPAs go substantially beyond liberalization of trade in goods and services. They are
supposed to be asymmetrical trade agreements that foster sustainable economic and social development
and promote the trading partners smooth and gradual integration into the world economy. While the
objectives of economic partnership agreements are clear, the tools for achieving these objectives are often
disputed between the negotiating parties (Meyn, 2008). The Japanese government uses the term CEPA
because it includes an economic cooperation chapter in the FTA with its trading partners (Curran,
Nilsson, & Brew, 2008).
Unlike a FTA, which is focused on tariffs, a CEPA is a more comprehensive trade pact, including the
elimination of restrictions on foreign investment, incorporating a dispute-resolution mechanism, and
protection of intellectual property rights, as well as all the usual free trade agreement terms. The Japanese
government decided in March 2006 to modify its multilateral trade policy by concluding CEPAs (Japan
proposes, 2006). Japans preference to steer away from using the term FTA which connotes an outright
market opening towards the usage of the term CEPA, a seemingly more user-friendly designation where
domestic protectionist groups are concerned. Additionally, it is more likely that economic partnership
agreements will avoid subjection to the WTO Article 24, which stipulates that any FTA involving a
developing nation needs to cover substantially all trade. By and large however, the two terms are
synonymous (Hakim, 2002; Ministry of Foreign Affairs, 2008a; Prasirtsuk, 2006).
Regional integration is a key element in CEPAs. In theory, regional integration reduces transaction
costs and monopolistic behavior, enhances efficiency through increased competition and creates new
opportunities for exploiting economies of scale. Larger markets can reduce the economic and political
risk premium, offering the opportunity to attract more foreign direct investment. In this way, regional
integration encourages the formation of an interdependent relationship between economic and political
groups, leading to the maximization of welfare (Meyn, 2008).
Although FTAs are by no means perfect because of their trade diversion effects, they do carry with
them profound political consequences. Nevertheless, economists insist that RTAs are second-best
solutions. Economists argue that smaller agreements risk diverting trade from the most optimal relation-
ships to those artificially favored by the preferential terms of a particular deal. Global trade deals
should be preferred but the slow and difficult process of multilateralism is elaborated upon in the next
section (More trade noodles, 2010).
MULTILATERALISM VERSUS REGIONALISM
The WTO process of multilateral negotiations is arduously slow (e.g., seven years for the Uruguay
round) and with a large group of nation-states consensus and agreement is difficult to achieve (Chia,
2003). In December 2008, the director-general of the WTO, Mr. Pascal Lamy, announced that he would
not convene a ministerial meeting in December to conclude the Doha round of multilateral trade
negotiations. The announcement came after efforts to build consensus for a competitive agreement were
held hostage to a handful of controversial trade issues, as well as changing political leadership in many of
the member countries (Markheim, 2008).
The risk of delaying progress is twofold: first, countries will increasingly look to bilateral and regional
free trade arrangements to more quickly reap the benefits of lower trade barriers. Second, the pressure to
implement protectionist measures in response to the current global economic downturn will be immense.
FTAs can help reduce trade restrictions globally by demonstrating solutions to difficult trade problems.
However, they can also discriminate against countries not party to the agreements and their differing rules
can add to the cost of trade. FTAs are thus not a perfect substitute for multilateral trade liberalization, and
member-nations need to ensure that concluding the ongoing Doha round takes priority over free trade
agreements (Markheim, 2008; More trade noodles, 2010).
At the G-20 meeting in London during April 2009, the leaders of the worlds largest economies
agreed to make a renewed push to conclude the Doha round of negotiations. Success here would be a
signal to open markets and an approach to globalization that is inclusive and sustainable (Brown, 2009).
The members of the WTO are holding intensive talks to reach a deal after G-20 leaders pledged to
conclude an agreement by 2010 (Take a look, 2010).
Up until recently, Japan has been committed to multilateralism, however, rising regionalism together
with a decade of economic stagnation, have eroded Japans economic power, competitiveness, and
confidence in relying on multilateralism to attain its economic goals. Even without the successful
conclusion of the Doha round there was hope that the Asia-Pacific Economic Cooperation (APEC) forum
would become a free trade and investment zone. APEC was formed in 1989 to promote multilateral
economic cooperation in trade and investment in the Pacific Rim. It consists of 21 countries that border
the Pacific Rim both in Asia as well as the Americas. By the mid-1990s, there was some optimism that
an APEC trading zone could be established by 2010 in the case of industrialized countries (which
generate 85 percent of the regional trade) and 2020 in the case of developing economies. However,
progress has been too slow despite tumbling political barriers, paving the way for improved economic
relations (Chia, 2003).
The difference between APEC and other regional trade groups is that there are no binding treaties (or
forfeiture of sovereignty in the case of the European Union). Although APEC is vast, accounting for 41
percent of the worlds population (2.6 billion people), 56 percent of world gross domestic product
($19,254 billion), and about 49 percent of world trade, it operates by consensus and does not have the
same rigor as the RTAs recognized by the WTO.
Since the 1980s, the idea of a U.S. Japan free trade agreement has been proposed every two years or
so, only to be defeated by protectionists and pessimists. Now, however, a new set of geopolitical as well
as economic circumstances make such an agreement not only desirable but necessary if both countries
wish to advance their common stake in the future of East Asia (Fauver & Stewart, 2003; Ingersoll, 1983;
MacEachron, 1982/1983; U.S. Department of State, 1993; Urata, 2009; Worlds most important, 1989).
In recent years there have been Japanese proposals for greater integration of economic activities in
Asia. However, the initial response to a proposal known as CEPEA (Comprehensive Economic
Partnership in East Asia) was tepid, partly due to the proliferation of free trade and economic partnership
agreements in Asia, but also because of doubts over Japans ability to lead regional economic integration
in Asia. Nevertheless, the Japanese proposal for CEPEA is viewed as both forward-looking and outward-
looking and this approach, if adopted, could have a positive effect on the Japanese economy (Katz &
Stewart, 2006; Katz & Stewart, 2007; Kitajima, 1998; MOFA Japan, 2009; Tamura, 2007).
For Japan, the accompanying noodle bowl phenomenon of individual agreements with exclusive
character and various rules poses one of the central future challenges for the country since its economy is
heavily dependent on intra-regional trade. Japans desperate economic situation calls for a strong response
in order to successfully steer its economy toward sustained recovery. Looking for a roadmap that
succeeds in boosting both business and consumer confidence, Japan has started forging bilateral economic
partnerships, reflecting a philosophical change in its countrys economic policy. Japans economy has
been in the doldrums for over a decade but there are now geopolitical incentives to change as the worlds
second largest economy becomes overshadowed by the rise of China (Stewart, 2003).
Regionalism is not dissimilar to globalization. The current proliferation of RTAs has fueled fears of a
world economy divided into major trading blocs: in Europe, the Western hemisphere, and East Asia. Even
within East Asia, there could be a further division between Northeast and Southeast Asia (Beng, 2001;
Ulman, 1976). Increasingly, countries are simultaneously participating in several and often-overlapping
regional, sub-regional, and bilateral trade agreements, giving rise to the spaghetti-bowl and hub and spoke
effects. The spaghetti-bowl effect arises when various agreements contain inconsistent and varying rules
relating to origin, technical standards, and conformity requirements as well as varying treatments of
sensitive sectors. The information costs of businesses that export multiple products to multiple regional
trade areas are thus increasing (Chia, 2003). Overall, there are more than 200 regional trade agreements in
operation worldwide and the share of world trade accounted for by members of these agreements
increased from 37 percent in 1980 to 60 percent in 1990, and to more than 70 percent by 2005.
The Trans-Pacific Partnership bloc made up of Singapore, Chile, New Zealand, and Brunei are
entering talks in 2010 to accept other candidate nations, to include the United States that already has free
trade agreements with Singapore and Chile. The U.S. has already participated together with Australia and
Peru to negotiate the potential expansion of the bloc. The Trans-Pacific Partnership is to serve as a model
for the Asia-Pacific region, one that will remain open to new members committed to freer trade. The
expanding bloc could very well one day provide a solid foundation for a wider Free Trade Area of the
Asia pacific (FTAAP). The Asia-Pacific region is expected to grow more than twice as fast as the global
economy in 2009 (Fergusson & Vaughn, 2009; Markheim, 2008; Markheim, 2009; Wright, Weisman, &
Fritsch, 2009).
GLOBALIZATION: THE RISE OF CHINA
Chinas emergence as a regional great power is creating significant new uncertainties for Japan that
includes concerns about Japans place and leadership role in the Asia-Pacific region. At the same time,
China is challenging Japans position as the largest economic power in Asia and the biggest trading
partner for several Asia-Pacific states including Australia (Mulgan, 2008). China, by virtue of geography
and economy, dominates any Asian community. This worries many regional government officials and
has encouraged them to reach out to Australia, New Zealand, and India in an attempt to balance this giant
(More trade noodles, 2010). Regionalization in Asia has been a new trial for Japan to re-define its
position in the region (Uyar, 2009).
There is a need to manage globalization and the emergence of China and India as economic
powerhouses. The economic rise of China is forcing ASEAN to become more competitive in terms of
production, exports, and attracting foreign direct investment. The shifting landscape is forcing the smaller
regional economies to undergo major structural adjustments (Chia, 2003). China is the second largest
economy in East Asia after Japan. Indias very credible economic performance has, to a degree, been
elliptical to the Chinese success story. Japans Center for Economic Research forecasts that the size of the
Chinese economy will surpass that of the United States during the 2020-2040 period and will be almost
seven times that of the Japanese economy by 2050 (Walton, 2008). Already in 2009, China has displaced
the United States as the largest overall buyer of Japanese goods and it now accounts for nearly one-fifth
of Japans exports by value. Being more closely tied to fast-growing China is a welcome development for
Japans export-reliant economy, which has shrunk back to 2004 levels during the recent economic
downturn.
In the shadow of an increasingly competitive China, Japan has been revamping its regional trade
strategies as well as devising new economic security and regional integration strategies. Japan has sought
to build closer ties with states who it shares common political and strategic interests as a means of a
counterbalance to China. CEPAs are seen as the centerpiece to the execution of the Japanese strategy
(Mulgan, 2008). The structural changes in Asia and movements towards a new regional architecture
provides stimulus for Japan to seek-out better relations with Australia (Hosono, 2006; Yew, 2004).
Much of this scurrying about by Japanese leaders signing trade deals is a way that may help Japan
counter Chinas growing influence in the region (Yamanura & Soeriaatmaalya, 2007). The Japanese are
now working closely with Prime Minister Manmohan Singh of India to complete the negotiations begun
in 2007 so a pact can be agreed upon in 2010 (India, Japan propose, 2009).This is the first time in history
when there have been three powerful countries in Asia, all at the same time: China, India, and Japan
(Emmott, 2008). And one must not ever consider that the United States is no longer exercising its power
and influence in the Asia-Pacific region.
Japan has announced plans to organize an Asian free trade zone. The 16-nation proposal would include
China and India, the worlds two fastest growing economies, along with the ten-member ASEAN alliance
plus Australia, Japan, New Zealand, and South Korea. This would include at least one-third of the worlds
population and rival the 27-member EU market and the NAFTA market consisting of Canada, Mexico,
and the United States. The combined economic output would be $9.1 trillion, one-quarter of the world
figure, based on 2004 data. Japan proposed starting negotiations by 2008 with a 2010 target date to
conclude the pact. As a concession to China, the Japanese plan does not include Taiwan (Japan proposes,
2006).
Of course, both Taiwan and China are members of the WTO and Taiwan, although moving closer to
the mainland in the conduct of business and trade, as well as politically, still remains independent of the
Peoples Republic of China. Recent talks between China and Taiwan over a planned Economic
Cooperation Framework Agreement, could bind Taiwan to its giant neighbor to an unprecedented degree
(Zaho, Malauche, & Newfarmer, 2008). Indeed, this bilateral trade pact was put in place in 2010.
President Ma Ying-leou recently greeted the new Japanese representative to Taiwan, Mr. Tadashi
Imai, and expressed hopes that Taipei and Tokyo could sign a free trade agreement. Mr. Imai, prior
ambassador to Malaysia and to Israel, acknowledged that Taiwan is Japans fourth largest trading partner
and Japan is Taiwans second largest trading partner (Ko, 2010). Taiwan, one of the four Newly
Industrialized States together with South Korea, Singapore and Hong Kong, is now one of the leading
trade dynamos in Asia. How in the future Taiwan will fit into the spaghetti- bowl of expanding regional
trade agreements is an important geopolitical issue that will require careful consideration.
Concern about China is now a central feature of Japanese politics and policy. Since the concern is only
likely to grow as Chinas strength and regional interests grow, too, more and more of Japanese policy will
be shaped by China. It certainly explains Japans eagerness to involve India in regional affairs. Further,
China will no doubt be one of the spurs that will keep the Japanese on their toes seeking ways to bolster
economic growth, introduce more productivity reforms, and encourage Japanese industry to maintain a
clear technological lead (Emmott, 2008).
ASEAN PLUS THREE PLUS THREE
Regionalism in Southeast Asia began in 1967 with the formation of ASEAN more as political
cooperation then a trade bloc, originally between five countries: Indonesia, Malaysia, Singapore,
Thailand, and the Philippines. The other five members were added later with Brunei in 1984, Vietnam in
1995, Laos and Myanmar in 1997 and Cambodia in 1999. These ten countries gave ASEAN a larger
population (569 million) than the European Unions twenty-seven countries (490 million). Although trade
barriers between ASEAN members have been lowered substantially over the years, there is no customs
union and the members are quite scattered geographically and have a mix of government structures, to
include communist Vietnam and tyrannical Myanmar. Nevertheless, there has been talk of extended free
trade to an entity dubbed ASEAN plus Three, the three being Japan, China and South Korea. The three
have been sending representatives to ASEAN meetings for some time (Emmott, 2008).
ASEAN has committed itself to making the most of its collective strength by achieving an integrated,
liberal market. The trade bloc launched ASEAN Vision 2020 over a decade ago, which called for creating
a stable, prosperous and highly competitive AEAN Economic Region (Lohman & Kim, 2008). At the
East Asia Summit formation in 2005, the original group meeting in Kuala Lumpur was simply ASEAN
Plus Three, Plus Three, i.e., the ten members of ASEAN plus Australia, New Zealand and India, along
with China, Japan, and South Korea (Emmott, 2008).
At this East Asia Summit, an attempt was made to design a structured framework to cover both
existing and potential flows of trade and investment (Tamura, 2007). Most observers agree that it is
premature to see this large, geographically distant formation of countries come together as a distinct
region. But the creation of this new entity is telling about the concerns for more mutual security, shared
economic policy, and the growing rivalries and ambitions across the whole of Asia (Emmott, 2008).
CHINA-ASEAN FREE TRADE AGREEMENT (CAFTA)
At the beginning of 2010 additional regional trade agreements were being considered in the Asia-
Pacific region. For example, South Korea hosted a meeting in Seoul on January 26, 2010 to upgrade a
joint study panels recommendations on concluding a three-way free trade agreement with Japan and
China. The three countries will upgrade this private sector study group to a forthcoming meeting at the
Director-General level for the trio of country officials (Prep meet set, 2010). At the same time, actual
implementation of two pacts with ASEAN by China and by Australia / New Zealand made headlines.
Without a doubt, the biggest integration of trade partners was the inauguration of the China-ASEAN
Free Trade Area. When ranked by size, this new entity encompasses 1.9 billion people, making it the
worlds largest free trade area. Its $6 trillion in combined gross domestic product makes it the worlds
third largest, trailing Japan and the European Union. This deal was negotiated and agreed upon in 2003,
giving the membership an ample seven years to prepare. During that time, China has become ASEANs
third largest trade partner, surpassing the United States and trailing only Japan and the European Union.
Trade between China and ASEAN has reached $193 billion, a fourfold increase since the deal was agreed
upon back in 2003. In the same time frame, Chinas share of ASEANs total commerce has increased as
well, expanding from 4 to 11 percent. Trade among the entire membership has swelled to $4.5 trillion.
This is over 13 percent of global trade and half the total trade in Asia in 2008 (More trade noodles, 2010).
At the beginning of 2010 the ASEAN-Australian-New Zealand free trade agreement was also enacted,
representing 600 million people that have a combined gross domestic product of $2.8 trillion. It
supplements the Australian-New Zealand trade pact that has been in effect for decades. ASEAN accounts
for 15 percent of Australias trade roughly equal to the countrys trade with China. The agreement
covers some 70 percent of Australian trade with ASEAN and will eliminate tariffs on 96 percent of
Australias exports to ASEAN by 2020. For New Zealand, ASEAN collectively is the countrys fifth-
largest export market and fifth largest source of imports so the tariff reductions will be beneficial to this
small country as well (More trade noodles, 2010).
JAPANS ECONOMY AND TRADING PARTNERS
The fledgling new administration implementing the policies of the Democratic Party of Japan, appear,
to at least one credit agency as moving toward fiscal consolidation at a slow pace. The government debt,
estimated to have reached the size of Japans entire economic output for the year ending in March 2009
(680 trillion yen or $6,136 trillion) is the highest level in the industrialized world. The public debt to
gross domestic product ratio is at 180 percent (Brown, Tudor & McCallum, 2010; Tachikawa &
Nakamichi, 2009).
Despite the debt numbers, Tokyo remains a long way from default and the credit agency even
acknowledges that the countrys finances retain considerable strengths. Nevertheless, the warning about
downgrading the rating for Japan highlights the dilemma that hangs over Japans economy the danger of
falling back into recession and a new deflationary period. Policy-makers are struggling to come to grips
with options to address such problems, and the fiscal picture may be bleak enough to eventually force
painful tradeoffs. The Bank of Japans short-term interest rates are already at 0.1 percent, and the central
bank recently ended a two-day policy session without offering any fresh ideas for the economy (Brown,
Tudor & McCallum, 2010).
The credit-ratings firm issued a warning to Japan about the countrys borrowing, threatening to
downgrade the nations sovereign debt a notch below its current double-A rating unless policy makers
find a way to pull the economy out of its deflationary spiral while curbing public spending. The warning
sent a sort of no confidence vote to the four-month reign of the Hatoyama administration. In winning the
election amid high hopes of reforming Japans long-stagnant economy, critics have already become
impatient as the government still struggles to articulate a path to recovery (Brown, Tudor, & McCallum,
2010). By June 2, 2010 Yukio Hatoyama tendered his resignation as chairman of the Democratic Party of
Japan and Prime Minister of Japan. Two days later Finance Minister Naoto Kan replaced him.
The Japanese administration intended to finalize its growth strategy by June 2010. Japans draft
economic expansion strategy targets an average annual growth rate of more than two percent over the
next ten years, an ambitious goal for an economy beset by deflation and a weak domestic outlook. The
cabinet approved the blueprint that policy makers say should focus on six major areas that are expected to
stimulate additional economic growth: environment, health care, increased trade and business with other
Asian countries, tourism and revitalizing Japans regional economies, science and technology, plus more
job training as well as increased employment opportunities for groups such as the newly retired. The plan,
however, doesnt say how it will finance measures necessary to generate growth and as duly noted,
Tokyos ability to spend on new steps is limited by its already huge debt (Tachikawa & Nakamichi,
2009).
Tokyo expects only 1.4 percent real gross domestic product growth in the year starting April 2010.
Deflation has been reducing corporate profits, which in turn reduces private demand. Consequently, the
core consumer price index, which excludes volatile fresh food prices, fell for the ninth consecutive month
in November 2009, dropping 1.7 percent from a year earlier (Tachikawa & Nakamichi, 2009). World
merchandise trade volume fell by roughly 33 percent from the second quarter of 2008 to June 2009.
Reviving trade flows is crucial to restoring global growth (A protectionist president, 2009). Indeed, trade
is the most serious casualty of the global financial crisis. The countries hardest hit are those most reliant
on exports. Japan has lost nearly half of its export market over the first quarter of 2009 compared to a
year earlier. The World Trade Organization forecast global trade to fall by 9 percent in 2009 (Brown,
2009).
The standard response to recessionary times is to cut interest rates but Japan was slow to cut interest
rates after the bubble burst before now bring the rate to nearly zero. Keynesian economics steers the ship
of state to borrow money and use the funds to prime the pump since the private sector refuses to spend
enough to maintain full employment. Japans economy began to show some signs of recovery around
2003. The turnaround is attributed to exports. The United States ran huge trade deficits, importing vast
quantities of goods. Some of these imports came from Japan, although the biggest growth came in
imports from China and other emerging economies. But Japan benefited from Chinese growth too,
because many Chinese manufactured goods contain components made in Japan (Krugman, 2009).
As can be seen by these recent events, Japan needs to continue to augment its international trade
capabilities in order to continue to compete successfully and sustain its export-based economy. As
highlighted below, Japan has negotiated many important trade agreements, both within the Asia-Pacific
region, as well as far away from Asia, to include bilateral trade pacts implemented in Western Europe and
the Western hemisphere.
CEPAs completed by Japan with its various trading partners to include: Brunei, Chile, Indonesia,
Malaysia, Mexico, Peru, the Philippines, Singapore, Switzerland, Thailand, and Vietnam. There are many
more currently under negotiations Canada, Chile, EU, Gulf Cooperation Council (Bahrain, Kuwait,
Oman, Qatar, Saudi Arabia, and the United Arab Emirates), India, New Zealand, and South Korea. Japan
is also in preliminary talks with the Republic of Uzbekistan.
In Asia, the Japanese talks with South Korea have stalled over some auto issues but the relationships
with Australia have been good. After resolving bilateral trade disputes over beef and sugar in the 1970s,
the two countries worked together creating regional economic institutions, such as the Pacific Economic
Co-operation Council (PECC) in 1980 and the Asia-Pacific Economic Co-operation (APEC) forum in
1989 (Terada, 2000). Since the late 1980s, Australia and Japan have worked on developing closer
cooperation on regional matters. Cooperation has included leading roles in the formation of APEC, peace-
keeping in Cambodia (1992-1993) and joint efforts to assist countries affected severely by the Asian
financial crisis in the late 1990s (Walton, 2008).
DISCUSSION
While there is no single Asian free trade area, those nations have been forging closer economic ties for
nearly two decades. This reflects business reality companies have gone multinational to exploit
comparative advantages regardless of borders as well as recognition that Asian economies are inter-
twined and economies of scale are crucial to the regions prospects.
Thus far in 2010, the ASEAN-China partnership agreement has been implemented as well as the
Australian-New Zealand- ASEAN partnership agreement. The political ramifications of these agreements
can be enormous. In the past, one country has always been dominant either in the region as a whole or in
its own part of it. Since the end of World War II, the United States has dominated Asia because of its
military presence, its importance as a market, and a source of foreign investment. Its alliance with Japan
has held for over fifty years but there have been many speed bumps along the way.
Asias richest country and hitherto its only candidate for global power is now being challenged by the
rise of China, giving rise to a belief that by mid-century China could eventually emerge to even challenge
America for global leadership. And, not to be left out of this scenario, India is another rapidly developing
country that may have something to contribute to the equation of the shifting balance of power in Asia.
Among the benefits to Japan of the CEPAs, perhaps the most noteworthy ones are (1) expanding
export opportunities, (2) promoting structural reforms, and (3) closer ties with other countries. According
to the Ministry of Foreign Affairs (MOFA) Japan (2008a, 2008b, 2008c) among the twelve criteria for
identifying partners, Japans basic trade policy on CEPAs is as follows:
x Creation of an international environment beneficial to Japan
x Community building, stability and prosperity in East Asia
x Strengthen Japans economic power, tackle political/diplomatic challenges
x Reinforce Japans position at multilateral negotiations (e.g., Doha round)
x Attainment of economic interests of Japan as a whole
x Expand and facilitate exports of industrial/agricultural goods, trade in services and
investments, improve the business environment for Japanese companies operating in
partner countries, facilitate movement of natural persons, etc.
x Eliminate economic disadvantages caused by absence of CEPA/FTA
x Contribute to stable imports of resources, safe and reliable food
x Promote Japans economic and social structural reforms
x Situation of the partner countries/regions and feasibility to realize CEPA
CONCLUSIONS
Certainly Japan is achieving many of the countrys trade policy objectives through the persistent and
careful application of CEPAs throughout the world. However, on the surface, it appears that the
advancement of various configurations of trade arrangements may be inspired as much by geopolitical
factors as they are by driving economic factors.
U.S. interests in Asia begin with a stable, secure, geopolitical and economic order that is friendly to
free commerce. Central to all of this is Japans continuous leadership capabilities, particularly in the face
of Chinas and Indias incredible economic growth and both being potential challengers for leading the
Asian theater with a new voice.
This paper portrays the role Japanese CEPAs play with the accelerating process of regional integration
throughout Asia, which has been a comparatively white spot on the map of bilateral and regional trade
liberalization until the last few decades. It contributes to and underlines the importance of this sector of
the world to international trade and development.
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Before the Attack: A Typology of Strategies for Competitive Aggressiveness
Jeffrey E. Stambaugh
Midwestern State University
Andy Yu
University of Wisconsin-Whitewater
Alan J. Dubinsky
Midwestern State University, Purdue University
We argue that a firms competitive actions should flow from a strategy. Yet, the issue of strategy has
seemingly been ignored in the competitive dynamics literature. To address that gap, we distinguish
between the logics of innovativeness and competitive aggressiveness and build the foundation for a
competitive strategy by outlining the economic mechanisms of competitive action that lead to superior
performance. Drawing on the resourced-based view of the firm we develop three resource-based attacks
that may be used by competitively aggressive firms. Using this foundation, we derive a typology of
strategies that use competitive actions to achieve sustained competitive advantage.
Competitive dynamics literature frequently refers to certain types of competitive actions as either
tactical or strategic. Tactical actions are typically easy to start or stop and do not reflect a substantial
investment of resources. Alternatively, strategic undertakings imply a more substantial investment of
resources and a greater commitment to the action by the firm (Ferrier & Hun, 2002). The foregoing
terminology is unfortunate, as it appropriates the word strategy from its proper role and instead ties it to
distinguishing types of action. Actions, however, are tactical in nature and thus specifically refer to the
implementation of strategic choices (Kaplan & Norton, 2001). We suggest in this paper that there should
be a strategy that guides the adoption of particular competitive actions. Accordingly, we develop a
typology of various strategic rationales for taking selected competitive actions.
Investigating the interplay of competitive moves and countermoves within an industry, competitive
dynamics researchers have investigated the impact of the initiator, the competitive attack, the competitive
environment, the responder, and the competitive response, often testing relationships between these
factors and firm or industry performance (Smith, Ferrier, & Ndofor, 2001). For example, Chen and
Hambrick (1995) found that small firms tend to attack more often, but large firms are more likely to
respond when attacked. This attack/response dynamic tends to hurt industry profitability, though the most
aggressive firm suffers the least (Young, Smith, & Grimm, 1996). Vigorously competitive industries are
redolent of a Red Queen effect, where successful competitive attacks lead to faster and more strong
competitive responses and ultimately a reduced performance gain for the attacker (Derfus, Maggitti,
Grimm, & Smith, 2008).
An important, yet under-researched, question is whether firms had a strategy before launching
competitive attacks. In other words, did they have a specific end goal in mind that their competitive
actions logically could have achieved? Answers to this question are virtually unknown. Extant com-
petitive dynamics research has not extensively developed a strategy for taking competitive actions.
Rather, its unique contributions are more about the tactics of taking competitive action. Discussions
address tactical matters such as volume, duration, competitive repertoire, and speed of execution (e.g.,
Smith et al., 2001). Indeed, a pattern of adopting competitive actions is seen by some as constituting a
strategy (W. J. Ferrier, Fhionnlaoich, Smith, & Grimm, 2002; Smith, Grimm, & Gannon, 1992).
We propound, though, that firms have strategic orientations which drive their strategies, and that their
taking competitive action is consistent with that orientation, support the strategy, and is aimed toward a
specific strategic outcome. Our paper focuses on strategies consistent with high levels of competitive
aggressiveness. The remainder of the paper proceeds as follows: We begin our paper by addressing the
difference between the logic of innovativeness versus competitive aggressiveness. We next build the
foundation for a competitive strategy by drawing from the acquisitions literature to outline the economic
mechanisms that lead to superior performance. We then further develop the resource-based attacks that
may be used by competitively aggressive firms. Finally, using a competitive framework developed by
Chen (1996), we derive a typology of strategies that use competitive actions to achieve sustained
competitive advantage.
INNOVATIVENESS VERSUS COMPETITIVE AGGRESSIVENESS
The focus of competitive dynamics is on market disequilibrium created when a firm takes competitive
action (Ferrier, 2001; Jacobson, 1992; Young et al., 1996) and has not yet focused on the motivation or
strategic orientation behind that attack. When developing a typology of competitively aggressive
strategies, we suggest the underlying strategic orientation is critical. Entrepreneurial Orientation (EO) is a
leading strategy typology in the management literature and considers the processes, practices, and
decision-making activities that lead to firm entrepreneurial activity (Lumpkin & Dess, 1996:136;
Venkatraman, 1989). Lumpkin and Dess (1996) have proposed five dimensions of EO: (1) autonomy:
ability and will to take independent action; (2) proactiveness: pursuit of market opportunities and
environment-shaping activities; (3) risk-taking: willingness to make large investmentspersonal, social,
and financialwith uncertain payoffs; (4) innovativeness: pursuit of new or novel ideas that may lead to
new products or services; and (5) competitive aggressiveness: willingness to challenge and outperform
rivals. We focus specifically on the dimensions of competitive aggressiveness and innovativeness as we
seek to clarify the firms orientation toward competitive actions. While innovativeness is aimed at
introducing new products, which is a type of competitive action, competitive aggressiveness is more rival-
focused. Their underlying logics are distinct and worth a further discussion as a failure to do so may
inhibit understanding the strategies of competitive action. Admittedly, it is theoretically possible that a
firm could have high levels of competitive aggressiveness and innovativeness (Apple would seem to be
such a firm). Extant work indicates, though, that this situation is relatively uncommon.
When a company introduces a new product, is that introduction a result of a firms innovativeness and
thus a first mover attempt to create new market space or is the introduction an attempt to target the
market position of a rival? This is an important question because the strategies of innovation funda-
mentally differ from those of competitive aggressiveness (Lumpkin and Dess, 1996). Further, although a
firm could simultaneously have high levels of innovativeness and competitive aggressiveness, research
suggests the correlations between these two orientations are low, ranging between .04 (Chang et al., 2007)
and .11 (Hughes & Morgan, 2007). As such, when adopting competitive action, a firm may be operating
from an innovation logic or from a competitively aggressive logic, but usually not both.
Innovativeness
Lumpkin and Dess (1996, p. 142) suggest innovation is a willingness to depart from existing
technologies or practices and venture beyond that current state of the art and that this willingness often
results in new products and services. The logic of innovation is well-illustrated in Kim and Mauborgnes
(2005) Blue Ocean Strategy. They propose that blue oceans are uncontested market spaces where the
innovative firm moves to a new strategic position having no competitors. In contrast, red oceans typify
the presence of firms competing for the same customers, with firms attacking the strategic positions of
rivals. Particularly important is that innovators create new value and often stimulate new demand in an
existing industry.
Kim and Mauborgne (2005) illustrate this creation of new demand with the actions of Callaway, a
premium golf products manufacturer. Rather than focusing on the needs of current golfers, Callaway
investigated why some physically-active adults rejected golf as their sport of choice. Callaway found that
non-golfers viewed the game as too difficult to master. Callaway then introduced a series of golf clubs
designed to afford new golfers opportunity to achieve reasonable proficiency fairly easily. The denoue-
ment was Callaways positioning itself as the golf club of choice for new (and many current) golfers.
Callaway thus increased overall industry demand by drawing more people to the sport of golf; it largely
had this new market to itself. By choosing to innovate and focus on new customers, Callaway worried
less about its existing competition. This approach is different from choosing to fight current competitors.
Competitive Aggressiveness
Lumpkin and Dess (1996, p. 148) define competitive aggressiveness as: a firms propensity to
directly and intensely challenge its competitors to achieve entry or improve position, that is, to
outperform industry rivals in the marketplace. In contrast with proactive pursuit of new markets made
possible by value innovations, competitive aggressiveness focuses on threats imposed by competitors and
battles over existing customers. Lumpkin and Dess (1996) further suggest that competitive aggressiveness
involves a combative posture that entails a forceful response to competitors actions (2001, p. 431).
Responsiveness entails either preempting the rivals strategy through a competitive move or reacting to
the rivals competitive actions. Lumpkin and Dess (1996) add that competitive aggressiveness includes a
willingness to be unconventional rather than rely on traditional methods of competing (1996, p. 149).
Ferrier and colleagues, drawing on hyper-competition literature, add that competitive aggressiveness
involves a high speed of action as well as the ability to simultaneously conceive of multiple attacks using
varied repertoires (Ferrier et al., 2002).
This preceding description portrays a rich image of competitive aggressiveness. Firms high in
competitive aggressiveness are intensive, forceful, and combative, implying willingness to plot and exe-
cute competitive actions as the firm directly challenges rivals. The desired outcome for these competitive
strategies is clear: a higher level of performance than their rivals as firms engage in the incessant race
to get ahead or to keep ahead of one another (Kirzner, 1973, p. 20).
Three Drivers of Competitive Behavior
Chen (1996) outlines three drivers for competitive behavior: awareness, motivation, and capability.
We advance the idea that awareness, motivation, and capability are manifested as firm processes (Dutton
& Duncan, 1987) and suggest that these processes makes some firms more competitively aggressive than
others. Awareness entails analysis of a firms rivals, real-time tracking of its rivals competitive actions,
and dissemination of this information. There is substantial variation among firms in their demonstrated
levels of awareness (D. B. Montgomery, Moore, & Urbany, 2005; Zahra & Chaples, 1993; Zajac &
Bazerman, 1991). Some of this variation is due to firms that shun such red ocean actions as they seek to
innovate to blue oceans. The primary reason behind the variation, however, is that the monitoring and
analysis functions inherent in rival awareness are costly in terms of physical and cognitive resources of
the firm (Cyert & March, 1963; Dutton & Jackson, 1987; Ghoshal & Westney, 1991; Ocasio, 1997). The
most competitively-aggressive firms choose to invest in these processes and thus have a higher level of
awareness.
The second key factor behind competitive aggressiveness is motivation. There are two distinguishing
characteristics of a highly competitively-aggressive firm in this regard. First, outperforming its rivals is
important for an aggressive firm. Other companies may choose other reference points, such as past
performance or internal goals, and be satisfied with meeting such targets (Fiegenbaum & Thomas, 2004;
Shoham & Fiegenbaum, 2002), but competitively aggressive firms seek out information on the
performance levels of their rivals and then compare themselves against their rivals performance (M. E.
Porter, 1980). The second characteristic of competitively aggressive firms is that they see the challenging
of the rivals positions as an appropriate and necessary step in furthering their own performance.
Moreover, they may attribute any performance shortfall to the actions of a rival.
A high level of motivation and awareness, however, become salient only in the presence of the third
factorthe firms capability to launch and counter competitive attacks. Part of this capability are the
tangible resources of a firm such as slack funds generated by strong past performance (Smith, Grimm,
Gannon, & Chen, 1991). But a competitively aggressive firm also identifies available resources and
prioritizes them to attack when less aggressive firms might look at the same resource base and see little.
The more aggressive organizations are better at creating effects with the resources available rather than
waiting for optimal resources to become available (Baker & Nelson, 2005; Read & Sarasvathy, 2005).
Summary: Innovativeness Versus Competitive Aggressiveness
In summary, being competitively aggressive is about firms vigilant and forceful defense of their
current market position while seeking to undercut their rivals position. To do so, they carefully and
continuously monitor and analyze their rivals, are motivated to improve their performance by attacking
those firms, and are ingenious in their deployment of firm resources to launch attacks. The desired end
result of the competitive attacks is sustained performance that is superior to that of their rivals.
Admittedly, a crucial outcome of innovation is also superior performance; the orientation and subsequent
practices of innovation are very different, however, from competitive aggressiveness. The attack of a
rivals position is not the aim but rather the byproduct of innovation, and indeed most radical innovations
make the existing competition immaterial (Kim & Mauborgne, 2005). Alternately, for competitive
aggressiveness the focus is to attack the rivals position. Accordingly, in this paper we focus upon firms
operating in red oceans, using a strategy of competitive aggressiveness to improve performance.
A strategy of competitive aggressiveness carries high risks. Porter (2008) avers that price discounting
is one of the easiest-to-employ and most commonly used competitive actions. Yet, it is often harmful to
firm and industry profitability, at least in the short term. Furthermore, discounting teaches the customer to
make price the sole criterion when choosing among rivals products. Hence, using these types of actions
without also attempting to create a non-price-based switching cost to the customer is likely to accomplish
little for the firm in the long term. The greatest threat to profitability, though, is directly taking on a rivals
positiontargeting the same customers with similar productsand is the essence of a competitively
aggressive strategy (Porter, 2008). Precisely because the taking of competitive action does have potential
negative implications for a firms profitability, a firm importantly must have a strategy when using
competitive actions to earn superior returns. Developing that strategy requires understanding the
mechanisms linking the strategy with superior performance, the enabling actions, and the desired strategic
outcomes with their associated costs. We turn next to those issues.
FOUNDATION OF COMPETITIVE AGGRESSIVENESS STRATEGIES
Mechanisms of Competitive Aggressiveness: Increased Market Share and Profitability
We use the strategies and underlying economic logics of mergers and acquisitions (M&A) to introduce
the mechanisms that link a competitively aggressive strategy with superior returns. As with competitive
aggressiveness, M&As are a potentially high risk-high potential strategy, with acquiring firms doing
poorly about as often as they do well from a financial perspective (King, Dalton, Daily, & Covin, 2004).
The central underlying economic logic justifying an M&A is synergy: simply put, the joined firms can
achieve higher returns than each could separately (Harrison, Hitt, Hoskisson, & Ireland, 1991). The
economic mechanisms for generating these higher returns are economies of scope and market power. The
recent Delta-Northwest Airlines merger demonstrates both mechanisms. The 2008 merger promised very
modest cost reductions and limited personnel cuts, with additional economies of scope coming from the
opportunity to combine their route network and offer each others customers new locations. Equally
important yet downplayed owing to antitrust review concerns was that this merger created the largest
airline in the world with the concomitant increase in its power over suppliers and buyers (Carey & Prada,
2008). This afforded the new Delta ability to demand lower prices from suppliers such as Boeing or
Airbus, while simultaneously being able to raise fares in certain markets. This market power should
translate into higher returns for the new Delta.
If economies of scope and market power are the economic mechanisms that link an acquisition with
superior returns, what are the analogous mechanisms that link a competitively aggressive strategy with
superior returns? In examining the dyad of competitive actions between an attacker and rival, Chen
(1996) suggests that the attackers aim is to take market share from the rival or reduce the rivals returns.
We agree, and slightly expand the concept and propose that a firm builds superior returns relative to its
rivals with a competitively aggressive strategy by increasing its relative market share and/or augmenting
its relative profit margin.
The linkage between increased market share and increased returns assumes that a firm can take a
rivals share while still retaining a sufficient profit margin (i.e., its profits are larger as a result of the
attack). Adding to this profit gain is the possibility that the increased market share generates economies of
scale (i.e., costs decline and profit margins stay the same or even increase). Although these gains are
theoretically attractive, they can be difficult to attain in practice. Porter (2008) cautions that attempts to
gain general market share often triggers vigorous counterattacks which leave the entire industry less
profitable. Indeed, Montgomery and Wernerfelt (1991) observe exactly that effect in the brewing industry
and find increased market share actually hurts a firms financial performance. Nevertheless, a meta-
analysis of forty eight studies found a small, positive relationship between increased market share and
performance (Szymanski, Bharaadway, & Varadarajan, 1993). Therefore, apparently gaining relative
market share is an effective though potentially treacherous path to superior performance.
A second, potentially complementary path to superior relative performance would be to increase the
firms profit margin relative to its rivals by either reducing its costs or increasing its pricing power. Firms
might try to reduce costs and improve their pricing power without necessarily referencing or directly
seeking to undercut their rivals (Porter, 1980). Competitively aggressive firms, however, may also
endeavor to increase the costs of their rivals or decrease their pricing power so as to shift relative profit
margins. Indeed, an optimum competitive attack would affect both the attacker and attacked simultan-
eously, as illustrated by a recent Wal-Mart initiative. Using its market power and already substantial
trucking fleet, Wal-Mart approached its U.S-based suppliers about transferring from the supplier to Wal-
Mart the responsibility for delivering the merchandise from the suppliers manufacturing sites to the Wal-
Mart distribution center (Burritt, Wolf, & Boyle, 2010). On the surface, this seems to be yet another move
for Wal-Mart to decrease its costs through its vaunted efficiency. However, by reducing the suppliers
economies of scale in their shipping function, conceivably Wal-Mart will effectively increase the costs its
competitors must pay to purchase from those same suppliers. As such, Wal-Mart gains two propitious
outcomes with the same competitive initiative it reduces its own costs and increases its rivals costs.
Another example from Wal-Marts competitive repertoire demonstrates an attack on the profit margins
of an erstwhile rivalthe electronics retailer Circuit City. Analysts estimated that virtually all of Circuit
Citys profits came from the sale of extended warranties on items such as televisions and computers. In
October 2005 Wal-Mart began offering extended warranties. Wal-Mart chose not merely to match or
slightly undercut the existing price structure for extended warranties; it chose to set prices 50 percent
below those of Circuit City (Berner, 2005). Denied this profit sanctuary and under subsequent pricing
attacks initiated by Wal-Mart, Circuit City declined rapidly and filed for bankruptcy in 2008. This attack
demonstrates that some competitive forays may simultaneously shift market share and affect relative
profit margins.
Competitive Actions: Three Ways of Attacking a Firms Resources
Competitive actions are the means firms use to shift market share and affect relative profit margins.
The extant competitive dynamics literature addresses many of the observable and best-known competitive
tactics employed by firms. Ferrier and colleagues (1999), for example, categorize competitive actions
into the following: pricing actions, product actions, signaling actions, marketing actions, capacity actions,
and legal actions. Gimeno and Woo (1999) focus on when airlines establish new routes and exit existing
routes, which is also a form of product action. The majority of such actions focus on the battle for market
share, yet Chen (1996) suggested that firms battle over resources as well as customers. We suggest that
the battle over resources is an important, though underdeveloped, arena of competitive behavior. This
underdevelopment is surprising as one of the major theoretical advances in strategic management is
Barneys (1991) resource-based view (RBV) of the firm, which establishes that a firms heterogeneous
resource base is central to a firms competitive advantage. Attacking a firms resource base would seem a
logical corollary of RBV. Part of the reason for this underdevelopment may be that resource actions could
be less obvious, and might even be publicly denied by a firm if such a denial is plausible. Wal-Marts
initiative to in-source the transportation from its suppliers to its distribution centers could be framed as a
resource attack in that it affects its rivals supplier costs. Yet, Wal-Mart portrayed the initiative as an
internal cost-cutting move that would benefit its customer. That ploy was left to industry analysts to
decipher the likely impact on Wal-Marts rivals.
We suggest that targeting a rivals resources may be an even more deliberate attack than launching a
new marketing campaign or product. Firms with innovation strategies that pay little attention to rivals
may introduce new products with an accompanying marketing campaign. Further, new product innova-
tions or marketing campaigns could clearly stimulate demand for an entire industry, making such action
something other than a zero-sum game (Porter, 2008). The same cannot be said, though, for a resource
attack. One firms gain is almost certainly another firms loss. Thus, perhaps the more competitively
aggressive firms turn to resource-based competitive moves.
We see the concepts of resource-based competitive attacks as underdeveloped and propose a typology
with three attack categories: deny, defect, and debase. A deny attack entails a firm trying to lock up a
potential resource to either prevent a rivals access or increase its rivals costs to access the resource. The
defect attack is more direct and is occurs when the firm seeks to take a resource from a rival and then use
the purloined resource. The debase approach differs from a defect attack in that it does not endeavor to
take the resource away but rather to undercut the value of the resource.
Deny Attack
Of these three approaches, a deny attack is perhaps the most surreptitious because it may be done with
little visibility and for ostensibly other reasons. Santos and Eisenhardt (2009) discovered that several new,
successful ventures chose to quietly acquire other nascent firms for a reason contrary to conventional
M&A logic. These ventures saw little synergy between them and their acquisition targets. Rather, the
ventures decided to block other existing or prospective competitors from acquiring the target firm and its
resources. In short, the ventures were seeking to deny competitors easy access to what could be
potentially synergistic resources. Framed in the five-forces model (Porter, 1980), denying these resources
was an attempt to erect an entry barrier. Although not insurmountable, these entry barriers would have
raised a competitors cost structure and helped the venture preserve a relative profit margin advantage.
Googles 2006 acquisition of YouTube illustrates this approach. Paying over $1.6 billion for a 19-
month-old firm with only a few dozen employees and an unproven business model would seem to make
little economic sense, particularly because Google already had cachet as the webs leading innovator. The
acquisition, however, did prevent Microsoft, who was reportedly interested in YouTube, and others from
gaining easy entry into the video-sharing market and closing the gap with Google.
Acquisitions are not the only tools in a denial approach. Patent infringement lawsuits (e.g. Netflix
suing Blockbuster over the use of Netflixs web-ordering/mail-delivery business model) can serve to
completely deny or slow a rivals use of a new technology, or perhaps may shift the relative profit margin
in its favor by requiring a one-time or ongoing royalty for the rivals use of the technology. Another tool
is securing exclusive rights to a valuable resource. An example: AT&Ts five-year lock-up of the Apple
iPhone. Other exclusivity arrangements can perhaps be done almost invisibly.
Defect Attack
The defect alternative is perhaps the most direct attack on a competitor. It entails targeting an existing
resource of a competitor and then taking that resource for the attackers own use. Poaching alliance
partners is one such tactic. DISH Network partnered for several years with AT&T, allowing the telephone
company to bundle its services to include satellite TV, thereby countervailing cable operators
encroachment onto AT&Ts turf. This alliance steered new customers to DISH and boosted its
performance. In 2009, AT&T terminated its partnership with DISH and switched to DirecTV. We could
find no public evidence that DirecTV solicited this transfer, again illustrating that resource attacks can
often be done with plausible deniability by the attacker. Another recent example is top-selling carpet
maker Stainmasters substituting Lowes for Home Depot as its main distributor.
Defect attacks can also entail personnel resources. Human capital is regarded as a major resource in
many organizations. This perception has led to increased efforts to steal valuable personnel from other
firms. In fact, while the approach of stealing key workers from rivals was relatively rare before 1990, the
practice is now common, especially in fluid industries such as software and electronics (Cappelli, 2000;
Gardner, 2005). Some are high-profile moves, such as in 2005 when Google hired Microsoft vice
president and China expert Kai-Fu Lee to lead Googles China strategy. Significant attacks, however, can
also involve much lower-profile individuals. For instance, in 1998 Amazon.com successfully recruited 15
Wal-Mart professionals versed in the intricacies of Wal-Marts vaunted logistics system (Gardner, 2005).
The defect attack can help a firm grow its market share and improve its relative profit margins. The
shift of human capital may enable a firm to ameliorate current products or develop new products and
eventually gain market share. It may also raise the costs of a rival through the removal of this key
resource. DISH, for example, not only lost market share owing to termination of the AT&T alliance, but it
also faced the prospect of increased marketing costs to secure new customers. Sometimes the market
share transfer is relatively direct, such as Lowes move to Stainmaster. At the employee level the transfer
of market share can also be quite direct. For instance, bank commercial lending officers often develop
close relationships with their clients. When a bank poaches a lending officer from another bank, it expects
a large portion of that lending officers customer base will follow (Hein, Koch, & MacDonald, 2005).
Debase Attack
A debase attack can be subtle, and it principally undermines attacked rivals past investment in a
resource. After airline deregulation in 1978, the so-called major airlines fortified or established new major
hubs (e.g., Delta, Salt Lake City; American, Dallas; Northwest, Detroit) at significant cost in order to
expand their route networks (Chen & Miller, 1994). Though economically inefficient for connecting
relatively geographically close city-pairs, the hub and spoke networks more reasonably connected distant
(e.g., Los Angeles and Louisville) city-pairs and moved traffic to international gateways. Low-cost
Southwest Airlines, however, eschewed hubs. It concentrated initially on connecting relatively close city-
pairs with direct flights, arguing that its main competitor was the car and not other airlines. As Southwest
grew and began to connect distant cities (e.g., Phoenix and Baltimore), the once-valuable hubs of the
major airlines suddenly became economic albatrosses: they wedded the majors to a much higher cost
structure than that for direct flights. Thus, Southwest devalued what had been important resources for its
rivals. Likewise, in 2010 Apple attacked the primary resource of a major rivalAdobes Flash
technology. Apple CEO Steve Jobs publicly said: Flash looks like a technology that has had its day, and
Apples iPhone and iPad rejected the otherwise ubiquitous Flash technology (McNichol, 2010, p. 28). By
devaluing Flash, Apple was aiming to convince software and application developers to abandon Flash as a
platform. Doing so would, in turn, cripple Adobes major revenue stream and devalue its past and
ongoing investments in Flash. By debasing the resource base of a rival, the attacker potentially decreases
that firms future profitability, as it must invest to upgrade the resource, pay to shift to a new resource, or
continue to operate with the devalued, cost-inefficient resource and perhaps lose market share. Shown in
Figure 1 are a summary of the major concepts in this section of the paper and the foundations of
competitively aggressive strategies.
FIGURE 1
FOUNDATIONS OF COMPETITIVE AGGRESSIVE STRATEGIES
A TYPOLOGY OF COMPETITIVE AGGRESSIVE STRATEGIES
We argued earlier that a lacuna existed in competitive dynamics research pertaining to a strategic
framework for linking competitive actions with possible strategies that achieve set outcomes and the
likely impact on firm profitability. To partially address this phenomenon, we propose a two-dimensional
typology of competitive aggressiveness strategies.
The first dimension of our typology is the relative competitive comparative strength between the
attacking firm and its rival. Compatible with recent work (Chen, Su, & Tsai, 2007; Yu & Cannella, 2007),
this construct represents the awareness, motivation, and capability between rivals. For example, a firm
with the same levels of awareness and motivation but having less capability to take competitive actions
than the focal firm is at a comparative disadvantage. Similarly, a company may have an advantage when
considering its capability; if it is not motivated to take competitive actions, though, it possesses a
comparative weakness. Although a competitive attack may affect more than one firm, consistent with
competitive dynamics research and for simplicity, we assume a dyadic relationship between an attacking
firm and a single rival.
The second dimension of the typology is the attack campaign intensity. This construct involves the
degree to which a firm takes and sustains competitive actions over time to achieve the desired outcome.
Ferrier (2001) found that in terms of improving focal firm performance, the most important factors were
the attack volume and duration of the campaign. Using merely the sum of competitive actions, however,
fails to consider that competitive actions are not necessarily equally impactful. Therefore, we define
attack campaign intensity as the significance, volume, and duration of a sustained sequence of
competitive actions directed toward a rival. Higher levels of campaign intensity would entail sustaining a
greater number of more significant competitive actions for a longer period of time.
FIGURE 2
TYPOLOGY OF COMPETITIVE AGGRESSIVE STRATEGIES
We recognize that each dimension in our typology is a continuum. Our typology, however, is necess-
arily a simplification for ease of explication. We offer our typology with four quadrants as a logical
starting point for future elaboration.
Quadrant I: Low Campaign Intensity Against a Weaker Rival
In Quadrant I, a firm with comparatively greater competitive strengths seeks to dominate a rival.
Owing to the mismatch of strengths, the attacker requires a less intense campaign to achieve the desired
outcome. A dominated rival is one that is allowed to exist but poses relatively little competitive threat to
the superior rival. Moreover, its performance is far inferior to its attackers. The outcome of creating a
marginalized competitor should cost relatively little, as the campaign intensity is low and the dominant
position secures superior returns. Thus, of the four quadrants, a dominate strategy poses the least threat to
short-term profitability and a favorable outlook for longer-term profitability.
An example of a superior/dominated dyad is Southwest and Frontier Airlines. After a 20-year absence,
Southwest Airlines resumed service in the Denver market in 2006. Frontier, a young startup airline built
in the Southwest model, was much smaller than Southwest and was losing money. Southwest moved
slowly into Denver, beginning with only 13 daily flights serving 3 destinations. This effort was miniscule
compared with Frontiers 120 Denver-based flights Denver serving 54 destinations. Southwest entered
Denver with its standard marketing blitz and brief fare promotions, and the dominance was underway
(Yamanouchi, 2005). Southwest has gradually expanded its Denver operations to approximately 125 daily
flights, taking market share from Frontier and eventually forcing Frontier to continue operation under
Chapter 11 bankruptcy. Southwest briefly entered the 2009 bidding war to buy Frontier out of
bankruptcy. Such efforts drove up by almost 50 percent the price regional carrier Republic eventually
paid for Frontier, almost virtually assuring that Frontier would continue to be an inconsequential
competitor (Estrel & Carey, 2009).
Why would a firm using a dominate strategy (in this case Southwest) not strive to completely
eliminate the rival. Companies can reap many benefits from allowing dominated rivals to remain. First, it
creates an illusion of vigorous competition, which may help mollify consumers and regulators. Second, it
more completely fills the market and may keep other, more potentially dangerous competitors from
entering that market. Third, perhaps the dominated rival has latent capability that could effectively resist
an attempt to outright defeat the rival should its future be too threatened. Finally, eliminating a rival may
prove expensive in the short term, and the attacker avoids that cost in the short term. Dominating versus
defeating a rival is not without risks, however. In 1997, Microsoft invested in a dominated rival to keep it
alive; that dominated rivals name? Apple Computer!
Quadrant II: High Intensity Aggression Against a Weaker Rival
Under the defeat strategy, the focal firm seeks to force the rivals exit from a market. It may be a
complete firm failure or simply the competitors retreating from a given market. Compared to a dominate
strategy, this strategy requires greater investment, in both managerial attention and in tangible firm
resources, as an increased number of attacks are taken that are sustained for a longer time period. Bed,
Bath, & Beyond, Inc. (BBB) successfully executed a defeat strategy. Having learned that its deeply-in-
debt rival, Linens N Things, Inc., had staked its future survival on certain select markets, BBB launched
repeated waves of discount offers in those markets, gaining some market share at the expense of
decreased profits. Linens N Things was unable to survive the attack and was liquidated in 2008. With
Linens N Things defeated, BBB stopped the discounts and grew its sales and profits at a time when
industry sales were shrinking owing to the 2009 recession.
Though a defeat strategy is costly in the short term, the intent is that the firm will enjoy superior
returns after eliminating the competitor (as in the case of BBB). Of course, the possibility that other firms
could enter the market may suppress somewhat the increase in profitability.
Quadrant III: Low Intensity Aggression Against a Peer or Stronger Rival
In Quadrant III, a firm attacks a peer or an even stronger rival with relatively low level campaign
intensity, in other words, a skirmish strategy. The relatively comparably matched competitors engage in
what is likely to be a back-and-forth limited exchange, but the relative competitive positions are unlikely
to significantly change as a result of the skirmishing. We suggest much competitive action seen in the
marketplace falls into the skirmish category because there might not be any attempt to achieve a strategic
outcome, and may even involve reflexive actions that do not represent a greater strategy other than to
achieve limited market aims or respond to a rivals attack. That said, skirmishing can represent an
effective strategy if pursued purposefully.
Skirmishing can be a matter of entrepreneurial discovery: it may reflect the pursuit of opportunities. A
firm may wish to overtake a rival but be uncertain as to the best approach. Skirmishing could represent a
series of probes, seeking to learn more about the rival and its more vulnerable points of attack. Because
these probes are lower in campaign intensity, they are less costly to launch and maintain. These lower
costs enable such efforts to be easily launched and abandoned if they do not appear fruitful. In sum,
skirmishing may set the conditions for a higher level of campaign intensity. We suggest, however, that the
short-term and longer-term impacts of firm profitability are likely to be modest and difficult to predict
owing to the back-and-forth nature of such exchanges. An exemplar of a skirmishing strategy entails
General Electric (GE) and Pratt & Whitney (P&W), two titans in the jet engine business that compete
vigorously in the commercial jetliner and military market. For many years, however, P&W has enjoyed a
lucrative, virtual monopoly in the smaller turboprop engine market. GE invaded that market in 2008,
though, purchasing a small Czech engine manufacturer for just under $70 million. With this entry GE
forced P&W to defend its turf and was relishing the prospect of forcing Pratt & Whitney to cut prices
on one of its most lucrative products (Lunsford, 2008, p. B2). The price cuts would mean less profit for
P&W and fewer resources for P&W to deploy against GE in markets of greater value to GE. Although
skirmishing generally results in modest or even indeterminate shifts, its significance remains seemingly
unstinting.
Quadrant IV: High Campaign Intensity Against a Peer or Stronger Rival
Quadrant IV represents an escalation from skirmishes to outright war. Firms launching a war should
have a clear strategic outcome in mind, typically a rearranging of the industry such that the attacker
secures a superior, sustainable market position. The rival likely does not die in the war, but it is
diminished and remains a potential threat. Dell once executed this action, leading to their becoming the
major PC manufacturer, enjoying almost a decade of superior returns and outperforming rivals such as
Compaq, Gateway, and IBM.
As the stakes involved are significant, firms launching a war are committed to expending significant
resources over an extended period of time. Not long after achieving search dominance, Google set its
sights on Microsoft and its software dominance. Google since has launched Google Apps, a web-based
productivity program targeted at Microsofts Office; introduced Chrome, a competitor with Internet
Explorer; developed Android for smart phones, displacing Microsoft Mobile; and even proposed an
alliance with Yahoo to counter Microsofts bid to purchase Yahoo. Clearly, Google is seeking to undo
Microsofts dominant position as the leading provider of operating software. Microsoft has responded:
seeking to improve its search competitiveness through its alliance with Yahoo; increasing the pace of its
updates of key software; and even begun offering a web-based, less expensive version of Office. The
eventual outcome of this war is uncertain, and is not likely to be known for some time. What is certain,
however, is that the war has been costly to both sides with only the customers sure winners. Such is the
nature of Quadrant IV warshigh stakes, significant damage to short- and medium-term profitability, and
an uncertain outlook for long-term financial success.
DISCUSSION
Summary
A major purpose of this paper was to argue that a firms competitive actions (tactics) should flow from
its strategic orientation. Specifically, we were interested in whether firms had a strategy before launching
competitive attacks (i.e., did they have a specific end goal in mind that their competitive actions logically
could have achieved?) This issue has seemingly been ignored in the competitive dynamics literature. We
are especially focused on those strategies that are consistent with high levels of competitive aggressive-
ness. We promulgate that firms have strategic orientations, and that their competitive action is consistent
with that orientation, its strategy, and its specific strategic outcome.
A companys competitive behaviors are a function of its awareness, motivation, and capability to
engage rivals. A weakness in any of these elements can lead to a less than optimal competitive action.
Clearly, a company can seek to equal or surpass a rival via innovation or launching a new marketing
campaign. We suggest, however, that focusing on a rivals resources (broadly defined) may be an even
more deliberate attack than launching a new marketing campaign or product, and is a competitive
application of RBV. One firms gain via resource attacks may well be a competitors loss. Thus,
competitively aggressive firms could focus on resource-based competitive moves to improve their market
position.
We see the concepts of resource-based competitive attacks as underdeveloped and propose a typology
with three attack categories: deny, defect, and debase. Although each approach has its own purpose and
likely outcome, all focus on diminishing the competitor in some capacity. Using a two-dimensional grid,
we proposed four competitively aggressive strategies that a firm could use to attack its rivals resources.
Based on a (1) firms relative competitive comparative strength (i.e., its awareness of, motivation toward,
and capability of executing action against a competitor) and (2) attack campaign intensity, the company
can launch one of four competitive strategies against a rival: dominate, defeat, skirmish, and war.
Palpably, which of the four alternatives a company selects is a function of its situation and that of its
rivals. The most important contribution of our typology is that it affords a firm opportunity to reconnoiter
its unique circumstances and opt for the attack strategy that is most appropriate for it vis--vis its own
resources and those of its rival, as well as its own strategic focus.
Future Research
The ideas proposed in this paper are indeed predicated on some extant competitive dynamics research,
but are still in their inchoate stage. Therefore, further work should seek to examine empirically various
aspects of them. For instance, we proposed that a firm could attack its rivals resources via a dominate,
defeat, skirmish, or war strategy. Future work could examine under what external environmental
conditions (e.g., intensity of competition, economic conditions, degree of environmental uncertainty) and
internal environmental conditions (e.g., size of firm, firm innovativeness, market share, innovator versus
leap-frogger) each of these is appropriate. Conceptually, our framework is instructive and pragmatic;
whether it holds up under empirical scrutiny is another question. Therefore, subsequent empirical
examination could test the validity of our two-dimensional typology. Furthermore, we considered solely
relative competitive comparative strength and attack campaign intensity as typology dimensions.
Augmenting the number of dimensions may be useful. Research also could include such dimensions as
the nature of the competitor (i.e., leader or follower), potential for government interference (a la anti-trust
issues), and importance of patents. Finally, researchers might wish to investigate under which kind or
strategic orientation (e.g., entrepreneurial) each of the four competitively aggressive strategies is most
likely to succeed.
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Part-Time Entrepreneurship, Learning and Ability
Kameliia Petrova
State University of New York Plattsburgh
Recent evidence from a large cross-national study on the level of entrepreneurial activity of 40 countries
has established that 80 percent of those who implement start-ups also hold outside paid jobs. To explain
part-time entrepreneurship, I develop a model in which individuals become part-time entrepreneurs
because they do not know their entrepreneurial ability ahead of time. Better entrepreneurs manage to
withdraw. The model gives rise to industry selection and agrees with the empirical evidence from the
Panel Study of Entrepreneurial Dynamics (PSED).
INTRODUCTION
Why do people become part-time entrepreneurs? Are they financially constrained? What sectors do
they choose? Early studies on entrepreneurship do not deal with part-timers. Instead, they use self-
employment as a proxy for entrepreneurship, and focus on the selection into self-employment and the
effect of different factors on it. See for example Evans and Jovanovic (1989), Dunn and Holtz-Eakin
(2000), and Holtz-Eakin et al. (1994)
1
. These studies employ data from labor market surveys that treat
respondents as either self-employed or wage workers. That does not allow the two groups to overlap.
Among the few cases where data on entrepreneurs and not self-employment has been used, such as Kim
et al. (2006) and Wu & Knott (2006), part-time entrepreneurship has not been discussed.
Do we have to worry about part-time entrepreneurs? Recent evidence from a large cross-national study
on the level of entrepreneurial activity of 40 countries (Global Entrepreneurship Monitor, 2003 Executive
Report) has established that 80 percent of those who implement start-ups also hold outside paid jobs.
These findings conflict with the theories of entrepreneurial choice in which individuals choose only
between outside paid jobs and self-employment, and in which the complexity of entrepreneurial activity is
not reflected.
To explain part-time entrepreneurship, I develop a model of entrepreneurial choice where one can hold
an outside paid job while also being involved in a start-up. Individuals become part-time entrepreneurs
because they do not know their entrepreneurial ability ahead of time. Initially, they would prefer to spend
only a fraction of time in entrepreneurship without the risk of starving if their ability turns out to be low.
Based on their expectations, entrepreneurs choose how much time to spend in business and how much
capital to invest. They will receive a signal about their entrepreneurial ability that is proportional to the
time spent in the start-up and will make a decision about what to do next. Better entrepreneurs manage to
withdraw. The model gives rise to industry selection, predicting that more part-time entrepreneurs would
be observed in sectors where ability is unknown ahead of time.
This implication of the model agrees with the empirical evidence and some of the patterns observed in
the Panel Study of Entrepreneurial Dynamics (PSED). The PSED is an extensive nationally representative
survey of the establishment of new businesses, reporting that 50 percent of entrepreneurs have full-time
work and 20 percent have part-time wage and salary work outside the start-ups. In addition, there is
evidence that the number of part-time entrepreneurs is disproportionately high in sectors such as business
services. The opposite holds for agriculture, construction and transportation.
Entrepreneurial Risk and Ability
Entrepreneurship studies, both theoretical and empirical, place a special role on entrepreneurial risk
and ability. While the current paper does not explicitly introduce risk, the presence of part-time
entrepreneurship may in a way be described as a form of risk aversion. Risk, then, can be interpreted as
the lack of knowledge of ones own ability. In the process of becoming business owners, entrepreneurs
learn about their ability. A somewhat similar tractate of the relationship between entrepreneurial risk and
ability is offered in van Praag & Cramer (2001), whose model is an extension of Lucas (1978). Lucas
model is one of the few early models, together with Kihlsrtom & Laffont (1979), that explicitly deals with
risk aversion. The rest of the studies on entrepreneurship cited above assume risk neutrality. The van
Praag and Cramers extension of Lucas model adds a new dimension. Individuals are not certain about
their entrepreneurial talent. The extended model treats both risk aversion and ability as major
determinants of entrepreneurial choice. In the empirical study, risk aversion is observed and ability is a
latent variable.
Learning
Another important element of the entrepreneurial process is learning. Being an entrepreneur involves
learning (Minniti & Bygrave, 2001). Modeling the process of learning of the entrepreneur, however, is
not the goal of the paper. Rather, its instrumental in studying the transition between part-time and full-
time entrepreneurship. Learning is modeled following the standard learning by doing and Bayesian update
procedures, where probabilities of choosing any particular action are updated as new information is
received (Jovanovic & Nyarko, 1996; Bullard, 1994; Jackson, Kalai & Smorodinsky, 1999).
THEORY OF PART-TIME ENTREPRENEURSHIP
A Brief Description of the Model
The model deals with selection into entrepreneurship. Entrepreneurial ability is random and differs
among individuals. Entry decision is made before ability is observed.
The distribution of ability is known to be one of two types. Potential entrepreneurs are trying to decide
on one of them, but no entrepreneur knows his own ability. All individuals hold prior beliefs as to which
is the true distribution and each individual, with a certain prior probability, regards himself as a random
draw from one of the population distributions of true entrepreneurial ability. The prior belief is then
updated as evidence comes in.
After spending a certain amount of time as a part-time entrepreneur, the individual makes a choice
between developing a successful business as a full-time entrepreneur and returning full-time to the outside
paid job. When the information on ability is not enough to make the choice, the entrepreneur will
continue as a part-timer for at least one more period.
If the entrepreneur has low true ability, it is likely that the evidence will be adverse and the
entrepreneur will decrease his time in business and withdraw soon. If the evidence is favorable, the
individual will increase the time spent in business and will soon move to full-time entrepreneurship.
Next, I include a short description of the method. I then present the model and define the
entrepreneur's optimization problem. Toward the end of the paper I compare the implications of the
model to the empirical evidence.
Sequential Analysis
Suppose that a decision maker must sequentially and at each period either accept on the basis of
previous observations a certain hypothesis as being true and cease observation, or he must delay his
decision for at least one period and obtain, at a certain cost, one more observation. The idea behind the
sequential testing
2
is that the observations are collected one at a time; when observation X
i
= x
i
has been
made, the choice is among the following three options: accept the hypothesis and stop observation; reject
the hypothesis and stop observation; or defer decision until the collection of another piece of information
as X
i+1
. The decision maker has to find out when to choose which of the above options.
The Sequential Probability Ratio Test
Consider a simple hypothesis H
0
:
0
against the alternative H
1
:
1
. The two types oI error are
= Pr {Deciding for H
1
when H
0
is true} and Pr Deciding Ior H
0
when H
1
is true}. H
1
and H
0
are
treated symmetrically. The standard Likelihood Ratio Test (LRT) has critical region oI the Iorm
T
=
(X
1
, ...,Xt) =
Wald's Sequential Probability Ratio Test (SPRT)
If > B, decide that is true and stop;
If < A, decide that is true and stop;
If A < < B, collect another observation to obtain .
The SPRT does not use a predetermined number of observations, but instead determines after each
observation if another observation is needed or if the information currently available is sufficient to
accept a hypothesis so that the test has the prescribed strength. A statistical procedure that takes
observations into account as they are made is called a sequential procedure. The SPRT is optimal in the
sense that it minimizes the average number of periods before a decision is made among all sequential tests
which do not have larger error probabilities than the SPRT. The boundaries A and B can be calculated
with very good approximation as A = , B = , where and are parameters.
The Model
Individuals differ in their entrepreneurial talent . Among potential entrepreneurs is normally
distributed, such that an individual, who decides to become an entrepreneur, does not know his own .
But he knows that he is a random draw from either () or (), where () , and ()
= , , and he is trying to decide on one of them.
AIter observing , the entrepreneur may either stop and accept either or , or may continue at a
cost C with additional observations. If there are no more observations and a choice is made, then there
will be a zero cost if the choice is correct, and costs and with an incorrect choice of and
respectively.
3
Individuals also hold a prior probability p that the true distribution is , i.e., that they
belong to the group of entrepreneurs who will be able to transform their start-ups into successfully
operating businesses. I present first the finite time horizon case and then extend to infinite horizon.
FIGURE 1
OPTIMAL DECISION
Select Collect more observations Select
0 1
Let the conditional probability that the true density is be = P ( = ). The
conditional probability is generated recursively according to the system of equations on Figure 2.
FIGURE 2
RECURSIVE SYSTEM
=

, t = 0, 1, 2, T 1
=

(3)
p is the prior probability that the true distribution is
The optimal expected cost for the last period is shown on Figure 3.
FIGURE 3
OPTIMAL EXPECTED COST
)
(1 - is the expected cost for accepting and is the expected cost for accepting .
Using Figure 2, I can obtain the optimal cost for period .
FIGURE 4
OPTIMAL COST FOR PERIOD t
The expectation over is taken with respect to the probability distribution ) =
for every . Let = . Thus, at period T, the entrepreneur's
optimal choice, obtained from the optimization on Figure 3 would be to accept if _ and to accept
if < , where is determined from the relation . Equivalently . From
Figures 3 and 4 it follows that (0) = (1) = 0 and (p) _ (p) for every t = 0,1, ,T - 1 and every
p [0, 1] .
Lemma: The function A(p): [0,1] R is a concave function of p.
Proof of the Lemma is provided in Appendix. The lemma is very useful, since it can be applied to show
that there exist numbers and , with _ , such that when the conditional probability is , the
entrepreneur's optimal selection would be to stop observation and choose if _ , stop and choose
if _ , and continue otherwise. See Figure 1 above.
It follows from the above lemma that if then the optimal decision is
represented on Figure 5.
FIGURE 5
OPTIMAL DECISION
accept if _ ,
accept if _
continue observing if .
The scalars and are determined from the solution of the system:
(10)
(11)
Extension to Infinite Horizon
When the optimal decision is extended to an infinite horizon, the two scalars and satisfy the
following conditions represented on Figure 6.
FIGURE 6
CONDITIONS FOR THE SCALARS AND
...
...
If T the sequences { } and { } , j = 1, 2..., converge to scalars and , for every j. Thus,
the optimal decision is stationary: accept if _ , accept if _ and continue observing if <
< . (14). The conditional probability with infinite horizon is
and the optimal decision would be to
accept if _ = , accept if _ = , and continue observing if < < . is the
sequential probability ratio
Cost Determination
There are three types of costs to be determined. and are the costs with an incorrect choice of
and respectively, and C is the cost of additional observations. and are in fact opportunity costs
and can be determined as follows. If is the cost incurred when the entrepreneur makes an incorrect
choice of becoming a full-time entrepreneur instead of returning to the outside paid job, then the
opportunity cost will be equal to the forgone wage w. Alternatively, if is the cost incurred when the
entrepreneur makes an incorrect choice of returning to the outside paid job instead of becoming a full-
time entrepreneur, the opportunity cost will be equal to the forgone entrepreneurial income
, where k is the capital invested and r is the interest rate. Thus, = w and .
Thus, = was the optimal value that makes the entrepreneur indifferent
between the two options at period T with finite horizon. Also, it serves as a critical value, such that the
part-timer becomes a full-time entrepreneur when , and returns to his outside paid job if
respectively.
Taking into account the determination of and , the cost of additional observations will be equal
to . Finding the optimal boundary points at and is not trivial. However,
from Figures 5 and 6, one can see that and .
Model Implication
From the optimal decision in (16), we have that and Thus, the two boundary
points depend on the prior probability p that the true distribution is . It is easy to see that when the prior
probability p is higher, both and decrease. This means that the region of acceptance of increases,
the region of acceptance of decreases, while the region of observing might increase or decrease.
Individuals with a high prior probability p are those who are more certain and who have better
knowledge about their entrepreneurial ability. Thus, they are more likely to be in the group of the full-
time entrepreneurs. Individuals with a low prior probability are more likely to be in the group of those
who need more observations or those who have already returned to their outside paid jobs. Thus, the main
prediction of the model is that we have more part-time entrepreneurs in sectors where ability is unknown
ahead of time. I next compare this implication to empirical evidence from the PSED.
DATA: PANEL STUDY OF ENTREPRENEURIAL DYNAMICS
The empirical evidence is based on data from the Panel Study of Entrepreneurial Dynamics (PSED),
an extensive, nationally representative survey of the establishment of new businesses in US that provides
several innovations over previous data sets. First, the data was specifically created to follow both nascent
entrepreneurs and start-ups. Nascent entrepreneurs are selected based on three criteria: being involved in a
start-up for the past 12 months, expecting to be at least partial owners of the business, and functioning in
the gestation phase of the business. The third criterion determines whether the start-up has a positive
cash-flow that covers expenses and the owner-manager salaries for more than three months. Respondents
with a positive cash-flow for more than three months are excluded.
Second, start-ups are followed for a period of four years. In this way, we can observe the effect of
wealth and initial capital on the start-ups performance and the rate of entrepreneurial survival. Third,
every PSED wave includes observations that are made during a period of two to three consecutive years.
For example, the Wave 1 data collection starts in July 1998 and ends in 2000; some respondents are
interviewed in 1998, others in 1999, and a small portion is observed in 2000.
The PSED, designed to represent the entire population of entrepreneurs, consists of 830 nascent
entrepreneurs and 431 comparison group members. The sample is randomly selected after an 8-month
preliminary screening of 64,622 individuals at least 18 years old. Women, Blacks and Hispanics are over-
sampled. After the initial screening, two representative samples are identified. A sample of those
attempting to start new businesses is identified based on the criteria described above. A second
representative sample of typical adults, a control group, is constructed also. The next stage of data
collection is the completion of phone interviews and mail questionnaires by both groups. The last stage is
a 12 and 24 month follow-up phone interview and a mail questionnaire completed only by the
entrepreneurs. In this study, I use data from Wave 1, which is completed between 1998 and 2000. Wave 2
is the first follow-up completed 12 months after Wave 1. Wave 3 is the second follow-up after 24 months.
Four waves have currently been completed.
Nascent Entrepreneurs and Control Group
From the group of 830 nascent entrepreneurs I removed business sponsored start-ups and start-ups
having positive monthly cash flow for more than three months. Nascent entrepreneurs and those
participating in any form of a start-up activity during their first interview have been removed from the
control group.
Nascent entrepreneurs are divided in two groups: part-time entrepreneurs and full-time entrepreneurs.
Those who spend 35 hours a week or more in their business ventures are to be considered full-time
entrepreneurs. Thus, the final sample used in the study contains a total of 1049 individuals, 386 are from
the control group and 663, nascent entrepreneurs. Further, from the nascent entrepreneurs, 469 are part-
time entrepreneurs and 194 are full-time entrepreneurs.
To correct for differences in selection probabilities and insure that the estimated results are
representative of the entire U.S. population, I develop individual case weights for both nascent
entrepreneurs and the control group. I then adjust these weights to create a population representative
sample. For a discussion of transforming variables and weights to create a population representative
sample, see Gartner et al. (2004, pp. 529-536).
Summary statistics by group (control group, part-time entrepreneurs, and full-time entrepreneurs) of
the variables used in the study are presented in Table 1. The data is described in detail in Gartner et al.
(2004).
Descriptive Statistics
Nascent entrepreneurs are 6 percent of the combined sample (4 percent are part-time and 2 percent
full-time entrepreneurs). The average age for the control group is 46 years versus 38 and 39 years
respectively for the part and full-time entrepreneurs. Males are 45 percent of the control group and,
respectively, 62 and 68 percent of part and full-time entrepreneurs. The difference in age between the
control group and nascent entrepreneurs as a whole is 4 years and significant at the one percent level,
while the difference in gender representation is 19 percent and also significant at the one percent level.
Within nascent entrepreneurs, the difference between male and female representation is significant at the
ten percent level. The differences between the control group and nascent entrepreneurs in terms of racial
representation are statistically significant at the one percent level for blacks, at the five percent level for
whites, and at the ten percent level for Hispanics and others. No statistically significant differences have
been observed within nascent entrepreneurs. Six percent from the control group and seven percent from
both part and full-time entrepreneurs are foreign born. The education variable is constructed in terms of
levels of schooling completed. The average respondent from all three groups has some college exper-
ience. The differences in marital status between the control group and nascent entrepreneurs as a whole
are statistically significant at the five percent level.
The average number of years of work experience for the control group is 12.25 years versus 11 years
for nascent entrepreneurs. The difference of approximately 1.3 years is statistically significant at the ten
percent level. No difference in work experience has been observed between part and full-time
entrepreneurs. In terms of number of years of managerial experience, the difference between control
group and nascent entrepreneurs is not significant, while the difference between part-time and full-time
entrepreneurs is small, but statistically significant at the five percent level. The labor-force participation
variables show interesting, but not unexpected, results. While 54 percent of the respondents in the control
group hold full-time employment, this number is 51 percent for nascent entrepreneurs as a whole, with no
statistically significant difference. Further, the difference between the part-time and full-time entre-
preneurs is significant at the one percent level. There is no difference among the three groups in terms of
part-time employment. Unemployment is at a very low level for nascent entrepreneurs (2 percent) versus
12 percent for the control group. This difference is significant at the one percent level. At the same time,
retired entrepreneurs make up 9 percent of nascent entrepreneurs, while the corresponding number for the
control group is 17 percent and statistically, significantly higher at the one percent level.
It is possible that some respondents included the startup discussed in the nascent entrepreneur
interview when reporting information on being small business owners or self-employed. Gartner et al.
(2004, pp. 69-73) provide comparison of multiple work activity with and without the information on
current business owner. They conclude that when small business owner information is disregarded, there
is no difference between the control group and nascent entrepreneurs, and that 7 in 10 in both groups
report one or two distinct work roles. What this means is that nascent entrepreneurs are a busy group of
people, with other employment responsibilities and a start-up on the way. Based on the numbers
discussed above, this is particularly relevant for part-time entrepreneurs.
TABLE 1
DESCRIPTIVE STATISTICS:
PANEL STUDY OF ENTREPRENEURIAL DYNAMICS, WAVE 1 (1998-2000), N=1,049
Variable
Control group
N = 386
Part-time Entrepr
N = 469
Full-time Entrepr
N = 194
Mean St. Dev. Mean St. Dev. Mean St. Dev.
Groups 94% (0.24) 4% (0.2) 2% (0.13)
Age 45.80 (13.95) 38.36 (11.20) 39.07 (11.18)
Male 45% (0.49) 62% (0.48) 68% (0.47)
Race
White 75% (0.43) 69% (0.46) 69% (0.46)
Black 10% (0.30) 16% (0.39) 15% (0.36)
Hispanic 6% (0.24) 8% (0.27) 11% (0.32)
Other 8% (0.70) 5% (0.21) 4% (0.19)
Foreign born 6% (0.24) 7% (0.25) 7% (0.26)
Either parent foreign born 15% (0.36) 14% (0.35) 14% (0.35)
Education
Less than high school 5% (0.22) 3% (0.16) 2% (0.15)
High School 24% (0.43) 21% (0.40) 27% (0.44)
Some college 37% (0.48) 39% (0.49) 34% (0.48)
College or more 33% (0.47) 37% (0.48) 37% (0.48)
Marital Status
Married 60% (0.49) 68% (0.47) 66% (0.47)
Experience
Years of work exp 12.25 (9.40) 11.01 (8.54) 10.87 (8.74)
Years of managerial exp 8.21 (8.80) 7.51 (7.87) 9.18 (8.88)
Labor-force participation
Full-time wage employment 54% (0.49) 62% (0.48) 25% (0.44)
Part-time wage employment 16% (0.37) 19% (0.39) 17% (0.38)
Unemployed 12% (0.33) 2% (0.14) 1% (0.10)
Retired 17% (0.38) 8% (0.27) 10% (0.31)
Industry
Agriculture, forestry, fishery 3% (0.17) 6%* (0.25)
Construction 5% (0.21) 12%** (0.32)
Manufacturing,
communication, utilities,
8% (0.26) 5% (0.22)
Transportation 1% (0.09) 3%* (0.18)
Wholesale 3% (0.16) 3% (0.17)
Retail 3% (0.16) 3% (0.17)
Business services 29% (0.46) 22%* (0.42)
Consumer services 17% (0.38) 19% (0.39)
Health, education, medical,
government services
8% (0.27) 6% (0.25)
* Difference between part-time and full-time entrepreneurs significant at 5%.
** Difference significant at 1%.
Where are the Part-Timers?
The economic sector of the start-ups in the PSED is very similar to the existing US business with
employees. Gartner et al. (2004, p. 248) compare the 1997-1999 PSED sample with the US business
population. They use two sources of business description by sector: the population of all firms (5.5 mil. in
1998) with employees developed by the Census Bureau of the Department of Commerce; and the annual
counts of business tax returns assembled by the Internal Revenue Service. Gartner et al. (2004) show that
there is a correlation between the three sources and that in most cases the sector percentage falls in the
range between the employee firms and the tax return data. This result seems to be appropriate since the
PSED covers mainly sole proprietorships and firms that will hire employees in the future. The differences
in sector orientation between full and part-time entrepreneurs are statistically significant at the five
percent level in agriculture, forestry, and fishing; transportation and business services; and at the one
percent level in construction. There are relatively less part-time than full-time entrepreneurs in agri-
culture, construction and transportation, while the opposite holds for business services. This result
supports the prediction of my theoretical model. Agriculture, construction and transportation are sectors
where returns need a shorter period of evaluation and where individuals' expectations on ability are
updated at a faster pace. Further, the abilities necessary to run a successful business in these three sectors
are easier to recognize ahead of time. Within the sector of business services 20% only are full-time
entrepreneurs. Figure 7 where the start-ups are plotted across 9 sectors also provides a confirmation of the
above discussion.
FIGURE 7
Source: PSED
CONCLUDING REMARKS
In this paper, I study why people become part-time entrepreneurs. While earlier empirical
investigations classify individuals as either self-employed or wage workers, I take into account the new
evidence presented in a recent survey on the establishment of new businesses, the Panel Study of
Entrepreneurial Dynamics, which reports that 50 percent of the entrepreneurs have full-time and 20
percent have part-time work outside the start-up.
To explain part-time entrepreneurship, I develop a model in which individuals become part-time
entrepreneurs because they do not know their entrepreneurial ability ahead of time. Initially, they would
prefer to spend only a fraction of time in entrepreneurship without the risk of starving if their ability turns
0%
5%
10%
15%
20%
25%
30%
35%
Part-time Entrepr. Full-time Entrepr.
out to be low. Based on their expectations, entrepreneurs choose how much time to spend in business and
how much capital to invest. After spending a certain amount of time as a part-time entrepreneur, the
individual has to make a choice between developing a successful business as a full-time entrepreneur and
returning full-time to the outside paid job. When the information on ability is not enough to make the
choice, the entrepreneur will continue as a part-timer for at least one more period. If the entrepreneur has
low true ability, it is likely that the evidence will be adverse and the entrepreneur will decrease his time in
business and withdraw soon. If the evidence is favorable, the individual will increase the time spent in
business and will soon move to full-time entrepreneurship. The model gives rise to industry selection,
predicting that more part-time entrepreneurs would be observed in sectors where ability is unknown ahead
of time. I also compare the model implications with the empirical evidence using the PSED. The number
of part-time entrepreneurs in the PSED is disproportionately high in sectors such as business services.
The opposite holds for agriculture, construction and transportation.
It is possible, however, that other factors, such as barriers to entry, may affect the way part-time
entrepreneurs are distributed across sectors. While barriers to entry are external or exogenous factors,
ability, taken in the very wide meaning of the word, is an endogenous characteristic. It is also likely that
industry selections results from both factors. These are some questions that deserve future investigation.
This paper, then, offers a general framework for an analysis of an overlooked, but important part of the
economy. It needs to be viewed along the lines of providing some general directions for studying part-
time entrepreneurship, rather than an extensive theory.
ENDNOTES
1. Other studies include Kihlsrtom & Laffont (1979), Evans & Leighton (1989), Baumol (1990),
Shiller & Crewson (1997), Blanchflower & Oswald (1998), Le (1999), and more recently Hurst
& Lusardi (2004) & Newman (2007).
2. The most influential works on Sequential Analysis are Wald (1947), Siegmund (1985), and
Ghosh et al. (1991).
3. The problem defined above is a sequential optimization with imperfect state information
involving a two-stage Markov chain.
APPENDIX
Proof of Lemma:
To prove that (p) is a concave function, it is sufficient to show that concavity of implies
concavity of (p). We can assume without loss of generality that , where
(23) is a concave function over [0, 1]. (p) can be rewritten in the form of:
(p) = . It is sufficient to show that concavity
implies concavity of every element of the sum, or (p) =
. Or, that for every [0,1] and
. Let and
. Thus, the above inequality can be rewritten as:
. The latter
follows from the continuity of .
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Convergence, Divergence or Middle of the Path: HRM Model for Oman
Sami A. Khan
Sultan Qaboos University, Oman
The role of human resource management function is at the crossroad, and on the one hand it is facing the
crisis whereas there also exists an unprecedented opportunity to redefine and refocus the HRM function
to leverage its credibility in organization. In Oman, HRM is in its infancy and there is a need to
strengthen its discourse and learning. The present paper attempts to understand the dynamics of HRM in
Oman and evaluates various HRM models which have evolved over a period of time. It is difficult to
prescribe a HRM model without analyzing the regional and socio-contextual factors inherent in Oman
and neither convergence nor pure divergence provides a solution to this end.
INTRODUCTION
We are living in a highly dynamic and chaotic world of business today where organizations have to be
an effective customer responsive organization. They have to gear up for becoming an effective global
competitor. In GCC countries and especially in Oman, firms have no choices left as well. They are facing
the onslaught of globalization, and the recent economic recession has further worsened the situation. They
have to be flexible and re-look at their HRM system and restructure its hard-defined procedures. It still
remains a challenge for majority of Omani companies to adopt these changes. It is widely accepted now
that HRM can act as a key means to achieve a competitive advantage in Omani firms. Though, some of
the Omani firms have shown keen interest in recent past to be a responsive organization in this regard.
But they dont know which way to go. Either to adopt the western HRM model as being presented to
them or to explore or recreate something indigenous seeing their distinct work realities.
If we look at the evolving paradigm of HRM, it becomes difficult to identify which model or
framework of HRM will be more relevant for Oman. There have been numerous model of HRM which
can help Omani firm in achieving organizational effectiveness but there is lack of information about their
utility and applicability which poses a great question for Omani firms. In many cases, these hypothetical
models have been found not fully relevant for Middle East countries or GCC countries and Oman in
particular. Culture-free or culture-bound is the other issue which is raised by researchers alike. In fact,
there is an absence of a systematic analysis that could present a comprehensive picture of the dynamics of
the HRM in the Middle-East region (Budhwar and Mellahi, 2006). In this background, the present paper
is an attempt to understand the dynamics of HRM in Oman. It will evaluate various HRM models and will
attempt to raise a debate on developing a HRM system which can suit to the exigencies of Omani society.
HUMAN RESOURCE MANAGEMENT AT FIRM LEVEL: EVOLVING PARADIGMS
Nothing has moved as fast as in the last twenty five years for the discipline of human resource
management. It has come a long way from a reactive, bureaucratic people management function (being
called as personnel management) to a proactive and strategic human resource management. The shift in
the paradigm has been forced by economic, business and socio-political factors but the changed stance is
a reality and firms worldwide are looking at HR function as becoming important and expecting more
value addition to the strategic objectives of the firm. The role of human resource management function is
at a crossroad, on the one hand it is facing the crisis whereas there is an unprecedented opportunity to
refocus its HRM systems as strategic assets (Becker et al., 1997). Khatri and Budhwar (2002) also feels
that the field of HRM is in transition and it is breaking away from its micro-focused role to a macro
strategic paradigm in which individual HR functions are not only aligned with the organization strategy
but also with one another (see Budhwar, 2000; Lundy, 1994; Martell and Carroll, 1995; Ritson, 1999 as
quoted by Khatri and Budhwar, 2002). There have been numerous model of HRM which has evolved in
last 25 years or so and they have contributed significantly to the discipline of HRM. In the following
paragraphs, some of them are analyzed and a comment has been made on their applicability for this part
of world.
Starting from Michigan model (Fombrun, Tichy and Devanna, 1984) to Harvard model (Beer et al.,
1985) to contextual model (Hendry and Pettigrew, 1992; Hendry et al., 1988) to Schulers 5-P model
(Schuler, 1992) of strategic HRM where he emphasizes on philosophies, policies, programmes, practices
and processes, the HRM literature has evolved to a great extent. The Michigan model looks at human
resource as a resource and advocates for its efficient utilization to meet organizational objectives and this
model is based heavily on Chandlers (1962) argument that an organizations structure is an outcome of
its strategy (Budhwar and Debrah, 2001) and structure is designed to serve the strategy. This model
ignores the humanistic feeling or anchor point while dealing with human resource and they are seen just
as a cog in the machine, that is the reason, it is referred as a hard approach to HRM. The organizational
effectiveness in this model depends on achieving tight fit between HR and business strategies and it is
pursued by adopting four key HRM systems such as selection, appraisal, compensation and development
system of the firms.
There have been many criticism of this hard approach calling it prescriptive and strongly unitarist
(Boxall, 1992) and many feels that the very idea of tight fit makes the organization less flexible and
moribund for a change and hence unfitted for the present day business scenario (Budhwar and Debrah,
2001). In the context of Oman, this model has less relevance as we cant have a hard defined strategic
recruitment and HR system and government plays very important role in this area. The reliance of Omani
firms on expatriate workforce has forced government to undertake Omanization programs i.e., employing
and training Omani locals; and Omani firms have to employ certain percentage of Omani locals and if
they fail to do so they can be penalized.
The Harvard model (Beer et al., 1985) which is also referred as softer model of HRM (See Legge,
1995; Storey, 1992) focuses on human relation (Mabey and Salaman, 1997; see also Blyton and Turnbull,
1992) and tends to adopt a particular approach to work place relations: emphasizing unitary, integrative,
individualistic systems, undermining workforce organization or collectivist values as outcomes of
management choices about the key HRM levers affecting workforce-organization relations. This helps in
creating employee commitment in organization and lead to better realization of goals. As far as its
relevance to Oman or GCC countries is concerned, it seems to be limited in its utility due to heavy
reliance of GCC or Omani firms on expatriate workforce. Most of the expatriate workers have a short
term employment contract of a year or two and this short-termist approach and lack of employment
security makes it hard for organization to generate the degree of employee commitment they require. Al-
Rajhi et al. (2006) in their study of Saudi Arabian HR system also feels that HR has an important role to
play in facilitating the successful cultural and work adjustment of these guest workers to enhance their
productivity and well being.
Mabey and Salaman (1997) quote Hendry and Pettigrew (1986) who argue that the strategic aspect of
HRM consists of four key elements:
x the use of planning;
x a coherent approach to the design and management of personnel systems based on an
employment policy and manpower strategy, and often underpinned by a philosophy;
x matching HRM activities and policies to some explicit strategy; and
x seeing the people of the organization as a strategic resource for achieving competitive
advantage.
Taking a cue from Hendry and Pettigrew, Schuler developed his 5-P model which talks of strategic
integration of business and HR strategy. In recent time, HRM has been labeled as strategic human
resource management and it seems to be concerned with integration and adaptation of business
strategies and HR strategies. Schuler (1992) prescribes that: HRM should be fully integrated with the
strategy and strategic needs of the firm; HR policies must be coherent; and HR practices are required to
be adjusted, accepted and used by the managers and employees as part of their everyday work (Budhwar
and Debrah, 2001). This model seems to be highly hypothetical (Budhwar and Debrah, 2001) and it looks
to have less attraction for Omani firms. HRM in Omani firms is in nascent stage and there is lack of
participation of HR specialist on the board of the firms, they are hardly involved in strategic decision
making process and in this scenario, it makes difficult for them to adopt coherent and strategic HR
intervention and serving the strategic needs of the firms. Though 5-Ps (philosophies, policies, pro-
grammes, practices and processes) will remain relevant as an ideal to achieve in long term for Omani
firms.
In recent time, High Performance Work System has made much currency among HR practitioners and
researchers alike and there has been wide debate on its utility across region and culture. Becker, Huselid
and Ulrich (2001) in their wide acclaimed book, The HR Scorecard present a framework for creating
High-Performance Work System and prescribe that a firm must have the following characteristics among
others: use of formal performance appraisal and management, use of multiscore performance appraisal
and feedback, use of validated selection and promotion models and procedures, extensive training and
development of new employees, linkages of merit increases to formal appraisal system, high differential
in pay between high and low performers, and high percentage of jobs filled within. Though, this model
appears having wide appeal and seems applicable to most firms but if we look at the prerequisites of
creating such a system, it appears to be near to impossible in this part of world. Thus we see most of the
models have their inherent limitation which are difficult to replicate in GCC countries. Omanization itself
limits all of HPWSs vitality prescribed by its authors. The other important point is that the region or
country-specific phenomenon remains important to be seen in this regard while generalizing the utility of
a particular HRM model at a firm level. Any model which looks into regional, cultural and socio-
economic factors will be more appropriate. In the present global scenario, there is a need for
understanding region or country-specific phenomena that would help to generate theory for global
relevant issue. It will also help to evaluate region-specific constructs to study local and global issues
(Budhwar and Mellahi, 2006).
CONVERGENCE OR DIVERGENCE OR MIDDLE OF THE PATH
Despite all attractiveness of the emerging paradigm of HRM, certain questions need to be answered.
Researchers have made great attempt in examining the applicability of some of the theoretical models of
HRM but very little research or probing exists for this part of world. Researchers have questioned the
universal applicability of the Anglo-Saxon model. This has generated a dilemma before the firms in this
region in dealing with the change in their respective HR process. Either they should adopt the best-fit
(contingency model) or the best practices approach (see also Boxall & Purcell, 2000). The best practices
approach is based on the normative statements of what HR practices should look like together with the
proposition that the adoption of these practices will lead universally to organizational success. This
approach is highly influenced by American researchers and commentators whereas the best fit model
advocates external and internal integration of HR strategy with the overall business strategy (Doherty,
Klenert and Manfredi, 2007). These approaches need to be evaluated in socio-cultural context for serving
the objective of the realization of organizational goals in Omani firms.
Best fit vs. best practices debate further gets reinforced with the convergence-divergence debate. The
proponents of convergence approach (e.g., Kerr et al., 1960; Eisenstadt, 1973; Levitt, 1983; Prentice
1990) state that the international competitive pressure overrides differences in a national management
system and lead to a convergence management practices towards the most successful model whereas the
scholars of the divergence approach (e.g., Laurent, 1983; Whitley, 2000; Hickson and Pugh, 2001;
Hofstede, 2001) stress on the management practices strongly influenced by the national-economic context
(Pudelko, 2006). Thus the field of HRM is witnessing a two bipolar paradigms i.e., universalistic/
convergence and the contextual /divergence paradigm.
The applicability of an HRM model for GCC countries and Oman in particular is an issue which needs
to be reevaluated. Most of the oil-based economies of GCC have their contextual factors which are
sharply different from the US and Western developed countries. Pudelko (2006) made a comparison of
HRM systems in the USA, Japan and Germany and found that the socio-economic contextual factors of
the American and Japanese HR systems are in many ways at opposite ends with the German factors in
between and he warns against any over-optimism with regard to fully standardize managerial practices
across countries. He is of the view that the profound embededness of HR practices in their respective
socio-economic contexts appear to limit the margin for MNCs to comprehensively standardize their HR
practices and the immense cultural and institutional complexity of various countries seems to work as a
counterweight to pressures for convergence. Smith and Meiksins (1995: 128) also observe that US,
Germany and Japan are most frequently referred as models but their perceived strength is distributed
quite unequally: the American model has to be described as dominant (Dore, 2000) whereas the Japanese
model is defensive and subject to profound modifications (Frenkel, 1994) and the German model appears
to be in a process of change albeit a more moderate one (Pudelko, 2004 as quoted by Pudelko, 2006).
In this context, it will be worthwhile to raise a question about the development of a national HRM
model or system which can serve the Omani firms in more proactive ways. As it is difficult to prescribe a
HRM model without analyzing the regional and socio-contextual factors inherent in Oman. In fact,
neither convergence nor pure divergence provides a solution to this end. As we have seen in the previous
study of Pudelko (2006) that mere imitation of HR practices is near to impossible to be successful in a
given country but he found that German system and more particularly the Japanese systems have moved
somewhat more towards the American side of the bipolar scale. In the end, Pudelko(2006) advocates a
middle of the path approach calling it a universalism-particularism approach, one which seeks to integrate
both opposite streams rather than trying to overcome the contradiction between the two lines of thoughts
and declaring one more valid than the other.
Sparrow, Schuler and Jackson (1994) in their study of HR systems of 12 countries evaluated the HR
practices and policies for competitive advantage. They tried to find out that what must be done to gain
competitive advantage and do firms in different parts of the globe practice human resource management
for competitive advantage differently? Their investigation concludes that there is indeed a convergence in
the use of HRM for competitive advantage, however, in pursuing this convergence there are some clear
divergences, nuances and specific themes in the areas of HRM that must be handled carefully. HRD is
another area which also needs a mention here though it has been used interchangeably with HRM.
Woodall (2005) writing the editorial, "theoretical framework for comparing HRD in an international
context" for the journal, Human Resource Development International opines that a lot of articles have
been written which explore, describe and analyse HRD practices in different cultural contexts but now the
HRD scholarship is confronting cross-cultural analysis problem which has been faced by earlier social
science and management discipline and we have to make a choice, either we take well established
theories developed and tested mainly in USA and then apply it for analyzing the empirical evidence
gathered from other countries or we should start afresh in that setting, grounding our process of
theorization in specific cultural context. Though, the latter approach or choice seems to be more
meaningful as it can serve the HR constituency in GCC countries in a better way nonetheless, knowledge
base gained elsewhere can also be utilized in any setting provided it doesn't change the desired objective
of the course of the action and makes fruitful contribution.
HRM MODEL AT NATIONAL LEVEL FOR OMAN
Oman is one of the GCC countries (Saudi Arabia, UAE, Kuwait, Bahrain, Qatar and Oman) with a
population of 2.416 million (Ministry of National Economy, 2005). It is the third largest country in
Arabia with a total land area of 309,500 sq. kilometers. bordering Yemen, Saudi Arabia and the United
Arab Emirates lying on the southeast corner of the Arabian Peninsula. The commercial export of oil
began in 1967 in Oman. Since then, oil has been the major contributor to the GDP. The fourth five year
plan (1991-1995) for the first time emphasized the need to diversify the production base other than oil and
Government paid special attention to the sectoral and regional development process in Oman (Ministry of
Information, 2002). Omani firms depend heavily on the expatriate workforce and they comprise 54
percent of the total workforce. GCC countries expatriate workforce exceeds 10 million and constitutes up
to 70 percent of the GCC labor force. It accounts for 88 percent in UAE, 83 percent in Qatar, 81 percent
in Kuwait, 72 percent in Saudi Arabia and 55 percent in Bahrain (Oman Economic Review, March 2006).
GCC countries have taken many steps to strategically cut down its reliance on expatriate workers and
Oman has also adopted Omanization policy (employing Omani nationals onlywhere certain percentage
of employment has to be attained by firms by certain date, which is different from sector to sector) has
become an important issue and many firms believe that it limits their ability to compete and impacts the
value chain of their competitive advantage.
There is no denying to the fact that the socio-contextual factors play very important role in Middle
East, GCC countries in general and Oman in particular. Abed (2003) identifies five main root causes
holding back the economic growth of the Middle East which are: lagging political reforms, dominant
public sectors, underdeveloped financial markets, high trade restrictiveness and inappropriate exchange
rate. Some other factors are: lack of integration into global economy (Looney, 2003), the rising rate of
unemployment, closed economy, over dependence on the oil and lack of privatization initiatives
(Budhwar and Mellahi, 2006). Furthermore, the legal framework, political uncertainties and the weakness
of entrepreneurial cultures make this region more vulnerable (See Talib 1996; Abed, 2003). Though,
some countries have pushed privatization program intensively in recent time and Oman is one of them.
Oman signed FTA with US in the year 2006 and amended its labour laws in line with the international
demand. These are modest beginning in the context of Oman.
Many researcher have argued that the development of management theories and organization for the
Arab region should pay due attention to the Arab environment. Ali (1995) also feels that management
theories in this region can only be developed by giving due importance to the Arab environment. Anwar
(2003) found the stark differences in American and Arabian culture and find that how US companies have
adopted their management styles and philosophy to suit the cultural demand of UAE. In another study
(Saleh and Kleiner, 2005), it was found that to be successful in the Middle East region, American
companies must develop an understanding of the culture, people and politics of this part of the world. A
number of scholars identify the immense impact of Islamic values, Islamic work ethics, and Islamic
principles on the management of human resource in Islamic countries (Budhwar and Mellahi, 2006) and
Oman is one such country whereupon such factors play important role in shaping HRM system and other
related institutions which determine the HR. Al-Hamadi and Budhwar (2006) also endorse such view and
comment that in an Islamic country like Oman, when the government decides to design HRM policies, it
has to consider the effects of religion primarily besides other factors such as culture, political ideology,
economic conditions and the legal system.
There is a need for developing HRM framework to comprehend the dynamics of people management
function at the national level. It is also important to look at cross-national and cross-cultural differences in
terms of acquisition, utilization, retaining and development of the workforce. Any national HRM system
evolves primarily from the industrialization process and the necessary insight can be gained by
understanding the unique organizational criteria derived from national business systems and the resultant
HRM policies and preferences (Sparrow and Budhwar, 1997). There are four frames of reference which
shed light on the distinctive national and local HRM solutions and the factors associated with it. These
are:
i. Evolution of the business system and the structure of labour markets;
ii. The institutional influence on the employment relationship;
iii. The competence and role of HRM decision makers; and
iv. The influence of national culture on policy preferences (Sparrow and Hiltrop, 1997 as quoted by
Sparrow and Budhwar, 1997).
After critically analyzing several frameworks and undertaking extensive research work in the field,
Budhwar et al. (see Budhwar 2004, Budhwar and Debrah 2001, 2004, Budhwar and Sparrow, 1998,
2002) propose a framework for examining cross-national HRM (Budhwar and Mellahi, 2006). They have
identified three levels of factors and variables that are known to influence HRM policies and practices.
These are:
i. National factors (involving national culture, national institutions, business sectors and
dynamic business environment);
ii. Contingent variables (such as age, size, nature, ownership, life cycle stages of organization );
and
iii. Organizational strategies and policies related to primary functions and internal labour market.
TABLE 1
ASPECTS OF NATIONAL FACTORS DETERMINING CROSS-NATIONAL HRM
I-National Culture
Socialization process, common values, norms of behavior, customs, influence of pressure groups,
assumptions that shape managers perceptions, insights and mindsets, management style, meaning of
work and values, personal dispositions, attitudes and manners, approaches to cultural diversity, match to
the organization culture.
II-Institutions
National labour laws, trade unions, politics, educational and vocational training set-up, labour market,
professional bodies, international institutions, industry by itself, employers federation, consulting
organizations, placement organizations, trade bodies, government institutions, local authorities, voluntary
bodies.
III-Industrial Sector
Common strategies, business logic and goals, regulations and standards, sector-specific knowledge,
informal and formal benchmarking, cross-sector co-operation, common developments in business
operations, labour or skill requirements, merger activity, workforce mobility, capital mobility.
IV-Dynamic Business Environment
Competition, business alliances, changing composition of workforce, restructuring, focus on total
customer satisfaction, facility of information, technological change, globalization of business.
Source: Budhwar (2004: 8).
Furthermore, Budhwar and Sparrow (2002) provide details of the aspects of national factors which
determine cross-national human resource management which are listed in the Table-1. All these national
factors form macro-environment of organization in a national context and play important role in shaping
national level HRM system.
Therefore, it can be argued that a national HRM system for Oman must take into account the culture
specific factors. Other stakeholders and institutions also play important role in shaping HR discourse and
learning. As cited above, specific industrial sector issues are also pertinent and above all the business
environment and its dynamics like degree of competition, composition of workforce, restructuring and
downsizing of workforce, demands of customers, technological change and globalization of business are
other important issues which impinge dominantly on HRM system. In Omani business context,
Omanization policies of the government, heavy reliance on the expatriate workforce, lack of training and
vocational institutions, absence of skilled workforce, absence of trained and competent HR professionals
in local labour market, prevalent collectivist work environment, in-group collectivism and sheikhocracy,
prevalence of Wasta in selection and promotion systems, adherence to labor and commercial laws besides
other factors are important and play crucial role in shaping HRM system at national level.
Oman is an oil-based economy and to encourage the process of Omanization in oil and gas industry,
Oman Society for Petroleum Services (OPAL) was created in October 2001 by a Ministerial Decree.
OPAL adopted a mindset change strategy in their second HRD Workshop which was attended by 60 HR
professionals in March 2006. OPAL feels that the perceived mindset in employment environment needs
to be changed as current attitudes of some companies are that:
x They Omanise because of the Government pressure and in order to meet the minimum target to
obtain labor clearance rather than as a good employment policy.
x They adopt salary structure to a minimum statutory one and it doesnt match the competencies of
the individuals. Moreover, they dont look for retaining local skills or encouraging their self
development.
x They consider the local human resources as a financial liability and not as a valid asset that could
increase their profitability. Therefore, investment in their training and development becomes the
sole responsibility of the government and not the employers.
x Appropriate budget for the development of nationals is rarely set aside and investment in people
is rarely reflects in companies vision (Khan, 2007).
Al-Hamadi and Budhwar (2006) in their study find that the triangle of Islam, tribe and family plays a
very important role in almost everything in Oman including HRM. They are of the view that Islam is at
the top of the triangle in Oman with its effects on all aspects of life whereas the tribe and family form the
base of triangle and the second-most influential institutions in Oman after Islam though Islam prohibits
tribal prejudices. In their survey of 712 employees employed in six semi-private and public sector
organizations examining the perception of employees regarding the influence of aspects of national
culture and institutional factors on HRM policies and practices, they found that Omani employees give
high priority to the importance of religion and the socialization process. The influence of the expatriate
workforce, management style unique to Omani work environment, organizational culture, and the
influence of the social elite (i.e., people educated abroad) are other important factors. They also found that
Omani employees give high priority to Civil service laws, educational and vocational training set-up,
Omani labour laws, labor market and Omanization programs besides local administrative establishment
such as Ministry of legal affairs, Court of legal administration, and the Court of the Royal Diwan. These
are the institutions which have direct impact on HRM system in Oman.
It can be summarized that in time to come the industrial relation and labour union may have a fair
amount of impact on HRM in Oman. Though, it is not significant (Al-Hamadi and Budhwar, 2006) at
present but the beginning has been done. The radical change in the Omani industrial relation history in
regard to the formation of trade union came on July 9, 2006 when a Royal Decree as a response to the
commitment to the US-Oman FTA came into force. This decree cancels or supersedes all earlier
provisions of the labor law that contravene or contradict its provisions. The recent changes in the labor
law undertaken in Oman in response to the US-Oman FTA will have long lasting impact on the Omani
labor scene and consequent employment relationship in Oman in time to come. Though, it is difficult to
predict that making such provisions will result into the emergence of the strong trade union movement in
Oman. Cultural factors, encouragement by the government, institutional support, appetite among em-
ployees to protect and promote their employment interests and rights and presence of the strong union
leadership will be the most important factors in this regard. But the recent changes in labor law will surely
strengthen and protect workers interest and they will find an avenue to raise their voice in case of an
eventuality. This may pave the way for the realization of industrial democracy in Oman at workplace
(Khan, 2007).
CONCLUSION
This is an important fact that the HR function has attracted the attention of corporate managers,
consultants and researchers alike in GCC countries and in Oman as well. HRM is in nascent stage in
Oman and the lack of HR knowledge and competency to understand the socio-contextual factors have
generated a dilemma before the firms in Oman in dealing with the change in their respective HR process.
The emergence of various approaches and models has further confused the HR constituency in dealing
with emerging business challenges. Soft or a hard model, contextual model or culture bound HRM model,
best fit or best practices HR model, convergence or divergence model, which one of them is suitable for
Omani context is the moot question being raised by HR practitioners, academicians and researchers.
Convergence approach labeled as the best practices approach is based on the normative statements of
what HR practices should look like and it is highly influenced by American researchers and
commentators whereas the divergence approach advocates that the HRM model must be embedded with
culture-specific elements. It can be concluded that neither convergence nor divergence model can serve
the purpose of HRM constituency which is so diverse and global at the same time. There is a need to
adopt a middle of the path approach which can integrate the qualities of both approaches which are
pertinent and solve the socio-contextual issues and integrate both opposite streams rather than trying to
ascertain one more valid than the other. This approach will surely help in taking into account the regional
ambiguity and developing a HRM framework which can be pertinent for Omani firms as well.
As evident from the previous discussion, understanding the national HRM system and its constituents
at macro level will surely provide the HR professionals and line managers, the requisite knowledge to
deal with the exigencies of people management. As each countrys business, economic and socio-political
forces shape its national HRM context which is distinct from other, and in case of Oman, we can conclude
that there exists a distinct HRM system. Mellahi and Budhwar (2006) also feel that there is no such thing
as a Middle Eastern HRM model in this part of the world and they opine that the current forces shaping
HRM in this region will lead to more divergence than convergence between and within these countries in
the foreseeable future. Thus it can be concluded that there is need for more research for understanding the
dynamics of a distinct Omani HRM model and the learning gained will surely contribute to enrich the
people management function and its role in achieving organizational performance and excellence in
Oman.
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Organizational Behavior: A Study on Managers, Employees, and Teams
Belal A. Kaifi
Saint Marys College of California
Selaiman A. Noori
Carrington College California
In recent decades, there has been a tremendous shift in the structure and operation of organizations.
Advancements in technology and skill diversity have fostered a modern workplace of skill and workflow
interdependencies. Hence, for success in todays business world, it is imperative for organizations to
understand the forces that impact team outcomes. This study on 100 managers from the same organ-
ization shows that female managers have higher communication skills when compared to male managers,
but are also more influenced by group think. A total of 200 employees from this organization were also
studied and the results show that female employees contribute to team outcomes more than male
employees. Implications for researchers, managers, and human resource professionals are considered.
INTRODUCTION TO TEAMS
In our modern world, teams are essential to everything individuals do in daily life. For many, their first
exposure to the notion of teams began early on during participation in various youth sports. While playing
a position on a team, whether on the soccer pitch or baseball diamond, young athletes are exposed to the
timeless adage: There is no I in team. Taking a quick look at the four letters that comprise this word
and one can conclude that, indeed the letter I does not make an appearance. Approach this saying from a
figurative perspective, and an entire world of interpretation is made possible. For instance, coaches will
often teach their players that everyone on the team has a specific job to perform, and that every job is
equal in its importance to overall team success. Through this lens, team work is seen as a tale of people
with different skills coming together with a common purpose. Extending this concept to the context of the
modern business world, we can note that there has been rapid organizational movement from a collection
of individual jobs to work groups and teams in response to emergent multilevel systems.
The last two decades have experienced rapid advancements in technology and an unfolding of global
forces that have pushed organizations worldwide to restructure work around teams to enable more rapid,
flexible, and adaptive responses to the unexpected (Kozlowski & Ilgen, 2006, p. 77). A number of forces
are accelerating the shift in work structure. An increasingly stressful and emotionally taxing environment
characterized by high competition, constant transformation, innovations in technology and best practices,
and looming uncertainty generates many pressures for skill diversity, rapid response, and successful
adaptation (Kaifi & Noori, 2010; Kozlowski & Ilgen, 2006). Teams offer the most effective approach to
resolving the organizational challenges of the 21
st
century.
LITERATURE REVIEW
Organizational behavior (OB) is a field of study devoted to recognizing, explaining, and eventually
developing the attitudes and behaviors of people (individual and group) within organizations.
Organizational behavior is based on scientific knowledge and applied practice. According to Kaifi (2010),
the RED Analysis can be applied by practitioners and researchers for understanding organizational
behavior issues:
R- Recognize
E- Explain
D- Develop
Diagnosing organizational behavior is an ongoing cycle of recognizing areas of concerns, explaining
the short-term and long-term implications of each behavior, and continuously developing best practices
and strategies that can help an organization transform into a robust, high-performing, and dynamic entity.
It must be mentioned that organizations need strong managers who are capable of controlling the
organizations behavior. Managers who understand human resource management and strategic manage-
ment are able to influence specific behaviors that help shape the culture of an organization. Influencing
specific behaviors in an organization can be a difficult task to undertake for a number of reasons. The
most obvious reason is that humans are unpredictable and have unique attitudes and perspectives. When
they enter the workforce, they also bring their expectations and experiences to the workforce which many
not correlate with the organizations mission. This creates an instant dilemma that can be contagious to
others. Controlling such organizational ills is a battle with no end, which accurately explains why the
study of organizational behavior is so important. Being able to diagnose those issues and responding with
well-formulated solutions is what many organizational behavior researchers and managers strive for. The
three primary outcomes of organizational behavior are job performance, organizational commitment, and
quality of work life (QWL).
Although organizational behavior is an applied discipline, students are not trained in organizational
behavior. Rather, they are educated in organizational behavior and are a co-producer in learning (Nelson
& Quick, 2011, p. 25). The study of organizational behavior requires a rudimentary understanding of
psychology, anthropology, sociology, philosophy, and axiology. From a psychological perspective,
human behaviors and mental processes dictate how organizations perform; from an anthropological
perspective, the culture, language, and beliefs of each individual dictate how organizations perform; from
a sociological perspective, the development of human and social behavior dictate how organizations
function; from a philosophical perspective, the morals and ethics of an individual dictate how
organizations function; and from an axiological perspective, an individuals values dictate how
organizations function. Other disciplines (e.g., economics, engineering, or social psychology) may be
applied to organizational behavior, as well. For example, in 1776, Adam Smith published The Wealth of
Nations where he explained the economic advantages of division of labor (breakdown of jobs into
narrow and repetitive tasks) in organizations. This diversity in organizational behavior allows researchers
to investigate new avenues for dealing with organizational issues from different perspectives and angles.
Many organizational behavior researchers believe that organizations are systems. The two basic types
of organization systems are closed and open. Many contemporary organizations are open systems that
interact with their environment. A closed system does not depend on its environment and can function
without the consumption of external resources. An open system must interact with the environment to
survive by consuming and exporting resources to the environment. In an open and closed organization
system, the people are the human resources of the organization who have specific skills, the purpose of
the organization is the mission, vision, and goal for existing, the plan of the organization is the strategy,
competitive advantages, and objectives of the organization, and the priorities of the organization are what
drive the organization to thrive or excel, which in most cases is revenue. Schwartz, Jones, & McCarty
(2010) explain, No matter how much value we produce todaywhether its measured in dollars or sales
or goods or widgetsits never enough (p. 3). The four Ps to understanding organizations as systems
(Kaifi, 2010) is depicted in Figure 1:
FIGURE 1
ORGANIZATIONS ARE SYSTEMS
An open organization system functions both internally and externally. The external system has an
impact on the internal system and vice versa. For example, the actions of customers (externally) affect the
organization and the behavior of people (internally) at work. Today, when we describe organizations as
systems, we mean open systems. An organization takes inputs (resources) from the environment and
transforms or processes these resources into outputs that are distributed in the environment (Robbins &
Coulter, 2005, p. 35). An example of an open system organization is a college or university that
transforms students into highly-skilled workers that become a part of their environment. A closed
organization system (which is becoming less common) does not interact with its environment and as a
result is disconnected to the real-world. Some examples of closed system organizations are the regional
armies of the Peoples Republic of China (Shambaugh, 1991), spiritual cults (e.g., Waco), Camp X-Ray at
Guantanamo Bay, and prison systems (Fong, Vogel, & Buentello, 1995). With globalization,
technological advancements, and unlimited competition, organizations are more likely to become open
systems and depend more on their environments. As a result, organizations are investing in teams.
TEAMS
Simply defined, a team is composed of two or more individuals who possess any number of common
goals. Exhibiting skill and workflow interdependencies, members combine their differing roles in the
completion of a given task. It must be noted, however, that a salient component to team structure is a
platform for social interaction, which continues to become more virtual. For the purposes of this article
the authors will offer a more thorough treatment of teams.
Research focusing on teams began more than fifty years ago in the area of social psychology. The
more recent shift in the organization of work, however, also brought about a shift to the study of teams as
an organizational construct (Moreland, Hogg, & Hains, 1994). A modern work system that is dynamic
and complex creates commensurate demands on teams to coordinate and combine skill sets and resources
to resolve tasks efficiently and effectively (Kozlowski & Ilgen, 2006). From an organizational perspec-
tive, a work system composed of teams creates a pool of collective knowledge, skills, and resources that
People
Plan
Priorities
Purpose
support members in resolving a task. Therefore, team task becomes the focal point around which work
structure and team coordination are determined.
In todays multilevel organization systems, the capacity for a team to resolve team tasks is influenced
by many forces and is gauged by team outcomes. The authors define team outcomes as a dichotomous
measure consisting of team performance and team effectiveness. According to Forrester and Tashchian
(2006), performance is an efficiency competency that refers to the amount of work the team delivers and
its adherence to temporal goals. Effectiveness, on the other hand, describes the quality of output produced
by the team and whether the team has met its goals and objectives. Kozlowski and Ilgen (2006) state, If
members collectively lack necessary knowledge, skills, abilities, or resources to resolve the team task, the
team cannot be effective (p. 80). In that sense, team outcomes are determined by member diversity; a
range of skills, abilities, and experiences are necessary for positive team production. The collection of
wide latitude backgrounds begs the question: What significant predictors effect team outcomes? The
answer to this question, and many similar to it, is central to the ongoing research of many investigators
seeking insight into team processes and effectiveness.
Forrester and Tashchian (2006) reported that social cohesion and task cohesion were both positively
associated with team outcomes. Through these forces of interpersonal attraction and task commitment,
members develop a sense of team unity and a shared commitment to team goals. In addition to desiring
analytical and problem solving skills in potential employees, Hernandez (2002) stated that employers
also need employees who know how to work effectively with others (p. 74). The ability to work in a
team and contribute positively toward task completion is an important skill to master and one that
employers seek (Hansen, 2006).
Diversity in a team allows for access to a diverse array of external networks that contribute directly to
the teams social and knowledge-based capital, as well as team performance (Joshi, 2006, p. 583). A
diversity of skills and capabilities is vital to organizational success, but teams must have an understanding
of how to work effectively with this diversity and to leverage the strengths of each other (Nath, 2008, p.
29). Open communication, combined with appreciation and respect for the skills and experiences of
colleagues, are important mechanisms through which team cohesion is enhanced. A level of trust in each
others abilities and a commitment to team success will create a stage for collaboration and creativity.
Team accomplishments, such as the safe return of Apollo 13 astronauts and the success of the Manhattan
Project, are the result of team cohesion and collective creativity (Sarmiento & Stahl, 2008). High
cohesiveness in teams, however, can create conformity among members and lead to the negative
implications of group think. The Challenger space shuttle tragedy and the Bay of Pigs invasion of Cuba
are famous examples of when striving for consensus overshadows informed decision-making (Colquitt,
Lepine, & Wesson, 2011).
As employers respond to the growing demands placed on organizations to compete on a global level,
an implementation of effective team processes is vital to successful business outcomes. In fact, many
researchers have reported that college students have a poor understanding of teamwork skills and
emphasize the importance in implementation of such training across the curriculum (Williams &
Anderson, 2008). To become more than the sum of its parts, a team must operate in an environment of
respect and appreciation for the diversity of style, skills, experiences and contributions (Nath, 2008, p.
29). To create this culture of sharing and collaboration, organizations should engage in activities that
enhance and leverage the benefits of both cohesion and communication among members.
STUDY METHODOLOGY
A total of 100 managers working for the same organization located in the San Francisco, Bay Area
filled out a short survey relating to teams. Also, a total of 200 employees working for the same
organization filled out a survey relating to teams. This strategy allows for a more comprehensive study
that illuminates the perspectives of both managers and employees. As a part of the survey, each part-
icipant also answered questions relating to demographic. Table 1 (Managers) and Table 2 (Employees)
represent the demographic nature of the population.
TABLE 1
MANAGERS DEMOGRAPHIC
Gender
Management
Respondents
Age Group
30 and above
five years of team
management
experience
Bachelors
Degree
Male 50 46 48 43
Female 50 50 42 39
Total 100 96 90 82
TABLE 2
EMPLOYEES DEMOGRAPHIC
Gender
Employee
Respondents
Age Group
30 and above
ILYH\HDUVRIWHDP
work experience
Bachelors
Degree
Male 100 75 63 67
Female 100 62 54 59
Total 200 137 117 126
The information above illustrates several key points. Of the 250 surveys sent by email to managers, a
total of 59 males and 53 females responded, giving a 45% response rate. Surveys from 9 male and 3
female managers were rejected for incompleteness. In all, the responses of 50 male and 50 female
managers were accepted for this study. Concerning age group, 46 (representing 92%) of male and 50
(representing 100%) of female managers were 30 years or older. Also, 48 (representing 96%) male and 42
(representing 84%) female managers identified as having five or more years of team management
experience. A total of 43 (representing 86%) male and 39 (representing 78%) female managers that
participated in this study have earned a bachelors degree.
Of the 350 surveys that were sent by email to employees, a total of 108 male and 102 female responses
were returned, giving a response rate of 31%. Surveys from 8 male and 2 female were rejected on the
basis of incompleteness. In all, the responses of 100 male and 100 female employees were accepted for
this study. Among the employee responses, 75 or 75% of male participants and 62 or 62% of female
participants were 30 years or older. Furthermore, 63 or 63% of male employees and 54 or 54% female
employees reported five years or more of team work experience. Concerning employee education, 67 or
67% of male participants and 54 or 54% of female participants have earned a bachelors degree.
The participants were requested to take the survey as a part of an organizational behavior training
exercise. The participants were told that the results would be shared in organizational behavior training.
Each statement on the survey was measured using a 5-point Likert scale ranging from Never to
Always (Table 3). For example, one inquiry stated: I strive toward consensus to maintain team
harmony.
TABLE 3
5-POINT LIKERT SCALE KEY
1 Never
2 Rarely
3 Sometimes
4 Often
5 Always
The sums of the answers were used to determine the different scores relating to the hypotheses for the
study which are:
Hypothesis 1: Female managers will have higher scores in valuing communication with employees.
Hypothesis 2: Female managers will have higher scores on becoming influenced by group think.
Hypothesis 3: Female employees will contribute to team outcomes more than male employees.
Results
The first hypothesis predicted that Female managers will have higher scores on communicating with
employees and, as presented in Table 4, this study supported this supposition since female managers
scores were significantly higher than the males with a p-value of 0.001.
TABLE 4
Female managers will have higher scores on communicating with employees.
Descriptive Statistics and T-test of two means.
Gender Mean Standard Deviation Sample Size
Male 32.80 5.22 50
Female 41.04 6.30 50
t = 7.115; p = 0.001
The second hypothesis predicted that Female managers will have higher scores on becoming
influenced by groupthink and, as presented in Table 5, this study supported this supposition since female
manager scores were significantly higher than the males with a p-value of 0.001.
TABLE 5
Female managers will have higher scores on becoming influenced by group think.
Male 25.10 4.13 50
Female 36.98 7.72 50
t = 9.595; p = 0.001
The third hypothesis predicted that Female employees will contribute to team outcomes more than
male employees and, as presented in Table 6, this study supported this supposition since female man-
agers scores were significantly higher than the males with a p-value of 0.001.
TABLE 6
Female employees will contribute to team outcomes more than male employees.
Male 31.59 6.74 100
Female 41.48 5.42 100
t = 11.428; p = 0.001
PRAGMATIC IMPLICATIONS AND RECOMMENDATIONS
This research showed that female managers valued communication with their teams more than their
male counterparts. Organizations that value communication, accountability, and transparency are the ones
that are more successful during times of organizational change. If female managers understand the
importance of communication better than their male counterparts as this study has demonstrated, then
organizations should feel comfortable hiring and promoting females to management positions. Kaifi and
Noori (2010) explain, Although, both men and women can increase their emotional intelligence levels,
this study has shown that women have higher levels of emotional intelligence which may make them the
better manager of the 21st century (p. 19). Many believe that women have innate leadership skills that
can make them more approachable, understanding, and effective. For example, some believe that women
are more organized, empathetic, creative, and accountable. As a result of having innate leadership skills,
females understand the importance of connecting when communicating. Maxwell (2010) explains,
Connecting is the ability to identify with people and relate to them in a way that increases your influence
on them (p. 3). There are also different levels of connecting to others depending on different factors
(e.g., formal vs. informal settings). Maxwell (2010) clearly defines what it means to connect with others
at each of the three levels. When connecting one on one, it is important to Talk more about the other
person and less about yourself (p. 20). When connecting in a group, Look for ways to compliment
people in the group for their ideas and actions (2010, p. 21). Finally, when connecting with an audience,
let your listeners know that you are excited to be with them (Maxwell, 2010, p. 21). Each level of
connecting requires different levels of energy. Maxwell states, Connecting always requires energy. The
larger the group, the more energy thats required to connect (2010, p. 93).
Similarly, it is important for a great communicator to be able to use facial expressions to convey
specific messages. Maxwell (2010) justifies this important tactic by explaining how Great actors can tell
an entire story without uttering a word, simply by using facial expressions (p. 56). Effective
communicators are able to share experiences that others can relate to. For example, a leader trying to
connect to his or her followers can explain how he or she has been in their shoes and more importantly,
can relate to their experiences. This simple connecting factor of relating to the experiences of others can
help a leader promote higher standards, enhance morale, and advance performance levels within an
organization. Maxwell (2010) states, Theres no substitute for personal experience when we want to
connect with peoples hearts (p. 63). Connecting to peoples hearts is the most powerful medium for
connecting. Leaders who have an ethical image and who are trusted are able to influence more people.
Maxwell (2010) explains, Trust plays the same role in all relationships, and it always impacts
communication. To be an effective connector over the long haul, you have to establish credibility by
living what you communicate and further states, If you dont, you undermine trust, people disconnect
from you, and they stop listening (p. 231). As a matter of fact, Effective communicators are comfortable
in their own skin. Theyre confident because they know what they can and cant do, and they gravitate to
their communication sweet spot when they speak to people (Maxwell, 2010, p. 63). Connecting when
communicating helps with team cohesiveness; especially when working on projects that require high
levels of productivity, efficiency, and creativity. Also, organizations have been known to use cross-
functional teams (people from different departments of an organization working as one team) as a more
comprehensive medium for building morale, uniting and empowering employees, and promoting the
concept of synergy. As such, women in the workforce should become team leaders because of their ability
to recognize the importance of communication, cohesiveness, and creativity.
The ability to engage personal emotions and the emotions of others are important skills for managers
to possess in the 21
st
century workplace. As organizational leaders, managers can set the performance
pace and collective attitude within their teams through cohesion. Having better skills of emotional
intelligence than their male counterparts, female managers can develop strong emotional bonds to other
members of their team and to the team itself (Colquitt, Lepine, & Wesson, 2011, p. 425). As such,
women managers are able to develop higher levels of cohesiveness within their teams, which in turn,
tends to create an atmosphere of high motivation and performance. Although female managers were
found to be at an advantage in creating team cohesion, the results also indicate that they are more prone to
groupthink than male managers. Group think phenomena often evolve in highly cohesive teams when
members may try to maintain harmony by striving toward consensus on issues without ever offering,
seeking, or seriously considering alternative viewpoints and perspectives (Colquitt, Lepine, & Wesson,
2011, p. 425). Being more understanding and empathetic than males, female managers may drive toward
conformity more often in order to avoid confrontation and misunderstandings, and to give their team
members creative freedom. Galbraiths (2010) explanation of womens natural human skills adds further
insight into why female managers may gravitate toward group think more than male managers: Women
tend to prefer to build connections with other people and see themselves as relative equals and further
states, Thus, a relationship defined by power over others is not as natural a state for women as it is for
men. Women leaders often see themselves in the center of a web of relationships, rather than atop a
pyramid (p. 46). The ability to develop cohesion within their team allows female managers to promote
higher levels of performance. This finding, however, also indicates that the leadership abilities of female
managers have a higher tendency of being hindered by group think. To leverage the benefits of cohesion
without the negative implications of group think, female managers should undertake training in
identifying and preventing the detrimental consequences of cohesion.
The study findings also confirmed the hypothesis that female employees will contribute to team
outcomes more than male employees. The authors of this study define team outcomes as an assessment
comprised of two measures: team performance and team effectiveness. Adopting the definitions offered
by Forrester and Tashchian (2006), the authors describe team performance as an efficiency competency
that refers to the amount of work the team delivers and its adherence to temporal goals. Effectiveness, on
the other hand, describes the quality of output produced by the team and whether the team has met its
goals and objectives. Women may contribute more to team task completion than men because they have
the advantage of being better communicators. Communication skills are imperative for success in todays
business world where task completion is achieved in organizational systems of multiple interdependent
horizontal and vertical levels. As Colquitt, Lepine, and Wesson (2011) explain, Much of todays work is
accomplished interdependently and involves communication among members, and therefore, the
effectiveness of communication plays an important role in determining whether there is process gain or
process loss (p. 422). Furthermore, communication may benefit female employees by allowing them to
better share ideas with members, make recommendations, and seek assistance when encountering an issue
they cannot personally resolve.
Having a higher score in team outcome contribution also suggests that female employees are more apt
to following task deadlines and producing higher quality work. This finding alludes to the belief that
women are innately more organized, creative, and empathetic than men. Furthermore, these qualities may
also contribute to higher levels of cohesion, which in turn, produce higher levels of team and task
commitment. The results of this study support the possibility that female employees have greater potential
for leadership positions within organizations. It is well known, however, that women are in fact
underrepresented in positions of authority and often earn less income than men for doing the same job
(Colquitt, Lepine, & Wesson, 2011). The unfortunate reality is that sex discrimination is commonplace in
organizations. For instance, if a businessman is required to choose between a man and a woman
possessing the same qualification levels, he would opt for the man, due to some misconceptions
widespread among businessmen, such as the idea that women involve a cost when they take a maternity
leave, that they create controversial relationships with their colleagues or they do not meet the necessary
skills to be good executives (Lopez-Fernandez et al., 2009). Findings reported by Heckman et al. (2010)
indicate that men are more likely to receive favorable customer satisfaction judgments than women
counterparts, suggesting that sex discrimination is pervasive in the general public, as well. Perhaps
confronting gender inequality in the workplace, and society at large, will enable female employees to be
recognized for their qualities and contributions to team outcomes. By fostering procedural justice in
organizations, authorities will empower women to accelerate their journeys up the organizational ladder
and to receive merit raises based on job performance (Colquitt, Lepine, & Wesson, 2011; Heckman et al.,
2010).
LIMITATIONS
There are some limitations to this study and one is the limited amount of responses from each group.
This survey can be combined with other more comprehensive instruments to enhance and confirm the
results. Also, future studies can duplicate the research with a greater number of participants that are
compared to other organizations. Perhaps different population groups (higher and lower management
levels) and people working in various industries can be studied separately to learn more about teamwork.
It may also be beneficial to study the contribution to team outcomes made by male and female managers.
Furthermore, exploring the occurrence of group think among male and female employees can offer
further insight into gender differences in organizations. Finally, future researchers should consider
translating the survey instrument into other languages to see if the same results are true in organizations
throughout the world.
CONCLUSION
Theoretically, it is important to understand how and why teamwork affects peoples success in the
workplace. Practically, it is important for managers to know whether teamwork affects performance
because it proxies cohesiveness and synergy. The study presented in this article clearly suggests that
teamwork affects peoples careers and workplace interactions and therefore is worthy of continued
scholarly investigation.
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Galbraith, J. R. (1980). Applying theory to the management of organizations. In W. M. Evan (Ed.),
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Case Study of Chinese and U.S. University, College of Business Partnerships:
Form, Process, Opportunities, and Challenges
Daniel Borgia
The University of Nottingham, Ningbo
Gary Bonvillian
Thomas University
Arthur Rubens
Florida Gulf Coast University
This paper presents the experiences of three regional universities - one public and two private - that have
established academic partnerships in business with Chinese institutions of higher education. The paper
briefly highlights the process used by three universities to establish linkages with their Chinese partners,
the relative success of these alliances, and the lessons learned in the process. Although many Western
Universities have established partnerships with Chinese Universities, there remains an enormous unmet
demand for Western business education in China. However, Western business schools must prepare
themselves for the many challenges in establishing these partnerships.
INTRODUCTION
During the last thirty years, the emergence of China as a global political and economic superpower and
the social transformation resulting from Chinas open-door policy initiated under the late Deng Xiaoping
in the late 1970s has led not only to an expansion of international business but also to expanding
interconnections with Western institutions of higher education. As of 2006, "more than 1,400 foreign
higher education institutions have been approved by various education authorities in China to operate in
the country (Altbach, 2006)." According to Min (2004), China possesses one of the largest university
systems in the world with more than 3,000 universities and colleges that educate more than 13 million
students and employ over 1.45 million staff members, including more than a half million faculty.
During the past decade, a growing number of Chinese universities began to forge academic alliances
with Western universities. These alliances were formed for several reasons. First, throughout the 1990s,
many non-accredited Western colleges and universities established partnerships with Chinese institutions
to respond to growing opportunities in this new market. In time, Chinese government and university
officials began to realize that having accredited colleges and universities from other countries means
quality in the delivery of higher education. As a result, in 2001, Chinese education officials mandated all
non-accredited schools to cease operations. Chinas system of higher education has no accrediting body in
place similar to the U.S. regional accreditation system. Thus, alliances with accredited U.S. and other
Western and even Asian universities can ensure a quality control mechanism with partnered Chinese
institutions. Second, although the size of Chinas system of higher education is vast and rapidly
expanding, the unmet demand for higher education is still immense. According to Min, enrollments at
higher education institutions in China grew from 3 percent of the college age cohort in the early 1980s to
about 14 percent by 2002, largely by adding over 500 new universities. Nevertheless, the demand for
Chinese higher education chronically exceeds the supply of available seats. Third, although the quality of
Chinese universities is improving
1
, the average Western university is widely considered to be superior to
the average Mainland Chinese University in terms of the quality of faculty and academic programs, and in
terms of the production of refereed scholarship. As a result, the demand for a Western educational
experience or degree has led many Chinese universities to actively seek out academic linkages with
Western counterparts. Finally, because of Chinas rapid economic growth and expansion, its needs for a
well-trained and educated workforce that only a high quality system of higher education can provide are
vast and pressing.
Although the number and variety of academic linkages between Western and Chinese universities is
very large and growing, relatively little has been written about the nature, opportunities, and challenges of
creating and managing Western university-Chinese university academic alliances. The objective of this
paper is to help add to this literature by discussing the collective experiences that three U.S. universities
have had with establishing and managing academic alliances with several Chinese university partners.
STRUCTURE AND DEVELOPMENT OF THREE U.S.-CHINESE UNIVERSITY
PARTNERSHIPS
Universities throughout the world have forged partnerships with Chinese universities, ranging from
well known Ivey League schools such as Yale, with more than 80 academic partnerships with Chinese
universities, to other smaller and less well-known public and private institutions (Monaghan, 2006). The
academic focuses of these partnerships vary in nature, scope and duration. For example, the University of
Michigan has developed a program that offers courses in subjects such as religion and psycholinguistics
(Hvistendahl, 2009), while the University of Denvers Graduate School of Social Work established
program in Social Work that has been in place since the early 1990s. The University of Nottingham went
even further, opening a brand new branch campus in Ningbo, China in 2005 in cooperation with Zhejiang
Wanli University. More recently, Renesselaer Polytechnic Institute launched a five-year collaboration
with leading Chinese universities that, in addition to management education, established formal ties
between entrepreneurial centers at each institution (M2 Communication Press Release, 2008).
The Chinese-Western university partnerships discussed in this article involve three Eastern U.S.
universities that have established programs in undergraduate and graduate business education in China:
one, Florida Gulf Coast University, is a medium-sized comprehensive public institution; and two, Keuka
College and Thomas University, are smaller, private institutions.
Florida Gulf Coast University Partnerships
Florida Gulf Coast University (FGCU) is a teaching and research university, and is one of eleven
campuses of the State University System of Florida. FGCU is accredited by the Southern Association of
Colleges and Schools (SACS) and its Lutgert College of Business is accredited by the Association to
Advance Collegiate Schools of Business (AACSB) International.
In September 2005, the president of FGCU traveled to Tianjin, China and signed an agreement
establishing a formal relationship between FGCU and Nankai University, which is widely recognized as
among the best universities in China. As a part of this agreement, FGCU created the Institute of Chinese
Studies to facilitate academic programming and other linkages between Nankai and FGCU. In June 2006,
FGCU signed a similar university partnership agreement with Yantai University and Binzhou Medical
University, both located in Yantai, Shandong, China. In addition to the university partnership, delegates
from the City of Yantai traveled to Southwest Florida to sign a Sister City business and cultural
agreement with representatives of Southwest Florida business and government.
Partnerships with Chinese institutions can take many different forms. They can range from: developing
undergraduate and graduate degree programs; tuition exchange programs that allow students to complete
degrees with a combination of courses taken at the partnered institutions; developing joint research;
sponsoring faculty and study tours; and cross cultural training programs for practitioners. As shown in the
accompanying Table 1, FGCU's partnership agreements provide for the establishment of several different
types of programs over time.
TABLE 1
FGCU PARTNERSHIP ARRANGEMENTS
Programs Currently Operating:
x Tuition Exchange Program
x
. FGCU has a special undergraduate tuition exchange program with both Nankai
University and Yantai University. Under this arrangement, up to five students from both FGCU and our partners
may attend the partner school for up to two semesters while paying home university tuition. Visiting students
would be responsible for such things as room, board, books and fees (i.e. health fees, etc.) at the partner school.
Although desired, an equal exchange of students is not required for this program.
Business network opportunities
Programs Not Operating Or Under Development:
. As part of the FGCU Lutgert College of Business "Second Circle" international
program under which international academic partnerships are broadened to include business communities, both
university partners would encourage the development of contact between external business and cultural
organizations in both countries. These contacts include visits by both university and external constituents to
both partner locations. Although still in the early stages of development, business delegations from China
already have traveled to Southwest Florida and a business and government delegation from Florida is planning
to travel to Yantai, China on a similar mission.
x Undergraduate 2+2 (transfer student) Program
x
. FGCU is working towards offering its Chinese partner
university undergraduate students with an opportunity to earn undergraduate (bachelors) degrees from both
FGCU and their home universities. Degree programs are now being developed for all colleges and disciplines.
Internet masters programs
x
. FGCU is also exploring the possibility of developing Internet Masters Programs
with its Chinese partner universities that would enable partner university students to earn Internet based
Masters Degrees from FGCU.
Faculty exchange programs
x
. FGCUs agreements provide for exchanges of faculty to enhance promote faculty
linkages, enhance faculty development, and to promote collaborative research.
Visiting student summer program
x
. To enhance the partnership, FGCU and its partner universities are exploring
the development of a limited duration visiting student summer program. Costs would be determined on a
program by program basis, considering academic credit, length of stay, and structured activities.
Executive development programs
x
. FGCU's Lutgert College of Business is exploring the development of a series
of Executive Development Certificate Programs to be delivered in collaboration with its Chinese partners.
These programs would be managed by the FGCU College of Business Center for Leadership & Innovation. The
primary audience would be either Chinese or American executives who would benefit from knowledge about
how to do business in the other's country. Such executive development programs would be modeled after the
special international executive programs FGCU now provides for industry leaders from Germany and Western
Europe. It is presumed that similar programs could be developed for either Chinese or American executives and
offered in either Florida or China, using a combination of Chinese and FGCU faculty.
Other potential areas of opportunity. As part of student and faculty support in the partnership, the parties will
explore ways to cooperate in sharing library materials such as books and journals. Also, the universities will
explore opportunities for faculty exchanges, advanced education and collaborative research.
In the four years FGCU's partnership agreements have been in place, only the tuition exchange
program with Yantai University has experienced significant development. Under the Yantai University-
FGCU tuition exchange program, up to five students from each institution enroll as they normally would
at their home university and study for up to two semesters at the partner campus. No student participant is
awarded a degree from the partner institution. Student participants from both institutions are responsible
for their own travel, room and board.
FGCU students typically enroll in a six credit Study Abroad course for the classes they take at Yantai
University and enroll in an additional two to three additional courses at FGCU to maintain full time
degree-seeking enrollment status. FGCU students usually enroll in other FGCU courses as distance
students or work with an FGCU professor in an independent study context or both. Because the number
and variety of courses taught at Yantai University in English is very limited, FGCU students typically
enroll in courses focusing on Mandarin language and culture.
Yantai University students can enroll in any course at FGCU as long as they meet the prerequisites and
language proficiency requirements. Yantai University students are selected based on their ability to
participate both financially and academically. Because this is not a degree granting program, Yantai
University students are not required to submit TOEFL or similar English language proficiency scores.
They are required only to submit a letter written by the Yantai University administration attesting to their
proficiency in English.
During the four years this program has been in place, all Yantai University student participants have
successfully passed and were awarded credit for the courses they were enrolled in at FGCU. Although
only three FGCU students have chosen to participate in this program to date, all have been successful at
Yantai University. Several of the students from both FGCU and its China partner institutions have written
photo diaries detailing their experiences which can be viewed at the FGCU Institute of Chinese Studies
Website.
2
FGCUs other program initiatives such as a degree-granting Undergraduate 2+2 (transfer student)
Program has not developed for several reasons. First, a 2+2 program would be attractive primarily for
Chinese partner students who wish to study and earn degrees at FGCU. Because tuition at FGCU for out-
of-state students is very expensive, it is likely that some form of tuition reduction will be necessary for
this program to develop, which won't be possible until current budget constraints facing the State of
Florida University System ease.
3
In addition, because Chinese university participants will be transferring
credit for their first two years as undergraduates at their home institution, transfer credits must be
reviewed and approved by an independent accrediting agency to ensure that FGCUs accreditation
standards are not jeopardized if such a program is implemented. Also, Chinese student participants would
need to meet minimum TOEFL scores in order to enroll. Despite these hurdles, Yantai University has
expressed strong interest in pursuing the Undergraduate 2+2 (transfer student) program. However, unless
substantial support on the part of top administration at FGCU is forthcoming, it is unlikely that such a
program will be implemented in the near future.
In addition to the tuition exchange program, FGCU's partnership agreements have also led to limited
business and cultural exchange and networking activities. In January 2008, through it's partnership with
Nankai University, FGCU hosted a contemporary Chinese art exhibit featuring the work of five renowned
Chinese artists at its art gallery. In addition, FGCU has hosted several business delegations from China
who traveled to southwest Florida on trade missions. Because of a lack of financial and administrative
support, none of FGCU's other potential areas of collaboration (such as an Internet Masters Program,
Faculty Exchange Program, Visiting Student Summer Program, or Executive Development Program), are
expected to develop in the near future.
Keuka College and Thomas University
Keuka College, founded in 1890, is an independent, private four year residential, coeducational, liberal
arts based institution located in Western New York. Keuka is accredited by the Middle States Association
of Colleges and Secondary Schools and is one of only 32 American colleges and universities approved by
the Chinese government to offer degree programs in China. Keuka formed its first partnership with
Chinese Universities in 2002. During the past eight years, Keuka has become the largest foreign provider
of higher education in China reaching a total enrollment at one period of over 6,000 students.
During the initial few years of the partnership, Keuka worked with as many as 11 different Chinese
institutions. The relationships have since been refined and reduced to what are considered the top four
institutions. Keuka is currently partnered with Tianjin University of Science and Technology, Yunnan
University of Finance and Economics, Jimei University and Wenzhou University. The reduction in
number of sites was largely due to advice provided directly by Chinas Ministry of Education. The
officials from the Ministry, liking what they saw in Keukas programs, suggested that the current four
schools were really more appropriate and at the stature best suited for Keukas partnership. Consequently
this reduction in partnered schools, worked well for Keuka, and resulted in less cumbersome oversight for
Keuka in its management and maintenance of its China Program.
Keuka currently offers an undergraduate degree in business administration using a 3+1 model under
which Chinese student participants complete 90 credit hours at their home (Chinese) institution and 30
credit hours with Keuka College. All 30 of the hours taken with Keuka College are completed at the
Chinese Partner School but the courses are delivered by Western educated faculty. However, only a small
number of faculty who teach the Keuka courses are drawn directly from full time Keuka faculty. Most
faculty are recruited from business faculty at other U.S. Institutions or are retired or semi-retired business
faculty from other Western institutions. When the program initially began, many of the faculty who
taught in the China program participated for a period of two-weeks to one month to teach one to two
courses. As the program evolved, however, a majority of visiting faculty now go to China for one to three
month teaching assignments and teach multiple courses because it was determined that sending faculty to
teach one course for a time period of less than one month was too short to provide quality education,
especially when the school was working with students who had less than a full command of the English
language. In addition, Keuka and its in-country partner (who served as the initial intermediary when the
program was first established) quickly found that it was not economically feasible to pay for travel and
board for faculty for teaching assignments of less than one month. Ideally, Keuka sought out faculty who
could remain in-country for three months, thus giving an option to not only assign the faculty member to
teach several courses, but also the ability to teach courses at more than one of the Chinese partner
universities. In time, a growing number of assigned faculty lived and taught full time in China. At one
time, Keuka had access to over 40 Western educated business faculty residing in China.
One of this paper's co-authors (who was the chief architect of the Keuka program and was the then
Provost and Vice President at Keuka College) is today the President of Thomas University, a small liberal
arts university in southwest Georgia. Under his leadership in 2007, Thomas University forged a
partnership with Eurasia University, a highly regarded private higher education institution in China. In
addition, during the past three years, Thomas University developed and delivered a certificate program in
Career Development to over 900 students. The program includes coursework and a practicum. In China,
career development is considered ground-breaking work as it is only in recent years that the government
has openly encouraged competitiveness in the job market. It should also be noted that the whole notion of
personal career development is a relatively new phenomenon in China. More recently, Thomas
University is working on new partnerships to jointly deliver their Master of Business Administration
(MBA) degree and an RN to BSN program. At this present time, partner agreements have been signed
with, Huaqiao University for the proposed MBA program, and Wenzhou Medical College for the RN to
BSN program.
LESSONS: CHALLENGES AND OPPORTUNITIES
While FGCU is a medium sized comprehensive university and Keuka College and Thomas University
are smaller liberal arts universities, the authors feel that the lessons learned through the development and
management of their alliances with Chinese universities would be useful to any Western institution that is
considering a partnership with a Chinese university.
Lesson 1: Establishing Relationships Using Intermediaries
The importance of collaborating with or employing a trustworthy individual with significant and
relevant Chinese contacts and connections as an in-country agent cannot be overemphasized. Using an
intermediary in business development and negotiations is common in China. In fact, most businesspeople
in China will tell you it absolutely essential. From a cultural standpoint, establishing a personal
relationship is far more important in China than in Western countries. In general, the Chinese will
establish the relationship first and if a trusting personal relationship is cultivated, only then will business
follow. A skilled Chinese intermediary can assist in navigating China's complex higher education and
government bureaucracy networks. Western universities are unable to pursue academic alliances with
Chinese universities unless the Provincial and/or Central government provides explicit approval.
Accomplishing this requires a skilled negotiator who understands the nuances of culture and the goals and
objectives of both parties. In addition, the intermediary can help to establish personal relationships with
potential partner university counterparts, which is traditionally achieved through face-to-face meetings
and social activities. Furthermore, a skilled intermediary can save an enormous amount of time and
money by helping to develop relationships, expediting the negotiating process, the obtaining the best
terms possible for your side.
FGCUs China partnership exploration process was initiated by intermediaries who had close contacts
with top Chinese government officials and academic administrators. In the case of Nankai University, a
U.S. businessman with operations in China and ties to Nankai University initiated the partnership
exploration process through FGCUs president. In the case of Yantai University and Binzhou Medical
University, the partnership was initiated by a Chinese born American academic with ties to Yantais
political and academic leadership. It is important to note that although the intermediary is critical in the
process, the university must assume the primary role in negotiating the partnership agreement to ensure
that it conforms to its own interests and capabilities.
In the case of Keuka College and later Thomas University, the relationships began with an
intermediary who had more than 30 years experience developing and delivering programs in the U.S. and
China. Identifying an intermediary with this level of experience, skill and understanding of both U.S. and
Chinese higher education systems is very difficult. In the case of Keuka College and Thomas University
the intermediary was not merely an agent but also a partner in the process who had a significant stake in
the outcome, which ensured more productive engagement when actual negotiations began.
Lesson 2: Identifying and Qualifying Prospective Partner Schools
The identification and qualification of prospective partner schools is a critical initial step that many
Western institutions perform poorly. Like the U.S., China has multiple tiers of colleges and universities in
terms of mission and quality. Keuka College and Thomas University found it beneficial to seek out
partners from Chinas so-called second tier (in terms of quality) schools. These schools are highly
respected regional universities that are well supported by the local or provincial government and often
well-connected to the business community. Perhaps most importantly from the perspective of the Western
university, these schools are generally more eager to establish a relationship. As a result, they are often
more willing to accommodate the needs of the Western school in order to grow their own institution.
For Florida Gulf Coast University, Nankai University was identified as a partner by an FGCU
benefactor who also functioned as the intermediary for that relationship. This person had extensive
business interests and connections in both Florida and in the city of Tianjin where Nankai University is
located. Nankai is widely regarded as a top tier Chinese university that often ranks among the top ten in
terms of quality in China. Unfortunately, Nankai University was not a particularly good fit for FGCU
since it already had established many international partnerships with the many far more prestigious
American universities. As a result, Nankai was never truly committed to the relationship because it was
primarily established for the benefit of FGCU's U.S. intermediary/benefactor.
In contrast, FGCU's partnership with Yantai University developed quickly and the partnership
agreement included a Sister City agreement with Southwest Florida that was established to further
business and cultural ties between the two regions. As a result, the Yantai University partnership was a
much better fit for FGCU.
After qualifying the school and implementing a program, it is important to closely monitor the
deliverable promised by the Chinese partner institution. For example, when the Keuka China program
was in its early years, it learned that resources at one of its partnered campuses were very limited,
equipment was missing, technology was not working, and students' English language skills were less than
adequate. Even more dramatic, Keuka discovered that the schools Director had reduced funding for
resources and equipment to support the programs and had not paid the staff of the school in three
months.
4
As a result, the partnership and agreement with this university was quickly terminated.
The central lesson is that the potential pool of Chinese partner universities is vast and expanding and it
is important to forge an alliance that is a good fit to ensure success for both institutions. Also, Keuka
College learned that it is important to establish standards of expectations and to disconnect from a
relationship when those standards were not met.
Lesson 3: Establishing Goals and Developing a Strategic Plan
For any Western university entering the Chinese market through a collaborative partnership,
establishing achievable program goals and developing a strategic plan early in the process is essential.
Goals and plans must incorporate variables such as resources, financial projections, approvals, logistics,
staffing, monitoring, and quality control. Planning must include financial projections and a cost-benefit
analysis. Risks must be identified, monitored and managed, and agreements should be carefully evaluated
by the institution's legal counsel. Typical collaborative agreements between Western universities and
Chinese universities generally range from three to five years, depending on the nature of the program. A
failure in goal setting and strategic planning in international initiatives can result in underestimating costs
or overestimating revenues (or both), ultimately resulting in failure and substantial financial losses.
Florida Gulf Coast University's partnership agreement with Nankai University was launched with the
belief that a significant financial commitment by a private donor (who was also acting as FGCU's
intermediary) was forthcoming. FGCU sent a contingent of university and southwest Florida community
leaders to Tianjin where they met with their counterparts and signed the deal. After they returned, FGCU
established the Institute of Chinese Studies (ICS) to support the development and administration of
programming. Initial plans and even architectural renderings were developed for the construction of an
FGCU satellite campus at Nankai University's Campus. Unfortunately, because the private gift never
materialized, the ICS lacked administrative and financial support and commitment. When Nankai
University realized the financial investment at their campus would not materialize, their interest in the
partnership waned; and other than minimal activity early on, implementation of programming between
FGCU and Nankai University has never materialized.
In contrast, despite a lack of financial and administrative support, FGCU's alliance with Yantai
University experienced significant initial development primarily because Yantai University was a better
fit and because the university partnership agreement was accompanied by a Sister City agreement, which
generated additional community and political backing and media attention. In addition, FGCU began its
collaboration by launching the Tuition Exchange Program, which requires very limited financial and
administrative support. Participation in the program has been uneven, however. While more than 20
Yantai University students have participated in the four years the program has been active, only three
FGCU students have enrolled, both because of the limited courses available in English at Yantai and
because minimal interest on the part of FGCU students to spend a semester or more living in China.
Although initial interest and optimism for other provisions of the Yantai partnership was initially high,
development and implementation of more comprehensive programming such as the degree-granting
Undergraduate 2+2 (transfer student) Program, which requires a deeper commitment, seems unlikely.
Not long after FGCU's China partnership agreements were signed, FGCU experienced a change in
leadership at both the President and Provost Level and neither office (after the change) has expressed
significant interest in supporting FGCU's China initiatives. For example, the minimal support provided to
the Director of the Institute of Chinese Studies (a course release) was withdrawn in fall 2009. Without the
critical support of top administration, further development of FGCU's China other initiatives with Yantai
University are doubtful.
Keuka College and Thomas University were far more ambitious in their programming than FGCU and
had critical financial and administrative commitment and support from top administration for their more
bold initiatives. In addition to their more aggressive approach, Keuka and Thomas employed a business
model and strategic planning process that was designed to minimize risk. While its risk control strategy
may have constrained Keuka College and Thomas Universitys ability to generate revenue somewhat, it
also has helped them to avoid suffering financial loss. Specifically, Keuka and Thomas University's
primary responsibility was to develop curriculum and to identify and hire qualified faculty. Because of
that, Keuka and Thomas' administrative investment was minimal, while their in-country partners were
required to provide the entire administrative infrastructure (marketing, student recruitment and support,
faculty expenses, relationship with partnered universities, etc.). As a result, the in-country partner
received a greater share of the net revenue, but their risk and overall investment was greater. This model
has proven to be financially successfully for both Keuka College and Thomas University. In addition, it
has resulted in an enriched international climate for students and faculty.
Lesson 4: Understanding and Working with the Communist Party of China (CPC)
It is essential that any school that is considering forming a partnership with a Chinese university
understand the role of the Communist Party of China (CPC) and its influence over university decisions.
CPC influence exists at the local, provincial and national levels. Depending on the Chinese institution, a
range of government agencies and ministries could have regulatory influence and control. In addition, it is
important to develop a good relationship with the Party Secretary, who often also holds the title of Vice
President at the Chinese university you are working with. In general, the Party Secretary is the highest
authority at the university, unless the President is also the Party Secretary. The Party Secretary usually
employs staff that report directly to him or her. CPC influence is not limited only to public universities in
China. Even private Chinese institutions are monitored and influenced by the CPC. In fact, private
institutions could not exist without the support and approval of the CPC. Respect for the party is essential
and any discussion of politics (and religion) should be avoided.
Lesson 5: The Importance of Faculty, Staff and Administration Commitment
Developing deep, successful collaborative partnerships requires commitment to the effort on the part
of faculty, staff and administration of both the Chinese and Western institutions. For degree-granting
programs such as those operated by Keuka College and Thomas University, buy-in at all levels of the
university was necessary to ensure everyone was prepared and committed to success. Although the
evidence is anecdotal, the authors have observed that many U.S. and Chinese universities often initiate the
development of foreign partnerships as feel good exercises for administration whereby top administrators
travel abroad to the partner university, participate in ceremonies, and even sign agreements, only to go
back home without acting on them.
The lack of development of most of the programs provided for in FGCU's partnership agreements was
largely due to a lack of commitment and support by university leadership. As mentioned earlier, not long
after FGCU experienced a change in leadership in top administration, it became clear the programming
initiatives with Yantai University were not a priority and the development of a potentially profitable and
self-supporting 2+2 program would not be pursued. The development of programming with Nankai
University didn't evolve largely because of a lack of interest on the part of its top administration once they
learned that a promised financial investment by FGCU's intermediary/benefactor would not be
forthcoming.
In contrast, Keuka College and Thomas University demonstrated from the outset that top
administration from the President on down was fully committed to its China partnerships. However,
because both Keuka and Thomas ambitiously launched what they expected to be self-supporting and
profitable degree granting programs, it was necessary to engage faculty to ensure they would be willing to
take ownership of the initiatives. Unless faculty are enthusiastic, committed, and willing to support and
participate in the partnerships, they would be difficult to operate and staff even with administrative
backing. For faculty, often the most important aspect of the program (aside from sufficient financial
support for participation) is academic integrity. Faculty are right to demand assurance that the degrees it
grants to its Chinese partner students are not watered down but are in every way as rigorous as degrees
granted back home. To ensure this is the case, it is essential that academic control be maintained by the
Western University to control quality of delivery and compliance with Western accrediting bodies.
It is also important to ensure that any benefits realized by the partnerships (financial or otherwise) are
shared with the academic division. Thomas University created a specific fund in which profits from its
China partnerships are funneled for exclusive use by the academic units that generate the revenue. Even if
a faculty member in the unit has no direct involvement in the program, benefits from the partnership
quickly become apparent to all home faculty.
Lesson 6: Understanding the Nuances of Negotiating with Chinese Partners
The process of negotiating agreements with Chinese partners requires time and patience. For all three
schools discussed in this paper, participants were advised and prepared by their intermediaries of the
importance of taking the time and having the patience necessary to structure the partnerships carefully to
ensure program quality. Typically, Western university administrators, particularly those from the U.S.,
enter negotiations with clear time frames and expectations in mind. The Western negotiator feels that
once a deal is agreed upon and the agreement is signed, negotiations end. However, in our experience in
dealing with our Chinese counterparts this is not always the case. Time lines are often drawn-out and
negotiations for agreement are dynamic and often become an on-going process.
CONCLUSION AND SUMMARY
During the past decade, many Western business schools have been attracted to the allure and
opportunities of setting up partnerships with Chinese institutions because of the significant demand for
business education that exists there. Although many Western business schools have established
relationships with Chinese institutions, most were not substantially implemented and many others were
terminated. As an example, Case Business School (London) joint executive education program initiated
with Shanghai University of Finance and Economics in 2004 has been closed. More recently, "the
University of Marylands, Robert H. Smith School of Business and Chinas University of International
Business and Economics have suspended their five-year Beijing operation." Also, "SUNY Buffalo, which
had worked with Renmin University of China to launch the countrys first executive MBA program in
1998, had enrollment troubles as more schools competed for qualified applicants." As a result, "SUNY
ended the joint venture in 2004 (Damast, 2008).
Often the partnership between the Western business school and the Chinese Institution is launched
with unbridled enthusiasm and optimism. However, unless the Western School understands the process
of negotiating and working with the CPC and Chinese universities, enthusiasm can wane as Western
educators become frustrated because they are unprepared for opaque process of working with Chinese
education authorities. As FGCU, Keuka, and Thomas University have found, negotiating and establishing
partnerships with Chinese universities is a lengthy and complex process. It is about building relationships;
structuring financially viable programs that minimize risk; knowing and understanding the Chinese
political power structure; and realizing and understanding the time and effort it will take to fully develop
the partnership. Frequently we have found that Western schools have unrealistic expectations of making
quick profits and generating a rapid return on investment.
As Napoleon said more than two hundred years ago Let China sleep, for when she wakes, she will
shake the word. The growth of China since Deng Xiaoping opened the doors to the west in the late
1970s has been nothing less than phenomenal. During the past several decades, the growth and expansion
of international business has led to an expansion of collaborative partnerships and programs between
Western and Chinese institutions of higher education. While opportunities for collaboration will continue
to grow and expand, it is essential to understand the process and nature of creating these alliances to
ensure success.
NUMBERED NOTES:
1. According to the online version of the Times Higher Education, six mainland Chinese universities
are included in its 2008 edition of the Top World 200 Universities Ranking list including Peking
University (#50), Tsinghua University (#56), Fudan University (#113), the University of Science
and Technology of China (#141), Nanjing University (#143), and Shanghai Jiao Tong University
(#144). Expanding the list to include Hong Kong universities brings that total to ten.
2. The Florida Gulf Coast University Institute of Chinese Studies website can be viewed at
www.fgcu.edu/cob/ics. This page was accessed on July 10, 2010.
3. Full time (15 credit hours per semester) tuition and fees for 2009-2010 for Florida residents will
cost $4,642. For out of state residents, including international students, full-time tuition and fees
for the same period will be $19,901. http://www.fgcu.edu/AS/FinancialAid/cost-of-
attendance.html. This page was accessed on July 24, 2009.
4. This was quite unusual. Chinese university staff and Chinese people in general are known for
their kindness, hospitality, diligence and commitment.
REFERENCES
Altbach, P. G. (2006). Chinese Higher Education in an Open-Door Era. International Higher Education,
45, Fall, 15-17.
Damast, A. (2008). China: Why Western B-Schools are Leaving: Red tape, difficult partners, and weak
demand have Western universities closing executive MBA programs. Business Week, May 26, 56.
eInside: Excellence in Action, Kent State University. (2008, June 23). Kent State Announces Partnerships
with Top Chinese Universities. Retrieved from http://einside.kent.edu/?type=art&id=88834.
Honeth, P. (2008). Sweden in Asia - Challenges and Opportunities for Higher Education and Research.
NIAS Nytt, Dr. Jorgen Delman, Copenhagen, DK, September 1, 6-8.
Hvistendahl, Mara (2009). Renewed Attention to Social Sciences in China Leads to New Partnerships
with American Universities. The Chronicle of Higher Education. 55 (23), February 13, A35-37.
Min, W. (2004). Chinese Higher Education: The Legacy of the Past and the Context of the Future. In
P.G. Altbach and T. Umakoshi (Eds.), Asian Universities: Historical Perspectives and Contemporary
Challenges, Johns Hopkins University Press (pp. 5383).
Monaghan, P. (2006). Open Doors, Closed Minds? The Chronicle of Higher Education, 52, (37); May 19,
15-19.
Mooney, P. (2008). An American College in China Struggles to Deliver. The Chronicle of Higher
Education, 54, (34), May 2, A1, A22-A24.
Renesselaer Polytechnic Institute. (2008, August 5). Rensselaer Launches Five-Year Collaboration with
Leading Chinese University: Agreement Establishes Formal Ties between Entrepreneurial Centers at
Each Institution. Retrieved from http://news.rpi.edu/update.do?artcenterkey=2474.
School of Hospitality and Tourism Management, Florida International University. (2008, April 17).
Florida International University Graduates First Class in China with Hospitality Degree at the First U.S.
School of Hospitality and Tourism Management [Press release]. Retrieved from
http://hospitality.fiu.edu/news/news.asp
What Impact Do Economic Issues Have on the Sustainability of Small,
Medium and Micro Entrepreneurs?
D.B. Tshabalala
University of South Africa
EM Rankhumise
Tshwane University of Technology
The article presents evidence from SMME entrepreneurs regarding their experiences on economic issues
which impact negatively on their sustainability. The inception of the democratic government resulted in
the fast boom of small, medium and micro enterprises (SMMEs) due to the introduction black economic
empowerment (BEE) initiatives. Using structured questionnaires, the data were collected by personally
visiting the SMME entrepreneurs. Empirical evidence shows that indeed economic issues are drastically
affecting their chances of sustenance. The findings present valuable information that policy makers can
used to address the issues since entrepreneurs themselves will find it difficult to come with long term
solutions.
INTRODUCTION
Small, Medium and Micro Enterprises (SMMEs) in Africa are regarded as crucial in the role they play
in the creation of employment and above all the contribution to economic growth. Since 1994 the South
African economy has experienced a number of challenges in its bid to reintegrate into the global
economy. As a result of apartheid, most of the policies had to be reviewed to be more inclusive of all the
community of South Africa. This was however characterized by blacks particularly Africans not allowed
to have businesses in towns. Since 1995, the government has been actively promoting small businesses in
order to achieve the objective of economic growth through competitiveness, employment generation and
income redistribution. More than 80% of all businesses in South Africa are described as small businesses.
Small businesses contribute about 40% of all economic activity in the country (Rankhumise, 2010:p8).
According to Ladzani, (2010:p68) more than 50% of all South Africans are employed in the small
business sector. The sector is therefore essential in promoting, achieving economic growth and
development as well as the creation of wealth and employment. The programme as it is aimed at
promoting blacks to participate in the mainstream economy of the country and afford them the
opportunities that they were previously denied and in this regard the majority of those engaged in the
SMME sector are blacks.
In the quest to fast track blacks to form part of South African conglomerates, Black Economic
Empowerment (BEE) was introduced with the intention of encouraging people to start their own
businesses. The success of the South African economy is intrinsically linked with the success and
sustainability of their businesses. Because of that, a special call has been made to black people to play a
role of establishing their own businesses and tender for government work. However, a number of critical
issues impacting on the success of small businesses in South Africa especially the blacks have been raised
by community leaders and researchers. Dutton and Jackson (1987) state that the assumption underlying
most organizational theory, research and practice is that the short-term effectiveness and long-term
survival of organisations are determined by the actions they take in response to their external
environment. Currently, most discussions on small business in South Africa are high on the government
agenda and revolve around the need to promote the small, medium and micro enterprises (SMMEs)
activities as detailed in the National Small Business Act of 1996. As an indication of the seriousness of
the government to promote SMMEs, a number of support institutions were established, namely Ntsika
Enterprises Promotion Agency (NEPA), which is a nonfinancial support agency, Khula Finance
Enterprises Finance Limited, which is a wholesale financial mobilization and credit guarantee institution,
and Small Enterprise Development Agency (SEDA), which is an institution focusing on the support and
promotion of enterprises to reach a greater variety of enterprises, particularly those located in rural areas.
SMEs play a significant role in the business system of both developed and developing economies. This
article is grounded on one factor of the PESTLE model namely economic issues.
Due to the current economic meltdown locally and globally, businesses are struggling to make ends
meet as a result of the fact that consumers do not have adequate money to buy and high interest rates also
affect the businesses negatively. This situation however could further create a serious challenge to the
SMMEs to sustain their survival and as such they are likely to face bleak future. To date as a result of
recession, many businesses were closed, where more than 20 factories have already shutdown and about 4
700 workers losing their jobs (Ntingi, 2008: p12) The economists are of the opinion that the situation may
yet get worse as the meltdown in global markets and the high interest rates continue to bite and SMMEs
are fundamentally affected in terms sustaining their operations. Small businesses in South Africa,
particularly those operated by blacks are operating in a rapidly changing environment. Small businesses
are more vulnerable to changes in the economic environment than large businesses because they are
unable to respond due to lack funds to respond to the changing environment.
AIM AND OBJECTIVES OF THE STUDY
The broad aim of the study is to establish the economic issues that affect sustainability of SMMEs
inter alia with inflation, interest rates, and exchange rates. The objectives for the study are set as follows:
(1) To establish the economic factors impacting negatively on the sustainability of SMMEs.
(2)Recommend appropriate policies that could enhance the viability of small business in Mamelodi.
RESEARCH DESIGN AND METHODOLOGY
To achieve the set objectives for the study, practicable research methodologies of a quantitative survey
were employed. A quantitative approach was used with the intention of determining challenges created by
economic issues facing entrepreneurs in running their business successfully and become sustainable. The
rationale for quantitative research is testing a theory composed of variables, measured with numbers and
analyzed with statistical procedures, with the view of determining the predictive generalizations of the
theory (Leedy and Ormrod,:2005: p89).
POPULATION AND SAMPLING
The population in this study consisted of small business owners from Mamelodi municipality. A
convenient sampling was used to select participants from the list that was provided by the municipality.
According to the list there are 350 businesses operating in the area. Due to time and financial constrains
only 59 questionnaires were issued. A convenient sampling approach was used to select 59 small business
owners from Mamelodi in Gauteng to participate in the study.
ETHICAL CONSIDERATION
Clear guidelines were given on how to complete the questionnaire. Prior to obtaining informed
consent, the aim of the study and the process of data collection were explained to the respondents so that
they could choose whether to participate or not. Respondents were also informed that confidentiality and
anonymity will be maintained since no personal identifiers were used.
DATA COLLECTION AND ANALYSIS
Primary data were collected through a structured questionnaire which was developed by the
researchers. The survey consists of a developed questionnaire. According to Huysamen (1994:p36), a
survey questionnaire may be used to obtain the biographical details and opinions of respondents and as
such it was perceived to be the appropriate tool for the study)
A questionnaire was developed for data collection purposes mainly from relevant SMME literature,
including the National Small Business Act of 1996. The questionnaire consisted of three sections:
biographical, small business activities and perceptual data. A 5-point Likert scale was used to gather the
data consisting of strongly agree, agree, uncertain, strongly agree and disagree. The questionnaire
consisted of questions pertaining to economic issues impacting on the sustainability of small businesses.
In each statement respondents had to indicate their degree of agreement or disagreement with the content.
DISCUSSION OF THE FINDINGS
Sample Realisation
The survey was conducted in the Mamelodi municipality area on 59 small business owners .The
respondents were asked to indicate the factors that affect their businesses negatively. Of the 59
questionnaires issued, 50 were returned. This made a response rate of 85%. The gender distribution of the
respondents consisted of 32 (64%) males and 18 (36%) females. The respondents are from the following
racial groups: African 38 (76%), whites 2 (4%), Indians 4(8%) and coloreds 6 (12%). The participants
were from the following sectors: food outlets 12 (24%), general dealers 21 (42%), garages 3 (6%), liquor
outlets 4 (8%) and other 10(20%). A list of these businesses operating in the Mamelodi was obtained
from the Municipality and the list was used as the base line for the inclusion in the study. The inclusion
criteria were: a business should be registered, being in operation for three years and above.
DISCUSSION
The 5-point scale on all items was transformed into a 3-point scale indicating agreement, uncertainty
and disagreement. In other words, strongly agree was merged with agree and strongly disagree with
disagree. The rationale for this merging was that the researchers were of the view that a tripolar
dimensional approach of agree-uncertain-disagree would provide stronger, yet simpler explanations of the
perceptions of respondents. Owing to the small sample size, only descriptive and non - parametric data
analysis procedures were done for this specific study (Mazzocci, 2008). For the purpose of this article,
data is only being presented in percentages.
TABLE 1
ECONOMIC ISSUES IMPACTING NEGATIVELY ON THE BUSINESSES SURVIVAL
Economic
Issues
Strongly
Disagree
DisAgreeNeutral AgreeStrongly
Agree
1 2 3 4 5
1. Exchange rate volatility 0
0%
0
0%
25
50%
15
30%
10
20%
2. Increase in interest rates 0
0%
0
0%
10
20%
25
50%
15
30%
3. Increased inflation 0
0%
0
0%
15
20%
20
50%
15
30%
4. Cost of transport 0
0%
0
0%
10
20%
25
50%
15
30%
5. Banking costs 0
0%
0
0%
10
20%
25
50%
15
30%
6. Relaxation of exchange controls 0
0%
0
0%
25
50%
15
30%
10
20%
7. Lack of funds 0
0%
0
0%
0
0%
25
50%
25
50%
8. Competition from imports 0
0%
0
0%
15
30%
25
50%
10
20%
9. Recession 0
0%
0
0%
10
20%
15
30%
25
50
10. Communication costs 0
0%
0
0%
26
52%
14
28%
10
20%
The above table reflects the respondents perceptions regarding how economic issues affect the
sustainability of their businesses and each respond is discussed below.
EXCHANGE RATE
Based on the findings in table 1 above, 50% of the respondents agreed that exchange rate changes had
a negative impact on the success of their businesses. The rand has depreciated substantially since the end
of apartheid. By the end of 2003, it lost about 50% of its value. Most of this depreciation reflected a
higher inflation rate in South Africa than that of its trading partners. In real effective terms, the rand went
down by almost 15% between 1994 and the end of 2003, having peaked at 35% at the end of 2001. The
currency experienced considerable volatility during this time, as some crisis patterns developed in 1998
and in 2001, with sudden depreciation followed by a recovery. Fluctuations in the real exchange rate may
be of great concern to policymakers and businesses. They may have a disruptive impact on trade flows if
hedging is costly or incomplete. They may also deter investment decisions associated with such trade
flows.
The rand has slumped over 30 percent against the dollar in 2008, due wave of risk aversion as global
economies grapple with the fall-out from a financial crisis with its roots in the U.S. mortgage market. The
rand is unlikely be rewarded from a cut in interest rates in the current climate. Nevertheless, the outlooks
for the global economy and South Africa have continued to darken since then. A tsunami of weak
economic indicators in recent weeks has bolstered the case for the bank to begin cutting rates at its
December 2007 meeting. This is imminent considering the car repossessions and looming job
retrenchments anticipated. It appears that the Reserve Banks Monetary Policy is left with little choice but
to cut the interest rates to build economic confidence. It is therefore believed that the South African
Reserve bank will take its cue from its major international peers who recently cut their interest rates. It
emerged that the European Central Bank cut their interest rates by 2.5% whilst Bank of England reduced
their interest by 2%.
INCREASE IN INTEREST RATES
The majority (80%) of the respondents felt that an increase in interest rates and inflation did on the
whole affect small businesses and this essentially means that when interest rates are high, consumers may
not have enough money to spend. News that growth slowed to 4,5% in the second quarter of 2007 is
unlikely on its own to convince the South African Reserve Bank (SARB) to keep interest rates steady,
given its mandate to fight inflation. But the cumulative three percentage point increase in lending rates
since June 2007 is just starting to bite, and there is still a good chance that rates will be raised again in
2008 to curb price pressures. Economic data is confirming that the South African economy is taking strain
from falling domestic demand, a trend which is exacerbated by the weakening global landscape. The
response in currency markets to the rate cuts shows that foreign exchange traders are no longer rewarding
the currencies of central banks taking aggressive easing measures.
INCREASED INFLATION
The majority (80%) of the respondents felt that an increase in inflation on the whole affect small
businesses. Consumer inflation excluding interest on mortgage bonds (CPIX) - the measure used by the
SARB for its inflation target - is expected to surge to 9,4% year-on-year in February 2008 from 8,8% a
month ago, an I-Net Bridge survey found. This will be the eleventh month running that CPIX has been
above the 6% upper target limit and will be significantly higher than the 4,9% seen a year ago.
Stats SA attests that food inflation had climbed to 13,4% year-on-year, continuing its upward trend.
Energy prices were also expected to remain key pressures for inflation after a 6% jump in domestic fuel
prices in December. It does not deter the fact that inflation could rise even further by the time the next set
of figures comes out. Price pressures are strongly evident in this economy. The annual increase of 7,2% in
the CPI for the historical metropolitan areas was mainly due to relatively large annual contributions in the
price indices for food (+2.7 percentage points), housing (2.0), medical care (0.5), household operations
(0.4), transport (0.4), education (0.4) and fuel and power (0.3).
COST OF TRANSPORT
As a result of changes in the political context that have opened South Africa to the world, economic
reality for South Africa has evolved dramatically in the last five years. For the first time in decades, South
Africa has been exposed to the forces of globalization and, as a result, has become far more linked into
patterns occurring in the larger global economy. This manifests itself in nearly every aspect of the
economy, from currency valuation to transport technologies.
LACK OF FUNDS
South Africa has limited financial resources and this has been confirmed by 100% of the respondents
who indicate that funding is a problem. In most instances, the commercial banks are not willing to
provide funding because most of the entrepreneurs do not have collateral securities. Findings confirm
what (Rankhumise, 2009; Mutezo, 2005) found that banks are still doubtful in financing SMMEs due to
the fact that they are deemed to be high risk borrowers. Funds are essential for start up or the expansion of
the operations.
COMPETITION FROM IMPORTS
Based on the findings from table 1 above, 100% of the respondents saw competition from imports as a
barrier to their business. The South African economy remains relatively concentrated, especially in
upstream production sectors such as iron and steel, paper and chemicals, and inputs such as telecomm-
unications and energy. In some cases market structure negatively influences the possibilities of
downstream production or service industry development. Competition law and industrial policies need to
be strengthened to counteract these factors. The mediocre performance of the small, medium and micro
business sector in terms of contribution to GDP and employment partly arises from the sub-optimal
regulatory environment.
RECESSION
From the survey findings, it emerged that 100% of the respondents agreed that recession is affecting
them. The impact is in such a way that some of the business may not survive in the closer future and some
is negotiating with the employees for retrenchment options. The situation needs government intervention
such as stimulus package to rescue the badly affected businesses.
COMMUNICATIONS COSTS
All respondents (100%) agreed that communication can be a huge cost to small businesses. South
Africas established and sophisticated indigenous information communication and technology (ICT) and
electronics sector comprises more than 3 000 companies and was ranked 22nd in 2001 in terms of the
total worldwide information technology (IT) spend. Growing at a rate of 50% per annum and fourth-
fastest growing cellphone market in the world, the South African GSM cell phone market has three
operators: Vodacom, MTN and CellC. The cost relating to communication is believed to be high
considering the fact that most of the entrepreneurs are using cell phones.
LIMITATIONS OF THE STUDY
The study focused only in the Mamelodi municipality and as such the researchers are unable to claim
any generalization of the findings. Since participation was said to be voluntary, it can be that there may
have been some differences in responses with those who did not choose to complete the questionnaires.
Finally, another study could be important on a broader scale preferably in the entire Gauteng as a
province or include SMMEs in other provinces with the view of exploring further the findings of this
specific study so as to allow for generalization.
CONCLUSIONS
The discussion in this paper articulated the sentiments from SMME owners in the Mamelodi
municipality regarding the economic factors that are affecting their businesses negatively. It is posited in
this article that economic factors are regarded as major obstacles that affect the success of the businesses.
The current economic outlook in the country is not good. The exchange rates, interest rates and
competition are deemed to be affecting the success of the SMMEs negatively. These particular factors are
experienced worldwide, and as a result many businesses are unable to survive. It would be appreciated if
the central of bank in South Africa can consider the reduction of interest rates with the aim of building
business confidence. It is arguable that though the environment is conducive to start a business, exchange
rates and interest rates still remain a challenge for the businesses. This could result in a situation where
owners will inflate prices drastically and they will be compelled to retrench their workers and ultimately
close their operations. It could be argued that economic factors have negative impact on the survival of
the businesses.
In conclusion, it is noted from the findings of this specific study that economic issues are major
barriers for the businesses to be sustainable and the owners have no control whatsoever on these issues.
Despite the South African central banks attempt to rescue the situation by cutting interest rates, but it is
still difficult to cope with the situation as most of the businesses where highly indebted. The viable rescue
plan could be the introduction of stimulus packages from the government.
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