organizational behavior: a study on managers, employees, and teams

Journal ofManagement Policy and Practice

North American Business PressToronto - Miami - Seattle

Journal of Management Policy and Practice

EditorDr. Daniel Goldsmith

Founding EditorDr. William Johnson

Editor-In-ChiefDr. David Smith

EDITORIAL ADVISORY BOARD

Dr. Bill Bommer, California State University, FresnoDr. Michael Bond, University of ArizonaDr. Charles Butler, Colorado State UniversityDr. Daniel Condon, Dominican University, ChicagoDr. Bahram Dadgostar, Lakehead UniversityDr. Deborah Erdos-Knapp, Kent State UniversityDr. Philippe Gregoire, University of LavalDr. Samanthala Hettihewa, University of BallaratDr. Jerry Knutson, AG EdwardsDr. Tony Matias, Matias & AssociatesDr. Patti Meglich, University of Nebraska, OmahaDr. Robert Metts, University of Nevada, RenoDr. Roy Pearson, College of William and MaryDr. Sergiy Rakhmayil, Ryerson UniversityDr. Robert Scherer, Cleveland State UniversityDr. Ira Sohn, Montclair State UniversityDr. Carlos Spaht, Louisiana State University, ShreveportDr. Ken Thorpe, Emory UniversityDr. Robert Tian, Medialle CollegeDr. Calin Valsan, Bishop's UniversityDr. Anne Walsh, La Salle UniversityDr. 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 ..........................................................................11Mary 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 ...............................................................21Heidi 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 ..........................................................................................................27B. 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 ................................................................36John 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 Japan�’s late start in this policy, its ongoing successes and challenges are highlighted here.

Before the Attack: A Typology of Strategies for Competitive Aggressiveness ......................49Jeffrey E. Stambaugh, Andy Yu, Alan J. Dubinsky

We argue that a firm�’s 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 ................................................................64Kameliia 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.............................76Sami 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 ............................88Belal 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 today�’s 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.................................................98Daniel 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? ........................................................................................108D.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 personallyvisiting 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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The Journal of Management Policy and Practice is dedicated to the advancement and dissemination of management theory, standards and practices by publishing, through a blind, refereed process, ongoing results of research in accordance with international scientific or scholarly standards. Articles are written by business leaders, policy analysts and active researchers for an audience of specialists, practitioners and students. Articles of regional interest are welcome, especially those dealing with lessons that may be applied in other regions around the world. This would include, but not limited to areas of strategic marketing, strategic management and policy, managerial finance and accounting, management information systems, human resource management, business law, organizational theory and behavior, operations management and production. Focus of the articles should be on applications and implications of business, management decisions and performance. Theoretical articles are welcome.

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Paradigms and Patterns: Assessing the Multicultural Aptitude of Students at a Midwest University

Mary RittenhouseUniversity 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 today�’s 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 today�’s 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 21st 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 one�’s lifetime.

Mark TwainInnocents Abroad (Twain, 1869)

It is with common agreement that today�’s 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 today�’s 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, acquiringglobal 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: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.

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.

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 student�’s 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 1U.S. STUDY ABROAD STUDENTS

2005/2006 2006/2007U.S.

% Change223,534 241,791 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.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. 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. 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. 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 1PARADIGM 1

130200

499 2 1

050

100150200250

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 2PARADIGM 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)

33.2Agree 51.2Neither Agree or Disagree 12.5Disagree 2.3Strongly DisagreeNo Response

0.5 0.3

CHART 2PARADIGM 2

84

186

104

160 1

020406080

100120140160180200

Strongly agree

Agree Neither agree no disagree


Noresponse

INTERNATIONAL EXPERIENCE AND EDUCATION WILL BE AN ADVANTAGE IN

GETTING INTO GRADUATEOR PROFESSIONAL SCHOOL


TABLE 3PARADIGM 2

INTERNATIONAL EXPERIENCE AND EDUCATION WILL BE AN ADVANTAGE IN GETTING INTO GRADUATE OR PROFESSIONAL SCHOOL

Percentage(%

Strongly Agree)

21.5Agree 47.6Neither Agree or Disagree 26.6Disagree 4.0Strongly DisagreeNo Response

0.0 0.3

CHART 3PARADIGM 3

HAVING INTERNTAIONAL XPERIENCES WILL BE BENEFICIALTO MY CONTRIBUTION AS A MEMBER OF THE LABOR

FORCE AND A CITIZEN OF A GLOBAL ECONOMY

101

188

79

15 5 30

50

100

150

200

Strongly agree

Agree Neither agree or disagree


Noresponse


TABLE 4PARADIGM 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 25.8Agree 48.1Neither Agree or Disagree 20.2Disagree 3.8Strongly Disagree 1.3No 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 4PATTERN 1

DO YOU SEE YOURSELF TRAVELING INTERNATIONALLY?

192

199

188190192194196198200

Yes No


CHART 5PATTERN 2

TABLE 5PATTERN 1

DO YOU SEE YOURSELF TRAVELING INTERNATIONALLY?

Percentage

Yes 49.1

(%)

No 50.9

TABLE 6PATTERN 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.

163227

10

50100150200250

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 from academic 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.

Calleja, D. (2000). The world at your door. Canadian Busines , 108-111.

Chickering, A. &. (1993). Education and Identity (2nd ed). San Francisco: Jossey-Bass.

Institute of International Education. (2008). Open Doors 2008: Report on International Educational Exchange. Retrieved September 10, 2009, from Study Abroad by U.S. State: http://opendoors.iienetwork.org/?p=131563

Institute of International Education. (2003). Open Doors Statistical Summar: U.S. Study Abroad 2003 Data Tables - Participation by All Institutions. New York, New York: Institute of International Education.

Ledwith, S. &. (2001). Home and away: preparing students for multicultural management. International Journal of Human Resource Management, 1292-1312.

Ortiz, J. P. (2004). International business education in a global environment: A conceptual approach. International Education Journal, 255-265.

Slate, E. (1993, October). Success depends on an understanding of cultural difference. Human Resources Focus , 16-17.

Smith, D. G. (2000). The benefits of diversity: What the research tells us. About Campus, 5(5), 16-23.

Twain, M. (1869). Innocents Abroad. Harmondsworth, Middlesex, England: Penguin Books Ltd.

University of Nebraska at Kearney. (2008, Fall). College Portraits - University of Nebraska at Kearney - Student Characteristics. Retrieved September 10, 2009, from University of Nebraska at Kearney: http://www.collegeportraits.org/NE/UNK/characteristics

Wilson, A. H. (1993, Winter). Conversation Partners: Helping students gain a global perspective through cross-cultural experiences. Theory in Practice, 21-26.


Recession Compassion:7 Steps on How to Treat Employees to Get the Best Performance

During These Global Economic Times

Heidi K. BarclayMetropolitan State University

Colorado State University

Allen C. BarclayMetropolitan 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. Today�’s 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 one�’s having an innate respect and fondness for the other person.�” (Sorrell, 1991) This includes an understanding of their cultural identity.

Compassionate LeadershipGoing 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 others�…build relationships with people within the company because that�’s 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 employee�’s 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 LeadershipWith 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 leader�’s 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 besurprised. Knowing about an employee�’s 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 CompassionTo 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 awareness7. 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 employer�’s 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 organization�’s 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.

DiversityThe 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 innew ideas and contributions. A majority of employees feel underappreciated, according to a 1999 survey. Forty percent of employees who rated their boss�’s 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 organization�’s 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, it�’s 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 expresses�…becoming 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 tobecome 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 besuccessful. 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 C�’s in Public Personnel Management, 20(3).

Taylor, A. (2007). America�’s Best Car Company, Fortune, March 7, 2007.


A Study of Hard Drive Forensics on Consumers�’ PCs: Data Recovery and Exploitation

B. Dawn MedlinAppalachian 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 today�’s 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 victim�’s 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 consumer�’s 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 TheftBeyond 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 person�’s 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 MethodsThe 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 HDData is written to the hard disk drive in clusters (the default size is 512 MB) by the drive�’s 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 system�’s �“delete�” function, the computer, to save time, only deletes the path or pointer to the file�’s 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 theread/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 FilesMany 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 RecoveryData 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 computer�’s hard drive.

TABLE 1SOFTWARE PACKAGES

Name of software package Cost for single user licenseSymantec�’s Norton Utilities $50 - $80Directory Snoop from Briggs Software

$39.95

Recover My Files from Get Data

$70

Win Hex $50 - $200 depending on featuresEasy Recovery from Ontrack $200 - $325 depending on featuresProDiscover 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 2INSTANCES 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 user�’s 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 waspurchased 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 client�’s names, addresses, phone numbers, social security numbers, and date of birth, almost everything one would need to assume another person�’s 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 individual�’s name as well as the other employees of the organization. All of this information is part of what forms one�’s 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, driver�’s and pilot�’s 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 individual�’s internet movement. As seen in Table 3, of the hard drives tested, 50% had cookies, 47% had temporary internetfiles, and 26% had mailboxes with accessible content.

TABLE 3CONTENT INSTANCES

CONTENT1 > 10

Instances11 > 100 Instances


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 son�’s schoolteacher in regards to their son�’s 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 individual�’s 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 4OTHER SECURITY RISKS

1 > 10 Instances

11 > 100 Instances


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, entitledSecure 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 �“Darik�’s 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 passes4) 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 today�’s 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.

REFERENCES

Fitzgerald, T. J. (2005). Deleted but Not Gone. The New York, November 2005. Retrieved on August 31, 2009 from http://www.nytimes.com.

Foley, L., Gordon, S., Barney, K., Rice, K., and Nelson, C. (2006) Identity Theft: The Aftermath 2006, Identity Theft Resource Center: San Diego, CA.

Garfinkel, S.L. & Shelat., A. (2003). Remembrance of Data Passed: A Study of Disk Sanitization Practices. IEEE Security and Privacy. 1, (1), 17-27.

Gordon, G., Rebovich, D., Choo, K., and Gordon, J., (2007) Identity Fraud Trends and Patterns: Build a Data-Based Foundation for Proactive Enforcement. Center for Identity Management and Information Protection: Utica, NY.

Gutmann, P. (2006). Secure Deletion of Data from Magnetic and Solid-State Memory. In Proceedings of the 6th USENIX Security Symposium, San Jose, California, U.S.A.

Jones, A. & Valli, C. (2005). A UK and Austrailian Study of Hard Disk Disposal. Edwin Cowan University School of Computer and Information Science Conference Proceedings. 2005.

Jones, A. (2005). How Much Information Do Organizations Throw Away? Computer Fraud and Security.5, (3), 4-9.

Kwon, Y.C., Lee, S. W., & Moon, S. (2006). Advances in information and computer security. First International Workshop on Security, IWSEC 2006, Kyoto, Japan.

Microsoft, Inc. (2007). WD 2000: How Word for Windows Uses Temporary Files. Retrieved on June 6, 2007 from <http://support.microsoft.com/kb/q211632/>.

Minasi, M. (1999). The Complete PC Upgrade & Maintenance Guide, Tenth Edition. San Francisco, CA: Sybex.

Rosencrance, L. (2007). Ebay Auction Yields Drive Holding Political Data. Computer World. Retrieved on October 4, 2007 from <http://www.computerworld.com>.

Schneier, B. (2005). Risks of Third Party Data. Communications of the ACM. 48, (5), 136.

TechWeb News. (2005). Seven in 10 Secondhand Hard Drives Still Have Data. Information Week.Retrieved on December 4, 2007 from <http://www.informationweek.com/story/showArticle.jhtml?articleID=163702381>

United States Defense Security Service. (2006). National Industrial Security Program Operating Manual (NIPSOM). Washington: GPO.


United States. Department of the Navy. Naval Information Systems Management Center. Remanence Security Guidebook. (NAVSO P-5239-26). Washington: GPO 1993.

Weeks, K. (2007). Hospitals Protect Data By Erasing Old Hard Drives. San Diego Business Journal, 23.


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 Japan�’s 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 Japan�’s 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 world�’s 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).

Japan�’s 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; Asia�’s 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 Japan�’s 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 Japan�’s 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 isn�’t 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). Japan�’s 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 leader�’s of the world�’s 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 Japan�’s 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 world�’s 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; World�’s 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 Japan�’s 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. Japan�’s 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 country�’s economic policy. Japan�’s economy has been in the doldrums for over a decade but there are now geopolitical incentives to change as the world�’s 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

China�’s emergence as a regional great power is creating significant new uncertainties for Japan that includes concerns about Japan�’s place and leadership role in the Asia-Pacific region. At the same time, China is challenging Japan�’s 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. India�’s very credible economic performance has, to a degree, been elliptical to the Chinese success story. Japan�’s 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 Japan�’s exports by value. Being more closely tied to fast-growing China is a welcome development for Japan�’s 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 acounterbalance 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 China�’s 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 world�’s 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 world�’s 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 People�’s 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 Japan�’s fourth largest trading partner and Japan is Taiwan�’s 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 China�’s strength and regional interests grow, too, more and more of Japanese policy will be shaped by China. It certainly explains Japan�’s 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 Union�’s 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 panel�’s 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 world�’s largest free trade area. Its $6 trillion in combined gross domestic product makes it the world�’s 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 ASEAN�’s 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, China�’s share of ASEAN�’s 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 Australia�’s trade �– roughly equal to the country�’s trade with China. The agreement covers some 70 percent of Australian trade with ASEAN and will eliminate tariffs on 96 percent of Australia�’s exports to ASEAN by 2020. For New Zealand, ASEAN collectively is the country�’s 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).

JAPAN�’S 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 Japan�’s 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 country�’s finances retain considerable strengths. Nevertheless, the warning about


downgrading the rating for Japan highlights the dilemma that hangs over Japan�’s 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 Japan�’s 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 country�’s borrowing, threatening to downgrade the nation�’s 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 Japan�’s 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. Japan�’s 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 Japan�’s 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, doesn�’t say how it will finance measures necessary to generate growth and as duly noted, Tokyo�’s 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. Japan�’s 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 region�’s 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.

Asia�’s 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, Japan�’s basic trade policy on CEPAs is as follows:

Creation of an international environment beneficial to Japan Community building, stability and prosperity in East AsiaStrengthen Japan�’s economic power, tackle political/diplomatic challengesReinforce Japan�’s position at multilateral negotiations (e.g., Doha round) Attainment of economic interests of Japan as a wholeExpand 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.Eliminate economic disadvantages caused by absence of CEPA/FTAContribute to stable imports of resources, safe and reliable foodPromote Japan�’s economic and social structural reformsSituation of the partner countries/regions and feasibility to realize CEPA

CONCLUSIONS

Certainly Japan is achieving many of the country�’s 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 Japan�’s continuous leadership capabilities, particularly in the face of China�’s and India�’s 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 YuUniversity of Wisconsin-Whitewater

Alan J. DubinskyMidwestern State University, Purdue University

We argue that a firm�’s 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 aspecific 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 investments�—personal, social, and financial�—with 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 firm�’s 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 firm�’s 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.

InnovativenessLumpkin 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 Mauborgne�’s (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 typifythe 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 Callaway�’s 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 AggressivenessLumpkin and Dess (1996, p. 148) define competitive aggressiveness as: �“a firm�’s 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 rival�’s strategy through a competitive move or reacting to the rival�’s 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 BehaviorChen (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 firm�’s 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 factor�—the firm�’s 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 AggressivenessIn 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 rival�’s 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 rival�’s 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 rival�’s position�—targeting the same customers with similar products�—and is the essence of a competitively aggressive strategy (Porter, 2008). Precisely because the taking of competitive action does have potential negative implications for a firm�’s 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 ProfitabilityWe 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 other�’s 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 attacker�’s aim is to take market share from the rival or reduce the rival�’s 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 rival�’s 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 firm�’s 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 firm�’s 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-Mart�’s competitive repertoire demonstrates an attack on the profit margins of an erstwhile rival�—the electronics retailer Circuit City. Analysts estimated that virtually all of Circuit City�’s profits came from the sale of extended warranties on items such as televisions and computers. InOctober 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 Firm�’s ResourcesCompetitive 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 Barney�’s (1991) resource-based view (RBV) of the firm, which establishes that a firm�’s heterogeneous resource base is central to a firm�’s competitive advantage. Attacking a firm�’s 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-Mart�’s 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-Mart�’s rivals.

We suggest that targeting a rival�’s 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 firm�’s gain is almost certainly another firm�’s 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 rival�’s access or increase its rival�’s 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 competitor�’s cost structure and helped the venture preserve a relative profit margin advantage.

Google�’s 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 web�’s leading innovator. Theacquisition, 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 Netflix�’s web-ordering/mail-delivery business model) can serve to completely deny or slow a rival�’s 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 rival�’s use of the technology. Another tool is securing exclusive rights to a valuable resource. An example: AT&T�’s five-year lock-up of the Apple iPhone. Other exclusivity arrangements can perhaps be done almost invisibly.


Defect AttackThe 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 attacker�’s 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&T�’s 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 Stainmaster�’s 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 Google�’s 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-Mart�’s 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 andeventually 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 Lowe�’s 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 officer�’s customer base will follow (Hein, Koch, & MacDonald, 2005).

Debase AttackA debase attack can be subtle, and it principally undermines attacked rival�’s 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 rival�—Adobe�’s Flash technology. Apple CEO Steve Jobs publicly said: �“Flash looks like a technology that has had its day,�” and Apple�’s iPhone and iPad rejected the otherwise ubiquitous Flash technology (McNichol, 2010, p. 28). Bydevaluing Flash, Apple was aiming to convince software and application developers to abandon Flash as a platform. Doing so would, in turn, cripple Adobe�’s major revenue stream and devalue its past andongoing investments in Flash. By debasing the resource base of a rival, the attacker potentially decreases that firm�’s 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 1FOUNDATIONS 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 theattacking 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 2TYPOLOGY 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 attacker�’s. 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 Frontier�’s 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 completelyeliminate 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 rival�’s name? Apple Computer!

Quadrant II: High Intensity Aggression Against a Weaker RivalUnder the defeat strategy, the focal firm seeks to force the rival�’s exit from a market. It may be a

complete firm failure or simply the competitor�’s 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 rival�’s 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. Afirm 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 asCompaq, 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 Microsoft�’s 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 Microsoft�’s bid to purchase Yahoo. Clearly, Google is seeking to undo Microsoft�’s 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 wars�—high stakes, significant damage to short- and medium-term profitability, and an uncertain outlook for long-term financial success.

DISCUSSION

SummaryA major purpose of this paper was to argue that a firm�’s 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. Weare 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 company�’s 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 rival�’s 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 firm�’s gain via resource attacks may well be a competitor�’s 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 rival�’s resources. Based on a (1) firm�’s 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 rival�’s. 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-à-vis its own resources and those of its rival, as well as its own strategic focus.


Future ResearchThe 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 rival�’s 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 PetrovaState 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 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).

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 transform their start-ups into successfully operating businesses; those with lower entrepreneurial ability 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 AbilityEntrepreneurship 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 one�’s 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 Cramer�’s 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.

LearningAnother 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, it�’s 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 ModelThe 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 AnalysisSuppose 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 testing2 is that the observations are collected one at a time; when observation Xi = xi 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 Xi+1. The decision maker has to find out when to choose which of the above options.

The Sequential Probability Ratio TestConsider a simple hypothesis H0 0 against the alternative H1 1

= Pr {Deciding for H1 when H0 0 when H1 is true}. H1 and H0 are treated symmetrically. The standard Likelihood T =

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 =

The ModelIndividuals differ in their entrepreneurial talent �–

But he knows that he is a random draw from either , and = , , and he is trying to decide on one of them.

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 1OPTIMAL DECISION

Select Collect more observations Select

0 1

Let the conditional probability that the true density is be = P (�ƒ = ). The conditional probability is generated recursively according to the system of equations on Figure 2.


FIGURE 2RECURSIVE 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 3OPTIMAL 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 4OPTIMAL 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 acceptif < , 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 everyp [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 showthat there exist numbers and , with , such that when the conditional probability is , theentrepreneur'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 isrepresented on Figure 5.

FIGURE 5OPTIMAL DECISION

accept if ,accept if

continue observing if .

The scalars and are determined from the solution of the system:


(10)(11)

Extension to Infinite HorizonWhen the optimal decision is extended to an infinite horizon, the two scalars and satisfy the

following conditions represented on Figure 6.

FIGURE 6CONDITIONS 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 DeterminationThere 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 costsand can be determined as follows. If is the cost incurred when the entrepreneur makes an incorrectchoice of becoming a full-time entrepreneur instead of returning to the outside paid job, then theopportunity cost will be equal to the forgone wage w. Alternatively, if is the cost incurred when theentrepreneur 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 indifferentbetween the two options at period T with finite horizon. Also, it serves as a critical value, such that thepart-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 equalto . 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 priorprobability 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 GroupFrom 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 StatisticsNascent 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 1DESCRIPTIVE STATISTICS:

PANEL STUDY OF ENTREPRENEURIAL DYNAMICS, WAVE 1 (1998-2000), N=1,049

VariableControl group

N = 386Part-time Entrepr

N = 469Full-time Entrepr

N = 194Mean 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 StatusMarried 60% (0.49) 68% (0.47) 66% (0.47)

ExperienceYears 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 participationFull-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)

IndustryAgriculture, 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 thatindustry 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 don�’t 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 Schuler�’s 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 Chandler�’s (1962) argument that an organization�’s 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 can�’t 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:

the use of planning;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�’; matching HRM activities and policies to some explicit strategy; andseeing 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 anddevelopment 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 HPWS�’s 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 upto 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 only�—where 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; andiv. 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 1ASPECTS OF NATIONAL FACTORS DETERMINING CROSS-NATIONAL HRM

I-National CultureSocialization 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-InstitutionsNational 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 SectorCommon 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 EnvironmentCompetition, 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:

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. They adopt salary structure to a minimum statutory one and it doesn�’t match the competencies of the individuals. Moreover, they don�’t look for retaining local skills or encouraging their self development. 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. 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 country�’s 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 Mary�’s 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 today�’s 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 21st 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, explainingthe 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 organization�’s 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 organization�’s 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 individual�’s 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 today�—whether it�’s measured in dollars or sales


or goods or widgets�—it�’s never enough�” (p. 3). The four P�’s to understanding organizations as systems (Kaifi, 2010) is depicted in Figure 1:

FIGURE 1ORGANIZATIONS 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 People�’s 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 author�’s 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 today�’s 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 team�’s 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 other�’s 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 thatenhance 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 1MANAGER�’S DEMOGRAPHIC

Gender Management Respondents

Age Group 30 and above

five years of team management experience

Bachelor�’s Degree

Male 50 46 48 43Female 50 50 42 39Total 100 96 90 82

TABLE 2EMPLOYEES�’ DEMOGRAPHIC

Gender EmployeeRespondents

Age Group30 and above work experience

Bachelor�’sDegree

Male 100 75 63 67Female 100 62 54 59Total 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 bachelor�’s 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 bachelor�’s 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 35-POINT LIKERT SCALE KEY

1 Never2 Rarely3 Sometimes4 Often5 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.

ResultsThe 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 4Female managers will have higher scores on communicating with employees.

Descriptive Statistics and T-test of two means.

Gender Mean Standard Deviation Sample SizeMale 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 5Female managers will have higher scores on becoming influenced by group think.



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 6Female employees will contribute to team outcomes more than male employees.



Female 41.48 5.42 100t = 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 that�’s 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, �“There�’s no substitute for personal experience when we want to connect with people�’s hearts�” (p. 63). Connecting to people�’s 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 don�’t, 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. They�’re confident because they know what they can and can�’t 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 21st 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. Galbraith�’s (2010) explanation of women�’s 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 today�’s 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 today�’s 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 people�’s 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 people�’s careers and workplace interactions and therefore is worthy of continued scholarly investigation.

REFERENCES

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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 RubensFlorida 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 China�’s 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. China�’s 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 China�’s 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 improving1, 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 China�’s 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. universitieshave 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 Denver�’s 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 PartnershipsFlorida 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 toAdvance 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 culturalagreement 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 1FGCU PARTNERSHIP ARRANGEMENTS

Programs Currently Operating:Tuition Exchange Program. 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.

Undergraduate 2+2 (transfer student) Program. 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. 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 Master�’s Degrees from FGCU.Faculty exchange programs. FGCU�’s agreements provide for exchanges of faculty to enhance promote faculty linkages, enhance faculty development, and to promote collaborative research.Visiting student summer program. 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. 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 atYantai 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

FGCU�’s 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 FGCU�’s 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 UniversityKeuka 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 China�’s Ministry of Education. The officials from the Ministry, liking what they saw in Keuka�’s programs, suggested that the current four schools were really more appropriate and at the stature best suited for Keuka�’s 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 IntermediariesThe 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.

FGCU�’s 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 FGCU�’s president. In the case of Yantai University and Binzhou Medical University, the partnership was initiated by a Chinese born American academic with ties to Yantai�’s 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 SchoolsThe 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 China�’s 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 islocated. 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 school�’s 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. Afailure 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 andadministrative 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 University�’s 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 CommitmentDeveloping 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 PartnersThe 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 Maryland�’s, Robert H. Smith School of Business and China�’s 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 country�’s 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. 53�–83).

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. TshabalalaUniversity of South Africa

EM RankhumiseTshwane 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 colored�’s 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 1ECONOMIC ISSUES IMPACTING NEGATIVELY ON THE BUSINESSES SURVIVAL

Economic

Issues

Strongly Disagree

DisAgree Neutral Agree StronglyAgree

1 2 3 4 51. 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

5010. 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 Bank�’s 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 Africa�’s 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 areexperienced 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 bank�’s 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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