Impact of e-payment on Profitability and Shareholder Value in the UK Banking Industry

Impact of e-payment on Profitability and Shareholder Value in the UK Banking Industry

2.1 Introduction

The concept of e-payment is a marvel in the contemporary banking industry. Concerning this, DeYoung (2005) explains that in today’s banking industry has become envisaged with dynamic and rapid changes because of increased customer awareness and technological improvement. To serve their customers at lower costs and at a faster rate, contemporary banks have been forced to embrace e-payment systems. The embracement of e-payments in the developed world has motivated researches to strive to understand the impact of e-payment on bank’s profitability and shareholder value. However, the substantial researches that have focused on this research subject are replete with incongruent standpoints. For example, Freedman (2010) revealed that embracement of e-payment enhances bank’s profitability and shareholder position. According to the author, this is an outcome of decreased cost of transaction processing, enhanced payment efficiency, improved delivery of financial services, as well as improved banker-customer relationship. Conversely, other researches such have found that the embracement of e-payment has spawned a myriad of challenges, which have negated the positive impact of e-payment on enhanced profitability and shareholder position. For example, Ibrahim, Joseph and Ibeh (2006) indicated that the principal challenges negating the positive impact of e-payment on enhanced profitability and shareholder value is the habit of fraudsters to hack into bank accounts of depositors as well as to clone ATM cards. According to the author, these habits have spawned worry and fear among electronic payment users and discouraged them from subscribing into e-payment platforms. This has affected on volume of transactions, which would have boosted shareholder value and bank’s profitability. The incongruence on this research subject is the main motivation of conducting a further review on the impact of e-payment on profitability and shareholder value in the UK banking industry.

2.2 Discussion on the Concept of e-payment in UK Banking Industry  (700 words)

The concept of ‘e-payment’ simply illustrates the method of conducting transactions without the involvement of paper cheque or physical cash. Prior to the introduction of ‘e-payment’ methods, customers in the banking industry were forced to carry huge sums of cash and take long hours of queueing. However, with the introduction of ‘e-payment’ methods such as ATM (Automated Teller Machine) and POS (Point of Sale), Ching and Hayashi (2010) asserts that contemporary banks have managed to abridge this gap by enhancing speed, comfort, efficiency, and security to banking procedures. In the UK banking industry, the enormous embracement of ‘e-payment’ is exhibited by the volume as well as value of transaction conducted through mobile phones, ATM and POS. For example, Ibrahim, Joseph and Ibeh (2006) asserts that in 2016 financial period, cash spending accounted for almost 35% of UK GDP. Moreover, being a developed economy, there is no doubt concerning the penetration of ‘e-payment’ methods in UK banking industry. However, the big question that looms is to what extent e-payment has affected the profitability and shareholder value in the UK banking industry.

2.3 Theoretical Framework on Impact of e-payment on profitability and Shareholder Value

2.3.1 Technology Acceptance Theory

Suggested by Davis, Bagozzi, and Warshaw in the 1989, the technology acceptance theory outlines two conditions that each technology such as e-payment should fulfill in order to enhance profitability and shareholder value. That is, the technology acceptance theory insinuates that the success of new technologies in revamping profitability or shareholder value depends on the users’ perceived usefulness as well as users’ perceived ease of use of the new technology (Hu, Griffin, and Bertuleit, 2016). In this case, the users’ perceived usefulness elucidates the customers’ belief that the use of new technology such as e-payment will reduce cost, enhance efficiency, or enhance security on transaction processing. On the other hand, the users’ perceived ease of use elucidates how easy the customer can use the new technology without being directed. In developed economies such as UK, the technological acceptance theory posits that users’ perceived usefulness has more value than users’ perceived ease of use in determining the success of new technology. For example, the study by Huang (2013) indicated that the positive of e-payment on bank’s profitability and customer satisfaction is primarily driven by prospects of operating revenue maximization and operating costs minimization.

2.4 Impact of E-payment on Profitability (1000 words)

The empirical findings on this section are divided into two categories. First, there are those previous empirical studies that have supported the notion that embracement of e-payment has a positive influence on bank’s profitability. For example, Huang (2013) conducted a meta-analysis of studies on the impact e-payment on the bank’s profitability, which were conducted in Chinese banking industry. The findings of the meta-analysis revealed that embracement of e-payment enhance bank’s profitability. According to the author, this is an outcome of decreased cost of transaction processing, enhanced payment efficiency, improved delivery of financial services, as well as improved banker-customer relationship. Moreover, Halili (2014) conducted a study on the profit efficiency of banks in the Saudi Arabia economy. The findings of the study revealed that the availability of number of ATMs, phone banking, as well as number of bank branches has a positive influence on the profit efficiency of banks in Saudi Arabian economy.

Conversely, other empirical studies refute claims that embracement of e-payment has a positive impact on bank’s profitability. For example, Ibrahim, Joseph and Ibeh (2016) conducted a study on the impact of e-payment methods on bank’s profitability in United States. Concerning this, the author revealed that the principal challenges negating the positive impact of e-payment on enhanced profitability and shareholder value is the habit of fraudsters to hack into bank accounts of depositors as well as to clone ATM cards. According to the authors, these habits have spawned worry and fear among electronic payment users and discouraged them from subscribing into e-payment platforms. This has affected on volume of transactions, which would have boosted shareholder value and bank’s profitability.

2.4 Impact of e-payment on Shareholder Value (1000 words)

Similarly, empirical studies in this category are also divided into two categories. That is, there are those that approve and dispute claims that embrace of e-payment enhance shareholder value of financial institutions. For example, study conducted by Lin, Lucas and Bailey (2011) on the “Puzzles in Electronic Money and Banking” revealed conflicting findings on the impacts of e-payment on shareholder value in the short-term as well as in the long-term. According to the authors, banks record enhanced return on equity in the long-term because of the huge number of customers using the e-payments. However, the authors concluded that in the short-term greater ICT investment costs impede bank’s ability to pay heightened returns on investment.

Conclusion (250 words)

A review on the impact of e-payment on bank’s profitability and shareholder value in the UK banking industry has revealed myriad findings. According to the review, e-payment’ simply illustrates the method of conducting transactions without the involvement of paper cheque or physical cash. Also, the review has revealed that in 2016 financial period, cash spending accounted for almost 35% of UK GDP. Moreover, being a developed economy, there is no doubt concerning the penetration of ‘e-payment’ methods in UK banking industry. Also, the review has outlined that the technology acceptance theory insinuates that the success of new technologies in revamping profitability or shareholder value depends on the users’ perceived usefulness as well as users’ perceived ease of use of the new technology. Lastly, the review has outlined that the substantial researches that have focused on this research subject are replete with incongruent standpoints. That is, some of the findings of the previous empirical studies tend to approve whereas others disapprove the notion that embracement of e-payment has a positive impact on bank’s profitability and shareholder value. According to the findings, the incongruence on this research subject is the main motivation of conducting this review.

References

DeYoung, R. (2005) ‘The performance of Internet-based business models: Evidence from the banking industry,’ Journal of Business, 78 (3), 893–947

Freedman, C. (2010) ‘Monetary Policy Implementation: Past, Present, and Future-Will Electronic Money Lead to the Eventual Demise of Central Banking?’ International Finance, 3(2), pp. 211- 27

Halili, R. (2014) ‘The impact of Online Banking on Bank Performance,’ SSRN 1(1),pp134

Ching, A. and Hayashi, F. (2010) ‘Payment card rewards programs and consumer payment choice,’ Journal of Banking & Finance, 34(8), pp.1773-1787.

Hu, X., Griffin, M. and Bertuleit, M. (2016) ‘Modelling antecedents of safety compliance: Incorporating theory from the technological acceptance model,’ Safety Science, 87, pp.292-298.

Huang, Z. (2013) ‘Evidence of a bank lending channel in the UK,’ Journal of Banking & Finance, 27(3), pp.491-510.

Ibrahim, E., Joseph, M. and Ibeh, K. (2006) ‘Customers’ perception of electronic service delivery in the UK retail banking sector,’ International Journal of Bank Marketing, 24(7), pp.475-493.

Lin, M., Lucas, H. and Bailey, J. (2011) ‘Banking’ on the Internet: Does Internet Banking Really Improve Bank Performance?’ SSRN Electronic Journal, 5(3), pp.145-190

 

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Investment Appraisal Techniques and Mergers & Acquisitions

Investment Appraisal Techniques and Mergers & Acquisitions

Introduction

There are myriad corporate debates surrounding the aspects of capital budgeting and mergers and mergers and acquisitions. In regards to the former, the search for a dependable method to evaluate the profitability of investment venture continues to be a concern not only to the managers and academics, but also to shareholders and investors of the company. For example, Chen & Clark (2014) posits that the traditional methods of capital budgeting are unable to incorporate changes, which are eminent in the current business environment, especially where enhancement of shareholder value is of prime importance. Conversely, other pundits posit that the modern investment appraisal techniques involve complex decision-making and do not provide viable investment solutions in business environments envisaged with capital rationing problems. In regards to mergers and acquisitions, corporate debates envisage whether mergers and acquisitions improve the shareholder position of the target company. On this note, Dilshad (2013) explains that the payment of share premiums to the shareholders of the target company leads to the enhancement of the shareholder value. Conversely, Chen (2012) explicates the improvement of the shareholder position of the target company depends on the future prospects of the merger activity. This essay uses the case studies of KK Smith & Sons, and Wharton Plc-Smith Merger to find out the stand of the above corporate debates.

Based on the background, part A of this essay evaluates the viability of the two investment projects proposed by KK Smith & Sons using payback method, ROCE and NPV method. Secondly, part B of this essay evaluates whether the Wharton Plc-Smith  Plc merger will enhance the shareholder position of the target company, Smith Plc.

Part A; Investment Appraisal Techniques

Advice given to KK Smith and Sons on Investment Project to Undertake

The advice on the best investment project to invest in was given based on the data given by the various investment appraisal techniques such as the payback period, ROCE, and NPV method. This data is outlined in the table below;

Table 1: Investment Appraisal Techniques for projects X and Y

Payback Investment Appraisal Technique

The aforementioned technique is traditional method of evaluating how well the proposed investment projects will recoup their initial capital outlay. In particular, Dempsey (2013) asserts that the payback evaluates the viability of the proposed investment based on the time they take to payback the initial capital outlay. As such, the investment criterion of payback method tends to selects investment projects, which take a shorter period of time to payback the initial investment capital. In line with these sentiments, project X is more suitable and viable compared to project Y. This is because project X takes a shorter period of 2.67 years to payback its initial investment capital compared project Y, which takes a period of 3.5 years to payback its initial investment capital. However, payback method has been criticized for its inclination to near-term outcomes. That is, pundits such as Chen & Clark (2014) posit that payback method tends to neglect the long-term viability of the project since it tends to select projects with high cash inflows amid the initial years.

Return on Capital Employed Investment Appraisal Technique

The aforementioned investment appraisal technique is a multifaceted combination of the accounting profit or return derived from the proposed investment project and the initial capital invested in the proposed investment project (Carr, Kolehmainen and Mitchell, 2010). The investment criterion of this investment appraisal technique tends to describe investment projects as viable when their ROCE (return on capital employed) is more than firm’s hurdle rate. From the above analysis, project X’s ROCE is 21.82% and Y’s ROCE is 21.00%. The hurdle rate set by KK Smith and Sons is at 12%. This means that the ROCE of the two projects (Y and X) are above the set hurdle rate by KK Smith and Sons. On this note, the investment criterion of ROCE, project X should be selected since its ROCE is slightly higher than that of project Y. However, the use of accounting profits, which are susceptible to manipulation through creative accounting, has made ROCE unpopular among many pundits. Also, Kantila (2011) posits that ROCE is embedded on the unrealistic assumptions such absence of taxes. This makes it unsuitable method of appraising the viability of investment projects in the contemporary business environment.

Net Present Value Method

NPV method is the most modern method of appraising the viability/profitability of investment. According to Brookfield (2015), the NPV method is the most suitable investment appraisal method because acknowledges that money loses value with time. Moreover, the NPV method also recognizes all the cash flows of the proposed investment project. These acknowledgements (time value of money and cash flows) are the weaknesses of the traditional methods of appraising projects (Arnold & Hatzopoulos, 2010). The investment criterion of NPV method tends to select projects with positive NPV and tends to negate investment projects with negative NPV. Using this criterion, project Y is a more feasible investment project compared to investment project X. This is because it has a higher NPV of 26,798.50 compared to X’s NPV of 23,544.50.

Advice to KK Smith and Sons on which Project to Implement

Prior to implementing any of the two investment projects, KK Smith and Sons should first evaluate the accuracy and practicality of the sentiments of the aforementioned investment appraisal techniques. First the payback method posit that project X should be implemented since since it has a shorter payback period than the proposed investment project Y. However, payback is embedded on impractical assumptions such as failure to recognize aspects such as inflation, which devalue the value of currency. Secondly, ROCE posits that project X should be selected since its ROCE is slightly higher than that of project Y. However, just like payback method, ROCE investment appraisal technique is embedded on impractical assumptions such absence of taxes. The opinion of this essay is that KK Smith and Sons should implement project Y since its has a higher NPV than project X. the investment criterion of NPV method is practical and accurate since it acknowledges concepts such as time value of money as well as cash flows arising from the entire project.

NPV Problems that arise with the Advent of Capital Rationing

There are myriad circumstances that arise, which may force the firm not to follow the investment criterion of NPV method. That is, investing in investment projects with a higher or positive NPV. One such scenario or circumstance can occur when the projects have variant cash inflows. That is, when one project has more cash inflows in the short-term whereas the other project has more cash inflows in the long-run. With the advent of capital rationing, the firm will always be forced to implement investment projects with low NPV and have huge inflow of cash in the short-term (Khan, 2008). For example, in the event KK Smith and Sons are cash-starved they will be forced to implement project X since it has more inflow of cash in the short-term compared to project Y, which has more inflow of cash in the long-term.

Secondly, failure to implement the investment advice of NPV method can also arise where the proposed investment projects have variant lives. In this case, in the event of capital rationing, the firm may be forced to implement investment projects with short life as well as low NPV. On this note, Berkovitch and Israel (2014) explains that firms are always seeking for viable investment opportunities. Therefore, the need to invest in viable investment opportunities motivates firms to take advantage of the influx of cash inflows from investment projects with short lives.

Moreover, firms can also be forced to disregard the investment advice of NPV when the proposed investment projects are variant in terms of magnitude. In this case, big projects with higher NPVs can be neglected at the expense of small projects with lower NPVs. In most cases, Kachani & Langella (2005) explains that failure to implement the investment advice of NPV method results into irrational use of resources. For instance, KK Smith and Sons have 180,000 for implementation of feasible investment projects. However, this amount of money is insufficient to implement project Y, which is more feasible project than project X. this might force the management of KK Smith and Sons to implement project X, which requires lesser capital than Y. The aftermath of this is wastage of resources amounting to 80,000.

How to Counter the Aforementioned Problems

In situations of capital inadequacy, there are various tools the management of firms such KK Smith and Son can implement to counter the problems associated with the implementation of the investment advice of NPV method. First, the computation of profitability index can serve to dilute the aforementioned problems. In this case, Swalm (2008) explicates that profitability index is equal to 1+NPV/investment.

For example, the profitability index of the proposed investment projects by KK Smith and Sons can be ascertained as follows;

Project X= 1+23,544.50/110,000=1.21

Project Y=1+26,789/200,000=1.13

In regards to this, Mclean (2009) explains that profitability index is able to dilute some of the problems associated with NPV method in the event of capital rationing because it is able to ascertain the precise rate of return or profit of an investment project. In line with this notion, it is clear that project X is more profitable than Y and therefore, it should be implemented if KK Smith and Sons are cash-starved.

Part B; Evaluation of the proposed Wharton PLC-Smith PLC Merger

Determining the Extent to Which the Shareholders of Smith will benefit from the Proposed Merger

The principal aims of mergers, which include amalgamation of resources such as expertise and production lines as well as the realization of economies of scale are meant to augment companies’ profitability and wealth of shareholders (Sherman and Morin, 2011). In this case, the author asserts that enhanced shareholder value can be attained by revamping the attractiveness as well as prices of shares. The likelihood of Wharton PLC-Smith PLC merger benefiting Smith Plc’s shareholders in terms of enhanced shareholder position can be assessed using various shareholder ratios. One such shareholder ratio is the price-to-earnings ratio. According to Eilon (2008), price-to-earnings ratio is an essential metric of evaluating the attractiveness of firm’s stock prices. A shorter or a reduced P/E ratio elucidates that stocks will take a short period to pay-off investors their money whereas a an enhanced P/E ratio means that company’s stocks will take a longer period to pay-off investors. According to Dilshad (2013), attractive stocks usually take a short period to pay-off investors their initial capital outlay. From the forecast, it is expected that Smith Plc’s P/E ratio before and after the merger will be equivalent to 10 and 9 respectively. The deflated P/E ratio from 10 to 9 means that Smith Plc’s shareholders will recoup their initial capital outlay within a short period of time after the merger. Moreover, a deflated P/E ratio from 10 to 9 also insinuates that the shares of Wharton Plc-Smith Plc merger have a possibility of outperforming other shares in the industry in future. For this reason, Smith Plc’s shares can be attractive to the value investors who consider shares with deflated P/E ratio as undervalued. Therefore, a deflated P/E ratio from 10 to 9 does not mean quick payoffs for Smith Plc’s shareholders but also enhanced marketability for their shares.

Another metric of measuring the enhanced shareholder position is the earnings per share. According to Consler, Lepak & Havranek (2011), EPS helps to mirror whether shareholders will become beneficiaries of enhanced profitability after the merger. This is because a deflated EPS means that there were less funds distributed towards the payment of dividends. The question as to whether Wharton Plc-Smith Plc merger will deflate or increase Smith Plc’s shares is answered in the following computations;

Smith Plc’s EPS before the merger=£5.8/£10=£0.58

Smith Plc’s EPS after the merger is computed as follows;

Smith Plc’s Income post the merger activity=(£10M+£5.8M=£15.8M

There was an increase of 8% in Smith Plc’s earnings after the merger. Therefore, Smith Plc’s total earnings amounted to 108/100*£15.8M=£17.064M

Outstanding number of shares post the merger activity=40M+(10*3)=70M

Smith Plc’s EPS=£17.064M/70M=£0.2437

However, after the merger, Smith Plc’s share will earn three times. This means that Smith Plc’s EPS will be equate to (£0.2437*3)= £0.7311. As such, Smith Plc’s EPS will increase from £0.54 to £0.7311 after the merger. This mirrors increase profitability of the proposed Wharton Plc-Smith Plc merger. A revamped EPS is mainly an outcome of synergies associated with mergers. According to Halpern (2013), mergers are associated with synergies such as attainment of market power, financial, operational, economies of scale, amalgamation of resources, and production synergies. The effective combination of these synergies by the merged firms can yield revamped profitability as well as shareholder wealth.

Moreover, the enhancement of shareholder position post the merger activity can also be ascertained by computing the value of Smith Plc prior and after the merger. In this case, Chen (2012) explains the value of the firm is equated to (Market price per stock* No. of shares).

Prior to the merger of activity the value of Smith Plc was equivalent to £58M. This is an outcome of £0.58 (price per share) multiplied by the No. of shares (10M). However, the event post the merger activity yield different MPS and No. of shares. For example, the MPS of Smith Plc post the merger can be termed as an outcome of P/E ratio * EPS= £0.2437*9. This yields £2.1933. Also, the No. of shares post the merger will also change from 10M to 70M. This is an outcome of 40M (shares of Wharton Plc) + 10*3 (shares of Smith Plc). Therefore, the total value of Wharton Plc-Smith Plc merger will be given by £2.1933*70M=£153.53M. The total shareholding of Smith Plc’s shareholders in Wharton Plc-Smith Plc merger is in the ratio of 1:3. This means that total valuation of Smith Plc after the merger will be equal to 3/4* £153.53=£115.14. This means that the merger activity will increase the valuation of Smith Plc from £58M to £115.14M. This means that the shares of Smith Plc’s shareholders are more valuable compared to how they were prior the merger activity.

Using the data gathered on shareholder ratios such as P/E, earnings per share, and computation of the value of Smith Plc before and after the merger, it is evident that Wharton Plc-Smith Plc merger will confer myriad advantages to the shareholder position of Smith Plc’s shareholders. This is because as a result of the merger, Smith Plc’s will become beneficiaries of a deflated P/E ratio, revamp EPS as well as enhanced company valuation. This means that Smith Plc’s shareholders are in a more improved shareholder position than they were prior to the merger activity.

Principal factors that an acquiring company must consider when deciding how to finance a proposed takeover of another firm

Before initiating a merger activity, pundits concurs that it wise for the acquiring company to consider myriad factors. First, the acquiring company needs to consider its leverage position. That is, in its capital structure the acquiring company should be able to ascertain the proportions of debt and equity capital. By doing so, Harford (2015) explains that the acquiring company will able to ascertain its gearing position. If the acquiring company has too much debt, then it is advisable to equity capital to finance the merger activity.

Secondly, the level of cash flow as well as the asset base of the target and acquiring company is also an essential facet to consider before deciding on the best financing strategy (Eilon, 2008). In this case, if the acquiring and target company have a solid asset base as well as ability to generate earnings, then use of debt capital would a good financial strategy. That is, a solid asset base will provide enough collateral for the acquired loan and sizeable cash flows will be used to offset the financial obligations.  Also, the acquiring company will have to consider the attractiveness of its share price before deciding on the best financing strategy (Berger, 2011). In this case, if the stock performance of the acquiring company is low, then it will be forced to give more of its shares to the shareholders of the target company. In such a case, the amount of shares given would dilute the control of the shareholders of the acquiring company (Ouyang, 2012). Therefore, if the stock performance of the acquiring company is low, then it would be wise for the acquiring company to use other financing strategies such as debt capital to execute the merger (Farzinfar, 2012). Lastly, the method of financing chosen will also be influenced the market capitalization of the target firm (Chen, 2012). If the market capitalization of the target company is big, then debt capital can used. Conversely, if the market capitalization of the target firm is small, then use of company reserves or issuance of right issue could be inevitable.

Conclusion

The first aim of this essay was to evaluate the viability of the two investment projects proposed by KK Smith & Sons using payback method, ROCE and NPV method. On this note, this essay revealed that that KK Smith and Sons should implement project Y since its has a higher NPV than project X. the investment criterion of NPV method is practical and accurate since it acknowledges concepts such as time value of money as well as cash flows arising from the entire project. However, in the event KK Smith and Sons are cash starved they should implement project X since it has a high profitability index than project Y. Secondly, the essay also evaluated whether the Wharton Plc-Smith  Plc merger will enhance the shareholder position of the target company, Smith Plc. In regards to this, the essay revealed that Wharton Plc-Smith Plc merger will confer myriad advantages to the shareholder position of Smith Plc’s shareholders. This is because as a result of the merger, Smith Plc’s will become beneficiaries of a deflated P/E ratio, revamp EPS as well as enhanced company valuation. This means that Smith Plc’s shareholders are in a more improved shareholder position than they were prior to the merger activity. However, the essay revealed Wharton should consider the its leverage position, stock performance, and liquidity position before deciding on the best financing strategy to use to acquire Smith Plc.

References

Arnold, G.G. and Hatzopoulos, P.D. (2010) ‘The Theory-Practice Gap in Capital Budgeting: Evidence from the United Kingdom,’ Journal of Business Finance & Accounting, 27 (5/6),603-626

Berger, M. (2011) ‘Famous Stock and Securities Market Mergers and Acquisitions, Journal of financial Economics, 5(2), pp.123-167. .

Berkovitch, E. and Israel, R., (2014) ‘Why the NPV criterion does not maximize NPV,’

Brookfield, D. (2015) ‘Risk and capital budgeting: avoiding the pitfalls in using NPV when risk arises,’ Management Decision, 33 (8), pp. 56-59.

Carr, C., Kolehmainen, K. and Mitchell, F.(2010) ‘Strategic Investment Decision Making Practices: A Contextual Approach,’ Management Accounting Research, 21 (3), p. 167-184.

Chen, C.(2012) ‘Market Competition and Corporate Innovation Relation: An Explanation from Mergers and Acquisitions,’ SSRN Electronic Journal,5(3), pp.134-189.

Chen, S. & Clark, R.L., (2014) ‘Management compensation and payback method in capital budgeting: a path analysis,’ Accounting and Business Research, 24 (94), pp. 121-132.

Consler, J., Lepak, G., & Havranek, S. (2011) ‘Earnings per share versus cash flow per share as predictor of dividends per share,’ Managerial Finance, 37(5), 482-488.

Dempsey, M.J., (2013) ‘A multidisciplinary perspective on the evaluation of corporate investment decision making,’ Accounting, Accountability & Performance, 9 (1), pp. 133

Dilshad, M. (2013) ‘Profitability Analysis of Mergers and Acquisitions: An Event Study Approach,’ Business And Economic Research, 3(1), pp.123-189.

Eilon, S. (2008) ‘Price-to-Earnings and takeovers,’ Journal Of Banking & Finance, 2(3), 257-267.

Farzinfar, A. (2012) ‘A study on the relationship between intellectual capital, earning per share and income growth: A case study of Tehran Stock Exchange,’ Management Science Letters, 2(8), pp. 2765-2776.

Halpern, P. (2013) ‘Corporate Acquisitions: A theory of Special Cases. A Review of event studies applied to Acquisitions,’ The Journal of Finance, 7(2), pp. 297-317.

Harford, J. (2015) ‘What drives merger waves?’ Journal of Financial Economics, 7(2), pp.134-190

Kachani, S., & Langella, J. (2005) ‘A Robust Optimization Approach to Capital Rationing and Capital Budgeting,’ The Engineering Economist, 50(3), pp. 195-229.

Kantila, D. (2011) ‘A Survey of Pharmaceutical Companies – with Respect to Return on Net Capital Employed,’ Indian Journal Of Applied Research, 2(3), pp. 12-13.

Khan, A. (2008) ‘Capital Budgeting Under Capital Rationing: An Analytical Overview of Optimization Models for Government,’ International Journal Of Public Administration, 31(2), 168-194.

Mclean, S. (2009) ‘Property investment appraisal,’ Journal Of Building Appraisal, 4(4), 331-331.

Ouyang, W. (2012) ‘Stock Price Idiosyncratic Information and Merger Financing Choices,’ SSRN Electronic Journal, 5(2), pp.134-189.

Sherman, A. J, and Morin, D. S. (2011) ‘Mergers and Acquisitions,’ Journal of Financial Economics, 5(2), pp.12-90.

Swalm, R. (2008) ‘Profitability Index for Investments,’ The Engineering Economist, 3(4), 40-46.

The Review of Financial Studies, 17 (1), 239–255.

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International Financial Management

International Financial Management

Executive Summary

This report uses Baskin PLC as the case study and has various objectives addressed in four main sections. The first section is focused at outlining the advantages and disadvantages of FDI over exporting. The second section is on a numerical analysis of the proposed FDIs in Estonia and Canada by using discounted cash flow approach. The third section of report has discussed the possible financial and political risks of Baskin PLC’s FDI projects and their possible mitigation strategies. The fourth and last section aim at presenting a brief summary and recommendation on Baskin’s Proposed FDI projects.

Referring to the findings, Baskin PLC’s attempt to counter the escalating transportation costs and augment its competitiveness by engaging in multinational activities in either Canada or Estonia is not a viable business strategy. First, from the above analysis it is evident that the myriad disadvantages of Baskin PLC’s FDI will be realized at a cost. That is, in both cases, Estonia and Canada, Baskin PLC will have to incur huge costs in order stage its operations in those foreign countries. This finding was further reinforced by the numerical analysis of Baskin PLC’s expansion strategies either in Estonia or in Canada using a discounted cash flow approach. That is, based on the findings of the numerical analysis, at the end of 6th year, Baskin PLC’s established subsidiary in Estonia will have a negative  NPV of = £ -18,120,000. This means that in all its lifetime, Baskin PLC’s subsidiary in Estonia will never break even. Moreover, the numerical analysis also revealed that Baskin PLC’s proposed investment to buy an existing company in Canada will also generate loss in its entire lifetime. That is, the numerical analysis revealed that in the sixth year, the proposed investment to buy an existing company in Canada will have a present value of -£8,684.36

 

Lastly, based on the findings, the analysis recommends that Baskin PLC should continue exporting its product instead of choosing to stage its operations in foreign countries. To overcome the competiveness in the global market, Baskin PLC should try and revamp their marketing strategies in informing, reminding, as well as convincing actual and prospective customers why they should continue buying the wooden floors of the company. Also, Baskin PLC should try to work with third party logistic providers. In this case, third party logistics providers will save Baskin PLC money by helping them determine which mode of transport to use as well as determining which carrier to use for each particular shipment.

TABLE OF CONTENTS

  1. Introduction. 1
  2. Potential Advantages and Disadvantages to Baskin PLC of a Foreign Direct Investment Strategy as Compared to Exporting. 1

2.1 Advantages. 1

2.2 Disadvantages. 2

  1. A Numerical Analysis Using a Discounted Cash Flow Approach and Using the Information Provided 2
  2. An assessment of the relevant financial and political risk factors that are likely to be significant for each of the two possible locations considered, with suggestions on how these risks might be managed. 7

4.1 Possible Financial and Political Risks in Estonia and Canada. 7

4.2 How to Mitigate the Possible Financial Risks and Political Risks in Estonia and Canada. 9

  1. A summary and overall recommendation regarding Baskin PLC’s decision on the proposed subsidiary 10
  2. References. 12

 

 

 

 

 

1. Introduction

Over the last decades, Glass & Saggi (2005) explains that multinational activity measured by sales and production of foreign affiliates has escalated at a much faster rate that international trade. The impressive increase of multinational activity has motivated international trade economists to research for reasons why corporations opt for FDI over exporting.

Using Baskin PLC as the case study, this report focuses on outlining the advantages and disadvantages of FDI over exporting, the numerical analysis of the proposed FDIs in Estonia and Canada by using discounted cash flow approach. The third section of report discusses the possible financial and political risks of Baskin PLC’s FDI projects and their possible mitigation strategies. The report ends with a brief summary and recommendation on Baskin’s Proposed FDI projects.

2. Potential Advantages and Disadvantages to Baskin PLC of a Foreign Direct Investment Strategy as Compared to Exporting

2.1 Advantages

There are myriad advantages that FDI will confer to Baskin PLC. First, by establishing a subsidiary in Estonia or buying an existing company in Canada, Baskin PLC will address on one its concerns which are transportation costs. That is, by staging its operations in Estonia or in Canada, Baskin PLC’s products will be within the reach of its clientele group. Moreover, FDIs makes Baskin PLC less vulnerable to Canada’s and Estonia’s trade restrictions. On this note, Gallagher & Irwin (2014) explains that presence of import quotas and tariffs makes it hard for corporations to access their markets through exportation. Also, with the triumph of vote to leave Europe, Winkel & Derks (2016) explains UK corporations have lost their passporting rights. Therefore, Baskin PLC’s and other corporations in UK will have to establish subsidiaries in various parts of Europe to reduce the cost of doing business. Moreover, FDI will also confer Baskin PLC the benefit of bargaining power over their competitors in Canada and Estonia. That is, FDI will help the marketing department of Baskin PLC in reminding, persuading, and convincing their actual and prospective clientele why they should prefer their products to their competitors. Furthermore, by staging its production activity in foreign countries, Baskin PLC will be best placed to take advantage of technological know-how as well as expertise of those countries. The acquired technology as well as expertise will help Baskin PLC augment their competitive position in a foreign country.

2.2 Disadvantages

However, the myriad advantages of Baskin PLC’s FDI will be realized at a cost. That is, in both cases, Estonia and Canada, Baskin PLC will have to incur huge costs in order stage its operations in those foreign countries. Moreover, the Baskin PLC’s operations in either Estonia or in Canada may take time to reap the benefits of FDI. Therefore, this means that Baskin PLC will have to finance its expansion strategy in Estonia or in Canada at a loss in the short-run. This makes exporting a better option than foreign direct investment. Moreover, Santis (2012) asserts that local firms are more susceptible to preferential treatment by the government than foreign firms. That is, local firms are beneficiaries of tax holidays and incentives from the government. In such a case, this will defeat Baskin PLC’s objective in revamping its competitive position in foreign country. Lastly, FDI is also risky business venture since it is more susceptible to political risks than exporting. On this note, Creane & Miyagiwa (2012) explains that stable political environment as well as relatively open free market is the most important factors that determine the success of a multinational activity. However, a stable political environment is highly unpredictable. Also, with the advent of Brexit, the possibility of UK corporations enjoy the benefit of open free market is also in doubt. Therefore, in sum, FDI is a more risky business venture than exporting.

 3. A Numerical Analysis Using a Discounted Cash Flow Approach and Using the Information Provided

Buying an existing company in Canada
  16-Oct 2017 2018 2019 2020 2021 2022
 
               In ‘000’ Canadian dollars
Cost of Acquisition (w1) 18,000             –                 –                 –                 –                 –                 –
Cost of New Machines                  2250             –                 –                 –                 –                 –                 –
Cost of additional Working Capital         6100             –                 –                 –                 –                 –                 –
 Summation of total cash outflows      26,350           2400           2700           2700           2700           2700           2700
Cost of financing                      –           (660 )           (660)           (660)           (660)           (660)           (660)
Pre-tax net cash flows    26350,           1,740           2040           2040           2040           2040           2040
Less Canadian tax system of 26.5%                      –           460           540           540           540           540   540
 Post tax profit      26,350     1,280           1500           1500           1500           1500           1500
Add Depreciation (The non-cash item) W2)                      –           375           375           37.5           375           375  375
Net cash inflows     26350           1655           1875           1,875           1,875           1875           1875
Rate of exchanging Canadian dollar into GBP W3           0.99           1.06           1.06           1.06           1.06           1.06           1.06
Net Cash inflows in GBP     £26,086.5           £1,754.30           £1,987.50           £1,987.50           £1,987.50           £1,987.50           £1,987.50
PVIF 9% W4           1.00           0.92           0.84           0.77           0.71           0.65           0.60
present value (GBP in thousands)      £26,086.50           £1609.22           £1,673.16           £1,535.01           £1,408.18           £1,291.90           £1185.35
               

 

W5: Perpetuity valuation of the final year’s after-tax earnings;

£1,609.22+ £1,673.16+£1,535.01+£1,408.18+£1,291.90+£1,185.35=£

Net present value = [(£8702.82*2)   – £26090)]

NPV  = -£8,684.36

Building a Subsidiary in Estonia
  16-Oct 2017 2018 2019 2020 2021 2022
  ‘000’ “000’  “000”  000 000 000 “000”
Revenues (forecasted)                          –                     –           €4,600      €6,210           €6,790           €6,790           €6,790
Cost of purchasing  land           €3,020                     –                 –                 –                 –                 –                 –
Cost of Staging Buildings           €3,330                     –                 –                 –                 –                 –                 –
Cost of building materials                          –           €3,190                 –                 –                 –                 –                 –
Cost of setting up a subsidiary (Set up costs)                          –           €960                 –                 –                 –                 –                 –
Cost of Additional Working capital                          –           €5,250                 –                 –                 –                 –                 –
Cost of Labour in Estonia                          –                     –           €1,140           €1,650           €1,930           €2,070           €2,210
Expenditure incurred on Materials and other variables                          –                     –           €1,200           €1,620           €1,770           €1,770           €1,770
Fixed costs (fixed expenses in the period of 6years                          –           €750           €750           €750           €750           €750           €750
Cost of Purchasing Machinery                          –                     –           €800           €800           €800           €800           €800
Finance costs W7/                          –           €158.7           €393.8           €393.8           €393.8           €393.8           €393.8
Total cash outflows           €6,350         €10,310           €4,290           €5,220           €5,650           €5,780           €5,930
Pre-tax net cash flows         €6,350      €10,310           €310           €990           €1,140           €1,000           €860
Estonian tax system is at  at 20%                          –                     –           €60           €200           €230           €200           €170
net cash flows after tax         €6,350      €10,310           €250           €790           €910           €800           €690
He exchange rate of turning (€) Euro into GBP           0.85           0.90           0.90           0.90           0.90           0.90           0.90
cash flows in GBP         £5,400         £9,280           £230           £710           £820           £720           £620
PVIF 9%           1.00           0.92           0.84           0.77           0.71           0.65           0.60
present value in GBP         £5,400         £8,540           £190           £550           £580           £470           £370
               

 

W8/: Perpetuity valuation of the final year’s after-tax earnings;

 

-£8,540 + £190 +£550+ £580+ £470 + £370 = -£6,360

Net present value = [(-6,360 * 2)   – 5,400)]

NPV = £ -18,120

 

In calculating the NPV for the proposed FDI projects in Canada and in Estonia the following assumptions were made.

  1. Buying an existing Company in Canada

W1/ Computation of cost of Acquisition

W1=the average of higher costs and lower costs. That is:

(17,500,000+18,500,000)/2=$C18, 000,000

W2/ Calculation of Depreciation

On this note, the report used straight line method to compute the annual depreciation of the machine for a period of six years.   

Cost of purchasing machine=2,250,000

The useful life of the machine=6 years

W2=cost of purchasing machine/useful life of the machine

W2=2,250,000/6=375,000 per year

The ascertained depreciation (375,000) was added back because it was subtracted before ascertaining the pre-tax cash flow.

W3/ Exchange rate

The exchange rate between Canadian dollar and sterling pound was not provided in the forecast. The report used the following steps to ascertain this exchange rate.

Converting Canadian dollars into Sterling Pounds

1.31 GBP=$1

1.32 C$=IUS$

Therefore, 1 Canadian dollar=1.31/1.32=0.99 GBP

The September 2017 exchange rate will be calculated as1C$= 1.33/1.25=1.064

W4/ Cost of capital

To compute, the WACC, the following formula was used

WACC = ((E/V) * Re) + [((D/V) * Rd)*(1-T)]

WACC= 0.5 (5%) (1- 0.19)+ 0.5 (13%) = 8.525%. The presence of  UK tax rate of 19% has made Baskin PLC a beneficiary of tax shield benefit. The reported rounded off the 8.525% to 9%.

W5: : Perpetuity valuation of the final year’s after-tax earnings;

£1,609.22+ £1,673.16+£1,535.01+£1,408.18+£1,291.90+£1,185.35=£

Net present value = [(£8702.82*2)   – £26090)]

NPV  = -£8,684.36

  1. Establishing a subsidiary in Estonia

To compute the NPV of Estonian proposed FDI, the following assumptions were made;

W6/ calculating the increase in Wages in Euros

2018 wages=25 (1.07)2=€1,140

2019 wages= 25(1.07)3=€1,650

2020 wages =25(1.07)4=€1,930

2021 wages=25 (1.07)5=€2,070

2022 wages =25(1.07)6=€2,210

W7: Calculating the debt used to finance Estonian Project

As indicated in the documents, borrowed money will be equivalent to 50% of total initial costs. On this basis, borrowed money (debt) in 2016 will be equivalent to = 50% of €6,349,000 = €3,174,500

Interest payments in 2016 will be 5% of the total money borrowed. That is, 5/100* €3,174,500=€158,325.

In 2017, debt capital will be equivalent to 50% of €9,404,000=€4,702,000

Interest payments will be 5/100* €4,702,000==€235,100

The financial cost for 2017 to 2022 will be equal to 235.1+158.3=€393.8

W8/ Perpetuity valuation of the final year’s after-tax earnings;

-£8,540 + £190 +£550+ £580+ £470 + £370 = -£6,360

Net present value = [(-6,360 * 2)   – 5,400)]

= £ -18,120

4. An assessment of the relevant financial and political risk factors that are likely to be significant for each of the two possible locations considered, with suggestions on how these risks might be managed

The success of multinational activities is dependent on three principal factors. That is, a stable political environment, a stable foreign exchange, and an open free market environment (Bouoiyour & Rey, 2005). The instability of any of the three factors will make Baskin PLC highly susceptible to risks such as political risks and financial risks.

4.1 Possible Financial and Political Risks in Estonia and Canada

Currency risks are a subset of financial risks, which will affect Baskin PLC’s income if it resolves to stage its operations either in Estonia or in Canada. In regard to this, Choi & Jeon (2007) explains that currency risk surfaces when a country decides to depreciates it currency in order to make her exports cheaper. According to the authors, devaluation of currencies increases the vulnerability of multinational activities to currency risks. For example, if Canada depreciates the Canadian dollar, then the assets, income/profit, dividend payment of Baskin PLC’s subsidiary will decrease in value when they are converted to Sterling pounds. Presence of currency risks in Estonia or in Canada will affect the operation of Baskin PLC’s subsidiary in various ways. First devaluation of currency will impede the ability of Baskin PLC’s subsidiary in acquiring financial services in Sterling Pounds. In support of this, Kızılkaya, Uçler & Ahmet (2015) explains that devaluation of currency makes financial of loan in foreign currency expensive. Secondly, devaluation of currency will not reflect the exact financial position Baskin PLC’s subsidiary in either Estonia or Canada. This is because depreciation of local currency either in Canada or in Estonia will reduce the value of assets and profits of Baskin PLC’s subsidiary when they are converted to Sterling Pounds. This may affect the value of Baskin PLC’s investment portfolio. In addition to depreciation of local currency, Nabamita & Sanjukta (2011) explains that the stability of local currency is also affected by inflation and movement of interest rates. For example, if Canada or Estonia exhibits a high rate of inflation than UK, then Estonian or Canadian currency will depreciate in value. However, Baskin PLC’s subsidiary will benefit when Canada’s or Estonia’s rate of inflation is lower than that of UK. This is because sterling pound will be able to fetch more of Canadian dollars or Estonia Euros. Secondly, the stability of currency risks is also dependent the volatility of interest rates. For example, Prampolini & Morini (2012) explains that a decrease in rates of interests will lead to depreciate the local currency because local borrowers will prefer local capital to foreign capital. In this case, a decrease in demand for foreign capital causes a decrease in exchange rates. In such case, Baskin PLC will experience a decrease in profits in any of its subsidiaries either in Canada or in Estonia. A change in interest rates will not affect the rate of foreign exchange but also the purchasing power of the locals. For example, the rate of interest in Canada and in Estonia stands at 0.75% and 0% respectively. This translates into higher purchasing power in Estonia than in Canada. Therefore, unprecedented movement in interest rates in Canada or in Estonia will have a significant effect on the profitability of Baskin PLC’s subsidiary.

Moreover, there are political decisions that may affect the operation of Baskin PLC’s subsidiary either in Canada or in Estonia. For example, preferential treatment, and presence of government incentives for local firms in Estonia or in Canada may affect the ability of Baskin PLC’s subsidiary to compete with the local firms. On the same vein, Bouoiyour & Rey (2005) asserts that local firms have the accessibility to government process, and therefore they may use this opportunity to persuade the government to greater access to incentives at the expense of FDIs. This reduces the ability of foreign investors in competing with local investors. Moreover, with the triumph of the vote to leave, British corporations will be operating in harsh political environments in Europe. This might endanger the multinational activities of Baskin PLC in Estonia.

4.2 How to Mitigate the Possible Financial Risks and Political Risks in Estonia and Canada

Due to its vulnerability to political and financial risks in either of the foreign countries (Estonia and Canada), Baskin PLC must devise ways in which it will mitigate these risks. There are many ways in which Baskin PLC’s subsidiary can counter the effects of foreign exchange risks/currency risks. First, Luo (2008) opines that multinational activities can neutralize the effects of foreign exchange risks through hedging. In this case, hedging spells out the insurance policy, which is taken to mitigate the effects of unprecedented risks. To hedge its value or profits against foreign exchange risks, Baskin PLC’s subsidiary would enter into currency forward contracts. In this case, currency forward contracts will stipulate the exchange rate Baskin PLC’s subsidiary will remit profits to the parent company in UK. This will help Baskin PLC avoid the foreign exchange risks caused by intentional depreciation of local currency or interest rates. Also, forward contracts will give Baskin PLC certainty of income or profit. However, Marroni & Perdomo (2012) asserts that forward contracts prevent multinational activities from benefiting from favorable movements of exchange rate. Also, prompt payment of suppliers would reduce Baskin PLC’s vulnerability to exchange rate fluctuations. On this note, Yin & Han (2013) explains that on a year-to-year basis, foreign currencies do not fluctuate a lot. For example, between 2nd September 2012 and 1st September 2013, the Canadian dollar ($C) fluctuated by $0.08 (i.e. from $0.95 to $1.03). Hence, by setting up contracts that have a shorter payment period, Baskin PLC will limit the period it is exposed to foreign exchange risks. Moreover, Baskin PLC should also try to avoid committing their resources in Estonia or in Canada for a pro-longed period of time. This will assist Baskin PLC to withdraw their operations in the wake of economic or political crises in those countries. To achieve this, Baskin PLC’s subsidiary in Estonia or in Canada can engage in short-term contractual engagements.

Baskin PLC can also counter foreign exchange risks by using derivatives such as leading and lagging especially it intends to export or import its products to European countries or raw materials from UK. In this case, Yin & Han (2013) elucidates that leading is the abrupt execution of contract in order to avoid the losses which surfaces when the local currency appreciates in value against the foreign currency. On the other hand, lagging is utilized by exporters when they anticipate that the rate of exchange is favorable. That is, the local currency is able to fetch more units of foreign currency. Lastly, Baskin PLC can also seek to merger with corporations in Canada or in Estonia. By doing so, Baskin PLC will become a beneficiary of the political decisions such as preferential treatment and government incentives that are meant to benefit the local companies.

 5. A summary and overall recommendation regarding Baskin PLC’s decision on the proposed subsidiary

Baskin PLC’s attempt to counter the escalating transportation costs and augment its competitiveness by engaging in multinational activities in either Canada or Estonia is not a viable business strategy. First, from the above analysis it is evident that the myriad advantages of Baskin PLC’s FDI will be realized at a cost. That is, in both cases, Estonia and Canada, Baskin PLC will have to incur huge costs in order stage its operations in those foreign countries. This finding was further reinforced by the numerical analysis of Baskin PLC’s expansion strategies either in Estonia or in Canada using a discounted cash flow approach. That is, based on the findings of the numerical analysis, at the end of 6th year, Baskin PLC’s established subsidiary in Estonia will have a negative  value of = £ -18,120,000. This means that in all its lifetime, Baskin PLC’s subsidiary in Estonia will ever break even. That is, the Baskin PLC’s subsidiary in Estonia will never make any profit. Moreover, the numerical analysis also revealed that Baskin PLC’s proposed investment to buy an existing company in Canada will also generate loss in its entire lifetime. That is, the numerical analysis revealed that in the sixth year, the proposed investment to buy an existing company in Canada will have a present value of -£8,684.36

.

However, the negative present value of Baskin PLC’s investments in Estonia and Canada may not depict the true financial position because of various reasons. First, the computation of the present value of Baskin PLC’s investment in Estonia as well as in Canada was carried out using the forecasts made by the research personnel. Such forecasts are subject to human bias and therefore, may not have given the exact financial position of Baskin PLC’s expense or returns. Secondly, the computation of the present value of Baskin PLC’s investment also entailed estimation of exchange rates up to year 2022. The estimation of these exchange rates did not take into the various factors that affect the movement of exchange rates. These factors include rates of inflation and interest rates.

Moreover, it is also not possible for Baskin PLC to invest in Estonia and in Canada. This attempt will only increase the cost of operation and losses for the parent company situated in UK. From the findings, it is more profitable for Baskin PLC to establish a subsidiary in Estonia than buying an existing company in Canada. This is because Estonian subsidiary has a higher present value of £ -18,120,000 than that of Canada whose present value is -£8,684.36

. Hence, staging its multinational activities in the two countries will only reduce the profits of the parent company in UK.  Also, Baskin PLC is susceptible to financial risks and political risks from Canada and Estonia. However, in order to counter financial risks from both countries, Baskin PLC should engage in forward contracts. Political risks can be countered by merging with local firms. By doing so, Baskin PLC will become a beneficiary of the political decisions such as preferential treatment and government incentives that are meant to benefit the local companies.

Lastly, based on the findings, the analysis recommends that Baskin PLC should continue exporting its product instead of choosing to stage its operations in foreign countries. To overcome the competiveness in the global market, Baskin PLC should try and revamp their marketing strategies in informing, reminding, as well as convincing actual and prospective customers why they should continue buying the wooden floors of the company. Also, Baskin PLC should try to work with third party logistic providers. In this case, third party logistics providers will save Baskin PLC money by helping them determine which mode of transport to use as well as determining which carrier to use for each particular shipment.

 

 

 

 

 

 

 

 

 

6. References

Creane, A. & Miyagiwa, K. (2012) ‘Exporting versus Foreign Direct Investment: Learning Through Propinquity,’ SSRN Electronic Journal, 5(2), pp. 156-198.

Santis, R. (2012) ‘Foreign Direct Investments – FDI,’ SSRN Electronic Journal, 5(3), pp. 134-167.

Gallagher, K. & Irwin, A. (2014) ‘Exporting National Champions: China’s Outward Foreign Direct Investment Finance in Comparative Perspective,’ China & World Economy, 22(6), pp. 1-21.

Glass, A. & Saggi, K. (2005) ‘Exporting versus Direct Investment under Local Sourcing,’ Review Of World Economics, 141(4), pp.627-647.

Bouoiyour, J. & Rey, S. (2005) ‘Exchange Rate Regime, Real Exchange Rate, Trade Flows and Foreign Direct Investments: The Case of Morocco,’ African Development Review, 17(2), pp. 302-334.

Choi, J. & Jeon, B. (2007) ‘Financial factors in foreign direct investments: A dynamic analysis of international data,’ Research In International Business And Finance21(1), pp. 1-18

Kızılkaya, O., Üçler, G., & Ahmet, A. (2015) ‘The Interaction between Exchange Rate and Foreign Direct Investments: Evidence from Turkey,’ Journal Of Business And Economics, 6(2), pp. 337-347.

Nabamita Dutta, & Sanjukta Roy,. (2011) ‘Foreign Direct Investment, Financial Development and Political Risks,’ The Journal Of Developing Areas, 44(2), pp. 303-327.

Prampolini, A. & Morini, M. (2012) ‘Derivatives Hedging, Capital and Leverage,’ SSRN Electronic Journal, 5(2), pp. 124-178.

Winkel, G. & Derks, J. (2016) ‘The nature of Brexit. How the UK exiting the European Union could affect European forest and (forest related) environmental policy,’ Forest Policy And Economics70, 124-127.

Luo, Yadong, (2008) Political Risk and Country Risk in International Business: Concepts and Measures. In Oxford Handbook of International Business (2nd edition), ed. Rugman, A. M. 740-764. Oxford: Oxford University Press.

Marroni, L. & Perdomo, I. (2012) Pricing and hedging financial derivatives and structured products. London: Oxford University Press.

Yin, L. & Han, L. (2013) ‘Hedging International Foreign Exchange Risks via Option Based Portfolio Insurance. Computational Economics, 45(1), pp. 151-181.

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Critical Discussion on the Proposed Benefits of Implementing IFRS

Critical Discussion on the Proposed Benefits of Implementing IFRS

Executive Summary

In the contemporary world, Alsaqqa & Sawan (2013) asserts that the need for conformity and the advent of globalization has fueled the need for IFRS. That is, the need for conformity has spawned a global language of accounting, which communicates financial results to various users across the globe. Also, asserts that globalization has brought forth the need for comparability of financial statements not only in treatment of accounting aspects but also in format of disclosure. However, Cheung, Lau & Mazur (2010) explains that implementation of IFRS could also spawn some tax burdens that could raise the doubt and hesitation among the advanced global economies. For this reason, this report carried out a critical discussion on the proposed benefits of implementing IFRS. To do this, the report gathered data from various sources such as journals, empirical studies, and books.

This report has found that the costs of adopting IFRS outweigh its benefits. Based on the findings, the switch to IFRS does not guarantee comparability. That is, although there are over 100 countries that are using IFRS, a bigger number of them have added their own exceptions, thus defeating the purpose of comparability. Also, the report has revealed that implementation of IFRS interferes with the independence of accounting standards. On this note, the findings indicate that IASB does not have the financial stability to carry out its operations on its own. Lack of financial stability might make IASB susceptible to political influence from rich countries. Lack of independence has forced IASB to bow down to political influence in the past. For example, the EU forced IASB to incorporate use of fair value accounting. Findings further revealed that using LIFO to manage inventory results into low gross profit. This allows companies situated in United States to be taxed less. However, under IFRS, use of LIFO method to manage inventories is prohibited. Therefore, implementing IFRS would trigger huge tax hike for corporations situated in United States. Lastly, the findings postulate that switching to the adoption of IFRS also entails huge transition costs for both small and large corporations. In this case, some of the transition costs of IFRS, which are considered, include preparation, dissemination of reports, certification, as well as opportunity costs. For these reasons, the report holds that the promised benefits of IFRS are not attainable.

 

Table of Contents

1.0 Introduction. 4

1.1 Adoption of IFRS. 4

1.2 Benefits of IFRS. 5

1.3 Problems of IFRS. 7

1.4 Summary and Opinion. 10

1.5 Conclusion. 11

1.6 References. 12

 

1.0 Introduction

In the contemporary world, Alsaqqa & Sawan (2013) asserts that the need for conformity and the advent of globalization has fueled the need for IFRS. According to the authors, the need for conformity has spawned a global language of accounting, which communicates financial results to various users across the globe. On the same vein, Ben-Shahar et al. (2012) asserts that globalization has brought forth the need for comparability of financial statements not only in treatment of accounting aspects but also in format of disclosure. For this reason, Boumediene & Nafti (2014) describes IFRS as a reward to global investors. For example, the authors assert that harmonization of reporting standards relieved global investors the costs of aligning financial institutions according to the requirements of national GAAPs. In the wake of worldwide political and economic integration, Brown (2013) explains that implementation of IFRS have facilitated cross border capital flows. Also, with the erosion of many barriers to the globe trade, Brown (2013) explains that IFRS has facilitated the integration of world economies. Although the first impression of IFRS looks favorable to global investors, Cascino & Gassen (2014) asserts that there are far more complications to the standards. For example, the author explains that there are fears that the myriad benefits of IFRS will not be able to overcome the transition costs. In addition to these complications, Cheung, Lau & Mazur (2010) explains that implementation of IFRS could also spawn some tax burdens that could raise the doubt and hesitation among the advanced global economies.

To this end, this report intends to outline a critical discussion on the implementation of International Financial Reporting Standards. To do this, the first section of the report outlines a brief discussion on the importance of IFRS in the preparations of financial statements. The second section outlines the benefits of IFRS. The third section outlines the demerits of IFRS. The fourth section outlines the summary and opinion of the report. Conclusion is the last section the report.

1.1 Adoption of IFRS

IFRS is lone sets of accounting standards, which are applied by global economies in the preparation of financial standards (Cheung, Lau & Mazur, 2010). According to authors, IFRS are meant to provide users of financial statements such investor with the ability to compare the performance of national organisations on a like-for-like basis with other international organisations. Prior to the development of IFRS, Boumediene & Nafti (2014) asserts that global economies were using national GAAPs to prepare their financial statements. However, the aspect of being principle based made IFRS a better accounting standard than national GAAPs in capturing and representing the economics of transactions. Moreover, Alsaqqa & Sawan (2013) indicates that IFRS were also helpful to the multinational organizations. That is, the enshrinement of a common global language made saved the multinationals the cost of aligning their financial statements to the requirements of national GAAPs. According to Ben-Shahar et al. (2012), the need to have a global language of accounting commenced with the European Union. However, due to the value of harmonization, IFRS have since spread to other economies across the globe. Currently, Cascino & Gassen (2014) opines that more than 100 nations across the globe have adopted the use of IFRS in preparing financial statements. Also, Cole, Branson & Breesch (2011) postulates that majority of G-20 countries (two-third) have consistently supported the mission of IFRS.

1.2 Benefits of IFRS

According to Daske (2006), the first benefit of switching to IFRS is comparability. That is, the author elucidates that adoption of IFRS would enable users of financial statements across the globe to see various aspects of financial statements from the same angle. With the heightened trade, integration of capital markets, and cross-border investments, Daske et al. (2011) asserts that comparability of financial statements is a necessity. Also, the authors assert that with the advent of globalization, companies do not organisations do not operate in isolation. For this reason, Daske (2006) explains that the aspect of comparability will enhance the possibility of benchmarking with foreign competitors.

Moreover, Gjerde, Knivsfla & Sattem (2008) indicates that switching to IFRS increases the possibility of saving costs, primarily for multinational investors or companies. In regard to this,  the authors explain that standardization and harmonization of reporting/accounting standards under IFRS would reduce the cost of adjusting as well as aligning financial statements to the requirements of national GAAPs in various parts of the world. Similarly, Masoud (2014) asserts that switching to IFRS fabricates quality financial statements. As a result, the author indicates that IFRS eliminates huge audit and analyst fees, thus reducing cost of capital for many investors and companies.

Furthermore, Owolabi & Iyoha (2012) explicates that adoption of IFRS increases the investment of foreign mutual funds. The authors attribute this to various factors. First, the Owolabi & Iyoha (2012) opine that switching to IFRS increases the value relevance and accuracy of financial statements. Secondly, the authors opine that adoption of IFRS also facilitate full disclosure of accounting events, which assist in producing true and fair value of international corporations. For this reason, the authors postulate that investors are more secure investments in foreign mutual funds. On the same vein, Paunescu (2015) explains that IFRS helps foreign investors to manage their investment portfolios in the most profitable manner. On this note, the author asserts that IFRS encourages cross-border investments. As such, the author indicates that IFRS help investors to not only to enlarge their investment arena but also to make profits from their diversified portfolios. Furthermore, Schiebel (2011) asserts that that adoption of global language of accounting will transcend national boundaries. For this reason, the author indicates that with the advent of IFRS adoption investors will have easy access to foreign capital. Tsalavoutas (2011) further explains that with the implementation of IFRS the execution of mega transactions such as mergers or takeover activities will be easy.

Also, Mironiuc, Carp & Chersan (2015) describes the switch to IFRS as a gift to the management of multinational corporations. In this case, the authors expound that IFRS provides a good platform for the managers of multinational corporations to view all the branches from a common platform. That is, IFRS enable managers of multinational companies to identify which branches are underperforming. This enables the management of such branches to allocate more resources to the underperforming branches. Also, Masoud (2014) explains that switching to IFRS saves the management of multinational corporations the effort and time required to align their financial statements to stipulations of national GAAPs.

Moreover, Mironiuc Carp & Chersan (2015) indicates that need for relevance of the accounting information is also a key driver for IFRS adoption. The switch to IFRS adoption exhibits the relevance of the accounting information in various ways. First, Mironiuc, Carp & Chersan (2015) indicates that IFRS emphasizes more on economic substance rather than legal form. As such, the authors indicate that this helps stakeholders and companies to ascertain the true and fair value of corporate’s transactions. Secondly, Masoud (2014) opines that IFRS seeks to report the financial positions of a company in a timely manner. According to the author, this makes IFRS more credible and reliable in terms of presenting accounting information. Thirdly, Paunescu (2015) indicates that statements of financial positions prepared under IFRS are more useful because of their layout, consistency and level of complexity. On this note, Negash (2011) explains that the layout and consistency of statements of financial positions prepared under IFRS enhances the understandability of investors/company directors, thus facilitating the speed of decision making. Lastly, Masoud (2014) opines that IFRS does not allow creation of hidden reserves. For this reason, the author asserts that IFRS are less unscrupulous and more shareholders oriented. Also, the switch to IFRS would also diminish the powers of United States to set the accounting standards. Currently, Owolabi & Iyoha (2012) explains most of the corporations from developing and emerging economies use of US GAAP to prepare their financial statements. Therefore, ceding powers of setting accounting standards to IASB will diminish the popularity of US GAAPs.

1.3 Problems of IFRS

Switching to the adoption of IFRS also poses some serious problems to the world economies. For example, Cole, Branson & Breesch (2011) indicates that using of standard of accounting does not guarantee the aspect of comparability. With a single set of accounting, the authors indicate that levels of enforcement and practices will differ considerably across countries and firms. According to Daske et al (2011), this is only natural since the diversity in accounting standards would emanate from diversity of the nations’ institutional infrastructures. Erchinger (2012) adds onto this by stipulating that although there are over 100 countries that are using IFRS, a bigger number of them have added their own exceptions, thus defeating the purpose of comparability.

Moreover, Erchinger (2012) adds that the nature of IFRS also defeats the purpose of comparability of accounting standards. In regards to this, the author asserts that unlike the national GAAPs, IFRS needs more discretion, its principle-based, and more detailed. Also, the author asserts that IFRS has a wide arena of rules. However, Kim & Li (2012) opines that IFRS is less specific on how to apply the rules, thus giving more room for value judgment in interpreting of financial reports. As such, Kim & Li(2012) indicates that these value judgment spawns various ways of implementing IFRS. This further defeats the purpose of enshrining a global standard of accounting.

IASB enshrined with the responsibility setting accounting standards for the global economies. However, Sacho and Oberholster (2008) opine that IASB does not have the financial stability to carry out its operations on its own. Lack of stable funding source might affect the independence of IASB in setting the accounting standards for all the global economies. For example, Sacho and Oberholster (2008) indicate that IASB had succumbed to pressure from EU financial regulators to incorporate fair value accounting method. Therefore, the susceptibility of IASB to political influence has spawned global accounting standards, which only seeks to serve the interests of the rich countries.

Furthermore, IFRS has also spawned debatable issues such fair value accounting (Kos & Florou, 2012). Fair value accounting is a method of accounting, which allows for the measurements as well as reporting of assets and liabilities on their actual or estimated fair market price. According to Wieczynska (2016), businesses that have a large proportion of volatile assets are on the losing side with the advent of IFRS. On this note, Yip & Young (2012)) explains that the income of volatile assets tend to fluctuate from time to time. For this reason, Wieczynska, M. (2016) indicates that use of fair-value accounting does not paint an accurate financial structure of volatile assets. Moreover, fair value accounting is also creates the dissatisfaction of investors. Under fair value accounting, the decrease in value of net income is treated as income loss. This can be a blow to the portfolio of investors since many of them trade in securities instead of re-investing the proceeds of these securities in other investments. Also, Wieczynska (2016) indicates that use of fair value accounting is unharmonious with the current institutional, legal, and political environment of many countries such as United States. In addition to fair-value accounting, there are also myriad differences in the area of equity and financial liabilities under IFRS. For example, Neel (2016)) asserts that reclassification of particular instruments such as debt and equity under IFRS would affect how companies report debt to equity ratios and net asset to debt ratios. This will affect the reliability of accounting information as well as the debt covenants, ratings, and borrowing activities of companies.

Furthermore, the different views between GAAP and IFRS in the arena of inventory management could also reduce the revenues of some businesses. For example, Kosi & Florou (2012) indicates that US GAAP uses LIFO (last in first out) method to manage inventory. According to the authors, using LIFO to manage inventory results into low gross profit. This allows companies situated in United States to be taxed less. However, under IFRS, use of LIFO method to manage inventories is prohibited. Therefore, implementing IFRS would trigger huge tax hike for corporations situated in United States. For this reason, Erchinger (2012) indicates that the switch affects not only the layout of financial reporting, but also the financial standing as well as the bargaining power of most corporations.

The benefits of IFRS adoption are further impeded by fact that the accounting standard does not improve the relevance of accounting information.  Capkun, Collins, and Jeanjean (2013) attribute this to the flexibility inherent in the IFRS that allows for managerial discretion in financial reporting. The IFRS, moreover, fails to provide clear guidelines on the implementation of the standards across various jurisdictions. In effect, Capkun, Collins, and Jeanjean (2013) establish that firms have proceeded with earnings management and other accounting malpractices that greatly reduce the value relevance of financial information. Facilitating managerial discretion limits users of financial information from accessing value relevant information. Specifically, Hamberg, Paananen, and Novak (2009) point out that the IFRS allowed mangers to substitute historical costs with fair value that increased their discretion in determining fair-value. Managers, as a result, did not incorporate actual market value while quoting the value of assets. This translates to the IFRS reducing the value relevance of disclosed financial information; failing to benefit users of financial information. Hamberg, Paananen, and Novak (2009) further establish that the value relevance of disclosed goodwill was also questionable after the adoption of the IFRS. The value relevance of disclosed information reduced among tenured management. Reducing value relevance of financial information consequently reduces the transparency and comparability of disclosures. As such, the reduction of value relevance of accounting information is a major obstacle in users of financial information benefiting from IFRS adoption.

One of the premises of adopting the IFRS was to increase the transparency of accounting information. Crowley, Yurova, and Golden (2015) stipulates that this was not the case. The IFRS, according to Crowley, Yurova, and Golden (2015), does not play an extensive role in outlining the observed reporting quality. This indicates that financial transparency is dependent on the management of a firm. That is, the management of the firm has the discretion on whether to disclose private information to stakeholders. Other than managerial discretion, Aksu and Espahbodi (2016) identifies that reporting incentives and operating characteristics of the firm further determines the transparency of reported financial information. This translates to the notion of IFRS adoption increasing financial transparency being false. Moreover, Kim (2013) observes that the IFRS adoption is positively correlated with an increase in debt ratio in Korea. This positive correlation, according to Kim (2013), is attributable to discretionary accruals; an indicator of earnings management. Further, IFRS adoption was negatively correlated with ROA of firms which is attributable to the reassessment of assets at fair value. This evidence indicates that users of financial information cannot benefit from increased transparency attributable to IFRS adoption.

Switching to the adoption of IFRS also entails huge transition costs for both small and large corporations (Neel, 2016). In this case, some of the transition costs of IFRS, which are considered, include preparation, dissemination of reports, certification, as well as opportunity costs. Piot, Janin & Dumontier (2015) indicates that the switch to IFRS will also necessitate businesses to incur costs in updating their documentation, hiring of specialists and consultants, training employees on how to use the new accounting standards, as well as in adjusting computer systems and processes. A survey conducted in the United States by Erchinger (2012) revealed that it would cost the entire US economy at least $8 billion to implement IFRS. The findings of the survey also revealed that cost of implementing IFRS standards for an average business would be $420,000. For this reason, Erchinger (2012) indicated that the main beneficiaries of the switch to IFRS are multinational corporations.

1.4 Summary and Opinion

The report has indicated that the switch to IFRS was brought forth the need for comparability of financial statements not only in treatment of accounting aspects but also in format of disclosure. Also, the findings posit that the switch to IFRS provided a good platform for the managers of multinational corporations to view all the branches from a common platform. That is, IFRS enable managers of multinational companies to identify which branches are underperforming. This enables the management of such branches to allocate more resources to the underperforming branches. The findings of the report also indicate that need for relevance of the accounting information is also a key driver for IFRS adoption. However, the findings also postulate that adoption of IFRS also posed various problems to the global economies. First, the report has revealed that that although there are over 100 countries that are using IFRS, a bigger number of them have added their own exceptions, thus defeating the purpose of comparability. According to the findings, the susceptibility of IASB to political influence has spawned global accounting standards, which only seeks to serve the interests of the rich countries. Furthermore, IFRS has also spawned debatable issues such fair value accounting. According to the findings, the use of fair-value accounting does not paint an accurate financial structure of volatile assets. Findings further revealed that using LIFO to manage inventory results into low gross profit. This allows companies situated in United States to be taxed less. However, under IFRS, use of LIFO method to manage inventories is prohibited. Therefore, implementing IFRS would trigger huge tax hike for corporations situated in United States. Lastly, the findings postulate that switching to the adoption of IFRS also entails huge transition costs for both small and large corporations. In this case, some of the transition costs of IFRS, which are considered, include preparation, dissemination of reports, certification, as well as opportunity costs. For these reasons, the report holds that the promised benefits of IFRS are not attainable.

1.5 Conclusion

This report has found that the costs of adopting IFRS outweigh its benefits. Based on the findings, the switch to IFRS does not guarantee comparability. That is, although there are over 100 countries that are using IFRS, a bigger number of them have added their own exceptions, thus defeating the purpose of comparability. Also, the report has revealed that implementation of IFRS interferes with the independence of accounting standards. On this note, the findings indicate that IASB does not have the financial stability to carry out its operations on its own. Lack of financial stability might make IASB susceptible to political influence from rich countries. Lack of independence has forced IASB to bow down to political influence in the past. For example, the EU forced IASB to incorporate use of fair value accounting. Findings further revealed that using LIFO to manage inventory results into low gross profit. This allows companies situated in United States to be taxed less. However, under IFRS, use of LIFO method to manage inventories is prohibited. Therefore, implementing IFRS would trigger huge tax hike for corporations situated in United States. Lastly, the findings postulate that switching to the adoption of IFRS also entails huge transition costs for both small and large corporations. In this case, some of the transition costs of IFRS, which are considered, include preparation, dissemination of reports, certification, as well as opportunity costs. For these reasons, the report holds that the promised benefits of IFRS are not attainable.

 1.6 References

 

Aksu, M., & Espahbodi, H. (2016) ‘The Impact of IFRS Adoption and Corporate Governance Principles on Transparency and Disclosure: The Case of Borsa Istanbul’, Emerging Markets Finance and Trade52(4), pp. 1013-1028.

Alsaqqa, I. & Sawan, N. (2013) ‘The Advantages and the Challenges of Adopting IFRS into UAE Stock Market,’ IJBM8(19), pp. 129

Ben-Shahar, D., Sulganik, E., & Tsang, D.(2012) ‘Does IFRS 10 on Consolidated Financial Statements Abandon Accepted Economic Principles? A Commentary,’ SSRN Electronic Journal, 5(2), pp. 130.

Boumediene, E. & Nafti, O. (2014) ‘Impact Of Adopting IAS-IFRS On The Handling Of Accounting Data: The Case Of France,’ JABR30(4), 1239.

Brown, P. (2013) ‘Some Observations on Research on the Benefits to Nations of Adopting IFRS,’  TJAR, 4(3), pp. 1-19.

Capkun, V., Collins, D. W., & Jeanjean, T. (2013) ‘The effect of IAS/IFRS adoption on earnings management (smoothing): A closer look at competing explanations’, Journal of Accounting and Public Policy, 4(1), pp. 1-13

Cascino, S. & Gassen, J. (2014) ‘What drives the comparability effect of mandatory IFRS adoption?’ Review Of Accounting Studies, 20(1), pp. 242-282.

Cheung, E., Lau, J., & Mazur, P. (2010) ‘Readability of Notes to the Financial Statements and the Adoption of IFRS,’ SSRN Electronic Journal, 6(20), pp. 142-178

Cole, V., Branson, J., & Breesch, D.(2011) ‘The Illusion of Comparable European IFRS Financial Statements – The View of Auditors, Analysts and Other Users,’ SSRN Electronic Journal, 5(2), pp. 129-189.

Crowley, M. D., Yurova, Y., & Golden, C. F. (2015) ‘IFRS without an International Financial Reporting Language (IFRL): Evidence of multiculturalism and a lack of global transparency in the EU’, Studies in Communication Sciences15(1), pp. 53-60.

Daske, H. (2006) ‘Economic Benefits of Adopting IFRS or US-GAAP – Have the Expected Cost of Equity Capital Really Decreased?’ J Bus Fin & Acc, 9(2), pp. 144-189.

Daske, H., Hail, L., Leuz, C., & Verdi, R. (2011) ‘Adopting a Label: Heterogeneity in the Economic Consequences Around IAS/IFRS Adoptions,’ SSRN Electronic Journal, 8(2), pp. 138-178.

Erchinger, H. (2012) ‘IFRS in the United States – Developments and Current Status,’ Australian Accounting Review, 22(3), pp. 248-256.

Gjerde, Ø., Knivsflå, K., & Sattem, F. (2008) ‘The value-relevance of adopting IFRS: Evidence from 145 NGAAP restatements,’ Journal Of International Accounting, Auditing And Taxation17(2), pp. 92-112.

Hamberg, M., Paananen, M., & Novak, J. (2011) ‘The adoption of IFRS 3: The effects of managerial discretion and stock market reactions’, European Accounting Review20(2), 263-288.

Kim, J. (2013) ‘The Effect of Adopting K-IFRS on Financial Reports–Case Study with KT&G’, International Journal of Multimedia and Ubiquitous Engineering8(2), pp. 205-212.

Kim, Y. & Li, S.(2012) ‘Does Eliminating the Form 20-F Reconciliation from IFRS to U.S. GAAP Have Capital Market Consequences?’ SSRN Electronic Journal, 7(20), pp. 120-178.

Kosi, U. & Florou, A.(2012)’ The Economic Consequences of Mandatory IFRS Adoption for Debt Financing,’ SSRN Electronic Journal, 2(10), pp. 129-178.

Masoud, N. (2014) ‘Libya’s IAS/IFRS Adoption and Accounting Quality: What Lessons from the European Union Experience,’ Ijafr4(1), pp. 156-178.

Mironiuc, M., Carp, M., & Chersan, I. (2015) ‘The Relevance of Financial Reporting on the Performance of Quoted Romanian Companies in the Context of Adopting the IFRS,’ Procedia Economics And Finance, 20(2), pp. 404-413.

Neel, M. (2016) ‘Accounting Comparability and Economic Outcomes of Mandatory IFRS Adoption,’ Contemporary Accounting Research, 4(2), pp. 156.

Negash, M.(2011) ‘IFRS in the United States: A Rejoinder to the Debate Between the SEC and the IFRS Foundation,’ SSRN Electronic Journal, 6(20), pp. 134-178.

Owolabi, A. & Iyoha, F. (2012) ‘Adopting International Financial Reporting Standards (IFRS) in Africa: benefits, prospects and challenges,’ AJAAF, 1(1), 77.

Paunescu, M. (2015) ‘The Romanian Audit Market Structure in Case of Listed Companies and the Impact of Adopting IFRS,’ Procedia Economics And Finance32, 686-693.

Piot, C., Janin, R., & Dumontier, P.(2015) ‘IFRS Consequences on Accounting Conservatism within Europe,’ SSRN Electronic Journal, 8(2), pp. 123-167.

Sacho. Z, and Oberholster, J (2008) ‘Factors impacting on the future of the IASB,’  Meditari Accountancy Research, 16(1 ), 117-137.

Schiebel, A.(2011) ‘To What Extent Would the Proposed IFRS for Small and Medium-Sized Entities (‘IFRS for SMEs’) be Independent of the Full IFRS System?’ SSRN Electronic Journal, 6(2), pp. 134-178.

Tsalavoutas, I. (2011) ‘Transition to IFRS and compliance with mandatory disclosure requirements: What is the signal?’ Advances In Accounting27(2), 390-405.

Wieczynska, M. (2016) ‘The “Big” Consequences of IFRS: How and When Does the Adoption of IFRS Benefit Global Accounting Firms?,’ The Accounting Review91(4), 1257-1283.

Yip, R. & Young, D. (2012) ‘Does Mandatory IFRS Adoption Improve Information Comparability?’ The Accounting Review87(5), 1767-1789.

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Policy brief: International Monetary Developing world – a critical review of international banking policies by the IMF and World Bank

Policy brief: International Monetary Developing world – a critical review of international banking policies by the IMF and World Bank

Executive Summary

This policy brief is from the office of the International Monetary Fund, written with the aim of recommending changes to the current international monetary policy implemented by the World Bank, which guides operations of international banks in the developing countries. It analyses the past international banking policies, and the role they have played, as well as their benefits to the development of international trade in developing countries. In so doing, it evaluates a few options for consideration by the policy makers to improve both the roles that the international banks play, as well as the benefits such efforts have to improving the socio-economic development of the region.

The implications for financial growth have stimulated the change between international banking industry and the emerging markets. Financial liberalization, transformation of financial industry and hasty economic development in the developing countries have created an extensive dynamic of financial engagements that extends beyond the provision of financial credit during economic distress. The banking industry has technological and infrastructural platform in all its agencies, branches and subsidiaries in the developing world. With the increasing trade relations across borders, the international banking industry has to play the dominant role of finance provision and growth visions in the emerging markets.

 

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                                                   TABLE OF CONTENTS

  1. Overview of World Bank and international banking policy. 1
  2. Preexisting policies. 2

2.1 Partnerships with foreign banks to give developing countries access to financial services. 2

2.2 Credit creation and efficiency of local financial systems. 3

2.3 Ease of domestic credit constraints. 4

2.4 Marketing orientation. 5

2.5 Financial and Economic stability. 5

  1. Policy options. 6

3.1 Create interest income opportunities. 6

3.2 Create non-interest income opportunities. 7

  1. Recommendations. 8
  2. Conclusion. 9
  3. References. 10

 

 

 

 

1. Overview of World Bank and international banking policy

Formed in 1944, the World Bank was incorporated with the main goal of providing loans to different countries across the world. This is the same case to international monetary fund. Though they are two different organizations, policies are committed to increasing international trade, capital investments as well as foreign investment. Through these policies, the institutions provide loans to countries as well as foster international banking. Since 1974, the bank and fund were committed to improving the economy of developing counters, and this led it to giving huge loans to the developing world. However, the main consequence of this was increased debt to developing countries, which these countries were unable to pay. From 1980, the World Bank, under new leadership, committed to lending the developing nations, so as to tackle issues like poor health and education standards and lack of access to healthy food for countries in Africa, Asia and South America. However, such loans come with strict regulations on how the funds loaned should be used and also the interest rates are also high. The final outcome is high costs of servicing the debts, hampering economic growth and development in such countries.

Such policy failures has led to sharp criticisms from various international bodies putting pressure on the World Bank to revise its international monetary policy, especially with regards to undeveloped and developing economies. More recently, the World Bank promoted the free market reform policies. At the same time, IMF promoted international banking policies, where international banks from developed countries moved into developing countries. This policy brief highlights the increasing importance of the international banking policies, with focus on economic growth, financial intermediation and stability in the emerging markets. It also discusses the policy challenges that the emerging market face when dealing with the current global economic crisis as they underline the lasting benefits of integrating into the global financial system.

2. Pre-existing policies

With the enforcement of international banking policies, there is a rapid enhancement in the involvement of international banks in the developing regions of the world in the recent years with more than 890 banks being established in the developing countries (Mattoo et al., 2007). According to Levine (2001), the increased foreign banking activities in developing countries is attributed to various factors such as limited access of local banking infrastructure in the Sub-Saharan Africa, integration in the European Union in Central Asia and a strategy for local governments to indulge in foreign competition in Latin America. In some developing countries, foreign banking was only allowed after the country has suffered financial crisis and the need to establish a performing banking system (Garber, 2000). International banking industry has generated considerable economic benefits to the emerging market through efficient banking systems, ease of access to capital, utilization of sophisticated banking services and revival of falling banks (Giannetti&Ongena, 2005). The following are the effects of some of its policies.

2.1 Partnerships with foreign banks to give developing countries access to financial services

According to Garber (2000), foreign banks have the capability of offering new and high quality products and services, for example, the structured notes, over the counter derivatives and equity trades. After the Turkish banking entry regulations were lessened Levine, (2001) notes the significant decrease in letters of guarantee and credit’s fees. Foreign banking has seen to the growth of markets especially the financial markets in the developing nations as well as in the emerging markets through the investment of expertise and capital (Wooldridge et al., 2003).  Foreign banks play the role of principal dealers and pension finance managers. They swap brokers in government bond markets and other markets by strengthening their financial system through management and guidance (Goldberg, 2004). Under  North America Free Trade Agreement (NAFTA), Levine (2001) argue that auditing and accounting institutions, rating and credit bureaus could be established in Mexico and other developing countries as a result of  foreign banking systems.Banking predicaments such as fraud, financing of terrorism groups and money laundering have been reduced as a result of banking safeguards brought by foreign banking.

2.2 Credit creation and efficiency of local financial systems

The World Bank structural adjustment programs in developing countries have increased efficiency of banking systems in these countries due to their efficiency and pressure from oligopolistic markets to improve domestic banking efficiency (Levine, 2001). In financial markets, a significant level of competition is necessary for the reduction of costs as well as innovation increment. In various emerging markets, empirical work has proved that the presence of international financial institutions has assisted in augmenting competition amid banking consolidation (Gelos & Roldos, 2004). In developing countries, domestic banks have recorded a lower overheads and high loan loss compared to foreign banks following the implantation of IMF and World Bank regulations and policies. The mode of operation and entry, objectives, market share, original financial, regulation and economic stipulationshave limited the efficiency of foreign banking systems (Strurn & William, 2005; Berger et al., 2008). Developing countries in Central Asia and Europe have experienced a hasty credit growth in the recent years supported by strong financial and economic growth. Rapid credit expansion in Latvia, Ukraine, Romania and Kazakhstan is attributed to external financial dependence and the significant presence of foreign banking (Garber, 2000). Albania, Bulgaria and Lithuania have an easy access to foreign funding and strong financial footing thus facilitating credit creation (Mattoo et al., 2007).

2.3 Ease of domestic credit constraints

Sources of credit available in development country companies have been increased by the access of international markets through loans from the World Bank as well as financial information provided by IMF about the developing economies (Garber, 2000). Suppose all the lenders have unlimited access to information, technology, prospects for risk variation and better corporate management, markets will be in a position to offer high volume credit at low interest rates. According to Giannetti&Ongena (2005), the World Bank and IMF have increased the access to funds for most countries in Eastern Europe and Asia, although the same cannot be said for most countries in Africa. Although access to World Bank loans increase credit access, the impact varies from one country or firm to another whereby Mian (2004) claim that some foreign banks limit credit growth by picking the finest borrowers. According to econometric analysis, World Bank funding is essential for the developing countries that rely mainly on outside financing and international banking (Cull et al., 2007).  For instance, 20% of the banking sector in Brazil is foreign owned and for this reason, the variation in growth between high and low international financial (capital) dependence is less than 1%. In developing countries, increased Word Bank funding attracted foreign banks, and the firms with high foreign financial dependence like Romania grow by around 2.4% more compared to the low foreign financial dependency. Therefore, it is essential to acknowledge that the involvement of international financial institutions in emerging markets is integral for the growth of economy of developing regions of the contemporary world.  According to a research done by Buch& De Long (2004), international financial institutions tend to invest in developing regions of the contemporary world, which are geographically or institutionally near.  (Claessens& Van Horen (2012b) also argues than not only does the geographical distance matter but also competitor distance.

2.4 Marketing orientation

In the recent years, monetary policy has become essential for the management of macroeconomic approach in developing regions of the contemporary world hence the debate the influence of international financial institutions on the growth of these developing regions (Cull et al., 2007). As central banks are emphasizing on market orientation and lessening of domestic interest rate regulations, the link between the short-range financial market rate and bank loaning rate become the key means for monetary policy spread. The role of World Bank in the developing countries falls on two countering observations. First, the higher the World Bank loans, the stronger the investment activities since these loans improve the financial sector’s depth and efficiency. Secondly, the World Bank does not respond to inclinations of domestic or local monetary policies because they have an relaxed accessibility to consolidated funds, which are not within the control of domestic (local) monetary power (Cull et al., 2007).

2.5 Financial and Economic stability

The presence of international funding  in emerging markets has increased the developing countries financial and economic stability through diversification and management of risks in banking services(Goldberg et al., 2000). Availability of capital as per demand has increased as a result of international banking. Even though international banks are diversified depending on the country, they are indifferent to the host countries’ cyclical behavior. During monetary crisis, international banks usually call on the parent banks that often provide liquidity, and the World Bank also provides loan facilities to governments. According to various empirical studies, the IMF, World Bank and international banks play a financial and economic stabilization role in development countries.

After analyzing the BIS banking data Martinez et al. (2002) and Detragiache and Gupta (2002) found out that foreign banks and the World Bank are responding to the host countries’ economic distress in some Latin American countries. Levine (2001) also pointed out that external funding is not limited during economic distress thus increased international banking and lending can be attributed to decrease in distress. World Bank lending and foreign banking participation on host countries economic distress is evident in Argentina and Malaysia during the 1994-1995 and 1997-1998 crises respectively (Goldberg et al., 2000; Detragiache and Gupta, 2002).

3. Policy options

Developing countries such as those found in Sub Saharan African and Central Asia possess considerable challenges as well as opportunities. Most of the countries have low economic growth due to low human development as well as persistent poverty (Garber, 2000). Not only do developing countries face this predicament but a huge infrastructure fissure, weak governance, poor investment climate and low institutional capacity (Beck et al., 2006). Despite the challenges, various opportunities exist within the maker, which can be used by the IMF and World Bank to improve their current policies, and make them more efficient. The policy options create an avenue to maximize the international banking opportunity and have the delving countries implement better financial reforms, which can ultimately improve their economic development. Opportunities include rising commodity prices, increasing labour population, advanced technology and urbanization have been the main sources of prolonged growth in these countries (Winkler, 2009). The following are the policy options.

3.1 Create interest income opportunities

The Word Bank and IMF can come up with an investment policy that guide creation of income opportunities in developing countries through partnership with international banks. This is because some banks’ interest income is very sensitive to interest rates changes compared to others. This variation is due to the types of liabilities and assets held at the banks. For international banks, assets include profitable loans, structure loans and asset securities whereas liabilities include the clients’ deposits. International banks earn income through net interest spread from investments such as deposits and savings accounts (Takats, 2010). International banks offer short term loans to individuals, institutions and governments in the developed and developing markets. However, high dependence on external financing is not good for the developing countries’ economy since international banks depend on vulnerable financial conditions thus exposing domestic economy to economic crisis (Borio, 2011).  According to Gilson and Kraakman (2014), international banks usually buy local and foreign bill at a discount and when the bill reaches full maturity, they are sold at an increased interest rate. In many developing countries, banking services is as low as 12 % although mobile banking services have penetrated the countries by approximately 76% which presents a perfect opportunity for financial insertion in the countries. For instance, there are three mobile network operators in Senegal which partner with banks to provide pocket money services (Cull et al., 2007).

3.2 Create non-interest income opportunities

The World Bank can also come up with non-interest income financial policy, which is policy that affect creation of income derived from fees or costs such as yearly fees, charges of account service as well as deposits. By deriving income from the aforementioned fees nternational financial institutions will earn ample revenue to ensure liquidity. On this note, Rapport (2014) explains that in 2008 the users of credit card were charged a penalty of $19 billion. Part of these fees can be used to help developing countries offset their loans with the World Bank.  In this case, Rapport (2014) indicates that these fees (costs) include bank fees, fees for the services offered and commissions. For instance, a fee is charged for the use of services such as ATMs can contribute to the revenue of financial institutions.. This can help create more income for the government to pay off its debts (Winkler, 2009).

4. Recommendations

The banking sectors in the developing regions of the contemporary world are susceptible to one principal predicament, that is, political instability. For this reason, mechanisms enshrined to stabilize the political environment of these regions will be a huge milestone towards boosting the foreign investment confidence as well as the economic growth of the aforementioned regions (developing countries)(Borio, 2011). Developing regions in the Western as well as in the Northern African are encompassed with oil and gas resources. These resource can provide viable investment opportunities for the countries such as Ivory Coast as well as Nigeria although in the event of political instability, foreign banks could rationalize their investments in the aforementioned countries.  Moreover, nations in most part of Africa are void of guaranteed and excellent credit threat evaluation structure. According to pundits,  credit threat evaluation structure is  a principal hindrance for the small firms as well as businesses, which would prefer to access credit   (Beck et al., 2006).

The proposed policies do not fully deal with the predicament that international banks and the World Bank deal with (Klapper et al., 2006). The World Bank has efficient threat assessment framework as well as governance policies, which are integral to deal with banking system deficiencies. On the other hand, BCBS (2009) asserts that the efforts of international financial institutions are usually prevented by complexity of domestic financial institutions and for this reason, reforms are integral for strengthening the solidity as well as elasticity of global financial systems. In the event of a the creation of financial stability oversight council, there will be stringent supervision of financial institutions. This will hamper the financial institutions from charging high interest rates on borrowed funds as well as other financial derivatives. As such, the domestic financial institutions will make less profits. Moreover, Dodd Frank Act’s implementation coerces international financial institutions to regionalize their financial services in developing regions (nations) and as a result, the ability of financial institutions to transfer funds within variant financial institutions and economies was limited.

Furthermore, the declaration by the G-20 nations in 2009 was a treaty on reforms instrumental for augmenting the banking as well as the financial system. The principal objective or aim of reforms  is to heighten the pliability of  financial sector (Winkler, 2009). Moreover, the facets of of the Basel Committee on Banking Supervision (BCBS) have enhanced the eminence of assets, threat detection and evaluation,, fixed liquidity standards as well as assets conservation shields. Business derivatives are also impacted by global proposals such as swap trade while national initiatives for instance pushing the derivatives trade to separately exploit with non-bank institutions as visualized in the United States Dodd-Frank Act (Rapport, 2011). The high scale of dollarization and dominating fiscal policy has limited monetary effectiveness in the developing countries since the government is increasingly borrowing from the central bank due to economic instability.

Furthermore, regulations influence the investment of international financial institutions in derivatives business although it also attempts to limit the unfriendly impacts on real financial transactions (BCBS, 2009). When the oversight council enshrine restrictions or limitations on monitoring banks, no income will be derived from non-interest income opportunities since the charges of financial services will be alleviated.

After Dodd Frank Act’s implementation, the reduction in the non-interest income earned by the international financial institutions will be inevitable. The Act protects the clientele group from heinous exploitation by the financial institutions amid the acquisition of assets as well as signing of derivative contracts.

5. Conclusion

Even after years of existence, the World Bank and IMF have not fully understood how best to help in economic development of developing countries. In term of effects of World Bank debt, the question of how it enhances the local economy and domestic banking systems’ efficiency, increased level of financial growth, eased access to financial services and overall economic development of a country has to be analyzed further. However, the proposed policies can help improve the effectiveness of the World Bank as well as IMF on augmenting the socioeconomic development of world poorest countries. Notably, there could also be risks associated with World Bank loans and the presence of foreign banks. This attracts the interest and demand among academics and policy makers for a detailed analysis of impacts of international banking.

To achieve the necessary finances to benefit small and medium sized enterprises, financial policy makers in developing countries ought to think ahead of the current participants in the national banking system and cultivate positive competitiveness that will stimulate financial novelty necessary to narrow or reduce the gap or disparity in communal finance. The only remaining major challenge will be to look ahead of banks as funds providers to new entrants. There could be critical competition, which will require a dogmatic structure open to the new entrants and which does not asphyxiate financial innovation with restrictions. Roles of international institutions such as the World Bank in developing countries have to be redefined to a policy function from a financial provision services.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

6. References

Basel Committee for Banking Supervision. (2009) Strengthening the Resilience of the Banking sector [Online]. Available at: http://www.bis.org/publ/bcbs164.html (Accessed: 27 January 2015).

Beck, T.,Demirgüç, K., & Vojislav M. (2006)‘The Influence of Financial and Legal Institutions and Firm Size’, Journal of Banking and Finance, 30(11), pp.2995-3015.

Berger, A. N., Klapper, L., Peria, S. M., P. and Rida Z. (2008) ‘Bank Ownership Type and Banking Relationship’, Journal of Financial Intermediation 17(1), pp. 37–62.

Borio, C. (2011) ‘Central banking post-crisis: What compass for unchartered waters: National Bank of Poland Conference’, Monetary Policy Journal, 6(2), pp. 76-89.

Buch, C. M. & DeLong, D.(2004) ‘Cross-Border Bank Mergers: What Lures the Rare Animal?’, Journal of Banking and Finance, 28(9), pp. 2077-2102.

Claessens, S. & Van Horen, N.(2012b) ‘Being a Foreigner among Domestic Banks: Asset or Liability?’, Journal of Banking and Finance, 36(5), pp. 1276-1290.

Cull, R. & Peria, S. M.(2007)‘Foreign Bank Participation and Crises in Developing Countries’, Policy Research Working Paper 4128.World Bank, Washington, DC. Available at http://ssrn.com/abstract=961096 (Accessed: 26 January 2015).

Detragiache, E. & Gupta, P. (2004) ‘Foreign banksin emerging market crises: evidence from Malaysia’, IMF Working Paper.

Garber, P. (2000) ‘What You See vs. What You Get: Derivatives in International Capital Flows’,’ in Adams, C., Litan, R. E.  &Pomerleano, M. (eds)Managing Financial and Corporate Distress: Lessons from Asia. Washington, DC: Brookings Institution, pp.234-257.

Gelos, R. G., &Roldos, J. (2004) ‘Consolidation and Market Structure in Emerging Market Banking Systems’, Emerging Markets Review, 5(1), pp. 39–59.

Giannetti, M. & Ongena, S. (2005)‘Financial Integration and Entrepreneurial Activity: Evidence from Foreign Bank Entry in Emerging Markets, Working Paper 91/2005, European Corporate Governance Institute.

Goldberg, L.(2004)‘Financial Sector FDI and Host Countries: New and Old Lessons,’ Working Paper10441, National Bureau of Economic Research, Cambridge.

Goldberg, L., Dages, G. & Kinney, D. (2000) ‘Foreign and domestic bank participation in emerging markets: lessons from Mexico and Argentina’,Economic Policy Review, 6(3), pp.17-35.

Jens, A., Beata J., &Mattoo, A.(2007)‘Does Services Liberalization Benefit Manufacturing Firms?Evidence from the Czech Republic’, Policy Research Working Paper 4109.World Bank, Washington, DC.

Klapper, L. (2006) ‘The Role of Reverse Factoring in Supplier Financing of Small and Medium Sized Enterprises, ’Journal of Banking and Finance30(12), pp. 3111-3130.

Klapper, L., Luc, L. & Rajan, R. (2006) ‘Entry Regulation as a Barrier to Entrepreneurship’, Journal of Financial Economics, 82(3), 591-629

Levine, R. (2001) ‘International Financial Liberalization and Economic Growth’, Review of International Economics. 9(4), pp.688-701.

Martinez, P. M., Powell, A. &Hollar, I. V.(2002) ‘Banking on foreigners: the behavior of international bank lending to Latin America, 1985-2000’ IMF Staff Papers, 52(3), pp. 430-461.

Mian, A. (2004) ‘Distance Constraints: The Limits of Foreign Lending in Poor Economies’, The Journal of Finance, 61(1), pp. 465–1505.

Rapport, M. (2014) Credit Unions Get Payments Foothold in Apple Pay [Online]. Available at: http://www.creditunions.com/blogs/off-the-cuff/could-apple-pay-really-change-everything-it-already-has/#ixzz3Q0EQty00 (Accessed: 27 January 2015).

Sturn, J. & Williams, B. (2005) What Determines Differences in Foreign Bank Efficiency: Australian Evidence [Online]. Available at: http://ideas.repec.org/p/ces/ceswps/_1587.html (Accessed: 26 January 2015).

Takats, E. (2010) ‘Was it credit supply? Cross-border bank lending to emerging market economies during the financial crisis,’ BIS Quarterly Journal, 8(1), pp. 49-56.

Winkler, A. (2009) ‘Southeastern Europe: Financial Deepening, Foreign Banks and Sudden Stops in Capital Flows,’ European Economic Journal, 2(1), pp.84-96.

Wooldridge, P. D., Domanski, D. &Cobau, A. (2003) Changing Links between Mature and Emerging Financial Markets[Online]. Available at: http://www.bis.org/publ/qtrpdf/r_qt0309e.pdf (Accessed: 26 January 2015).

 

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Corporate Social Responsibility of Unilver

Corporate Social Responsibility of Unilver

Executive Summary

This report sought to evaluate the Unilver’s CRS activities against theory and best practices. On this note, The above analysis has revealed that Unilever’s environmental CSR activities are in tandem with theoretical perspectives and best practices on CSR initiatives. However, the report has recommended that Unilever needs to involve its employees in community-based programs that support environmental initiatives. Also, Unilever also needs to ensure that its employees are aware of its environmental policy programs and motivated to implement them. Lastly, the report recommends that Unilever needs to publish its information online on its environmental performance. According to the report, these publications should also include Unilever’s environmental performance indicators as well as environmental performance against targets. According to the findings, these recommendations will help Unilever to align its environmental CSR practices according to the best practices on environmental initiatives.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

TABLE OF CONTENTS

  1. Introduction. 1
  2. Unilever’s CSR Activities. 1
  3. Evaluating Unilever’s CRS Activities against Theoretical Perspective. 2
  4. Evaluating Unilever’s CSR Activities against Best Practices. 3
  5. Summary and Recommendation. 4
  6. Conclusion. 4
  7. References . 6

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1. Introduction

It is barely contentious that contemporary organisations derive their success, whether in part or in full, from the natural environment as well as from society. However, pundits such as Żychlewicz (2015) continue to debate whether the success of corporates is attained at the expense of natural environment or whether success of corporates contributes to the well-being of natural environment. According to Hetze (2016), this has led to the evolvement of environmental CSR practices. The latter constitutes of a range of initiatives adopted by corporations to enhance energy use efficiency, impact climate change, water use footprint. With the help of environmentally responsible investors, organisations such as Unilever have resolved to make environmental sustainability integral to their corporate identity. In 2010, Unilever’s CEO Paul Polman, enshrined a Sustainable Living Plan to reduce greenhouse emission, water and waste impacts. According to Jabot & Pottier (2012), this is in tandem with the triple bottom line theory, which stipulates that corporate managers should take responsibility of company effects in the environmental and social realms.

Based on this background, this report intends to evaluate Unilever’s environmental CSR practices based on theory and best practices. The report ends in a recommendation and conclusion.

2. Unilever’s CSR Activities

Unilever’s environmental CSR practice resolves around its Sustainable Living Plan that was enshrined in 2010 by CEO Paul Polman. This plan was Unilever’s blueprint for attainment of corporate success whilst decoupling environmental footprint from its growth. According to (), the Unilever’s Sustainable Living Plan is a multifaceted combination of environmentally CSR practices such as reducing greenhouse gas emissions for its products and development of sustainable smallholder and agriculture farms (Unilever 2015). Furthermore, the plan also involves reduction of water and reducing impacts on the climate change. As a result of this plan, Unilever had managed to reduce carbon emissions by 39%, water abstraction by 37%, and wastes by 97% by year 2013. Un News Centre (2015) also explains Unilever mitigates impacts on the climate change by curtailing deforestation and by making manufacturing of its products more eco-efficient. Also, by the end of 2015, Un News Centre (2015) explains that 60% of Unilever’s agricultural raw materials were sourced from suppliers who adhered to environmental sustainability.

3. Evaluating Unilever’s CRS Activities against Theoretical Perspective

Most of Unilever’s Environmental CSR practices are in tandem with theoretical perspectives on environmental sustainability. For example, Mizera (2015) explains that Unilever is dedicated to satisfying the needs of customers in a sustainable and environmentally sound manner. To ensure this, Unilever has resorted to evaluating its environmental impacts at each stage from sourcing its raw materials all the way to distributing its product to consumers as well as to disposing its products. These acts are congruent with the Triple Bottom Line framework. According to Triple Bottom Line theory, corporate success should be viewed from a broader perspective rather than from a financial perspective. Sustainable Living Plan is an attempt by the Unilever to decouple its environmental damage from its corporate success. Moreover, the corporate activities of Unilever are also in tandem with the assertions of sustainability theory. In this case, the sustainability theory asserts that corporate should include organizational ability to respond to social and environmental problems (Lauring & Thomsen, 2008). On September 2015, Unilever was awarded UNEP’s award, Champion of the Earth, for its ambitious vision toward environmental sustainability. During that year, Unilever had managed to achieve zero waste to landfill. Also, in the same year, Unilever had managed reduce carbon emissions from by 37%. Moreover, since 2010, Unilever has also invented ways to augment its “Zero waste mind-set”. In this case, Unilever has resorted to global partnerships with food banks to eliminate wastes in the supply chain. According to Mizera (2015), working with food banks enabled Unilever reduce the amounts of wastes going to landfill. In regard to this, the ecological modernization theory explains companies can invent ways to help reduce environmental degradation and at the same time help revamp economic gains. In this case, partnering with food banks helps to make Unilever a zero waste company whilst helping countries achieve environmental benefits. The ecological modernization theory describes this as “win-win scenario. Furthermore, the latter has also been witnessed in Indonesia as well as in Brazil where Unilever volunteered to gang up with WFF in order to protect 1 million trees. In this case, such a partnership is helping Unilever augment its market position in Brazil as well as in Indonesia whilst helping the aforementioned countries protect their environment.                 

4. Evaluating Unilever’s CSR Activities against Best Practices

Unilever has done a lot to commit itself to the best practices as far as environment CSR practices are concerned. First, Unilever has adopted one of the best environmental CSR practices, which is environmental accounting reporting. The latter is a sub-facet of accounting that reports on company’s resource use, and environmental costs. In this case, Riordan & Fairbrass (2008) explains that environmental costs elucidate expenses incurred by the company for environmental remediation practices. In line with this best practice, Unilever in 2014 commenced to release its yearly Sustainable Living Report. According to Das (2012), Sustainable Living Report is part of Unilever’s business strategy that shows how its dealing with sustainability issues such reducing impacts on climate change, emission of greenhouses, and enhancing energy efficiency. However, Unilever needs to enhance the transparency of its environmental reporting but making sustainable reports available to its stakeholders. As such, Unilever should resort to online reporting in its attempt to make sustainable reports available to its stakeholders. Furthermore, in their attempt to enhance environmental sustainability, corporates should also seek to encourage responsible investment. This is meant to encourage corporate practices that reduce impact to the climate change, carbon emissions, water and energy wastages. In line with this environmental CSR best practice, Unilever in 2014 issued a £250 million Green Sustainability Bond. According to Mizera (2015), the bond was meant to Unilever surge for sustainable growth. Environmental CSR practices should also seek to encourage green purchasing. Giunipero, Hooker & Denslow (2012) explains that green purchasing spells out the procurement of services/products, which have a reduced effect on environment and human health. Since 2010, after the enshrinement of Sustainable Living Plan, Unilever has always sourced its raw materials from sustainable and environmentally sound suppliers.

Lastly, corporates with the best environmental CSR practices also exploit the available resources to enhance their participation in environmental initiatives. Organizations such as Patagonia give their employees a two month off to participate in environmental programs in the surrounding community. Similarly, Xerox also uses the Community Involvement Program it support its 13,000 workers to take part in community-based programs. According to Redshift (2015), this helps the employees feel supported when employers show their commitment to programs, which they support. For this reason, Unilever needs to use resources such as employees to revamp its environmental CSR practices.

5. Summary and Recommendation

The above analysis has revealed that environmental CSR practices of Unilever are in tandem with theoretical perspectives on CRS initiatives. First, Unilever’s CSR activities such as evaluation of environmental impacts at each stage from sourcing its raw materials all the way to distributing its product to consumers as well as to disposing its products  are congruent with the Triple Bottom Line framework. Moreover, the analysis has revealed that corporate activities of Unilever are also in tandem with the assertions of sustainability theory. This is because by September 2015 Unilever had managed to achieve zero waste to landfill. Lastly, the report has also revealed that Unilever’s environmental CSR activities are congruent with the assertions of eco-logical modernization theory. This is because Unilever has invented ways such global partnerships with organization such as WFF and food banking to augment its “Zero waste mind-set”. Also, Unilever has also aligned its Environmental CSR practices with the best environmental sustainability practices. For example, the analysis has revealed that Unilever engages in best practices such environmental reporting, environmental responsible investing and green purchasing. However, to revamp its environmental CSR activities, the report recommends that Unilever needs to involve its employees in community-based programs that support environmental initiatives. Also, Unilever also needs to ensure that its employees are aware of its environmental policy programs and motivated to implement them. Lastly, the report recommends that Unilever needs to publish its information online on its environmental performance. According to the report, these publications should also include Unilever’s environmental performance indicators as well as environmental performance against targets.

6. Conclusion

The above analysis has revealed that Unilever’s environmental CSR activities are in tandem with theoretical perspectives and best practices on CSR initiatives. However, the report has recommended that Unilever needs to involve its employees in community-based programs that support environmental initiatives. Also, Unilever also needs to ensure that its employees are aware of its environmental policy programs and motivated to implement them. Lastly, the report recommends that Unilever needs to publish its information online on its environmental performance. According to the report, these publications should also include Unilever’s environmental performance indicators as well as environmental performance against targets. According to the findings, these recommendations will help Unilever to align its environmental CSR practices according to the best practices on environmental initiatives.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

7. References .

Das, L. (2012). Social Marketing: A Classic Case of Sustainability Model by Unilever Ltd. IOSR Journal Of Business And Management1(5), pp. 6-8.

Giunipero, L., Hooker, R., & Denslow, D. (2012) ‘Purchasing and supply management sustainability: Drivers and barriers,’ Journal Of Purchasing And Supply Management18(4),

Hetze, K. (2016) ‘Effects on the (CSR) Reputation: CSR Reporting Discussed in the Light of Signalling and Stakeholder Perception Theories,’ Corporate Reputation Review19(3), 281-296

Jabot, F. & Pottier, J. (2012) ‘A general modelling framework for resource-ratio and CSR theories of plant community dynamics,’ Journal Of Ecology, 100(6), pp. 1296-1302.

Lauring, J. & Thomsen, C. (2008) ‘Ideals and practices in CSR identity making: the case of equal opportunities,’ EmployeeRelations31(1), pp. 25-38.

Mizera, S. (2015) ‘Sustainability at Unilever: An interview with Lesley Thorne, Global Sustainability Manager,’ Journal Of Brand Management, 20(3), pp. 191-195

Redshift. (2015) Doing their Part: 3 Excellent Examples of Corporate Social Responsibility. [Online]: Available At: https://redshift.autodesk.com/doing-their-part-3-excellent-examples-of-corporate-social-responsibility/(Accessed 1st March-2016).

Riordan, L. & Fairbrass, J. (2008) ‘Corporate Social Responsibility (CSR): Models and Theories in Stakeholder Dialogue,’ Journal Of Business Ethics, 83(4), 745-758.

Un News Centre. (2015) Unilever chief honoured by UN for advocating more sustainable business models. [Online]: Available At: http://www.un.org/apps/news/story.asp?NewsID=51917#.WLvBiVUrLIV(Accessed 4th-March-2016).

Unilever. (2015) Our Strategy for Sustainable Business. [Online]: Available At: https://www.unilever.com/sustainable-living/the-sustainable-living-plan/our-strategy/(Accessed 4th-March-2016)

Żychlewicz, M. (2015) ‘Corporate benefits of CSR activities,’ Journal Of Corporate Responsibility And Leadership, 1(1), 85.

 

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PGBM71 Exploring the customer attraction strategies that can be employed by Huawei managers in the Chinese market

PGBM71 Exploring the customer attraction strategies that can be employed by Huawei managers in the Chinese market

Table of Contents

1.0        Introduction. 3

2.0 Making the case. 3

2.1 What is consumers’ attitudes. 3

2.2 Importance of consumers’ attitudes. 4

3.0 How customer attraction strategies can be developed within an organisation effectively. 5

3.1 Product 5

3.2 Promotion. 6

3.3 Price. 8

3.4 Place. 9

3.5 People. 10

3.6 Process. 11

3.7 Physical evidence. 12

4.0 Challenges encountered in the process of attract customers. 13

5.0 How to overcome the challenges encountered in attract customers. 15

6.0 Rationale for the implementation of customer attraction strategies. 17

7.0 Conclusion. 18

References. 19

 

 

 

1.0     Introduction

With increase in the number of firms in most of the industries across the world, competition has increased proportionally. This has hugely been coupled by increased globalisation as well as changing consumer preferences.  In this view, attracting new customers have been a significant hassle to most organisations. As noted by Baker (2014), attracting customers has been considered fundamental to any organisation craving to have a significant market share. For the purpose of attracting consumers, Donaldson and O’Toole (2007) have elucidated that organisations have employed a wide range of strategies. Some of these strategies have included various integrated communication strategies such as advertising, sales promotion, as well as social media advertisement. Huawei is one of the companies that have been found to put various efforts in place for the aim of attracting customers.  Established in 1987, Huawei Technologies is a Chinese multinational company that deals with telecommunications and networking equipment (Nakai & Tanaka, 2010).  The company, which is headquartered in Shenzhen, has been regarded as the largest manufacturer of telecommunication equipments in the world.  As noted by Dutta et al. (2012), the company’s products as well as services have been deployed to close to 150 countries across the globe. According to Nakai and Tanaka (2010), much of the company’s success has been attributed by its intense efforts in attracting customers. Taking this into consideration, this toolkit has been designed for the purpose of helping the management of Huawei in designing as well as implementing effecting customer attracting strategies.

2.0 Making the case

2.1 What is consumers’ attitudes?

According to Egbue and Long (2012), consumer attitudes refer to a combination of feelings, beliefs, and intentions, which are associated with to a certain concept or object.  As noted by Slater et al. (2010), these components are typically viewed together owing to the fact that that they are highly independent.  Besides, these three components have been viewed to represent the forces that influence how the customers react to the object.  According to Kim et al. (2012), consumer attitudes take into account the positive or negative beliefs, feelings, as well as behaviour that consumers demonstrate towards a certain product or service. This is after having a persona experience with the product or service or acquiring knowledge regarding them.  This sentiment has been echoed by Solomon (2014), who has espoused that consumer attitude is the learned predisposition, which influences the consumers to either favour or oppose a certain product of a service. The aspect of consumer attitudes has been depicted in the figure below.

Figure 1: Consumer attitude framework

Source: Egbue and Long (2012)

2.2 Importance of consumers’ attitudes

According to Watson et al. (2013), understanding consumer attitude is fundamental for any organisation before launching any product.  Taking this into account, adequate understanding of consumer behaviours helps business managers as well as marketers in designing the best possible product that satisfying the needs and demands of the consumers fully. This is due to the fact that consumer attitudes dictate the perceptions of consumers towards a particular product or service.  Secondly, consumer attitudes play a vital role in helping organisation in deciding the price at which the consumers would be willing to purchase a particular product or service. On this, through understanding consumer attitudes, an organisation is usually in a position of having an idea regarding the best price to place on a particular product or service.  Consequently, the organisation is able to attract customers owing to fair prices. Thirdly, through understanding consumer attitudes, an organisation is able to the best sales promotion method that will help the organisation in attracting customers. In this view, Egbue and Long (2012), have argued that through understanding the attitudes of the consumer, an organisation is able to identify the type of potential customers. Consequently, the organisation can identify the promotional strategy that can help in attracting more sales.  According to Baker (2014), understanding consumer behaviours also helps organisations greatly in understanding the various factors that influence buying behaviours such as cultural influences, social influence, personal factors, as well as psychological factors among others.  In light of this, understanding these factors usually help organisation in marketing the product on the right time and to the right customers. Lastly, consumer attitudes help organisations in optimising sale of product as well as creating focused marketing strategies. On this, Kumar et al. (2012) have argued that this is usually possible through production of goods or services that are in line with the tastes and preferences of the consumers.  The following video helps in explaining the importance of consumer attitudes.

https://www.youtube.com/watch?v=SNF3LuAbZNQ

3.0 How customer attraction strategies can be developed within an organisation effectively

3.1 Product

According to Hambrick and Fredrickson (2014), the aspect of product typically takes into account the item that is built or produced for the purpose of satisfying the needs of particular consumers. Product can either be in form of tangible objects of services.  As argued by Lamberti and Noci (2010), product is typically the primary component that is considered by any consumer. Precisely, as Armstrong et al. (2011) denotes, for consumers to be attracted, a product has to exist. This explains why product is regarded the most important component of any marketing campaign.  Therefore, when it comes to Huawei, it needs to ensure that its products are able to meet the needs of the consumers to a large extent.  In this light, the product strategy should ensure that the company manufacture products that are attractive to the consumers in terms of colour, design, as well as features among other vital aspects. For instance, Huawei can consider manufacturing phones that have higher camera resolution as well as large storage capacity. Owing to the fact that these are some of the aspects that are considered valuable by most consumers, it is with no doubt that the company can be in a position of attracting more customers. For the purpose of attracting customers through product strategy, Leeflang et al. (2014) argue that there is a considerable need for Huawei to consider investing heavily on research and development. It is through this that the company will be in a position of ensuring that the products produced are in line the ever changing tastes as well as preferences of the consumers.  The product strategy has been elaborated in the website below.

https://www.aha.io/roadmapping/guide/product-strategy

3.2 Promotion

As argued by Ataman, et al. (2010), the promotion strategy has been regarded fundamental when it comes to attracting potential customers. In light of this, Dutta et al. (2012) have explained that promotion is typically an important customer attraction strategy owing to the fact that it helps in boosting brand recognition as well as sales.  As argued by Baker (2014), promotion is ideally compromised of a wide range of elements. Nonetheless, the main elements include sales organisation, public relations, advertising, as well as sales promotion.  In this view, for the purpose of attracting a wide range of customers, the aspect of promotion must be considered to a large extent. Therefore, when it comes to Huawei, the managers of the company must consider focusing on the various promotional activities with an aim of attracting various customers across the country. Taking this into account, of the main promotional method that Huawei should consider is the use of social media advertising. As noted by Donaldson and O’Toole (2007), social media has gained a lot of popularity in the recent past owing to the rapid development of internet. Besides, advertising on social media is considered relatively cheaper in comparison to other forms of advertisements such television advertisement.  Therefore, through the use of social media, Huawei will be in a position of reaching a wide range of customers across the country. Huawei should also consider organising trade shows and exhibitions, where it can showcase its products while providing discounts to the customers. Through such, the company can be in a position of enhancing its brand image, which can translate to increased sales.  The video below has helped in explaining the promotion strategy.

3.3 Price

The aspect of price, has elucidated by Carbo-Valverde et al. (2011) is a vital component of marketing plan owing to the fact that it helps in determining firms profit and survival. According to Lamberti and Noci (2010), before making any purchase, most of the customers usually consider checking on price.  Therefore, this explains why price strategy is crucial for any organisation craving to have increased profits.  This is in line with the sentiment of Hambrick and Fredrickson (2014), who have espoused that adjusting product’s price typically has a substantial impact on the entire marketing play. This is due to the fact that it affects the sales as well as demand of the product.  Taking this into consideration, Huawei should consider putting fair prices for its product, in an attempt to attract more customers. On this, the company should ensure that its prices are attractive to the customers in comparison to its competitors. Additionally on this, the company can consider offering coupons as well as discounts particularly for first time customers as well loyal customers. Through this, the company can be in a position of attracting new customers to the company. Despite the fact that the use of discounts can increase the operational costs of the company thus reducing profit margins, Ataman, et al. (2010) have argued that it can help in generating more revenue in the long run. This as a result will see the company move to higher heights in the industry.  The video below explains the pricing strategy further.

3.4 Place

According to Kim et al. (2012), the aspect of place of distribution has been regarded to be crucial in the marketing mix.  As such, Pour et al. (2013) have emphasised that there is a substantial need for an organisation to position as well as distribute the product in a place that is accessible to the buyers.  The use of effective marketing strategy typically comes with adequate understanding of the of the target market. On this, understanding the target market implies that the organisation is in a position of the most efficient positioning as well as distribution channels that are associated with the target market.  Therefore, when it comes to Huawei, it should focus on ensuring that its products are easily accessible by the potential customers. Owing to the fact that most of the customers of the company are typically concentrated in urban areas, the company should consider establishing its stores in the main towns across the country. This will ensure that the customers access the products easily. Additionally, the company should establish an online store, where customers can make orders anywhere in the country. On this, the company can then consider providing delivery services to the customers. It is through such that Huawei can be in a position of increasing its sales, which translates to higher profit margins. The place strategy has been discussed in details in the following website.

Marketing Mix – Place (Distribution Strategy)

3.5 People

Notwithstanding the fact that the aspect of people usually involves the individuals who are associated with a business, Kumar et al. (2012) have explained that employees are the ones who play the most critical part. On this, Dibb et al. (2012) have argued that organisational employees are typically important in marketing due to the fact that they are the ones responsible in service delivery. Taking this into consideration, effective use of the people strategy for the aim of attracting customers into an organisation entails hiring as well as training the right people. This as a result plays a crucial role in ensuring superior service delivery to the customers.  This sentiment has been echoed by Lamberti and Noci (2010), who have elucidated that when an organisation finds people who believe in the products as well as services that it creates, it is likely that the employees will be in a position of performing their bests. In light of this, when it comes to Huawei, there is a significant need to ensure that the right employees are hired into the organisation. This entails conducting intensive interview during employee recruitment and selection. Additionally, Huawei can consider on-job training of employees, which can help the employees in gaining more skills related to their job description.  This can be in form of group discussions, lectures, seminars, workshops, as well as overseas training. Through such, the employees can be in a position of performing excellently, which translates to increased productivity in the company. The video below can help in explaining the people strategy.

3.6 Process

The aspect of process, as posited by Dutta et al. (2012) involves systems as well as processes within an organisation that influence execution of services.  Taking this into account, Donaldson and O’Toole (2007) have stated that in attempt to attract customers within an organisation, there is need to have a well-tailored process in place for the purpose of minimising costs.  This could be the entire sales funnel, the distribution system, the pay system, as well as the other procedures within an organisation.  Therefore, for Huawei, putting in place effective processes is critical for in order to attract customers. For instance, Huawei can consider establishing effective check off inventory system that can help in monitoring the flow of the products from the headquarters to the distributors and stores. With an effective check-off system, it implies that the company can be able to ensure that products are available to the customers all the time. When products are available to the customers, Ataman, et al. (2010) have explained that customers are usually inclined to become loyal to the organisation. In this view, it is through such measures that Huawei can be in a position of attracting more customers to the company, which can see the company increase its sales to a considerable extent.  The video below has further elaborated the process strategy.

https://www.youtube.com/watch?v=OkoavqUDRuY

3.7 Physical evidence

For the aim of attracting customers, Armstrong et al. (2011) have explained that physical evidence is fundamental to a large extent. In this view, the aspect of physical evidence typically entails how a business together with its products is perceived within the market place. Therefore, when it comes to Huawei, for the purpose of attracting customers throughout the country, there is need to for the company to have unique physical appearance that cannot be imitated easily by other companies.  This involves the appearance of the stores as well the dressing code of the employees. Additionally, the aspect of physical evidence can be enhanced through ensuring that the virtual stores of the company are attractive to the visitors through using unique designs as well as different colour combinations.  This as a result can give the company a differentia advantage, which can help greatly in attracting more customers.  The website below provides a deeper understanding of the physical evidence strategy.

Marketing Mix – Physical Evidence

4.0 Challenges encountered in the process of attract customers

Despite the fact that the above strategy can considerably help Huawei in attracting customers, there are various challenges that the company in the process of attracting customers. Nonetheless, the main challenges as asserted by Ferrell and Hartline (2012) include generating the right content for marketing, staying on top of marketing trends, proving return on investment, and scarcity of marketing resources.  As regards to the challenge of generating the right content for marketing, Leeflang et al. (2014) have argued that generating the content for marketing has been one of the main challenge for organisations attempting to attract customers.  On this, Kim et al. (2012) have argued that despite the fact that an organisation may be able to generate more content for marketing, generating the right content is usually hard.  As such, it becomes hard to attract customers as intended. Taking this into consideration, Huawei may face the challenge of content creation particularly online content. This as a result may hinder the company from attracting many customers.

When it comes to the challenge of staying on top of the marketing trends, Varadarajan (2010) has argued that the business world is usually dynamic to a considerable extent. As such, new market trends always keep emerging, which mostly require change of products features, price, and other metrics in line with the market requirements. This is also fuelled by the changing tastes and preferences of the consumers. Taking this into consideration, as Slater et al. (2010) explain keeping up with the market is typically challenging to most organisation. As such, despite the marketing efforts that Huawei can put in place, staying on top of the marketing trends may present significant challenges to the organisation due to reduced sales.

In relation to the challenge of proving return on investment, Dibb et al. (2012) have explained that despite the intense efforts made by organisations to attract customers  through marketing, measuring return on the investment has become challenging.  This sentiment has been backed up by Varadarajan (2010), who has explicated that it is usually challenging for organisation link a lead generated to an initial marketing tactic.  On this, marketing efforts do not always equal to results generate. As such, this makes the idea of tracking return on investment close to impossible for most organisations. Therefore, for Huawei, despite the efforts that it may employ in attracting customers, calculating the return on investment may be hard. In this view, the organisations may not be in a position of making informed decisions on the marketing strategies that are able to generate more sales.

Lastly, in regards to the challenge of scarcity of marketing resources, Kumar et al. (2012) have explained that despite the fact that many organisations always strive to attract customers, marketing resources may be limiting to a considerable extent. This is mostly in terms of finance as well as human resources. Taking this into account, Warnaby et al. (2010) have argued that when an organisation has limited marketing resources, it is usually not able to attract more customers. This is due to the fact that marketing activities become limited. In this view, Huawei may be faced with the challenge of scarcity of marketing resources. This as a result may make it hard for the company to reach a wide range of potential customers, which can ultimately results to low profit margins.  The video below has helped in explaining the marketing challenges.

5.0 How to overcome the challenges encountered in attract customers

The above challenges can present organisations with a hard task when it comes to attracting customers. However, there are solutions can help in overcoming the challenges.  As regards to the challenge of generating the right content for marketing, Lamberti and Noci (2010) have asserted that it can be overcome through focusing on creating different content.   Therefore, for Huawei, for the purpose of overcoming this challenge, there is a substantial need for the company to ensure that the content presented to the customers is rich. Besides, Huawei should consider creating creative with interactive as well as engaging content. Through such, the company will be able attract customers through the right information.

When it comes to the challenge of staying on top of the marketing trends, it is with no doubt that there is a considerable need for organisations to ensure that they are at par with the dynamic nature of the market. Therefore, for Huawei, in order to ensure that it stay on top of the marketing trends, there is a significant need investment in research and development (R&D).  This will significantly help the company in understanding the market needs easily. Consequently, the company will be in a position of producing products that are in line with the marketing trends, thus helping the company in generation of more profits.

In relation to the challenge of proving return on investment, Slater et al. (2010) have explained that proving return on investment of a marketing campaign usually requires commitment of time as well as resources. Additionally, it requires effective collaboration between marketing and sales. Taking this into account, for the purpose of tracking ROI, Huawei should consider leveraging on both sales as well as marketing software. This will play a fundamental role in analysing the marketing efforts that have been put in as well as the correspondent sales result.  For instance, Huawei can use Google Analytics in reviewing the traffic that is generated as a result of a marketing campaign. Through such, the company can be in a position of proving the value of marketing as well as achieving clarity in the effectiveness ongoing improvement of the overall marketing strategy.

Lastly, in regards to the challenge of scarcity of marketing resources, there is need for organisations to ensure that the marketing resources are enough to implement various marketing strategies. For Huawei, when it comes to dealing with limited finances in marketing activities, the company can consider reducing operational costs of other areas of the organisation such as incentives and CSR. As regards to the scarcity of human resources, Huawei can consider conducting intensive training programs for its marketers. Through such, the company can be in a position of conducting marketing strategies, which can consequently help in attracting customers in the organisation.  The video below helps in explaining the ways in which an organisation can overcome marketing challenges.

6.0 Rationale for the implementation of customer attraction strategies

Notwithstanding the fact that Huawei has to a considerable extent attracted a lot of customers across the world, there is still a significant gap for improvement. In light of this, having a large customer base would be of great benefits to Huawei. Precisely, just as indicated by West et al. (2010), having a large customer base implies that Huawei can be in a position of having an increased profit margin. Besides, according to Ferrell and Hartline (2012), an organisation with a large customer base is able to create customer loyalty, which consequently helps in having increased sales as well as profits. Therefore, when it comes t Huawei, having a large customer base is a guarantee of customer loyalty, which can move the company t o higher heights in terms of sales and profits.  It has also been argued by Lei and Slocum (2010) that a large customer base can make an organisation enjoy economies of large sale. As such, with economies of large scale, Huawei can be able to provide its products at relatively cheaper prices in comparison to its competitors. This can further attract more customers to the company, thus increasing the overall profitability of the organisation. Taking this into consideration, there is a significant need for Huawei to implement the above strategies for purpose of attracting customers. The rationale for the implementation of customer attraction strategies within an organisation has been described in the video below.

7.0 Conclusion

In conclusion, it has been established in this paper that attracting new customers have been a significant challenge to most organisations. In this light, attracting customers has been considered fundamental to any organisation craving to have a significant market share. For the purpose of attracting consumers, it has been established that organisations have employed a wide range of strategies. Therefore, from this paper, it has been established that Huawei can attract customers through using various strategies. These include price, promotion, product, place, people, process, and physical evidence strategies. Nonetheless, there are various challenges that are presented when implementing these strategies. They include generating the right content for marketing, staying on top of marketing trends, proving return on investment, and scarcity of marketing resources. However, through taking into account the measures presented in this paper, Huawei can be able to overcome these challenges. This will see the company move to higher heights in the near future in terms of sales as well as profit margins.

 

 

References

Armstrong, G., Kotler, P., Harker, M., & Brennan, R. (2011) Marketing: an introduction (Vol. 10). NJ: Pearson.

Ataman, M. B., Van Heerde, H. J., & Mela, C. F. (2010) ‘The long-term effect of marketing strategy on brand sales’, Journal of Marketing Research47(5), p.866-882.

Baker, M. J. (2014) Marketing strategy and management. Palgrave Macmillan.

Carbo-Valverde, S., Hannan, T. H., & Rodriguez-Fernandez, F. (2011) ‘Exploiting old customers and attracting new ones: The case of bank deposit pricing’, European Economic Review55(7), 903-915.

Dibb, Simkin, Pride and Ferrell West, (2012) Marketing Concepts & Strategies, 6th Ed, Cengage Learning EMEA: UK

Donaldson, B. and O’Toole, T. (2007) Strategic market relationships: From strategy to implementation. Hoboken, NJ: Wiley.

Dutta, S., Bilbao-Osorio, B., & Geiger, T. (2012, November). The global information technology report 2012. In World Economic Forum (pp. 3-22).

Egbue, O., & Long, S. (2012) ‘Barriers to widespread adoption of electric vehicles: An analysis of consumer attitudes and perceptions’, Energy policy48, p.717-729.

Ferrell, O. C., & Hartline, M. (2012) Marketing strategy, text and cases. Nelson Education.

Hambrick , D, & Fredrickson, J. (2014) ‘Are You Sure You Have a Strategy?’ Academy of Management Executive, 15(4), pp. 48-59.

Kim, K. H., Jeon, B. J., Jung, H. S., Lu, W., & Jones, J. (2012) ‘Effective employment brand equity through sustainable competitive advantage, marketing strategy, and corporate image’, Journal of Business Research65(11), 1612-1617.

Kumar, V., Rahman, Z., Kazmi, A. A., & Goyal, P. (2012) ‘Evolution of sustainability as marketing strategy: Beginning of new era’ Procedia-Social and Behavioral Sciences37, 482-489.

Lamberti, L., & Noci, G. (2010) ‘Marketing strategy and marketing performance measurement system: Exploring the relationship’, European Management Journal28(2), pp.139-152.

Leeflang, P. S., Verhoef, P. C., Dahlström, P., & Freundt, T. (2014) ‘Challenges and solutions for marketing in a digital era,  European management journal32(1), pp.1-12.

Lei, D, & Slocum, J. (2010) ‘Strategic and Organizational Requirements for Competitive Advantage,’ Academy of Management Executive, 6(18), pp. 34-47.

Nakai, Y., & Tanaka, Y. (2010, July) Chinese company’s IPR strategy: How Huawei Technologies succeeded in dominating overseas market by Sideward-Crawl Crab Strategy. In Technology Management for Global Economic Growth (PICMET), 2010 Proceedings of PICMET’10: (pp. 1-5). IEEE.

Pour, B. S., Nazari, K., & Emami, M. (2013) ‘The effect of marketing mix in attracting customers: Case study of Saderat Bank in Kermanshah Province’, African Journal of Business Management7(34), pp.3272.

Slater, S. F., Hult, G. T. M., & Olson, E. M. (2010) ‘Factors influencing the relative importance of marketing strategy creativity and marketing strategy implementation effectiveness’,  Industrial Marketing Management39(4), 551-559.

Solomon, M. R. (2014) Consumer behavior: Buying, having, and being (Vol. 10). Upper Saddle River, NJ: Prentice Hall.

Varadarajan, R. (2010) Strategic marketing and marketing strategy: domain, definition, fundamental issues and foundational premises. Journal of the Academy of Marketing Science38(2), 119-140.

Warnaby, G., Medway, D., & Bennison, D. (2010) Notions of materiality and linearity: The challenges of marketing the Hadrian’s Wall place ‘product’’, Environment and Planning A42(6), 1365-1382.

Watson, C., McCarthy, J., & Rowley, J. (2013) ‘Consumer attitudes towards mobile marketing in the smart phone era’, International Journal of Information Management33(5), pp.840-849.

West, D. C., Ford, J. B., & Ibrahim, E. (2010) Strategic marketing: Creating competitive advantage. Oxford: Oxford University Press.

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NX0472 Critical Evaluation of Self-awareness and Continuing Self Development

NX0472 Critical Evaluation of Self-awareness and Continuing Self Development

Executive Summary

This report has discussed in detail my strengths and weaknesses that shape my ambition to become a human resource manager in future. It has also reflected on the steps that I can use to actualize my professional development. In the report, my main strengths include good emotional control, high conscientiousness, good analytical skills and well developed cultural awareness. Regarding weaknesses, leadership, team-work, and conflict resolution skills stand out as the most evident. Nonetheless, the report has established that there is a need to improve on the weaknesses and optimize the strengths to ensure that the career ambition is actualized. For example, I need to role play as a leader and read various books on conflict resolution to overcome my weaknesses. I also need to relate with others more regularly to minimize my introversion and make me open to divergent ideas. It is through this way that I can manage to become a human resource manager in future.

 

Table of content

1.0 Introduction. 1

2.0 Role of self-awareness and continuous self-development in attaining the successful role of human resource manager 1

2.1 Role of self-awareness. 1

2.2 Continuous development 3

3.0Critical incidents to reflect upon the findings and implications. 4

3.1 First Template. 4

3.2 Second Template. 6

How does your thinking and behavior in this critical incident reflect the findings of your chosen self-analysis toolkit?. 7

4.0 Summary of major strengths and weaknesses. 7

References. 8

Appendices. 9

Appendix 1: Belbin Team Roles. 9

Appendix 2: Coleman’s emotional test 9

Appendix 3: Big Five Locator 15

Appendix 4: CQ.. 16

 

 

1.0 Introduction

In one’s academic and professional life, there are reflections that are considered as key stepping stones towards enhancing understanding of one’s strengths and weaknesses, as well as aspirations. Thus, a reflection is an opportunity to reconsider these aspects to guide in the development of skills, consolidation of learning experience and actualizing career goals. Considering this perspective, it is often easier for one to minimize threats in his career, and optimise opportunities. To actualize my career aspirations to be a human resource manager, this report aims to assess my self-awareness and continuous self-development. To achieve this aim, the report is broken down into three main parts. The first part evaluates how self-awareness and continuous self-development will help me to attain the role as a human resource manager in future. The second part evaluates critical incidents to reflect on the findings and implications from the two self-analysis toolkits. The third part summarises the major strengths and weaknesses that emerge from self-analysis.

2.0 Role of self-awareness and continuous self-development in attaining the successful role of human resource manager

2.1 Role of self-awareness

Self-awareness is having a vivid perception of your personality, including weaknesses, strengths, motivations, beliefs and emotions (Gallagher and Costal, 2012). As a central concept in career development, self-awareness requires individuals to invest in developing insights about themselves to facilitate attainment of academic, personal or professional excellence.  Mandal (2011) holds that human resource (HR) company-wide strategies and policies such as recruitment policies and compensation policies are aimed to improve equity and fairness. To ensure that I successfully perform my roles as a HR manager, I have honed requisite skills and capabilities.

Foremost, I have excellent analytical skills. The objective of any HR manager is to visualize and articulate complex data by making relevant decisions that are sensible (Kumar, 2010). Human resource managers must use clear, logical steps and judgment in handling actions such as hiring, training or compensating employees.

Second, I have good emotional control ability. Being a HR manager requires one to clearly to have strong self-regulation and well-developed capability to deal with frustrations, arguments and other distractions in a calm manner (Lawler and Boudreau, 2009). My strong sense of emotional control helps me to control my tempers in situations of discomfort or where disagreements are evident.  I possess excellent emotional skills which are necessary for allowing me to relate well with colleague on personal level I have learnt to exercise patience in my every endeavor and never to frown at anyone because of divergence of ideas. The excellent human resource manager must to control emotions to facilitate rationality in making judgments and treating everyone fairly.

Third, I possess high conscientiousness. According to Alsop (2013), conscientiousness is the ability to be careful and vigilant of one’s actions.  Naturally, I desire to do a task well and take all the obligations at my disposal seriously. Even in situation of intense pressure I always get motivation to do the right thing instead of getting frustrated and blaming others. By having high level of conscientiousness, I can reliable set goals, and plan routes towards achieving them. The human resource manager must be mindful of those he works together with whether they agree or not. He or she must create an impression that they treat others well the way he/she treats him/herself.

Fourth, I have well-developed cultural-cultural awareness. Good cultural skills help shape how I interact with people from different culture (Mandal, 2011). Such competencies also have helped me to understand how I communicate with groups from diverse backgrounds, as well as understand cultural values and religious beliefs of other cultures. A human resource manager should be culturally competent to ensure that the workplace is favorable for individuals from different cultural or ethnic backgrounds. This creates an organisation which is not only coercive, but tolerant and highly attractive to work. As a human resource manager, I will thrive to adjust my behavior, attitudes, and values to fit the needs of individuals from diverse backgrounds, as well as intervene if there are cases of cultural insensitivity being shown in the organisation.

However, despite the vibrant skill set that I possess, I am conscious of my weaknesses too. First, I think I am not good in managing conflicts. Even though I can easily make others work in a team, I find it difficult to solve conflicts whenever they arise. Practically, I tend to shun conflicts instead of trying to figure out how to solve them. Conflict resolution skills are a must-have for human resource manager as conflicts are inevitable in any organisational setting. Second, I am somewhat introverted. I rarely share my ideas with others and least likely to invoke others tell me theirs. This problem can hold me back from attaining my career goal since a HR manager must freely share ideas with the team to boost decision making and creativity. I am also not interested in working in groups meaning I have poor team-work skills. I also lack effective organisation skills which makes it hard for me to mobilise resources or others towards attaining a common objective.

2.2 Continuous development

Continuous self-development is the iterative process of developing one-self by building competencies and achieving potential. To address the weaknesses that may hinder one from professional goal(s), continual self-development must be embraced. Through continuous-self-development, I can translate my weaknesses into strengths thus helping me to be successful in my career. Through self-awareness I realise I still face hurdles in my path towards becoming a HR manager. First, I need to improve my conflict management skills since I am not good at solving issues.  I will read relevant books on conflict management or role-play with my friends about solving conflicts. Besides, I will learn to pay attention to the feelings being expressed as well as spoken words and try to be respectful of any differences. Rehearsals will help me to improve capability to solve conflicts as well as identify any weakness which I may be having.

Second, I aim to improve my team-work skills. I am conscious that I am still have difficulties adapting to team roles and as such, I need to practice on how I can develop this skill. Foremost, I will read books and online articles on how to work with others in a team. I will also role play with my friends to understand how a team works and how I can contribute towards its success. Watching videos on team-working will also be helpful in helping me appreciate the role of teams.

Third, my leadership skills can be improved by reading books and journals about leadership, including watching videos that focuses on leadership. Leadership involves being able to motivate and direct others and therefore I will use initiatives that can help individuals become happy in their roles. I will also try to initiate ideas rather than waiting for others to come up with theirs so that I can follow. Above all, I will show enthusiasm in everything I do, including learning new skills that will improve my capability.

3.0 Critical incidents to reflect upon the findings and implications

3.1 First Template

My chosen toolkit is: Belbin Model

The results of the toolkit point that my most preference is specialist, my least preferred role is coordinator.

Summary of critical incident
In the middle of the game that required the team to build an archway using plastics, the team had challenges determining which way to arrange the materials to ensure that the model archway was neatly constructed. While some of them were quick at giving ideas, none worked effectively. I had a practical idea which I had not yet shared with the team. However, I felt that if I shared, the time will not be enough to enable members to brainstorm it and apply it. Nevertheless, the team did not manage to create a successful archway initially. When I presented my idea, members found it practical and working helping us to complete the task successfully. I had observed that if we firstly do a feasibility study on how to connect all the sections, we can have a roadmap of how to eventually come up with a perfectly constructed archway. At the end of the activity, I got positive feedback from some of my team members. One of them confidently told me that I was a specialist who can analytically provide a solution to an otherwise difficult task. To some extent, I believed in him because after my idea was tried, we were successful. The exercise showed that I displayed specialized skills throughout the game and was willing to help others ensure that they understand its concepts.

However, I realized that I had challenges mobilizing people. Prior to the game starting, we were required to coordinate resources, and effort to ensure that ultimately the game was completed successfully. I felt somewhat anxious, as I did not have sufficient courage to mobilize the team on what they should do and when. My anxiety also meant that my mind was unable to creatively formulate ideas on coordinating the whole activity. Awkward as it sounds, I found it hard to establish good relationship with even my friend and team members who were close to me.

 

How does your thinking and behaviour in this critical incident reflect the findings of your chosen self-analysis toolkit?
The results from Belbin’s Team roles depict my capability as a specialist, but poor coordinator. In this archway building game, my idea was taken to be not only creative, but practical in all aspects. In fact, the team members applauded me for the fact that my idea was so clear and simple to implement. The team members had confidence in me that I can generate specialized solutions to a rather difficult game. This is evinced in how the task quickly turned out to be a success when my idea was implemented. As proposed by Belbin, when I am involved in any team activity, I am required to explore ways and opportunities that can make implementation of ideas a success. Furthermore, there is a likelihood that if I became specialized and fail to work with others, I can become isolated from the team. During the initial phases of the task, I rarely talked. I just listened to what others had to say. My nervousness was taking a better part of me, compromising my ability to provide solutions. Nonetheless, the best way I could help was when the team was stuck where I gave alternative ideas on what should be done to complete the task.

The Belbin test also shows that if I am a manager, there is a possibility that I can work with those who prefer practical actions.  Practically, the Belbin model indicated that I lacked the competency to organise others. I often fail to tell others what to do and even though I would inform so, I was not so clear on what I said.

 

Identify how you will use this learning in the future
In future, I would like to apply analytical capability in sharing my professional ideas with my team members. I will participate closely in any team activity, and ensure that I voice my ideas, concerns and solutions in an articulate manner. Nevertheless, I should allow team members to question my ideas, instead of acting as if I know everything. I will be open to all ideas, as opposed to being introverted or anti-social. This means that even if my ideas are ‘superior’ I will accept critique from my team. On the other hand, my focus will be to improve my organisational skills in future to help me mobilise others in performing tasks. Optimizing on my analytical capabilities as well as minimizing my weaknesses, I will ensure that I remain effective in the work roles that I am given, such as visualizing or articulating ideas and organizing others to handle various responsibilities that may be assigned to them.

3.2 Second Template

My chosen toolkit is: Goleman Emotional Intelligence

My results for this toolkit are: high level of conscientiousness, and high self-control, and bad conflict/ leadership management skills

Summary of critical incident
Through the critical incident of business game, I established that I hardly helped in solving conflicts. The challenge is that I was unable to think of a workable solution that would help members work amicably. There were incidences when members disagreed on configuration modalities. Ideas were presented, but were rejected, with the situation getting increasingly aggravated. Some think that they were being undermined while others just kept silent as the pressure was too much. I was just seated, listening but dumbfounded. I did not know where to start even though I had some feasible solutions. My feeling was that if I intervene, I will not be taken seriously. Since I do not want to be hurt by anyone, I just kept quiet. However, I exercised high level of emotional control, enabling me to approach the situation with sobriety. I was careful not to cause havoc by being an emotional wreck. Instead, I weighed in the feedback and took obligation to offer practical solutions to end the puzzle. However, I realized that all along, I did not properly guide others, and help them overcome their differences.

 

How does your thinking and behaviour in this critical incident reflect the findings of your chosen self-analysis toolkit?
In the early stages of the business game I did not know how to solve conflicts among my team members. However, I was keen not to be emotional or biased. Sensitive as I am, I maintained my temper, hoping that eventually the members will understand each other. This matched the point of emotional intelligence test result, as I have high level of conscientiousness and self-control that make me very careful when dealing with misunderstandings. Even despite the pressure, I did not express any sign of being overwhelmed or angered by anyone. The emotional intelligence test shows that I was aware of the impact of my behavior on others. In addition, it showed that I can adapt to any emotional situation that may present itself.  I exercised a lot of patience when others were contributing their ideas and did not interrupt them even though I may have disagreed with what they were saying. This was an effective approach, as I and the team understood each other and minimized disagreements.

 

Identify how you will use this learning in the future
Through the self-analysis of business game and emotional intelligence, I realized my weakness is solving conflicts and leading others.  This was evident in my inability to identify solutions to the issues that the members had which made them disagree with each other. The leadership aspect was a little bit undeveloped as I failed to guide the team on what should be done, or communicate the direction with which the team should take to obtain its objectives. However, I realized I was doing well in controlling my emotions by trying to remain calm even in situations of conflict or dispute. the high level of emotional control will be useful in future because I will be able to intervene in emotional situations without being overwhelmed. Emotional control will also help me in avoiding bias when making judgments, and handling arguments. Additionally, I realized my strength is that I can maintain my temper even when there were issues. To apply this in future, I will aim at developing conflict management competencies, knowing members’ challenges, and adapting to their reasoning. Further, I will try to be proactive in guiding others when they have issues and sharing my experiences to enable them pick up.

4.0 Summary of major strengths and weaknesses

Based on the analysis, it can be inferred that I have both strengths and weaknesses regarding my skills. Considering my strengths, I have good analytical capabilities, high conscientiousness, and good emotional control, well-developed cultural awareness. The analytical skills help me in visualizing and articulating ideas, as well as solving problems in creative ways. High level of conscientiousness is useful in helping me remain composed in handling tasks at hand, setting goals and ensuring that they are achieved. And this could not only find through Goleman emotional test, it is also could find through the big five toolkit. Excellent emotional control is useful enhancing calm where there are disagreement and avoiding prejudices while making judgments. The cultural awareness skill is beneficial as it indicates my capability to work in a multi-cultural environment and respect the opinions of people regardless of their diversity. And this skill could find through the culture model test.  As an aspiring human resource manager, these skills will help me not only to creatively analyse and solve problems, but judiciously carry out my roles while aiming at achieving the organisational objectives.

However, my conflict resolution skills and leadership skills constitute my major challenges towards becoming a human resource manager. Poor conflict resolution skills drag my ability to become a human resource manager by making it impossible for me to identify conflicts, develop solutions and implement those solutions. Ineffective leadership skills will also make it hard for me to  be a role model or motivate others to work exceptionally towards attaining departmental or organisational goals. The Belbin model indicated that I lacked the competency to organise others. I often fail to tell others what to do and even though I would inform so, I was not so clear on what I said. Teamwork skills still need a lot of refinement since without them I cannot lead a group of people and make ensure they remain focused in their responsibilities. And the culture model also shows that my skill of cross-culture management is poor.

To improve conflict resolution skills, I firstly read books written by conflict management professionals. I will also role-play with my friends on a conflict situation to help me master the skill. To develop strong leadership skills, I will read leadership-related books. These books will be invaluable in informing me on a theoretical perspective on what should be done to be a good leader. Rehearsing will also help me overcome my nervousness which is affecting leadership capabilities.  When it comes to improving my organising ability, I will consider having a daily time table, where I will arrange different activities to be conducted within a stipulated time. Through this, I will be in a position enhancing my organising ability, which will go a long way helping me achieve my career goals.  As regards to improving my team working skills, I will consider engaging in various team activities. On this, I will take a participatory role, such as leading the team. Through this, it is with doubt that my team working skills will be improved significantly, as I will be able to work with teams for the purpose of achieving a common objective. Lastly, when it comes to improving cross-culture management skills, I will consider interacting often with people from various cultural backgrounds. As such, I will learn their cultural aspects including language, values, and beliefs. This will help in interacting with them productively.

 

 

References

Mandal, K. (2011) Management: Principles and Practice. Bombay: Jaico Publishing House

Kumar, R. (2010) Human Resource Management: Strategic Analysis Text and Cases. New Delhi: IK International

Lawler, E. and Boudreau, W. (2009) Achieving Excellence in Human Resources Management: An Assessment of Human Resource Functions. Palo Alto: Stanford University Press

Alsop, A. (2013) Continuing Professional Development in Health and Social Care: Strategies for Lifelong Learning. London: John Wiley & Sons

PGBM03 Loganair Operational Methods and Strategies

PGBM03 Loganair Operational Methods and Strategies

Executive Summary

Loganair is one of the major leading airline service providers in UK. The company has been in operation since the year 1962 and has captured the market potential around the world. Its outstanding performance is attributed to the effective and efficient operational strategy that it practices. The report found out that the company has adopted a four stage model of operational contribution which is externally supportive because it applies its capabilities to drive business growth. Furthermore, the company also gains competitive edge through the use of market led approaches where it has adopted various order winning and order qualifying factors. The company has also adopted service shop process system to continue remaining competitive in the market. Nevertheless, this report has identified some gaps despite the effective operational strategies that Loganair has adopted. Therefore, the report has proposed certain recommendations to the management of the company such as introduction of latest and new fleets to enhance dependability as well as introducing direct booking and e ticketing to improve on the service quality among others.  These recommendations if implemented can assist the airline company in bridging the gap and to effectively realise its operational goals.

 

 

Table of content

1.0 Introduction. 1

2.0 Loganair’s competitive advantage. 1

3.0 Loganair’s Internal and External Customers. 2

4.0 Loganair’s operational objectives. 4

5.0 Market Approach towards the Development of Operational Strategy. 5

6.0 Operational Management process adopted by Loganair to realise its objectives. 7

7.0 Gap Analysis. 8

8.0 Recommendations. 10

9.0 Conclusion. 10

References. 12

 

 

Case study

Loganair will be used for research in this case study owing to its efficient and effective operation strategies. Precisely, Loganair, increased competition in the airline industry in UK has forced Loganair to enhance its operational processes as well as practices. This has consequently helped the airline in achieving its objectives. Taking this into account, Loganair has considered adopting unique operational strategy, which has led efficiency in operations, thus putting the organisation at an advantage over its rival. In this view, some of the unique operational strategies employed by the organisation include creating flexible strategies when it comes to responding to external environmental changes such as rescheduling flights for the purpose of enhancing the safety of the passengers. Besides, the airline has adopted service shop process where the staff and customers interact often. On this, the staff Is able to give substantial attention to the unique requirements as well as preference of the customers. With such unique operational strategies, it is with no doubt that Loganair provides an ideal organisation for understanding effective operations management in an organisation.

 

1.0 Introduction

Loganair is one of the major leading airlines company around the world that have captured a huge market potential (Amankwah‐Amoah & Debrah, 2011). The company was established in the year 1962 and has its headquarters based in Paisley, UK (Loganair, 2010). The company’s has an operating income of over US$ 100 million and employs over 500 people (Loganair, 2015). The company also carries cargo as well as offer engineering services (Loganair, 2010). Although, Loganair has been offering its services throughout the world, its major market is the European market which contributes to the firm’s major revenue (Amankwah‐Amoah & Debrah, 2011). According to Kim & Lee (2011), stiff competition within the European airline industry has prompted Loganair to improve on their operational processes and practices that has helped the organisation to realise its long term goals. The company has adopted a unique operational strategy that has translated into an improved operational efficiency for the organisation thereby leading to an overall cost advantage (Loganair, 2015). This report therefore critically investigates the operational strategies and methods employed by Loganair in order to offer customers maximum satisfaction and realise its long term goals. The report firstly discusses Loganair’s competitive advantage and then analyses its internal and external customers. The report then highlights the marketing strategy and the operational strategy of the firm and offers analysis on the operational gap. Eventually, the report gives recommendations necessary for improvement and offers a final conclusion.

2.0 Loganair’s competitive advantage

The competitive advantage of Loganair can be explained using the four stage operations model as illustrated in figure 1 below.

 

Figure 1: The Four-Stage Model of Operational contribution

Source: Slack et al. (2008)

The analysis of figure 1 above shows that Loganair has adopted the four stage model of operational strategy which has contributed to the company’s competitive advantage in the market. Loganair operational contribution is externally supportive since it uses its capabilities to drive the growth of the business. This has enabled the company to better realise its long term goals. Further, the operational strategy of Loganair serves as a benchmark for its major competitors in the industry and has redefined the expectations in the industry through cost cutting strategies (Akamavi et al., 2015). The low cost strategy has enabled the company to grow a large customer base and beats its major competitors in the airline industry thereby contributing to the organisation’s success (Klophaus et al., 2012).

3.0 Loganair’s Internal and External Customers

According to Zhao et al. (2011), a firm’s internal customers are people in the organisation who create value to the organisation and enable an organisation to realise its long term objectives. External customers on the other hand are people who come from outside the business and uses the organisation’s services or products (Fang et al., 2011).

The internal customers’ (employees) expectations are to create value to customers and help the organisation to function smoothly as well as contribute to the realisation of organisational and departmental objectives. Besides, their expectations towards the company are to be fairly compensated as per their contribution towards the organisation. Further, Loganair’s active functional departmentalisation has enabled the organisation to achieve success where different departments work together within the organisation thereby contributing to low cost high quality airline services (Pagliari, 2012). Besides, all departments in the organisation such as marketing, R&D, sales and operations departments work cooperatively together, agree on procedures and processes as well as negotiate expectations (Amankwah‐Amoah & Debrah, 2011). In addition, the functions performed in these departments are automated which saves the organisation huge sums of money. For instance, the MIS system that the company has adopted helps in sharing information across the company with limited human interaction (Loganair, 2015). Besides, its MRP system helps in improved utilisation of facilities and forecast demands thereby leading to less disruptions or costs due to emergencies or expediting (Pagliari, 2012). These processes have enabled the organisation to make decisions in a timely manner as well as providing greater economies to the company. Additionally, Loganair’s delivery and the internal value addition functions have been centralised where most of its functions such as HR, finance, marketing, R&D among others being managed and controlled from its head office (Loganair, 2010). The centralisation system helps the organisation to save costs tremendously.

On the other hand, Loganair’s external customers consist of air travellers who use the company services for business, leisure or personal purposes (Loganair, 2015). It also includes customers who seek courier and engineering services at the company. The major expectations of the external customers towards the organisation are excellent quality air services at affordable prices and within budgeted range. In order to achieve these expectations, Loganair ensures low operational costs through taking advantage of economies of scale (Amankwah‐Amoah & Debrah, 2011). The company obtains its raw quality materials in bulk which leads to low operational costs which is then passed down to its customers (Merkert & Williams, 2013). Further, Loganair has invested heavily on technology which automates its services which not only leads to faster decision making, but also offers customers the best services (Pagliari, 2012). Besides, the no frill services have enabled the organisation to eradicate services that do not add value to customers and this has led to cost reduction in the organisation (Loganair, 2015). The company also accommodates various customers from all the income brackets by providing them with various options at relatively lower costs as compared to its competitors.

4.0 Loganair’s operational objectives

Slack et al. (2008) points out that an organisation’s operational objectives can be grouped into speed, cost, dependability, flexibility and quality objectives as indicated in figure 2 below.

 

Figure 2: Loganair operational objectives

Source: Kumar et al. (2011).

On the aspect of cost objective, Loganair has managed to achieve a low cost advantage through scrapping all the services that do not add value to customers thereby decreasing its costs (Loganair, 2015). Further, the combination and coordination of different departments helps to attain synergies and integration thereby leading to low operational costs (Pagliari, 2012). Moreover, the use of automation has provided the organisation with advantages in terms of costs.

Concerning the speed objective, Loganair endeavors to provide its services to customers within the shortest time possible. The company uses information technology to handle flight reservations and issue tags which ensures that the process is as fast as possible (Merkert & Williams, 2013). Besides, the company uses automation to handle baggage thereby decreasing the processes and stages involved in security checking (Pagliari, 2012).

On the aspect of dependability, Loganair ensures that its services are highly dependable by its customers. For instance, the company ensures strict adherence to its schedules to avoid inconveniencing customers (Merkert & Williams, 2013). In addition, the automated luggage handling services enables the company to avoid conundrum and leads to customer loyalty since customers are assured that their cargo and luggage will be safe (Pagliari, 2012).

Concerning quality objective, Loganair ensures that there is regular maintenance of all its airlines to avoid problems of flight delays. This has enabled the company to ensure greater customer satisfaction in the airline industry. Besides, the company ensures flight punctuality and priorities good links in transportation between airports to enhance service quality (Amankwah‐Amoah & Debrah, 2011).

Finally, on flexibility objective, Loganair ensures that it is flexible in its operations. For instance, the company has created flexible strategies to respond to external changes in the environment. For example, harsh weather conditions make the company to reschedule flights to enhance safety of its passengers (Loganair, 2015). Additionally, the company can also adjust prices in accordance with industry prices to ensure maximum customer satisfaction (Pagliari, 2012).

5.0 Market Approach towards the Development of Operational Strategy

Slack et al. (2008) demonstrate that a market led approach towards the development of operational strategy strives to seek maximum customer satisfaction. Loganair has adopted the market led approach in the execution of its operational strategy since its performance and image in the market suggests that it has a well-developed and efficient operational strategy (Merkert & Williams, 2013). As such the company has combined its order winning and qualifying factors to gain competitive advantage in the airline industry. Figure 3 below analyses Loganair’s operational strategy and shows how the company has strengthened its market standing.

Figure 3:  Operational Strategy

Source: Slack et al. (2008)

According to Díaz-Garrido et al. (2011), order winning factors are those factors that offer a firm a competitive edge in the market and forms a basis of a firm’s positioning. In the case of Loganair, cost is considered as the order winning factor that contributes to the firm’s competitive advantage in the airline industry (Pagliari, 2012). The firm’s strength in the market is attributed to the fact that it uses economies of scale that leads to a reduction in the operational costs (Craig, 2011). Additionally, speed is another order winning factor of the company. The company also ensures better speed when offering their services through the use of information technology which enables services to be rendered to customers within the shortest time possible (Pagliari, 2012).

Furthermore, order qualifying factors are the minimum considerations that customers looked at before making a choice concerning the airline services (Díaz-Garrido et al., 2011). The order qualifying factors of Loganair is quality and dependability. The company ensures that its services are of the highest quality through flight punctuality as well as offering good links in transportation between airports which has enabled it to be considered by many customers when seeking airline services (Merkert & Williams, 2013). Ideally, to ensure dependability the company uses automated process in handling luggage as well as strict adherence to schedules on arrival and departure that ensures maximum customer satisfaction through their dependable services (Pagliari, 2012).

Consequently, the less important factors are those factors that are considered as important by customers but must not be present in order to select a service or a product. In the case of Loganair, flexibility is considered a less important factor since customers might not require it always in order to make a choice.

6.0 Operational Management process adopted by Loganair to realise its objectives

According to Slack et al. (2008), the various service process that Loganair could use include proffessional service,service shop as well as mass service as indicated in figure 4 below.

Figure 4: Various service process types

Source:  Slack et al. (2008)

Professional service is characterised by high levels of client contact and customers spend substantial amount of time in the service process (Jiang et al., 2012). Besides, the level of customisation with the service processes are highly adaptable. Furthermore, the contact staff in the professional service serves customers with a lot of discretion which implies that it is people based as opposed to equipment based (Slack et al., 2008). This means that the staff must be in a position to relate positively with the public and should not merely possess the technical skills. Also, they are required to exercise judgement when offering unique or new solutions and services. On the other hand, service shops require considerable attention to be given to customer’s unique preferences and requirements and is characterised by medium levels of volumes of customers (Craig, 2011). Additionally, according to Slack et al. (2008), service shops require mixed or medium levels of customisation and customer contact. Besides, there is a mixed or medium level of staff discretion and customers and workforce interact more frequently in the service shops and capital intensity is higher, and thus lowers labour intensity (Jiang et al., 2012).

Nevertheless, mass service is characterised by higher volume levels to customers as well as low to medium customer contact levels (Slack et al., 2008). Besides, there is a mixed or medium level of staff discretion as well as customisation (Craig, 2011). This implies that customised customer involvement is very low. Additionally, in mass service, there is low capital intensity since automation is not easily achieved, thus there is high labour intensity (Jiang et al., 2012). Furthermore, there is variation in skills levels and less need for customisation of services.

Accordingly, Loganair adopts service shop process since its customers and staff interact quite often and the staff give considerable amount of attention to the unique requirements and preferences of customers (Loganair, 2010). Besides, the equipment in the company is very crucial in handling specialised and diverse service requirements. Additionally, there is high level of workforce skill at Loganair because there is high customisation of services to suit customer’s specifications (Loganair, 2015). Furthermore, the staffs at Loganair are in a position to handle unique, flexible or new services according to customers demand. For instance, the company creates flexible strategies in response to external environmental changes like rescheduling flights to enhance passenger’s safety or adjusting prices according to the industry prices to enhance customer satisfaction (Pagliari, 2012). Further, the staffs at Loganair possess the necessary training as well as people skills to effectively deal with their customers to ensure maximum satisfaction of customers.

7.0 Gap Analysis

Figure 5 below highlights the gap between Loganair’s current and expected performance.

 

Figure 5: Loganair’s operational objectives

Source: Author

On the aspect of speed, Loganair ensures customer satisfaction through offering its services within the shortest time possible. The use of information technology helps in handling flight reservations which enhances the speed at which services are offered in the organisation (Merkert & Williams, 2013). However, the excessive processes involved in security checking as well as waiting lines and delivery conundrum often slows the speed at which services are rendered in the organisation (Loganair, 2010).

On quality aspect, the company ensures the provision of high quality services to enhance customer’s satisfaction. The use of automation services in handling luggage leads to the provision of quality services (Pagliari, 2012). Moreover, the company ensures that there is flight punctuality and maintains good links between airports to enhance quality services (Amankwah‐Amoah & Debrah, 2011). However, the no frill strategy that the company uses although offers the firm costs advantages; it results in lack of flexibility (Craig, 2011).

On dependability, the company’s repair and maintenance department has provided solutions to inconveniences and flight delays which might occur due to maintenance and mechanical problems (Loganair, 2015). Further, strict adherence to schedules helps in avoiding the problem of inconveniences and leads to greater customer satisfaction (Pagliari, 2012). However, Loganair has not invested heavily on the latest fleets since most of its fleets are outdated and this influences the dependability aspect (Loganair, 2015).

8.0 Recommendations

In order to maximise customer’s satisfaction and remain competitive in the airline industry, various measures are recommended for the management of Loganair.

First, considering the fact that the organisation possess outdated fleets which cannot be used for dependable operations, the management ought to consider investing in new and latest fleets which are available in the industry. This will enhance the dependability aspect and increase the firm’s competitive position (Craig, 2011).

Secondly, the company can improve on quality through enhancing its no frill services; enhance e-ticketing and direct bookings as well as careful handling of customers baggage and responding to feedbacks in a timely manner. This will improve the quality of services offered and enhance customer loyalty.

Additionally, to meet the speed objective, Loganair can invest on modern security apparatus to reduce the excessive process involved in security checking and reduce the waiting lines as well as delivery conundrums to increase the speed at which services are rendered at the organisation (Slack et al., 2008). This enhances the level of customer satisfaction and increases the company’s competitiveness in the airline industry.

9.0 Conclusion

Loganair is one of the leading airline companies in UK. The company’s remarkable and outstanding performance is attributed to effective and efficient operational strategy that it has adopted. The company applies the four stage model of operational contribution which is externally supportive since it uses its capabilities to drive business growth.

Additionally, Loganair has managed to achieve low cost advantage through scrapping off all services that do not add value to customers hence decreasing its costs. Furthermore, the company uses information technology to handle flight reservations and issuance of tags to enhance the speed at which services are offered as well as strict adherence to schedules to avoid customer inconveniences’ which enhances dependability. Nevertheless, Loganair insist on regular maintenance of its airlines to avoid flight delay problems which improves quality as well as creation of flexible strategies to respond to external changes in the environment such as harsh weather.

Furthermore, the company uses market led approaches where it has adopted various order winning and order qualifying factors which contributes to the company’s competitive position in the market. In addition, Loganair has adopted the service shop process system in its process types to ensure maximum customer satisfaction. Although Loganair has adopted effective and efficient operational strategies, certain gaps have been identified in this report.  This report therefore recommends that Loganair should invest in new and latest fleets available in the industry to enhance its dependability. Further, the report recommends that the company should enhance its no frill services, introduce direct bookings and e ticketing as well as responding to customer’s feedback in a timely manner to improve on quality aspect. Lastly, the company should consider purchasing modern security apparatus to reduce the long process involved in security checks as well as reduce the waiting lines which will increase the speed at which services are offered in the organisation. It is believed that the implementation of the recommended operational strategies could assist the airline company to bridge these gaps and enable the organisation to realise its operational goals effectively.

 

 

References

Akamavi, R. K., Mohamed, E., Pellmann, K. & Xu, Y. (2015) ‘Key determinants of passenger loyalty in the low-cost airline business’, Tourism management46(2), pp. 528-545.

Amankwah‐Amoah, J. & Debrah, Y. A. (2011) ‘The evolution of alliances in the global airline industry: A review of the African experience’, Thunderbird International Business Review53(1), pp. 37-50.

Craig, R. H. (2011) ‘The value of the air bridge to the islands’, Scottish Geographical Journal127(1), pp. 61-78.

Díaz-Garrido, E., Martín-Peña, M. L. & Sánchez-López, J. M. (2011) ‘Competitive priorities in operations: Development of an indicator of strategic position’, Journal of Manufacturing Science and Technology4(1), pp. 118-125.

Fang, E., Palmatier, R. W. & Grewal, R. (2011) ‘Effects of customer and innovation asset configuration strategies on firm performance’, Journal of Marketing Research48(3), pp. 587-602.

Jiang, Z., Zhang, H. & Sutherland, J. W. (2012) ‘Development of an environmental performance assessment method for manufacturing process plans’, The International Journal of Advanced Manufacturing Technology, 58(5-8), pp. 783-790.

Kim, Y. K. & Lee, H. R. (2011) ‘Customer satisfaction using low cost carriers’, Tourism Management32(2), pp. 235-243.

Klophaus, R., Conrady, R. & Fichert, F. (2012) ‘Low cost carriers going hybrid: Evidence from Europe’, Journal of Air Transport Management23(1), pp. 54-58.

Kumar, V., Batista, L. & Maull, R. (2011) ‘The impact of operations performance on customer loyalty’, Service Science, 3(2), pp. 158-171.

Loganair (2010) Brief history. Available at http://www.loganair.co.uk/loganair/brief-history (Accessed: July 26, 2016)

Loganair (2015) Loganair Limited history. Available at http://www.fundinguniverse.com/company-histories/loganair-ltd-history/ (Accessed: July 26, 2016)

Merkert, R. & Williams, G. (2013) ‘Determinants of European PSO airline efficiency–Evidence from a semi-parametric approach’, Journal of Air Transport Management29(2), pp. 11-16.

Pagliari, R. (2012) ‘Trends in Air Service Development within the Highlands and Islands of Scotland 1983–2006’, Air Transport Provision in Remoter Regions, 14(2), pp. 1892-1896.

Singh, A. K. & Sushil. (2013) ‘Modeling enablers of TQM to improve airline performance’, International Journal of Productivity and Performance Management62(3), pp. 250-275.

Slack, N., Chambers, S. & Johnston, R. (2008) Operation Management, Harlow: Prentice Hall/ Financial Times.

Zhao, X., Huo, B., Selen, W. & Yeung, J. H. Y. (2011) ‘The impact of internal integration and relationship commitment on external integration’, Journal of operations management29(1), pp. 17-32.

 

Appendix: Introduction of Loganair

Founded in 1962, Loganair is a Scotish regional airline.  The company is headquartered in Paisley, United Kingdom.  Over the years, the company has been operating scheduled services not only in Europe, but also in other regions across the world. Notwithstanding the fact that Loganair has been offering services across the world, its main market is concentrated in Europe, which has contributed largely on the revenue of the company. The airline also provides a wide range of services for the night mail flights on behalf of the Royal Mail.  In addition to its main hub, which is at Glasgow, Loganair has other hubs at Inverness Airport, Edinburgh Airport, Aberdeen, as well as Dundee Airport. Loganair has Type A Operating Licence from the United Kingdom Aviation Authority. As such, it has been permitted to carry passengers, cargo, as well as mail on aircrafts that have 20 and more seats. The company’s has an operating income of over US$ 100 million and employs over 500 people as at 2015. This explains that the company has been termed as successful to a considerable extent.

 

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PGBM68 Reflection on my personal and professional development

PGBM68 Reflection on my personal and professional development

Table of Contents

  1. Introduction. 1
  2. My Personal Reflection. 1

2.1 Reflection on the Investigation is regarding the Carbon footprint of Johnson and Johnson. 1

2.2 Reflection on the Visit to Barkley Bank. 3

2.3 Reflection on the Personal Development Plan (PDP) 4

  1. Conclusion. 5

Reference: 6

Appendix A – Group Learning Log. 7

Appendix B – PDP. 10

 

 

1. Introduction

In the years ahead, I see myself as a professional working in a leading position within the human resource team of a leading multinational giant. The field of human resource management comes as a natural consequence as I have certain inborn interpersonal skills that enabled me getting better work done through others. However, there are a range of skills that are needed to effectively fulfil the demand of the profession. Such skills need time management skills, conceptual skills, communication skills, team working, problem solving skills, leadership skills, information retrieval skills etc. (Armstrong, 2009). Considering the demands of the profession and the my existing skills, I certainly realise that are a range of skills that I am currently lacking which in turn could negatively influence the realisation of the professional career goals that I am seeking. To be a successful human resource I thus need to fill out different gaps. During the course work “Developing Skills for Business Leadership”, I thus go the opportunity to develop my skills and better pursue the ambitious career that have been highlighted at the start of this report. This report has been organised with the objective to present my personal reflection regarding the group project carried out during the semester to measure the carbon footprint of Johnson and Johnson Company and an organised visit to Barkley Bank and analyses thesignificance of the two events in realising my professional career goals.

2. My Personal Reflection

2.1 Reflection on the Investigation is regarding the Carbon footprint of Johnson and Johnson

The organisation that our group selected for investigating the carbon footprint was Johnson and Johnson which is one of the world’s leading personal care, toiletries, and pharmaceutical company, now having a global operation. The activity helped me in sharpening my time management skills, problem solving skills, and information retrieval skills. All these skillsare essential for an excellent human resource manager (Zhang et al., 2010).

The group activity has provided me a number of benefits which include time management skills being improved. As I belong to China who are less conscious about the time factor and least committed to time and scheduling of the task. Although, during the turn of the group activity I missed some important events as I arrived late, however, I suddenly realised this factor and made committed response to manage my schedule tasks effectively and ensured timely participation in all the meeting. This in turn means that the group project has helped me in gaining time management skills. Human resource manager is responsible for a variety of complicated affairs including the employee recruitment, training, and compensation payment, etc. (Schuler, Jackson and Tarique, 2011). Only with great time management skills, is human resource manager able to complete all of the work orderly. Thus it can be seen that the improvement of time management skills will undoubtedly favourable to my career development in the future.

Moreover, the group activity has helped me in strengthening my problem solving skills. Sincepeople are different in a lot of aspects such as cultural background and life experiences, each person has his own unique ideas (George, 2012), which will inevitably result in some conflicts in the process of group discussion. If the conflicts can not be well resolved, it will reduce the cohesion within the team members, and the team work efficiency will be significantly reduced. In this group activity, conflicts often occur in our team, but all the conflicts are resolved successfully whenever they occur. To sum up the experience of our team, I think that first of all we should face conflicts, and it is conducive for us to better understand each other’s thoughts in the process of dealing with conflicts, so as to have more good ideas; secondly, we must find the main reason for conflicts, and organise the both sides to calm down and resolve the conflicts together, so as to achieve a win-win. It is inevitable that conflict may occur among employees in the work process, and the human resource manager needs to help employees who have conflicts resolve the conflicts, so as to ensure that the company can run normally. The improvement in problem solving skills will undoubtedly be helpful for me to become an excellent human resource manager in the future. Outstanding problem solving skills enable me to resolve the conflicts occurring within the team quickly, thus improving the working efficiency of the team.

Furthermore, the group task has also helped me in my information retrieval skills. Human resource manager needs to pay attention to the information in terms of personnel changes such as the changes in employee reward and training within the industry all the time. Information retrieval skills ensure the human resource manager to collect the relevant information more quickly and accurately. Thus it can be seen that the improvement in information retrieval skills also help me get more information beneficial for the future development, and enable me to get closer to achieve my career objective.

2.2 Reflection on the Visit to Barkley Bank

Barkley Bank, established in 1690, is the oldest bank in the UK with a history of over 300 years. Barkley Bank has now grown into one of the world’s largest banks, and has owned businesses in more than 50 countries worldwide (Barclays, 2014). In the visit to Barkley Bank, I was enlightened a lot and realised the importance of team working skills and relieving pressure by oneself through my own observation and the explanation of the representative of Barkley Bank.

Through this visit, I learned that the strong team working skills is a very important reason for the great success of Barkley Bank. In Barkley Bank, each employee will cooperate with others proactively in order to complete the task of the whole team on time. The colleagues will be very proactive to offer help when other colleagues encounter tuff problems at work. A lot of work in human resource manager’s charge can be carried out successfully requiring colleagues in other departments within the company to cooperate with each other. Therefore, as an outstanding human resource manager, he must have team working skills, so that other colleagues will be willing to cooperate with the human resource manager to complete the tasks. I hope that I can become an excellent human resource manager in the future, so team working skills is one of the ability I must have. With the team working skills, I am able to cooperate with the team members more smoothly, thus ensuring to complete the tasks better and faster.

Secondly, I also realised the importance of relieving pressure by oneself in the visit to Barkley Bank. The employees in Barkley Bank have huge working pressure, but even so, each employee of Barkley Bank still keep a smile on their face when serving customers and do not seem to be greatly pressed. There presentative of Barkley Bank told us that in Barkley Bank, the human resource manager will tell the employee how to relieve pressure by themselves to help employees relieve work pressure, in order to ensure the service quality provided to customers. Thus, relieving pressure by oneself is a skill that human resource manager must master. I believe that such skill can not only relieve my own pressure, but also help the other members of the team to relieve their pressure, so that it can improve the work efficiency of the entire team.

2.3 Reflection on the Personal Development Plan (PDP)

I hope I can become a human resource manager in the future. In order to achieve this career objective, I have to identify my own shortcomings, and to improve my capacity through Personal Development Plan, so that I can gain the ability required by the human resource manager (PDP see Appendix B). Through the analysis, I find that I have obvious shortcomings in writing skills, presentation skills and management skills. I will take the following measures to improve my skills in these three aspects.

First of all, I need to improve my writing skills. In order to improve the writing skills, I plan to read some good articles every day, and pay attention to analyse the structure and language of the articles as well as the writing skills while reading; secondly, I have to practice writing more. I plan to write one or two short articles every week, and ask the friends with good writing skills to instruct me. Human resource manager is responsible for editing recruitment information and the personnel system manuals within the organisation, and only those with better writing skills are able to accomplish these tasks. Thus, it is very significant for me to enhance my writing skills in terms of the career development in the future.

Secondly, presentation skill is also a very important skill I need to improve at present. I’m not good at presentation, and it is difficult for me to express my own ideas clearly when giving a presentation because I always feel very nervous. In order to improve my presentation skills, I will find a different topic every day, and practice to give a presentation in front of the mirror. After the practice, I will reflect on the presentation I just made and find out the deficiencies in it; then I will seek for some opportunities actively to give presentations in public, and practice my presentation skills through speaking in front of others. Human resource manager needs to train employees, so better presentation skills not only enable the human resource manager to express the training content clearly, but also more contagiously to improve the training quality effectively. Therefore, presentation skill is a must for me if I want to become a competent human resource manager.

Thirdly, I also need to improve my management skills. During the group activity, I found that I do not know how to manage the entire team. So I have developed the following PDP in order to improve my management skills. First of all, I will spare some time to read books about how to improve management skills every day, so as to learn how to improve management skills from the theoretical aspect; secondly, I need to put what I have learned into practice. In the later team activities, I should fight to become the team leader, so that I can strengthen my skills of managing others through actual practice. In addition, in the process of manager others, I will communicate with the team members to understand their views about my management style and ask them to give me advice. Human resource manager is responsible for a variety of work of the company such as employee recruitment and training. It is very difficult to handle these tasks if there is no outstanding management skill. The improvement in management skills will be beneficial to my future career development.

3. Conclusion

First, this report points out that my career objective is to work in a leading position within the human resource team of a leading multinational giant in the future. Then, this report introduces the skills I have acquired in the group activity and the visit to Barkley Bank. The group activity helped me in sharpening my time management skills, problem solving skills, and information retrieval skills. In the visit to Barkley Bank, I realised the importance of team working skills and relieving pressure by oneself. Finally, I found that I have obvious shortcomings in writing skills, presentation skills and management skills. In order to achieve my career objective, I have developed the Personal Development Plan to enhance my skills in these aspects.

Reference:

Armstrong, M. (2009)A Handbook of Human Resource Management Practice, London: Kogan Page.

Barclays (2014) About Barclays, [online], Available at: http://group.barclays.com/home# (Accessed: 1 May 2014)

George, C. T. (2012) ‘HR Management or Mess’, International Journal of Managment, IT and Engineering, 2(10), pp.569-571.

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

Zhang, W., Cooper, W.W., Deng, H. and Ruefli, B.R. (2010) ‘Entrepreneurial Talent and Economic Development in China’, Socio-Economic Planning Sciences, 44, pp. 178-192

 

Appendix A – Group Learning Log

Date Background Activity/Experience What Happened /outcome? Reflections on what your learned How will you apply the learning?
14/11/2013 Self introduction for every group members, discuss and choose the pharmaceuticals and chemicals company Understanding each other

Choose Johnson&Johnson as example company

Know everyone’s advantage and disadvantage.

Share the idea, and distribute the task, afterwards that find information about strategy and the carbon footprint campaign

Encourage to communicate for team work

Learning some experience from Johnson & Johnson

21/11/2013 As the multinational corporation, discuss which countries is better for our group Choose China, UK, and Sweden Data analysis and teamwork First, gather information.

Secondly, summarized important points.

Finally, analyze these ideas records.

28/11/2013 Do the research and the topic about the carbon footprint based on the following aspect like purpose, culture difference, development and training and level of decision making

talk about all aspect and identify the problems of carbon footprint

Know the carbon footprint implementation and strategy better, and find organization structure.

We’ve got the information to develop the strategy and find some aspect does not suit our presentation

All information is chaotic, only part of information could be use

Through solving the problem, the company could implement the carbon footprint smoothly

Continue to search more information about the topic and further analyze the data

we must find detail analysis and preparing the presentation.

05/12/2013 Take corrective action to correct problems by reassigning tasks and resources to get the process back on track. The group meeting was held on Thursday, and explored the data gathered during the preceding week. The information is about the history and products of Johnson. In this week, we learned that how to research the data of a company. And discuss around these data. In the future, we can research the information we need to support our ideas.

 

11/12/2013 Everyone share the slides information about presentation and talk the individual task Acquire complete information about carbon footprint Get ready for the presentation According to research the information, understand more advantage and disadvantage of example company
07/02/2014 Based on the presentation, our group re-allocate the task of the case, and re-collect the information of chosen firm Every member acquire the task, and all of them collect the update detail for the chosen firm, and integrate all information together to analyze better. Through the collecting evidence, every team member know all background of firm, and finish the question more carefully Doing a research is better for us to finish the future module such as dissertation better
14/02/2014

 

Last week, we shared new data and clearly communicating how data flow drives process. The group meeting was held on Friday, and explored the data gathered during the preceding week. The information is about everyone’s presentation. At the same time, we had discussed division, each one being charged with specific responsibilities. In this week, we will continue to collection information to modify the presentation slides for replenish the shortage In the future, we will adequately prepare to presentation.

 

 

 

Appendix B – PDP

What do I want /need to learn? What will I do achieve this? What resource or support will I need? What will be my success criteria? Target dates for review and completion?
 

Academic writing

1.      meet an advisor

 

2.      participate more maps

1.Examples of Essay, Report or Dissertation

2.ask advisor how to write

A nice structure and reference, and also a good grammar October 2014
 

Presentation Skill

1.      Absorption from other presentation.

2.      reading the book

1.      Classmate support

2.      Tutor help

Able to present without reading the point April. 2015
 

Referencing

reference style,  for example Harved reference Different Type of reference style, such as book, journal, message Know how to write the reference. April. 2015
 

Management Skill

1.  Time management

2.  Stress management

1. tutor support

2. Classmate

1. Lead a team successfully

2.   remit the stress

Feb.2015

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