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Journal of Business Management & Accounts Studies ISSN: 2581-7973
Editor Board
Chief Editor
Dr. Mussie Tessema
Winona State University,
United States
Co-Editors
Dr. Goitom Tesfom Tsegay
Eastern Washington University at
Bellevue, United States
Dr. Kubilay Gok
Winona State University,
United States
Dr. Parag Dhumal
University of Wisconsin-Parkside,
United States
Associate Editors
Dr. Rajesh singh
Rajkiya engineering college, devgaon,
India
Dr. Ankita Pathak
Pacific Institute of Business Studies,
India
Mr. Ali Valipour
Agricultural Bank of Iran,
Iran
Mrs. Iryna Chernysh
Poltava National Technical Yuri Kondratyuk University,
Ukraine
Dr. S. Umamaheswari
sathyabama university,
India
Dr. Sebhatleab Tewolde
Frankfurt University of Applied Sciences,
Germany
Dr. Mohammad Ajmal Nikjow
Northeastern University,
China
Dr. Bhoopendra Nath Gupta
KYDSC Trust s, Institute of Management & Science,
India
Dr. Miguel Angel Oropeza Tagle
Autonomous University of Aguascalientes, Mexico,
Dr. Revenio C. Jalagat, Jr.
Al-Zahra College for Women,
Oman
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Journal of Business Management & Accounts Studies ISSN: 2581-7973
INDEX
(Volume 1, Issue 1, 30 April 2018)
Articles Page No.
Orientalism in global business: loosening the influence of colonial thinking in order to
accelerate global business growth
David J. Fogarty
1-4
Perspectives on the effects of climate change in financial institutions
Dr. Revenio C. Jalagat, Jr
5-8
Capital adequacy and banks’ profitability: empirical evidence from selected tier 2
banks’ in Kenya
Isabwa Harwood Kajirwa
9-14
Women’s community management roles and contributions to social development in
Nigeria
Beauty Usoroh & Joseph Otukpa
15-21
The impact of customer service of Mexican companies based on customer care
Jose G. Vargas-Hernandez & Edgar Jose, Gálvez Moreno
22-31
Journal of Business Management & Accounts Studies ISSN: 2581-7973
Volume 1 Issue 1, 30 April 2018
PP. 1-4
1 | Page 30 April 2018 www.jbmas.jarap.org
ORIENTALISM IN GLOBAL BUSINESS: LOOSENING THE INFLUENCE
OF COLONIAL THINKING IN ORDER TO ACCELERATE GLOBAL
BUSINESS GROWTH
David J. Fogarty
Columbia University in the City of New York, University of Phoenix, University of Liverpool, Trident University
Key words
Post colonialism
Colonialism
Virtual proximity
Expatriate, Global
Virtual Presence
International
Culture
Abstract
Postcolonial studies focus largely on the negative aspects and failed legacy of colonialism
which dominated the global scene in the 19th and mid-20th century. Colonialism has been
blamed for the destabilization of governments, national identity crises and even wars.
However, one of the key positive aspects of colonialism is that it helped to shape our global
economy. However, recent interest in globalization and what it takes to accelerate this process
uncovers another potential negative aspect of colonial thinking in the form of how the West
interprets and interacts with people from other countries. In this exploratory study we focus on
the concept of Orientalism and examine how expats when exposed deeply to different cultures
shed their Orientalist thinking and develop skills which make them more globally-minded and
in turn more likely to go on to develop our global economy and advance the work of what was
previously started by Colonialism
1. INTRODUCTION BACKGROUND AND
LITERATURE REVIEW
The study of globalization which formally began in the 1980‟s has its
roots in colonialism. [1] points out that numerous scholars estimate
that globalization in the modern sense began somewhere between the
early 16th century and the late eighteenth century. This suggests
globalization has had a long history and very much longer than the past
4 decades. [2a, 2b, 2c] observed that „scholarly interest in colonialism
‟arose when colonial empires had already lost their international
legitimacy and ceased to be viable forms of political organization‟ (p.
3). [1] points out that the increase in colonial studies includes
academic as well as political aspects. [3] points to the fact that many
aspects of colonial rule are persist today in countries which were
impacted by colonialism in one way or another. [1] also points out that
colonialism has created an interpretation of the East by Western
nations which he termed Orientalism that is biased and misleading. In
Said‟s definition Orientalism is an interpretation of the East by the
West which provides the West with the intellectual justification to
dominate the East. Other scholars which discussed Orientalism
include [4] and [5]. Orientalism stresses that many features and
effects of colonial rule persist to this day [3]. Scholars in
the field view the world as still shaped by former imperial and neo-
colonial power relations, which reproduce and reinforce the old, often
racialized inequalities. Moreover, many scholars now argue that the
colonial project was not a one-way street and that it affected and
changed not only the colonized, but also the colonizers. One can
clearly see this by traveling to India where comments from local
Indians still abound about how the British messed up their country.
This is prevalent even in later generations not affected by direct
colonization. Some are the opposite. For example, a millennial Indian
woman analyst from one of my offshore teams brought a sword to the
given to her from her grandfather who fought for the British during the
colonial period to an opening ceremony of a Global 500 company
offshore center. She was extremely proud of the sword and history it
represented. Colonialism had its heyday in the 19th and mid-20th
David J. Fogarty/Journal of Business Management & Accounts Studies (JBMAS)
2 | Page 30 April 2018 www.jbmas.jarap.org
century. [6] reported that Orientalism provided an effective means to
study post colonialism and develop new ideas and thoughts on the
topic across a variety of disciplines.
In the Asian Mystique: Dragon Ladies, Geisha Girls & Our Fantasies
of the Exotic Orient, they will immediately come upon the following
anecdote, involving the book‟s author, the American Journalist
Sheridan Prasso:
“In 1990, shortly after I had moved from Chicago to Asia as a news
correspondent, I became intrigued by a frequent visitor to my Mid-
levels neighborhood of Hong Kong, a man who shouted in a sing-
songy voice the same words over and over as he traversed the winding,
hilly streets. I lived in an apartment block in front of a concrete wall
holding back the mountainside, and to me this mass of concrete
seemed an affront to nature. I knew that the Cantonese people of Hong
Kong believe that there are gods everywhere and in everything –in the
kitchen, the trees, the water, and the landscape. Could this man be
chanting to appease the mountain god who might be angered by this
man-made desecration? I wanted to indulge the fantasy that I was
witnessing the mystical Asia out the window of my concrete apartment
block. I told my Chinese-speaking roommate about the man, and one
day as I heard his cries I went running to get her. She stepped onto our
small balcony, listened to his chant, and turned to me laughing, “I
believe he is collecting scrap metal”. I was never able to see Asia in
the same way again. [7]”.
However, the account is not entirely false as is often the case with any
model. In the author‟s own experience with living in the Mid-levels
neighborhood in Hong Kong there is a neat running path with beautiful
views of the city known as Bowen Road. On this path over the Wan
Chai district there are a series of alters embedded in the hillside with a
Buddhist Monk tending the site. Apparently, this is the site that lovers
and married couples frequent to fortify their relationships and
marriages under the teachings of FengShui. As you run by the shrines
the smell of burning incense is prevalent. This is real and without a
doubt reinforce our romantic concepts of the orient. The same is true
when one goes to Li Jiang in China which is a rural area in the
mountains located within the northwest part of China‟s Yunnan
province. Li Jiang is home to several ethnic minority groups including
the Naxi and its here that local traditions are pervasive. However,
Americans are immediately reminded of their Orientalist influence and
when they go to see a dance show held by the locals where they are
immediately struck by how similar these are to the traditions of Native
Americans. However, we are trained through Orientalism to treat
these as distinct cultures when research clearly shows that the Native
American Peoples have Asia origins.
When we look at Orientalism 40 years later it is no less important.
Some scholars including [8] shun the conception of East Asia as an
independent “discipline in Universities and call for it to be a
compilation from specific disciplines: history, philosophy,
anthropology and literature. He argues that by doing this it should
reduce arguments that are Orientalist in nature. Orientalism has also
been covered in reporting and the media [9] in American foreign
policy [4], in the arts which include drawing and photography [10]
,popular songs ([11] ; [12]) and even shows up in fiction writing and
Hollywood movies [13].
Interestingly, there are few current studies relating to Orientalism in
international business. This is despite the fact that there is evidence of
colonial thinking in the way international businesses are organized.
Examples of this include the concept of the home office and foreign
subsidiary. This is not unlike the Imperialist country and its colonies.
Moreover, the British created the precursor to the multinational by
setting up independent companies like the Hudson Bay Company and
the East India Tea company in each of its colonies. The fact that many
governments get involved in the affairs of their multinationals also
hints of colonial thinking. Examples of this include the famous
example of government involvement in the Airbus Corporation who
was accused of using their influence in the European Union to win
contracts and offer lower prices over their US based competitor Boeing
Corporation.
How can we reduce the impact of Orientalism? [13] suggests it can be
mitigated through travel, learning and experience. But what is the
evidence for this? International assignments for business executives
are known to be beneficial to expose the executive to a variety of
cultures and allow them to understand global markets better.
However, what is the mechanism which improves this greater degree
of effectiveness. It is the research hypothesis of this study that
the elimination of Orientalist thinking can contribute to this
effectiveness. This hypothesis was influenced by the positive
experience of the author on assignment in Hong Kong as stated above
but needs to be tested in a broader study across expats
2. MATERIALS AND METHODS
[14] interviewed 50 expats to ascertain if virtual proximity via
technology can improve expat success. In this study the research
question being pursued was whether the use of Internet based
communications technologies including social media increase the level
of virtual proximity between North American expatriates their home
organization - and does this change result in a perceived change in the
level, quality of innovation within the organization, and successful
completion of the expatriate engagement?
The sample participants were recruited from multiple industries and
deployment locations. After a series of qualifying questions, the online
survey respondents were asked questions to quantify the volume and
nature of their usage of information communications technology and
social media. The study looked at the use of video chat, text chat,
social media, SMS, professional video conferencing, and enterprise
messaging systems. These questions were followed by questions
addressing their perceived levels of virtual proximity, expatriate
engagement, and innovation in their organization. The results of the
study found statistically significant correlations which provide solid
statistical evidence suggesting that virtual proximity may be related to
expatriate success. This finding was huge given the failure rates and
overall expense of expatriate assignments. If companies can introduce
more virtual proximity tools in the workplace environment the
evidence from this research indicated, they can increase the probability
of success of their employees on international assignment and also the
employees at the home office dealing with the international employees.
The last implication of the study which surmises that virtual proximity
can increase the probability of success of home office employees
dealing with international employees is an interesting one since it
somehow implies that barriers to communication or perceptions could
be changed in a positive way through more in depth or intimate
David J. Fogarty/Journal of Business Management & Accounts Studies (JBMAS)
3 | Page 30 April 2018 www.jbmas.jarap.org
exposure to foreign cultures. In this study we wanted to explore this a
little deeper by developing a hypothesis that it is this exposure to
foreign cultures either by foreign assignment or virtual proximity
which mitigates the phenomenon of Orientalism and therefore results
in improved global business management.
In this study a subset of these same expats in the virtual proximity
study were interviewed and asked about their international experience
and its effect on their Orientalist orientation and how to conduct global
business overall. Several people we interviewed never left the country
before their international assignment process began so for them seeing
how other people live in depth really changed everything related to
their perspective about foreign cultures. One particular expat who was
stationed in China always thought of the Chinese as a potential enemy
given the history of the Korean was and news media in the US which
depicts China as an aggressor both economically and militarily the
latter especially in the Asia-Pacific region. However, when he actually
lived and worked in China began viewing them in a much different
light more so in how they were very dependent on the success of the
US and wanted to emulate many of the best practices from the US
especially global business practices. The expat also had the impression
that the Chinese society lacked the written laws of the West but in
reality, he learned how business was conducted primarily with
relationships and trust rather than written contracts. Interestingly,
when this expat was conducting a real estate transaction after
repatriating back to the US and there was a lawyer who was actually
selling the property and doing the legal work at the same time and
rescinded on a verbal deal he used as example about doing business
with the Chinese which would have determined what this particular
lawyer/seller had done to be not acceptable. This helped the expat to
deal with the circumstance knowing that he needed to get in writing
everything negotiated in the US society because even lawyers who we
trust to uphold all contracts will engage in unethical behavior as long
as it benefits them and there are no negative consequences. This
appreciation for how business is conducted in China is a sharp
departure from the Orientalist view that China is a society of no
written laws and that this is somehow not good for doing business.
The opposite was true in the case of this particular expat as he was
used to people following up on their word based on a handshake
without having a specific written contract. One expat interviewed who
went to Switzerland was very surprised at the privacy of the Swiss
even in the same neighborhoods which was unlike the US. This
suspended their disapproval of Swiss banking privacy as just providing
for example a tax haven for individuals at the benefit of the Swiss and
detriment to the banking customer‟s home country. It seems that a
sense of privacy is something embedded in the Swiss culture. In
Switzerland a banker not acknowledging a customer in a supermarket
is similar to in the US with HIPPA laws where a psychiatrist cannot
acknowledge a patient in public since this would disclose that the
patient is undergoing or had at one time undergone psychiatric
treatment.
Another similar example is from an expat from the United States
living and working in the UK whose game changing project was met
with resistance by a person in the subsidiary business that was a
“Knight of the Royal Order”. It was made clear to the expat that he
should obey the wishes of this person because he was a knight and had
increased influence in the British society. Of course, this has no
bearing in terms of influence to a person from the US. However, the
expat learned for the first time why British people make such a big fuss
about their monarchy. The class system is very much alive in the UK
and manifests itself in a totally different way than in the states. A
person with money in the United States is held with a high regard
regardless of how they acquired it. For example, this is partially the
love affair America has with its gangsters especially the Mafia and
Irish Mob. John Gotti, the former leader of the Gambino Crime
Family a.k.a. the Dapper Don was one famous example. President
Donald Trump is another example. However, in the UK people with
just money are not held in the same regard as in the United States.
Those with a title in addition to money are very well regarded and hold
a special position in terms of authority within the country. The expat
who was interviewed now has a new perspective in terms of Britain‟s
respect for its monarchy which to some extent translated into how this
expat framed the recent Brexit vote and how to think about and
approach doing business in the UK after this event.
Another expat described her experience in Korea and how living there
changed her view of Asian cultures especially around the specific
topics of work culture and education. Korean‟s work very long hours
at work and have a unique hierarchy which even extends to the
university they graduated from and/or their mandatory military service.
On the latter conscription in South Korea has been in existence since
the Korean Conflict and requires all male citizens between the ages of
18 and 35 to perform about two years of compulsory military service.
Women are not required to perform military service but may enlist
voluntarily. Korea has a very hierarchical business structure which
many social scientists believe that men develop during their mandatory
military training and then bring into the workplace. It has even been
observed that if individuals from the same military platoon or company
are in the same business organization the former military ranks take
precedence to the business hierarchy making it difficult for those
managers to have a former military leader serve under them on a
business team. Truly understanding these cultural nuances is only
possible while on assignment in Korea and working in a local Korean
organization.
Another expat discussed their time in Singapore and how they changed
their perception of living in a non-democratic Asian country. First of
all, they experienced the diversity of this city-country which consists
of 75% Chinese Buddhists and 15% Malay Muslims and 10% other.
Second, they couldn‟t believe how clean and safe the city was and
enjoyed living under these conditions. It gave them a real appreciation
for the benefits of living in a city state where some of the more
negative aspects of living in a big country could be controlled within
the confines of a city. They began to conjure up what cities like New
York, San Francisco, Chicago of LA could accomplish if they did the
same thing as Singapore or Hong Kong.
Some of the expats interviewed actually went on multiple international
assignments and therefore were able to get a 3-way cross comparison
between two international countries and the US. Interestingly, the
second assignment seemed to dispel Orientalist thinking even more as
integrating into the first additional culture taught the expat special
skills into how to rapidly and more thoroughly integrate into the next
culture. In the second assignment the executives embraced the
changes they were undergoing and dived into the learning of the third
David J. Fogarty/Journal of Business Management & Accounts Studies (JBMAS)
4 | Page 30 April 2018 www.jbmas.jarap.org
culture knowing that the stresses of dealing with a new culture were
temporary. Interestingly, this may be a good finding assuring the
success of future expat assignments. The questions asked posed some
examples of Orientalist thinking in the Expat‟s host country and
whether the expat was able to self-report that his/her opinion changed
after the international assignment..
3. CONCLUSION
This study which is one of the first to address and evaluate the concept
of orientalism in international business suggests that one of the key
causal factors leading to the shedding of orientalist thinking which will
lead to a more effective global enterprise and trade is to be truly
exposed to a culture either through travel international expatriation or
some type of virtual proximity. The case studies of expatriate
experiences in this research demonstrates that being immersed in the
culture can tend to shed orientalist thinking and lead to better business
results. Firms can use this research to invest in immersion for their
employees. In many cases it is as simple as justifying the international
travel of employees even when there are budget cuts necessary in the
firm. Often these types of trips are the first to be cut. Firms should
reconsider this decision in light of the evidence from the cases
presented and encourage the interaction of employees working across
borders. One of the limitations of this study is that the expats
interviewed were selected for other research purposes and the sample
set was not specifically designed to explicitly address the research
topic. Therefore, these should be treated as both interesting and
exploratory findings with further replicative studies using a
combination of both qualitative and quantitative designs being
recommended. Further suggestions for research include the impact of
Orientalism on other global activities such as the purchase and
consumption of foreign products by consumers and the use of overseas
outsourcing services by firms.
REFERENCES
[1] Eckert, A. (2008) Review Article: Reflecting Colonialism. Social
Anthropology/Anthropologie Sociale, vol. 16, no. 3: pp. 356–359.
[2] Cooper, F. (1994) „Conflict and connection. Rethinking colonial
African history‟, American Historical Review, vol. 99: pp. 1516–
45.
[3] Cooper,F.(1996) Decolonization and African society. The labour
question in French and British Africa. Cambridge: Cambridge
University Press.
[4] Cooper, F. (2008) „Possibility and constraint. African
independence in historical perspective‟, Journal of African
History, vol. 49: pp. 167–96.
[5] Said, Edward. 1978. Orientalism. New York: Pantheon.
[6] Rotter, A., J. (2000) Saidism without Said: Orientalism and U.S.
Diplomatic History, The American Historical Review, Vol. 105,
No. 4. pp. 1205–1217.
[7] Scott, D. (2012) Rohmer‟s Orient - Pulp Orientalism? Oriental
Archive, vol. 80, no. 3: pp. 505-590.
[8] Behdad, A, (2010) Orientalism Matters. Modern Fiction Studies,
vol. 56, no. 4: pp. 709-728,837.
[9] Prasso, S. (2005) The Asian Mystique: Dragon Ladies, Geisha
Girls & Our Fantasies of the Exotic Orient. New York: Public
Affairs.
[10] Prado-Fonts, C. (2008) Orientalism 30 Years On. Digithum,
vol.10. no.1. pp. 1-6.
[11] Luyendijk, J. (2009) Beyond Orientalism. The International
Communication Gazette, vol. 71. no.8. pp. 9-11.
[12] Sharp, T. (2010) Orientalism, The West Coast Line, vol. 43, No.
4. pp. 94–97,146.
[13] Hisama E., E. (1993) Postcolonialism on the Make: The Music of
John Mellencamp, David Bowie and John Zorn. Popular Music,
vol. 12 no. 2: pp. 91–104.
[14] Faust, J., S. (2012) When you have to say “I Do”: Orientalism in
Michael Jackson‟s “Liberian Girl”. Popular Music and Society,
vol. 35, no. 2: pp. 223–240.
[15] Macfie, A. ,L. (2009) My Orientalism. Journal of Postcolonial
Writing, vol. 45. no.1. pp. 83-90.
[16] Coughlan, T., Fogarty D., J (2016) Using Virtual Proximity to
Promote Expatriate Cultural Adjustment and Innovation,
Proceedings of the ISPM Innovation Forum, Boston, MA, March
13-16th.
Journal of Business Management & Accounts Studies ISSN: 258 1-7973
Volume 1 Issue 1, 30 April 2018
PP. 5-8
5 | Page 30 April 2018 www.jbmas.jarap.org
PERSPECTIVES ON THE EFFECTS OF CLIMATE CHANGE IN
FINANCIAL INSTITUTIONS
Dr. Revenio C. Jalagat, Jr.
Assistant Professor, Al-Zahra College for Women, Sultanate of Oman. [email protected].
Key words
Climate Change
Perspectives
Financial institutions
Bank employees
Oman
Abstract
Climate change has become a growing concern for many businesses nowadays as many
researches have been done to assess its impacts in human health and the environment in
general which includes the work environment. In response to this, this study aimed at
investigating the impacts/effects of climate change in financial institutions particularly the
banking and insurance companies. It also shed light on the varied opinions of different
authors about how climate changes positively and negatively affect these businesses and to
bank employees. Secondary data were utilized to provide valid justification of the arguments
formulated in this study. Key findings showed that, climate change provides both risks and
opportunities as it can be viewed positively and negatively. However; risks can be
minimized with application of financial techniques and good investment decisions that
benefits the business industry in the long-run. Suggestions were drawn to design and develop
appropriate strategies and measures through massive awareness and orientations not only to
businesses but to individuals to be headed by concerned agencies and, institutionalization of
climate change policies to company plans and strategies.
1. INTRODUCTION
Increasing importance and orientation on the significant effects and
impacts of climate change had been experienced in international fora.
It has also gained attention by many companies across the globe. In
Oman, it can be seen as an emerging concern as companies, banks and
government agencies are getting more attention on preserving the
environment and the good utilization of resources basically the water
and the clean and green environment. Plans and programs are designed
in response to the widespread impacts of the climate change. Being
considered as one of the cleanest country in the GCC and other
countries, Oman has put emphasis on the mechanisms that counters the
negative consequences of climate changes as the company have
learned from their past experiences from disasters that had happened in
the past. According to the Minister of Environment and Climate
Affairs, Mohammed Bin Salim Bin Said Al Tobi, Oman is vulnerable
to climate change as the country had experienced two severe cyclones
which is believed to cause damages on livestock and fish resources,
water scarcity, increased temperatures and ecosystem degradation (Y
Magazine, 2016). Moreover, the country is committed to reducing
greenhouse gas emissions which aims to combat global warming since
2005 (Y Magazine, 2016). So, not only that the government is
concerned with these effects but also the private sectors that include
the banks and other financial institutions. Hence, protecting the
environment is everybody’s concern and the banking sector can be
instrumental in assuring that the actions and responses are in line with
the government’s measures to lessen the possible negative impacts of
climate change.
In this research article, the investigation is focused on evaluating the
impacts/effects of climate change in the financial institutions and to the
bank employees. It also investigates the different authors’ point of
Dr. Revenio C. Jalagat, Jr./Journal of Business Management & Accounts Studies (JBMAS)
6 | Page 30 April 2018 www.jbmas.jarap.org
views as bases for critical analysis as to whether such views are
relevant to the situations that either affirm or contradict the subject.
Lastly, it provides insights and statements on the positive and negative
impacts brought about by climate change.
2. LITERATURE REVIEW
2.1 Effects of Climate Change in Banks and
Insurance Companies
Problems and concerns on environment and ecology including but not
limited to climate change poses greater impact on economic situation
globally (Ceres, 2008). Financially, concerns on environment have
become a global issue that potentially affects economic growth country
to country and increases the economic risks. This gives rise to the
threats that encountered by Bankers and Asset Managers to consider
the risks involved on the effects of climate change to bank assets and
in general, provide direct impacts on financial capabilities and
operation of banks. But the author failed to disclose the specific areas
or aspects in businesses where there are perceived negative impacts of
climate change which in turn may provide rooms for another
interpretation.
However, Hair (2006) contrasted the idea of this negative impacts
expressing that Banks may provide positive impacts by developing
financial techniques to counter the negative effects of climate change.
For instance, the banks can provide adequate insurances, calamity
bonds and other measures to ensure that bank assets and other
properties are secured in the long run. McKinsey (2007) seconded
Hair’s statement stating that achieving good investment decision from
either direct investment or project financing or even indirect
investment of shares is generally affected by climate changes and
therefore risks can be reduced by preventive measures and appropriate
assessment of the risks involved. While these statements are good and
acceptable options to reduce the impacts of climate change, it lacks
clarity as to the scope of its applications considering that climate
change varies its impacts location to location or even among the
affected countries. Hence, how big or small are the impacts could also
be considered as options in establishing the measures in mitigating the
negative consequences by implementing strategies and techniques to
counter the climate change related calamities.
For example, Goodwin (2007) stressed the impacts of lending and
climate change in banks claiming that both individual and corporate
loans of big size loans are mostly secured by properties either land or
building. The rapid changes in the climate such as unpredicted rains,
floods, cyclones and climate related calamities would likely results to
reduction in property prices and potential loss of economic activity as
well as credit crunch. Accordingly, Innovest (2002) supported the
claims depicting that loans and lending without adequate collateral or
property security would negatively affects the collectivity of loans and
would limit options for banks to extend granting of such loans.
Wellington and Sauer (2005) also affirm the impacts disclosing that
the climate change indirectly results to negative impacts primarily on
client’s operations, consumptions and daily needs like natural disasters
that destroy client properties resulting to the difficulty of insurance
recoveries and perceived increases in insurance premiums for the
coming years. However, Thompson’s observation contradicts the
results in insurance companies and asset management sector where the
large portion of the activity involves assets that have direct impact on
climate change.
As evidence for instance, insurance companies which are badly
affected by climate changes would resort to drastic increases in
premiums and payments to secure the properties from succeeding
calamities that will in turn results to distress on the part of the clients.
Stern (2007) also explained the negative impact of climate change to
the banking sector due to the bank’s exposure to climate changes
especially extreme weather conditions that affects asset quality and
potential damage of properties taken as collaterals and securities. In
addition, carbon restrictions potentially resulted to lower economic
activities. In such cases, default risks rise because of unexpected costs
for mitigations and even risks from regulatory compliances and in
order to address it, banks will undergo large investment outlays to
restore properties and insurances.
However, Llewellyn (2007) argued that although banks are affected by
climate change directly or indirectly, he claimed that big banking
institutions are less affected by climate change because its services are
more diversified and have sufficient back-ups to counter perceived
negative impacts of climate change. Moreover, because of the more
opportunities to stretch the funds for large banks, more options can be
chosen whether to grant more short term loans or long-term loans. The
burden instead will go through insurance companies and asset
management companies who are caretakers of the properties and that
are more exposed to risks brought about by climate change (Hare,
2007). But it cannot be denied that the increasing dangers brought
about by climate change continuously increases that leaves many
countries and companies to be alarmed.
One of the most affected areas in banking is the asset management
division where the most likely physical impacts took place. Since the
impact of change is most likely unpredictable, the risks likely occur
associated with assessing the estimates for instance, the future carbon
prices, emissions or footprints, revenue opportunities arising from
climate changes and hedging strategies using carbon markets
(Dlugolecki and Mansley 2004; Henderson Global Investors and
Trucost 2005; UNEP FI 2006). Moreover, many companies and
organizations allocated enough funds on climate-change related
investment opportunities such as the “theme funds to prepare
themselves for earning potentials that can be associated with the
drastic climate changes as has been adopted by many fund
management industries. As a result, in the study of Fresh fields,
Bruckhaus, and Deringer (2005), climate change can be viewed in
positive terms like treating it as investment opportunities rather than a
calamity or disaster. As such, he added that banks and other
institutions should be sensitive and responsible to look for ways how to
view these climate changes in positive point of view as well as
incorporating these in overall management strategies and assess the
potential risk and return in every climate-related decision that
companies have to pursue.
Dr. Revenio C. Jalagat, Jr./Journal of Business Management & Accounts Studies (JBMAS)
7 | Page 30 April 2018 www.jbmas.jarap.org
2.2 Effects of Climate Change to Bank Employees
Undeniably, the impact of climate change in banks is geared towards
leadership and those employees and all the people in the organization
are affected and the ones who make the moves to lessen the impacts of
climate change to manageable levels. Cogan (2008) discussed the
impacts to the bank employees with regards to climate change as
enumerated:
a. The risks that management operations will be affected by
climate change that carries the burden on the employees and
management to decide in order to lessen the risks of
damages.
b. Greater responsibilities that are unexpected or more
workloads rest on employee shoulders that are not
encountered on normal course of operations. The economic
value of negative impacts shall be borne by the employees in
some cases.
c. The unpredictability of the situation urged the employees
and the officers to increase the amount of contingencies that
thereby alters the funds which are used in the normal course
of operations.
d. Time can be wasted on taking more efforts in planning
because of incorporating the climate change in the planning
strategies and developing sound solutions to the problems.
However, on the other hand the urgency of the situation allows the
employees to think of the problem on the positive side that enhances
their capabilities to decide on undesirable situations. For instance,
employees can be the avenue where programs and plans can be created
to help prepare and counter the dangers of climate change effects. The
growing orientations and the perceived effects of climate in the other
parts of the globe enable the people and the employees to be creative
and turn threats into opportunities. Moreover, bank personnel can be
the leading example in financial institutions in conducting awareness
and programs in looking for ways and means to assess the costs and
benefits and orient people how to counter the perceived impacts of
climate change.
Bonini et. al. (2008) evaluation on the impact of climate change to the
banking sector is relevant and justifiable as they pointed out that, even
if the impact is indirect, but it is important that employees would bear
in mind that negative consequences of the change to employees would
affect their businesses and also their properties where most of the loans
are secured by properties. This would somehow losses confidence of
the local market. Banks should help the customers/clients, the society
at large to be vigilant and be prepared when undesirable weather
condition comes even to the point of extremities so that the impacts
can be measured accurately and thereby lessen its damages as the case
maybe. Furthermore, the readiness of the employees and executives to
implement the plans and programs leading to positive results should be
done so that risks will be measured and maintained at the minimum
level. In other words, the risk management team in any organizations
should assess the risks as a result of the climate changes and that
responses should be focused on finding the solutions to the problems.
Willows and Connell (2003) have identified the three areas where bank
personnel should possess which include leadership, policy and
practice. He further noted that, implementing policies and programs
should be within the bounds on leadership capabilities and that officers
should enforced the measures that clearly contribute to the solutions
which consider the presentation of the set of recommendations. Policy
should also be clear and understandable by both the implementers and
the subjects because appropriate and good policies would also lead to
proper implementation. And more importantly, it should become part
of daily living or daily operations in which cases the policy is
institutionalized that would cater long-term sustainability. Further, the
institutionalization or the incorporation of the preventive measures
against the impacts of climate change would be helpful to the
companies not only the banking sector because it is where they will
realize the risk and benefits of climate change by converting the threats
into opportunities for higher returns in long-term scenarios. The three
factors are just a few of the many possible ways that the bank can do to
achieve an acceptable level of success in promoting and developing
ways and means to counter the increasing negative effects of climate
change (Porter and Reinhardt, 2007). However, the substance of
having these three would be a good start in assuring that the
sustainability of making actions and responses amidst climate change
is maintained and maximized.
The bank employees play a vital role in seeing to it that the programs
that they have implemented would in some way or another contribute
to the success of the clients, the financial institution and the society as
a whole considering that climate change is already an economic threat
to industries and its impact is growing as well as increasing attention
globally. Efforts that can be made by employees will produce
significant impact that starts from the office, to the industry, the
community, the country and globally.
3. Findings and Conclusions
Evaluating the impacts of climate change resulted to both risks and
opportunities and can be viewed positively and negatively. Various
authors agreed that while climate change is faced with risks but at the
same time it is also an opportunity to reckon with. For instance, both
Hair (2006) and McKinsey (2007) emphasized that financial
techniques and good investment decisions would negate or lessen the
potential riskier impacts of climate change and that it will instead
provide positive contribution to the company in the long-run.
However, opponents would also argue that the negative impacts of
climate change would result to potential dangers because primarily it
affects the assets where most loans are secured by collaterals and it
affects the financial conditions of the banks (Goodwin, 2007; Innovest,
2002). In this case, it can be safe to assume that climate change can be
perceived as both contributing to the risks and opportunities as it takes
place. The evaluation also concluded the impacts of the banking sector
and other financial institutions and the employees working in the
industry. The findings more likely suggest the importance of designing
and developing appropriate measures to lessen the impacts of climate
change and convert it into meaningful opportunities by having
awareness and orientations to the people so as preparation can be done.
Dr. Revenio C. Jalagat, Jr./Journal of Business Management & Accounts Studies (JBMAS)
8 | Page 30 April 2018 www.jbmas.jarap.org
Moreover, climate change is a growing concern that caters not only on
the national, regional but on a global scale. For this reason, everyone
should be concern and responsible as in the banking and insurance
sector. It shows that instead of measuring the damages that it can
inflict to individuals, companies and society, it is better to develop
ways and means to be sustainable in the long-run and make sure that
right policies are implemented and maintained at the maximum level
so that institutionalization of policies will be achieved and in turn
provide returns to the company and its employees.
REFERENCES
[1] Bonini, S., Hintz, G., & Mendonca, L. (2008). Addressing
consumer concerns about climate change. The McKinsey
Quarterly, March 1-10.
[2] Ceres. (2008). Investors achieve major company commitments on
climate change. Retrieved
[3] From:
http://www.ceres.org/NETCOMMUNITY/Page.aspx?pid=928&sr
cid=705. (Date Visited: 25/2/2018)
[4] Cogan, D. G. (2008). Corporate governance and climate change:
The banking sector. Retrieved
from:https://era.library.ualberta.ca/files/gf06g3741/ceres_climate
_change_banking_report2008.pdf (Date Accessed: 20/2/2018).
[5] CSIRO Commonwealth Scientific and Industrial Research
Organization (2006). Climate change
[6] scenarios for initial assessment of risk in accordance with risk
management guidance. Retrieved from:
http://www.sustainabilitycompany.it/img/text/SAM_ETH_Study_
Banking.pdf (Date Accessed: 25/2/2018).
[7] Dlugolecki, A. and Mansley, M. (2004). Asset management and
climate change Corporation of
[8] London: Tyndall Centre.
[9] Freshfields Bruckhaus Deringer (2005). A legal framework for
the integration of environmental,
[10] social and governance issues into institutional investment.
Retrieved from:
http://www.unepfi.org/fileadmin/documents/freshfields_legal_res
p_20051123.pdf (Date Accessed: 22/2/2018).
[11] Goodwin, P. (2007). Climate change strategies for the financial
sector. Retrieved from:
https://www.goodwinlaw.com/~/media/4E5C13C3A10E413DAB
037786EE51640E.ashx (Date Accessed: 25/1/2018).
[12] Hair, J. F. (2006). Multivariate data analysis. Upper Saddle River,
NJ: Prentice Hall International.
[13] Hare, B. (2007). Climate change; implications for the investment
industry. IFSA / Deloitte Future Leaders Award 2007. Goldman
Sachs JBWere Asset Management. Retrieved from:
http://www.sustainabilitycompany.it/img/text/SAM_ETH_Study_
Banking.pdf (Date Accessed: 25/2/2018).
[14] Henderson Global Investors and Trucost (2005). The Carbon 100.
Retrieved from:
www.aldersgategroup.org.uk/asset/download/474/Carbon%20Cos
ts.pdf (Date Accessed: 2/2/2018).
[15] Innovest (2002). Climate change and the financial services
industry. Module 1: threats and
[16] opportunities, UNEP FI. Retrieved from:
http://www.unepfi.org/fileadmin/documents/cc_fin_serv_ind_mo
dule1_2002.pdf (Date Accessed: 25/1/2018).
[17] Llewellyn, J. (2007). The business of climate change. Challenges
and opportunities. New York, USA: Lehman Brothers.
[18] McKinsey (2007). How companies think about climate change. A
McKinsey global survey. The
[19] McKinsey Quarterly. Retrieved from:
http://www.washburn.edu/faculty/rweigand/McKinsey/McKinsey
-Execs-And-Climate Change.pdf (Date Accessed: 23/1/2018).
[20] Porter, M. E. and Reinhardt, F. L. (2007). Grist: a strategic
approach to climate. Harvard Business Review (October): 1-3.
[21] Stern, N. (2007). The economics of climate change. The Stern
Review. Cambridge, UK: Cambridge University Press
[22] UNEP FI (2006). Adaptation and vulnerability to climate change:
the role of the financial sector. Retrieved from:
http://www.unepfi.org/fileadmin/documents/CEO_briefing_adapt
ation_vulnerability_2006.pdf (Date Accessed: 25/1/2018).
[23] Wellington, F. and Sauer, A. (2005). Framing climate risk in
portfolio management. Washington DC: W. R. Institute.
Retrieved from:
http://pdf.wri.org/framing_climate_risk_uncertainty.pdf (Date
Accessed: 2/2/2018).
[24] Willows, R.I., & Connell, R.K. (2005). A framework for the
incorporation of climate risks in routine decision-making and
policy. Retrieved from:
http://unfccc.int/files/adaptation/methodologies_for/vulnerability_
and_adaptation/application/pdf/united_kingdom_climate_impacts
_programme__ukcip_.pdf (Date Accessed: 8/2/2018).
[25] Y Magazine (2016). Global Warming. Retrieved from:
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Accessed: 23/3/2018).
Journal of Business Management & Accounts Studies ISSN: 2581-7973
Volume 1 Issue 1, 30 April 2018
PP. 9-14
9 | Page 30 April 2018 www.jbmas.jarap.org
CAPITAL ADEQUACY AND BANKS’ PROFITABILITY: EMPIRICAL
EVIDENCE FROM SELECTED TIER 2 BANKS’ IN KENYA
Isabwa Harwood Kajirwa
Department of Business Management, University of Eldoret, P.O. Box 1125-30100, Eldoret, Kenya
Key words
Basel Accord
Banks‟ Profitability
Capital Adequacy
Return on Assets
Abstract
Uproars bedeviling the Banking sector in Kenya and around the globe warrant a study to unearth
the nitty gritty proponents that are causative agents of illiquidity and or insolvency in the Kenyan
Banking sector. The main objective of this study was to determine the effect of Capital adequacy
on Banks‟ Profitability. Capital adequacy was proxied by Total capital to Risk weighted Assets
and Banks‟ Profitability by Return on Assets. The study used positivism research philosophy and
the sampling frame comprised of Tier 2 Banks in Kenya. Longitudinal research design and
simple random sampling design were used in the study. The empirical results revealed that
capital adequacy has a positive effect on Banks‟ Profitability as proxied by ROA (β1 = .127, p
=.0390, α > 0.05). Tier 2 Banks‟ should progressively improve their asset quality, asset base,
liquidity position and financial leverage ratio for purposes of achieving financial soundness.
Central Bank of Kenya should progressively continue to implement the Basel Accord in its
entirety.
1. INTRODUCTION
Capital adequacy aptly affects the magnitude of risk exposure of any
organization. Financial stability in the banking sector is absolutely
dependent on capital adequacy as it indicates whether the bank has
enough capital to absorb unexpected losses. Banks‟ are required to
maintain depositors‟ confidence and cushion itself against insolvency
and or bankruptcy. Dubai Bank, Chase Bank and Imperial Bank are
among the banks‟ which recently faced illiquidity and insolvency
uproars prompting temporal closure. Capital is mandatory for banks if
they have to satisfy the going concern principle of a business entity.
Capital is at the centre stage of success of any business because it acts
as a cushion against which to charge off losses. Depending on how
risky the asset composition of a business concern is the more capital
the firm is required to maintain to achieve a significant level of
financial soundness.
When the constituents of liabilities of a firm are volatile, the greater
the risk exposure. This necessitates a greater amount of capital
adequacy so as to maintain solvency. Capital funds in this paper are
broadly classified as Tier 1 and Tier 2 capital. Tier 1 capital is a type
of capital funds which absorbs losses without a bank being wound up
and Tier 2 capital absorbs losses in the event of a Bank being wound
up. Tier I capital is the most reliable form of capital and consists of
common stock, preferred stock and retained earnings. Tier 2 capital
consists of undisclosed reserves, revaluation reserves, general
provisions, subordinated debt and hybrid instruments (Pasha and
Swami, 2012). The business environment is becoming extremely
competitive necessitating banks to maintain adequate capital to meet
its financial needs.
Studies on capital adequacy cannot be exhausted without emphasis on
Capital adequacy regulation. The central banks around the continents‟
should use it as a buffer against insolvency crises as it limits costs
associated with financial distress by mitigating against insolvency of
banks (Barrell et al., 2009; Miles et al., 2011; Caggiano and Calice,
2011). Since capital adequacy challenges is a global problem, it
informed the birth of the Basel Committee on Banking Supervision
which is a set of agreement which mainly focuses on risks to banks and
the financial system is called Basel accord and its main object was to
Isabwa Harwood Kajirwa /Journal of Business Management & Accounts Studies (JBMAS)
10 | Page 30 April 2018 www.jbmas.jarap.org
ensure that banking institutions have enough capital with itself to meet
its financial obligations.
The objective of the Central Bank of Kenya is to ensure that a Bank
maintains a level of capital which is adequate to protect its depositors
and creditors and is commensurate with the risks associated with its
activities and profile. The Central Bank of Kenya requires banks to
maintain the pre determined ratio of total capital to total risk weighted
assets. Effective on1 January 2013, banks are expected to assess the
credit risk, market risk and the operational risk of the risk weighted
assets to derive the ratios. The capital adequacy and use of regulatory
capital are monitored regularly by management employing techniques
based on the guidelines developed by the Basel Committee, as
implemented by the Central Bank of Kenya for supervisory purposes.
According to the Central Bank of Kenya all banks‟ should maintain at
all times a regulatory core capital of not less than 8% of total risk
weighted assets in addition to the risk weighted off balance sheet
items, a core capital of not less than 8% of its total deposit liabilities
and a total capital of not less than 12% of its total risk weighted assets,
plus risk weighted off balance sheet items. In addition to the minimum
capital adequacy ratios of 8% and 12%, banking institutions are
required to hold a capital conservation buffer of 2.5% over and above
these minimum ratios to enable the banking institutions withstand
future periods of stress. This brings the minimum core capital to risk
weighted assets and total capital to risk weighted assets requirements
to 10.5% and 14.5% respectively. In Kenya a bank must maintain a
minimum regulatory core capital of one billion. Irrespective of the
implementation of the Basel Accord in Kenya illiquidity, solvency
uproars still bedevils the banking and finance sector.
1.1 Kenyan Banking Industry and the Tier
System
Banks in Kenya are grouped into three tiers according to banks market
share, asset base and number of customer deposits. Banks that fall
under Tier 1 are banks whose cumulative assets are hundreds of
billions and millions of depositors. Only six banks in Kenya fall in this
tier and they control 49.9% of the market. They are as follows;
Cooperative Bank of Kenya, Kenya Commercial Bank, Equity Bank,
Barclays Bank, Commercial Bank of Africa and Standard Chartered
Bank. Tier 2 banks are medium sized lenders. Tier 2 banks control
41.7% of the market share. Banks that fall under this category are;
Family Bank, I&M Bank, NIC Bank, Diamond Trust Bank, Bank of
Africa, Housing Finance, Ecobank, Prime Bank, Bank of Baroda, CFC
Stanbic Bank, Citibank, Guaranty Trust Bank, National Bank and
Bank of India. Tier 3 banks are; Jamii Bora Bank, ABC Bank, Credit
Bank, Paramount Universal, Consolidated and Development Bank,
Fidelity Bank, Equatorial Commercial Bank, Giro Bank, Guardian
Bank, Midddle East Bank, Oriental Commercial Bank, Paramount
Universal Bank, Trans National Bank, Victoria Bank, First Community
Bank, Babib A.G. Zurich Bank, Habib Bank, Gulf Bank, Sidian Bank,
UBA Bank, Consolidated Bank and Development Bank.. They control
8.4% of the market (Ayugi, 2016). According to Ayugi (2016), in 2015
tier 1and tier 2 banks experienced a drop in customer deposits and
industry assets marginally. This was attributed to the fact that many
people speculated more banks in tier 3 would fail. The tier system is
just a distinguishing criteria and not a cause for bank instability. The
section that follows gives us a snip preview of the Basel norms as
applied in the banking sector.
1.2 Basel norms
Basel is found in Switzerland and it incubates liaison among central
banks with goal congruence of financial stability and common
standards of banking regulations. Basel Accord has given us three
Basel norms which are Basel 1, 2 and 3. Base 1 enumerates the
minimum capital requirements for internationally active banks and
invites similar banks to be more conservative in their banking
regulations. Capital adequacy ratios should not be viewed on
standalone basis. It comprises 4 pillars. Pillar 1 comprises constituents
of capital majorly tier 1 capital which consists of disclosed cash
reserves and paid up equity and Tier 2 which includes capital created
to cover hybrid debt, potential bad loans, subordinated debt. The
second pillar focuses on Risk weighting which creates a frame work to
risk weight a bank‟s asset. The pillar presents five categories on how to
risk weight banks‟ assets. Firstly, the risk apportioned to Riskless
assets is at 0% and it includes cash in bank, the sovereign debt held
and funded in domestic currency. Second category weights assets at
20% and comprises low risk assets with a maturity of less than one
year such as bank debt, cash and any loan guaranteed by parastatals.
The third category is moderate risk and comprises residential
mortgages weighted at 50%. Fourth category is high risk weighted at
100% and it includes any bank debt with a maturity of more than one
year, for example, equity assets and Eurobonds. Fifth category is
variable risk and it includes claims on domestic parastatals which can
be valued at 0, 10, 20, or 50% depending on a central bank‟s
discretion. Pillar 3 focuses on target standards ratio. This pillar
synchronizes the first and second pillars and it prescribes 8% as a
universal rate of a bank‟s risk weighted assets must be covered by tier
1 and tier 2 capital reserves. Tier 1 capital must cover 40% of a bank‟s
risk weighted assets. Pillar 4 is centered on transition and
implementation of the Basel accord. Each country‟s central bank is
required to come up with a strong surveillance and enforcement
mechanism to ensure transition weights are given so that banks can
adapt over a 4 year period to the set standards. Basel 1 was
characterized with shortcomings which necessitated the drafting of
Basel 2. Basel 1 only concentrated on credit risk management at the
expense of emphasizing the overall financial market discipline by
players in the financial sector.
The implementation of Basel 1 was more of a marketing strategy than
a technical one. It was intended to be the blue print for financial
stability by commercial banks despite its unforeseen financial
loopholes. It was the only thing to do by any international bank to
subscribe to the tenets of Basel 1. Basel 1 was a hindrance in adoption
of external strategies outside the scope of Basel 1 schedule of risk
weighting. Basel 2 accord was initiated in 1999. Pillar 1 touches on
minimum capital requirement which asserts that assets of parent
companies should be monitored to avoid transferring the same to
subsidiaries thereby avoiding weighting of the same in computation of
Isabwa Harwood Kajirwa /Journal of Business Management & Accounts Studies (JBMAS)
11 | Page 30 April 2018 www.jbmas.jarap.org
Value at Risk. This pillar analyzes banking risk in three different
categories; the standardized approach extends Basel 1 capital weights
to include market based rating agencies like Standard and Poor,
Moody‟s and Fitch. Bank debt and corporate debt are weighted
synonymously except for debts rated BBB+ and BB- which are rated
at100%. Debts rated below BB- are weighted at 150%; any unrated
debt is weighted at 100%. Corporate mortgages are weighted at100%
while home mortgages are weighted at 35%. Basel 2 proposes internal
capital weighting using the Foundation or Internal Ratings Based
Approach which requires banks to come up with models for weighting
of their loan books. Regulatory authorities are charged with the
mandate to provide probability of loss for each type of asset and bank
exposure. Advanced internal ratings based approach is most suitable to
large banks capable of implementing use of complex models to
determine the assumption of proprietary default. Pillar 2 concentrates
on extending regulatory power to oversee bank‟s internal risk
evaluation and spearheads reviewer ship of bank capital assessment
policy. This pillar allows regulators to step in as soon as it is detected
that a bank‟s capital base has fallen below the minimum required level
by implementing corrective measures to counter this stressful scenario.
Pillar 3 recommends public disclosure of both capital and risk taking
positions of banks through their financial statements.
1.3 Statement of the problem In Kenya illiquid commercial banks have been put under receivership
by the Deposit Protection Fund Board, a functional area within the
Central Bank of Kenya for failing to meet minimum standards of
operations. In the recent past, three banks were placed under
receivership after it became apparent they could no longer operate due
to having minimum liquidity ratios. The closure of these banks left
many customers concerned about their money. There were numerous
speculations as to what happened as well as which bank would be next
(Ayugi, 2016). Based on the above scenario all is not well in the
banking industry in Kenya prompting a further research to ascertain
capital adequacy and how it has affected banks‟ profitability. The main
objective of the study was to find out the effect of capital adequacy on
banks‟ profitability. The remainder of this article paper is organized as
follows. Section 2 covers review of past studies and defines the main
hypothesis. Section 3 covers materials and methods. Section 4 covers
the results and discussion. Section 5 presents the conclusion and
section 6 covers the recommendations.
2. LITERATURE REVIEW
2.1 Banks’ Profitability Profitability is a relative concept that refers to an organizations ability
to make profit from all the business activities of a business concern.
Profitability is the ability of a given investment to earn a return from
its use (Harward and Upton, 1991). Many scholars emphasize return
on assets as the best measure of bank profitability (Hassan and Bashir,
2003). According to Rivard and Thomas (1997), return on assets
represents a better measure of the ability of the firm to generate returns
on its portfolio of assets and it is not distorted by high equity
multipliers. The bottom line is that ROA gives an idea as to how the
management of a given organization uses its assets efficiently to
increase its profit margins. Return on Assets is calculated by dividing a
company's annual earnings by its total assets.
2.2 Theoretical Framework This study reviewed buffer theory and portfolio regulations theory so
as to put capital adequacy into perspective.
2.2.1 Buffer theory of capital adequacy The theory was initiated by Calem and Rob (1996), the theory
postulates that banks prefers to hold excess capital to shield banks‟
against falling under the legal minimum capital requirements. The
theory states that banks‟ approaching the regulatory minimum capital
ratio shall have funds to boost capital. The excess funds reduce the risk
exposure of banks‟ as it cuts on regulatory costs as a result of breach of
the capital requirements.
2.2.2 Portfolio regulation theory Portfolio regulation theory by Peltzman (1970) is relevant to capital
adequacy of banks as it helps to predict the performance of firms in the
banking industry. The theory postulates that banks regulation helps to
maintain safety and soundness of the banking system. It helps banks‟
to be in a position to meet its liabilities without difficulty. This has
compelled central bank of Kenya to emphasize greater solvency and
liquidity of each and every bank than making it optional. This theory
captures LAD which is the ratio between Liquid Assets divided by
Bank Deposits and it depicts the banks‟ liquidity position. The higher
the liquid assets to banks‟ deposits ratio the better the liquidity and
solvency of banks. Peltzman (1970) argues that if the asset portfolio of
a bank is deemed too risky then the relevant supervisory agency should
instigate a change in the banks‟ balance sheet.
2.3 Capital Adequacy and Banks’ Profitability Adequate capital is that quantum of funds which a bank should have or
plan to maintain in order to conduct its business in an efficient manner
(Nwankwo, 1991). Adequate capital can also be regarded as the
amount of capital that can effectively discharge the primary capital
function of preventing bank failure by absorbing losses. Adequate
capital is a buffer against insolvency and liquidation in the business
arena. An organization with inadequate capital faces hidden constraints
and it spends much time working out on how to raise capital or guard
against takeovers. A study by Goddard, Molyneux, and Wilson (2004),
on capital adequacy as a determinant of profitability of banks revealed
that a high capital adequacy ratio signifies a bank that is risk averse. It
ignores investment in viable projects because of risk factor. This
implies that their exist a negative relationship between equity to asset
ratio and bank profitability.
Staikouras and Wood (2004) researched on the determinants of
European bank profitability and they found that there exists a positive
association between a greater equity and profitability among European
banks. This implies that banks with higher levels of capital outperform
undercapitalized Banks. Pasiouras and Kosmidou (2007) researched on
factors influencing the profitability of domestic and foreign
commercial banks in the European Union. They focused on fifteen
domestic and foreign commercial banks in the European Union
between 1995 and 2001.They found that capital adequacy has a
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12 | Page 30 April 2018 www.jbmas.jarap.org
significant effect on bank profitability. The effect of capital adequacy
on banks‟ profitability is not synonymous for domestic and foreign
banks. Kosmidou (2008) did a research on the Determinants of Banks'
Profits in Greece during the Period of European Union Financial
Integration. The researcher found that capital adequacy had a positive
association with Banks‟ profitability.
Saona (2011) researched on the determinants of the Profitability of the
US Banking Industry. The finding was Capital adequacy positively
affects Banks‟ profitability. The empirical evidence presented by
Chaudrey, Perera and Skully (2013) on the Determinants of
Commercial Bank Profitability in South Asian revealed that adequate
capital is a significant driver of banks profitability. A study on an
empirical analysis of Bank profitability in Ghana as evidenced from
Bank Specific and Macroeconomic Factors by Dore (2013) revealed
that capital adequacy and liquidity of banks are negatively associated
with bank profitability. Scholarly works of Umoru and Osemwegie
(2016) sought to determine the magnitude of significance of the capital
adequacy ratio in influencing the financial performance of Nigerian
banks. The study used feasible GLS estimates and found that the
coefficient of asset quality was significant implying that capital
adequacy had a negative effect on Banks‟ financial performance.
Empirically, their study immensely emphasized that capital adequacy
had an absolute overriding effect on Banks‟ profitability. The literature
reviewed above led to the following hypothesis statement:
H01: Capital adequacy has no significant effect on Return on Assets
3. MATERIALS AND METHODS
Research philosophy can simply be defined as a belief about the way
in which data about a phenomenon should be gathered, analyzed and
used. For this study, a positivism research philosophy was adopted.
The choice for the positivism research philosophy is supported by the
principle underlying this philosophy. According to the principles of
positivism, the philosophy depends on quantifiable observations that
lead themselves to statistical analysis. It is noted that positivism is in
accordance with the empiricist view that knowledge stems from human
experience. This principle conforms to the nature of the study in that it
deals with the quantifiable observations. With regard to the
progression of this study, it was guided by the hypotheses in attempt to
show the association between independent variable and dependent
variable. All these attributes of the study apply for the positivism
research philosophy hence its choice as the ideal research philosophy.
The study was carried out using a longitudinal research design,
employing secondary quantitative data between 2013-2015. The
sampling frame consists of tier 2 banks listed on the Nairobi Securities
Exchange as at July 2017. A sample size of two tier 2 banks was
incorporated in this study based on simple random sampling design.
The two Banks are Diamond Trust Bank and NIC Bank. The study
utilized secondary data to answer the research hypothesis. Secondary
data was obtained from Nairobi Securities Exchange handbooks and
published books of accounts of the banks‟ listed on the Nairobi
Securities Exchange. Audited financial statements of commercial
banks were used to ensure that information was as accurate as possible.
Return on Assets was used as proxy for banks‟ profitability and capital
adequacy was proxied using total risk weighted Basel ratio. This paper
adopts the risk based approach to capital adequacy measurement and it
is applied to both on and off balance sheet items. In order to arrive at
risk weights assigned on assets, this paper takes into consideration
credit risk arising from the possibility of losses associated with
reduction of credit quality of borrowers or counterparties, market risk
which is the risk of losses arising from movements in market prices
pertaining to interest rate related instruments and foreign exchange risk
and commodities risk and finally operational risk. It involves the risk
of loss as a result of failed systems, internal processes, people and
external events. The data collected was analyzed using inferential
statistics such as correlations and linear regression analysis. The
regression analysis model was as elucidated below;
ROA M, t = β0 + β1x1, t+ e M, t
x1, t = Total Capital to Weighted Risk Assets of Selected Banks‟ in
year t; e, t = error term, β0 = intercept, β1 = coefficients of x1.
4. EMPIRICAL RESULTS
The results of Karl Pearson correlation revealed that capital adequacy
has a strong positive association with Return on Assets (r =.810, P =
.127, α > 0.05). This implies that as the proportion of Total Capital to
Weighted Risk of Assets increases the Banks‟ Return on Assets
increases as well as, as shown below in Table 4.1 below;
Table 4.1: Correlation between Capital Adequacy and Banks‟
Profitability
Correlations
Total
capital to
Risk
weighted
assets
Return
on
Assets
Total capital to
Risk weighted
assets
Pearson
Correlation
1
Sig. (2-
tailed)
N 6
Return on Assets Pearson
Correlation
.127 1
Sig. (2-
tailed)
.810
N 6 6
(Source: Survey data, 2017)
As shown in the table below, the value of R-square is 0.016 which
indicates that the model explains 16% of Banks‟ Profitability from the
predictor variable (Total Capital to Risk weighted Assets). The
Durbin-Watson's d tests the null hypothesis that the residuals are not
linearly auto-correlated. The value of Durbin-Watson was at 1.181
which indicates no autocorrelation among the variables as shown Table
4.2 below;
Isabwa Harwood Kajirwa /Journal of Business Management & Accounts Studies (JBMAS)
13 | Page 30 April 2018 www.jbmas.jarap.org
Table 4.2: Regression Model Summary
Model R R Square
Adjusted R
Square
Std. Error of
the Estimate
Durbin-
Watson
1 .127a .016 -.230 .00427 1.181
a. Predictors: (Constant), Total capital to Risk weighted assets
b. Dependent Variable: Return on Assets
(Source: Survey Data, 2017)
Analysis of variance was employed to measure the differences between
Banks‟ profitability and its predictor variable. The F-ratio was .066 at
1 degree of freedom which is the variable factor. This represented the
effect size of the regression model and the model is significant at 95%
confidence level (p=0.010) indicating that Banks‟ Profitability can be
predicted from the aforementioned independent variable. The results
are shown in the table 4.3 below;
Table 4.3: One Way ANOVA
Model
Sum of
Squares Df
Mean
Square F Sig.
1 Regression .000 1 .000 .066 .010a
Residual .000 4 .000
Total .000 5
a. Predictors: (Constant), Total capital to Risk weighted assets
b. Dependent Variable: Return on assets
(Source: Survey data, 2017)
As aforementioned, the model was found to be statistically significant.
Further, the regression model can be outlined as follows;
ROA = (.027) +X1(.127) + .009
Total capital to risk weighted assets had a beta coefficient of .127
implying that Total capital to risk weighted assets explained 12.7%
change in Banks‟ Profitability as shown in Table 4.5;
Table 4.5: Coefficient Analysis
Model
Unstandardized
Coefficients
Standardized
Coefficients
t Sig. B
Std.
Error Beta
1 (Constant) .027 .009 3.023 .039
Total capital to
Risk weighted
assets
.011 .043 .127 .257 .810
a. Dependent Variable: Return on Assets
(Source: Survey data, 2017)
The Empirical Results of this study reveals that Capital Adequacy as
proxied by Total Capital to Risk weighted Assets has a positive
association with Banks‟ Profitability. The null hypothesis statement
was accepted that capital adequacy has no significant effect on Banks‟
Profitability. The results are in tandem with the findings of Saona
(2011); Chaudrey, Perera and Skully (2013); Staikouras and Wood
(2004). The rationale for positive association is that capital adequacy
ratio ensures efficiency and stability of a Banks‟ financial system. A
high total capital to Risk weighted Assets boosts depositors‟
confidence in the banking services of a certain Bank. Capital adequacy
is a symptom of a healthy balance sheet and it ensures a Bank has a
strong capital enough to withstand shocks. The Capital buffers that
have been introduced and loss absorptive capacity of Tier 1 and Tier 2
capital instruments of internationally active banks has been enhanced.
Forward looking provisioning has been prescribed and modification
made in counterparty credit risk weights. Studies of Dore (2013);
Goddard, Molyneux, and Wilson (2004); Umoru and Osemwegie
(2016) revealed that capital adequacy is negatively associated with
bank profitability. These results are informed by differences in asset
quality, bank size, liquidity, credit exposure, inadequate or failed
internal processes, people and systems and financial leverage ratio.
5. CONCLUSIONS Capital adequacy has a positive effect on Banks‟ Profitability. Rise in
the proportion of Tier 1 and Tier 2 capital in relation to total risk
weighted assets in turn increases Banks‟ Profitability. The requirement
by the Central Bank of Kenya that a bank should maintain at all times
a core capital of not less than 8% of total risk weighted assets, a core
capital of not less than 8% of its total deposit liabilities and a total
capital of not less than 12% of its total risk weighted assets and a
capital buffer of 2.5% has enabled banking institutions to withstand
future periods of stress.
6. RECOMMENDATIONS Based on the analysis and findings in this study, it is suggested that the
Central Bank of Kenya should not rely solely on the 1 billion
minimum capitalizations of banks as a determinant of good banks‟
profitability but should also concentrate on efficient and effective
banks‟ regulation. Tier 2 Banks‟ should improve their asset quality,
asset base, liquidity position and financial leverage ratio for purposes
of achieving financial stability. Central Bank of Kenya should
progressively continue to implement the Basel Accord in entirety.
Diamond Trust Bank and NIC Bank and other Tier 2 Banks should
continue to have a portion of capital known as buffer capital in its
financial structure to handle credit exposure as a result of credit risk,
market risk and operational risk resulting from inadequate or failed
internal processes, people and systems.
REFERENCES [1] Ayugi, W. (2016). Is The Banking Tier System Related To The
Success of Banks in Kenya? Retrieved on 25th July 2017:
https://covered.co.ke/blog/2016/09/banking-tier-system-kenya/
[2] Barrell, R., Davis, E., Fic, T., Holland, D., Kirby, S., & Liadze, I.
(2009). „Optimal regulation of bank capital and liquidity: How to
calibrate new international standards‟, FSA Occasional Paper 38.
[3] Caggiano, G., & Pietro, C. (2011). The Macroeconomic Impact of
Higher Capital Ratios on African Economies Working Paper No.
139. African Development Bank Group.
[4] Calem, P.S., & Rob, R. (1996). “The Impact of Capital-Based
Regulation on Bank Risk-Taking: A Dynamic Model, Board of
Governors of the Federal Reserve System,” Finance and
Economics Discussion Series 96/12 (February), 36.
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[5] Chaudrey, Z., Perera, S., & Skully, M. (2013): Determinants of
Commercial Bank Profitability: South Asian Evidence. Asian
Journal of Finance and Accounting, 5(1), 365-380.
[6] Dore, M. (2013). An Empirical Analysis of Bank Profitability in
Ghana: Evidence from Bank Specific and Macroeconomic
Factors. Eastern Mediterranean University (EMU).
[7] Goddard, J., Molyneux, P., & Wilson, J.O.C. (2004). The
profitability of European banks: A cross sectional and dynamic
panel analysis. The Manchester School, 72 (3), 363–381.
[8] Harward, P., & Upton, A. (1991). Introduction to Business
Finance. New York; Mc Graw Hill.
[9] Hassan, M. K., & Bashir, A. H. M. (2003). Determinants of
Islamic banking profitability, in the 10th ERF Annual Conference.
Morocco, December 16-18.
[10] Miles, D. J., Yang & Marcheggiano, G. (2011). Optimal bank
capital. Discussion Paper No. 31 Bank of England.
[11] Nwankwo, G.O. (1991). Bank Management, Principles and
Practice. Malthouse Press Ltd. Lagos.
[12] Pasiouras, F., & Kosmidou, K. (2007). Factors influencing the
profitability of domestic and foreign commercial banks in the
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[13] Pasha, M. A., & Swamy, T.S. (2012). Basel II norms with special
emphasis on capital adequacy ratio of Indian Banks. A Journal of
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[14] Peltzman, S. (1970). “Capital Investment in Commercial Banking
and its Relationship to Portfolio Regulation”. Journal of Finance,
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banking on large bank holding company profitability and risk.
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[16] Staikouras, C., & Wood, G. (2004). The determinants of
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Journal of Business Management & Accounts Studies ISSN: 2581-7973
Volume 1 Issue 1, 30 April 2018 PP. 15-21
15 | Page 30 April 2018 www.jbmas.jarap.org
WOMEN’S COMMUNITY MANAGEMENT ROLES AND CONTRIBUTIONS TO SOCIAL DEVELOPMENT IN NIGERIA
Beauty Usoroh 1&Joseph Otukpa
2
1Graduate Assistant, Department of Sociology, Faculty of Social Sciences, University of Calabar, Nigeria. [email protected]. 2Assistant Lecturer, Department of Sociology, Faculty of Social Sciences, University of Calabar, Nigeria. [email protected].
Key words
Women
Promotion of cooperative societies
Entrepreneurship promotion
Agricultural production
Social development
Abstract
This paper examined Women‟s community management roles and contributions to social
development in Nigeria. The survey research design was adopted for the study. Data were
collected from 400 purposively selected respondents. A 35- itemed questionnaire and a key
informant interview schedule were developed by the researcher. The stratified, purposive,
clusters and systematic sampling technique were used to select the sample for the study. Three
hypotheses were drawn for the study base on the identified major variables, namely; promotion
of cooperative societies, entrepreneurship promotion and agricultural production. Data were
obtained from both primary and secondary sources and analysis was done using percentages
and chi-square at 0.05 level of significance. Findings revealed that promotion of cooperative
societies, entrepreneurship promotion and agricultural production have statistical significance
effects on social development in Ini local government area of Akwa Ibom state, Nigeria. The
major conclusion drawn was that women‟s community management roles have significant
impacts on social development. Base on the findings of this study, a number of
recommendations were made; one of such was that Women should not only promote
cooperative societies, entrepreneurship promotion and agricultural production, they should also
anchor on moral values which would make the society a better place for all.
1. INTRODUCTION Women from history have played significant roles in social
development. The welfare of women translates to the welfare of the
society at large. Women‟s activities of subsistence farming and
entrepreneurship in Nigeria constitute a greater percentage to the
enhancement of lives and general development of the society. Women
play very vital roles in the development of their various communities
in preparations for festivals. The Nigerian women have constituted
themselves into various associations for the purpose of development.
The associations have often been used as vehicles for development of
communities in Nigeria.
It is unfortunate that majority of these women activities have
either not been reported, or under reported, making it difficult for the
members of the society to appreciate their efforts in development
processes. This according to United Nation (1990) is most countries do
not calculate numerous activities into their Gross National Products.
Women activities are often based at home, some of these do not enter
directly into cash economy. Nigerian women and world at large are
largely under privileged. Women are discriminated against and
oppressed; they are denied the opportunities to also contribute to the
general development of the society. Thus, it is against this background
that Women Affairs Commission have strived to harness, consolidate
and develop women and their creativity to the benefit of women and
families. Several women associations have been formulated and these
have played significant roles in transforming the communities within
Ini local government area in particular and Akwa Ibom state in
general. This study examines women‟s community management roles
and contributions to social development in Nigeria.
1.2 Statement of the problem Women‟s community management roles have been under
reported in Nigeria. This has in turn affected public knowledge of the
activities of women in social development. Women over the years are
known to have contributed in one way or the other towards the social
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development of their communities. This is shown in the various
subsistence activities by women associations. The formation of Better
Life for Women in 1994 and Family Support Programme in 1998 led
to an increase in the activities of women in community development.
In spite of the activities of these programmes, many scholars hold their
opinion that women have actually played vitals roles in the social
development of the society. Women contributions to social
development are an important element and a sure way to speedy
development of the rural communities in Nigeria (Oguonu, 2000).
According to in the wake of the global conference on women in
Beijing, China, the world community has witnessed several
conferences where efforts have continued to encourage women
contribution in their societal development. Similar conference was
held in Africa in November, 1994 in Dakar Senegal where the African
Platform for action was prepared for ratification in Beijing (Eudora,
1997).
The relevant questions here are: what has been the
contribution of women in social development? What roles do they play
in the development of the society? Do women face any hindrance?
What can be done to enhance women‟s role in social development?
1.3 Objectives of the study The objective of this study is to discover some of the activities
embarked upon by women in the formal and informal sectors and how
these activities have contributed to social development in Ini local
government area. The objectives are specifically stated as follows:
i. To determine the roles of women in social development in
Ini local government area.
ii. To identify the activities of women (through promotion of
cooperative society, entrepreneurship promotion and
agricultural promotion) in Ini local government area geared
towards social development.
iii. To identify the hindrances to women playing their roles in
social development.
iv. To recommend possible strategies toward the enhancement
of women‟s role in societal development.
1.4 Significance of the study The study and its findings may be of benefit to different
sectors, particularly the women, development policy makers, social
policy makers, the governments, Non- governmental organizations,
student and researchers etc. The findings of this study are likely to
sensitize the women to realize that their unity in form of association is
a mechanism to social development in Nigeria.
1.5 Scope of the study The study was concerned with women‟s community management roles
and contributions to social development in Ini local government of
Akwa Ibom state, Nigeria. The study evaluates women development
associations and their activities against the background of their
contribution to social development processes in the communities.
1.6 Hypotheses of the study The following hypotheses were formulated for the study.
i. There is no significant relationship between promotion of
cooperative societies and social development.
ii. There is no significance relationship between
entrepreneurship promotion and social development.
iii. There is no significance relationship between agricultural
production and social development.
2. LITERATURE REVIEW
2.1 Social Development Social development is defined as socio-economic changes
involving the transformation of agrarian society in order to reach a
common set of development goals based on the capabilities and needs
of the people (Obi, 1997). UNESCO defines social development as the
process by which the efforts of the people are united with the
government to improve the economic, social, and cultural conditions of
communities. Social development in simple terms is the process of
improving the quality of human lives. It involves the sustained
elevation of the entire community and social system towards a better
human life. Gulet (1971) identified three important aspect of social
development as:
i. Raising people‟s living standard – income and consumption
levels, access to medical services, education, safe drinking water
etc. through relevant economic growth process.
ii. Creating condition conducive for the growth of people‟s self-
esteem through the establishment of social institutions that
promote human dignity and respect.
iii. Increasing people‟s freedom by enlarging the range of the choices
as by increasing varieties of consumer goods and services.
Dudley (1979) posed three questions about the meaning of
development as follows: What has been happening to poverty? , What
has been happening to unemployment? What has been happening to
inequality? He asserts that if these three have declined from higher
level, then beyond reasonable doubt, there has been a period of
development for the community concerned. Social development is a
process by which the effort of the people themselves are unified with
those of government and non-governmental organizations to improve
the social conditions of communities to integrate those communities
into the life of the nation and enable them contribute fully to national
progress It is a process of social action in which people of the
community organize themselves for the identification of their needs
with maximum reliance on their own initiative and resources,
supplemented with assistance in any form from government and non-
governmental organization.
2.2 Promotion of cooperative societies and social
development Though there is no consistency to the exact origin of the co-
operative movement, some academics have argued that the origins lie
within Europe (Holyoake, 1908; Shaffer, 1999).The first recorded co-
operatives date back to 1750 in France, where local cheese makers in
the community of Franche-Comté established a producer cheese
cooperative. Within the decade, co-operatives had developed in
France, United Kingdom, United States and Greece. In 1844 the
Equitable Pioneers of Rochdale Society (EPRS) was formed. With the
goal of social improvement, twenty-eight unemployed community
members saw the opportunity to pool their limited resources and
attempt cooperation for the good of the group. Even though co-
Beauty Usoroh et al./Journal of Business Management & Accounts Studies (JBMAS)
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operatives appeared in the century previous, Rochdale is seen as the
first „modern‟ cooperative since it was where the co-operative
principles were developed (Wikipedia, 2006; Gibson, 2005; and Abell,
2004).
In 1895, International Cooperative Alliance (ICA), a non-
governmental organization was established as umbrella organisation to
promote friendly and economic relations between cooperative
organizations of all types, nationally and internationally. The major
objective of the ICA is to promote and strengthen autonomous
cooperative organizations throughout the world. Cooperatives are
based on basic values and principles. Cooperative values are general
norms that co-operators, cooperative leaders and cooperative staff
should share and which should determine their way of thinking and
acting (Hoyt, 1996). The values, which are articulated by the ICA in a
statement in 1995, include self-help, self-responsibility, democracy,
equality, equity and solidarity. The values statement further articulates
values of personal and ethical behaviour that co-operators actualize in
their enterprises. Furthermore, cooperatives work for the sustainable
development of their communities through policies approved by their
members. Combating exploitation, reducing disparities, improving
social conditions and gender sensitivity, and helping to create a more
just society with pronounced concern for environmental protection and
sustainable processes of development all tend to make a cooperative a
preferred and more socially desirable form of organization (Taimni,
1997). Regardless of the type, size, geographical location or purpose,
women cooperatives societies provide a unique tool for achieving
societal goals in an increasingly competitive global environment.
2.3 Entrepreneurship promotion and social
development As Nigeria yearns for economic growth, emphasis must be
laid on entrepreneurship. Some entrepreneurial programs already
embarked upon by the Federal Government of Nigeria include: Family
Economic Advancement Program (FEAP), Peoples Bank of Nigeria,
National Economic Empowerment and Development Strategy
(NEEDS), Small and Medium Enterprises Development Agency
(SMEDAN), Small and Medium Industries Equity Investment Scheme
(SMIEIS) and so on are all targeted towards promoting a vibrant
entrepreneurial class that will actively articulate the economic and
social development process. However, women are not specially
targeted; but it was presumed that the extension of these services to the
rural areas where women dominate in economic and social activities
will empower them. The Abuja Declaration on Participatory
Development holds that: “Sustainable social development can only be
achieved with the full participation of women who constitutes
approximately 50% of the population” (Iheduru, 2002).
2.4 Agricultural production and social
development Women in traditional African society like Nigeria form the
primary producers especially in agriculture, food processing including
both the preservation and the storage of products and that of marketing
and trading surpluses of other vital household items. “Women are also
involved in other activities such as weaving, spinning and several
handicrafts, while the predominant role of men in the corresponding
period was hunting” (Kpelai, 2009:145). Agricultural activities are
usually concentrated in the less-developed rural areas where there is a
critical need for rural transformation, redistribution, poverty alleviation
and social development (Stewart, 2000:1).
2.5 Theoretical framework This study was anchored on Social Development Theory by
Lev Vygotsky (1896‐1934). According to this theory, the qualitative
changes of society‟s structure and framework, this can help the society
to realize its aims quickly. Basically, Vygotsky‟s theory suggests that
social interaction is in advance of development and both the
socialization and social behavior will lead to people‟s consciousness
and cognition (Frank, 2013). Social Interaction is an important
Foundation of the Cognitive development. As Vygotsky states, “every
function in the child‟s cultural development appears twice: first, on the
social level, and later, on the individual level; first, between people and
then inside the child” (Guo‐liang&Wu‐Yuin, 2013).He believes that
young children are more curious involved in learning and discovery by
themselves. Early knowledge gained by women on the social and
individual level results in the utilization of such knowledge to interact
with others on the basis of social development.
3. METHODOLOGY
3.1 Research design The study adopted the survey design due to the widespread
variables needed for the study. According to Osuala (1993), survey
design is oriented towards the determination of the status of research
subject. Survey research design uses questionnaire and interviews
(quantitative and qualitative) to determine the opinions of the rural
people towards agriculture and sustainable rural development.
Through this design, the researcher attempted to use the independent
variables to observe the response on the dependent variables. The
design implied that the following sub dependent variables of
education, employment generation and governance were not in the
control of the researcher. However, the relationship of these variables
to the dependent variable of social development was studied in the
end.
3.2 Area of study The study area was Ini local government area of Akwa Ibom
state, Nigeria. Specifically Asanting Utit Ikpe, Ibam Edet, Ibakesi, Itu
Mbon Uso, Ikpe Ikot Nkon, Mbiabet Ikpe, Mbiabong Mbat, Nkanna,
Mbiabong Ikot Udofia and Nkwot Etok. Ini has three major dialects:
Ibibio which is the dominant, Itu and Nkari speaking people with a
total population of 99,084 having male population of 50,108 and
female population of 48,976 (National Population Commission, 2006).
Ini local government area comprises of 6 clans; Itu, Odoro Ikono,
Nkari, Ikpe , Iwere and Ukwok clans each headed by a traditional head
known as Clan head and it also comprises of 10 political wards.
Ini local government area is bounded by Ikono in the North
and West, Ohafia local government area of Abia state in the East,
Aruchukwu and Bende local government areas of Abia state in the
South. The climate is generally tropical with a temperature of less
than 40oC throughout the year. Ini people are predominant traders and
farmers producing items such as palm produce, cassava, fishery rice,
cocoa, banana, maize and plantain.
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3.3 Population of the study The population of the study comprised all inhabitants of Ini
local government area of Akwa Ibom state. It was made up of all
adults of all works of life residing in the study area that are farmers,
self-employed, entrepreneurs, gainfully employed etc. Ini has a total
human population of 99,084 (NPC, 2006) which is the population of
the study. It is from this targeted population that the representative
sample for the study was drawn.
3.4 Sample size The sample for the study was 400 respondents (males and
females) who were purposively selected from 10 communities of Ini
local government area of Akwa Ibom state. The sample size comprised
people living in Ini local government area ranging from farmers,
traders/entrepreneurs etc irrespective of their status. Forty (40)
respondents were selected from Asanting Utit Ikpe, forty (40) from Itu
Mbon Uso, forty (40) from Mbiabet Ikpe, forty (40) from Ibakesi,
forty (40) from Nkwot Etok, forty (40) from Ibam Edet, forty (40)
from Mbiabong Ikot Udofia, forty (40) from Nkanna, forty (40) from
Mbiabong Mbat and forty (40) from Ikpe Ikot Nkon making it a total
of 400 participants.
The computation of Taro Yameni‟s is presented below:
n=N
1 +N (e)2
Where n = sample size
N= population of the study area (99,084)
E = level of significance (0.05)
1 = constant
n = 99,084
1 + 99,084
= 99,084
1 + 99,084 (0.0025)
= 99,084
99,085 (0.0025)
= 99,084
247.7125
Thus, sample size = 400 respondents
3.5 Sampling procedure The study adopted stratified, purposive, clusters and
systematic techniques in selecting respondents. The ten (10) political
wards constituted the 10 strata of the study. From these 10 political
wards (strata) the researcher also purposively studied only
communities where women‟s roles are actively involved in social
development. From the 10 strata, the 10 communities were purposively
studied based on their proximity to cooperative societies,
entrepreneurship and agricultural cultivation. These 10 communities
constituted 10 clusters in the study. These were: Asanting Utit Ikpe,
Ekoi Atan Ubom, Ibakesi, Itu Mbon Uso, Ikpe Ikot Nkon, Mbiabet
Ikpe, Mbiabong Mbat, Nkanna, Mbiabong Ikot Udofia and Nkwot
Etok. The respondents were selected as follows; Asanting Utit Ikpe (40
respondents), Itu Mbon Uso (40 respondents), Mbiabet Ikpe (40
respondents), Ibam Edet (40 respondents), Mbiabong Mbat (40
respondents), Mbiabong Ikot Udofia (40 respondents), Nkanna (40
respondents), Ikpe Ikot Nkon (40 respondents), Ibakesi (40
respondents) and Nkwot Etok (40 respondents). The study purposively
selected 400 respondents from 10 communities. The sample comprise
of males and females who have fair/practical knowledge of agriculture
in the rural area.
3.6 Sources and instrument of data collection Data for the study were obtained from both primary and
secondary sources. The main instrument of the study was a 35-item
questionnaire. This was appropriately validated and reliability was
ascertained through test re-test.
4. ANALYSIS AND DISCUSSION
Table 1: Demographic profile of the respondents
S/n
Items Variables No. of
respondents
Percentage
(%)
1 Age 18-23
24-29
30-35
36-41
42 and above
Total
40
47
84
56
34
365
10.95
12.87
37.81
23.01
15.34
100
2 Marital
status
Single
Married
Divorced
Widow
Others (specify)
Total
120
212
15
56
10
365
32.87
58.08
4.10
2.19
2.73
100
3 Educational
level
Non formal
Primary
Secondary
Tertiary
Total
58
89
144
74
365
15.89
24.38
39.45
20.27
100
4 Religion African
Traditional
Christianity
Islamic
Others (specify)
Total
17
345
0
3
365
4.65
94.53
0
0.82
100
5 Occupation Trading
Farming
Civil servant
Artisan
Unemployed
Total
140
85
35
75
30
365
38.35
23.28
9.58
20.54
8.21
100
Source: Field Survey, 2018
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In terms of marital status, it is indicated that 58.08 percent (N=212)
respondents were married, 32.87 percent (N=120) respondents were
single; 4.10 percent (N=15) respondents were divorced; 2.19 percent
(N=56) respondents were widows; while 2.73 percent (N=10)
respondents were categorized as other. The finding shows that the
married people participated more and they constituted majority of the
respondents probably due to the fact that they were available during
the study.
Reponses gotten on educational level indicate that 15.89
percent (N=58) respondents had no formal education, 24.38 percent
(N=89) respondents had attended primary education; 39.45 percent
(N=144) respondents had attended secondary education while 20.27
percent (N=74) respondents had attended tertiary institutions.
This indicates that people with secondary education level
participated more in the response to the study. In terms of religion, it is
indicated that 4.65 percent (N=17) respondents were of African
tradition, 94.53 percent (N=345) respondents were Christians, 0.82
percent (N=3) were for others, whereas none of the respondents
responded to Islamic religion. This finding indicates that there are no
practices of Islamic religion in Ini local government. In the area of
occupation, the study indicates that 23.28 percent (N=85) respondents
were traders, 38.35 percent (N=140) respondents were into farming,
9.58 percent (N=25) respondents were civil servants, 20.54 percent
(N=75) respondents were Artisians, while 8.21 percents (N=30) were
unemployed.
Since the calculated (X2) value was 42.46, the null hypothesis which
states that there is no significance relationship between a promotion of
cooperatives societies and social development was rejected in favour
of the alternate hypothesis. This means that a promotion of
cooperatives societies has a significant relationship with social
development. It also implies that through promotion of cooperatives
societies, the social development of Ini local government has been
improved.
Since the calculated (X2) value was 192.82, the null hypothesis which
states that entrepreneurship promotion has no significant relationship
with social development was rejected in favour of the alternate
hypothesis. This means that entrepreneurship promotion has a
significant relationship social development. It implies that
entrepreneurship promotion has helped in improving social
development in Ini local government area.
Table 2: Chi square (X2) analysis of the relationship between promotion of cooperative societies and social development
Cell O E O-E (O-E)2 (O-E)2/E
1 55 46.85 8.15 66.4225 1.42
2 35 43.15 -8.15 66.4225 1.54
3 30 52.05 -22.05 486.2025 9.34
4 70 47.95 22.05 486.2025 10.14
5 35 41.64 -6.64 44.0896 1.06
6 45 38.36 6.64 44.0896 1.15
7 70 49.45 20.55 422.3025 8.54
8 25 45.55 -20.55 422.3035 9.27
Total 365 42.46
Source: Field Survey, 2018
Table 3: Chi-square (X2) analysis of the relationship between entrepreneurship promotion and social development
Cell O E O-E (O-E)2 (O-E)2/E
1 165 98.84 66.16 4377.1456 44.29
2 30 96.16 -66.16 43377.1456 45.52
3 20 86.16 -66.16 4377.1456 50.80
4 150 83.84 66.16 4377.1456 52.21
Total 365 192.82
Source: Field Survey, 2018
Table 4: Chi-square (X2) analysis of the relationship between agricultural production and social development
Cell O E O-E (O-E)2 (O-E)2/E
1 130 108.97 21.03 442.2609 4.06
2 85 106.03 -21.03 442.2609 4.17
3 55 76.03 -21.03 442.2609 5.82
4 95 73.97 21.03 442.2609 5.98
Total 365 20.03
Source: Field Survey, 2018
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20 | Page 30 April 2018 www.jbmas.jarap.org
Since the calculate (X2) was 20.03, the null hypothesis which state that
agricultural production has no significant relationship with social
development was rejected in favour of the alternate hypothesis. This
means that agricultural production has a significant relationship with
social development. This implies that agricultural production has
helped improve social development.
Discussion
4.1 Promotion of cooperative societies and social
development The chi-square result of the analysis of hypothesis one
revealed that a significant association exist between promotion of
cooperative societies and social development. The calculated (X2)
values was 42.46 as evidence in table 2 earlier indicated that the
people principally rely on cooperative societies for social
development.
The finding here supports existing literature combating exploitation,
reducing disparities, improving social conditions and gender
sensitivity, and helping to create a more just society with pronounced
concern for environmental protection and sustainable processes of
development all tend to make cooperative a preferred and more
socially desirable form of organization (Taimni, 1997).
4.2 Entrepreneur promotion and social
development The chi-square result of the analysis of hypothesis two
revealed that a significant relationship exist between entrepreneurship
promotion and social development. The calculate (X2) values was
192.82 as evidence in table 3 earlier indicated that entrepreneurship
promotion is a key to social development.
The finding supports The Abuja Declaration on Participatory
Development holds that: “Sustainable social development can only be
achieved with the full participation of women who constitutes
approximately 50% of the population” (Iheduru,2002).
4.3 Agricultural production and social
development The chi-square result of the analysis of hypothesis three
revealed that a significant association exist between agricultural
production and social development. The calculated (X2) values was
20.03 as evidence in table 4 earlier indicated that agricultural
production has helped improve social development.
The study corroborates the findings that agricultural
activities are usually concentrated in the less-developed rural areas
where there is a critical need for rural transformation, redistribution,
poverty alleviation and social development (Stewart, 2000:1).
Agricultural production of raw materials as well as raw materials from
the forestry and fishing industries are subdivided into those of plant
(feral plants, medicinal plants, wood, grains and industrial crops etc.)
or animal (fish, meat, milk, hides, wool, skins etc.) origin.
Comprehensive processing of agricultural raw materials is an
important source for expanding the raw materials base and increasing
the social and economic efficiency of the industry and thereby brings a
sustained social development into the concerned area.
5. CONCLUSION Analysis has affirmed that Women‟s community
management roles have a significant relationship with social
development of Ini local government area of Akwa Ibom state.
Women have assumed a high degree of prominence in the social
development sector. A little more attention to women is expected to
empower the people and sustain social development. Women have the
potential for the provision of diversified affordable and dependable
source of social development. Women as stressed in the study are seen
as potent weapon of social development through their potential for
promotion of cooperative societies, entrepreneurship promotion and
agricultural production.
5.1 Recommendations i. Since promotion of cooperative societies is positively link
with social development, appropriate measures should be put
in place to ensure consistence cooperative societies by the
women. The cooperative societies should be extended to
cover other communities in the local government area.
ii. Unemployed female youths should be encouraged to see
cooperative societies as very essential for entrepreneurship
promotion for the overall improved social development.
Women should be aware that enhancing social development
does not only depend on contributing money to support them
financially, but accessing a better quality of life by
promoting entrepreneurship for themselves through women
community management.
iii. Women should not only promote cooperative societies,
entrepreneurship promotion and agricultural production.
Women should also anchor on moral values which would
make the society a better place for all.
REFERENCES
[1] Abell, P. (2004): Cooperative Movement, Encyclopedia Encarta
2004 Edition.
[2] Eudora, C. (1997) “Women, cooperation and economic recovery
in Nigeria”, Dialectical Anthropology, 22 (3), 353-371.
[3] Frank, J. (2013). Criminal Justice Today: An Introductory Text
for the 21st Century. Cram 101 Publishing.
[4] Gibson, R (2005): The Role of Cooperatives in Community
Economic Development, RDI Working Paper # 2005-3.
[5] Holyoake, G. (1908): The History of Cooperation, London UK: T.
Fisher Unwin.
[6] Hoyt, A. (1996): And Then There Were Seven: Cooperative
Principles Updated, atwww.uwcc.com.
[7] Iheduru, N.G. Women Entrepreneurship and Development: the
Gendering of Microfinance in Nigeria. A paper presented at the
8th International Interdisciplinary Congress of Women, 21-26
July, 2007. Kampala-Uganda
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[8] Kpelai, S.T. (2009). Entrepreneurship Development in Nigeria.
Makurdi: Aboki Publishers, 67-68.
[9] Obi, M.(1997) “Unpublished M.Sc. Lecture Notes, Department of
Public Administration and Local Government, University of
Nigeria, Nsukka.
[10] Oguonu C. (2000) “The Accounting Framework for Public
Accountability in Nigeria” in Public Accountability: Financial
Management in Local Governments in Nigeria, E. Ozor (Ed.).
Lagos: Lizzibon Publishers. PP 67-77
[11] Osuala, E. (1993) Introduction to research methodology. Onitsha
Publishers.
[12] Seers, D. (1979) the meaning of development in, development
theory London: Frank Cass.
[13] Shaffer, A. (1999) "Career success: the effects of personality",
Career Development International, Vol. 4 Issue:4,pp.225-231,
https://doi.org/10.1108/13620439910270607
[14] Stewart, R. (2000) Welcome Address" Proceedings of the 7th
World Sugar Farmers Conference. Durban.
www.sugaronline.com/sugarindustry/index.htm (Last accessed
April 16 2002, now discontinued).
[15] Taimni, K. (1997): Cooperatives in the New Environments: A
study of the Role of the Registrar of Cooperative Societies in
Selected Countries in Asia, Rome: FAOUN
[16] Taro Yamane (1964) “Statistics an Introductory Analysis” New
York, Harpers and Low Publishers Ltd.
[17] United Nation Development (1995) “Human Development
Report, New York.” Oxford University Press.
[18] Vygotskiĭ, L. S. 1., Cole, M., 1938, & ebrary, I. (1978). Mind in
society: The development of higher psychological processes.
Cambridge: Harvard University Press.
[19] Wikipedia (2006): Cooperative, at
www.en.wikipedia.org/wiki/cooperative.
Journal of Business Management & Accounts Studies ISSN: 2581-7973
Volume 1 Issue 1, 30 April 2018
PP. 22-31
22 | Page 30 April 2018 www.jbmas.jarap.org
THE IMPACT OF CUSTOMER SERVICE OF MEXICAN COMPANIES
BASED ON CUSTOMER CARE
Jose G. Vargas-Hernandez 1 & Edgar Jose, Gálvez Moreno
2
1M.B.A.; PhD, Research Professor of the Administration Department, University Center for Economic and Managerial Sciences, University of
Guadalajara, Periférico Norte 799 Edif. G201-7 Núcleo Universitario Los Belenes, Zapopan Jalisco 45100, Mexico. [email protected]
2Autonomous University of Sinaloa North Zone, Los Mochis, Prol. Ángel Flores and Social Justice s / n Col. Jiquilpan 81220, Ahome, Sinaloa,
Mexico. Tel. +52 331 545 2587 & [email protected]
Key words
Customer service
Customer Support
Companies
JEL
M12
M21
M31
Abstract
The purpose of this research is to measure the level of customer service of Mexican companies
in terms of customer service, considering that customer service is directly related to offer a
good customer service. This research is analytical and descriptive, because it contains the main
concepts about research, as well as the main authors and creators of the same and descriptive
because in the research are tables and tables that help explain in a way Easier for the correct
compression and differentiation of these concepts. With this research they will understand the
importance and difference between a service and an attention, and once understood this will be
able to better train their staff to obtain better and greater results in their companies and also
reflected in their profits
1. INTRODUCTION
The main purpose of organizations is to ensure that their main
corporate activities create and add value over time, efficiently and
effectively (Reyes, 2010, p.2). In this sense, good treatment towards
clients can be the key to success to remain positioned in the market.
Having stability allows the business to cultivate motivation for
employees, helping us to have fewer turnovers of staff. This is very
important since it does not create demotivation among them.
This research is analytical and descriptive, because it
contains the main concepts about the research, as well as the main
authors and creators of the same. It is descriptive because in the
research there are tables that help to explain in a certain and simpler
way for the correct compression and differentiation of these concepts.
In view of the results and recommendations of this scientific research,
small and medium entrepreneurs in Mexico should urgently consider
what is proposed here, since with it they will be able to provide a better
service to their users, and a better service to their clients, which they
found throughout this investigation
Some users and consumers complain about customer service
in companies that have the need to offer a face-to-face service with the
user, such as supermarkets, automotive agencies or a bank branch, etc.
The problem has always existed, but unfortunately Mexican companies
do not care about providing quality customer service, if not all they are
interested in is selling, without taking into account if that customer was
satisfied with their product or with the attention offered by an advisor.
This is where the problems arise, when the client complains but does
not go beyond a simple complaint.
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In this type of situation, one of the main problems of
Mexicans is that they do not know how to complain or demand their
rights when they are given bad service. Godoy (2011), mentions that
today, customer service is an activity developed by organizations
oriented to satisfy the needs of their customers; achieving thus
increases their productivity and be competitive. The client is the main
protagonist and the most important factor in the business game (p. 4).
The present investigation will be applied to the Mexican
companies that grant a direct service with the client, like a
supermarket, automotive agency or some bank. The approach that is
intended to provide this research has to do with the factors that are
important for customer service such as: attention, empathy and service
attitude. The main limitation is that sometimes employees give bad
customer service due to several factors. The main one is the lack of
constant training and the low salaries they receive. However, they are
behaviors that must change immediately since modern consumers
demand a change and a good service, since they are paying for it.
It is in this sense that González (2010) mentions that a
common problem detected in all sectors is that, although there are high
productivity equipment or new production processes in the market that
use the most modern technologies, the small size of these companies
prevents them from accessing them. On the one hand, the investment is
too large and on the other, the production capacity of these equipment
exceeds the needs of the company (p. 2).
Taking into consideration the aforementioned problems, the
following research questions are required:
a. What is the level of customer service of Mexican companies
based on care service?
b. What is the level of customer service of Mexican companies
based on reliability?
c. What is the level of customer service of Mexican companies
according to capacity?
d. What is the level of customer service of Mexican companies
based on empathy?
It is clear that companies depend on their customers. The
good treatment of customers is the key to success to remain positioned
in the market. Having stability allows the business to cultivate
motivation for employees, helping it to have less turnover of staff. This
is very important since it does not create demotivation among them,
encouraging them to do things right the first time, and therefore always
providing a service or quality care.
2. RESEARCH OBJECTIVES AND
VARIABLES AND HYPOTHESES
2.1 Research Objectives
A. General objective
Measure the level of customer service of Mexican companies based on
customer care.
B. Specific objectives
1) Measure the level of customer service of Mexican
companies based on reliability.
2) Measure the level of customer service of Mexican
companies according to capacity.
3) Measure the level of customer service of Mexican
companies based on empathy.
2.2 Research Variables And Hypothesis
a. Independent variable (X) = Customer service
b. Dependent variable (Y) = customer care
General hypothesis
The customer service is directly related to offer good customer care.
Specific hypotheses
H1 = X1 + X2 + X3 Y1
The company, the customer and the service attitude are directly related
to reliability.
H2 = X1 + X2 + X3 Y2
The company, the client and the service attitude are directly related to
the capacity.
H3 = X1 + X2 + X3 Y3
The company, the client and the service attitude are directly related to
empathy.
Table 1: Description of research variables, dimensions and
indicators
VARIABLE DESCRIPTION DIMENSIONS INDICATORS
X0
Customer
service
Activity of
interrelation offered
by a supplier for the
purpose of a
customer obtaining a
product or service,
both at the time and
in the right place and
where it ensures a
correct use of it
(Agudelo, 2013, pp.
17-22)
Company
Client
Service attitude
Customer
retention
Buyer satisfaction
Customer loyalty
Customer rating
Accessible simple
Y0
Customer
care
It is an activity
developed by
organizations
oriented to satisfy
the needs of their
clients, thus
increasing their
productivity and
being competitive
(Godoy N.,
2011, pgs. 23-35)
Reliability
Capacity
Empathy
Service ability
Fulfill times
Willingness to
help
Efficiency
Goof treatment
kindness
Source: Own elaboration.
Therefore, the hypothesis of this research is that customer
service is directly related to offer good customer care. This data will be
split to develop in a more in-depth way what is a service and care like
as their differentiation between these concepts, considering that the
objective is to measure the level of customer service of Mexican
companies based on customer care.
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Source: Own elaboration.
Figure 1. Deployment of variables, dimensions, and hypotheses.
Table 2. Congruence matrix
General questions Specific questions General objective Specific objective
What is the level of customer service of
Mexican companies based on customer
care?
Measure the level of customer service of
Mexican companies in Reliability function
Is customer service directly
related to providing good
customer care?
What is the level of customer service of
Mexican companies based on reliability?
What is the level of customer service of
Mexican companies according to
capacity?
What is the level of customer service of
Mexican companies based on the
empathy?
Measure the level of
customer service of
Mexican companies in
customer care function.
Measure the level of customer service of
Mexican companies in customer service
function.
Measure the level of customer service of
Mexican companies in function of
empathy.
Source: Own elaboration
3. LITERATURE REVIEW
3.1 Theoretical Literature Review In order to define the variables of this research, it is first necessary to
begin by defining certain concepts that are basic, but necessary to
better understand what is being investigated. First of all, it begins by
defining what is a service, followed by what is a customer, to later
understand that it is "customer service". Stanton (2006) defines
services as identifiable and intangible activities that are the main
purpose of a transaction designed to provide customers with
satisfaction of wants or needs (pp. 333-334). Services are activities,
benefits or satisfactions that are offered for rent or sale, and which are
essentially intangible and do not result in the ownership of something
(Sandhusen, 2002, pp 385).
A service is the result of the application of human or
mechanical efforts to people or objects. Services refer to a fact,
performance or effort that is not physically possible (Hair, 2002, pp.
344).The Association (2006) mentions that services (according to one
of the two definitions they provide) are products, such as a bank loan
or the security of a domicile, that are intangible or at least
substantially, if they are totally intangible, they are exchanged directly
from the producer to the user, cannot be transported or stored, and are
almost immediately perishable.
Service products are often difficult to identify, because they
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come into existence at the same time they are purchased and
consumed. They cover the intangible elements that are inseparability;
which usually involve the participation of the client in a certain
important way. They cannot be sold in the sense of the transfer of
ownership; and they do not have any title. Today, however, most
products are partly tangible and partly intangible, and the dominant
form is used to classify them as goods or services (all are products).
These common, hybrid forms may or may not have the qualities given
for totally intangible services.
Kotler (2004) explains that
A service is a work, an accomplishment or an act that is
essentially intangible and does not necessarily result in
ownership of something. Its creation may or may not be related
to a physical product. Complementing this definition, it should
be noted that according to the mentioned authors, the services
cover a wide range, ranging from renting a hotel room,
depositing money in a bank, traveling by plane to visiting a
psychiatrist, up to cut the hair, watch a movie or get advice
from a lawyer. Many services are intangible, in the sense that
they do not include almost any physical element, such as the
task of the management consultant, but others may have a
physical component, such as fast foods (pp. 9-10).
The customer is the potential or actual buyer of the products
or services. The customer is a person or company that acquires goods
or services, not necessarily the final Consumer (Marketing, 2009)".
According to the Marketing Dictionary (1999) the customer is a term
that defines the person or organization that makes a purchase, may be
buying on their behalf, and personally enjoy the acquired good, or buy
for another, such as in the case of children's articles, it is the most
important part of the company's population (p. 54). Barquero (2007)
mentions that the word client comes from ancient Greek and refers to
the person who depends on. Customers are those people who have a
certain need for a product or service that my company can satisfy.
Kotler (2003) mentions some recommendations about what
is most valuable in any company. The products come and go. The
challenge for companies is focused on making their customers last
longer than their products. They have to consider more the concepts
life cycle of the market and life cycle of the client instead of the
product life cycle concept. Companies must consider their clients as an
asset that must be managed like any other asset of the company. If they
do not lend attention to their customers, some other company will do it
(pp. 8-9).
Customer care considers it as all the activities that unite an
organization with its clients (Inches, 1983, p. 4). In this definition, it is
emphasized that customer care is a range of activities that together
create a relationship. It can also be considered as the secondary
activities carried out by a company to optimize the satisfaction that the
client receives from its main activities.
The customer care can be broken down into three phases:
pre-sale, sale and after-sales. Studying and defining each one of them
allows identifying the orientation that the activities should have at each
moment of the consumer's buying cycle (Herrera, 2005, p. 2).
According to the author, the pre-sale customer care consists in offering
the potential customer the products he wants, the best qualities, the
most pleasant and clear presentation and the best possible price. The
activity in the sale stage is based on providing all possible information
about the product sold, way of use, medium for support and
maintenance or other aspects such as the delivery mode of the product.
In post-sales, it concentrates on the application of actions to allow the
customer to be satisfied with the product, even better proud of its
purchase, motivated to buy back, enabled to make easily any
guarantee, exchange by default and find the precise technical support.
Let's start by defining what is the attention to easily
understand what customer care is. Attention: Kahmeman (1973)
explains that the concept of attention implies the existence of a control
by the organism, of the choice of the stimuli that, in turn, will control
its conduit, being the attention something more than a mere selection,
which is also related to quantity or intensity. The author considers that
both the voluntary and the involuntary selection must take into account
the intensive aspects of care (p. 2). Prieto (2001) mentions that
customer care is the set of activities developed by market-oriented
organizations, aimed at identifying the needs of customers in the
purchase to satisfy them, thus achieving to meet their expectations, and
therefore, create or increase the satisfaction of our customers (p. 168).
To carry out a successful customer service policy, the
company must have sources of information about a target market and
the behavior of its consumers. The fact of knowing the origins and
needs of these expectations will, subsequently, convert them into
demand. To determine this, periodic surveys should be conducted to
identify the possible services that will be offered and determine the
strategies and techniques that may be used. Customer care is the set of
benefits that the customer expects as a result of the image, price and
reputation of the product or service it receives (Prieto, 2007, p. 232).
The psychologist Frederick Herzberg proposed the theory of
motivation-hygiene. In the belief that the relationship of an individual
with his work is basic, and that his attitude towards this work may well
determine the success or failure of the individual, Herzberg
investigated the question What do people want from their position? He
asked people to describe in detail situations where he felt exceptionally
well and badly in his position. According to Herzberg, the factors that
lead to job satisfaction are separate and distinct from those that lead to
job dissatisfaction. Therefore, administrators who seek to eliminate
factors that create dissatisfaction in the position can bring peace, but
not necessarily motivation. They will be appeasing their work force,
instead of motivating it.
As a result, Herzberg has indicated that characteristics such
as company policies and administration, supervision, interpersonal
relationships, working conditions and salaries can be conceptualized as
hygiene factors. When they are adequate, people will not be
dissatisfied; however, neither will be satisfied. If wanted to motivate
people in their position, Herzberg suggests emphasizing achievements,
recognition, work itself, responsibility and growth (Herzberg, 1968).
His studies covered all areas of the company, since it was
very important for Fayol both to sell and produce, to finance himself
and to secure the assets of a company. In short, the organization and its
components were considered as a large interdependent system, as
internal customers. Fayol, in his functional and systemic analysis of
the organizations, found certain operations that were repeated in any
type of companies, which were necessary for the achievement of their
objectives.
Later, this study translated into a deeper analysis regarding
the division of labor within current organizations. For Fayol,
administration is a common activity for any type of business, for-profit
and non-profit organizations, political, sports, religious or
entertainment organizations, etc., and it plays a very important role in
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society. Every company needs to apply a methodology in its actions,
and the administrative process is undoubtedly that methodology that is
required for the solution of the problems that arise in any organization
(Fayol, 1976).
The theory X is based on the old model of threats and the
presumption of mediocrity of the masses. It is assumed that individuals
have a natural tendency to leisure and that work is a form of
punishment, which presents two urgent needs for the organization:
supervision and motivation. (McGregor, 1960).The managers of
Theory Y consider that their subordinates find in their employment a
source of satisfaction and that they will always strive to achieve the
best results for the organization, thus, companies must release the
skills of their workers in favor of said results.
The theory that has relation with the investigation is the
classic theory of the Administration Henry Fayol, since it deepened in
the excellence of the companies generating utilities to the company, as
well as the creation of tools or processes to carry out the correct
function of the company (McGregor, 1960).
The theories pertaining to the variable customer care are
described below.
Before Taylor's proposals, workers were responsible for
planning and executing their work. They were entrusted with
production and were given the freedom to carry out their tasks in the
way they believed was correct. The author describes it this way:
managers and workshop leaders know better than anyone that their
own knowledge and personal skills are far below the combined
knowledge and skill of all the men under their command. Therefore,
even managers with more experience leave their workers the problem
of selecting the best and most economical way of doing the job. Hence,
its principles seen in their historical perspective, represented a great
advance and a new approach, a tremendous innovation in front of the
system (Taylor, 1973).
The theory of the two factors was formulated by Herzberg in
the field of job satisfaction. According to this well-known theory, there
are factors that determine job satisfaction and other very different
factors that determine job dissatisfaction. The hygienic factors,
production, dissatisfaction if its level is insufficient, but will not
produce satisfaction if its level is sufficient. On the contrary, the
growth factors will generate satisfaction when their level is sufficient,
but they do not generate dissatisfaction when their level is insufficient.
In this sense, satisfaction and dissatisfaction would not be
polar opposites of the same continuum, as maintained by the traditional
theory, according to which any factor can produce satisfaction or
dissatisfaction depending on the level it reaches and the importance it
has for each person, but there would be a double continuum in which
the opposite of dissatisfaction would not be satisfaction, but the
absence of dissatisfaction, and the opposite of satisfaction would not
be dissatisfaction, but the absence of satisfaction.
Table 3: Theories of customer service.
Theory Author Principles
Theory of Motivation
Hygiene by Frederick
Herzberg
Frederick Herzberg In the belief that the relationship of an individual with his work is basic, and that his attitude
towards this work may well determine the success or failure of the individual, Herzberg has
indicated that characteristics such as the policies and the administration of the company, the
supervision, the interpersonal relations, the working conditions and the salaries can be
conceptualized as factors of hygiene. When they are adequate, people will not be dissatisfied;
however, neither will be satisfied (Herzberg, 1968).
Classic Theory of
Administration
Henry Fayol For Fayol, it was very important to sell and produce, to finance and to secure the assets of a
company. In short, the organization and its components were considered as a large interdependent
system, as internal customers.
Every company needs to apply a methodology in its actions, and the administrative process is
undoubtedly that methodology that is required for the solution of the problems that arise in any
organization (Fayol, 1976).
The theory x and the
theory Y
Douglas Murray
Mcgregor
Theory X: It is based on the old model of threats and the presumption of mediocrity of the masses. It
is assumed that individuals have a natural tendency to leisure and that work is a form of punishment.
(McGregor, 1960, pp. 133-144), Theory Y: Considers that their subordinates find in their
employment a source of satisfaction and that they will always strive to achieve the best results for
the organization, thus, companies must release the skills of its workers in favor of these results
(McGregor, 1960, p. 22).
Source: Own elaboration.
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Table 4: Review of customer care theories
Theory
Author Principles
Theory of
Administration
Frederick Taylor His main contribution was to demonstrate that the scientific Administration is not a group of
efficiency techniques or incentives but a philosophy by virtue of which the management
recognizes that its objective is to scientifically seek the best methods of work through of
entertainment and times and movements (Taylor, 1973).
Theory of the two
factors of the
satisfaction in the
job
Frederick
Herzberg
There are some factors that determine the job satisfaction and other factors very different that
determine the labor dissatisfaction (Herzberg, 1968, p. 103-106). The hygienic factors,
production, dissatisfaction if your level is insufficient, but they will not produce satisfaction if
their level is enough. On the contrary, growth factors will generate satisfaction when your level is
enough, but they do not generate dissatisfaction when your level is insufficient (Herzberg, 1968).
Source: Own elaboration
3.2 Empirical Literature Review
Table 5. Empirical review of the service literature and customer service
Authors
(Year)
Research title Context Method or instrument used Results and findings
Fonseca
(2008)
Improvement
proposal for the
customer
service of the
Unipharm
group in
Bogotá.
It proposes the design of an
improvement proposal in the
customer service of the company
Group Unipharm Bogotá based on
a prior evaluation of the same. This
evaluation is carried out in order to
establish satisfaction levels, the
quality of the service and the
general perception of the current
clients of the company.
A semi-structured survey whose
purpose is to measure the
satisfaction of the external client
by means of closed questions that
allow establishing the needs and
expectations and satisfaction
indexes.
The evaluation indicators related
to the attitudes of employees at a
general level are located at a good
level of satisfaction, however they
are perceived. Acceptable levels in
the availability and quality of
information.
Pinzon
(2015)
Quality of service
and value in
intermodal freight
transport.
The service environment in which
this work focuses is the logistics
sector, and more specifically
freight transport services
The interest in this doctoral thesis
for the study of service variables in
this specific sector has its origin in
the same motivation from which
the PREVITRANS project arose,
project in which this research is
framed
The questionnaire was designed
and elaborated.
First, a description of the
structure is presented of the
questionnaire that allows
identifying which will be the
main blocks. Second, the authors
deepened the literature review of
measurement scales and defined
the sets of specific indicators for
each of the constructs that should
be evaluated.
The different approaches to the
academic study of both the
transport of goods by road and
the maritime. From a marketing
perspective, they converge in the
interest to explain how the
relationships between loader
companies and providers of
logistics services or specifically
transport work, emphasizing the
key elements that allow
succeeding in said relations.
Source: Own elaboration
3.3 Contextual Framework The National Institute of Statistics and Geography (INEGI 2015)
indicates the following within the framework of the presentation of the
National Statistical Directory of Economic Units (DENUE), that there
are 4 million 926 thousand161 of companies in Mexico. These
economic units represent 87 percent of all those reported in the 2014
INEGI Economic Census. The institute indicated that 2 million 825
thousand 272 companies were already registered in the previous
version of the DENUE, while 2 million 100 thousand 789 of remaining
businesses were incorporated in this version. On the other hand, of the
4 million 410 thousand 199 economic units that were registered in the
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Interactive DENUE 10/2013, a total of one million 584 thousand 927
businesses were closed, which closed or suspended activities.
According to this report, the estimation, although
preliminary, corresponds to an analysis of the general situation of all
the companies, since the life expectancy of a business varies depending
on the turn and its size. It is important to note that the report revealed
that Mexican companies have an average life of 7.7 years, this
according to INEGI estimates and their economic censuses taken every
5 years.
The new directory can be consulted through a mobile
application, which shows all the information of the economic units
registered on top of the geographic and demographic maps found on
the agency's portal. Below is a graph in which it can be seen the life
expectancy of companies in Mexico in its 100 main municipalities.
Life expectancy at birth of business in the 100 main municipalities
Figure 2: Life expectancy of companies in Mexico.
Source: INEGI. (2017) Economic Censuses 1989, 1994, 1999, 2004, 2009 and 2014.
To have a clearer idea of this research, the following tables are presented by sector.
Table 5: Food sector
Position Business
1 Grupo Bimbo
2 Nestlé
3 Grupo Herdez
4 Kellogg’s
5 Bachoco
6 La Costeña
7 Gruma
8 Mondélez
9 Ferrero de México
Source. Own elaboration.
Table 6: Insurance sector
Position Business
1 Metlife
2 Mapfre
3 Allianz
4 Axa
5 Qualitas
6 Zurich
Source. Own elaboration.
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Table 7: Automobile sector.
Position Business
1 General Motors
2 BMW
3 Nissan
4 Ford Motor Company
5 Volkswagen
6 Honda
7 Toyota
8 FCA
9 Mercedes Benz
10 Mazda
Source: Own elaboration.
Table 8. Auto services and departmental services
Position Business
1 Liverpool
2 Walmart
3 Marti
4 Comercial Mexicana
5 Soriana
6 Coppel
7 Chedrahui
8 Grupo Famsa
9 Costco
Source: Own elaboration.
As shown above, the most important companies in
Mexico in their different segments are listed.
Table 9: Description of the variables, dimensions, indicators, instrument operationalization of variables and statistical analysis of
research.
Variables Description Dimensions Indicators Instrument Operationalization of
variables
Statistical
analysis
X0
Customer
service
That activity of
interrelation offered by a
supplier with the purpose
that a client get a product
or service, both at the
time and in the precise
place and where it is
ensured a correct use of it
(Agudelo, 2013, p. 17-
22).
Company
Client
Survive
attitude
Customer retention
Buyer satisfaction
Customer loyalty
Customer rating
Accessible simple
Descriptive
bibliographic
al analysis
Information is
collected from expert
authors, internationally
recognized. To contrast
with the variable.
Tables
Bar
graphs
YO
Care
service
"It is an activity
developed by
organizations with a focus
on meeting the needs of
their clients, thus
increasing their
productivity and being
competitive" (Godoy N.,
2011, pp. 23-
35)
Reliability
Capacity
Service ability
Fulfill times
Willingness to help
Efficiency
Empathy
Good treatment
kindness
Descriptive
bibliographical
analysis
Information is
collected from expert
authors, internationally
recognized. To contrast
with the variable
Customer Service
Boards
Picture
Bar
graphs
Source: Own elaboration.
4. RESEARCH METHOD
This research is analytical and descriptive, because it contains the
main concepts about the research, as well as the main authors and
creators of the same. It is descriptive because in the research there
are tables that help to explain in a certain simpler way for the
correct compression and differentiation of these concepts.
This research is analytical and descriptive, because it contains the
main concepts about research, as well as the main authors and
creators of the same. It is descriptive because in the research there
are tables that they help to explain in a simpler and simple way for
their correct and easy understanding of these concepts, as well as
the differentiation between them.
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5. FINDINGS AND DISCUSSION
The hypothesis of this research is that customer service has an impact
or direct relationship with customer care. At first glance, it could be
said that the definition of both concepts is similar, but in this research
it shows that this is not the case, since there is a small difference
between these concepts. The main difference is that many times a
service is provided by a system or a company, and attention is given by
a human being, and when these are combined in an appropriate
manner, the hypothesis of this work is verified, that customer service
has an impact on customer care.
This research corroborates what Hair (2002) mentions that a
service is the result of the application of human or mechanical efforts
to people or objects. Services refer to a fact, performance or effort that
is not physically possible (pp.344). Being in this way that the service
can be manipulated by the attention that a human being uses on the
service rendered, giving it a "plus" making the service better than it
already is, or simply improving it.
The findings of this research is that you can verify that there
is a noticeable difference between the variables, and with this that
employers can understand the difference of these two important
concepts, so they can apply them correctly to obtain customer loyalty,
since it is easier to retain a client than to attract a new one.
This research provides small and medium entrepreneurs with
knowledge of vital importance for their organizations, since this work
understands the importance and difference between a service and
attention, and once understood that can better train their staff to obtain
better results in their companies.
This research is mainly aimed at small and medium-sized
Mexican entrepreneurs. These are abundant in Mexico because they do
not care much if their clients are satisfied with the services and
attention provided by their part of their staff, and with this research it
can be understood the importance and the difference that exists
between both.
6. CONCLUSIONS AND
RECOMMENDATIONS
Within this research it is important to point out that the personnel of
each company must be prepared and psychologically trained to be able
to perform the position in which they are working, since with that they
will be able to perform their work better. Consequently, the employee
unconsciously gives a good service, followed by good customer care,
since today's companies must pay more attention to how they provide
their services, using the marketing techniques and strategies necessary
to implement these changes.
In addition to that, the business competitiveness of today is
very big. That is why these entrepreneurs must implement new
strategies, starting with better training their staff, and investing in
marketing strategies that exist some very economic, such as having a
presence on social networks, or have certain promotions to better retain
their customers.
The recommendations of this research are that some service
companies do not give due importance to the difference between both
variables, and it should be noted that they take it as if they were the
same, which was found in this research that there is a difference.
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