Business and Management

Experience in the 36th Symposium, May 2006

2008-10-26T13:27:00.000-07:00

The 36th Symposium, held at Saint Gallen University, Switzerland, from May 18 to May 20, 2006 was an extraordinary experience in my life. I met intellectually exceptional students and business leaders all over the world who have and will take part in changing our world to a better place to live.

Participating in the Symposium, I strongly felt that I have taken part in a special event that not only helped me think differently about the world but also encouraged me to do things for the benefits of both Europe and Asia. It was quite difficult to meet with 200 student participants and 600 business leaders but I have experienced open-mindedness and warm friendships of all participants. Coming to the Symposium, every one seized dialogues and new ideas and made friends with people from different cultures and backgrounds. I have learnt the most in the Symposium and I returned with enriched knowledge of future business potentials and an international network. I will never forget wonderful memories of Saint Gallen University, Zurich, Genève and agreeable moments with my Swiss friends.

I have never experienced such an excellent organization of the Symposium. Every thing was perfectly organized. I would like to thank much students, helpers and organizers who have contributed greatly to the success of the Symposium.

This year, 80% of speakers are CEO of international corporations such as Fiat, Degussa and Bayer. The speakers had excellent knowledge and experience in international leadership skills which leaders of today and leaders of tomorrow need to develop in order to contribute to the change of the world. I was touched by the presentation of Mr. Sergio Marchionne, CEO of Fiat. He said: “Leadership is a noble calling. It’s about enriching people’s live. It’s a sacred trust”. Discussed with Mr. Keiichiro Asao, a candidate for the position of Minister of foreign affaires of Japan this year, I learned that leadership in Japan needs more transparency. It’s also true in my home country, Vietnam.

In the Symposium, we discussed about topics of how to inspire Europe in the new economy. I really loved the discussions about how governments, civil society and global economy work together to strengthen Europe’s ability to thrive in the future and compete in the global marketplace. This is not only the question to Europe but also the question to Asia in the fast movement of the international capitalism. We also discussed about how to build a competitive society for sustained growth and development in the future. I had some truly good discussions with Japanese, Indian and American speakers from which I learnt that all today’s world-class leaders would like to encourage tomorrow’ leaders to change the world with brave business ideas and international leadership skills. I also shared my visions and business ideas with speakers and students and learnt from them the inspiration to work with international partners.

The 36th Symposium was a truly exceptional experience in my life. I have learned immensely and experienced an amazing time with participants. What I should say is that the Symposium is unique, incomparable and unforgettable.

36th Symposium at St Gallen University (Switzerland)

2008-10-26T13:26:00.000-07:00

In this essay, I regarded the whole world as a customer and a supplier, and entrepreneurship is beyond borders. Therefore, the new entrepreneurial formula to help entrepreneurs create viable businesses composes of 5 elements: Global Vision to know where to go in the future; Global Leadership Skills to lead their businesses in international environments; Technology Savvy to create new business and improve productivity; Multi-culture Awareness to shape company and customer cultures; and Entrepreneurial Passion to be successful in their venture of creating new global companies. These capabilities are essentially needed for entrepreneurs to transform their brave entrepreneurial ideas into flourishing global businesses.

To prepare for the 36th Symposium at St Gallen University in next coming May, I just attended an annual meeting of the St. Gallen Club of Japan held by the Swiss Embassy in Tokyo. I met with other 10 student-participants from Japan and the club members who shared wonderful experience in the past symposia. Currently, I am preparing questions and ideas about the topic “How to inspire and strengthen business relations between Europe and Asia” for special sections to discuss directly with the Symposium’s speakers. I intend to build a strong network with and introduce IUJ to the Symposium’s participants including students, politicians, scientists and business leaders. If you have any ideas or questions about those topics or the Symposium, please contact me so I can prepare to convey your ideas at this special international conference.

REPORT ON SMALL-GROWTH MUTUAL FUNDS

2008-06-12T01:49:00.002-07:00

Introduction

Small Growth Mutual Funds’ objective is to maximize total return by investing in equity securities of small-growth companies in up-coming industries or young firms in their early growth stages. These funds are normally no-load, no-transaction fee funds investing in technology, health and service. Hence, they provide small investors with a reasonable alternative to direct purchase. Small investors can obtain good returns with the same degree of diversification of value-oriented stocks while avoiding heavy transaction costs.

In this report, we examine the performance of three small-growth funds: Value Line Emerging Opportunities (VLEOX), Turner Emerging Growth Fund (TMCGX) and JP Morgan Small Cap Growth Fund Sel (OGGFX). Then we will recommend the best fund that you should consider to invest in.

Fund Description

VLEOX is an open, medium-growth fund managed by Mr. Stephen E. Grant with the largest assets among the 3 funds (see table 01). TMCGX is a closed, small-growth, youngest and smallest fund managed by a team. OGGFX is an open, small-growth, team-managed and the oldest fund. TMCGX and OGGFX comply with the objective of investing primarily in stocks of small-growth companies in technology, health and service while VLEOX invests primarily in industrial cyclical. According to Morningstar’s rating, TMCGX is one among the top of 10% of the funds in the category since it was incepted. VLEOX and OGGFX are always among the next 22.5% of the fund in the category.

Fund Performance Analysis

Fund total return: According to the data provided by Morningstar, TMCGX had the nearly double quarterly and monthly total returns since inception date (see table 02) compared to the other 2 funds. For example, TMCGX’s total monthly return since inception date was 24.81% vs. 13.92% of VLEOX and 11.08% of OGGFX. OGGFX’s quarterly and monthly total returns since inception date were the lowest among 3 funds. However, there was no such big different among 3 funds in 5-year total returns. TMCGX seemed to have around 5% higher returns than the others.

Total return vs. benchmark: Table 03 represents the yearly total returns of 3 funds vs. Morningstar average category return, which is used as the consistent benchmark of return to compare the returns of 3 funds. Overall, 3 funds outperformed the market but VLEOX and OGGFX underperformed the market in 2003 while TMCGX still outperformed the market. In general, TMCGX always outperformed the market better than the other 2 funds in recent 5 years (see figure 01). This was illustrated by its higher returns compared to benchmark returns. Moreover, TMCGX’ performance to outperform the market was much more stable than the others. In other words, TMCGX’s performance has been consistent in excess return vs. benchmark.

Risk: As TMCGX had highest return, it seemed to have highest total risks among 3 funds. TMCGX’s standard deviation in 3 years is 15.24% vs. 14.52% (OGGFX) and 11.93% (VLEOX). Although 3 funds had higher Beta than market Beta, TMCGX had the highest Beta (1.59), then OGGFX with 1.49 and VLEOX with 1.21. The reason why VLEOX had the lowest total and nondiversifiable risks is that VLEOX is a medium-growth fund and it invests primarily in equity of medium-growth firms in industrial cyclical rather than investing in equity of young firms or firms in new industries that bear high risk.

Excess return:

VLEOX and OGGFX had negative Alpha (see table 04), which means that both of them underperformed the index (benchmark return) relative to how much volatility has been shown, or their actual returns are lower than their expected returns. On the other hand, TMCGX could achieve an actual return higher than its expected return by 1.31%. TMCGX also achieved greater return per unit of risk than the others (highest Sharpe ratio).

The excess return may due to selectivity rather than diversification. From table 05, we notice that VLEOX and OGGFX were more diversified than TMCGX in terms of numbers of stocks held but they had negative excess returns as discussed above. Moreover, they hold almost all domestic stocks and invest more than 90% of their fund capital in stocks (table 04). Meanwhile, TMCGX invested only 82.22% of its capital in stocks, kept 12.48% cash as a safe option and invested more than 2% in foreign stocks. Therefore, we see that the performance of small-growth mutual funds is not largely influenced by diversification but rather depends mainly on assets allocation and the choice of stocks in their portfolios. This means that the fund performance depends on fund management, which will be discussed later in this report.

Fund management:

We assess the management performance of each fund based on return from fund managers’ risk, which is return on the risk that fund managers take to manage fund assets. Given the desired non-diversifiable risk level at market Beta (beta=1), TMCGX had the largest return from manager’s risk 5.28% vs. 4.26% of OGGFX and 1.82% of VLEOX. Please see the table 06 for detailed calculation method. This means that TMCGX was best managed among 3 funds and OGGFX was well managed. Therefore, we see that fund performance depends largely on how well the fund is managed.

The 3 funds differ in their investment strategies. While TMCGX invests in diversified portfolios of companies that it believes have strong earnings prospects in emerging industries like health and technology, OGGFX invests in stocks of growth companies with leading competitive positions and seeks companies with predictable and durable business models capable of achieving sustainable growth. VLEOX focuses on companies that have expertise, theme or industry knowledge by stocks screening and fundamental analysis to identify companies that will provide super earnings. We see that the action of TMCGX is consistent with the stated objective of the small-growth fund but the actions of the other funds are not. As TMCGX seems to have the best performance, we are quite confident that it is better for investors to invest in a mutual fund that acts consistently with its objective.

Fund Prospect: VLEOX had the fastest growth rate of assets and largest fund size among 3 funds (see table 07). However, its performance in terms of total return was not better than the performance of TMCGX which is the smallest fund. This means that fund performance does not necessarily depend on the fund size and fund asset growth rate. Therefore, when making investment decisions, the investor should not look at the fund size and fund growth rate but rather examine the management quality of the fund under consideration.

Purchase and Expenses: OGGFX had the highest turnover rate (120%, table 04) but its performance was not the best. This is because this fund had higher transaction costs due to high turnover rate and fund performance is examined after all transaction costs. As a result, OGGFX appeared to perform worse than TMCGX due to more expensive transaction costs but not due to managers’ ability. Therefore, funds with low turnover rates seemed to outperform funds with high turnover rates. On the other hand, TMCGX has the largest expenses ratio so the fund might risk having poorer performance if its extra return is not sufficient enough to cover expenses.

Strengths and weaknesses of the funds: All three funds have ability to outperform the market and provide higher returns to the investor than the market return. They have good fund management and assets allocation to achieve differential return as well as low transaction expenses. However, all of them tend to volatile closely with market movement and bear high nondiversifiable risk. Please refer to table 08 for further details.

Conclusion

The overall performance of a mutual fund is not related to its size but depends on the fund’s investment objective, expenses ratio, turnover rates and especially the ability of fund managers. The ability to outperform the market of a fund relies more on the selectivity than on diversification of the fund’s portfolio.

There are some criteria for investment decisions in small-growth funds: investment objective, expenses ratio, turnover rates. More important criteria are the fund’s investment strategy, Alpha or excess return, fund management and asset allocation.

Based on our above analysis, we recommend that the investor should invest in TMCGX fund. However, OGGFX is a good alternative because this fund’s performance and management quality are very near to that of TMCGX.

Technique for Efficient Frontier Construction

2008-06-12T01:49:00.001-07:00

Case 1: Short sale allowed with riskless lending & borrowing

- Purpose: to find tangent point A/tangency portfolio

- Technique: maximize the slope of the straight line RfA

- Find the weight of tangency portfolio

- Calculate expected return and standard deviation

- Plot the straight line RfA

Case 2: Short sale allowed with no riskless lending & borrowing

- Purpose: to find tangent point A/tangency portfolios at different risk free rate Rf to construct the frontier curve.

- Technique: find different tangent points at different Rf and plot the curve based on these tangent points

- Find the weight of tangency portfolio

- Calculate expected return and standard deviation

- Repeat these 2 steps when changing Rf by copying formula in Excel

- Plot the curve

Case 3: Short sale not allowed with riskless lending & borrowing

- Purpose: to find tangent point A/tangency portfolio

- Technique: maximize the slope of the straight line RfA

- Find the weight, expected return and standard deviation of tangency portfolio by using Solver with quadratic programming

- Plot the straight line RfA

Case 4: Short sale not allowed with no riskless lending & borrowing

- Purpose: to find tangent point A/tangency portfolios at different risk free rate Rf to construct the frontier curve.

- Technique: minimize the risk for any level of expected return to find different tangent points at different Rf and plot the curve based on these tangent points

- Find the weight of tangency portfolio, expected return and std by using Solver with quadratic programming

- Repeat this step when changing expected returns by writing a VBA program to repeat Solver

- Plot the curve

Portfolio Management – First Project

2008-06-12T01:48:00.001-07:00

Benefits of diversification

From the Figure 01, we can see that the average risk of 1-stock portfolio is the largest (10.54%) and the risk of equally weighted 30-stock portfolio is the lowest (6.10%). These results reflect the concept of portfolio diversification: the risk of more diversified portfolio tends to be lower than the risks of less diversified portfolio. In a large diversified portfolio, the risk may reach to the average risk of a portfolio with a very large stock. As we can see from the shape of the curve, the risk of portfolio tends to decrease if the number of stock in portfolio increases. In other words, the more diversified portfolio has systematic risk (covariance) and has less unsystematic risk from individual stocks. However, when the number of stocks in portfolio is large enough, adding a more stock does not have a significant effect in reducing portfolio risk.

Portfolio Performance

The Figure 02 is a plot of risks and returns of equally weighted portfolios created in Part A and 8 30-stock portfolios of the weights WMVP1U, WMVP1C, WMVP2U WMVP2C, WOpt1U, WOpt1C, WOpt2U and WOpt2C in the 2^nd half. From the graph that we can draw a line through the numbers of points plotted to present the relationship between risk and average return. The points above the line represent portfolio which have higher return than the points below the line given a risk level.

Choosing portfolios according to the objective

In this part, we will examine the choice of portfolio weights done by Solver on 30-stock portfolio for the 1^st half and 2^nd half data. The discussion will be based on the table of 30-stock portfolio.

For the purpose to minimize the risk of portfolio, we use Solver function to find the weights of a portfolio that has minimal risk or minimal variance. In the first half, in case of unconstraint, Solver tends to pick stocks of lowest average risks in a large portions to hold (e.g 10.61% of J:AJ@N(RI) with the lowest std. dev. of 6.89%, 25.39% of J:ASMR(RI) with the second lowest std. dev. 7.17%) and stocks with highest risks for short sales in a large portions (e.g -15.17% of J:IH@N(RI) of std. dev. 14.38%). In the 2^nd half, in case of unconstraint, Solver suggests the largest weight of 38.63% of J:AJ@N(RI) with the lowest std. dev. (4.92%) and the largest weight for short sales at -21.45% of J:NK@N(RI) with the highest std. dev. 17.07%. In case of constraint, in both 1^st and 2^nd half, Solver also picks stocks with the lowest risks in large portions but is does not pick any stocks with negative weights for short sales due to the constraint that all the weights must be positive. The negative weights in case of unconstraint become zero in case of constraint. The largest positive weights in case on unconstraint remain the largest weights in case of constraint because those weights have minimal risks. This suggests that largest weights chosen by Solver are consistent with the objective of minimizing portfolio risks and some stocks are weighted more heavily because they have lower risks among available stocks in the portfolio. However, Solver does not pick stocks by choosing from the lowest risk stock to the higher risk stocks. For light weights, Solver tends to choose stocks with higher returns.

For the purpose to maximize the sharpe ratio, we use Solver function to find the weights of a portfolio that has maximal sharpe ratio or the maximal return on portfolio. In the first half, in case of unconstraint, Solver tends to pick stocks of highest average return in the heaviest weights (e.g 103.06% of J:SG@N(RI) with the highest return 3.36%). In the 2^nd half, in case of unconstraint, Solver suggests the largest weight of 237.13% of J:HE@N(RI) with the highest return (2.69%). In case of constraint, in both 1^st and 2^nd half, Solver also picks the highest return stocks in large portions but is does not pick any stocks with negative weights for short sales due to the constraint that all the weights must be positive. The negative weights in case of unconstraint become zero in case of constraint. The largest positive weights in case on unconstraint remain the largest weights in case of constraint because those weights have minimal risks. This suggests that the largest weights chosen by Solver are consistent with the objective of maximizing portfolio returns and some stocks are weighted more heavily because they have higher returns among available stocks in the portfolio. However, Solver does not pick stocks by choosing from the highest return stock to the lower return stocks. For light weights, Solver tends to choose stocks with lower risks.

In case of unconstraint, portfolios are quite diversified and include all stocks to achieve the objectives. Solver tends to find the optimal solutions with a very large diversification to achieve the objective. Portfolios with minimal risks are more diversified than portfolios of maximal returns. In case of constraint, portfolios are also diversified but do not include all stocks. Portfolios with minimal risks are less diversified than portfolios of maximal returns.

Performance and portfolio strategy

Now we will discuss about the performance of 30-stock portfolio in the 2^nd half. The feasible portfolios are portfolios of weights WMVP1U, WMVP1C, WOpt1U, WOpt1C and the perfect foresight portfolios are those of weights WMVP2U WMVP2C, WOpt2U and WOpt2C.

According to the calculation results, the feasible portfolios have much poorer performances than the perfect foresight portfolios. In general, the feasible portfolios have much lower returns but higher risks than the perfect foresight portfolios. For example, average return of feasible portfolios is -0.41% vs. 3.26%; average std. dev. of feasible portfolios is 11.01% vs. 5.45%; average sharpe ratio of feasible portfolios is 2.39% vs. 42.88%. The largest sharpe ratio of the feasible portfolio WMVP1C in the 2^nd half is 11.53% which is smaller than all sharpe ratios of the foresight portfolios. This portfolio comes closest to the foresight portfolios because it has the highest sharpe ratio (or highest return) and the lowest risk among 4 feasible portfolios. In case of unconstraint, the best feasible portfolio is a feasible portfolio that comes very close to the WMVP2U foresight portfolio in terms of risk and return. However, for risk-averse investors, the best feasible portfolio can come near to WOpt2U portfolio because the return is highest among perfect foresight portfolios. In case of constraint, the best feasible portfolio is a feasible portfolio that comes very close to the WOpt2C perfect foresight portfolio.

Even though the data are from the last 10 years but we can see totally different effects of the 1^st half data and the 2^nd half data on the portfolios in the 2^nd half. If we use the weights of optimal portfolios in the 1^st half to evaluate the portfolio in the 2^nd half, we do not get the same results. Moreover, the results obtained seem to be very far away from the results obtained by using the last 5 years data. This may be due to the fact that the 1^st 5-year data, even if they are not so out-dated, do not reflect well the present market situation. When using such historical data we ignore recent changes in the market and therefore we might lose some opportunities. The performance of optimal portfolios in the part may be very far away from the perfect foresight portfolios. In fact, we can construct feasible portfolios by using past data but it is difficult to construct an optimal feasible portfolio where we can maximize returns and minimize risks. Even we can find such a portfolio, its performance is still far away from the perfect foresight portfolio

This suggests that we should not rely on diversification to match the performance of some market index to evaluate the performance of portfolios. We also should not assume that marketplace can reflect all available information in the market. Rather than relying on the simple diversification, we should take an active portfolio strategy, using available information and forecasting techniques to seek better performance and take advantages of the market such as finding mispriced securities.

Sally Jameson: Valuing Stock Options in a Compensation Package

2008-06-12T01:42:00.000-07:00

Executive summary

Jameson needs to choose either stock option compensation package or cash compensation package if she joins Telstar. If she can sell her options during 5-year vesting period, the stock option package is worth more than the cash package. If she is not allowed to sell her option during 5-year vesting period, cash package is worth more than stock option package. In considering option liquidity, taxes and transaction costs, we conclude that cash package is worth more than stock option package and therefore, Jameson should choose cash package. If Jameson decided to choose stock option package, she should untie her wealth to the fortunes of Telstar by either entering a forward contract on stocks or using bull spread strategy to insure her long call position. In doing so, the value of her options will not totally depend on Telstar’ stock price. As a result, she can get some benefits even if her options turn to be worthless at expiration.

1. Options or cash compensation

a. Cash compensation:

If Jameson chose cash compensation package and if there is no tax, she will receive $5000 today. If she used this money to invest in 5-year T-bills, the future value of her compensation would be worth: $5000 x 1.0602 = $5301 in 5 years (5-year T-bills’ interest rate is 6.02% in the Exhibit 4).

b. Stock option compensation:

If Jameson chose stock options, she would hold European 3000 call options (early exercise is impossible) on stocks without dividends which give her the right to buy Telstar stocks at the strike price $35 per share in the 5^th year from the date she joins Telstar. The option price is $2.65 (please refer to Appendix 01 for detailed option price calculation). Total value of 3000 call options that Jameson would receive is 3000 x $2.65 = $7943 (taxes and transaction costs are ignored), which is option premiums that Jameson can receive if she sells her 3000 granted options.

c. Cash or stock options?

If Jameson holds options until maturity:

- If Telstar’s stock price is below strike price ($35 per share), Jameson will not exercise her options and therefore will get nothing (she does not pay option premiums by cash).

- If Telstar’s stock price is above strike price, Jameson will exercise her options, sell shares and get profits = 3000 x (stock price – strike price).

- In order to have the same profit as that of cash compensation, the stock price must rise up to $5301/3000 + $35 = $36.767 per share.

- From the Exhibit 2, we see that Telstar’s stock price only rose to $35 per share in 1990 during the last 10 years. It means that the chance of the rise of stock price to above $35 par share is very rare. Therefore, if Jameson holds options until maturity, she will risk receiving nothing from the stock option compensation package.

If Jameson sells options after she joins Telstar:

- The profit from selling 3000 call options is $7943, assuming that there is no transaction costs, no taxes and it is easy to sell such options. As $7943 is greater than profit of cash compensation, we would say that stock option compensation is worth more than cash compensation.

d. Conclusion

If Jameson is free to sell her options at any time after she joins Telstar, and if there is no taxes and no transactions costs, stock options package is worth more than cash compensation.

2. Choosing the compensation package

It seems that option package is better than cash package. However, Jameson needs to consider other factors before choosing the best package.

- Options liquidity: Most companies granting stock options compensation packages do not allow their employees to sell options in the vesting period. There is no information in the case about the right to sell options. If Jameson is not allowed to sell her options at any time after she joins Telstar, she risks receiving nothing from option compensation package at the expiration time of options as discussed above. In other words, if she has to hold options until expiration, the value of her options would be easily zero at expiration.

- Early exercise: As options granted to Jameson are European calls, she can not exercise them before expiration. If she left Telstar before her 5^th year with Telstar, she would get nothing. Her options will be, therefore, worthless to her.

- Taxes: If taxes are considered, Jameson will receive $5000 x (1-0.28) = $3600 today and $3600 + {$3600 x 6.02% x (1-0.28)} = $3769.04 in 5 years from cash package. In order to have the same profit as that of cash compensation, the stock price must rise above $3769.04/3000 + $35 = $36.256 per share. In such case, the value of her options must be at least ($36.256-$35) x 3000 = $3769.04. However, the chance of rise in stock price above $36.256 is even rare. As a result, taxes make the options be worthless easier. Besides, there is no advantage of tax treatment to her between cash package and option package as tax on Jameson’ salary would equal to tax on capital gains (28%).

- Conclusion: From the above analysis, we see that it is very easy that Jameson receives nothing if she chooses stock option package. Hence, she would better to choose cash compensation package. By doing so, she will have cash right after joining Telstar and will be free to leave the company if she finds a better opportunity.

3. Stock options compensation package from the view of granting companies

Employee stock options are the same as call options. Unlike call options, employee stock options are corporate securities issued by corporations. Corporations are the option writers and employees are option holders. Option holders pay strike prices to corporations when they exercise options. As a result, corporations will receive cash and issue new shares. At expiration, corporations will have more cash and more outstanding shares.

Granting stock options costs companies the value for which options are sold. In fact, companies do not pay for such value directly. Instead, this value will be deducted in employees’ cash compensation. In other words, employees pay for options value by receiving less cash compensation by an amount equivalent to options value. From the accounting view, this options value can be regarded as non-cash operating expenses to corporations.

Executive stock option plans create some incentives for their recipients:

- Tax reduction: as tax on individual income is higher than tax on capital income, stock options can help executives avoid tax payment on their high income and pay less tax on capital gains by converting part of their income to capital gains.

- Feeling of ownership: By granting stock options, the firm creates the feeling of ownership in the mind of its executives so they take actions in the interests of shareholders.

The purpose of creating incentive plans is to lure talented employees, keep excellent employees and motivate them to act consistently with the interests of shareholders with less cost to the firm. Stock option compensation plans have become popular nowadays because these incentive plans provide firms with several advantages:

- Minimize the firm’s compensation costs

- Conserve cash because the firm does not pay cash through option granting

- Avoid the limits on the tax deductibility of cash compensation

- Solve agency problems by aligning managers’ incentives with shareholders’ interests

While stock option packages bring granting firms with the above advantages, they are somehow worth for executives with high salaries but not worth for employees with low salaries. The biggest incentive of such compensation plans to receivers is to decrease tax payment on incomes. As discussed through the case of Jameson, it is very rare that employees can exercise options because the vesting period is long and options risk being worthless at expiration. It is, therefore, better that companies can create cash compensation programs that motivate employees and cost less.

4. Recommendations for Jameson

If Jameson accepts option package and works for Telstar, she should untie her wealth from the fortunes of Telstar by using bull spread strategy, which is to sell identical call options (option A) with higher strike price, for instance $40, to insure her long call position. Buy selling option A at $40 strike price, she can get option premiums. If Telstar’s stock price will not rise to $35, she will not exercise options granted by Telstar but can get option premiums to compensate her losses from not being able to exercise options. If stock price rises above $35, she will exercise options granted by Telstar and gain profits = stock price – $35. If stock price rises above $40, she will exercise options granted by Telstar and gain profits = stock price – $35 while delivering stocks to the holders of option A and get a loss = $40 – stock price. However, the overall profit when stock price is greater than $40 is positive. As a result, she can insure the benefits of her options regardless of increase or decrease in Telstar’s stock price.

The second way to untie her wealth to Telstar is to enter a forward contract in which she will pay a certain amount of money if stock price rises above $35 and receive a certain amount of money if stock price is below $35. If stock price is above $35, she has to give up a portion of the benefits from exercising options to pay the counterparty of the forward contract. If stock price will not rise above $35, she still gets money from the counterparty. By doing so, she can receive a certain amount of money regardless of increases or decreases in Telstar’s stock price.

Appendix 01: Option price calculation

1. Binomial Model

Assumptions:

1. Single date: time 0 and time 1.
2. Stock price can go up or down.
3. Perfect market: there is no transaction costs, borrowing and lending at
interest rate, no taxes.
4. Volatility on stock return is historical volatility that is assumed 30% based on Exhibit 3.

Calculation:

Current stock price (s) $	18,75
Divident yield (di)	0
Volatility of stock return (sd) (historical volatility)	0,3
Strike price (x) $	35
Time to expiration (t) years	5
Risk-free rate (rf) %	0,0602
Number of steps (n)	1000

Price of European call option ($)	2,92
Total value of 3000 options granted to Jameson	8.760


VBA codes:

Function Euro_call(s, di, sd, x, t, rf, n)
'calculate price of a Europeran call option by Binomial tree model'

Dim u As Double
Dim d As Double
Dim p As Double
Dim bicomp As Double
Dim sumbi As Double
Dim h As Double
Dim j As Integer

'calculate u,d,p'

h = t / n
u = Exp(sd * Sqr(h))
d = Exp(-1 * sd * Sqr(h))
p = (Exp((rf - di) * h) - d) / (u - d)

'calculate expected call payoff at time t'

For j = 1 To n
bicomp = Application.Combin(n, j) * (p ^ j) * ((1 - p) ^ (n - j)) * Application.Max(s * (u ^ j) * (d ^ (n - j)) - x, 0)
sumbi = sumbi + bicomp

Next j

'calculate call price = PV of expected payoff'

Euro_call = sumbi * Exp(-1 * rf * t)

End Function


2. Black-Scholes Model

Assumtions:

1. Risk-free rate at 6.02% (Exhibit 4) is assumed to be known and constant in the next 5 years.
2. There are no transactions costs and no taxes.
3. It is possible to short-sell the options and and to borrow at the risk-free rate.
4. Stock pays no dividend during the option life (5 years).
5.Markets are efficients.
6. Implied volatility is calculated by opserving market prices of the option. However, in this case
report, I assumed that implied volatility is equal to historical volatility at 30% and I ignored the
computation of implied volatility on stock return based on the information given in Exhibit 1.
This is because of the complexity of calculating and predicting implied volatility from information
given in the case.

Calculation:

Current stock price (s) $	18,75
Strike price (k) $	35
Volatility of stock return (v) (implied volatility)	0,3
Risk-free rate (rf) %	0,0602
Time to expiration (t) years	5
Divident yield (d)	0

Price of European call option ($)	2,65

Total value of 3000 call options granted to Jameson, $	7.943


VBA codes:

Function Euro_callBS(s, k, v, r, t, d)

'calculate price of a Europeran call option by Black-Scholes model'

Dim d_1 As Double
Dim d_2 As Double
Dim nd1 As Double
Dim nd2 As Double

'Calculate N(d1) and N(d2)'

d_1 = (Application.Ln(s / k) + (r - d + 0.5 * (v ^ 2) * t)) / (v * (t ^ 0.5))
d_2 = d_1 - v * (t ^ 0.5)
nd1 = Application.NormSDist(d_1)
nd2 = Application.NormSDist(d_2)

'Calculate option price'

Euro_callBS = s * Exp(-d * t) * nd1 - k * Exp(-r * t) * nd2


End Function


3. Option price

The option price by Binimial model is higher than the price obtained from Black-Scholes model.
Because it is very difficult to estimate accurately future implied volatility of returns on Telstar's
stocks in 5 years, the price by Black-Scholes model seems to be less reliable.
However, to be conservative, I chose the option price $2.65 by Black-Scholes model for the analysis
of the case.

OPTION STRATEGIES AND CURRENCY FORWARDS

2008-06-12T01:38:00.000-07:00

Question 01: Currency Forward

Where to lend and borrow?

Suppose we invest $1 in U.S. denominated T-bonds. In 1-year, we will gain interest rate which is 4% ´ $1 = $0.04. If we convert $1 into pound and invest in pound-denominated bonds, we will gain 7% ´ £0.625 = £0.044. If the exchange rate was not changed, then we will get £0.044 ´ $1.6 = $0.07. Since we have greater gains from converting U.S. dollars to pounds and investing in pound-denominated bonds than gains from investing in U.S dollar-denominated bonds ($0.07 vs. $0.04), we would like to borrow U.S. dollars in the U.S. and lend pounds in UK. This is because we can gain more profits from lending pounds in UK due to r_uk is greater than r_us. However, we may face the risk of the exchange rate. To hedge against the volatility of exchange rate, we should enter a forward foreign exchange rate contract.

Arbitrage

1. Borrow U.S dollars in the U.S, convert this amount to pounds and lend pounds in UK (e.g buy pound-denominated bonds).

2. Sell a forward contract in the amount of the proceeds of the investment amount in pounds back to US dollar.

Assume lending pounds at risk-free and interest paid one time at the end of the investment horizon. Below is an example of arbitrage:

Cash flow

Year 0 Year 1

$ £ $ £

1. Borrow dollars r_us = 4% +1.6 -1.664

2. Convert to pound at $1.6/£ -1.6 +1

3. Invest in pound-denominated bonds -1 +1.07

at interest rate r_uk = 7%

4. Sell a forward contract at £1.07 +1.6906 -1.07

value at today forward rate $1.58/£

Total 0 0 +0.0264 0

If we ignore the transaction cost, the arbitrage profit is $0.0264. The above transactions show that we can arbitrage with zero initial investment by borrowing US. dollars, converting into pounds and invest in pound-denominated bills. At the same time, we hedge against currency exchange rate risk by selling a forward contract. This arbitrage is call covered interest arbitrage.

Conclusion

If we want to invest dollars, there are 2 ways:

1. Buy dollar-dominated bonds in the U.S.

2. Exchange dollars into pounds, buy pound-denominated bonds and enter a currency forward contract to guarantee the exchange rate in which we will convert back pounds into dollars.

In general, the second way is preferable because we can gain arbitrage profits while hedging the position.

Question 02: Arbitrage Profit through Yen/U.S. dollar Currency Forwards

Yen/ U.S.$ currency forwards contract price

From the perspective of a Japanese investor, the price of a 6-month Yen/U.S.$ currency forward contract is F_o,T = x_o e^(ry-rus).T (x_o: exchange rate; r_y : 6-month Japanese interest rate; r_us : 6-month interest rate). In other words, F_o,T = 124.30 e^{(0.001-0.038)x0.5} = \122.0216.

Yen arbitrage profit

We ignore the transaction cost and assume lending at risk-free and continuous compounded interest during 3-month investment period.

Cash flow (million)

Month 0 Month 3

$ \ $ \

1. Borrow dollars r_us =3.5% +1 -1.0088

2. Convert to Yen at \124.30/$ -1 +124.30

3. Invest in Yen-denominated bonds -124.30 +124.4555

at interest rate r_y = 0.50%

4. Buy a forward contract at $1.0088 +1.0088 -124.3452

value at today forward rate \123.2605/$

Total 0 0 0 +0.1103

The Yen arbitrage profit is \0.1103 million.

Question 03: Long Strangle Strategy

· Donie should choose a long strangle strategy by buying out-of-the money calls and a puts with the same time to expiration to achieve the client’s objective. The reasons for choosing this strategy are:

- The premium of acquiring the position is minimum.

- The client expects an extremely high increase in volatility in the stock price of TRT Co. in either direction in response to the court’ decision.

· The long strangle strategy will provide the client with following benefits:

- Reward: Unlimited

- Profit: The potential maximum gain per share is unlimited when the substantial up and down movements of the stock are significant.

- Loss: The loss is limited to the cost of acquiring the position, which is the total premium paid for buying a call and a put option: $4 + $5 = $9.

- Breakeven stock prices: The breakeven happens when:

- The stock price (S) rises above the strike price of the call option ($60) by an amount equal to the cost of acquiring the position ($9). Or S> $69.

- The stock price (S) falls below the strike price of the put option ($55) by an amount equal to the premium paid to acquire the position ($9). Or S< $46.

Question 04: Transactions to obtain arbitrage profits without initial investment

Yen arbitrage profit with 0.0084 forward exchange rate

From the perspective of American investors. We ignore the transaction cost and assume lending at risk-free and continuous compounded interest during 1-year investment period.

Cash flow

Year 0 Year 1

$ \ $ \

1. Borrow dollars r_us =5% +0.008 -0.0084

2. Convert to Yen at $0.008/\ -0.008 +1

3. Invest in Yen-denominated bonds -1 +1.0101

at interest rate r_y = 1%

4. Sell a forward contract at $1.0101 +0.0085 -1.0101

value at today forward rate $0.0084/\

Total 0 0 +0.0001 0

The arbitrage profit is $0.0001 per Yen.

Yen arbitrage profit with 0.0083 forward exchange rate

Cash flow

Year 0 Year 1

$ \ $ \

1. Borrow dollars r_us =5% +0.008 -0.0084

2. Convert to Yen at $0.008/\ -0.008 +1

3. Invest in Yen-denominated bonds -1 +1.0101

at interest rate r_y = 1%

4. Sell a forward contract at $1.0101 +0.0084 -1.0101

value at today forward rate $0.0083/\

Total 0 0 0 0

The arbitrage profit is zero. This might be because forward exchange rate equals the exchange rate in 1 year.

Organizational Behavior - Culture Lens

2008-04-12T07:46:00.002-07:00

Dynacorp Case

Fall 2005

Problems inside Dynacorp:

When Dynacorp has changed its structure, there are problems of linkage and alignment in the light of Strategic Design Lens. According to the new structure, Research and Advanced Development Group and Business Units (BUs) are in the back and Customer Operations are in the front to communicate with markets and customers. Being in the back, the Research and Advanced Development Group and BUs have almost no relation with customers. As a result, the fragmentation of technical expertise would be deepened, the integration between market needs and technology development would be very poor and the technical support services are slow. Therefore, enhancing the integration and cooperation between the front and the back will become a big challenge. On the other hand, the new structure does not totally solve the alignment problem of improving performance measurement system because some branch managers and product managers of BUs are still spending most of their time worrying about the new performance measurement system that is based on performance against revenue and margin goals. In short, the new structure still has weaknesses in linkage between the back and the front and in alignment.

Problems in the view of Political Lens:

In light of Political Lens, the new structure is facing the problems of interest conflicts between BUs and the weak power of executives. As M. Pauley said, different product team leaders are trying to sell different types of products depending on their particular product lines. Moreover, BUs work on their different preferences and compete with each other to develop products in their interest because each of them focuses on particular product category. It means that there is still no recognition that interests are very important for the BUs and their totally different interests and priority are not yet understood and analyzed. Moreover, while arranging the new structure, most of the leaders who came from the old engineering department became the heads of the BUs. As a result, they may have not yet had full power to control their BUs that consist of people from the old production, engineering and marketing departments. Therefore, it is necessary that Dynacorp maps the interests of different BUs, gets buy-in, builds network among groups and increases power of the heads of BUs.

Structure change:

Dynacorp has changed its culture to motivate employees by altering its structure from the functional to front/back structure in order to bring them closer through account teams and by putting engineering and manufacturing functions together, but Dynarcop is still facing a big problem of creating a new organizational culture that matches with its new structure. Its people still work in the old manner and hold old concepts, beliefs, habits, norms, knowledge etc while the new structure requires new knowledge, skills, concepts and so forth. Even though the structure has changed for 2 years, its employees are still in the dark to find out themselves ways to adapt to the new structure and fulfill their new functions. Therefore, it needs to provide training to its employees in order for them to get accustomed to the new working culture and to get new necessary knowledge and skills to carry out their new responsibilities. At the same time, it needs to modify the job guidelines and put employees to suitable positions. As M. Walker noticed, it also needs to replace at leas 25 percent of its current staff and recruit new employees that fit the requirements of the new system. These actions are quite hard to carry out but urgently necessary in order to change Dynacorp’s culture to match with its new structure.

Organizational Behavior - Team Primer

2008-04-12T07:46:00.001-07:00

Fall 2005

Problems facing Michael Bacon at the end of the case:

At the end of the case, Bacon faces some serious problems. The most serious problem is strong resistance from market managers who want to deny the task force’s report and recommendations, thus the task force’s objective may not be achieved. The second problem is that a task force member, Bodin, is attacked due to his finding on regional sales managers’ overstating their sales estimates that cause the company’s wrong sales forecasting. As the task force leader, Bacon must find the way to protect Bodin and take responsibility if he is hurt or compromised by the persons whose responsibilities were found related to the wrong sales forecasting. The third problem is the relationships between Bacon and Meir, between Bacon and Reiss. Meir is dissatisfied with task force members and thinks that Bacon does not trust him by hiding Bodin’s report. Reiss lost his trust to Bacon when Bacon let Meir know Bodin’s confidential report. As a result, the task force risks breaking up. The fourth problem is the relationship between Bacon and Cornelius. Bacon will face strong resistance from Cornelius when he did not give Cornelius information at the end of the case. Another problem is that the task force may fail to fulfill its given tasks because its members have not yet agree on the results to be presented and they seem to be separated by subgroups and have different approaches of the task force’s tasks. To restore the trust of the members and bring them together to work on the common tasks will be a big challenge for Bacon since team dissatisfaction has occurred and the members do not have the feeling of working, sharing, helping among each other as a team. Therefore, Bacon needs to find a way to restore the task force.

How did those problems evolve?

These problems have occurred from the task force design. Task force members who are too different in age, background, experience, interests, habits and so forth were wrongly selected. The first meeting was conducted in the absence of the management and was not prepared so that task force members were not aware of each other, did not understand clearly the task force’s goals and tasks, did not have team spirit and team motivation, and did not have a sense of themselves together as a unit. The division in subgroups made the members not to feel that they are part of the team, especially Meir who had to work alone while other worked in their groups. The fact that Bacon himself did not trust Meir put a negative influence on the team spirit and team performance, thus there were no strong commitment and trust within the task force. Then, the internal communication problem occurred when the members did not know the way in which they interact with each other to accomplish the task and to keep themselves together as a team. Due to the lack of skills of a team player, Bacon did not know how to influence the team, run the task force, improve teamwork performance, increase team member satisfaction, and encourage team learning. As a result, the members worked on their own way, did not interact with each other, did not share information among the team, and did not help each other. Bacon worked closely with Holt’s subgroup and Reiss but let Meir work alone and did not give him support or guidance to complete his tasks. Thus, Meir felt that he does not belong to the team but rather work independently. The suspicion between Bacon and Meir seemed to increase. The serious problem happened when the task force did not reach team consensus before presenting recommendations and did not brief the key managers and other constituencies before the final presentation to prevent defensive reactions and rejection of the proposal. Therefore the task force’s presentation seemed to be the presentation of separate subgroups and individuals. The task force could not defend itself before the attack of market managers. Meir was angry with the attitude of his team members and got mad when knowing that his work was much easier if the information was shared within the group and if other members work closely with him. His dissatisfaction and anger ended up by spreading confidential report to his boss. This put Bacon in serious trouble. In short, the problems have occurred from the formation of the task force, the first meeting, running of the task force and bringing the project to completion.

Workforce Management: Employement Relationships in Changing Organizations

2008-04-12T07:45:00.000-07:00

Fall 2005

Wichita – success of the change initiative

Problems:

- High maintenance, fixed and operating costs.
- Razor-thin margins and low productivity (the facility consistently underperformed).

Reasons of the success of the initiative: the change was done through the right model and dimensions.

- Blocks to change: there is no block to change in Wichita. All employees were not resistant to change, instead they were willing and ready to change. Thus, there were no organizational inertia and no anticipated consequences of the change. This is because Jimenez integrated successfully the change initiative with key human resource practices, here is Keller.

- Model of change: the change initiative follows Tichy and Anne model in which there are 3 stages of changes: recognizing the need for change by generating a feeling of need to change and overcoming the cultural resistance to change in Wichita; creating a new vision by diagnosing the problem and mobilizing commitment of employees; managing the change. The role of Keller as a leader of change is a key for the success of the initiative. He extolled the importance of the initiative in the mind of his colleagues and acted consistently to involve and engage them in the process of change so that they were motivated to change.

- Dimensions of change: the four dimensions of the change initiative are incremental, continuous, bottom-up and emergent. Scope of change: the change efforts were incremental, being local in Wichita and involving in modifying its culture to one that values being more open about problems rather than hide them. Pace of change: the change is continuous by proceeding over time and one change leads to another. Source of change: the change is bottom-up. Even though the change is first driven by the CEO but it is broader, located farther down Wichita and is done by its employees. Process of change: the change is emergent because it started with no explicit maps (beginning with the meetings of the “problem chart”) but developed well over time and one change leads to another. Therefore, Wichita’s employees were socialized together as a unit, were willing to change continuously and thus the initiative was successful.

Lubbock

Problems: Lubbock has the same problems ad Wichita

- High maintenance, fixed and operating costs.
- Low productivity low productivity (the plant rarely met the production’s goal).

Reasons why the initiative was not successful: the change was done through the wrong model and dimensions.

- Blocks to change: there are serious blocks to change in Lubbock. All employees were strongly resistant and reluctant to change because of the human nature, organizational inertia and increasing forces from the management (Jimenez and her team) that block the change. Thus, anticipated consequences of the change occurred when implementing the initiative.

- Model of change: the change initiative follows Beckhard and Harris model in which the change focuses mostly in the future state. Jimenez and her team made erroneous assumptions about how Lubbock currently operates and about what groups and sub-units will be the most affected by the change. They ignored to think about the present stage to understand Lubbock’s managers and its employees’ attitude toward the change and its capacity to make the proposed changes in the proposed time frame. They also did not think about the transitional stage when Lubbock’s people are leaving the old system and learning how to make the new system work. Rather they focused only on the future stage with wrong assumptions. Furthermore, they could not integrate the change initiative with key human resource practices who can act as a leader to involve and engage employees to participate in the process of change like Keller at Wichita.

- Dimensions of change: the four dimensions of the change initiative are the inversion of those applied at Wichita: radical, punctuated, top-down and planned. Scope of change: the change efforts were radical - the change involved in fundamental changes inside Lubbock. Pace of change: the change is punctuated - having a clear beginning and an end as scheduled by the team. Source of change: the change is top-down. Unlike Wichita, the meetings of “the problem chart” are compulsory and set by the team. Process of change: the change is carefully planned - the team diagnosed the fundamental problems of Lubbock and applied the model of change that was already very successful at Wichita.

Jimenez thought that she could succeed in applying the change model in Wichita to Lubbock. However, the above analyses show that in fact she had modified this model before implementing it at Lubbock. Therefore, the change initiative was not successful.

Roussel-Uclaf

2008-04-12T07:44:00.001-07:00

Fall 2005

Organizational set model analysis

Input set: Roussel-Uclaf (RU) has established cooperative R&D agreements with leading French universities and research organizations who provide RU with technology development and knowledge to create new products. This is RU’s advantage to be a leader among other pharmaceutical companies. RU also has a strong partnership with Dr. Baulieu who is a star on French medical research a prominent researcher in the world’s medical research community to acquire new knowledge for R&D.

Output set: RU’s customers of RU486 are women who prefer buying it because it provides greater privacy, les invasive and avoids anesthesia. RU cares about distributors in eastern Europe where it will not control black market if selling RU486. RU also concerns about poor medical conditions of customers in developing countries where RU can not estimate how big the market should be.
Regulatory set: The French government authorized RU to commercialize RU486. UK and Sweden’s governments also approved RU. But the US government under Reagan and Bush administrations did not favor RU486 so RU could not sell them in such huge market. Until the Clinton administration can RU receive encouragement to produce RU486 in the US.

Set of competitors: RU has almost no competitor who can produce the same product.

Stakeholder model analysis

Interests of stakeholders: RU faces strong conflicts of what its stakeholders want. Inside RU, executives and employees are themselves divided about the ethnics of marketing RU486. Outside RU, the same controversy arises among RU’s subsidiaries. RU’s mother company, Hoechst, has different interest with RU: while RU wants to launch RU486, Hoechst does not want to market it because of the fear that public opinion will destroy Hoechst’s economic power and reputation and boycott all its products. Furthermore, there are strong opposition of local, national governments and local communities in the US and in the rest of Europe where RU want to sell its product. These institutions are against abortion and therefore try to prevent RU from selling RU486. The reason of these conflicts is that RU does not mobilize the interests of these external stakeholders, co-build the acceptance of abortion between internal stakeholders and among external stakeholders. RU also does not co-opt these sets of stakeholders to accept RU486. RU has only a coalition-building with WHO by signing an agreement to conduct test in the developing world thus paving the way for RU to sell it in there. But this coalition is not strong enough since WHO depends on the US’s money.

Power and influence of stakeholders: The Health Ministry of France uses its power, influence and legal right to force RU to sell RU486. Therefore, after a long time of debates against public oppositions, RU486 can be is produced in France and soon occupies most of French abortion clinics. Without this intervention, RU could not be able to sell RU486 since public oppositions against the company are very strong.

Institutional field model to analyze the interactions between organizations and their environments:

Share beliefs: The French society share the belief that abortion is right with RU so it accepts RU486 as the most powerful tool for women for avoid undesired pregnancy. Then the UK, China and Sweden’s societies do too. The CEO of RU also believes personally that it is worth to launch RU486. Other groups in the US also support RU and push it to sell RU486. But the US and Singapore, people, anti-abortion groups and social wisdom are strongly against abortion because they believe in the right-to-life.

Shared values: in Italy, Austria, catholic countries of south Europe people and governments still do not agree whether abortion is right and women should have free choices to use RU486. They do not share with RU that RU486 is the right way to help women in abortion.

Mindsets: The change of mindsets against abortion is very difficult since they are well rooted in people’s mind, especially in America. So RU can not easily get social approval from the US and other countries.
Coercive isomorphism: RU is between two forces: the Clinton administration now urges RU to test and produce RU486 in there while abortion remains highly charged political and cultural issue and anti-abortion pressure rises to threat the boycott of RU’s products.

Isomorphism: Someone suggests RU to do the same way as IUDs, a pharmaceutical firm having similar process to RU had done earlier: give the license for technology for a non-profit Population Council and let it find a smaller company that is willing to produce RU486.

Normative isomorphism: Dr. Baulieu was awarded the 1989 Albert Lasker Award for Research in Clinical Medicine for his contribution to the knowledge of steroid hormones included RU486 in New York. This means that this professional organization has proved that RU486 is the right way to help women in abortion.

Case study: Carly Fiorina - Leadership Capability

2008-04-12T03:24:00.000-07:00

Fall 2005

Sense-making

Coming to understand the context in which you are operating:
Fiorina has a strong sense of understanding the context to map the external terrain. At AT&T, she recognized the phone-equipment manufacturing unit’s potential for growth in emerging market such as Asia and the firm’s capability to supply a switch able to handle both wireless and long-distance traffic. At HP, she boldly declared her intend to merge HP with Compaq as she sees the merge will make the two companies be more efficient and cost effective.

Creating a map that represents the current situation of the group or organization:
She has a savvy approach to customers to understand what they want and how to fulfill their need and wants. That’s why she could always expand the business of her company.

Making sense of the environment:
She saw the market moving quickly and the pace of change accelerating. This sense-making distinguishes her as a great leader who can discover the new terrain for HP as the environment changes.

Relating - centers on the leader’s ability to engage in inquiry, advocacy, and connecting

Inquiry:
Fiorina does not always listen and understand what others are thinking and feeling. She ignores others while implementing her decisions without explicit reasons. She also does not care about the critics against her leadership style “management with flying around”. In this context, she is right to act like that to maintain her position as a female leader, strengthen her executive power and make her management more efficient to manage HP as a world-wide company.

Advocacy:
She is always clear about her own point of view and trying to influence others of its merits. She is able to tell the truth about what needs to be done and clearly define what is and is not acceptable performance. This ability helps her communicate broad strategies, deep knowledge of operations, visions and instructions clearly to her management team and employees.

Connecting:
She is able to cultivate her followers who help each other to accomplish their goals. She also developed a personal touch that inspired intense loyalty among her followers and the ability to build collaborative relationships with others to create coalitions for change. For instance, she has a strong ally with HP board members. The 51.4% vote of HP’ shareholders for the merge HP-Compaq is her success in building coalitions for change as she planned.

Visioning

Creating a compelling, shared and meaningful vision:
She changed the vision of HP from a stand-alone product/service provider to a company that provides an integrated suite of information appliances, highly reliable IT infrastructure and e-service, or to expand HP in a new direction at “Internet speed” and customer orientation. This compelling vision motivate HP’s people to change their current view and ways of working, and work hard to reach it. This shared vision enables them to act together, become bound together around a common identity and sense of destiny. This vision also provides them with a sense of meaning about their work and the difference they will make. Therefore, HP could offer its own e-services and develop e-speak, package online services tailored to customers’ needs during her first year at HP.

Inventing

Changing the way that people work together:
Knowing that the shift of this vision only can be achieved with corresponding changes in organizational structure, she changed the way people work by restructuring HP into four organizations: two focusing on sales and the others focusing on products.
Creating a whole new way of approaching a task: She recognized the need for a new leadership style and faster actions for the new vision. So she decided to change HP from a fully integrated, product-focused business to a more disintegrated approach focusing on product generation, customer-facing and support activities. She also changed her leadership style by using internal Web and message boards to communicate with workers instead of visiting and talking to them in person as the old leadership style.

Creating new approach, new solutions, new practices:
To achieve the goal, she changed the culture and work habit to make employees be more efficient. She encouraged research to explore new technologies and develop new products. She also created the “rules of garage” to motivate new and innovative ideas.

Inventing goes hand-in-hand with sense-making:
She blended sense-making with inventing. Together with the above initiatives, she developed HP’s brand by generating a branding campaign that sent new messages to customers, competitors and industry partners to build a lasting image of the company and brand awareness for its further sustainable development.

Her strong capability of sense-making, visioning, relating and inventing makes Fiorina become a powerful and talented female leader in the American corporate world.

English essay: local and export processing enterprises in Vietnam

2008-04-12T03:22:00.000-07:00

Compare and Contrast Essay

In Vietnam, there are two types of processing manufacturers: local processing enterprises (LPEs) and export processing enterprises (EPEs) I have experienced working for both of them for quite a long time. Someone may argue that there are many similarities between LPEs and EPEs. However, they are different in legal rights and responsibilities, the level of their technology and production, and the effectiveness of their management. EPEs are business models for LPEs to follow.

In terms of legal issues, each of them has different rights and responsibilities. LPEs are owned by Vietnamese nationals or local institutions. LPEs are also restricted to selling their products to local markets and to buying the main raw materials from overseas markets. Besides, LPEs are allowed to hire foreign employees up to 5 percent of their total workforce. LPEs have to pay value-added, import and export taxes. In contrast, EPEs are owned by foreign individuals or institutions. EPEs have to export all their products to overseas markets and to buy the main raw materials from foreign countries. Moreover, EPEs are allowed to hire foreign employees up to 10 percent of their total workforce. But EPEs are exempted from value-added, import and export taxes.

The two types of processing enterprises also differ in technology and production level. Being local companies with limited capitals, LPEs are not usually able to adopt new and expensive technology. The local workforce, which has limited English and technical skills, prevents LPEs from applying new technology from foreign countries. Therefore, LPEs can only produce simple, non-technological products such as garments and shoes. On the other hand, EPEs are usually technology-rich firms with modern production methods because they must satisfy the technological requirements set by the Vietnamese government in order to have a license to operate in Vietnam. Thus, EPEs normally have their higher level of technology and produce highly technological products such as color printers and digital cameras.

Another difference between LPEs and EPEs is the effectiveness of management. LPEs normally have old management systems, which are bureaucratic, inflexible and conservative. These systems slow down the decision making process, thus prevent LPEs from being able to improve fast their production performance, produce new products and grow in highly competitive environments. In contrast, EPEs have networked, flat, flexible, diverse and global management that allows EPEs to respond quickly to environmental changes and adjust their organizational structures to fit new situations. As a result, EPEs are able to operate across the borders, compete in international markets and build networks with international business partners.
Although the two kinds of manufacturers are different in legal rights and responsibilities, the level of their technology and production, and the effectiveness of their management, they do not totally contrast one with another. Having their higher technology level and effective management, EPEs are business models for LPEs to follow. On the other hand, LPEs learn from EPEs not only the new technology they bring in but also the way they manage their business and compete in international markets. Thus both EPEs and LPEs contribute to the diversity and development of the Vietnamese manufacturing industry.

Business Communication: sample of an internal memo

2008-04-12T03:21:00.000-07:00

Spring 2006

MEMO
To: All Weymouth Employees
From: Carl Weymouth
Date: September 10, 1990
Subject: Personnel Reduction at Weymouth in coming months

I am very sorry to inform you that our company will face serious difficulties in the near future. According to latest sales forecasts, the company’s revenues will probably decrease by 25% in the next eighteen months due to increasing competition from European and Japanese companies. To become more competitive, Weymouth needs new capitals to buy new equipment and restructure production processes at all mills. Moreover, the company needs to spend more money on controlling pollution levels within the state standards. Consequently, Weymouth must find effective solutions to save as many costs as possible.

Recently, our company has implemented several cost-cutting measures. The company has shut down several less efficient mills and processing plants, and delayed some plant modifications for those that do not meet environmental regulations. The company also has cut purchasing and supply costs, implemented restricted travel expenses and reduced operating expenses as many as it could do. However, these effective measures have not helped Weymouth meet its urgent need for capitals. Therefore, the last solution our company could take is to reduce our employment force by 1000 salaried positions at all levels in coming months.

The company will pay those who must leave the company and have one or more years of service a termination payment, unused vacation for 1990 and accrued vacation for 1991. Our company also pays one-month coverage insurance from the leaving date and a partial insurance at reasonable rates for the following months. The company’s managers will help those former employees search for new jobs.

On the other hand, the company will provide those who stay after this employment reduction with salary increases and improved benefit packages including provisions for retirement, vacations, medical and dental cares, life insurance and stock ownership. In return, those employees have to take more responsibilities and fulfill more job requirements. They also have to create more initiatives and work more effectively for the development of the company.

In coming months, supervisors will inform each employee individually his or her employment status and answer questions he or she may have.

I feel much regret to inform you this personnel reduction plan and look for your profound understanding of this solution. I will do my best to develop the company’s business and hope that former employees will have opportunities to work again at Weymouth.

Case study: Dividend Policy at FPL Group Inc

2008-04-12T03:19:00.000-07:00

Dividend Policy is Irrelevant

Spring 2006

Why do firms pay dividend?:

- Firms pay dividends to balance their asset and capital structures when their earnings outstrip their investment opportunities.
- Firms pay dividends to mitigate agency problems when they have excess earnings.

Cons of cash dividend payment:

- A dividend policy is irrelevant or has no impact on the firm’s value because investors have the ability to create "homemade" dividends.
- Little to no dividend payout is more favorable for investors. This is because taxation on a dividend is higher than tax on capital gains.
- Dividends are taxed as ordinary incomes
- Dividends can reduce internal source of financing
- Once established, dividends cuts are hard to make without adversely affecting a firm’s stock price

Pros of cash dividend payment:

- Cash dividends can underscore good results and provide support to stock price
- Dividends may attract institutional investors who preferred some returns from dividends
- Stock price usually increases with the announcement of a new or increased dividends
- Dividends absorb cash flow so they may help reduce agency problems

Major issues of FPL in 1994:

- Negotiation between FPL and FERC (Federal Energy Regulatory Commission) to settle the lawsuit against FPL for changing excessive rates and denying fair access to its transmission system.
- Lower investment rate due to the fact that FPL probably does not raise dividends as discussed
- Suggestion of dividend cuts by FPL’s managers
- FPL’s stock price has fallen by 19.6% while the S&P index has decreased by 22.1%
- Rising interest rate and increasing competition in electric industry
From investors’ perspective, the current payout ratio is appropriate to some extent:
- FPL’s current payout ration =　cash dividend/net income = 461693/248749 = 107.7%. According to the exhibit 9, FPL has the highest payout ratio in comparison to other electric utilities in the same industry.
- For institutional investors who hold 36.9% of FPL’s total common stocks, this payout ratio may be appropriate because they likely prefers high payout ratio in seeking for high earnings from their investment. If FPL tries to maintain this ratio, it can satisfy those small investors but it has to increase this ration over time to satisfy these investors’ expectation.
- For individual investors who hold 51.9% of FPL’s total common stocks, the payout ration has little meaning because they can use homemade dividend strategy to obtain capital gains rather than receive cash dividends due to higher taxes imposed on dividends. Furthermore, they do not need dividends to convert shares to cash. FPL’s decision to cut payout ration does not really affect the value of these individual investors.
- In my opinion, FPL currently maintains an inappropriate payout ration. Given the situation that the new regulation will be soon implemented, FPL will face strong competition not only from Florida but also from all other possible states. FPL can not protect itself by restricting access to its transmission system since it was sued for doing so. To prepare for competition and sustainable growth in near future, the best way FPL can do is to use its excess cash to invest in new positive NPV projects. Therefore, FPL should not maintain the high payout ration at 107.7%. Instead, it should lower this ratio to or below the average ratio of the industry (82.9%) since the dividend cut does not lower the firm’s value.

Recommendations on FPL’s stocks:

- First, FPL should declare to cut dividends. The company should not worry about a lawsuit against its lower dividend policy as the dividend cut does not affect the majority of its investors (individual investors). Upon the announcement of dividend cut, the stock price can decrease so FPL should use its excess cash to buy back its stock to increase the stock price whenever it falls down.
- Then, FPL should use Buy and Hold strategy to repurchase its stocks and hold them regardless of market fluctuations. This solution as a long term investment can help FPL increase its stock price which has fallen in early 1994. By doing so, FPL can get rid of its excess cash of $150 million per year. FPL also can use this strategy to increase incentive compensation by granting stock options to employees and thus, increase employment commitment and recruiting attractiveness to have competent personnel for future growth.
- FPL should use its excess cash to invest more in new profitable projects, acquire new companies and profitable assets, and reinvest in financial assets.

How to analyze a case study for Business Policy subject

2008-04-12T03:16:00.000-07:00

As just mentioned, the purpose of the case study is to let you apply the concepts you've learned when you analyze the issues facing a specific company. To analyze a case study, therefore, you must examine closely the issues with which the company is confronted. Most often you will need to read the case several times - once to grasp the overall picture of what is happening to the company and then several times more to discover and grasp the specific problems.
Generally, detailed analysis of a case study should include eight areas:

The history, development, and growth of the company over time
The identification of the company's internal strengths and weaknesses
The nature of the external environment surrounding the company
A SWOT analysis
The kind of corporate-level strategy pursued by the company
The nature of the company's business-level strategy
The company's structure and control systems and how they match its strategy
Recommendations

To analyze a case, you need to apply what you've learned to each of these areas. We offer a summary of the steps you can take to analyze the case material for each of the eight points we just noted.

1. Analyze the company's history, development, and growth. A convenient way to investigate how a company's past strategy and structure affect it in the present is to chart the critical incidents in its history - that is, the events that were the most unusual or the most essential for its development into the company it is today. Some of the events have to do with its founding, its initial products, how it makes new-product market decisions, and how it developed and chose functional competencies to pursue. Its entry into new businesses and shifts in its main lines of business are also important milestones to consider.

2. Identify the company's internal strengths and weaknesses. Once the historical profile is completed, you can begin the SWOT analysis. Use all the incidents you have charted to develop an account of the company's strengths and weaknesses as they have emerged historically. Examine each of the value creation functions of the company, and identify the functions in which the company is currently strong and currently weak. Some companies might be weak in marketing; some might be strong in research and development. Make lists of these strengths and weaknesses. The SWOT checklist gives examples of what might go in these lists.

3. Analyze the external environment. The next step is to identify environmental opportunities and threats. Here you should apply all information you have learned on industry and macroenvironments, to analyze the environment the company is confronting. Of particular importance at the industry level is Porter's five forces model and the stage of the life cycle model. Which factors in the macroenvironment will appear salient depends on the specific company being analyzed. However, use each factor in turn (for instance, demographic factors) to see whether it is relevant for the company in question.

Having done this analysis, you will have generated both an analysis of the company's environment and a list of opportunities and threats. The SWOT checklist lists some common environmental opportunities and threats that you may look for, but the list you generate will be specific to your company.

4. Evaluate the SWOT analysis. Having identified the company's external opportunities and threats as well as its internal strengths and weaknesses, you need to consider what your findings mean. That is, you need to balance strengths and weaknesses against opportunities and threats. Is the company in an overall strong competitive position? Can it continue to pursue its current business- or corporate-level strategy profitably? What can the company do to turn weaknesses into strengths and threats into opportunities? Can it develop new functional, business, or corporate strategies to accomplish this change? Never merely generate the SWOT analysis and then put it aside. Because it provides a succinct summary of the company's condition, a good SWOT analysis is the key to all the analyses that follow.

5. Analyze corporate-level strategy. To analyze a company's corporate-level strategy, you first need to define the company's mission and goals. Sometimes the mission and goals are stated explicitly in the case; at other times you will have to infer them from available information. The information you need to collect to find out the company's corporate strategy includes such factors as its line(s) of business and the nature of its subsidiaries and acquisitions. It is important to analyze the relationship among the company's businesses. Do they trade or exchange resources? Are there gains to be achieved from synergy? Alternatively, is the company just running a portfolio of investments? This analysis should enable you to define the corporate strategy that the company is pursuing (for example, related or unrelated diversification, or a combination of both) and to conclude whether the company operates in just one core business. Then, using your SWOT analysis, debate the merits of this strategy. Is it appropriate, given the environment the company is in? Could a change in corporate strategy provide the company with new opportunities or transform a weakness into a strength? For example, should the company diversify from its core business into new businesses?

Other issues should be considered as well. How and why has the company's strategy changed over time? What is the claimed rationale for any changes? Often it is a good idea to analyze the company's businesses or products to assess its situation and identify which divisions contribute the most to or detract from its competitive advantage. It is also useful to explore how the company has built its portfolio over time. Did it acquire new businesses, or did it internally venture its own? All these factors provide clues about the company and indicate ways of improving its future performance.

6. Analyze business-level strategy. Once you know the company's corporate-level strategy and have done the SWOT analysis, the next step is to identify the company's business-level strategy. If the company is a single-business company, its business-level strategy is identical to its corporate-level strategy. If the company is in many businesses, each business will have its own business-level strategy. You will need to identify the company's generic competitive strategy - differentiation, low cost, or focus - and its investment strategy, given the company's relative competitive position and the stage of the life cycle. The company also may market different products using different business-level strategies. For example, it may offer a low-cost product range and a line of differentiated products. Be sure to give a full account of a company's business-level strategy to show how it competes.

Identifying the functional strategies that a company pursues to build competitive advantage through superior efficiency, quality, innovation, and customer responsiveness and to achieve its business-level strategy is very important. The SWOT analysis will have provided you with information on the company's functional competencies. You should further investigate its production, marketing, or research and development strategy to gain a picture of where the company is going. For example, pursuing a low-cost or a differentiation strategy successfully requires a very different set of competencies. Has the company developed the right ones? If it has, how can it exploit them further? Can it pursue both a low-cost and a differentiation strategy simultaneously?

The SWOT analysis is especially important at this point if the industry analysis, particularly Porter's model, has revealed the threats to the company from the environment. Can the company deal with these threats? How should it change its business-level strategy to counter them? To evaluate the potential of a company's business-level strategy, you must first perform a thorough SWOT analysis that captures the essence of its problems.

Once you complete this analysis, you will have a full picture of the way the company is operating and be in a position to evaluate the potential of its strategy. Thus, you will be able to make recommendations concerning the pattern of its future actions. However, first you need to consider strategy implementation, or the way the company tries to achieve its strategy.

7. Analyze structure and control systems. The aim of this analysis is to identify what structure and control systems the company is using to implement its strategy and to evaluate whether that structure is the appropriate one for the company. Different corporate and business strategies require different structures. For example, does the company have the right level of vertical differentiation (for instance, does it have the appropriate number of levels in the hierarchy or decentralized control?) or horizontal differentiation (does it use a functional structure when it should be using a product structure?)? Similarly, is the company using the right integration or control systems to manage its operations? Are managers being appropriately rewarded? Are the right rewards in place for encouraging cooperation among divisions? These are all issues that should be considered.

In some cases there will be little information on these issues, whereas in others there will be a lot. Obviously, in analyzing each case you should gear the analysis toward its most salient issues. For example, organizational conflict, power, and politics will be important issues for some companies. Try to analyze why problems in these areas are occurring. Do they occur because of bad strategy formulation or because of bad strategy implementation?

Organizational change is an issue in many cases because the companies are attempting to alter their strategies or structures to solve strategic problems. Thus, as a part of the analysis, you might suggest an action plan that the company in question could use to achieve its goals. For example, you might list in a logical sequence the steps the company would need to follow to alter its business-level strategy from differentiation to focus.

8. Make recommendations. The last part of the case analysis process involves making recommendations based on your analysis. Obviously, the quality of your recommendations is a direct result of the thoroughness with which you prepared the case analysis. The work you put into the case analysis will be obvious to the professor from the nature of your recommendations. Recommendations are directed at solving whatever strategic problem the company is facing and at increasing its future profitability. Your recommendations should be in line with your analysis; that is, they should follow logically from the previous discussion. For example, your recommendation generally will center on the specific ways of changing functional, business, and corporate strategy and organizational structure and control to improve business performance. The set of recommendations will be specific to each case, and so it is difficult to discuss these recommendations here. Such recommendations might include an increase in spending on specific research and development projects, the divesting of certain businesses, a change from a strategy of unrelated to related diversification, an increase in the level of integration among divisions by using task forces and teams, or a move to a different kind of structure to implement a new business-level strategy. Again, make sure your recommendations are mutually consistent and are written in the form of an action plan. The plan might contain a timetable that sequences the actions for changing the company's strategy and a description of how changes at the corporate level will necessitate changes at the business level and subsequently at the functional level.

After following all these stages, you will have performed a thorough analysis of the case and will be in a position to join in class discussion or present your ideas to the class, depending on the format used by your professor. Remember that you must tailor your analysis to suit the specific issue discussed in your case. In some cases, you might completely omit one of the steps in the analysis because it is not relevant to the situation you are considering. You must be sensitive to the needs of the case and not apply the framework we have discussed in this section blindly. The framework is meant only as a guide and not as an outline that you must use to do a successful analysis.

CONCLUSION

When evaluating a case, it is important to be systematic. Analyze the case in a logical fashion, beginning with the identification of operating and financial strengths and weaknesses and environmental opportunities and threats. Move on to assess the value of a company's current strategies only when you are fully conversant with the SWOT analysis of the company. Ask yourself whether the company's current strategies make sense, given its SWOT analysis. If they do not, what changes need to be made? What are your recommendations? Above all, link any strategic recommendations you may make to the SWOT analysis. State explicitly how the strategies you identify take advantage of the company's strengths to exploit environmental opportunities, how they rectify the company's weaknesses, and how they counter environmental threats. Also, do not forget to outline what needs to be done to implement your recommendations

The role of financial analysis

Another important aspect of analyzing a case study and writing a case study analysis is the role and use of financial information. A careful analysis of the company's financial condition immensely improves a case write-up. After all, financial data represent the concrete results of the company's strategy and structure. Although analyzing financial statements can be quite complex, a general idea of a company's financial position can be determined through the use of ratio analysis. Financial performance ratios can be calculated from the balance sheet and income statement. These ratios can be classified into five different subgroups: profit ratios, liquidity ratios, activity ratios, leverage ratios, and shareholder-return ratios. These ratios should be compared with the industry average or the company's prior years of performance. It should be noted, however, that deviation from the average is not necessarily bad; it simply warrants further investigation. For example, young companies will have purchased assets at a different price and will likely have a different capital structure than older companies. In addition to ratio analysis, a company's cash flow position is of critical importance and should be assessed. Cash flow shows how much actual cash a company possesses.

Profit Ratios

Profit ratios measure the efficiency with which the company uses its resources. The more efficient the company, the greater is its profitability. It is useful to compare a company's profitability against that of its major competitors in its industry. Such a comparison tells whether the company is operating more or less efficiently than its rivals. In addition, the change in a company's profit ratios over time tells whether its performance is improving or declining. A number of different profit ratios can be used, and each of them measures a different aspect of a company's performance. The most commonly used profit ratios are gross profit margin, net profit margin, return on total assets, and return on stockholders' equity.

Gross profit margin. The gross profit margin simply gives the percentage of sales available to cover general and administrative expenses and other operating costs. It is defined as follows:

Gross Profit Margin
=
(Sales Revenue - Cost of Goods Sold)/Sales Revenue

Net profit margin. Net profit margin is the percentage of profit earned on sales. This ratio is important because businesses need to make a profit to survive in the long run. It is defined as follows:

Net Profit Margin=Net Income/Sales Revenue

Return on total assets. This ratio measures the profit earned on the employment of assets. It is defined as follows:

Return on Total Assets=Net Income Available to Common Stockholders/Total Assets

Net income is the profit after preferred dividends (those set by contract) have been paid. Total assets include both current and noncurrent assets.

Return on stockholders' equity. This ratio measures the percentage of profit earned on common stockholders' investment in the company. In theory, a company attempting to maximize the wealth of it stockholders should be trying to maximize this ratio. It is defined as follows:

Return on Stockholders' Equity
=
Net Income Available to Common Stockholders/Stockholders' Equity

Liquidity Ratios

A company's liquidity is a measure of its ability to meet short-term obligations. An asset is deemed liquid if it can be readily converted into cash. Liquid assets are current assets such as cash, marketable securities, accounts receivable, and so on. Two commonly used liquidity ratios are current ratio and quick ratio.

Current ratio. The current ratio measures the extent to which the claims of short-term creditors are covered by assets that can be quickly converted into cash. Most companies should have a ratio of at least 1, because failure to meet these commitments can lead to bankruptcy. The ratio is defined as follows:

Current Ratio
=
Current Assets/Current Liabilities

Quick ratio. The quick ratio measures a company's ability to pay off the claims of short-term creditors without relying on the sale of its inventories. This is a valuable measure since in practice the sale of inventories is often difficult. It is defined as follows:

Quick Ratio
=
(Current Assets - Inventory)/Current Liabilities

Activity Ratios

Activity ratios indicate how effectively a company is managing its assets. Inventory turnover and days sales outstanding (DSO) are particularly useful:

Inventory turnover. This measures the number of times inventory is turned over. It is useful in determining whether a firm is carrying excess stock in inventory. It is defined as follows:

Inventory Turnover
=
Cost of Goods Sold/Inventory

Cost of goods sold is a better measure of turnover than sales, since it is the cost of the inventory items. Inventory is taken at the balance sheet date. Some companies choose to compute an average inventory, beginning inventory, plus ending inventory, but for simplicity use the inventory at the balance sheet date.

Days sales outstanding (DSO), or average collection period. This ratio is the average time a company has to wait to receive its cash after making a sale. It measures how effective the company's credit, billing, and collection procedures are. It is defined as follows:

DSO=Accounts Receivable/Total Sales/360

Accounts receivable is divided by average daily sales. The use of 360 is standard number of days for most financial analysis.

Leverage Ratios

A company is said to be highly leveraged if it uses more debt than equity, including stock and retained earnings. The balance between debt and equity is called the capital structure. The optimal capital structure is determined by the individual company. Debt has a lower cost because creditors take less risk; they know they will get their interest and principal. However, debt can be risky to the firm because if enough profit is not made to cover the interest and principal payments, bankruptcy can occur.

Three commonly used leverage ratios are debt-to-assets ratio, debt-to-equity ratio, and times-covered ratio.

Debt-to-assets ratio. The debt-to-asset ratio is the most direct measure of the extent to which borrowed funds have been used to finance a company's investments. It is defined as follows:

Debt-to-Assets Ratio=Total Debt/Total Assets

Total debt is the sum of a company's current liabilities and its long-term debt, and total assets are the sum of fixed assets and current assets.

Debt-to-equity ratio. The debt-to-equity ratio indicates the balance between debt and equity in a company's capital structure. This is perhaps the most widely used measure of a company's leverage. It is defined as follows:

Debt-to-Equity Ratio=Total Debt/Total Equity

Times-covered ratio. The times-covered ratio measures the extent to which a company's gross profit covers its annual interest payments. If the times-covered ratio declines to less than 1, then the company is unable to meet its interest costs and is technically insolvent. The ratio is defined as follows:

Times-Covered Ratio
=
Profit Before Interest and Tax/Total Interest Charges

Shareholder-Return

Ratios Shareholder-return ratios measure the return earned by shareholders from holding stock in the company. Given the goal of maximizing stockholders' wealth, providing shareholders with an adequate rate of return is a primary objective of most companies. As with profit ratios, it can be helpful to compare a company's shareholder returns against those of similar companies. This provides a yardstick for determining how well the company is satisfying the demands of this particularly important group of organizational constituents. Four commonly used ratios are total shareholder returns, price-earnings ratio, market to book value, and dividend yield.

Total shareholder returns. Total shareholder returns measure the returns earned by time t + 1 on an investment in a company's stock made at time t. (Time t is the time at which the initial investment is made.) Total shareholder returns include both dividend payments and appreciation in the value of the stock (adjusted for stock splits) and are defined as follows:

Total Shareholder Returns=(Stock Price (t + 1) - Stock Price (t) + Sum of Annual Dividends per Share)/Stock Price (t)

Thus, if a shareholder invests $2 at time t, and at time t + 1 the share is worth $3, while the sum of annual dividends for the period t to t + 1 has amounted to $0.2, total shareholder returns are equal to (3 - 2 + 0.2)/2 = 0.6, which is a 60 percent return on an initial investment of $2 made at time t.

Price-earnings ratio. The price-earnings ratio measures the amount investors are willing to pay per dollar of profit. It is defined as follows:

Price-Earnings Ratio=Market Price per Share/Earnings per Share

Market to book value. Another useful ratio is market to book value. This measures a company's expected future growth prospects. It is defined as follows:

Market to Book Value=Market Price per Share/Earnings per Share

Dividend yield. The dividend yield measures the return to shareholders received in the form of dividends. It is defined as follows:

Dividend Yield=Dividend per Share/Market Price per Share

Market price per share can be calculated for the first of the year, in which case the dividend yield refers to the return on an investment made at the beginning of the year. Alternatively, the average share price over the year may be used. A company must decide how much of its profits to pay to stockholders and how much to reinvest in the company. Companies with strong growth prospects should have a lower dividend payout ratio than mature companies. The rationale is that shareholders can invest the money elsewhere if the company is not growing. The optimal ratio depends on the individual firm, but the key decider is whether the company can produce better returns than the investor can earn elsewhere.

Cash Flow Cash flow position is simply cash received minus cash distributed. The net cash flow can be taken from a company's statement of cash flows. Cash flow is important for what it tells us about a company's financing needs. A strong positive cash flow enables a company to fund future investments without having to borrow money from bankers or investors. This is desirable because the company avoids the need to pay out interest or dividends. A weak or negative cash flow means that a company has to turn to external sources to fund future investments. Generally, companies in strong-growth industries often find themselves in a poor cash flow position (because their investment needs are substantial), whereas successful companies based in mature industries generally find themselves in a strong cash flow position.

A company's internally generated cash flow is calculated by adding back its depreciation provision to profits after interest, taxes, and dividend payments. If this figure is insufficient to cover proposed new-investment expenditures, the company has little choice but to borrow funds to make up the shortfall or to curtail investments. If this figure exceeds proposed new investments, the company can use the excess to build up its liquidity (that is, through investments in financial assets) or to repay existing loans ahead of schedule.

WHAT IS CASE STUDY ANALYSIS?

A case study presents an account of what happened to a business or industry over a number of years. It chronicles the events that managers had to deal with, such as changes in the competitive environment, and charts the managers' response, which usually involved changing the business- or corporate-level strategy.

Cases prove valuable in a course for several reasons. First, cases provide you, the student, with experience of organizational problems that you probably have not had the opportunity to experience firsthand. In a relatively short period of time, you will have the chance to appreciate and analyze the problems faced by many different companies and to understand how managers tried to deal with them.

Second, cases illustrate what you have learned. The meaning and implication of this information are made clearer when they are applied to case studies. The theory and concepts help reveal what is going on in the companies studied and allow you to evaluate the solutions that specify companies adopted to deal with their problems. Consequently, when you analyze cases, you will be like a detective who, with a set of conceptual tools, probes what happened and what or who was responsible and then marshals the evidence that provides the solution. Top managers enjoy the thrill of testing their problem-solving abilities in the real world. It is important to remember, after all, that no one knows what the right answer is. All that managers can do is to make the best guess. In fact, managers say repeatedly that they are happy if they are right only half the time in solving strategic problems. Management is an uncertain game, and using cases to see how theory can be put into practice is one way of improving your skills of diagnostic investigation.

Third, case studies provide you with the opportunity to participate in class and to gain experience in presenting your ideas to others. Instructors may sometimes call on students as a group to identify what is going on in a case, and through classroom discussion the issues in and solutions to the case problem will reveal themselves. In such a situation, you will have to organize your views and conclusions so that you can present them to the class. Your classmates may have analyzed the issues differently from you, and they will want you to argue your points before they will accept your conclusions; so be prepared for debate. This is how decisions are made in the actual business world.

Instructors also may assign an individual, but more commonly a group, to analyze the case before the whole class. The individual or group probably will be responsible for a thirty- to forty-minute presentation of the case to the class. That presentation must cover the issues involved, the problems facing the company, and a series of recommendations for resolving the problems. The discussion then will be thrown open to the class, and you will have to defend your ideas. Through such discussions and presentations, you will experience how to convey your ideas effectively to others. Remember that a great deal of managers' time is spent in these kinds of situations, presenting their ideas and engaging in discussion with other managers, who have their own views about what is going on. Thus, you will experience in the classroom the actual process of what goes on in a business setting, and this will serve you well in your future career.

If you work in groups to analyze case studies, you also will learn about the group process involved in working as a team. When people work in groups, it is often difficult to schedule time and allocate responsibility for the case analysis. There are always group members who shirk their responsibilities and group members who are so sure of their own ideas that they try to dominate the group's analysis. Most business negotiations take place in groups, however, and it is best if you learn about these problems now.

WRITING A CASE STUDY ANALYSIS

Often, as part of your course requirements, you will need to present your instructor with a written case analysis. This may be an individual or a group report. Whatever the situation, there are certain guidelines to follow in writing a case analysis that will improve the evaluation your work will receive from your instructor. Before we discuss these guidelines and before you use them, make sure that they do not conflict with any directions your instructor has given you.
The structure of your written report is critical. Generally, if you follow the steps for analysis discussed in the previous section, you already will have a good structure for your written discussion. All reports begin with an introduction to the case. In it you outline briefly what the company does, how it developed historically, what problems it is experiencing, and how you are going to approach the issues in the case write-up. Do this sequentially by writing, for example, "First, we discuss the environment of Company X...Third, we discuss Company X's business-level strategy... Last, we provide recommendations for turning around Company X's business."

In the second part of the case write-up, the strategic-analysis section, do the SWOT analysis, analyze and discuss the nature and problems of the company's business-level and corporate strategy, and then analyze its structure and control systems. Make sure you use plenty of headings and subheadings to structure your analysis. For example, have separate sections on any important conceptual tool you use. Thus, you might have a section on Porter's five forces model as part of your analysis of the environment. You might offer a separate section on portfolio techniques when analyzing a company's corporate strategy. Tailor the sections and subsections to the specific issues of importance in the case.
In the third part of the case write-up, present your solutions and recommendations. Be comprehensive, and make sure they are in line with the previous analysis so that the recommendations fit together and move logically from one to the next. The recommedations section is very revealing because, as mentioned earlier, your instructor will have a good idea of how much work you put into the case from the quality of your recommendations.

Following this framework will provide a good structure for most written reports, though obviously it must be shaped to fit the individual case being considered. Some cases are about excellent companies experiencing no problems. In such instances, it is hard to write recommendations. Instead, you can focus on analyzing why the company is doing so well, using that analysis to structure the discussion. Following are some minor suggestions that can help make a good analysis even better.

Do not repeat in summary form large pieces of factual information from the case. The instructor has read the case and knows what is going on. Rather, use the information in the case to illustrate your statements, to defend your arguments, or to make salient points. Beyond the brief introduction to the company, you must avoid being descriptive; instead, you must be analytical.
Make sure the sections and subsections of your discussion flow logically and smoothly from one to the next. That is, try to build on what has gone before so that the analysis of the case study moves toward a climax. This is particularly important for group analysis, because there is a tendency for people in a group to split up the work and say, "I'll do the beginning, you take the middle, and I'll do the end." The result is a choppy, stilted analysis because the parts do not flow from one to the next, and it is obvious to the instructor that no real group work has been done.

Avoid grammatical and spelling errors. They make the paper sloppy.
In some instances, cases dealing with well-known companies don't include up-to-date research because it was not available at the time the case was written. If possible, do a search for more information on what has happened to the company in subsequent years. Following are sources of information for performing this search:

The World Wide Web is the place to start your research. Very often you can download copies of a company's annual report from its Web site, and many companies also keep lists of press releases and articles that have been written about them. Thoroughly search the company's Web site for information such as the company's history and performance, and download all relevant information at the beginning of your project.

Compact disk sources such as Lotus One Source and InfoTrac provide an amazing amount of good information, including summaries of recent articles written on specific companies that you can then access in the library.
F&S Predicasts provide a listing on a yearly basis of all the articles written about a particular company. Simply reading the titles gives an indication of what has been happening in the company.

Annual reports on a Form 10-K often provide an organization chart.
Companies themselves provide information if you write and ask for it.
Fortune, BusinessWeek, and Forbes have many articles on companies featured in most cases.

Standard & Poor's industry reports provide detailed information about the competitive conditions facing the company's industry. Be sure to look at this journal.

Sometimes instructors hand out questions for each case to help you in your analysis. Use these as a guide for writing the case analysis. They often illuminate the important issues that have to be covered in the discussion.
If you follow the guidelines in this section, you should be able to write a thorough and effective evaluation.

GDP calculation

2008-04-12T03:14:00.000-07:00

Macroeconomics – National Economic Accounting: Past, Present and Future

Date: April 22, 2006

Question 1: Three approaches to measure GDP:
- Value-added approach: GDP is the sum of the value-added at each stage of production, where value added is revenues minus material costs.
- Income approach: GPD is total income which is the sum of rent, wages and profits.
- Expenditure approach: GDP is total spending on final goods and services of a nation. In other words, GDP = C + G + I + X – M where C is consumption, G is government expenditure, I is investment, X is export and M is import.
Among three methods, expenditure approach is the most widely used because it provides policy makers with the most usefulness in formulating economic policies.

Question 2: In general the final results of these three approaches should be the same because GDP measures the value of output of a nation in a specific period of time (1 year). However, the results are not the same in reality. The reason is that the information on which the data is collected may come from different sources and inevitably contains inaccuracies and round-up data.

Question 3: Depreciation is a decrease in the value of a property as a result of wear and tear, obsolescence, accidental damage and aging. In macroeconomics, depreciation covers reductions of the capital stock by disasters. If the capital depreciation is very large, the investment might not be sufficient to support rapid growth in the long run. Therefore, the term Net Domestic Product (NDP), which is GDP minus depreciation, is used instead of GDP.

Question 4: According to Kuznet, the value of net output is the sum of Income Paid Out and Business Saving, where Income Paid Out is the sum of wages, salaries, rent and distributed post-tax corporate profits, and Business Saving is positive business saving (investment, reserves, additions to capital stock) and negative business saving such as depreciation, depletion of natural resources and withdrawals from reserves.
According to Keynes, the value of the net output is the sum of consumption, investment and government spending. This approach incorporates the relationship between employment, the quantity of money, the interest rate and aggregate expenditures.

Question 5: The reason why Kuznet was unhappy with the inclusion of government expenditures in the value of output is the double-counting problem in calculating the output value. Kuznet argued that most government spending was on intermediate goods crucial to the production process rather than on the final products. Therefore, if the government spending is counted, there would be double-counted products in the value of net output and the true value of output would be over-calculated.

Question 6: Challenges in accounting for aggregate output:
Inputting Output:
- How to count for new goods and services that were unsold in the formal economy or that were unpriced in the market. The challenge to count the value of unsold goods such as home-made clothes, unpaid household work and unpriced services like free bank services remains the most difficult challenge that each country faces in calculating their GDP.
- How to count the value of the informal economy. If a country has a big informal economy like Colombia, GDP would be under-calculated if this country ignores the informal economic sector.
- How to count the value of barter if the country still has barter systems.
- How to measure the quality of goods produced. The quality of goods is not fully reflected on the price.
Natural Resources:
- How and what to count the value and depletion of natural resources. Even though UN has provided guidance on how to estimate the annual value of natural resources used, this calculation remains inaccurate since natural resources are what we might not be able to measure accurately.

Question 7: Factors that should be considered:
- The value of non-tradable, un-owned aspects of the environment such as clean air, clean water and climate
- The value of non-market economy of household and community
- The value of informal economy
- Unpriced social cost associated with production such as pollution and environmental degradation

Question 8: Reasons for the importance of the traditional GDP: The traditional GDP suggested by Keynes reflects the relationship between employment, quantity of money, interest rate and aggregate expenditures. Therefore it is:
- An essential tool for analyzing and assessing the state of a nation’s economy.
- A valuable metric for short-term macroeconomic planning because the government can use fiscal and monetary policies to push or cool down the economy.
- An essential tool for formulating macroeconomic stabilization policies.
- An important indicator of the economic growth and potential for investors.

Question 9: Arguments for the environmental accounting:
- Economic growth must be sustainable, growth together with environmental protection.
- Sustainable growth is needed to ensure that our younger generations could have living standards at least as high as those of current generations.
- GDP will provide a more complete overview of economic performance and living standards than GDP without concerning about environmental matters.
- The value of output in environmental accounting (NNG) would be a better indicator of sustainable social well-being than traditional GDP.
- NNG would help policy makers make better decisions in planning the economic growth strategies for a nation.

Question 10: Reasons for “A higher GDP is not necessary mean a higher measure of welfare”:
- GDP might be over or under calculated, depending on the methods of collecting and interpreting data.
- GDP ignores the value of non-market economy of household and community such as recreation, intellectual capital, education…
- GDP treats depletion of natural resources, pollution, environment degradation, disasters as income because it measures expenses on those areas as economic gains.
- GDP takes no account for income distribution.
- GDP ignores the drawbacks of borrowing money from other countries.

Singapore: Committee on Singapore's Competitiveness

2008-04-12T02:58:00.000-07:00

Date: May 27, 2006 Pham Thi Thuy Ha

Economy overview from 1959 to 1998:

From 1959 to 1956, Singapore adopted import-substitution policy while it was a member of the Federation of Malaysia. But right after becoming an independent country in 1965, the country moved from labor-intensive exports to high value adding industries while shifting manufacturing facilities to lower-cost neighboring countries. In 1990s, it changed the policy to become an international business hub international financial center to turn the country in a knowledge economy and enjoyed fruitful economic growth (about 8%/year) until 1997-Asia-economic crisis. Since the country’s economy was largely regional focus, it was drastically hurt by this crisis and economic growth was less than 1% by the end of 1999.

The Committee on Singapore’s competitiveness (CSC):

In May 1996, CSC was formed with most members from private sectors to:1) evaluate the country’s competitiveness in the next 10 years in the context of rapid globalization and emerging competition; 2) to detect problems and propose strategies and policies to maintain the competitiveness of Singapore in the future. However, due to 1997-crisis, CSC added one objective which is to examine short-tern issues and recommend solutions to help Singapore overcome the economic downturn. CSC’s 1998-report presented short-term and medium-term solutions to help Singapore stay competitive. Those solutions are:
- Short-term recommendations: 1) reduce business costs and help businesses survive; 2) remain strong financial system; 3) Maintain investors’ confidence; 4) Push economic restructuring; 5) make Singapore’ economy stay resilient; 6) seek business opportunities in the region through partnerships; 7) implement cost-cutting and tax-cutting measures
- Long-term recommendations: 8 key strategies:
1. Promoting manufacturing and service as twin engines: develop manufacturing in the regional hub; attract multinational companies; develop services sector in a premier hub in Asia through fast-growth services.
2. Strengthening the external wing: Diversify market dependency beyond the region; invade into the abundant resources overseas.
3. Building world-class companies: Nurture stable world-class companies by broadening the corporate profile and economic base of Singapore for sustained and resilient growth.
4. Strengthening the base of small and medium local enterprises: Help them remain resilient and reach maximum potential; underpin their role as strategic partners of multinational companies and government-linked companies.
5. Developing human & intellectual capital as key competitive edge: develop a world-class work force by providing world-class education for youth, promoting life-long learning for life-long employability and encouraging management, innovation & technology.
6. Leveraging science, technology & innovation: lever science, technology and innovation; construct the existing IT2000 program to turn Singapore into an IT hub in Asia.
7. Optimizing resources management: optimize the allocation of scare resources to increase supply and encourage efficient usage of those resources.
8. Reinforcing Government role as a business facilitator: Support private sector by providing consistent policies & regulatory environment.

Besides the 8 keys strategies, CSC also recommended strategies for 5 sectors to enhance each sector. In manufacturing: develop world-class work force move to R&D, and nurture enterprises. In financial and banking: develop fund management industry, expand domestic capital market. In service: develop international trading, transport and logistics, business & professional services, media, communications and tourism. In domestic business: help local enterprises to optimize scare resources and develop business.

Responses from Government and Public: the report was warmly welcomed by the government and public and the recommendations were quickly adopted with immediate or nearly immediate effect.
Lessons drawn from the case
1. Build a competitive society is the core of the sustained growth in globalization context
2. Education is the core strategy that each government should take to build a world-class work force, lever science, technology and innovation
3. Private sector and small and medium enterprises play an important role in economic growth so it is deserved to receive full support and assistance from government
4. Effective integration in international markets is a strong wing of the national economy

In Vietnam, the government has formed policies and strategies that cover all above areas to build a knowledge－based and competitive society.

Foreign exchange markets and transactions

2008-04-12T02:55:00.000-07:00

Date: May 31, 2006 Pham Thi Thuy Ha

Foreign Exchange Market:

Started in 1970s, the foreign exchange market first enables the conversion of other currencies to US dollars at fixed exchange rate. This market has grown over time due to the expansion of international trade and became the largest market in the world with 1.2 trillion average daily turnover in 2001. The largest trading center is in UK with 16% of US dollars, 9% of Japanese Yen. OTC is the most popular trading method and transactions include spot transactions, outright forwards and swaps. Euro and world-wide consolidation of in the financial sector have reduced traded volume of the market. There was a trend toward fewer banks with larger market share in the exchange market. Electronic brokering systems account for increasing share of turnover in spot market.

What is an exchange rate?

An exchange rate is the rate at which one currency can be exchanged for another. On other words, it is the price of a currency in the exchange market. Direct quotes are exchange rates listed in the form of US $ Equivalent and give the price of a unit of foreign currency in US dollars. Indirect quotes are rates listed in the form of Currency per U.S. $ and give the number of units of foreign currency required to buy 1 U.S.$. Cross exchange rate are exchange rates in terms of two non-U.S. dollar currencies. For instance, the cross rate between RMB and Euro. Bid/ask spread is the service fees that banks or brokers charge for each currency transaction. A quote is a bank’s buy price and an ask quote is a bank’s sell price. The spread is the difference between these two prices. Therefore, bank currency quotes are usually given in pairs with the first rate being the bid quote and the second being the ask quote.

Exchange rate movements:

Prices of currencies fluctuate quite often in the exchange market like the prices of goods fluctuate in the good market.
Currency appreciation is the increase in the value of a currency relative to other currencies. When the value is decrease, currency is depreciated. When a currency is appreciated, its purchasing power increases.
Exchange rate fluctuations are measured in percentage relative to some reference currency, for example Euro could appreciate 10% relative to US dollars. Three steps to calculate percentage of fluctuation: 1) convert exchange rates into a standard form; 2) determine whether the studied currency is depreciated or appreciated; 3) calculate the percentage of changes of the original exchange rate.

There are 2 reasons why exchange rates fluctuate: 1) according to purchasing power parity theory, exchange rate fluctuate because of the changes of purchasing power of a currency to another currency; 2) according to interest parity theory, exchange rates fluctuate because of the fluctuation of interest rates. In other words, potential holders of foreign currency deposits should not be different between two currencies.

5 types of foreign exchange transactions:
- Spot transactions are foreign exchange transactions based on spot rates, daily exchange rates quoted in the Wall Street Journal and other news sources.

- Forwards are transactions made sometime in the future at forward rates and forward contracts, an agreement between buyer and seller to trade a particular currency on a date in the future for a fixed price regardless of the changes in spot rates. If the currency is expected to appreciate in the future, forward rates will contain a premium. If the currency is expected to depreciate in the future, forward rates will contain a discount. Forwards end with the purchase of currencies.

- Swaps are a series of forwards under a contract that hedges long-term, sustained foreign exchange exposure. It differs from forwards in the sense that swaps cover multiple future transactions until the mature date while forwards deal with one transaction. Swaps are arranged by brokers and banks in favor of two parties who have complementary foreign exchange to pair up and trade their currencies.

- Futures are contracts that specify a standard volume of a currency to be exchanged on a settlement date some time in the future. Futures are similar to forwards except the fact that futures are standardized for trading on markets like Chicago Mercantile Exchange. They are often used as a tool for currency speculation rather than a hedging tool. Future contracts are traded on the market and the holder can have gains or losses depending on the movement of spot rate over time and changing expectation about the spot rate’s value on the settlement date.

- Options are contracts that allow their owners to buy or sell a currency at a designated price within specific period of time. A currency call option is a contract that allows its owner the right to buy a specific currency. A currency put option is a contract that allows its owner the right to sell a specific currency. Exercising an option is to take the right to buy or sell the currency. Options are sold in standard volumes.

Lessons drawn from the case

1. Companies using foreign currency should have different strategies of foreign currency against unfavorable movements of exchange rates before making decisions on any transaction relating to foreign currency.

2. Corporations conducting international business should consider currency options to cover the risks of unfavorable exchange movements.

3. Call options are suitable for companies that need future foreign currency and want to hedge against currency appreciation

4. Put options are suitable for companies who hold a large amount of foreign currency and want to hedge against currency depreciation

Japan: beyond the bubble

2008-04-12T02:54:00.001-07:00

Date: June 5, 2006 Pham Thi Thuy Ha

Fruits of the Miracle:

Although Japan was affected by the ending of the Breton Woods system of fixed exchange rates and the first oil shock, the 2nd the oil shock helped depreciate Yen so Japan gained export competitiveness at the end of 1980s. Due to the rise of U.S real interest rate in 1981, Yen was weakened again and Japan enjoyed export competitiveness and much cheaper imported materials to boost economic growth. However, under a threat of inflation and pressure of estate speculation, the Bank of Japan had to raise interest rate and cool off the economy in 1989. After a series of attempts to balance budget, the government implemented fiscal stimulus in 1992. As a result, deficit spending rose quickly but the economic growth was still stagnated. Then, the government lowered interest rate to 0.5% by 1995 and the Bank of Japan introduced a zero-interest rate policy in 1999 in order to have enough cash to raise price and reduce price deflation. The bank increased interest rate in august 2000 but implemented again this policy in 2001 to deal with deflation problem. However, the bank will gradually increase interest rate to turn monetary policy to normal.

Institutional Concerns:

The ministry of Finance (MOF) managed government fiscal policy and influenced over monetary and securities policy and therefore the Bank of Japan has not acted independently in monetary policy making. In the labor market, job security and seniority system were changed in the late 1990s due to recession. Labor costs were increasing. The bankruptcy of some companies forced employees to find alternative solutions. In the financial market, banks changed from book-value systems to marked-to-market accounting systems to increase their transparency. The government also changed its long-term policy not to allow banks fail to allow banks collapse in 1997. Still, individuals had limited opportunities in the capital markets and were limited in reporting foreign exchange transactions so their personal savings were held in personal saving accounts with very flat interest rates. As a result, unlike American firms, Japanese firms have had limited capital equity. Keiretsu, business groups, has been a dominant business practice in Japan. Keiretsu has 3 types: horizontal keiretsu, vertical keiretsu and satellite groups centered on banks for funds. Cross-holding of share is still common practice and thus, firms were not really under the pressure from shareholders. Japan also faced social issues such as aging problem, medical care, pensions, role of women, standard of living and education.

The Hashimoto Era and Structural Reform:

Hashimoto introduced a grand plan to restructure administration, education, the financial system, fiscal policy and social security among which the financial market reform was the most important reform. According to the plan, the administrative reform is to re-organize the governing structure to be more efficient and more responsive to the needs of the people by strengthening the power of the primer minister and cabinet, reducing number of ministries and limiting numbers of bureaucrats. The economic reform encompassed removal of restrictions on large-scale retailers, telephone deregulation, series of deregulations in 5 main areas: logistics, energy, petroleum and gas, telecommunications and trade/commerce. The educational reform was to reorganize educational system, cultivate a rich humanity, elicit prompt responses to changing social needs and increase schools’ cooperation with students’ families and communities. The financial restructure aimed at the financial market reform and disposal of the massive bad debts by lifting the ban on derivative and amending the Anti-Monopoly Law. The fiscal reform included five major principles: 1) reduce budget deficit; 2) devote to fiscal reform; 3) implement year-to-year reductions in general expenditures; 4) reduce all current long-term spending programs; 5) maintain the national burden below 50%. The social security reform received 5 different proposals and a pension reform bill was completed in 2000. This massive reform resulted in less power of MOF and the primer minister was granted the rights to submits policy proposals to the cabinet.

Structural Reform under Koizumi:

In early May 2001, Koizumi proposed structural reforms. The new reform agenda was: 1) force banks to write off all nonperforming loans in 2 or 3 years; 2) privatize the postal saving system; 3) a cap of government borrowing of $245 billion to halt Japan’ $5.6 trillion debts; 4) Reduce deficits by cutting government spending; 5) a government-subsidized unemployment plan to grant jobless benefits so that firms can lay off worker easily.

Lessons drawn from the case:

The government should change timely the policy in response to the changes of domestic and international macroeconomic conditions. In my country, a massive reform was done in late 1980s and 1990s in accordance with the change of the government’s policy from a close to an open economy after the collapse of the former Soviet Union. So far this reform has boosted economic growth at high rates and maintained political stability. The government continues reforms in all areas such as deregulation, legislation, education, health care, pensions, social security… and promotes privatization.

Japan: deficit, demograpgy and deflation

2008-04-12T02:52:00.000-07:00

Date: June 12, 2006 Pham Thi Thuy Ha

The bursting Bubble and Globalization:

The performance of the Japanese economy in 1990s was poor with slow growth. Banks needed to merger to reduce nonperforming debts. Firms needed to restructure their business activities such as seek viable strategy, reduce loans, improve corporate governance and begin to compete. Deflation began due to excess capacity, falling asset prices and stagnant consumer demand. In 1996, Hashimoto announced a grand plan to restructure administration, deregulation, education system, social security and fiscal policy. Japanese financial markets were deregulated to become free, fair and global. The government started to cut budgets, long-term spending and reduce public works. Bank supervision of the Ministry of Finance was taken away. The primer minister was granted more power and his cabinet could have final control over fiscal policy.

Demographic Crisis:

Aging population is one of serious problems Japan needs to address. Due to decrease in birth rate and increase in life expectancy, Japan’s population is getting older, shrinking labor force and leaving a heavy burden in social security, pension and medical care funds.

Pension system: The first pension system was created in 1940s with a single layer, remuneration-based, proportional pension. It was revised in 1954 to two layer system. The 3rd version was created in 1961 to add national pension for self-employed workers, agriculture, forestry and fishery workers. The basis pension system was financed by fixed amount of insurance premiums. The problem with the pension system is that there are more people enjoy pension benefits while there are fewer workers.

Health care: health care funds need to be risen due to rapid aging and longevity. In Japan, almost all people are insured by health care and elder people go to hospitals more often than elder people in other developed countries. As a result, Japan will face a problem in raising health care funds in the future.

The Koizumi Reform:

Koizumi took office in 2001 with a four-part economic reform: 1) privatize the post office; 2) force banks to write off bad debts; 3) accelerate the implementation of structural reforms; 4) cap the insurance of Japanese government bonds. To implement this plan, Koizumi used the Council on Economic and Fiscal Policy, which is the cross-ministry organization. This council changed the decision-making process for preparing the government budget by coordinating the policies proposed by different ministries to control the overall spending in line with long-term goal of reaching the budget balance in 2012.

1) Privatization of post office: to break the postal service into 4 parts: mail delivery and post office management parts would be under the government control; a bank and an insurance company would be spun off through IPO.

2) Force banks to write off bad debts: the government used three-pronged approaches: accelerate the disposal of nonperforming loans; strengthen loan-classification and provisioning practices; reduce exposure to the price risks of equity by issuing regulations that banks should lower their equity shareholding to 100% or less of their tier-one capital.

3) Pension reform: The pension reform was approved by the Diet in 2004. This reform package includes 3 issues: premium levels, benefits and government subsidies. Premiums rates would rise from 2004 to 2007 and the contribution rate of 13.85% would rise to 18.3% by 2007. Benefits levels would decrease gradually through an adjustment level tied to the CPI. Government subsidies would increase from one-third to 50%

4) Fiscal reform: The government would cut public investment, limit or cut education and defense, eliminate subsidies to local governments, cut social security expenses. By raising taxes to hold government spending constant, the government hoped to reduce deficits toward the balance in 2012. At the same time, the government would apply monetary contraction by issuing more bonds thus public debts increase. To achieve deficit reduction, one-third of primary deficits could be reduced by expenditure cut, the two-third by VAT tax raise.
The prerequisites for Japan to get back its high economic growth are completing structural reforms, refinancing social security, controlling fiscal deficits and ending deflation.

Compare with reforms in Vietnam from late 1980s to 2000s:

The former Soviet Union started to cut aids to Vietnam in early 1980s and the country needed to find a way to grow itself. The Vietnamese communist party decided to change from the close to open economy and the government implemented a compete reform package. Same as Japan in fiscal reforms, Vietnam reduced the number of ministries, reformed pension benefits, cut long-term spending and issued government bonds. However, Vietnam has done different economic reforms. For example, the Vietnamese government changed currency in 1986, from 100 Dong to 1 Dong, privatized SOEs and agricultural collectives, deregulated all economic sectors, broadcast, publishing, telecommunications, established new laws and promote private sector. Reforms were also done educational privatization, electricity production, medical service, transportation, banking system.

In my opinion, the recent massive reforms in Vietnam have helped the country achieve dramatic economic growth in the right direction that fits the situation of the country. Vietnam is continuing reforms to boost the economy. Reforms are always necessary for economic growth because the local and international environments are changing fast.

Distributorship Agreement and Copyrights

2008-04-12T02:49:00.000-07:00

International Business Law

Date: June 15, 2006

1. Distributorship Negotiation with Grande Trade (GT)

Unlike agency agreement with Zeller, by appointing GT as a distributor in Germany, IUJ ill have more benefits and fewer liabilities. For example, GT will take all risks in distributing products; IUJ needs to enter only in sales transactions to GT; IUJ can not held liability to its distributor; GT has an incentive to sell IUJ’s product and increase IUJ’s market share; IUJ does not face any fluctuation in terms of prices and market conditions. However, IUJ may have disadvantages such as loss control over prices and distribution situation in Germany, price reduction to GT, limited understanding of market demand and customers’ preferences. Therefore, IUJ should consider carefully conditions of the Distributorship Agreement with GT.

In response to the 5 requirements of GT, IUJ should analyze these requirements carefully and consider counter-solutions. From the point of view of IUJ’s overseas sales department head, he or she should consider the analysis below before entering the distributorship agreement with GT:

Type of distributorship: GT wants to become IUJ’s exclusive distributor in Germany. This requirement is reasonable and IUJ should accept because:
1) GT will take all risks and responsibilities to distribute GIZMO within German territory.
2) This arrangement assure that there will be no competition in this territory for distributing GIZMO and thus GT has strong motivation to effectively promote this product and bring IUJ secure financial return.
3) The excusive distributorship will motivate GT to expand fast the market for GIZMO by using its nationwide distribution networks and marketing experience. Therefore, IUJ can capture huge market in Germany without any investment in building distribution channel there.
4) IUJ should appoint only one distributor in one territory and should not distribute GIZMO to other firms for use or resale. This point is to avoid conflicts of distribution of GIZMO, secure the rights to make profits for GT and motivate it to use its best efforts to develop business in, to promote the sale of, and to sell the product.
However, IUJ should impose some restrictions on GT such as: not to enter into any distribution agreements involving competing products; not to sell GIZMO outside the German territory; not to remove or repack the product in this territory; follow recommended retailed prices provided by IUJ; be able to provide sale & customer support and maintain sales staff to expand the market. These restrictions help IUJ prevent GT from selling competitive products, marking up prices so high that GIZMO is much more expensive than competitive products or reducing too much prices to enter unfair competition, selling outside assigned territory and being unable to develop markets.

Buyer-seller relationship: GT requests that the seller-buyer relationship should be the relation between IUJ and GTHK. This relationship might not have any effect on the distributorship agreement with GT. However, IUJ might face a high financial risk in selling GIZMO to GTHK since it owns no property and other assets with substantial value. The other risk is that GTHK can resell GIZMO to other GT’s group members even though it has no sales to other outside parties. Therefore, IUJ could accept this requirement when imposing other conditions: 1) GTHK, under any circumstance, will not be allowed to resell GIZMO to any other parties; 2) the payment shall be made in L/C in advance to IUJ’s bank account (to make sure that IUJ receives payment before producing ordered quantity by GTHK); 3) sales contracts shall be made under the Japanese commercial law; prices and all other sales conditions are agreed by IUJ and GT; 4) GTHK shall not be GT’s representative in working with IUJ. It means that GTHK shall automatically follow the agreement reached by IUJ and GT and shall not intervene in any discussion and negotiation between the two parties. This condition allows IUJ to control over GT in terms of prices and selling conditions.

Delivery: GT requests that the delivery should be made directly from IUJ to its warehouses or retail shops or business customers in accordance with its designation to be made from time to time. This requirement seems to be unreasonable and unrealistic because IUJ could not know the specific locations in Germany designated by GT. If IUJ can know these places, the delivery costs will be very high as IUJ needs to hire a freight company to do such specific deliveries and IUJ could not have necessary control over those deliveries. Under general international trade practices, international delivery terms are commonly FOB and CIF. Therefore, IUJ should reject this requirement. Instead, IUJ should propose FOB Tokyo, and the date of the bill of lading shall be taken to be the date of delivery of the product. IUJ shall not be liable for delays in delivery or failure to manufacture due to strikes, lock-outs, riots, civil commotions, insurrections, wars, acts of God, operation of law or any other causes beyond its control.

Duration and termination: GT’s request on duration and termination is reasonable and IUJ should accept this proposal because a 5-year agreement and possible renewals will build a long term business relationship with GT, generate its loyalty and devotion to work with IUJ in the long term and motivate it to become IUJ’s reliable business partner who is willing to distribute IUJ’s products in Germany. However, IUJ should impose conditions on the sales performance such as the minimum monthly sales GT needs to achieve. Otherwise, IUJ shall have right to terminate the agreement at any time if GT fails to achieve this target.

Non-competition after termination of an agency contract: Because the case does not provide detailed information about the agency contract between IUJ and Zeller, I suggest two options:
- First option: if the agency contract between IUJ and Zeller has already imposed obligations on non-competition for a certain time after the termination of the agency contract, GT’s request on prohibition against Zeller from selling GIZMO is not necessary. In this case, I guess that the non-competition should includes prohibitions to manufacture products of the same type as GIZMO; to sell under trade marks and refrain from altering the products or packaging; to maintain adequate stocks to meet anticipated demand after termination; to continue to provide after sale service after the termination; to inform his clients about the termination and to settle consequences of the termination such as to clear remained stocks and stop to sell GIZMO right after the termination. Hence, the request to prohibit Zeller from selling other similar handled computer games and software in Germany is not reasonable because Zeller has the rights to re-organize his business and to become an agent or distributor of other manufacturers after the termination of agency contract with IUJ. Therefore, IUJ should reject this requirement.
- Second option: If the agency contract between IUJ and Zeller has not imposed obligations on non-competition for a certain time after the termination, a non-competition agreement with Zeller upon the termination is necessary to avoid potential conflicts of distribution of GIZMO between GT and Zeller in future. However, it is quite difficult to persuade Zeller to enter into such agreement as Zeller needs to re-organize his business after the termination and he has no obligation to sign such agreement. Thus, IUJ needs to negotiate with Zeller and if necessary sacrifice by giving him certain compensation or letting him sell GIZMO in markets outside Germany if possible. In this case, IUJ only can accept GT’s requirement after successfully signing a non-competition agreement with Zeller. However, this option is quite rare because in general every company should have non-competition clauses in their agency agreements.

Besides, IUJ should impose obligations on non-competition after the termination of the distributorship agreement as discussed above. IUJ also should request other conditions on intellectual property, confidentiality, consequences of termination, arbitration, notification, legal jurisdiction, currency & currency fluctuation, competition law and force majeure.

2. Analysis of the relationship between IUJ and Zeller

The relationship between IUJ and Zeller is the legal relationship between a principal and an agent engaged in an agency contract. IUJ and Zeller, through consent, signed a 5-year agency contract in June 2001 in which Zeller is IUJ’s agent to sell GIZMO product in Germany. Under the agent agreement, both IUJ and Zeller have legal duties toward each other. For example, Zeller has the duties to obey instruction from IUJ, to hold personal liability to IUJ, to act with skill to promote GIZMO in the German market, to avoid conflicts of interests with IUJ, to protect confidential information, to notify IUJ all information that may be useful for IUJ to evaluate the matter at hand, and to account financial report to IUJ. On the other hand, IUJ has duties toward Zeller such as to compensate Zeller for his service and effort to sell GIZMO and to support Zeller in selling GIZMO. However, IUJ is liable for contracts made by Zeller to the third party as he acts in a fiduciary to IUJ. It has both direct and indirect liability for the torts caused by Zeller to the third party and Zeller also has personal liability for any torts he committed. In case of disclosed principal, Zeller has no personal liability for contracts made on behalf of IUJ. In partially disclosed principal situation, Zeller is liable for the contract and IUJ may be liable on the contract also. But in case of undisclosed principal, IUJ is liable on the contract.

The agency contract will expire in July 2006. Due to Zeller’s limited capability to expand the market in Germany, IUJ want to terminate this contract when it expires. This termination is by the act of IUJ and legally right. Both IUJ and Zeller have responsibilities to settle all consequences of termination.

3. Copyrights and the Production and Distribution of Pocket Monster in Germany

According to the information in the case, Pocket Monster is new software invented by a copyright holder in which he features the characteristics of a famous Japanese cartoon. Under the copy right law, he has the rights to reproduce the original, make derivative versions and distribute copies. IUJ has had his permission to produce and sell it in Japanese language and in Japan. The legal relationship between him and IUJ is that he grants IUJ the right to reproduce and distribute those copies of Pocket Monster in Japanese language and in Japan under a copyright contract or a copyright agreement. But he does not grant IUJ the right to make derivative versions such as translated Pocket Monster in German language and to distribute copies of the original outside Japan.

The copyright prohibits IUJ from distributing copies of Pocket Monster in markets outside Japan and making translated versions of this software. Therefore, to produce Pocket Monster in German version and sell it in Germany, IUJ needs to enter a new copyright agreement or a new copyright contract with him in order to have the legal right to do 3 things:
1) produce a derivative software in German version
2) reproduce this derivative software
3) sell it in Germany
Only after having such agreement, can IUJ start to make a German version, produce it and sell it in Germany.

Survey data alanysis of Creativity research project

2008-04-06T05:21:00.001-07:00

December 22, 2006

Executive Summary

From the given data, we will use factor analysis to reduce the number of variables representing three characteristics of creativity: Dimensions, Antecedents and Consequences. Then we use multiple linear regression based on factor variables to examine the relationship chain Antecedents - Dimensions - Consequences. We also perform cluster analysis to see whether we can classify the population into groups. Finally, we use discriniminant analysis to understand how we can segment the population and whether such segmentation is significant. All the statistic tests use 95% confidential level or　a =0.05.

1. Determining factors

From Table 01, the first 2 factors have eigenvalue greater than 1. The scree plot of eigenvalue in Figure 01 suggests that 2 factors are suitable to represent Dimensions. Therefore, we choose the first 2 factors. By re-running the principal component analysis of these 2 factors and rotate the result, we can have a clearer interpretation of these 2 factors. The factor 1 (appeared as Comp1 in Table 02) has the strongest factor loadings on variables C_D_1, C_D_2 and C_D_3 which relate to the new situations where creativity is carried out. Therefore, we name this factor ‘New Situation’. In the same way, we find that creativity is carried out for the purpose of experiencing new things that the creator has never experienced before. Thus, we name factor 2 ‘New Experience’ which represents 4 variables C_D_4, C_D_5, C_D_6 and C_D_7. We will use New Situation and New Experience factors on behalf of 7 variables with the factor scores in Table 03 in our later analysis.

By analyzing 17 variables of Antecedents in the same way, we conclude that there are 2 factors representing Antecedents and we name these 2 factors ‘Benefit’ and ‘Recognition-Collaboration’ (Table 04). In analyzing 10 variables of Consequences, we decide 3 representing factors and name them ‘Cost Saving’, ‘Fun’ and ‘Satisfaction’ (Table 05).

2. Examining the relationship Antecedents – Dimensions – Consequences

Table 06 is the multiple linear regression analysis result between New Situation as dependent factor variable and Recognition-Collaboration and Benefit as independent factor variables. The regression function is New Situation = 0.232 Benefit + 0.093 Recognition-Collaboration (hereafter referred to model 1). We ignore the constant because it is very small and not significant.

We use t-test to test the significance of the independent factor variables. The null hypothesis Ho: there is no linear relationship between dependent factor variable and independent factor variables. Computed t-value of Benefit is 1.99 which is greater than t_{84, 0.025} =1.96. Therefore we reject Ho and accept Ha. In other words, there is a linear relationship between New Situation and Benefit. However, t-value of Recognition-Collaboration is 1.2 which is smaller than 1.96 so there is no significant linear relationship between New Situation and Recognition-Collaboration.

To determine the correlation between independent and dependent factor variables, we test the coefficient of determination R². Ho: R²of the population is equal to zero. Ha: R²is not equal to zero. Since computed F-value 4.5 is greater than critical F-value which is around 3.00, we reject Ho and accept Ha. So there is a significant correlation between independent and dependent factor variables. However, among 2 independent factors in this model, Benefit has the strongest impact on New Situation because Benefit has the largest standardized beta coefficient. In other words, Benefit can generate New Situation but Recognition-Collaboration does not generate a significant New Situation.

By examining Table 07 in the same way, we find that there is no significant linear relationship between New Experience and Benefit and Recognition-Collaboration. This is because computed t-value of independent factor variables are smaller than t-table value and computed F-value does not exceed F-critical value. This means that both Benefit and Recognition-Collaboration do not generate New Experience.

By interpreting statistically Table 08, we find that there is a significant linear relationship between Satisfaction and New Situation and New Experience. The linear equation should be Satisfaction = 0.135 New Situation + 0.318 New Experience (model 2). Among these two independent factor variables, New Experience has the strongest impact on Satisfaction because of its largest standardized beta coefficient but New Situation does not have significant impact. Thus, the meaning of this equation is that New Experience can generate Satisfaction but New Situation does not lead to significant Satisfaction.

From Table 09, we find that there is a significant relationship between Cost Saving and New Situation and New Experience through the linear equation Cost Saving = 0.298 New Situation + 0.299 New Experience (model 3). The meaning of this equation is that New Situation and New Experience can generate Cost Saving.

From Table 10, we find that there is no significant linear relationship between Fun and New Situation and New Experience. This is because computed t-values of independent factor variables are smaller than t-table value and computed F-value does not exceed F-critical value. This means that both New Situation and New Experience do not lead to significant Fun.

We can examine the relationship between Antecedents, Dimensions and Consequences by examining the relationship of the factors representing them. Model 1 suggests that Benefit generates New Situation. Then New Situation generates Cost Saving and maybe Satisfaction (model 3). This is obvious that people seek new situation for benefits and whenever they achieve some benefits they can save costs. There are significant relationship between New Experience and Satisfaction and Cost Saving (model 2 and 3) but there is no significant link between New Experience and Benefit or Recognition-Collaboration. In reality, benefits, recognition and collaboration could be the purpose of seeking new experience.

The reason why statistical analysis could not capture the relationship between New Experience and Benefit or Recognition-Collaboration is that Benefit and Recognition-Collaboration factors do not completely and adequately represent Antecedents. Another reason is that there are several errors in determining the number of factors, interpreting the factors and rotating the factors to select the best ones. As a result, errors in running multiple regression based on factor variables instead of original variables might cause inaccurate statistical results. Despite the statistic result in Table 07, we still can say that Benefit or Recognition-Collaboration can lead to New Experience.

In conclusion, Benefit causes New Situation and New Experience and the latter cause Cost Saving and Satisfaction. In other words, the relationship between Antecedents - Dimensions - Consequences is causal relationship in which Antecedents lead to Dimensions and Dimensions lead to Consequences. Model 1 is suitable for predicting Dimensions from Antecedents. Model 2 and model 3 could be used to predict Consequences based on Dimensions. However, we still need one more model to present the relationship between New Experience and Benefit or Recognition-Collaboration as the regression result does not suggest such relationship due to some shortcomings of factor analysis method.

3. Classification

We group the respondents by using Ward’s linkage hierarchical clustering method on New Situation and New Experience factors of Dimension. The stopping rule to determine the number of cluster is Calinski & Harabasz rule. We pick 2 clusters that have the longest branches before splitting into many shorter branches in the dendrogram (figure 02). Moreover, we notice from Table 11 that 2 clusters have Calinski/Harabasz pseudo-F index (77.36) greater than the indexes of 3, 4, 5, 6 and 7 clusters. This means that 2 clusters are more distinct than 3, 4, 5, 6 and 7 clusters. Even though 8 clusters have greater index than 2 clusters, we think that 8 or more clusters might not be significantly distinct in practice. This is because a large number of clusters might not be necessary to divide perfectly 85 observations into groups. Therefore, we choose 2 clusters for further analysis.

We profile these two clusters in terms of factor variables. The clusters have been constructed based on 2 factors New Situation and New Experience. Both of these factors are caused significantly by Benefit as the above analysis. Thus, we see that Benefit should be an important characteristic of the clusters.

To identify whether Benefit is a perfect criterion to differentiate the two clusters, we compare the means of factor score variables over both clusters. By examining the mean factor scores in Table 12, we find that the centroids of two clusters of both New Situation and New Experience are not significantly different. Therefore, Benefit is not sufficient enough to differentiate the two clusters and we need to profile the clusters in terms of variables that were not used for clustering. We will use discriminant analysis to find out what moderator and demographic variables can significantly differentiate between the clusters.

4. Discriminant Analysis

The purpose of this analysis is to test whether significant differences exist between these 2 clusters in terms of moderator and demographic variables. We have 2 groups and 16 predictor variables so the number of the discriminant functions should be 1. The unstandardized and standardized coefficients of the discriminant function (hereafter referred to Z) are presented in Table 13.

We determine the significance of Z by Chi-square test. Ho is the group means of Z are equal (m_a = m_b) in the population. Computed Chi-square of Z is 26.369 which is larger than table Chi-square_16,0.05 = 26.30. Therefore, we must reject Ho and accept Ha, which is the group means of Zare different or unequal. Although there is about 5% probability that observations are not perfectly reflected by Z, we still can conclude that the discriminant function is significant.

We examine the discriminant power of each variables in Z based on standardized canonical discriminant function coefficients. We pick 3 moderator variables C_M_1, C_M_3 and C_M_6, Sex and Age because they have the largest standardized coefficients among the others. Coming back to the survey questions, we see that these 3 moderator variables actually refer to the inside motivation of creativity. Among these 5 variables, C_M_6 has the strongest impact on Z with the standardized coefficient of 0.949. Hence, we conclude that ‘Being Creative’ has the largest discriminant power, followed by Sex and Age. In other words, ‘Being Creative’ is the most important critical criterion of the clusters and Sex and Age should be criteria for clustering.

We also analyze the importance of the predictor variables by examining the canonical discriminant structure matrix (discriminant loadings, Table 13) in which the simple correlations between each predictor and Z represent the variance that the predictor shares with Z. Variable C_M_6 has the greatest share of variance with Z, followed by C_M_1 and Sex. Age has very small share of variance with Z. Therefore, we conclude that ‘Being Creative’ and Sex are the most correlated to Z and should be the critical criteria for classification of the population.

We use classification matrix (Table 14) and hit ratio to evaluate how good the classification is in this discriminant analysis. The number on the diagonal of the matrix shows correct classification and other numbers in the matrix are incorrect classification. The hit ratio is the percentage of correct classifications over the total number of classifications. The hit ratio is (34+28)/85 = 72.94%. The maximum chance criteria of 2 groups of size 47 and 38 is 47/85 = 55.29%. The proportional chance criteria is (47/85)²+(38/85)² = 50.56%. The hit ratio is larger than both chance criteria and proportional chance criteria. Therefore, we can conclude that the group classification is good. In other words, it is worthwhile to pursue the discriminant analysis in this case.

Conclusion

The relationship in the Antecedent Dimension Consequence chain is a causal relationship in which Antecedents leads to Dimensions and Dimensions leads to Consequences. More concretely, Benefit causes New Situation and New Experience; New Situation and New Experience in turn lead to Cost Saving and Satisfaction. In other words, benefit is a starting and driving factor in this chain and therefore is the root cause of creativity.

The population can be divided into two groups based on 2 criteria: ‘Being Creative’ and Sex. The discriminant function Z used for classification should be simplified to Z = 0.949 Being Creative + 0.409 Sex. Benefit is the important characteristic of each group but it is not a critical criterion to differentiate the population into distinct groups.

The entire population tends to create new things for benefits. The function Z above can be used to predict a member of this population whether he or she belongs to what group.

Survey data alanysis of Creativity research project

2008-04-06T05:21:00.000-07:00

December 22, 2006

Executive Summary

1. Determining factors

2. Examining the relationship Antecedents – Dimensions – Consequences

3. Classification

4. Discriminant Analysis

Conclusion

The entire population tends to create new things for benefits. The function Z above can be used to predict a member of this population whether he or she belongs to what group.

In-depth interview of Creativity research project

2008-04-06T05:19:00.000-07:00

Research Objective:

The purpose of these interviews is to discover insights of creativity behavior in terms of procedures, determinants, mechanism, motivation, conditions and possible consequences of creative activities. The creative activities in this research are not the activities of creative professionals like artistes but rather the creative activities of ordinary people.

This research, conducted in IUJ community, can only obtain exploratory insights of creative activities because the limited number of respondents, three student-respondents. Therefore, generalized insights can not be inferred to the entire IUJ community from this research. However, the results of three individual in-depth interviews can be used to suggest some hypotheses to be tested in following research.

The respondents were asked questions about their creative activities, their feelings and motivation of such creative activities as well as the results of their creative activities. Their answers were quite different based on their backgrounds, experience, gender, culture etc. These answers are analyzed to find the similarities and differences among 3 interviewees.

Methodology:

Time: The three interviews were conducted separately at around 4pm each day.

Location: Interview 1 and 2 took place in the lounge on 2^nd floor of SD2 and the 3^rd interview was conducted in the study room 1. This setting helped the respondents concentrate on the discussed subject and cooperate fully to answer questions at his or her best knowledge. Each interview happened between only two people: the respondent and the interviewer.

Interview Framework: An In-depth Interview Question Outline (Appendix 1) was used as a guideline for the interviews. This outline was revised after the 1^st and 2^nd interviews based on what was learned from the previous interview. Mainly the interview was divided into two parts

Part 1: Discover the respondents’ demographic information

Part 2: Understand the characteristics of the respondents’ creative activities in 5 areas:

- Situations where the respondents created new things

- Determinants of creativity

- Mechanism of creativity

- Properties of creativity

- Internal and external consequences of creativity

Each interview was taped and transferred into Microsoft Word document in the Appendix 3.

Respondents:

The profiles of respondents are in the Appendix 2.

Summary and Analysis of the 1^st Interview

The interview began with some questions about the background information of the respondent to understand better ideas of his original values and attitudes. The respondent is from a former-Soviet Union country where economy is not yet well-developed. He is 2^nd year student at IUJ so he has experienced quite well life in Japan. His background is accounting and he has worked as an accountant so he was not exposed to an environment that requires many creative activities.

The motivation of his creativity is from outside. When he was asked about why he has such creative idea he said that he went to a Japanese family and tried a Chinese tea. When being asked about the internal needs to create new things, he said:

“No. When I see an interesting thing, I ask and I make. Sometimes I make because I want to know more about this type of things. I am curious of what is going to happen if I make.”

It is the environment where he was exposed to plays an important role in motivating him to make new things. As the typical example in the interview, he tried to make the Chinese tea for him after experiencing it because he thought it was good for him and he liked it. Here the curiosity has motivated him to make the tea but the environment played an important role in triggering the motivation of creativity.

The reason why his making tea is created, according to him, is the characteristics of living place. He mentioned that because of the water in Urasa he needed to find a new way to make tea although there are methods and guidance to make tea available for him to refer to. It is interesting to learn that he made a good tea because of the characteristics of water in Urasa. This suggests that somehow people create new things to adapt more to the environment and only in this environment people can have such creative activity.

His creative mechanism is traditional. He said that he needed to risk, try and fail many times before he could obtain the tea he wanted. There was no direct involvement of other persons in his creating process (process of trial and fail in testing different tea) but his friends played an important role in finding the materials for his creativity. When being asked about the cooperation in creating process, he mentioned that he was willing to cooperate with others as a partner to make new things. He said: “It’s better to work with some one because we can share information and other things”. This explains that creativity requires more than 1 person because it is a complicated process that one person may fail to complete from the beginning until the end.

Creativity gives creators some satisfaction and motivation to encourage others. This is true when he said that he was happy with his new tea and he wanted to invite his friends to taste his tea. He mentioned with enthusiasm that:

“Creativity is good for both professional and daily life. If you are creative you can get good promotion together with good salary. In daily life you can make your life better by discovering new things.”

According to him, the motivation of creativity is the need of satisfaction. People always want satisfaction and they tend to find way to get it. Therefore, creativity is somehow the need inside each person.

Regarding the future creativity, he said that he wanted to create a new kind of food which has the attribute of current food but less dangerous for health. He reasoned that because of the weather people in his home country need food rich in energy but good for health. We can learn that creativity is to find a solution to make life better.

In summary, the first respondent answered questions in a cooperative way and he was open to all questions but the interview was somehow structural. This is perhaps because of the influence of Muslim culture. From the interview, he did not mention directly about his internal motivation to create new things but we can infer that he wanted to mention that creativity is inside people. The environment has an important role in triggering creative activities.

Summary and Analysis of 2^nd Interview

The interview took place in the same place but the 2^nd respondent seemed to be more open and friendly. She is more mature than the 1^st respondent and has some work experience. Her job as a statistician did not require so many creative ideas like a person work in sales and marketing but somehow she needed to be creative in her work. The fact that she has her own family influences her lifestyle and the characteristics of her creativity. As she is 2^nd year student, she has somehow adapted to lifestyle in Japan and is influenced by Japanese culture.

The motivation of her creativity is from outside. When being asked about why she has such creative idea she said that she used to hate tea in her home country but she was exposed to Japanese tea for such a long time in daily life (at restaurants, in the church) that she started to taste, pay attention to, drink and love it. When asked about the internal needs to create new things, she said “No. On the way I experience things if I found something interesting, I try to make it myself”. Being in the environment where she saw tea everywhere, she changed her perception of tea from awareness to liking. When she really liked it, she wanted to make it herself. Unlike the 1^st respondent who wanted to make a Chinese tea right after the 1^st time he experienced it, she needed a long time to evaluate tea and to change her attitude. It means that she is not really ready to make new things. Perhaps, it’s not the matter of her creative ability but we can guess that it’s the nature of women who are somehow more prudent than men in taking risk. The environment was a prerequisite condition to her creativity. If she was not exposed to this environment long enough she could not have made this tea on her own.

Her creative mechanism is traditional. Like the first respondent, she said that she needed to try and fail many times. Unlike the 1^st respondent, there was the direct involvement of her husband in her creating process as she said that her husband tried her tea and said which was better. The involvement might shorten the time needed to find the best way to make tea and give a better result of tea quality. Like the 1^st respondent she also needed the assistance of her friends to find materials. When being asked about the cooperation in creating process, she mentioned that she might cooperate with her colleagues to create a new product. During the interview she showed her hesitate to answer this question. This is because, as she said, she has never experienced this kind of cooperation and she does not know to what extend she can cooperate to create a new product. Like the 1^st respondent, her creativity requires more than 1 person involved.

She showed that she is very happy with the tea because she can enjoy it with her husband and her friends. The satisfaction of this creativity spread out of her family to her friends. This satisfaction might be the motivation for her future creativity as well as for her friends. Creativity is not always successful but when it is successful, many others can enjoy the result and be motivated.

Regarding the future creativity, she said that she wanted to make Japanese foods for her family. For women, family is somehow very important in life. That is the reason why she is learning Japanese cuisine and will try to make new foods in her home. The gender is somehow influences creative activities. Unlike the 1^st respondent, she tends to create new things that satisfy her family. She mentioned that the Japanese food she wants to make should taste good to entertain her family. Therefore, creativity ties to what she value the most.

In summary, the 2^nd respondent has different answers to the same questions due to her gender, background, experience, personal characteristics and the environment. She showed an interesting point that she wants to create something that would be of great value to her family.

Summary and Analysis of 3^rd Interview

The 3rd interview was much more open-ended framework since the respondent is a much more dynamic as an MBA student. He has lived in India, one of the most dynamic countries in the world, with over 5 years of working experience. Working in an investment bank, he was exposed to a dynamic and creative environment. He responded with confidence and showed the creative thinking in his answers. Therefore, the interview was less structural, more business-oriented, friendly-like and discussion-like structure. His answers are much more influenced by his professional experience and future career. He just came to Japan last December but seems to well adapt to life in IUJ.

The motivation of his creativity is from inside. When he was asked about why he has such creative idea he said that he was a creative person. When being asked about the internal needs to create new things, he said:

“I am a creative person and I like to make new things. When I came here I saw new things and I wanted to make things that I never experienced before.”

It is interesting to learn that he is self-motivated to create new things. For persons like him, the environment seems to be less important in motivating people to create because the motivation is already inside them and they tend to make new things in any environment.

However, the environment still plays a pivotal role in motivating him. He said that he made non-vegetarian food because he could not find vegetarian food in Japan. He noted that non-vegetarian food helps him survive in Japan. “It’s because I live here in Japan and foods are different from my country. I think it’s better to adapt to this environment”. We can see that this is the question of adaptation. Because he needs to adapt to a totally new environment he created non-vegetarian food. In this case, creativity is a solution to solve his problem of not being able to buy vegetarian food in Japan.

His creative mechanism is also traditional. He said that he tried and failed some times. There was no direct involvement of other persons in his creating process but his friends involved in helping him choose ingredients and sharing their experience so he could have a direction to make his own food. This explains that there are more than 1 person involve in a creative activity and cooperation is much important in shortening time and easing the creating process. When he was asked about his possible cooperation to develop a new product, he said that he will be willing to cooperate with any one by working with them. We can learn that creativity is not a one-person process but a cooperative process where some people work together to make new things.

Creativity gives him some satisfaction. He mentioned that he like his non-vegetarian food and he asked some friends to try it. He noted that his friends also like his food. The satisfaction if his creativity is not only in him but spread to his friends. It means that when he creates new foods, his friends around him also enjoy the benefits of his creation.

Regarding the future creativity, he said that he wanted to create a new software program in finance and he wanted to do something that relates to his future career. We can learn that his future creativity is somehow work-oriented. It is important to note that many people become very creative at their work and work is important motivation of creativity.

In summary, the 3^rd respondent it quite open and dynamic in answering questions. He even showed his creativity in responding questions. The environment, profession and personality influence his creative activities. Unlike the 2^nd respondent, he tends to create things that are close and familiar to his work. This is perhaps because men, by nature, tend to be more oriented to job than women.

Similarities and Differences Among the Interviewees

Creativity is influenced by many factors. Through 3 interviews with 3 respondents from different countries, we can find that creativity depends on gender, personality, religion, culture, profession, background and experience. The 2^nd respondent is a married woman and she tends to create things that value to her family and the 3^rd respondent showed his future work-oriented creative activities. The 3^rd respondent said that his motivation to creativity is as one of his characteristics. It is important to note that 3 respondents have different points of view toward creativity but in general they share a common view: creativity is to find a way to make life better in the environment where they live. To some extent, creativity is to solve a problem.

The environment is a prerequisite condition for three respondents’ creativity to happen. The 1^st respondent claimed that he made a new tea because he has seen it and experienced it. The 2^nd respondent showed that she was exposed to the environment where tea is everywhere long enough to change her attitude to a tea-drinker. The 3^rd respondent said that the environment requires him to eat non-vegetarian food so he needed to make it.

Creativity involves the creator and other people who enable him or her to create. Three respondents were the creators but they need either indirect or direct involvement from their community even though their creative things are very simple like food and tea. We can see that creativity is a complicated process that requires more than 1 person to work together. This suggests that the development of a new product would be more effective and faster if there is the involvement of consumers in the creative process because they can contribute their ideas about product attributes that meet their needs.

The satisfaction of creativity tends to spread in the community around the creator. Three respondents noted that they are happy with their self-made food and tea and they want to invite their friends to taste. For example, the 2^nd respondent said her tea is used to gather her friends and to enjoy with her husband and the 3^rd respondent asked his friends to taste his new food. This satisfaction will motivate them and other people in their community to create new things to make their life better and more enjoyable.

The contents of creativity are something very familiar with daily life or professional life. The first two respondents made tea and the third respondent made non-vegetarian food. Those things are very common in daily life. Perhaps the answers of the two first respondents were guided by explanatory sentences that the interviewer used to answer the respondents’ questions. This suggests that the interviewer should think about some possible answers or imagine some situations before the interview. When being asked about what IUJ students are going to create in the near future, two first respondents said that they expect some creative activities in IUJ Open Day. This is perhaps they have experienced it and they have had some creative activity in last year’ Open Day. Meanwhile, the third respondent who has never participated in Open Day, said that he wants to make something that help him in his work.

Three respondents use the same trial and fail method and have the same creative mechanism. First, they have creative ideas. Then, they seek for help or guidance or cooperation from other people in their community to make these ideas come true. This mechanism is different from the creative process of professional creators such as a poet who writes a poem without consulting any other people. This difference is important to understand that non-professional creativity tends to involve the cooperation between the creators and other people in their community.

In conclusion, the interviews have given some exploratory idea about creative patterns of some IUJ students for further research. We know from three respondents that creativity happens to solve a problem in daily life and involve more than one person. The patterns of creativity depend on many factors but the mechanism of creativity is the same. The environment is prerequisite and the cooperation is an enabler to creativity.

Interview skills

The interviewer should commence the interview with easy, non-sensitive questions to get the interviewees involved and interested. Sometimes the interviewer should give directions to the interviewees or help them understand questions. The interviewer should not change from one topic to another interruptedly and suddenly but rather adding some transitional sentences. Moreover, the interviewer should be friendly, listen carefully and follow the respondent’s ideas.

Problem set in marketing research course

2008-04-06T05:18:00.001-07:00

Executive Summary

From the given data, we will use statistical techniques to analyze the research data and draw conclusion. In this report, we use statistical techniques such as frequency distribution, descriptive statistic, cross-tabulation, sample mean comparison test, ANOVA, correlation, simple and multiple linear regression, discriminant analysis, factor analysis and cluster analysis. All the statistic tests use 95% confidential level or　a =0.05.

1. Frequency distributions

The frequency distribution reports the number of responses that each question received in frequency and percentage. There are 45 responses for user groups but 44 responses for awareness, attitude, preference, intention and loyalty. It means that there are 5 missing values in the data set.

From Table 01-01 and Table 01-02, we can learn that the most frequent users of Docomo is light users (42.22%) and female users are more than male users (53.33% vs. 46.67%). We can observe a highest frequency in each table from Table 01-03 to Table 01-07 but we might not draw any conclusion by basing only on frequency distribution. So we need to analyze the research results further in the later part of this report.

2. Descriptive Statistics

The descriptive report describes the information in a frequency table 02 which includes the measures of tendency (mean, median p50), dispersion (range, standard deviation, coefficient of variance) and shape (skewness, kurtosis) of the variables of the sample under consideration. From the means values of user groups and sex, we can have the same conclusion as above. We see that the mean values of other variables are around the median of such variables. This means that awareness, attitude, preference, intention and loyalty are generally favorable. Among these 5 variables, attitude is the most disperse variable with the highest standard deviation (1.909), highest coefficient of variance (0.469) and the most skew variable. Then awareness and intention are the 2^nd and 3^rd disperse and skew variables. Obviously the table shows that sex is the least disperse variable because it has only two possible responses.

3. Cross Tabulation tabulate of user group and sex

The cross-tabulation table 03 represents a statistical analysis of the relationship between two nominal variables user group and sex to see whether there is an association between user group and gender. We use Chi-square test of independence. Null hypothesis (Ho) is that there is no association between gender and user group, and Alternative hypothesis (Ha) is that there is an association between gender and user group. Computed Chi-square value is 6.3413 which is lower than the table Chi-square value 67. 50 at degree of freedom 43 and a =0.05. This leads to the conclusion that Ho is accepted and Ha is rejected. In other words, there is no association between user group and sex or user group and sex are independent.

4. One sample mean comparison test

Table 04 shows the right-tail testing hypothesis for the mean of awareness. Ho is whether the awareness is below or equal to 3. Ha is whether the awareness exceeds 3. Computed T-value is 4.1621 which is greater than table T-value 1.671 at degree of freedom 43 and a =0.05. Therefore, we reject Ho and accept Ha. This means that the awareness is greater than 3.

5. Group mean comparison test

Table 05-01 presents the two-tail hypothesis testing for the difference between the means of females’ awareness and males’ awareness. We are interested in knowing whether males and females differ in their awareness for Docomo. Ho is that there is no difference between males’ awareness and females’ awareness. Ha is that there would be a difference between males’ awareness and females’ awareness. Computed T-value is -2.3944 which is smaller than table T-value -2.000 at degree of freedom 42 and a/2 =0.025. Therefore, we reject Ho and accept Ha. In other words, males and females differ in their awareness for Docomo.

Table 05-02 presents the two-tail hypothesis testing for the difference between the means of females’ attitude and males’ attitude. We are interested in knowing whether males and females differ in their attitude for Docomo. Ho is that there is no difference between males’ attitude and females’ attitude. Ha is that there would be a difference between males’ attitude and females’ attitude. Computed T-value is -1.9002 which is greater than table T-value -2.000 at degree of freedom 42 and a/2 =0.025. Thus, Ho is accepted or males and females do not differ in their attitude for Docomo.

Table 05-03 presents the two-tail hypothesis testing for the difference between the means of females’ loyalty and males’ loyalty. We are interested in knowing whether males and females differ in their loyalty for Docomo. Ho is that there is no difference between males’ loyalty and females’ loyalty. Ha is that there would be a difference between males’ loyalty and females’ loyalty. Computed T-value is 0.9025 which is smaller than table T-value 2.000 at degree of freedom 42 and a/2 =0.025. Therefore, we accept Ho and reject Ha. In other words, males and females do not differ in their loyalty for Docomo.

Table 05-04 presents the two-tail hypothesis testing for the difference between awareness and loyalty. We are interested in knowing whether awareness level is higher than loyalty level. Ho is that awareness level is less than or equal to loyalty level. Ha is that awareness level is higher than loyalty level. Computed T-value is 0.6025 which is smaller than table T-value 1.671 at degree of freedom 42 and a =0.05. Therefore, we accept Ho and reject Ha. In other words, awareness level is not higher than loyalty level.

6. One-way ANOVA analysis

Table 06-01 is an ANOVA table to present the hypothesis test about the difference between several means. We are interested in knowing whether awareness varies across user groups. The response variable is awareness and the factor variable is user groups. Ho is that awareness does not vary across user groups (or user groups have no effect on awareness). Ha is that awareness varies across user groups. If Ho is true, F ratio should be close to 1. However, the probability of getting F-statistic of 49.23 or larger is zero. Therefore, there is substantial evidence that Ho is not true. In other words, because computed F-value 49.23 is much greater than the critical F-value of F_{2, 41, 0.025}, which is around 4.98 (not on the F-table in the text book but this is F-value of F_{2, 60, 0.01} from a F- statistic table), we reject Ho and accept Ha. This means that user groups differ in terms of awareness.

Table 06-02 is an ANOVA table to test whether attitude varies across user groups. The response variable is attitude and the factor variable is user groups. Ho is that attitude does not vary across user groups (or user groups have no effect on attitude). Ha is that attitude varies across user groups. Because computed F-value 37.23 is much greater than the critical value of F_{2, 41, 0.025}, (see the above explanation), we reject Ho and accept Ha. In other words, user groups differ in terms of attitude.

Table 06-03 is an ANOVA table to test whether preference varies across user groups. The response variable is preference and the factor variable is user groups. Ho is that preference does not vary across user groups. Ha is that preference varies across user groups. Computed F-value 19.20 is much greater than the critical F-value of F_{2, 41, 0.025}. Hence, we reject Ho and accept Ha. This means that user groups differ in terms of preference.

Table 06-04 is an ANOVA table to test whether intention of purchase varies across user groups. The response variable is intention and the factor variable is user groups. Ho is that user groups do not differ in terms of intention. Ha is that user groups differ in terms of intention. Computed F-value 0.07 is much smaller than the critical F-value of F_{2, 41, 0.025}. Thus, we fail to reject Ho. This means that user groups do not differ in terms of intention.

Table 06-05 is an ANOVA table to test whether loyalty varies across user groups. The response variable is loyalty and the factor variable is user groups. Ho is that user groups do not differ in terms of loyalty. Ha is that user groups differ in terms of loyalty. Because the computed F-value 0.03 is much smaller than the critical F-value of F_{2, 41, 0.025} and the probability to observe F-value of or greater than 0.03 is very high at 0.9736, we need to accept Ho. This means that user groups do not differ in terms of loyalty.

7. Simple correlations – Pairwise correlations

Table 07 is a pairwise correlation table presenting the sample correlation coefficients (r) between each pair of variables. The number with stars mark indicates that the correlation is significant. We need to test the significance of population correlation coefficients (p) between Ho: p = 0 against Ha: p ¹ 0. We can see from the table that there are significant relationships between attitude and awareness; preference and awareness; preference and attitude; loyalty and intention. However, the relationships between intention and awareness; intention and attitude; intention and preference; loyalty and awareness; loyalty and attitude; loyalty and preference are relationships by chance occurrence. In other words, these relationships are not significant or not strong enough to be considered.

8. Linear Regression

Table 08 is the simple linear regression analysis result between loyalty as dependent variable and intention as independent variable. The regression function is Loyalty = 0.88 + 0.76 intention (hereafter referred to model 1).

We use t-test to test the significance of the independent variable. Ho: there is no linear relationship between loyalty and intention. Ha: there is a linear relationship between loyalty and intention. Computed T-value is 7.47 which is greater than t_{41, 0.025} =2.00. Therefore we reject Ho and accept Ha. In other words, there is a linear relationship between loyalty and intention.

9. Multiple Regression

Table 09 is the multiple regression analysis between loyalty as dependent variable and awareness, attitude, preference and intention as independent variables. The linear regression equation is loyalty = 0.53 + 0.03 awareness – 0.03 attitude + 0.06 preference + 0.78 intention (hereafter referred to model 2).

We also use t-test to determine the significance of each independent variable. Ho: there is no linear relationship between loyalty and awareness. Ha: there is a linear relationship between loyalty and awareness. As the computed T-value 0.18 is smaller than t_{41, 0.025} =2.00, Ho is accepted. In other words, there is no significant linear relationship between loyalty and awareness. In the same way, we can draw a conclusion that there are no linear relationships between loyalty and attitude and preference. However, there are linear relationship between loyalty and intention.

To determine the correlation between independent and dependent variables, we test coefficient of determination R². Ho: R²of the population is equal to zero. Ha: R²is not equal to zero. Since computed F-value 12.48 is greater than critical F-value which is around 7.08, we reject Ho and accept Ha. So there is a significant correlation between loyalty and independent variables. However, among 4 independent variables in this model, intention has the strongest impact on loyalty because intention is the largest among standardized beta coefficients.

In this multiple analysis we have added 3 more independent variables (awareness, attitude, preference) to the simple regression model which is represented by equation (1). We are interested in knowing whether adding such independent variables will help to explain more variation in the dependent variable loyalty. We do a test on increment in the proportion of variance accounted for by additional variables. Ho: adding more independent variables will not have any effect on loyalty. Ha: adding more independent variables will affect loyalty. The computed F-value (formula in the text book, chapter 19) 0.16 is smaller than the critical value of F_{4,39, 0.05} @ 3.83. Thus, we fail to reject Ho. This means that adding more independent variables will not have any effect on loyalty. This is also true when we look at the small contribution of awareness, attitude and preference in the regression equation through standardized beta coefficients.

The coefficient of intention in model 2 is slightly greater than that in model 1 (0.78 vs. 0.76). This change when more independent variables are added into model 1 is called multicollinearity. The reason of this phenomenon is that there might be correlations between intention and other 3 independent variables in model 2. Hence, we need to test the correlations among independent variables to know this effect on the dependent variable. In this case, the stepwise regression model should be used. However, in the scope of this report we do not test such multicollinearity effect.

10. Discriminant Analysis

Table 10 presents the result of discriminant analysis of the available data. The purpose of this analysis is to see whether three user groups differ in terms of awareness, attitude, preference, intention and loyalty. We have 3 groups and 5 predictor variables so the number of the discriminant functions should be 2. Function 1: Z₁ = -5.14 + 0.54 awareness + 0.55 attitude + 0.41 preference – 0.09 intention – 0.19 loyalty. Function 2: Z₂ = -0.31 – 0.64 awareness + 0.12 attitude + 0.76 preference – 0.39 intention + 0.23 loyalty.

We determine the significance of Z₁ and Z₂ by Chi-square test. Ho is the group means of Z₁ are equal (m_a = m_b) in the population. Computed Chi-square of Z₁ is 70.15 which is larger than table Chi-square_10,0.05 = 18.31. Therefore, we must reject Ho and accept Ha, which is the group means of Z₁are different or unequal. We use the same Ho for Z₂. Computed Chi-square of Z₂ is 5.858 which is smaller than table Chi-square_4,0.05 = 9.49. Therefore, we must accept Ho, which is the group means of Z₂are equal. In other words, Z₁ is significant but Z₂ is not significant. Hence, we will examine only the significant function Z₁ later in this report.

From the function Z₁ we can see unstandardized discriminant weights of predictor variables. The importance of each predictor in the discriminant function is shown by standardized canonical discriminant function coefficients. We can see that attitude has the greatest impact on Z₁ than the other variables because it has the largest standardized coefficient (0.5883). Awareness and preference have less impact on Z₁. Among the predictors, loyalty has the least impact. Based on this analysis we can conclude that attitude is the most important discriminating variable of user groups.

We also can analyze the importance of the predictors by examining the canonical discriminant structure matrix (discriminant loadings) in which the simple correlations between each predictor and the discriminant function represent the variance that the predictor shares with the function. Awareness has the greatest share of variance with the function, followed by attitude, preference, intention and loyalty. However, it is hard to draw any conclusion from this analysis because the sample size (45) is not large enough in comparison to the number of predictors (5).

We use classification matrix, which is Tabulate usergr_daclass table, and hit ratio to evaluate how well groups are classified. The number on the diagonal of the matrix shows correct classification and other numbers in the matrix are incorrect classification. The hit ratio is the percentage of correct classifications over the total number of classifications. The hit ratio is (14+7+16)/45 = 82.22%. The maximum chance criteria of 3 groups of size 19, 10 and 16 is 19/45 = 42.22%. The proportional chance criteria is (19/45)²+(10/45)²+(16/45)² = 35.4%. The hit ratio is larger than both chance criteria and proportional chance criteria. Hence we can conclude that the group classification is good. In other words, it is worthwhile to pursue the discriminant analysis in this case.

Secondary data for Marketing research project: Creatitity

2008-04-06T05:16:00.000-07:00

Overview

Creativity has come into attention of many consumer good manufacturers. In the attempt to position itself from competitors, my client, a major consumer good producer has pursued value co-creation strategy to create unique value to its customers by having customers involve in marketing mixed processes. In this report, I suggest some sources of secondary data that the company should use to answer some marketing research questions in such co-creation process.

Publish source

The academic paper Re-Inventing Value Propositions by Ajit Kanbil, Ari Ginsberg and Micheal Bloch at Stern School of Business, suggests that through value co-creation a company can create new value proposition to outperform competitors in commoditized industries. The research method is to study how a number of market leaders in different industries such as South-east Airline, IKEA, Dell and Airbus create value to their customers. The authors use value frontier analysis and value mapping technique to find out dimensions of 　　　　value prepositions as well as internal mechanism and characteristics of the creation.

According to the paper, a company needs to create value to customers in an innovative way to overcome strong competition of commoditized industries and challenges of lower profits. In other words, the company needs to break out commoditization trap, which includes similar products and services features, to deliver more value to customers. Because value, from customers’ point of view, is the difference between perceived benefits and perceived costs of a product, value creation should be focused on product performance that meets customers’ desires of features, attributes, design, service… and product costs (customers’ purchase price, risk and efforts). Value creation should base on the 4 roles of consumers: customers as a buyer to define their need, delivery, service…; customers as a user to see whether products meet their expectation and satisfy their need; customer as a co-creator to create a product that fit their specific need; customers as a person who disposes products. By considering these 4 roles the firm can create products that satisfy best customers’ need and desires. To implement value creation, the paper proposes a 3-step method. The first step is to define the value frontier, which is to determine the position of the company in comparison with competitors. The second step is to create new value by using these 4 roles of customers such as having customers co-create some features of products or design. The final step is to create an appropriate internal mechanism such as organizational system to deliver such new value to customers. By doing so, the firm can outperform its rivals, deliver unique value to customers and therefore bring more value to shareholders and satisfy better stakeholders. The company can have partnership with customers via co-creation, enhance brand loyalty and have competitive advantages since it can deliver to customers a unique value that non competitors can imitate.

Standardized source

IRI Consumer Network is useful source of data that help the firm understand customer behaviors so that company can have a clear direction of new value it need to its for customers. By understanding customer behaviors, it can determine the dimensions of value creation, how consumers can participate in this creation process and the result of this process. The Consumer Network, a service provided by IRI, is based on consumer panel research method in which data are obtained through scanning process and the panel is expanded by increasing number of scanners, markets, retail marketing areas and types of consumers. Therefore, it provides reliable information about consumer trends and helps the firm understand better its costumers. It also helps the firm measure the level of customer satisfaction, brand loyalty, attitudes to co-creation process and new value that the company wants to create. Unfortunately, I could not access any data from IRI in order to explain in more detail how to use this standard source of marketing research information in creativity process for the company.

Unlike IRI database service, ACNielsen Consumer Panel Services by AC Nielsen helps the company understand not only customer behaviors but also purchase behaviors in different countries and geographic regions. This database provide consumer purchase information in 24 countries for about 125,000 households by using scanning technology in warehouse clubs, convenience stores, supermarket, drugstores and mass merchandisers. By using the database the firm can have a clear picture of customer behaviors and shopping patterns in a region or country it want to expand business. Therefore, the firm can answer the question of what value to create, how to co-create (par example customers co-design products) and how to sell (e.g. customers can buy a custom products from catalogue) and where to sell. The shopping patterns may give the company a great idea to create a unique shopping environment.

Internet source:

Claritas is a comprehensive online marketing data source that includes census data, detailed market analysis data, customer analysis data…to help firm answer its marketing questions. For example, to answer the question in which industries the firm should create a new product, we can use Behavioral Profiles by Claritas. This marketing data will provide concrete information about media preferences, shopping habits, travel, restaurants, auto, financial services, income, housing, age, race etc. By analyzing behavioral profile reports, the company can understand characteristics and lifestyles of customers and therefore, it can figure out potential market segment it would likely to serve, what kind of products is suitable for this segment, who are targeted customers, what is the level of participation of potential consumers in co-creation process and how they participate. A sample of this type of report is attached herewith as an example. Claritas uses audit method to collect data and therefore, the Behavioral Profiles are made based whether on Claritas’s own audit data or on its third parties’ syndicated data source. Claritas has many other online marketing research data such as market reports that the company can use to measure results of its co-created value.

Unilever in India: Hindustan Lever’s Project Shakti

2008-04-06T05:14:00.000-07:00

Executive Summary

HLL has enjoyed a competitive advantage as a sole provider of personal hygiene care products before the liberalization of India’s economy. However, with the entry of foreign MNC, HLL is suffering from stagnant growth and lower profit margin. Project Shakti was created to address these issues. The high growth of Shakti has created managerial challenges to the project management team. As Shakti grows, the current management structure has become inefficient to make it profitable with minimum costs. Thus, restructuring management measure is crucial to sustain Shakti in the long run and to provide HLL with competitiveness.

Challenges of Project Shakti

Rural market is already giving HLL a competitive advantage. But competitors are also tapping into the rural market with existing HLL direct channels. Thus to continue HLL competitive edge, Project Shakti is essential. Until 2004, Shakti is contributing 3.5% (pg 6 & 17: 15 x 20 / 85) towards HLL total revenues and it still has potential to continue growing. This is because personal hygiene awareness is in the increase. Shakti may be able to achieve the founder’s dream of 15%-20% of total revenues, assuming that Shakti can increase the usage rate of current consumer. However it will not achieve the market penetration of over 500 million rural population as this figure signifies that HLL will nearly monopolize the rural market with 80% penetration rate. The greatest challenges that Shakti face are costs and management control to make it profitable.

Managing Project Shakti in the long term

The Shakti system in the beginning of the project was good but not sufficient to handle the growth it had obtained. Thus changes are needed to make it more cost effective and profitable. As Shakti matures, there are a number of entrepreneurs who are more successful than the others. HLL’s RSP can organize a monthly gathering for all entrepreneurs in the same district, encouraging interaction and communication among entrepreneurs. By doing so, the experience and knowledge of the successful entrepreneurs will motivates others. This will increase the efficiency of each entrepreneur (profit increase) and also decrease the amount of time spent by RSP to visit individual entrepreneur, giving RSP more time to explore untapped villages in the same district. Thus the current 500 RSP is sufficient to manage 25,000 entrepreneurs. Also, HLL should be focus only in states with SHG movement to increase its cost effectiveness. HLL should also cultivate more successful entrepreneur from existing entrepreneur as organic growth of these entrepreneur is faster and easier to give profit. As HLL penetration to rural market is only a mere 16% (1 entrepreneur in 5 villages, pg 12), the market potential and market size is big enough to give a fair share to every player, thus the conflict between Shakti entrepreneurs and direct sales channel, if ever arise will be minimal. Moreover, a control measure can be applied by limiting the number of entrepreneur in each district thus minimizing conflict.

iShakti and Shakti Vani – survivals for Shakti

iShakti and Shahti Vani are Shakti’s initiatives created to provide rural India with access to information and social communication. Although the setting up costs for those two programs are quite high, Rs 150 million, funding is likely to be achievable because this cost occupies about 3.6% of Shakti’s revenues (150 / 3.5% x 120,000 (pg 2)) and therefore Shakti itself can finance these programs. Funding is also possibly receivable by persuading other profits centers to invest in the programs and by using the revenues of iShakti to finance Vani. Furthermore, iShakti will have high potential revenues from selling MR to the internal customers and to sell the channel to other interested, non-competitor parties, e.g: banks, insurance companies, farm equipment etc. Vani itself does not generate revenues directly, but it is a powerful tool to increase hygiene awareness in rural India, as a result indirectly increase HLL sales at long term. In short, iShakti and Vani will be workable and scalable to help Shakti success.

Social Impact and Role of Business

HLL should make a social impact on rural India. By involving in the improvement of rural living conditions, HLL can and will continue to enjoy the competitive advantages as the main company to participate in social development. The connection between business and communities will develop lifetime customers for HLL. This involvement may not be the typical role of business, but as long as it is profitable to HLL without compromising moral and legal issues, it will be a good move for HLL to increase its reputation as a socially responsible organization.

Conclusion

Project Shakti started to suffer from growing so big that the current structure needs to be adjusted. Restructuring the managing measure of RSP to entrepreneurs, focusing Shakti in selective districts and prioritizing efforts in existing entrepreneurs, Shakti will generate higher revenues with minimal increase in costs. Shakti should continue as it is providing HLL a distinct competitive edge and increase HLL’s profits and growth. Moreover, Shakti helps to position HLL as socially responsible organization.

Case: IKEA Invades America

2008-04-06T05:13:00.000-07:00

Executive Summary

The IKEA Group, one of the world’s top furniture retailers, has emerged as the fastest-growing furniture retailer in the US. To become one of the leading furniture retailers in such huge and promising market, it has set an ambitious goal to have 50 stores around the US by 2013. IKEA has 4 branches in Los Angeles alone. From 1997 to 2001, the revenues of IKEA doubled from $66 million to $1.27 billion in five years. Looking at the growth rate over the past decade, it seems possible for IKEA to reach this goal. However, IKEA faced several challenges: American’s mind-set, competition from established furniture retailer and different customer’s preference. To address to these challenges, IKEA needs to apply market leader strategy expanding total market size, defending and developing its market share to achieve this goal.

IKEA Brand: lasting advantage

One of IKEA’s lasting advantages is its brand. To many consumers, IKEA means low-priced furniture, Scandinavian design and style, shopping convenience. IKEA’s cheap furniture does not make consumers feel cheap but rather beautiful, convenient and well-designed. IKEA has a unique shopping culture that makes consumers feel a “real Scandinavian design and style” when they shop. Thus, brand awareness gives IKEA a great power in the US market. However, IKEA’s motto is “low price with meaning”. “With meaning” for US market is different from the other markets. If IKEA can not capture what US customers want, its offerings will become “low price and no meaning”. IKEA already listens to US customers’ needs but it should focus more on local market point of view.

Challenges in America

Reluctance to change furniture: mind set of Americans

Americans typically have the mind-set that furniture should last a life time, which is not in-line with IKEA’s value that does not include durability in its products. Thus to increase market share in America, IKEA must change the American’s attitude towards furniture as something fun and disposable, furniture is something that add value to lifestyle without incurring too much cost.

Value added in high-end furniture retailer

As in IKEA motto: low price, there is no delivery and credit services offered. Whereas a typical American furniture retailer (Wal-Mart excluded) offered free delivery service, on top of personal consultation, interior design, credit (easy payment scheme) and huge selection of products. IKEA has to compete not only in price, but also the value added services that these furniture retailers offered as a package together with the furniture purchased.

Consumer preferences

Another challenge that IKEA faces in America is different consumer preferences and needs. IKEA originated in the Scandinavia has to modify its products to suit America’s furniture market.

Managing sustainable growth for the future

To achieve the 2013 goal, IKEA should apply market leader strategy by expanding total market size, defending and developing its market share. To expand total market size, IKEA should use both new market segment and market penetration strategies. First, it should segment the market to middle-upper class. This particular segment includes young, educated, high mobility home makers that reside in sub-urban America. They are typically open minded and technology savvy which suits IKEA’s brand image and offerings.

Second, IKEA should find new users, uses and increase usage volume of its current customers. To do so, it should encourage and cultivate a new concept of furniture as representative of life style. As life style changes furniture should change too. It should not compete with either high or low-end furniture retailers in U.S (price and quality), but instead use them as benchmark and focus on its niche. IKEA should benchmark its products against hi-end furniture retailers in the US. It should also avoid head-on competition against both high and low-end furniture retailers. Instead it should position itself as a market leader in its niche market.

IKEA should co-create value with customers by establishing “IKEA Club”. This Club is a platform to encourage interaction among IKEA’s consumers so they can teach each other how to buy, assemble and use its products. Beside that, the Club also works as a platform to exchange ideas and experience in using its products. Moreover, it should create a website for potential shoppers to mix and match its products online before visiting its’ stores. This will reduce the shoppers’ confusions and increase customer participation in designing home furnishing using its existing product offerings.

To protect and develop its market share, IKEA should endure IKEA brand by maintaining its company values and unique shopping culture at all stores such as keeping store design, decoration, structure, service. In this case, it needs to modify the product matrix according to US markets by maintaining the price range but increase number of styles that meet the needs and wants of the target market. IKEA also needs to position itself by changing US consumers’ mindset via various IKEA-consumer communication channels.

Conclusion

As mentioned in the case, America’s furniture market is very fragmented. In order to increase the market share, IKEA needs to focus on positioning itself as the one stop centre for all home furnishing needs. IKEA should target their marketing efforts on middle-upper, educated segment of America’s population as they are the one that will be more open to accept new ideas and concept that IKEA has to offer. Also IKEA should differentiate itself, focus on the experience it offers to shopper, not just the low price products. By doing so, the goal of 50 stores in 2013 is not far from reach.

Autobytel - New marketing strategy

2008-04-06T05:12:00.000-07:00

Executive Summary

Autobytel is the first mover in the internet new car buying service in the US. It enjoyed miracle growth during its early stage but now is facing strong competition from many sources relating to car buying services. In such increasing competition, it has to reposition itself to differentiate from competitors by offering new services and products such as selling cars direct to consumers and increasing the numbers of dealers and reduce costs. Existing marketing mix should be reviewed to find a balance between efficiency and profitability by focusing on internet advertising and personal touch with dealers.

Facing strong competition in the internet new car buying service

As the number of dealers using online buying services is dramatically increasing, Autobuytel is facing intense competition with other online car-buying service providers such as Microsoft, Dell, who had entered the market, set up dealer networks in a short period, and are nearly catching up with Autobytel by using their brands and existing networks or partnership with companies which already have car dealer network bases. They are not only price-competitive, but also have a wide variety of services like car delivery service by CarsDirect.com. Car manufacturers and dealers also start direct online car-selling service. These competitions make Autobytel difficult to differentiate itself from other online car buying service providers in pricing and servicing.

Restructuring costs for revenue growth

Autobytel’s operating cost is extremely high in comparison with revenues, but increasing at slower rate. In 1996, revenues grew 1733% (Exhibit 1), but costs increased at 757%. In 1997, costs increased at slower rate. As the cost is increasing at a slower rate than revenue, it can still manage cost reduction. Competition will not get easier in the future as it has less than 1% market share. Therefore, it should implement cost control program by setting cost according to revenues. It should be very cautious regarding the budget spent on sales and marketing as the profitable and long lasting business should not spend more than its gain. For example, it should target a certain percentage as its net profit margin before spending on sales and marketing.

Offering new products and adding new dealers and services to grow revenues

Autobytel can sell cars directly to customer because this service will be more efficient and convenient to customers. As the internet purchase is the future trend, by doing so it will definitely becoming a market leader in internet car sales. Thus it can acquire more consumers and get more marginal profits than just as being a liaison. However, it should be cautious in launching this service as not to jeopardize business of existing dealers and also it should consider the cost incurred in this venture. It should first limit this service in area near to car manufacturer sites to avoid incurring inventory cost and increase efficiency of car delivery to customers.

Autobytel should explore its dealer network since 89% of its revenues come from dealer subscription fees. To do so, it needs to help dealers increase sales volumes by granting them a larger geographical territory than car manufacturers do. It also needs to give its dealers support (training services) so that they are not fired by having poor service quality. This will definitely help in increasing the number of dealers and position itself as the synergistic partner for dealers to venture into the new era for business through the internet. Providing training to sales persons will increase the efficiency of the dealer. This will not only strengthened the rapport between Autobytel and existing dealer, but also boost up its reputation as the premium.com company. However, it should restrict its dealers from signing up with competitors to protect its investment and to maintain its competitive advantage (Autobytel University).

Autobytel should add new features into its products and services. First it should develop the current consumer-to-consumer and business-to-business car sales markets into one of its major products and charge the successful transaction at a reasonable price. This is because this service can increase the number of business buyers and consumers via its websites. It needs to focus more on used car sales because these sales can give dealers more margins than new cars do. It should also offer truck, van and bus online buying service with the same system by focusing on business-to-business transactions. This new business is very potential since no one has done it. It should create a “buyer chat room” on its website where buyers can talk with its dealers and other buyers about purchasing decisions so that they feel that they make right choices.

Repositioning and marketing mix programs

Autobytel has to position itself as the complete car guide website which provides not only information on car purchase. The new position statement should be ‘More Than Cars’ where it offers simple way of getting all kinds of information and services related to cars. It should strengthen and maintain its competitive edge by referring consumer to reliable and low-price dealer and service centers. That is to brand Autobytel equivalent to other successful online companies like Amazon.com.

In order to achieve the new positioning, a new set of marketing mix is called for. Autobytel should focus on two ends: the consumer and the dealer. On the consumer, internet marketing and advertising should be continued as the target consumers are those pro-internet shoppers. Traditional advertising should not be continued as it was too costly.

As for the dealer, personal selling is the best way to maintain and gain new dealers. Mass advertising is not recommended as it is not cost effective for Autobytel. This is because Autobytel did not want to target all dealers, but only selected dealers in a certain area that is reliable and have a high reputation.

Conclusion

In short, to growth sustainablly in fierce competition, Autobytel needs to reposition itself to differentiate it from its competitors. To do so, it should take a course of actions to accelerate its revenues such as restructuring costs, offering new products and services, adding new features on its websites as well as exploring its dealer network. Moreover, it needs to change its positioning statement with a set of new marketing mix programs focusing on both customers and dealers.

Cumberland Metal Industries: Engineered Product Division, 1980

2008-04-06T05:11:00.000-07:00

Executive Summary

Cumberland Metal Industries (CMI), a company specialized in making of curled metal products, has develop a new product, metal cushion pad with health safety and long durability, to help contractors drive piles faster. Based on the successful tests, CMI now wants to launch this new product to the market. The main challenge CMI is facing is to price its new pads. Since the pad is totally new in the market, CMI should use perceived value pricing method and apply marketing mix programs comprised of advertising, education, and distribution channels to launch this product as well as develop it to get full market share in the future.

Perceived Value Pricing – strategy for future success

CMI should set the objective of this new business to be the monopoly and to maximize profits. However, the prerequisite for this objective is to get a patent to prevent this product from being copied and imitated. As long as CMI did not get patent for this product, CMI should not sell it as it would invite the entry of competitors because this cushion pad is not a high technology product and easy to be copied. Thus the following pricing strategy will be based on the scenario of getting patent protection.

To price the new product, CMI should apply perceived value pricing method to deliver its value to customers and CMI must make them perceive this value. CMI also needs to apply several marketing-mix programs such as advertising and roles of influencers to communicate and enhance perceived value in customers’ minds. The price calculation is as follow:

Normal a price of an 11 ½ inch asbestos pad is $3. A CMI’s pad lasts longer than asbestos pads 10 times (conservative estimate: p4). Thus speed and efficiency will be the top priority for marketing and pricing this pad. Based on product life, the pad will only have $30 value. However, based on the data from Colerick test, Corelick spent $1000 for asbestos pads; they use 6 CMI’s pads for the same job. So, it took $1000/6 = $166.67 worth of albestos pads to complete the same work by CMI’s pads. From the Fazio test, it took $400 worth of albestos pads. This has not take efficiency into consideration yet. Assuming that the users do care about speed and efficiency, CMI can charge additional price.

From the Colerick test, the job is to drive 50 feet in to the ground using 300 piles. The albestos pads spend 20mins (150ft/hrs: p.3) on driving and 400mins on set changing. The CMI’s pads spend only 15mins (200ft/hrs: p.3) on driving and 4mins on set changing. We do not need to take the hidden costs into consideration because it is not affected by reducing the driving time or pad changing time. So (420–19)min /60min = 6 hrs 41 min time saving. Because the contractors have to spend $100 per hour, Colerick probably save about $668/6 pads =$111.33 on equipment rental, labor and overhead costs for this work by using CMI’s pads. So the worth of CMI’s pad is $166.67+$111.33 = $278.00

CMI should choose the option to purchase the $50000 permanent tooling, because it will reduce cost per unit by $78.94. By this cost saving alone we can get back the money we invested in the tooling in less than 3 months. This will maximize profit in the long run. The total manufacturing cost will be $69.18/pad. The management wants 40%-50% contributing margin after all manufacturing costs, the price will be about $115 ~ $140 to satisfy the management’s profit expectation. Thus CMI’s should price the pads at $149.00, as this price will have 50% saving for the contractors.

Each CMI’s pad can save a huge among of costs for the contractors. If CMI can get the patent then no competitor can enter the market with the same product. CMI can charge the monopoly profit maximized price, but initially they should give promotional discount of 15% during the introductory phase, that is the first 2 purchases to make customers adopt the new pads because the price can look intimidating. (asbestos pad $3, CMI pad $149).

Marketing-mix strategy to launch and explore market share for new cushion pads

First, CMI needs to get the patent of this new product to protect from competitor entry. As CMI’s objectives is to be monopoly, patent is crucial.

Second, CMI needs to develop distribution channels. Direct channels to contractors who own pile hammers as they contributed high quantity and demand (50% of estimated market share). Also by having direct channels, CMI has more control on the education and monitoring of its clients. After that, CMI should sell to wholesalers and hardware stores to cover the small contractor. CMI should not be too concern about the equipment rental because as CMI’s pads gain popularity in the industry, customers will pressure the rental company to use CMI’s pads.

Third, CMI needs to develop promotional and advertising programs to make customers perceive the value of new pads. CMI needs to educate its consumers in terms of health benefits (no asbestos) and safety (no heating problem) and to add the brand quality by advertising in professional journals. CMI also needs to make the function and merit of the new product to be known by customers, especially the value the new product can create the aspect of health concern.

Fourth, CMI needs to establish a network of influencers or increase public relations. To do so, CMI needs to established networks in a new industry to the company and key influencers to endorse its product. The result from Professor McCormack will be of high value to gain endorsement from consulting firm.

Fifth, CMI needs to do market research, estimate the price elasticity of the new pad and the demand function and then adapt the initial price to the profit maximized price.

Conclusion

CMI’s pads definitely will be the market leader in the industry as it is innovative with high efficiency. Getting patent for this pad will ensure the growth profitability of CMI. In this case, perceived value pricing is used as the pad has more to offer than conventional asbestos. In line with this pricing strategy, marketing mix of advertising, education and distribution play a role in ensuring the success of this product.

Heineken N.V: Global Branding and Advertising

2008-04-06T05:08:00.000-07:00

This is my favorate case about global branding and advertising.

Executive Summary

Heineken N.V, a long with tradition, superior quality and taste, has been perceived differently from market to market. With the finding of common perceived values of Heineken brand across all markets through Project Comet and Mosa, the company should pursue a global branding strategy. To do so, Heineken should build compelling ICM strategies and provide a 'platform' that is flexible enough to handle the branding for local marketers. It should have both centralization and decentralization marketing organizational structure to promote successfully a global brand and to support local marketing managers in setting and implementing ICM strategies tailored to each local market.

Situation Analysis: Heineken N.V is a well-know, renowned brewery with essential strengths (Appendix-1) to be a global brand. However, at this moment, brand perception is different across the countries. Though Heineken had consistently been marketed as a premium brand, in the US and Hong Kong market, a distinct image was established for special occasion rather than for daily consumption while in Latin America, Heineken is viewed as a European imported beer among others. While project Comet and Mosa strive to establish, gauge Heineken's global brand identity and communication, the real test lies for Heineken to sustain its market lead & reputation in its neighboring European Union which by far is the largest contributor to its sales. Project Comet proves that the brand’s good taste image is built on 5 core brand values: taste, premiumness, tradition, winning spirit and friendship. Project Mosa finds that premium beer tightly relates friendships and important relations which are built based on enjoyable, joyful, personal, luxury social conditions such as meeting people, fancy meals, savoring, elegant parties, intimate moments and places etc (Exhibit 7). The friendship value would be presented in several social conditions through “true friends” and “consumers can count on Heineken as a friend” expressions. The taste would be built on 5 brand values: taste experience, balanced taste, foam, advertising and packaging (Exhibit 6). The taste expressions can be presented in quality and tradition values but should not be presented in brand vision because the research result shows the negative perception in brand vision.

Important Issues: A global brand is needed to provide relevant meaning and experience to people across multiple societies. To do so, the brand strategy needs to be devised that takes accounts of brand's own capabilities and competencies, the strategies of competing brands, and the outlook of consumers experience in their respective societies. The challenge for an international brand is to inspire but at the same time remain personally relevant, attached to the target group’s personal cultures and origins. As consumer needs and tastes vary, Heineken must decide how much to adapt marketing strategy to local needs using a variance of standardized marketing mix & adapted marketing mix, owing to the strong brand preferences & loyalties that exist among the beer drinkers. Also, Heineken need to prioritize between global integration vs. national responsiveness evident from decreasing sales in Holland, Rest of Europe, and Africa (data in page 1).

Global Brand Development: Since stage of beer market development in each country is different, different IMC strategy should be used. In embryonic markets (Africa, Eastern Europe) pushing strategy is suitable. In growing markets (Italy, Spain, Japan) both pushing and pulling strategies are agreeable. In mature markets (North and Central Europe, Australia, USA) pulling strategy is the best. Global positioning target can be achieved through creative marketing communication. Heineken should develop a number of high-profile, quality television campaigns with universal appeal, featuring high profile, contemporary celebrities. However, within the marketing mix, there will always be a requirement for locally driven campaigns and support. By connecting to ‘local situations’, consumer will develop a greater emotional tie to the company. To implement that, Heineken can invite a group of local people between 20 and 30 years of age to think with the company about new concepts and commercials. We suggest that the company should develop universal tagline for each Heineken advertising campaign. The company website will be designed at www.heineken.com and should have a link/separate section to each country market with content in local language. The product label to be used internationally. National advertising should play a prominent role in promoting Heineken brand. Sponsorship strategy for the Heineken should be strengthened to build brand equity through relevant associations with high-impact, high-profile sports and music events, films. Heineken brand should seek association with hot movies targeting to relevant demographic profile to establish the brand position in crowded marketplaces. The company should sponsor numerous sports events at local and regional level to help support international, premium positioning and awareness, enforce brand equity, drive volume and recruit new consumers to the brand. An important marketing and recruitment platform for the brand is music. Heineken can build presence and credibility; draw crowds in venues around the world and get recognition through music show, international awards in contemporary music. On top of all that, Heineken should coordinate its marketing strategy and advertisement campaign with local in order to use unified brand positioning worldwide.

Role and structure: Heineken’s headquarters should take the combination approach of centralization and decentralization to leveraging global marketing. The headquarters should develop specific guidelines that determine the face of the brand worldwide with fundamental values (positioning, name and logo) and have the most control over advertising policy, guidelines, and operations in all markets. Instead of trying to push a fixed global promotion campaign across the globe, the headquarters marketing truly added value for local marketers by providing a 'platform' that is flexible enough to travel. Local marketers will be challenged to develop locally relevant translations of the program recognizing the importance of inspiring marketing at a local level. The key is to find the right balance between central guidelines that the entire organization follows and the content of the brand at a local level. Headquarters should work closely with local and sets advertising and promotional objectives, assesses all creative themes and executions and approves media selection decisions. On the other hand, local advertising managers submit advertising plans and budgets for their markets, which are viewed by the headquarters. This will allow for consistency in Heineken’s international advertising yet permits local input and adaptation of the promotion program. Heineken should also set up best practices system and transfer knowledge from one country to another so that the wheel doesn't need to be reinvented; and headquarters marketing forces can play an important advisory role for local colleagues.

Appendix-1: Strength and Weakness of Heineken

Strengths	Weaknesses
Beer of highest quality (superior quality) Special Taste Original formula Traditions Brands availability Premium brand Lighter Beer Attractive packaging Most heavily advertised Premium beer in Europe and Worldwide and use TV commercials heavily	No production base in some area Inconsistent brand image with brand communication TV commercials are just aired in larger markets Efforts necessary for brand revitalization Lack of integrated marketing campaign Lack of worldwide advertising campaign

Appendix-2: Detailed recommendation to achieve the global brand

Introduce a number of innovations across liquid, packaging and format that will serve to further endorse international leadership credentials because innovation is the lifeblood of brand domain.
Heineken has a strong brand tradition. In order to flourish its brand reputation across the world, convince the consumers that the brand is some way superior.
Develop a relationship with customers, build affinity between brand and customers by sponsoring international rugby tournaments, and world soccer tournament such as -( the Champions Leagues, the UEFA Champions League, world's premier club) where target audience of men from all over the world gather in one place.
Building the brand recognition for long-term to differentiate the brand Heineken and be sure to add value to the product in order to get the brand loyalty. (For example, Heineken can maintain its good quality or create benefits for society and culture, and provide an emotion to its consumers.

Figure- Brand Environment

Fig- Global Brand Proposition

Business and Management

Experience in the 36th Symposium, May 2006

36th Symposium at St Gallen University (Switzerland)

REPORT ON SMALL-GROWTH MUTUAL FUNDS

Technique for Efficient Frontier Construction

Portfolio Management – First Project

Sally Jameson: Valuing Stock Options in a Compensation Package

OPTION STRATEGIES AND CURRENCY FORWARDS

Organizational Behavior - Culture Lens

Organizational Behavior - Team Primer

Workforce Management: Employement Relationships in Changing Organizations

Roussel-Uclaf

Case study: Carly Fiorina - Leadership Capability

English essay: local and export processing enterprises in Vietnam

Business Communication: sample of an internal memo

Case study: Dividend Policy at FPL Group Inc

How to analyze a case study for Business Policy subject

GDP calculation

Singapore: Committee on Singapore's Competitiveness

Foreign exchange markets and transactions

Japan: beyond the bubble

Japan: deficit, demograpgy and deflation

Distributorship Agreement and Copyrights

Survey data alanysis of Creativity research project

Survey data alanysis of Creativity research project

In-depth interview of Creativity research project

Summary and Analysis of the 1st Interview

Summary and Analysis of 2nd Interview

Summary and Analysis of 3rd Interview

Problem set in marketing research course

Secondary data for Marketing research project: Creatitity

Unilever in India: Hindustan Lever’s Project Shakti

Case: IKEA Invades America

Autobytel - New marketing strategy

Cumberland Metal Industries: Engineered Product Division, 1980

Heineken N.V: Global Branding and Advertising

Summary and Analysis of the 1^st Interview

Summary and Analysis of 2^nd Interview

Summary and Analysis of 3^rd Interview