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VOLUME NO.1(2010),ISSUE NO.8(DECEMBER) ISSN0976-2183

IIINNNTTTEEERRRNNNAAATTTIIIOOONNNAAALLL JJJOOOUUURRRNNNAAALLL OOOFFFRRREEESSSEEEAAARRRCCCHHH IIINNNCCCOOOMMMMMMEEERRRCCCEEEAAANNNDDD MMMAAANNNAAAGGGEEEMMMEEENNNTTT

AMonthlyDoubleBlindPeerReviewedRefereedOpenAccessInternationaleJournal IncludedintheInternationalSerialDirectories

GroundFloor,BuildingNo.1041C1,DeviBhawanBazar,JAGADHRI135003,YamunaNagar,Haryana,INDIA

www.ijrcm.org.in

CONTENTS

Sr.No. Title&NameoftheAuthor(s) PageNo.

1. OPERATIONSRISKMANAGEMENTINCENTRALIZEDPROCESSINGUNITSTHENEEDTOCREATEANOPERATIONAL

DIAGNOSTICSMODELFORINTERNATIONAL/OUTSOURCED/CENTRALIZEDOPERATIONUNITS

GARIMELLABHASKARNARASIMHARAO&GABRIELVIJAYPAULHEDGE

6

2. VALUERELEVANCEOFACCOUNTINGINFORMATION:EVIDENCEFROMSRI LANKA

CHANDRAPALAPATHIRAWASAM

13

3. RECENTTRENDSANDDEVELOPMENTSINAPPARELMARKETINGININDIA

DR.K.RAJESHKUMAR,MR.C.KANDASAMY&N.MANJUNATH

21

4. PERFORMANCE MEASUREMENT OF MUTUAL FUNDS IN INDIA IN THE POST LIBERALIASATION ERA AN

ECONOMICREVIEW(ASTUDYBASEDONSAMPLEOF100ACTIVELYTRADEDOPENENDEDFUNDSWITHGROWTH

OPTION)

DR.BIMALJAISWAL&NAMITANIGAM

26

5. DETERMINANTSOFCAPITALSTRUCTURE:ANEMPIRICAL STUDYOFINDIANCOMPANIES

DR.JAGANNATHPANDA&DR.ASHOKKUMARPANIGRAHI

41

6. INFLUENCEOFSTRESSONITPROFESSIONALS THEGOLDCOLLARS ANINDIANPERSPECTIVE

BEULAHVIJICHRISTIANA.M&DR.V.MAHALAKSHMI

55

7. A STUDY OF THE ISSUES OF BORROWERS AND COMMERCIAL BANKS IN SANCTIONING AND RECOVERY OF

HOUSINGLOANS

DR.L.RAJANI&PROF.P.MOHANREDDY

61

8. INVESTORSPERCEPTIONABOUTINTERNETSTOCK TRADINGACONSTRAINTANALYSIS

DR.V.SELVAM

71

9. DUAL CAREER AND ITS EFFECT ON RELATIONSHIPS: A STUDY OF GOVERNMENT AND PRIVATE ACADEMIC

INSTITUTES

DR.HIMANISHARMA

76

10. INDIASINTERNATIONALTRADEDURINGGLOBALRECESSION

MRS.JAYASHREEPATILDAKE&MRS.SWATIMATHUR

83

11. DOESINDIANEQUITYMARKETFOLLOWRANDOMWALKS?EVIDENCEFROM THENATIONALSTOCKEXCHANGE

P.SRINIVASAN

88

12. NPAsINHOMELOAN:ASURVEY(WITHSPECIALREFERENCETOSELECTEDDISTRICTSOFODISHA)

DR.IPSEETASATPATHY,DR.B.C.M.PATNAIK&PRAKASHKUMARPRADHAN

95

13. WORDOFMOUTHMARKETING(WOMM):ACONCEPTUALFRAME WORK

DR.CH.VENKATAIAH

106

14. WORKINGCAPITALMANAGEMENT:POLICIESAND PRACTICESATSAREGAMAINDIALIMITED

DRT.KOTIREDDY&RAGHAVBAHETI

109

15. IMPACTOFFINANCIALREFORMSONBANKINGSECTOR EVIDENCEFROMINDIA

HARESHBAROT

120

16. ANOVERVIEWOFFINANCIALRATIOSFROM1900STILLPRESENTDAY

MRS.SANOBARANJUM

126

17. SOCIOECONOMICCONTRIBUTIONOFINDIANDIASPORASTOHOMELAND:EMPHASISONITINDUSTRIESDEEPTIGUPTA&DR.RENUTYAGI

131

18. CONTRIBUTIONOFHOFSTEDESCULTUREMODEL TOINTERNATIONALBUSINESS

DR. DEVINDERPALSINGH

136

19. MARKETSEGMENTATIONINFMCG:TIMETODERIVENEWBASISFORMARKETSEGMENTATION

AMANDEEPSINGH

140

20 EMPOWERMENTOFWOMENTHROUGHMICROFINANCE:ABOONFORDEVELOPMENTOFECONOMY

DR.SHEFALIVERMATHAKRAL,NITIMAUPPAL&ESHACHAWLA

146

REQUESTFORFEEDBACK 151


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INTERNATIONALJOURNALOFRESEARCHINCOMMERCE&MANAGEMENTAMonthlyDoubleBlindPeerReviewedRefereedOpenAccessInternationaleJournal IncludedintheInternationalSerialDirectories

www.ijrcm.org.in

2

CHIEF PATRON

PROF.K.K.AGGARWALFounderViceChancellor,GuruGobindSinghIndraprasthaUniversity,Delhi

Ex.ProViceChancellor,GuruJambheshwarUniversity,Hisar

PATRON

SH.RAMBHAJANAGGARWALEx.StateMinisterforHome&Tourism,GovernmentofHaryana

VicePresident,DadriEducationSociety,CharkhiDadri

President,ChinarSyntexLtd.(TextileMills),Bhiwani

CO ORDINATOR

DR.SAMBHAVGARGFaculty,M.M.InstituteofManagement

MaharishiMarkandeshwarUniversity,Mullana,Ambala,Haryana

ADVISORS

PROF.M.S.SENAMRAJUDirectorA.C.D.,SchoolofManagement Studies,I.G.N.O.U.,NewDelhi

PROF.M.N.SHARMAChairman,M.B.A.,HaryanaCollegeofTechnology&Management,Kaithal

PROF.PARVEENKUMAR

Director,M.C.A.,MeerutInstituteofEngineering&Technology,Meerut,U.P.

PROF.H.R.SHARMADirector,ChhatarpatiShivajiInstituteofTechnology,Durg,C.G.

PROF.S.L.MAHANDRUPrincipal(Retd.),MaharajaAgrasenCollege,Jagadhri

PROF.MANOHARLALDirector&Chairman,SchoolofInformation&ComputerSciences,I.G.N.O.U.,NewDelhi

EDITOR

PROF.R.K.SHARMATecniaInstituteofAdvancedStudies,Delhi

CO EDITOR

DR.ASHOKKHURANAAssociateProfessor,G.N.KhalsaCollege,Yamunanagar

EDITORIAL ADVISORY BOARD

DR.AMBIKAZUTSHIFaculty,SchoolofManagement &Marketing,DeakinUniversity,Australia

DR.VIVEKNATRAJANFaculty,LomarUniversity,U.S.A.

PROF.SANJIVMITTALUniversitySchoolofManagement Studies,GuruGobindSinghI.P.University,Delhi

PROF.SATISHKUMARDirector,VidyaSchoolofBusiness,Meerut,U.P.

PROF.ROSHANLALM.M.InstituteofManagement,M.M.University,Mullana

PROF.ANILK.SAINIChairperson(CRC),GuruGobindSinghI.P.University,Delhi

DR.TEJINDERSHARMAReader,KurukshetraUniversity,Kurukshetra

DR.KULBHUSHANCHANDELReader,HimachalPradeshUniversity,Shimla,HimachalPradesh

DR.ASHOKKUMARCHAUHANReader,DepartmentofEconomics,KurukshetraUniversity,Kurukshetra

DR.SAMBHAVNAFaculty,I.I.T.M.,Delhi

DR.MOHINDERCHANDAssociateProfessor,KurukshetraUniversity,Kurukshetra


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DR.MOHENDERKUMARGUPTAAssociateProfessor,P.J.L.N.GovernmentCollege,Faridabad

DR.VIVEKCHAWLAAssociateProfessor,KurukshetraUniversity,Kurukshetra

DR.VIKASCHOUDHARYAsst.Professor,N.I.T.(University),Kurukshetra

DR.SHIVAKUMARDEENEAsst.Professor,GovernmentF.G.CollegeChitguppa,Bidar,Karnataka

ASSOCIATE EDITORS

PROF.NAWABALIKHANDepartment ofCommerce,AligarhMuslimUniversity,Aligarh,U.P.

PROF.ABHAYBANSALHead,Department ofInformationTechnology,AmitySchoolofEngineering&Technology,AmityUniversity,Noida

DR.PARDEEPAHLAWATReader,InstituteofManagement Studies&Research,MaharshiDayanandUniversity,Rohtak

SURUCHIKALRACHOUDHARYHead,Department ofEnglish,HinduGirlsCollege,Jagadhri

PARVEENKHURANAAssociateProfessor,MukandLalNationalCollege,YamunaNagar

SHASHIKHURANA

AssociateProfessor,S.M.S.KhalsaLubanaGirlsCollege,Barara,AmbalaSUNILKUMARKARWASRA

VicePrincipal,DefenceCollegeofEducation,Tohana,Fatehabad

BHAVETLecturer,M.M.InstituteofManagement,MaharishiMarkandeshwarUniversity,Mullana

TECHNICAL ADVISORS

DR.ASHWANIKUSHHead,ComputerScience,UniversityCollege,KurukshetraUniversity,Kurukshetra

DR.BHARATBHUSHANHead,DepartmentofComputerScience&Applications,GuruNanakKhalsaCollege,Yamunanagar

DR.VIJAYPALSINGHDHAKAHead,Department ofComputerApplications,InstituteofManagement Studies,Noida,U.P.

DR.ASHOKKUMAR

Head,DepartmentofElectronics,D.A.V.College(Lahore),AmbalaCityDR.ASHISHJOLLYHead,ComputerDepartment,S.A.JainInstituteofManagement &Technology,AmbalaCity

MOHITALecturer,YamunaInstituteofEngineering&Technology,VillageGadholi,P.O.Gadhola,Yamunanagar

AMITALecturer,E.C.C.,Safidon,Jind

MONIKAKHURANAAssociateProfessor,HinduGirlsCollege,Jagadhri

ASHISHCHOPRASr.Lecturer,DoonValleyInstituteofEngineering&Technology,Karnal

SAKETBHARDWAJLecturer,HaryanaEngineeringCollege,Jagadhri

NARENDERASINGHKAMRA

Faculty,J.N.V.,Pabra,HisarDICKINGOYAL

Advocate&TaxAdviser,Panchkula

NEENAInvestmentConsultant,Chambaghat,Solan,HimachalPradesh

LEGAL ADVISORS

JITENDERS.CHAHALAdvocate,Punjab&HaryanaHighCourt,ChandigarhU.T.

CHANDERBHUSHANSHARMAAdvocate&Consultant,DistrictCourts,YamunanagaratJagadhri


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CALLFORARTICLES/RESEARCH PAPERS

We invite original research papers in the area of computer, finance, marketing, HRM, Banking, Insurance, and other allied

subjects. The above mentioned tracks are only indicative, and not exhaustive. Thejournal expects unpublished and original

qualityresearcharticles/papersonly.

Youmaysubmityourarticles/papersattheemailaddresses,[email protected]@gmail.com.

GUIDELINESFORSUBMISSIONOFARTICLE/PAPER

1. COVERINGLETTERFORSUBMISSION:

TheEditor

IJRCM

Subject:SubmissionofManuscript.

DearSir/Madam,

Findmysubmissionofresearchpaper/articleforpossiblepublicationsinyourejournal.

Iherebyaffirmthatthecontentofthismanuscriptareoriginal.Furthermore ithasbeenneitherpublishedelsewherefullyorpartiallyorany

languagenorsubmittedforpublication(fullyorpartially)elsewheresimultaneously.

Iaffirmthattheallauthor(s)haveseenandagreedtothesubmittedversionofthepaperandtheirinclusionofname(s)ascoauthor(s).

Also, if our research paper/article accepted, I/We agree to comply with the formalities as given on the website ofjournal & you are free to

publishourcontributiontoanyofyourtwojournalsi.e.InternationalJournalofResearchinCommerce&ManagementorInternationalJournal

ofResearchinComputerApplication&Management..

NameofCorrespondingAuthor(s)

Designation:

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2. INTRODUCTION:ManuscriptmustbeinEnglishpreparedonastandardA4sizepapersetting.Itmustbepreparedonadoublespace

andsinglecolumnwith1marginsetfortop,bottom,leftandright.Itshouldbetypedin12pointTimesNewRomanFontwithpagenumbers

atthebottomandcentreoftheeverypage.

3. MANUSCRIPT TITLE: The title of the paper should be in a 12 point Calibri Font. It should be bold typed, centered and fully

capitalised.

4. AUTHOR NAME(S) & AFFILIATIONS: The author (s) full name, designation, affiliation (s), address, mobile/landline numbers, and

email/alternateemailaddressshouldbein12pointCalibriFont.Itmustbecenteredunderneaththetitle.

5. ABSTRACT: Abstract should be in fully italicized text, not exceeding 300 words. The abstract must be informative and explain

background,aims,methods,resultsandconclusion.

6. KEYWORDS:Abstractmustbefollowedbylistofkeywords,subjecttothemaximumoffive.Theseshouldbearrangedinalphabetic

orderseparatedbycommasandfullstopattheend.

7. HEADINGS:Alltheheadingsandsubheadingsshouldbeina10pointCalibriFont.Thesemustbeboldfaced,alignedleftandfully

capitalised.Leaveablanklinebeforeeachheading.

8. MAINTEXT:Themaintextshouldbeina8pointCalibriFont,singlespaced,fullyjustified.

9. FIGURES&TABLES:Thesemustbesimple,centered&numbered,andtabletitlesmustbeabovethetables.Sourcesofdatashould

bementionedbelowthetable.

10. REFERENCES: The list of all references should be alphabetically arranged. The author (s) should mention only the actually utilised

references in the preparation of manuscript and they are supposed toHarvard Style of Referencing. The list of all references should be


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alphabetically arranged. The author (s) should mention only the actually utilised references in the preparation of manuscript and they are

supposedtofollowthereferencesasperfollowing:

Allworkscitedinthetext(includingsourcesfortablesandfigures)shouldbelistedalphabetically.

Use(ed.)foroneeditor,and(ed.s)formultipleeditors.

When listing two or more works by one author, use (20xx), such as after Kohl (1997), use (2001), etc, in chronologicallyascendingorder

Indicate(openingandclosing)pagenumbersforarticlesinjournalsandforchaptersinbooks.

Notethatitalicsareusedonlyfortitlesofbooksandnamesofjournals.Doublequotationmarksareusedfortitlesofjournalarticles,bookchapters,dissertations,reports,workingpapers,unpublishedmaterial,etc.

FortitlesinalanguageotherthanEnglish,provideanEnglishtranslationinparentheses.

Useendnotesratherthanfootnotes.

Thelocationofendnoteswithinthetextshouldbeindicatedbysuperscriptnumbers.

ForsourceswhichhaveinsufficientdetailstobeincludedintheReference,useendnotes(suchasinterviews,somemediasources,someInternetsources).

SEETHEFOLLOWINGFORSTYLEANDPUNCTUATIONINREFERENCES:

Books

Bowersox,DonaldJ.,Closs,DavidJ.,(1996),"LogisticalManagement."TataMcGraw,Hill

Hunker,H.L.andA.J.Wright(1963),"FactorsofIndustrialLocationinOhio,"OhioStateUniversity.

Contributionstobooks

Sharma T., Kwatra, G. (2008) Effectiveness of Social Advertising: A Study of Selected Campaigns, Corporate Social Responsibility,EditedbyDavidCrowther&NicholasCapaldi,AshgateResearchCompaniontoCorporateSocialResponsibility,Chapter15,pp287303.

Journalandotherarticles

Schemenner, R.W., Huber, J.C. and Cook, R.L. (1987), "Geographic Differences and the Location of New Manufacturing Facilities,"JournalofUrbanEconomics,Vol.21,No.1,pp.83104.

Kiran Ravi, Kaur Manpreet (2008), Global Competitiveness and Total Factor Productivity in Indian Manufacturing, InternationalJournalofIndianCultureandBusinessManagement,Vol.1,No.4pp.434449.

Conferencepapers

Chandel K.S. (2009): "Ethics in Commerce Education." Paper presented at the Annual International Conference for the All IndiaManagement Association,NewDelhi,India,1922June.

Unpublisheddissertationsandtheses

KumarS.(2006):"CustomerValue:AComparativeStudyofRuralandUrbanCustomers,"Thesis,KurukshetraUniversity.

Onlineresources

Alwaysindicatethedatethatthesourcewasaccessed,asonlineresourcesarefrequentlyupdatedorremoved.

Website

Kelkar V. (2009): Towards a New Natutal Gas Policy, Economic and Political Weekly, Viewed on 11 September 2009http://epw.in/epw/user/viewabstract.jsp


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OPERATIONSRISKMANAGEMENTINCENTRALIZEDPROCESSINGUNITS

THENEEDTOCREATEANOPERATIONALDIAGNOSTICSMODELFORINTERNATIONAL/

OUTSOURCED/CENTRALIZEDOPERATIONUNITS

GARIMELLABHASKARNARASIMHARAO

INSTRUCTORCOMMERCIALSTUDIESDEPARTMENT

BAHRAINTRAININGINSTITUTE

B.109,R.4109,BL.841.

ISATOWN

KINGDOMOFBAHRAIN

GABRIELVIJAYPAULHEDGE

PROGRAMMEMANAGER

FINANCEANDACCOUNTINGSTUDIES

BAHRAINTRAININGINSTITUTE

B.109,R.4109,BL.841.

ISATOWN

KINGDOMOFBAHRAIN

ABSTRACTThemotivationforthisresearchistoproposeanewmodeltodepicttheoperationsframeworkasasetofnodes/activitiesandrelations.Upon

centralization,asubsetofnodes/activitieswouldberemovedfromtheinitialframework.Thisstudyencompassesthecomparisonofoperations

efficiencyoffirmswith adominant CPU (Captive/ ThirdParty) and emphasizes theneed to coordinate a complexmultitudeofhorizontal,

collaborativeinterfirmrelations. Thispaperwouldshedanewlightontheneedforincreasingefficiencyofoutsourcedfunctions,formulating

effectivecontrol&monitoringstrategies,pricing,beingabletorespondtochangingmarketconditions,processingtransactionscosteffectively,

resolving inquiries quickly, andmoving to support the growing customer demands.After two decades of rapid growth in centralization/

outsourcing,seniormanagersnowemphasizerefining,rationalizingand integratingoperationstechnologyarchitecturestosupport improved

globalfinancialriskmanagement,bettercapitalutilization,andhighertransactionvolumes.Thisstudyalsoexamineshowseniormanagerscan

accomplish these goals by reengineeringpremigrationprocedures, transitioningmethodology andpostmigration activities. Itpresents a

frameworkthatutilizesbasicconceptsfrommanagementscienceandmicroeconomicsto illustratethevarietyof impactsthatreengineering

canhaveonimprovingfirmrevenuesandcontrollingorreducingcosts.Italsopresentsaseriesofmanagerialrecommendationsbasedonthe

framework.

KEYWORDSBusinessProcessOutsourcing,FinancialRiskManagement,OperationsRiskManagement.

KEYTHEMESOFTHISPAPER To run Centralized Operations Units (CPUs) in an efficient and effective manner in an ever increasing legal and regulatory

complianceframe.

Plan the unit on an open platform that assists and accommodates enhancements in a cost efficient manner. (be it systems,

processes,optimizingworkforce,managingattrition almosteverythingthathasadollarimpact)

To have a better daytoday oversight by way of MIS generation, regulatory reporting, compliance adherence and wealth

maximization.

Amongst contemporary business environments, intraorganizational alliances and networks are promoted as a means of: accessing scarce

resources,fasttrackingthedevelopmentofnewcapabilities;sharingthecostsandrisksofinnovationandrespondingtotheemergenceofnew

competitivethreats.Withinthevarietyofcollaborativeforms,outsourcingalliancescontinuestogrowrapidly,withboththescopeanddepth

ofservicesincreasingglobally.Estimatesofoutsourcingindustrysizeandgrowthvary,butincludepredictionsandglobaldemandforBusiness

ProcessOutsource(BPO)servicesofapproximately$US173billionbyend2007(Gartner,2004).Inaddition,offshoringisestimatedtoreach

nearly$US18Billionin2005(Qu&Brocklehurst2003,p53).However,thereisalsogrowingevidenceoffailureamongstthesearrangements,

initiatingarenewedconcernaboutthemechanismsthatgovernandcontrol interorganizationalnetworksandalliances(LangfieldSmithand

Smith, 2003; Dekker; 2004). In relation to outsourcing alliances, there is significant customer dissatisfaction (Barthelemy, 2001; PA, 2004).

Major sources of this include: limited understanding of the product, process & systems at the centralized / outsourced partner, untrained

personnelservicinghighnetworthcustomers&dilutedcontrols&monitoringfunctions.Theinabilitytodeliveronpromiseswhereoverhalf

ofbenefitsratedashighly importanthadnotbeenfullyrealized(PA,2004p6);and, increasedrisk(Willcocks&Lacity,1999).Theefficacyof

control and coordination of outsourcing alliances is thus of concern to practitioners and researchers alike. However, despite a significant

amountofresearchonthetopic,anumberofgapsstillexistintheliterature.Thisstudyinvestigatesthesegaps,specificallytheoneswithinthe


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OperationsManagement functionand attemptstocharacterizethe relationshipandtheneedforseparation ofoperations managementand

realriskmanagement andframesamodel(hypothetical)whichcanassistlargefinancialorganizations

NEEDFORTHESTUDYThestrategicimportanceofoutsourcingintodaysbusinessenvironmenthasbeenrecognizedbymanagersandscholars(Quinn1999,Nellore

and Sderquist 2000, Globerman and Vining 2006). In the context of economic globalization and increasing organizational and technological

capacity of companies (especially multinational companies, offshoring, i.e. offshore outsourcing, has recently received significant attention

(Farrell2005,Levy2005).Subsequently,onecriticalchallengefacedbymanagersisnotonlytoascertaintheneedforsystematicanalysisofthe

strategicoffshoringdecisionbutalsotoevaluatetheoperationsmanagement structureintheexistingunits.

ThisstudyintroducesaframeworkbasedonanOperationsDiagnosticModel,(ODM)thatcouldeffectivelyandsyntheticallyincorporatebroad

based setofrelevant factorsforsuperiorcustomerserviceandenhancedmonitoring/ controlactivitiesfromadonorperspective.ODM isa

generalized form of the widely used multicriteria decision making technique the Analytical Hierarchy Process (AHP) (Saaty 1980). Given the

limitationsofAHPsuchassoleconsiderationof one way hierarchicalrelationshipsamongfactors,failuretoconsider interactionsamongthe

variousfactorsandrankreversal,ODMisappliedasamorerealisticmodelingmethodforoperationsmanagement,albeitthedisadvantage

ofAHPmayarisewhenthenumberoffactorsandrespectiveinterrelationshipsincreases,requiringmuchmoreeffortbyanalystsanddecision

makers(SarkisandTalluri2002,JharkhariaandShankar2007).

Althoughanygeneralizationofsuchabroadareaofliteratureisdoomedtobepartlyincorrect,thisstudyfocusestoaddress(elaborately)

1. ExistingframeworkoftheOperationsManagementprevalentinexistingcentralized/BPOFirms?(Local&Global)

2. Theefficacyofcontrolandcoordinationofoutsourcingallianceshasalwaysbeenaconcerntopractitionersandresearchersalike,

despiteasignificantamountofresearchonthetopic,anumberofgapsstillexistintheliterature.Thisstudyattemptstodrawout

thegaps,specificallyrelatedtoOperationsManagement andattemptstoaddressthesegapsinaquantitativemanner.

Thisstudyattemptstoshedanewlightontheprocessofcreatingarobustoperationsmanagement frameworkbyintegratingtheRelational

View and network/graphtheory. We intend to show that greater organization size, heavier reliance on nonauthoritative coordination and

knowledgeintensive production processes reinforce outsourcing complexity in subtle ways, whereas offshore outsourcing usually entails anoverproportional increase in complications as compared to domestic outsourcing and captive offshoring (FDI). The findings would yield

plausible explanations of outsourcing failure that are quite different from the wellknown incentive alignment and core competence lines of

reasoning. A modular organizational design may reduce the complexity of interorganizational relations and thus facilitate outsourcing. Yet

therearesituationsinwhichrefrainingfromoutsourcingaltogethermaybeaprudentstrategy,sincemodularizationisneithercostlessnorrisk

free.

MANAGERIALRELEVANCEDespitethecontinuinggrowthoftheBusinessProcessOutsourcing(BPO)markets,thereisaconsistentpatternofoutsourcingfailure,marked

by an increasing share of premature contract terminations and frequent dissatisfaction with outsourcing results. However, insights into the

reasonsfor outsourcingfailurearesparse.Outsourcingtheoristsandpractitionersoftenstressthe importanceofaligningclientandprovider

interests (e.g., through incentive contracts) to ensure outsourcing success. In contrast, we propose complex coordination and knowledge

exchangeacrossmultiplecollaborativeinterorganizationalrelationsbetweenclientandprovideremployeesasasignificantcauseoffailure

evenifinterestsarealigned.Wefindthatcentralizationofoperationstendstobemorecomplexinlargerorganizations,wherethereisheavier

reliance on nonauthoritative coordination and where production processes are knowledge or communicationintensive (which applies to a

growing share of BPO deals). We find that complications increase overproportionally for offshore outsourcing compared to domestic

outsourcing andcaptiveoffshoring. Whileweconclude thatunderstandingthetruecomplexityof interfirmrelationsmay leadmanagersto

refrain from outsourcing altogether, we suggest that managers may consider implementing modular organization design to limit complexity

andthusfacilitateoutsourcing.

ACADEMICRELEVANCEOperationsManagement ofcentralizedunitshasaprofoundimpactonorganizationsviabilityinthemarketplaceandthusproductionoutputis

directly linked to the internationalization on home and host country employment and thus subjecting the same to considerable academic

research.Thedebateontheemployment sideofinternationalizationofMultinationalCorporations(MNCs)oftencontainsanideologicalbias

againsttheoperationsoflargeMNCs,whichleadstothefactthatthewholedebateisconductedinlesspreciselanguageandfocusedonthe

shorttermeffects.Thedebateonemploymentgeneration(linkedtoperformanceoutput)inhostcountriesasaresultofinwardforeigndirect

investments that tends to focus on the qualitative spinoffs of this employment (skills, training, R&D), with relatively little attention to the

numericalemploymentcontributionofMNCsandnotthecircumstancesunderwhichthesearise.Ontheotherhand,theacademicdebateon

the home country employment effects of internationalizing MNCs tends to be hijacked by two diametrically counterpoised claims. From a

business perspective it is often argued that, operational efficiency is a prerequisite for the economic survival of the MNC, while labor

representatives claim that all foreign investments could have been maintained and conducted in the domestic market. The reality of

internationalizingMNCsisfarmorecomplexthanthetwoopposingassumptions.

METHODOLOGY

PAPEROUTLINE

Part I:ThesectionidentifieshowRiskManagement canaddvalue.Asuggested4pillarcontrolmechanism.

PartII:This section stresses on how BPOs should define their risk appetite and how risk management practices can be better facilitated.

AlthoughmanyBPOshavealreadyadoptedEnterpriseRiskManagement(ERM)solutions,othersarestillusingdetectivemethodsratherthan

preventivemethodsofriskmonitoringandanalysisoftrends(Successes&Failures).

PartIII:ConclusionsandSuggestionsemphasizingontheneedforeffectivenessinOperationsManagement,providingaviewofthethreshold

(minimum)ofriskfactorizationthatwouldensureseamlessoperations.


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PARTI RISKMANAGEMENT:VALUEADDITIONANDCONTROLSPERSPECTIVEInthebackdropofmountingconcernsregardingthelackoftransparencyandcomplexityofBusinessProcessOutsourcingfirms,this industry

continuestogrowatanunprecedented33%rate(NASSCOMBPOreport,Q42009).Fueledbytheprospectofdouble andtripledigitreturns

and an unprecedented Global outsourcing market, Large Institutions have already committed nearly $450 billion in assets to alternative

investments, and major Global firms such as the trendsetting General Electric. However, many institutional investors are not yet convinced

that current day migrations(of processingactivities)with a reasonablyhomogeneoussetof activities. Wehave witnessed in the lastdecade

that each activity (industry specific) for example the Finance Firms have been defined by a common set of legal, institutional, and analytical

properties and the nuances are a mongrel categorization that include private equity, risk arbitrage, Derivatives, convertible arbitrages,

emergingcapitalmarketequities,statisticalarbitrage,FOREXspeculation,andmanyotherstrategies,securities,andstyles.Therefore,theneed

forasetofriskmanagementprotocolsspecificallydesignedforBPOshasneverbeenmorepressing.

PartofthegapbetweenDONORLOCATIONandRECIEPIENTLOCATIONistheverydifferentperspectivesthatthesetwogroupshaveonthe

endtoendactivityofaparticularprocess.

ThetypicalDONORsperspectivecanbecharacterizedbythefollowingstatements:

TheDonoristhebestjudgeoftheappropriaterisk/rewardtradeoftheportfolio,andshouldbegivenbroaddiscretioninmakingthe

finalmigrationdecisions.

Migration pattern / strategy is highly proprietary and, therefore, must bejealously guarded lest they be reverseengineered and

copiedbyothers.

Monetarysave/Costreductionistheultimateand,inmostcases,theonlyobjective.

Riskmanagement isnotcentraltothesuccessofaMigrationStrategy.

Regulatoryconstraintsandcomplianceissuesaregenerallyadragonperformance;thewholepointofsettingupaBPOistoavoid

theseissues.

There is little intellectualpropertytransfer involved inthemigration;thegeneralpurpose ofthemigrationistohire local country

personnel.ContrastthesestatementswiththefollowingviewsoftheRecipientLocationsmanagement team.

Asfiduciaries,localinstitutionsneedtounderstandtheendtoendprocess(Downstream&upstream)beforecommittingtoprocessonlyapart

ofit.

Institutionsmustfully understandtheriskexposuresofeachmanager,and,onoccasion,mayhavetocircumscribethemanager's

strategiestobeconsistentwiththemigrationobjectives.

Performance isnotmeasured solely byreturn,butalso includesotherfactorssuch asrisk,trackingerrorrelativetoabenchmark,

andpeergroupcomparisons.

Riskmanagement andpremigrationrisktransparencyareessential.

Institutions operate in a highly regulated environment, and must comply with a number of federal and state laws governing the

rights,responsibilities,andliabilitiesofpensionplansponsorsandotherfiduciaries.

Migrant locationinstitutionsdesirestructure,stability,andconsistency withwelldefinedrolesthatareconsistentwiththeparent

organizationandneedstobeinstitutionalized,notdependentonanysingleindividual.

Whilethereare,ofcourse,exceptionstothesetwosetsofviews,theydorepresenttheessenceofthegapbetweenhedgefundmanagersand

institutionalinvestors.However,despitethesedifferences,hedgefundmanagersand institutionalinvestorsclearlyhavemuchtogainfroma

better understanding of each other's perspectives, and they do share the common goal of generating superior investment performance fortheirclients.

The4pillarcontrolmechanismillustrated.Donor&RecipientLocationsincluded

InherentControls:Identificationofkeyinherentrisks;andtheformulation,implementationanddocumentationofsignificantcontrol

policies,procedures,andmechanismsthatareintendedtoprevent,mitigateordetectcontrolbreakdowns(e.g.CreditRiskPolicy,

CodeofConduct,AntiMoneyLaunderingetc)

Assessment of controls: The periodic assessment and documentation of risks and controls including testing of controls at a

frequencycommensuratewiththeunderlyingrisk,asdefinedintheOperationalManagementPolicyoftheFirm.(e.g.Objectiveof

testing,testfrequency,technique,samplingetc)

Corrective Action: Timeliness and completeness of corrective action when control breakdowns or deficiencies are detected. (e.g.

Functionunit,descriptionofcontrolweakness,actionplanforresolutionpathetc)

Reporting: Periodicreportingto management regardingthe statusofcontrol and accuracyof the ratingof theoverall quality and

statusofthecontrolenvironmentfortheauditedentity.

Having explored the basic components of the firmwide risk management, an integration of the identified frames and the broad managerial

issues surrounding the development emphasizes the need to implement a risk management system for the firm. Risk reduction has the

potentialtoincreasefirmvalue.Whetherriskreductionactuallyincreasesfirmvaluedependsuponthecostofthatreduction.Asathumbrule,

managersshouldeliminateallrisksthatneednotbebornebythefirm inordertocapturethepositivenetpresentvalueof itsactivitiesandthat are costless to shed. If, however, risk reduction is costly, managers must evaluate whether the benefits of eliminationjustify the costs.

Suchananalysisrequiresthatmanagersestimatetheeffectofeachriskonfirmvalue,understandhoweachriskcontributestototalfirmrisk,

anddeterminethecostofreducingeachrisk.Toformallycalculatethevaluemaximizingriskmanagement strategy,thisinformationmustbe

incorporated into a model of firm value. This model encompasses managers knowledge about the economics underlying the firm and its

competitiveenvironment,aswellasmanagements beliefsaboutthewaysinwhichriskpotentiallyaffectsfirmvalue.Byvaryingtheinputsto

the model, managers can observe how firm value changes when various risks are hedged or not. In this fashion, managers will be able to

determinetheoptimalleveloftotalriskforthefirm,theconfigurationofrisksconstitutingthislevelofrisk(i.e.theriskstobedivested,andthe

risks to be retained and the best way to achieve the desired risk profile). Of course, creating such a valuation model requires extensive

knowledgeaboutconsumerdemandandthenatureofcompetitionintheindustry.Buildingsuchamodelisaprocessofconstantrefinement.


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Someoftheinformationneededtoconstructsuchamodelwillalreadyresideinthefirm.Otherinformationwillneedtobeamassedovertime,

asmanagersbecomemoreawareofwhatinformationisnecessary,andbegintocollecttherequireddata.

Figure1.Buildingariskmanagementsystem

PARTII:AFUNCTIONALAPPROACHTOTHEERMFRAMEWORKTo design the Operational Diagnostics model the corporate & the academic world have been extensively discussing about Enterprise Risk

Management (ERM)forthelasttenyears.Amultitudeofpapersandbookshavebeenauthoredonthistopicprovidingspecificguidelinesand

theoretical background. Taking the Financial BPOs as a representative sample, few banks have tried to implement ERM and even less have

beensuccessfulinembeddingitinthebanksriskmanagement culture.TheERMconceptisrelatively simple.Risksthatmayaffectthevalueof

anorganizationarenumerousandmultifacetedwithadynamicnatureandtheirsumdoesnotgivethetotalinherentrisk.Severalstochastic

methods like correlations and covariances should be considered when different risks are assimilated and analyzed. ERM is a methodical

approach to assess and address the risks from all sources that threaten the achievement of an organizations mission statement. A well

implementedERMapproachshould beabletoprovideacompleteandsymbioticviewofthe risksthatan institution isexposedto,allowing

seniorexecutivestofocusonthecompletepictureandnotonseparatevariables.

Following relevant Risk management methodology (COSO Framework), we can ascertain and identify inherent risks (or hazard risks) and

perceivedrisks. Whiletheformercan onlygeneratea loss,withthe latterthere isalsothepossibilityofagain.Traditionalriskmanagement

used to focus on inherent risks until financial risk management became predominant in the 90s developing specific tools, techniques and

terms.Asofdate,theaggregationofthesevariousdifferenttypesofrisks isdefinitelythemainchallengethatfinancial institutionswillingto

implementanERMapproachneedtoaddress.However,anERMMISreportthatwouldlistoutonlythefinancialriskswouldnotbefulfillingits

scopecomprehensivelyandwouldleaveoutsomepotentialsourceoflossorvaluedestruction(Timebound).Thefirststepininstitutionalizing

ERM is to identify the risks the firm is exposed to. A common approach is to identify all / most of the types of risks that can be measured.

Initially,financialinstitutionsneedtostayfocusedonmarketandcreditrisks.Eventually,operationalriskscanbeadded.Forsuchanapproach

tocapturealltherisksthefirmisexposedto,operationalriskhasto includealltherisksthatarenotmarketandcreditrisks.Forbanks,the

definitionofoperationalriskthatisusedbythenewBaselAccordismuchnarrower,e.g.,itignoresreputationalrisks.

Consequently,therewillbeastrainedlinebetweenmeasurement ofoperationalriskforregulatorypurposesandmeasurementofoperational

riskfromtheperspectiveofERM.Manyfirmshavegonebeyondmeasuringmarket,credit,andoperationalrisks.Inparticular,inrecentyears,

firmshavealsoattemptedtomeasureliquidity,reputation,regulatoryandstrategicrisks.Ifafirmfollowstheapproachofclassifyingrisksinto

market,credit,andoperationalrisks,itthenhastoascertainandmeasurehowitisexposedtotheserisks.Thisasksfortheidentificationandmeasurementoftheexposuresacrosstheinstitutionusingunbiasedapproaches.Foracomprehensivelistofriskswithinanorganizationtobe

completed and made useful, it is important that all the information be collected, made comparable, and updated. Firms that have grown

throughmergersorwithoutIThubs,individualunitstypicallyfacetheproblemthattheyhavesomesystemsthatarenotcompatible.

Organizations need to be able to aggregate common risks across all of their businesses to effectively analyze and manage those risks. The

objectiveistocapturealmostallrisks,quantifythemandemployaconsistentapproachandaggregatespecificriskexposuresacrosstheentire

firmaswellasanalyzetheaggregateriskprofileconsideringriskcorelations.Ideally,agoodERMframeworkshouldbeabletosummarizeall

risksintoarationallevelofavailablecapital.

Firmsthat implementERMcanhence,haveanamountofcapitalthatsubstantiallyovershootsitsregulatoryrequirements becauseitaimsat

wealthmaximization. Inanutshell,thechallengetoaggregatevariousrisksremainsthemainchallengeforallfirmsintendingtoimplementan

ERM approach and for Financial Institutions in particular. At most banks, IT systems are still unable to dialogue between them and the


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semanticsusedtoevaluaterisksaresoverydifferentthatitisalmostimpossibletoreconciletheminonesinglepattern.Ignoringthesemain

issuesprovidingERMreportsthataddressrisksbyquantumnumbers isuselessanddangerous. Itmighttakesomemoretimetobuildthe

rightinfrastructuretoimplementanERMframework,butfinancialinstitutionsshouldbeconvincedthatthisisthebestwaytoavoidmistakes

astheonesthatgeneratedthecurrentFinancialCrisis.

PARTIII:STOCHASTICMEASUREMENTOFEFFECTIVENESSOFOPERATIONSRISKMANAGEMENTIncontrasttohistoricalriskmanagementpracticesmanyFinancialfirmshaveratherdifferentriskmanagement objectives.MostFinancialBPOs

expecthighlevelofsimilarityofoperationsatdonorandrecipientlocationsandtheircorrespondingrisksthattheyareexpectedtobear.Asa

paradox,financialfirmsaretakenforgrantedthattheiroperationsareriskier,andveryfewfinancialBPOs investorsandevenfewercaptive

firmsmanagersseemtodevotemuchattentiontoactiveriskmanagement.BPOmanagersoftendismissriskmanagement assecondary,with

completion of task (performance) as the main objective. However, if there is one lasting insight that modern finance has given us, it is the

inseparabletradeoffbetweenriskandexpectedreturn,henceonecannotbeconsideredwithoutreferencetotheother.Moreover,itisoften

overlookedthat properriskmanagement can,by itself,beasourceofstability.This issummarized neatly in ancientwisdomthat oneofthe

bestwaystomakemoneyisnottoloseit".

Moreformally,considerthecaseofamanagerwithafundthathasanannualexpectedreturnER[N]of15%andanannualvolatilityAV[R]of

70%,arathernewentrantintotheBPOspacethatfewestablishedfirmswouldtakeseriously.Nowsupposethatsuchamanagerlayeredarisk

management process on top of his investment strategy that eliminates the possibility of returns lower than (20%), i.e., his return after

implementingthisriskmanagement protocolisR*where:R*=Max[R, 20%].

Undertheassumptionoflognormallydistributedreturnvalues,itcanbereflectedthattheestimatedvalueER[R*]ofR*is20.9%byignoring

the left tail of the distribution of R below 20%, the estimated value of the strategy is doubled. Risk management can be a significant &

methodicalsourceofmeasurement. However,thevolatilitySD[R*]ofR*is66.8%,lower thanthevolatilityofR,henceriskmanagement can

simultaneouslyincreasestabilityanddecreaserisk.BasicLogtablesreporttheE[R*]andSD[R*]forvariousvaluesofE[R*]andSD[R*]andthe

truncationlevelsandillustratethedirectimpactthatriskmanagement canhaveonorganizationalperformance.Ofcourse,riskmanagementat

timestakesthesimpleformofaguaranteedfloorforreturns.Indeed,suchblanketinsurance"isoftenatahighpremiumifitcanbeobtainedatallandisequivalenttothepremiumofaPUTOPTIONonthevalueoftheportfolio.

Forexample,theBlackScholespremiumfortheputoptioninherentisequalto15.4%ofthevalueoftheunderlyingtobeinsured.Butthis

onlyhighlightstheapplicabilityandeconomicvalueofriskmanagement accordingtotheBlackScholesformula,theabilitytomanage&handle

risks in such a way as to create a floor of 20% for annual performance is worth 15.4% of assets under management. The more effective a

manager'sriskdiagnosticsmethodologythemoreitwillcontributetoriskmanagement.

Figure2.ArepresentativeillustrationofatypicalBPOFirmCaptiveorThirdpartyWithservicesbeingrenderedfromcrossbordermultisite

locations.

THEVALUETABLEFORRISKMANAGEMENT

K=50% K= 20%


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K= 40% K= 10%

K=30% K=5%

Table1.ExpectedvaluesE[R*](firstrows)andstandarddeviationsSD[R*](secondrows)ofR*=Max[R;k]forlognormallydistributedreturnR

withexpectationE[R],standarddeviationSD[R],andtruncationpointk.

LIMITATIONSOFTHESTUDY&FURTHERRESEARCHRECOMMENDATIONS

Thescopeofthispaperisbroad.Theadvantageisthatanintegralviewofoperationsmanagement ispursued,leavingampleroomtoobserveand analyze other interestingeventsand/orepisodes which otherwise wouldhave been leftoutofthe analysis. Thebroad scope isalso the

limitationofthisstudy.InvestigatingalargenumberofprocessesofmultipledeliveryobjectiveswithservicesspreadacrosstheGlobeovera

longerperiodprohibitsarigoroussingleeconometricalapproach,duetononhomogeneousservicesacrossindustries.

The purpose of the researchdesign is to investigateand to measure the relationships betweenthe measuresrepresentingProduct, Process,

People,Policies&TrainingrelateaspectscoupledwiththeabilityofBusinessRecovery(Continuityofbusinessaspect)andhenceislimitedto

processspecificfunctionsonlyanddoesnotdealwithbroadstrategicconceptslikethedecisiontoCentralize/Migratetheprocess,Qualityof

Hiring, Validation of employee back grounds, promotions, error identification/resolution, management style, attrition, transportation of

employees,mismanagementoroccurrencesoffrauds.

Researchdirectlylinkingthestrategiesoffirmstointernationalizationdevelopmentscoupledwithoperationalefficiencyandmeasurementisin

anascentstageandrequiresfurtherresearch.

Fourbroadlinesoffurtherresearchcanbeidentified:

Interrelationshipsbetweenbanks,firmsandotherfinancialservices,

Increaseofindepthknowledge,

Expandonnegativeperformancedifferential,and

Interactionbetweenregulation,bankstrategyandchange.

Also,therelationshipbetweenchangesinfinancialsystemsandinternationalizationofprocessingoutfitswouldbeaddressedinthisstudybut

can be analyzed in more detail separately. Is there some causality observable; for example are organizations with a high degree of

internationalization catalysts for changes in the financial systems of their home countries? Similarly, the impact of financial crises on

internationalizationstrategieswouldbetoucheduponbriefly inthestudy,butcouldbeextendedfurther.Ingenerally,outsourcedfirmswho

retreated from internationalization were triggered by financial crises. However, case studies that would be presented in the study, would

suggestthatduringfinancialcrisessomeorganizationslosshasbeenanothersgain;aconsiderableportionofmergersandacquisitionsmight

takeplacebetweenthelargestorganizationsthemselves.

CONCLUSIONSince the 1980s, many of the large firms in the world have increased centralization of their activities dramatically. Currently, international

capitalandbankingmarketsaremore intertwinedthan ever,makingacorrectassessmentof thecostsandbenefitsof internationalization a

serious matter for bank management, regulators as well as shareholders. This study contributes to a better understanding of the

internationalization of services. The study appraises to what extent organizations are internationalized because of internal, institutional or

sectoralincentives.TheinternationalizationstrategiesoftheworldslargestorganizationsinUK,USA&Europeancountriesbetween1980and

2008wouldbedescribedandanalyzed.Europeanfirmshavedominatedtheinternationalizationofcentralizedstudiesandthisstudydrawsstrategiccommonalitiesanddifferencesare

identified on the basis of a strategic typology developed for this study. The central research question deals with the effectiveness of

internationalization. Using a self constructed internationalization database, differences would be estimated between foreign and domestic

operations performance, and the effects on customer service & legal compliance. For example, a higher degree of internationalization /

outsourcing/centralizationhasonaveragewouldnothavecontributedtoafirmsperformance.Similarly,moststakeholdersmightnothave

gainedbymoreinternationalization.

The study also tries to address the future outlook for centralization of services how will the internationalization of firms proceed? The

potentialforfurtherfinancialderegulationinthehomecountry,uncertaintyontheinternationalregulatoryregime,andthebusinessmixofthe

firmarelikelydriversforthefirmsfutureinternationalizationstrategyandprofitabilityenhancement.


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The study suggests that a business process migration strategy should be thoroughly defined for the short and long term using a risk

managementframework.Thisshouldspecifytheorganizationsriskcapacity(maximumrisktolerance)andriskmeasurementviability(desired

risktolerance)followingtheguidelinesproposedbytheOperationsriskmanagementteam.

Periodicmetrics(MISreports)shouldbedefinedbasedonthecommonlyusedactivityselectionstrategiesintermsofexpecteddynamicsand

volatility of legal breaches. Line of authority and responsibility delegation should be imposed with a scalar chain approach and monitored

through the operational diagnostics methodology. Designing and embedding a good risk diagnostics framework is the only way for BPOs to

provide clarity to internal and external stakeholders regarding the way they want to maximize wealth. Operations risk and lines of business

needtoworkcohesivelytocreateanew,moreconsciousriskculturewithinBPOfirms.Inthiswork,wealsopointoutthatthewayriskshave

beenaggregatedandreportedsofar issuboptimal.AsubstantialamountofliteratureexploreshowBPOscanimplementanEnterpriseRiskManagement framework, but few BPOs have tried to implement it and even less have been successful. IT systems for different risks that

cannotshareinformationandthelackofmethodologytomakethemcomparableareamongtheprimarychallengesrelatedtothisfailure.

Implementing a sound ERM approach to monitor and report risks is going to be the main challenge for BPOs in the next future. Large

investments in infrastructure will be needed if BPOs are intending to succeed. Moreover, in the long run, benefits are likely to scale and

overcome costs. Last, we argue that the risk governance structure may have also played a fundamental & primary role in the failure of risk

managementpracticesatmostoutsourcedfirms.

Weakreportinglinesandlackofvisibilityatseniormanagementlevelare,inouropinion,arethemainissuesthatshouldbesolvedinorderto

ensure the independence of the operations risk function. Eventually, the list of issues that we have analyzed in this article may not be

comprehensive,buttheydefinitelypresentagoodstartingpointforoutsourcedfirmsthatwanttousethecurrentfinancialcrisisasthebest

opportunitytoreshapeandimprovetheirriskmanagement processesandpractices.

OperationsRiskdiagnosticsbythefirmcanfacilitateriskmanagementbythefirmsequityholders.

OperationsRiskdiagnosticsbythefirmcancreatevalueinwaysthatinvestorscannotduplicateforthemselves.

OperationsRiskdiagnosticscanincreasefirmvaluebydecreasingfinancialdistresscosts.

OperationsRiskdiagnosticscanaddvaluebyloweringtheriskfacedbyimportantnondiversifiedinvestors.

OperationsRiskdiagnosticscanincreasefirmvaluebyreducingtaxes. OperationsRiskdiagnosticscan leadtoeasierandbetterperformanceevaluation,therebyreducingexternalmonitoringcostsand

consequently,thefirmscapitalcosts.

OperationsRiskdiagnosticscanaddtofirmvaluebyprovidinginternalfundingforinvestmentprojects.

REFERENCES1. BaselCommitteeonBankingSupervision.2006.InternationalConvergenceofCapitalmeasurementandcapitalstandards

2. Bernstein,Peter.1996.AgainsttheGods:TheRemarkableStoryofRisk,JohnWileyandSons,Inc.NewYork.

3. BlundellWignall,Adrian,PaulAtkinsonandSeHoonLee.2008.TheCurrentFinancialCrisis:CausesandPolicy Issues,FinancialMarket

Trends,OECD.

4. Cohen,AllanandDavidBradford.2005.InfluencewithoutAuthority,JohnWiley&Sons,NewYork.

5. D'Arcy,Stephen.1999.Don'tFocusontheTail:StudytheWholeDog!RiskManagement andInsuranceReview.2(2),ivxiv.

6. DArcy,Stephen.2001.EnterpriseRiskManagement,JournalofRiskManagement ofKorea,Vol.12,Nr.1.

7. Doherty,Neil.2000.IntegratedRiskManagement, McGrawHillNewYork.

8. Dolde,W.,1995,"Hedging,Leverage,andPrimitiveRisk,"JournalofFinancialEngineering4(2),187216.

9. Fisher,RogerandAlanSharp.1998.LateralLeadership:Gettingitdonewhenyouarenottheboss,ProfileBooksLTD,London.

10. Froot,K.A.,D.S.ScharfsteinandJ.C.Stein,1994,"AFrameworkforRiskManagement,"HarvardBusinessReview72(6),91102.

11. Haushalter,G.D.,1999,"FinancingPolicy,BasisRisk,andCorporateHedging:EvidencefromOilandGasProducers,"JournalofFinance55

(1),107125.

12. Keller,Johnson.2003.ExertingInfluenceWithoutAuthority,HarvardManagementUpdate.

13. Lam,James.2003.EnterpriseRiskManagement:fromIncentivestoControl,JohnWileyandSons,Inc.NewYork.

14. Lewent,J.C.andA.J.Kearney,1990,"Identifying,Measuring,AndHedgingCurrencyRiskAtMerck,"JournalofAppliedCorporateFinance,

1928.

15. Luehrman,T.A.,1990,"Jaguarplc,1984,"HarvardBusinessSchoolCase9290005(May18,1990).

16. Markowitz,Harry.1952.PortfolioSelection,JournalofFinance,Vol.7,Nr.1,pp.7791.

17. Mehr,RobertandBobHedges.1963.RiskManagement intheBusinessEnterprise,RichardD.Irwin,Inc.Homewood,IL.

18. Meulbroek,L.,2001,"TheEfficiencyofEquityLinkedCompensation:Understanding

19. theFullCostofAwardingExecutiveStockOptions,"FinancialManagement (Summer

20. 2001),530.

21. Olson,DavidandDeshengWu(Eds.).2008.NewFrontiersinEnterpriseRiskManagement,Springer

22. Potter,John.1985.PowerandInfluence,theFreePress,NewYork.

23. Potter,John.1999.WhatLeadersDo,aHarvardReviewBusinessBook24. QuinnandHilmler1994

25. Smith,C.W.andR.M.Stulz,1985,"TheDeterminantsofFirms'HedgingPolicies,"JournalofFinancialandQuantitativeAnalysis20(4),391

405.

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27. Tufano,P.,1998,"Agencycostsofcorporateriskmanagement,"FinancialManagement27(1),6777.


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VALUERELEVANCEOFACCOUNTINGINFORMATION:EVIDENCEFROMSRILANKA

CHANDRAPALAPATHIRAWASAM

FACULTYOFECONOMICSANDMANAGEMENT

TOMASBATAUNIVERSITYINZLIN

CZECHREPUBLIC

ABSTRACTThepurposeofthispaper isto investigate thevaluerelevanceofaccounting informationatColomboStockExchange (CSE) inSriLanka.The

studyuseearringspershare(EPS),bookvaluepershare(BVPS)andreturnonequity(ROE)astheindependentvariablesandmarketpriceper

share(MPS)asthedependentvariable. Sampleofthestudyincludes129companiesselectedfrom6majorsectorsatCSE.Crosssectionaland

time series crosssectional regressionsareusedfor thedataanalysis.Studyfinds thatEPS,BVPSandROEhavepositivevalue relevanceon

market valueof securities. However, theexplanatorypowerof combined variables isbelowaverage.Value relevanceof EPSandROEhas

slightly increasedwhenthesample includeonlyaccountingvariableswithpositivevalues.But,BVPSdoesnotcomplywiththatfinding.EPSis

themostvalverelevantvariableoutofthethreevariables,inSriLanka. Further,explanatorypowerofEPSandROEhasconsiderablyimproved

afterthenew informationtechnologyadoptionatCSE.However,reversetrend isvisibleforBVPS.Thisstudy isuniquebecausethisisthefirst

studywhichexaminestheimpactoftechnologicaladvancementsonvaluerelevanceofaccountinginformationrelatedtotheCSE.

KEYWORDSAccountinginformation,Bookvaluepershare,Earningspershare,Returnonequity,Valuerelevance.

INTRODUTIONThemainobjectiveoffinancialreportingistoassistinvestorsinvaluingequity.Forfinancialreportingtobevaluerelevant,itisaconditionthat

accountingnumbersshouldberelatedtocurrentcompanyvalue.Ifthereisnoassociationbetweenaccountingnumbersandcompanyvalue,

accountinginformationcannotbetermedasvaluerelevance.

The concept of value relevance can be defined in a number of ways. For instance, Francis and Schipper (1999) discuss four different

interpretationsofvaluerelevance(see,section3 differentperspectivesonvaluerelevance).Thisstudyfollowsthetheirforthdefinition:A

statisticalassociationbetweenaccountinginformationandmarketvaluesorreturns,particularlyoveralongwindow,mightmeanonlythatthe

accounting information in question is correlated with information used by investors. According to the above definition, value relevance is

measured as the degree of statistical relationship between information included in accounting statements and market values (prices) or

returns.Further,thisstudyfocusesvaluerelevanceonlongtermyearlyobservations.

ValuerelevanceresearchinSriLankancontextgoesbacktomid1990s.In1997,NimalaswellasSamarakoon intheirindividualattemptstotest

thevalidityofCapitalAssetPricingModel (CAPM),findasabyproductthatearningstopriceratioispositivelyrelatedwiththestockreturns.

Further,theyfindthatbookvaluetomarketvaluehasnosignificantrelationwithvalueofsecurities.Since1997,therewasnoevidencefound

toinvestigatethevaluerelevanceofaccountinginformationinSriLanka.Inthemeantimeaccountingenvironmenthasdrasticallychangedby

theadoptionoftheinformationtechnologytoaccountingprocessaswellastodeliveraccountinginformationtoendusers.Nowadays, most of the firms use software packages like QuickBooks to improve the accounting performance. Unlike in manual accounting

systemunderacomputerizedsystem,regularfinancialreportsgenerateautomatically.Therefore,thequalityoftheaccountinginformationhas

significantly increased during the recent past. Further, financial accounting information delivery system has been affected by information

technology (IT). CSE introduced a new website in October 2007 to provide quick, more accurate and timely market based and other public

informationofeachcompany.Withthisfacility,all investorscouldaccesstofinancial statementsofeachcompanythroughthenewwebsite

andearlier,financialreportsweretransferredbymail.Therefore,itisimportanttoreexaminethevaluerelevanceofaccountinginformationin

SriLanka.

Value relevance researchers are interested in identifying the significance of accounting information on market values of equity. Hence, this

studyhasthreeobjectives.First,tostudyhowaccountinginformationisrelatedtomarketvalueofequity.Thesecondobjectiveistostudyhow

muchaccountinginformationexplainsthevariationinequityvaluesandthethirdobjectiveistoseetheimpactofnewtechnologyadoptionat

CSEonvaluerelevanceofaccountinginformation.Thepooleddataanalysisregressionisusedtoanalyzethedata.

Thisstudyisimportanttomanystakeholders.Itprovidesnewknowledgetoinvestorstomakeandrevisetheirinvestmentportfolios.Thevalue

relevanceofaccountinginformationinSriLanka mayhavedirectimplicationsforotherstakeholderssuchas financialaccountants,standard

setters, educators, and auditors whose common goal is to improve the value relevance of accounting information by altering the current

financialreportingmodels.

Theremainingofthepaperisorganizedasfollows.Section2givesabriefdescriptionofCSEwhileSection3explainsdifferentperspectivestovaluerelevance.TheSection4presentsthereviewofliterature.Section5explainssampleandmethodologyandSection6containsresultsof

theanalysisfollowedbydiscussion.ThelastSectionisconclusionofthestudy.

COLOMBOSTOCKEXCHANGE(CSE)Although share trading in Sri Lanka commenced in 1896, formalization of the market was started with the establishment of the Colombo

SecuritiesExchange(GTE)Limitedin1985,whichtookovertheoperationsofthestockmarketfromtheColomboShareBrokersAssociation.It

wasrenamedasColomboStockExchange(CSE)in1990.TheCSEisacompanylimitedbyguarantee,establishedundertheCompaniesActNo.

17of1982andislicensedbytheSecuritiesandExchangeCommissionofSriLanka(SEC).

TheColomboStockExchange(CSE)has234listedcompaniesrepresenting20businesssectorsasatSeptember2010.CSErecordeditshighest

marketcapitalizationofRs.1380.9billion(approx.US$12billion)ontheMay2010.AtpresentCSEisoneofthebestperformingmarketsinthe


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basedonInternationalAccountingStandards(IASs).TheauthorsadoptOhlson(1995)modelwithBVPSandEPSasmainindependentvariables

andstockpriceasthedependentvariable.Extremeleftandright1%inthesampleforeitherEPSorBVPSratiosisremovedfromthesampleto

controlforoutliers.Using213firmyearlyobservationsfrom1992to1996,thestudyfindsthatbothearnings( =2.84,t=5.50)andbookvalue

( = 0.35, t =1.97) based on domestic GAAPs are significantly associated with Bshare prices explainingjointly 21% of the variation of stock

price.ThereportedearningsbasedonIASsaresignificantlyrelated(t=6.31)tosharepricesbutbookvaluebasedonIASsisnotsignificant at

conventionallevel(t=0.814).However,thejointexplanatorypowerofbothvariablesis24%.

Inanotherstudyofinternationalaccountingdifferences,GrahamandKing(2000)examinerelationshipsbetweensharepricesandaccounting

variables in Indonesia, Malaysia, Philippine, South Korea, Taiwan and Thailand. They use MPS as dependent variable with BVPS and current

residual income as explanatory variables. They find that coefficients of these variables are statistically significant for all the countries. Theexplanatorypowerofthemodelrangesfrom24%inThailandto90%inPhilippines.

Oyerinde (2009) examines the value relevance of accounting data in the Nigerian Stock Market. His model uses average price per share as

dependentvariablewithEPS,earningsyieldandROEasindependentvariables.Thesampleconsistsoftop30companiesfrom2001to2004in

NigerianStockMarket.TheauthorfindsthattherelationshipbetweensharepriceandEPSishighbuttheROEisverylow.However,combined

modelofallthevariablesreflectsveryhighlevelofR2

valueofmorethan95%eachyear.

AmongSriLankanfindings,Nimal(1997),Samarakoon(1997)andPereraandThrikawala(2010)areworthtonotice.Nimal(1997),investigates

therelationshipsbetweenstockreturnandselectedfundamentalvariables(Beat,Size,E/PandB/M)intheCSEusingyearlydatafortheperiod

1991to1996.HefindsthatonlyE/Pissignificantlyrelatewiththestockreturns. Samarakoon(1997)alsoverifytheabovefinding.Pereraand

Thrikawala (2010) examines the value relevance of accounting information on CSE taking 6 commercial banks listed in CSE from 20052009.

Using the model used by Oyerinde (2009), they find that EPS and ROE are significantly related with share price and only EPS reflect higher

explanatorypoweronmarketprice.

Thefollowingpapersexaminethechangesinvaluerelevanceofaccountinginformationovertime.Collins,MaydewandWeiss(1997)findthat

bothEPSandBVPShaveajointexplanatorypowerof54%andthecombinedvaluerelevancehasnotdeclinedduringthe40yearsperiodbut

increased slightly. However, incremental value relevance of earnings has declined but it is overcome by the incremental value relevance of

bookvalue.ThisviewisacceptedbytheFrancisandSchipper(1999).Theyalsoreportthatvaluerelevancehasdeclined(increased)forearnings

(bookvalue)gettingR2value27%(22%)in1952(1953)to16%(54%)in1994.Brown,KimandLys(1999)findthatvaluerelevanceasmeasured

by R2

has declined significantly when controlling for different scale effect. Lev and Zarowin (1999) suggest that the value relevance of book

value,earningsandcashflows havedecreasedoverthepast20years.Theyfurtherreportthatvaluerelevancedeteriorationmorepronounced

forcashflowsthanearnings.

SAMPLEANDMETHODOLOGY

SAMPLE

Totalsampleofthestudyconsistsof129companiesfrom6largestsectorsintermsofnumberofcompaniesatCSE.Companiesselectedforthe

studyundereachsectorandpercentageofsectormarketcapitalizationoutoftotalisgivenintable1.

Table1:Classificationofthesample

Sector Noofco mpanies %ofmarketcapitalization

Bank,FinanceandInsurance 27 17.88

FoodandBeverage 15 11.96

Hotel 27 9.89

Manufacturing 28 5.88

Plantation 17 1.73

LandandProperty 15 1.77

Total 129 49.11

Source:CSEdatalibrary2009

METHODOLOGY

Theideaofvaluerelevanceresearchistoestablisharelationshipbetweenmarketvaluesofequityandaccountingvariables.Thiscanformally

expressedasfollows.

)(AIfMVE= (1)

Where

MVE=marketvalueofequity

AI=accountinginformation

This study adopts theOhlsonmodel framework (1995) and concluded association testsbetweenshare price and three setsof variables.The

followingvaluationmodelisconsistingofthevariablesusedbyCollins,MaydewandWeiss(1997),BaoandChow(1999)andOyerinde(2009).

Inordertoascertainthejointimpactofaccountingvariablesonmarkerprice,thefollowingcrosssectionaltimeseriesmodelisspecified.

ititititit ROEEPSBVPSP ++++= 4210 (2)

Where,

BVS=bookvaluepershare

EPS=earningspershare


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ROE=returnonequity

i =companyt=time(year)

Inordertoavoidlookaheadbiasproblemrecognized byBanzandBreen(1986)thedependentvariable istakenaspriceofshares3months

after the end of financial year. Lookahead is a bias caused by using data which are not yet available but assumes to be available. Actually,

accountinginformationwillcometoinvestorshandwhentheyreceivetheannualreportofthecompanyandnotatthelastdateoffinancial

year.

Inordertotesttherelationbetweenstockpriceandeachvariableinisolation,thefollowingregressionmodelsareestablished.

++= itit BVPSP 10 (3)Theequation3examinestherelationshipbetweenpriceofshareandBVPS.

++= itit EPSP 10 (4)Theequation4examinestherelationshipbetweenpriceofshareandEPS.

++= itit ROEP 10 (5)Theequation5examinestherelationshipbetweenpriceofshareandROE.

RESULTSPriorresearchhasshownthatnegativeearningsarelessvaluerelevantthanpositiveearnings(e.g.

Hayn,1995andBasu,1997).Therefore,thissectionpresentsfindingsonoverallsampleaswell asonthesubsampleofcompanieswithonly

positiveearningsandbookvalue.

DESCRIPTIVESTATISTICSTable 2 and 3 provide the pooled 20052008 minimum, average, maximum and standard deviations and correlation matrix for the variables

usedinthestudy.

As per Collins, Maydew and Weiss (1997), to control the outliers for all tests, observations having standardized residuals greater than 4 are

removed.Thefollowingtableshowsthedescriptivestatisticsaftercontrollingfortheoutliers.

Table2:Descriptivestatistics

BV EPS ROE MPS

Mean 55 6 9 65

Standard

deviation

59.88 11.31 20.41 81.56

Maximum 352 70 95 673

Minimum 49 49 127 1

Source:AnnualreportsofeachcompanyandCSEdatalibrary2009

Table3providescorrelationmatrixfortheindependentvariables.Asindicatedinthetable3,BVPSismarginallypositivelycorrelatedwithEPS

(r = 0.53). Further, correlation between EPS and ROE is below average (r=0.42). Therefore, the correlation matrix appears to suggest that

thereisnoseriousmulticolinearityproblemamongindependentvariable.

Table3:Correlationamongindependentvariables

BV EPS ROE

BV 1 0.53 461271 0.11650601

EPS 1 0.42086143

ROE 1

VALUERELEVANCEOFBOOKVALUEPERSHAREThissectionreportsthefindingsofvaluerelevanceequation3.PanelAofthetablepresentsregressionparametersforthetotalsamplewhile

thePanelBpresentsregressionfindingsforthesampleofcompanieswithonlypositiveaccountingfigures.

PanelAaswellaspanelBofthetable4showthatBVPShasapositiveimpactonthemarketvalueofshares.Alltheregressioncoefficientsare

statistically significant at 1% level of significance. The aggregate period regression coefficient () is 0.758 with the explanatory power of

adjustedR2

=30.88%.Theexplanatorypowerofthemodelrangesfrom24.42%in2009to38.75%in2007.


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PanelBofthetableshowsthatalltheregressioncoefficientsarepositiveandstatisticallysignificantat1%levelforthesubsamplewithpositive

accounting variables. For the aggregate sample explanatory power is 27.07% which is little lower than that of the total sample in Panel A

(adjustedR2

=30.88%).TheexplanatorypowersofthemodelreportedinpanelBrangebetween17.95%in2009to32.92%in2008.

Table4:relationshipbetweenBVPSandmarketvalue

Year Numberofobservations AdjR2

PanelA

2006 129 0.876*** 32.47

2007 127 0.780*** 38.75

2008 126 0.595*** 33.28

2009 123 0.820*** 24.42

Aggregate 505 0.758*** 30.88

PanelB

2006 109 0.848*** 29.74

2007 106 0.715*** 31.38

2008 102 0.630*** 32.92

2009 83 0.746*** 17.95

Aggregate 400 0.739*** 27.07

Notes:*p


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2006 109 1.17** 3.02

2007 106 1.02** 3.06

2008 102 2.04*** 13.45

2009 83 2.93*** 12.02

Aggregate 400 1.53*** 6.18

Notes:*p


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Table8showsthataverageexplanatorypowerofBVPSforthetotalsample(forthesamplewithonlypositiveaccountingfigures)hasdecreased

by6.76% (5.12%) afterthe new website is launched.Contrary to BVPS average explanatorypower of EPShas increased substantiallyforthe

totalsampleafterthenewwebsiteislaunched.AverageexplanatorypowerofEPShasincreasedby37.35%from24.19%to61.53%afterthe

new website was launchedbytheend ofthe year 2007.Thisvalue relevance increment is35.15forthe subsample of companieswithonly

positiveaccountingfigures.ThechangeinvaluerelevanceofROEisalsoassameasthechangeinvaluerelevanceofEPS.Thecombinationof

the variables also reports that value relevance of the combined accounting variables has substantially increased after the adoption of new

informationtechnologyatCSE.

DISCUSSIONBoth panels A and B of the table show that BVPS has a positive relationship with the MPS. This finding is contrary to the earlier Sri Lankan

findingofNimal(1997)andSamarakoon(1997).However,agreewiththePereraandThrikawala(2010).Allthereportedliteratureinthestudy

exceptBaoandChow(1999)intheirIASsstudy,findthesameresults. Theexplanatorypowerofthevariableiswellbelowaverage.Pereraand

Thrikawala(2010)foundthatBVPShasaveryhighexplanatorypoweronMPS.However,theirsampleisextremelyfewcompaniestogeneralize

findings.

Similar to the BVPS both panels A and B of the table show that EPS has a statistically significant positive relationship with the MPS. Nimal

(1997),Samarakoon(1997)aswellasPereraandThrikawala(2010) alsofindthesameresults.FindingsofthisstudyareinconsistentwithLev

(1989)whoreportsthatvaluerelevanceofearningsisnegligible.Alltheinternationalstudiesreportedfindthesamepositiverelationbetween

EPSwithMPSorstockreturns.

ROEalsohasasignificantrelationshipwithMPSintotalsampleaswellasthesubsamplewithonlypositiveaccountingvariables.However,the

explanatorypowerofthevariableisverylow.ThisissimilartotheOyerinde(2009).

Thejointexplanatorypowerofthecombinedmodelofalltheindependentvariablesis45.99%forthetotalsampleand46.59forthesampleof

companieswithonlypositiveaccountingvariables.ThisresultissomewhatsimilartotheCollinsetalMaydewandWeiss(1997)whofindthat

jointvaluerelevanceofearningsandbookvaluesis54%fortheUSlistedcompaniesandKingandLangli(1998)fortheirNorwaysample(R2=

40%)However,somestudiesfindthatvaluerelevanceofaccountinginformationisverylow.(BaoandChow,1999;Lev,1989;Hayn,1995).Atthe same time, there are studies, Frankel and Lee (1998), King and Langli (1998) in their US and UK sample, Oyerinde (1999), Perera and

Thrikawala(2010),reflecthighvaluerelevanceofaccountinginformation.

Hayn(1995)revealsthatthevaluerelevanceofpositiveearningsinformationismuchhigherthanthatofthenegativeearnings.Thisstudyalso

findsthatvaluerelevanceofEPSisalwayshigherforthesampleofcompanieswithonlypositiveearningsthanvaluerelevanceofEPSofthe

totalsample.However,thispatternisreversedfortheBVPSandROEvariables.

Thisstudyfindsthatvaluerelevanceofaccountinginformationhasdramaticallychangedduringthesampleperiodconcerned.Valuerelevance

ofEPSandROEhassubstantiallyincreasedintheyears2008and2009thanintheprevioustwoyears.ThisiscontrarytotheresultsofCollins,

MaydewandWeiss(1997),FrancisandSchipper(1999)andLevandZarowin(1999)theyfindthatvaluerelevanceofearningshasdeclinedover

theperiod.However,theincreasingvaluerelevanceofearningsinthisstudymaybeduetotheimpactofnewinformationtechnologyadoption

atCSE.But,thevaluerelevanceofBVPShasdecreasedoverthetimeandthisiscontrarytotheCollins,MaydewandWeiss(1997)andFrancis

andSchipper(1999).However,LevandZarowin(1999)findthatvaluerelevanceofBVPShasdecreasedovertheperiod.

SUMMARYANDCONCLUSIONValuerelevanceisoneofthekeymajorareasinmarketbasedaccountingresearch.Paststudieshaveshownthatamongothervariablesbook

value and earnings have significantly related with the market price of stocks. Some studies have shown that value relevance of accounting

informationhaschangedoverthetimeduetochangesinaccountingaswellasbusinessenvironment.

ThispaperexaminesthevaluerelevanceofBVPS,EPSandROEforselected129companiesatCSEovertheperiod20062009.Thispaperhas

three main objectives. The First objective is to study how accounting information is related to market value of equity. Second, how much

accounting information explains the variation in equity values and the third objective is to see the time varying pattern of value relevance

speciallytheimpactofnewtechnologyadoptionatCSEonvaluerelevanceofaccountinginformation.

Studyusescrosssectionalregressionaswellaspooledregressiontechniquesfortheanalysis.ThisstudyfindsthatBVPS,EPSandROEhavea

positive and statistically significant relationship with market price per share. However, their explanatory powers differ from each other

(AdjustedR2sare30.88%,38.35%and8.58%respectivelyforthetotalsample).Newtechnologyadoptionhasconsiderablyincreasedthevalue

relevance of accounting based earning information (EPS and ROE) in Sri Lanka. However, the incremental value relevance of the BVPS is

negativeduringtheperiodconsideredforthestudy.Thisstudyhasnotbeendesignedtoexaminethepossiblereasonforthenegativetrendin

BVPS. AmongthethreevariablesmostsensitiveandmostvaluerelevantvariableisEPSfortheSriLankandata.

REFERENCESBanz,R.(1986),"Sampledependentresultsusingaccountingandmarketingdata:Someevidence",JournalofFinance,vol.41,no.pp.779793.

Bao,B.H.&Chow,L.(1999),"TheusefulnessofearningsandbookvaluesforEquityvaluationinemergingcapitalmarkets:EvidencefromListed

companiesinthePeoplesRepublicofChina",JournalofInternationalFinancialManagementandAccounting,vol.10, pp.85104.Basu,S.(1997),"Theconservatismprincipleandtheasymmetrictimelinessofearnings",JournalofAccounting&Economics,vol.24,no.1,pp.

327.

Barth,M.E.,Beaver,W.H.&Landsman,W.R.(1998),"Relativevaluationrolesofequitybookvaluesandnet incomeasafunctionoffinancial

health",JournalofAccountingandEconomics,vol.25, pp.134.

Brown,S.(1999),"UseofRinaccountingresearch:measuringchangesinvaluerelevanceoverthelastfourdecades",JournalofAccounting&

Economics,vol.28,no.2,pp.83115.

Collins,D.W.,Maydew,E.L.&Weiss,I.S.(1997),"Changesinthevaluerelevanceofearningsandbookvaluesoverthepastfortyyears",Journal

ofAccounting&Economics,vol.24,no.1,pp.143181.

Francis,J.&Schipper,K.(1999),"Havefinancialstatementslosttheirrelevance?",JournalofAccountingResearch,vol.37,no.2,pp.319352.


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Frankel, R. & Lee, C. M. C. (1998), "Accounting diversity and international valuation, Working paper, University of Michigan and Cornell

University.",

Graham, R. (2000), "Accounting practices and the market valuation of accounting numbers: Evidence from Indonesia, Korea, Malaysia, the

Philippines,Taiwan,andThailand.",TheInternationalJournalofAccounting,vol.35,pp.445470.

Hayn,C.(1995),"Theinformationcontentoflosses",JournalofAccounting&Economics,vol.20,no.2,pp.125153.

King,R.D.&Langli,J.C.(19998),"Accountingdiversityandfirmvaluation",InternationalJournalofAccounting,vol.33,no.4,pp.529567.

Lev,B.(1989),"Ontheusefulnessofearningsandearningsresearch:Lessonsanddirectionsfromtwodecadesofempiricalresearch",Journalof

AccountingResearch,vol.27,no.3,pp.152193.

Lev,B.& Zarowin,P.(1999),"TheboundariesoffinancialreportingandHowtoextendthem",JournalofAccountingResearch,vol.37,no.2,pp.353385.

Nilsson,H.(2003),Essayonvaluerelevanceoffinancialstatementinformation,PrintandMedia.

Nimal, P.D. (1997), "Relationship between stock returns and selected fundamental Variables: evidence from Sri Lanka",SriLankaJournalof

Management,vol.2,no.3,pp.267287.

Ohlson,A.J.(1995),"Earnings,bookvaluesanddividendsinsecurityvaluation",AccountingResearch,vol.1,pp.16611688.

Oyerinde, D.T. (2009), "Value relevance of accounting information in emerging stock market in Nigeria, Proceedings of the 10th Annual

International Conference of International Academy of African Business and Development (IAABD)", ISBN. 0976528843, 1923May 2009,

Uganda.,vol.,no.pp.

Perera,A.A.&Thrikawala,S.S.(2010),"Anempiricalstudyoftherelevanceofaccountinginformationoninvestorsdecisions,proceedingsof

internationalresearchconferenceonbusiness&information",,ISBN9789558044918,4thJune2010,SriLanka.,vol.,no.pp.

Samarakoon,L.P.(1997),"Thecrosssectionofexpectedstockreturns inSriLanka",SriLankanJournalofManagement,vol.2,no.3,pp.233

250.


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RECENTTRENDSANDDEVELOPMENTSINAPPARELMARKETINGININDIA

DR.K.RAJESHKUMAR

HEAD

DEPARTMENTOFMANAGEMENTSTUDIES

AMCENGINEERINGCOLLEGE18THKM,BANNERGHATTAROAD

BANGALORE83

MR.C.KANDASAMY

RESEARCHSCHOLAR

ANNAUNIVERSITYCOIMBATORE

COIMBATORE

N.MANJUNATH

RESEARCHSCHOLAR

ANNAUNIVERSITYCOIMBATORE

COIMBATORE

ABSTRACTIndiahasbecomethesoughtafterdestinationforglobalbrandsandretailersowingtoescalatingconsumerism,unprecedentedawarenessand

youthcentriccustomerbase.TheapparelretailsectorinIndiahasreallyemergedasasuccessfulventureowingtoitsmorethan35%sharein

theoverallretailsectorinIndia.ThestudyRecentTrendsandDevelopmentsinApparelRetailinginIndiaismainlydealingwithapparelretailing

coveringsomeofthepopularmallsinIndia.

KEYWORDSApparel,Marketing,consumerism,retail&consumerpreferences

INTRODUCTIONRetailinginIndia,isprobably,asoldastheIndusvalleycivilisation.Witharetaildensityof5.5outletsforevery1000peopleandapercapita

retailspaceof2squarefeetperperson,Indiaistrulyanationofshopkeepers.Butorganisedretailing,asaprofessional,serviceorientedsetup,

to provide the consumers with a whole new shopping experience, is a phenomenon in the 1990s. With factors, such as families gettingnuclearized, a younger Indian consumer, exposure to global lifestyles, lifting of import curbs and increasing interest of corporate sector in

retailing,theretailrevolutionhasbegun.

Theapparelretailindustrycomprisessalesofallmenswear,womenswearandchildrenswear.Themenswearsectorretailstheouterand

undergarmentsformenandboys.Thewomenswearsectorconsistsofthesaleofallwomen'sandgirls'garmentsincludingdresses,suitsand

coats,jackets, tops, shirts, skirts, blouses, sweatshirts, sweaters, underwear, etc. The childrens wear sector includes sales of garments for

childrenbetweentheagesof02years.

Apparel retailing together with accessories and luxury goods sales, formed 74.5% of the market for the global apparel and textiles industry,

which generated total revenues of USD1.3 trillion in 2008. In comparison, the unprocessed textiles retailing sector (cotton yarn, rayon and

acetate,syntheticfibresandwoolyarn)wasworthUSD221.1billion,whichrepresented13.7%marketshareoftheglobalapparelandtextiles

industry.

IndiansapparelretailindustryhasgeneratedtotalrevenuesofUSD27billionin2008,representingaCAGRof10.9%for20042008.Apparelis

thesecondlargestretailcategoryinthecountry,representing10%oftheretailmarket.InIndia,Westernstylebrandedapparelmerchandising

isgatheringmomentum inthe countrysapparelretail industry. IndiasGen Y is increasinglybeingexposed to Westernculture through films

andcabletelevision.Alarge,youngworkingpopulation,growingnumbersofworkingwomenandemergingopportunitiesintheservicessector

areallboostingtheaveragespendingofaffluentconsumersonbrandedclothing .

RETAILINDUSTRY:APPARELSTheapparelretailindustrycomprisessalesofallmenswear,womenswearandchildrenswear.Themenswearsectorretailstheouterand

undergarmentsformenandboys.Thewomenswearsectorconsistsofthesaleofallwomen'sandgirls'garmentsincludingdresses,suitsand

coats,jackets, tops, shirts, skirts, blouses, sweatshirts, sweaters, underwear, etc. The childrens wear sector includes sales of garments for

childrenbetweentheagesof02years.

Apparelretailing, together with accessories and luxurygoods sales,formed 74.5%of the marketforthe globalapparelandtextiles industry,

which generated total revenues of USD1.3 trillion in 2008. In comparison, the unprocessed textiles retailing sector (cotton yarn, rayon and


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acetate,syntheticfibresandwoolyarn)wasworthUSD221.1billion,whichrepresented13.7%marketshareoftheglobalapparelandtextiles

industry.

Changes in consumer preferences and limited consumer spending power in some developed markets in the US, Germany and Japan have

sloweddowngrowthoftheglobalapparelandtextilesindustry.AsiaPacificapparelretailinggrewby3.1%toreachavalueofUSD224.4billion,

contributing32.8%tothesizeoftheworldmarket.TheregionisforecasttohaveanapparelretailmarketvalueofUSD259.6billionby2013.

Womenswearretailingaccountedfor52.1%oftheregionsmarket,generatingtotalrevenuesofUSD116.8billionin2008.Salesofmenswear

form30.1%oftheregionsmarketvaluewithUSD67.5billion.

Internet retailing is growing in popularity among consumers. Consultants from Retail Forward Inc. reported that 25% to 30% of online

consumerspurchasesometypeofonlineclothingeverymonth.Onlineretailersprovidepaymentoptionssuchascreditcards,debitcards,bank

transfers,andother electronicpaymentsystemssuchasPaypal.Manyconsumerscitedconvenienceand cheaperpricesas beingamongthe

reasonstheyshoponline.Onlineretailingforclothesisexpectedtogrowoverthenextfewyears.ThereisahugepotentialforInternetretailing

tobecomeaviablealternativedistributionchannelintheclothingsector.

Large retailers in hypermarkets or largescale retail store formats are rapidly expanding their market share in the AsiaPacific apparel retail

industry. Large retailers offer lower prices and a greater range of products and allow consumers to shop in one place. For the clothing and

footwearmarket,displaysareveryimportantastheyenableconsumerstogettoknowtheproductsquickly.Gooddisplaysrequirelargespaces

and largedepartment storesanduniquespecialtystoresare in thebestpositiontoprovidethis. InSingapore,specialistretailersaccountfor

morethan40%oftotalsalesforclothingretail.Specialistretailerssellmorebrandedproducts.Thoughbrandsarealsoavailableindepartment

stores,therehasbeenagrowingtrendtowardsbrandmanufacturersdevelopingtheirownretailstores.Privatelabelproductsarealsopopular

inapparelretailingatdepartmentstoresinSingapore.

Apparel retailing in Indian and Chinese markets have achieved rapid growth since their WTO admission. With retail market liberalisation in

Asia,many leadingEuropean andAmerican apparel retailers includingMangoandGahaveexpandedtheirpresence in the region. TheAsia

Pacific regions top apparel retailing players come from Japan, China, Taiwan and South Korea. Stronger Asian players include Giordano

International, SOGO, Wang Fujing, and the Japanese leading retail chain AEON. Giordano International operates 1,100 stores in China alone,

selling casual apparel and accessories. It also has stores in Taiwan, Singapore, Japan and South Korea. The retailer has developed a chain of

BluestarExchangediscountstores.AsiassecondtierofmajorapparelretailerscomefromIndia,IndonesiaandThailand.

Chinasapparel retail industry is the fastest growing in theworld, together withBrazil and India. TheChinese industrys compound average

growth rate (CAGR) is at 7.9% for 20042008, driven by the countrys rapid economic expansion and subsequent increase in consumer

purchasing power. AT Kearney highlighted that an affluent middle class that regularly buys mid to highend apparel is emerging in the

countrysurbanareas.Withgradualliberalisationofthecountrysretailmarkets,and

having steadily opened up the market to foreign giants, the potential for further growth in the Chinese apparel retail industry is immense.

However, the increased competition will lead Chinese apparel retailing to lower prices and a possible deceleration in the near future. The

marketvalueisexpectedtoreachUSD106.2billionbytheendof2013.

IndianapparelretailindustrygeneratedtotalrevenuesofUSD27billionin2008,representingaCAGRof10.9%for20042008.Apparelisthe

secondlargestretailcategoryinthecountry,representing10%oftheretailmarket.InIndia,Westernstylebrandedapparelmerchandisingisgatheringmomentuminthecountrysapparelretailindustry.IndiasGenYisincreasinglybeingexposedtoWesternculturethroughfilmsand

cabletelevision.Alarge,youngworkingpopulation,growingnumbersofworkingwomenandemergingopportunitiesintheservicessectorare

allboostingtheaveragespendingofaffluentconsumersonbrandedclothing.

TRENDSANDINFORMATIONTECHNOLOGYINRETAILSECTOROvertheyears,astheconsumersdemandincreasedandtheretailersgeareduptomeetthisincrease,technologyevolvesrapidlytosupport

thisgrowth.Thehardwareandsoftwaretoolsthathavenowbecomeessentialforretailingcanbecategorisedasfollows:

Barcodingandscanners

Pointofsalesystemsusescannersandbarcodingtoidentifyanitem,useprestoreddatatocalculatethecostandgeneratethetotalbillfora

client.Tunnelscanningisanewconceptwheretheconsumerpushesthefullshoppingcartthroughanelectronicgatetothepointofsale.Ina

matterofseconds,theitemsinthecartarehitwithlaserbeamsandscanned.Allthattheconsumerhastodoistopayforthegoods.

Payment

Paymentthroughcreditcardshasbecomequitewidespreadandthisenablesafastandeasypaymentprocess.Electronicchequeconversion,

recent development in this area, processes a cheque electronically by transmitting transaction information to the retailers and customers

bank, rather than manually process a cheque, the retailer avoids it and hands it back to the customer along with a receipt, having digitally

capturedandstoredimageofthecheque,whichmakestheprocessveryfast.

Internet

Internetisalsorapidlyevolvingasacustomerinterface,removingtheneedofaconsumerphysicallyvisitingthestore.

CRMsystems

Theriseofloyaltyprograms,mailorderandtheinternethasprovidedretailerswithrealaccesstocustomerdata.Datawarehousingandmining

technologies offer retailers the tools they need to make sense of their consumer data and apply it to business. This along with the various


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availableCRM(CustomerRelationshipManagement)systems,allowtheretailerstostudythepurchasingbehaviourofcustomersindetailand

growthevalueofindividualconsumerstobusiness.

AdvancedPlanningandSchedulingSystems

APSsystemscan provide improved control acrossthe supply chain,allthe wayfromraw material suppliers right throughto the retailshelf.

Thes

Documents

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