Layered System and Outcomes Focused based Approaches to Aviation Security

Layered System and Outcomes Focused based Approaches to Aviation Security

Introduction

With increased terror activities over the last couple of years, airport security has been threatened to a huge extent. Taking this into account, enhancing aviation security has been top of agenda in most countries across the world for the aim of ensuring that the safety of the passengers is not compromised. According to Ormerod and Dando (2015), aviation security typically takes into account techniques as well as methods used in protecting passengers, employees, as well as planes from malicious harm, crime, and other security threats.  Airports typically face a wide range of unique challenges as they have to ensure that the security of the passengers is guaranteed without affecting the time. This explains why aviation security is vital in all airports. According to Hall (2015), the current aviation security has popularly been built on physical measures and technologies being integrated into the basis of layered security. However, the outcomes focused based approach to aviation security is being proposed to replace the layered system. Taking this into account, this essay seeks to compare the layered and the outcomes focused based approach to aviation security.

The Layered system approach

According to Gupta et al. (2010), layered security in aviation typically describes the practice of combining a wide range of mitigating security controls for the purpose of preventing entrance of potential threats.   In this method, multiple layers of defence are employed, which plays a profound role in resisting penetration by an attacker.  According to Blandón-Gitlin et al. (2014), despite the fact that most of the checkpoints in most airports are usually readily recognisable, there are other critical layers of security put in place in order to mitigate risks that are invisible to the public including intelligence analysis as well as behaviour detection officers.  Notwithstanding the fact that the each layer alone is typically capable of stopping a potential threat or attack, through combination of different layers, the security value is enhanced considerably through creating a formidable as well as strong security system.  Taking this into account, it implies that a terrorist with an intention of causing attack is likely to be thwarted even before the attempt.   As such, De Lange et al. (2013) have explained that through the layered approach to aviation security, the parking, terminal, and the perimeter are usually monitored carefully through a wide range of technologies capable of detecting possible threats. These have been depicted in the airport layout figure 1 below;

Figure 1: Airport layout

Source: De Lange et al. (2013)

At the airport parking, careful planning and right technology is put into account in order to enhance security. Precisely, for the purpose of keeping track of all vehicles coming and going out of the airport, airports typically employ access control systems (ACS). These systems play an imperative role when it comes to managing access to approved parking areas. Additionally, the automatic license plate recognition (ALPR) helps in managing the payment of parking fee at the airport. This has been echoed by Hall (2015), who has affirmed that ALPR cameras are considered fundamental particularly when it comes to allowing for unmanned 24/7 surveillance at the parking lot. This ensures that unusual activities are easily monitored, thus enhancing the security at the airport.  Additionally, through integration with video surveillance, the forms of technologies employed at the airport parking play a substantial role in enhancing car park efficiency as well as passenger’s experience.  In fact some of the airports have been found to employ data from the ALPR  and video management software (VMS) in indicating location of empty sports, preventing illegal parking, improving traffic, allowing automatic entry of authorise vehicles,  as well as assisting car owners in locating their parked cars.  These systems, as denoted by Baker and Benny (2012) also play a vital role in ensuring that there is smooth flow of traffic particularly during the peak hours. Through these technologies in place it can be deduced that security at the airport parking is enhanced to a considerable extent.

When it comes to the terminal, Aradau (2010) has noted that airport terminal typically a lot of personnel for the purpose of enhancing smooth operations.  According to Bellanova and Fuster (2013), the terminal is considered the most critical point of airport. This explains why security measures in this area are never left to any chance.  In this view, at the airport terminals, access control as well as video surveillance is considered pertinent in regards to promoting public safety as well as safety inside the terminals of the airport.  Through keeping the records of personnel movement throughout the airport terminals as well as enhancing management of access rights, the access control systems typically allow airports security to monitor as well as control access to the many doors at the terminals effectively and efficiently.  Through integration with video surveillance, the access control systems are usually able to display the pictures and credentials of the cardholders within video tiles. Through this, the security personnel is able to quickly verify the information of the cardholders from a central point.  Additionally, for the purpose of enhancing the security further particularly in the highly-sensitive areas within the airport terminal, some airports usually integrate biometrics including fingerprint readers as well as retina scan in their access control systems.  According to Blandón-Gitlin et al. (2014), with multiple cameras spread throughout the airport terminals, passengers as well as restricted areas can be monitored continuously. Consequently, the security personnel at the airport is able to detect possible security threats such as unattended objects,  instances of theft as well as loitering and motion in areas that are considered sensitive. Besides, through this, it is possible to easily track movement of suspicious individuals in the terminals through the use of pan-tilt-zoom (PTZ) camera.  As argued by Martin (2010), the use of video surveillance at the airport is also considered important to other groups at the airport, particularly when it comes to streamlining operations throughout the airport terminals.  For instance, Baker and Benny (2012) have emphasised that security groups and customers can be able to disport more agents in case congestion at the terminals is detected.  Moreover, through the use of an advanced video management system (VMS), Pütz (2012) has elucidated that video analytics software can play a profound role in processing data contained in real-time video streams. As a result, queue as well as crowd management can be enhanced considerably through the number of passengers in a particular line, number of opened positions, as well as the flow of passengers existing a specific area.  The data gathered can then be used effectively in determining the average waiting time at critical locations. Through this, managers can be in a position of making appropriate decisions in terms of staffing together with allocation of resources (Pettersen & Bjørnskau, 2015). Overall, it can be argued that security at the airport terminals is enhanced to a substantial extent.  The figure 2 below depicts how checking is done at the terminals.

Figure 2: Passengers being checked at airport terminal

Source: Baker and Benny (2012)

In relation to perimeter, notwithstanding the fact that passengers normally access the perimeter of an airport only when an aircraft,  Aradau (2010) has argued that extending security measures outside the terminal, extended airport property, and aircraft taxi-ways is critical in ensuring  public safety. Taking this into consideration, for the purpose of securing airport perimeter, most airports typically use a wide range of intrusion as well as perimeter protection technologies. These include face detection sensors, microwaves. High resolution cameras, trip-wire analytics, and buried cable detection sensors.  Through this unified approach, De Lange et al. (2013) have asserted that perimeter detection devices normally the cameras to pan-tilt-zoom automatically for the aim of enhancing visual identification within the target area.  The video surveillance is then sent to the security monitoring centre directly for immediate verification as well as response. In fact with advancement of mobile technology, recent systems have been customised to send alerts to smart phones of the security personnel at the security monitoring centre.  As denoted by Bellanova and Fuster (2013), through deployment of perimeter detection technology coupled with a wide range of location-mapping tools, airports can be in a position of minimising the risk of security breaches going undetected.  Response time is also reduced significantly through deploying these forms of technology.  In a study conducted by Ghylin et al. (2014), managing these forms of technologies directly from an integrated mapping system plays fundamental role when it comes helping the various operators in quickly pinpointing other cameras nearby for the purpose if getting a wider view of the situation as well as confirmed location. Taking this into account, security at the airport’s perimeter is enhanced, thus boosting public safety significantly.

Owing to the high number of layers involved when it comes to using layered security, Wu and Mengersen (2013) has explained that for the aim of ensuring the security as well as safety of the public at airports typically require deployment of multiple technologies as well as systems.  Nonetheless, according to Schouten (2014), the most critical forms of technologies deployed in enhancing security include explosives trace detection, wireless communications, and advanced technology X-ray. As regards to explosive trace detection, Wetter (2013) has explained that this form of technology has been used in screening the items of the passengers for possible explosive materials. Additionally, the technology has also been used in screening the hands of the passengers for the aim of determining whether they have come into contact with any form of explosive material.  This is as depicted in the figure 3 below. `The use of this technology is relatively new, and is currently being deployed in various airports across the world in detecting a wide range of explosive materials as well as their components.  According to Martin (2010), airports are using this flexible technology in new ways as well as in new locations beyond the convectional checkpoints such as departure gate. Through the technology, it has become possible for airports to mitigate various attacks from explosive materials.  When it comes to wireless technologies, radio equipments have been deployed extensively at various airport checkpoints to not only reduce noise at the airports but also allow security personnel to communicate effectively in attempt to enhance security. Such forms of communication are intended to share information regarding various anomalies that the security officers may encounter during screening.  Through this, it becomes easier to respond promptly to any form of threat identified.  In relation to advanced imaging technology, McLay et al. (2010) has argued that it has been regarded as one of the strategies introduced a couple of years ago in attempt to enhance aviation security.  As such, advanced imaging technology has leveraged in backscatter as well as millimetre wave technologies in enhancing security at the airport. Precisely, these technologies play a vital role in allowing security personnel in detecting metallic as well as non-metallic threats that have been concealed under layers of other harmless materials such as clothing without physical contact. This has helped in curbing a wide range of evolving threats without interfering with the privacy of the passengers.  As a result, security has been tightened significantly.  Lastly, when it comes to advanced technology X-ray, Aradau (2010) has noted that most airports across the world have deployed these screening devices in screening the carry-on baggage of passengers.   In light of this, these devices have been found to enhance the threat-detection capabilities of airports to a huge extent. Liquid screening technology has also been used in airports in enhancing liquid detection capabilities.  On this, most of the airports across the globe are now using a new bottled liquid screening system, which use light waves in screening sealed containers. This is primarily for the purpose of detecting a wide range of explosive liquids.  Despite the fact that this technology is usually used in distinguishing between harmful and harmless liquids, Gupta et al. (2010) have affirmed that it can also be used in detecting various explosive materials.

Figure 3: Explosive trace detection

Source: McLay et al. (2010)

As asserted by De Lange et al. (2013), in relation to the layered security approach, an IP-based platform has been found to the most extensible, effective, and efficient at of deploying the aforementioned forms of technologies.  This is because it enhances integration as well as unification of various technologies thus ensuring more effective collaboration. Consequently, faster response times are realised in the case of threats of security and public safety. Through standardisation of security operations such as monitoring, reporting, as well as alarm management into a single platform, Gupta et al. (2010) have emphasised that productivity in regards to airport security can be realised. Additionally, operational costs can be reduced to a huge extent.  Through working with an integrated system such as Genetec Security Centre, it can be possible for airports to manage both its on-board and fixed systems under one platform. This as a result helps greatly in monitoring all aspects of operations in the airport without the need to switch from one application to another. The overall result of this is substantial improvement of airport security.

The outcomes focused based approach

According to Ghylin et al. (2014), threats to the aviation industry have evolved constantly in the recent past.  As such, Kölle et al. (2011) have argued  despite the fact that the layered approach has to a huge extent helped in mitigating possible threats to the aviation industry, evolvement of threats has rendered this approach to a considerable extent.  Therefore, a plethora of positivism schools of thoughts have affirmed that aviation security measures need to be flexible and proactive for the purpose of mitigating these threats, while enhancing continued growth of the aviation industry.  Taking this into account, the outcomes focused based approach has been regarded to be the most effective approach when it comes to guiding the creation as well as development of aviation security measures that are sustainable.   According to Ng and Nudurupati (2010), desire outcomes typically play a pertinent role in outlining those standards that need to be achieved.  This notwithstanding, states are given the flexibility of determining the best approaches that can be implemented in order to achieved the desired outcome through taking into account  the local circumstances as well as risks.

It has been established that security threats to aviation are a global issues with insignificant regard to state borders. However, security threats have been found to manifest different in different countries. Besides, local factors normally determine the occurrence as well as nature of the threat.  Therefore, through the use of the outcomes focused based approach, it provides insights in regards to how training and equipment, finance, as well as local situations shape the manner in which attacks are planned as well as executed.  Over the last couple of years, various incidences have depicted the varying ways in which terrorists can attack. For instance, in 2009, Al-Queda, one of the largest terror groups in the world attempted to detonate a person-borne IED on the Northwest Airlines flight (Ormerod & Dando, 2015). In another incident by a separate group, a person-bored IED was detonated inside Moscow International Airport. Taking these illustrations into consideration, it can be noted that the methods used by attackers vary largely depending on the environment.   In this connection, it can be argued that diversification as well as adaptability is key when it comes to enhancing security in the aviation industry.

The outcomes focused based approach usually upholds that all countries normally have unique aspects that impact the conduct as well as sustainability of their operations in ensuring aviation security.   This is unlike the layered system approach, which assumes that all security threats can be mitigated through the same way irrespective of the involved countries (Pettersen & Bjørnskau, 2015).  Besides, the outcomes focused based approach also upholds that culture and history normally play an undisputable role in shaping the focus and structure of the security procedures. Therefore, this approach, unlike the layered system approach, advocates for integration of these aspects when devising security measures in the aviation industry.

Unlike in the layered system approach, the outcomes focused based approach  have been found to found to be sustainable to a huge extent owing to the fact that they are resilient, effective, as well as resource efficient.  Hall (2015) has outlined that this approach typically allows states the flexibility they deserve through allowing them to adopt aviation security measures that are more practicable in regards to achieving the desired outcome.  Taking this into account, unlike the layered centred approach, the outcomes focused based approach is flexible owing to the fact that it allows different states to shift their resources quickly to areas that are regarded as high risks. In a study conducted by Rodrigues and Cusick (2012) on recent attacks and attempted attacks have confirmed that most of terrorists normally leverage on perceive gaps in the security architecture of a state.  Through this, the terrorists can easily adapt to the changes, which can make it possible for them to conduct terror attacks in the aviation industry.  Therefore, through the use the outcomes focused based approach, the states can be able to move their resources for the purpose of filling those gaps. This is particularly in the light of environment as well as financial constraints.  The outcomes focused based approach also helps the states in quickly pre-empting various emerging threats.   This sentiment has been echoed by Stevens et al. (2010), who have asserted that through the outcomes focused based approach, the aviation industry will also be flexible in relation to their ability to tailor their security measures in lie with their operating circumstances.  Consequently, airports are able to counter a wide range of contemporary threats, would otherwise be hard through the use of the layered system approach.

When it comes to the aspect of sustainability, Wu and Mengersen (2013) have argued that unlike the layered system approach, the outcomes focused based approach play a huge role in providing a long-term sustainability in light of the promulgated security standards.   As a result, a wide range of security threats to aviation can be addressed amicably in a manner that does not compromise the continued growth of the operations of the civil aviations.  Tawhid et al. (2012) have explained that over the last couple of years, terrorist groups have become innovative to a huge extent. As such, recommended settings and prescriptive standards cannot be able to keep pace with the innovative terrorists as well as evolving security threats.  In the argument of Hall (2015), recommended practices, which are upheld by the layered system approach, will need to be revisited every time there is a new threat.  Besides, these recommended practices will need to lengthy for the aim of covering all possibilities.  In fact, according to Kölle et al. (2011), in most situations, recommended settings have been seen to encourage a reactive culture, where new practices are developed after occurrence of incidences.  This is typically not sustainable particularly in the long run as it is the case in the layered system approach. However, with the outcomes focused based approach, states as well as the aviation industry will develop proactive measures, that will help in mitigating a wide range of security threats.

Additionally, according to Kölle et al. (2011), unlike the layered system approach, the outcomes focused based approach has been found to have high levels of efficiency. Specifically, the outcomes focused based approach normally uses risk assessments for the purpose of determining how security outcomes in the aviation industry can be realised through efficient uses of the available resources.  This sentiment is in accordance to the assertion of Ng and Nudurupati (2010), who emphasises that states should not have prescription regarding the amount resources of human capital needed in order to achieve the required security.  Therefore, through risk assessment, which has been advocated by the outcomes focused based approach, a state is able to balance the resources it allocates to aviation security while achieving the desired outcomes.  Still on this, outcomes focused based approach typically plays a pertinent role in creating a proactive culture that encourages flexibility as well as innovation, in an attempt to develop the best security practices of aviation, in both the public as well as private sectors.

According to Tamasi and Demichela (2011), the outcomes focused based approach enhances mutual validation as well as equivalence.  In this view common standards and outcomes In relation to aviation security are typically identifiable and understood clearly between states. Pragmatically, security outcomes are tied to a wide range of system performance measures that can be compared easily between states. Consequently, states with sophisticated security measures will be in a position of recognising the effectiveness and efficient of various approaches to the same outcome.  As such, it implies that the outcomes focused based approach will avoid one country or organisation relying on a mirror image of its own security practices when it comes to assessing the system of another state of organisation.  Therefore, as Stewart and Mueller (2014) explains, through the outcomes focused based approach different states can rely on each other in coming up with various security measures of mitigating threats in the aviation industry.

Lastly, according to Ng and Nudurupati (2010), the outcomes focused based approach is fundamental in enhancing cooperation of states. Specifically, Tawhid et al. (2012) have explained that one of the indirect benefits of the outcomes focused based approach it helps in building understanding between states.  Taking this into account, implementation of the outcomes focused based approach   will force different countries to understand the unique influences in countries. This when evaluating whether to recognise their security measures or not.  Therefore, it implies that states will have to be accommodative ad investigative when it comes to conducting bilateral assessments. Consequently, cooperation will be enhanced to a huge extent. Ultimately, states will be in a position of working together in devising a wide range of proactive strategies aimed at mitigating security in the aviation industry, both at local as well as international levels.

Conclusion

In conclusion, it has been established in this essay that aviation security is important as it ensures that the safety of passengers is enhanced. From this paper it has been established that the current aviation security has been built on physical measures as well as technologies being integrated into the basis of layered security. However, the outcome focused based approach to aviation security is has been proposed for the purpose of enhancing security. Unlike the layered system approach, the outcomes focused based approach  have been found to found to be sustainable  due to the fact that it is resilient, effective, as well as resource efficient.   As such, it allows states the flexibility they deserve through allowing them to adopt aviation security measures that are more practicable when it comes to achieving the desired outcomes. Therefore, implementing this approach will see security in the aviation industry improve significantly.

 

 

 

References

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Baker, P. R., & Benny, D. J. (2012) The complete guide to physical security. CRC Press.

Bellanova, R., & Fuster, G. G. (2013) Politics of disappearance: Scanners and (unobserved) bodies as mediators of security practices. International Political Sociology7(2), 188-209.

Blandón-Gitlin, I., Fenn, E., Masip, J., & Yoo, A. H. (2014) Cognitive-load approaches to detect deception: searching for cognitive mechanisms. Trends in cognitive sciences18(9), 441-444.

De Lange, R., Samoilovich, I., & van der Rhee, B. (2013) Virtual queuing at airport security lanes. European Journal of Operational Research225(1), 153-165.

Ghylin, K. M., Drury, C. G., & Schwaninger, A. (2011) Two-component model of security inspection: application and findings.

Gupta, K. K., Nath, B., & Kotagiri, R. (2010) Layered approach using conditional random fields for intrusion detection. IEEE Transactions on dependable and secure Computing7(1), 35.

Hall, R. (2015) The transparent traveler: The performance and culture of airport security. Duke University Press.

Kölle, R., Markarian, G., & Tarter, A. (2011) Aviation security engineering: a holistic approach. Artech House.

Martin, L. L. (2010) Bombs, bodies, and biopolitics: securitizing the subject at the airport security checkpoint. Social & Cultural Geography11(1), 17-34.

McLay, L. A., Lee, A. J., & Jacobson, S. H. (2010) Risk-based policies for airport security checkpoint screening. Transportation science44(3), 333-349.

Ng, I. C., & Nudurupati, S. S. (2010) Outcome-based service contracts in the defence industry–mitigating the challenges. Journal of Service Management21(5), 656-674.

Ormerod, T. C., & Dando, C. J. (2015) Finding a needle in a haystack: Toward a psychologically informed method for aviation security screening. Journal of Experimental Psychology: General144(1), 76.

Pettersen, K. A., & Bjørnskau, T. (2015) Organizational contradictions between safety and security–Perceived challenges and ways of integrating critical infrastructure protection in civil aviation. Safety science71, 167-177.

Pita, J., Tambe, M., Kiekintveld, C., Cullen, S., & Steigerwald, E. (2011, May). GUARDS: game theoretic security allocation on a national scale. In The 10th International Conference on Autonomous Agents and Multiagent Systems-Volume 1 (pp. 37-44). International Foundation for Autonomous Agents and Multiagent Systems.

Pütz, O. (2012) From non-places to non-events: The airport security checkpoint. Journal of Contemporary Ethnography41(2), 154-188.

Rodrigues, C. C., & Cusick, S. K. (2012) Commercial aviation safety. Columbus, OH: McGraw-Hill.

Schouten, P. (2014) Security as controversy: Reassembling security at Amsterdam Airport. Security Dialogue45(1), 23-42.

Stevens, N., Baker, D., & Freestone, R. (2010) Airports in their urban settings: towards a conceptual model of interfaces in the Australian context. Journal of Transport Geography18(2), 276-284.

Stewart, M. G., & Mueller, J. (2014) Cost-benefit analysis of airport security: Are airports too safe?. Journal of Air Transport Management35, 19-28.

Tamasi, G., & Demichela, M. (2011) Risk assessment techniques for civil aviation security. Reliability Engineering & System Safety96(8), 892-899.

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Using the IS/LM macroeconomic model explain why the effect on real income of a loosening in fiscal/monetary policy in an open economy does not depend on the slopes of the IS and LM curves but on whether the exchange rate is flexible or fixed

Using the IS/LM macroeconomic model explain why the effect on real income of a loosening in fiscal/monetary policy in an open economy does not depend on the slopes of the IS and LM curves but on whether the exchange rate is flexible or fixed

Introduction

IS-LM curve shows the real income and the interest rates that prevail along the economy. However, there has been debate on the effectiveness of the IS-LM to explain the effect of real income. This has been compared to the effectiveness of the flexible and fixed exchange rate regimes in explaining the changes in real income. In light of this, the aim of this essay is to use the IS-LM macroeconomic model that explains why the effect on real income of a loosening in fiscal/monetary policy in an open economy does not depend on the slopes of the IS-LM curves but on whether the exchange rate is flexible or fixed.

Lack of dependence on IS-LM model

The IS-LM model denotes the investment-savings, liquidity-money macroeconomic model. The model shows how the economic goods market (IS) interacts with the money markets (LM) (Keen, 2011). In a graph, the point of intersection of the IS and LM curve denotes the short-run equilibrium point whereby the interest rates and output are equal.

A close scrutiny of the IS-LM model indicates that the three exogenous variables are liquidity, investment and consumption. In this regard, liquidity is a function of the size and velocity of money supply. The level of consumption and investment are influenced by the marginal decisions and individual players within the economy (Decker and Wohar, 2012). In light of this, it appears that the IS-LM graph is effective in the examination of the relationship between the real output in the economy and the prevailing interest rates. This is because the IS-LM model breaks down the entire economy into two main markets of output and money and the respective supply and demand features that can push the economy towards the equilibrium position.

Using the IS-LM model to explain the effect of fiscal and monetary policy on real income shows that the changes along the IS-LM curve have a limited influence on the changes in real income. According to Krugman (2011), real income refers to the income that an entity realises after taking into account the influence of inflation on the purchasing power of the income. For instance, if an individual receives a 4% increase in income and the inflation rate of the previous year was at 2%, real income becomes 2%. This is the difference in income increase percentage over the proportion of inflation rate growth.

In the context of the IS-LM curve, a point of equilibrium is realised at a particular combination of real income and interest rate. At this point, there is no tendency to change because individuals are at a point of equilibrium in the allocation of wealth amongst a variety of asset classes.  In situations of a shift of the IS-LM curves it is perceived that the behaviour of the goods or money markets has changed. Changes in the behaviour are likely to affect real income and interest rate. For instance,   the IS-LM curve commences from a point of general equilibrium. This sets the behavioural functions that underlies the derivation of the IS-LM curve. The assumption made by this approach the desired expenditures are likely to increase thereby raising real incomes.

On account of the above discussion, it appears that changes along the IS-LM curve are transmitted to other sectors of the economy. As such, the final equilibrium system is realised as the changes are incorporated along the IS-LM curve (Krugman, 2011). It is clear that changes taking place in one curve can be transmitted to other sectors thereby resuming in balances being established in the context of real income and prevailing interest rates. The reason for this is because the IS-LM curve links the variables of interest rate and real income. Therefore a change in the behaviour in the money market is transmitted to the goods market and results in the realisation of another equilibrium position. On this account, the changes occurring along the IS-LM curve have a zero influence on the real income due to the corresponding changes in interest rates that take place as real income changes.

Dependence on flexible or fixed exchange rate

In contrast, the exchange rate is an important determinant of the relative economic health of a country. Citation by Zhao (2010) indicates that the exchange rate plays an important role in influencing the level of trade in a country. This perspective is important  to all free market economies across the globe. On this account, the flexibility or variability of the exchange rate plays an important role in influencing the level of real income in a country.

In flexible exchange rate regimes, changes in the exchange rate affect the real returns realised by investors (Taylor, 2001). For instance, an increase in the value of the local currency affects the real payments that are realised into the country. An increase in the value of the local currency makes exports more expensive thereby increasing the real income that is realised by traders in the local market.

On the other hand, the fixed exchange rate system has a limited influence on real incomes. This is because the fixed exchange rate regime ensures that the receipts and payments made for goods and services across national boundaries are fixed. In this regard, most monetary policies pick the fixed exchange rate regime because it ensures that the payments and receipts made are fixed. In this regard, the incomes realised by the exporters and importers are fixed and can be realised more clearly.

Conclusion

This essay set out to analyse whether the use of the IS-LM macroeconomic model explains why the effect of real income of a loosening in fiscal/monetary policy in an open economy does not depend on the slopes of the IS and LM curves but on whether the exchange rate is flexible or fixed. This essay established that the variability of real income is a factor of exchange rate being flexible or fixed. Unlike the exchange rate, the use of the IS-LM cannot be used to explain the changes in real income. This is because changes along the IS-LM tend to balance out at different equilibrium points between the interest rates and the real income.

References

Krugman, P. (2011) ‘IS-LM, The Opinion Pages,’ New York Times, 9(1), pp. 134

Decker, C. S., & Wohar, M. E. (2012) ‘Substitutability or complementarity? Re-visiting Heyes’ IS-LM-EE model,’ Ecological Economics, 74, 3-7.

Keen, S. (2011) ‘Debunking macroeconomics,’ Economic Analysis and Policy, 41(3), 147.

Zhao, H. (2010) ‘Dynamic relationship between exchange rate and stock price: Evidence from China,’ Research in International Business and Finance, 24(2), 103-112.

Yeyati, E. L., Sturzenegger, F., & Reggio, I. (2010) ‘On the endogeneity of exchange rate regimes,’ European Economic Review, 54(5), 659-677.

Taylor, J. B. (2001) ‘The role of the exchange rate in monetary-policy rules,’ American Economic Review, 91(2), 263-267.

 

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Economic Policy and International Monetary Fund

Economic Policy and International Monetary Fund

Introduction

The dawn of 2007-2009 financial crises witnessed the resurgence of IMF (International Monetary Fund) to its global agenda of providing financial assistance through its Economic Stimulus Programme. Since 2009, countries such as Bangladesh and Cyprus have been painted as the hub of the success stories of International Monetary Fund. To address the aftermath of European financial crisis in 2008, Cyprus borrowed a whopping $1billion in order to support her economic recovery and restore credibility of her financial institutions (International Monetary Fund, 2015). Moreover, IMF News (2012) asserts that amid the 2012 period, Bangladesh also borrowed $987 under the ECF (Extended Credit Facility) in order to address the imbalances in her balance of payments. Despite their success in restoring investors’ confidence and addressing the structural imbalances, the conditionality of IMF’s loans have been blamed for slowing countries’ economic growth. In this case, the conditionality of IMF loans involves the uncontroversial requirements such as anti-corruption measures, and highly the controversial ones such as privatization of public services and austerity. The adherence to IMF’s conditionality has revamped the economic prosperity of countries such as Cyprus and Bangladesh. For example, by adhering to austerity requirements of the $987M, IMF News (2012) asserts that Bangladesh managed to decrease her inflation rate from 11.89% in 2012 to 6.78% in 2013.

Based on this background this essay intends to delve into conditions required by IMF when providing loans to countries experiencing low investor confidence and outflow of capital. Secondly, the essay will outline whether it is necessary for countries to impose economic austerity as part of this adjustment. The essay ends in a conclusion.

Conditions Required by IMF When Providing Loans to Countries experiencing Low Investor Confidence and Outflow of Capital (2000 words)

Prior to the issuance of financial assistance, the International Monetary Fund conduct an accurate diagnosis of the elements constraining or determining the economic growth of country. According to IMF News (2012), this help the IMF to recommend the appropriate policy prescription concerning the structural reforms and macroeconomic policies, which are required to achieve sustainable and higher growth. The appropriate policy prescriptions by the IMF are normally described as IMF conditionality. That is, the terms and conditions that govern the issuance of finance assistance to countries experiencing economic problems such as low investors’ confidence and outflow of capital. These conditions are discussed below.

First, to enhance the functionality of the proposed loans in revamping investors’ confidence and balance of payment, the International Monetary Fund normally advocate for fiscal reforms for the recipient governments. On this note, Aslanidis and Otto (2017) explains that to restore investors’ confidence, the IMF mainly advocates for raising of direct taxes, which then leads to a decrease in real disposable income.  The principal aim of tightening fiscal policies is to tame country’s inflation, which has a disastrous effect on investors’ confidence. In regard to this, Trading Economics (2017) explains that amid the 2008 period, Cyprus inflation rate, 4.4%, was above the ECB’s recommended threshold of 2%. According to the author, the heightened inflation of rate in Cyprus causes a dip in investors’ confidence in investments, which take a long duration to mature. To tame the escalation of Cyprus inflation rate, the IMF recommended for a tightened fiscal policy that included the increase in corporate income taxation rate from 10% to 12.5%. Similarly, IMF News (2012) indicates that by agreeing to create a fiscal space by enhancing the tax revenue, the Bangladesh managed to decrease its inflation from 8.89% in 2012 to 6.78% in 2013.  The increase in corporate income taxation rate was to enhance the functionality of $1 billion in restoring credibility of Cyprus’ financial institutions as well as taming the inflation rates. According to Trading Economics (2017), the adherence to IMF’s fiscal policy prescription caused an abrupt drop in inflation rate from 4.4% in 2008 to 0.2% in 2009. This caused equilibrium between the aggregate demand of goods and aggregate supply of money, thus revamping investors’ confidence. Moreover, the policy prescriptions associated with tightening of fiscal measures are also meant to repair a country’s deficit balance of payment.  In this case, the increases in corporate income taxation rate decreases consumer discretionary income and as result, this reduces consumer spending on imports. For example, World Data Atlas (2016 asserts that by adhering to IMF policy prescription on fiscal measures Cyprus managed to reduce its current deficit from $-4.3billion in 2008 to $-2.0 billion in 2009. Similarly, after the adherence of Bangladesh to tightening of fiscal measures, the IMF News (2012) posited that Bangladesh’s current account to GDP moved from -0.35% in 2012 to 1.5% in 2013.

Moreover, to improve the functionality of issued loans in revamping investors’ confidence and restoring balance of payments, IMF also recommends for a policy change in country’s monetary policy. On this note, Henrik and Den (2016) explains that to establish price stability and the competitiveness of country’s exports, the IMF conditionality is mainly inclined towards contractionary monetary policy. In this case, contractionary monetary policy mainly involves enhancement in cash reserve requirement, increase in statutory liquidity ratio and increase in interest rate ratio. The implementation of IMF conditionality on contractionary monetary policy usually has two ramifications on the recipient countries.  First, Frederick (2015) explains that increase in interest rates, a facet of contractionary monetary policy, reduces consumer spending. As a result, this reduces the demand of import and consequently improves the country’s current account. Secondly, the enhancement of country’s interest rates helps to reduce inflation rates in a country. According to Cheol and Bruce  (2014), certainty and transparency in country’s pricing mechanism helps to increase the competitiveness of country’s exports in the international trade. This helps to improve a country’s current account. For example, prior to the issuance of €1bn (£854m) loan in 2008, the IMF demanded that the Cypriot government to increase tax rates on interest income from 15% to 30% (International Monetary Fund, 2011). According to World Data Atlas (2016), by adhering to IMF policy prescription on fiscal measures Cyprus managed to reduce its current deficit from $-4.3billion in 2008 to $-2.0 billion in 2009. Also, the implementation of increase in tax rates on interest revenue enabled the Cypriot government to reduce inflation rates from 4.4% to 0.2%.  The reduction in inflation rates from 4.4% in 2008 to 0.2% in 2009 enabled the Cypriot government to boost investor confidence. On this note, Xiouros (2013) explains amid the 2008 period Cyprus economy managed to attract €965 FDIs whereas in 2009 the Cyprus economy managed to attract €2,499. Similarly, prior to the issuance of $987 in 2012, the IMF demanded that the Bangladesh government to withdraw an interest rate ceiling of 13% and adopt contractionary monetary policy. According to International Monetary Fund (2013), the withdrawal of an interest rate ceiling of 13% was meant to enhance the functionality of IMF $987 loan in correcting the Bangladesh deficit current account. According to International Monetary Fund (2013), the adoption of contractionary monetary policy helped Bangladesh improve its current account from $1292 in 2012 to $1599 in 2013. In this case, the increase in interest rates, an outcome of contractionary monetary policy, increases the incentive to save and reduces the consumer’s disposable income. This reduces the demand of imports, thus improving a country’s current account.

Moreover, IMF conditionality also advocates for changes in the country’s fiscal policies before the issuance of loans. On this note, Erbas (2013) explains that fiscal policies include proposals that advocate for changes in taxation and government spending in order to propel the functionality of the economy. In countries experiencing loss of investor confidence and capital outflow, the International Monetary Fund advocates for a contractionary fiscal policy. In this case, contractionary fiscal policy elucidates proposals that advocate for a decrease in government spending as well as increases in taxation. For example, in 2011/2012 financial period, the inflation in Bangladesh economy had escalated to 11.89%. According to International Monetary Fund (2016), the heightened inflation rate of 11.89% had caused an abrupt fall in the foreign direct investments from $1292M in 2011 to 1136M in 2012. To boost investors’ confidence, the IMF demanded that the Bangladesh government should pursue a contractionary fiscal policy because the country was facing a demand-pull inflation. In particular, Crivelli and Gupta (2014) asserts that IMF demanded the Bangladesh government to create fiscal space by containing subsidy costs and increasing tax revenues. The motive behind containing subsidy costs and increasing tax revenues was to restore price stability by reducing the consumer’s disposable income in the Bangladesh economy. According to International Monetary Fund (2016), the IMF conditionality on contractionary fiscal policy was a success since the Bangladesh economy managed to attract $1599M FDI in the 2012/2013 financial period. Similarly, to restore investors’ confidence in the Cyprus economy, the IMF demanded the Cypriot government to increase country’s corporate tax rate from 10% to 12.5%.  IMF conditionality on fiscal policy is meant to control contain country’s inflation rates by controlling the economic output. For example, without some constraints on government spending, the country’s economic growth could be unstable, thus resulting in periods of unconstrained contraction and growth. As such, IMF conditionality on government spending and taxation is designed to mitigate and anticipate the effects of economic lulls of countries experiencing loss of investor confidence and deficit balance of payments. For example, to counter the deficits in the Bangladesh economy, the IMF demanded the Bangladesh government to redirect its resources to export processing zones. According to International Monetary Fund (2013), this was meant to revamp the country’s production capacity and reduce its reliance of imported goods. Similarly, prior to the issuance of $11.6 billion bailout, the IMF demanded the Cypriot government to cut its public expenditure budget. In regard to this, the then managing director of International Monetary Fund, Christine Lagarde, posited that the attachment of demands to amend Cyprus’s fiscal policies was to help in distributing the burden of price instability fairly among the different segments of the Cyprus population and protect the vulnerable groups.

The IMF conditionality on countries affected by loss of investor confidence also inclines towards imposition of capital levies. In regard to this, Levy and Levy (2012) asserts that capital levies are one-time tax that focusses on remitting funds from wealth holders with a sole of offsetting a country’s public debt. For example prior to the issuance of loan, the International Monetary Fund can demand the recipient government to impose a capital levy of 20%. This means that all wealth holders should remit 20% of their total wealth to the national government. In 2013, the International Monetary Fund and Cypriot government agreed a loan deal worth €10 billion. Part of this loan deal, included a one-time bank deposit levy, a facet of capital levy, of 6.7% for all deposits amounting to €100,000 and 9.9 percent for all deposits exceeding €100,000.  In restoring price stability and revamping investors’ confidence, Xiouros (2013) argues that imposition of capital levies by the International Monetary Fund act as an anti-inflationary device, which seeks to tame the excess as well as accumulating purchasing power in the economy. Also, by imposing bank levy deposits, the then managing director of IMF, Christine Lagarde, indicated that the Cypriot government will relief its population from the adverse effects on investments, save, and work, which results from the extra burden of 2012-2013 financial crises (International Monetary Fund, 2009). Amid the 2012-2013 the Cyprus government was faced with an economic crises, which involved the exposure of Cypriot financial institutions to highly geared local property companies, dwindling credit rating of the Cypriot government and exposure of the Cypriot government to Greek government debt crises. For this reason, the proponents of capital levies argued that if Cypriot government did not impose bank levy deposits then the Cypriot population would have suffered an additional burden for long years that would adversely affect their incentive and ability to save, invest, and work. Moreover, the adherence of the Cypriot government to the implementation of bank deposit levies also revamped the incentive of investors to invest because it prevented bankruptcy of the country after the 2012-2013 economic crises. According to Xiouros (2013), the prevention of bankruptcy in 2013 helped the Cypriot government to improve its net FDI outflows from ($11,086,140,000) in 2013 to $1,995,688,000 in 2014. This means that the imposition of IMF conditionality on bank deposit levy was instrumental in correcting Cyprus’s deficit balance of payment.

Moreover, IMF conditionality on countries experiencing loss of investor confidence and outflow of capital also inclines towards restructuring of countries’ financial institutions. According to Mayer and Mourmouras (2014), the purpose of restructuring financial institutions in countries affected by the economic crisis such as Bangladesh and Cyprus helps to restore the soundness of the financial sector. For example, prior to the issuance of $1billion loan and €10 billion loan the IMF demanded that Bangladesh and Cypriot government to restructure their financial sectors, creating in the process what is called the “Bad Bank’ (International Monetary Fund, 2015; International Monetary Fund, 2013). In this case, the creation of bad bank is meant to isolate the high risk and illiquid assets, which are held by group of banks, and financial organizations. For example, as part of the €10 billion loan deal the IMF officials demanded the Cypriot government to preserve all the insured deposits of €100,000, shut down Laiki Bank, and impose a bank-levy deposit of 47.5% on all the uninsured deposits, which are held wealthy individuals, in the Bank of Cyprus (Connolly, 2009). Imposition of a bank levy deposit of 45.5% on all insured deposits was meant to help the Bank of Cyprus to reduce its large portfolio of debts, thus enabling it to embark on its normal lending activities to important sectors of Cypriot economy. For example, by channeling funds to exporting processing zones the Bank of Cyprus would revamp country’s current account. Similarly, as part of $1 billion loan deal, the IMF demanded the Bangladesh Bank to implement the Large Loan Restructuring Policy. In this case, Dreher (2013) asserts that LLRP was meant to allow the genuine businesses in Bangladesh to take a maximum of 12 years in repaying their loans that exceed the minimum of Tk 500 crore. The purpose of imposing LLRP was to prevent the impact of contagion risks, which arise from massive defaults of large amount of loans, on investors’ confidence and Bangladesh current account. In other words, failure to prevent the occurrence of contagion risks would exacerbate loss of investment value and enhance country’s reliance on imported goods.

Whether it is Necessary for Cyprus and Bangladesh to Impose Economic Austerity as part of this Adjustment

Economic austerity refers to a deflationary fiscal policy that aims at decreasing government deficit budget through cuts in public expenditure budgets and/or increase in taxes. According to Evans (2012), IMF structural adjustment programs tend to use economic austerity measures is to restore investors’ confidence after an economic crises or debt crises. However, some pundits indicate that by increasing taxes, the economic austerity measures counter their goal of restoring investors’ confidence because the withdrawal of income from the economy delays investment activities and decreases household consumption.

Cyprus Case

To curb the 2012-2013 debt crises, Cyprus’s austerity measures included cuts in subsidy costs and an increment in the corporate tax from 10% to 12.5%. However, the resolve to adopt a deflationary fiscal position in order to qualify for the €10billion IMF loan spawned economic effects on the Cypriot economy. First, Finseraas and Vernby (2011) asserts that increase in corporate taxes has a direct effect on the demand as well as on supply side of products and services. That is, when corporate taxes are heightened the companies’ cost of production increases. This reduces the amount of goods companies are willing to supply. On the other hand, increased corporate taxes also affected the disposable income of Cypriot population, thus leading to lower demand of products and services. As such, the direct effect of increased corporate taxes spawns less viable opportunities for employment. This explains why the unemployment rate in Cyprus has been increasing even after the issuance of the IMF loan of €1 billion in 2008 and €10 billion in 2013. This exhibited in the figure below;

Figure 1: The Unemployment Rate in Cyprus since 2008.

Source; Trading Economics (2017)

Besides causing escalation in the unemployment rates, the implementation of economic austerity measures also caused massive social unrests in Cyprus, thus delaying the restoration of investors’ confidence. That is, in 2012 Finseraas and Vernby (2011) asserts that the Cypriot population went on the streets to resist government resolve to increase taxes. Moreover, the austerity measure to impose a bank deposit levy of 6.7% for all deposits amounting to €100,000 and 9.9 percent for all deposits exceeding €100,000  was also non-market friendly. This is because imposition of such bank deposit levies would intensify lack of investors’ confidence on other problematic financial institutions in Europe. Moreover, Beazer and Woo (2015) asserts that the imposition of bank deposit levies also intensified lack of confidence among the households as they hurriedly rushed to ATM machines to get their savings back.  As such, the imposition of capital levies could spawn bank runs, which could affect the stability of Cyprus’s financial markets (Granberg and Nygren, 2016).  Moreover, the implementation of economic austerity measures such as reduced government spending on public budget expenditure may have delayed the GDP growth of Cyprus economy. According to Phillipe (2013), IMF conditionality deflationary fiscal discipline has also made Cyprus economy to shrink to -5.3% in 2013. This is despite Cypriot government receiving $1billion bailout from the IMF.  Despite its adherence to IMF imposed austerity measures, the Cypriot economy has suffered a W-shaped recession. That is, in 2009 the Cypriot economy shrank by 1.7%, followed by 2 year-period of modest growth, and an abrupt fall into recession amid the 2012-2013 period. This is exhibited by the figure below;

Figure 2: The Real GDP Growth and Unemployment Rates in Cyprus

Source; Phillipe (2013)

Lastly, the implementation of deflationary fiscal policy did not revamp the current account of Cyprus from a deficit account to surplus current account. That is, Evaghorou  and Chailis (2013) indicates that by adhering to IMF policy prescription on fiscal measures Cyprus managed to reduce its current deficit from $-4.3billion in 2008 to $-2.0 billion in 2009. This is exhibited in the figure below;

Figure 3; Cyprus Current Account Balance from 2000 to 2016

Source: Evaghorou and Chailis (2013)

From the above figure, it is vivid that adherence to economic austerity measures had adverse effects on Cypriot economy. That is, decreased government spending shrank the economy by -5.3% whereas increment in the corporate taxes enhanced unemployed rates to 15% in 2013. Also, the imposition on capital levies spawned low market confidence as market participants rushed to make withdrawals from the ATM machines.  As such, it would have been prudent for the Cypriot government to pursue monetary policies and neglect economic austerity in resolving its debt or economy crisis.

Bangladesh Case

Unlike the Cyprus economy, the resolve to adopt a deflationary fiscal discipline has conferred a myriad a benefits to the Bangladesh economy. First, Adascalitei (2015) asserts that adherence to deflationary fiscal discipline has managed to reduce 11.89% in 2012 to 6.78% in 2013. This spawned increased investors’ confidence in the Bangladesh economy. According to International Monetary Fund (2013), this is exhibited by an increased foreign direct investment of $1599M in the 2012/2013 financial period. Secondly, economic austerity measures such reduced government spending and increased taxation has also revamped the confidence of international institutions on the Bangladesh economy. This has been exhibited by an improved credit rating by MIS (Moody’s Investors Service). That is, from the 2012 to 2017 the credit rating of Bangladesh has improved from Baa3 to Baa2. According to International Monetary Fund (2013), the improved credit strength of Bangladesh economy is an outcome of progress on fiscal reforms, limited susceptibility to external and fiscal funding stress as well as a healthy outlook on economic growth.

Furthermore, the adoption of a deflationary fiscal discipline has also managed to reduce Bangladesh unemployment rate. This negates the popular notion that increment in taxes affects the supply side and demand side of products and services, thus weaning the employment opportunities.  Since 2012, a period when IMF imposed economic austerity measures on Bangladesh, the unemployment rates have decreased from 4.5% to 4.1% in 2016. This exhibited by the figure below;

Figure 3: The Unemployment Rates in Bangladesh

Source; Trading Economics (2017)

Moreover, adherence to deflationary fiscal policy has also made Bangladesh make huge steps in revamping her current account deficit from $1292 in 2012 to $1599 in 2013. In this case, Nurse and Fulton (2017) assert that reduction in government spending, a facet of economic austerity measure, reduces the consumer’s disposable income. This reduces the demand of imports, thus improving a country’s current account.

Lastly, inclination towards a deflationary fiscal policy has enabled Bangladesh to stabilize her economy. According to Trading Economics (2017), since 2012, Bangladesh GDP has grown from 6.52% to 7.11% in 2017. This is depicted in the figure below;

Figure 4; GDP Growth Rate of Bangladesh

Source; Trading Economics (2017)

From the above figure, it is vivid that adherence to economic austerity measures had positive effects on Bangladesh economy. That is, decreased government spending grew the country’s GDP from 6.52% in 2012 to 7.11% in 2016 whereas increment in the corporate taxes reduced unemployment rates to from 4.5% in 2012 to 4.1% in 2016. Also, deflationary fiscal policies succeeded in revamping Bangladesh credit rating from Baa3 in 2012 to Baa2 2016. This means that it was necessary for Bangladesh to impose economic austerity as part of its adjustment to IMF conditionality of $1billion loan in 2012.

 

Conclusion

The facets of the above essay were embedded on two objectives. The first objective was to delve into conditions required by IMF when providing loans to countries experiencing low investor confidence and outflow of capital. In regard to this, the essay has found that IMF conditionality is inclined towards contractionary monetary policy, deflationary fiscal policy, imposition of capital levies as well as restructuring of countries’ financial institutions. According to the findings, the aforementioned policies or reforms have two ramifications on the economy of recipient countries. First, the essay has revealed that policies such as deflationary fiscal policy or contractionary monetary policy are implemented in order to reduce consumer spending. As a result, this reduces the demand of import and consequently improves the country’s current account. Secondly, the implementation of these policies reduces inflation rates of the recipient countries. In this case, the findings revealed that the reduction in inflation rates enhances certainty in the pricing mechanism, thus revamping investors’ confidence. Secondly, the essay intended to reveal whether it is necessary for Cyprus and Bangladesh to impose economic austerity as part of this adjustment. On this note, the findings revealed that vivid that adherence to economic austerity measures had adverse effects on Cypriot economy. That is, decreased government spending shrank the economy by -5.3% whereas increment in the corporate taxes enhanced unemployed rates to 15% in 2013. Also, the imposition on capital levies spawned low market confidence as market participants rushed to make withdrawals from the ATM machines.  As such, it would have been prudent for the Cypriot government to pursue monetary policies and neglect economic austerity in resolving its debt or economy crisis.  However, adherence to economic austerity measures had positive effects on Bangladesh economy. That is, decreased government spending grew the country’s GDP from 6.52% in 2012 to 7.11% in 2016 whereas increment in the corporate taxes reduced unemployment rates to from 4.5% in 2012 to 4.1% in 2016. Also, deflationary fiscal policies succeeded in revamping Bangladesh credit rating from Baa3 in 2012 to Baa2 2016. This means that it was necessary for Bangladesh to impose economic austerity as part of its adjustment to IMF conditionality of $1billion loan in 2012

References

 

 

Adascalitei, D. (2015) ‘From Austerity to Austerity: The Political Economy of Public Pension Reforms in Bangladesh ,’ Social Policy & Administration, 51(3), pp.464-487.

Aslanidis, N. and Otto, G. (2017) ‘Asymmetry in Inflation Rates Under Inflation Targeting,’ SSRN Electronic Journal, 5(2), pp.134-189

Beazer, Q. and Woo, B. (2015) ‘IMF Conditionality, Government Partisanship, and the Progress of Economic Reforms,’ American Journal of Political Science, 60(2), pp.304-321.

Cheol S Hun and Bruce Resnick (2014) International Finance. 7th Global Edition

Connolly, E. (2009) ‘Banking Crises and Economic Activity: Observations from Past Crises in Developed Countries,’ Economic Papers: A journal of applied economics and policy, 28(3), pp.206-216.

Crivelli, E. and Gupta, S. (2014) ‘Does conditionality in IMF-supported programs promote revenue reform?’ IMF Working Papers, 14(206), p.1

Dreher, A. (2013) ‘The Development and Implementation of IMF and World Bank Conditionality,’ SSRN Electronic Journal, 4(2), pp.134

Erbas, S. (2013) ‘IMF Conditionality and Program Ownership: A Case for Streamlined Conditionality,’ IMF Working Papers, 03(98), p.1.

Evaghorou, E. and Chailis, M. (2013) ‘ The accession of Cyprus economy to the Eurozone: political and economic consequences in the Cyprus problem,’ International Journal of Trade and Global Markets, 1(2), p.175.

Evans, A. (2012) ‘What Is Austerity?’ Economic Affairs, 32, pp.1-1.

Finseraas, H. and Vernby, K. (2011) ‘What parties are and what parties do: partisanship and welfare state reform in an era of austerity,’ Socio-Economic Review, 9(4), pp.613-638.

Frederick S. Mishkin (2015) The Economics of Money, Banking and Financial Markets. 11th Edition

Granberg, M. and Nygren, K. (2016) ‘Paradoxes of Anti-austerity Protest: Matters of Neoliberalism and Subjectivity in a Case of Collective Resignation,’ Gender, Work & Organization, 24(1), pp.56-68.

Henrik, V. and Den, B. (2016) International Finance and Open-Economy Macroeconomic. World Scientific Press, 2nd ed

IMF News. (2012) IMF Survey: Bangladesh Gets $987 Million Loan from IMF. [Online] Available at; https://www.imf.org/en/News/Articles/2015/09/28/04/53/socar041112a(Accessed 27-November-2017)

International Monetary Fund (2009) ‘Cyprus: Financial Sector Assessment Program Update – Technical Note: Measuring Banking Stability in Cyprus,’ IMF Staff Country Reports, 09(171), p.1.

International Monetary Fund (2011) ‘Cyprus: 2011 Article IV Consultation: Staff Report; Supplement; Public Information Notice on the Executive Board Discussion; and Statement by the Executive Director for Cyprus,’ IMF Staff Country Reports, 11(331), p.1.

International Monetary Fund (2013) ‘Bangladesh: Financial System Stability Assessment,’ IMF Staff Country Reports, 10(38), p.1.

International Monetary Fund (2015) ‘IMF Staff Country Report 05/410 Bangladesh: Poverty Reduction Strategy Paper,’ IMF Staff Country Reports, 05(410), p.1.

International Monetary Fund (2016) ‘IMF Staff Country Report 00/025 Bangladesh: Recent Economic Developments,’ IMF Staff Country Reports, 00(25), p.1.

Levy, H. and Levy, M. (2012) ‘The Demand Curves for Financial Assets and the Implied Cost of Capital in Segmented Markets,’ SSRN Electronic Journal, 5(2), pp.134-189

Mayer, W. and Mourmouras, A. (2014) ‘The Political Economy of Conditional and Unconditional Foreign Assistance: Grants vs. Loan Rollovers,’ IMF Working Papers, 04(38), p.1.

Naqvi, H. (2014) ‘IMF Conditionality and the Intertemporal Allocation of Resources,’ International Review of Finance, 14(2), pp.203-235.

Nurse, A. and Fulton, M. (2017) ‘Delivering strategic economic development in a time of urban austerity: European Union structural funds and the English city regions,’ Local Economy, 32(3), pp.164-182.

Phillipe, W. (2013) ‘Cyprus–An extra-large rescue plan. [Online] Available at; https://philippewaechter.nam.natixis.com/2013/03/18/cyprus-an-extra-large-rescue-plan/(Accessed 5-November-2017)

References

Tinbergen, J. (2012) ‘Four Alternative Policies to Restore Balance of Payments Equilibrium,’ Econometrica, 20(3), p.372.

Trading Economics. (2017) Bangladesh GDP Growth Rate. [Online] Available at; https://tradingeconomics.com/bangladesh/gdp-growth(Accessed 5-November-2017)

Trading Economics. (2017) Bangladesh Unemployment Rate. [Online] Available at; https://tradingeconomics.com/bangladesh/unemployment-rate(Accessed 5-November-2017)

Trading Economics. (2017) Cyprus Rate of Inflation. [Online] Available at; https://tradingeconomics.com/cyprus/inflation-cpi(Accessed 27-November-2017)

Trading Economics. (2017) Cyprus Unemployment Rate. [Online] Available at: https://tradingeconomics.com/cyprus/unemployment-rate(Accessed 5-November-2017)

World Data Atlas. (2016) Cyprus Current Account Balance. [Online] Available at; https://knoema.com/atlas/Cyprus/Current-account-balance(Accessed 27-November-2017)

Xiouros, C. (2013) ‘Handling of the Emergency Liquidity Assistance of Laiki Bank in the Bailout Package of Cyprus,’ SSRN Electronic Journal, 5(2), pp.123-156

 

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What are the major implications of globalisation for the countries of the Global South?

What are the major implications of globalisation for the countries of the Global South?

Introduction

With the advent of suitable socio-political environment and open economic policy in the Global South, Marks (2015) indicates that globalisation has been one of the myriad outcomes. In particular, the author asserts that these series of reforms have opened global south economies, to external market linkages and general interactions with other countries. This is the same case to most countries, Indonesia inclusive.

On this basis, this essay focuses at explaining the main implications of globalisation in the global south, taking Indonesia as the core example.

Major Implications of Globalisation for the Countries of the Global South with Emphasis on Indonesia as a Core Example

Enhanced Foreign Direct Investments (FDI) is among the aftermath of globalisation of many countries in the global South. Wahyudin (2013) explains that amid the post-colonial period in 1965, many foreign investors in the global South were expropriated. However, in 1986, the governments in the South enshrined an outward-oriented economic policy, which had a more positive and objective perception of foreign investment. From 1986 to 1997, Ismanto & Khrisnamurti (2012) indicates that foreign direct investments were actively promoted in many Global South countries and there were no any differentiations between domestic and international investors in terms of areas of investment or accessibility to fiscal incentives. In some countries in the South such as Indonesia, the influx of foreign investors into the economy is attributable to the reforms in the foreign direct investment law in 1986 (Ismanto & Khrisnamurti, 2012).  According to the authors, the new reforms allowed the foreign investors/firms 100% ownership in export production. Also, the author explicates that the new reforms extended the duration of transferring majority ownership to domestic partner.

Secondly, in the wake of globalisation in 1986, Marks (2015) indicates that many countries in the South such as Indonesia enshrined a number of deregulation measures to curb the escalating cost of doing business.  This spawned increased international trade. According to Wahyudin (2013), due to the reduced cost of production, majority of domestic producers in the global South countries were willing to trade with other countries in Europe, and North America. In the case of Indonesia, the country began to adopt outward-oriented economic policy in 1985-1989, and as result, four trade policy packages were introduced to address three key areas (Marks, 2015). That is, tariffs, non-tariff barriers, as well as duty-free for exporters. Wahyudin (2013) further explains that in 1985, the Indonesian government also enshrined a trade policy meant to reduce nominal tariffs in cross-border trade. Further, due to the widespread outward-oriented policy in the global south countries, Boediono (2005) indicates that in 1986, many governments sought to remove quantitative restrictions. For example, as a result of this policy, the World Bank estimates of 1991 revealed that the value of imports, which were subject to control fell tremendously. In their efforts to revamp trade and interact with the external world, most countries in South America were also forced to devalue their currencies against the dollar. For example, the Indonesian government was forced to devalue its Rupiah currency in 1980, 1983, as well as in 1986. According to Glassburner (2011), this substantially enhanced the profitability of exports-import substitution, boosting international trade. Overall, enhanced international trade is a major outcome of globalisation in the global south region.

Lastly, in the 1980s, prior to the advent of globalisation in the global South countries, Haslam (2012) asserts that majority of energy industries were owned by the state. However, in the beginning of 1990s, most of the countries in Latin America embarked on a number of free market-based reforms. As a result, privatization of energy industries began to cripple in amid the radical economic transformations. For example, Glassburner (2011) indicates that in countries such as Indonesia, the government began to allow ownership of petroleum industries amid the debt crises of 1980s.  To do this, the author asserts that most countries in the region (Indonesia included) began to give incentives to foreign investors who were willing to invest in petroleum industries.

Conclusion

Overall, enhanced foreign direct investments (FDI), international trade and restructuring of the energy sector are the main outcomes of globalisation in the Global South. In other words, through resolving to integrate with the world economy (globalisation); heightened foreign direct investments, enhanced international trade and changes of energy sector have been the main implications for countries in global south, such as Indonesia.

 

References

Boediono,. (2005) ‘Managing the Indonesian economy: Some lessons from the past,’ Bulletin Of Indonesian Economic Studies, 41(3), pp. 309-324.

Glassburner, B. (2011) ‘The Indonesian Economy: A Review Essay,’ Bulletin Of Indonesian Economic Studies, 17(3), pp. 94-101.

Ismanto, I. & Khrisnamurti, I. (2012) ‘The Political-Economy of ASEAN-China Free Trade Agreement – An Indonesian Perspective,’ SSRN Electronic Journal, 4(2), pp.145-178.

Marks, S. (2015) ‘The Asean–China Free Trade Agreement: Political Economy In Indonesia,’ Bulletin Of Indonesian Economic Studies, 51(2), pp. 287-306.

Wahyudin, M.(2013) ‘Financial Structure in the Era of Globalisation in Indonesia,’ SSRN Electronic Journal, 4(30), pp.236

Haslam, P. (2012) ‘Globalisation in Latin America and Its Critics,’ International Studies

Review14(2), pp. 331-339.

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A critical evaluation of potential cultural and management challenges for a German manufacturer company to take over a rival in Russia or Brazil

A critical evaluation of potential cultural and management challenges for a German manufacturer company to take over a rival in Russia or Brazil

Introduction

Over the last couple of years, increased globalisation as well as internationalisation has to a considerable extent changed how business operates. Precisely, most businesses are now considering operating past international borders. Whilst this has been for the main reason of increasing profits, it has been one of the ways of creating brand awareness in the international market (Sitkin & Bowen, 2013). Despite the positive impacts that have come with such moves, cultural differences among different countries have presented substantial challenges to organisation as they attempt to operate across international borders. According to Deng and Yang (2015), each country usually has its own national culture that is distinct from those of other countries. As such, when a company decided to operate across national and international borders, these cultures have to be taken into consideration for the purpose of operating successfully. Taking this into consideration, this essay explores the cultural and management challenges that would be faced a German manufacturer taking over a rival in Russian and Brazil using the Hofstede’s framework of cultural differences. The essay then recommends that country that the German manufacturer should consider.

A critical evaluation of potential cultural and management challenges for a German manufacturer company to take over a rival in Russia or Brazil

Hofstede’s cultural dimensions

Developed by Geert Hofstede, the Hofstede’s cultural dimensions model is a cross-cultural communication framework. The model usually describes the effect of a culture of a particular society on the values of its members. The mode also seeks to explore the correlation between these values are related to behaviour through the use if factor analysis (Treven et al., 2008). Taking this into consideration, there are 5 cultural dimensions that have been put across by Hofstede. These are power distance, individualism, uncertainty avoidance, masculinity, and time orientation (Hofstede, 1984). These have been illustrated in the figure 1 below.

 

Figure 1: Hofstede’s cultural dimensions

Source: Hofstede (2010)

As regards to the aspect of power distance, Hofstede (2010) has explained that it refers to the extent to which the less powerful members of a particular institution or organisation expect and accept the power to be distributed unequally. As such, inequality as well as power is usually perceived from the members in the lower level. According to Dikova and Sahib (2013), a higher index in power distance implies that hierarchy is clearly established as well as executed in the society. In the other hand, a lower index on power distance implies that members usually question the authority. Besides, in cultures where there is low index on power distance, members typically attempt to distribute power.

As regards to the dimension of individualism, it entails the extent to which members in a given a particular society are integrated into groups (Hofstede, 1984). As such, individualistic societies are said to have loose ties that mostly relates only to an individual to his or her immediate family. On the other hand, collectivist cultures are characterised by high levels of integrated relations tie that are extended families as well as others. As such, in collectivism cultures, members tend to support each other in case of conflicts. Besides, it has been noted that in collectivism cultures, members usually work as a team (Treven et al., 2008).

When it comes to uncertainty avoidance, Steers et al. (2010) have explained that it refers to the extent to which a society becomes tolerance to ambiguity. In this regard, societies with high index in uncertainty avoidance typically opt for strict codes of behaviours, laws, as well as guidelines (Miroshnik, 2002). On the other hand, low scores of uncertainty avoidance are normally characterised by differing thoughts as well as ideas. These kinds of societies typically tend to impose fewer rules and regulations.

As regards to the dimension of masculinity, Treven et al. (2008) have elucidated that it represents a preference in society when it comes to heroism, achievement, assertiveness, as well as material rewards for success. Feminity, its counterpart usually stands for modesty, quality of life as well as caring for the weak.

Lastly, when it comes to the dimension of time orientation, is associates the connection of past with the current as well as future actions and challenges (Sitkin & Bowen, 2013). Taking this into consideration, societies with low index on time-orientation implies that traditions are kept and honoured. In the other hand, societies with high levels of time-orientation tend to disregard traditions, and modernisation such as education is valued to a considerable extent.

Potential cultural and management challenges for a German manufacturer company to take over a rival in Russia or Brazil

There are various potential cultural as well as management for a Germany manufacture company to take over a rival in Russia or Brazil.  Specifically, as noted from the figure 2 below, the culture differences between Germany and Brazil and Russia are high to a considerable extent. This is in terms of power distance, individualism, masculinity, uncertainty avoidance, and long-term orientation. As such, it is with no doubt that the German manufacturer taking over a rival in Russia or Brazil would face a wide range of cultural as well as management challenges.

 

 

Figure 2: Cultural dimensions between Germany, Russia and Brazil

In relation to power distance, it can be observed that the index of Germany, Russia and Brazil is 35, 93, and 69 respectively. As such, it is with no doubt that this difference is significant enough to bring a substantial cultural and management challenges to German manufacturer taking over a rival in Brazil.  Taking this into consideration, it implies that the Germany culture, unlike the Russian and Brazilian culture does not recognise power hierarchy. In view of this, a German manufacturer company taking over a rival in Russia or Brazil may have the significant cultural and management challenges of power sharing. As such, given that the Germany culture does not recognise uneven distribution of power within an organisation, it implies that the managers of the German manufacturer may find it hard working with employees in either Russia or Brazil (Sitkin & Bowen, 2013). As such, employees in Russia or Brazil may not be in a position of addressing their issues directly to the managers, which can to a considerable extent affect the overall productivity in the organisation. In light of this, the Brazilian and Russian employees would also expect the German managers to provide strict instructions, which it may not be the case. Consequently, these Brazilian and Russian employees may end up being unproductive.  Therefore, the taking over of a rival in Brazil by a German manufacturer implies that there would be substantial conflicts between the managers of the other countries. Additionally, given that the power distance in Germany is lower as compared to Russia and Brazil, there no significant protocols within the organisation. For instance, an employee in the German manufacturer would solve an issue through engaging with the managers directly. This is not the case when it comes to the Brazilian and Russian rivals, where an employee has to pass through establishes procedures in solving conflicts (Branine, 2011). Taking this into account, these differences would make it hard for the German manufacturer to take over the rival in Brazil. In this view, there may be significant problems when it comes to decision making within the organisation is the Germany manufacturer is to take over a rival in either of the two countries. Nonetheless, given that the power distance index of Russia is substantially higher as compared to that of Brazil, it implies that the German manufacturer may face more resistance while taking over a rival in Russia as compared to taking over a rival in Brazil.

 

When it comes to the dimension of individualism it can be noted from the above figure that the index of Germany, Russia and Brazil is higher is 67, 39 and 38 respectively. This implies that the individualism aspect is considerably higher in Germany as compared to both Russia and Brazil, which tend to have almost the equal level of individualism.  In this view, it implies that German manufacturer usually value individual efforts. Nonetheless, on the other hand, it can be deduced that the Russian and Brazilian cultures typically value group efforts. Given this significant differences, it may be hard for the Germany manufacturer take over its rival in Russia. This is because the German Manufacturer needs to reward teams as opposed to individuals. Besides, unlike in the German culture, the Russian and Brazilian culture has put higher value for team work. Taking this into account, it implies that in order for the German manufacturer to take over a rival in Russia or Brazil, it has to consider the use of teams in the organisation.  Besides, the higher index of individualism in Germany implies that the culture in the country is characterised by high levels of independence among individuals. In this connection, through taking over the rival in Russia or Brazil, it goes without saying that the German manufacturer would expect the employees in these countries to work independently (Sitkin & Bowen, 2013). However, this may be practically impossible, which means there would considerable challenges. For instance, the Germany manufacturer taking over a rival in Brazil or Russia would be expected to arrange tasks in group. However the high individualism in Germany would not allow the Germany managers to do so, who would be inclined to arranging tasks for individual employees.  Consequently, conflicts among the managers of the Germany and the two countries would make it challenging for the Germany Manufacturer to take over either Russia or Brazil.

 

In relation to aspect of masculinity, it can be observed that the index of Germany is higher at 66, while lower in Russia and Brazil at 36 and 49 respectively. Considering this, it implies that the German cultures typically value heroism, achievement, as well as assertiveness as material rewards for success. On the other hand, the Russian and Brazilian cultures stand for modesty, quality of life as well as caring for the weak. These differences may bring a lot of challenges when it comes to taking over of a rival company in Russia or Brazil by a Germany manufacturer. For instance, given that masculinity is associated with male characteristics, it is deducible that the role of male managers in Germany is appreciated, the role of male managers in Russia and Brazil is not appreciated. As such, just as Branine (2011) would argue, conflict may arise when it comes to allocation of managerial positions between Germany and any of the two countries. Nonetheless, given that the masculinity index of Russia is lower as compared to that of Brazil, the Germany manufacturer may face more resistance while taking over a rival in Russia as compared to Brazil. Therefore, these differences imply that it would be challenging for the German manufacturer to take over the rival in Brazil.

As regards to the dimension of uncertainty avoidance, it can be observed that the index of Germany, Russia and Brazil stands at 65, 95, and 76 respectively.  Taking this into consideration, it can be deduced that owing to the lower levels of uncertainty avoidance does not have strict codes of behaviours, rules, as well as regulations that need to be adhered within organisations. This is unlike Russia and Brazil which has strict rules and regulation owing to the high levels of uncertainty avoidance. Therefore, with the German manufacturer taking over the rival in Russia, it means that conflict may arise as the strictness that can be imposed by the Russian or Brazilian managers may be hard to be adopted by the German managers. . Therefore, it means that through taking over the rival in Brazil or Russia, the managers in the German manufacturer may have conflicts with those in the Brazilian and Russian rival. This, as would be indicated by Miroshnik (2002) implies that the Brazilian and Russian managers would need to instil strict rules and procedures in the organisation, which the managers as well as employees in Germany would not appreciate. Such difference would therefore mean that taking over the rival would be a significant challenge.  As such, taking over the Russian rival or Brazilian by the German manufacturer may be hard to a considerable extent. Nonetheless, it is worth noting that the uncertainty level of Russia is significantly higher as compared to that of Brazil. Taking this into account, despite the fact that it would be challenging for the Germany manufacturer to take over a rival in either Russia or Brazil, a lot of resistance would be experienced in Russia as compared to Brazil.

Lastly, in terms of time orientation, it can be noted that Germany has a higher index of 83 percent while Brazil has a lower index of 44. However, it can be noted that Russia has almost the same level as Germany at 81. This is an implication that the German manufacturer keeps and honours its traditions a lot. This is just the same way as Russia due to the same level of time orientation. This is unlike the Brazilian rival, which embrace modernity such as education. In this regard, there may be conflict between managers of the two countries as while the German manufacturer would need to keep its organisation, the Brazilian managers would want to abandon the traditions and embrace modernity. Therefore, conflicts between the managers of the two countries would make it hard for the Germany manufacturer to take over the Brazilian rival. Nonetheless, in relation to time orientation, it would be easier for the Germany manufacturer to take over a rival in Russia.

Recommendations

Based on the above analysis of the cultural and management challenges that exist in both Russia and Brazil, it can be noted that there are more cultural challenges in Brazil as compared to Russia.

Precisely, as noted from the above, the cultural differences between Germany and Brazil are enormous in five dimensions of the Hofstede’s. These are power distance, individualism, masculinity, time orientation, and uncertainty avoidance. These differences imply that taking over the Brazilian rival by the German manufacturer would come with various challenges. On other hand, it can be seen from the above analysis that when it comes to Russia, the only four aspects that differ with Germany. These are power distance, masculinity, individualism, and uncertainty avoidance. Additionally, it can be noted that the differences in these four dimensions between Germany and Russia are insignificant to a considerable extent. Taking this into consideration, the Germa n manufacturer company should consider taking over a rival Russia, and not Russia. This is due to the fact that Brazil presents more cultural and management challenges as compared to Russia. This implies that costs of taking over a rival will be less in Russia as compared to Brazil. Despite the fact that the German manufacturer should consider taking over Russia and not Brazil, there is still a considerable need to conduct a cross-cultural management. Taking this into account, with cross-cultural training, the German manufacturer can be in a position of successfully taking over a rival in Russia. Precisely, through cross cultural training, German managers can work more effectively within the cross-cultural environment. This can be through employing appropriate knowledge as well as various communication strategies required when dealing with people from culturally as well as linguistically diverse backgrounds (Branine, 2011). Additionally, through cross cultural training, the German managers as well as employees can be in a position of how they can interact productively with managers and employees from the Russian company. Consequently, a health interpersonal relation can be established, which can in turn play a fundamental role in improving the overall productivity of the organisation.

Conclusion

In conclusion, it is evident from the above that increased globalisation as well as internationalisation over the last few years has to a substantial extent changed how business operates. As such, it has been noted from this paper that most businesses are now considering operating past international bounders. Despite the positive impacts that have come with such moves, cultural differences among different countries have presented substantial challenges to organisation as they attempt to operate across. From this paper, it has been noted that there are various challenges that the German manufacturer would face when taking over a rival in Russia and Brazil. This is in terms of power distance, individualism, uncertainty avoidance, masculinity and time orientation. However, it has been noted that the German manufacturer would face less challenges when taking a rival in Russia as compared to Brazil. Taking this into account, it has been established that the German manufacturer should consider taking over Russia, and no Brazil.

 

 

References

Branine, M. (2011) Managing Across Cultures. London: SAGE Publications.

Deng, P., & Yang, M. (2015) ‘Cross-border mergers and acquisitions by emerging market firms: A comparative investigation’, International Business Review, 24(1), pp.157-172.

Dikova, D., & Sahib, P. R. (2013) ‘Is cultural distance a bane or a boon for cross-border acquisition performance?’, Journal of World Business, 48(1), pp. 77-86.

Ferraro, G. P., & Briody, E. K. (2017) The cultural dimension of global business. Taylor & Francis.

Hofstede, G. (1984) Cultural dimensions in management and planning. Asia Pacific journal of management1(2), 81-99.

Hofstede, G. (2010) Geert hofstede. National cultural dimensions.

Knight, G. A., & Liesch, P. W. (2016) ‘Internationalization: From incremental to born global’, Journal of World Business, 51(1), pp.93-102.

Meschi, P. X., & Riccio, E. L. (2008) ‘Country risk, national cultural differences between partners and survival of international joint ventures in Brazil’, International Business Review, 17(3), pp. 250-266.

Miroshnik, V. (2002) ‘Culture and international management: A review’, Journal of Management Development, 21, pp.521–544.

Sitkin, A., & Bowen, N. (2013) International business: Challenges and choices. Oxford: Oxford University Press.

Steers, R. M., Sanchez-Runde, C. J., & Nardon, L. (2010) Management across cultures: Challenges and strategies. Cambridge University Press.

Treven, S., Mulej, M., & Lynn, M. (2008) ‘The impact of culture on organizational behavior’. Management, 13, pp. 27–39.

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PGBM18 International human resource management

PGBM18 International human resource management

Explore the likelihood that if MNC activity continues to increase, reward strategies and practices are likely to converge?  What are the barriers to convergence?

Introduction

According to Goddard and Wilson (2009), multinational corporations typically practice their human resource differently. Nonetheless, the manner in which they conduct their human resource manager plays a critical role in determining their ability of achieving their competitive advantage.  Apparently, as noted by Sengupta and Bhattacharya (2007), there exist various similarities as well as differences in human resource practices and policies across international borders. Notwithstanding the fact that many researchers have argued that convergence is crucial when it comes to achieving competitive edge in multinational corporations, Kostova (2009) has explained that it has become impossible for convergence in some of the HR practices.  As noted by Holtbrügge and Mohr (2011), one of the main practices that have not achieved full convergence is the reward strategies.  Reward strategies have been regarded as one of the most critical elements of the HR strategy. Taking this into consideration, reward strategy helps greatly in delivering performance within an organisation.  Besides, according to Vernon (2010), reward strategy typically plays a vital role in delivering performance within an organisation. Owing to the increased globalisation over the last couple of years, global reward strategies have been seen to implement differently by different organisation. Taking this into account, this essay seeks to discuss whether global reward strategies are likely to converge. This essay also seeks to analyse the barriers to convergence of various global reward strategies.

Whether Global Reward Strategies are likely to Converge

Over the last couple of years, there have been increased discourses regarding reward strategies in multinational corporations. According to Alder and Ghadar (2010), converge of reward strategies usually means that the same policies as well as processes of employee compensation are similar across the word. In this regard, convergence of global strategies among multinational corporations has implied that employees in all countries that the multinational corporations are given the same reward packages. Convergence of global reward strategies typically makes the employees to feel that they are treated equally and fairy.  Besides, as elucidated by Goddard and Wilson (2009), convergence of global reward strategy implies that multinational corporations can be in a position of coming up with methods of enhancing employees satisfaction on global basis.

Despite the fact that convergence of a wide range human resource practices in most of the multinational corporations worldwide have been witnessed over the last couple of years, Holtbrügge and Mohr (2011) have explicated that convergence of global reward strategies have been practically impossible. Taking this into account, Kostova (2009) has argued that differences in organisational cultures, national cultures, as well as leadership styles have made it impossible for multinational corporations across the globe to make reward strategies similar.  Furthermore, it has been found that these strategies have are not likely to change in the near future implying that convergence of global reward packages is not expected to be achieved soon.  According to Vernon (2010), notwithstanding the fact most multinational across the world have been pushing for standard policies and procedures in human resource practices, achieving consistency in global reward strategy has been fund to be challenging to a considerable extent.

Kostova (2009) has argued that although it most multinational corporations across the world would want to achieve consistency when it comes to reward strategies, the influence of external barriers have been found to be substantial in achieving this.  Besides, as elucidated by Sengupta and Bhattacharya (2007), reward has been regarded as one of the most powerful tools owing to its substantial impact on employee attitudes as well as productivity. Taking this into account, there have been a wide range of controversies about whether transferring reward policies and practices across national borders will reap similar results. As such, although globalisation as well as internationalisation has considerably resulted to standardisation of most of human resource practices, it has been hard to achieve substantial convergence when it comes to global reward strategy. Thus, as stressed by Kostova (2009), achieving convergence in the global reward strategies among multinational corporations is unlikely in the near future.

Barriers to Convergence of Reward Strategies

Although globalisation as well as internationalisation forces have considerably exerted immense pressure towards convergence of global reward strategies, there is a wide range of barriers that have made this convergence practically impossible. Taking this into consideration, one of such factors is the national culture. This is according to Alder and Ghadar (2010) who have added that national culture usually involves various traditions, attitudes, beliefs, and values. These cultural dimensions have been found to have a profound influence on the implementation of global reward strategies in various multinational corporations across the globe.  This sentiment has been echoed by Goddard and Wilson (2009), who have affirmed that HRM models in a particular country are usually of the national culture of that country. Therefore, these differences have been seen to have a considerable impact on the global reward strategies of the multinational corporations. Precisely, as Chiang and Birtch (2007) denote, the national culture of a particular industry usually has a strong bearing when it comes to influencing the performance of multinational corporations. This comes owing to the fact that the national culture of any particular country is typically the primary contributing factor in influencing attitudes as well as behaviours of people.  In relation to the Hofstede’s cultural dimensions, it is with no doubt that national cultures typically have significant impacts on the global reward strategies.  As such, given the significant cultural differences that exist among countries, it is obvious that global reward strategies have to differ significantly from one country to another.  Therefore, the Hofstede’s cultural dimension can help greatly in explaining the influence that the national culture has on global reward strategies.  These dimensions include individualism, uncertainty avoidance, power distance, masculinity, as well as time orientation (Hofstede, 1980).  For instance, Goddard and Wilson (2009) have noted that in terms of individualism, countries with high individualism index such as the United States and United Kingdom are typically oriented towards rewarding individual effort. On the other hand, countries that are said to have low levels of individualism such as China typically put a lot of emphasis on team rewards.  When it comes to the aspect of uncertainty avoidance, countries with high index on uncertainty avoidance usually consider short term incentives, unlike countries with low uncertainty levels, which consider long-term incentives.  As regards to the aspect of time orientation, Vernon (2010)  has explained that cultures with  long-term orientations as China puts a lot of emphasis on future when it comes to designing reward packages. As such, long-term orientation cultures are usually influenced greatly by patience, skills, as well as diligence when it comes to designing reward strategies.  On the other hand, countries with short-term orientation such as the United Kingdom have their reward strategies based on immediate performance.

Institution approach has been cited to be another key barrier to achieving convergence in global reward strategy.  The institution view, as explicated by Vernon (2010) holds that traditional values and practices are usually embedded in economic as well as social institutions of a country.  For instance, Sengupta and Bhattacharya (2007) have noted that the success of a given economy is not only attributed to the cultural aspects, but also t the various institution factors such as labour legislations. Taking this into consideration, it may be hard for global reward strategies to converge due to these institutional factors. For instance, there are minimum wages that have been set by different countries across the world.  In light of this, although multinational corporations may want to enhance convergence of reward strategies, these factors may present a significant hindrance. Additionally, as noted by Chiang and Birtch (2007), industrial practices as well as policies in a given country may differ considerably with those of other countries. As such, convergence of global reward strategies between such countries may be difficult to achieve to a huge extent.

 Conclusion

Conclusively, it is deducible that there exist various similarities as well as differences in human resource practices across international borders.  When it comes to global reward strategies, this essay has revealed that fully convergence has not been achieved.  As such, differences in national cultures together with institutional approach have made it difficult for multinational organisations across the globe to have similar reward strategies.  Despite the fact that most of the multinational corporations have been pushing for standard policies and practices in human resource management, achieving consistency in global reward strategies in the near future is unlikely.

 

 

 

References

Alder, N.J. and Ghadar, F. (2010) ‘Strategic Human Resource Management: A Global Perspective’ in R. Pieper (ed.) HRM in International Comparison, 4(5), pp.235-60.

Chiang, F. & Birtch, T. (2007) ‘The transferability of Management Practices: Examining Cross-national Difference in Reward Preferences’, Human Relations, 60, pp. 1293.

Fitzgerald, R. and Rowley, C. (2007) Human Resources and the Firm in International Perspective, UK: Elgar.

Goddard, J. & Wilson, J. (2009) ‘Racial Discrimination in English Professional Football: Evidence from an empirical analysis of players career progression’, Cambridge Journal of Economics, 33, pp.  295-316.

Hofstede G. (1980) Cultural’s Consequence. Beverly Hills, CA: Sage.

Holtbrügge, D. &  Mohr, A. (2011) ‘Subsidiary Interdependencies and International Human Resource Management Practices in German MNCs’, Management International Review, 51(1), pp. 93-115.

Kostova, T. (2009) ‘Transnational Transfer of Strategic Organizational Practices: A Contextual Perspective’, Academy of Management Review, 24 (2), pp.308-24.

Schuler, R. S., Jackson, S. E., & Tarique, I. (2011) ‘Global Talent Management and Global Talent Challenges: Strategic Opportunities for IHRM’, Journal of World Business, 46(4), pp. 506-516.

Sengupta, N., & Bhattacharya, M. S. (2007) International human resource management. New Delhi: Excel Books.

Taylor, S., Beechler, S., & Napier, N. (2006) “Toward an Integrative Model of Strategic International Human Resource Management”, The Academy of Management Review. 21(4), pp.959-985.

Vernon, G. (2010). International pay and reward, in P. Edwards and C. Rees (eds) International Human Resource Management, 2nd edition. London: FT/Prentice Hall.

 

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PGBM18 International human resource management

PGBM18 International human resource management

What are the advantages and disadvantages of offshoring for an MNE?  In what ways might an international HR manager be involved in this process?

Introduction

Maintaining a sustainable competitive edge has been one of the greatest challenges in most organisations across the world. This is especially in the light of increased globalisation over the last few years. As such, many organisations particularly the multinational corporations (MNEs) have come with various ways of achieving competitive edges in their respective industry. One of such ways is offshoring, which has been regarded as the process of transferring organisational operations from one country to another (Rosseau, 2010). Offshoring has been fuelled greatly by the need improve operations and equity. Taking this into account, notwithstanding the fact that offshoring has come with a lot of benefits to the MNEs, there are various drawbacks as well.  In this regard, this essay is devoted to explore the advantages as well as disadvantages of offshoring. Besides, this essay explores the ways in which the human resource manager would get involved in the offshoring process.

Advantages of offshoring

Cos saving has been cited to be one of the most crucial advantages that comes with offshoring. This is according to Crino (2009), who has explained that cost savings is typically the main reasons why most MNEs opt to offshore. Precisely, as noted by Antras and Helpman (2004), offshoring helps MNEs in saving significant amount of money especially when it comes to labour cost. For instance, an employee working for an electronic company in the United States is paid an average of 48 US dollars per hour. However, such an employee is paid an average of 15 dollars per hour in China. This explains why companies such as Apple and HP have shifted their manufacturing to the Chinese manufacturer, Foxconn.  Through lowering labour costs, Farrell (2006)   has argued that an organisation can be in a position of having a competitive edge in the industry.

Secondly, Crino (2009) has explicated that through offshoring, MNEs are usually in a position of gaining access to skilled labour abroad. Over the last few years, various companies across the globe have been facing significant shortage of skilled labour on their home countries. This has been characterised by high number of skilled individuals who are unemployed especially those in emerging as well as developing countries.  As such, through offshoring, MNEs are able to access skills are that are not available locally.

Finally, as explained by Antras and Helpman (2004), offshoring usually plays a fundamental role in helping MNEs in gaining proximity to the market.  This, as explicated by Espana (2013) is normally in terms of the speed to which goods as well as services are delivered to the consumers.  Conventionally, most of the MNEs could produce their products in their home countries before exporting the finished products to various overseas markets.  Nonetheless, a wide range if disruptions along the supply chain have to a substantial extent increased lead tines, resulting to missed chances in terms of sales.  Therefore, with offshoring, it is possible for the MNEs to reduce logistics costs, which consequently leads to increased profits margins.

Disadvantages of offshoring

Notwithstanding the numerous advantages that come with offshoring, Gupta (2008) has explained that there are various disadvantages.  Firstly, offshoring could considerably affect the morale of the employees. Taking this into account, Crino (2009) has explained that offshoring typically implies that some employees on the home country are laid off.  According to Rosseau (2010), layoffs as well as anticipated layoffs are known to have substantial impacts on the productivity of the employees. Therefore, with offshoring MNEs can record reduced productivity, which can in turn minimise the profits margins.

Secondly, Antras and Helpman (2004) have explained that offshoring implies that the MNEs have to invest heavily on training of overseas employees. This is for the purpose of ensuring that understand how to use various equipments as well as systems. As such, training of overseas employees increases the operational costs of the organisations, thus affecting the profit margins considerably. In fact, Espana (2013) has explained that there are many MNEs that are forced to use financial as well as other forms of incentives for the purpose of preventing attrition, which is usually common among these organisations. This further increases their operational costs, this compromising the profit margins.

Communication barrier has also be see n to a key disadvantage of offshoring in MNEs. Specifically, offshoring to non-English speaking countries have seen to result to low productivity that comes with language barrier. As explained by Farrell (2006), a wide range of cultural as well as linguistic barriers could significantly result to various forms of misunderstandings. These could ultimately end being expensive to the company.

Lastly, the risk of exposing confidential information to a third party company is usually prevalent when it comes to offshoring. Precisely on this, Anamali (2014) has explained that when an organisation transfers its operations to a foreign country such as payroll and recruitment services, it typically involves substantial risk of exposing confidential information to a third party.  As such, an organisation can be jeopardised to a considerable extent of the information of wrongly used, leading to huge losses to the organisation.

HR Manager Involvement in offshoring

According to Farrell (2006), human resource managers in multinational enterprises usually have a profound role in offshoring.  Taking this into considerations, most MNEs typically rely hugely on human resource department for negotiations and communications with the outsourcing company.  Ideally, this is for the aim of enhancing smooth transition of the involved organisation.  According to Crino (2009), when a multinational corporation transfers its operations to another country, it mostly considers hiring offshore employees. In this context, the human resource manager has to play a considerable role in analysing the departments that have unmanageable or under-experienced workloads.

When a multinational corporation considers offshoring, it moves most of its organisational functions to countries having different cultures with the host country.  As such, there is a significant need for cross-cultural management. Therefore, as explained by Anamali (2014), it is usually the responsible of the human resource manager to ensure that cross-cultural training is taken into consideration during offshoring.  Cross-cultural training may take various forms including lectures, group discussions, seminars, as well as workshops. According to Espana (2013), this is primarily for the aim of enhancing communication, which in turn plays a fundamental role in ensuring effective coordination of activities between the MNE and the offshoring organisation.  Additionally, as explained by Antras and Helpman (2004), through cross-cultural management, employees of different nationalities are able to work together as teams, which consequently improve the overall productivity of the organisation.

Owing to the fact that the MNEs need to deploy expatriates to work in their offshore locations, Rosseau (2010) has explain that there is need to for the human resource manager to design  incentives for the purpose of encouraging qualified individuals to undertake the overseas job.  This sentiment has been backed by Gupta (2008), who has explained that the human resource manager may be involved in performance and reward management of the overseas employees.  Despite the fact that the main reason offshoring is low labour costs, Farrell (2006) has explained that it is the responsibility of the human resource manager to ensure that the compensation of the overseas employees is not exploitive, as this would considerable affect productivity as well as profitability of the organisation.

Despite the fact that an MNE may consider offshoring a wide range of human resource functions as payroll and benefits, Anamali (2014) has asserted that this does not imply that the HR department in an organisation is eliminated. In this essence, Espana (2013) has argued that the role of the human resource manager in such a situation is to provide additional responsibilities such as managing client relationship. Taking this into consideration, the human resource manager needs to communicate the responsibilities as well as rights of both parties. Besides, it is the role of the human resource manager to the offshoring company meets the organisation’s goals as well as requirements through monitoring its activities periodically. This can also be done through conducting annual performance evaluations.  Consequently, the overall productivity of the organisation can be enhanced to a considerable extent.

Conclusion

Conclusively, it is with no doubt that increased globalisation and internationalisation in the last couple of years have led to opening of new markets in various countries across the globe.  In light of this, the recent trend of offshoring has been seen to be common among most MNEs.  Offshoring has been noted to have various benefits including cost savings, accessing skilled labour, and gaining proximity to the market. However, various disadvantages of the offshoring have been noted including communication barrier and increased training needs. Hume resource manager has been noted to play key role in offshoring.  This is in terms of designing rewards for overseas employee, enhancing cross-cultural management, and negotiations with the outsourcing company.

References

Anamali, A. (2014) ‘Offshore Outsourcing and Human Capital’, Academic Journal of Interdisciplinary Studies , 3(3), pp. 93-95.

Antras, P. & Helpman, E. (2004) ‘Global Sourcing’,  Journal of Political Economy 112(3), pp. 552–580.

Crawley, E., Swailes, S., & Walsh, D. (2011) Introduction to international human resource management. Oxford: Oxford University Press.

Crino, R. (2009) ‘Offshoring, Multinationals And Labour Market: A Review Of The Empirical Literature’, Journal of Economic Surveys, 23(2), pp. 197–249.

Espana, J. (2013) ‘The real costs of offshoring’, Journal of Business and Behavior Sciences, 25(2), pp. 40-49.

Farrell, D. (2006) Offshoring: Understanding the emerging global labor market. Boston, Mass: Harvard Business School Press.

Gupta, A. (2008) Outsourcing and offshoring of professional services: Business optimization in a global economy. Hershey, PA: Information Science Reference.

Nieto, M. J. & Rodrigue, A. (2011) ‘Offshoring of R&D: Looking abroad to improve innovation performance’, Journal of International Business Studies, 42, pp. 345-361.

Rosseau, D.M. (2010), ‘‘New hire perceptions of their own and their employer’s obligations: a study of psychological contracts’’, Journal of Organisational Behaviour, 5(6), pp. 389-400.

Vance, C. M. & Paik, Y. (2014) Managing a Global Workforce: Challenges and Opportunities in International Human Resource Management. New York:  Routledge.

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What insights can social identity theory provide into common problems in the workplace?

What insights can social identity theory provide into common problems in the workplace?

Introduction

According to Ellemers and Haslam (2011), workplace is one of the most salient domains in which the issues of well-being are major concerns. This is due to the fact that unhealthy workforce is typically unproductive.  In this recognition, Abrams and Hogg (2010) have explained that there are various problems in the places of work that considerably affect the productivity of these organisations. Some of the most renowned problems include high stress, resistance to change, low motivation, low job satisfaction, low well-being, as well as poor performance among others. Social identity theory has been noted to provide insights in overcoming these problems. In this regards, this essay seeks to analyse how the social identity theory can provide insights in dealing with these problems.

Social identity theory

According to Tajfel (2010), the social identity theory refers to a theory that predicts particular intergroup behaviours based on perceived group differences as well as perceived ability to move from one specific group to another. According to Alvesson (2010), the social identity theory typically produces a more general account in regards to self as well as group processes.  Wegge and Van Dick (2010) have noted that when individuals perceived themselves as a group, they tend to become affiliated to those groups. Nonetheless, in most cases, they have to act differently depending on the social contexts of the group they belong in.  Social identity theory also holds that shared social identity normally forms the basis for social influence that allow individuals to move past essentially world views and work towards promoting collective understanding.

Social identity theory in providing insights into common problems in the workplace

According to Wegge and Van Dick (2010), there are many reasons for believing that organisational identification can have a direct impact on the wellbeing of the employees. Taking this into consideration, this proposition holds that group-based identification to a considerable extent usually satisfy a wide range of human needs.  This is usually those related to safety, self-enhancement, belonging, as well as a sense of meaning and identity (King et al., 2010).  Precisely when it comes to the content of a workplace, employees are usually satisfied with groups that have positive as well as distinctive contribution in regards to the sense of self.  This, according to Abrams and Hogg (2010) implies that in these groups, they can be in a position of reporting greater wellbeing. Besides, in such groups they can be able to overcome various workplace problems such as stress and low productivity.  As asserted by Hogg and Terry (2014), the extent to which employees sense that they share social identity with other members of the organisation usually determine how they can become more disposed to those members.  On this, employees feel they share the same social identity class with other members, they typically find the process of interacting with those members more pleasant as well as more rewarding. Consequently, they can share their workplace problems, which can help them in minimising them, or their impacts on their overall productivity in their organisations.

As espoused by Ellemers and Haslam (2011), if the sense of social identity tends to be based on positive interactions between employees in the workplace, it implies that those employees normally find day-today business of their life less fraught as well as less threatening to self.  This, according to Tajfel (2010) is due to the fact that such employees typically feel that they are with, and not against each other. Besides, as noted by Stürmer and Snyder (2010), this usually have significant implications both at personal as well as social levels owing to the fact that shared identity results to workplace experiences being regarded as les problematic for both individual organisational members and organisational unit.

According to Wegge and Van Dick (2010), shared organisational identity to a considerable extent engenders positive main appraisals of various workplace problems through its tendency to enhance positive forms of intra-organisational interaction.  Nonetheless, it is worth noting that the implications of any workplace problem for the self largely depend upon its relevance for the organisation identity which defines the sense of self for an individual.  This claim has been supported by Hogg and Terry (2014), who has indicated that the impact of any workplace problem will ideally be moderated by its relevance in light of salient social identity.  Besides, it has been note that social identity groups can be powerful mechanisms when it comes to helping employees within an organisation to cope with, cope with, as well as counteract various risk factors of most of the workplace problems such as stressors.  More importantly, a study conducted by Alvesson (2010) revealed that individual’s experiences as members of various social identity groups usually allow them to normalise various  aspects of their work, which might seem abnormal as well as threatening to the uninitiated members. While this plays a fundamental role in increasing the well being of these individuals, it also increased productivity in the place of work.

Social identity has been found to play a critical role when it comes to determining the capacity of an individual to cope with various workplace problems through drawing upon the support of the group members.  Taking this into account, in the context of assessing the ability of individuals to cope with potential threats within the place of work, Alvesson (2010) has explained that individuals who perceive themselves to share social organisational identity with their workmates are usually more likely to be in a position of getting social support from their colleagues. This as a result makes it possible for them to be able to cope or overcome various workplace problems. On this, three factors are considered crucial. Firstly, given that individuals perceive themselves to belong to a particular self identity group, then it holds from the self categorisation theory that they tend to be more likely as well as motivated more likely to help each other especially in times of challenges. Therefore, through such group, individuals with problems can try and sought help in order to overcome such problems (King et al., 2010).  Secondly, a sense of shared social identity usually inclines individuals in the place of work to make more positive appraisals of various workplace problems they confront. This is due to the fact that it fuels the sense of “we are in this together”, and not “I will deal with this alone”. Owing to the fact that these perceptions of shared identity ideally bear close relation in regards to organisational identity, organisational members are usually more likely to be protected from workplace problems, which are targeted particularly at isolated individuals such as workplace bullying (Jetten et al., 2009).  Thirdly, given that social identity normally provides individuals with a platform for a shared cognitive framework, it implies that any help provided in the social identity group is likely to be interpreted in the intended spirit. This is due the fact that members of such groups are perceived to support each other, especially in times of problems.

Besides potentially helping each other to cope with various workplace problems, Abrams and Hogg (2010) have explained that the process of mutual support of shared organisational identity typically provide members with a basis as well as motivation for developing a shared understanding of their experiences related to workplace problems.  This is as depicted by the social identity theory that shared social identity normally forms the basis for social influence that allow individuals to move past essentially world views and work towards promoting collective  understanding.  Besides, unlike individual’s views are perceived to be as opinions, the views of social identity groups are seen as fact, and thus help with profound certainty as well as conviction.  According to Ellemers and Haslam (2011), if employees within an organisation are unable to act in terms of shared social identity, then it implies that their capacity to promote a collective response to a particular workplace problem is usually limited to a considerable extent.  Nonetheless, in most situations, employees always find themselves in groups that they perceive that will help the in overcoming their problems.

Conclusion

In conclusion, it can be deduced that employees usually face a wide range of problems in their places of work such as high stress, resistance to change, low motivation, low job satisfaction, low well-being, as well as poor performance. Social identity theory has been found to provide insights in dealing with these problems. Taking this into consideration, social identity theory refers to a theory that predicts particular intergroup behaviours based on perceived group differences as well as perceived ability to move from one specific group to another has been found to play a critical role when it comes to determining the capacity of an individual to cope with various workplace problems through drawing upon the support of the group members.  In assessing the ability of individuals to cope with potential threats within the place of work individuals who perceive themselves to share social organisational identity with their workmates are usually more likely to be in a position of getting social support from their colleagues. This as a result makes it possible for them to be able to cope or overcome various workplace problems such as stress.

 

 

References

Abrams, D., & Hogg, M. A. (2010). ‘Social identity and self-categorization. The SAGE handbook of prejudice, stereotyping and discrimination’, 1(1), pp.179-193.

Alvesson, M. (2010). Self-doubters, strugglers, storytellers, surfers and others: Images of self-identities in organization studies. Human Relations.

Ellemers, N., & Haslam, S. A. (2011). Social identity theory. Handbook of theories of social psychology2, 379-398.

Hogg, M. A., & Terry, D. J. (Eds.). (2014). Social identity processes in organizational contexts. Psychology Press.

Jetten, J., Haslam, S.A., Iyer, A., & Haslam, C. (2009). Turning to others in times of change: Shared identity and coping with stress. In S. Stürmer and M. Snyder (Eds.), The psychology of prosocial behavior: Group processes, intergroup relations, and helping  (pp. 139-156). Oxford: Wiley-Blackwell.

King, B. G., Felin, T., & Whetten, D. A. (2010). ‘Perspective-finding the organization in organizational theory: A meta-theory of the organization as a social actor’, Organization Science, 21(1), pp.290-305.

Stürmer, S., & Snyder, M. (2010). The psychology of prosocial behavior : group processes, intergroup relations, and helping. Chichester, West Sussex, U.K.: Blackwell.

Tajfel, H. (2010). Social identity and intergroup relations. Cambridge University Press.

Wegge, J., & Van Dick, R. (2010). I feel bad – We feel good!? Emotions as a driver for identity and identity as a buffer against stress. Unpublished manuscript: University of Frankfurt.

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Company law

Company law

Question a: Advise the liquidator, with reference to the Corporations Act 2001 (Cth), as to what action she should take against Bruce and Lee and the chances of her success

Relevant facts

From the scenario of Ninja Computer Pty Ltd, the directors called Bruce and Lee have been presented to have faced a challenged in the management of the company finance. Along these lines, the company has faced challenges including the lack of payment of the company trade suppliers. As indicated in the case, SuppyCo demands the overdue monthly supply account to be paid. However, Bruce who acts as the financial managers of the company affirms that the issue has been solved but this recurs a month later on 1st August 2017. The other issue that is faced by the Ninja Computer Pty Ltd is that Bruce is one of the directors has sold company assets for the payment of luxurious cars as well as for personal gambling debts. Taking this into account, it has been presented that the company has been surviving on credit for the last financial year and Bruce has been concealing the issue from Lee by keeping improper financial records since 1st August 2016. The bank manager has also affirmed to Lee that the company had exceeded its 150000 dollars overdraft and hence the bank could not honor any payments made by the company.  This has called for the appointment of a liquidator by the court who intends to repay the creditors of the company. However, the company does not have enough funds and assets to make the payment of more than 285000 dollars in debt.

Legal issues

The appointment of the liquidator is the first step that should be taken before dissolving a company[1]. The liquidator has a variety of responsibilities including ascertaining that possession of the assets in the company to help in the process of payment of the creditors of the company. In addition, the liquidator is obligated to present the company assets after taking an inventory and defending any claims that are initiated by the company[2]. In section 459C (2)(a) of the Corporation Act, there is a need for the court to presume that the company is insolvent and depend on the information that will be presented by the liquidator. Nonetheless, the liquidator does not have an obligation of doing any work unless the company has enough assets for the payment of costs involved. As presented in the Corporations Act 2001, the directors will not have any power after the appointment of a liquidator and will take part in supporting the work of the liquidator by providing the books of records as well as providing a report on the affairs of the company. The act as well indicates that the primary aim of the liquidator is to the creditors of the company and the shareholders in this case Bruce and Lee are behind the creditors and are not likely to receive any dividend.

Case law

As indicated in the Corporation act 2001, all the partners in a company are liable for partnership contracts including the actions that are performed by any of the directors. In this case, the actions of Bruce and Lee could affect each one of them as partners in the company. There are cases such as the case of Salomon V Salomon & Co Ltd where the final decision indicated that upon the incorporation of any company, the company should be treated as a separate legal entity from the founders and directors[3]. In this regard, Mr. Salomon is considered as a secured creditor in the company. Furthermore, the issue of dishonest of the directors is considered as a breach and has consequences. In this regard, one of the directors called Bruce has acted dishonestly in the management of the company finance and has not been involving the Lee in the decision-making process. There are other court cases involving liquidation of a company including the case of Valuestream Investment Management Ltd v Richmond Management Pty Ltd (2012). In the case, the court ordered the appointment of an interim receiver and manager for the management of the investment scheme. This occurred as a result of the failure of the company to keep proper financial records.

Application

From the legal issues, it can be deduced that there are issues on the record keeping, dishonesty of one of the directors and the company has an overdraft of more than 150000 dollars hence the company cannot be in a position to pay the employees and suppliers since the bank has indicated that it could not honor any of the payments of the company. Along these lines, it can be argued that the company has failed to offer the necessary services to the suppliers and the employees hence calling for the appointment of a liquidator. The liquidator will help in the assessment of the assets of the company and the ability of the company to pay their creditors. In addition, the liquidator will take into custody all the assets of the company for the plan of paying the creditors of the company. In relation to the case law, the company should be kept under new management and a new receiver should be appointment as well as the manager. Furthermore, the directors should be asked to submit the financial information and records of the company for assessment by the liquidator. The directors of the company are liable to a civil penalty and criminal sanctions.

Legal reasons

The duties of the directors as stipulated in ss188-183 includes the provision of disclosure of company information and should not take part in the manipulation of the market. Taking this into account, the directors are liable to a civil penalty and criminal action due to the fact that they acted in dishonesty. As such, the directors have failed to act in good faith as required in section 184. Furthermore, there has been an improper record keeping and hence presentation of misstatement are required in section 728 (1) of the Corporation Act 2001. Although one of the directors is responsible for the dishonesty activities, Lee has the obligation of understanding the activities that are taking place in the company and hence should have taken the necessary action after being informed of the problems reported by SupplyCo. As presented in the ASCI Act section 13, the ASIC has the power of commencing an investigation in the instances that there are suspicions of a contravention[4]. In this regard, the actions that court cases could as well involve the ASCI rather than having a liquidator depending on the cooperation of the directors.

Question b: Assume ASIC, instead of the liquidator, has taken legal action Bruce and Lee for breach of the Corporations Act identified in your answer in part (a). Explain, with reasons, what are the most likely potential legal consequences of Bruce and Lee?

As a corporate regulator, ASIC has the obligation of ensuring that the company directors are undertaking their duties are required and hence ensuring that there is adherence to the Corporations Act[5]. Along these lines, ASIC could enforce a variety of options on the directors of Ninja Computer Pty Ltd including preservation, having an administrative action such as having enforceable undertaking. ASIC could as well enforce legal action such as having a civil penalty or having a criminal prosecution. The potential legal consequence of Bruce and Lee as the directors of Ninja Computer Pty Ltd is a civil penalty and criminal sanction for the case of Bruce as a result of acting dishonestly regarding the financial status of the company. In addition, the criminal sanction for Bruce could be attributed to the fact that he cannot be reached and has gone into hiding hence leaving Lee with the financial issues. As indicated in section 728 (1) of the Corporation Act, the company directors are obligated to present correct disclosure and this has not been upheld by Bruce and Lee hence instigating a criminal sanction.

Furthermore, the legal action could be instigated by ASIC as a result of the presentation of misleading and false statements for the induction of the suppliers to deal with the company. The ASIC could enforce civil penalty as provided in section 1317E of the Corporation Act due to the breach of duties as a director of the company. Furthermore, the court could order the directors to make a payment but in this case, the directors should be ordered to pay the company for the damages that have been suffered as a result of the dishonesty and the operation on credit for the past year. As such, Bruce is obligated to make a larger payment as a result of the actions he undertook. However, at first, the directors are supposed to be sanctioned for the presentation of the issues that are facing the organization as a result of their management process. This could as well help in the provision of insight information on the different actions that could be more appropriate for the directors depending on their cooperation with ASIC.

References

Bevan, Christopher J. Corporations law. Thomson Reuters (Professional) Australia Limited, 2014.

Bird, H., and G. Gilligan. “Financial services misconduct and the Corporations Act 2001-Paper 2.” Research Working Paper Series. Melbourne (2015).

Steele, Stacey, Vivien Chen, and Ian Ramsay. “An empirical study of Australian judicial decisions relating to insolvency practitioner remuneration.” (2016).

 

[1]Bird, H., and G. Gilligan. “Financial services misconduct and the Corporations Act 2001-Paper 2.” Research Working Paper Series. Melbourne (2015).

 

[2]Bevan, Christopher J. Corporations law. Thomson Reuters (Professional) Australia Limited, 2014.

 

[3]Steele, Stacey, Vivien Chen, and Ian Ramsay. “An empirical study of Australian judicial decisions relating to insolvency practitioner remuneration.” (2016).

 

3Steele, Stacey, Vivien Chen, and Ian Ramsay. “An empirical study of Australian judicial decisions relating to insolvency practitioner remuneration.” (2016).

 

1Bird, H., and G. Gilligan. “Financial services misconduct and the Corporations Act 2001-Paper 2.” Research Working Paper Series. Melbourne (2015).

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Lessons Learnt in Engineering-The Disappearance of Flight MH370

Lessons Learnt in Engineering-The Disappearance of Flight MH370

The article “Why Flight MH370 may never be found” has been written by Bedford, Mike.  In this regard, the article was published in January 2015 by UK magazine, Computer Shopper. Bedford has been contributing significantly in this magazine over the last couple of years.  Computer Shopper magazine has been published on monthly basis since 1988 in the United Kingdom by Dennis Publishing Limited (Beford 2015). Taking this into consideration, the magazine contains reviews of home computers as well as consumer technology and software. Besides, the magazine contains technology focused news, analysis, as well as feature articles.  Based on this information, it can be deduced that the article can be adopted for academic use.  In this consideration, this paper seeks to demonstrate how articles can be used as an academic source. As such, the article has begun with evaluation of the credential of the author. What follows is a brief description of the article through taking into account the main points and themes put across by the author.  Lastly, the paper evaluates the reliability of the article, as well as need for further research in regards to tracking of aircrafts for the purpose of minimising incidences such as the disappearance of Flight MH370.

The main theme put across by the author in this article is the need to introduce tracking technology particularly when it comes to aircrafts.  This is through using the case of Flight MH370, which despite the huge international effort to track it, it has never been found up to now.  Therefore, the purpose of the article is to explain to the readers the real problem behind the disappearance of Flight MH370, and what can be done to reduce such instances in future. As such, the article starts with description of how Flight MH370 disappeared. The article also describes how aircraft are traced, together with the numerous challenges that come with it. Lastly, the article describes how tracking technology can be improved in tracking aircrafts to prevent such incidences in future.

In regards to the description of the disappearance of Flight MH370, this article explicates that the disappearance of this Malaysian Airline’s flight in March 2014 has remained one of the greatest mystery in the recent past.  In fact, many scholars such as Chong and Chang (2016) have argued that is possibly the biggest mystery when it comes to history of aviation.  In this era if satellite navigation, coupled with ubiquitous communication, it is quite incomprehensible that a modern passenger plane would disappear without a trace, with all 239 people on board (Beford 2015).   Flight MH370, which was o its route from Kuala Lumpur to Beijing has not been located up to date.  Since 2014, a wide range of international efforts has been directed to tracing the plane.  Nonetheless, nothing substantial that has been realised.

Following this, this article describes how tracking in aircrafts is done. Precisely, as the article depicts, tracking aircrafts in the sky is challenging to a huge extent owing to the fact that there are usually no signals most of the time. The simplest method of tracking used is referred to as primary radar. This method, which dates back to the Second World War, does not rely on equipments fitted on aircraft. Rather, a radio signal is typically transmitted from a continual rotating antenna in a narrow beam (Beford 2015).  From this point, signals are received in response, after being reflected from the aircraft. However, with thus method, tracking cannot be identified with certainty. However, the modern radar system, which is regarded as secondary data is able to overcome this challenge. Nonetheless, on ocean routes, aircrafts could be out of radar range even for hour. This is what could have happened in the case of Flight MH370 (Bremner 2015).

When it comes to future frights, this article has affirmed that there is a new technology in the process of being introduced which is known as Automatic Dependent Surveillance (ADS-B). Taking this into consideration, the ADS-B technology typically works in a significantly different way as compared to the radar system (Beford 2015).  Precisely, while the radar uses ground based equipment in determining the position of an aircraft, a plane fitted the ADS-B technology determines its own position, transmitting the information to the air traffic control.  The associated equipment when it comes to ADS-B technology comprises on-board navigation received as well as a terrestrial microwave radio link. This makes it possible for an aircraft to be traced easily.

In conclusion, it has been seen from this paper that the selected article has described the disappearance of Flight MH370 in 2014. From this, the article has stated that describe the huge effort to trace the plane, it has not be possible to trace it. Considering this, the article has explained that for the purpose of reducing such problems in future there is need to embrace. Taking this article into account, it ca n be deduced that it is valuable to a considerable extent particularly in the field of IT and Engineering. This is due to the fact that it relates significantly to academic research as well as scientific experiment.

 

References

Beford, M 2015 ‘Why Flight MH370 may never be found’, Computer Shopper . 323(1), 124-129.https://search-proquest com.ezproxy.lib.uts.edu.au/docview/1640690932?accountid=17095&rfr_id=info%3Axri%2Fsid%3Aprimo

Bremner, L 2015 ‘Fluid ontologies in the search for MH370’, Journal of the Indian Ocean Region11(1), 8-29. http://www.tandfonline.com/doi/abs/10.1080/19480881.2014.985899

Chong, A, & Chang, JY 2016 Security competition by proxy: Asia Pacific interstate rivalry in the aftermath of the MH370 incident. Global Change, Peace & Security28(1), 75-98. http://www.tandfonline.com/doi/abs/10.1080/14781158.2016.1115756

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